United States v. Michael Davis (96-5895) and Miles Jones (96-5905)
Docket: 96-5895, 96-5905
Court: Court of Appeals for the Sixth Circuit; March 22, 1999; Federal Appellate Court
Michael Davis and Miles Jones were convicted of multiple counts of wire fraud under 18 U.S.C. § 1343, following a jury trial. Both defendants were employed as telemarketers at International Health, Inc. in Tennessee, where Davis was involved in soliciting past customers (as a "reloader") and Jones solicited individuals who had previously declined offers (as a "no saler"). They were charged in a superseding indictment alongside four co-defendants, who pleaded guilty.
The district court imposed significant upward departures in sentencing Davis and Jones compared to their co-defendants. Davis received a sentence of 108 months, with a calculated offense level of 21 and a criminal history category of I, while Jones was sentenced to 57 months, with an offense level of 17 and a criminal history category of III.
Davis's appeal raised four issues: the denial of a mistrial, the inclusion of losses from uncharged conduct in calculating his offense level, the justification for the upward departure in sentencing, and the failure to consider the value received by victims in sentencing. The appellate court affirmed the convictions and Davis’s sentence, but reversed Jones’s sentence and remanded for resentencing.
Davis argued that the district court improperly denied his Motion for Mistrial, claiming that the defendants had contradictory defenses. Specifically, Davis asserted that his defense relied on his belief in the legality of the International Health Company, while co-defendant Jones’ counsel conceded the company's illegality but argued that Jones believed it was legitimate at the time of his employment. Davis referenced Rule 14 of the Federal Rules of Criminal Procedure to support his claim for severance. However, he failed to file a pretrial motion for severance as required under Rule 12(b). Although Davis became aware of Jones' defense strategy during the trial, he did not timely request a severance until after the trial concluded, when he sought a mistrial instead.
The court highlighted that the denial of a motion for severance is reviewed under an abuse of discretion standard, noting a preference for joint trials of defendants indicted together, as established in Zafiro v. United States. The court stated that mutually antagonistic defenses do not automatically warrant severance, and that the discretion for granting relief lies with the district court. In this case, the joint trial of Davis and Jones was justified due to their collaborative roles at International Health, and the evidence against them was interconnected. Since Jones did not testify or present any evidence against Davis, the arguments made by Jones’ counsel did not constitute a valid basis for severance. Consequently, the court concluded that Davis did not demonstrate an abuse of discretion by the district court in denying his Motion for Mistrial/Severance.
Additionally, the district judge adjusted Davis' sentencing offense level, adding eleven points under U.S.S.G. 2F1.1(b)(1)(L) due to losses exceeding $800,000, which included losses from both International Health and Davis' previous telemarketing activities with Wave Crest and Fortune.
Defendant Davis objected to the district court's inclusion of loss amounts from Wave Crest and Fortune in sentencing, arguing that hearsay is inadmissible in such hearings. The Court rejected this argument, citing Federal Rule of Evidence 1101(d)(3), which allows for hearsay evidence in sentencing proceedings. The Court referenced United States v. Brown, where the inclusion of related sales from prior employment was upheld because of a shared modus operandi. Similarly, in United States v. Koeberlein, the court affirmed the use of an enhanced loss total based on a series of thefts over time, illustrating the application of relevant conduct guidelines under U.S.S.G. 1B1.3. The Court emphasized that offenses can be considered part of a "common scheme or plan" if they are connected by common factors, or as part of the "same course of conduct" if sufficiently related. In Davis' case, the losses from Wave Crest and Fortune were appropriately deemed relevant conduct due to demonstrated similarities and an ongoing series of offenses.
Defendant Davis contests the district court’s decision to impose an eight-level upward departure in his sentencing, escalating his offense level from 21 to 29 and resulting in a sentence of 108 months, significantly exceeding the original guideline range of 37-46 months. The court acknowledges the Supreme Court’s ruling in *Koon v. United States*, which allows for judicial discretion in sentencing while maintaining the necessity of adhering to Sentencing Guidelines. The court finds that the unique and extreme nature of Davis' conduct towards his victims—characterized by severe insults and psychological harm—justifies the upward departure. Testimonies reveal Davis’s cruel behavior during telemarketing interactions, including belittling his victims and causing emotional distress. Although no serious physical injuries were reported, the intentional infliction of psychological harm warranted a departure from the standard guideline range. The court draws parallels to a prior case, *United States v. Riordan*, where a similar upward departure was upheld, reinforcing the appropriateness of the decision in Davis' case. The district court’s judgment reflects these considerations and aligns with the precedent set in *Riordan*.
Riordan received a six-level upward departure in sentencing due to vulgar conduct towards targets, while Davis faced an eight-level upward departure for extremely cruel treatment of telemarketing victims, which resulted in significant psychic injury. The court did not find an abuse of discretion in this decision. Davis argued that the district court erred by not considering that victims received some value from their expenditures. However, the items received were not what victims ordered and were deemed "extras" or "gimmes," which did not provide measurable value under sentencing guidelines. This conclusion was supported by a prior unpublished court decision, indicating that all expenditures were part of a fraudulent scheme and likely not valued by the victims.
In a separate matter, Jones raised three issues for review regarding the admission of a tape recording of a conversation with a customer, the order of restitution for uncharged conduct, and an upward departure in sentencing to 57 months. Jones objected to the admission of the tape on hearsay grounds, arguing it was offered to prove the truth of the matter asserted. The district court admitted the tape, ruling it was not offered for that purpose. Jones maintained that the recording's admission was harmful as it linked to other conversations not presented to the jury, and he claimed that the government relied on it throughout the trial, making the error not harmless.
The court determined that the jury was not misled by the introduction of a tape-recorded conversation between Defendant Jones and Mrs. Christian, as it was established to be one of multiple discussions. Testimony indicated that the recording was admissible under two independent legal grounds: 1) as a record of regularly conducted activity per Fed. R. Evid. 803(6), since it was maintained in the ordinary course of business by International Health; and 2) as an admission by a party-opponent under Fed. R. Evid. 801(d)(2). Evidence presented during the trial confirmed that International Health employed a monitoring system that randomly recorded sales conversations, of which Jones was aware. This was corroborated by testimonies from various individuals, including consultants and former employees.
The court found that the tape, recorded by International Health's monitor and obtained during a search warrant execution, was trustworthy and admissible under both evidentiary rules. Regarding the restitution order against Jones, he claimed the district court's restitution judgment of $91,235.67 was incorrect, arguing that it should reflect only the losses related to the victims of the counts for which he was convicted, amounting to $7,940.05. The presentence report indicated that Jones was indicted for offenses involving ten victims, with total losses of $7,940.05, yet stated that a restitution amount of $91,235.67 was outstanding, covering losses for all victims affected by Jones' telemarketing activities.
Defendant Jones argued for a limitation on restitution, referencing *Hughey v. United States*, which stated that restitution should only cover losses directly tied to the offense of conviction. However, subsequent legislation has altered this interpretation. The Sixth Circuit's decision in *United States v. Jewett* indicated that all losses from a mail fraud scheme could be included in a restitution order, based on an amendment to 18 U.S.C. § 3663(a)(2) that broadens the definition of a "victim" in such cases. This interpretation was upheld in *United States v. Woodruff*, supporting the inclusion of all victims affected by Jones' fraudulent scheme.
Jones also challenged the district court's decision to impose a 57-month upward sentencing departure, claiming it was retaliatory for exercising his right to a jury trial, as he and co-defendant Davis were the only ones to receive such departures. The Court found insufficient evidence of retaliation but deemed the four-level upward departure unreasonable based on the evidence presented during sentencing. While acknowledging that a defendant may receive a lighter sentence for a guilty plea—encouraged by potential benefits—the Court emphasized that no guideline permits increasing a sentence for exercising the right to a trial. The district court noted Jones had defrauded 99 victims, indicating that the monetary loss reflected in the sentencing did not adequately represent the harm caused.
A Sixth Amendment right to trial claim against the district court was rejected in the case of Brown, where it was determined that there was no evidence to support the claim that Brown's sentence was enhanced due to his decision to go to trial. The district court emphasized that a trial may reveal more about a defendant's conduct, which justified a more severe sentence based on the evidence presented. Specifically, the court referenced personal observations and evidence, such as recorded conversations and testimonies of victims, that informed its sentencing decision, distinguishing it from cases where defendants pleaded guilty.
The district court's upward departure in sentencing Defendant Jones was challenged but ultimately found unreasonable. The court cited the significant number of victims (98) and the psychological harm inflicted on them as reasons for the upward departure, but the appellate review concluded these reasons did not justify a four-level increase in sentencing. Additionally, while Guideline 5K2.8 allows for increased sentences in cases of extreme conduct, the district court noted that Jones's demeanor was superficially friendly, lacking overt threats or intimidation. The appellate court found that the evidence did not adequately support the upward departure based on the nature of Jones's conduct or the number of victims involved.
The district court previously upheld significant upward departures in sentencing co-defendants Davis and Riordan based on their threatening behavior, aligning with U.S.S.G. § 5K2.8. However, in Defendant Jones' case, no evidence of extreme conduct was presented; the court acknowledged he exhibited friendly behavior in his telemarketing efforts. The prosecutor did not dispute this, asserting that while Jones may have been personable, it was deceptive to defraud individuals. The court attempted to classify Jones' friendliness as "insidious," equating it to the actions of Davis and Riordan, but this rationale was deemed invalid. The key issue is whether Jones’ specific actions constituted extreme conduct under § 5K2.8. The court’s rationale for an upward departure—claiming Jones targeted vulnerable individuals—was unsupported by the record, which showed no evidence of him discussing victims' illnesses. Testimony confirmed that Jones was amicable and not abusive in his interactions. Thus, the appellate court concluded that Jones' behavior did not warrant an upward departure as his case differed significantly from that of his co-defendants.
The district court's application of U.S.S.G. 5K2.8, regarding Extreme Conduct, to Jones' case was found to be erroneous, as Jones' behavior did not meet the guideline's definition of "extreme conduct," which requires actions that are "unusually heinous, cruel, brutal or degrading to the victim." Consequently, the appellate court determined that the district court's upward departure in sentencing based on this guideline was unjustified.
Additionally, the district court cited the number of victims—99 in Jones' case—as another reason for an upward departure, asserting that the sentencing guidelines inadequately considered situations involving multiple victims in telemarketing fraud. However, the appellate court concluded that, given the rejection of the 5K2.8 application, the upward departure of four levels solely based on the number of victims was unreasonable, especially when compared to previous cases, such as Brown, where the number of victims was significantly higher (336).
The appellate court reiterated its role in reviewing upward departures for an abuse of discretion while acknowledging the Supreme Court's stance that appellate courts should not micromanage district court sentencing decisions. However, they also emphasized the importance of ensuring that departures are supported by evidence. The district court had relied on two primary reasons for the departure: the erroneous application of 5K2.8 and the number of victims, with the latter alone failing to justify the extent of the upward departure.
The court evaluated the reasonableness of a four-level upward departure in sentencing based on the number of victims involved in Jones's case. Citing the precedent in Williams, the court determined that the upward departure was not reasonable given the specific facts of this case. Consequently, the court remanded the case for resentencing, limiting any upward departure to two levels. The court affirmed the convictions and sentences of Davis, while reversing Jones's sentence and directing a new sentencing hearing. Additionally, it noted the district court's requirement for consecutive sentencing to impose a total of 108 months on Davis, as the maximum for wire fraud under 18 U.S.C. § 1343 is five years. The excerpt also included a detailed dialogue between Davis and a victim, illustrating attempts to extract financial resources under distressing circumstances.
Defendant Michael Davis had a telemarketing conversation with customer Lloyd Davis, during which Davis questioned Lloyd's mental capacity, specifically asking if he was "senile" and if he needed help with reading and writing. The district court provided reasons for Davis' sentence departure, citing the inadequacy of the two-level enhancement under U.S.S.G. 2F1.1(b)(2)(B) for defrauding multiple victims, as there were at least 87 victims in this case. The court emphasized that the psychological harm inflicted on older individuals and the need for public protection were significant factors warranting a departure from standard sentencing guidelines, paralleling the reasoning used in co-defendant Jones' case, which involved 98 victims.
Additionally, references to other cases, such as U.S. v. Frost, indicated that the district court's discretion in sentencing was upheld despite claims of unfair treatment based on the defendants' exercise of their right to a jury trial. The district court's sentencing approach was consistent with past decisions, reinforcing the argument for a departure based on the number of victims and the severity of the offense, as seen in U.S. v. Benskin, where a significant departure was justified due to a large number of victims and substantial financial loss.
In this case, there is a stark contrast in the number of investors and the associated monetary loss. The Court criticized the Crouse district court's significant downward departure of 13 levels, which allowed for a sentence of home confinement instead of imprisonment. Specifically, the district judge reduced the sentence by 6 levels to achieve a range permitting a 12-month sentence; however, the Court found this to be a greater departure than indicated, noting that home confinement can only substitute for offenses at level 6 or lower for a defendant with a criminal history category of I. Additionally, in United States v. Barajas-Nunez, the Court clarified that the Koon Court's abuse of discretion standard replaced the previous three-part review standard. Jones' presentence report, adopted by the district court, reflected an increase of 2 offense levels for unusual planning and a scheme to defraud multiple victims, plus an additional 2 levels for targeting vulnerable victims. It is also noted that Jones was not categorized as a "reloader," unlike co-defendant Davis, with the presentence report indicating that reloaders were deemed the most culpable at International Health.
