United States v. Grose , 461 F. App'x 786 ( 2012 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
February 23, 2012
TENTH CIRCUIT
Elisabeth A. Shumaker
Clerk of Court
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
No. 10-6277
v. (D.C. No. 5:09-CR-00191-F-1)
(W.D. Okla.)
DAVID GROSE,
Defendant - Appellant.
ORDER AND JUDGMENT*
Before LUCERO, HARTZ, and O'BRIEN, Circuit Judges.
A jury convicted David Grose, formerly the chief financial officer (CFO) of a
publicly traded company, of three counts of wire fraud for the unauthorized transfer of $1
million from company coffers for personal use. At sentencing, the district court
determined Grose’s relevant conduct included the unauthorized transfer of $10 million to
the chief executive officer (CEO) of the company over a period of four years, Grose’s
receipt of over $800,000 in kickbacks from an equipment vendor, and the loss of over
*
This order and judgment is an unpublished decision, not binding precedent. 10th
Cir. R. 32.1(A). Citation to unpublished decisions is not prohibited. Fed. R. App. 32.1.
It is appropriate as it relates to law of the case, issue preclusion and claim preclusion.
Unpublished decisions may also be cited for their persuasive value. 10th Cir. R. 32.1(A).
Citation to an order and judgment must be accompanied by an appropriate parenthetical
notation B (unpublished). Id.
$95 million to shareholders associated with the public announcement of the CEO’s
misconduct. Grose was sentenced to sixteen years imprisonment based on losses of over
$100 million to more than 250 victims and ordered to forfeit $1 million. On appeal, he
challenges the district court’s instructions to the jury, the prosecutor’s cross-examination
of his character witness, his sentence, and the forfeiture order. We affirm.
I. FACTUAL BACKGROUND
In 2004, Grose was hired as the CFO for the Quest entities in Oklahoma. These
entities included Quest Resource Corporation and Quest Energy Partners L.P., both
publicly traded companies, and Quest Midstream Partners L.P., a private corporation
(collectively, “Quest”).1 Quest was involved in various aspects of gas and oil production.
Although the charges in Grose’s indictment were based solely on his unauthorized
transfer of $1 million of Quest’s funds, his sentence was also based on the $10 million in
transfers he arranged for Cash and Grose’s acceptance of kickbacks.
A. The Offense of Conviction
In April 2008, Quest purchasing agent Brent Mueller was informed by a former
business acquaintance, Ralph Ashley, that Ashley and two of his associates had a new
product, a “hydrogen kit,” which could be attached to vehicles to achieve significant gas
economy. Ashley invited Quest representatives and representatives from other energy
companies to view a demonstration of the product. Mueller and Grose attended the
demonstration on behalf of Quest and were impressed. Shortly after the demonstration,
1
The three companies were separate but utilized the same chief financial officer
and chief executive officer.
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Grose and Mueller approached Ashley to discuss making a personal investment in
Ashley’s new company, Oklahoma Hydrogen Gas Technologies (Hydrogen). Grose and
Mueller eventually agreed they would invest $1 million for start-up costs in return for a
share of Hydrogen’s future profits. Grose agreed to personally provide the funding and
told Mueller he planned to sell his stock in Quest to finance the purchase.
The two men reported their favorable assessment of the product to Jerry Cash,
Quest’s CEO. Cash authorized the purchase of ten hydrogen kits, at a cost of $42,000, to
determine whether Quest would be interested in placing the device on its fleet of
vehicles. Eventually only two devices were installed, one on Mueller’s company vehicle
and one on Grose’s company vehicle.
Grose did not sell his Quest stock. Instead, at the end of June 2008, he had
Mueller place an order for $1 million to Reliable Pipe & Equipment (Reliable) for the
pipe Quest would need in 2009. Quest received Reliable’s invoice on June 30, 2008.
The same day, Mueller and Grose met with an attorney to prepare and file incorporation
paperwork for a limited liability company, Affiliated Energy Partners (Affiliated Energy),
in which Mueller and Grose were the only partners. In addition, they had the attorney
draft a loan agreement between Affiliated Energy and Hydrogen for $1million.
On the morning of July 1, 2008, Grose wired the payment to Reliable. Before the
payment had reached Reliable’s bank account, however, Grose e-mailed Reliable and
cancelled the order. He directed Reliable to re-wire the funds to Hydrogen rather than
returning the money to Quest. The $1 million was transferred to Hydrogen the same day.
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B. Relevant Conduct
1. Money Transfers to Jerry Cash’s Personal Account
Shortly after Grose arrived at Quest in 2004, Cash and Grose agreed to transfer
funds from the company to Cash’s personal account established in the name of Rockport
Energy Partnership (Rockport) and under his sole control. According to Grose, Cash told
him Rockport was a “scouting” organization for Quest and the transfers were authorized
by the board. (Vol. IV at 93.) According to Cash, Grose told Cash the “line of credit” to
his personal account was permissible and would not appear on the company’s books as
long as it was repaid prior to the close of the company’s quarterly reports. (Vol. IV at
66.) At first, Cash timely repaid the money transferred to the Rockport account. But by
the fourth quarter of 2005, Cash’s account did not have sufficient funds to repay the
money he had borrowed. To cover the shortfall, Cash wrote a check from his account to
Quest and Grose entered the check in the company books as available cash. However,
Grose immediately transferred the funds back into Cash’s account to cover the check.
This arrangement continued until mid-2008. At that point, Cash had “borrowed” over
$10 million from Quest which he was unable to repay. Neither Cash nor Grose informed
any of the Quest board members what was occurring.
2. Kickbacks
In late 2005, a Quest equipment and pipe supplier offered Grose and Mueller “an
offer they couldn’t refuse.” (Supp. App’x at 74.) The vendor agreed to pay them one
third each of the sales profits from his company. Although the vendor never specifically
told them the profits would be generated by sales to Quest, approximately 90% of the
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vendor’s pipe sales and 100% of its equipment sales were made to Quest. The payments
continued until August 2008. Over that time, Grose received $849,670.56 in payments.
C. Activities Discovered
Grose’s financial manipulations began to unravel at the end of the first quarter of
2008. The April wire transfer from Quest returning funds to Cash’s account was missing
information. Because of the delay, the check from Cash to Quest was returned for
insufficient funds. Although the problem was resolved a few days later, the transfers
caught the eye of an outside auditor, David Mayfield, in July 2008.
In early July, Cash walked into Grose’s office while Grose was on the telephone
with Mayfield. Mayfield was inquiring into the purpose of the transfers. Grose
explained the Rockport account was created to reserve funds for potential acquisitions in
the event Quest did not want competitors to know it was entering a specific market.
Mayfield told Grose the money needed to be returned to Quest and, if it was, he would
not pursue the matter.
The transfer also came to the attention of Jack Collins, who went to work for
Quest in December 2007. In July 2008, Collins was preparing a forecast for future
operations of a newly acquired company which would need an infusion of capital. When
Quest’s cash balance appeared to be lower than it should be, Collins asked the assistant
controller why this was so. The controller responded there was a consistent transfer of
$10 million at the beginning of each quarter. Collins notified David Lawler, Quest’s
chief operating officer. On July 29, 2008, Lawler e-mailed Grose (copying Cash and
several other Quest employees) to inform Grose he had learned Rockport was holding
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$10 million belonging to Quest and the money should be returned for use by Quest for
other projects. Cash responded the money would be returned.
Cash then disappeared for a few days. In the meantime, several board members
had been approached by the Oklahoma Securities Department asking about the $10
million transfers. An emergency meeting of the board members of all three Quest entities
was scheduled for August 22, 2008. The members determined Quest would demand
Cash’s resignation and Grose would be placed on administrative leave while the company
conducted an internal investigation. On August 25, 2008, Quest issued a press release
stating Cash had resigned, Grose had been placed on leave, and Lawler was the newly
appointed CEO. The next day, Quest’s stock price took a precipitous drop.
After the transfers to Cash were questioned and before he was placed on leave,
Grose made several attempts to recoup the million dollars he had used to invest in
Hydrogen. Direct requests to Ashley to repay the funds revealed the money had been
spent by Hydrogen on start-up costs and unexpected problems with the product had
prevented sales. Grose unsuccessfully tried to find substitute investors. After being
placed on leave, Grose no longer had access to Quest’s books.
During its year-end reconciliation, Quest discovered the paid invoice to Reliable
but was unable to locate any pipe delivery. Jack Collins, Quest’s interim CFO, called
Reliable and was told that Grose had cancelled the order. Reliable provided Collins with
a copy of Grose’s e-mail instructing the transfer of the funds to Hydrogen. Collins
attempted to telephone Hydrogen but the calls went unanswered. He then drove to
Hydrogen’s business address only to find another company was leasing the space and it
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had no knowledge of Hydrogen. Collins eventually learned Hydrogen was no longer in
business.
Quest terminated Grose’s employment. An ensuing federal investigation later
uncovered the vendor’s kickbacks to Grose and Mueller from 2005 through 2008. At
trial, Mueller testified he met with Grose while the Quest investigation was ongoing and
Grose told him they should blame everything on Cash.
II. PROCEDURAL BACKGROUND
On June 16, 2009, Grose was indicted on three counts of wire fraud based on the
transfer of Quest’s funds to Reliable, the cancellation of the order, and Reliable’s transfer
of the funds to Hydrogen. A jury convicted him on all three counts. The presentence
report (PSR) included the $10 million transfer to Cash and the kickback scheme as
relevant conduct under USSG §1B1.3(a)(1)(2). It therefore calculated Grose’s offense
level under the 2009 version of the United States Sentencing Guidelines as follows:
Base Offense Level (USSG §2B1.1(a)(1)) 7
Total Loss (over $105.5 million) (USSG §2B1.1(b)(1)(N))2 +26
Victims (more than 250) (USSG §2B1.1(b)(2)(C)) +6
Violation of Securities Law (USSG §2B1.1(b)(17)(A)(i)) +4
Obstruction of Justice (USSG §3C1.1) +2
2
This amount reflects the $1 million transfer to Hydrogen as well as loss
attributable to relevant conduct: (1) the $10 million transferred to Cash; and (2) $95.5
million in loss to Quest’s shareholders; and (3) approximately $42,000 for the costs of the
ten hydrogen kits; and (4) $886,000 in kickbacks. Because the $42,000 was without
consequence to the guidelines loss enhancement, the court disregarded it for sentencing
purposes.
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Adjusted Offense Level 45
(Vol. II at 18-19.) With a criminal history category of I, the recommended guideline
sentence was life imprisonment. However, the maximum penalty for each count in the
indictment was statutorily limited to 20 years.
Grose objected to the PSR’s loss calculations. He argued the $10 million transfers
to Cash were not related to the $1 million transfer to Hydrogen. He claimed Cash had
told him the transfers were authorized and therefore any loss to Quest was solely through
Cash’s actions. Similarly, Grose claimed the kickbacks were not related to his offense
conduct and there was no evidence Quest paid a higher-than-market price to the vendor
or that the vendor would not have otherwise received Quest’s business. Therefore, the
amount of loss should have been limited to the $1 million, which called for a 14-level
enhancement (rather than a 26-level enhancement) under the guidelines. Grose also
objected to the number of victims and the obstruction of justice enhancements as well.
As a result, Grose maintains the guideline range for imprisonment should have been 37 to
46 months.
The evidentiary portion of Grose’s sentencing hearing was held in conjunction
with Cash’s.3 At the hearing, Cash testified he told Grose his business ventures outside
of Quest were missing opportunities due to lack of funds. In response, Grose suggested
the “line of credit” scheme. According to Cash, Grose was fully aware that there was no
board authority to make the transfers and knew there was no money to repay the funds by
3
Cash pled guilty after reaching a plea agreement with the government and was
sentenced to nine years imprisonment.
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2007. Nonetheless, both Cash and Grose signed certifications of Quest’s financial reports
every quarter.
The government presented expert testimony on the loss associated with the
decrease in Quest’s stock value due to its announcement of the change in management.
Cash presented opposing expert testimony which Grose adopted.
The court sentenced Grose on November 29, 2010. It determined Grose’s
assistance to Cash in taking $10 million and his receipt of kickbacks were relevant
conduct to his offense of conviction:
Judging Mr. Grose’s faithless acts between the fall of 2005 and the summer
of 2008 . . . there is no room for doubt that they were of a piece. They
certainly were part of the same course of conduct. They had common
victims; they all involved the violation of the same duties owed to the same
victims; they had a common purpose of illicit and surreptitious enrichment;
and they were all part and parcel of a protracted and remarkably repetitious
series of frauds.
(Vol. IV at 560.) The court, however, imposed a sentence lower than the guidelines’
recommendation. Grose was sentenced to sixteen years imprisonment on each count of
conviction to run concurrently and ordered to forfeit $1 million.
III. DISCUSSION
A. Trial
Grose raises two trial issues: (1) the court erred in failing to give the proper
instruction on the defense theory of good faith; and (2) over his objection, the court
allowed the government to improperly question Grose’s character witness.
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1. Jury Instructions
Grose’s defense, as explained by his counsel in opening and closing statements,4
was that Cash would not let Grose sell his stock to make a personal investment in
Hydrogen. Instead, Cash told Grose he wanted Quest to make the investment because he
wanted to “be out in front” of a competitor’s efforts to “go green.” (Vol. III at 98.) Cash
told Grose he did not want anyone to be aware of this investment because Quest was in
the middle of significant business negotiations with the competitor and Cash was
concerned the investment would affect the negotiations. Therefore, according to Grose,
Cash told him to proceed as if it were a personal investment. Cash also directed the
cancellation of the pipe order to Reliable and instructed Grose to have it send the
payment to Hydrogen. According to Grose, his actions were merely done in compliance
with Cash’s orders and he had no intent to defraud or harm the company in any way.
Grose submitted a proposed jury instruction stating in relevant part:
The Defendant David Grose . . . contends that he is not guilty of the crimes
charged because of his good faith reliance on the directives of his direct
supervisor, the Chief Executive Officer of Quest.
The “good faith” of Defendant David Grose is a complete defense to the
charges of the indictment because good faith on the part of Mr. Grose is
simply inconsistent with the knowing intent to defraud alleged in each
count of the indictment.
A person who acts, or causes another person to act, on a belief or opinion
honestly held is not punishable under these statutes merely because the
belief or opinion turns out to be inaccurate, incorrect, or wrong. An honest
mistake in judgment or an honest error in management does not rise to the
level of criminal conduct.
4
Grose did not testify at trial.
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(Vol. I at 23.) The court refused to give the instruction saying, “[T]he defendant is
entitled to argue the intent issue in every way that may be supported by the evidence, but
with the case going to the jury on the basis of the record as it now stands, . . . the premise
[for the proposed] wire fraud instruction is insufficient to warrant giving separate
treatment of the good faith issue.” (Vol. III at 478.) Instead, the court instructed the jury
as follows:
To find the defendant guilty of a crime charged in the indictment, you must
be convinced that the government has proved each of the following beyond
a reasonable doubt, with respect to each crime charged in each separate
count of the indictment:
FIRST: That the defendant knowingly devised or intended to devise a
scheme to defraud or to obtain money or property by means of false or
fraudulent pretenses, representations or promises;
SECOND: That the defendant acted with specific intent to defraud or to
obtain money or property by means of false pretenses, representations or
promises;
THIRD: That the defendant used interstate or foreign wire communications
....
FOURTH: That the scheme employed false or fraudulent pretenses,
representations, or promises that were material.
(Vol. I at 64.) The instruction defined “an intent to defraud or to obtain money by false
pretenses, representations or promises” as “an intent to deceive or cheat someone.” (Vol.
I at 65.) It did not, however, define the term “knowingly.” Grose argues that, absent his
proposed language or a definition of the term “knowingly,” the jury was inadequately
instructed on his theory of defense.
“We review instructions as a whole to determine whether they accurately informed
the jury of the governing law” and review the district court’s “refusal to give a requested
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instruction under this standard for an abuse of discretion.” United States v. Bowling, 619
F.3d 1175, 1183-84 (10th Cir. 2010). “While a defendant is entitled to an instruction on
his theory of defense where some evidence and the law supports the theory,” “a theory of
defense instruction is required only if, without the instruction, the district court’s
instructions were erroneous or inadequate.” Id. (quotations omitted). “[S]uch an
instruction is not required if it would simply give the jury a clearer understanding of the
issues.” Id. at 1184 (quotations omitted).
A specific good faith instruction is justified when a defendant has presented
evidence capable of rebutting “all evidence of false and misleading conduct, all failures
to disclose that which should have been disclosed and all matters that deceive and were
intended to deceive another.” United States v. Chavis, 461 F.3d 1201, 1209 (10th Cir.
2006) (quotations omitted). But “a separate good faith instruction is no[t] necessary
where a district court properly instructs the jury on the element of intent, because a
finding of the intent to defraud necessarily implies that there was no good faith.”
Bowling, 619 F.3d at 1183 (quotations and citation omitted).
Grose claims he presented “some” evidence to warrant his proposed instruction.
The district court disagreed. While we see no problem with the court’s conclusion, we
need not address Grose’s evidence, or lack thereof. Even if Grose had presented
sufficient evidence to show some support for his defense theory, the instructions given
were adequate to fully inform the jury of the elements of the charges and the necessity of
finding a lack of good faith in order to convict.
The instructions here made it quite clear that the jury must find, beyond a
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reasonable doubt, that the government proved Grose “knowingly devised or intended to
devise a scheme” “to deceive or cheat someone.” (Vol. I at 64-65.) If the jury believed
Grose was only acting at Cash’s direction – and he believed it was appropriate to use the
company’s funds in this manner – then, under the court’s instructions, it could not find he
had the intent to defraud.
Grose maintains the court’s failure to define the term “knowingly” left the jury
unaware that the act must be intentional and not due to mistake or accident. He further
argues the jury should have heard from the court that if he mistakenly believed Cash had
the authority to direct him to take the actions at issue, he must be exonerated. This
argument is without merit. There was no evidence before the jury that Grose, an
experienced CFO of publicly traded companies, misunderstood the prohibition against
Cash’s receipt of Quest’s resources for his personal use. And the instructions clearly
state Grose must have acted with specific intent to defraud which, by its very nature,
cannot be a mistake. The district court completely and adequately instructed the jury on
Grose’s theory of defense.
2. Hypothetical Questions Posed to Character Witness
The government called Roger Brooks, Reliable’s owner, to testify regarding the
wire transactions on June 30 and July 1, 2008. During cross-examination, defense
counsel asked Brooks about his opinion of Grose’s character. Brooks replied he
considered Grose to be “an honest gentleman” and he “would do business” with him.
(Vol. III at 265-66.) On redirect, the government asked Brooks four questions relating to
his opinion. First, Brooks was asked if he was aware that the Securities and Exchange
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Commission had charged Grose with defrauding Quest shareholders. Brooks answered
he was not aware of the charges and he would need to know the facts to determine
whether his opinion of Grose would change. Brooks was then asked, “Would your
opinion change if you found out that the defendant wired a million dollars out of Quest
without the knowledge or permission of the board of directors?” (Id. at 277.) Defense
counsel objected but the court allowed the question, instructing the jury it was subject to
the government’s ability to prove the premise for the question. Brooks answered, if that
was true, it would “very likely” change his opinion. (Id.) The government asked two
more questions:
Would your opinion of the defendant change if you found out that he set up
that million dollar wire so it looked like he was trying to wire money to pay
for an order of pipe when in fact he was sending the money to another
company?
....
Would your opinion of the defendant change if you found out that he tried
to get one of his employees to lie about the million dollar wire?
(Id. at 278.) Counsel did not object to these questions and Brooks’ answers were
equivocal. Grose contends it was prejudicial error to permit the government to propound
questions which assumed, as a fact, that he was guilty of the very offenses for which he
was then on trial.
“We review the district court’s decision to allow cross-examination questions of
character witnesses for abuse of discretion.” United States v. Parker, 553 F.3d 1309,
1320 (10th Cir. 2009). However, because Grose failed to object to three of the four
questions he claims were error, we review those questions for plain error. See Fed. R.
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Crim. P. 52(b). Under plain error review, we reversed only if “there is (1) error, (2) that is
plain, which (3) affects substantial rights, and which (4) seriously affects the fairness,
integrity, or public reputation of judicial proceedings.” United States v. Randall, 661
F.3d 1291, 1296 (10th Cir. 2011) (quotations omitted). The propriety of “character
evidence depend[s] on numerous and subtle considerations difficult to detect or appraise
from a cold record, and therefore rarely and only on clear showing of prejudicial abuse of
discretion will [we] disturb rulings of trial courts on this subject.” Parker, 553 F.3d at
1320 (quoting Michelson v. United States, 335 U.S. 469, 480 (1948)).
Under Rule 405 of the Federal Rules of Evidence, a defendant may elicit
testimony of his good character, if relevant, and the prosecution may conduct limited
cross-examination. Grose relies on United States v. Polsinelli, where we held the
admission of a hypothetical question assuming the guilt of the defendant during the cross
examination of two character witnesses was reversible error. 649 F.2d 793, 797-98 (10th
Cir. 1981). The government argues Grose’s reliance on Polsinelli is misplaced because
the question here requested a personal opinion of his character, whereas Polsinelli
involved questions as to the defendant’s reputation in the community. According to the
government, our holding in United States v. Parker governs. 553 F.3d 1309 (10th Cir.
2009).
In Polsinelli, the defendant was charged with two counts of distributing an ounce
of cocaine. See 649 F.2d at 794. The prosecutor asked the defendant’s character
witnesses whether their estimation of the defendant’s reputation in the community would
change if they became aware that Polsinelli had, on at least two occasions, distributed
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ounce quantities of cocaine. Id. at 794-95. We distinguished two different types of
character testimony – (1) testimony as to the defendant’s reputation in the community or
(2) the witness’s personal opinion of the defendant’s character. Id. at 796. Because the
prosecutor’s question asked the witness to speculate on how the defendant’s reputation in
the community would change if his guilt were assumed, we concluded the district court
erred in allowing these questions. Id. at 797.
Generally, if the witness is testifying regarding the defendant’s reputation in the
community, hypothetical questions assuming the guilt of the defendant are not permitted
for two reasons. First, the witness is speaking to the community’s assessment of the
defendant. Therefore, a question asking if knowledge of certain facts would change that
reputation calls for speculation rather than personal knowledge. Id. at 796 (citing with
approval United States v. Candelaria-Gonzalez, 547 F.2d 291, 294 (5th Cir. 1977)
(“[T]he questions posed sought speculative responses resting upon an assumption of
guilt.”)). Second, hypothetical questions assuming guilt “str[ike] at the very heart of the
presumption of innocence which is fundamental to Anglo-Saxon concepts of fair trial.”
Id. at 796 (citation omitted). “[A]s in all criminal cases, the accused [is] presumed to be
innocent, and this presumption attend[s] him throughout the trial, as a matter of evidence,
or until overcome by evidence sufficient to satisfy the jury of his guilt beyond a
reasonable doubt and to a moral certainty.” Id. at 797 (quoting Chiles v. State, 159 So.
700, 702 (Ala. Ct. App. 1935)). “Since character evidence is admitted only as bearing
upon guilt or innocence, an opinion based upon the assumption that the defendant is
guilty cannot have any probative value in deciding that issue.” Id. at 797 (quoting with
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favor United States v. Morgan, 554 F.2d 31, 34 (2nd Cir. 1977) (Mansfield, J.,
concurring)).
In contrast, in Parker we considered “questions of the ‘have you heard’ variety” as
they relate to a witness’s personal opinion of the defendant’s character. 553 F.3d at 1320.
Parker was charged with a scheme to sell defective aircraft parts. He conceded he sold
the parts, but claimed he had no knowledge of the defects and therefore lacked the
requisite intent. Id. at 1313. At trial, he sponsored a personal-opinion character witness.
Id. at 1320. Over the defendant’s objection, the government asked whether the witness’s
opinion would change “if [he] found out [the defendant] had been selling aircraft engines
. . . that were unairworthy” or if that, after learning the parts were “bad[,] . . . [the
defendant] did not then go ahead and contact the other purchasers of the engines to warn
them that they might have a defective engine?” Id. We affirmed the district court’s
ruling, even though the line of questioning related to the same bad acts at issue in the
case. See id. at 1319-21, 1326.
We explained “questions of the ‘have you heard’ variety [are allowed] when a
character witness testifies about [his or her] personal opinion of the defendant’s
character, as opposed to offering testimony limited to defendant’s general reputation in
the community.” Id. at 1320 (citing Polsinelli, 649 F.2d at 795-96). For example, “[t]he
prosecution may ask a personal opinion witness whether he or she ‘has heard’ the
defendant had been sued for fraud and whether that information ‘would have affected
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your opinion’ of good character.” 5 Id. Since the questions did not presume conviction,
they were proper.
The first two questions propounded to the witness here were nearly identical to
those in Parker.6 As in Parker, the facts on which the questions were premised were
uncontroverted or had been admitted in Grose’s counsel’s opening argument. (Vol. III at
95-96, 100-01) It was Grose’s intent which was at issue – whether Cash told him to
make the initial payment to Reliable, cancel it and send it to Hydrogen or whether he did
it on his own. Because the questions did not assume intent, guilt was not assumed. Id. at
1320; see also United States v. Wilson, 983 F.2d 221, 224 (11th Cir. 1993) (“Wilson
already had admitted during his time on the stand: he sold credit card numbers to an
undercover Secret Service agent. Wilson had denied any fraudulent intent. The
questions attributed no intent to him.”).
The third question, however, at the least teeters on the edge of propriety (“[Grose]
he set up that million dollar wire so it looked like . . .”); the opening statement did not
admit Grose planned the change in the wire transfer from Reliable to Hydrogen. And the
prosecutor’s fourth question – assuming Grose told another employee to lie about the
5
The government also cites to the one circuit, the District of Columbia, which has
held guilt-assuming hypotheticals may be permissible where the witness gives a personal
opinion of the defendant’s character. See United States v. White, 887 F.2d 267, 274-75
(D.C. Cir. 1989). We did not go so far in Parker and do not do so here.
6
In Polsinelli,we carefully explained we “d[id] not intend to imply that such
cross-examination would have been proper had the character witnesses expressed their
personal opinion of Polsinelli’s character. Resolution of that particular matter must await
a different fact situation.” 649 F.2d at 799. Parker neither expanded nor constrained our
decision in Polsinelli.
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transfer – clearly went beyond any facts admitted in defense counsel’s opening statement.
These questions could fairly be characterized as assuming Grose’s intent to commit wire
fraud. However, Grose makes no effort to show plain error.7
Even assuming Grose could meet the first and second prongs of plain error, see
United States v. Thornburgh, 645 F.3d 1197, 1209 (10th Cir.), cert. denied, 132 S. Ct.
214 (2011) (“error cannot be plain, in view of the widely differing interpretations”), he
has not alleged or argued that any error by the district court affected his substantial rights.
“For an error to have affected substantial rights, ‘the error must have been prejudicial: It
must have affected the outcome of the district court proceedings.’ ” United States v.
Trujillo-Terrazas, 405 F.3d 814, 819 (10th Cir.2005) (quoting United States v. Olano,
507 U.S. 725, 734, 113 S.Ct. 1770, 123 L.Ed.2d 508 (1993)). It is Grose’s burden to
show his substantial rights have been prejudiced, id., and we will not supply his argument
for him. See United States v. Romano, 491 F.3d 1173, 1179 (10th Cir. 2007); see also
Salehpoor v. Shahinpoor, 358 F.3d 782, 785 (10th Cir. 2004) (holding that “[w]e will not
manufacture a party's argument on appeal when it has failed in its burden to draw our
attention to the error below.”). Grose’s claim that the court reversibly erred in admitting
7
Instead, Grose claims he was excused from objecting because it would have been
futile. “The “futility” exception applies when “the district court is aware of the party’s
position and it is plain that further objection would be futile, where [the] litigant’s
position [was] clearly made to the district court.” Abuan v. Level 3 Commc’ns, 353 F.3d
1158, 1172 (10th Cir. 2003) (quotations omitted). “[T]he rule has application in any
context where it is absolutely clear an objection would have been futile.” United States v.
Algarate-Valencia, 550 F.3d 1238, 1243 (10th Cir. 2008). As discussed above, the one
question Grose objected to was not improper. Therefore, to say further objection to an
improper question would have met the same fate rests entirely on speculation. Grose was
not excused from further objection.
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the prosecutor’s question must fail.
B. Sentencing
As to sentencing, Grose claims the district court erred in calculating the guidelines
range when it: (1) included the $10 million transfers to Cash and Grose’s receipt of
kickbacks as relevant conduct; (2) calculated the number of victims; (3) applied an
enhancement for obstruction of justice; and (4) refused to consider the results of a
polygraph examination submitted by Grose in his allocution. He further challenges the
$1 million forfeiture order.
We review sentences for reasonableness, as informed by the 18 U.S.C. § 3553(a)
sentencing factors. See, e.g., United States v. Munoz–Tello, 531 F.3d 1174, 1181 (10th
Cir. 2008). “Reasonableness review has a procedural and substantive component.”
United States v. Martinez, 610 F.3d 1216, 1223 (10th Cir.), cert. denied, 131 S. Ct. 543(2010). Procedural reasonableness focuses on whether the district court erred in
“calculating or explaining the sentence.” United States v. Friedman, 554 F.3d 1301,
1307 (10th Cir. 2009). Substantive reasonableness focuses on whether the length of the
sentence is reasonable in light of the factors contained in 18 U.S.C. § 3553(a). Id.“When evaluating the district court’s interpretation and application of the Sentencing
Guidelines, we review legal questions de novo and factual findings for clear error, giving
due deference to the district court’s application of the [G]uidelines to the facts.” Munoz-
Tello, 531 F.3d at 1181 (internal quotation marks omitted). In other words, “[w]e review
the district court’s factual finding supporting a determination of relevant conduct for clear
error but review the ultimate determination of relevant conduct de novo.” United States
- 20 -
v. Caldwell, 585 F.3d 1347, 1349–50 (10th Cir. 2009) (quotation omitted). Grose
challenges both the procedural and substantive reasonableness of his sentence.
1. Procedural Reasonableness
Grose maintains the district court procedurally erred in numerous ways when
calculating his guideline sentence because his offense of conviction was a $1 million wire
fraud and no other conduct was relevant to this offense or proved by the government. See
Gall v. United States, 552 U.S. 38 (2007) (describing procedural errors “such as failing to
calculate (or improperly calculating) the Guidelines range” and “selecting a sentence
based on clearly erroneous facts”). He argues Cash’s crimes (with the resulting number
of victims and loss to shareholders) were not sufficiently connected to the wire fraud to
constitute relevant conduct and, further, the evidence at sentencing was insufficient to
establish his knowledge that the transfers to Cash were unauthorized. In a similar vein,
he claims the court erroneously included the kickbacks as relevant conduct and the
government did not establish his receipt of this money was a crime. He contends the
enhancement for obstruction of justice was also error. Finally, he says the court
reversibly erred in failing to consider the results of the polygraph exam at his sentencing
allocution.
Cash’s Embezzlement and Loss to 250 Shareholders
Under USSG §3D1.2(d), the $10 million transfer to Cash, had Grose been
convicted of that crime, would have been grouped with his conviction for the $1 million
wire fraud for sentencing purposes. Therefore, the transfer to Cash is relevant conduct if
it was “part of the same course of conduct or common scheme or plan as the offense of
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conviction . . . .” See USSG §1B1.3(a)(2). A “‘[c]ommon scheme or plan’ and same
‘course of conduct’ are two closely related concepts.” USSG §1B1.3, comment. (n.9).
“For two or more offenses to constitute part of a common scheme or plan, they must be
substantially connected to each other by at least one common factor, such as common
victims, common accomplices, common purpose or similar modus operandi.” Id. at
(n.9(A)).
The district court determined the $10 million transfer was relevant conduct:
Mr. Grose was Quest’s chief financial officer charged with protecting
Quest’s financial assets and assuring Quest’s financial integrity. He was
also Quest’s compliance officer charged with enforcing Quest’s corporate
code of ethics, and by implication, at least, with the obligation to conduct
himself as an exemplar of ethical conduct as an officer and employee of
publicly traded companies . . . .
(Vol. IV at 558-59.) The court noted the overlapping time period, the common victims
and the common purpose of Grose’s conduct and concluded all the events constituted a
common scheme or plan.
Grose claims “Cash’s ‘loans’ from Quest that he put to personal use were
completely unrelated to Mr. Grose’s offenses of conviction.” (Appellant Br. at 38.) He
notes the district court did not allow evidence of the $10 million embezzlement during
trial because it was inadmissible under Federal Rule of Evidence 404(b) and, if it had
actually been “part of a single criminal episode” it would not have been subject to Rule
404(b).” United States v. Irving, 665 F.3d 1184 (10th Cir. 2011) (quotations omitted).
But Grose misapplies the court’s trial ruling. Whether Grose’s scheme with Cash was
intrinsic to his unauthorized transfer to Hydrogen – the question of admissibility at trial –
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is not the question at sentencing.
In defining “same course of conduct” under USSG §1B1.3(a)(2):
The term looks to whether the defendant repeats the same type of criminal
activity over time. It does not require that acts be connected together by
common participants or by an overall scheme. It focuses instead on
whether defendant has engaged in an identifiable behavior pattern of
specified criminal activity.
United States v. Hamilton, 587 F.3d 1199, 1221 (10th Cir. 2009) (quotations omitted).
Grose argues the only commonality between Cash’s “loans” and Grose’s transfer
of funds to Hydrogen is that he processed wire transfers from Quest funds while
employed by Quest. In addition, because the temporal proximity of his actions covers
such a broad time span, it has no legal significance. We disagree.
Grose’s choice to defraud his employer during his entire tenure with Quest is
highly significant in determining his sentence. During that time the victim, Quest and its
shareholders, remained the same. Grose used his access and control of company finances
to carry out both schemes and attempted to conceal his series of frauds by the same
method. The court did not err in determining relevant conduct.
Grose’s sole attack on the inclusion of the $73 million fall in Quest’s stock price is
that the stock crash was attributable only to Cash, and not Grose. Significantly, he has
not contested the method used to calculate the stock loss, or whether it was a “reasonably
foreseeable” result of Cash’s embezzlement. See § 2B1.1 cmt. 3(A)(i). His attack on the
number of victims enhancement is similarly limited. But the law is clear that “actual
loss” encompasses losses from the defendant’s crimes as well as any relevant conduct,
see United States v. Griffith, 584 F.3d 1004, 1011 (10th Cir. 2009), and that anyone who
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suffers any “actual loss” is a victim, see § 2B1.1 cmt. 1. Thus, given Grose’s limited
challenge to these enhancements and our conclusion that Grose’s involvement in Cash’s
fraud qualifies as “relevant conduct,” we see no basis for overturning the district court’s
imposition of those enhancements.
In the alternative, Grose contends there was insufficient evidence to establish he
knew that the transfers to Cash were unauthorized. He argues the evidence showed
Cash’s assistant and the Quest assistant controller were also aware of the transfers; the
capital swap had been audited each quarter; he received no personal gain from the
transfers; and Grose believed Cash’s assurances he had cleared the arrangement with the
Board. Grose acknowledges Cash’s testimony at sentencing that the transfers were
Grose’s idea and, without Grose’s involvement, the fraud could not be completed.
However, he insists Cash’s testimony was inherently unreliable and, without more, there
was no evidence Grose knew more than any other employee.
It is not our place to second-guess the reliability of Cash’s testimony. See United
States v. Hanson, 543 F.3d 1315,1319 (10th Cir. 2008) (quotations omitted) (“The
sentencing court has discretion to make credibility determinations for sentencing
purposes and we decline to review the credibility of a witness’ testimony on appeal.”).
The district court obviously believed Cash’s version of Grose’s involvement. The record
sufficiently supports the court’s conclusion that the $10 million loss to Quest and the
resulting drop in the value of Quest’s stock immediately after the public was informed of
the fraud was caused in large part by Grose’s relevant conduct.
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Kickbacks
Grose also claims the district court erred in concluding his receipt of kickbacks
was relevant conduct. He also argues the government never alleged or offered evidence
that this activity was a criminal violation. Rather, the government characterized this
activity as a violation of Quest’s ethical code. This argument deserves short shrift. There
was more than sufficient evidence establishing a violation of the federal law prohibiting
the breach of a fiduciary duty through bribes or kickbacks, done with the intent to
defraud, and involving interstate wires. See 18 U.S.C. § 1346; Skilling v. United States,
130 S. Ct. 2896, 2933 (2010) (“Interpreted to encompass only bribery and kickback
schemes, § 1346 is not unconstitutionally vague.”). The record shows Grose took
kickbacks, he did so with intent to defraud, and Quest’s interactions with the equipment
supplier routinely involved the use of interstate wires. And, as discussed above, the
receipt of kickbacks was just another part of Grose’s ongoing betrayals of his fiduciary
duty to Quest and its shareholders.
Obstruction of Justice Enhancement
Grose claims the district court erred in imposing an obstruction of justice
enhancement under USSG §3C1.1. That section provides:
If (A) the defendant willfully obstructed or impeded, or attempted to
obstruct or impede, the administration of justice with respect to the
investigation, prosecution, or sentencing of the instant offense of
conviction, and (B) the obstructive conduct related to (i) the defendant’s
offense of conviction and any relevant conduct; or (ii) a closely related
offense, increase the offense level by 2 levels. (emphasis added).
He argues that any false statements he may have made to the SEC during its investigation
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of Cash’s misconduct were not part of the investigation of the $1 million
misappropriation for which he was convicted. Rather, at the time he made his statements
to the SEC, the $1 million transaction had not yet been discovered. Thus, his false
statements were not made to obstruct the investigation of his offense of conviction. This
guideline, however, is not construed so strictly. “U.S.S.G. § 3C1.1 applies not only to the
defendant’s obstructive conduct involving his offense of conviction, but also to any of his
obstructive conduct involving cases that are closely related to the defendant’s case.”
United States v. Mollner, 643 F.3d 713, 716 (10th Cir. 2011).
Even if we were to adopt Grose’s reading of this section, his argument still fails.
The district court found, in relevant part:
Mr. Grose made several materially false statements to the SEC in his
interview on September 29, 2008 . . . . Ignoring other statements that were
likely false, but might be debatable on the basis of the record now before
the Court, I find that Mr. Grose made a false statement to the SEC when he
told the SEC, in substance, that the company he had formed with Mr.
Mueller was not yet active and was looking for future opportunities. At
that point, the $1 million misappropriation had not been discovered and Mr.
Grose wanted it to stay that way.
(Vol. IV at 584.) As noted in the guideline commentary, “[o]bstructive conduct that
occurred prior to the start of the investigation of the instant offense of conviction may be
covered by this guideline if the conduct was purposefully calculated, and likely, to thwart
the investigation or prosecution of the offense of conviction.” USSG §3C1.1 comment.
(n.1).
The district court determined Grose’s false statements were calculated to avoid the
discovery of his $1 million misappropriation. This finding is fully supported by the
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record. The court did not err in applying the enhancement.
Allocution
Sentencing occurred in two phases. First, an evidentiary hearing was held for both
Cash and Grose. One week later, each defendant was sentenced individually. Just prior
to second stage in Grose’s sentencing, defense counsel announced:
Your honor, as I previously advised the Court last week, on Tuesday,
[Grose] went down to Houston, Texas, and met with his appellate counsel
down there to discuss matters and it was decided by counsel that he should
obtain a polygraph examination, which he took on November 24, relating to
the facts of the case and certain relevant conduct in this case.
I have in my hand a report of that examination, which he passed the
examination, and I was asked by appellate counsel to offer this as an exhibit
for sentencing purposes and any other purpose that might be – it might be
used for in this regard, to include appellate purposes.
(Vol. IV at 543.) Counsel offered the exhibit into evidence. The government objected
because it: (1) attacked the jury’s verdict; (2) it was offered well beyond the time set by
the court for taking evidence; and (3) the guidelines require evidence be deemed reliable
before considering it at sentencing and there was no showing of reliability. The court
determined the exhibit would be excluded “for all purposes” for the reasons stated by the
government. (Id. at 545.) Grose made no objection. Grose now claims the district
court’s refusal to consider the polygraph violates his right to allocution.8
8
Although we have not officially announced our standard of review when
considering an allocution challenge, our cases imply we will review such a challenge de
novo. See United States v. Landeros-Lopez, 615 F.3d 1260, 1264 n.4 (10th Cir. 2010).
However, we recently held “that a defendant who fails to object to the district court’s
procedures regarding the right of allocution must demonstrate plain error to warrant
reversal on appeal.” United States v. Rausch, 638 F.3d 1296, 1300 n.1 (10th Cir. 2011).
Grose argues this standard should not apply to him because his sentencing occurred
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Rule 32(i)(4)(A) of the Federal Rules of Criminal Procedure requires the district
court, before imposing sentence, to:
(i) provide the defendant’s attorney an opportunity to speak on the
defendant's behalf;
(ii) address the defendant personally in order to permit the defendant to
speak or present any information to mitigate the sentence; and
(iii) provide an attorney for the government an opportunity to speak
equivalent to that of the defendant’s attorney.
The court complied with the rule. As Grose acknowledges, his attorney read his detailed
statement into the record. The court also directly asked Grose if he wanted to say
anything else on the record before he was sentenced. Grose declined.
Relying on United States v. Jarvi, 537 F.3d 1256 (10th Cir. 2008), Grose claims
the court denied him his right to speak when it refused to consider the polygraph report.
In Jarvi, the defendant filed pro se objections at sentencing to the quantity of drugs
applied in calculating his sentence. 537 F.3d at 1259. The district court refused to
consider them, even though it had not previously ruled on his argument, because Jarvi
was represented by counsel. Id. We remanded for resentencing stating, “when it comes
to allocution, the defendant has a broad right to present any information to mitigate the
sentence . . ., and that right is not forfeited by the defendant’s unjustified attempt to
present the information earlier in a different form.” Id. at 1262.
We distinguished our precedent found in United States v. Muniz, 1 F.3d 1018before Rausch and Rausch can be distinguished as it concerned allocution in a revocation
proceeding rather than an original sentencing. We need not decide whether Grose’s
failure to object requires a plain error analysis because we see no error under any
standard.
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(10th Cir. 1993). Jarvie, 537 F.3d at 1267. In Muniz, we held the right of allocution was
not violated when the court told the defendant at sentencing not to reargue a Sixth
Amendment speedy trial issue that had already been extensively litigated. Muniz, 1 F.3d
at 1025 (“The judge did not unfairly prevent Muniz from speaking because the judge
does not have to let the defendant re-argue the case at sentencing.”). We concluded
Muniz was inapplicable for two reasons: (1) Jarvi was not “making arguments about
supposed violations of his rights at trial,” and (2) he was not attempting to “re-argu[e]
claims that had already been raised and ruled on.” Jarvi, 537 F.3d at 1262.
We find Grose’s situation indistinguishable from that of the defendant in Muniz.
The polygraph examiner’s report described the “examination criteria” as follows:
The following relevant questions were asked of the subject. The subject’s
verbal response follows each question in quotation marks.
1. DID YOU DIRECT RELIABLE PIPE TO SEND THE MONEY TO THE
HYDROGEN COMPANY WITHOUT JERRY CASH’S
AUTHORIZATION? “NO”
2. DID YOU LIE WHEN YOU SAID JERRY CASH DIRECTED YOU TO
INVEST THE MONEY ON BEHALF OF QUEST? “NO”
3. DID YOU USE QUESTS [sic] MONEY FOR A PERSONAL
INVESTMENT? “NO”
(Vol. I at 349-50.) The examiner reported: “After careful examination of the subject’s
polygrams, it is my professional opinion that there were No Deceptive Criteria present.
The subject is considered to be truthful as the listed relevant questions were answered.”
(Id. at 350.)
The polygraph report is, quite simply, an attempt to refute the jury’s verdict. The
court did not err in refusing to consider these statements. Moreover, the polygraph report
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duplicated Grose’s written statement.9 The only difference was the polygraph examiner’s
imprimatur that Grose’s answers were considered to be truthful. Because the issues
addressed by the examiner had already been argued at trial and rejected by the jury, the
court did not err in refusing to consider this evidence.
Grose argues the polygraph report also affected the court’s evaluation of Cash’s
credibility in respect to Grose’s involvement in the $10 million transaction. But the
questions posed by the polygraph examiner did not address that transaction. The court
did not err in refusing to consider this information to establish Grose’s credibility.10
2. Substantive Reasonableness
Grose claims the sixteen-year term of imprisonment is substantively unreasonable
given Grose’s formerly unblemished history as a financial officer and Cash’s nine-year
sentence. “A sentence is substantively unreasonable if the length of the sentence is
unreasonable given the totality of the circumstances in light of the 18 U.S.C. § 3553(a)
factors.” United States v. Haley, 529 F.3d 1308, 1311 (10th Cir. 2008). We apply an
9
Grose had his attorney read a statement denying any wrongdoing and claiming
he believed Cash was using the $10 million on behalf of Quest and he had transferred the
$1 million at Cash’s request believing it to be a Quest investment. He claimed Cash and
Mueller lied during their testimony to remove the blame from themselves.
10
Further, Grose made no attempt to establish the reliability of the polygraph.
See USSG §6A1.3(a) (A sentencing court “may consider relevant information without
regard to its admissibility under the rules of evidence applicable at trial, provided that the
information has sufficient indicia of reliability to support its probable accuracy.”)
(emphasis added). He offered only the unadorned report. Although the document
contains the examiner’s state license number, there is no other information as to the
circumstances under which the test was given or whether the three questions contained in
the report were the entirety of the examination. In other words, the court was not
provided any indicia of the test’s reliability.
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abuse-of-discretion standard where we will affirm the sentence unless it “is arbitrary,
capricious, whimsical, or manifestly unreasonable.” United States v. Steele, 603 F.3d
803, 809 (10th Cir. 2010). “[D]isparate sentences are allowed where the disparity is
explicable by the facts on the record.” Haley, 529 F.3d at 1312 (quotations omitted).
Grose’s offenses were subject to a statutory maximum of 60 years. Mindful of the
Congressional intent behind the policies for sentencing fraud on a public company, the
district court nonetheless determined Grose was entitled to a “significant downward
variance.” (R. Vol. IV at 609.) However, the court determined there was a need for a
substantial term of incarceration:
Mr. Grose, your career as a financial executive or at least as a trusted
employee with finance-related responsibilities goes back 30 years or more.
When you came to Quest, you were not a neophyte with respect to the
obligations of a chief financial officer in general or with respect to the
importance of compliance with securities laws and audit requirements.
As to these matters, Jerry Cash had some plausible claim to naivety,
although he clearly knew that his misappropriation of $10 million was
wrong.
You have no such claim to naivety. You do have a plausible argument that
you intended to pay back the $1 million that you and Mr. Mueller took.
And you and Jerry Cash do have at least a semblance of an argument that
he, Mr. Cash, intended to repay the $10 million that he took with your help,
however attenuated that possibility might have been as a practical matter.
But the $850,000 in kickbacks that you took in approximately 80
transactions is perhaps the most telling aspect of this case. There is no way
– simply no way that the CFO of a publicly traded company can put a
presentable face on his receipt of $850,000 in kickbacks.
During the 34 months that you were taking these kickbacks, you were
essentially using your position as the chief financial officer of a publicly
held company to steal with both hands.
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Whatever your subjective rationale may have been, you have no claim to
anything other than a purely larcenous intent. Your belated account in this
courtroom today of your felonious conduct is unbelievable in almost every
particular and is, to put it mildly, wholly unpersuasive.
(Vol. IV at 610-11.) After considering the § 3553(a) factors, the court sentenced Grose to
sixteen years imprisonment.
Because Cash took total responsibility for his actions and had made significant
efforts to repay Quest the money he had taken, while Grose continued to deny any
responsibility for any criminal conduct after his conviction, we find no abuse of
discretion in the disparity between their sentences (Cash’s nine years as opposed to
Grose’s sixteen-year imprisonment). Similarly, we find no abuse of discretion in the
district court’s application of the §3553(a) factors given the facts of this case. Grose’s
relevant conduct constituted a prolonged series of frauds upon his employer and its
shareholders. His persistent claim of innocent intent demonstrates an apparent lack of
remorse. The district court’s sentence is substantively reasonable.
3. Forfeiture
The indictment charging Grose with three counts of wire fraud included forfeiture
allegations:
Upon conviction of any of the offenses alleged in Counts 1 through 3 of the
indictment, defendant shall forfeit to the United States, pursuant to 18
U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c), any property constituting or
derived from proceeds traceable to said offenses, including, but not limited
to, a sum of money equal to $1,000,000.00, representing the amount of cash
proceeds obtained as a result of the offenses.
(Vol. I at 18.) Following Grose’s conviction, the government moved for a preliminary
order of forfeiture for a $1 million personal money judgment. Grose objected for three
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reasons: (1) improper notice of sufficient grounds for forfeiture; (2) violation of his right
to have a jury decide forfeiture issues under Fed. R. Crim. P. 32.2 and United States v.
Booker, 543 U.S. 220 (2005); and (3) insufficient evidence. The district court rejected
Grose’s objections and entered a preliminary order for a $1 million personal money
judgment against Grose.
On appeal, Grose renews his claim that the district court reversibly erred by not
asking—before the jury began deliberations— hether Grose wanted the jury to determine
forfeiture. He also raises a new argument, asserting there were no “proceeds” to forfeit
because he did not “obtain directly or indirectly any money or other property to forfeit.”
(Appellant’s Br. at 54-55.)
Standard of Review
As an initial matter, the parties disagree on the standard of review. The
government argues we must apply plain error review because Grose did not object or
raise the jury issue prior to the jury’s release. Grose counters that our review should be
de novo because it was the court’s obligation to ask whether he wanted a jury to consider
the issue.11 Grose is incorrect.
11
Grose cites to only one federal case from the Ninth Circuit which declined to
apply a plain error standard in the absence of a contemporaneous objection when the
omitted action was the court’s responsibility. In United States v. Erskine, the defendant
claimed that he was not given adequate advice from the court on his request for self-
representation. 355 F.3d 1161 (9th Cir. 2004). Although the defendant did not object at
the time the advice was given, the appellate court declined to apply a plain error standard,
reasoning:
[W]e do not expect pro se defendants to know the perils of self-
representation, and consequently, we cannot expect defendants to recognize
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The court’s obligation to perform a task does not, alone, excuse an attorney from
making a proper objection when the court fails in its performance. See United States v.
Vonn, 535 U.S. 55, 73 (2002) (“[T]he plain-error rule . . . requires defense counsel to be
on his toes” even though the judge must act as well, “and the defendant who just sits
there when a mistake can be fixed cannot . . . [complain] later on.”); United States v.
Rausch, 638 F.3d 1296, 1300 n.1 (10th Cir. 2011) (“[A] defendant who fails to object to
the district court’s procedures regarding the right of allocution must demonstrate plain
error to warrant reversal on appeal.” (Rule 32.1)); United States v. Cook, 550 F.3d 1292,
1297-98 (10th Cir. 2008) (applying plain error to Rule 32(i)(3)(B) violation).
However, because we conclude that the district court did not commit error –plain
or otherwise – in its imposition of the forfeiture order,we do not need to decide whether
plain error review applies.
Rule 32.2 of the Federal Rules of Criminal Procedure
Criminal forfeiture proceedings are governed by Rule 32.2 of the Federal Rules of
Criminal Procedure. Rule 32.2(b)(1)(A) provides:
As soon as practical after a verdict or finding of guilty, or after a plea of
guilty or nolo contendere is accepted, on any count in an indictment or
information regarding which criminal forfeiture is sought, the court must
determine what property is subject to forfeiture under the applicable statute.
If the government seeks forfeiture of specific property, the court must
determine whether the government has established the requisite nexus
that they have not been correctly and fully advised, let alone to point out
the court’s errors. Accordingly, plain error review would be inappropriate
....
Id. at 1166. This case is inapposite to the facts before us. Grose was at all times
represented by able counsel.
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between the property and the offense. If the government seeks a personal
money judgment, the court must determine the amount of money that the
defendant will be ordered to pay.
Section (b)(5) states:
(A) Retaining the Jury. In any case tried before a jury, if the indictment or
information states that the government is seeking forfeiture, the court must
determine before the jury begins deliberating whether either party requests
that the jury be retained to determine the forfeitability of specific property
if it returns a guilty verdict.
(B) Special Verdict Form. If a party timely requests to have the jury
determine forfeiture, the government must submit a proposed Special
Verdict Form listing each property subject to forfeiture and asking the jury
to determine whether the government has established the requisite nexus
between the property and the offense committed by the defendant.
(Emphasis added.) This version of Rule 32.2 went into effect on December 1, 2009,
approximately three months before Grose’s trial began. Prior to that time, the obligation
was on a party to request the jury consider forfeiture.
Rule 32.2 distinguishes the procedures required for a personal money judgment
from those required for forfeiture of specific property. United States v. Newman, 659
F.3d 1235, 1242 (9th Cir. 2011) (citation omitted). Rule 32.2(b)(1)(A) provides the
government’s request for a personal money judgment, authorizes the court to “determine
the amount of money that the defendant will be ordered to pay.” (Emphasis added). Only
if the government seeks forfeiture of specific property does Rule 32.2(b)(5) come into
play. At that point, the jury may determine forfeitability with a special verdict. Grose
argues that Rule 32.2(b)(5) should be read to apply to personal money judgments as well,
but we find no grounding in the language of the statute to support this contention. See
United States v. Gregoire, 638 F.3d 962, 972 (8th Cir. 2011) (Rule 32.2(b)(5)(A) “by its
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plain language applies only to the forfeitability of specific property.”) (quotations
omitted). The government did not seek forfeiture of any specific property in the
indictment. The district court was not required to determine if Grose wanted a special
verdict.
Proceeds
In United States v. McGinty, we stated “the district court must order forfeiture of
any and all proceeds of the offense and any property derived from those proceeds” under
18 U.S.C. § 982(a)(2). 610 F.3d 1242, 1246 (10th Cir. 2010). Grose argues McGinty
“indicates that there were no proceeds [in this case] because there was no profit to be
disgorged.” (Appellant’s Reply Br. at 29.) This argument is wholly without merit.
Grose acknowledges 18 U.S.C. § 981 defines “proceeds” as “property of any kind
obtained directly or indirectly, as the result of the commission of the offense giving rise
to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit
realized from the offense.” Incredibly, he nonetheless claims he received no “gain” from
his theft of $1 million from Quest, apparently because the company he invested in went
bankrupt. (Appellant’s Br. at 55.) Grose fails to recognize he was convicted of stealing
$1 million. Merely because he used the money to make a bad investment did not cause
the funds to evaporate. As has been succinctly said by other courts, “Congress sought to
punish equally the thief who carefully saves his stolen loot and the thief who spends the
loot on wine, women, and song.” Newman, 659 F.3d at 1243 (quotations omitted).
Grose’s decision to place his gains in an ill-advised investment does not excuse him from
the forfeiture of $1 million. “The government is entitled to a money judgment against
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[Grose] for the money he obtained from his criminal activity.” McGinty, 610 F.3d at
1246.
IV. CONCLUSION
The jury instructions clearly and adequately informed the jury of its obligations.
There was no plain error in the district court’s discretionary determinations regarding the
prosecutor’s questions to Grose’s character witness and Grose’s sentence was imposed
correctly in all respects, including the district court’s order of forfeiture.
AFFIRMED.
Entered by the Court:
Terrence L. O’Brien
United States Circuit Judge
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