United States v. Hairston ( 1996 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v. No. 95-5771
DELORES ELEASE HAIRSTON,
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, District Judge.
(CR-94-153-MU)
Argued: March 8, 1996
Decided: September 16, 1996
Before MURNAGHAN and MOTZ, Circuit Judges, and LEGG,
United States District Judge for the District of Maryland, sitting by
designation.
_________________________________________________________________
Reversed and remanded by published opinion. Judge Motz wrote the
opinion, in which Judge Murnaghan and Judge Legg joined.
_________________________________________________________________
COUNSEL
ARGUED: Brian Lee Whisler, Assistant United States Attorney,
Charlotte, North Carolina, for Appellant. E. Fitzgerald Parnell, III,
POYNER & SPRUILL, L.L.P., Charlotte, North Carolina, for Appel-
lee. ON BRIEF: Mark T. Calloway, United States Attorney, Ashe-
ville, North Carolina, for Appellant.
_________________________________________________________________
OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
The Government appeals the district court's decision to depart
from the Sentencing Guidelines due to the defendant's "extraordinary
restitution." The defendant's restitution, offered to settle her civil lia-
bility to her employer, equaled less than half the amount she embez-
zled and came not from her own funds but from the generosity of
friends. Concluding that the district court abused its discretion in find-
ing that these circumstances merited departure, we reverse.
I.
The parties do not dispute the underlying facts of this case. Delores
Hairston worked as a branch manager for the First Union National
Bank of North Carolina. Beginning in August 1987, Hairston began
diverting bank funds to her personal use. Her managerial position
enabled her to avoid detection for more than five years, and she ulti-
mately embezzled a total of $607,777.08. Her scheme came to an end,
however, when an internal bank audit in 1993 uncovered certain "ir-
regularities" attributable to her conduct. When bank officials con-
fronted Hairston about the irregularities, she admitted the theft.
In May 1994, during an interview with agents of the Federal
Bureau of Investigation, Hairston disclosed that she had expended all
of the embezzled funds. She spent the stolen money: (1) to pay for
her children's college expenses; (2) to make up for losses on
defaulted loans of bank customers; (3) to provide personal loans to
friends and others; (4) to contribute to church-related activities; and
(5) to buy personal items, including clothes and jewelry.
While federal authorities pursued their investigation, Hairston
attempted to reach a civil settlement with the bank. On August 5,
1994, Hairston gave a sworn statement to the bank in which she
averred that she had spent all the diverted funds and had few available
assets. On October 3, 1994, a federal indictment was returned charg-
ing Hairston with bank embezzlement, making false entries in bank
records, and bank fraud.
2
On February 28, 1995, Hairston and the bank entered into a settle-
ment agreement and release. Hairston, through the generosity of
friends and her church, repaid the bank $250,000 to settle her civil lia-
bility. In return, a bank official promised to testify, during Hairston's
criminal proceedings, as to his belief that the $250,000 payment con-
stituted "extraordinary restitution."
Thereafter, on March 8, 1995, Hairston entered into a plea agree-
ment with the Government in which she agreed to plead guilty to the
charge of bank fraud. At a sentencing hearing, Hairston introduced
the bank officer's testimony and contended that her efforts at restitu-
tion merited a departure from the Guidelines.
The district court accepted Hairston's argument, finding that the
Bank would not have recovered any of its loss but for Hairston's
extraordinary efforts at restitution. The court determined that her
efforts merited a departure from the Guidelines and reduced her
offense level by five, from seventeen to twelve. The court then sen-
tenced Hairston to six months imprisonment, followed by six months
probation and three years of supervised release; without the departure,
her sentencing range would have been twenty-four to thirty months
imprisonment.
II.
The Government contends that the district court improperly consid-
ered the $250,000 Hairston obtained from her friends in determining
whether to grant Hairston a departure from the appropriate Guideline
range. The Government does not maintain that "extraordinary restitu-
tion" may never provide a proper basis for departure from the Guide-
lines, but asserts that under the facts of this case, the district court
abused its discretion in finding Hairston's restitution "extraordinary."
Hairston counters that because the total amount of restitution was sub-
stantial and because the victim of the embezzlement-- the bank --
would have recovered nothing absent the restitution, the district court
properly found the circumstances "extraordinary" and appropriately
departed from the Guidelines.
A.
The Supreme Court recently clarified the appropriate standard of
appellate review of a district court's decision to depart from the
3
Guidelines. Koon v. United States, #6D6D 6D# U.S. ___, 116 S. Ct. 2035
(1996). Koon had been argued but not decided when we heard oral
argument in this case. Accordingly, we held this case in abeyance
while awaiting the Supreme Court's opinion. In the wake of it, we
asked the parties to file supplemental briefs on the opinion's impact
on this case, which they have now done.
In Koon, the Supreme Court directed that"appellate court[s] should
not review the departure decision de novo, but instead should ask
whether the sentencing court abused its discretion." Id. at 2043. The
Court explained that a deferential standard of review was appropriate
because although the Guidelines were intended to cabin the sentenc-
ing court's discretion in the typical case, see U.S.S.G. Ch. 1, Pt. A,
intro., Congress and the Sentencing Commission had not intended to
wholly divest district courts of their traditional sentencing functions.
Id. at 2044. As the Court explained:
Acknowledging the wisdom, even the necessity, of sentenc-
ing procedures that take into account individual circum-
stances, see 28 U.S.C. § 991(b)(1)(B), Congress allows
district courts to depart from the applicable Guideline range
if "the court finds that there exists an aggravating or mitigat-
ing circumstance of a kind, or to a degree, not adequately
taken into consideration by the Sentencing Commission in
formulating the guidelines that should result in a sentence
different from that described." 18 U.S.C. § 3553(b). To
determine whether a circumstance was adequately taken into
consideration by the Commission, Congress instructed
courts to "consider only the sentencing guidelines, policy
statements, and official commentary of the Sentencing Com-
mission." Ibid.
Turning our attention, as instructed, to the Guidelines
Manual, we learn that the Commission did not adequately
take into account cases that are, for one reason or another,
"unusual." 1995 U.S.S.G. ch. 1, Pt. A, intro. comment. 4(b).
Id. (emphasis added).
To aid sentencing courts in determining if an asserted basis for
departure removes a case from the "usual" (the"heartland" for which
4
the guideline was designed), the Commission lists several factors that
may never provide a proper basis for departure (e.g., race, sex,
national origin, etc.). "[W]ith the exception of those listed factors,"
the Commission states that it "does not intend to limit the kinds of
factors, whether or not mentioned anywhere else in the guidelines,
that could constitute grounds for departure in an unusual case." Id.
(quoting 1995 U.S.S.G. ch. 1, Pt. A, intro. comment. 4(b)). For further
guidance, however, the Commission enumerates certain other factors
that it views as either "encouraged," see U.S.S.G § 5K2.0 et seq., or
"discouraged" bases for departure. See U.S.S.G. § 5H1.1 et seq.
If the special feature suggested as a basis for departure is an
encouraged factor, then a court can depart on that basis, if that feature
is not already taken into account in the applicable guideline. If the
special feature is a discouraged factor, or an encouraged factor
already taken into account in the applicable guideline, then a court
can depart "only if the factor is present to an exceptional degree or
in some other way makes the case different from the ordinary case
where the factor is present." Koon, 116 S. Ct. at 2045. Finally, if the
special feature is not mentioned at all in the Guidelines, before depart-
ing on this basis, a court must consider the "structure and theory" of
the relevant individual guideline and the Guidelines as a whole, bear-
ing in mind that departures on the basis of factors not mentioned in
the Guidelines will be "highly infrequent." Id.
The Supreme Court in Koon repeatedly emphasized the sentencing
court's primacy in determining whether a factor merits departure in
the individual case. Due to its greater experience with sentencing
determinations, the district court enjoys an "institutional advantage"
over an appellate court in making this determination. Id. at 2047.
In performing its role, the sentencing court's duty is to make a "re-
fined assessment of the many facts bearing on the outcome, informed
by [the court's] vantage point and day-to-day experience in criminal
sentencing." Id. at 2046-47. Thus, a sentencing court must determine
not as a general matter whether a suggested basis for departure is
within the heartland, but whether it is within the heartland given the
specific facts of the particular case. Id. Although the sentencing court
may rely on its individual sentencing experience, this factor is not
solely determinative and the question of "[w]hether a given factor is
5
present to a degree not adequately considered by the Commission, or
whether a discouraged factor nonetheless justifies departure because
it is present in some unusual or exceptional way, are matters deter-
mined in large part by comparison with the facts of other guidelines
cases." Id. at 2047.
An appellate court generally gives "substantial deference" to the
district court's decision to depart, but appellate review is not an
"empty exercise." Id. at 2046. Totally unfettered discretion on the dis-
trict court's part would simply raise anew the problems with sentenc-
ing disparity that Congress created the Sentencing Guidelines scheme
to prevent. Thus, in performing its review, an appellate court, like the
sentencing court, must consider both existing case law and the "struc-
ture and theory" of the Guidelines as a whole, and, with due regard
to the district court's institutional advantage, assess whether the cir-
cumstances of the particular case are so exceptional as to take the case
out of the heartland and warrant departure from the Guidelines.
We set out the Supreme Court's analysis in Koon at some length
because the standard of appellate review established therein uses a
different nomenclature than the one previously applied in this circuit.
We had previously applied a multi-part analysis involving:
(1) a de novo standard [of review] to determine whether
the reasons the district court used to support its departure
encompassed a factor "not adequately taken into consider-
ation by the Sentencing Commission in formulating the
guidelines," (2) a clearly erroneous standard to review
whether the district court had adequate factual support to
depart on the basis of the factor, (3) an abuse of discretion
standard to determine whether the factor is of sufficient
importance to justify a sentence outside the guideline range,
and (4) an abuse of discretion standard to review whether
the extent of the departure was reasonable.
United States v. Brown, 23 F.3d 839, 841 (4th Cir. 1994) (citing
United States v. Hummer, 916 F.2d 186, 192 (4th Cir. 1990), cert.
denied, 499 U.S. 970 (1991)).
Koon abolishes "de novo" review and substitutes a "unitary abuse
of discretion standard." 116 S. Ct. at 2048. This review for abuse of
6
discretion, however, includes a legal analysis as to whether the Com-
mission listed certain factors as forbidden, discouraged, or encour-
aged departure bases. We do not accord a district court's legal
conclusions on these questions any particular deference. However, we
do defer to a sentencing court's fact-based determination as to
whether the presence of a suggested feature removed a case from the
"heartland" for which the guideline was designed. Because "[a] dis-
trict court by definition abuses its discretion when it makes an error
of law," our overall review is thus for abuse of discretion. Id.
B.
The feature in this case that potentially takes it outside the Guide-
lines' "heartland" is, of course, Hairston's efforts at restitution. The
district court concluded that a departure on the basis of extraordinary
restitution was warranted for the following reasons:
The Court finds as a fact that the funds available, made
available to First Union National Bank would not have been
made available, that these are not simply going out and bor-
rowing money from credit unions and the like . . . , but do
represent extraordinary efforts at restitution. And under the
circumstances, everybody's better off when extraordinary
efforts at restitution pay the bank back substantial fractions
of the monies that they lost which would otherwise not be
available, that that as a factual matter exists in this case, and
I therefore believe that I have the discretion to depart down-
ward and will depart downward to a level 12.
The district court, of course, did not have the benefit of the Koon
decision when making this determination. Accordingly, it failed to
make any analysis as to whether the Commission forbade, discour-
aged, or encouraged departure based on "extraordinary restitution."
Thus, in this case, we consider that question in the first instance.
In considering whether extraordinary restitution is a forbidden
departure factor, as the Supreme Court explained, we are "limited to
determining whether the Commission has proscribed, as a categorical
matter, consideration of the factor." Koon , 116 S. Ct. at 2051.
7
Nowhere in the Guidelines is restitution listed as a proscribed factor.
Thus, the Commission has not forbidden departure on this basis.
Nor has the Commission expressly included restitution in the
Guidelines' lists of encouraged or discouraged factors. See U.S.S.G.
§ 5K2.0 et seq., § 5H1.1 et seq. Although the Commission has not
listed restitution as a factor to consider in departing from the
Guidelines, restitution is listed as a factor supporting a reduction
within the Guidelines. Restitution is included among the factors courts
should consider in determining whether to reduce a sentence for the
defendant's "acceptance of responsibility." See U.S.S.G. § 3E1.1
Application Note 1(c) (enumerating seven factors a court should con-
sider in determining whether to reduce a sentence for acceptance of
responsibility, including the "voluntary payment of restitution prior to
adjudication of guilt").
When the Commission designates a factor as a basis for a reduction
within the Guidelines, this implies that the factor is discouraged as a
basis for departure from the Guidelines, or alternatively, that the fac-
tor is encouraged -- at least as a basis for reduction -- but has
already been taken into account. In either case, ordinarily a court
should not depart based on such a factor. See United States v.
Broderson, 67 F.3d 452, 458 (2d Cir. 1995) ("Ordinarily, payment of
restitution is not an appropriate basis for departure under Section
5K2.0 because it is adequately taken into account by Guidelines Sec-
tion 3E1.1" and is therefore a "discouraged" basis for departure).
However, simply because the Commission designates a factor as an
appropriate basis for a reduction does not mean that the factor may
never properly support a district court's departure decision. As Con-
gress and the Commission have directed, a factor that the Guidelines
address may still provide a proper ground for departure when present
to such a degree that a case is removed from the"heartland" for which
the guideline was designed. See 18 U.S.C.§ 3553 (incorporated in
Guideline § 5K2.0) (sentencing court may depart when court finds
"an aggravating or mitigating circumstance of a kind, or to a degree,
not adequately taken into consideration" in formulating the Guideline
range) (emphasis added).
Thus, restitution, although taken into account in the guideline per-
mitting a reduction for acceptance of responsibility, can provide a
8
basis for a departure when present to such an exceptional degree that
it cannot be characterized as typical or "usual." See United States v.
Garlich, 951 F.2d 161, 163-64 (8th Cir. 1991) (ruling that district
court has discretion to depart from Guidelines due to extraordinary
restitution if defendants show that the circumstances of their cases are
atypical); United States v. Brewer, 899 F.2d 503, 509 (6th Cir.)
(departure may be warranted where defendant shows repayment con-
stituted an "exceptional circumstance"), cert. denied, 498 U.S. 844
(1990); see also United States v. Hendrickson , 22 F.3d 170, 176 (7th
Cir.) (same), cert. denied, 115 S. Ct. 209 (1994). Cf. United States v.
Bailey, 975 F.2d 1028 (4th Cir. 1992) (affirming district court deci-
sion not to depart from the Sentencing Guidelines where there was no
evidence that the court believed it was without power to depart based
on "extraordinary restitution").
C.
We turn now to review of the district court's conclusion that Hairs-
ton's efforts at restitution removed this case from the "heartland" of
restitution cases and merited departure. Relying in part on the bank
officer's testimony, the district court found Hairston's restitution
extraordinary because, due to her efforts and her friends' generosity,
the bank recovered "substantial fractions of the monies that [it] lost
which would otherwise not [have] be[en] available."
The $250,000 Hairston repaid the Bank is, of course, a large
amount of money -- but it constitutes less than half the amount she
embezzled. Consideration of existing caselaw reveals no case in
which such a small percentage in restitution has been held to consti-
tute an exceptional circumstance meriting departure. Cf. United States
v. Arjoon, 964 F.2d 167, 171 (2d Cir. 1992) (finding departure unwar-
ranted where defendant stole 5,000 shares of stock worth $489,000,
and then returned 2,000 shares plus $51,000 (approximately fifty per-
cent of the amount stolen), because the restitution involved was not
"substantially in excess of that which is ordinarily involved") (quoting
U.S.S.G. § 5K2.0); United States v. Carey , 895 F.2d 318, 322-24 (7th
Cir. 1990) (departure unwarranted where defendant paid $200,000 out
of victim's $220,000 loss); United States v. Davis, 797 F. Supp. 672,
677 (N.D. Ind. 1992) (departure warranted where defendant repaid
9
$775,000 of victim's loss assessed at between $500,000 and
$800,000).
Indeed, our sister circuits have found even full restitution not an
appropriate ground for departure from the Guidelines, but simply
ground for a reduction within the Guidelines. See United States v.
Bean, 18 F.3d 1367, 1369 (7th Cir. 1994) (finding repayment of the
entire amount fraudulently obtained from a bank ($75,000) consti-
tuted the restitution contemplated under Note 1(c) to § 3E1.1 and the
defendant was therefore limited to a reduction within the Guidelines);
Brewer, 899 F.2d at 509 (prompt repayment of entire $25,000 stolen
only entitled defendant to a reduction within Guidelines, not depar-
ture).
Courts have generally found restitution in amounts greater than that
stolen to be a possible ground for departure. See Garlich, 951 F.2d at
163 (district court erred in failing to exercise its discretion to deter-
mine if defendant who turned over assets of $1.4 million to cover loss
of $253,000 merited departure for extraordinary restitution); United
States v. Miller, 991 F.2d 552, 553-54 (9th Cir. 1993) (remanding for
district court to determine whether $58,000 repaid for $45,000
embezzled constituted atypical restitution); United States v.
Lieberman, 971 F.2d 989, 996 (3d Cir. 1992) (affirming departure
where defendant agreed to pay "$34,000 more than he thought he
owed and to which he pled guilty").
We do not suggest that a defendant must necessarily provide more
than full restitution (or full restitution for that matter) in order to
remove her case from the ordinary. For example, exceptional accep-
tance of responsibility might be indicated by partial restitution gained
through especially hard work, such as by taking a second job. Repay-
ment, however, of less than half of the money stolen under the cir-
cumstances of this case appears far removed from"exceptional."
When a defendant asserts that a restitution payment is so exceptional
as to remove it from the ordinary (thereby meriting departure, rather
than simply reduction), the same theory that supports the guideline
reduction for restitution should also support the departure. Since the
Guidelines consider restitution a form of "acceptance of responsibil-
ity," extraordinary restitution should provide a ground for departure
when it indicates an extraordinary acceptance of responsibility. See
10
United States v. Weinberger, 1996 WL 431811, *3 (4th Cir. 1996)
("extraordinary restitution . . . is a basis for downward departure only
to the extent that it shows a `degree of acceptance of responsibility
that is truly extraordinary and substantially in excess of that which is
ordinarily present'") (quoting Hendrickson , 22 F.3d at 176); see also
United States v. Crook, 9 F.3d 1422, 1426 (9th Cir. 1993)
("extraordinary restitution is a basis for downward departure only to
the extent it shows acceptance of responsibility") (quotation omitted),
cert. denied, 114 S. Ct. 1841 (1994).
Here, Hairston did not pay the bank $250,000 in restitution until
after she had been criminally indicted, in order to settle her civil lia-
bility, and in the hope of receiving a reduced sentence. The timing of
the restitution payment, after criminal proceedings had begun, does
not suggest an exceptional acceptance of responsibility, cf. Garlich,
951 F.2d at 162-63 (finding significant that the defendant discussed
the settlement before learning of the FBI investigation and offered to
settle even though his attorney advised him that it was unnecessary),
nor does her motive. See Miller, 991 F.2d at 553 (stressing that the
"voluntary" nature of restitution is questionable when defendant's pri-
mary motivation is to settle a civil lawsuit); see also United States v.
Bennett, 60 F.3d 902, 905 (1st Cir. 1995) (same); United States v.
Flowers, 55 F.3d 218, 222 (7th Cir.) (same), cert. denied, 116 S. Ct.
261 (1995).
For similar reasons, the generosity of Hairston's friends indicates
little about Hairston's acceptance of responsibility for her conduct.
See Miller, 991 F.2d at 553 ("restitution is relevant to the extent it
shows acceptance of responsibility"); Bennett , 60 F.3d at 905 (same).
Cf. United States v. Bolden, 889 F.2d 1326, 1340-41 (4th Cir. 1989)
(borrowed money used to repay bank may be relevant in permitting
reduction within Guidelines but does not justify departure).
Finally, while the district court, of course, could consider the bank
officer's testimony that Hairston's payment constituted extraordinary
restitution, the relevance of that testimony is minimal. We do not
doubt that absent the generosity of Hairston's friends the bank would
have recouped little. However, the victim's opinion that Hairston's
efforts were extraordinary, even if not offered in exchange for the
civil settlement, provides little basis for the court's conclusion that
11
the restitution was extraordinary. The court's conclusion must be
based on sentencing experience, consideration of other guidelines
cases, and the Sentencing Commission's guidance.
Accordingly, although we defer to the district court's greater expe-
rience, and although we recognize that the district court sees many
more guidelines cases than appear in published opinions, see Koon,
116 S. Ct. at 2047, because the circumstances of the restitution in this
case are so far removed from those found exceptional in existing
caselaw, we hold that the district court abused its discretion in finding
Hairston's restitution provided a proper basis for departing from the
Guidelines.
III.
For the foregoing reasons, we reverse Hairston's sentence and
remand to the district court for resentencing in accordance with this
opinion.
REVERSED AND REMANDED
12