Wednesday, July 24, 2013

Fourth Circuit Holds Defendant to His Tax Loss Stipulated in the Plea Agreement (7/24/13)

In United States v. Weon, 722 F.3d 583 (4th Cir. 2013), here, the defendant pled guilty to 5 counts of tax evasion, Section 7201, here.  The plea agreement stated that "for purposes of this plea agreement and sentencing, the total tax loss is approximately $2,400,000."  Apparently, in negotiating the plea, the Government urged that the tax loss was more than $2,500,000 and Weon urged that it was much lower than $2,400,000.  So, the stipulation in the plea agreement was a compromise.  There were other compromises in the plea agreement -- i.e., the Government dropped serious charges, etc.  The opinion then describes the Rule 11 plea hearing (JAT emphasis supplied):
[T]he court determined that Weon's guilty plea was entered knowingly and voluntarily. The parties represented at the Rule 11 hearing that the amount of tax revenue loss "we have agreed to regarding this plea agreement and sentencing is approximately $2.4 million," but noted that the figure was subject to change for restitution purposes only depending on the result of an anticipated civil agreement between Weon and the Internal Revenue Service (IRS).
Between the plea hearing and  ultimate sentencing, Weon began again questioning the amount of the $2,400,000 loss.  Weon apparently was working in earnest to drive down his Guidelines sentencing exposure based on the offense level, which is principally based on the amount of the tax loss.  He engaged a new accountant who produced a report that the actual tax loss was around $40,000.  Weon sought to avoid the tax loss from the amount he stipulated in the plea agreement. The district court ultimately rejected Weon's attempt, holding Weon to  the benefit of the bargain he had struck on that issue in the plea agreement.  Weon then moved to withdraw his guilty plea. The court denied that as well, holding that Weon had entered the guilty plea knowingly and voluntarily.

At sentencing, the court calculated the Guidelines range based on the stipulated tax loss.  Further, in making the18 USC 3553(a) Booker determinations, the Court "refused to consider any evidence or argument that the tax revenue loss was materially lower than $2,400,000."  The court then sentenced Weon to 30 months, which was at the lower end of the indicated Guidelines range.

The Court of Appeals first held that the appeal waiver was not unambiguous as to the issue Weon raised on appeal as to the tax loss.  The court then looked to the terms of the plea agreement -- the contract -- as to the nature of the contractual agreement that the tax loss was $2,400,000.  The Court handily held Weon to the benefit of his bargain on the amount, finding that he was attempting a "unilateral reneging" of that agreement.

Weon had a fall-back argument that is ingenious, although it was a loser.  Here it is as described and resolved by the Court of Appeals:
Contrary to Weon's argument, the plea agreement stipulation setting the tax revenue loss at around $2,400,000 applies under its plain terms for purposes of "sentencing." The stipulation thus encompasses the amount of tax revenue loss both for the district court's calculation of Weon's guidelines range and for the court's consideration of the sentencing factors set forth in § 3553(a). Accordingly, to the extent that the court refused to consider Weon's argument about the amount of tax revenue loss for purposes of § 3553(a), that result clearly was contemplated by the parties and formed part of their bargain as reflected in the plea agreement. 
Weon argues, nevertheless, that the plea agreement allowed him to contest the tax revenue loss amount for purposes of § 3553(a). In making this contention, Weon relies on provisions of the plea agreement that as a general matter: (1) permit him "to seek a reduction in sentence under any Section 3553(a) factor"; and (2) reserve to the parties the right to bring to the district court's attention during sentencing "all relevant information concerning [Weon's] background, character, and conduct." We are not persuaded by this argument. 
The provisions of the plea agreement on which Weon relies are broad and general, and do not relate directly to the stipulated tax revenue loss. In contrast, the plea agreement explicitly provides that the tax revenue loss is approximately $2,400,000 for purposes of both the plea agreement and Weon's sentencing. To the extent that there is any conflict between the very general provisions recited above and the explicit stipulation regarding the tax revenue loss, we apply under basic contract law principles the more specific provision fixing the amount of the tax revenue loss. See PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161, 174 (4th Cir. 2013) (citation omitted) (the specific provisions of a contract control over potentially conflicting general provisions). 
We further observe that Weon does not challenge on appeal the district court's denial of his motion to withdraw from the plea agreement or the court's finding that Weon knowingly and voluntarily entered into the agreement, including the factual stipulations contained therein. We note that Weon would have faced a formidable challenge had he raised such an argument before us, because he contested the amount of tax revenue loss with the assistance of counsel and a CPA during the plea bargaining process before ultimately agreeing to the $2,400,000 figure. Moreover, we observe that the district court's repudiation of Barsky's tax loss analysis as "highly unpersuasive and riddled with holes" would be entitled to significant deference on appeal. See United States v. Chase, 466 F.3d 310, 314 (4th Cir. 2006) (district court's findings of fact reviewed for clear error). 
Accordingly, we hold that the district court did not abuse its discretion in prohibiting Weon from arguing that the tax revenue loss was materially lower than $2,400,000, because Weon knowingly and voluntarily stipulated to that amount in his plea agreement. Thus, we reject Weon's argument that the district court committed procedural error in its sentencing determination.
JAT Comments:

1.  The opinion is not as clear as to the real dynamics that likely occurred at the trial level regarding the tax loss.  I think that, in the background, there was likely considerable doubt by the prosecutors and the sentencing court that the real tax loss number was materially less than $2,400,000.  And, if the prosecutors and court thought it was likely that the real tax loss was as Weon claimed, they surely would have found some way to to mitigate a Guidelines calculation on the basis of a $2,400,000 they doubted.

2.  Given the Court of Appeals discussion of holding Weon to  the benefit of the bargain in which he gained dismissal of certain nontax counts, one has to wonder whether the $2,400,000 stipulation agreed to -- perhaps imposed on Weon in the plea bargain discussions -- was a way to insure a Guidelines calculation commensurate with the overall criminal activity rather than just the tax crimes and any relevant conduct tax crimes.  For example, assume that the tax loss were as Weon belatedly claimed ($40,000), then my quick and dirty calculations with  acceptance of responsibility indicate a Guidelines range of 10-16 months.  Then assume that, considering the overall conduct (including the nontax counts to be dropped), the prosecutors want a much higher sentencing range and advise the defendant that, in order to get the sentencing range to a much higher level, he will have to agree to a $2,400,000 tax loss.   Can or should the prosecutors do that simply by negotiating the amount of tax loss necessary to achieve a sentencing goal without regard to the correct tax loss?  Can the court itself sentencing on such a negotiated tax loss that it knows or strongly suspects is not the real tax loss simply because it appears in a plea agreement?  I would say in both cases, no.  I don't know that this phenomenon occurred here.  But the possibility concerns me.  I should note in this regard that the dropped nontax counts were likely not relevant conduct that could be considered by the sentencing court in making the sentencing calculations. Conceivably, those nontax counts which were dropped might be considered by the sentencing court for purposes other than calculating the Guidelines range (e.g., where in the Guidelines range the sentence should be imposed or even, possibly, an upward departure).

3.  The Rule 11 hearing events which I quote above as described by the Court are more cryptically stated as I would have preferred.  As interpreted, the parties told the court that the plea agreement stipulation of the tax loss was for sentencing only and not for the restitution determination. Apparently, the parties did not stipulate as to restitution.  Perhaps that was because of the uncertainty as to the amount, an uncertainty they thought might be resolved later.  Stipulation as to tax restitution is common for tax crimes, particularly where the crimes of conviction are Title 26 crimes for which noncontractual restitution is not permitted (except as a cost of some sentencing benefit).  But, if they were unable to determine tax loss for contractual restitution, how could they do it for purposes of the Guidelines tax loss?  As I have said before, where the tax loss and restitution covers the same periods (whether by relevant conduct or counts of conviction), the tax loss and restitution should be the same number.  Now, the tax loss and restitution would not be the same where different periods are covered, but there is no indication here that different periods would be covered.  And, for that matter, since the defendant apparently did not agree to restitution, it would appear that the Court could not impose restitution for the Title 26 crimes he committed, so the discussion at the Rule 11 hearing about restitution would be meaningless.

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