Free Order on Motion to Preclude - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Robert E. Blackburn Criminal Case No. 04-cr-00103-REB-05 UNITED STATES OF AMERICA, Plaintiff, v. 5. JANNICE MCLAIN SCHMIDT, Defendant.

ORDER DENYING DEFENDANT'S ORAL MOTION TO PRECLUDE BREACH OF THE PLEA AGREEMENT Blackburn, J. The matter before me is defendant's oral motion made in open court on February 1, 2008, to preclude breach of the plea agreement. I deny the motion. Pursuant to her written plea agreement with the government, defendant entered pleas of guilty on May 5, 2006, to the substantive crimes1 charged in counts one and two of a three-count Superseding Information,2 and was sentenced on August 25, 2006, to a term of imprisonment of 108 months. On appeal, the Tenth Circuit vacated that sentence and remanded for further proceedings in accordance with its order and

Specifically, defendant pled guilty to two counts of securities fraud and aiding and abetting the same in violation of 15 U.S.C. §§ 77q(a)(1) and 77x and 18 U.S.C. § 2, as charged in Count 1 and Count 2 of the Superseding Information [#747] filed May 5, 2006. Defendant also entered an admission to Count 3, which is a count of criminal forfeiture under 18 U.S.C. §§ 981, 1956, and 1961, and 28 U.S.C. § 2461.
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judgment.3 (See United States v. Schmidt, 244 Fed.Appx. 902, *908, 2007 WL 2285859 (C.A.10 (Colo.)). Critical to the sentencing of all remaining defendants4 is a determination of loss under USSG §2B1.1(b)(1) and relevant conduct under USSG §1B1.3(a).5 I held an evidentiary hearing to address those, and all related issues, including restitution and forfeiture, on February 1, 4, and 5, 2008. Near the conclusion of the first day of hearing on February 1, 2008, defendant made the instant oral motion, arguing that the government would impermissibly breach the plea agreement by attempting to expand the relevant conduct attributable to defendant beyond the facts to which she stipulated expressly in the plea agreement. Subsequently, defendant submitted a written brief in support of her motion. (See Memorandum in Support of Defendant McLain Schmidt's Motion To Preclude Breach of the Plea Agreement [#1453], filed February 3, 2008.) After hearing oral argument relevant to the issues raised by and inherent to the motion on February 4, 2008, I took the motion under advisement and received the government's subsequent evidentiary submissions regarding the amount of loss and relevant conduct attributable

Although de novo resentencing is required on remand, see United States v. Ortiz, 25 F.3d 934, 935 (10th Cir. 1994), I must determine, inter alia, the timing, nature and extent, if any, of defendant's involvement in the fraud perpetrated by other codefendants and entities other than Smitty's, e.g., Capital Holdings, Monarch Capital Holdings, the Northwestern Group, etc. See United States v. Schmidt, 244 Fed.Appx. 902, *907, 2007 WL 2285859 (C.A.10 (Colo. 2007)(". . . whether [defendant] participated in the fraud perpetrated through entities other than Smitty's"). Including defendant, McClain Schmidt, and four codefendants, Schmidt, Weed, Lewis, and Smith, who were convicted of various crimes after trial by jury. I have consulted the United States Sentencing Commission, Guidelines Manual (Nov. 2002) to eschew ex post facto issues. See USSG §1B1.11(b)(1), including comment. (n.2).
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to defendant as an offer of proof, subject to defendant's motion and objections. I now deny defendant's oral motion and overrule the concomitant evidentiary objections. Under the now-advisory United States Sentencing Guidelines, a defendant may be held responsible for relevant conduct, which includes "all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant," see USSG §1B1.3(a)(1)(A), and "in the case of a jointly undertaken criminal activity (a criminal plan scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy), all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity," see USSG §1B1.3(a)(1)(B), "that occurred during the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense," see USSG §1B1.3(a)(1). See also United States v. Knox, 124 F.3d 1360,1365 (10th Cir.1997). The government seeks to charge the defendant with relevant conduct on and after January 11, 2002, which is the date of the offense of conviction in Count 1 of the Superseding Information. Contrastingly, the defendant contends that the plea agreement contains an implied promise by the government not to charge her with relevant conduct occurring before the spring of 2003.6 See United States v. Scott, 469 F.3d 1335, 1338 (10th Cir. 2006) (government breached implicit promise not to argue for sentencing factors other than those specifically set forth in plea agreement).

Specifically, defendant argues that she stipulated to only the facts in the plea agreement, which ". . . facts support, at best, the fact that she joined the conspiracy in the Spring of 2003." Defendant's Memo at 5.

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In order to determine whether a breach of a plea agreement has occurred, I "1) examine the nature of the promise; and 2) evaluate the promise in light of the defendant's reasonable understanding of the promise at the time of the guilty plea." United States v. Guzman, 318 F.3d 1191, 1195-96 (10th Cir. 2003). "General principles of contract law define the government's obligations under the agreement, looking to the express language and construing any ambiguities against the government as the drafter of the agreement."7 Id. at 1195. To determine whether the government has breached the plea agreement, I must rely on the express language in the agreement to identify the nature of the government's promise, if any, and defendant's reasonable understanding of that promise at the time of the entry of the guilty plea. United States v. VanDam, 493 F.3d 1194, 1199 (10th Cir. 2007), cert. denied, ­ S.Ct. ­, 2008 WL 59789 (Jan. 7, 2008); see also United States v. Rodriguez-Delma, 456 F.3d 1246, 1250 (10th Cir. 2006), cert. denied, 127 S.Ct. 1338 (2007). Finally, I must apply the ordinary rules of contract construction, which require, inter alia, that if possible, I construe all relevant provisions together to give all of them coherent meaning: [i]n the absence of evidence to the contrary, plea agreements-like contracts-are construed to render each term lawful. See RESTATEMENT (SECOND) OF CONTRACTS § 203(a) (1979) ("[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.") & id. at § 207 ("In choosing among the reasonable meanings of a promise or agreement or a term thereof, a meaning that serves the public interest is generally preferred.").

Although not argued or proved, the parties proceeded as if the government drafted the plea agreement. I too indulge that assumption for purposes of this ruling.

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United States v. Singleton, 165 F.3d 1297, 1303 n.1 (10th Cir.) (en banc) (Lucero, J., concurring), cert. denied, 119 S.Ct. 2371 (1999). Thus, I must deconstruct and construe the plea agreement in a way, if possible, that gives coherent meaning to all relevant provisions. The provisions of the parties' plea agreement that are implicated by defendant's motion are as follows. First, under the heading of "Stipulation of Factual Basis and Facts Relevant to Sentencing," the plea agreement provided relevantly as follows: III. STIPULATION OF FACTUAL BASIS AND FACTS RELEVANT TO SENTENCING 11. The statement of facts herein does not preclude either party from presenting and arguing, for sentencing purposes, additional facts or factors not included herein which are relevant to the guideline computation (§1B1.3) or to sentencing in general (§ 1B1.4). Nor is the Court or Probation precluded from the consideration of such facts. In "determining the factual basis for the sentence, the Court will consider the stipulation [of the parties], together with the results of the presentence investigation, and any other relevant information." (§6B1.4 Comm.) 12. The parties agree that the government's evidence would show that the date on which conduct relevant to the offense (§1B1.3) began is approximately the fall of 2001. 13. The parties agree that the government's evidence would be: FACTS RELATING TO THE SCHEME TO DEFRAUD . . . McLain Schmidt continued to assist in the operation of Smitty's, including soliciting investors, maintaining investor accounts, and preparing and sending monthly statements to investors which falsely represented the status of the investment, up to and until the execution of various search and seizure warrants stemming from the investigation of this case on March 7, 2003. She also participated in soliciting investments through and sending monthly statements to investors in other entities, including Rocky Mountain Sports Promotions, LLC. During this period, McLain Schmidt became aware that 5

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investors' funds were not being deposited into non-depleting accounts, were not being used for the purpose represented to investors (see information related to Count 2 below), and that no trading of MTNs had taken place. See Plea Agreement And Statement Of Facts Relevant To Sentencing at 3-5, ¶¶ 11-13 [#750], filed May 5, 2006. Next, under the heading of "Sentencing Computation," the plea agreement provided relevantly as follows: IV. SENTENCING COMPUTATION 15. The parties understand that the Court may impose any sentence, up to the statutory maximum, regardless of any guideline range computed, and that the Court is not bound by any position of the parties. (§6B1.4(d)) The Court is free, pursuant to §§ 6A1.3 and 6B1.4, to reach its own findings of facts and sentencing factors considering the parties' stipulations, the presentence investigation, and any other relevant information. (§6B1.4 Comm.; §1B1.4) 16. To the extent the parties disagree about the sentencing factors, the computations below identify the factors which are in dispute. (§6B1.4(b)) New Facts which arise or are discovered may cause a party to change its position with regard to guideline computations or sentencing. The government's estimated guideline application for Counts 1 and 2 is set forth below. The defendant disagrees with these computations. B. The government contends that the following specific offense characteristic enhancements apply: a 24-level enhancement because the loss was more than $50,000.00, §2B1.1(b)(1)(M), a 6-level enhancement because the offense involved 250 or more victims, §2B1.1(b)(2)(C), and a 2-level enhancement because the offense involved sophisticated means, §2B1.1(b)(9)(C). ******** The preliminary guideline range resulting from the estimated offense level of (E) above, and the tentative criminal history category of (F) above, is 210-262 months. The guideline range would become 120 months due to the applicable statutory maximums and U.S.S.G. §5G1.1(a). 6

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See id. at 7-9, ¶¶ 15-16. Finally, under the heading of "Why the Proposed Plea Agreement Is Appropriate," the plea agreement provided, V. WHY THE PROPOSED PLEA DISPOSITION IS APPROPRIATE 17. The parties believe the sentencing range resulting from the proposed plea agreement is appropriate because all relevant conduct is accounted for, all pertinent sentencing factors are addressed, and the resulting sentencing range serves the interests of justice. See id. at 9, ¶ 17. Any reasonable construction of the plea agreement should include a harmonious use and reconciliation of the foregoing inextricably interrelated provisions. Defendant argues that any attempt by the government to introduce evidence of loss and relevant conduct prior to the spring of 2003 constitutes a breach of the plea agreement. However, the premise of defendant's argument is belied by the plain, unambiguous language of the plea agreement. Section III of the plea agreement is entitled "Stipulation of Factual Basis and Facts Relevant to Sentencing." Paragraph 13 describes the evidence that the government would have presented had the case proceeded to trial. The recitation of facts generally relevant to the scheme to defraud contained in paragraph 13 asserts that defendant became the bookkeeper for Smitty's in the fall of 2001 and that "[a]t or about the same time, [she] began to solicit investors in the Smitty's high-yield investment program and to receive commissions for persons whom she brought into the program." It continues: McLain Schmidt continued to assist in the operation of Smitty's, including soliciting investors, maintaining investor accounts and preparing and sending monthly statements to investors which falsely represented the status of the investment, through the execution of various search and 7

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seizure warrants stemming from the investigation of this case on March 7, 2003. . . . During this period, McLain Schmidt became aware that investors' funds were not being deposited into non-depleting accounts, were not being used for the purposes represented to investors (see information related to Count 2 below), and that no trading of MTNs [medium term notes] had taken place. See Plea Agreement And Statement Of Facts Relevant to Sentencing at 5, ¶ 13 [#750], filed May 5, 2006 (emphasis added). The pivotal sentence is the final one emphasized above. More precisely, the introductory prepositional phrase, "during this period," is key. Despite the government's qualified concession to the contrary at oral argument, I do not find this phrase at all ambiguous given the context in which it is used. The use of the term "period" entails a range of dates implicit in the recitation of facts that preceded it. In reviewing that antecedent factual synopsis, the plea agreement avers that defendant first became involved with Smitty's, both in an administrative role and as an active solicitor of investors, in the fall of 2001. Defendant acknowledged that she continued in these roles "through the execution of various search and seizure warrants stemming from the investigation of this case on March 7, 2003." See id. These are the only two dates set forth in the general factual statement of paragraph 13 immediately preceding the pivotal phrase. Thus, the operative "period" clearly is the time within the range of dates between the fall of 2001 and March 7, 2003. Accordingly, it was during this period that defendant, in accepting the plea agreement and entering her pleas of guilty, acknowledged and admitted she became aware of the fraudulent nature of the scheme. Other related language within the plea agreement buttresses my interpretation

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of the critical prepositional phrase, "during this period." First, the starting point of the period defined by paragraph13 is consistent with and supported by the language of paragraph 12 of the plea agreement, which states that "[t]he parties agree that the government's evidence would show that the date on which conduct relevant to the offense (§1B1.3) began is approximately the fall of 2001." Paragraph 11 also clearly puts defendant on notice that "[t]he statement of facts herein does not preclude either party from presenting and arguing, for sentencing purposes, additional facts or factors not included herein[.]" (Id. at 3-4, ¶ 11)8 In addition, the plea agreement made plain that the government intended to argue for a 24-level enhancement based on a loss of more than $50,000,000. (Id. at 8, ¶ 16.B.) All of these related sections and provisions suggest strongly that defendant would have expected reasonably that the government would argue that relevant conduct attributable to her would pre-date the spring of 2003. Moreover, the period defendant advocates as marking the commencement of her culpable knowledge ­ the spring of 2003 ­ is not supported by the language of the plea agreement. Only three such dates within that time frame appear in paragraph 13: first, the date on which the search warrants were executed (March 7, 2003); second, the date on which Cliff Seigneur invested in Smitty's (March 21, 2003); and 3) third, the
Defendant argues that this language is undercut by paragraph 17 of the plea agreement, which provides that "[t]he parties believe the sentencing range resulting from the proposed plea agreement is appropriate because all relevant conduct is accounted for[.]" (Plea Agreement at 9, ¶ 17.) Putting aside the fact that paragraph 17 is boilerplate required by the Local Rules of this District (see D.C.COLO.LCrR 11.1C & Appendix J), I agree with the government that the fact that relevant conduct may be "accounted for" by the plea agreement does not mean that all relevant conduct is specifically delineated therein or agreed to by the parties. If I accepted defendant's proposed construction, then, in fairness, I would be constrained to apply the balance of the paragraph, which provides, to the detriment of the defendant, "for, all pertinent sentencing factors are addressed, and the resulting sentencing range serves the interests of justice." Id. In turn, the "resulting sentencing range" is 210-260 months capped by law at 120 months. Id. at 9, ¶ 16.H.
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date on which defendant and Norman Schmidt met with Seigneur to ask him to renegotiate his original investment in Rocky Mountain Sports Promotions (May 20, 2003). However, the first date, March 7, 2003, is clearly used to define the end of defendant's participation in Smitty's, not the beginning of her culpable knowledge. (See id. at 5, ¶ 13.) The other two dates, which relate specifically to Count 2 of the Superseding Information, are so structurally distant from the general factual statement containing the reference to the relevant period that no reasonable reading of the plea agreement could import them into that definition.9 Defendant's proposed interpretation of the relevant provisions of the plea agreement is inconsistent with the actual language of the plea agreement and myopically renders many of the relevant provisions, e.g., paragraphs 11, 12, 16.B. & H., and 17, useless, irrelevant, inconsistent, or nonsensical, which is a result contrary to the applicable and ordinary rules of construction: Therefore, interpreting the plea agreement as the government urges renders part D superfluous, which is obviously not in accord with general principles of contract law. See RESTATEMENT (SECOND) OF CONTRACTS § 203(a) (1979) ([A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms [of an agreement] is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect); New Valley Corp. v. United States, 119 F.3d 1576, 1580 (Fed. Cir.1997) (An interpretation that gives a reasonable meaning to all of [the contract's] parts is preferred to one which leaves a portion of the [contract] inoperative, void, meaningless, or superfluous.); see also United States v. Bunner, 134 F.3d 1000, 1006 n. 5 (10th Cir.) (We will not construe a statute in a way that renders words or phrases

Moreover, although the general factual statement of paragraph 13 does refer parenthetically to Count 2, the placement of the parenthetical in the middle of a series of clauses within the sentence convinces me that the reference is meant to describe but one aspect of defendant's culpable knowledge, and not to tether that knowledge only to Count 2.

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meaningless, redundant, or superfluous.), [cert. denied, 119 S.Ct. 81 (1998).]. United States v. Brye, 146 F.3d 1207, 1211 (10th Cir. 1998). Contrastingly, my exegesis uses and reconciles in a reticulated way all relevant provisions of the plea agreement. This interpretation is supported by a logical reading of the entire agreement and is consistent with the two standards of preference in contract interpretation found in § 203 of the RESTATEMENT (SECOND) OF CONTRACTS (1981). See United States v. Ailsworth, 899 F.Supp. 511, 519-20 (D. Kan. 1995). For these reasons and based on the inextricably interrelated provisions and language of the plea agreement, I find and conclude ultimately that the plea agreement does not include a promise ­ express or implied ­ by the government not to charge her with relevant conduct occurring before the spring of 2003, and that at the time defendant executed her plea agreement and entered her pleas of guilty, she should have expected reasonably that the government would seek to introduce evidence at sentencing of relevant conduct going back as far as the fall of 2001. Therefore, it would not constitute a breach of the plea agreement for the government to proffer such evidence in support of its arguments regarding the amount of loss and relevant conduct properly attributable to defendant. Accordingly, defendant's motion must be denied, and her objections to the government's exhibits based on the arguments inherent to the motion likewise should be overruled. THEREFORE, IT IS ORDERED as follows: 1. That defendant's oral motion to preclude breach of the plea agreement made

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in open court on February 1, 2008, and subsequently detailed in her Memorandum in Support of Defendant McLain Schmidt's Motion To Preclude Breach of the Plea Agreement [#1453], filed February 3, 2008, is DENIED; and 2. That defendant's objections to Government Exhibits 4, 10, 11, 12, 13,14, and 15 are OVERRULED insofar as those objections are based on the contention that the government's proffer of such evidence constitutes a breach of defendant's plea agreement, and that those exhibits are converted from offers of proof to evidence. Dated February 13, 2008, at Denver, Colorado. BY THE COURT: s/ Robert E. Blackburn Robert E. Blackburn United States District Judge

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