United States v. Cole

• Decision Date: 06 August 2013
• Docket Number: Nos. 11–1232,11–1513.,s. 11–1232
• Citation: 721 F.3d 1016
• Parties: UNITED STATES of America, Plaintiff–Appellant v. Abby Rae COLE, Defendant–Appellee. United States of America, Plaintiff–Appellee v. Abby Rae Cole, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

721 F.3d 1016

UNITED STATES of America, Plaintiff–Appellant

v.Abby Rae COLE, Defendant–Appellee.

United States of America, Plaintiff–Appellee

v.Abby Rae Cole, Defendant–Appellant.

Nos. 11–1232, 11–1513.

United States Court of Appeals,

Eighth Circuit.

Submitted: Oct. 17, 2012.

Filed: Aug. 6, 2013.

William J. Otteson, AUSA, argued, Michael L. Cheever, AUSA, on the brief, Minneapolis, MN, for appellant/cross-appellee.

Lauren Weil Solomon, argued, Highland Park, IL, for appellee/cross-appellant.

Before MURPHY, BYE, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

A jury found Abby Rae Cole guilty of conspiracy to commit mail and wire fraud, in violation of 18 U.S.C. § 1349; tax evasion, in violation of 26 U.S.C. § 7201; and conspiracy to commit tax fraud, in violation of 18 U.S.C. § 371. The mail and wire fraud conspiracy conviction stems from her company's theft of nearly $33 million from Best Buy over a four-year period. ¹ The tax fraud conspiracy and tax evasion convictions stem from understating tax liability by more than $3 million between 2004 and 2007 by using various schemes to conceal her company's true profitability. Cole's advisory Guideline range was 135 to 168 months imprisonment, but the district court varied downward and sentenced her to three years probation on each count, with all terms to be served concurrently. The government appeals Cole's sentence, arguing it is substantively unreasonable. Cole cross-appeals, challenging her convictions. We affirm Cole's convictions but remand her case to the district court to provide a fuller explanation of her sentence.

I.

Cole founded Chip Factory, Inc., a computer parts distributor, in 1989 and served as its owner and CEO until the company shut down in 2007. Her husband Russell began working at Chip Factory in the late 1990s and eventually took primary control of the company's day-to-day operations so that Cole could spend more time with their children.

Around 2002, Best Buy, a large electronics retailer, began using an automated online bidding system called the Parts Procurement Network (“PPN”) to acquire computer parts. Vendors wishing to sell computer parts to Best Buy had to fill out an application and get approval to access the PPN. Best Buy would list parts that it needed on the PPN so that approved vendors could bid for the opportunity to supply the parts. Vendors would enter bid information directly into the PPN, and the PPN would automatically determine the winning vendor based on a combination of price and product availability. After the PPN determined the winning bid for a particular parts order, Best Buy would send the winning vendor an order for those parts.

Russell applied for Chip Factory to become an approved vendor to Best Buy. In the application, Russell significantly overstated Chip Factory's annual sales, number of employees, and quantity of parts on hand to ensure that Best Buy would approve the application. Best Buy did approve the application. Between 2003 and 2007, Best Buy was Chip Factory's largest customer, accounting for more than 90 percent of Chip Factory's sales.

The PPN system had a significant flaw: a winning vendor could re-enter the system and change its bid amount after receiving an order invoice. Chip Factory discovered and exploited this flaw, initially submitting low bids for parts orders to beat out other vendors, then re-entering the system and increasing its bid amount after the PPN awarded it an order, and finally invoicing Best Buy for the higher bid amount. Russell and two other Chip Factory employees bore primary responsibility for bidding through the PPN. Russell regularly sent bribes to Robert Bossany, a Best Buy employee, so that Bossany would help Chip Factory conceal the fraud.

Although Cole did not work at Chip Factory full-time while this fraud was occurring, she came to the office and worked for a couple of hours every day. Cole purchased computer parts used to fill the Best Buy orders, handled the employee payroll, and reviewed Chip Factory's monthly financial reports. Chip Factory employees testified that they occasionally prepared envelopes addressed to Bossany's home and gave them to Cole. One employee testified that he twice saw Cole put cash into such an envelope. Cole also gave baby clothes and baby furniture to Bossany. Additionally, Cole's voice can be heard in the background of several recorded phone conversations in which Russell and another Chip Factory employee were discussing the fraud against Best Buy.

Furthermore, as relevant to Cole's tax evasion and tax fraud conspiracy charges, Cole was one of the employees responsible for entering information about the cost of goods sold into Chip Factory's accounting program. Cole regularly inflated the cost data as she entered it into Chip Factory's accounting program, making it appear that Chip Factory's inventory costs were higher than they actually were. Both Cole and Russell spoke with another Chip Factory employee responsible for entering cost data and told him to likewise inflate the cost data. Cole met with Mike Hartman, a professional tax preparer, each year for tax years 2004 through 2007. Cole gave Hartman the inflated cost data to use in preparing tax returns for her and her company, but did not tell Hartman that the figures were inflated. Hartman used these inflated cost figures when preparing tax returns for Chip Factory and for Cole, which had the effect of reducing Cole's apparent tax liability by fraudulently lowering Chip Factory's income. Similarly, Cole and Russell both paid for various personal expenses through Chip Factory and then deducted the expenses as business expenses on their tax returns, which also had the effect of lowering the amount of income reported on the returns. Russell also diverted portions of Chip Factory's income directly into the Coles' personal joint bank account. Cole received the bank account statements and spent the money but never reported this income on any tax returns. Cole signed Chip Factory's tax returns, as well as her own personal tax returns, every year for tax years 2004 through 2007.

The government brought numerous fraud, money laundering, conspiracy, and tax evasion charges against Cole. She pled not guilty, proceeded to a jury trial, and was convicted of one count of mail and wire fraud conspiracy, one count of tax fraud conspiracy, and four counts of tax evasion.

At Cole's sentencing hearing, the district court determined that Cole's advisory Guideline range was 135 to 168 months imprisonment. The district court then stated that it would vary from the Guidelines and impose a sentence of three years probation, offering the following explanation for the sentence:

Now, the house that Best Buy built is no longer yours. I've sent your husband away for a long, long period of time. I listened to the testimony and if I felt that you were intimately involved in what was going on, you would be joining him in prison for a long period of time.... It would be a travesty of justice if I sent you away for a long period of time. I am taking a huge chance on you and rest assured ... if you come back on a violation, because I am going to have the probation officer watch you closely, I will send you to prison.... Now go home and take care of your children.

The district court also issued a written statement of reasons in which it noted that Cole lost financial and familial stability as a result of her convictions, that Cole was “remorseful” and not likely to re-offend, and that a sentence of probation “will allow the Coles' children access to one stable, loving parent.” The court characterized Cole as “mostly a passive, although legally responsible, participant in these conspiracies” who “went along with her husband's scheme and practiced willful blindness.” The court also stated Cole's “sentence avoids unwarranted sentencing disparities among similarly situated defendants by providing a sentence sufficient but not greater than necessary to fulfill the § 3553(a) factors.”

This appeal followed.

II.

A.

Cole argues that the district court erred in denying her motion for judgment of acquittal because (1) the evidence was insufficient to sustain any of her convictions and (2) the government's change of theory on tax liability constituted a material variance from the indictment.

1.

“We review de novo the sufficiency of the evidence to sustain a conviction.” United States v. Louper–Morris, 672 F.3d 539, 555 (8th Cir.2012). We view the evidence in the light most favorable to the jury's verdict, drawing all reasonable inferences in favor of the verdict and reversing “only where no reasonable jury could find all the elements beyond a reasonable doubt.” Id.

To sustain Cole's mail and wire fraud conspiracy conviction, the government had to prove (1) there was an agreement between two or more persons to commit mail and wire fraud, (2) Cole knew of the agreement, and (3) Cole intentionally joined in the agreement. See id. The elements of mail fraud under 18 U.S.C. § 1341 are “(1) a scheme to defraud by means of material false representations or promises, (2) intent to defraud, (3) reasonable foreseeability that the mail would be used, and (4) that the mail was used in furtherance of some essential step in the scheme.” Louper–Morris, 672 F.3d at 555 (internal quotation and alteration marks omitted). The elements of wire fraud under 18 U.S.C. § 1343 are identical to the elements of mail fraud except that wire fraud involves interstate wire communications rather than mail. Louper–Morris, 672 F.3d at 555.

The government presented overwhelming evidence that Russell orchestrated a multimillion-dollar scheme to defraud Best Buy by inflating bids through the PPN system and bribing Bossany to conceal the fraud. Russell made material false representations to Best Buy with the intent to defraud when he lied about Chip Factory's qualifications to participate in the PPN program and when he systematically inflated...