U.S. v. Livesay, 06-11303.

• Decision Date: 19 April 2007
• Docket Number: No. 06-11303.,06-11303.
• Citation: 484 F.3d 1324
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Kenneth K. LIVESAY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

484 F.3d 1324

UNITED STATES of America, Plaintiff-Appellant, v. Kenneth K. LIVESAY, Defendant-Appellee.

No. 06-11303.

United States Court of Appeals, Eleventh Circuit.

April 19, 2007.

Joyce White Vance, Birmingham, AL, for U.S.

Sam Heldman, The Gardner Firm, Washington, DC, for Livesay.

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

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

PER CURIAM:

This is the second time the government has appealed the sentence of defendant-appellee Kenneth K. Livesay, the former Assistant Controller and Chief Information Officer of HealthSouth Corporation. See United States v. Livesay, 146 Fed.Appx. 403 (11th Cir.2005) ("Livesay I") (unpublished). In Livesay I, this Court vacated and remanded Livesay's sentence of probation after concluding that the record provided a "scant basis to assess" the reasonableness of that sentence. See id. at 405. On remand, the district court again sentenced Livesay to probation, and this appeal followed. After review and oral argument, we once again vacate Livesay's sentence in its entirety, this time because the sentence is unreasonable.

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").¹

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.

Livesay was the Assistant Controller in HealthSouth's accounting department between April 1989 and November 1999. 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 CFO in preparing the financial statements and reports that HealthSouth was required to file with the 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. As Assistant Controller, Livesay 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.

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 18 U.S.C. § 371 (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 probation officer's PSI set Livesay's base offense level at 6, pursuant to U.S.S.G. § 2F1.1(a).² Livesay's offense level was then enhanced by: (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 coconspirators 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 and also alternatively asked that Livesay 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).³ The district court also 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 probation sentence and remanded Livesay's case to the district court for resentencing because the record did not "provide the minimum indicia required to allow us to review for reasonableness." Livesay I, 146 Fed. Appx. at 405.

C. Resentencing in December 2005

The district court began Livesay's resentencing hearing with "preliminary remarks," in which the district court commented that "[l]urking not too far in the background of this sentencing is the jury's verdict in the Richard Scrushy case." Richard Scrushy was the Chief Executive Officer of HealthSouth at all times pertinent, and he was acquitted by the jury in his trial. The district court, speaking "not as one of twelve Article III judges of the court, but as the Chief Judge of the Northern District of Alabama," observed that he knew of no allegations that the jury in the Scrushy case had been in any way compromised. The district court publicly thanked the Scrushy jury for its "tremendous public service," and observed that before attacking the jury's verdict, "it is important to reflect on the fact that we did not sit here in the courtroom and hear and consider all of the evidence, as the jurors did."

The district court then proceeded to resentence Livesay. The government renewed its § 5K1.1 motion, but in light of Livesay's continued substantial assistance since the first sentencing, the government recommended 20 months' imprisonment (i.e., less than its recommendation for 60 months' imprisonment at the first sentencing).⁴

The district court again granted the government's § 5K1.1 motion and "basically reimpos[ed] the original sentence" of probation. The district court first made specific § 5K1.1 findings, including that the significance and truthfulness of Livesay's information and testimony, as well as the nature and extent of his assistance, was "extraordinarily high" and warranted an "extraordinary departure." The district court further found that Livesay's assistance was "very timely" and warranted "extraordinary consideration." The district court then acknowledged that Livesay's "actions were not sufficient to meet the legal standards for withdrawing from a conspiracy," but nevertheless stated that it was "impressed with the fact that from just an ordinary, common sense understanding, [Livesay] did substantially withdraw from the conspiracy."

The district court then repeated the same earlier § 5K1.1 downward departure and departed downward 18 levels, to an offense level of 10, which once again left Livesay with an...