UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

 

                       August Term, 2001

 

(Argued: December 6, 2001      Decided: May 30, 2002)

 

Docket Nos. 00-1122(L), 00-1123, 00-1124, 00-1125, 00-1126(XAP),   00-1181, 00-1235, 00-1277, 00-1164

 

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UNITED STATES OF AMERICA,        

              Appellee‑Cross‑Appellant,

 

              v.

 

BRUCE W. GORDON,  

              Defendant-Appellant-Cross-Appellee,

 

TARA GARBOSKI, also known as Tara Green, ORAL FRANK OSMAN,

also known as Frank Osman, also known as Frank Martin,

LAURA WEITZ, also known as Laura Winters, SCOTT MICHAELSON,

STEVE RUBIN, also known as Steve Ruben, also known as Steve Walden, MARTIN REFFSIN, and ANNETTE HALEY,

              Defendants-Appellants,

 

WHO’S WHO WORLDWIDE REGISTRY, INC., STERLING WHO’S WHO,

INC.,

              Defendants.       

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BEFORE:  OAKES, NEWMAN, and F.I. PARKER, Circuit Judges.

     Appeal from February 16, 2000 entry of judgment in the United States District Court for the Eastern District of New York (Arthur D. Spatt, Judge) following a jury trial.  The United States of America cross-appeals alleging error in the grouping of mail fraud and tax counts pursuant to United States Sentencing Guidelines § 3D1.2(c).  The majority of the issues raised on appeal are addressed in a summary order filed today.  This opinion resolves three sentencing points: (1) On the issue of the district court's refusal to consider unclaimed deductions in the calculation of tax loss under U.S.S.G. § 2T1.1, the judgment of the district court is AFFIRMED; (2) as to the government’s cross-appeal contending that the mail fraud and tax evasion counts should have been grouped under U.S.S.G. § 3D1.2(d) rather than § 3D1.2(c), the decision of the district court is VACATED AND REMANDED; and (3) on the issue of the structuring of the sentences with regard to consecutiveness, the judgment of the district court is VACATED AND REMANDED.

      Judge Newman concurs in a separate opinion.

     AFFIRMED in part, VACATED in part, and REMANDED for resentencing.

                        Brian E. Maas, Beldock, Levine & Hoffman, New York, NY, for defendant-appellant Tara Garboski, aka Tara Green.

 

                        Alan M. Nelson, Law Office of Alan M. Nelson, Lake Success, NY, for defendant-appellant Oral Frank Osman, aka Frank Osman, aka Frank Martin.

 

                        John Laurence Kase, Kase & Druker, Garden City, NY, for defendant-appellant Laura Weitz, aka Laura Winters.

 

                        Martin Geduldig, Law Office of Martin Geduldig, Esq., Hicksville, NY, for defendant-appellant Annette Haley.

 

                        Thomas F.X. Dunn, Law Office of Thomas F.X. Dunn, Esq., New York, NY, for defendant-appellant Steve Rubin, aka Steven Ruben, aka Steve Walden, aka Steve Ruben.

 

 

 

                        Scott E. Leemon, Law Office of Scott E. Leemon, Esq., New York, NY, for defendant-appellant Martin Reffsin.

 

                        Paula Schwartz Frome, Law Office of Paula Schwartz Frome, Esq., Garden City, NY, for defendant-appellant Scott Michaelson.

 

                        Norman Trabulus, Storch, Amini, & Munves, New York, NY, for defendant-appellant Bruce W. Gordon.

    

                        Ronald White, United States Attorney's Office for the Eastern District of New York, Brooklyn, NY, for appellee.

 

 

F.I. PARKER, Circuit Judge:

 

     This is an appeal from the February 16, 2000 entry of judgment in the United States District Court for the Eastern District of New York (Arthur D. Spatt, Judge) following a jury trial convicting defendants-appellants on sixty-nine counts of mail fraud, conspiracy to commit mail fraud, money laundering, perjury, tax evasion, conspiracy to impair, impede, and defeat the IRS, filing false tax returns, filing false collection information statements, and obstruction of justice based on the defendants’ roles in a scheme to market memberships in a supposedly prestigious "Who's Who" organization.  The United States of America cross-appeals, alleging error in the grouping of defendant Gordon’s mail fraud and tax evasion counts pursuant to United States Sentencing Guidelines Manual (“U.S.S.G.”) § 3D1.2(c) (2000).  The majority of the issues raised on appeal are addressed in a summary order filed today.  This opinion addresses only three questions related to defendant Bruce W. Gordon's sentence: First, whether the district court erred by failing to consider applicable, but unclaimed, deductions in the calculation of tax loss for sentencing purposes under U.S.S.G. § 2T1.1; second, whether, as the government alleges on cross-appeal, the district court erred by grouping Gordon's mail fraud and tax evasion counts under U.S.S.G. § 3D1.2(c) rather than § 3D1.2(d); and third, whether the district court erred in imposing consecutive sentences on counts 54 and 55.  We affirm the district court on the first question and vacate and remand on the second and third.

I.

     In 1989 and 1994 respectively, Bruce W. Gordon incorporated two companies, Who’s Who Worldwide (“Worldwide”) and Sterling Who’s Who (“Sterling”), to produce “prestigious” directories of “noteworthy” individuals.  United States v. Gordon, CR 96-1016, 1999 U.S. Dist. LEXIS 183, at *5-*6 (E.D.N.Y. Jan. 8, 1999).  Gordon served as president and CEO of both organizations, supervising the companies’ efforts to sell expensive memberships in the directories through an extensive telemarketing scheme.  Id.  After a thirteen-week jury trial, Gordon and nine other defendants were found guilty on 297 charges under the sixty-nine counts of the indictment.  Id. at *2. 

II.

A.  The Fraudulent “Who’s Who” Scheme

     Although Gordon’s companies promoted their listings as exclusive collections of leaders in various fields, potential members were actually solicited from ordinary mailing lists.  Id. at *6.  Worldwide and Sterling often distributed 100,000 letters at a time.  The letters informed potential clients of their “nomination” for inclusion in one of the available registries even though most recipients were not nominated.  Although at the time the letters were sent, the companies knew nothing about the intended recipients, a typical solicitation letter included language indicating that (i) Worldwide or Sterling was a leading publication of accomplished individuals, (ii) inclusion in the registry was limited to “exceptional” people who were highly successful in their fields, and (iii) inclusion in the registry was without cost to the “nominee.”  An enclosed questionnaire encouraged the recipient to “apply” for membership.  If the “nominee” responded by filling out a personal information card, telemarketers then contacted the person to conduct a false evaluation interview.  During the interview, the marketers read from “pitch sheets” that laid out false and misleading information aimed at encouraging the customer to join and specified fraudulent answers to common questions.  Gordon, 1999 U.S. Dist. LEXIS 183, at *6-*7.  The marketers stressed the exclusivity of membership and the great networking value membership would provide. “Memberships” were actually sold to anyone wishing to purchase.   

     After completing the interview, Gordon’s sales force would ask the customer to purchase a membership (ranging in price from $75 to $750) and informed the new member of additional “perks” of joining, such as the opportunity to purchase a CD-ROM with registry information, discounts on services from Airborne Express and other providers, and networking seminars.[1]  Id. at *7-*8.   By the end of 1994, over 60,000 people, swept along by Gordon’s scheme, had become members of the organizations, netting tens of millions of dollars for Gordon’s companies.  Gordon v. United States (In re the Seizure of All Funds in Accounts in the Names Registry Publ’g, Inc.), 68 F.3d 577, 578-79 (2d Cir. 1995).  Although Gordon claimed that his registries were composed of leaders in the international business community, many actual members were employed outside the big business arenas his promotional materials implied.  Among the members of one registry were the manager of a Florida rental car agency, the owner of a Florida Dairy Queen, a nutritionist at a Virginia state prison, a Virginia high school teacher, a Massachusetts candy store owner, the manager of a Connecticut Radio Shack, and the manager of a Pennsylvania department store beauty salon. 

     Notably, the employees of Worldwide and Sterling had no misconceptions about the true nature of the memberships they sold.  The Worldwide employee assigned to “review” applications after conclusion of the telephone interviews admitted that she, at Gordon’s instruction, regularly altered members’ job titles so that the members would appear more prestigious in the publication, for example, listing the owner of a business as a “President” with expertise in “Corporate Management,” or a store manager as an “area manager” or “operations manager,” and making even small operations sound like large corporations. Furthermore, while telling potential customers that they, as nominees, were the “creme de la creme” or that the marketers rarely spoke with people who weren’t “multi-billionaires” or “CEO’s”, Gordon’s employees, among themselves, considered it a “running joke” that anyone with a credit card could become a member of one of the registries.

     At trial, the government presented twenty-three member witnesses who almost uniformly agreed that had they realized that the memberships they were offered were not prestigious, nor had they been nominated by their peers, they would not have been willing to pay for a membership and might not have purchased a membership at all.  Even Gordon admitted that the value of his product lay in its appeal to customer egos. 

B.  Gordon’s Financial Activities

     Gordon’s crimes extended beyond his telemarketing fraud.  During the early 1990s, Gordon owed the IRS $3.5 million in back taxes, penalties, and interest.  Gordon, 1999 U.S. Dist. Lexis 183, at *8-*9.  Gordon told the IRS that he was an impoverished salesperson who slept in his car.  Id.  In reality, however, Gordon resided at two expensive properties, a Manhasset, New York, condominium and an East 54th Street penthouse apartment in Manhattan, the titles to which were in the name of Who’s Who Worldwide.  Gordon drove luxury cars leased by Worldwide and shopped at numerous premiere retail outlets.  Id.  at *12-*13. 

     Relying on Gordon’s representations of poverty, the IRS, in 1991, offered to accept payments of $100 per month against Gordon’s $3.5 million debt, while the tax division of the Department of Justice agreed to accept payments of amounts equal to one-half of Gordon’s income over $50,000.  Id. at *10-*11.  In 1993, Gordon attempted to enter a further “offer in compromise” with the IRS under which he would pay $150,000 to resolve his entire debt.  Gordon withdrew his offer before the IRS could accept when his arrest raised suspicions that he was more than simply a Sterling or Worldwide employee.  Id. 

C.  Investigation and Trial

     Postal officials first inspected Gordon and his companies in 1994 on suspicions of mail fraud.  In re Seizure, 68 F.3d at 579.   That investigation ultimately led to grand jury review and an indictment against Gordon, Sterling, and Worldwide for conspiracy to commit mail fraud, mail fraud, and money laundering.  A seventy-three count superseding indictment added counts for perjury, obstruction of justice, and filing false income tax returns, and included six additional salesperson-defendants as well as Gordon’s accountant.  United States v. Gordon, 990 F. Supp. 171, 173 (E.D.N.Y. 1998).  On April 7, 1998, after a thirteen-week trial, a jury returned 297 guilty verdicts on sixty-nine separate counts against the ten defendants.  Gordon, 1999 U.S. Dist. LEXIS 183, at *17.   Gordon and his fellow defendants moved for Rule 29(c) acquittal or a new trial under Rule 33.   The court denied these motions, but granted the government’s cross-motion for preliminary forfeiture of the $1.1 million involved in the money laundering offense. Id. at *79.  

D.  Sentencing

     After a four day Fatico hearing at which the defendants presented testimony intended to demonstrate the value of memberships in Worldwide and Sterling registries, the district court sentenced Gordon to ninety-seven months in prison, $10 million restitution, and $3,450 in special assessments.  To determine Gordon’s sentence, the district court reduced the proposed mail fraud loss ($20,000,000) by $10,000,000 and the proposed tax loss ($1,662,832) by $65,579.  United States v. Gordon, 71 F. Supp. 2d 128, 136-37 (E.D.N.Y. 1999).  The district court then applied the sentencing guidelines to establish the appropriate length of the sentence on each count. 

E.  Claims on Appeal

     Pertinent to this opinion are three challenges to defendant Gordon’s sentence.  On Gordon’s appeal are the district court’s refusal to account for potential, but unclaimed, deductions in its calculation of tax loss under U.S.S.G. § 2T1.1, and the district court’s imposition of consecutive sentences on counts 54 and 55.  On the government’s cross-appeal is the district court’s use of U.S.S.G. § 3D1.2(c) to group Gordon’s tax evasion and mail fraud counts.

III.

A.  Standard of Review

     In examining a sentencing calculation, this Court reviews the district court’s factual findings for clear error and its legal interpretations of the Guidelines de novo.  See United States v. Carboni, 204 F.3d 39, 46 (2d Cir. 2000).  

B.  Unclaimed Deductions

     The 2000 United States Sentencing Guidelines Manual § 2T1.1 provides sentencing standards for “Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents.”  U.S.S.G. § 2T1.1 (2000).  Subsection (a) establishes the base level for the offense according to the corresponding amount of tax loss, or designates the level as 6 if the crime caused no tax loss.  U.S.S.G. § 2T1.1(a).  Subsection (c) provides special instructions for the determination of the tax loss.  U.S.S.G. § 2T1.1(c).  Subsection (c)(1) explains that “[i]f the offense involved tax evasion or a fraudulent or false return, statement, or other document, the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).”  U.S.S.G. § 2T1.1(c)(1).  Note (A) to subsection (c)(1) establishes the following formula for computing tax loss in cases involving fraudulent filings:  “28% of the unreported gross income . . . plus 100% of any false credits claimed against tax, unless a more accurate determination of the tax loss can be made.”  U.S.S.G. § 2T1.1(c)(1)n.(A). 

     In his appeal, Gordon challenges the district court’s failure to consider potential, but unclaimed, deductions that might reduce the total amount of tax loss for which he was responsible.  Gordon argues that the district court erred by not reading the “more accurate determination” language of U.S.S.G. § 2T1.1(c)(1)n.(A) to allow a defendant to include potential but unclaimed deductions in the tax loss figure used at sentencing.

     Tax loss under § 2T1.1 is intended to reflect the revenue loss to the government from the defendant’s behavior.  Gordon asserts that the district court overestimated the tax loss because the unreported funds transferred from Worldwide to Gordon, had they been reported, would have been treated by Worldwide as a deductible salary expense.  In other words, Gordon argues that the tax loss due to his failure to report the transferred funds should have been offset by the corporate tax deduction Worldwide would have taken.  Gordon did not, however, offer any proof that had he reported the transfer of funds from Worldwide, Worldwide would have treated the money as salary, a deductible corporate expense rather than as a dividend, a non-deductible corporate expenditure.   

     In United States v. Martinez-Rios, this Court indicated in dicta that under § 2T1.1, “determination of the tax loss involves giving the defendant the benefit of legitimate but unclaimed deductions.” 143 F.3d 662, 671 (2d Cir. 1998).  Adhering to Martinez-Rios’s suggestion, this Court finds that the district court erred when it refused to consider any potential unclaimed deductions in its sentencing analysis.  Nevertheless, this Court finds that the error was harmless because even had the court been willing to consider such deductions, Gordon failed to prove that the money he received would have been treated as salary by Worldwide if properly reported.

     Gordon asserted at oral argument and in his reply brief that the district court should have allowed a salary deduction because funds transferred from Worldwide to him were likely “salary” if they were not “loans.”  Gordon, however, bears the full burden of proof in establishing the appropriateness of consideration of such an unclaimed deduction.  See United States v. Spencer, 178 F.3d 1365, 1369 (10th Cir. 1999); see also Martinez-Rios, 143 F.3d at 671-72 (finding witness testimony that close corporations would normally treat payments to officers as salary “doubtful”); United States v. Sik Kin Wu, 81 F.3d 72, 74-75 (7th Cir. 1996)(finding when a “single crime” caused underreporting of both personal and corporate income, that disbursements to individuals should be treated as dividends taxable at both corporate and personal levels).  In Martinez-Rios, this Court rejected testimony about how funds were normally distributed in close corporations as insufficient to establish that the funds in question had been distributed in that manner in the case at hand and that, therefore, a deduction applied. 143 F.3d at 671-72.  Under Martinez-Rios, Gordon’s argument that salary treatment was likely does not provide sufficient proof to establish an unclaimed deduction for consideration under § 2T1.1.  Even had the district court considered potential deductions, therefore, Gordon’s sentence would have remained the same.  Because Gordon did not provide any evidence tending to prove that Worldwide would have treated the transferred funds as salary, this Court finds the district court’s failure to consider unclaimed deductions harmless.

C. Grouping of Charges

     The district court grouped Gordon’s mail fraud and tax evasion charges under U.S.S.G. § 3D1.2(c).  In its cross-appeal, the government argues that grouping was inappropriate under § 3D1.2(c), but would have been proper under § 3D1.2(d).[2]  The government asks this Court to vacate and remand Gordon’s sentence for adjustment under the proper Guidelines subsection.

     The government’s appeal centers on the appropriate interpretation of U.S.S.G. § 3D1.2 governing grouping of offenses.  Section 3D1.2 provides in pertinent part:

     All counts involving substantially the same harm shall be grouped together into a single Group.  Counts involve substantially the same harm within the meaning of this rule:

     . . .

          (c) When one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts.

          (d) When the offense level is determined largely on the basis of the total amount of harm or loss . . . or some other measure of aggregate harm, or if the offense behavior is ongoing or continuous in nature and the offense guideline is written to cover such behavior. 

 

U.S.S.G. §§ 3D1.2 (c), (d).  The application notes accompanying § 3D1.2 provide insight into the meaning of the provision’s terms.  Application note 5 explains that the grouping of crimes sharing specific offense characteristics under subsection (c) prevents “double counting” of criminal behavior.  U.S.S.G. § 3D1.2, cmt. n.5.  It requires, however, that the crimes qualifying for such grouping be “closely related.”  U.S.S.G. § 3D1.2, cmt. n.5.  Application note 6 likewise clarifies subsection (d), explaining that the crimes involved in a single group should be of the “same general type,” and instructing courts to interpret this phrase broadly.  U.S.S.G. § 3D1.2, cmt. n.6. 

     In Gordon’s case, the district court found the mail fraud and tax evasion counts could be grouped under subsection (c).  Under subsection (c), the highest level for an indicted offense within the group dictates the group’s offense level.  See U.S.S.G. § 3D1.3(a)(determining offense levels under § 3D1.2(a)-(c)).  Thus, Gordon received an offense level of 28, which, after adjustment for his money laundering offense, see § 3D1.4, resulted in an ultimate offense level of 30 and a sentencing range of 97-121 months.  The government argues that had the district court correctly applied subsection (d) as the relevant grouping provision, Gordon would have received an offense level of 31, which, after adjustment for his money laundering offense, see § 3D1.4, would have resulted in an ultimate offense level of 32 and a sentencing range of 121-151 months because subsection (d) sets the offense level for the group not in accordance with the highest level of a single offense, but in accordance with the highest level determined by the aggregate amount of loss from all offenses “of the same general type.”  See U.S.S.G. § 3D1.3(b) (determining offense levels under § 3D1.2(d)).  The government concludes that the district court’s approach improperly lowered Gordon’s final sentence by two levels, although, for reasons explained in the margin,[3] the reduction might be only one level.

1. Grouping was appropriate

     In United States v. Napoli, this Court rejected a defendant’s claim for grouping together money laundering and fraud counts.  179 F.3d 1, 7 (2d Cir. 1999)(finding the district court correct in separating fraud and money laundering counts into two distinct groups).  The analysis developed in that opinion, however, led the Court in United States v. Fitzgerald to hold that “tax evasion, fraud, and conversion should be grouped under U.S.S.G. § 3D1.2(d).”  232 F.3d 315, 320 (2d Cir. 2000)(per curiam).  United States v. Petrillo, published the month after Fitzgerald, confirmed Fitzgerald’s conclusion, holding that tax evasion and mail fraud were properly grouped under § 3D1.2(d).  237 F.3d 119, 125 (2d Cir. 2000).  Although the Commission subsequently decided that money laundering and underlying offenses should be grouped under § 3D1.2(c) and provided more severe offense levels where such grouping involves serious underlying offenses, see U.S.S.G. § 2S1.1, cmt. n.6 (2001); id. App. C Supp., Amend. 634, the reasoning of Napoli, Petrillo, and Fitzgerald remains instructive.

     Reading only these opinions, one might conclude that although this Circuit has clearly established the appropriateness of applying § 3D1.2(d) when charges of mail fraud and tax evasion are grouped, it has not required such grouping in every instance.  The Guidelines themselves, however, suggest that grouping is not optional. 

     Section 3D1.1 provides that “[w]hen a defendant has been convicted of more than one count, the court shall: (1) [g]roup the counts resulting in conviction into distinct Groups of Closely Related Counts. . . .”  U.S.S.G. § 3D1.1(a)(1) (emphasis added).  Section 3D1.2 adds that “[a]ll counts involving substantially the same harm shall be grouped together into a single Group.” U.S.S.G. § 3D1.2 (emphasis added).  Recognizing that the Guidelines have the force of law, see Stinson v. United States, 508 U.S. 36, 42 (1993); United States v. Maria, 186 F.3d 65, 70 (2d Cir. 1999), this Court may not choose not to group tax evasion and mail fraud counts once the Court has determined that such counts are eligible for grouping under the Guidelines.  When counts meet the § 3D1.1 and § 3D1.2 requirements, they must be grouped.

2.  Plain Error Review

 

     While it appears that grouping was appropriate, the government on appeal challenges the district court’s grouping method.  The government objects to the district court’s use of § 3D1.2(c) to accomplish this grouping, which finds “substantially the same harm . . . [w]hen one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts,” rather than § 3D1.2(d), which finds harms “substantially the same . . . [w]hen the offense level is determined largely on the basis of the total amount of harm or loss, the quantity of a substance involved, or some other measure of aggregate harm, or if the offense behavior is ongoing or continuous in nature and the offense guideline is written to cover such behavior.”  U.S.S.G. §§ 3D1.2(c),(d).  The government admits that it did not raise in the district court the issue of which provision should govern grouping, nor did it object to the court’s choice of subsection 3D1.2(c).  Its objection to the use of any grouping provision  was not “sufficiently distinct” to alert the trial judge to the challenged issue in order to preserve the issue for appeal.[4]  See United States v. Gallerani, 68 F.3d 611, 617 (2d Cir. 1995).  As the government failed to preserve the issue of alternative grouping mechanisms for this Court’s review, this Court must review the government’s cross-appeal for plain error.

     In our recent decision in United States v. Sofsky, this Court found that plain error review may apply less rigorously in certain sentencing contexts.  No. 01-1097, 2002 U.S. App. LEXIS 5148, at *6-*7 (2d Cir. Mar. 28, 2002).   In Sofsky, this Court first noted two previous decisions that reviewed unobjected-to sentencing errors in a more relaxed fashion when the party raising the error on appeal did not have prior notice of the possible application of the sentence imposed. Id. at *5 (citing United States v. Pico, 966 F.2d 91 (2d Cir. 1992) (finding “clear error” where a sentence outside the Guidelines range was imposed without explanation and against the recommendation of the PSR); United States v. Alba, 933 F.2d 1117, 1120 (2d Cir. 1991)(reviewing unobjected-to downward departures without applying plain error standards where only one of the four grounds on which the district court granted the departures was addressed in the PSR)).  The Court further commented on the relative ease of correcting sentencing errors (requiring only resentencing) as opposed to trial errors (requiring a new trial).  Id. at *5-*6 (citing United States v. Leung, 40 F.3d 577, 586 n.2 (2d Cir. 1994); United States v. Baez, 944 F.2d 88, 90 n.1 (2d Cir. 1991)).  The Sofsky Court then concluded that “[b]oth because the alleged error relates only to sentencing and because Sofsky lacked prior notice, we will entertain [Sofsky’s] challenge without insisting on strict compliance with the rigorous standards of Rule 52(b).” Id. at *7. 

     This case, unlike Sofsky, requires us to complete plain error analysis with Rule 52(b)’s full rigor.  As noted, the government did not raise its objection to the choice of grouping provisions in the court below.  Importantly, however, neither the district court’s decision to use a grouping provision, nor its selection of § 3D1.2(c) to accomplish that grouping, surprised the government.  Both in the PSR and in discussions during sentencing, the government had, and took, the opportunity to discuss and challenge the court’s decision to group the mail fraud and tax evasion charges.  The government failed, nonetheless, to attack the provision selected to accomplish the discussed grouping; it instead presents that objection on appeal.  Although the government had access to the provision it now asserts could have correctly grouped the charges, § 3D1.2(d), throughout the sentencing process (§ 3D1.2(d) in fact appears on the same page of the 2000 Guidelines as § 3D1.2(c)), the government did not attempt to explore alternative, more favorable, ways to group the counts until this appeal.  The fact that this Court had not yet issued its decisions in Petrillo and Fitzgerald approving the grouping of mail fraud and tax evasion counts under § 3D1.2(d) does not excuse the government’s failure to consider all available grouping provisions as possible alternative mechanisms.  We find that as the government had both the notice and opportunity necessary to raise its objection to the use of § 3D1.2(c) before the district court, this case is distinguishable from Sofsky, and our consideration of the government’s cross-appeal must be executed with the full rigor of traditional plain error review. 

     Traditional plain error analysis is a four-step process.  To establish plain error, the Court must find 1) an error, 2) that is plain, 3) that affects substantial rights.  See Jones v. United States, 527 U.S. 373, 389 (1999).  If an error meets these tests, the Court engages in a fourth consideration: whether or not to exercise its discretion to correct the error.  The plain error should be corrected only if it “seriously affects the fairness, integrity, or public reputation of judicial proceedings.”  Id. (internal quotation marks, brackets, and citation omitted).

a.  The district court’s use of § 3D1.2(c)

was in error.

 

     Although this Court has not previously addressed directly the choice between § 3D1.2(c) and § 3D1.2(d), this Court’s prior decision applying § 3D1.2(d) and the structure of the relevant Guidelines demonstrate that the district court’s use of § 3D1.2(c) was in error. 

     This Circuit has recently concluded that the offenses of fraud and tax evasion should be grouped under § 3D1.2(d).  See Petrillo, 237 F.3d at 125; Fitzgerald, 232 F.3d at 320.  The Court stated in Petrillo that, “both tax evasion and mail fraud follow offense level schedules that trigger substantially identical offense level increments based on the amount of loss.  Moreover, the offenses . . . [are] both frauds, [are] part of a single continuous course of criminal activity and involve[] the same funds.”  Petrillo, 237 F.3d at 125.  This Court concluded that while the tax evasion and fraud charges in Petrillo affected different victims, the distinction should not prevent grouping.  Id.  Fitzgerald also grouped tax evasion and fraud offenses under § 3D1.2(d).  The Fitzgerald court found that “the guidelines for offenses that are of the same general type apply tables that translate the amount of losses involved into specific offense level increases at exactly the same rate, and at exactly the same monetary division points,” and concluded that based on tax evasion’s and fraud’s similar offense level calculations, the counts should be grouped under § 3D1.2(d).  Fitzgerald, 232 F.3d at 320 (internal quotations and citation omitted).  Neither Petrillo nor Fitzgerald, however, involved a choice between § 3D1.2(c) and § 3D1.2(d).  Further analyzing the provisions to make the § 3D1.2(c) or § 3D1.2(d) determination in this case, the Court finds that, based on the language of the Guidelines, § 3D1.2(d) is the correct choice. 

 

     The introductory commentary to Chapter 3, Part D of the Guidelines Manual distinguishes two types of groupable offenses: (1) offenses whose guidelines “base the offense level primarily on the amount of money or quantity of substance involved (e.g., theft, fraud, drug trafficking, firearms dealing), or otherwise contain provisions dealing with repetitive or ongoing misconduct” for which the court should “add the numerical quantities and apply the pertinent offense guideline”; (2) offenses that are “closely interrelated,” meaning that they “are so closely intertwined with other offenses that conviction for them ordinarily would not warrant increasing the guideline range.”  U.S.S.G. ch.3, pt. D, introductory cmt.  

     Section 3D1.2's division of offenses reflects the commentary’s grouping distinctions.  In subsections (a), (b), and (c), § 3D1.2 describes the types of commonalities that make crimes so “closely interrelated” (type 2) that a single punishment would ordinarily govern the acts, i.e., (a) when the counts “involve the same victim and the same act or transaction,” (b) when the same victim is injured by two or more acts “connected by a common criminal objective or constituting part of a common scheme or plan,” or (c) when “one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts,” (i.e., single punishment already provided).  U.S.S.G. §§ 3D1.2(a),(b),(c).  Section 3D1.2(d) then refers to the introductory commentary’s first offense type, that for which an aggregation of harm is facilitated by incremental punishment based on quantity.  Section 3D1.2(d) notes several specific substantive guidelines to be grouped through its provision, including §2T1.1 (tax evasion) and § 2F1.1 (fraud).  U.S.S.G. § 3D1.2(d).

       Following the scheme outlined in Chapter 3, Part D’s introductory commentary and § 3D1.2, the next section, § 3D1.3, sets out two methods for designating the appropriate base offense level for each type of offense group.  One mechanism determines the base levels for offenses grouped under § 3D1.2(a)-(c), those offenses which can be treated under a single (albeit the highest) offense level because they have enough in common to be treated as one crime (§ 3D1.2(a)), have already compensated for the additional offenses within the guidelines themselves (§ 3D1.2(c)), or share a single scheme or plan (§ 3D1.2(b)).  U.S.S.G. § 3D1.3(a).  Section 3D1.3(b), recognizing the distinct structure of the punishment for § 3D1.2(d) offenses, creates a unique mechanism for these crimes by using the aggregate amount of money or drugs involved in the offenses to set the offense level for the grouped counts. 

     The structure of Chapter 3, Part D, through the introductory commentary, the grouping provisions of § 3D1.2, and the offense level mechanisms of § 3D1.3, repeatedly emphasizes the unique treatment afforded to offenses grouped because of the quantifiable nature of their harms.  Thus, even if this Court’s decisions in Fitzgerald and Petrillo do not require selection of § 3D1.2(d) when a district court is asked to choose between § 3D1.2(c) and § 3D1.2(d), the Guidelines suggest that crimes falling within the special category of quantifiable-harm offenses require treatment under § 3D1.2(d).  Based on a careful reading of the Guidelines, this Court finds that the district court erred by grouping Gordon’s counts under a provision that would allow the mail fraud and tax evasion counts to be considered as a single crime (§ 3D1.2(c)) rather than applying the provision that recognizes the Commission’s unique choices about monetary harms (§ 3D1.2(d)).

b. The district court’s error was plain.

     An error is “plain” if it is “clear” or “obvious” at the time of appellate consideration.  Johnson v. United States, 520 U.S. 461, 467-68 (1997).  In light of current case law indicating that mail fraud and tax counts “should” be grouped under § 3D1.2(d), Fitzgerald, 232 F.3d at 320, and the Guidelines’ structural segregation of quantifiable-harm crimes, the district court’s application of § 3D1.2(c) to mail fraud and tax evasion grouping, viewed from the perspective of this review, was clear and obvious error.

c.  The district court’s error affected

 substantial rights.

 

     An error affects “substantial rights” if the error is “prejudicial” and “affected the outcome of the district court proceedings.” United States v. Gore, 154 F.3d 34, 47 (2d Cir. 1998).  The ability to claim such a violation of rights is not limited to defendants.  United States v. Perkins, 108 F.3d 512, 517 (4th Cir. 1997).  Federal Rule of Criminal Procedure 52(b), allowing plain error review, does not limit the benefit of the rule to a particular party.  See Fed. R. Crim. P. 52(b).  In the words of Justice Cardozo, “justice though due to the accused, is due to the accuser also.”  Perkins, 108 F.3d at 517 (quoting Snyder v. Massachusetts, 291 U.S. 97, 122 (1934)).[5]   The error in this case, the use of § 3D1.2(c) rather than § 3D1.2(d), decreased Gordon’s total offense level by at least one, and possibly two, levels.  See note 3, supra.  Having grouped the counts under § 3D1.2(c), the district court then applied § 3D1.3(a), which provides that the resulting offense level for offenses grouped under § 3D1.2(c) will be the offense level for “the most serious of the counts comprising the Group, i.e., the highest offense level of the counts in the Group.”  U.S.S.G. § 3D1.3(a).  This produced a final sentencing range for Gordon of 97-121 months.  Had the district court applied § 3D1.2(d) to group the tax evasion and mail fraud counts, the district court would have calculated Gordon’s offense level under § 3D1.3(b), which sets the applicable offense level as “the offense level corresponding to the aggregated quantity” under “the offense guideline that produces the highest offense level.”  U.S.S.G. § 3D1.3(b).  This proper § 3D1.2(d) analysis would have created a sentencing range of at least 108-135 months and possibly 121-151 months.   

     The difference between a maximum possible sentence of 135 or possibly 151 months and a maximum possible sentence of 121 months is substantial, as is the difference between the 97 month minimum sentence imposed and the 108 or possibly 121 month minimum sentence that would have resulted from the correct application of the grouping provisions.  Thus, the district court’s application of § 3D1.2(c) rather than § 3D1.2(d) threatened the “substantial rights of the government and the people of the United States that [the defendant] be sentenced correctly in accordance with the legal principles of the sentencing guidelines.”  United States v. Barajas- Nunez, 91 F.3d 826, 833 (6th Cir. 1996).  Eough the government should and could have raised the issue below, the impact of the error on this public interest requires the Court to find that the error affects substantial rights.

d.  The Court should exercise its discretion

to correct the error.

 

     This Court should correct plain error only if it “seriously affect[s] the fairness, integrity, or public reputation of judicial proceedings.”  Jones, 527 U.S. at 389.  Other circuits have found that sentencing errors raised by the government on appeal require correction because failure to correct such errors may damage the reputation of the judicial system by allowing district courts to sentence without regard to the law, Barajas-Nunez, 91 F.3d at 833, allow similarly situated defendants to receive different sentences, id., or “frustrate the Guidelines’ goal of national sentencing uniformity,” Perkins, 108 F.3d at 517.  Circuits have chosen not to exercise their discretion to correct plain sentencing errors raised by the government on appeal, however, when refusal to remedy the error would provide a future incentive to the government to raise all available arguments below, United States v. Garcia-Pillado, 898 F.2d 36, 39-40 (5th Cir. 1990), disapproved in part on other grounds, United States v. Calverley, 37 F.3d 160, 163 (5th Cir. 1994), and when the difference in the length of the sentence imposed and the correct sentence was not significant enough to create a “miscarriage of justice,” United States v. Posters ‘n’ Things Ltd., 969 F.2d 652, 663 (8th Cir. 1992), aff’d 511 U.S. 513, 114 S.Ct. 1747 (1994).

     While the government should have pursued other possible grouping options below even in the absence of case precedent specifically highlighting the potential application of § 3D1.2(d), the damage done by allowing an inappropriate sentence to stand in Gordon’s case while refusing other similarly situated defendants the opportunity to fall within § 3D1.2(c) and § 3D1.3(a)’s less burdensome confines is too great to allow the error to remain uncorrected.  This is especially true gie relative ease of correcting the sentencing error on remand, thus accentuating the potential unfairness of allowing the district court’s error to stand.  This Court vacates and remands for resentencing under § 3D1.2(d).       

D.  Consecutive Sentences

     After concluding that the total punishment should be ninety-

seven months, the district court structured its sentence as follows: sixty months on counts 1-53, to run concurrently; 37 months on counts 54 and 55, to run concurrently with each other but consecutively to the sentences on counts 1-53; 37 months on counts 56 and 57, to run concurrently with each other and with counts 1-55; 36 months (the statutory maximum) on counts 59-61 and 66-68, to run concurrently with each other and with counts 1-57; and 97 months on count 69, the money laundering count (which carries a statutory maximum of 20 years, see 18 U.S.C. § 1956(a)(1)(B)), to run concurrently with counts 1-57, 59-61, and 66-68.  Although the district court’s use of consecutive sentences for counts 54 and 55 did not affect the aggregate sentence, Gordon alleges, and the Government does not dispute, that the use of consecutive sentences will affect his release date, perhaps because of the calculation of good time credits. 

     The correct method for structuring the sentence, where the total punishment exceeds the statutory maximums on some counts, is to impose the statutory maximum punishment on all such counts, impose the total punishment on the count with a statutory maximum higher than the total punishment, and run sentences consecutively only to the extent necessary to achieve the total punishment.  See U.S.S.G. § 5G1.2(b),(d); United States v. McLeod, 251 F.3d 78, 83 (2d Cir. 2001).  Thus, on remand, the district court should impose statutory maximum sentences on each of counts 1-53, 56-57, 59-61, and 66-68, impose on count 69 the sentence it selects as appropriate within the range resulting from grouping the fraud and tax offenses pursuant to § 3D1.2(d), and then run all sentences concurrently.  The sentences on counts 54 and 55, which carry ten-year maximums, will depend on whether the sentencing judge’s grouping decision yields a range of 108-135 months or a range of 121-151 months; if he selects the lower range and a total punishment of less than 120 months, then that total punishment should be imposed on counts 54 and 55, but if he selects the higher range, which has a minimum above 120 months, then the sentences on counts 54 and 55 should be the ten-year maximum.  In either event, the sentences on counts 54 and 55 should run concurrently with all other sentences.  

IV.

     This Court affirms as harmless error the district court’s refusal to consider potential but unclaimed deductions in the calculation of tax loss under U.S.S.G. § 2T1.1.  It vacates and remands, however, the district court’s use of U.S.S.G. § 3D1.2(c) rather than § 3D1.2(d) to group Gordon’s mail fraud and tax counts as challenged in the government’s cross-appeal and orders restructuring of the sentence as set forth in this opinion.  The remaining issues on appeal are affirmed by separate order.