U.S. v. Bennett

• Decision Date: 01 May 2001
• Docket Number: Docket No. 00-1330,DEFENDANT-APPELLANT
• Citation: 252 F.3d 559
• Parties: (2nd Cir. 2001) UNITED STATES OF AMERICA, APPELLEE, v. PATRICK BENNETT,August Term 2000 Argued:
• Court: U.S. Court of Appeals — Second Circuit

Page 559

252 F.3d 559 (2nd Cir. 2001)

UNITED STATES OF AMERICA, APPELLEE, v. PATRICK BENNETT, DEFENDANT-APPELLANT.

Docket No. 00-1330

August Term 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: May 1, 2001

Decided May 31, 2001

Appeal from the July 5, 2000, judgment of the United States District Court for the Southern District of New York (John S. Martin, Jr., District Judge, sentencing a defendant, after a jury trial, for fraud and money-laundering offenses.

Sentence vacated and remanded.

Paul E. Wagner, Ithaca, N.Y. (Michael D. Pinnisi, Brown, Pinnisi & Michaels, Ithaca, N.Y., on the brief), for defendant-appellant.

Patrick J. Smith, Asst. U.S. Atty., New York, N.Y. (Mary Jo White, U.S. Atty., Richard D. Owens, John P. Collins, David Raymond Lewis, Asst. U.S. Attys., New York, N.Y., on the brief), for appellee.

Before: Newman and Cabranes, Circuit Judges; and Thompson,^* District Judge.

Jon O. Newman, Circuit Judge.

This appeal primarily concerns the authority of a sentencing judge to enhance a defendant's sentence because his wife refused to surrender properties alleged to have been purchased with proceeds of the defendant's crimes. Patrick Bennett appeals from the July 5, 2000, judgment of the United States District Court for the Southern District of New York (John S. Martin, Jr., District Judge), convicting him, after a jury trial, of various offenses, including money laundering, and sentencing him to a term of thirty years. The sentence resulted from an upward departure of ten years imposed because of the wife's recalcitrance. We conclude that the challenged departure is not permissible because it undermines the wife's statutory entitlement to resist forfeiture of her interest in the properties at issue. The Defendant's challenges to his conviction have been rejected in a summary order filed this date. In this opinion, we vacate the sentence and remand for resentencing.

Background

Bennett was the chief financial officer of Bennett Financial Group (BFG), a family business nominally headed up by his parents, based in Syracuse. The firm leased photocopying machines, primarily to offices in state and local governments. After originating a lease, the firm often sold the lease to an investor; BFG would collect payments on the lease for the investor, who was supposed to get a low-risk stream of cash.

The indictment alleged offenses of four kinds. First, Bennett allegedly ran a massive pyramid scheme through BFG, selling fictitious leases to investors and pledging or selling legitimate leases twice over to different parties. These pyramid scheme allegations supported mail fraud and securities fraud counts. Second, Bennett allegedly shifted the cash generated by pyramid sales into an unaudited shell company, supporting several money laundering counts. Third, Bennett allegedly inflated BFG's profitability in financial statements submitted to banks and investors who loaned money to BFG. These allegations supported bank fraud and additional securities fraud counts. Fourth, Bennett deceived SEC investigators, supporting public integrity counts such as perjury and obstruction of justice.

There have been two trials. At each trial, the Government submitted evidence that would have permitted conviction on all the counts and that sufficed to permit sentencing for conduct not resulting in convictions. The first jury convicted only on the public integrity crimes, and hung on all the other issues. The second jury also hung on the pyramid scheme counts, but convicted on the money- laundering counts and on the bank fraud and securities fraud counts related to the inflated financial statements. This jury also returned a forfeiture verdict of $109 million.

Judge Martin conducted several sentencing hearings. First, he heard objections to the presentence report, and determined that Bennett's adjusted offense level under the Sentencing Guidelines was 36.¹ In Criminal History Category I, an offense level of 36 yielded a sentencing range of 188 to 235 months. Judge Martin made clear at this hearing that "it was very important that every dollar of money that [Bennett] and his family had taken from the investors in this case be repaid." A few months later, he held a second hearing to determine whether Bennett was withholding proceeds of his frauds. Judge Martin determined that certain assets in the name of Bennett's wife were fraud proceeds, including the family home and stock interests in a race track and a hotel. At this hearing, Judge Martin also made two rulings in advance of the final sentencing. First, he said that "the massive nature of the fraud, and the impact on the victims" justified an upward departure of five months. He also noted that "Mr. Bennett and his wife are still endeavoring to keep the proceeds of the fraud," and said that "based on [this] fact" he would additionally depart upward ten years, for a total sentence of 360 months (30 years), if the assets in question were not voluntarily surrendered before the final sentencing hearing. "Therefore, if at the time I come to impose sentence, these assets are not returned, I will impose a sentence of 360 months. So it is either 20 years or 30 years. The determination of that is [up] to Mr. and Mrs. Bennett." At the time, separate forfeiture proceedings were pending, in which Bennett's wife would have the opportunity to assert an innocent owner defense with respect to the assets in question.

The final sentencing hearing occurred a month later, on April 28, 2000. Bennett's counsel sought to avoid the threatened 10-year departure by contending that two of the three assets at issue were no longer effectively under Mrs. Bennett's control. He contended that the racetrack stock was the subject of an interpleader action and that she was negotiating an agreement to sell her stock in the hotel.² He claimed that she was relinquishing all claim to these two assets, but conceded that she was refusing to surrender the family home and surrounding acreage.

Judge Martin made no finding as to whether the racetrack stock and the hotel stock were no longer under Mrs. Bennett's control, as defense counsel contended. After affording Bennett his right of allocution, Judge Martin imposed an aggregate sentence of thirty years, noting explicitly that the ten-year component of the upward departure would not have been imposed had Bennett and his wife surrendered their assets.³ He also granted the Government's application for an order requiring Bennett to forfeit $109 million. An amended order of forfeiture was entered on October 5, 2000, forfeiting all of the Defendant's interests in three properties, two of which are identified in the order as held in the name of Mrs. Bennett.⁴ In a memorandum decision, Judge Martin denied as premature Mrs. Bennett's request to intervene to assert claims to the forfeited properties. The forfeiture order is subject to a separate appeal.

Discussion

I. Upward Departure

Bennett challenges his sentence primarily on the ground that the District Court erred in enhancing the sentence by ten years because of the refusal of Bennett's wife to surrender her interest in the family home and other assets. We find very little precedent bearing on this issue. It is unusual for a sentencing judge to select a presumptive sentence and then state that the sentence will be increased if some action the judge deems appropriate is not taken.⁵ It is even more unusual to use the threat of an increased sentence to compel action by someone other than the defendant.⁶ We need not explore generally the extent of a sentencing judge's authority to use the threat of increased punishment to compel action by a defendant or another person because in this case the use of such power conflicts with the statutory remedy that Congress has established to recapture the proceeds of various unlawful activities, including money laundering. See 18 U.S.C. § 982. That remedy is available to recapture proceeds in the hands of a third party, id. § 982(b)(1) (incorporating provisions of 21 U.S.C. § 853(c)), subject to the third party's opportunity to establish a right of ownership superior to the Government's or a status as a bona fide purchaser reasonably without cause to believe that the property was subject to forfeiture, see 21 U.S.C. § § 853(n)(6).

In this case, the threat of enhanced punishment in the event that the Defendant's wife does not surrender properties she claims are hers would undermine the statutory right accorded her by the forfeiture statute. The Government has obtained an order of forfeiture for at least one of the properties at issue--the family home. That proceeding, which is the subject of a separate appeal, will determine whether this and other properties have been forfeited to the Government or belong to Mrs. Bennett. The ten-year sentencing enhancement was designed to cause her to surrender her statutory rights (whatever their ultimate merit), and the impermissibility of imposing punishment for that purpose is not avoided simply because Mrs. Bennett stood her ground and refused to accept the sentencing judge's offer not to enhance her husband's sentence if she capitulated.

Judge Martin expressed the view that his enhancement was analogous to the sentencing that we approved in United States v. Merritt, 988 F.2d 1298 (2d Cir. 1993). In Merritt, Judge Martin departed upward in sentencing a defendant for conspiracy to defraud the United States. We described the grounds of the departure as follows:

The defendant, having obtained nearly $1 million through a fraud scheme, concealed the large proceeds through a series of disguised international corporate and bank transactions; even after his guilty plea, the defendant engaged in an elaborate scheme, which included falsely claiming to have paid for the merchandise, fraudulently concealing his ownership of real property, and falsely claiming to be no longer in possession of the benefits of the fraud, with...