Error to Admit Testimony of Former Attorney Regarding Circumstances of Plea Agreement, and Bribery Loss Overly Speculative

United States v. Nelson, No. 12-30101 (Oct. 14, 2013) (Jones, Dennis, Higginson)

Nelson, the former mayor of a Louisiana town, appealed his corruption-related offenses.  The panel affirmed the conviction but vacated his sentence and remanded for resentencing.

Before deciding to go to trial, Nelson entered into a plea agreement with stipulated facts and a waiver that allowed the Government to use the factual stipulation against him if he failed to plead guilty.  After signing the plea agreement, Nelson switched attorneys and decided not to plead guilty.  At trial, the district court allowed the factual stipulation to be admitted as evidence and allowed Nelson’s former attorney to testify as to the circumstances of signing the plea agreement.  The Government argued that the former attorney’s testimony was necessary for them to show that the plea agreement was entered into knowingly and voluntarily.  Talk about prejudicial, right?

The panel affirmed the admission of the factual stipulation because Nelson “validly waived the exclusionary provisions of the plea-statement rules” (Federal Rule of Evidence 410).  The panel thought the former attorney’s testimony that Nelson understood and agreed with the plea agreement and only signed it after a lengthy discussion with his attorney, however, went too far and was protected by the attorney-client privilege.  The error was harmless, though, because it was cumulative of the factual stipulation.  The panel glosses over the fact that the factual stipulation was introduced into evidence through the former attorney, reasoning that it would have gone before the jury whether or not the former attorney testified.

The panel also affirmed the district court’s refusal to instruct the jury on the entrapment defense since Nelson did not present prima facie evidence that he lacked predisposition to the offense.  Specifically, Nelson did not present “a plausible innocent explanation for accepting the money and other gifts offered to him” by a person who was not an FBI undercover agent.  Also, the district court did not err by allowing hearsay as a co-conspirator statement because the witness and Nelson were at least co-conspirators in that they engaged in a common scheme to recruit a certain business (Cifer) to their towns, even if that joint venture was not necessarily unlawful.

With regard to the sentencing loss calculation, the district court calculated the bribery amount at $6,382,000.  The panel found that the district court erroneously valued the loss related to a letter Nelson wrote to the EPA to assist Cifer in obtaining a grant and a letter he wrote to private investors expressing his support of Cifer.  The district court calculated the loss as $4 million and $2 million, respectively.  The panel disagreed with the methodology of calculating the loss to be the total possible value of the grants based on Nelson’s written support of Cifer to receive those grants.  “A defendant’s false statement in seeking government benefits is insufficient to render him accountable for all benefits received or intended to be received.”  The panel also pointed out that “a defendant should not be held accountable for the total amount of [government] benefits obtained, when some portion of that benefit would have been obtained absent the fraudulent conduct,” and that “the expectation of receiving a ‘substantial’ amount of money is insufficiently specific to base a calculation of intended loss.”  The panel remanded to the district court to determine the bribery amount related to those two letters but suggests that, if the amount of loss cannot reasonably be determined, that it may be more appropriate to use “the gain that resulted from the offense” in accordance with the § 2B1.1 commentary—e.g., the amount Nelson received for writing the EPA letter: $10,000.   The panel found that the district court had sufficient evidence, however, to value Nelson’s expected benefit from the kickback scheme at $250,000.

Undisguised Transfers from Operating Accounts to Investment Accounts Not Proof of Concealment of Money Laundering or “Sophisticated Means” for § 2B1.1(b)(9)(C)

United States v. Valdez, No. 12-50027 (Aug. 12, 2013) (Higginbotham, Owen, Graves)

Valdez, a psychiatrist, appealed many aspects of his trial and sentence in his money laundering and health care fraud case.  For the money laundering charge, 18 U.S.C. § 1956(a)(1), the Government alleged the two alternative ways to violate that statute: to promote or further illegal actions, and to conceal or disguise the nature or source of the illegal proceeds.  The panel found there was insufficient evidence of money laundering by concealment but sufficient evidence to sustain the conviction based on promotion of unlawful activity. 

The prove money laundering by concealment, the government relied on Valdez’s transfers of funds from operating accounts to investment accounts and on his property purchases.  All transfers and purchases were done openly in Valdez’s name.  “None of the transactions pointed to by the government show a specific intent to conceal the nature, location, source or ownership of the funds used.  Valdez did not use false names, third parties, or any particularly complicated financial maneuvers, which are usual hallmarks of an intent to conceal.”

Nonetheless, the conviction stands because there was sufficient evidence that Valdez made irregular payments and “loans” to his employees with the fraudulently-obtained money satisfying the promotion prong of money laundering.  The district court did not give the jury a specific unanimity charge regarding the money laundering count, which would have instructed them to unanimously agree that Valdez was guilty of money laundering based on promotion, concealment, or both.  Valdez, however, did not object to the instruction, and panel held that Fifth Circuit precedent forecloses Valdez’s argument that this constituted plain error.  See United States v. Alford, 999 F.2d 818, 824 (5th Cir. 1993).

As for Valdez’s sentencing arguments, the panel found that Valdez’s transfers from operating accounts to investment accounts did not constitute “sophisticated means” to conceal the offense under U.S.S.G. § 2B1.1(b)(9)(C).  The panel also found that the district court erred by calculating the intended loss based on the value of the fraudulent claims filed without considering Valdez’s evidence in the record that he never expected full reimbursement for the fraudulent claims filed.   Despite these errors, the panel found that the 300-month sentence was within the adjusted Guidelines range and that the district court would have imposed that sentence regardless of the adjusted range.  The errors were harmless.  The panel also affirmed the abuse of trust enhancement under § 3B1.3, the mass-marketing enhancement under § 2B1.1(b)(2)(A)(ii), and the application of the vulnerable victims enhancement under § 3A1.1(b)(1) since there was sufficient evidence that some patients were harmed by Valdez’s conduct. 

Texas Injury to a Child is a Career Offender COV under Modified Categorical Approach

United States v. Nieto, No. 12-50500 (June 27, 2013) (Garza, Southwick, Haynes)

The panel finds that Injury to a Child in violation of Texas Penal Code § 22.04(a) is a “crime of violence” under the U.S.S.G. § 4B1.2(a)(2) residual clause, so Nieto was properly sentenced as a career offender.  The panel used the modified categorical approach to determine whether Nieto’s crime involved conduct that presented a serious potential risk of physical injury to another.  Acknowledging that a prior conviction under § 22.04 does not constitute a “crime of violence” under U.S.S.G. § 2L1.2 because that definition requires force to be an element of the statute of conviction, the panel found that intentionally or knowingly causing a child bodily injury by an act—which is what Nieto’s indictment essentially charged—involves conduct that presents a serious potential risk of injury to another.

The panel also held that the evidence was sufficient to convict the Barrio Azteca defendants on RICO substantive and conspiracy charges as well as conspiracy to possess with intent to distribute controlled substances, and that the district court did not err by “conducting ex parte interviews with the acquiescence of counsel to evaluate intrinsic influence[,]” namely jurors’ anxiety about the case and their safety concerns.  The district court dismissed without objection the one juror who had the extrinsic influence of her husband contacting a friend who then contacted the case officer out of concern for the juror’s safety. 

Error to Increase Sentence Based on Defendant’s Status as a Police Officer (Impermissible Socioeconomic Factor)

United States v. Chandler, No. 12-30410 (Oct. 4, 2013) (Higginbotham, Owen, Graves)

Chandler pleaded guilty to engaging in a child exploitation enterprise and was sentenced to 547 months of imprisonment after the district court varied upward from the recommended Guidelines range by 127 months.  While he was a police officer, Chandler joined an online bulletin board and posted child pornography.  The panel found that the “district court relied extensively on the fact that Chandler was a police officer at the time of the offense,” even though there was “no evidence in the record that he used or exploited his position as a police officer, or used any knowledge or skills he gained from that position, to commit the offense or attempt to hide it.”  Consequently, the court’s comments “could be interpreted to cross the line into impermissible reliance on Chandler’s socioeconomic status as a police officer,” which, “standing alone, is not a justifiable reason to increase a sentence.”  Even on plain error review, the panel vacated Chandler’s sentence and remanded for re-sentencing.  A reminder that the “should have known better” or the “trusted community figure” factor does not warrant a higher sentence on its own.

Appeal Waiver in Sentencing Agreement Enforceable

United States v. Walters, No. 12-30571 (Oct. 10, 2013) (Reavley, Elrod, Haynes)

The Fifth Circuit joined its sister circuits in holding that “waivers in sentencing agreements are enforceable just as waivers in plea agreements are enforceable.” 

In this case, the Government filed a sentencing enhancement notice under 21 U.S.C. § 851(a) for Walters’ two prior felony drug convictions.  As a result, Walters was exposed to a mandatory sentence of life imprisonment.  After the jury found Walters guilty of conspiracy and substantive drug offenses as well as unlawful use of communications, Walters filed motions for a new trial and to arrest judgment.  Walters subsequently entered into a sentencing agreement with the Government in which he agreed to withdraw the pending motions and waive his right to appeal the conviction and sentence in exchange for the Government’s dismissal of the § 851(a) sentencing enhancement.  As a result, he faced a mandatory minimum sentence of twenty years in prison to which he was sentenced.

Walters sought to challenge the participation of alternate jurors in jury deliberations on appeal, but the panel held that his appeal waiver was knowing and voluntary even though the district court did not address the waiver in open court at sentencing, noting that the requirement that the district court discuss an appeal waiver before accepting a guilty plea does not apply to a post-verdict agreement such as Walters’.  The panel concluded:

As a result of the sentencing agreement, Walters voluntarily chose the guarantee that he would not face a mandatory life term in prison over the uncertainty of pursuing an appeal.  He may not now avoid the consequences of his agreement after having received the benefit of his bargain.

Conspiracy to Possess Drugs on Aircraft With Intent to Distribute Applies Extraterritorially

United States v. Lawrence, No. 12-20430 (Aug. 20, 2013) (Owen, Haynes, Lemelle)

Appellants challenged the application of 21 U.S.C. § 963 to these circumstances: they hired U.S. citizens in the United States to fly to South America, obtain drugs, and then fly with those drugs to the United Kingdom.  The panel finds that 21 U.S.C. § 959(b)(2), which prohibits the possession of illicit substances with intent to distribute either by a U.S. citizen on an aircraft or on an aircraft registered in the United States, applies extraterritorially since that was Congress’s intent and such application is constitutional. 

The panel reaches this decision by analyzing the statutory language, justifications for overcoming the presumption against extraterritorial application of U.S. statutes in the context of drug smuggling laws, and international law principles including that a country can supervise and regulate the acts of its citizens outside of its territories and the protective theory that a country can enforce criminal laws wherever if the act threatens the country’s security or directly interferes with its governmental operations.  The panel also concluded that Congress had the authority to enact § 959(b) with extraterritorial application under the Necessary and Proper Clause as necessary to implement its treaty-making power.  That said, the panel seemed comfortable with its decision because the facts of this case involved actions taken in the United States (coordination, hiring of mules, and ultimate receipt of money) that resulted in the drugs being possessed by U.S. citizens on a flight from South America to the United Kingdom.   Perhaps a case without that extra hook—which is not statutorily required—would have a different result or at least cause a court more pause.

Disassembled Firearm Found Near Drugs Sufficient for § 2K2.1(b)(6)(B) Enhancement & § 922(g)(1) Still Constitutional

United States v. Alcantar, No. 12-10909 (Oct. 7, 2013) (Reavley, Elrod, Haynes)

The panel found that the U.S.S.G. § 2K2.1(b)(6)(B) 4-level enhancement—“[i]f the defendant used or possessed any firearm . . . in connection with another felony offense”—applies to a drug trafficking offense if a disassembled firearm is found in close proximity to drugs, as per the application note.  The PSR described the firearm being found in the bedroom with the drug-manufacturing materials and paraphernalia, and Alcantar didn’t present any evidence rebutting the proximity of the firearm.  Instead, Alcantar provided evidence that the firearm was disassembled, that he didn’t know how to assemble it, and that he didn’t have any ammunition for it.  The panel was unconvinced, basically saying that the Guideline explanation of “in connection with” doesn’t require that the firearm actually be used in furtherance of the offense.  Close proximity is sufficient, and the district court didn’t err in applying the enhancement.

Alcantar also argued that 18 U.S.C. § 922(g)(1), convicted felon in possession of a firearm, is unconstitutional facially and as-applied because it exceeds Congress’s Commerce Clause authority.  He recognized that this argument is foreclosed by Fifth Circuit precedent but argued that the Supreme Court’s decision in National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566, 2587 (2012), overrules that precedent.  The panel disagreed since National Federation involved Obamacare and not § 922(g)(1).  Still, food for thought.

Prosecutor Violated Bruton by Cross-Examining Defendant with Non-Testifying Co-Defendant’s Statements

United States v. Powell, No. 11-51205 (Oct. 3, 2013) (Jones, Smith, Garza)

Both Powell and Akin went to trial on charges of conspiracy to possess crack cocaine with intent to distribute and possession with intent to distribute.  The crack cocaine was discovered pursuant to a legitimate traffic stop and tip from an informant.  Akin made inculpatory statements after her arrest that the Government introduced at trial through the testimony of officers.  Akin did not testify, but Powell did.  During cross-examination of Powell, the prosecutor repeatedly asked Powell to explain Akin’s inculpatory statements.

The panel held that the introduction of Akin’s statements did not violate Bruton v. United States, 391 U.S. 123 (1968), because the statements “did not clearly refer to [Powell] and could only be linked [to him] through additional evidentiary material.”  The statements only focused on Akin’s personal actions and personal knowledge about the crack cocaine.  However, the panel held that the use of Akin’s statements against Powell through cross-examination violated Bruton and the Confrontation Clause because Akin did not testify, so Powell could not confront the witness against him.  The cross-examination “drew the jury’s attention to Akin’s statements and used her statements against” Powell thereby “significantly increas[ing] the danger of improper use” of the statements.  The Bruton error did not mandate reversal, though, because it was harmless given the weight of other evidence against Powell.

The panel also analyzed Powell’s and Akin’s suppression arguments but held that the duration of the stop did not violate Terry because officers had reasonable suspicion that Powell and Akin were transporting cocaine (based on the informant’s tip that contained very specific details) and that the intrusive search of the vehicle was based on probable cause (also the informant’s tip that was gradually corroborated by the officers’ investigation).

Lastly, the panel affirmed Powell’s sentence as reasonable and also the U.S.S.G § 3B1.4 use of a minor enhancement.  The panel reiterated that the test of whether the enhancement applies is purpose-driven:  whether the defendant took “‘some affirmative action to involve the minor in the offense’” and “‘used the minor to avoid detection.’”  (quoting United States v. Mata, 624 F.3d 170, 175 (5th Cir. 2010)).  Here, Powell decided to take the minor on a previously-planned drug trafficking trip.  The panel recognized a plausible explanation for the minor’s presence in the vehicle other than to avoid detection: both parents were young, in the vehicle, and without means for childcare.  However, Powell told the traffic officers that he was returning from picking up his child, which the panel took to “demonstrate use of a minor to avoid detection and provide the additional circumstantial evidence necessary under Mata” for the enhancement.