United States v. Scott, Walter K. ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-1053
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
WALTER KEVIN SCOTT,
Defendant-Appellant.
____________
Appeal from the United States District Court for
the Southern District of Indiana, Indianapolis Division.
Nos. IP 02-142-CR-01-B/F—Sarah Evans Barker, Judge.
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ARGUED FEBRUARY 17, 2005—DECIDED APRIL 25, 2005
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Before POSNER, RIPPLE, and MANION, Circuit Judges.
POSNER, Circuit Judge. Kevin Scott was convicted of bank
fraud, of fraudulently using another person’s Social Security
number, and of transacting in money obtained through
crime (“money laundering” in the broad, which is also the
statutory, sense). He was sentenced to 120 months in prison
and ordered to pay more than $1.3 million in restitution to
the victims of his crimes. He appeals on a number of
grounds, four of which, all relating to the sentence, have
2 No. 04-1053
sufficient substance to warrant discussion. The first is that
he received an illegal sentence because the judge thought
the sentencing guidelines were mandatory, yet United States
v. Booker, 125 S. Ct. 738 (2005), held that they are merely
advisory. He was sentenced before the Booker decision and
failed to challenge the mandatory character of the guide-
lines in the district court; to obtain relief from us he must
therefore show that the sentence amounted to a plain error.
United States v. Paladino, 401 F.3d 471, 481 (7th Cir. 2005).
Under the procedure adopted in Paladino, if we are uncer-
tain whether the judge would have imposed the same
sentence had he (or in this case she) realized that the
guidelines are merely advisory, we direct a limited remand
for a statement by the judge, id. at 483-85; for that is the only
way we can determine whether the sentencing error actually
harmed the defendant by illegally protracting his term of
imprisonment.
As the government points out, it is unlikely that the judge
in this case would have given the defendant a lower
sentence had she not felt herself bound by the guidelines.
She raised the guidelines range one level, from 87-108
months to 97-121 months, by granting an upward departure,
and then sentenced the defendant near the top of the
elevated range. But as we pointed out in Paladino, a sentenc-
ing decision by a judge who thinks herself bound by the
guidelines will be, if the judge is conscientious, a sentence
relative to the guidelines. The judge will compare the
defendant with the average offender in the different guide-
line ranges, without necessarily agreeing that the ranges are
correct. Also, with the guidelines merely advisory the judge
can take into account mitigating factors that the guidelines
ignored, provided that in doing so she is acting “reasonably.”
United States v. Booker, supra, 125 S. Ct. at 765; United States
v. Paladino, supra, 401 F.3d at 484. We cannot be sure that
No. 04-1053 3
Judge Barker would again sentence Scott to 120 months,
now that the guidelines are merely advisory.
But we must decide the other sentencing issues raised by
Scott. The Sentencing Reform Act requires resentencing
when the challenged sentence was “imposed as a result of
an incorrect application of the sentencing guidelines.”
18 U.S.C. § 3742(f)(1). This provision survived Booker. See
125 S. Ct. at 764. An incorrect application of the guidelines
requires resentencing under the post-Booker sentencing
regime. United States v. Gleich, 397 F.3d 608, 615 (8th Cir.
2005).
Pending the disposition of the criminal charges against
him, Scott (after a failed suicide attempt) was ordered to re-
side in a community confinement facility. He was authorized
to leave the facility only to consult his lawyer or obtain
medical treatment. He repeatedly abused the terms of the
leave privilege by falsely claiming that he had an appoint-
ment with a psychiatrist, instead using his “medical” leaves
not to seek medical treatment but rather to visit his girlfriend
and for other purely personal reasons—even to conduct
business with another resident of the confinement facility.
He also bribed two of the facility’s employees to allow him
to protract his leaves. For this misconduct while a pretrial
detainee Scott was both denied a sentencing discount for
acceptance of responsibility and also given a sentence en-
hancement for obstruction of justice. He challenges the
obstruction enhancement.
Had his pretrial antics complicated the prosecution of
the fraud charges, he would indeed have been guilty of
obstructing justice; but there is no indication of that. The
judge said that Scott’s antics “got in the way with [she
meant ‘of’] the proper administration of justice in the course
of this case,” but what she seems to have meant is that Scott
was flouting the court’s authority by violating the condi-
4 No. 04-1053
tions under which he was being detained. That he was. But
he was not, by doing so, making it more costly or otherwise
more difficult for the government to prosecute its case
against him successfully, as in United States v. Maccado, 225
F.3d 766, 772 (D.C. Cir. 2000) (refusal to provide a handwrit-
ing sample), and countless other cases (such as our own
United States v. Wells, 154 F.3d 412, 414-15 (7th Cir.
1998))—which is what “obstruction of justice” means. It is
not as if he had been trying to escape, compare U.S.S.G.
§ 3C1.1, application note 4(e), that is, to elude justice; he
never missed, or tried to avoid, a scheduled court appear-
ance. So the enhancement for obstruction of justice was a
misapplication of the sentencing guidelines, and Scott is
therefore entitled to be resentenced.
He further objects to the fact that his sentence for money
laundering was increased because he abused a position of
trust. He did abuse a position of trust—he concedes that—
but he committed it in the course of his fraudulent schemes
to obtain the money that he later laundered, rather than in
the course of laundering the money. The relevant guideline
provision kicks up the sentence if the defendant abused a
position of trust “in a manner that significantly facilitated
the commission or concealment of the offense.” U.S.S.G.
§ 3B1.3. Scott did that. To commit the offense of money
laundering, he had to commit a crime that would give him
money to launder; the abuse of trust facilitated his commis-
sion of that crime. United States v. Young, 266 F.3d 468, 474-
78 (6th Cir. 2001); see also United States v. Baker, 227 F.3d
955, 966-67 (7th Cir. 2000); United States v. Cefaratti, 221 F.3d
502, 516 (3d Cir. 2000); United States v. Nicolaou, 180 F.3d
565, 573-74 (4th Cir. 1999). Had he not abused a position of
trust, he might not have obtained any money to launder.
United States v. Cruz, 317 F.3d 763 (7th Cir. 2003), is
pertinent. The defendant was charged with bank fraud, but
No. 04-1053 5
the trust she abused to facilitate her commission of that
offense was that of her employer; nevertheless we held that
“courts may apply the abuse of trust enhancement even if
the defendant did not occupy a position of trust in relation
to the victim of the offense of conviction.” Id. at 766. We
have a parallel situation here: Scott abused his employers’
trust, but they were not, in any very direct sense at any rate,
the “victims” of his money laundering.
Scott also contends that he should not have been required
to pay restitution of some $600,000 for audit expenses
incurred by the two employers whom he defrauded. After
his crimes were discovered, the employers, in an effort to
determine how much he had stolen from them, conducted
elaborate but not, so far as appears, extravagant audits of
their books. The applicable statute, the Mandatory Victims
Restitution Act, 18 U.S.C. § 3663A, requires the sentencing
court, “in the case of an offense resulting in damage to or
loss or destruction of property of a victim of the offense,” to
order the defendant to return the property to the owner or,
if that is infeasible, to pay the owner (the victim) an amount
equal to the loss of value of the property. Id., § 3663A(b)(1).
This measure of relief is less generous than common law
damages, since it does not extend to consequences beyond
the diminution of the value of the property stolen or dam-
aged, United States v. Seward, 272 F.3d 831, 839-40 (7th Cir.
2001); United States v. Simmonds, 235 F.3d 826, 830-32 (3d
Cir. 2000); United States v. Richard, 234 F.3d 763, 771 (1st Cir.
2000); United States v. Mikolajczyk, 137 F.3d 237, 245-46 (5th
Cir. 1998)—consequences that could easily exceed that dimi-
nution. (Suppose the damage to the property foreseeably
precipitated the owner into bankruptcy.) This distinction is
consistent with the historic distinction between restitution
and damages, the former originally referring to the restora-
tion of something that the defendant had taken from the
6 No. 04-1053
plaintiff, United States v. Daddato, 996 F.2d 903, 905 (7th Cir.
1993); United States v. Fountain, 768 F.2d 790, 800-01 (7th Cir.
1985); Andrew Kull, “Rationalizing Restitution,” 83 Cal. L.
Rev. 1191, 1192 (1995); Douglas Laycock, “The Scope and
Significance of Restitution,” 67 Tex. L. Rev. 1277, 1279-80
(1989), including a profit. Great-West Life & Annuity Ins. Co.
v. Knudson, 534 U.S. 204, 214 n. 2 (2002); Williams Electronics
Games, Inc. v. Garrity, 366 F.3d 569, 576 (7th Cir. 2004);
United States v. Daddato, supra, 996 F.2d at 905; United States
v. Gordon, 393 F.3d 1044, 1051-52 (9th Cir. 2004). The audit
expense, though a loss to Scott’s employers, was not a gain
to him. But it was a form of damage to the employers’
property. Suppose money was stolen from a bank and
eventually returned, but the bank incurred a bookkeeping
cost in determining whether the entire amount stolen had
been returned. That cost would be a diminution in the value
of the bank’s property, caused by the theft, and would
therefore be a proper item for restitution. See United States
v. Donaby, 349 F.3d 1046, 1051-54 (7th Cir. 2003); United
States v. Rhodes, 330 F.3d 949, 953-54 (7th Cir. 2003); United
States v. Hayward, 359 F.3d 631, 642 (3d Cir. 2004). This case
is no different.
Focusing on the difference between the loss to the victim
and the damage to the victim’s property creates a more
precise line between criminal restitution and common law
damages than the more common distinction suggested in
the cases between “direct” and “consequential” damages.
E.g., United States v. George, No. 04-3099, 2005 WL 746552, at
*3-4 (7th Cir. April 4, 2005); United States v. Seward, supra,272 F.3d at 839; United States v. Barton, 366 F.3d 1160 (10th
Cir. 2004); United States v. Quillen, 335 F.3d 219, 222-24 (3d
Cir. 2003); cf. United States v. Lowell, 256 F.3d 463 (7th Cir.
2001); United States v. Gamma Tech Industries, Inc., 265 F.3d
917, 927-28 (9th Cir. 2001). The line between criminal res-
No. 04-1053 7
titution and common law damages is important to maintain.
Not only is the language of the Mandatory Victims Restitu-
tion Act dissimilar to that of the Uniform Commercial Code,
and “restitution” itself no synonym for common
law damages. In addition, to blur the line would create a
potential issue under the Seventh Amendment because the
amount of criminal restitution is determined by the judge,
whereas a suit for damages is a suit at law within the
amendment’s meaning. E.g., Kelly v. Robinson, 479 U.S. 36,
53 n. 14 (1986); Lyndonville Savings Bank & Trust Co. v. Lussier,
211 F.3d 697, 702 (2d Cir. 2000). And it would complicate
criminal sentencing unduly—and unnecessarily; the rare
crime victim who has a real shot at collecting common law
damages (rare because few convicted criminal defendants
are affluent) can bring a tort suit. S. Rep. No. 104-179, 104th
Cong., 1st Sess. 18 (1995), 1996 U.S.C.C.A.N. 924, 931.
Not that the distinction between direct and consequential
damages is wholly unrelated to the distinction between crim-
inal restitution and common law damages. If A tortiously
damages B’s factory, the cost of repairing the factory is di-
rect damages; B’s loss of business while the factory is shut
down awaiting repairs is consequential damages. E.g., Cooper
Power Systems, Inc. v. Union Carbide Chemicals & Plastics Co.,
Inc., 123 F.3d 675, 681 (7th Cir. 1997); Clark’s Pork Farms v.
Sand Livestock Systems, Inc., 563 N.E.2d 1292, 1297-98 (Ind.
App. 1990); 1 Dan B. Dobbs, Law on Remedies §§ 3.3(3), (4),
pp. 298, 302 (2d ed. 1993). The former would be recoverable
in a criminal prosecution, the latter not. In our preferred
terminology, the first type of damage to the factory impairs
the value of B’s property; the second injures B.
The audit fees are on the damage-to-property side of
the line. It is true that most (though not all) cases classify
attorneys’ fees incurred by a crime victim, which might
appear to be the same kind of expense as audit fees, as “con-
8 No. 04-1053
sequential damages” that are therefore ineligible for crimi-
nal restitution. United States v. Seward, supra, 272 F.3d at 839;
United States v. Arvanitis, 902 F.2d 489, 497 (7th Cir. 1990);
United States v. Onyiego, 286 F.3d 249, 256 (5th Cir. 2002);
United States v. Patty, 992 F.2d 1045, 1049 (10th Cir. 1993);
United States v. Mullins, 971 F.2d 1138, 1146-48 (4th Cir.
1992); but see United States v. Akbani, 151 F.3d 774 (8th Cir.
1998). (The issue was left open in United States v. Richard,
supra.) But this just illustrates the unhelpfulness of the
“direct-consequential” distinction as a guide to interpreting
the criminal restitution statutes. The real reason for denying
an award of attorneys’ fees under these statutes is that
attorneys’ fees are not classified as damages; the decision to
award or (the traditional Anglo-American rule) not to
award them is a matter of procedural rather than remedial
law. Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co.,
313 F.3d 385, 388-89 (7th Cir. 2002); Midwest Grain Products
of Illinois, Inc. v. Productization, Inc., 228 F.3d 784, 792 (7th
Cir. 2000). Consistent with this analysis, United States v.
Mikolajczyk, supra, 137 F.3d at 245-46, allowed an award of
attorneys’ fees as restitution because “Kearns’s [the defen-
dant’s co-conspirator] action of bringing a lawsuit against
Ford was part of the scheme to defraud [Ford], the offense
that is the basis of Koehler’s conspiracy conviction” and so
“Ford’s costs of defending the lawsuit were a direct and
mandatory result of Kearns’s act in furtherance of the
conspiracy, not a voluntary action taken by Ford to recover
property or damages from Kearns, Koehler, or a third
party.” The lawsuit was an effort to wrest property from the
victim, and the victim’s legal expenses were a measure of
the diminution in the value of that property brought about
by the fraud.
No. 04-1053 9
To summarize, the conviction and the award of restitution
are affirmed, but the judgment is vacated and the case
remanded for resentencing.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-25-05