Court: Court of Appeals for the Second Circuit; February 13, 1995; Federal Appellate Court
Brian Studley appeals a conviction for mail fraud under 18 U.S.C. Section 1341, following a guilty plea on April 28, 1994. He received a ten-month prison sentence, two years of supervised release, and a $50 special assessment. The sentencing was influenced by the district court's view that other offenders' actions were "jointly undertaken" with Studley, attributing a total loss of nearly $120,000 from a telemarketing operation to him as relevant conduct under U.S.S.G. Section 1B1.3(a)(2). Studley contested this, asserting he should only be liable for $5,000 to $10,000 directly linked to his actions.
During sentencing hearings held in March and April 1994, the court focused on whether the scope of relevant conduct included losses from the entire operation or just those directly caused by Studley. However, the court did not establish the legal standard for its decision-making process. The appellate court found that the district court failed to apply the correct legal standard and did not make necessary factual findings regarding Studley's involvement in jointly undertaken criminal activity. Consequently, the appellate court vacated the sentence and remanded the case for further fact-finding and resentencing.
The background details highlight that Studley participated in a fraudulent scheme at Pacific Consulting, Inc., a telemarketing firm established by Howard Adler, which misled customers into paying application fees for loans they would not receive.
The advertisement for loans included a phone number for applicants to call, where Adler had staff that required an application fee to process loan requests. Despite an initial association with a lending company, only six out of roughly 1,100 applicants received loans during Adler's twelve weeks of operation, which generated about $273,153 in application fees. Postal Inspectors determined that Adler had complete control over the operation and its criminal activities. He employed ten to twenty sales representatives, including Studley, to handle calls from potential borrowers.
Rolf Ihlenfeldt, a key witness, testified that he applied for a telemarketing job at Pacific via an advertisement and started working shortly before Studley. He stated that Adler misled sales representatives into believing that customers were obtaining loans, claiming applications were processed in Cincinnati. Ihlenfeldt realized that customers were not receiving loans about four to five weeks into his employment, although he initially suspected this sooner. He described a scripted process for handling calls, where sales representatives collected financial information and falsely informed customers they were preapproved for loans, contingent on sending a $249 processing fee.
The sales representatives operated in shared spaces with a "hunt" phone system, where calls would roll over to the next available line. Their phone assignments were based on sales performance, with Ihlenfeldt being the top salesman and Studley second. While some representatives received a base salary, Studley was compensated solely on commission for each fee collected. They used aliases in their communications, with Ihlenfeldt knowing Studley by the name "Bobby Bates," purportedly to enhance sales effectiveness.
Studley worked at Pacific from July 17 to August 27, 1991, earning between $5,000 and $10,000 in fees. During his employment, he became aware that Pacific was not a legitimate operation, as he and Ihlenfeldt discussed customers not receiving loans, with complaints constituting two-thirds of their calls. They anticipated the operation's short lifespan due to customer dissatisfaction and considered starting their own loan business that would refund application fees. Studley reportedly exceeded the script's bounds to convince customers to send application fees, promising guaranteed loans and immediate processing. Toward the end of his tenure, Studley defrauded Adler by requesting customers to send the $249 fee via Western Union, keeping the money instead of forwarding it to Pacific. The district court determined that Studley should have recognized the fraudulent nature of the operation from the beginning, noting the misleading script he was required to follow. However, there was no evidence of Studley participating in activities beyond his own sales efforts or aiding other sales representatives. The court ruled that the government proved a jointly undertaken criminal activity among the salespeople, who collectively solicited money for nonexistent loans. The court found that Studley was aware of the reasonable foreseeability of the actions of other participants, given their close working environment and shared knowledge of the fraudulent scheme.
The district court determined that Studley was liable for the total losses from the telemarketing scheme during his participation, rather than just the losses he directly caused. As a result, the court increased Studley's Guideline calculation by six points under U.S.S.G. Sec. 2F1.1(b)(1)(G). Studley contends that the court incorrectly applied Guideline section 1B1.3, arguing it did not use the right legal standard to evaluate his involvement in jointly undertaken criminal activities. The court's interpretation and application of the Sentencing Guidelines are reviewed de novo.
According to Guideline section 2F1.1(b), the base offense level for fraud is based on the total dollar amount of the loss. Guideline section 1B1.3(a)(1)(B) states that for jointly undertaken criminal activity, the base offense level includes all reasonably foreseeable acts of co-conspirators that occur during the crime's commission or in connection with it. If a defendant is involved in such activity, they may be sentenced based on the actions of others if those actions were in furtherance of the joint activity and foreseeable to the defendant.
Key to the court's analysis is whether the defendant participated in jointly undertaken criminal activity. The relevant case law emphasizes the foreseeability of the conduct rather than solely whether it was jointly undertaken. Application Note Two of section 1B1.3 provides guidance for courts on this determination, noting that while policy statements are not substitutes for the Guidelines, they can serve as interpretive aids.
A two-pronged test determines a defendant's accountability for the actions of others in jointly undertaken criminal activity. The first prong requires that the conduct be in furtherance of the joint activity, while the second prong assesses whether the conduct was reasonably foreseeable. The scope of the defendant's jointly undertaken activity may differ from the overall conspiracy, and relevant conduct varies among participants. To establish accountability, the court must first ascertain the specific scope of the defendant's agreement before addressing foreseeability. The 1993 amendment to the guidelines clarified that to hold a defendant accountable for a co-conspirator's actions, the court must find both that the actions were within the scope of the defendant's agreement and foreseeable to them. Previous versions of the guidelines necessitated that the conduct be both outside the scope of the agreement and unforeseeable for it to be excluded from relevant conduct. The updated guidelines require particularized findings regarding both the scope of the agreement and foreseeability. Courts can determine the scope of the defendant's agreement by considering explicit or implicit agreements inferred from the behavior of the defendant and others involved. Illustrations in the guidelines offer further clarity on these determinations.
Defendant P, a street-level drug dealer, operates independently and is not accountable for the actions of other dealers in his area, as he does not engage in a jointly undertaken criminal activity with them. In contrast, Defendant Q collaborates with four other dealers, pooling resources and profits, making him accountable for the total drug quantities sold by all during their joint criminal activity, as these sales are deemed foreseeable and in furtherance of their collective efforts. This distinction emphasizes that mere knowledge of another's criminal acts is insufficient for accountability; joint activity is characterized by shared resources and mutual dependence.
In another example, Defendants F and G execute a fraudulent stock scheme together, with each being accountable for both their own and each other's gains under the law, as their actions were closely linked in furtherance of their joint scheme. The involvement in designing and executing the fraudulent plan is critical in determining accountability.
A third illustration involves Defendant R recruiting Defendant S to distribute a specific amount of cocaine. Despite S's awareness of R's larger operation, S is only accountable for the 500 grams distributed, highlighting that knowledge of a broader scheme does not extend liability beyond the agreed-upon role.
In the current case, the district court concluded that Studley was involved in a joint criminal activity based on a generalized finding of a collective scheme among salespeople. However, the court failed to specify the extent of Studley's agreement or whether the actions of other representatives fell within that agreement's scope.
The government contends that Studley's involvement in a scheme to solicit money for loans implies that his agreement to work for Adler covered all illegal actions committed by other sales representatives. However, the court disagrees, stating that the facts from the Presentence Report and the government's evidence do not support this interpretation. Evidence indicates that Studley was hired by Adler, received instructions on how to defraud potential borrowers, and executed those instructions variably. Unlike other defendants who designed the telemarketing scam, Studley did not contribute to the broader scheme and only engaged in sales efforts for personal commission, competing with other representatives rather than collaborating.
Studley's knowledge of defrauding customers and awareness of others' fraudulent activities establish his culpability; however, this does not extend liability for the actions of fellow employees. The government's argument that shared office resources imply joint criminal activity is unconvincing since Adler provided the office and equipment, and the representatives did not pool resources. The evidence suggests that Studley’s fraudulent activities were limited to his own actions, with no interest in the overall operation's success.
The case is remanded to the district court to specifically determine the extent of Studley's agreement to participate in the fraudulent scheme, followed by resentencing. The sentence is vacated. Additionally, Adler has pleaded guilty to mail fraud, cooperated with the government, and received a twelve-month prison sentence.
