U.S. v. Phillips

• Decision Date: 28 January 2004
• Docket Number: No. 02-30035.,No. 02-30046.,02-30035.,02-30046.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. David PHILLIPS, Defendant-Appellant. United States of America, Plaintiff-Appellant, v. David Phillips, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

367 F.3d 846

UNITED STATES of America, Plaintiff-Appellee, v. David PHILLIPS, Defendant-Appellant.

United States of America, Plaintiff-Appellant, v. David Phillips, Defendant-Appellee.

No. 02-30035.

No. 02-30046.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 13, 2003.

Decided January 28, 2004.

Amended May 6, 2004.

Appeal from the United States District for the District of Montana, Donald W. Molloy, Chief Judge.

COPYRIGHT MATERIAL OMITTED

Michael J. Sherwood, Michael J. Sherwood, P.C., Missoula, MT, for the defendant-appellant-cross-appellee.

Thomas L. Sansonetti, William W. Mercer, and Kris A. McLean, U.S. Attorney's Office, Missoula, MT; Linda Kato, Environmental Protection Agency, Denver, CO; and Todd Aagaard and Stephanie Tai, Department of Justice, Washington, DC, for the plaintiff-appellee-cross-appellant.

Appeal from the United States District Court for the District of Montana, Donald W. Molloy, District Judge, Presiding. D.C. No. CR-01-00007-DWM.

Before: BRUNETTI, T.G. NELSON, and RAWLINSON, Circuit Judges.

ORDER

The opinion filed on January 28, 2004, and cited at 356 F.3d 1086 (9th Cir.2004), is amended as follows:

1. Pages 1100-01, paragraph beginning "Phillips' prior state prosecution," second sentence should read:

In contrast to the defendants in Koon, [73] who endured a full trial, Phillips endured merely a post-indictment, pre-prosecution negotiation in which he agreed to pay a fine. The state agreed not to prosecute if he paid the fine, which he did.

and continuing, "Even the defendants in Koon ...."

2. Page 1101, last paragraph of Section C beginning "The district court improperly," change the first sentence to read:

The district court improperly considered internal agency memoranda and legislative history in its heartland analysis, and the minimal legal activity Phillips endured on the state level does not merit a downward departure.

3. Pages 1102-03, last paragraph of the opinion, in the second-to-last sentence beginning "The court should not consider," delete the phrase "Phillips' prior state prosecution or" so the sentence reads:

The court should not consider internal agency memoranda and legislative history in its heartland analysis.

With these amendments, the panel has voted unanimously to deny the petition for panel rehearing and the petition for rehearing en banc.

The petition for rehearing and the petition for rehearing en banc are DENIED.

OPINION

T.G. NELSON, Circuit Judge:

David Phillips appeals his criminal conviction for violating the Clean Water Act¹ ("CWA") and conspiring to violate the CWA. We disposed of many of Phillips' claims in a separate memorandum disposition. In this opinion, we reject Phillips' remaining claim: that the district court erred in refusing to dismiss the indictment for lack of jurisdiction on the ground that Fred Burr Creek (the "creek") was not a navigable water under the CWA and in so instructing the jury. Thus, we affirm Phillips' conviction.

We also address the Government's contentions that the district court erred during sentencing. We hold that a district court must consider all reliable evidence of cleanup costs in its determination of whether a defendant's actions caused a substantial expenditure for cleanup pursuant to United States Sentencing Guidelines ("U.S.S.G.") § 2Q1.3(b)(3) (2001). Additionally, we hold that the Government need only show an attempt to influence a witness to trigger U.S.S.G. § 3C1.1's obstruction of justice enhancement. As for the district court's U.S.S.G. § 5K2.0 heartland determination, we hold that the district court improperly considered the defendant's prior prosecution for the same conduct, as well as internal agency memoranda and legislative history in its heartland analysis. Finally, we hold that the Government may be a victim entitled to restitution pursuant to U.S.S.G. § 5E1.1. In that context, site investigation costs necessary to determine the extent of the environmental damage and the appropriate cleanup actions may be recoverable. Accordingly, we vacate Phillips' sentence and remand for re-sentencing.

I. FACTS AND PROCEDURAL HISTORY

A Montana jury convicted Phillips of multiple violations of the CWA and conspiracy to violate the CWA. Thus, we review the facts in the light most favorable to the Government.²

A. The Development and the Investigation

In the mid-1990s, Phillips bought a large parcel of land in Montana along the creek from Ron Burgess. Phillips convinced Larry Zinger to invest in the property with the goal of subdividing it. Phillips hired Mitchell Buday and others to work on the site.

Although Phillips knew he needed a permit and did not have one, he directed his employees to dig approximately twenty ponds throughout the site. He instructed them to tell anyone who asked that they had the necessary permits.

During August 1996, Phillips wanted to show the site to potential buyers. Phillips wanted the buyer to see the site with water in the ponds. Although Phillips initially planned to fill the ponds with spring water from an old mine adit,³ the spring's flow was too small to fill the ponds quickly. Therefore, Phillips directed Buday to breach the creek bank, divert the water through the series of ponds, and then conceal the breach. After filling the ponds, the water flowed back into the creek, dragging along sediment and old mine tailings disturbed during construction.

Phillips did not have water rights to the creek. His downstream neighbors, who owned the water rights, could not irrigate their land because the creek was running dry and was chocolate brown from the sediment. Determined to investigate, the neighbors visited the site. They could see that someone had diverted the creek and had constructed a french drain⁴ in the creek bank to conceal the diversion. Although Phillips tried to convince them that he had all of the necessary permits and that the source of the pond water was the mine adit spring, they remained unconvinced. Their subsequent inquiry to the state water authorities resulted in an investigation.

Upon investigation, authorities confirmed what the neighbors reported. Creek water visibly diverted through a french drain in the creek bank filled the ponds. Inspectors saw extensive disturbance of the valley: heavy equipment tracks running through the creek, freshly constructed ponds with poorly constructed soil berms, and a series of channels and ditches connecting the ponds to each other and then back to the creek at the bottom of the valley. Because Phillips had not properly stabilized the disturbed soil, sediment was eroding into the creek. The water washing back into the creek dragged along both sediment and mine tailings. The investigators concluded that the project site had contained jurisdictional wetlands because it exhibited typically wetland-associated vegetation and the wet areas were hydrologically connected to the creek.

Investigators contacted Zinger. Zinger, in turn, called Phillips. Phillips made it clear that if Zinger cooperated with investigators, he would be sorry: directing Zinger to "tell [the investigators] the right story," telling Zinger not to say anything more than he had to, and stating that he knew "people that can handle these things." The "story" was that Buday was in charge of the permits. Zinger initially lied to investigators about witnessing the creek diversion because he was afraid of Phillips and did not want to lose his investment.

After a series of failed efforts to get the project into compliance with state and federal environmental laws, Montana charged Phillips with environmental violations at the site. The case ultimately concluded with Phillips paying a fine. Then the Federal Government charged Phillips, Zinger, and Buday with violations of the CWA and conspiracy to violate the CWA. Phillips could not pay the contract installments owed to Burgess and agreed to return the property.

Buday pled guilty only hours before the Supreme Court decided Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers ("SWANCC").⁵ The SWANCC Court held that the Corps lacked jurisdiction to regulate isolated wetlands.⁶ In light of SWANCC, the district court allowed Buday to submit briefing on whether jurisdiction was proper.⁷ It ultimately held that it had jurisdiction because the creek was a navigable water within the meaning of the CWA.⁸ Buday and Zinger cooperated with the Government and testified against Phillips.

B. The Pretrial Motion to Dismiss the Indictment

In one of his many motions to dismiss the indictment, Phillips argued that the creek was not a navigable water within the meaning of the CWA, thus precluding federal jurisdiction. His theory was that, in a criminal prosecution, the court must interpret "navigable waters" as only those waters that are navigable-in-fact.

Phillips' gambit was the only way to avoid a conclusion that the creek constituted a navigable water. The parties never disputed the physical characteristics of the creek. In fact, in his supporting memorandum, Phillips' counsel stated: "Fred Burr Creek empties into Flint Creek approximately two miles from the subdivision site. Flint Creek thereafter empties into the Clark Fork River.... The Clark Fork River, which flows between the states of Montana and Idaho, has been designated as `navigable.'" Thus, using Phillips' theory, although the creek was a tributary of a navigable water, this fact was insufficient for a criminal prosecution, and therefore, the court lacked jurisdiction.

The district court refused to dismiss the indictment, relying on United States v. Buday,⁹ its decision in the case against Phillips' employee and co-conspirator. The court adopted its Buday ruling, holding that the creek was a navigable water within the meaning of the CWA.

C. The Trial

Phillips was tried by a jury. In its opening statement, the Government told the jury that they would "learn ... that Fred Burr Creek comes...