Court Opinion

ID: 4079319
Source: CourtListenerOpinion
Date Created: 2016-10-04 16:01:13.024198+00
Date Added: 2024-06-11T09:18:06.473466
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 16a0557n.06

                                       Case No. 15-5668

                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT
                                                                                     FILED
                                                                                Oct 03, 2016
UNITED STATES OF AMERICA,                           )                      DEBORAH S. HUNT, Clerk
                                                    )
       Plaintiff-Appellee,                          )
                                                    )     ON APPEAL FROM THE UNITED
v.                                                  )     STATES DISTRICT COURT FOR
                                                    )     THE MIDDLE DISTRICT OF
L. BRIAN WHITFIELD,                                 )     TENNESSEE
                                                    )
       Defendant-Appellant.                         )
                                                    )

       BEFORE: ROGERS, SUTTON, and COOK, Circuit Judges.

       SUTTON, Circuit Judge. Brian Whitfield owned and managed a human resources and

payroll processing company called the Sommet Group. After the government determined that he

used his position to steal $25 million from his customers and the government, a jury convicted

him of multiple acts of wire fraud, ERISA plan embezzlement, IRS fraud, and money laundering.

On appeal, Whitfield challenges the sufficiency of the evidence supporting these convictions, the

admissibility of certain evidence used at trial, and the final calculation of his sentence. We

affirm on all counts.

                                               I.

       Viewed in the light most favorable to the government, the evidence at trial showed the

following. In the fall of 2003, Whitfield and his (then) father-in-law, Ed Todd, co-founded the

Sommet Group—or the Personnel Department, as it was then known. Whitfield held a 51%
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United States v. Whitfield
stake in the company and Ed, the primary sales manager, held a 49% stake. Marsha Todd (then

Marsha Whitfield, Brian’s wife and Ed’s daughter) ran the payroll department.

       The company offered payroll processing and human resource services to small and

medium-sized companies. The idea was to give smaller companies “the benefit of [its] expertise,

[] infrastructure, and economies of scale,” while also providing freedom from “the overhead of a

back office.” R. 213 at 31. It worked. For a while.

       Most clients allowed Sommet to transfer funds directly from their bank accounts into

Sommet’s operational account in an amount necessary to cover the client’s payroll, tax, and

benefit obligations. Drawing from this operational account, Sommet would allocate the client’s

funds to the appropriate destinations: the IRS, state taxing authorities, various benefits programs

(workers compensation, health insurance, and 401(k) plans), and the client’s employees.

Sommet also collected and maintained the tax withholdings for individual employees, agreeing

to remit these funds to state and federal authorities as they came due. In exchange for its

services, Sommet charged an administrative fee based on a percentage of the client’s overall

payroll (usually around 3%), which it transferred as part of the regular payroll withdrawals.

       Each quarter, the IRS required Sommet to file a federal tax return called a 941 form.

Sommet reported its wages, employee withholdings, and Social Security and Medicare taxes on

these forms.    To streamline the tax-filing process, Sommet claimed most of its clients’

employees as its own. That meant Sommet would include its clients’ employees under its own

tax identification number on these forms, not those of their day-to-day employers. Whitfield

completed and filed these forms for the Sommet Group.            While Whitfield completed the

941 forms, Paula Byrd, a payroll tax specialist, completed and filed Sommet’s state taxes and

employee W2 forms. As part of this work, Byrd compiled payroll information from Sommet’s

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internal database, “the Darwin system.” Id. at 218–19. Because this information applied to

federal and state taxes, Marsha would forward Byrd’s spreadsheets to Whitfield to assist him in

preparing the federal 941 forms.

        For some clients, Sommet offered its services à la carte. As to these employers, Sommet

would still file their tax returns but did not include any of the client’s employees under Sommet’s

umbrella. Early success led the company to grow to more than 100 employees. The company

also acquired and established a number of additional business units: an information technology

company (IT Express), a telephone services company (EMG Communications), an insurance

company (Sommet Risk & Insurance), and a promotional products supplier (BrandCentrik).

        In 2008, Sommet began offering its own health insurance plan to clients. Sommet would

draft money from its clients’ accounts to collect plan premiums, holding these funds too in its

operational account. Sommet then employed a third party administrator to process and pay the

plan’s claims, with Sommet providing the funding upon request. A company called HealthFirst

filled this role as plan administrator.

        In February 2009, Sommet began to fall behind on its obligations. Unfortunately for his

clients, Whitfield had been using the company’s operational account (where it housed client

funds earmarked for employee payroll, benefits, and taxes) for a few other things, including

company and affiliate expenses as well as personal disbursements.          According to Marsha,

Whitfield viewed the account as “his money.” R. 217 at 14.

        In February 2009, Wachovia informed Whitfield and Marsha that Sommet had overdrawn

its account. From then on, Whitfield assumed control over the operational account. Sommet

employees needed Whitfield’s approval to disburse funds from the account, including funds for

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client obligations (except payroll disbursements).         Despite internal requests and client

complaints, Whitfield often refused to authorize timely disbursements for client obligations.

       In September 2009, HealthFirst, Sommet’s health plan administrator, began receiving

complaints from healthcare providers that Sommet’s claims checks were bouncing. Sommet

eventually refused to provide the funds needed to cover claims as they came due. In November

2009, HealthFirst sent a letter to Sommet insisting that it resolve these funding issues. The letter

indicated that the “[d]elay in claims release ha[d] angered providers and damaged [HealthFirst’s]

reputation in the marketplace” and that HealthFirst had “passed the 30-day mark that require[d]

[it] to notify the United States Department of Labor that a client appear[ed] to be insolvent.”

R. 214 at 150–51. When Sommet failed to comply, HealthFirst terminated the relationship in

January 2010 and contacted the Department of Labor. At that time, Sommet’s unfunded medical

claims had accumulated to slightly over one million dollars.

       Sommet then hired HCH to step in as plan administrator. HCH, like HealthFirst, soon

encountered funding delays. After much back-and-forth and partial, but insufficient payments,

HCH could not convince Sommet to cover its outstanding claims obligations, and in June of that

year, it too terminated the relationship. The Department of Labor found that employees had been

left with $3.8 million in unpaid claims.

       In addition to its health plan woes, Sommet fell behind on its other client obligations.

Whitfield began delaying payments to state and federal tax authorities, which led to late penalties

and accumulated interest. Sommet’s cash shortfalls eventually became so severe that it could not

cover its payroll obligations.

       Even as these cash flow problems swirled around Sommet, Whitfield instructed Marsha

to use the company account to fund the construction of a home infinity pool, the purchase of a

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three-story houseboat, and the charter of a private jet to attend a football game. Funds from this

account also went to cover Sommet’s internal expenses, including personal compensation,

salaries for the Sommet affiliate companies, and large payments for the naming rights to a

Nashville sports stadium.

        Making matters worse, Whitfield’s 941 forms did not match the W2s completed by Byrd.

Nor did they match her internal spreadsheets.        The variances were considerable.     As one

example, Byrd’s spreadsheet listed Sommet’s wages for the first quarter of 2009 as

$12.4 million, while Whitfield’s 941 reported only $871 thousand for that quarter. This gap

grew larger in later filings.

        All of this led to a federal investigation. Whitfield eventually was charged with, and

convicted of, fifteen criminal counts:      one count of conspiracy to commit wire fraud,

theft/embezzlement from an employee benefit plan, and money laundering (18 U.S.C. § 371);

three counts of wire fraud (18 U.S.C. § 1343); three counts of theft/embezzlement from an

employee benefit plan (18 U.S.C. § 664); four counts of filing a false tax return (26 U.S.C.

§ 7206(1)); and four counts of money laundering (18 U.S.C. § 1957).            The district court

sentenced him to 240 months in federal prison, a sentence well below the presentence report

recommendation of 1,584 months. Whitfield appealed.

                                               II.

        Evidentiary and pre-trial rulings. Because Whitfield was not charged with healthcare

fraud, he argues that the district court erred in failing to remove the language regarding his

alleged healthcare misconduct from the indictment. He likewise maintains that the court should

have precluded testimony on this subject under Evidence Rule 403. We review both decisions

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for abuse of discretion. See United States v. Boyd, 640 F.3d 657, 667 (6th Cir. 2011); United

States v. Emuegbunam, 268 F.3d 377, 394 (6th Cir. 2001).

       To convict Whitfield of wire fraud, the government needed to show that he engaged in a

scheme to defraud, meaning a plan or course of action intended to deprive another person of

property by means of false pretenses. See 18 U.S.C. § 1343; United States v. Gold Unlimited,

Inc., 177 F.3d 472 (6th Cir. 1999). Because the evidence showed that Whitfield misappropriated

healthcare premiums and left the employees of his customers without the insurance they had

purchased, that supported the wire-fraud and conspiracy counts. That of course was not the only

evidence of fraud. But that means only that the district court could have struck the healthcare

misconduct language from the indictment, not that it had to. The choice was fairly left “to the

sound discretion of the district court.” United States v. Kemper, 503 F.2d 327, 329 (6th Cir.

1974). The court did not overstep in making the choice it did.

       So too of Whitfield’s argument that the court should have excluded this evidence under

Evidence Rule 403 as more prejudicial than probative. Whitfield has not shown that the district

court abused its discretion in deciding that the prejudicial value of this probative evidence did

not outweigh its usefulness as evidence of wire fraud or a conspiracy to commit wire fraud.

       Whitfield separately challenges the admissibility and use of three summary charts created

by IRS special agent, Ken Runkle.       The charts juxtaposed the income data from Byrd’s

spreadsheets with the income data reported by Whitfield on Sommet’s 941 forms and separately

listed the numerical difference in red as “[U]nderreported [W]ages.” R. 218 at 17. Whitfield

says that the charts amounted to a “pedagogical device” under Evidence Rule 611(a), not an

evidence summary under Evidence Rule 1006, and as such should not have been admitted.

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       To qualify under Evidence Rule 611(a), a pedagogical summary must only “organize or

aid the jury’s examination of testimony or documents which are themselves admitted into

evidence.” Gomez v. Great Lakes Steel Div., Nat’l Steel Corp., 803 F.2d 250, 257 (6th Cir.

1986). To qualify under Evidence Rule 1006, an evidence summary “must fairly represent and

be taken from underlying documentary proof which is too voluminous for convenient in-court

examination, and [it] must be accurate and nonprejudicial.” Id. As to both types of evidence, the

district court has considerable leeway in deciding what to do. United States v. Bray, 139 F.3d

1104, 1111 (6th Cir. 1998). One difference between the two turns on whether the jurors can take

the evidence into the deliberation room.      Rule 1006 summaries can be brought into the

deliberation room, while Rule 611(a) pedagogical summaries cannot be, save by mutual

agreement of the parties. United States v. Gazie, Nos. 83-1851, 83-1852, 83-1860, 1986 WL

16498, at *7 (6th Cir. Feb. 26, 1986) (unpublished).

       Even if we accept Whitfield’s argument that the summaries were pedagogical, that does

not show that the district court abused its discretion in permitting the government to use them.

Whitfield argues the summaries were inadmissible under Evidence Rule 602 because

“Runkle . . . was not involved in the creation of the Sommet spreadsheets.” Appellant’s Br. 37.

However, Runkle did not need to create spreadsheets to be able to properly authenticate the

summaries.    The underlying spreadsheets were admitted and authenticated separately, and

Whitfield has not challenged the admission of the spreadsheets. Runkle created the summaries,

so he had personal knowledge about them. Thus, Whitfield’s Rule 602 challenge fails.

       Whitfield also challenges the accuracy of the data underlying the summaries, though not

the summaries themselves.      Whitfield complains that the Government never verified the

accuracy of Byrd’s spreadsheets, which according to Whitfield, were based on the company’s

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unreliable Darwin system.     But that complaint actually challenges the admissibility of the

spreadsheets—which Whitfield has not raised—not the admissibility of the summaries.

Whitfield has presented no evidence that Runkle inaccurately transferred the spreadsheet data or

the 941 forms’ data onto the summaries. Thus Whitfield’s challenge to the summaries’ accuracy

fails.

         To the extent Whitfield challenges the jury’s use of these exhibits during the jury’s

deliberations, as opposed to their use during the trial, he raised that argument on appeal for the

first time in his reply brief. That is too late. The issue is forfeited. Scottsdale Ins. Co. v.

Flowers, 513 F.3d 546, 553 (6th Cir. 2008).

                                               III.

         Sufficiency of the evidence. Whitfield claims the government did not introduce enough

evidence to convict him on any of the fifteen counts. To succeed, Whitfield must show that,

viewing the evidence in the light most favorable to the government, no “rational trier of fact

could have found the essential elements of [his] crime[s] beyond a reasonable doubt.” United

States v. Bourjaily, 781 F.2d 539, 544 (6th Cir. 1986).

         Wire fraud. To convict on this charge, the government had to show that Whitfield used

interstate communications to carry out a “scheme or artifice to defraud” or to obtain “money or

property by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C.

§ 1343; see United States v. Sadler, 750 F.3d 585, 590 (6th Cir. 2014). Ample evidence showed

that Whitfield intended to defraud Sommet’s customers and that he did so in part by putting the

wired money to inappropriate uses, thus meeting all three requirements under the statute: a

misrepresentation, an interstate communication, and a deprivation of property.

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        Whitfield falsely told his customers, both through his own statements and those of others,

that their funds would be held and later allocated to the proper parties.          That shows a

misrepresentation. On the basis of these false assurances, Whitfield wired money across state

lines from his customers’ accounts into Sommet’s own account. That shows an interstate wire

transfer.   And Whitfield withdrew or authorized the withdrawal of money from Sommet’s

account well in excess of the 3% in administrative fees that he could rightfully claim. That

shows a deprivation of property.

        Yes, Sommet’s operating account contained many pools of funding. But that does not

free Whitfield of liability. The government established that the money withdrawn for non-client

purposes far exceeded the 3% fee. This necessarily means that Whitfield was using client, not

Sommet, money for at least some of his expenditures. The evidence also makes clear that for

each count of wire fraud, the wired funds were in fact misappropriated.

        Consider these illustrations of the fraud.      On July 16, 2009, Sommet withdrew

approximately $77,500 from Pener’s Men’s Warehouse account (count 2). Nonetheless, starting

in late 2009, Pener began receiving notices of unpaid state taxes, including accrued interest and

penalties for its fourth quarter 2009 taxes, which Sommet paid late. On November 18, 2009,

Sommet wired around $71,000 from Forklift Systems (count 3). Yet in January 2010, Forklift’s

CFO learned that Sommet was not depositing funds into its employees’ 401(k) plans. On May 5,

2010, Sommet transferred around $41,000 from Hometown Quotes’ account (count 4). The

following month, Hometown was served for failing to pay state unemployment taxes. Neither

we nor the jury may be able to say where each dollar actually went. But we can say, and most

importantly the jury could reasonably say, that the funds did not go where they were supposed to

go. On this record, a reasonable jury could find Whitfield guilty of wire fraud.

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       Money laundering.      Whitfield raises a parallel challenge to the money-laundering

conviction, arguing (and conceding) that this conviction rises or falls based on the fate of his

wire-fraud argument. It must fall. See supra.

       ERISA Embezzlement. This challenge follows a similar arc. Whitfield maintains that no

evidence ties the 401(k)-dedicated funds to any inappropriate withdrawals from the Sommet

operating account and no money at any rate went missing from the plan. He is wrong each time.

       Embezzlement from an ERISA plan occurs when a person “embezzles, steals, or

unlawfully and willfully abstracts or converts” any money from an ERISA employee benefits

plan for “his own use or . . . the use of another.” 18 U.S.C. § 664. To act “willfully,” the

defendant must have the “specific intent” to deprive the plan of its funding. United States v.

Busacca, 936 F.2d 232, 239–40 (6th Cir. 1991).

       The government presented ample evidence to show just that. Testimony showed that

Whitfield withdrew money from Sommet’s clients’ accounts, took 401(k) contributions from the

employee paychecks it processed, and yet failed to pass all of the designated funds to the 401(k)

recipients. These actions led to a shortfall for a number of Sommet clients as well as the

resignation of Sommet’s investment advisor and 401(k) plan administrator. During this same

time, Whitfield used the company account for a variety of non-client expenditures. A rational

juror could conclude that this violated § 664. See United States v. Whiting, 471 F.3d 792, 800–

01 (7th Cir. 2006). Testimony confirmed the shortfall, which disproves Whitfield’s claim that

the plan was fully funded.

       IRS Fraud. In challenging this conviction, Whitfield argues that the government failed to

prove the inaccuracy of his tax reports. To prove tax fraud, the government must show that the

defendant believed the information filed was not “true and correct as to [a] material matter.”

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26 U.S.C. § 7206(1). But it need not examine the company’s internal data to do so. “Certainly

the government would prefer to have direct rather than circumstantial evidence,” but “the

possibility of better evidence does not imply that the extant evidence is insufficient.” United

States v. Kington, 875 F.2d 1091, 1102–03 (5th Cir. 1989).

       The record is brimming with credible evidence that Byrd’s (and not Whitfield’s) numbers

reflected the accurate wage and tax liabilities for Sommet and its employees. The jury had

ample grounds for crediting Byrd’s testimony that she created her spreadsheets meticulously,

using Darwin system data and primary sources to verify those numbers. In addition, Marsha

forwarded Byrd’s spreadsheets to Whitfield.              A jury could readily discredit Whitfield’s

testimony that he saw these emails but not the attachments, especially given that numbers from

the spreadsheet appear on one line of his 941 filings. But even if Whitfield never saw the

spreadsheets, Marsha’s belief that Byrd’s data would be useful to him belies the notion that

Byrd’s numbers were misstated to the tune of millions of dollars. The same goes for the fact that

Byrd’s numbers appeared on the employee W2 forms. It is fair to assume that an employee

would speak up if his or her wages were so grossly overstated on these W2 forms. Although

Whitfield argues that the Darwin System was not accurate, numerous others testified it was. The

jury was entitled to credit the latter testimony.

       Perhaps most fundamentally, the gaping difference between the numbers reported by

Byrd and those reported by Whitfield strongly suggests that the discrepancy went beyond

inadvertence or system error. Other facts bolster this conclusion: (1) Sommet’s employee base

was steady or growing (not contracting as Whitfield’s 941 reports suggested); (2) the income

Whitfield reported was not sufficient to cover even Sommet’s own internal employees (let alone

its clients’ employees); and (3) Whitfield had a motive to understate given Sommet’s serious

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United States v. Whitfield
cash flow problems. Put together, this was more than enough to convince a rational juror that

Byrd, not Whitfield, reported accurate figures.

       Conspiracy. Whitfield challenges the jury’s finding that he conspired with his (then)

wife and his (then) father-in-law to commit these crimes.         To establish a conspiracy, the

government must prove (1) an agreement between two or more people to violate the law, (2) a

decision by the defendant to join the conspiracy, and (3) an affirmative act by the defendant

(“any act to effect the object of the conspiracy”). 18 U.S.C. § 371; see Sadler, 750 F.3d at 593.

       Whitfield attacks the government’s proof on the agreement and knowledge fronts. To

show an agreement, the government need only prove that the co-conspirators “in some way or

manner . . . came to a mutual understanding to try to accomplish a common and unlawful plan.”

United States v. Pearce, 912 F.2d 159, 161 (6th Cir. 1990). “Proof of a formal agreement is

unnecessary.” Id. Indeed, “a tacit or material understanding among the parties is sufficient.” Id.

“Circumstantial evidence and direct evidence are accorded the same weight, and the

uncorroborated testimony of an accomplice may support a conviction.”             United States v.

Blakeney, 942 F.2d 1001, 1010 (6th Cir. 1991) (quoting United States v. Frost, 914 F.2d 756,

762 (6th Cir. 1990)).

       The government offered plenty of evidence of an understanding between Whitfield and

Marsha to deprive clients of pre-designated funds and to use the interstate wires in doing so. At

trial, Marsha admitted multiple times that she was aware that client money was being used to

fund her “lifestyle” and that this was contrary to promises made to the company’s clients by

Whitfield and others. R. 217 at 29, 31. She added that this scheme “became very apparent” to

all those at Sommet “who were working together trying to buy time.” Id. at 30. And she

admitted to covering up Whitfield’s fraud through false representations to Sommet clients and to

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wiring money at Whitfield’s request from Sommet’s corporate account to the family’s personal

account. Crediting this testimony, as we must, a reasonable jury could conclude that a mutual

agreement existed between Brian Whitfield and Marsha Todd.

       As to knowledge, “proof that the defendant knew the essential object of the conspiracy”

suffices. United States v. Christian, 786 F.2d 203, 211 (6th Cir. 1986) (quotation omitted). As

shown, there is ample evidence that Whitfield knew he was defrauding his clients. To that same

end, ample evidence shows that he knowingly engaged Marsha in this endeavor. Whitfield knew

that the Sommet account contained designated client funds, as he admitted. And he knew that

the company was falling short on client obligations in 2009 and 2010. Nonetheless, he instructed

Marsha to use that money to cover his personal expenses during that time.

       Marsha and Ed, it is true, both deny having any formal conversations or explicitly

agreeing to participate in a fraud. But conspiracy, as shown, does not require a formal or explicit

agreement. See Pearce, 912 F.2d at 161. That Marsha and Whitfield agreed to use client money

for personal expenses (with Marsha’s acknowledgement that this money consisted of “[c]lient []

payrolls”) supplies sufficient circumstantial evidence of a tacit agreement to support the

conviction. R. 217 at 39–40.

                                               IV.

       Sentencing. Whitfield challenges his sentence on procedural and substantive grounds.

Procedurally, Whitfield argues that issue preclusion limited the Guidelines’ loss calculation to

$1.8 million, the amount of forfeiture determined by the jury. “[O]nce an issue is actually and

necessarily determined by a court of competent jurisdiction, that determination is conclusive in

subsequent suits” involving the same party. Montana v. United States, 440 U.S. 147, 153 (1979).

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But for issue preclusion to apply, the issue must be identical to the issue resolved in the earlier

case. See Hammer v. I.N.S., 195 F.3d 836, 840 (6th Cir. 1999).

       As the district court correctly held, forfeiture and loss are not the same. Forfeiture

measures “any profits that the offender realized from his illegal activity.” United States v.

Boring, 557 F.3d 707, 714 (6th Cir. 2009). Loss measures “the reasonably foreseeable pecuniary

harm that resulted from the offense.” U.S.S.G. § 2B1.1, cmt. 3(A)(i). The burdens of proof for

each also differ. A jury’s forfeiture verdict must be determined beyond a reasonable doubt; a

judge makes the loss calculation by a preponderance of the evidence.

       Substantively, Whitfield argues that the unpaid medical claims were inappropriately

included in the loss calculation. This argument suffers from a similar flaw. The healthcare

misconduct was a part of the charged conduct, namely the wire fraud and conspiracy to commit

wire fraud. And the loss associated with the unpaid medical claims was a “foreseeable pecuniary

harm” resulting from those crimes.

       For these reasons, we affirm.

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