United States v. Smiley

Citations: 553 F.3d 1137; 103 A.F.T.R.2d (RIA) 657; 2009 U.S. App. LEXIS 1880; 2009 WL 160979Docket: 07-3205

Court: Court of Appeals for the Eighth Circuit; January 26, 2009; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Angela Smiley, president of American Payroll Service (APS), was originally sentenced to 36 months of imprisonment after pleading guilty to mail fraud and failure to pay federal taxes. Following her sentencing, the government filed a motion to vacate the sentence, claiming Smiley had failed to disclose her interest in a Florida condominium to the United States Probation office. Consequently, the district court vacated the original sentence and resentenced Smiley to 72 months in prison, ordering her to pay restitution of $674,691.41. On appeal, Smiley argued that the district court lacked the authority to vacate her original sentence and questioned the restitution amount. The appellate court reversed the district court's decision to vacate the original sentence and the subsequent resentencing but upheld the restitution order. Background details reveal that Smiley misappropriated client funds intended for tax payments to cover APS's payroll and her own expenses, while misleading clients about the status of their tax liabilities. She had waived indictment and entered a plea agreement stipulating her obligation to provide complete financial disclosure to Probation. The government later sought to extend the restitution determination deadline, a motion that was granted by the district court prior to sentencing.

On January 26, 2007, the district court issued an Order Vacating Sentence for Smiley, citing clear error under FED. R. CR. P. 35. The order mandated Smiley to furnish an accurate asset statement to the United States Probation Office, which was to prepare a revised Presentence Investigation Report. Following Smiley's asset disclosure, the Government contested its accuracy, prompting the district court to authorize further investigation. 

On February 23, 2007, the court directed Probation to conduct a thorough appraisal of Smiley's personal possessions, assess her husband's companies, collect two years of bank statements for both Smiley and her husband, and detail any asset transfers from November 1, 2006, onward. The Government later sought an injunction, asserting that Smiley's financial disclosures had been insufficient, highlighting undisclosed assets found during Probation's inventory, including a classic vehicle and significant stock transfers aimed at debt settlement.

On April 9, 2007, the district court issued an injunction against Smiley and her family to prevent any actions affecting their property without prior court approval and revoked her bond for misleading Probation regarding asset locations. Further orders included a search of a storage container rented by Smiley and an appraisal of her residence.

On July 14, 2007, Smiley attempted to vacate the upcoming sentencing hearing, arguing the court lacked jurisdiction due to the expiration of the correction period under FED. R. CR. P. 35. However, during a hearing on August 23, 2007, the court clarified it was exercising its inherent authority to investigate potential fraud during the original sentencing. Smiley was resentenced on August 28 and 29, 2007. The court determined that Smiley had failed to disclose numerous financial details and expressed uncertainty about the appropriateness of the original sentence given the newfound information.

Smiley's net worth was reported as $404,830 in the original presentence report but decreased to $55,387 in the final report. During the August 2007 resentencing, the district court concluded that fraud had occurred based on Smiley's misrepresentations, which included lying about her marital status, failing to disclose a Florida property, inflating asset values under foreclosure, and not revealing nearly $2 million in judgments against her or her business from January 2007. While the court noted that Smiley's post-sentencing conduct was not relevant to the fraud determination, it was pertinent to her credibility assessment. The court expressed interest in ensuring Smiley could make restitution and acknowledged that the fraudulent misrepresentations influenced its decision-making. Consequently, the district court resentenced Smiley with a total offense level of 27 instead of 20, imposing a Guidelines sentence of 72 months in prison and ordering $674,691.41 in restitution.

Smiley argues that the district court improperly invoked "fraud on the court" as an independent basis for resentencing, citing Carlisle v. United States and Bowles v. Russell to assert that the district courts lack inherent power to exceed the 7-day time limit for correcting a sentence under FED. R. CR. P. 35. She references cases establishing that this time limit is jurisdictional and cannot be extended, including decisions from the Eighth Circuit confirming that district courts have no authority to alter sentences after this period, even for legal errors. The Supreme Court's ruling in Carlisle emphasized that the district court could not grant an untimely motion for judgment of acquittal, reiterating the binding nature of the Federal Rules of Criminal Procedure. In contrast, the Chambers v. NASCO, Inc. case recognized the court’s inherent power to impose sanctions, indicating a distinction between inherent powers and the strict procedural rules outlined in federal regulations.

The Court emphasized its inherent power to vacate judgments if fraud is proven, referencing the case Hazel-Atlas Glass Co. v. Hartford-Empire Co. to support the historical authority of equity to nullify fraudulently obtained judgments to protect court integrity. Additionally, the Court recognized its authority to independently investigate allegations of fraud. However, it cautioned that such inherent powers should be exercised with restraint. The Government contested the notion that this power is limited to civil cases, citing precedents where district courts corrected criminal sentences procured through fraud. For instance, in United States v. Bishop, a defendant misled the federal court regarding his state sentence, resulting in a modified federal sentence. Upon discovering the misrepresentation, the district court vacated the modification, reinstating the original sentence. The Seventh Circuit upheld the district court's action, asserting that the court's power to correct fraudulent judgments is not confined to civil cases. The Supreme Court has also acknowledged this authority in criminal contexts, further underscoring that the nature of the proceeding does not limit the court's power to address fraud.

The Supreme Court in Smith interpreted Rule 33 of the Federal Rules of Criminal Procedure, concluding that a district court cannot grant a new trial more than five days post-conviction and appellate affirmation. The Court ruled that the Government is entitled to mandamus and prohibition writs to vacate such an order. While acknowledging the district court's error in granting a new trial based solely on the defendant's claims of trial errors, the Supreme Court emphasized that federal courts retain the power to investigate fraud-related judgments and make necessary modifications at any time.

The Third Circuit's decision in United States v. Washington diverged from the Seventh Circuit's ruling in Bishop and the Smith interpretation. In Washington, the defendant misrepresented his identity, which affected his sentencing. The district court initially vacated his sentence due to this fraud but the Third Circuit issued a writ of mandamus to reverse that order. The Third Circuit clarified that a district court can only modify sentences under specific statutory provisions (FED. R. CR. P. 35(a) and 18 U.S.C. 3582(c)) and does not have inherent power to vacate sentences sua sponte based on fraud. It suggested that any historical inherent power was likely revoked by Congress through these statutes.

This Court faced a similar situation, questioning the jurisdiction of a district court to resentence a defendant absent statutory authority. While it refrained from deciding on the existence of inherent power to vacate judgments based on fraud, it noted that any such power must be applied judiciously and in accordance with the established rule against altering judgments after their term has expired.

Clear and convincing evidence is required to establish fraud on the court, with any doubts resolved in favor of the judgment's finality, as stated in Hazel-Atlas Glass Co. v. Hartford-Empire Co. Fraud on the court is specifically defined as misconduct directed at the judicial process itself, rather than disputes between parties or misleading documents. The standard for proving fraud on the court under Hazel-Atlas is more stringent than the general fraud standard under FED.R. CIV.P. 60(b)(3), necessitating egregious misconduct such as bribery or evidence fabrication. In Smiley's case, nondisclosures regarding her financial status prior to sentencing do not meet this high standard of egregious misconduct necessary to vacate the judgment. The district court's decision was based on Smiley's chaotic financial situation and her commitment to repay victims, rather than her ability to make restitution. Despite misrepresentations, the court sentenced her within the Guidelines range without granting a variance. Additionally, evidence did not convincingly support claims regarding misrepresentation of her marital relationship. Even if the court had the power to set aside the sentence, it was an abuse of discretion to do so, as the heightened standard for fraud on the court was not satisfied.

The original sentence against Smiley is vacated, and the subsequent seventy-two-month imprisonment sentence is reversed, with instructions to reinstate the original sentence. Smiley agreed to restitution amounts for all but seven victims, arguing that the government did not prove these disputed amounts by a preponderance of the evidence. Smiley claims the Postal Inspector accepted the victims' statements without independent verification. The government bears the burden of proof regarding restitution amounts, which is reviewed for clear error by the district court. Testimonies from the July 16, 2007 restitution hearing indicated that victims were knowledgeable about their losses, reviewing bank records and IRS correspondence before reporting amounts. The Postal Inspector guided victims to exclude penalties and interest from their calculations. Ultimately, the government met its burden of proof, and the district court's restitution amount determination was not clearly erroneous.

The court concluded that while a district court may have inherent power to vacate a judgment for fraud, the conduct in this case did not meet the narrow definition of "fraud upon the court." Therefore, the order vacating the original sentence and the sentencing judgment is reversed, but the restitution order is affirmed. Judge Colloton concurred, noting that "fraud on the court" must be narrowly defined and that intrinsic fraud, such as perjury or falsification, does not provide grounds for relief in federal courts. He emphasized that the district court's reliance on misrepresentations by Smiley during sentencing does not constitute "fraud on the court." Colloton refrained from commenting on the sufficiency of evidence regarding Smiley's misrepresentations but agreed with the restitution outcome.

The Honorable Lawrence L. Piersol, a U.S. District Judge, presided over the case. Testimony revealed that Smiley and her husband owned a one-eighth fractional interest in a condominium classified as a time share, while a vehicle used by her husband was titled in the name of her father-in-law. Smiley reported difficulties obtaining financial information from her husband, with indications of marital strain due to her legal issues. Although they reportedly separated in September 2006, her husband confirmed they lived together until her detention and acknowledged discussions about divorce, as well as his lack of cooperation with Probation regarding financial disclosures. The Supreme Court ruled in a habeas corpus case that unique circumstances no longer justify untimely appeals. Under 18 U.S.C. § 3664(d)(3), defendants are required to file an affidavit detailing their financial resources and assets. Additionally, Smiley's financial situation did not affect her restitution obligations under the Mandatory Victims Restitution Act, which mandates restitution regardless of the defendant’s financial condition, as upheld in United States v. Miller.