United States v. Paul Piper ( 2021 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 21a0500n.06
Case No. 20-1867
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
) Nov 02, 2021
UNITED STATES OF AMERICA, DEBORAH S. HUNT, Clerk
)
)
Plaintiff-Appellee,
) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v.
) COURT FOR THE WESTERN
) DISTRICT OF MICHIGAN
PAUL PATRICK PIPER,
)
) OPINION
Defendant-Appellant.
)
BEFORE: GUY, COLE, and STRANCH, Circuit Judges.
COLE, Circuit Judge. Paul Piper pleaded guilty to one count of bank fraud in violation of
18 U.S.C. §§ 1344(a)(1) and (2), and one count of filing a false tax return in violation of 26 U.S.C.
§ 7206(1). Piper now appeals his 63-month sentence, arguing that the district court erred in
applying a two-level enhancement for causing substantial harm to a victim under U.S.S.G.
§ 2B1.1(b)(2)(A)(iii) and that the district court applied the wrong standard when evaluating
whether a downward departure was warranted. Because the district court did not clearly err in
concluding that Piper’s offense caused his victim “substantial harm,” and because the district court
did not err when denying Piper’s departure, we affirm.
Case No. 20-1867, United States v. Piper
I.
Paul Piper served as the financial controller of Lake Michigan Car Ferry (“Car Ferry”) for
over 25 years. From at least 2007 until his employment was terminated in April 2018, Piper used
his position to mask his embezzlement of over $1.7 million from his employer. On June 1, 2020,
Piper pleaded guilty to one count of bank fraud in violation of 18 U.S.C. §§ 1344(a)(1) and (2),
and one count of filing a false tax return in violation of 26 U.S.C. § 7206(1) pursuant to a plea
agreement.
The U.S. Probation and Pretrial Services Office then prepared a Presentence Investigation
Report (“PSR”), which calculated Piper’s sentencing guidelines range at 63 to 78 months, based
on a criminal history category I and an offense level of 26. The offense level included a two-level
enhancement for causing a substantial hardship to Piper’s victim. The PSR recommended
applying the enhancement for four reasons. First, Piper’s failure to make timely payments of
payroll taxes resulted in Car Ferry having to pay substantial penalties and interest. Second, Car
Ferry had to borrow substantial amounts of money from financial institutions to meet operating
expenses because of the deficit introduced by Piper’s theft. Third, Piper contributed to employee
401(k) plans late, resulting in extra expense because of the need to pay beneficiaries the amount
of lost investment income from the late funding. And fourth, Car Ferry lost state-backed
unemployment insurance because of Piper’s theft, and therefore incurred increased costs
associated with having to self-fund unemployment claims.
At sentencing, Piper argued that the enhancement was inapplicable because while Car
Ferry experienced hardship, it was not “substantial” as contemplated by the Guidelines. The
district court overruled Piper’s objection. The district court emphasized that the harm to Car
Ferry’s credit was a motivating factor for its decision. Following Piper’s embezzlement, Car
Ferry’s primary lender—Chemical Bank—insisted that Car Ferry consolidate “a significant
-2-
Case No. 20-1867, United States v. Piper
portion” of its debt to loans backed by a Small Business Administration guaranty as a condition of
continuing the lending relationship. This forced Car Ferry to pay over $100,000 in loans fees and
higher interest rates. Additionally, the owners were required to execute a personal guaranty of all
of Car Ferry’s existing debt “for the first time[.]” Finally, Chemical Bank indicated that it “was
not as willing to lend additional funds to the company,” and that requests for additional credit
would be “met with substantially more analysis and less favorable terms than in the past, as
evidenced by the new terms imposed upon the Car Ferry.” The district court concluded that the
harm to Car Ferry’s credit and banking relationship, along with the adverse impact on its owners,
the harms identified in the PSR, and the amount of money stolen from a business that was “treading
water” constituted substantial harm under the Guidelines.
Piper also moved for a downward departure from the Guidelines due to his health. Piper
argued that certain physical conditions—including obesity and unidentified throat issues related to
his asthma, allergies, and smoking—placed him at a higher risk for contracting COVID-19 and
having complications from the illness. This, in his view, warranted placement in home
confinement, rather than a correctional facility which he noted “are, of course, breeding grounds
for infectious diseases[.]”
The district court declined to grant a downward departure. The district court found that a
term of incarceration was necessary, both for “specific deterrence” and “punishment” as to Piper,
but also “general deterrence for other people who are looking at the cost of this kind of
wrongdoing.” See 18 U.S.C. §§ 3553(a)(2)(A)–(B). Although the district court found that Piper
had “general health issues,” it concluded that the Bureau of Prisons was “capable of addressing
those things.” Further, while it agreed that COVID-19 was something that “everybody is naturally
concerned of,” it did not agree that Piper’s health conditions in conjunction with the pandemic
-3-
Case No. 20-1867, United States v. Piper
warranted a downward departure. Rather, he was in “the more general category of anyone who
would want to avoid getting [COVID-19] if possible but who c[ould] be managed should he be
exposed to it.”
Piper timely filed a notice of appeal.
II.
We will first address the application of the two-level enhancement for an offense involving
a “substantial financial hardship” to one or more victims.
A.
In reviewing a district court’s application of the Sentencing Guidelines, we “accept the
findings of fact of the district court unless they are clearly erroneous.’” United States v. Moon,
513 F.3d 527, 539 (6th Cir. 2008). “Clear error will be found only when the reviewing court is
left with the definite and firm conviction that a mistake has been committed.” Max Trucking, LLC
v. Liberty Mut. Ins. Corp., 802 F.3d 793, 808 (6th Cir. 2015). “We review a district court’s legal
conclusions regarding the Sentencing Guidelines de novo.” Moon, 513 F.3d at 540.
B.
A court may increase a defendant’s offense level by two if the given offense results in
“substantial financial hardship to one or more victims.” U.S.S.G. § 2B1.1(b)(2)(A)(iii). “Victim”
means “any person who sustained any part of the actual loss determined under subsection (b)(1),”
and “‘[p]erson’ includes individuals, corporations, [and] companies[.]” U.S.S.G. § 2B1.1, cmt.
n.1. This enhancement “advises sentencing courts to consider the extent of the harm rather than
merely the total number of victims of the offense (as its predecessor did) in an effort to ‘place
greater emphasis on the extent of harm that particular victims suffer as a result of the offense.’”
United States v. Howder, 748 F. App’x 637, 642 (6th Cir. 2018) (quoting United States v. Poulson,
871 F.3d 261, 267 (3d Cir. 2017)).
-4-
Case No. 20-1867, United States v. Piper
When determining whether a victim’s hardship was substantial, “a sentencing court may
make reasonable inferences about the victims’ financial circumstances and about their level of
financial harm, so long as those inferences find some support in the record.” Howder, 748 F.
App’x at 644. While “substantial harm” is undefined by the plain text of the Guidelines, the
application notes provide a list of non-exclusive factors to assist courts in interpreting this
provision. These factors include, but are not limited to, offenses that resulted in the victim:
(i) becoming insolvent;
(ii) filing for bankruptcy under the Bankruptcy Code (Title 11, United States
Code);
(iii) suffering substantial loss of a retirement, education, or other savings or
investment fund;
(iv) making substantial changes to [their] employment, such as postponing [their]
retirement plans;
(v) making substantial changes to [their] living arrangements, such as relocating to
a less expensive home; and
(iv) suffering substantial harm to [their] ability to obtain credit.
U.S.S.G. § 2B1.1, cmt. n.4(F).
This enhancement is relatively new, therefore “Sixth Circuit precedent in its application is
scarce[.]” United States v. Johnson, 830 F. App’x 153, 161 (6th Cir. 2020). However, several
circuits have recognized the broad discretion given to district courts in determining whether the
harm to a victim was “substantial.” See e.g., Poulson, 871 F.3d at 268; United States v. Castaneda-
Pozo, 877 F.3d 1249, 1252–53 (11th Cir. 2017); United States v. Minhas, 850 F.3d 873, 877–79
(7th Cir. 2017); United States v. Brandriet, 840 F.3d 558, 561 (8th Cir. 2016). Importantly,
“between a minimal loss or hardship . . . and a devastating loss . . . there lies a wide range in which
we rely upon the judgment of the district courts, guided by the non-exhaustive list of factors in
Application Note 4.” Minhas, 850 F.3d at 878.
-5-
Case No. 20-1867, United States v. Piper
C.
Piper disagrees with the district court’s factual interpretation of the harm incurred by Car
Ferry, primarily motivated by the fact that the district court examined factors outside of those
enumerated by the commentary to the Guidelines. However, the factors outlined in the application
notes are not binding, nor are they exclusive. See United States v. Havis, 927 F.3d 382, 386 (6th
Cir. 2019) (“[A]pplication notes are to be interpretations of, not additions to, the Guidelines
themselves[.]” (quotations and emphases omitted)); U.S.S.G. § 2B1.1, cmt. n.4(F) (“the court shall
consider, among other factors . . .” (emphasis added)). So long as the district court’s inferences
about Car Ferry’s financial harm find some support in the record, the district court’s determination
“is entitled to the normal deference that applies to all facts found at sentencing.” Minhas, 850 F.3d
at 878.
Piper also argues that he should not be held responsible for financial harms tangentially
related to his crime because Car Ferry was in a fragile financial state before his embezzlement.
This enhancement, however, is specifically designed to hold defendants like Piper responsible for
the harm they inflict on more financially insecure businesses or people because it requires a court
to take into consideration the individual financial circumstances of the victims. See Howder, 748
F. App’x at 642. Therefore, while Piper may not be directly responsible for the state of Car Ferry’s
finances, the financial health of the business in conjunction with the harm caused by Piper bears
directly on the applicability of the enhancement.
Because the district court relied on facts in the record to support its finding that Piper
caused Car Ferry substantial harm, and because we are not left with a definite and firm conviction
that a mistake has been committed, the district court’s application of the sentencing enhancement
is affirmed.
-6-
Case No. 20-1867, United States v. Piper
III.
We will now turn to the district court’s refusal to implement a downward departure. While
a district court’s refusal to depart downward is normally not reviewable on appeal, United States
v. Santillana, 540 F.3d 428, 431 (6th Cir. 2008), Piper contends that this sentencing decision is
reviewable under 18 U.S.C. § 3742(a)(2) because the district court incorrectly applied the
Guidelines. Piper argues that the district court “only considered whether the [Bureau of Prisons]
could ‘handle’ [his] health conditions and did not consider whether his health conditions were
‘extraordinary’ in light of COVID-19.” Piper also contends that the district court failed to address
“whether home confinement would be equally efficient and less costly,” as this court requires.
Because Piper failed to object1 to the district court’s failure to depart, the denial is subject
to plain error review. See United States v. Simmons, 587 F.3d 348, 360 (6th Cir. 2009). “Plain
error is ‘(1) error (2) that was obvious or clear, (3) that affected [the] defendant’s substantial rights
and (4) that affected the fairness, integrity, or public reputation of the judicial proceedings.’”
United States v. Hall, 979 F.3d 1107, 1119 (6th Cir. 2020) (quoting United States v. Wells,
623 F.3d 332, 337 (6th Cir. 2010)).
“[A]ge and physical condition are not prohibited considerations, but they are discouraged
factors that justify a downward departure only in extraordinary situations.” United States v. Bostic,
371 F.3d 865, 875 (6th Cir. 2004) (citing U.S.S.G. §§ 5H1.1, 5H1.4). The record reflects that the
district court explicitly found that Piper’s health conditions were not extraordinary, even
considering COVID-19. At sentencing, the district court noted that not only could the Bureau of
1
Piper contends that the denial is subject to de novo review because he raised the issue at sentencing and the
district court interpreted § 5H1.4 incorrectly. Yet, once the sentencing court made its factual findings it specifically
asked whether defense counsel had any legal objections, and counsel failed to object to the district court’s findings.
Therefore, plain error review applies.
-7-
Case No. 20-1867, United States v. Piper
Prisons handle Piper’s health conditions despite the pandemic, but that he might even be safer in
a correctional facility because “the Bureau doesn’t designate people on the front end to places that
have COVID outbreaks for obvious reasons, so he [was] [] likely to wind up in a place that’s under
control.” The district court also explicitly compared Piper’s health to the health of the individuals
the district court had found eligible for compassionate release due to COVID-19 and concluded
that Piper’s health conditions did not place him at such a high risk of complications from COVID-
19 that he required home confinement. Because the district court found that Piper’s health
conditions were not extraordinary even in light of the pandemic, it did not err, let alone plainly err,
in its application of § 5H1.4.
Further, we have held that when granting a downward departure based on age or health,
the district court is “require[d] . . . to consider the relative costs and efficiency of home
confinement and imprisonment.” Bostic, 371 F.3d at 875 (6th Cir. 2004) (citing U.S.S.G.
§§ 5H1.1, 5H1.4). It is undisputed that the district court did not do so here. However, where no
extraordinary circumstance exists, the district court is not required to examine whether home
confinement is more efficient. See U.S.S.G. § 5H1.4 (“[I]n the case of a seriously infirm
defendant, home detention may be as efficient as, and less costly than, imprisonment.” (emphasis
added)). Because Piper’s health conditions were not extraordinary, the district court did not err in
failing to address the costs and efficiency of home confinement.
IV.
For the foregoing reasons, we affirm Piper’s 63-month sentence.
-8-