Court Opinion

ID: 857108
Source: CourtListenerOpinion
Date Created: 2013-04-03 17:11:03.364162+00
Date Added: 2024-06-11T15:06:58.608162
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 UNITED STATES OF AMERICA ,                      No. 11-50315
             Plaintiff-Appellee,
                                                  D.C. No.
                   v.                       2:10-cr-00346-SJO-1

 THOMAS R. JENNINGS,
           Defendant-Appellant.

 UNITED STATES OF AMERICA ,                      No. 11-50325
             Plaintiff-Appellee,
                                                  D.C. No.
                   v.                       2:10-cr-00346-SJO-2

 DAVID J. FEUERBORN ,
            Defendant-Appellant.                   OPINION

        Appeal from the United States District Court
            for the Central District of California
         S. James Otero, District Judge, Presiding

                  Submitted February 4, 2013*
                     Pasadena, California

  *
    The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2                 UNITED STATES V . JENNINGS

                        Filed April 3, 2013

     Before: Diarmuid F. O’Scannlain, Stephen S. Trott,
           and Richard R. Clifton, Circuit Judges.

                     Opinion by Judge Clifton

                           SUMMARY**

                           Criminal Law

    The panel affirmed the district court’s application of a
“sophisticated means” enhancement under U.S.S.G.
§ 2T1.1(b)(2) in determining two defendants’ sentences
following convictions for tax fraud.

    The panel held that conduct need not involve highly
complex schemes or exhibit exceptional brilliance to justify
a sophisticated means enhancement, and that the defendants’
efforts to conceal income by using a bank account with a
deceptive name was sufficiently sophisticated to support
application of the enhancement.

  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                 UNITED STATES V . JENNINGS                        3

                           COUNSEL

Steven Neimand, Calabasas, California for Defendant-
Appellant Thomas Jennings.

Neil C. Evans, Sherman Oaks, California for Defendant-
Appellant David Feuerborn.

Robert E. Dugdale and Eric D. Vandevelde, Assistant United
States Attorneys, Los Angeles, California, for Plaintiff-
Appellee.

                            OPINION

CLIFTON, Circuit Judge:

    Defendants appeal the application of a two-level
enhancement imposed by the district court in determining
their sentences following convictions for tax fraud, because
their offenses involved “sophisticated means,” under
section 2T1.1(b)(2) of the federal Sentencing Guidelines.1
We affirm the district court’s application of the enhancement.
Conduct need not involve highly complex schemes or exhibit
exceptional brilliance to justify a sophisticated means
enhancement. Defendants’ effort to conceal income by using
a bank account with a deceptive name was sufficiently
sophisticated to support application of the sentencing
enhancement.

  1
    All other issues raised by Defendants on appeal are resolved in a
contemporaneously filed memorandum disposition.
4              UNITED STATES V . JENNINGS

I. Background

    Defendants Thomas Jennings and David Feuerborn
owned and operated Environmental Soil Sciences, Inc.
(“ESS”). They purported to possess technology that could
separate oil from dirt and other materials without producing
hazardous waste. Defendants solicited funding from
investors, offering equity in ESS and forecasting billions of
dollars in revenue, and raised nearly $16 million.

   ESS hired a vendor, Eco-Logic Environmental
Engineering, to develop machinery that would use the
purported technology to capture oil. ESS paid Eco-Logic
Engineering approximately $2.5 million dollars, typically by
check or direct deposit.

   Meanwhile, Defendants opened and maintained a separate
bank account of their own named “Ecologic.” Defendants
wrote checks from the ESS business account and deposited
them into the Ecologic account. A check to the Ecologic
account would often contemporaneously mirror a legitimate
payment to Eco-Logic Engineering. Defendants deposited
more than $2.5 million from the ESS account into their
Ecologic account.      They never told ESS investors,
accountants, or board members about the Ecologic account.

   ESS generated no substantial revenues. But the Ecologic
account funded Defendants’ new homes, cars, and cash
payments to family members. Defendants did not report that
money to the IRS as income.

    Defendants were both convicted by a jury of conspiring
to defraud the United States under 18 U.S.C. § 371. Jennings
was individually convicted of four counts of subscribing to
                 UNITED STATES V . JENNINGS                     5

false tax returns under 26 U.S.C. § 7206(1). Feuerborn, who
had not filed tax returns for the years in question, was
individually convicted of four counts of tax evasion under
26 U.S.C. § 7201.

     When calculating the advisory sentencing range under the
Sentencing Guidelines, the probation office recommended in
its presentence report a two-level enhancement under section
2T1.1 of the Guidelines based on Defendants’ use of
“sophisticated means” to accomplish their crime. Over
Defendants’ objection, the district court agreed and applied
the two-level enhancement because, the district court
concluded, Defendants’ use of the Ecologic account disguised
income as company expenses in a manner that was “more
complex” than found in a typical tax fraud case. The
enhancement resulted in an offense level of twenty-four and
a recommended sentencing range of fifty-three to sixty-one
months of imprisonment under the Guidelines. The district
court sentenced each Defendant to forty-eight months in
prison, a little below the low end of the Guideline range.

II. Discussion

    Defendants challenge the application of the two-level
enhancement. We review the district court’s interpretation of
the Guidelines de novo, its application of the Guidelines to
the facts for an abuse of discretion, and its factual findings for
clear error. United States v. Williams, 693 F.3d 1067, 1072
(9th Cir. 2012).

    Under the Guidelines, a two-level sentencing
enhancement should be imposed when a defendant’s offense
“involved sophisticated means.” U.S. Sentencing Guidelines
Manual § 2T1.1(b)(2) (2010). Application Note 4 explains
6               UNITED STATES V . JENNINGS

that the term “sophisticated means,” for purposes of
subsection (b)(2), “means especially complex or especially
intricate offense conduct pertaining to the execution or
concealment of an offense. Conduct such as hiding assets or
transactions, or both, through the use of fictitious entities,
corporate shells, or offshore financial accounts ordinarily
indicates sophisticated means.” Id. at cmt. n.4.

    Defendants argue that they did not employ means as
sophisticated as those listed in the application note. They
argue, for instance, that the enhancement should not apply
because they did not create corporate shells or offshore
accounts. But the list contained in the application note is not
exhaustive.      We agree with other circuits that the
enhancement properly applies to conduct less sophisticated
than the list articulated in the application note. See United
States v. O’Doherty, 643 F.3d 209, 220 (7th Cir. 2011);
United States v. Clarke, 562 F.3d 1158, 1160, 1165 (11th Cir.
2009); United States v. Lewis, 93 F.3d 1075, 1082–83 (2d Cir.
1996) (applying enhancement to scheme involving fake bank
accounts of non-existent businesses).

    In O’Doherty, for example, the Seventh Circuit affirmed
an application of the enhancement where a commodities
trader funneled trading profits from corporations’ trading
accounts into four corporate bank accounts at two different
financial institutions. 643 F.3d at 211. He then used the
accounts, which appeared to be corporate assets, to pay
personal expenses without reporting the accounts’ holdings
as assets. Id. The defendant argued that his scheme was not
“especially complex or intricate” and that the shell
corporations had legitimate purposes. Id. at 220. The
Seventh Circuit rejected defendant’s argument because the
enhancement “‘does not require a brilliant scheme, just one
                UNITED STATES V . JENNINGS                   7

that displays a greater level of planning or concealment than
the usual tax evasion case.’” Id. at 220 (quoting United
States v. Fife, 471 F.3d 750, 754 (7th Cir. 2006)).

    The method employed by Defendants here reflected a
sophisticated effort to conceal income. They syphoned
money from ESS to themselves through a bank account that
they named “Ecologic.” The use of that name was no
accident. It mimicked the name of the company’s primary
vendor, Eco-Logic Environmental Engineering. Payments to
the Ecologic account thus appeared to be payments to Eco-
Logic Engineering for legitimate business expenses. No
legitimate reason for Defendants’ use of an account with the
name “Ecologic” was established.

    Defendants contend that the enhancement should not
apply to them because the Ecologic account was opened
under Jennings’s real name and social security number. But
the fact that the concealment might not have been total does
not mean that there was no effort at concealment or that the
method employed was not sophisticated. Application of the
enhancement does not necessarily turn on the scheme’s
likelihood of success in remaining undetected. See Fife,
471 F.3d at 754 (noting that defendant’s argument “confuses
‘sophisticated’ for ‘intelligent’”).

    Opening the account under Jennings’s real name and
social security number might have made it somewhat less
likely that the diversion of funds would go undetected, but the
scheme could have been figured out only by someone who
knew that the Ecologic account was controlled by Jennings,
or who knew to look at both the ESS records and the Ecologic
account ownership records. Someone looking only at ESS’s
records would not have been able to tell that payments to the
8               UNITED STATES V . JENNINGS

Ecologic account went to an account actually controlled by
Jennings. Someone looking only at the Ecologic account
records would not know that the funds deposited in that
account were not proper business receipts.

    Defendants also argue that they opened the account for
legitimate purposes and regularly used it for ESS business but
that does not alter our conclusion, either. The fact that an
account was also used for lawful payments does not
immunize its use for improper purposes.

III.     Conclusion

    Defendants’ effort to disguise funds taken for their own
personal use as money paid to a third-party vendor for
business expenses through use of a bank account with a
deceptive name constituted a sufficiently complex method of
concealment to warrant application of the sophisticated
means enhancement. The district court did not err when it
applied the two-level enhancement for use of sophisticated
means in calculating the advisory sentencing range applicable
to Defendants.

       AFFIRMED.