US v. Eddie Smith

Filing 920091130

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-4138 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. EDDIE BURL SMITH, Defendant - Appellant. Appeal from the United States District Court for the Southern District of West Virginia, at Charleston. John T. Copenhaver, Jr., District Judge. (2:08-cr-00056-1) Submitted: October 27, 2009 Decided: November 30, 2009 Before WILKINSON and AGEE, Circuit Judges, and HAMILTON, Senior Circuit Judge. Affirmed by unpublished per curiam opinion. John E. Jessee, JESSEE & READ, P.C., Abingdon, Virginia, for Appellant. Charles T. Miller, United States Attorney, R. Booth Goodwin II, Assistant United States Attorney, Charleston, West Virginia, for Appellee. Unpublished opinions are not binding precedent in this circuit. PER CURIAM: Eddie Burl Smith (Smith) pled guilty to conspiracy to defraud the United States, 18 U.S.C. 371 (2006) (Count One), and fraudulent receipt of bankruptcy property, 18 U.S.C. 152(2), 2 (2006) (Count Eight), and was sentenced to a term of fifty-seven months imprisonment. Smith appeals his sentence, contending that the district court clearly erred in finding that he was an organizer or leader in the conspiracy, U.S. Sentencing Guidelines Manual 3B1.1(a) (2008), and that he abused a position of trust, USSG 3B1.3. We affirm. Smith was president of Carl E. Smith, Inc. (CESI), a West Virginia corporation which built pipelines for oil and gas. The company had been started by Smith's father; at his death in 1987, Smith and his brothers, Larry and Donald, became equal shareholders. From 1998 to 2006, the period of the conspiracy, Smith's brother Donald was vice-president of CESI, and Smith's son, Edward Michael Smith, was secretary and treasurer. civil litigation initiated by Larry in 1999 After revealed questionable financial practices and a lack of proper accounting at CESI, the IRS began an investigation, which led to Smith's eventual guilty plea to the instant offenses. According to information in the presentence report, CESI's "principals and officers" defrauded the IRS by using corporate funds extensively for personal vehicles and other 2 personal purchases without reporting the assets acquired as personal income. In addition, the company used color-coded checks to avoid payroll reporting requirements. Some employees were paid with both yellow payroll Wages that were paid as expense checks and blue expense checks. reimbursement were not reflected in the employee's W-2 forms and taxes were only withheld from the payroll check. With respect to these funds, CESI failed to meet its obligation to collect the required "employment taxes," 1 hold them in trust, and deposit them in an authorized financial institution at intervals. In 2003, Smith and his son, Edward Michael Smith, filed for Chapter 11 bankruptcy on behalf of CESI and its subsidiaries. A month later, they formed Smith Well Service (SWS), a limited liability company unrelated to CESI and its subsidiaries. Smith Smith was and the his SWS sole son proprietor. engaged the in During certain or the Edward Michael CESI bankruptcy, which of the transactions approval benefitted without knowledge bankruptcy court. At sentencing, the district court determined that Smith had a leadership role in the conspiracy and that there were at least five participants: Smith; 1 Smith; his son, Edward Michael and Donald's wife and his brother, Donald Smith; "Employment taxes" include both the employee's and the company's share of federal income tax, Social Security, and Medicare taxes. 3 daughter, Judith and Jaclyn Smith. The court found that Smith had the primary responsibility for manipulation of the payroll and expense checks to carry out the fraud involving trust fund taxes and that his position as president afforded him discretion that facilitated the offense. appeal. The district court's determination of the defendant's role in the offense is a factual finding reviewed for clear error. 2009). United States v. Kellam, 568 F.3d 125, 147-48 (4th Cir. A four-level increase is provided under 3B1.1(a) for a Smith contests these rulings on defendant who is an organizer or leader of an offense which involved more than five participants or was otherwise extensive. To qualify, the defendant must have been the organizer or leader of "one or more other participants." Factors to be considered include: the exercise of decision making authority, the nature of participation in the commission of the offense, the recruitment of accomplices, the claimed right to a larger share of the fruits of the crime, the degree of participation in planning or organizing the offense, the nature and scope of the illegal activity, and the degree of control and authority exercised over others. USSG 3B1.1 cmt. n.4. Smith ownership of contends the that he had "no more control was or no USSG 3B1.1 cmt. n.2. company" than Donald, that there evidence he recruited accomplices, and that much of the benefits went to his son or to Donald's family and friends. 4 He argues that there is little evidence as to whether he participated in planning or organizing the scheme to defraud the IRS, and that family members acted independently when they used the company to pay for personal purchases. signer of the fraudulent He argues that, as president and expense checks in the blue-check scheme, he exercised control over property, not people, noting that control of property alone does not warrant a four-level leadership adjustment. USSG 3B1.1 cmt. n.2; see also United Smith States v. Capers, 61 F.3d 1100, 1108-13 (4th Cir. 1995). also maintains there that was there were fewer either than five participants or Brian because no evidence Jaclyn Smith Tanner 2 was a "knowing culpable participant" in the conspiracy. With respect to the number of participants, Application Note 1 to 3B1.1 states that "[a] `participant' is a person who is criminally responsible for the commission of the offense, but need not have been convicted." Smith acknowledged at sentencing that he knew Jaclyn was on the CESI payroll and was paid for work she did not do. information court in the in presentence deciding report He did not dispute the on which and the district were relied that Judith Jaclyn participants; specifically, that in addition to being paid as Brian Tanner pled guilty to income tax evasion. The district court did not find him to be a participant in the conspiracy. 2 5 CESI employees, Judith and Jaclyn used a CESI car and credit card, that CESI paid the expenses for the horse farm where they lived, and that they did not report these benefits as income, which caused each of them to file a false tax return, and also caused "the inflation of corporate expenses and the filing of false corporate tax returns." We conclude that these facts were sufficient for the district court to find that Jaclyn was a criminally responsible participant. In addition, as the government argues, the blue-check/yellow-check scheme required the participation of CESI employees such as payroll clerks and in-house accountants. 3 By virtue of his position as president of the company, Smith had the authority to endorse or to stop the scheme to defraud the IRS. disclose that he Smith's statements at the Rule 11 hearing actively engaged in and thus promoted did the not fraudulent scheme. Therefore, the district court clearly err in finding that he had a leadership role. A two-level adjustment should be made "[i]f the defendant abused a position of public or private trust . . . in This argument was not made in the district court, but is an alternative ground for finding the required number of participants. We may affirm for any reason appearing in the record. United States v. Smith, 395 F.3d 516, 519 (4th Cir. 2005) ("We are not limited to evaluation of the grounds offered by the district court to support its decision, but may affirm on any grounds apparent from the record." (citation omitted)). 3 6 a manner that of significantly the offense." facilitated USSG the commission A position or of concealment 3B1.3. "[p]ublic or private trust" means a position "characterized by professional discretionary deference)." or managerial that discretion is cmt. ordinarily n.1. (i.e., given substantial considerable court's judgment USSG 3B1.3 The district decision that a defendant had a position of trust is a factual determination reviewed for clear error. United States v. Bollin, 264 F.3d 391, 415 (4th Cir. 2001). The question must be United States v. examined from the perspective of the victim. Godwin, 272 F.3d 659, 671 (4th Cir. 2001). Smith contends that no relationship of trust existed between him and the IRS, which was identified as the victim of the offense in the presentence report. He relies on two tax evasion decisions from other circuits where the adjustment was not applied. (10th Cir. In United States v. Guidry, 199 F.3d 1150, 1160 the appeals court held that the defendant 1999), "[d]id not occupy a position of trust vis--vis the government, the victim in his case." In United States v. Barakat, 130 F.3d 1448, 1455-56 (11th Cir. 1997), the appeals court held that the defendant occupied a position of trust, but did not use it to commit or conceal his tax evasion. In placed in a this case, of however, trust 7 as by an the employer, government. Smith He was was position entrusted designated with in collecting, for holding, Security and and depositing Medicare funds his part Social and failure to carry out this responsibility victimized taxpayers. United States v. Adam, 70 F.3d 776, 781-82 (4th Cir. 1995) (victims of Medicaid fraud are American taxpayers). Similarly, in United States v. Turner, 102 F.3d 1350 (4th Cir. 1996), we held that mine operators occupied a position of public and private trust, which they abused by declining to follow mine safety laws or provide adequate safety training for miners. Their abuse of that trust victimized both the miners and "the rest of society." We have Id. at 1360. held that physicians and medical care See providers who defraud Medicaid abuse a position of trust. United States v. Bolden, 325 F.3d 471, 504-05 (4th Cir. 2003). In Bolden, we observed that, "[b]ecause of the discretion Medicaid confers upon care providers . . . such providers owe a fiduciary duty to Medicaid. Indeed, we see it as paramount that Id. at 505 Medicaid be able to `trust' its service providers." n.41. trust Similarly, it is essential that the government be able to employers to collect, hold in trust, and deposit the The "employment taxes" owed by the employees and the company. government maintains that Smith had both a fiduciary obligation to the IRS to carry out this responsibility, and a fiduciary relationship with the employees of CESI which carried the same 8 obligation, notwithstanding the willingness of some employees to participate in the scheme to defraud. We agree, and conclude that the district court did not clearly err in applying the adjustment for abuse of a position of trust. We district facts therefore We affirm the with are and sentence oral imposed by the the the the court. legal before dispense argument because in aid and contentions the court adequately argument presented not materials would decisional process. AFFIRMED 9

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