U.S. v. Hathcoat

• Decision Date: 28 July 1994
• Docket Number: No. 93-3869,93-3869
• Citation: 30 F.3d 913
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Kathy J. HATHCOAT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 913

30 F.3d 913

UNITED STATES of America, Plaintiff-Appellee, v. Kathy J. HATHCOAT, Defendant-Appellant.

No. 93-3869.

United States Court of Appeals, Seventh Circuit.

Argued June 15, 1994.

Decided July 28, 1994.

Susan H. Dowd, Asst. U.S. Atty., Indianapolis, IN (argued), for U.S.

Stuart T. Bench, Indianapolis, IN (argued), for Kathy J. Hathcoat.

Before ESCHBACH, EASTERBROOK and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

Kathy Jean Hathcoat, previously a bank teller at the Markleville Branch of the Pendleton Bank Company, in Pendleton, Indiana, pled guilty to a single count information charging her with embezzlement of bank funds in violation of 18 U.S.C. Sec. 656. The

district court sentenced her to eighteen months' imprisonment, five years' supervised release, and three hundred fifty hours' community service. It further ordered Ms. Hathcoat to pay $21,000 in restitution. On appeal, Ms. Hathcoat contends that the district court erroneously increased her offense level under U.S.S.G. Sec. 3B1.3. Because we are unable to determine from the record before us whether the district court improperly interpreted the term "position of trust" as used in Sec. 3B1.3, we vacate the sentence and remand the case for further proceedings.

I BACKGROUND

A. Facts

In the plea agreement, Ms. Hathcoat admitted to the facts as set forth in Count I of the information filed against her. We therefore shall rely on the operative paragraphs of that information, as supplemented by the testimony of Ms. Hathcoat and of the investigating special agent of the Federal Bureau of Investigation, to detail the methods employed by Ms. Hathcoat and her supervisor, branch-manager Mary Jane Cooper, to embezzle monies from their employer.

In or around March 1990, Ms. Hathcoat began to embezzle funds belonging to the Pendleton Banking Company. Her efforts were discovered by her branch manager, Cooper. However, rather than report the embezzlement to a higher bank authority, Cooper agreed to assist Ms. Hathcoat in further embezzlement from the bank. The embezzlement continued until March 1992, when it was discovered during a branch audit. The total amount of funds embezzled by Cooper and Ms. Hathcoat from the Pendleton Banking Company was $199,622.34. Various methods were used to accomplish the embezzlement, and these methods became progressively more complex over time. Both Cooper and Ms. Hathcoat took cash from their teller drawers and did not report this loss on their cash totals provided to the main branch. The amount reported to the main branch was the total amount that should have been in those drawers if neither conspirator had taken any money. Both Cooper and Ms. Hathcoat verified for each other that the cash drawers were in balance, when in fact they were not. At the time of the discovery by bank officials in March 1992, the total cash shortage taken by Cooper and Ms. Hathcoat from the cash drawers for their personal use was $7,901.00.

Both Cooper and Ms. Hathcoat also took cash from the vault in the branch office and did not report this taking on the vault ledger. The actual cash amount contained in the vault was therefore less than the amount reflected on the records maintained at that branch and reported to the main office. The two kept only a minimum amount of cash in the vault to keep the branch operational; vault totals provided to the main office, however, were much higher than the amounts the two were supposed to keep in the vault to conform to bank policy. At times, in order to have enough cash to meet customer needs, Cooper had to obtain cash from other banking institutions by preparing bank cashier's checks that were made payable to herself. She then went to other banking institutions, because her request for cash from the main office of the Pendleton Banking Company would have alerted officials to some irregularity in the cash vault at Markleville.

Cooper and Ms. Hathcoat were aware of the dates when officials would be present in the branch to conduct audits of the cash vault. In order to hide their theft from the cash vault, Cooper and Ms. Hathcoat prepared cash drawers and/or vault "out" entries and supported them with fictitious cashier's checks. These documents were presented to the bank auditors, who would count the cash and "out" entries together and balance them with the ledger totals. Sometimes the two would prepare these cashier's checks and "out" entries prior to the arrival of the auditors at the bank. On other occasions, the entries were prepared while the auditor was at the bank. At the time of the discovery by bank officials in March 1992, the total amount of cash shortage from the vault taken by the two defendants for their own personal use was $63,000.00.

As the cash vault totals reported to the main office increased to cover the accumulating shortages taken by the two, main office Finally, Cooper and Ms. Hathcoat issued a total of nineteen loans in the names of their relatives and of bank customers. Cooper and Ms. Hathcoat received the proceeds of all of these loans and used the proceeds for their personal benefit. None of the people in whose names those loans were made was ever aware of the loans or received any proceeds from them. The two obtained credit information, prepared file documentation, including applications and credit histories, and fraudulently executed the documentation and promissory notes by forging the signatures of the people in whose names the loans were made. They effected loan renewals prior to the time that a "due notice" would be mailed from the main office to ensure further that the people in whose names the loans were made would not become aware that a loan existed in their own names. The two confederates used a post office box at Markleville to receive mail regarding these loans in order to avoid detection either by the main office staff or by the people in whose names the loans are made. They also made small payments on some of these loans to further avoid detection, and in some cases used the proceeds of one fraudulent loan to pay off another fraudulent loan. At the time of detection by bank officials, the total fraudulent loan loss to the bank on account of this scheme was $95,721.34.

management began to criticize them for keeping more money in the vault than bank policy required. In order to hide the amounts of money they continued to take from the cash vault, they began to perpetrate an internal bank cashier's float. They accomplished this scheme because they were aware that the central bookkeeping of the main branch balanced outstanding cashier's checks on each Friday and any imbalance would not be discovered until then. Cashier's checks, which would represent a reduction in vault totals, were prepared by the two. These cashier's checks showed the names of real people as the remitter and payee but were fraudulently endorsed by the defendants. Checks would show as being "cashed" on a certain day, but no credit entry to the cashier's checks outstanding account was entered until just prior to the Friday balancing of central bookkeeping. The two would then prepare the new cycle of additional checks to balance the transaction with the credit entries. The result was approximately a one-week imbalance lag, which represented additional funds removed from the vault. At the time of discovery by bank officials in March 1992, the total cashier's check imbalance was $33,000.00.

B. Ruling of the District Court

In imposing sentence, the district court ruled that the base sentence for embezzlement be enhanced by two levels pursuant to U.S.S.G. Sec. 3B1.3. That provision allows for imposition of the enhancement if the district court finds that "the defendant abused a position of public or private trust, or used a special skill in a manner that significantly facilitated the commission or concealment of the offense." In imposing this enhancement, the district court rejected Ms. Hathcoat's argument that she had the responsibilities of a bank teller and had therefore neither abused a trust nor used a special skill in perpetrating the embezzlement. We shall discuss the methodology of the district court in more detail as we analyze the contentions of the defendant on appeal.

II ANALYSIS

A

It is helpful to an understanding of the issue before the court to recall briefly the history of the "abuse of trust" enhancement with respect to the crime of embezzlement. This court has stated in dicta that enhancement for abuse of trust is not applicable to embezzlement. See United States v. Jimenez, 897 F.2d 286, 287 (7th Cir.1990); cf. United States v. Herrera, 878 F.2d 997, 1001 n. 3 (7th Cir.1989) (stating, without specific reference to embezzlement, that Sec. 3B1.3 is designed to prevent double counting and thus may not be employed if an abuse of trust is included in the base offense level). The Ninth Circuit, specifically referring to these two cases, held to the contrary. It reasoned that Sec. 3B1.3 is applicable to embezzlement because Sec. 2B1.1, covering embezzlement does not include abuse of trust in the specific offense characteristic. See United States v. Drabeck, 905 F.2d 1304, 1306, reh'g granted, 915 F.2d 1404 (9th Cir.1990), aff'd, 944 F.2d 910, redesignated, 946 F.2d 629 (9th Cir.1991). No other Seventh Circuit cases cite either Jimenez or Herrera for this proposition; nor do other cases of this circuit discuss whether Sec. 3B1.3 applies to defendants convicted of embezzlement. However, in United States v. Lamb, 6 F.3d 415, 421 (7th Cir.1993), this court applied, without discussion of Jimenez, the enhancement to a defendant charged with embezzlement of mail in violation of 18 U.S.C. Sec. 1709. Moreover, as we shall discuss later, it appears that all circuits that have had to confront the issue now take the view that the abuse of trust enhancement may be applied at least to some defendants convicted of embezzlement. An examination of how the weight of authority evolved to...