United States v. Scherrer

United States Court of Appeals
For the First Circuit
No. 05-1705

UNITED STATES OF AMERICA,

Appellee,

v.

PHILLIP SCOTT SCHERRER,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Steven J. McAuliffe, U.S. District Judge]

Before
Boudin, Chief Judge,
Torruella, Selya, Lynch, Lipez and Howard*
Circuit Judges.

Bjorn Lange, Assistant Federal Public Defender, Federal
Defender Office, for appellant.
Mark E. Howard, Assistant United States Attorney, for
appellee. Thomas P. Colantuono, United States Attorney, and Peter
E. Papps, Assistant United States Attorney, on brief for appellee.

____________________

OPINION EN BANC

April 12, 2006

*
Judge Howard is recused and took no part in the consideration
or decision of this case.
 BOUDIN, Chief Judge. After pleading guilty to wire

fraud, in violation of 18 U.S.C. § 1341 (2000), Phillip Scott

Scherrer was sentenced to 96 months' imprisonment, 33 months above

the top of the guideline sentencing range. He now appeals, arguing

primarily that his sentence was unreasonably high. To provide

general guidance on this type of recurring issue, we heard this

case en banc in the first instance. Scherrer also contests two

conditions on his supervised release term, a matter with which we

deal at the end of this opinion.

Scherrer was indicted in September 2004 and, on December

2, 2004, pled guilty to a superseding information charging two

counts of wire fraud. Count I addressed a fraud that Scherrer

worked against two friends, George and Brenda LaPoint. In

substance, he induced them to give him $150,000, promising to

purchase an annuity that would generate specific income. Instead,

Scherrer used the money for his personal benefit and then with

further deceptions fended off requests from the LaPoints for

income.

Count II covered a wider scheme in which Scherrer induced

or attempted to induce over 40 individuals or couples–-some of them

his friends--to "invest" over $3 million, primarily through sales

of stock in a software company. The sales and attempted sales were

facilitated by false statements concerning the value of the stock

and other particulars. Scherrer did not buy the stock but used the

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money to maintain a luxurious lifestyle, including membership in a

country club, expensive cars, gambling, frequent vacations, and

lavish entertaining.

Given a combined loss (achieved and attempted) of just

over $3,216,000 and more than 10 victims, in conjunction with a

criminal history category I, the guideline range for Scherrer was

51 to 63 months. U.S.S.G. § 2B1.1(a), (b)(1) & (2); ch. 5, pt. A

(Sentencing Table). At the start of the sentencing hearing on

April 26, 2005, the district court warned Scherrer that the court

was not disposed to stay within the guidelines and the court

offered to let Scherrer withdraw his plea. Scherrer declined to do

so.

Scherrer's counsel then sought a sentence at the bottom

of the range, pointing to Scherrer's full acceptance of

responsibility, his cooperation, his history of bipolar disorder,

other medical problems and the harshness of his initial

confinement. He argued also that Scherrer would not commit future

frauds because his divorce deprived him of resources to do so.

Scherrer himself promised to write a book about the events and

devote the royalties to restitution.

George LaPoint testified, describing the fraud against

him and his wife, Scherrer's exploitation of his trust, and the

consequences. Letters from other victims described Scherrer's

abuse of their trust. Government counsel, recommending a 63-month

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sentence at the top of the range, emphasized the number of victims,

the age and vulnerability of many of them, the extent of Scherrer's

deceit, and the devastating economic harm inflicted on various

victims.

The district judge then sentenced Scherrer to 8 years,

33 months more than the top of the 63-month guideline maximum. In

brief (we will return to the details), the court stressed

Scherrer's exploitation of personal relationships, the harm caused,

his misuse of his skills, his extravagant use of the funds stolen,

and his history of dishonest conduct. The court said that the

sentence was needed to deter such conduct and protect the public,

reflected the particular circumstances of the crime, and was no

greater than necessary to achieve the goals of the statute. 18

U.S.C. § 3553(a).

On this appeal, Scherrer's main attack is that the

sentence was unreasonably high, double counting factors already

considered in the guideline calculation. Scherrer also says that

the district court failed to give due weight to or adequately

discuss mitigating factors such as Scherrer's bipolar disorder or

chronic medical conditions or the low likelihood of recidivism,

that it disregarded shorter sentences imposed on other defrauders,

and that it ignored the so-called parsimony principle of 18 U.S.C.

§ 3553(a).

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 United States v. Booker, 543 U.S. 220, 260 (2005),

contemplates such appeals from allegedly unreasonable sentences and

our recent decision in United States v. Jiménez-Beltre, 440 F.3d

514, 2006 WL 562154, at *3-*4 (1st Cir. 2006) (en banc), outlines

our approach to such cases. Unless the district court has

misconstrued the statute or the guidelines or has misstated the

facts, our main concern is whether the court has adequately

explained its reasons for varying or declining to vary from the

guidelines and whether the result is within reasonable limits.

Jiménez-Beltre, 2006 WL 562154, at *3-4.

We start with the reasons given by the district court for

sentencing above the guideline range. Scherrer does not directly

attack aggravating circumstances relied on by the court, focusing

instead on supposed mitigating factors. But the reasonableness of

the substantial increase over the guideline maximum can scarcely be

judged without a better understanding of what lies behind the

judge's decision. This understanding is also pertinent to the

charge of double counting made by Scherrer.

First, the present offenses were not Scherrer's first

involvement in fraudulent activities. In 1980, he was convicted

for the fraudulent sale of sham hospital bonds in Michigan and was

disbarred as a result. He also settled a civil case against him in

North Carolina, which accused him of fraudulently obtaining a

construction loan and using the funds for other purposes. In

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actions brought to enforce the settlement agreement, on which

Scherrer had defaulted, he was twice held in contempt and briefly

incarcerated for filing false or unsupported financial affidavits.

Nor does the fact that there were only two counts in the

present case fully reflect Scherrer's career of fraud. Although

count II focused on the stock of a single company, effectively the

count embraced a whole series of frauds against different persons.

Although the loss calculation aggregates these frauds, it does not

fully reflect the extent to which Scherrer--taking into account his

earlier misbehavior--had become a serial criminal specializing in

fraud. It was happenstance that he used the same company stock for

successive swindles.

The district court was especially disturbed by Scherrer's

exploitation of trust. Scherrer presented himself as a successful

professional and a personally sympathetic figure (for example, he

spoke at the memorial service for the LaPoints' deceased son) and

then exploited his personal connections with various of the victims

to defraud them. The district court also stressed the age of some

of the victims, their personal need, and the economic consequences

inflicted by the frauds, contrasted with Scherrer's purchase of

luxuries for himself.

These assessments were not conjecture but were supported

by individual stories revealed by the LaPoint testimony and letters

written by victims describing what had happened and, in some cases,

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urging the most severe possible sentence. Among the victims were

a man who worked at a dry cleaning store, the locker room attendant

at Scherrer's golf club, former students of Scherrer and others who

had little to spare. Among the funds taken were those saved by

older people for retirement, money for children's education and the

proceeds of a divorce settlement. One particularly affecting

letter read in part:

I am 78 years old and a widower . . . .
I retired in 1987 with a pension. . . . Over
the years it has been difficult to save with
yearly inflation when my income remains the
same. I was approached by Phillip Scherrer
who claimed to be an agent for Delaware Corp.,
to invest in a stock called "Bloodhound" which
he said would return 6 to 8 times my
investment within a year. In a period of a
few months, I gave him $10,000 which was about
half my life savings. This doesn't leave very
much for emergency expenses and certainly at
my age I do not have any potential earning
power. I now exist on necessary expenses and
hope for the best.

It was not unreasonable for the judge to regard

Scherrer's history and methods as pertinent to the "nature and

characteristics of the offense and the history and characteristics

of the defendant," 18 U.S.C. § 3553(a)(1), nor to regard the

aggravating circumstances as pertinent to the "seriousness of the

offense," "just punishment" and the need for "adequate deterrence,"

id. § 3553(a)(2)(A), (B). The affirmative basis for the district

court's decision to vary upwards from the guidelines is adequately

supported.

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 Scherrer's counter-attack on the sentence begins with his

claim that mitigating factors were ignored. Taken at face value,

these factors do at first seem to have weight; but the government

gave some effective answers in the district court and it is fair to

infer that the district court found them persuasive. That the

district court did not elaborate on them--it said only that it took

them into account--does not preclude the inference where the record

explains it. Jiménez-Beltre, 2006 WL 562154, at *3.

Admittedly, Scherrer was diagnosed with bipolar disorder

in 1978 and suffered a breakdown the next year requiring a hospital

stay. However, lithium is often an effective treatment and it so

proved for Scherrer, who earned both an M.B.A. and a Ph.D while

taking medication, until (against medical advice) he ceased using

it in 1998. The district court was entitled to discount the claim

of medical condition where, as here, the condition was reactivated

by Scherrer's own refusal to continue on medication. Cf. U.S.S.G.

§ 5H1.4 (Policy Statement) (prohibiting consideration of drug

dependence as a mitigating factor under the guidelines).

In a related argument, Scherrer says he currently suffers

from various medical conditions that will be exacerbated by prison

including high blood pressure, high cholesterol, hypothyroidism and

Raynaud's disease (a circulatory disorder). Yet it also appears

that these conditions are controlled by medication and that the

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Bureau of Prisons can furnish the necessary medical care for the

conditions.

In a second such objection, Scherrer says that the

district court ignored his showing that in other cases other

defrauders whose behavior was similar or worse had received more

lenient sentences. Thus, according to Scherrer, the district judge

was disregarding "the need to avoid unwarranted sentence

disparities among defendants with similar records who have been

found guilty of similar conduct." 18 U.S.C. § 3553(a)(6).

Scherrer points to two kinds of evidence to support his thesis:

!two cited cases in the same district court in
which defendants were convicted of fraud but
received 60-month sentences (United States v.
Blastos, 258 F.3d 25 (1st Cir. 2001), and
United States v. Trainor, U.S.D.C., D.N.H.,
No. 04-CR-118-JD);

!newspaper reports of several recent federal
fraud cases in other courts in which
defendants got shorter sentences (e.g., a
former WorldCom director sentenced to a year
and a day).

Trying to compare an individual sentence with a few

counsel-selected cases involving other defendants sentenced by

other judges is almost always useless. The cases selected in this

manner are not likely to be representative, may not be comparable

(e.g., convictions after trial versus pleas), and the information

readily available about the other defendants and their

circumstances is usually going to be inadequate to assure

comparability. Scherrer's conduct, involving a loss of $3.2

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million inflicted upon dozens of individual, unsophisticated

victims, is not "similar" to that of Blastos, who defrauded the

Greek government of $2.1 million, or of Trainor, who defrauded

institutional lenders of less than $1 million.

Scherrer also accuses the district court of ignoring the

"parsimony" principle, that is, the statutory guidance that a

sentence should be no higher than needed to meet statutory goals.

18 U.S.C. § 3553(a). But the district court acknowledged the

principle and, from the judge's point of view, eight years was the

minimum sentence needed to provide adequate deterrence through a

just sentence for a specially reprehensible series of frauds. So,

in this case, the issue remains whether the variance and resulting

sentence were reasonable.

It would be a different matter if the district court

relied upon a factor not acknowledged by the statute to enhance a

sentence--for example, if the court said the extra 33 months was

necessary to appease angry victims. Assuming a guideline sentence

that satisfied the goals set forth by the statute, adding more

months for some other, unapproved purpose might well defy the

parsimony principle. In this case the district judge relied upon

nothing outside the ambit of the statute to increase the sentence.

In sum, the district judge had a reasonable basis for

exceeding the guideline maximum. The only close call is whether

the amount by which he exceeded the maximum is also reasonable: the

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guideline maximum was five and a quarter years; the sentence

imposed was eight years. Numerically, the jump is not vast; as a

percentage it is considerable. Deciding just how far a judge

should vary from the range, where a basis for variance is made out,

is quite hard to measure. In this case the sentence is not out of

line with other upward variances in egregious cases.1

Scherrer was also sentenced to three years of supervised

release and challenges two conditions of that release--requiring

him to undergo treatment for narcotic addiction or drug or alcohol

dependency and abstain from alcoholic beverages during and after

such treatment--as an abuse of discretion. The government has

conceded that the need for those conditions is not supported by the

record and has requested a limited remand for purposes of striking

those conditions.

We agree that the need for those conditions is

unsupported by the record. Compare United States v. Thurlow, 44

F.3d 46, 47 (1st Cir. 1995) (per curiam) (upholding condition of

abstaining from alcohol where record indicated that substance abuse

was a serious problem for the defendant and that he used the

proceeds of his crimes to purchase alcohol on several occasions).

1
United States v. Smith, 440 F.3d 704 (5th Cir. 2006); United
States v. Porter, 439 F.3d 845 (8th Cir. 2006); United States v.
Jordan, 435 F.3d 693 (7th Cir. 2006); United States v. Rogers, 423
F.3d 823 (8th Cir. 2005).

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On remand, the district court can simply strike the conditions or

develop a record on the matter.

The sentence is affirmed save for the two conditions just

cited and the matter is remanded to the district court to strike

the conditions or to hold further proceedings with respect to them

as it sees fit.

It is so ordered.

Concurrence follows.

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 LIPEZ, Circuit Judge, concurring. I concur in Judge

Boudin's thoughtful opinion for the en banc court, which is

consistent with the en banc decision in United States v. Jimenez-

Beltre, – F.3d –, No. 05-1258, 2006 WL 562154 (March 9, 2006). I

write separately because of my concern about the district court's

explanation of the reasons for its decision.

In Jimenez-Beltre, the defendant objected to the district

court's treatment of some factors the defendant cited at sentencing

as reasons for a sentence below the guidelines range. The en banc

court stated that "our emphasis in reviewing such claims will be on

the provision of a reasoned explanation, a plausible outcome and --

where these criteria are met -- some deference to different

judgments by the district judges on the scene." Id. at *3. We

stated further that "[w]hether the sentence falls inside or outside

the applicable guidelines range, it is important for us to have the

district court's reasons for its sentence . . . and this is even

more important in the more open ended post-Booker world." Id. The

en banc court then added this important caveat: "Yet a court's

reasoning can often be inferred by comparing what was argued by the

parties or contained in the pre-sentence report with what the judge

did." Id.

Now, in one of our first decisions post-Jimenez-Beltre,

we rely on this caveat to affirm the decision of the district

court. The defendant offered a number of mitigating arguments in

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support of his position that he should receive a sentence at the

bottom of the guidelines range. He cited his thirty year diagnosis

of bipolar disorder, his chronic medical problems, his acceptance

of responsibility and cooperation with authorities, and the

sentences imposed on two other defendants convicted in the New

Hampshire federal district court of extensive fraud. After

listening to these arguments and the counter-arguments of the

government, the district court explained in detail the aggravating

factors that, in its judgment, required a sentence considerably

above the guidelines range. It said summarily that the mitigating

factors advanced by the defendant had been "taken into account,"

along with the sentencing factors set forth in 18 U.S.C. § 3553(a).

Noting the "effective" arguments advanced by the government for

rejecting the mitigating factors cited by the defendant, we say in

our en banc decision that "it is fair to infer that the district

court found them persuasive." We add, citing Jimenez-Beltre: "That

the district court did not elaborate on them –- it said only that

it took them into account -– does not preclude the inference where

the record explains it."

Although this is an efficient approach to appellate

review of sentencing, it has costs that we should acknowledge. If

a sentencing court listens to the specific arguments of a defendant

for leniency, and then rejects them with the summary statement that

they have been taken into account in the final decision, a

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defendant naturally will be skeptical that this is so. That

skepticism will be particularly acute if the court explains in

detail, as happened here, its reasons for imposing a sentence

considerably above the guidelines range while dismissing summarily

the arguments for a lower sentence.

This is not a one-sided phenomenon. If the government

advanced specific arguments for a particular sentence, and the

court summarily rejected those arguments while explaining in detail

its reasons for imposing a lesser sentence, the government would

feel as the defendant feels here –- that its arguments were not in

fact heard and fully considered, and it would rightly complain on

appeal. In either case -- summary dismissal of a defendant's

arguments or summary dismissal of the government's arguments -- we

can save the decision on appeal by inferring the court's reasoning.

But we will never convince the party whose arguments were summarily

dismissed that these arguments were fully and fairly considered by

the sentencing court.

There are also costs on appeal. There are two components

of a reasonable sentence -- the explanation for the choice of the

sentence imposed and the sentence itself. If we have to infer a

critical portion of the explanation, as we have done here, we are

inescapably dealing with conjecture about it -- reasonable

conjecture to be sure, but conjecture nonetheless. Instead of

focusing on our primary appellate responsibility, to subject the

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actual sentencing explanation of the district court to critical

scrutiny, we must first articulate the explanation that the

district court did not. That articulation will always be an

approximation. We will never know what the district court actually

thought. Moreover, to an extent difficult to quantify, we will mix

our inferences about the district court's reasoning with our own

responses to the record of the sentencing proceeding. To that

extent, we will, in effect, be doing the sentencing in the first

instance -- a confusion of roles.

Our willingness to infer the reasoning of the district

court at sentencing also creates odd incentives for the district

court. The judge who explains in detail the reasons for accepting

or rejecting particular arguments advanced by the parties may make

it easier for the appellate court to question the reasonableness of

these explanations. An inferred explanation may be less vulnerable

to that scrutiny. Hence, wittingly or unwittingly, district courts

may be content to let the record speak for itself. That practice

would be incompatible with the district court's responsibility to

sentence in the first instance.

I wish to be clear about the scope of my concern. I do

not minimize the burdensome sentencing responsibilities of the

district court. I am not suggesting that there is legal error if

a district court does not explicitly address every sentencing

factor and purpose set forth in 18 U.S.C. § 3553(a). There is no

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checklist that must be followed. But when the defendant or the

government advances specific arguments for leniency or severity,

grounded in the defendant's history or the circumstances of the

offense, it is reasonable to expect a district court to explain why

those specific arguments are or are not persuasive. This

responsiveness by the district court is not a matter of legal

correctness. It is a matter of good practice. A sentencing

decision that withstands appellate review is not necessarily the

measure of good practice.

Here, a very able and thoughtful district court judge

explained in detail the aggravating circumstances that required, in

his view, a sentence considerably above the advisory guidelines

range. It was a compelling explanation. The fraudulent conduct

here was egregious. But it would have been better for us as an

appellate court, and better for perceptions about the fairness of

the process in the district court, if the judge had explained

specifically why he rejected the defendant's arguments in

mitigation.2 Of all the important work done by the district

courts, nothing is more important than their sentencing work. With

so much at stake -- for defendants, victims, prosecutors, and the

public -- the district courts should take the extra time, which

2
Subsequently, in a sealed statement of reasons attached to
the judgment, the judge elaborated on the aggravating factors that
required a sentence above the advisory guidelines range. He again
said summarily that he took into account the arguments in
mitigation presented by defense counsel.

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will be minimal, to respond in some detail to the specific

arguments of the government and the defendant. That will be time

well spent.

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