United States v. Stephen McLaughlin , 565 F. App'x 470 ( 2014 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0359n.06
No. 13-5693
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ) FILED
) May 09, 2014
Plaintiff-Appellee, ) DEBORAH S. HUNT, Clerk
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
STEPHEN MCLAUGHLIN, ) COURT FOR THE MIDDLE
) DISTRICT OF TENNESSEE
Defendant-Appellant. )
BEFORE: KEITH, SILER, and ROGERS, Circuit Judges
DAMON J. KEITH, Circuit Judge. A jury convicted Defendant Stephen McLaughlin
of two counts of wire fraud, in violation of 18 U.S.C. § 1343, and one count of aggravated
identity theft, in violation of 18 U.S.C. § 1028(a)(1). The district court sentenced McLaughlin to
36 months’ imprisonment, and entered orders of forfeiture and restitution. McLaughlin appeals
one of the counts against him for wire fraud, as well as the court’s orders of forfeiture and
restitution. We AFFIRM McLaughlin’s conviction and the order of restitution, but REVERSE
the court’s forfeiture award and REMAND for proceedings consistent with this opinion.
I.
In late 2008, Defendant Stephen McLauglin started an equipment-leasing company called
EquipLinq. EquipLinq was in the business of leasing or purchasing heavy equipment on credit
and then leasing that equipment to its customers. McLaughlin was the president and majority
owner of EquipLinq, worked there on a daily basis, and made all managerial decisions at the
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company, including hiring and firing decisions as well as disbursements of profits. McLaughlin
did not receive a salary from EquipLinq nor did he invest any money in the company himself;
instead, he obtained investments from others, including $25,000 from Nicholas Serban and
$100,000 from Scott Forhetz.
In 2011, McLaughlin was indicted on six counts of wire fraud, mail fraud, and identity
theft for allegedly forging the signatures of Mr. Serban and Mr. Forhetz on credit applications
that he submitted on behalf of EquipLinq. After a jury trial, McLaughlin was convicted on
Count 1 (submission of a forged signature of Nicholas Serban on an “Account Agreement and
Terms” and “Guaranty” agreement with Hertz Equipment Rental); Count 3 (submission of a
forged signature of Scott Forhetz on a “Commercial Revolving Account Application” with CNH
Capital); and Count 6 (aggravated identity theft relating to Count 3).
The parties waived a jury trial on the forfeiture claim. The district court adjudicated that
claim, finding that $55,277.01 represented the proceeds of the three counts of conviction and was
subject to forfeiture. The court then sentenced Mr. McLaughlin to 12 months’ imprisonment as
to Counts 1 and 3, to run concurrently, and 24 months as to Count 6, to run consecutively to the
other two counts, for a total of 36 months. The court also ordered McLaughlin to pay
$61,302.01 in restitution—the same amount determined in the forfeiture proceeding—plus
approximately $6,000 in legal fees to Hertz. This appeal followed.
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II.
McLaughlin challenges the sufficiency of evidence as to his conviction on Count 1 as
well as the orders of forfeiture and restitution against him as being based on the total earnings of
his company and not attributable to or proximately caused by his conduct.
A.
We review de novo the sufficiency of the evidence to sustain a conviction. United States
v. Gunter, 551 F.3d 472, 482 (6th Cir. 2009). A defendant bringing such a challenge bears a
“very heavy burden.” United States v. Daniel, 329 F.3d 480, 485 (6th Cir. 2003). Evidence is
sufficient to sustain a conviction if “after viewing the evidence in the light most favorable to the
prosecution, and after giving the government the benefit of all inferences that could reasonably
be drawn from the testimony, any rational trier of fact could find the elements of the crime
beyond a reasonable doubt.” Gunter, 551 F.3d at 482. In examining claims of insufficient
evidence, this Court does not “weigh the evidence presented, consider the credibility of
witnesses, or substitute [its] judgment for that of the jury.” Id.
To establish that a defendant is guilty of wire fraud under 18 U.S.C. § 1343, the
government must prove “(1) a scheme or artifice to defraud; (2) use of interstate wire
communications in furtherance of the scheme; and (3) intent to deprive a victim of money or
property.” Daniel, 329 F.3d at 485. McLaughlin alleges that, while the jury could have believed
that someone forged Mr. Serban’s signature on the loan application, it was too great of a leap for
the jury to determine that it was actually McLaughlin who committed the forgery. We disagree.
At trial, the prosecution sought to prove that McLaughlin forged Serban’s signature on a
credit application to Hertz financing. The prosecution did not introduce any eyewitness
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testimony to the alleged forgery, nor did it introduce any handwriting experts to the jury. Rather,
the prosecution only presented evidence of a pair of signatures, one of which purportedly
belonged to McLauglin, and another which purportedly belonged to Mr. Serban. Serban’s name
on this document was incorrectly spelled “Nickolas” instead of “Nicholas,” on three different
signature lines. Serban expressly disclaimed signing the document.
McLaughlin concedes that while the jury could have reasonably concluded that the
signature allegedly belonging to Serban was, in fact, made by someone other than Serban, the
prosecution improperly asked the jury to make a convoluted set of logical leaps to arrive at the
conclusion that it was McLaughlin who had forged the signature.
(1) [T]he jury would view the signature on Exhibit 1A purporting to be that of Mr.
McLaughlin; (2) compare that signature with the only verified exemplar of Mr.
McLaughlin’s signature, Exhibit 2L, and conclude that the signature on Exhibit
1A is Mr. McLaughlin’s; (3) compare Mr. McLaughlin’s alleged signature on
Exhibit 1A with the presumptively forged signature of Nicholas Serban on
Exhibit 1A and conclude that Mr. McLaughlin signed Nicholas Serban’s name on
that document.
Appellant’s Br. at 36.
This third step, according to McLaughlin, required the jury to draw conclusions which it
was not equipped to draw, namely “comparing an alleged signature of one name with a signature
of another name to determine that they were signed by the same person.” Id. at 36-37.
We need not address McLaughlin’s contention, however, because the statute does not
require that the prosecution prove that McLaughlin himself forged Serban’s signatures; rather, th
prosecution need prove only that he caused the Hertz Credit Application to be transmitted to
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Hertz, knowing that the document bore a forged signature or other false information, with the
intent to deprive someone (in this case Hertz) of money or property. See 18 U.S.C. § 1343.
That McLaughlin signed the Hertz Credit application as a “witness” to Serban’s signature
is not in dispute.1 There is also ample evidence, as the prosecution concedes, to establish that
Mr. Serban’s signature had been forged, including inter alia, the fact that his name was
misspelled on all three signature lines of the document.
The jury could then make a legitimate inference that McLaughlin prepared and caused
the Hertz application to be transmitted, while knowing that Serban’s signature had been forged.
Whether McLaughlin actually forged Serban’s signature is irrelevant, so long as he knowingly
caused the application to be transmitted to Hertz, with the knowledge that Serban had not
actually signed the application. Accordingly, we AFFIRM McLaughlin’s conviction as to this
Count.
B.
Next, we address the court’s orders of restitution and forfeiture. This Court has explained
that restitution and forfeiture are two legally distinct remedies:
Restitution is remedial in nature, and its goal is to restore the victim’s loss.
Forfeiture, in contrast, is punitive; it seeks to disgorge any profits that the
offender realized from his illegal activity. Given their distinct nature and goals,
restitution is calculated based on the victim’s loss, while forfeiture is based on the
offender’s gain.
United States v. Boring, 557 F.3d 707, 714 (6th Cir. 2009) (quoting United States v. Webber, 536
F.3d 584, 602–03 (7th Cir. 2008) (citations omitted)).
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McLaughlin did not contest this fact at trial nor on appeal. Nonetheless, a rational jury
could also have independently determined that McLaughlin signed the Hertz Credit application
by comparing his signature in Government Exhibit 2L to his signature on the Hertz application.
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Here, the district court seemingly conflated the basis for assessing the two remedies. We
affirm the court’s order of restitution, but because the defendant did not personally benefit from
any funds that the company obtained as a result of the alleged forgery, we reverse the court’s
order of forfeiture.
1.
A district court may order a defendant to make restitution to “an identifiable victim or
victims [who] has suffered a physical injury or pecuniary loss.” 18 U.S.C. § 3663A(a)(1),
(c)(1)(B). A “victim” is defined as “a person directly and proximately harmed as a result of the
commission of” the offense. 18 U.S.C. § 3663A(a)(2); United States v. Kratt, 579 F.3d 558, 565
(6th Cir. 2009). In calculating restitution, “the loss caused by the conduct underlying the offense
of conviction establishes the outer limits of a restitution order.” Kratt, 579 F.3d at 565.
We review the district court’s order of restitution in this case—where the defendant did
not object to the order of restitution at sentencing—for plain error. United States v. Rozin, 664
F.3d 1052, 1066 (6th Cir. 2012). “To establish plain error, a defendant must show that: (1) an
error occurred in the district court; (2) the error was obvious or clear; (3) the error affected
defendant’s substantial rights; and (4) this adverse impact seriously affected the fairness,
integrity, or public reputation of the judicial proceedings.” United States v. Gardiner, 463 F.3d
445, 459 (6th Cir. 2006) (citations omitted); see also United States v. Vonner, 516 F.3d 382, 386
(6th Cir. 2008). “The plain error doctrine mandates reversal only in exceptional circumstances
and only where the error is so plain that the trial judge and prosecutor were derelict in
countenancing it.” Gardiner, 463 F.3d at 459 (citations omitted).
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The district court ordered McLaughlin to pay $61,302.01 in restitution to Hertz and CNH,
the two lenders that were not repaid after extending credit to EquipLinq based upon forged
applications McLaughlin submitted to them. McLaughlin argues that the harm to the lenders
was “simply too remote and contingent for a restitution award of the entirety of that loss to
stand.” Appellant Br. at 47 (emphasis in original). Specifically, McLaughlin admits that while
he may have been a “direct” or “but for” cause of the loss, i.e., that Hertz and CNH would not
have extended credit to Equiplinq but for McLaughlin’s alleged forgery, he nonetheless argues
that he was not the proximate cause of the entirety of the harm.
McLaughlin’s contention, however, is misplaced. See United States v. Sosebee, 419 F.3d
451 (6th Cir. 2005). In Sosebee, the defendant was convicted of misprision of a felony for
concealing a scheme involving bogus “charge backs” or discounts on orders their medical supply
company placed with a pharmaceutical manufacturer. Id. at 453. The district court ordered
restitution in the amount of the entire loss to the pharmaceutical company that resulted from the
scheme. This Court affirmed, noting that the defendant’s concealment of the fraud “was a direct
and proximate cause of some or all of the victim’s losses, even if it was not the sole cause.” Id.
at 459. Similarly, in this case, McLaughlin’s action of causing false or forged documents to be
transmitted to Hertz and CNH for the purpose of securing credit was similarly the “direct and
proximate” cause, whether or not it was the sole cause.
In addition, McLaughlin’s argument can also be readily dismissed based upon the explicit
text of the agreements themselves, as both the Hertz Credit Application and the CNH Credit
Application contained explicit provisions stating that the signor would be liable for any debts
that accrued, even if those debts accrued based on credit that was extended beyond the credit in
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the initial credit applications. R. 81-1, PgID 748; R. 81-10, PgID 773. That Hertz extended its
credit beyond the $5,000 originally agreed upon in the credit application to $44,325.20, based on
a “[p]rocess of promise to pay, having pay history, giving us checks of payment due, so we
would be lenient to extend this credit, let stuff go through and paying – having EquipLinq pay
us,” R. 74, PgID 378, 384; R. 81-4, PgID 758, does not disrupt this chain of proximate causation.
Likewise, the CNH application contained a similar provision that obligated Scott Forhetz
to pay for any charges incurred under the agreement, whether or not those charges were part of
the original agreement. This application formed the basis of Count 3, for which McLaughlin was
convicted, and that he does not challenge in this appeal. Thus, because CNH was unable to
recover its losses from Forhetz, McLaughlin is responsible in restitution for whatever losses
CNH incurred while McLaughlin was president and part-owner of the company, which the
district court calculated in the amount of $10,951.81. Accordingly, we AFFIRM the court’s
award of restitution.
2.
Next, we review the district court’s forfeiture award. In reviewing a district court’s order
of forfeiture, we review the district court’s factual findings for clear error and its conclusion that
such facts “are sufficient to constitute a proper criminal forfeiture” de novo. United States v.
Droganes, 728 F.3d 580, 586 (6th Cir. 2013). Forfeiture is proper under 18 U.S.C. § 982(a)(2)
for any property constituted, or derived from, “proceeds the [defendant] obtained directly or
indirectly, as the result of [certain illegal conduct].” United States v. Warshak, 631 F.3d 266,
332 (6th Cir. 2010) (quoting 18 U.S.C. §982(a)(2)). The government’s burden to prove
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forfeiture is by a preponderance of the evidence. United States v. Jones, 502 F.3d 388, 391 (6th
Cir. 2007).
At the forfeiture hearing before the district court, the Government argued that
McLaughlin’s forfeiture liability derives from the possible forfeiture liability of the corporation:
Well, Your Honor, with regard to being traceable to the defendant, as the Court
knows, the corporation can only act but through an individual. In this case, the
indictment alleges that this corporation acted through Mr. McLaughlin as its
president. So to the extent that the corporation is responsible, it transfers to Mr.
McLaughlin personally.
R. 78, PgID 694 (emphasis added). The district court adopted this reasoning in holding that
McLaughlin would be subject to the entire forfeiture claim:
The Court is going to grant the forfeiture claim as to Count One
$44,325.20 and as to Count Three $10,951.81 for a total of $55,277.01. The basis
is that the defendant benefited indirectly as a result of the crimes, and the money
to be forfeited constitutes the proceeds that the defendant obtained indirectly as a
result of the crimes.
The record does not indicate that Mr. McLaughlin directly received the
money. However, the corporation that he ran and was president of clearly
benefited from the funds, and he benefited indirectly in that regard.
R. 78, PgID 696 (emphasis added).
We disagree. It is well-established that a defendant “cannot be ordered to forfeit profits
that he never received or possessed.” United States v. Contorinis, 692 F.3d 136, 145 (2d Cir.
2012). There is not a strong basis to impute the company’s receipts to McLaughlin based on the
theory that he benefited indirectly from the company’s incoming cash flow. McLaughlin’s
company, EquipLink, was never indicted in this case and there are no allegations that corporate
formalities were disregarded for McLaughlin’s personal benefit. Nor did McLaughlin exert the
type of control necessary to subject him to personal liability for the company’s losses. He did
not receive a salary from EquipLinq, and there is no evidence in the record of any direct
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payments from EquipLinq to McLaughlin, besides a few unquantified meals and trips to the
grocery store.2 Rather, the record reveals that the funds that were unlawfully obtained by
McLaughlin were used by the company to pay other employees’ salaries, to pay back some of
the individuals who had initially invested in the company, and to run the company’s—otherwise
legitimate—operations. R.74, PgID 327, 345-52; R. 75, PgID 566-68.
Cantorinis, 692 F.3d at 147, is instructive. There the Second Circuit reversed a $12.65
million forfeiture judgment against an employee and small equity owner of a fund, because the
forfeiture order was for the total profits of the fund traceable to the illegal behavior and the
defendant never received or possessed the profits. Id. at 145. Although Contorinis involved
securities fraud, the reasoning of the court is applicable since it relied on general principles of
forfeiture, namely that forfeiture involves “a person’s losing an entitlement as a penalty for
certain conduct.” Id. at 146. Conceding that a defendant may “forfeit proceeds received by
others who participated jointly in the crime”—which is comparable to the possibility of
forfeiting “indirectly” obtained proceeds3—the court found that “extending the scope of a
forfeiture to include proceeds that have never been acquired either by a defendant or his joint
2
EquipLinq’s accountant testified at trial that McLauglin used the company credit card
on certain occasions:
I will see on the company credit card on the company bank account bank
withdrawals or a few charges to like Publix or Winn-Dixie or one of those
supermarkets and things like that. Dinners that could not be specifically explained
as entertainment for prospective clients, things like that.
R.74, PgID 326.
3
But see United States v. Torres, 703 F.3d 194, 201–02 (2d Cir. 2012) (distinguishing
Contorinis because the forfeiture statute in Contorinis did not include the language “obtained . . .
indirectly”).
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actors would be at odds with the broadly accepted principle that forfeiture is calculated based on
a defendant’s gains.” Id. at 147. Importantly, the court signaled to the district court to provide a
more fine-toothed approach on remand:
To what extent appellant's interest in salaries, bonuses, dividends, or enhanced
value of equity in the Fund can be said to be money “acquired” by the defendant
“through the illegal transactions resulting in the forfeiture,” 18 U.S.C. §
981(a)(2)(B), we leave to the district court to decide on remand in a manner not
inconsistent with this opinion.
Id. at 148 n.4. Likewise, in this case, the Government has failed to meet its burden of
demonstrating that McLaughlin benefited from the unlawfully obtained funds, in some
meaningful way, beyond a few fringe purchases.
Next, citing United States v. Peters, 257 F.R.D. 377 (W.D.N.Y. 2009), the Government
argues that McLaughlin exercised sufficient control over the company such that he should be
subject to forfeiture for the unlawfully obtained funds. This argument is equally unavailing. In
Peters, the defendant was convicted of various bank fraud-related offenses and ordered to
criminally forfeit fraudulent loan proceeds of over $28 million, which were received by two
corporations he partially owned. Id. at 385-87. The defendant contested the forfeiture order,
arguing that he did not “obtain” the proceeds directly or indirectly because the funds went to the
corporations, not to the defendant directly. Id. at 384.
In applying an “alter ego” theory of liability, the court framed the question as whether
“the corporate form [should] be[] set aside to effectuate the remedial purpose of [the] forfeiture
statute.” Id. The court found that the corporations were the defendant’s “alter egos” because the
defendant controlled the corporations on a day-to-day basis, hired new employees and
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restructured the company, made purchasing decisions, directed employees, transferred funds and
had access to the corporate accounts. Id. at 385-87.
Although not controlling, Peters can nevertheless be distinguished, because in that case,
the court found that the defendant had complete domination of the corporation because he and
his close family members owned all but 1% of the corporate stock and the defendant controlled
the day-to-day business of the corporation. Here, McLaughlin owned no more than45% of the
shares, and was even eventually ousted as CEO after a takeover. R. 75, PgID 593-94. Notably,
however, Peters is instructive in that it provides an example of the type of detailed factual
analysis—which was absent from this case—that is required before a district court may enter an
order of forfeiture.
Finally, the Government’s invocation of Warshak, 631 F.3d 266, does not require us to
affirm the award of forfeiture against McLaughlin. In Warshak, this Court held that a
corporation and its owners and officers were altogether jointly and severally liable in forfeiture
for all of its revenues where that corporation’s initial outstanding success was due predominantly
to fraudulently obtained sales—the corporation signed consumers up for an expensive auto-
enroll program that was not represented accurately at the time of the initial purchase. Id. at 333.
Even though there were some legitimate sales, all corporate revenues were tainted by the initial
sales: “Any money generated through these potentially legitimate sales is nonetheless subject to
forfeiture, as the sales all resulted ‘directly or indirectly’ from a conspiracy to commit fraud.
The same can be said for any sales that occurred at retail because those sales were the outgrowth
of [the company’s] fraudulent beginnings.” Id. at 332 (internal citation omitted).
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Warshak is not applicable here, however, because the forfeiture order in that case was
based on an underlying conspiracy between the corporation, its owner, and its main officers.
United States v. Warshak, No. 1:06-CF-00111, 2008 WL 2705044, at *1 (S.D. Ohio July 8,
2008). In this case, neither the corporation nor any other officers or directors were indicted;
McLaughlin alone was indicted and convicted of mail and wire fraud, so the theories of
corporate and accomplice liability which justified the forfeiture order in Warshak do not apply.
Moreover, whereas in Warshak, the court found that “the entire operation was permeated with
fraud, and that income generated from fraud cycled through [the company’s] operations during
the entire period of the Indictment,” 2008 WL 2705044, at *4, here, the underlying business of
EquipLinq was not deemed to be fraudulent. The fraud involved only one aspect of its
relationship with its creditors. Accordingly, we REVERSE the district court’s forfeiture order
and REMAND for further proceedings consistent with this opinion.
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