Friday, May 04, 2012

Signatories of trust fund account not in position of trust vis-a-vis the IRS for purposes of 3B1.3 sentencing guidelines enhancement.

In United States v. DeMuro, Nos. 11-1887, 11-1941 (3d Cir. April 23, 2012), the Third Circuit affirmed convictions of James and Theresa DeMuro for conspiracy to defraud the United States, and failure to turn over more than $500,000 in federal employment taxes collected from employees at their engineering company, much of which was spent on purchases from QVC and Home Shopping Network. But the Court remanded for resentencing because the District Court erroneously applied the two-level enhancement of U.S.S.G.
§ 3B1.3 for abuse of a position of trust.

The DeMuros challenged their convictions based on several evidentiary rulings admitting and excluding various evidence. None of the rulings seem remarkable, and so not surprisingly, the Court concluded that none were an abuse of discretion. That conclusion may have been inevitable in light of the additional red-flag argument that even if no single error alone would support relief, the cumulative effect of the rulings so infected the jury’s deliberations, etc. A very quick LEXIS check of the past 20 years found no cases in which the Third Circuit accepted that argument, which seems to be the appellate equivalent of a last-second Hail Mary pass from your own 1-yard line.

But what did find success (and presumably the reason the Court designated this case precedential) was the sentencing argument that the District Court erred in applying a two-level enhancement to the base offense level for abuse of position of trust, under U.S.S.G. § 3B1.3. The District Court applied the enhancement based on the DeMuros’ conduct with respect to the trust fund account imposed by the IRS, into which the DeMuros were obliged to pay company trust fund taxes within two days of withholding the taxes, but instead, withdrew from this account and closed it without IRS permission.

The Third Circuit ruled that the enhancement did not apply because the DeMuros did not satisfy any one of the three factors required for finding that they occupied a position of public or private trust, which requires considering: (1) whether the position allows the defendant to commit a difficult-to-detect wrong; (2) the degree of authority which the position vests defendant vis-a-vis the object of the wrongful act; and (3) whether there has been a reliance on the integrity of the person occupying the position. Although the Government argued that the error was harmless because the ultimate sentence happened to fall within the correct sentence range (i.e., as if calculated without the 3B1.3 enhancement), the Third Circuit refused to find harmless error where the calculated Guidelines range was erroneous.

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