U.S. v. Livesay

Citation525 F.3d 1081
Decision Date23 April 2008
Docket NumberNo. 06-11303.,06-11303.
PartiesUNITED STATES of America, Plaintiff-Appellant, v. Kenneth K. LIVESAY, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)

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

ON REMAND FROM THE UNITED STATES SUPREME COURT

Before HULL and MARCUS, Circuit Judges, and BARZILAY*, Judge.

HULL, Circuit Judge:

This case is before us on remand from the United States Supreme Court for reconsideration in light of Gall v. United States, 552 U.S. ___, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007). Livesay v. United States, ___ U.S. ___, 128 S.Ct. 872, 872-73, 169 L.Ed.2d 712 (2008). In this $1.4 billion fraud scheme, defendant-appellee Kenneth K. Livesay, the former Assistant Controller and Chief Information Officer ("CIO") of HealthSouth Corporation who played a major role in the fraud, was sentenced to 60 months' probation, with the first 6 months to be served as home detention. This panel previously vacated Livesay's non-custodial sentence. See United States v. Livesay (Livesay II), 484 F.3d 1324, 1325-26 (11th Cir.2007).1 After reconsideration in light of Gall and affording substantial deference to the district court's sentencing determinations, we conclude that the district court committed Gall procedural error, and thus we must vacate Livesay's sentence and remand.

I. FACTUAL BACKGROUND

Earlier decisions of this Court outline the $1.4 billion criminal fraud scheme at HealthSouth. See United States v. Martin, 455 F.3d 1227, 1230-31 (11th Cir.2006); United States v. McVay, 447 F.3d 1348, 1349-50 (11th Cir.2006). Accordingly, in this opinion, we provide only a brief overview of that general scheme. We then detail Livesay's specific role in the fraud, as outlined in Livesay's Presentence Investigation Report ("PSI").2

At some point in the early to mid-1990s, HealthSouth officials realized that HealthSouth's financial results were failing to produce sufficient earnings-per-share to meet the expectations of Wall Street analysts. Various HealthSouth officials, including Livesay, became aware that the earnings shortfall created a substantial risk that, unless the earnings-per-share were artificially inflated, the earnings would fail to meet analyst expectations, and the market price of HealthSouth's securities would decline.

Therefore, from at least 1994 until March 2003, a group of HealthSouth officials "conspired to artificially inflate HealthSouth's reported earnings and earnings per share, and to falsify reports about HealthSouth's overall financial condition." Martin, 455 F.3d at 1230. The officials "made, and directed accounting personnel to make, false and fraudulent entries in HealthSouth's books and records for the purpose of falsely reporting HealthSouth's assets, revenues, and earnings per share and in order to defraud investors, banks, and lenders." Id.

For over ten years from April 1989 to November 1999, Livesay was the Assistant Controller in HealthSouth's accounting department.3 According to the PSI, during his time as Assistant Controller, Livesay had access to all of the financial information on HealthSouth's balance sheets and income statements. As Assistant Controller, Livesay directly assisted the Controller and the Chief Financial Officer in preparing the financial statements and reports that HealthSouth was required to file with the Securities and Exchange Commission ("SEC"). Senior executives issued instructions to defendant Livesay regarding the desired earnings-per-share, and Assistant Controller Livesay and HealthSouth's accounting staff met to discuss ways to meet Wall Street's earnings-per-share expectations.

More specifically, Livesay, as Assistant Controller, made false entries in HealthSouth's books and records to artificially inflate the company's earnings-per-share. Livesay also managed and supervised others in manipulating HealthSouth's books and records, instructing HealthSouth's accounting staff to alter certain accounts so as to inflate HealthSouth's earnings-per-share. Livesay participated in the preparation of HealthSouth's 1998 quarterly and annual reports that were filed with the SEC, and Livesay fully knew that the reports materially misstated HealthSouth's net income, revenue, earnings-per-share, assets, and liabilities. For example, HealthSouth's pre-tax income was overstated by approximately $440,000,000 in 1997 and $635,000,000 in 1998.

This massive fraud, in which Livesay directly participated for over five years, impacted many victims. After the conspiracy was uncovered in March 2003 and the SEC temporarily suspended trading in HealthSouth stock, the total drop in the value of outstanding HealthSouth stock was approximately $1.4 billion. Many shareholders had invested their life savings in HealthSouth stock, which plummeted to pennies per share. This fraud also affected many others, including: (1) HealthSouth employees, many of whom were long-time employees close to retirement, who suffered by either losing their job or their retirement savings that was invested in the company's stock ownership plan or pension fund; (2) employees of contractors who were dependent on HealthSouth contracts for income; (3) banks and other lenders who loaned money to HealthSouth based on false financial information; (4) health-service competitors who lost business or financing due to HealthSouth's false financial representations; and (5) members of the community who benefited from HealthSouth's charitable activities.

II. PROCEDURAL HISTORY
A. Guilty Plea and Advisory Guidelines Range

Livesay pled guilty to an information charging him with: (1) conspiracy to commit wire and securities fraud, in violation of 15 U.S.C. §§ 78m(a), (b)(2)(A)-(B) and (b)(5), and 78ff and 18 U.S.C. §§ 371 and 1343, et al. (Count One); and (2) falsification of financial information, in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), 78ff, and 18 U.S.C. § 2 (Count Two). The information also included a forfeiture count.

The PSI set Livesay's base offense level at 6, pursuant to U.S.S.G. § 2F1.1(a).4 Livesay's adjusted offense level was 28, however, due to four enhancements reflecting the magnitude of the fraud and his significant role in it. The enhancements were: (1) 18 levels, pursuant to U.S.S.G. § 2F1.1(b)(1)(S), because the loss amount exceeded $80 million; (2) 2 levels, pursuant to U.S.S.G. § 2F1.1(b)(2)(A), because the offense involved more than minimal planning; (3) 2 levels, pursuant to U.S.S.G. § 2F1.1(b)(5)(C), because the offense involved sophisticated means; and (4) 3 levels, pursuant to U.S.S.G. § 3B1.1(b), for Livesay's role in the offense as a manager or supervisor. After a 3-level reduction for acceptance of responsibility under U.S.S.G. § 3E1.1, Livesay's adjusted offense level was 28. With an offense level of 28 and a criminal history category of I, Livesay's advisory Guidelines range was 78 to 97 months' imprisonment.

The government filed a U.S.S.G. § 5K1.1 motion for downward departure, based on Livesay's cooperation and substantial assistance. The government noted that Livesay: (1) met whenever needed with several government agencies, each of which had a substantial need for his assistance; (2) met with the forensic auditor reconstructing HealthSouth's books and records; (3) spent many hours reviewing financial statements and other documents; (4) provided the government with critical documents evidencing the fraud; (5) helped quantify the fraud; and (6) facilitated guilty pleas from other co-conspirators and the prosecution of others yet to be convicted.

B. First Sentencing in June 2004

At Livesay's first sentencing, the government's § 5K1.1 motion recommended a downward departure of 3 levels (from 28 to 25) and a sentence of 60 months' imprisonment. The district court granted the government's § 5K1.1 motion, but departed downward 18 levels, to an offense level of 10. Livesay I, 146 Fed.Appx. at 404. Offense level 10, combined with Livesay's criminal history category of I, yielded an advisory Guidelines range of 6 to 12 months' imprisonment. Because Livesay's Guidelines range of 6 to 12 months' imprisonment fell within "Zone B" of the sentencing table, the Guidelines gave the district court the option of sentencing Livesay to probation and 6 months' home detention without any additional Guidelines departures. See U.S.S.G. §§ 5B1.1(a)(2), 5C1.1(c)(3) (permitting a sentence of probation, subject to certain conditions inapplicable here, if a defendant's applicable advisory Guidelines range is within "Zone B"). The government objected to the reasonableness of the § 5K1.1 departure.

Alternatively, the government asked that Livesay at least be sentenced to the maximum sentence in that range (12 months' imprisonment). The district court nevertheless sentenced Livesay to 60 months' probation, with the first 6 months to be served on home detention, pursuant to U.S.S.G. §§ 5B1.1(a)(2) and 5C1.1(c)(3).5 The district court imposed a $10,000 fine and forfeiture of $750,000.

The government appealed, which resulted in our Livesay I decision. In Livesay I, this Court vacated Livesay's sentence and remanded Livesay's case to the district court for resentencing. Livesay I, 146 Fed.Appx. at 405. This Court concluded that the sentencing court "failed entirely to address specifically the § 5K1.1 factors or otherwise to state reasons supporting the extent of its departure." Id. This Court further concluded that "[w]e do not say that every § 5K1.1 factor must be separately addressed in the order of judgment and conviction; we say only that this record fails to provide the minimum indicia required to allow us to review for reasonableness." Id.

C. Resentencing in December 2005

This current appeal is from the resentencing in December 2005. As discussed later, the district court judge added very little to the...

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