IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 93-1812
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
WAYNE WESLEY GROSS,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Texas
(July 11, 1994)
Before GOLDBERG, KING, and WIENER, Circuit Judges.
WIENER, Circuit Judge:
Convicted on a guilty plea of wire fraud and aiding and
abetting,1 Defendant-Appellant Wayne Wesley Gross challenges the
district court's calculation of his sentence under the Sentencing
Guidelines, alleging that, because he was the only criminally
culpable person involved in the offense, the district court
erroneously assessed a four-level increase in his offense level,
1
18 U.S.C. §§1343, 2.
pursuant to U.S.S.G. §3B1.1(a), for his role as an organizer or
leader of a criminal activity. As we agree with Gross, we reverse
and remand for resentencing.
I
FACTS AND PROCEEDINGS
Acting alone from March 1, 1988 through January 25, 1991,
Gross used his companies, Resolve Technology Corporation and
Continuing Technology Group, to defraud sellers of computer
equipment. Gross devised a scheme in which Resolve Technology
Corporation entered into purchase agreements with entities that
desired to sell used computer equipment. The sellers would ship
their computer hardware to Resolve in exchange for Resolve's
promise to resell the equipment to other purchasers. Once he
received payment on the equipment from such purchasers, however,
Gross consistently "neglected" to forward to the sellers their
shares of the proceeds.
Whatever good faith intentions Gross may have originally had
to remit funds to the sellers, it is clear that at some point he
began receiving computer equipment knowing full well that he would
never pay the seller the contract price. As the scheme unraveled
and sellers began to press Resolve for payment, Resolve filed for
bankruptcy. Gross then activated a shell corporation, Continuing
Technology Group, and resumed the fraudulent scheme. Gross finally
brought the swindle to a halt on January 25, 1991.
In February 1993, Gross was formally charged in a 17-count
indictment. Pursuant to a plea agreement, Gross pleaded guilty to
2
one count of wire fraud and aiding and abetting in exchange for
dismissal of the remaining sixteen counts.
The presentence report (PSR) recommended a four-level increase
in Gross' offense level pursuant to U.S.S.G. §3B1.1(a). Gross
contends that in applying the Sentencing Guidelines the district
court erred when it assessed a four-level increase in his offense
level under U.S.S.G. §3B1.1(a). That section provides
[i]f the defendant was an organizer or leader of a
criminal activity that involved five or more participants
or was otherwise extensive, increase by 4 levels.
The PSR's recommendation was made on grounds that Gross had a total
of nine employees over a two-year period,2 and that "the criminal
activity was otherwise extensive in light of the amount of loss,
the number of victims, and the fact that the scheme took place over
a course of almost three years."3
Gross objected to the PSR, asserting that a §3B1.1 adjustment
for criminal activity that is "otherwise extensive," cannot be
applied to a defendant who acted alone. He contends that to be
subject to the four-level increase he must have acted in concert
with at least one other criminally responsible person. Even though
the government agreed with this contention, the district court
nevertheless found the enhancement appropriate.
Like the PSR, the district court justified the enhancement on
two alternative grounds. First, the court found that the criminal
2
None of the nine employees, however, was criminally
involved in Gross' scheme.
3
PSR ¶ 28.
3
activities were "otherwise extensive" under §3B1.1(a) due to the
amount of money lost, the number of victims, the interstate
character of the scheme, and the fact that Gross used corporate
forms to carry out the fraud. Alternatively, the court determined
that even if this circuit should require the involvement of another
criminally responsible person for the adjustment to apply, such
requirement was satisfied here by the two corporations which Gross
used to defraud sellers of computer equipment, even though "neither
of [the corporations] was charged or convicted in this crime." On
those alternative grounds, the district court increased Gross'
offense level by four as recommended by the PSR. The court
sentenced Gross to a thirty-month prison term and ordered him to
pay $695,950 in restitution. Gross timely appealed.
II
ANALYSIS
As noted, Gross contests the application of the aggravating
role adjustment of U.S.S.G. §3B1.1(a) because his offense was
committed by only one criminally responsible person))himself. We
review a sentencing court's application of the Guidelines de novo.4
A. "Otherwise Extensive"
Section §3B1.1(a) directs the sentencing court to increase a
defendant's offense level by four "[i]f the defendant was an
organizer or leader of a criminal activity that involved five or
more participants or was otherwise extensive." The language of
§3B1.1(a) does not specifically inform whether the involvement of
4
United States v. Brown, 7 F.3d 1155, 1159 (5th Cir. 1993).
4
another participant, i.e., another criminally responsible person,5
is essential to the adjustment under the "otherwise extensive"
prong. But the commentary accompanying this section))by which we
are bound6))makes clear that the adjustment only applies if an
5
Neither does United States v. Mejia-Orosco inform whether
the involvement of another criminally responsible participant is
essential to the adjustment under the "otherwise extensive"
prong. 867 F.2d 216 (5th Cir.), cert. denied, 492 U.S. 924, 109
S. Ct. 3257, 106 L. Ed. 2d 602 (1989). In Mejia-Orosco, the
defendant challenged the district court's finding that he was a
manager, supervisor, organizer, or leader of a criminal activity.
A panel of this court held that the introductory statement to
§3B1.1 "clearly indicates that there must be more than one
participant involved in the criminal activity for this section to
apply," but stated that "managerial status may attach by the
orchestration of unwitting or duped participants, as well as
through the leadership of criminally responsible participants."
Id. at 220. The relevant commentary, application note 3,
provides that
[i]n 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 services of many outsiders could be
considered extensive.
The court determined that the persons who had facilitated the
crime in that case either were criminally culpable themselves, or
if not, application note 3 to the commentary allows consideration
of unwitting participants))as long as the participants were
involved in the commission of the crime. The portion of the
commentary relied on in Mejia-Orosco does not signify that a
defendant's sentence can be enhanced when there are no other
criminally responsible participants. Mejia-Orosco simply informs
which individuals may be considered as persons supervised to find
that a defendant is a manager, supervisor, and so on: A wholly
innocent additional person may add to the count of persons
supervised in determining whether the offense is "otherwise
extensive." As the commentary to §3B1.1 and this opinion make
clear, however, a wholly innocent additional person can never
supply the requisite second "participant" under §3B1.1.
6
Stinson v. United States, U.S. , 113 S. Ct. 1913,
1915, 123 L. Ed. 2d 598, 603 (1993) (holding that commentary
"that interprets or explains a guideline is authoritative unless
it violates the Constitution or a federal statute, or is
inconsistent with, or a plainly erroneous reading of, that
guideline").
5
offense was committed by more than one criminally responsible
person.
The introductory commentary to section 3B1.1 states that
[w]hen an offense is committed by more than one
participant, §3B1.1 or §3B1.2 (or neither) may apply.
Section 3B1.3 may apply to offenses committed by any
number of participants.7
Application note 1 of the commentary then limits the definition of
"participant" to a person who is
criminally responsible for the commission of the offense,
but need not have been convicted. A person who is not
criminally responsible for the commission of the offense
. . . is not a participant.8
Taken together, these two provisions demonstrate that the
Sentencing Commission intended for §3B1.1 to be applied only if a
defendant was an organizer or leader of at least one other person
who was criminally culpable in, though not necessarily convicted
for, the endeavor.9
Effective November 1, 1993, the commentary to this section of
the Guidelines was amended to state expressly what we hold today,
i.e., that
[t]o qualify for an adjustment under this section, the
defendant must have been the organizer, leader, manager,
or supervisor of one or more other participants.10
7
Emphasis added.
8
Emphasis added.
9
U.S.S.G. App. C ¶414 ("This amendment clarifies the
operation of this guideline in accord with the holding in United
States v. Carroll, 893 F.2d 1502 (6th Cir. 1990)" (holding that
to apply §3B1.1, court must find that there were at least two
participants involved in committing the crime).
10
U.S.S.G. §3B1.1, comment. (n.2.)
6
Although this amendment did not take effect until after Gross was
sentenced, we may consider a post-sentencing amendment if it is
intended to clarify application of a guideline which "was not
intended to make any substantive changes to it or its commentary
. . . even though it was not in effect at the time of the
commission of the offense."11 The Sentencing Commission has by this
amendment clarified that §3B1.1 requires the participation of more
than one culpable person.12
Every other circuit court that has addressed this question has
held that §3B1.1 requires the participation of more than one
criminally responsible person.13 Today we join the circuits that
11
United States v. Maseratti, 1 F.3d 330, 340 (5th Cir.
1993), cert. denied, U.S. , 114 S. Ct. 1096, 127 L. Ed. 2d
409 (1994) and U.S. , 114 S. Ct. 1552, 128 L. Ed. 2d 201
(1994); United States v. Evbuomwan, 992 F.2d 70, 74 n.1 (5th Cir.
1993).
12
U.S.S.G. App. C ¶500 ("This amendment clarifies the
operation of this section to resolve a split among the courts of
appeal.").
13
United States v. Veilleux, 949 F.2d 522, 524 (1st Cir.
1991) (holding that to apply §3B1.1, court must find that there
were at least two participants involved in committing the crime);
United States v. Katora, 981 F.2d 1398, 1403 (3d Cir. 1992)
(requiring the participation of multiple, criminally culpable
persons under §3B1.1); United States v. Carroll, 893 F.2d 1502,
1507-09 (6th Cir. 1990) (same); United States v. Anderson, 942
F.2d 606, 614-16 (9th Cir. 1991) (en banc) (same); United States
v. DeCicco, 899 F.2d 1531, 1535-37 (7th Cir. 1990) (holding that
§3B1.1 applies only under circumstances in which the offender
organizes or leads criminally responsible individuals); United
States v. Bauer, 995 F.2d 182, 183 (10th Cir. 1993) ("All of the
roles defined by §3B1.1 require the involvement of more than one
participant."). See also United States v. Speenburgh, 990 F.2d
72, 74-76 (2d Cir. 1993) (holding that another criminally
responsible participant is necessary for downward adjustment
under U.S.S.G. §3B1.2).
7
have decided this issue and require at least two "participants"
under §3B1.1(a), i.e., at least two criminally culpable persons.
And we add that the express language of the commentary allows a
court to count a person as a "participant" even if such person has
not been convicted.
B. Corporation as "Participant"?
The question remains, however, whether a defendant's
corporation may be considered a "participant" for purposes of
§3B1.1. As noted, the commentary defines "participant" as "a
person who is criminally responsible."14 The district court held
that Gross' two corporations "probably qualify as participants even
though neither of them was charged or convicted in this crime."
In Chapter 8 of the Guidelines, which details the criminal
responsibility of organizations, the commentary defines an
organization as "a person other than an individual," and lists
corporations as a type of organization.15 The introductory
commentary to Chapter 8 notes that generally, under federal
criminal law, organizations are vicariously liable for offenses
committed by their agents. As a corporation is defined as a
person, and such a "person" can be liable for offenses committed by
its agents, it is arguable that a corporation could qualify as a
participant for purposes of §3B1.1.
But §3B1.1 does not contain a cross-reference to §8A1.1 and
its definition of organization, and we have not been shown any
14
U.S.S.G. §3B1.1, comment. (n.1) (emphasis added).
15
U.S.S.G. §8A1.1, comment. (n.1) (emphasis added).
8
justification for making such a stretch on our own. To do so would
run contrary to the expressed intent of the Sentencing Commission
to provide, under §3B1.1, a range of adjustments "to increase the
offense level based upon the size of a criminal organization[,
]i.e., the number of participants in the offense[, ]and the degree
to which the defendant was responsible for committing the
offense."16 To presume that the Sentencing Commission intended to
include individuals who happen to commit their crimes utilizing
corporations, a more explicit connection between the definition of
persons as used in §3B1.1 and how it is used in §8A1.1 would appear
to be necessary.17 We need not answer today, however, the broad
question whether a corporation may ever be used to satisfy the
additional participant requirement. For even if we assume arguendo
that a corporation may be used to satisfy the additional
participant requirement for purposes of §3B1.1, Gross is the only
person))natural or corporate))criminally culpable in this case.
16
U.S.S.G. 3B1.1, comment. (backg'd).
17
In United States v. Katora, the Third Circuit rejected the
argument that use of corporate forms warranted an application of
§3B1.1. 981 F.2d 1398, 1404 (3d Cir. 1992). In that case, the
court did not address §8A1.1. Instead the court relied on a
prior decision by that court, United States v. Fuentes, in which
that circuit determined that management of "real property" would
not suffice for a §3B1.1 enhancement. 954 F.2d 151, 154 (3rd
Cir.), cert. denied, U.S. , 112 S. Ct. 2950, 119 L. Ed. 2d
573 (1992); accord U.S.S.G. App. C. ¶500; cf. United States v.
Chambers, 985 F.2d 1263, 1268 (4th Cir.), cert. denied, U.S.
, 114 S. Ct. 107, 126 L. Ed. 2d 73 (1993) (holding that one
who manages property without supervising people can be a
"manager" within the meaning of §3B1.1(b)").) In Katora, the
Third Circuit determined that §3B1.1 would similarly not apply to
defendants whose only criminal cohorts are corporate entities.
981 F.2d at 1404.
9
Each corporation is merely an alter ego of Gross. He is the
sole shareholder, sole officer, and sole director of each of his
corporations. On these facts, Gross' two alter ego corporations
may not be used to assess a four-level increase in Gross' offense
level: Here the only criminally responsible agent of the
corporation was the defendant, Gross. We cannot bootstrap the
existence of a second participant by counting the first
participant's alter ego corporation when he is the sole "agent"
whose acts can make the corporation vicariously responsible under
§8A1.1. To do so under the instant facts would be to whipsaw the
defendant with a classic vicious circle.
III
CONCLUSION
Section 3B1.1 does not apply to a defendant who is the sole
criminal participant in the commission of an offense; there must be
at least one more "person" who (or which) is criminally
responsible, albeit not necessarily convicted. Moreover, a
defendant's wholly owned and solely orchestrated alter ego
corporation may not be counted as an additional "participant" under
that section. For the foregoing reasons, the sentence of Wesley
Wayne Gross is REVERSED, and the case REMANDED for resentencing.
10