United States v. Zats ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
8-5-2002
USA v. Zats
Precedential or Non-Precedential: Precedential
Docket No. 00-2757
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PRECEDENTIAL
Filed August 5, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-2757
UNITED STATES OF AMERICA
v.
STEVEN B. ZATS,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Criminal Action Nos. 97-cr-00590)
District Judge: Honorable Jan E. DuBois
Submitted Under Third Circuit LAR 34.1(a)
December 6, 2001
Before: ALITO, AMBRO and GREENBERG, Circuit Ju dges
(Opinion filed: August 5, 2002)
MICHAEL D. SHEPARD
Blank, Rome, Comisky &
McCauley LLP
One Logan Square
Philadelphia, PA 19103
Counsel for Appellant
MICHAEL L. LEVY
United States Attorney
WALTER S. BATTY JR.
Assistant United States Attorney,
Senior Litigation Counsel
ROBERT A. ZAUZMER
Assistant United States Attorney,
Chief of Appeals
615 Chestnut Street, Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge.
Steven Zats used his debt collection practice to defraud
creditors who hired him. After he was caught, he pled guilty
to several federal offenses. In this appeal, Zats contends
that the District Court erred by enhancing his sentence
pursuant to S 3A1.1(b) of the United States Sentencing
Guidelines ("U.S.S.G."), better known as the vulnerable
victim enhancement. We affirm.
I. Factual and Procedural History
Zats was an attorney who specialized in collecting small
debts, usually hundreds of dollars. Many of his clients were
doctors whose patients owed money on their medical bills.
These patients were frequently poor, facing desperate
personal circumstances, and ignorant of their legal rights.
Nonetheless, Zats collected debts by harassing debtors and
ignoring the requirements of the Fair Debt Collection
Practices Act, 15 U.S.C. S 1692 et seq. If a debtor would not
pay a debt voluntarily, Zats would file a lawsuit, obtain a
judgment (typically by default), and execute on it against
the debtor’s bank account.1 But when Zats could not locate
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1. One former employee stated that he quit in disgust after Zats and his
sister celebrated how they saved up a list of debtors until just before
Christmas so that they could freeze their bank accounts in time for the
holidays.
2
a bank account, he often engaged in a phone "survey" in
which he called the debtor, offered him or her a free gift for
completing his survey, and then asked questions until he
obtained enough information to identify the account. When
Zats succeeded in collecting debts, he routinely failed to
forward to his clients the full amount of the funds to which
they were entitled.
Two examples illustrate Zats’ practices. Edmond
Jefferson had a disputed $6,000 debt with the physician
treating his terminally ill wife. The physician explicitly
instructed Zats not to pursue the money, but Zats
nonetheless seized $6,000 from Jefferson’s account.
Jefferson called Zats to beg for the money. He explained
that his wife was dying, his son had recently died, and he
had no money to pay for food or funeral expenses. Zats
laughed at him, kept the money, and never turned it over
to the doctor.
Sylvia Micozzi was two days late on a payment to her
dentist for a procedure that she said she never authorized.
Zats filed a judgment, used his phone "survey" to trick her
into divulging the location of her bank account, and then
froze the account. When she called to explain that her
husband was sick and that she could not afford the
payment, Zats informed her that he "had high hopes that
she had life insurance on her husband." Distraught, she
agreed to make the payment.
Zats’ failure to turn over his clients’ funds eventually
resulted in his arrest. He pled guilty to conspiracy to
commit mail fraud, wire fraud, and a tax offense, all in
violation of 18 U.S.C. S 371, as well as to attempted tax
evasion in violation of 26 U.S.C. S 7201. At sentencing, the
District Court heard arguments on whether to add a
vulnerable victim enhancement to Zats’ sentence. The
Government argued that many of the debtors from whom
Zats collected were vulnerable, even though the most direct
victims of his crime, the creditors, may not have been. The
Court agreed and enhanced Zats’ sentence two levels
pursuant to U.S.S.G. S 3A1.1(b). He appealed. 2
_________________________________________________________________
2. We have appellate jurisdiction under 18 U.S.C.S 3742(a) and 28
U.S.C. S 1291.
3
II. Standard of Review
We exercise plenary review over the District Court’s legal
interpretation of the Sentencing Guidelines. United States v.
Monostra, 125 F.3d 183, 188 (3d Cir. 1997). However,
"factual findings concerning the vulnerable victim
adjustment are reversible only for clear error." United States
v. Iannone, 184 F.3d 214, 220 (3d Cir. 1999).
We have generally assumed that our standard of review
for the application of the Guidelines to facts is plenary, see,
e.g., United States v. Jarvis, 258 F.3d 235, 241 (3d Cir.
2001), but the Supreme Court’s recent decision in Buford v.
United States, 532 U.S. 59 (2001), prompts us to modify
this position. According to 18 U.S.C. S 3742, the courts of
appeals "shall give due deference to the district court’s
application of the guidelines to the facts." Buford involved
a bank robber who received a career offender enhancement
to her sentence under S 4B1.1 of the Guidelines because
the District Court decided to treat her five prior convictions
as separate crimes rather than consolidate them into a
single conviction. Buford, 532 U.S. at 61-62. The Seventh
Circuit agreed that the prior convictions were separate
under a clear error standard of review, United States v.
Buford, 201 F.3d 937, 940-42 (7th Cir. 2000), and the
Supreme Court affirmed. Buford, 532 U.S. at 60. Based on
its reading of S 3742, the Supreme Court held that
appellate courts should review "deferentially" trial court
determinations about whether previous criminal cases were
consolidated under the Guidelines. Buford, 532 U.S. at 64.
Buford did not define deferential review, but we conclude,
as the Seventh Circuit did, see 201 F.3d at 941, that it
means clear error review in this context. Although guided
by legal principles, sentencing judges conduct a factual
inquiry when determining whether a victim is particularly
vulnerable. The alternative understanding of deferential
would be abuse of discretion, but that standard does not fit
as well here. The question is not whether the District Court
abused its discretion in choosing among different courses of
action. Instead, it is whether the Court perceived the facts
correctly.
The reasons for applying deferential review in Buford
apply here as well. As in Buford, the question of whether a
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victim is particularly vulnerable is one in which"factual
nuance may closely guide the legal decision, with legal
results depending heavily upon an understanding of the
significance of case-specific details." 532 U.S. at 65. Thus,
while we exercise plenary review over the legal question of
who can be a victim for purposes of the vulnerable victim
enhancement, we review deferentially (i.e., for clear error)
the District Court’s determination that Zats’ victims were
particularly vulnerable.
III. Discussion
We affirm Zats’ sentence because he satisfies the
standard in U.S.S.G. S 3A1.1(b)(1) and the accompanying
application note.3 Section 3A1.1(b)(1) states: "If the
defendant knew or should have known that a victim of the
offense was a vulnerable victim, increase by 2 levels."
We employ a three-part test to determine whether a
vulnerable victim enhancement is appropriate:
The enhancement may be applied where: (1) the victim
was particularly susceptible or vulnerable to the
criminal conduct; (2) the defendant knew or should
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3. The application note for U.S.S.G. S 3A1.1 provides in relevant part:
For purposes of subsection (b), "vulnerable victim" means a
person (A) who is a victim of the offense of conviction and any
conduct for which the defendant is accountable underS1B1.3
(Relevant Conduct); and (B) who is unusually vulnerable due to age,
physical or mental condition, or who is otherwise particularly
susceptible to the criminal conduct.
Subsection (b) applies to offenses involving an unusually
vulnerable victim in which the defendant knows or should have
known of the victim’s unusual vulnerability. The adjustment would
apply, for example, in a fraud case in which the defendant marketed
an ineffective cancer cure or in a robbery in which the defendant
selected a handicapped victim. But it would not apply in a case in
which the defendant sold fraudulent securities by mail to the
general public and one of the victims happened to be senile.
Similarly, for example, a bank teller is not an unusually vulnerable
victim solely by virtue of the teller’s position in a bank.
U.S.S.G. S 3A1.1, cmt. n.2.
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have known of this susceptibility or vulnerability; and
(3) this vulnerability or susceptibility facilitated the
defendant’s crime in some manner; that is, there was
‘a nexus between the victim’s vulnerability and the
crime’s ultimate success.’
Iannone, 184 F.3d at 220 (quoting Monostra, 125 F.3d at
190).
Zats offers several reasons why the enhancement should
not apply to him. None is persuasive. At the outset, we note
that Zats does not challenge the Government’s facts;
indeed, he stipulated to them. He challenges only the
District Court’s interpretation and application of the
vulnerable victim enhancement.
A. Victim status
Zats’ first argument is that the "victims" to which the
vulnerable victim enhancement refers must be the victims
of the offense of conviction. He contends that because he
pled guilty only to defrauding his clients, who were not
vulnerable, the enhancement cannot apply.
The cases on this issue and the language of the
Sentencing Guidelines refute Zats’ argument. The
application note for U.S.S.G. S 3A1.1(b) states in relevant
part:
For purposes of subsection (b), "vulnerable victim"
means a person (A) who is a victim of the offense of
conviction and any conduct for which the defendant is
accountable under S1B1.3 (Relevant Conduct) .. . .
U.S.S.G. S 3A1.1, cmt. n.2 (emphasis added). The
application note thus refers not only to conduct involved in
the offense of conviction, but also to any relevant conduct
under S 1B1.3. Section 1B1.3(a) includes the following as
relevant conduct:
(1)(A) all acts and omissions committed, aided,
abetted, counseled, commanded, induced, procured, or
willfully caused by the defendant; and
. . . .
(3) all harm that resulted from the acts and
omissions specified in subsections (a)(1) and (a)(2)
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above, and all harm that was the object of such acts
and omissions . . . .
U.S.S.G. S 1B1.3(a). In United States v. Cruz, 106 F.3d 1134(3d Cir. 1997), we found that "neither S 3A1.1(b) nor the
application note explicitly requires that we read‘victim’
narrowly and that, under S 1B1.3, we may look at all the
conduct underlying the offense of conviction." Id. at 1137(emphasis added). We then applied the enhancement where
the defendant sexually assaulted a twelve-year-old victim in
the process of stealing a car and later pled guilty only to
carjacking. Id. Likewise, in Monostra , we said that "the
drafters of the Sentencing Guidelines did not intend to limit
the application of S 3A1.1(b) to situations in which the
vulnerable person was the victim of the offense of
conviction. Rather, trial courts may look to all the conduct
underlying an offense, using S 1B1.3 as a guide." 125 F.3d
at 189. We held that the enhancement could apply where
the defendant bilked a small business in the course of
defrauding a bank. Id. In addition, other courts of appeals
have applied the enhancement where doctors exploited
patients in order to submit fraudulent medical insurance
claims. See, e.g., United States v. Bachynsky, 949 F.2d 722,
735-36 (5th Cir. 1991); United States v. Echevarria, 33 F.3d
175, 180-81 (2d Cir. 1994).
One argument that neither Zats nor any of our cases
raises, but which we address nonetheless, is that the
application note for U.S.S.G. S 3A1.1(b) says that a victim
must be a "victim of the offense of conviction and any
conduct for which the defendant is accountable under
S1B1.3." U.S.S.G. S 3A1.1, cmt. n.2 (emphasis added). The
use of "and" here is troubling because it suggests that a
"vulnerable victim" must be harmed by both the offense of
conviction and by relevant conduct outside that offense.
Under that reasoning, Cruz was wrongly decided because
the vulnerable victim (a twelve-year old girl raped during a
carjacking) was not also the victim of the offense of
conviction (the stolen car’s driver), Cruz, 106 F.3d at 1137,
and the debtors in this case--who are not victims of any
offense of conviction--are not victims for purposes of the
enhancement.
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However, we will not adopt this reading. The Sentencing
Commission could not have intended to define "victim" for
sentencing purposes more narrowly than for the offense of
conviction itself, and we will not read a text to produce
absurd results plainly inconsistent with the drafters’
intentions. See Public Citizen v. U.S. Dep’t of Justice, 491
U.S. 440, 452-55 (1989). At the same time, it cannot be
that the Commission meant to say "or" instead of "and."
That would render the "offense of conviction" clause
redundant because "relevant conduct" already includes the
offense of conviction. We conclude that the drafters
obviously intended to define "victim" to mean anyone hurt
by conduct for which the defendant is accountable under
S1B1.3. That reading is consistent with our precedents and
with common sense. Therefore, victim status is not limited
to those hurt by the offense of conviction, but also includes
those hurt by relevant conduct outside that offense.
In his brief, Zats does not address the holdings in Cruz
and Monostra on this issue even though the District Court
explicitly relied on them. In any event, Zats could not have
refuted our rule that, for the vulnerable victim
enhancement to apply, the victim injured by the
defendant’s relevant conduct need not also be injured by
the offense of conviction. See Cruz, 106 F.3d at 1137;
Monostra, 125 F.3d at 189. Zats intimidated the debtors
and violated their rights under the Fair Debt Collection
Practices Act. Applying SS 1B1.3 and 3A1.1(b), we find this
sufficient to deem the debtors victims of Zats’ conduct for
purposes of the vulnerable victim enhancement.
B. The Requirements for a Vulnerable Victim
Enhancement
1. Particular vulnerability
The first requirement under Iannone for imposing a
vulnerable victim enhancement is that the victim be
"particularly susceptible or vulnerable to the criminal
conduct." 184 F.3d at 220. Zats’ victims, many of whom
were poor, sick, facing personal emergencies, or all three,
qualify. Victims can be vulnerable for the reasons listed in
the application note--age, physical or mental condition--or
simply because one is "otherwise particularly susceptible to
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the criminal conduct." U.S.S.G. S 3A1.1, cmt. n.2. Financial
vulnerability is one way a victim can be "otherwise
particularly susceptible." See United States v. Arguedas, 86
F.3d 1054, 1058 (11th Cir. 1996); United States v. Borst, 62
F.3d 43, 46-47 (2d Cir. 1995).
The Second Circuit has stated that "[t]he correct test [for
vulnerability] calls for an examination of the individual
victims’ ability to avoid the crime rather than their
vulnerability relative to other potential victims of the same
crime." United States v. McCall, 174 F.3d 47, 51 (2d Cir.
1998). We agree with this standard. The issue in our case
is whether an individual debtor’s circumstances made Zats’
improper debt collection methods particularly likely to
succeed against him or her, not merely whether the debtor
is more vulnerable than most debtors. There are some
crimes to which almost no victims are particularly
vulnerable. For example, few bank tellers are particularly
vulnerable to bank robbery. There are other crimes,
however, such as fraudulently marketing cancer remedies
to cancer patients, to which many (if not most) victims may
be particularly vulnerable. See id.Our objective is to provide extra deterrence for
defendants who are especially likely to succeed in their
criminal activities because of the vulnerability of their prey.
An extra dose of punishment removes the criminal’s
incentive to facilitate his crime by selecting victims against
whom he actually will enjoy a high probability of success.
At the same time, presumed vulnerabilities among broad
classes of victims--such as an assumption that all elderly
people are easily fooled--are disfavored as a basis for the
enhancement because such presumptions are often
incorrect with respect to specific individuals. See, e.g., id. at
50. Focusing the enhancement on group-based
assumptions would permit criminals to reduce their
sentencing exposure by victimizing individuals who do not
belong to traditionally disadvantaged groups. Thus, we look
to the individual vulnerabilities of the actual victims of the
crime that occurred.
Many of Zats’ victims were particularly vulnerable to his
Scrooge-like practices because they could not afford to have
their accounts frozen, even temporarily. Many were poor
9
and lacked access to outside funds or support. Some were
severely ill, which is not surprising because Zats specialized
in collecting debts for doctors. And, given their responses to
Zats, many of the debtors were completely ignorant of their
legal rights.
As explained above, we review the District Court’s factual
determination that these victims were vulnerable only for
clear error. The Court did not clearly err here. The record
is replete with examples of highly vulnerable victims, and
Zats has stipulated that the Government could prove the
historical facts underlying those examples.
2. Knowledge
The second requirement is that "the defendant knew or
should have known of this susceptibility or vulnerability."
Iannone, 184 F.3d at 220. Zats satisfies this requirement.
He misleadingly argues that he did not target anyone
because they were poor. Assuming that is true, although
the evidence in the record shows otherwise, it is irrelevant.
The Guidelines do not require that the defendant actually
target his victims or otherwise seek them out because of
their vulnerability. To the contrary, the Guidelines’
commentary was amended in November 1995 to clarify that
there is no targeting requirement. See Cruz, 106 F.3d at
1138; United States v. Paneras, 222 F.3d 406, 413 (7th Cir.
2000).4 What matters is not whether Zats wanted to exploit
vulnerable victims, but whether he knew or should have
known that he was doing so.5
Zats had every reason to know of his victims’
vulnerabilities. He knew that the debts he collected were
mostly for medical treatment and that the debtors were
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4. In fact, we have held that, even under the pre-amendment
commentary, S 3A1.1 did not contain a targeting requirement. See Cruz,
106 F.3d at 1139.
5. The "knew or should have known requirement" is the reason that the
application note says that the enhancement "would not apply in a case
in which the defendant sold fraudulent securities by mail to the general
public and one of victims happened to be senile." U.S.S.G. S 3A1.1, cmt.
n.2. The missing element in that case is that the defendant had no
reason to know such a victim existed; that he did not target a senile
victim is irrelevant.
10
therefore likely to be less resistant. Moreover, he knew that
his high-pressure tactics worked best against debtors who
were impoverished, facing family or health emergencies,
and ignorant of their legal rights. Many of the people he
pursued badly needed cash when he seized their accounts,
and thus quickly yielded to his pressure.
Furthermore, Zats knew that at least some debtors were
particularly vulnerable because they told him so. The
Government’s brief recounts case after case in which a
debtor told Zats that she could not afford to have her
account frozen even temporarily because she or one of her
family members was seriously ill, handicapped, or facing a
personal emergency. Zats invariably replied that he did not
care and kept after the debtor until he or she appeared at
his office with cash. His behavior leaves no doubt that he
knew of his victims’ particular vulnerabilities.
Moreover, the language "knew or should have known"
means that negligence is a sufficient level of culpability for
a S 3A1.1 enhancement. "A person acts negligently with
respect to a material element of an offense when he should
be aware of a substantial and unjustifiable risk that the
material element exists or will result from his conduct."
Model Penal Code S 2.02(2)(d). Unlike recklessness, which
requires conscious disregard of a substantial risk of serious
harm, negligence requires no actual awareness of the risk.
See United States v. Trinidad-Aquino, 259 F.3d 1140, 1146
(9th Cir. 2001); Model Penal Code S 2.02(2)(c), (d). Zats was
at least negligent as to whether his victims were vulnerable.
The record leaves no doubt that he should have been aware
of a substantial and unjustifiable risk that many debtors
paid him because they desperately needed access to their
accounts and could not wait for legal help. He obviously
knew that most had fallen behind on paying their medical
bills, suggesting that they were both poor and sick.
Moreover, Zats designed his methods to exploit their
vulnerabilities. His extortionary tactics would be less likely
to succeed against a debtor who had enough cash to
sustain himself temporarily, who could rely on his family or
friends, or who had a rudimentary knowledge of his legal
rights.
11
Zats’ brief suggests that he cannot receive a vulnerable
victim enhancement unless he knew in advance about the
particular vulnerabilities of the debtor from whom he was
trying to collect. There is no such requirement. Nothing in
the Guidelines requires that an offender have prior
knowledge of his victim’s vulnerabilities. The applicable
guideline requires only that he "knew or should have
known." U.S.S.G. S 3A1.1(b)(1). That knowledge or notice
could arise during the course of an ongoing offense such as
fraud. Indeed, Zats’ own brief cites an Eleventh Circuit case
stating that "even if [the defendant] did not initially know of
[the victim’s] vulnerability, he warrants aS 3A1.1
enhancement because he learned of the vulnerability
during the course of the . . . fraud and thereafter continued
to perpetrate the fraud." Arguedas, 86 F.3d at 1058.6
Finally, the Government need not prove that every, or
even most, of Zats’ victims were vulnerable or that he knew
or should have known of the vulnerabilities in every case.
The language of the guideline requires only that"a victim of
the offense was a vulnerable victim." U.S.S.G.S 3A1.1(b)(1)
(emphasis added); see also United States v. Smith, 133 F.3d
737, 749 (10th Cir. 1997) ("A single vulnerable victim is
sufficient to support application of the enhancement."). The
examples we have mentioned much exceed this low
threshold.
3. Facilitation
The third requirement is that the debtor’s "vulnerability
or susceptibility facilitated the defendant’s crime in some
manner; that is, there was ‘a nexus between the victim’s
vulnerability and the crime’s ultimate success.’ " Iannone,
184 F.3d at 220 (quoting Monostra, 125 F.3d at 190).
Sometimes a victim’s vulnerability makes him sympathetic
but does not facilitate the crime. See Monostra , 125 F.3d at
191 (finding no indication that victim’s visual impairment
facilitated defendant’s efforts to defraud banks). In this
case, however, a clear causal connection exists. The
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6. Moreover, Zats’ argument that he did not have advance knowledge
once again ignores the "should have known" language of S 3A1.1(b)(1).
Zats should have known many of the debtors were particularly
vulnerable before communicating with them.
12
debtors’ particular vulnerabilities made it much more likely
that Zats’ heavy-handed methods would succeed. It is
difficult to conceive that debtors with more financial
resources, less urgent personal circumstances, or a better
understanding of their rights would have agreed to his
demands. In many cases, Zats collected from debtors who
owed no debt or less than he claimed. In other cases, he
apparently collected funds that were legally exempt from
collection. Less vulnerable debtors might have refused to
cooperate and in any event would have been better able to
protect their rights.
Completing the causal chain, the ability to collect from
vulnerable debtors allowed Zats to commit the crimes to
which he pled guilty--defrauding the creditors who were his
clients. Thus, the vulnerabilities that Zats exploited in the
debtors sufficiently facilitated his offenses.
IV. Conclusion
The debtors in this case are properly considered victims
of Zats’ conduct, even though they are not direct victims of
the particular offenses to which Zats pled guilty. The
Government’s statements at sentencing demonstrate that
many of the debtors were particularly vulnerable to his
methods, and Zats stipulated that the Government can
prove its facts. The Court thus did not clearly err in finding
that many of the victims were particularly vulnerable.
Moreover, Zats’ conduct leaves no doubt that he knew or
should have known about his victims’ particular
vulnerabilities to his debt collection methods. Finally, those
vulnerabilities sufficiently facilitated Zats’ efforts to defraud
his clients. For these reasons the judgment of the District
Court is affirmed.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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