Court Opinion

ID: 1030911
Source: CourtListenerOpinion
Date Created: 2013-07-05 08:22:13.054392+00
Date Added: 2024-06-11T10:06:28.610722
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                              No. 09-4138

UNITED STATES OF AMERICA,

                  Plaintiff - Appellee,

             v.

EDDIE BURL SMITH,

                  Defendant - Appellant.

Appeal from the United States District Court for the Southern
District   of   West   Virginia,  at  Charleston.   John   T.
Copenhaver, Jr., District Judge. (2:08-cr-00056-1)

Submitted:    October 27, 2009              Decided:   November 30, 2009

Before WILKINSON and AGEE, Circuit Judges, and HAMILTON, Senior
Circuit Judge.

Affirmed by unpublished per curiam opinion.

John E. Jessee, JESSEE & READ, P.C., Abingdon, Virginia, for
Appellant. Charles T. Miller, United States Attorney, R. Booth
Goodwin II, Assistant United States Attorney, Charleston, West
Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

            Eddie Burl Smith (Smith) pled guilty to conspiracy to

defraud the United States, 18 U.S.C. § 371 (2006) (Count One),

and     fraudulent     receipt    of     bankruptcy      property,       18     U.S.C.

§§ 152(2), 2 (2006) (Count Eight), and was sentenced to a term

of fifty-seven months imprisonment.              Smith appeals his sentence,

contending that the district court clearly erred in finding that

he was an organizer or leader in the conspiracy, U.S. Sentencing

Guidelines    Manual     §   3B1.1(a)     (2008),     and    that   he    abused    a

position of trust, USSG § 3B1.3.              We affirm.

             Smith was president of Carl E. Smith, Inc. (CESI), a

West Virginia corporation which built pipelines for oil and gas.

The company had been started by Smith’s father; at his death in

1987, Smith and his brothers, Larry and Donald, became equal

shareholders.        From 1998 to 2006, the period of the conspiracy,

Smith’s brother Donald was vice-president of CESI, and Smith’s

son, Edward Michael Smith, was secretary and treasurer.                          After

civil     litigation      initiated       by     Larry      in   1999         revealed

questionable financial practices and a lack of proper accounting

at CESI, the IRS began an investigation, which led to Smith’s

eventual    guilty    plea   to   the    instant    offenses.       According       to

information in the presentence report, CESI’s “principals and

officers” defrauded the IRS by using corporate funds extensively

for   personal   vehicles        and    other    personal    purchases         without

                                          2
reporting the assets acquired as personal income.                         In addition,

the company used color-coded checks to avoid payroll reporting

requirements.         Some employees were paid with both yellow payroll

checks and blue expense checks.                 Wages that were paid as expense

reimbursement were not reflected in the employee’s W-2 forms and

taxes were only withheld from the payroll check.                          With respect

to these funds, CESI failed to meet its obligation to collect

the required “employment taxes,” 1 hold them in trust, and deposit

them in an authorized financial institution at intervals.                               In

2003, Smith and his son, Edward Michael Smith, filed for Chapter

11 bankruptcy on behalf of CESI and its subsidiaries.                          A month

later, they formed Smith Well Service (SWS), a limited liability

company unrelated to CESI and its subsidiaries.                       Edward Michael

Smith    was    the       sole   proprietor.      During     the   CESI    bankruptcy,

Smith    and        his    son    engaged   in    certain       transactions         which

benefitted          SWS    without    the   knowledge      or      approval     of    the

bankruptcy court.

               At    sentencing,      the   district    court       determined       that

Smith had a leadership role in the conspiracy and that there

were at least five participants:                 Smith; his son, Edward Michael

Smith;    his        brother,      Donald   Smith;     and      Donald’s      wife    and

     1
       “Employment taxes” include both the employee’s and the
company’s share of federal income tax, Social Security, and
Medicare taxes.

                                            3
daughter, Judith and Jaclyn Smith.                The court found that Smith

had the primary responsibility for manipulation of the payroll

and expense checks to carry out the fraud involving trust fund

taxes and that his position as president afforded him discretion

that facilitated the offense.           Smith contests these rulings on

appeal.

            The district court’s determination of the defendant’s

role in the offense is a factual finding reviewed for clear

error.    United States v. Kellam, 568 F.3d 125, 147-48 (4th Cir.

2009).    A four-level increase is provided under § 3B1.1(a) for a

defendant who is an organizer or leader of an offense which

involved more than five participants or was otherwise extensive.

To qualify, the defendant must have been the organizer or leader

of “one or more other participants.”                    USSG § 3B1.1 cmt. n.2.

Factors to be considered include:

     the exercise of decision making authority, the nature
     of participation in the commission of the offense, the
     recruitment of accomplices, the claimed right to a
     larger share of the fruits of the crime, the degree of
     participation in planning or organizing the offense,
     the nature and scope of the illegal activity, and the
     degree of control and authority exercised over others.

USSG § 3B1.1 cmt. n.4.

            Smith     contends   that       he    had    “no   more   control   or

ownership    of     the   company”   than        Donald,   that   there   was   no

evidence he recruited accomplices, and that much of the benefits

went to his son or to Donald’s family and friends.                     He argues

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that there is little evidence as to whether he participated in

planning or organizing the scheme to defraud the IRS, and that

family members acted independently when they used the company to

pay for personal purchases.                 He argues that, as president and

signer       of   the    fraudulent       expense    checks      in     the    blue-check

scheme, he exercised control over property, not people, noting

that control of property alone does not warrant a four-level

leadership adjustment.             USSG § 3B1.1 cmt. n.2; see also United

States v. Capers, 61 F.3d 1100, 1108-13 (4th Cir. 1995).                              Smith

also       maintains    that    there     were   fewer    than    five        participants

because       there     was   no   evidence      either    Jaclyn      Smith     or   Brian

Tanner 2 was a “knowing culpable participant” in the conspiracy.

               With      respect     to      the     number       of      participants,

Application Note 1 to § 3B1.1 states that “[a] ‘participant’ is

a person who is criminally responsible for the commission of the

offense, but need not have been convicted.”                       Smith acknowledged

at sentencing that he knew Jaclyn was on the CESI payroll and

was paid for work she did not do.                         He did not dispute the

information       in    the    presentence       report    on    which    the     district

court       relied      in     deciding     that     Judith       and     Jaclyn       were

participants; specifically, that in addition to being paid as

       2
       Brian Tanner pled guilty to income tax evasion. The
district court did not find him to be a participant in the
conspiracy.

                                             5
CESI employees, Judith and Jaclyn used a CESI car and credit

card, that CESI paid the expenses for the horse farm where they

lived, and that they did not report these benefits as income,

which caused each of them to file a false tax return, and also

caused “the inflation of corporate expenses and the filing of

false corporate tax returns.”         We conclude that these facts were

sufficient for the district court to find that Jaclyn was a

criminally     responsible     participant.           In    addition,    as    the

government argues, the blue-check/yellow-check scheme required

the participation of CESI employees such as payroll clerks and

in-house accountants. 3

           By virtue of his position as president of the company,

Smith had the authority to endorse or to stop the scheme to

defraud the IRS.          Smith’s statements at the Rule 11 hearing

disclose   that   he     actively   engaged    in    and    thus   promoted    the

fraudulent     scheme.      Therefore,    the       district     court   did   not

clearly err in finding that he had a leadership role.

           A    two-level    adjustment       should       be   made   “[i]f   the

defendant abused a position of public or private trust . . . in

     3
       This argument was not made in the district court, but is
an alternative ground for finding the required number of
participants.   We may affirm for any reason appearing in the
record.   United States v. Smith, 395 F.3d 516, 519 (4th Cir.
2005) (“We are not limited to evaluation of the grounds offered
by the district court to support its decision, but may affirm on
any grounds apparent from the record.” (citation omitted)).

                                      6
a   manner      that          significantly          facilitated       the    commission       or

concealment         of    the    offense.”            USSG    § 3B1.3.        A     position    of

“[p]ublic or private trust” means a position “characterized by

professional             or     managerial        discretion          (i.e.,        substantial

discretionary            judgment     that      is     ordinarily      given      considerable

deference).”             USSG    § 3B1.3        cmt.    n.1.         The    district    court’s

decision that a defendant had a position of trust is a factual

determination            reviewed       for    clear        error.         United    States    v.

Bollin, 264 F.3d 391, 415 (4th Cir. 2001).                            The question must be

examined from the perspective of the victim.                                United States v.

Godwin, 272 F.3d 659, 671 (4th Cir. 2001).

               Smith contends that no relationship of trust existed

between him and the IRS, which was identified as the victim of

the offense in the presentence report.                               He relies on two tax

evasion decisions from other circuits where the adjustment was

not applied.             In United States v. Guidry, 199 F.3d 1150, 1160

(10th    Cir.       1999),      the   appeals         court    held    that    the    defendant

“[d]id not occupy a position of trust vis-à-vis the government,

the victim in his case.”                   In United States v. Barakat, 130 F.3d

1448, 1455-56 (11th Cir. 1997), the appeals court held that the

defendant occupied a position of trust, but did not use it to

commit or conceal his tax evasion.

               In    this       case,      however,      as    an     employer,      Smith     was

placed    in    a     position        of      trust    by     the    government.        He     was

                                                 7
entrusted       with          collecting,         holding,        and     depositing         funds

designated      in       part      for    Social       Security    and    Medicare         and    his

failure to carry out this responsibility victimized taxpayers.

United   States          v.    Adam,      70    F.3d     776,   781-82       (4th     Cir.   1995)

(victims of Medicaid fraud are American taxpayers).                                   Similarly,

in United States v. Turner, 102 F.3d 1350 (4th Cir. 1996), we

held    that    mine      operators            occupied    a    position       of     public     and

private trust, which they abused by declining to follow mine

safety   laws       or    provide         adequate       safety    training          for   miners.

Their abuse of that trust victimized both the miners and “the

rest of society.”              Id. at 1360.

               We    have          held    that        physicians        and       medical       care

providers who defraud Medicaid abuse a position of trust.                                         See

United States v. Bolden, 325 F.3d 471, 504-05 (4th Cir. 2003).

In   Bolden,        we    observed         that,       “[b]ecause       of     the    discretion

Medicaid confers upon care providers . . . such providers owe a

fiduciary duty to Medicaid.                     Indeed, we see it as paramount that

Medicaid be able to ‘trust’ its service providers.”                                   Id. at 505

n.41.    Similarly, it is essential that the government be able to

trust    employers            to   collect,       hold    in    trust,       and     deposit     the

“employment taxes” owed by the employees and the company.                                         The

government maintains that Smith had both a fiduciary obligation

to the IRS to carry out this responsibility, and a fiduciary

relationship with the employees of CESI which carried the same

                                                   8
obligation, notwithstanding the willingness of some employees to

participate in the scheme to defraud.                 We agree, and conclude

that the district court did not clearly err in applying the

adjustment for abuse of a position of trust.

              We   therefore    affirm       the   sentence    imposed     by    the

district    court.     We    dispense    with      oral   argument    because    the

facts   and    legal   contentions      are    adequately     presented     in   the

materials     before   the     court   and     argument    would     not   aid   the

decisional process.

                                                                           AFFIRMED

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