PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 12-2012
_____________
UNITED STATES OF AMERICA
v.
ROBERT STINSON, JR.,
Appellant
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(No. 2-10-cr-00724-001)
District Judge: Hon. Michael M. Baylson
Argued: March 20, 2013
____________
Before: FUENTES, CHAGARES, and BARRY, Circuit
Judges.
(Opinion Filed: August 21, 2013)
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OPINION
___________
Leigh M. Skipper, Esq.
Brett G. Sweitzer, Esq.
Keith M. Donoghue, Esq. [ARGUED]
Federal Community Defender Office for the Eastern District
of Pennsylvania
601 Walnut Street
The Curtis Center, Suite 540 West
Philadelphia, PA 19106
Counsel for Appellant
Zane David Memeger, Esq.
Robert A. Zauzmer, Esq.
David L. Axelrod, Esq. [ARGUED]
Office of United States Attorney
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
CHAGARES, Circuit Judge.
Robert Stinson pled guilty to a twenty-six count
indictment that arose out of a fraud scheme that he operated
from 2006 to 2010. Stinson appeals his sentence and argues
that the District Court improperly applied a fraud
enhancement, committed procedural error during sentencing,
2
and imposed a sentence that was substantively unreasonable.
His appeal requires us to define the scope of U.S.S.G. §
2B1.1(b)(15)(A), which increases a defendant’s offense level
by two points when “the defendant derived more than
$1,000,000 in gross receipts from one or more financial
institutions as a result of the offense.” We conclude that the
enhancement applies only when financial institutions are the
source of a defendant’s gross receipts. We will therefore
vacate Stinson’s judgment of sentence and remand for
resentencing in accordance with this opinion.
I.
Stinson’s conviction arose from a fraud scheme that
began in 2006 when he sought investors for a fund called
Life’s Good S.T.A.B.L. Mortgage Fund, LLC (“Life’s
Good”). Around the same time, Stinson also founded the
Keystone State Corporation, which he used to market the
fund to potential investors. The alleged purpose of Life’s
Good was to originate mortgage loans and Stinson advertised
the fund as a way for investors to recoup a sixteen percent
annual return. Stinson targeted investors with individual
retirement accounts (“IRAs”) and those who maintained
accounts with self-directed IRA custodians. When he began
his scheme, Stinson primarily solicited money for the fund by
hiring telemarketers to “cold call” potential investors. Those
telemarketers advertised the fund as a risk-free investment.
In reality, Life’s Good was a sham. Stinson did not
use investors’ money to make mortgage loans. Instead, he
diverted the money to a variety of personal business ventures
that employed his family and friends without requiring them
to work. These businesses, none of which turned a profit,
3
included a healthcare consulting firm, an athlete
representation company, an online television station, and an
artist representation agency.
In 2009 and 2010, Stinson expanded his efforts. He
created a fictitious prospectus that purported to explain the
fund’s activity from 2007 to 2008. The prospectus
misrepresented the amount originated in mortgage loans, the
fund’s annual returns, and results from an independent audit
that never occurred. Stinson also misrepresented his
education and employment history and concealed his prior
convictions for fraud. In addition, he used false information
to convince Morningstar, an independent investment rating
agency, to give Life’s Good funds a favorable rating. Many
of the fund’s investors relied on this rating when deciding to
invest their IRAs with Life’s Good.
Stinson began to communicate with two independent
financial advisory firms, Brentwood Financial (“Brentwood”)
and Total Wealth Management (“TWM”), in 2009. At least
one of those firms, Brentwood, was a registered investment
advisor, which means that the organization had registered
with the Securities and Exchange Commission (“SEC”).
Stinson’s relationship with these institutions formed the basis
for the application of the disputed fraud enhancement. Both
firms entered into agreements with Stinson to refer investors
to Life’s Good in exchange for referral fees. During 2009
and 2010, Brentwood and TWM used the fund’s fictitious
marketing materials to solicit numerous investors, who
collectively invested millions of dollars in the fund. It
appears as though the clients of Brentwood and TWM made
individual decisions to invest with Life’s Good on the advice
of their investment advisors at each firm. However, some of
4
the victim impact statements suggest that Brentwood and
TWM retained control over the assets of certain clients and
invested in Life’s Good on their behalf.
In June 2010, the SEC initiated a civil enforcement
action against Stinson. Stinson eventually admitted to the
details of his scheme and in November 2010 a grand jury
returned a twenty-six count indictment that charged him with
wire fraud in violation of 18 U.S.C. § 1343, mail fraud in
violation of 18 U.S.C. § 1341, money laundering in violation
of 18 U.S.C. § 1957, bank fraud in violation of 18 U.S.C. §
1344, filing false tax returns in violation of 26 U.S.C. §
7206(1), obstruction of justice in violation of 18 U.S.C. §
1505, and making false statements in violation of 18 U.S.C. §
1001. The SEC’s analysis of Stinson’s accounts ultimately
showed that Life’s Good solicited over $17.6 million from at
least 262 investors and returned approximately $1.9 million.
Because Stinson targeted those with IRAs, many individuals
lost part or all of their retirement savings as a result of their
investments in Life’s Good.
On August 15, 2011, Stinson entered an open guilty
plea. He was sentenced on April 10, 2012. At sentencing,
Stinson challenged two conclusions contained in the
presentence investigation report (“PSR”): that there were
more than 250 victims of his crime and that he derived more
than $1 million from financial institutions on the basis that his
gross receipts totaled less than $1 million. After hearing
testimony from an SEC accountant, the District Court rejected
both of Stinson’s challenges and adopted the PSR, which
calculated an advisory United States Sentencing Guidelines
(“Guidelines” or “U.S.S.G.”) initial offense level of seven
and applied five fraud-related sentencing enhancements. The
5
largest of those enhancements applied a twenty-level increase
for a total loss amount between $7 million and $20 million.
The court also imposed the enhancement that is at issue in
this appeal, an increase of two offense levels because “the
defendant derived more than $1,000,000 in gross receipts
from one or more financial institutions as a result of the
offense.” U.S.S.G. § 2B1.1(b)(15)(A). The five fraud
enhancements, combined with a separate enhancement for
obstruction of justice and a downward adjustment for
acceptance of responsibility, resulted in an offense level of
thirty-eight. That offense level, combined with Stinson’s
criminal history category of III, yielded an advisory
Guidelines range of 292 to 365 months of imprisonment. The
Government sought an above-Guidelines sentence of 480
months. Stinson asked for leniency.
After calculating the advisory Guidelines range, the
District Court granted the Government’s motion for an
upward departure, finding that
the defendant’s conduct is just
abhorrent . . . the injury and the
distress that he has caused to over
250 people is not anything that is
accounted for in the Guidelines,
that the fraud was massive, that
his criminal history is not
reflected in the Guideline
calculation . . . that this is his fifth
conviction for fraud. And he has
shown himself to be a recidivist of
the most serious type. . . . [T]he
consequences of his criminal
6
conduct in this case are immense.
And I’ve said this in other cases;
the consequences of criminal
conduct, in my view, are not
adequately accounted for under
the Guidelines.
App. 365-66. The court then turned to step three of the
sentencing process and “reach[ed] the same conclusion” after
a consideration of the relevant factors set forth in 18 U.S.C. §
3553(a). App. 367. The District Court pointed to the need
for deterrence as a “key factor” and observed that, if Stinson
were younger, he would probably face a higher sentence. Id.
The District Court ultimately sentenced Stinson to a total term
of 400 months, arriving at that figure by using the high end of
the advisory Guidelines range, 365 months, and adding
approximately ten percent, or thirty-five months. The court
also ordered restitution in the amount of $14,051,246.
Stinson filed this timely appeal, contending that
application of U.S.S.G. § 2B1.1(b)(15)(A) was plain error
and that his sentence was procedurally erroneous and
substantively unreasonable.
II. 1
We consider first Stinson’s contention that the plain
language of U.S.S.G. § 2B1.1(b)(15)(A) cannot apply to his
1
The District Court had jurisdiction over the prosecution of
this criminal action pursuant to 18 U.S.C. § 3231. We have
jurisdiction over Stinson’s appeal pursuant to 28 U.S.C. §
1291.
7
conduct because the money flowed from individual investors,
not financial institutions like Brentwood and TWM. The
clear language of the provision and its use of the word
“derived,” Stinson contends, directs the sentencing court to
the source of the receipts. The Government responds that
application of the provision was not plain error.
At sentencing, a district court must find facts that
relate to application of the Guidelines by a preponderance of
the evidence. United States v. West, 643 F.3d 102, 104-05
(3d Cir. 2011). We will ordinarily “exercise plenary review
over legal questions about the meaning of the [S]entencing
[G]uidelines” and apply a “clearly erroneous standard to
factual determinations underlying their application.” United
States v. Reynos, 680 F.3d 283, 286 (3d Cir. 2012)
(alterations in original) (quotation marks omitted). In this
case, however, Stinson concedes that he did not preserve the
issue below. 2 As a result, we will review for plain error and
grant relief only if we conclude that (1) there was an error, (2)
the error was “clear or obvious,” and (3) the error “affected
the appellant’s substantial rights.” Puckett v. United States,
556 U.S. 129, 135 (2009); see also United States v. Fumo,
655 F.3d 288, 325 (3d Cir. 2011). If those three prongs are
satisfied, we have “the discretion to remedy the error —
discretion which ought to be exercised only if the error
seriously affect[s] the fairness, integrity, or public reputation
of judicial proceedings.” Puckett, 556 U.S. at 135 (alteration
in original) (quotation marks omitted). Stinson’s appeal
raises an issue of first impression, but lack of precedent alone
2
Stinson objected to application of the enhancement at
sentencing on the basis that the evidence did not show that he
had received more than $1,000,000.
8
will not prevent us from finding plain error. United States v.
Evans, 155 F.3d 245, 252 (3d Cir. 1998) (“Neither the
absence of circuit precedent nor the lack of consideration of
the issue by another court prevents the clearly erroneous
application of statutory law from being plain error.”); see also
United States v. Tann, 577 F.3d 533, 536-38 (3d Cir. 2009)
(finding plain error even though appeal raised a novel issue).
A.
To address Stinson’s claim of error, we look first to the
text of the disputed enhancement, which provides: “[i]f . . .
the defendant derived more than $1,000,000 in gross receipts
from one or more financial institutions as a result of the
offense, increase by 2 levels.” U.S.S.G. § 2B1.1(b)(15)(A).
“[W]e read Guidelines provisions for their plain meaning.”
United States v. Greene, 212 F.3d 758, 761 (3d Cir. 2000);
see also United States v. Brown, 578 F.3d 221, 227 (3d Cir.
2009) (“When construing the Guidelines, we look first to the
plain language, and where that is unambiguous we need look
no further.” (quotation marks omitted)). To understand a
provision’s plain language, we may look to the dictionary for
guidance. United States v. Maurer, 639 F.3d 72, 78 (3d Cir.
2011). For instance, “derived” means “[r]eceived from [a]
specified source.” Black’s Law Dictionary 444 (6th ed.
1990). Webster’s Dictionary provides a nearly identical
definition, defining “derive” as “to take or receive
esp[ecially] from a specified source.” Webster’s Ninth New
Collegiate Dictionary 342 (1986).
The Sentencing Commission amended the provision in
2001. Before that, the Guidelines added four offense levels
“[i]f the offense . . . affected a financial institution and the
9
defendant derived more than $1,000,000 in gross receipts
from the offense.” U.S.S.G. § 2B1.1(b)(6)(B) (2000)
(emphasis added). The two requirements — the amount in
gross receipts and the effect on a financial institution — were
“separate and distinct prerequisites.” 3 Greene, 212 F.3d at
761. The “affected” requirement of the pre-2001 version
encompassed “even minimal impacts” on financial
institutions. United States v. Wiant, 314 F.3d 826, 830 (6th
Cir. 2003). The requirement that a defendant personally
derive more than $1 million from the offense operated to limit
application of the enhancement. Id. (“The seriousness of the
4-point enhancement, of course, reflects the other key
limitation of this provision — that the defendant derive more
than $1,000,000 in gross receipts from the offense.”); see also
United States v. Bennett, 161 F.3d 171, 193 (3d Cir. 1998)
(applying pre-2001 enhancement when the defendant
personally derived more than $1,000,000 and his conduct
affected financial institutions by exposing them to civil
litigation and harming their reputations).
Since the 2001 amendments, no court has specifically
considered the question we address here: whether a financial
3
In Greene, the Court examined the language once contained
in § 2F1.1. Before the 2001 amendments, the Guidelines
contained the “affected a financial institution” enhancement
in two places: § 2B1.1, which then, like now, addressed
larceny, embezzlement, and other forms of theft, and § 2F1.1,
which governed offenses involving fraud, deceit, forgery, and
altered or counterfeit instruments. The 2001 amendments
consolidated § 2F1.1 with § 2B1.1, which now addresses
those offenses formerly governed by § 2F1.1. See United
States v. Khorozian, 333 F.3d 498, 509 n.10 (3d Cir. 2003).
10
institution must be the source of $1 million in gross receipts
for the enhancement to apply. However, several of our sister
courts of appeals have addressed a related issue — whether
the new language represented a substantive change or simply
clarified the existing language — to determine whether the
amended language applies retroactively. Each court to
address the issue has concluded that the change was a
substantive one. In United States v. Hartz, for instance, the
Court of Appeals for the Seventh Circuit held that “by
focusing on the amount derived from the financial institutions
rather than the amount derived from the offense as a whole,”
the new language “substantively change[d] the requirements
for applying the guideline.” 296 F.3d 595, 599 (7th Cir.
2002). The Court of Appeals for the Ninth Circuit considered
the same question and described the new language as “more
lenient” than the pre-2001 provision — that is, more generous
to defendants and more difficult for the Government to
satisfy. United States v. Van Alstyne, 584 F.3d 803, 819 (9th
Cir. 2009). Under the old language, the court observed, “any
impact on a financial institution” would justify imposition of
the four-level enhancement. Id. The new language, however,
makes “equally clear that the enhancement only applies if
gross receipts in excess of $1 million are derived from a
financial institution.” Id. “Under [the new] language, the
only effect on a financial institution that counts is money
flowing from a financial institution into the defendant’s
coffers.” Id.; see also United States v. Amico, 573 F.3d 150,
151 (2d Cir. 2009) (per curiam) (holding “that the 2001
amendment substantively changes an unambiguous provision
and therefore does not apply retroactively”); United States v.
Swanson, 360 F.3d 1155, 1166-67 (10th Cir. 2004) (same);
United States v. Monus, 356 F.3d 714, 718 (6th Cir. 2004)
(same).
11
The 2001 amendments to the language altered the
source that would trigger application of the enhancement.
Before, a defendant need only have derived $1 million from
the offense conduct. The portion that addressed financial
institutions remained separate. Now, however, the language
of the provision merges the formerly separate requirements of
source and profit. We ultimately need look no further than
the plain language of the disputed enhancement, which
applies a two-level increase if “the defendant derived more
than $1,000,000 in gross receipts from one or more financial
institutions as a result of the offense.” U.S.S.G. §
2B1.1(b)(15)(A). The word “derived” directs us to determine
the source of the funds.
We thus hold that U.S.S.G. § 2B1.1(b)(15)(A) will
apply when the evidence shows that a financial institution, 4
4
The Application Notes to U.S.S.G. § 2B1.1(b)(15)(A)
explain that:
“Financial institution” includes any institution
described in 18 U.S.C. § 20, § 656, § 657, § 1005, §
1006, § 1007, or § 1014; any state or foreign bank,
trust company, credit union, insurance company,
investment company, mutual fund, savings (building
and loan) association, union or employee pension
fund; any health, medical, or hospital insurance
association; brokers and dealers registered, or required
to be registered, with the Securities and Exchange
Commission; futures commodity merchants and
commodity pool operators registered, or required to be
registered, with the Commodity Futures Trading
12
not an individual, was the source of the $1 million in gross
receipts. A financial institution is a source of a defendant’s
gross receipts if it owns the funds. Hence, a financial
institution is a source of the gross receipts when it exercises
dominion and control over the funds and has unrestrained
discretion to alienate the funds. A financial institution is not
the source of all funds that have passed through the
institution, as might occur during a simple wire transfer.
Accordingly, mere tangential effects on financial institutions
will not support application of the enhancement. 5
Commission; and any similar entity, whether or not
insured by the federal government. “Union or
employee pension fund” and “any health, medical, or
hospital insurance association,” primarily include large
pension funds that serve many persons (e.g., pension
funds of large national and international organizations,
unions, and corporations doing substantial interstate
business), and associations that undertake to provide
pension, disability, or other benefits (e.g., medical or
hospitalization insurance) to large numbers of persons.
U.S.S.G. § 2B1.1 app. n.1.
5
Courts have taken a similar approach to interpreting 18
U.S.C. § 1957(a), a money laundering statute that punishes an
offender who “knowingly engages or attempts to engage in a
monetary transaction in criminally derived property of a value
greater than $10,000 and is derived from specified unlawful
activity.” Though different courts of appeals have different
requirements that govern the extent to which proceeds must
flow from illegal activities, all have looked to the source of
the proceeds. See United States v. Hetherington, 256 F.3d
788, 794 (8th Cir. 2001) (looking to the “source of the funds
13
B.
With this understanding of “derived,” we turn to
Stinson’s argument: that the District Court improperly
applied U.S.S.G. § 2B1.1(b)(15)(A)’s two-level increase to
him. The District Court applied the enhancement on the basis
of Brentwood’s and TWM’s involvement in Stinson’s
scheme. The Government claims that application of the
enhancement was not plain error because Stinson persuaded
the firms to market his fund to their clients, received
substantial sums from their efforts, and exposed Brentwood
and TWM to liability from its clients.
The pre-2001 provision may well have applied to
Stinson’s conduct — the Government describes outcomes that
potentially “affected” Brentwood and TWM. However, from
the record currently before us, it does not appear that these
facts satisfy the definition of “derived” set forth in this
opinion because Brentwood and TWM were not the source of
Stinson’s gross receipts. But we are unable to conclude
definitively that the enhancement does not apply because the
for the wire transfer” to determine from where defendant
derived the money); United States v. Sokolow, 91 F.3d 396,
409 (3d Cir. 1996) (holding that the source of the proceeds
may be “commingled with funds obtained from legitimate
sources”); see also United States v. Warshak, 631 F.3d 266,
318 (6th Cir. 2010) (addressing 18 U.S.C. § 1956(a)(1)(A)(i)
promotional money laundering claim and looking to the
“money from illegal sources” to determine whether the
proceeds of unlawful activity were involved (quotation marks
omitted)).
14
record is unclear as to whether Brentwood or TWM invested
any money on behalf of their clients. The record as
developed on remand may indeed support application of the
enhancement.
Application of the fraud enhancement on the current
record, however, was error. That error was clear in light of
the plain language of the relevant Guidelines provision and
the evidence before the District Court. United States v.
Dickerson, 381 F.3d 251, 260 (3d Cir. 2004) (concluding that
the error was “‘plain,’ given the clarity of the statutory
language”). The enhancement increased Stinson’s offense
level by two, which in turn increased his advisory Guidelines
range. The District Court used that advisory range to
calculate the above-Guidelines sentence it ultimately
imposed. A sentencing error that results in a longer sentence
“undoubtedly affects substantial rights,” United States v.
Portillo-Mendoza, 273 F.3d 1224, 1228 (9th Cir. 2001)
(quotation marks omitted), and “affect[s] the outcome of the
district court proceedings,” United States v. Andrews, 681
F.3d 509, 517 (3d Cir. 2012) (alteration in original)
(quotation marks omitted). See also United States v. Knight,
266 F.3d 203, 207 (3d Cir. 2001) (explaining that application
of an incorrect Guidelines range is presumptively prejudicial,
even if the sentence imposed also falls within the correct
range). Imposition of the fraud enhancement on the existing
record was therefore plain error. Because that error
“seriously affect[ed] the fairness, integrity, or public
reputation of judicial proceedings,” Puckett, 556 U.S. at 135
(quotation marks omitted), we will exercise our discretion to
correct it.
15
We will therefore vacate and remand for the District
Court to reconsider application of U.S.S.G. §
2B1.1(b)(15)(A) in light of this opinion and to resentence
Stinson accordingly. 6
III.
In accordance with the foregoing, we will vacate
Stinson’s judgment of sentence and will remand for
resentencing in accordance with this opinion.
6
Stinson also alleges three procedural errors. First, he
suggests that the District Court stated during sentencing that it
would grant the motion for an upward departure but indicated
in its “Statement of Reasons” that it had not done so. As a
result, Stinson argues, it is unclear from the record whether
the District Court believed it was departing upward at step
two or varying upward pursuant to the § 3553(a) factors at
step three. Second, Stinson contends that the District Court
did not specify how any departure at step two affected
Stinson’s advisory Guidelines range and improperly blended
steps two and three of the proper sentencing procedure.
Third, Stinson argues that the District Court only addressed
his criminal history, the basis of the Government’s departure
motion, in the course of its assessment of the § 3553(a)
factors, which occurs at step three. Because we must remand
to the District Court for resentencing, we need not resolve
Stinson’s procedural objections.
16