U.S. v. Stewart

• Decision Date: 24 August 1994
• Docket Number: No. 94-1024,94-1024
• Citation: 33 F.3d 764
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Michael E. STEWART, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 764

33 F.3d 764

UNITED STATES of America, Plaintiff-Appellant, v. Michael E. STEWART, Defendant-Appellee.

No. 94-1024.

United States Court of Appeals Seventh Circuit.

Argued June 8, 1994.

Decided Aug. 24, 1994.

Philip P. Simon, Asst. U.S. Atty. (argued), Dyer, IN, for plaintiff-appellant.

Forrest Bowman, Jr. (argued), Forrest Bowman, III, Bowman, Emery & Hill, Indianapolis, IN, for defendant-appellee.

Before RIPPLE, ALARCON, ^* and MANION, Circuit Judges.

ALARCON, Senior Circuit Judge.

Michael E. Stewart pleaded guilty to two counts of mail fraud in violation of 18 U.S.C. Sec. 1341 and was sentenced to a twenty-one month prison term. The Government appeals from the order imposing sentence. The Government contends that the district court clearly erred in finding (1) that Stewart had not abused a position of private trust in a manner that significantly facilitated the commission and concealment of the offense within the meaning of section 3B1.3 of the United States Sentencing Guidelines, U.S.S.G. Sec. 3B1.3; and (2) that the elderly persons who were induced to part with their money in response to Stewart's false representations were not vulnerable victims within the meaning of section 3A1.1, U.S.S.G. Sec. 3A1.1. We hold that the district court clearly erred in finding (1) that Stewart's position as a licensed insurance agent did not significantly facilitate the commission or concealment of his fraudulent scheme; and (2) that the funeral directors were the sole victims of Stewart's crime. We vacate the order imposing sentence and remand for a de novo sentencing hearing.

I.

Stewart was president and the operator of Pre-Need Services, Inc., an insurance firm specializing in the sale of annuities to the elderly. Stewart induced 316 elderly persons to forward 1.1 million dollars for the purpose Stewart accomplished his fraudulent scheme by organizing funeral directors to act as his agents to sell annuities to elderly persons to pay for their funeral expenses. The record shows that the elderly pawns of Stewart's scheme had been advised by state officials that they could purchase "a pre-need funeral" as one means of reducing their financial estates in order to qualify for Medicaid funds for nursing home expenses. The funeral directors represented that the annuity would be used to pay the price of the funeral services selected by the elderly person. The elderly were informed that the cost of the annuity would be less than the actual price of the requested funeral services. The funeral directors also advised the elderly persons that the interest earned on the annuity would be sufficient to compensate the funeral director for these services at the actual cost. Any excess amount would be transmitted to a designated beneficiary.

of purchasing annuities to compensate designated funeral directors for performing funeral services. Instead, Stewart converted the money for his own use. Thus, as a direct result of Stewart's fraudulent representations, the funeral directors, who had contractually obligated themselves to perform funeral and burial services, received no compensation for these services.

Stewart provided the funeral directors with forms to be filled out by his prospective clients. In the "Pre-Need Services E-Z Form" (E-Z Form), Stewart requested the client to provide personal and health information. ¹ The E-Z Form also required that the "funeral price" and the "amount sent" be filled in and that both the client and the funeral director sign it.

The second form is entitled "Declaration of Irrevocable Trust" form (Trust form). ² By signing this form, the client designated the State and Savings Bank, Monticello Indiana, as the trustee, and agreed that the funeral director who sold the annuity would perform the funeral services. The trustee was directed to use the proceeds of the policy to pay in full the "contract amount" of the funeral costs, and to deliver any excess funds to the beneficiary designated by the settlor.

The client, with the assistance of the funeral director, was required to fill out the Trust form except for the annuity policy number and the name of the insurance company. After the client signed Stewart's forms and furnished the cost of the annuity, the two agreements and the money were forwarded to Stewart.

Initially, Stewart purchased annuities for approximately thirty-eight of his elderly clients in a face amount substantially less than that which his agents had represented would be provided to cover the actual cost of burial services. Stewart converted the remaining money for his personal use. Thereafter, Stewart converted all of the money entrusted to him for the purchase of 278 annuities.

To avoid detection, Stewart used a pyramid scheme. From the funds received from new clients, Stewart sent money to the funeral directors to provide funeral services for those persons who died before his fraudulent conduct was discovered. Stewart also mailed a letter to each elderly client acknowledging the "receipt of the Funeral Trust papers that [the elderly client] arranged through [the named] Funeral Home." ³ Stewart's letter also confirmed that the "papers" were "being processed," and that the client had placed his or her confidence in "very capable hands" because the named funeral home was "well and favorably known for their ever present concern for the families they serve."

Stewart concealed from the funeral directors the fact that he had converted his elderly clients' funds by sending statements to them that falsely represented that the policies had been purchased. Stewart's obvious intent in sending these statements was to lull the funeral director into the belief that he or she would be compensated for the burial expenses by the proceeds from the annuities.

The pyramid scheme collapsed when the cost of the funeral expenses exceeded the funds provided by the elderly victims of Stewart's scheme. A complaint to a prosecutor in White County, Indiana commenced the investigation that resulted in Stewart's mail fraud conviction.

II.

In the presentence report, the probation officer recommended that Stewart receive a total offense level of sixteen points. The Probation Department also added eleven points to the six point base offense level for mail fraud because the amount of loss was 1.1 million dollars. U.S.S.G. Sec. 2F1.1(b)(1)(L). Two additional points were added because the offense involved more than minimal planning. U.S.S.G. Sec. 2F1.1(b)(2)(A). Three points were subtracted for acceptance of responsibility.

The Government objected to the presentence report because it did not recommend application of two enhancement provisions that would increase Stewart's offense level by four points. The Government argued that a two-level enhancement was required because Stewart abused a position of private trust pursuant to U.S.S.G. Sec. 3B1.3, and that an additional two-level enhancement was warranted pursuant to U.S.S.G. Sec. 3A1.1 because Stewart's clients were unusually vulnerable due to their age and susceptibility to his fraudulent scheme.

At the sentencing hearing, the parties stipulated that the funeral homes were contractually obligated to provide funeral services to the customers. The parties also stipulated that the only direct contact Stewart had with his clients was the letter that he sent confirming the alleged purchase of the annuity. Finally, the parties stipulated that Stewart was a licensed insurance broker and that this licensure was necessary to enable Stewart to purchase annuities for his clients.

The Government introduced a summary of the data that demonstrates that Stewart falsely represented he had purchased annuities for his clients. The exhibit shows that Stewart did not purchase any annuities for 278 clients and that he purchased annuities for thirty-eight clients in an amount less than that set forth in the written agreement.

Special Agent Walter Valentine of the Federal Bureau of Investigation testified that he determined the ages of 283 clients who were induced to furnish funds for the purchase of annuities by Stewart's fraudulent representations. The median age of Stewart's clients was "in the low 80's. The average age was about 74." Thirty-nine persons were over ninety years of age. Eighty-four were over the age of seventy, and 117 were over eighty years of age. Special Agent Valentine also stated that when Stewart's elderly victims were informed of the fraudulent scheme, they were upset because the money they had advanced to purchase their funeral services had been misappropriated. Burial services have been performed for Stewart's clients who died after paying for an annuity, notwithstanding the fact that the designated funeral directors have not been compensated because Stewart converted the money he received for the purchase of annuities.

The district court refused to apply a two-level enhancement for abuse of a position of trust and a two-level enhancement for targeting a vulnerable victim. The district court adopted the calculation in the presentence report and sentenced Stewart to 21 months in prison. This appeal followed.

III.

The Government contends that the district court erred in determining that a two-level enhancement under Sentencing Guidelines Sec. 3B1.3 was inapplicable because Stewart did not abuse a position of trust in a manner that significantly facilitated the commission or concealment of the offense. We will uphold the district court's imposition of a sentence "if the court correctly applied the guidelines to factual findings which are not clearly erroneous." United States v. Kosth, 943 F.2d 798, 800 (7th Cir.1991).

Under the Sentencing Guidelines, a court must add two offense levels "if the defendant abused a position of public or private trust ... in a manner that significantly facilitated the commission or concealment of the offense." "Public or private trust" refers to a position of public or private trust characterized by...