PER CURIAM:
Jody Alton Smith, Sr. (Smith) was convicted of numerous charges arising from his illegal liquor operation and his fraudulent receipt of Social Security Administration (SSA) funds. He was sentenced to forty-eight months' imprisonment. On appeal, three issues are presented: (1) whether the district court erred in denying Smith's motion to suppress; (2) whether there is sufficient evidence in the record to support Smith's conviction for the fraudulent receipt of SSA funds; and (3) whether the district court erred in calculating the tax loss for purposes of sentencing. We affirm.
In this part of the opinion, we first set forth the legal landscape and facts concerning Smith's illegal liquor operation, followed by the legal landscape and facts concerning his fraudulent receipt of SSA funds. We then set forth the relevant procedural history.
Any person can engage in the business of producing distilled spirits by obtaining a permit from the Alcohol & Trade Tax & Trade Bureau (TTB). 27 U.S.C. § 203(b). A person in the business of distilling spirits is required to, among other things, register the still or distilling apparatus, 26 U.S.C. § 5179, provide a bond covering the operation of the still or distilling apparatus,
The federal government imposes a tax on distilled spirits either produced in or imported into the United States.
Smith, with the help of several others, ran an illegal liquor operation on an eight acre piece of property (the Halifax Property or the Property) in Halifax County, Virginia. The Property had three structures on it: a single-wide trailer; a barn converted into a storage shed; and a building, which housed a still. The Property also had four video surveillance cameras which were used to monitor the Property.
In the summer of 2005, federal and state law enforcement agents began to investigate Smith's operation after receiving information from confidential informants. Eventually, the investigation centered on the Halifax Property. Land records showed that Dale Shrock sold the property to Danny Davis on January 17, 2003 for $20,000.00. Davis put 10% down, and Shrock financed the remainder through a deed of trust and a promissory note. In March 2004, Davis applied for building permits and other services on the land, giving the business address and phone number of a business owned by Smith called Smith's Auto Sales. With the assistance of Patricia Waldron, an employee of Smith's Auto Sales, Davis requested and received a $112.50 refund "for renewal of septic system" from the Halifax County Health Department. (J.A. 460). The refund was sent to the business address of Smith's Auto Sales.
On April 19, 2004, an electrical service account for the Halifax Property was established in the name of Rhonda Hall. The account was transferred to Margaret Smith, Smith's companion, on September 28, 2004. From April 2004 to December 2004, electrical use at the Property was "minimal." (J.A. 773). In December 2004, electrical use at the Property almost tripled. Electrical use stayed "consistently high" through May 2006. (J.A. 773). In January 2006, electrical use was more than eight times the use in November 2004.
In March 2005, Margaret Smith purchased the Halifax Property from Davis. According to Margaret Smith's accountant, Cynthia Hudgins, the purchase price was $11,568.00, which was the remaining balance on the promissory note.
In early 2006, law enforcement agents drove by the Halifax Property one evening and heard sounds consistent with liquor production. The law enforcement agents did not enter the Property because they saw video surveillance cameras there. As a result, on March 3, 2006, the agents installed a surveillance video recorder on land next to the Halifax Property to record the persons and vehicles arriving and leaving the Property. From March 3, 2006 to April 18, 2006, the surveillance video recorded Smith and several others arriving and leaving the Halifax Property. On April 18, 2006, the law enforcement agents discovered that their surveillance video recorder was missing.
On May 12, 2006, a search warrant was executed at the Halifax Property. In the building, the law enforcement agents found a partially dismantled still, four 1,200 gallon still pots, approximately 119 empty 100-pound bags of sugar, six full 100-pound bags of sugar, some bags of barley, numerous bags of yeast, and other things used in the distillery process, including liquor jugs, jug caps, fueling oil, an oil heater, cooling boxes, proofing barrels, and a sump pump.
On May 18, 2006, a search warrant was executed at Smith's residence. Numerous items consistent with illegal liquor trafficking were found, including liquor jugs, jug caps, hydrometers, a thermometer, and $70,000.00 in United States currency. The law enforcement agents also found a set of keys that fit the locks at the Halifax Property, including the building on the Property. In Smith's wallet, the law enforcement agents found a business card for "CKS Packaging" in Graham, North Carolina, and a handwritten note stating "NEPCO, Northern Plastic Corporation, 1902 New Butler Road, New Castle, Pennsylvania." (J.A. 918). The handwritten note also states "Cap style: 38mm tamper-evident caps." (J.A. 918). The law enforcement agents found a time-lapse video recorder, and they also found camera mounting equipment that had the same serial numbers as the video surveillance cameras found at the Halifax Property.
Also on May 18, 2006, a search warrant was executed at Smith's Auto Sales. During the search, Margaret Smith was interviewed by Bart McEntire, an ATF agent. During the interview, Margaret Smith stated that she agreed to take over Davis' payments on the promissory note because he "wanted to get out from under the loan" he had on the Halifax Property. (J.A. 516). According to Margaret Smith, she rented the property as a hunt club to "Mr. Jones." (J.A. 516). Margaret Smith had "no information on Mr. Jones whatsoever," except that "about every three months," she would meet him and collect $1,200.00 in rent. (J.A. 516). Out of the rent received, Margaret Smith paid the monthly electric bill and the property taxes on the Property.
At trial, the government built its case around the testimony of numerous witnesses, including Smith's codefendant, Jarman Johnson, who testified on behalf of the government. The government's evidence established that, from November 2005 to April 2006, under a variety of names (including "May's," "May's Deli," and "May's Diner," (J.A. 1395)), Smith purchased in twenty-two transactions a total of 124,100 pounds of sugar for $58,402.00 from William R. Hill & Company in Richmond, Virginia. The evidence further established that, from mid-2005 to April 2006, John Taylor purchased liquor from Smith on approximately ten occasions, buying fifty to sixty cases of liquor each time. Smith initially charged Taylor $80.00 per case, but increased the price to $90.00 to $95.00 per case when gas prices started to rise.
Johnson, who was a driver and still hand for Smith, testified that he purchased sugar from William R. Hill & Company, signing receipts in the name of "James Jones." (J.A. 632). In February 2006, accompanied by Johnson, Smith drove a tractor trailer to CKS Packaging in Haw River, North Carolina and purchased 12,000 liquor jugs.
At the still, Johnson worked with Smith and others. To make a batch of liquor, Johnson would put eleven 100-pound bags of sugar in each of four still pots, which yielded twenty-five to thirty cases of liquor per pot. Each case consisted of six liquor jugs. Afterwards, Johnson would load the liquor jugs into distribution trucks.
The SSA issues disability insurance payments to certain qualifying disabled persons. In order to qualify for disability insurance benefits, a person must establish that he suffers from a disability, which is defined as the "inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months." 42 U.S.C. § 423(d)(1)(A). If disability benefits are awarded, the SSA must periodically conduct continuing disability reviews. 20 C.F.R. § 404.1594.
A recipient of disability insurance benefits who returns to work first enters a "trial work period."
In 1999, Smith contacted the SSA to apply for disability insurance benefits. Richard Lowery, a claims representative with the SSA, talked to Smith by phone and explained the application process to him. Lowery expressly told Smith that he had to be sufficiently disabled such that he could not work, and that if he returned to work, that would affect the amount of his payments. Thereafter, Lowery sent a disability insurance benefits application form to Smith.
Smith submitted a written application for disability insurance benefits to the SSA based on his claim that he could not work due to his disabilities. Smith's application contained a specific provision that he had to notify the SSA if his condition improved or he returned to work. Smith stated that his disabilities had caused him to surrender his car business to his daughter in 1998. In 2001, the SSA approved Smith's application and awarded him $27,391.75.
In 2003, the SSA sent Smith a form entitled "Report of Continuing Disability" to determine whether Smith remained eligible for disability insurance payments. (J.A. 735). Smith completed and signed the form, and returned it to the SSA. On the form, Smith checked a box indicating that he had not worked. He also stated that he was still disabled due to shoulder, back, and leg problems. Smith explained that he was doing less due to pain and that he did very little walking or moving around.
In September 2003, by letter, the SSA notified Smith that he would receive disability insurance payments in the future. The letter also stated that a recipient of SSA payments had to notify the SSA if his condition improved or he returned to work.
In August 2006, Antonio Watkins, a claims representative with the SSA, received an anonymous report that Smith was self-employed. Watkins sent a letter to Smith and, after receiving no reply, tried to call Smith several times. Finally, Watkins reached Smith by telephone and was informed that Smith was not working and that his back problems had gotten worse. Referring to Watkins' letter, Smith reiterated that he had not worked since he had become disabled. Based on Smith's replies, the SSA continued to send disability insurance payments to Smith.
Watkins testified that, even if Smith had been entitled to collect disability insurance payments while working in a trial work period, Smith was overpaid by more than $10,000.00 because a trial work period is limited to nine months, but Smith worked for more than nine months, and his actual income would have caused a substantial reduction in his disability insurance payments.
On March 13, 2008, a federal grand jury sitting in the Western District of Virginia charged Smith and six others in a thirty-two count superseding indictment. Smith was charged in thirty-one of the thirty-two counts. In Count One, Smith was charged with conspiracy to produce untaxed liquor, 18 U.S.C. § 371 (Count One). In Counts Two through Eight, he was charged with interstate travel or communication to promote trafficking in untaxed liquor,
Prior to trial, Smith pleaded guilty to the obstruction of justice count (Count Thirty-One), and the district court dismissed, on the government's motion, the witness tampering count (Count Thirty-Two). At the conclusion of the trial, Smith was convicted of the remaining counts pending against him. Prior to sentencing, the district court granted Smith's motion for judgment of acquittal on the counts related to money laundering (Counts Thirteen to Twenty-Eight). At sentencing, the district court sentenced Smith to forty-eight months' imprisonment. This timely appeal followed.
Smith first argues that the district court erred when it denied his motion to suppress based on violations of the Fourth Amendment. The Fourth Amendment guarantees "[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures." U.S. Const. amend. IV. "[T]he underlying command of the Fourth Amendment is always that searches and seizures be reasonable."
The facts concerning Smith's Fourth Amendment argument are not in dispute. On March 1, 2006, Senior Special Agent Jay Calhoun of the Virginia Department of Alcohol and Beverage Control entered a piece of land in Pittsylvania County owned by Smith. He entered the land, which was located approximately fifty miles from the Halifax Property, without a warrant. Upon entry, he saw an unhitched tractor trailer that Agent Calhoun believed belonged to Smith. The tractor trailer was "a good distance from any structure, hundreds of yards from any structure." (J.A. 318). The tractor trailer had a new inspection sticker decal with an expiration date of February 2007. The tractor trailer was locked and closed, but there was an open gap in the rubber stripping at the right-hand corner of the tractor trailer. From outside the tractor trailer, Agent Calhoun pointed a flashlight in the open gap, enabling him to see that there were liquor jugs inside the tractor trailer. His ability to observe the liquor jugs at that time apparently was impaired because pallets of liquor jugs were flush with the tractor trailer's door, limiting his field of vision.
During the night of March 9, 2006, Agent Calhoun went back to the tractor trailer, again without a warrant. This time, there were wooden pallets outside the tractor trailer. Because the door opening was no longer blocked, Agent Calhoun was able to more fully observe the inside of the tractor trailer. He stuck a two-foot "carpenter's scope" through the crack in the rubber stripping of the tractor trailer and saw some liquor jugs inside, but they appeared to have been restacked since his March 1 visit. (J.A. 364).
In the district court, Smith raised Fourth Amendment arguments concerning both the March 1 and March 9, 2006 entries onto his land in Pittsylvania County, as well as the March 9 search of the tractor trailer. The district court rejected these arguments. Of relevance here, the district court first held that Agent Calhoun's warrantless entries onto Smith's land did not implicate the Fourth Amendment because Smith's land was an "open field." Second, the district court held that Agent Calhoun's view of the interior of the tractor trailer with a flashlight on March 1 was not a Fourth Amendment search because Agent Calhoun did not physically enter the locked tractor trailer. Third, the district court held that Agent Calhoun's insertion of the carpenter's scope into the tractor trailer on March 9 was a search, but it was justified under the "automobile exception" to the Fourth Amendment's warrant requirement because the tractor trailer was a vehicle and Agent Calhoun had probable cause to believe that it contained evidence of illegal liquor trafficking. Fourth, the district court characterized any impact on Smith's Fourth Amendment rights as a result of Agent Calhoun's actions as
On appeal, Smith first takes issue with the district court's ruling that the Pittsylvania County land constituted an "open field." In
In
Applying these factors, it is clear that the district court did not err when it concluded that the land in Pittsylvania County was an open field. There is no evidence that the land was near the curtilage of a home or that there were any domestic uses for the land. In addition, there is no indication in the record that Smith took meaningful steps to prevent this land from being observed. The land must be characterized as an open field and, therefore, Smith cannot challenge either Agent Calhoun's March 1 or March 9, 2006 entry onto his land in Pittsylvania County.
Smith also argues that Agent Calhoun's shining of the flashlight into the open gap in the rubber stripping of the tractor trailer on March 1, 2006 constituted an illegal search.
Police officers do not conduct a search under the Fourth Amendment when, stationed in a place where they have a right to be, they observe objects in plain view, or use a flashlight to illuminate the area where the object is located.
Smith's challenge to Agent Calhoun's use of the carpenter's scope on March 9, 2006 is equally without merit. Initially, we note that the government concedes that Agent Calhoun's use of the carpenter's scope constituted a warrantless search.
An established exception to the warrant requirement is the "automobile exception."
In
Following Carney, courts have applied that case to travel trailers,
In
In this case, the automobile exception applies to the tractor trailer on the land in Pittsylvania County. The tractor trailer clearly was inherently mobile, and counsel for Smith conceded at oral argument that the tractor trailer could be moved by simply attaching a cab to the tractor trailer. Moreover, the recent unloading activity at the tractor trailer suggested that it might be moved when all of the liquor jugs were unloaded. In short, embracing Smith's position here would contravene the sound reasoning of both
The remaining question is whether Agent Calhoun had probable cause to conduct the search on March 9, 2006. Probable cause exists "where the known facts and circumstances are sufficient to warrant a [person] of reasonable prudence in the belief that contraband or evidence of a crime will be found."
At the time Agent Calhoun inserted the carpenter's scope into the tractor trailer, he had probable cause to believe that evidence of illegal liquor trafficking was in the tractor trailer. Agent Calhoun knew that liquor jugs are commonly used to transport illegal liquor; he had seen multiple liquor jugs inside the tractor trailer on March 1; he heard evidence of illegal liquor manufacturing at the Halifax Property before March 9; and he believed that individuals had unloaded some liquor jugs from the tractor trailer between March 1 and March 9 because the liquor jugs had been reconfigured inside the tractor trailer, and there were loading pallets outside the tractor trailer on March 9. Such facts would lead a reasonably prudent person to believe that "contraband or evidence of a crime [would] be found."
In sum, we hold the district court did not err when it rejected Smith's Fourth Amendment arguments.
Next, Smith challenges the sufficiency of the evidence supporting his conviction for fraudulent receipt of SSA funds under 18 U.S.C. § 641. We review challenges to the sufficiency of the evidence
To be convicted under § 641, the government must prove beyond a reasonable doubt that: (1) the money described in the indictment belonged to the United States or an agency thereof; (2) the defendant stole, fraudulently received, or converted the money to his own use; and (3) the defendant did so knowingly with intent to deprive the government of the money.
At trial, the government firmly established that Smith violated § 641 because he worked while collecting SSA disability insurance payments based on his fraudulent claim that he could not work because he was disabled. Smith was informed, and therefore knew, that he was supposed to notify the SSA if his condition improved or he returned to work. Not only did Smith fail to notify the SSA that he was working at his illegal liquor business, but he also falsely told Watkins that he was not working. Such evidence is sufficient to support his conviction.
Finally, Smith challenges his sentence. We review a sentence imposed by the district court under the deferential abuse-of-discretion standard, regardless of whether the sentence imposed is inside, just outside, or significantly outside the Guidelines range.
On April 14, 2009, at the government's urging, the district court held a sentencing hearing to determine the tax loss. Such determination was critical because the tax loss would establish Smith's base offense level under § 2T2.1 of the United States Sentencing Guidelines (USSG). Robert Kehoe, an investigator with the TTB, was the only witness who testified at the hearing.
Investigator Kehoe prepared three tax loss estimates: (1) $217,795.50; (2) $320,045.85; and (3) $555,984.00. The tax loss estimates were based in part on the trial evidence, Investigator Kehoe's professional experience, and an "Alcohol Yield Formula" (AYF).
Investigator Kehoe's maximum loss estimate assumed that the still on the Halifax Property functioned at full capacity from November 2004 to May 2006, and relied on Johnson's trial testimony that the still used 4,400 pounds of sugar for each weekly run. Application of the AYF yielded 41,184 proof gallons of distilled spirits and a tax liability of $555,984.00.
Investigator Kehoe's middle loss estimate was based on the conclusion that Smith obtained an "undocumented quantity" of sugar from "other sources" during a "middle period" of the still's operation. (J.A. 1388). Investigator Kehoe reasoned that the significant reductions in Smith's sugar purchases during this middle period, when compared to other evidence that the still was operating in high gear during this same period, only could be explained by concluding that Smith was obtaining sugar from another sources. Investigator Kehoe's application of the AYF to the middle loss estimate yielded 182,362 pounds of sugar, 23,707.10 proof gallons of distilled spirits, and $320,045.85 of tax loss.
Investigator Kehoe's minimum loss estimate was based on the documented sugar purchases between November 2004 and May 2006 from William R. Hill & Company. Application of the AYF to the known 124,100 pounds of sugar purchased yielded 16,133 proof gallons of distilled spirits and a tax loss of $217,795.50.
Following the hearing, the district court accepted Investigator Kehoe's minimum tax loss estimate of $217,795.50 because it was based on the sugar purchase records admitted at trial and utilized a reliable methodology to determine the tax loss. The district court also concluded that the AYF was reasonable given the lack of records of the actual distilled spirits produced. The district court rejected Investigator Kehoe's maximum estimate because it was unrealistic to assume that the still was always operating at maximum capacity, and rejected Investigator Kehoe's middle estimate because it was not based on documented sugar purchases.
Consistent with the district court's ruling on the tax loss issue, a Presentence Investigation Report (PSR) was prepared by a United States Probation Officer. Because the tax loss was more than $200,000.00 and no more than $400,000.00, Smith's base offense level was 18, USSG § 2T4.1(G). His base offense level was increased four levels for his leadership role in the offense,
At sentencing, the district court adopted the PSR's findings and recommendations. Prior to imposing sentence, the district court heard from counsel, as well as from Smith, concerning the appropriate sentence. After considering the advisory sentencing range, as well as the factors set forth in 18 U.S.C. § 3553(a), the district court sentenced Smith to forty-eight months' imprisonment due to his age and physical condition.
Smith's challenge to the district court's tax loss calculation is premised on the argument that it was procedurally unreasonable for the district court to base its calculation on the documented purchases of sugar from William R. Hill & Company. Smith posits that there was no evidence that Smith purchased any sugar from the company. Consequently, the tax loss calculation should have been based on the known liquor purchases made by Taylor—approximately 3,000 gallons of liquor.
USSG § 2T2.1 provides that the tax loss is the amount of taxes that the taxpayer "failed to pay or attempted not to pay." USSG § 2T2.1(a). The base offense level for USSG § 2T2.1 is calculated by reference to the Tax Table in USSG § 2T4.1. USSG § 2T2.1(a). Under the Guidelines, the tax loss is "determined by the same rules applicable in determining any other sentencing factor." USSG § 2T1.1, comment. (n.1). "In some instances, such as when indirect methods of proof are used, the amount of the tax loss may be uncertain; the guidelines contemplate that the court will simply make a reasonable estimate based on the available facts."
The district court's finding that the tax loss was $217,795.50 is not clearly erroneous. The district court reasonably relied on the records of sugar purchases and the AYF to determine the amount of untaxed liquor produced by the still because detailed records of Smith's actual production amounts were unavailable. Moreover, the district court was at liberty to reject Smith's contention that the still did not produce illegal liquor prior to November 2005 by crediting the circumstantial evidence demonstrating that Smith actively participated in the conspiracy during the time alleged and went to great lengths to mask his participation in the conspiracy and his relationship to the Halifax Property. The district court took the most conservative view of the evidence in accepting Investigator Kehoe's lowest tax loss estimate, and we cannot take issue with this prudent approach in calculating the tax loss.
For the reasons stated herein, the judgment of the district court is affirmed.
