U.S. v. Gross

• Decision Date: 11 July 1994
• Docket Number: No. 93-1812,93-1812
• Citation: 26 F.3d 552
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Wayne Wesley GROSS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 552

26 F.3d 552

UNITED STATES of America, Plaintiff-Appellee, v. Wayne Wesley GROSS, Defendant-Appellant.

No. 93-1812.

United States Court of Appeals Fifth Circuit.

July 11, 1994.

Franklin R. Mickelsen, Jr., Asst. Federal Public Defender, Ira R. Kikendoll, Federal Public Defender, Dallas, TX, for appellant.

Joseph M. Revesz, Delonia A. Watson, Asst. U.S. Attys., Paul E. Coggins, U.S. Atty., Dallas, TX, William J. Andersen, Asst. U.S. Atty., Fort Worth, TX, for appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, KING, and WIENER, Circuit Judges.

WIENER, Circuit Judge:

Convicted on a guilty plea of wire fraud and aiding and abetting, ¹ Defendant-Appellant Wayne Wesley Gross challenges the district court's calculation of his sentence under the Sentencing Guidelines, alleging that, because he was the only criminally culpable person involved in the offense, the district court erroneously assessed a four-level increase in his offense level, pursuant to U.S.S.G. Sec. 3B1.1(a), for his role as an organizer or leader of a criminal activity. As we agree with Gross, we reverse and remand for resentencing.

I FACTS AND PROCEEDINGS

Acting alone from March 1, 1988 through January 25, 1991, Gross used his companies, Resolve Technology Corporation and Continuing Technology Group, to defraud sellers of computer equipment. Gross devised a scheme in which Resolve Technology Corporation entered into purchase agreements with entities that desired to sell used computer equipment. The sellers would ship their computer hardware to Resolve in exchange for Resolve's promise to resell the equipment to other purchasers. Once he received payment on the equipment from such purchasers, however, Gross consistently "neglected" to forward to the sellers their shares of the proceeds.

Whatever good faith intentions Gross may have originally had to remit funds to the sellers, it is clear that at some point he began receiving computer equipment knowing full well that he would never pay the seller the contract price. As the scheme unraveled and sellers began to press Resolve for payment, Resolve filed for bankruptcy. Gross then activated a shell corporation, Continuing Technology Group, and resumed the fraudulent scheme. Gross finally brought the swindle to a halt on January 25, 1991.

In February 1993, Gross was formally charged in a 17-count indictment. Pursuant to a plea agreement, Gross pleaded guilty to one count of wire fraud and aiding and abetting in exchange for dismissal of the remaining sixteen counts.

The presentence report (PSR) recommended a four-level increase in Gross' offense level pursuant to U.S.S.G. Sec. 3B1.1(a). That section provides

[i]f the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive, increase by 4 levels.

The PSR's recommendation was made on grounds that Gross had a total of nine employees over a two-year period, ² and that "the criminal activity was otherwise extensive in light of the amount of loss, the number of victims, and the fact that the scheme took place over a course of almost three years." ³

Gross objected to the PSR, asserting that a Sec. 3B1.1 adjustment for criminal activity that is "otherwise extensive," cannot be applied to a defendant who acted alone. He contends that to be subject to the four-level increase he must have acted in concert with at least one other criminally responsible person. Even though the government agreed with this contention, the district court nevertheless found the enhancement appropriate.

Like the PSR, the district court justified the enhancement on two alternative grounds. First, the court found that the criminal activities were "otherwise extensive" under Sec. 3B1.1(a) due to the amount of money lost, the number of victims, the interstate character of the scheme, and the fact that Gross used corporate forms to carry out the fraud. Alternatively, the court determined that even if this circuit should require the involvement of another criminally responsible person for the adjustment to apply, such requirement was satisfied here by the two corporations that Gross used to defraud sellers of computer equipment, even though "neither of [the corporations] was charged or convicted in this crime." On those alternative grounds, the district court increased Gross' offense level by four as recommended by the PSR. The court sentenced Gross to a thirty-month prison term and ordered him to pay $695,950 in restitution. Gross timely appealed.

II ANALYSIS

As noted, Gross contests the application of the aggravating role adjustment of U.S.S.G. Sec. 3B1.1(a) because his offense was committed by only one criminally responsible person--himself. We review a sentencing court's application of the Guidelines de novo. ⁴

A. "Otherwise Extensive"

Section Sec. 3B1.1(a) directs the sentencing court to increase a defendant's offense level by four "[i]f the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive." The language of Sec. 3B1.1(a) does not specifically inform whether the involvement of another participant, i.e., another criminally responsible person, ⁵ is essential to the adjustment under the "otherwise extensive" prong. But the commentary accompanying this section--by which we are bound ⁶--makes clear that the adjustment only applies if an offense was committed by more than one criminally responsible person.

The introductory commentary to section 3B1.1 states that

[w]hen an offense is committed by more than one participant, Sec. 3B1.1 or Sec. 3B1.2 (or neither) may apply. Section 3B1.3 may apply to offenses committed by any number of participants. ⁷

Application note 1 of the commentary then limits the definition of "participant" to a person who is

criminally responsible for the commission of the offense, but need not have been convicted. A person who is not criminally responsible for the commission of the offense ... is not a participant. ⁸

Taken together, these two provisions demonstrate that the Sentencing Commission intended for Sec. 3B1.1 to be applied only if a defendant was an organizer or leader of at least one other person who was criminally culpable in, though not necessarily convicted for, the endeavor. ⁹

Effective November 1, 1993, the commentary to this section of the Guidelines was amended to state expressly what we hold today, i.e., that

[t]o qualify for an adjustment under this section, the defendant must have been the organizer, leader, manager, or supervisor of one or more other participants. ¹⁰

Although this amendment did not take effect until after Gross was sentenced, we may consider a post-sentencing amendment if it is intended to clarify application of a guideline which "was not intended to make any substantive changes to it or its commentary ... even though it was not in effect at the time of the commission of the offense." ¹¹ The Sentencing Commission has by this amendment clarified that Sec. 3B1.1 requires the participation of more than one culpable person. ¹²

Every other circuit court that has addressed this question has held that Sec. 3B1.1 requires the participation of more than one criminally responsible person. ¹³ Today we join the circuits that have decided this issue and require at least two "participants" under Sec. 3B1.1(a), i.e., at least two criminally culpable persons. And we add that the express language of the commentary allows a court to count a person as a "participant" even if such person has not been convicted.

B. Corporation as "Participant"?

The question remains, however, whether a defendant's corporation may be considered a "participant" for purposes of Sec. 3B1.1. As noted, the commentary defines "participant" as "a person who is criminally responsible." ¹⁴ The district court held that Gross' two corporations "probably qualify as participants even though neither of them was charged or convicted in this crime."

In Chapter 8 of the Guidelines, which details the criminal responsibility of organizations, the commentary defines an organization as "a person other than an individual," and lists corporations as a type of organization. ¹⁵

5] The introductory commentary to Chapter 8 notes that generally, under federal criminal law, organizations are vicariously liable for offenses committed by their agents. As a corporation is defined as a person, and such a "person" can be liable for offenses committed by its agents, it is arguable that a corporation could qualify as a participant for purposes of Sec. 3B1.1.

But Sec. 3B1.1 does not contain a cross-reference to Sec. 8A1.1 and its definition of organization, and we have not been shown any justification for making such a stretch on our own. To do so would run contrary to the expressed intent of the Sentencing Commission to provide, under Sec. 3B1.1, a range of adjustments "to increase the offense level based upon the size of a criminal organization[,] i.e., the number of participants in the offense[,] and the degree to which the defendant was responsible for committing the offense." ¹⁶ To presume that the Sentencing Commission intended to include individuals who happen to commit their crimes utilizing corporations, a more explicit connection between the definition of persons as used in Sec. 3B1.1 and how it is used in Sec. 8A1.1 would appear to be necessary. ¹⁷ We need not answer today, however, the broad question whether a corporation may ever be used to satisfy the additional participant requirement. For even if we assume arguendo that a corporation may be used to satisfy the additional participant requirement for purposes of Sec. 3B1.1, Gross is the only person--natural or corporate--criminally culpable in this case.

Each corporation is merely an alter ego of Gross. He is the sole shareholder, sole officer, and sole director of each of his corporations. On these facts,...