Opinion
No. 03 Cr. 562 (RWS).
September 8, 2005
HONORABLE MICHAEL J. GARCIA, United States Attorney for the Southern District of New York, New York, NY, JONATHAN R. STREETER, Assistant US Attorney, Of Counsel.
NEWMAN SCHWARTZ, Attorneys for Defendant, New York, NY, RICHARD A. GREENBERG, ESQ., Of Counsel.
OPINION
Todd Eberhard (hereinafter "Eberhard") moved, pursuant to Rules 33 and 35 of the Federal Rules of Criminal Procedure, for reconsideration and re-sentence of the 160-month term of incarceration imposed on him by this Court on June 7, 2005. For the reasons set forth below, Eberhard's motion for reconsideration and resentence is denied.
Background and Prior Proceedings
This Court recited the relevant factual background and procedural history in a sentencing opinion, dated June 9, 2005.see United States v. Eberhard, No. 03 Cr. 562-01 (RWS), 2005 WL 1384038 (S.D.N.Y. June 9, 2005), familiarity with which is assumed.
Eberhard, having entered a plea of guilty before this Court on September 14, 2004, was sentenced to a term of incarceration of 160 months to be followed by three years of supervised release. A fine in the amount of $15,000 was imposed, as was restitution in an amount to be determined within 90 days of the imposition of sentence.
The Court's written opinion in United States v. Eberhard, No. 03 Cr. 562-01 (RWS), 2005 WL 1384038 (S.D.N.Y. June 9, 2005), was issued prior to the sentencing hearing, and, as indicated in the text of the opinion, the terms and conditions set forth in the written opinion were subject to modification based on facts and argument presented at the sentencing hearing. Id. at *11. Although the Court's written opinion reflected an anticipated term of imprisonment of 151 months, the Court, considering the testimony and argument offered at the sentencing hearing, ultimately imposed a term of incarceration totaling 160 months. (See Tr. of Sentencing Hearing, pp. 31-32.)
On June 14, 2005, Eberhard moved pursuant to Rules 33 and 35, Fed.R.Crim.P., for reconsideration and re-sentence. The government filed its opposition to this motion on August 3, 2005, and Eberhard filed his reply brief on August 9, 2005, at which time the motion was deemed fully submitted.
Motion to Reconsider Is Denied
Eberhard moves for reconsideration of his sentence under Rules 33 and 35, Fed.R.Crim.P., asserting that the Court committed "clear error" by imposing a term of incarceration that exceeded the stipulated range of 97 to 121 months of imprisonment set forth in the parties' plea agreement dated September 9, 2004.
Specifically, Eberhard argues that the Court engaged in unlawful fact-finding when it applied a four-level enhancement pursuant to U.S.S.G. § 3B1.1(a), thereby punishing Eberhard as "an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive," see U.S.S.G. § 3B1.1(a), in the absence of sufficient facts. According to Eberhard, the factual stipulations contained in the plea agreement failed to establish him as an "organizer or leader" and likewise failed to establish the fraudulent activity of which he was convicted as "otherwise extensive." As such, Eberhard concludes, the Court relied on unsubstantiated facts and erroneously imposed a four level "leadership role" enhancement.
Eberhard's motion fails on three grounds. First, from a procedural posture, Rules 33 and 35, Fed.R.Crim.P., do not confer authority upon the Court to reconsider Eberhard's sentence under the existing circumstances. Second, as is evident from section 6B1.4(d) of the United States Sentencing Guidelines (hereinafter, the "Guidelines"), the Court is not bound by the factual stipulations offered in the plea agreement but may refer to the Presentence Investigation Report (hereinafter, the "PSR") to determine additional facts relevant to sentencing. And third, given the factual record developed in this case through the PSR, defense counsel's pre-sentencing submissions on behalf of Eberhard, and Eberhard's own statements during his plea allocution, ample grounds exist to impose the four-level "leadership role" enhancement pursuant to section 3B1.1(a) of the Guidelines.
A. Rules 33 and 35 Fail to Confer Authority for Reconsideration
Rule 33 provides for a motion for a new trial. See Fed.R.Crim.P. 33(a)-(b). Since Eberhard pled guilty in this case, no trial occurred; and, as he does not seek to withdraw his guilty plea at this time, his plea remains intact, rendering Rule 33 wholly inapplicable.
Rule 35 allows for "correcting or reducing a sentence," see Fed.R.Crim.P. 35(a)-(c), but limits a trial court's authority to do so to only two narrow circumstances: either to correct clear error or to reduce a sentence for substantial assistance provided to the government by a defendant. In particular, Rule 35(a), formerly denominated 35(c) prior to the 2002 Amendments,see Fed.R.Crim.P. 35 Advisory Committee Notes, authorizes that "within 7 days after sentencing, the court may correct a sentence that resulted from arithmetical, technical, or other clear error." Fed.R.Crim.P. 35(a).
The Second Circuit unequivocally has established that the terms of Rule 35(a) are:
to extend only to those cases in which an obvious error or mistake has occurred in the sentence, that is, errors which would almost certainly result in a remand of the case to the trial court for further action . . . The subdivision is not intended to afford the court the opportunity to reconsider the application or interpretation of the sentencing guidelines or for the court simply to change its mind about the appropriateness of the sentence. Nor should it be used to reopen issues previously resolved at the sentencing hearing through the exercise of the court's discretion with regard to the application of the sentencing guidelines.United States v. Abreu-Cabrera, 64 F.3d 67, 72 (2d Cir. 1995) (emphasis in original) (citations omitted) (quoting Fed.R.Crim.P. 35 Advisory Committee's Note).
Eberhard filed the instant motion for reconsideration within the statutorily prescribed seven day window, but his reliance on Rule 35(a) is misplaced. As the Second Circuit makes clear inAbreu-Cabrera, Rule 35(a) does not authorize a sentencing court to reconsider either the facts or the sentencing guidelines underlying its originally imposed sentence. The only sentences that may be corrected are those that are "illegal" or that result from "an incorrect application of the guidelines." Id. Thus, lacking the requisite jurisdiction, this Court cannot reconsider the substantive, cumulative factors that resulted in the 160-month sentence imposed on Eberhard during the June 7, 2005 sentencing hearing.
Furthermore, no "clear error" was committed such that reconsideration is warranted under Rule 35(a). While Eberhard does not contend that the Court made an arithmetical or technical error, he alternatively argues that the Court committed clear error by imposing a sentence arrived at through unlawful judicial fact-finding. However, the clear error intended to be remedied under Rule 35(a) is qualitative and objective in nature, not subjective as Eberhard suggests.
For example, the Second Circuit held in United States v. Spallone, 399 F. 3d 415 (2d Cir. 2005), that the scope of Rule 35(a)'s remedial power for "clear error" included the correction of "the restitution amount to reflect the victim's true loss," since the sentencing court erroneously had imposed a restitution amount approximately $1 million less than the true loss suffered by the victims. Id. at 419. Similarly, in United States v. Chaklader, 232 F.3d 343 (2d Cir. 2000), the Second Circuit found that Rule 35 provided for the correction of an apportionment error made by the sentencing court. Specifically, the sentencing court had imposed a sentence of 51 months but had erred in the apportionment of that sentence between the underlying offense and the corresponding enhancements. Finding that the district court had intended to impose a total sentence of 51 months but had mistakenly allotted too much of the sentence for the underlying offense, the appellate court held that the district court properly remedied this error under Rule 35 and correctly imposed the 51 month sentence lawfully apportioned between the underlying offense and the enhancements. Id. at 346. See also United States v. DeMartino, 112 F. 3d 75, 81 (2d Cir. 1997) (Rule 35 does not authorize a sentencing court's change of sentence when that change was not a technical one but, given the scarcity of the factual record, may have represented an impermissible "`reconsideration of the application or interpretation of the sentencing guidelines' or `simply the court's change of mind about the appropriateness of the sentence.'") (citing Rule 35 Advisory Committee Note); United States v. Waters, 84 F. 3d 86, 90 (2d Cir. 1996) (sentencing court properly exercised its authority under Rule 35 to correct the error resulting from its failure to consider the policy statements contained in Chapter 7 of the Guidelines); c.f., United States v. Pico, 966 F. 2d 91, 92 (2d Cir. 1992) (clear error resulted when the sentencing court imposed a life term of supervised release although the Guidelines provided for just three to five years of supervised release for the convicted conduct).
As these cases demonstrate, Rule 35 only allows for the correction of an error that is clear on its face. No such "clear error" is presented in this case. Thus, Rule 35 does not confer authority on this Court either to reconsider on the merits its previously imposed sentence or, given the absence of any quantitative or objective "clear error," to correct the original 160-month sentence. Should Eberhard seek review of this sentence, the proper recourse is through the appellate courts. B. Court Not Bound by Stipulations in Plea Agreement and Must Consider Entire Factual Record
Prior to the 2002 Amendments, Rule 35 contained a provision that allowed for the correction of a sentence upon remand from the Court of Appeals for a district court's error of law. See United States v. Arrous, 320 F.3d 355, 359 (2d Cir. 2003). However, that provision of Rule 35 has been excised, thereby leaving exclusive authority with the Court of Appeals for the correction of a sentence based upon error of law.
Although Rule 35 does not construe "clear error" to include errors of law committed by a sentencing court, see United States v. Arrous, 320 F. 3d 355, 359 (2d Cir. 2003), even if it did, no error of law was committed in this case with respect to Eberhard's sentence. Eberhard characterizes his sentence as an illegal one, the result of unlawful judicial fact-finding. Arguing that this Court imposed a four level enhancement for Eberhard's "leadership role" without adequate support in the factual record, Eberhard concludes that this Court exceeded its authority by imposing a 160-month sentence, a term of imprisonment far greater than the 97 to 120 month sentence stipulated to by the parties in the September 9, 2004 plea agreement. However, the sentencing court is never bound by the parties' factual stipulations but must exercise its independent discretion when considering all relevant sentencing factors.
In United States v. Booker, 125 S.Ct. 738 (2005), the Supreme Court held that "[a]ny fact (other than a prior conviction) which is necessary to support a sentence exceeding the maximum authorized by the facts established by a plea of guilty or a jury verdict must be admitted by the defendant or proved to a jury beyond a reasonable doubt." Id. at 756. Interpreting Booker, the Second Circuit announced that the "sentencing judge is entitled to find all the facts appropriate for determining either a Guidelines sentence or a non-Guidelines sentence." United States v. Crosby, 397 F.3d 103, 108 (2d Cir. 2005). Thus, taken together, a sentencing judge must impose either a Guideline or non-Guideline sentence by assessing all relevant facts introduced into the factual record through either a guilty plea or the defendant's own statements.
Here, the 160-month sentence resulted from the factual record as developed by Eberhard's guilty plea and his own statements made before the Court at the time of the sentencing hearing. The plea agreement, dated September 9, 2004, explicitly conceded that "pursuant to Sentencing Guidelines § 6B1.4(d), neither the Probation Department nor the Court is bound by the above Guideline stipulation, either as to question of fact or as to the determination of the proper Guidelines to apply to the facts." (Plea Agreement, Sept. 9, 2004, p. 4). Furthermore, Eberhard's plea agreement articulated the standard of proof to be used by the sentencing court in its fact-finding should the court decide to exercise its discretion under § 6B1.4(d), stating that:
[t]he defendant explicitly consents to be sentenced pursuant to the applicable Sentencing Guidelines and to have his sentence imposed (including any enhancements, adjustments and departures) based on facts to be found by the sentencing judge by a preponderance of the evidence. The defendant explicitly acknowledges that his entry of a guilty plea to the charged offenses authorizes the sentencing court to impose any sentence, up to and including the statutory maximum sentence. The defendant understands that, in determining the applicable Sentencing Guidelines, the sentencing court may consider any reliable evidence, including hearsay.
This Court notes that while the standard of proof that may be applicable to judicial fact-finding may be open to future challenge, the questions presented by the parties in this case do not require the Court to consider this issue at this time.
(Plea Agreement, Sept. 9, 2004, p. 5.).
Section 6B1.4(d) of the Guidelines specifically provides that "the Court is not bound by the stipulation, but may with the aid of the presentence report, determine the facts relevant to sentencing." U.S.S.G. § 6B1.4(d). The commentary continues:
Section 6B1.4(d) makes clear that the court is not obliged to accept the stipulation of the parties. Even though stipulations are expected to be accurate and complete, the court cannot rely exclusively upon stipulations in ascertaining the factors relevant to the determination of sentence. Rather, in determining the factual basis for the sentence, the court will consider the stipulation, together with the results of the presentence investigation, and any other relevant information.
U.S.S.G. § 6B1.4 commentary. See also United States v. Granik, 386 F. 3d 404, 414 (2d Cir. 2004) ("Of course, a district court has power to reject a factual stipulation.").
By signing and entering the September 9, 2004 plea agreement with the Court, Eberhard explicitly acknowledged that the Court was not bound by the factual stipulations contained in the agreement. See United States v. Jackson, 346 F. 3d 22, 24 (2d Cir. 2003) (Defendant expressly put on notice that sentencing court not bound by factual stipulation because language of the plea agreement "included the parties' stipulation concerning the appropriate calculations under the Sentencing Guidelines, but explicitly provided the parties' understanding that the Court would not be bound by the Guidelines stipulation.") Eberhard further understood that the sentencing court must engage in fact-finding in order to impose a sentence, and that "such a finding must be based on the record as a whole, including the affirmation by the defendant of the accuracy of the plea agreement and any other evidence before the court." Granik, 386 F. 3d at 411.
As such, according to the explicit and consensual terms of Eberhard's plea agreement, the sentencing court was expected to engage in judicial fact-finding, evaluating by a preponderance of the evidence the factual record as developed by the factual stipulations in the guilty plea, the PSR, the defendant's own statements during his plea allocution, as well as any other relevant information presented to the Court, such as, but not limited to, defendant's pre-sentencing memorandum. Given the spectrum of sources from which the Court could cull all relevant sentencing information, the factual record was replete with substantiated accounts of Eberhard's role as a "leader or organizer" under § 3B1.1(a) of the Guidelines. The entire factual record justified a four level enhancement for Eberhard's leadership role. There was no "clear error" under Rule 35(a).
C. Imposition of Four-Level Enhancement for Leadership Role Pursuant to U.S.S.G. § 3B1.1(a) Supported by Factual Record
In considering the imposition of a four-level enhancement for leadership under § 3B1.1(a), the Court first must assess the findings of the PSR. Eberhard's PSR applied the four-level enhancement under § 3B1.1(a), to which Eberhard offered no objection in his defense. The resulting Guidelines sentence proposed by the PSR ranged from 151 to 188 months. Although the PSR ultimately recommended a sentence far beneath the proposed Guideline range, fixing its recommendation at 96 months, Eberhard failed to oppose the applicability of the four level enhancement imposed for leadership role under § 3B1.1(a) in the PSR. Despite the disparity between the factual stipulations contained in the plea agreement (which did not include a stipulation as to Eberhard's leadership role) and the findings contained in the PSR, Eberhard remained silent on the issue of his role, leaving the Court to determine additional facts regarding Eberhard's role as leader or organizer. See United States v. Telesco, 962 F.2d 165, 168 (2d Cir. 1998) (District court judge was "free, indeed obligated" to consider the additional facts presented in the PSR but not contained in the factual stipulations of a plea agreement when determining the appropriate sentence).
Eberhard argues that the factual record before the Court at the time of sentencing was inadequate to support a finding of aggravating role under § 3B1.1(a). Under that section of the Guidelines, a defendant faces a four level enhancement if found to be "an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive." U.S.S.G. § 3B1.1(a). Eberhard asserts that the factual record was barren of evidence to link Eberhard to five or more participants or to qualify the criminal activity as otherwise extensive. The factual record, however, contradicts such conclusions.
"A `participant' is a person who is criminally responsible for the commission of the offense, but need not have been convicted." U.S.S.G. § 3B1.1(a) note 1. The PSR identifies three co-conspirators in addition to Eberhard: two individuals who were former employees of Eberhard and charged with criminal conduct, Jeff Zisselman and Brian Mercier, and one unnamed individual who was a part-time employee of Eberhard's and who was instructed directly by Eberhard to process trades and maintain client records. (See PSR at ¶¶ 34, 38.) Additionally, one individual, Nick Santino, came forward during Eberhard's sentencing hearing and identified himself as a co-conspirator. Specifically, he stated, "I maintained [Eberhard's] database for years, and I saw what this man did personally. I saw what this man did at 7 a.m. in the morning and get whiteout and whiteout people's numbers and make photostatic copies and send them all out to deceive them." (Tr. of Sentencing Hearing, June 7, 2005, p. 27.) Admitting both his knowledge of Eberhard's fraudulent conduct and his role in perpetuating such conduct, Santino operated at the discretion and direction of Eberhard. Whether Santino accounts for another, distinct co-conspirator or if he is the unnamed individual referenced in the PSR, Eberhard directed at least four individuals in his criminal conduct: himself, Mr. Zisselman, Mr. Mercier, and Mr. Santino. See United States v. Rubenstein, 403 F. 3d 93, 99 (2d Cir. 2005) (district court included the leader himself when counting the number of people "involved" as participants in a criminal activity under § 3B1.1(a).) If Santino is an individual different from the unnamed co-conspirator mentioned in the PSR, then the total number of individuals involved in Eberhard's conspiracy climbs to five.
While Mr. Santino was not under oath when he made his statement and did not endure cross-examination, Eberhard's attorney did not dispute the veracity or reliability of Santino's statements; instead, Eberhard's attorney merely stated that Mr. Santino and his client had "bad blood." (Tr. of Sentencing Hearing, June 7, 2005, p. 28).
Alternatively, the criminal activity for which Eberhard was convicted qualifies as "otherwise extensive" as defined in § 3B1.1(a). "In assessing whether an organization is `otherwise extensive,' all persons involved during the course of the entire offense are to be considered. Thus, a fraud that involved only three participants but used the unknowing service of many outsiders could be considered extensive." U.S.S.G. § 3B1.1(a) note 3. Three factors govern whether an activity is "otherwise extensive": "(i) the number of knowing participants; (ii) the number of unknowing participants whose activities were organized or led by the defendant with specific criminal intent; [and] (iii) the extent to which the services of the unknowing participants were peculiar and necessary to the criminal scheme."United States v. Carrozzella, 105 F. 3d 796, 803-04 (2d Cir. 1997).
"[A] district court need only state the general identity of the unknowing participants (or category thereof, in instances where numerous institutional employees were indiscriminately drawn into the scheme) and the basic tasks which these participants unwittingly conducted for the organization." United States v. Chacko, 169 F. 3d 140, 151 (2d Cir. 1999). Further, "district courts should be given `latitude' concerning their supervisory role findings, even when their `findings were not as precise as they might have been.'" United States v. Napoli, 179 F.3d 1, 14 (2d Cir. 1999) (citing United States v. Persico, 164 F.3d 796, 804 (2d Cir. 1999)).
The factual record satisfies the three part test presented inCarrozzella. As discussed previously, the number of knowing participants is at least four but may be higher. The number of unknowing participants who were led by Eberhard's specific intent to defraud may have included all of Eberhard's thirty employees. Eberhard stands convicted of a large-scale fraud, "a fraud of approximately $20 million, close to 50 victims, lasting ten years in length, involving massive coverup[s] to which false statements were made to clients, false accounts, account documents were fabricated, addresses were altered and $1.5 million in bribes were paid in order to cover up this activity." (Tr. of Sentencing Hearing, June 7, 2005, p. 24). Eberhard admitted his guilt to these and other criminal acts during his plea allocution on September 14, 2004. (See Tr. of Plea Allocution, Sept. 14, 2004, pp. 11-13). As the PSR reiterates in significant detail, to accomplish this wide-ranging, long-term fraud, Eberhard directed his employees to complete these acts in furtherance of his fraud, and as such, the "services of the unknowing participants were peculiar and necessary to the criminal scheme," as required underCarrozzella's third prong. See United States v. Manas, 272 F.3d 159 (2d Cir. 2001).
Eberhard informs the Court through his pre-sentence memorandum that his companies, Eberhard Investment Associates and Park South Securities, employed approximately thirty people with branches in New Jersey, Florida and Texas. (See Defendant's Pre-Sentence Memorandum, May 26, 2005, p. 10.)
Eberhard's PSR is a lengthy document, totaling approximately 40 pages, many of which are dedicated to narrating the magnitude and scope of his criminal activity. According to the PSR, every component of that criminal activity, from the processing of churned sales to the extensive cover-up operations, was conducted by Eberhard's employees at his direction and with his guidance. The PSR also reveals that Eberhard induced his employees to silence by paying exorbitant salaries far above market rates. The PSR's overall portrayal of Eberhard's criminal conduct and the criminal acts he instructed his employees to commit support the PSR's conclusion that:
[b]y virtue of Eberhard's founding and ownership of his companies, [Eberhard Investment Advisors] and Park South Securities, Eberhard is viewed as the leader and/or organizer of this fraudulent scheme, as he orchestrated, carried out, and directed his employees to commit acts in furtherance of the fraudulent scheme.
(PSR at ¶ 59). And, as noted previously, Eberhard offered no objections to this, or any other, paragraph of the PSR.
Given that at least four knowing participants were involved in Eberhard's fraudulent scheme and that the Carrozzella three part test for "otherwise extensive" criminal activity was satisfied by the factual record at the time of sentencing, the imposition of the four level enhancement for leadership role under § 3B1.1(a) was warranted. Ample factual basis existed for the Court to find "that the fraud was extensive and that there were more than five people who were directed by Eberhard" and to conclude "that he was the leader of the enterprise." (Tr. of Sentencing Hearing, June 7, 2005, p. 31.)
Conclusion
For the foregoing reasons, Eberhard's original sentence was neither illegal nor the result of an incorrect or unreasonable application of the Guidelines. As such, no "clear error" was committed and no correction of Eberhard's 160-month term of incarceration is authorized under Rule 35(a). Eberhard's motion is denied.
It is so ordered.