|
|
| FindLaw: Laws: Cases and Codes: 9TH CIRCUIT COURT Opinions | |
UNITED STATES OF AMERICA, No. 98-50632 Plaintiff-Appellee, D.C. No. v. CR-94-00384-R-1 ROBERT MICHAEL STANDARD, OPINION Defendant-Appellant.
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, Chief Judge, Presiding
Argued and Submitted
December 6, 1999--Pasadena, California
Filed March 29, 2000
Before: D. W. Nelson, Robert R. Beezer, and T. G. Nelson,
Circuit Judges.
Opinion by Judge Beezer
_________________________________________________________________
COUNSEL
Robert M. Standard, pro se, Los Angeles, California, for the
defendant-appellant.
Alka Sagar and Julie Werner-Simon, Assistant United States
Attorneys, Los Angeles, California, for the plaintiff-appellee.
_________________________________________________________________
OPINION
BEEZER, Circuit Judge:
Robert Michael Standard was convicted of, inter alia, sub-
scribing to a false tax return. In this, his third appeal, he chal-
lenges the district court's computation of the base offense
level for his tax conviction. The district court relied on the
presentence report's statement that Standard improperly
deducted more than $1.7 million on his 1988 tax return. Stan-
dard objected to this statement as factually and legally incor-
rect. We have jurisdiction pursuant to 28 U.S.C.S 1291.
Because the district court failed to resolve this controverted
matter in accordance with Federal Rule of Criminal Procedure
32(c)(1), we vacate Standard's sentence and remand for re-
sentencing.
I
Standard is a former personal injury lawyer who obtained
many of his clients by paying third-party non-lawyers for
referrals. In his 1988 federal tax return, Standard deducted
$1,794,495 in referral fees from his gross income by listing
these payments as "other expenses." The federal government
commenced a criminal investigation regarding the propriety
of Standard's tax deductions.1
In 1994, a federal grand jury indicted Standard on two
counts of subscribing to a false tax return. Standard was also
indicted on two counts of making false statements on bank
loan applications, and one count of bankruptcy fraud based on
concealment of an asset. A jury subsequently convicted him
on all five counts. In February 1995, Standard was sentenced
to a total of 65 months in custody, to be followed by a three-
year term of supervised release. Standard appealed, challeng-
ing both his convictions and his sentence. On April 26, 1996,
we reversed Standard's convictions on three counts, but
affirmed his 1988 tax conviction and his conviction for bank-
ruptcy fraud. See United States v. Standard, No. 95-50069,
1996 WL 207157 (9th Cir. April 26, 1996). Because we found
it necessary to remand for re-sentencing, we did not consider
Standard's challenge to his sentence. See id.
On July 3, 1996, Standard was re-sentenced to a 60-month
term of imprisonment, and a three-year term of supervised
release. In determining Standard's sentence, the district court
applied the 1992 Sentencing Guidelines, which were in effect
at the time the latest of Standard's two offenses occurred.
Standard appealed his new sentence. On December 24,
1997, we held that the district court's use of the 1992 Guide-
lines to determine Standard's sentence for the 1988 tax
offense violated the Ex Post Facto Clause of the Constitution.
See United States v. Standard, No. 96-50407, 1997 WL
812248 (9th Cir. Dec. 24, 1997). We again remanded for re-
sentencing. See id.
On August 24, 1998, Standard was sentenced for the third
time. This time, the district court applied the 1988 Guidelines
and sentenced Standard to a 51-month term of imprisonment,
plus a three-year term of supervised release. Standard filed the
instant appeal on August 27, 1998. Standard argues, as he did
in his first and second appeals, that the district court erred by
not determining what portion of the $1.7 million deduction
was improper. Although Standard was released from federal
custody on November 16, 1998, he remains subject to the
conditions and terms of supervised release.
II
The sole issue raised by Standard in this appeal is whether
the district court erred in calculating the base offense level for
his tax fraud conviction. We review de novo the district
court's interpretation and application of the Sentencing
Guidelines. See United States v. Barnes, 125 F.3d 1287, 1290
(9th Cir. 1997). Under S 2T1.3(a) of the 1988 Guidelines, the
base offense level for tax fraud is either 6, or a higher number
that corresponds to the tax loss. See U.S.S.G. S 2T1.3(a)
(1988). The Guidelines compute the tax loss as 28% of the
amount by which the gross income was understated. See id.
Thus, because Standard's 1988 tax return deducted
$1,794,495 in referral payments from his gross income, the
district court calculated the tax loss as 28% of that amount, or
$502,459. Under the 1988 Guidelines, a base offense level of
15 corresponds to a tax loss of $502,459. See U.S.S.G.
S 2T4.1.
Standard contends that the district court should not have
used the $1,794,495 deduction to compute the tax loss
because the government never proved that this entire amount
was improperly deducted. Under S 162 of the Internal Reve-
nue Code:
No deduction shall be allowed . . . for any payment
. . . made, directly or indirectly, to any person, if the
payment constitutes an illegal bribe, illegal kickback,
or other illegal payment . . . under any law of a State
(but only if such State law is generally enforced),
which subjects the payor to a criminal penalty or the
loss of license or privilege to engage in a trade or
business.
26 U.S.C. S 162(c)(2). Thus, a payment may be deducted if it
is not illegal under state law.
We determined in Standard's first appeal that payments for
solicited referrals are illegal under California law. Although
Standard concedes that some of the payments that he
deducted were for outright solicited referrals, he avers that
others were for unsolicited referrals. He argues, moreover,
that because California law in 1988 did not prohibit payments
for unsolicited referrals, the district court was obligated to
determine what portion of the $1.7 million deduction was ille-
gal. According to Standard, only the portion that was improp-
erly deducted may be used to determine the tax loss. Before
considering the merits of Standard's contentions, we first dis-
pose of the government's law of the case argument.
a.
The government contends that we, either expressly or nec-
essarily by implication, considered and rejected Standard's
tax loss argument. The government first argues that because
we did not explicitly instruct the district court in Standard's
second appeal to recalculate the tax loss on remand, the calcu-
lation must have been proper. This reasoning fails where, as
here, we never adjudicated the issue.
The government also relies on the following language from
our decision in Standard's second appeal:
The district court should proceed to resentence Stan-
dard, applying the 1988 Guidelines to the base
offense level and enhancements related to Count 2
[tax fraud] and making new findings where those
Guidelines so require. In addition, any Section 3
enhancements should be applied prior to the applica-
tion of a multiple count adjustment. Any other
enhancements previously made by the district court
may be included in its calculation on resentencing.
According to the government, our express statement that the
district court was free to apply any sentencing enhancements
previously imposed necessarily implies that the district
court's tax loss computation was proper. We disagree. The tax
loss computation is used to determine the base offense level;
it is not an enhancement. See U.S.S.G. S 2T1.3(a). Moreover,
the only portion of the quoted language that suggests that we
considered Standard's tax loss argument simply instructs the
district court to apply the 1988 Guidelines and to make addi-
tional findings if necessary. Because we have not already
decided the tax loss issue, either expressly or necessarily by
implication, the law of the case does not preclude this appeal.
We turn now to the merits of Standard's argument.
b.
Standard argues that the district court erred in failing to
make legal and factual determinations that were necessary in
calculating the base offense level for his tax conviction.
Although the legal and factual questions are closely linked,
we consider the legal question first, as its resolution could
preclude the need to resolve the factual dispute.
1.
According to Standard, the district court erred in failing to
determine whether California law in 1988 prohibited pay-
ments for unsolicited referrals. If California law permitted
payments for unsolicited referrals, the district court should
have made findings as to what portion of Standard's $1.7 mil-
lion deduction, if any, was for unsolicited referrals. If unsolic-
ited referrals were illegal under California law, then the entire
$1.7 million deduction was improper and the district court
correctly calculated the base offense level for the tax convic-
tion.
Standard argues persuasively that only payments for solic-
ited referrals were illegal under California law in 1988. Sec-
tion 6152 of the California Business and Professional Code,
which was in effect when Standard filed his 1988 tax return,
makes it a crime "to solicit" a person to act as "a capper." Cal.
Bus. & Prof. Code S 6152(a)(2). A capper is a person who
acts as "an agent for an attorney at law . . . in the solicitation
or procurement of business for the attorney." Cal. Bus. &
Prof. Code S 6151(a)(1). Thus, as we held previously, pay-
ments for solicited referrals are illegal under California law
and, accordingly, constitute illegal deductions under
S 162(c)(2). By using the word "solicit" in section 6152, crim-
inal conduct is defined as payments only for those referrals
that are obtained through solicitation; the statute does not pro-
scribe payments for unsolicited referrals. Although the Cali-
fornia Insurance Code was later amended to prohibit
payments for any referral, this legislation was not enacted
until 1990 and 1991 and thus does not apply to Standard's
1988 conduct. Moreover, if section 6152 already prohibited
payments for unsolicited referrals, the later amendments
would have been redundant. We have been unable to identify
any law in effect in California in 1988 that established unso-
licited referral payments as criminal conduct. Nor has the
government brought such a law to our attention. In fact,
despite having had numerous opportunities to address the
legal distinction between solicited and unsolicited referral
payments, the government has utterly failed to do so.
[1] Because unsolicited referral payments were not illegal
in California in 1988, the district court should not have used
the $1.7 million deduction to calculate the base offense level
for Standard's tax conviction without first determining
whether all of the deducted payments were, in fact, for solic-
ited referrals.
2.
The government argues that Standard's sentence should be
affirmed nonetheless because evidence in the record supports
a finding that all of Standard's referrals were solicited. The
government's focus is misplaced. Whether the district court
could have found that all of the cases for which Standard paid
a fee were solicited is not the relevant inquiry; rather, the
question is whether the trial judge did make such a finding in
accordance with his obligation under Federal Rule of Crimi-
nal Procedure 32(c)(1).
We review de novo a district court's compliance with Rule
32. See United States v. Karterman, 60 F.3d 576, 583 (9th
Cir. 1995). Rule 32 provides in relevant part:
At the sentencing hearing, the court must . . . rule on
any unresolved objections to the presentence report.
The court may, in its discretion, permit the parties to
introduce testimony or other evidence on the objec-
tions. For each matter controverted, the court must
make either a finding on the allegation or a determi-
nation that no finding is necessary because the con-
troverted matter will not be taken into account in, or
will not affect, sentencing. A written record of these
findings and determinations must be appended to
any copy of the presentence report made available to
the Bureau of Prisons.
Fed. R. Crim. P. 32(c)(1).
In order to determine whether the district court met its obli-
gations under Rule 32, we set forth below the relevant events
of each of Standard's three sentencings.
Prior to Standard's first sentencing, a presentence report
was prepared that contained the following paragraph:
23. On October 14, 1989, Standard made and sub-
scribed to a 1988 Form 1040 individual income
tax return, under penalty of perjury, and filed
it with the IRS. The return reported "other
expenses" on the Schedule C in the amount of
$2.1 million. Of that amount, illegally
deducted capping fees, labeled as "sign-
ups," totaled $1,794,495. During that same
year, he received approximately $13 million in
case settlements.
Standard specifically objected to this paragraph as factually
inaccurate because, inter alia, he "dispute[d ] that the deduc-
tions were illegal payments." He also argued that the tax loss
computation was incorrect because "there was no proof as to
how many of the cases referred to the defendant were actually
solicited." At the first sentencing hearing, Standard's attorney
presented the following objection to the court:
[O]ne of the [government's] responsibilities is to
produce evidence to your Honor to make a finding
that they have to make now. They just assume willy-
nilly that since they convicted Mr. Standard of cap-
ping and basically not deducting things, that that is
a tax loss to the government. I don't want to make
this argument too long, but have they really proved
what portion of that money is a result of solicited
cases? Their own expert testified at trial that, if you
pay for a case that is not solicited, it will be a
deductible expense.
Likewise, Standard himself addressed the court:
When the charges of filing false tax returns for 1987
and 1988, my response as given in the motion for a
new trial proved, I believe, among other things, that
the payments I made were not illegal until 1990; that
many of the payments were not for soliciting cases,
but came to me from people who asked to be repre-
sented by an attorney.
Without addressing Standard's solicited versus unsolicited
argument, or his factual objections to the presentence report,
the district court pronounced Standard's sentence and stated
that "I find that the calculations of the sentencing guidelines
by the Probation Officer are valid and correct[.]" The findings
of fact and conclusions of law submitted by the Government
and adopted verbatim by the district court contained the fol-
lowing two relevant paragraphs:
17. The court finds that the defendant's assertions
with respect to PSR P 23 are not supported by
the record and this court further finds that PSR
P 23 accurately reflects the testimony of Steven
Pines. This court further finds that the state law
prohibiting capping was generally enforced as
established by the testimony of Deputy City
Attorney Ed Fimbres and State Bar Counsel
Victoria Molloy.
43. This Court has considered the allegations in
defendant's most recent sentencing memoran-
dum, filed February 7, 1995, and finds it to be
a reiteration of defendant's previous docu-
ments. The Court has considered it, along with
the exhibits, and finds each argument contained
therein to be without merit.
Standard's second sentencing memorandum contained the
following argument:
Under the 1989 guideline, the base offense level is
6. The jury verdict did not establish any tax loss,
only that the defendant overstated deductions in
some amount.
***
The tax fraud theory was based on California Busi-
ness and Professions Code S 6152(a)(1) which
makes it unlawful for any person to act as a capper
for an attorney and therefore payments for capping
were illegal under California law in 1988. The bur-
den is on the government to show what part of the
overall deduction was for capped cases and what part
was simply referral fees. Referral fees only became
illegal in California in 1991. See Insurance Code
SS 750 and 754. These sections have no application
to this case.
During the second sentencing hearing, Standard's attorney
argued:
The real issue in this case is the enhancement for the
tax loss. . . . It's up to the Government -- the burden
of proof is on the Government to show what the tax
loss is. As we indicate in our short memo, the only
thing you can infer from the jury's verdict is that
there was some tax loss, but it's up to the Govern-
ment to prove anything beyond that.2 Their theory of
the case was that it was capping income that was
improper -- capping expenses that were improperly
deducted, and in our brief we say, assume that to be
true, then show us or show the Court what the tax
loss was. And in their brief they confuse referral fees
with capping fees . . . .
Without addressing Standard's arguments regarding the tax
loss computation or the issue of solicited referrals, the district
court pronounced its sentence, stating that "I've gone over the
findings of fact and conclusions of law which have been pro-
posed by the Government, and I'm adopting those, I think that
they are properly adoptable." The referenced findings of fact
and conclusions of law contain the following paragraph:
2. The Tax Loss calculation for count two is 28%
of the Amount by which defendant understated
his taxable income for the year 1988, that is
$502,459. Defendant failed to report $1,794,495
during the year 1988. The base offense level for
count two is 16. USSG S 2T4.1(K).
In Standard's third sentencing memorandum, he again
urges the court to recognize the difference between solicited
and unsolicited referral payments:
The Government's tax loss calculation of $502,459
for count 2 is based on 28% of the total referral fee
payments of $1,794,495. The Government's position
is that any referral fee payment is illegal. Defendant
Standard has argued that in 1988 referral of unsolic-
ited recommendations were not illegal under Califor-
nia law and that such payments did not become
illegal until 1990 and 1991.
During the sentencing hearing, the district court merely pro-
nounced Standard's sentence and agreed to look at the Gov-
ernment's findings later. The court did not accept the findings
of the presentence report or make any findings of its own dur-
ing the hearing. After Standard was sentenced, his attorney
reiterated his objection:
"We've set forth our objection. Basically we're
objecting to the tax loss . . . ."
[2] In each of the three instances, the district court failed to
resolve the controverted matters in accordance with Rule 32.
In the first sentencing hearing, although the court adopted the
calculations contained within the presentence report, it failed
to make the necessary findings to determine whether all of
Standard's deductions were for solicited referrals. A district
court may accept the presentence report as its findings of fact,
but only after it has resolved all objections. See Fed. R. Crim.
P. 32(b)(6)(D). Notably, neither the district court nor the Gov-
ernment has ever acknowledged the legal distinction between
payments made for solicited cases and those made for unso-
licited referrals. Certainly, no factual findings were ever made
in this regard.
Although the first set of findings of fact and conclusions of
law contains two paragraphs that could be construed as
resolving Standard's objections, we believe these paragraphs
are insufficient for three reasons. First, Rule 32 requires that
the district court rule on any unresolved objections at the sen-
tencing hearing. See Fed. R. Crim. P. 32(c)(1). Thus, the
court may not resolve such objections post-hearing.
Second, the findings of fact relating to paragraph 23 do not
specifically address Standard's objection regarding solicited
referrals vis-a-vis unsolicited referrals. Instead, the findings
uphold paragraph 23 by reference to the testimony of Steven
Pines, Standard's accountant. Pines' trial testimony supported
only those portions of paragraph 23 that Standard readily con-
ceded, namely that Standard reported other expenses on
Schedule C of his 1988 tax form in the amount of $2.1 mil-
lion, and that of this amount, $1,794,495 was deducted as
"sign-ups."
Third, the catch-all provision contained in the findings of
fact and conclusions of law, which purports to find all of
Standard's arguments "to be without merit," is too general
and does not adequately address Standard's objection. Fur-
thermore, neither the second nor the third set of findings of
fact and conclusions of law contain a similar paragraph.
In the second sentencing hearing, the court adopted verba-
tim the findings of fact and conclusions of law submitted by
the Government. Examination of these findings is unhelpful,
however, as they assume, without analysis, that all referral
fees are illegal capping fees. As set forth above, this assump-
tion is incorrect because California law did not prohibit pay-
ment for unsolicited referrals in 1988.
Finally, the district court at the third sentencing hearing
simply pronounced Standard's sentence without acknowledg-
ing that he had raised objections.
[3] Despite the fact that Standard repeatedly argued that the
$1.7 million deduction included payments for both solicited
and unsolicited referrals and was thus not properly used to
compute the tax loss, the district court failed to make the find-
ings necessary to resolve this objection. The court likewise
failed to make a determination that no such findings were nec-
essary. Indeed, the court could not make such a determination
because the tax loss computation undoubtedly affects Stan-
dard's sentence.
[4] Failure to make the necessary findings requires that the
sentence be vacated and the defendant be resentenced. See
United States v. Fernandez-Angulo, 897 F.2d 1514, 1516 (9th
Cir. 1990) (en banc). The district court failed to determine
whether the payments deducted by Standard were for solicited
referrals or unsolicited referrals.3 We vacate Standard's sen-
tence and remand for the district court to resolve this matter
as required by Rule 32, and to resentence Standard in accor-
dance with its findings.
VACATED AND REMANDED.
_______________________________________________________________
FOOTNOTES
1 The State Bar of California also investigated Standard for misappropri-
ating client funds, misusing his trust account, and improperly soliciting
business. As a result of that investigation, Standard left his law firm and
resigned from the bar.
2 Standard correctly notes that the jury verdict does not constitute a suf-
ficient finding on the issue of solicited versus unsolicited referrals because
(1) no special verdict form was used, and (2) the jury was instructed that
in order to find Standard guilty, they needed to find only that he overstated
the deductions on his 1988 tax return "in some amount."3 We note that in order for the district court to use the $1.7 million
deduction to calculate Standard's base offense level, the government first
must prove by a preponderance of the evidence that all of the deducted
payments were for solicited referrals. See United States v. Oliveros-
Orosco, 942 F.2d 644, 648 (9th Cir. 1991) ("[T]he government bears the
burden of proving the facts necessary to establish the base offense level.").
It is not Standard's burden to prove that some of the payments were for
unsolicited referrals.
|
 |
LEGAL NEWS:
Top Headlines ·
Supreme Court ·
Commentary ·
Crime ·
Cyberspace ·
International US FEDERAL LAW: Constitution · Codes · Supreme Court Opinions · Circuit Opinions US STATE LAW: State Constitutions · State Codes · Case Law RESEARCH: Dictionary · Forms · LawCrawler · Library · Summaries of Law LEGAL SUBJECTS: Constitutional · Intellectual Property · Criminal · Labor · more... GOVERNMENT RESOURCES: US Federal · US State · Directories · more... INTERNATIONAL RESOURCES: Country Guides · Trade · World Constitutions · more... COMMUNITY: Message Boards · Newsletters · Greedy Associates Boards TOOLS: Office · Calendar · CLE · Email · FAX · West WorkSpace · FirmSite |