United States of America, Appellee-Cross-Appellant v. Daniel Milikowsky, Defendant-Appellant-Cross-Appellee, MacC Holding Corporation

Citations: 65 F.3d 4; 1995 U.S. App. LEXIS 24457Docket: 1387

Court: Court of Appeals for the Second Circuit; August 30, 1995; Federal Appellate Court

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The case involves Daniel Milikowsky, convicted of price-fixing under the Sherman Act, and sentenced to two years' probation, including six months of home confinement, 150 hours of community service, and a $250,000 fine. Milikowsky appeals his conviction, arguing that the government failed to correct false testimony from a witness, limited his cross-examination of that witness, and made prejudicial comments during closing arguments. The government cross-appeals, asserting that the district court improperly reduced Milikowsky's sentence due to the potential hardship imprisonment would impose on his employees. The appeal centers on whether a downward departure from the sentencing guidelines is permissible for such reasons. Milikowsky was a principal in multiple steel-related businesses and was indicted for conspiring to fix prices of steel drums. The sentencing guidelines establish a base offense level of nine for Sherman Act violations, with enhancements based on the volume of commerce involved and specific conduct such as bid-rigging. The court affirms the conviction and focuses primarily on the sentencing issue, referencing a detailed opinion by Judge Burns that addressed Milikowsky's motions for a new trial and acquittal.

At sentencing, the district court rejected a bid-rigging enhancement but imposed a two-level enhancement due to a volume exceeding $15 million, establishing an offense level of eleven. With Milikowsky's criminal history category being I, the Guidelines suggested a prison term of eight to fourteen months, which permitted a split sentence involving community confinement or home detention, with a minimum of half the term in imprisonment. Milikowsky sought a downward departure to probation, citing the adverse effects of imprisonment on his family and employees. The court acknowledged the family impact but deemed it insufficient for a departure. However, it accepted the argument regarding the employees' welfare, resulting in a one-level downward departure to level ten. The court emphasized that Milikowsky's absence would significantly impact his employees, distinguishing his case from other high-level offenders. Consequently, Milikowsky was sentenced to two years of probation, with the first six months in home confinement, along with 150 hours of community service and a $250,000 fine.

The government argued that the court's downward departure contradicted the deterrence principles of the U.S. Sentencing Guidelines, specifically U.S.S.G. Sec. 2R1.1, which advocates for prison sentences to deter antitrust violations. It asserted that the Sentencing Commission's intent is to impose confinement in nearly all criminal antitrust cases, supported by case law indicating that the business impact of an offender's incarceration does not justify a departure. The government referenced other circuit decisions reinforcing that the potential negative effects on a business and its employees are not typically grounds for leniency in sentencing, particularly in cases involving small business owners, as the Antitrust Division often targets such industries.

The court expresses skepticism regarding the government's arguments for vacating its decision to allow a departure from the sentencing guidelines. Under the Sentencing Reform Act, a court may impose a sentence outside the Guideline range if it identifies mitigating circumstances not adequately considered by the Sentencing Commission. The Sentencing Commission's guidance emphasizes that guidelines represent typical cases, and courts should consider departures for atypical cases that significantly diverge from this norm. The court reiterates its position that district courts are required to consider both upward and downward departures when compelling factors are present, as these departures are essential to the effective functioning of the sentencing system.

Downward departures may be justified by the need to mitigate the negative impact of incarceration on innocent third parties, particularly in cases where a defendant's parental responsibilities are extraordinary. Although the Guidelines generally deem "family ties and responsibilities" as irrelevant, the court has previously recognized extraordinary circumstances as valid grounds for departure. The court finds this reasoning applicable in antitrust and employment contexts, noting that the Antitrust Guideline aims to deter offenders through imprisonment, but does not adequately account for the extraordinary effects of such imprisonment on small businesses dependent on those offenders. The court concludes that extraordinary circumstances are inherently overlooked by the Commission when formulating guidelines, thus warranting consideration for departure.

The court is examining whether the district court's findings constitute "extraordinary circumstances" that warrant a downward departure from the Antitrust Guideline sentencing framework. Upon de novo review, it is established that significant adverse effects on an antitrust offender's employees, overlooked by the Sentencing Commission, justify such a departure. The district court identified Milikowsky's case as extraordinary due to the substantial impact his absence would have on his businesses and employees. Key evidence included unrebutted testimonies from family, employees, and business associates emphasizing Milikowsky's unique role and indispensable skill set necessary for the operation of his companies, Jordan and Prospect. Both companies are in precarious financial situations, heavily indebted to TradeARBED, which continues to extend credit contingent on their profitability. The testimony indicated that Milikowsky’s expertise in steel procurement is crucial for maintaining the viability of Prospect and Jordan, implying that his imprisonment could lead to bankruptcy and job loss for approximately 150 to 200 employees. The court found no clear error in the district court's conclusion that incarceration would impose extraordinary hardships on these employees. Although general business ownership does not automatically justify a downward departure, exceptional circumstances impacting employees can. The court affirmed both the conviction and sentence, finding no grounds for reversal or vacatur.

Milikowsky's sentencing is governed by the November 1989 Guidelines. The court considers that extraordinary circumstances, which cannot be adequately evaluated, may justify a departure from standard sentencing guidelines. The Antitrust Guidelines favor prison terms for offenders to deter violations, but the effect of imprisonment on small businesses dependent on these offenders was also noted. The court must determine whether Milikowsky's case presents extraordinary circumstances that justify a downward departure.

The district court found Milikowsky's situation to be extraordinary compared to other high-level business individuals it had sentenced. It highlighted the significant impact on his businesses and employees due to his absence. Testimonial evidence from family, employees, and business associates confirmed Milikowsky's indispensable role in his two businesses, Jordan and Prospect. He is uniquely qualified to manage daily operations, including steel procurement for both companies, essential for their viability. His expertise in steel purchasing is crucial for Prospect's survival, particularly given the precarious financial state of both companies. The court's conclusion about Milikowsky's unique contributions and their effects on his businesses is supported by undisputed evidence.

The Milikowsky families and their companies, Jordan and Prospect, owe approximately $20 million to TradeARBED, an international steel conglomerate. Due to their significant debt, the companies are unable to secure credit elsewhere, and TradeARBED only continues to extend credit as long as Jordan and Prospect remain profitable. Testimony indicated that Milikowsky's personal involvement is crucial for the companies' survival; without him, TradeARBED may withdraw support, risking bankruptcy and job losses for 150 to 200 employees. The court found no clear error in concluding that Milikowsky's imprisonment would cause extraordinary hardship for his employees, a factor not fully considered by the Sentencing Commission. Although ownership alone does not justify a downward departure in sentencing, the potential impact on employees warrants such consideration in this case. The court concluded that Milikowsky's conviction and sentence should be upheld, having found no grounds for reversal or vacatur. The parties acknowledged that his sentence is governed by the November 1989 Guidelines.