Downward departure from guidelines in fraud case erroneous

St. Louis Daily Record & St. Louis Countian, Apr 28, 2004 by Donna Walter

A federal trial court was too lenient on a Pittsburg, Kan., business owner who was found guilty of conspiring to commit bank fraud, wire fraud and mail fraud.

Although defendant Phillip O'Malley should have received a sentence of between 24 and 30 months in prison, according to the federal sentencing guidelines, the U.S. District Court for the Western District of Missouri sentenced him to three years of probation without any time in prison and ordered him to pay restitution in the amount of $459,047.02, a fine of $10,000 and a special assessment of $100.

Last Thursday, the 8th U.S. Circuit Court of Appeals vacated the sentence and told the District Court it could not depart from the sentencing guidelines.

Among the participants to the fraud were O'Malley, who owns Pittsburg Ford-Mercury Inc. and O'Malley Implement Co., which is a John Deere dealership, both in Pittsburg; and Sam's Club business development managers Paul Doyon of San Antonio, Texas, and Marc Lininger of Farmington, Ark.

In 1996, the three men agreed to a plan in which Doyon and Lininger would arrange for Sam's Club to buy Freon from one or more of O'Malley's businesses at inflated prices. In addition, they arranged transactions where one of O'Malley's companies would buy Freon from Sam's Club and sell it to another party at a higher price. O'Malley would give Doyon and Lininger kickbacks.

Doyon pleaded guilty and was sentenced to two years in prison. Lininger pleaded guilty and agreed to testify against O'Malley. U.S. District Judge Richard E. Dorr sentenced Lininger on March 3, 2003, the same day he sentenced O'Malley, to five years of probation, which included 150 hours of community service and three months of home detention. In addition, Lininger was ordered to pay a $5,000 fine and $459,047.02 in restitution. All three co-defendants were found jointly and severally liable.

At the sentencing hearing, O'Malley presented to the court a cashier's check for $459,047.02. His brief, submitted by Kansas City, Mo., attorneys James R. Hobbs and W. Brian Gaddy, makes a point of noting that the check was tendered to the court before the judge made his sentencing decision.

The restitution check - particularly the extraordinary lengths to which O'Malley had to go in order to obtain a bank loan for the restitution - is one of the reasons the district judge gave for the downward departure. Hobbs and Gaddy point out in their brief that O'Malley had to pledge close to a million dollars to get the loan.

But the 8th Circuit rejected the idea of allowing a downward departure from the sentencing guidelines based on the extensive borrowing efforts and financial commitment O'Malley had to make to get the loan.

We, too, recognize that O'Malley must have gone to great lengths to have a cashier's check for $459,047.02 readily available for tender at the sentencing hearing, wrote Senior Circuit Judge Theodore McMillian for the unanimous panel. However, to treat such efforts as warranting a downward departure from the guidelines would differentiate criminal defendants on the basis of their economic resources, which is clearly contrary to the intent of the sentencing guidelines.

Trial courts can grant downward departures for defendants who voluntarily make restitution payments, but the application note 1(c) to Section 3E1.1 of the U.S. Sentencing Guidelines states that restitution must have been paid prior to the adjudication of guilt. Despite the fact that O'Malley made the payment before his sentence was determined, he argued throughout the guilt phase of his trial that he didn't owe restitution because Sam's Club didn't suffer a real financial loss. O'Malley paid the restitution only after the district judge ruled on the amount of loss, said the court.

Under these circumstances, while O'Malley certainly had a right to dispute the amount of the loss to Sam's Club, his payment of restitution after his guilt was adjudicated and after the amount of the loss was determined did not qualify as acceptance of responsibility under the guidelines, much less a basis for downward departure, McMillian wrote.

The 8th Circuit further rejected O'Malley's reliance on U.S. vs. Oligmueller. In that 1999 case, according to Hobbs and Gaddy, the 8th Circuit recognized that extraordinary restitution may provide the basis for departures. But in the case at hand, the 8th Circuit distinguishes the extraordinary restitution efforts made by William Oligmueller from the efforts made by O'Malley by noting that Oligmueller began making restitution payments almost a year before he was indicted for bank fraud. Oligmueller's original debt was $894,000; through asset liquidation and a $28,000 cash payment, Oligmueller and his son brought the bank's total loss down to $58,000 by October 1998, when Oligmueller entered his guilty plea.

In contrast, O'Malley's restitution efforts were not extraordinary. And even though O'Malley's restitution payment relieved the co-defendants of their liability, it doesn't follow that his restitution efforts were extraordinary, said the court.