U.S. v. Leonard
| Decision Date | 15 September 1994 |
| Docket Number | 1346,D,Nos. 1345,s. 1345 |
| Citation | 37 F.3d 32 |
| Parties | -6384 UNITED STATES of America, Appellee, v. Stewart J. LEONARD, Sr. and Frank H. Guthman, Defendants-Appellants. ockets 93-1739, 93-1740. |
| Court | U.S. Court of Appeals — Second Circuit |
Kurt F. Zimmerman, New Haven, CT (Nathan M. Silverstein, Silverstein & Osach, P.C., of counsel), for defendant-appellant Leonard.
Jacob D. Zeldes, Bridgeport, CT (Adele V. Patterson, Zeldes, Needle & Cooper, of counsel), for defendant-appellant Guthman.
Barbara Bailey Jongbloed, Asst. U.S. Atty., Bridgeport, CT (Christopher F. Droney, U.S. Atty. D.Conn., Kari A. Pederson, Asst. U.S. Atty., of counsel), for appellee.
Before: WALKER, McLAUGHLIN and JACOBS, Circuit Judges.
Defendants Stewart J. Leonard, Sr. and Frank H. Guthman appeal from the sentences imposed by the United States District Court for the District of Connecticut (Peter C. Dorsey, Judge ), following their guilty pleas to a one count information charging them with conspiring to defraud the United States by impairing, impeding, obstructing, and defeating the lawful functions of the Internal Revenue Service, in violation of 18 U.S.C. Sec. 371.
On appeal, Leonard challenges the district court's upward departure when imposing his fine; Guthman challenges the district court's decision to enhance his sentence based on his role in the offense; both defendants challenge the validity of U.S.S.G. Sec. 5E1.2(i), which permits district courts to impose the costs of incarceration, supervision, and probation; and Guthman argues that even if Sec. 5E1.2(i) is valid, the imposition of such costs constituted an unreasonable upward departure.
We vacate Leonard's fine and remand for resentencing, but affirm the district court's sentence enhancement for Guthman's role in the offense. We hold that the promulgation of Sec. 5E1.2(i) was a valid exercise of the United States Sentencing Commission's authority and that imposition of a fine under this provision is not reviewable as an upward departure from the fine table set forth in U.S.S.G. Sec. 5E1.2(c).
Located in Norwalk, Connecticut, Stew Leonard's Dairy is a family owned and operated retail grocery store that has been extremely successful since opening in 1969; in recent years, it has realized annual gross receipts as high as $87 million. Defendant Leonard is an 80% partner in the business and was its chief executive officer and chairman of the board for the majority of the period charged in the information, 1981 to 1991; defendant Guthman, Leonard's brother-in-law, was executive vice president in charge of operations during the relevant time period. Two other codefendants, not involved in this appeal, are Stephen Guthman, brother to Frank Guthman and executive vice president of finance and chief financial officer of the store since 1984, and Barry Belardinelli, who worked for the store from the time it opened in various positions including general manager and assistant to the chairman of the board. The presentence reports of Leonard and Guthman indicate that defendants began diverting cash receipts from Stew Leonard's Dairy in the late 1970s so that Leonard and his wife could evade income taxes.
The physical skimming of funds from Stew Leonard's Dairy was usually performed by Belardinelli. He worked in the store's vault room where he received bank deposit bags containing cash receipts collected from the store's cash registers, along with multicopy deposit tickets. He would receive instructions from either Frank or Steve Guthman specifying certain days of the week in which revenues should be skimmed and the total to be skimmed for the week. Belardinelli would then decide how much money to skim on a given day and set aside certain money bags that would otherwise have been deposited. He would then convert the cash into denominations of $50 or $100 by swapping small bills in the diverted bag with large bills from either the remaining deposit bags or the proceeds of the store's gift certificate program. After the swapping conversion, Belardinelli would place the diverted cash in a hidden safe in Leonard's private office. He would complete the skimming operation by generating a daily store report that reduced the store's gross receipts by the skimmed amount; shredding a computer tape generated by the store computer that reflected the store's actual gross receipts; providing Stephen Guthman with the original deposit ticket for the diverted bag of money and shredding all copies of this ticket; and informing Frank Guthman at the close of each week of the days and dates on which cash was diverted To conceal the skim, defendants instituted a computer program that altered the store's sales data to account for the skimmed cash. Creation of the program was necessary to synchronize the data generated by the computerized cash registers with the information generated by Belardinelli's altered daily store reports. In 1981 or 1982, Frank Guthman instructed Jeffrey Pirhalla, a store computer programmer, to write a complex computer program that reduced the store's sales and financial data by the amount of skimmed cash and permanently altered the data from which the store's books and records were created. The program left no audit trail and no trace that it had run. Frank Guthman operated it on the first day of each accounting week using the figures provided to him by Belardinelli and kept the tape cassette containing the program hidden in his office. He instructed Pirhalla to keep the program secret and, from time to time, told Pirhalla to alter the program to keep up with the store's changing computers. Guthman kept the obsolete versions of the program in his basement at home. To prevent the production of inconsistent store reports, Guthman instructed store employees not to print the weekly sales reports until receiving his approval, which he gave only after the data-altering program was executed.
and the amount diverted for each day. On those days when Belardinelli did not work, Frank Guthman carried out the skimming operations.
Leonard and others physically transported the diverted cash to the Caribbean island of St. Martin, where its trail disappeared. The couriers packaged the money in amounts ranging from $10,000 to as much as $250,000 and either personally carried it or hid it in suitcases or boxes. They did not file currency or monetary instrument reports with United States Customs although required to do so for the international transportation of over $10,000 in currency. The scheme came under suspicion in the spring of 1991, when United States Customs officials searched Leonard as he was about to board a flight for St. Martin and found $20,000 on his person and another $50,000 in his luggage; Leonard had filled out a currency report stating that he had only $20,000.
After a full investigation, government officials determined that from 1981 through August 9, 1991, defendants were responsible for skimming over $17.1 million in unreported receipts from Stew Leonard's Dairy. Over the course of the conspiracy, the defendants created false books and records, misled auditors and accountants, filed or assisted in the filing of false tax returns, and smuggled cash out of the country, all for the purpose of obstructing the IRS in its functions and evading millions of dollars of taxes.
Following defendants' pleas of guilty, the United States Probation Office prepared a presentence investigation report for each defendant. The report for Leonard recommended a guideline incarceration range of 46 to 57 months and a fine range of $10,000 to $100,000. The report indicated that there were no known factors warranting an upward departure, but that Leonard's poor physical health might serve as the basis for a downward departure. The report for Frank Guthman recommended a guideline incarceration range of 41 to 51 months and a fine range of $7,500 to $75,000. Guthman's adjusted offense level included a three level enhancement for his role as a supervisor or manager pursuant to U.S.S.G. Sec. 3B1.1(b).
The district court sentenced Leonard to a period of 52 months of incarceration to be followed by 36 months of supervised release, ordered him to pay a fine of $850,000, and imposed the costs of his incarceration and supervision in the amount of $96,850.80. The district court sentenced Frank Guthman to 41 months of incarceration to be followed by 36 months of supervised release, ordered him to pay a fine of $75,000, and imposed the costs of incarceration and supervision in the amount of $77,606.40. On appeal, Leonard and Guthman challenge the validity of their sentences and fines.
Leonard argues that the district court's upward departure regarding his fine should be vacated because the district court did not Congress has provided that a court may impose a sentence outside the guidelines range if it "finds that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described." 18 U.S.C. Sec. 3553(b). The guidelines refer to two different types of departure: the guided and the unguided. U.S.S.G. Ch. 1 Pt. A Sec. 4(b). With the first, "the guidelines provide specific guidance for departure by analogy or by other numerical or non-numerical suggestions." Id.; see, e.g., U.S.S.G. Sec. 2G1.1, Application Note 1 (recommending downward departure of eight levels where offense of transportation for the purpose of prostitution or prohibited sexual conduct was not committed for profit). The Commission intends district courts to follow these suggestions and expects that courts of appeal will be more likely to question departures that fall outside the suggested levels. U.S.S.G. Ch. 1 Pt. A Sec. 4(b).
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