United States v. Wells ( 1998 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 97-4765
JAMES VINCENT WELLS,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
W. Earl Britt, Senior District Judge.
(CR-96-34-BR)
Argued: September 25, 1998
Decided: December 31, 1998
Before MURNAGHAN, WILKINS, and LUTTIG, Circuit Judges.
_________________________________________________________________
Affirmed in part and reversed in part by published opinion. Judge
Murnaghan wrote the opinion, in which Judge Wilkins and Judge Lut-
tig joined.
_________________________________________________________________
COUNSEL
ARGUED: Charles Theophilus Francis, WOOD & FRANCIS,
P.L.L.C., Raleigh, North Carolina, for Appellant. Anne Margaret
Hayes, Assistant United States Attorney, Raleigh, North Carolina, for
Appellee. ON BRIEF: Janice McKenzie Cole, United States Attor-
ney, Raleigh, North Carolina, for Appellee.
_________________________________________________________________
OPINION
MURNAGHAN, Circuit Judge:
The instant case is an appeal by James Vincent Wells, who was
convicted of all twelve counts of an indictment in relation to mail
fraud, bank fraud, interference with Internal Revenue Service (IRS)
officials and interstate transportation of stolen property. In addition,
the district court departed upward from the sentencing guidelines
because it found that Wells participated in terrorism as defined in 18
U.S.C. § 2331. Wells has alleged several errors, including the
improper admission of prior bad acts testimony, insufficient evidence
to support the verdict, the basis of the upward departure, and the cal-
culation of the amount of loss resulting from his conduct.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The record below provides us with the following factual back-
ground.
The government introduced evidence showing that between 1988
and 1993, Wells engaged in a large tobacco fraud conspiracy. The
IRS conducted an audit of Wells and concluded that he had a substan-
tial tax liability resulting from the unreported proceeds of the fraud.
Thus, the IRS issued an assessment against Wells for approximately
$1.8 million, and assigned to revenue officer Priscilla Smith the
enforcement responsibilities. In October and November 1993, reve-
nue officers Smith and Teresa Varnell issued tax liens on several
properties that Wells either owned or controlled.
In November 1995, Wells and parties close to him began to send
Smith and Varnell a series of documents relating to their enforcement
efforts in connection with Wells' IRS assessment. On November 11,
1995, revenue officer Smith received a document captioned "Non-
Statutory Abatement" from Wells' daughter, Doris Brantley, in
response to Smith's attempt to schedule an appointment with Brantley
to discuss the status of some real property believed to be owned or
controlled by Wells. The Non-Statutory Abatement alleged that
Smith's contact with Wells had been illegal, and it threatened Smith
2
with civil and criminal liability. The envelope in which it arrived bore
Russell Dean Landers' return address.
On December 20 and 21, 1995, revenue officers Varnell and Smith,
respectively, each received an "affidavit" and a "claim and demand
letter" from Wells, himself. The letters discussed the dollar figure of
the IRS jeopardy assessment. The accompanying affidavits threatened
action against the officers and threatened liability of $1 million in
pure silver if the revenue officers did not release IRS tax liens filed
against property associated with Wells.
On January 5, 1996, Wells, Landers, and others attended a two day
seminar presented by the Freemen, including Leroy Schweitzer. A
portion of the seminar focused on the use of instruments known as
comptroller warrants. Comptroller warrants are fraudulent financial
instruments that, to some extent, look like legitimate financial
instruments.1
Timothy Healy, an FBI Special Agent who infiltrated the Freemen
organization, testified that Schweitzer warned class members that
they could be arrested if they used the comptroller warrants, and that
they should use a compilation of documents called"proof packs" to
establish lack of fraudulent intent. Virtually none of the warrants were
being accepted.2
Persons attending a Freemen conference could acquire as many as
five comptroller warrants for $100; additional comptroller warrants
cost the purchaser $100 each. Wells acquired several warrants during
his stay in Montana, some of which had face values as high as $3.7
million. Each was issued jointly to Wells and a third party payee.
During November and December 1995, Wells told associates that he
could arrange loans for them. He then created lists of those to whom
he would negotiate the warrants, which included the acquaintances as
well as his creditors. Schweitzer's usual practice was to send Wells
comptroller warrants whose face values were twice the amount
requested.
_________________________________________________________________
1 Evidence was introduced tending to show that some of the banks had
difficulty determining that the documents were fraudulent.
2 There was evidence that two of the warrants were accepted by banks.
3
Soon after Wells returned to North Carolina, he distributed several
of the warrants to acquire money. Testimonial evidence established
that Wells distributed the following warrants in January, 1996, alone:
on January 7, to Eastern Auto Sales for $155,704.00; on January 9,
to Royster-Clark Corp. for $1,400,060.00 and to G.R.M. Enterprises
for $770,000.00; on January 10, to Taylor Construction Co. for
$433,478.00, to Heritage Bank for $7,778.14, to Simba Tech Auto
Sales for $424,000.00, and to Travelinks for $384,000.00; on January
11, to the Internal Revenue Service for $3,705,858.00,3 and to Cen-
tura Bank for $9,898.24; and on January 26, to Centura Bank for
$21,074.00.
Wells sent cover letters along with the warrants to notify creditors
that the warrants were intended to satisfy debts owed to them. Any
additional funds were to be refunded to Wells. According to the let-
ters, failure to refund excess amounts would constitute "criminal con-
version" and trigger the obligation to pay high interest rates.
In January, 1996, Wells and Landers sent Officers Smith and Var-
nell documents captioned as "true bills." The"true bills" alleged that
the revenue officers had placed illegal restraints on Wells' property
and directed them to sign the documents to acknowledge their liabil-
ity. The documents further stated that failure to comply within 10
days would result in the officers being held personally liable for $100
million in "silver coins" to Wells. Liability was to extend for 99 years.
Wells had begun hearing of rejections of the warrants before he
had even distributed any of his own. In one instance, Landers had
received notice from the Iowa Department of Human Services that it
had rejected as invalid a comptroller warrant Landers had submitted
to it. Landers responded to the rejection with a January 2, 1996, letter
and provided a copy of his letter to Wells.
When Wells began distributing his comptroller warrants, he also
received notices of rejection from banks. On January 12, 1996, he
received two rejections. The next day, Wells was notified by mail of
a rejection. During the latter half of January, Wells received six more
_________________________________________________________________
3 This warrant was sent to the IRS to satisfy the tax liabilities resulting
from the tobacco fraud operation.
4
rejections. He received still more rejections in February, including a
rejection by the IRS.
Prajesh Patel, one of Wells' business associates, had more success.
On January 18, 1996, he successfully deposited the Travelinks comp-
troller warrant as a result of the bank's errors. Wells often called Patel
for information as to the status of that warrant, and was pleased that
it was accepted.
Officers Smith and Varnell were "summoned" to appear before
"Our One Supreme Court" in late January, 1996. The summonses
informed them that the "Court" had entered $100 million judgments
against each revenue officer personally. The officers were further
directed to appear before the Our One Supreme Court on a specific
date. Wells signed the summons, indicating that he was the complain-
ant and "justices" of the "court" also signed the summonses.
The revenue officers later learned that the Our One Supreme Court
was a tribunal associated with the Montana Freemen Organization
that purported to hold trials, and enter judgments against private citi-
zens and public officials. Smith also learned of plans by the Freemen
to kidnap and kill a judge, and Varnell learned that the court had mar-
shals upon whom they conferred powers of arrest. After learning
those things, Smith and Varnell became afraid.
Now that the Travel Links account was open, Wells ordered Patel
to write a series of checks against the account on Wells' behalf. Patel
followed Wells' order, writing six Travelinks checks that totaled over
$85,000. Wells immediately used two of the checks to purchase a
Chevrolet Suburban and a recreational vehicle (RV) on the same date.
A third check was used to buy Russell Landers a computer.
The Freemen conducted Smith and Varnell's hearing in their
absence. Wells was present, and Landers presented Wells' case
against the officers. After the hearing, Wells and others traveled to
Montana in the Suburban and RV that had just been purchased. They
brought the Suburban and RV to the Freemen compound on February
2, 1996. During a February 3, 1996, telephone conversation with busi-
ness associate Prajesh Patel, Wells stated that he intended to acquire
several more Suburbans to give to the Freemen for their use in Mon-
5
tana. Wells had a similar conversation with another acquaintance in
North Carolina.
The Freemen intended to use Suburban vehicles to arrest and exe-
cute public officials in Jordan, Montana. Schweitzer wished to
acquire approximately 20 Suburbans for this purpose. The FBI was
concerned about Wells' arrival at the Freemen compound with the
Suburban, because it placed the Freemen closer to their goal of being
able to effect arrests.
After returning to North Carolina, Wells presented a second comp-
troller warrant with a face value of $254,000 to Patel, who had suc-
cessfully negotiated a previous warrant. Patel was successful again,
as bank errors permitted the warrant to be accepted on February 6.
Wells was arrested on February 8, 1996. During the trial, the dis-
trict court realized an error in Count Three. As the indictment had
then read, Wells was charged under 18 U.S.C. § 1002 with using a
counterfeit document to defraud the government "for the purpose of
enabling himself to obtain from the Internal Revenue Service . . . ."
The statute actually reads "for the purpose of enabling another to
obtain . . . ." 18 U.S.C. § 1002. (emphasis added). At the close of the
evidence, the court amended the indictment to read correctly. Wells
was convicted of all counts.
At sentencing, the government's Motion for Upward Departure
based on Wells' involvement with the terrorist activities of the Free-
men was granted. The court also increased Wells' base offense level
because it found that he was a leader or organizer of the offenses
charged. Finally, the court increased Wells' offense level 15 levels
because the presentence report had included in its calculation of the
loss occasioned by Wells' conduct several signed, sealed, or stamped
but undistributed comptroller warrants. The district court calculated
the aggregate amount of the loss, including the warrants, at approxi-
mately $17.4 million, which permitted the court to raise the base
offense level 15 levels.
6
DISCUSSION
Wells has appealed his conviction of Count Three because the
count as read to the grand jury did not constitute a crime. The district
court amended Count Three at the close of all of the evidence to
reflect a criminal act. Both parties have agreed that this was plain
error, and that Wells' conviction and sentence as to that count should
be reversed.4
I. Admission Of Evidence Relating To Wells' Prior Bad Acts
A. Rule 404(b)
Wells contends that the admission of evidence of his participation
in a tobacco fraud and tax evasion scheme several years prior to the
events giving rise to the charges in the instant case violated Rules
404(b), 402 and 403 of the Federal Rules of Evidence. Rule 404(b)
of the Federal Rules prohibits the admission of evidence relating to
"other crimes, wrongs or acts" if the purpose of the admission is to
prove that the person acted in conformity with his character. Id. How-
ever, the evidence is admissible to prove other things, such as "mo-
tive, opportunity, intent, preparation, plan, knowledge, identity or
absence of mistake or accident." Id. The trial court's decisions to
admit or exclude evidence are reviewed for abuse of discretion. See
United States v. Queen, 132 F.3d 991 (4th Cir. 1997).
During the trial, the government introduced evidence tending to
show that Wells had engaged in tobacco fraud and tax evasion
between 1988 and 1993. Wells argues that the bank fraud and inter-
ference with tax officials charges in the instant case occurred three
years after the other alleged activities, and are distinct from them.
Therefore, he has urged they can have no relevance or purpose to the
current allegations except to establish that he has a proclivity to com-
mit crime. He cites several cases as support for that proposition,
including United States v. Hernandez, 975 F.2d 1035, 1040 (4th Cir.
1992), United States v. Sanders, 964 F.2d 295 (4th Cir. 1992), and
United States v. Tate, 715 F.2d 864 (4th Cir. 1983).
_________________________________________________________________
4 Wells has not appealed Count Twelve, which did not charge him with
a crime but requested the forfeiture of the property discussed below.
7
Evidence that is "(1) relevant to an issue other than character; (2)
necessary; and (3) reliable" is admissible under Rule 404(b). United
States v. Rawle, 845 F.2d 1244, 1247 (4th Cir. 1988). Thus the evi-
dence in question must meet this test to be admissible.
The evidence is clear that Wells' acts toward the IRS directly
resulted from the fraudulent tobacco scheme and tax evasion. Marga-
ret Davis, a former IRS agent, testified that she audited Wells' returns
for the years 1988-91 and determined that Wells owed taxes for unre-
ported income earned from the tobacco scheme.
As a result, she referred his report to the IRS criminal division.
Because of the audit, the IRS made a $1.8 million assessment against
Wells and began attempts to enforce it through liens.
Wells responded to the liens two years later by sending the threat-
ening letters that formed the basis of the indictment on Counts 1, 4
and 5. Some of the letters even referenced the specific dollar amount
-- $1,852,929 -- of the liens. Moreover, Wells presented a $3.7 mil-
lion comptroller warrant -- the subject of the bank fraud charges in
Counts 3 and 11 -- to pay his tax bill -- the $1,852,929 tax bill.
As is shown above, the evidence is relevant to show intent, motive,
knowledge, and absence of mistake, which are proper bases under
Rule 404(b). Moreover, it is also "necessary." Evidence is "necessary"
when it "furnishes part of the context of the crime." Rawle, 845 F.2d
at 1247, n.4 (citation omitted). The evidence above certainly provides
context for the crimes. Finally, Wells has not challenged the reliabil-
ity of the evidence. Thus, the evidence is admissible under Rule
404(b).
The other bad act evidence challenged by Wells is also admissible
under 404(b). The government introduced evidence regarding transac-
tions with Prajesh Patel, one of Wells' associates. Patel testified about
the manner in which he and Wells transferred the money from the
tobacco scheme. As Wells' behavior in the instant case is very simi-
lar, the evidence may properly be introduced to show absence of mis-
take. It also provides context for the crimes here. As such, the district
court did not abuse its discretion by admitting the evidence.
8
B. Rule 403
Evidence that is admissible under Rule 404(b) may still be
excluded under Rule 403 if its probative value is substantially out-
weighed by the possibility of unfair prejudice. See Fed. R. Evid. 403.
We generally favor admissibility, and will find undue prejudice only
if there is "a genuine risk that the emotions of a jury will be excited
to irrational behavior, and this risk is disproportionate to the probative
value of the offered evidence." United States v. Bailey, 990 F.2d 119,
123 (4th Cir. 1993).
Wells' arguments are unavailing. He argues that since he stipulated
to the tax assessment, proof of it was not very probative. Furthermore,
even if it were, the underlying conduct leading to the assessment had
no relevance to any issue in the case. However, as the evidence shows
that warrants and letters were sent because of the outstanding tax lien,
the probative value of the evidence outweighs any prejudice that
might have existed. Furthermore, the court gave a limiting instruction.
The evidence as to Wells' interaction with Patel is admissible for sim-
ilar reasons.
II. Wells' Motion For Acquittal As To Counts 1, 4 and 5
A. The Jury Instruction In Count 1
Wells has challenged his convictions on Counts 1, 4 and 5. Addi-
tionally, he has challenged Count 1 because of a failure by the district
court to instruct the jury as to the elements of 18 U.S.C. § 876. That
statute addresses the use of the mails to send "threatening communi-
cations." Id. Either knowledge or intent is required, depending upon
the substance of the communication mailed. Id. Since Wells did not
object to this failure at trial, he must show that the failure was plain
error. See Fed. R. Crim. P. 52(b).
Wells' argument is not persuasive. The United States Supreme
Court has held that correction of an error not objected to below is
appropriate where there is a plain error affecting"substantial rights."
See United States v. Olano, 507 U.S. 725, 732 (1993). Even when that
factor is satisfied, a reviewing court retains discretion to correct the
9
error, which it should not exercise unless the error seriously compro-
mises "the fairness, integrity, or public reputation of judicial proceed-
ings." Id. We also recognize these principles. See, e.g., United States
v. Wilkinson, 137 F.3d 214, 224 (4th Cir. 1998), cert. denied, ___
U.S. ___, 119 S. Ct. 172 (1998). Where there is overwhelming evi-
dence to convict the defendant, however, a failure to instruct does not
compromise the fairness, integrity, or public reputation of judicial
proceedings. See id. at 224. As demonstrated below, there is over-
whelming evidence to convict Wells on all of the counts. Therefore,
we decline to notice any error in the jury instructions in Count 1.
B. The Insufficiency Of The Evidence
Wells has challenged his convictions on Counts 1, 4 and 5 as not
being supported by the evidence. Counts 1, 4 and 5 alleged a conspir-
acy to violate and actual violations of 18 U.S.C.§ 7212, which pro-
hibits individuals from corruptly endeavoring to intimidate and
impede IRS officers and employees. In addition, as stated above,
Count 1 alleged that Wells conspired to mail threatening communica-
tions.
Wells has argued that he did not act "corruptly." We have inter-
preted the term "corruptly" to mean acting with the intent to secure
an unlawful benefit for oneself. See United States v. Wilson, 118 F.3d
228, 230 (4th Cir. 1997); United States v. Bostian, 59 F.3d 477, 479
(4th Cir. 1995). Other circuits interpreting § 7212 have also inter-
preted the statute that way. See, e.g., United States v. Winchell, 129
F.3d 1093, 1099 (10th Cir. 1997).
Wells argued that the letters sent to the officers were so outrageous
that they could not reasonably be taken as attempting to secure a
financial benefit -- i.e., forgiveness of the tax lien. He has claimed
that there was no threat of violence, at least no threat rising to the
level that the courts have considered a threat. In fact, he had con-
tended that the agents were not afraid when they received the letters
and only became afraid much later, when they discovered that the
Freemen organization was involved. Wells has cited cases addressing
§ 876 in support of that proposition. See, e.g., United States v.
Prochaska, 222 F.2d 1 (7th Cir. 1955), cert. denied, 350 U.S. 836(1955) (holding that there was a threat under § 876 where the defen-
10
dant demanded $10,000 and told the victim at that time "you only
have one chance").
Nevertheless, the evidence is sufficient to support a conviction.
When the defendant challenges a conviction for insufficiency of evi-
dence, the reviewing court will "draw all reasonable inferences in the
light most favorable to the government" to determine whether the evi-
dence is sufficient to support the conviction. United States v.
Dorlouis, 107 F.3d 248, 256 (4th Cir. 1997), cert. denied, ___ U.S.
___, 117 S. Ct. 2525 (1997). The government must show that there
is "substantial evidence" to support the verdict. Id.Viewed in the light most favorable to the government, there is sub-
stantial evidence to support the verdict. First, the evidence shows that
Wells sent a document to IRS officer Smith entitled"Non-Statutory
Abatement," which Smith was told to return within 30 days or face
default judgment and civil or criminal penalties. He then sent both
Smith and Officer Varnell letters entitled "Claim And Release Of
Levy & Lien." Then, he sent them "true bills," to which they were
required by Wells to respond, or they would be liable for a $100 mil-
lion judgment.
While it is true that these letters are very outrageous, a reasonable
juror could have determined to convict Wells. In United States v.
Winchell, 129 F.3d 1093 (10th Cir. 1997), the defendant was con-
victed of a § 7212 violation because of conduct very similar to
Wells'. Winchell sent letters to government officials which stated that
they would be liable to him for an implausible amount. Id. at 1099.
He made the same argument before the Tenth Circuit that Wells
makes here, and the Tenth Circuit rejected it. Id. It found that a rea-
sonable juror could have concluded that he violated the statute, even
if the letters sent were not likely to be taken seriously. Id. (citation
omitted).
Moreover, Wells' argument that there were no threats of violence
-- serious violence -- are not persuasive. Wells argues that because
neither agent believed that he or she was in danger when the letter
was received, § 876 is not satisfied. However, the agents testified that
they thought that they would be arrested, which they thought would
involve some violence. Moreover, proof of actual intimidation is not
11
required. See United States v. Rosnow, 977 F.2d 399, 410 (8th Cir.
1992) (en banc), cert. denied, 507 U.S. 990 (1993). Furthermore, the
agents testified that Wells' letters actually impeded their work to the
extent that the letters took them away from their work. Thus, the con-
victions should be upheld.
Finally, the conspiracy conviction should also stand. Wells has
contended that the conspiracy alleged in Count 1 had two objectives,
and that the evidence was insufficient to satisfy one of the objectives,
namely the mailing of threatening communications as defined and
proscribed under § 876. Therefore, Wells has claimed that the entire
conviction should be reversed. However, the Supreme Court recently
held just the opposite when faced with that question. In United States
v. Griffin, 502 U.S. 46, 60 (1991), the defendant was charged with a
conspiracy to achieve several unlawful objectives. The evidence
appeared to establish one of the bases of conviction but not the other.
See 502 U.S. at 48. The Court held that the conviction on the conspir-
acy remains valid so long as a conspiracy to commit any one of the
objectives was established. See 502 U.S. at 60. Thus, Wells' argument
in the instant case has been rejected by the Supreme Court and the
conviction should stand.
III. Was The Evidence Sufficient To Convict Wells On
Counts 2 and 6-11?
Wells has contended that there was insufficient evidence to convict
him on Counts 2 and 6-11, which are various counts of fraud and con-
spiracy, including bank fraud. Specifically, Wells was charged with
mail fraud under 18 U.S.C. § 1341 (Count 2), conspiracy to commit
bank fraud under 18 U.S.C. § 1344 (Counts 6, 7 and 10), conspiracy
to transport stolen property in interstate commerce under 18 U.S.C.
§ 2314 (Counts 8 and 9), and corruptly endeavoring to obstruct and
impede the due administration of IRS laws under 26 U.S.C. § 7212(Count 11). As with his challenge to the sufficiency of the evidence
for the other counts, the reviewing court "draws all reasonable infer-
ences in the light most favorable to the government," Dorlouis, 107
F.3d at 256 (citation omitted), and affirms the conviction if "there is
substantial evidence, taking the view most favorable to the govern-
ment, to support it." Id.12
The counts center around Wells' use of comptroller warrants --
documents passed by Wells as payment instruments-- which were,
in fact, worthless. Wells' central argument is that he did not have the
specific intent to defraud anyone in using the warrants and that he
acted in good faith. Since mail fraud requires knowledge or intent, see
18 U.S.C. § 1341 ("Whoever, having devised, or intending to devise
. . ."); 18 U.S.C. § 1344 ("Whoever knowingly executes . . ."), he
claims that he is not guilty of these charges.
Wells supports his argument by pointing to several items in the
record. First, he argues that he never admitted that he believed that
the warrants were worthless. Second, if he did believe that they were
invalid, he would not have sent them to the IRS, nor later admitted
that he did. Third, some banks accepted the warrants, and could not
at first glance tell that they were invalid. Fourth, LeRoy Schweitzer,
one of the leaders of the Freemen, distributed the warrants with
"proof packages," designed to help users demonstrate the validity of
the warrants. Schweitzer also told Wells that the banks' rejection of
the documents would result from their own ignorance, not the validity
of the warrants.
Despite those facts, however, there is ample evidence to convict
Wells. First, proof of actual knowledge is not necessary if the defen-
dant was willfully blind. See United States v. Withers, 100 F.3d 1142,
1145 (4th Cir. 1996), cert. denied, ___ U.S. ___, 117 S. Ct. 1282(1997). The fact of the warrants' worthlessness was not one to avoid.
Second, the government has pointed to the series of seminars con-
ducted by Schweitzer and the Freemen (during which several bizarre
theories were raised) and asserts that Wells heard them and had rea-
son to believe that the warrants would be invalid. Third, Schweitzer
told the seminar attendees that they should prepare to be arrested and
that banks often rejected warrants. Fourth, and perhaps most amazing,
the first five warrants cost Wells $100 (each one thereafter was $100
apiece), and one of the warrants alone had a face value of $3.7 mil-
lion. Finally, Wells generally did not distribute them himself but dis-
tributed them through third parties.
Since there appears to have been substantial evidence that Wells
either knew of the fraudulent character of the warrants, or deliberately
13
ignored obvious signs that they were invalid, his conviction of the
above counts should stand.
IV. Did The District Court Err In Departing Upward
In Wells' Sentence?
Wells has argued that the government improperly departed upward
from the sentencing guidelines based on domestic terrorism activities.
A sentencing court's decision to depart upward or downward from the
sentencing guidelines is reviewable under an abuse of discretion stan-
dard. See Koon v. United States, 518 U.S. 81, 91 (1996).
At the time Wells committed the crimes, the departure for "terror-
ism" addressed international, not domestic terrorism. See U.S.
SENTENCING GUIDELINES MANUAL § 3A1.4 (1994). The guidelines were
amended to include domestic terrorism after commission of the
crimes but before sentencing. See U.S. SENTENCING GUIDELINES
MANUAL § 3A1.4 (1996). The amendment is inapplicable to Wells
because it is a substantive amendment that would retroactively
increase Wells' sentence. See, e.g., United States v. Capers, 61 F.3d
1100, 1109 (4th Cir. 1995) (stating that courts may retroactively apply
clarifying, but not substantive amendments to the Guidelines). Thus,
Wells has contended that there is no valid basis upon which the gov-
ernment may seek successfully to increase his sentence upward.
Although there was no specific provision at the time authorizing a
court to consider "domestic terrorist" activities, the catch-all provision
of the Guidelines is certainly broad enough to allow such consider-
ation. Under 18 U.S.C. § 3553(b), the sentencing court can deviate
from the Sentencing Guidelines to take into account any aggravating
or mitigating circumstance that the Guidelines did not adequately
consider. Id. In addition, the policy statement of the Sentencing
Guidelines also provides for departure in such circumstances. See
U.S. SENTENCING GUIDELINES MANUAL § 5K2.0 (1994) ("Circumstances
that may warrant departure from the guidelines pursuant to this provi-
sion cannot, by their very nature, be comprehensively listed and ana-
lyzed in advance."). Thus, the district court did not abuse its
discretion in departing upward for Wells' domestic terrorist activities.
Wells then has made the contention that even if the court may
depart from the Guidelines on that ground, his activities did not con-
14
stitute "terrorism." Terrorism, as defined by 18 U.S.C. § 2331 (the
international terrorism statute), as "violent acts or acts dangerous to
human life that are or would be a violation of the laws of the United
States or any state," id. at (a), that are intended (1) to "intimidate or
coerce" civilians; (2) "to influence the policy of a government by
intimidation or coercion; or" (3) "to affect the conduct of a govern-
ment by assassination or kidnapping." Id. at (b). Of course, the terror-
ism defined here must be international. Id. at (c).
Wells contends that his activities were not violent. He contends
that the statute does not contemplate plans or schemes, but "acts."
Since he did not commit any violent acts, he contends, the departure
cannot stand.
He points to several facts in support of his argument. First, he
argues that although the Freemen discussed violence toward govern-
ment officials, they never hurt any of them. Second, Wells did not
sign any of the "[w]anted" posters, or personally participate in the
Civil Rights Task Force's (the Freemen's enforcers) violent acts, if
any. He thus argues that he is being punished for being a member of
the Freemen organization, an arguable violation of the First Amend-
ment.
However, there is ample evidence that shows that Wells' plans and
activities support the upward departure. First, he agreed to participate
in the grand jury of "our one Supreme Court," the "court" that the
Freemen established to try officials. That court was also the forum of
Wells' "trial" of IRS agents Smith and Varnell. Second, Wells bought
a Chevrolet Suburban that he brought to Montana. The plan, as articu-
lated by Schweitzer to the seminar attendees, was to use the Subur-
bans to abduct government officials, who would later be hanged. He
intended to "bring a lot more of 'em out here." In fact, Wells was the
only one supplying the Suburbans. Third, Wells otherwise actively
participated in the group, despite knowing its violent goals, and even
helped the group prepare. Finally, he has not challenged the district
court's finding that the group engages in terrorist activities.
These facts counterbalance Wells' contention that he neither knew
of the Freemen's plans nor was involved in them. His use of the
"court" for his own dispute with IRS officials, given the intention of
15
the Freemen to injure or kill government officials, can be considered
a "terrorist" act. In addition, as the only supplier of the vehicles that
were to be used in a violent plan about which everyone knew, it is
unlikely that Wells neither knew nor had reason to know of the Free-
men's activities. Since, as Wells points out, the Guidelines permit a
defendant to be held responsible for the conduct of his associates if
that conduct was reasonably foreseeable, see U.S. SENTENCING
GUIDELINES MANUAL § 1B1.3(b), his participation in the planning of
violence may properly give rise to liability. Hence, the district court
did not abuse its discretion by departing from the guidelines.
V. Did The District Court Err In Finding That
Wells Was A Leader?
Wells has contended that the district court erred in finding that he
was a leader or organizer of the Freemen, a finding that increased his
sentence under U.S. SENTENCING GUIDELINES MANUAL § 3B1.1(c).The
finding was made in the presentence report. Factual findings by the
district court are reviewable under the clearly erroneous standard. See
United States v. Richardson, 939 F.2d 135 (4th Cir. 1991), cert.
denied, 502 U.S. 1061 (1992). However, where, as here, the defen-
dant did not object to the finding below, the finding is reviewable
only for plain error. See United States v. Grubb , 11 F.3d 426, 440-41
(4th Cir. 1993).
Wells has contended that he could not be a leader under the Guide-
lines, because the district court never made any determinations that
the people under his direction committed criminal acts. The Commen-
tary to section 3B1.1(c) states that the persons following the direc-
tions must be "participants" -- i.e., criminally responsible individuals
who need not have been convicted. See U.S. SENTENCING GUIDELINES
MANUAL § 3B1.1(c), cmt. 2. Since all of the persons to whom Wells
gave the warrants testified that they did not know that the warrants
were worthless, Wells has argued that there were no"participants" for
him to supervise.
However, it appears that at least one of those persons, Prajesh
Patel, was criminally responsible. Patel testified that although he
doubted the validity of the warrants, he attempted to cash them any-
way because he was having financial difficulty. Moreover, he once
16
told Wells that Wells "can't write [a warrant] personally to me, that's
bad." The above evidence allows the conclusion that Patel knew or
should have known of the fraudulent character of the warrants, and
thus qualifies as a criminally responsible individual.
VI. Did The District Court Err In Calculating The Amount Of
Loss That Resulted From Wells' Conduct?
Wells claims that the district court erred in calculating the amount
of loss, thereby increasing his sentence by 15 levels. Specifically, he
claims that the court should not have included in its calculation war-
rants that were in sealed envelopes but never mailed to the addressee.
If these warrants are excluded from calculation, he argues, the amount
of loss drops below $10 million, which is the threshold amount for
the 15 level increase. See U.S. SENTENCING GUIDELINES MANUAL
§ 2F1.1(b)(1)(P).
The dispute over the scope of calculable material-- i.e., the mean-
ing of "intended loss" under the Guidelines-- is a legal one which
must be reviewed de novo. See United States v. Loayza, 107 F.3d 257,
265 (4th Cir. 1997) (citation omitted). However, the amount of loss
is a factual determination that is reviewable for clear error. Id.The Commentary to the Guidelines states that "if an intended loss
that the defendant was attempting to inflict can be determined, this
figure will be used if it is greater than the actual loss." U.S.
SENTENCING GUIDELINES MANUAL § 2F1.1, cmt. n.2 (1994). Wells'
argument is that the fact that the warrants were not mailed creates
doubt as to his intent to cause loss, even if the fraudulent documents
are addressed, sealed and stamped.
The Fourth Circuit has not addressed this exact issue. Both parties
cite United States v. Chappell, 6 F.3d 1095 (5th Cir. 1993), cert.
denied, 510 U.S. 1183 (1994), as giving some guidance to the issue,
with Wells attempting to distinguish it from his case. In Chappell, the
defendant was involved in a counterfeit check scheme. Id. at 1097.
The district court based Chappell's sentence on, inter alia, five com-
pleted checks seized from the defendant's car, 16 other completed
checks from which the dollar amounts were determined with some
diligence, and 51 blank checks for which the dollar amounts were
17
estimated based on previously recovered checks. Id. at 1101. The
Fifth Circuit affirmed the district court's use of the checks that had
not yet been cashed, reasoning that it was not clearly erroneous to
find that the defendant intended to cause loss with regard to those
instruments. Id.Wells has attempted to distinguish Chappell on the ground that the
defendants in Chappell possessed a detailed plan to distribute the
checks. Id. Moreover, the appellate court determined that the district
court calculation of the loss was conservative. Id. By contrast, Wells
argues, he did not possess any detailed plan to distribute the undistrib-
uted warrants in a fraudulent manner, nor was the court's $17.4 mil-
lion estimate "conservative."
However, Wells' argument is not convincing. As established
above, Wells had ample reason to question the validity of the war-
rants, even if he was not actually told that they were invalid. In addi-
tion, he appeared to have a detailed way of distributing the warrants
through third parties, as discussed above. Finally, unlike the defen-
dants in Chappell, no estimates or conjecture are needed because the
warrants in Wells' possession were completed. Thus, the amount of
loss would not have been speculative. Because Wells cannot distin-
guish Chappell, the one case to address a similar issue, his intended
loss calculation should include the checks found in his possession.
The district court correctly included those amounts on the face of
the warrants that Wells had sealed and addressed, but not mailed, and
its determination that the amount is over $10 million is not clearly
erroneous. The Guidelines state that the intended loss figure may be
used if it: (1) can be determined and (2) is greater than the actual loss.
See U.S. SENTENCING GUIDELINES MANUAL § 2F1.1, cmt. n.2 (1994).
Here, the intended loss figures can be determined by the face values
of the warrants. As over $10 million in warrants were either com-
pleted and mailed or were signed and sealed by Wells directly or by
others (such as Patel) at his direction, a 15-level increase in the sen-
tence is appropriate.5
_________________________________________________________________
5 The district court found the exact amount of loss to be
$17,411,355.38. However, it appears that the total aggregates the actual
18
CONCLUSION
We affirm the district court's rulings as to: (1) admitting the evi-
dence of prior schemes under Fed. R. Evid. 404(b) and 403;
(2) convicting Wells on Counts 1, 2 and 4-11; (3) departing upward
for terrorist activities; (4) concluding that Wells was a leader within
the meaning of the Sentencing Guidelines; and (5) ruling that the
signed, sealed, stamped but undistributed warrants were within the
scope of "intended loss." We reverse the district court's rulings as to
Wells' conviction on Count 3.
AFFIRMED IN PART AND REVERSED IN PART
_________________________________________________________________
loss suffered by the victims with the intended losses. Since the statute
permits the use of either the intended loss figures or the actual losses,
whichever is greater, aggregation is not appropriate. In any event, since
the intended loss figures are well above $10 million, the increase is
proper.
19