United States of America, Plaintiff-appellee, v. Harold Hall Paslay, A/k/a Pat Paslay, Defendant-appellant, 971 F.2d 667 (11th Cir. 1992)

Harold Hall Paslay appeals his sentence for two of five counts of conviction. For the reasons that follow, we vacate his sentence on these counts and remand.

In 1986, appellant Paslay embarked on a bold scheme to defraud hundreds of people by selling them franchises in a "legal expense" insurance company. In the scheme, Paslay sold distributorships in American Legal Distributors, Inc. (ALD). The distributorships, which cost purchasers between $2,500 and $25,000, allowed the purchasers to direct market legal insurance policies to the public. In order to help secure investors, Paslay paid "singers" to provide potential investors with untrue testimonials regarding the profitability of ALD distributorships.

Through brochures placed in local stores, the distributors were to sell legal insurance policies directly to the public. ALD promised to pay the distributors a commission on the policies that they sold. The policies ostensibly provided policyholders with free or reduced-rate legal assistance through the Lawyer Access Network (LAN). Policyholders were told that the LAN consisted of attorneys throughout the nation who would provide legal assistance either free of charge or at a substantial discount.

Paslay's scheme soon collapsed. When distributors and policyholders attempted to access the LAN, they discovered that it was non-existent. Before the scheme came to an end, however, Paslay had sold at least 375 distributorships in over 30 states. Investors were defrauded of around $3.3 million.

On November 8, 1989, a federal grand jury indicted Paslay on thirty-four criminal counts relating to the ALD/LAN scheme. On December 12, 1989, Paslay pled not guilty to all counts. However, on April 25, 1990, pursuant to a plea bargain, Paslay changed his plea to guilty on the following five counts: count I, which alleged mail fraud in violation of 18 U.S.C.A. § 1341 (1984); count IV, which alleged transportation of stolen goods, securities, or money in violation of 18 U.S.C.A. § 2314 (West Supp.1992); counts XXVII and XXXII, which each alleged wire fraud in violation of 18 U.S.C.A. § 1343 (1984); and count XXXIV, which alleged a criminal conspiracy to commit mail fraud and wire fraud in violation of 18 U.S.C.A. § 371 (1966).

On July 25, 1990, the government mailed Paslay a copy of its presentencing memorandum, which recommended an upward departure from the sentencing guidelines in light of Paslay's past and continuing involvement in fraudulent schemes. On August 16, 1990, the district court sentenced Paslay. The lower court divided its sentencing between the three counts that arose prior to the guidelines and the two counts that ostensibly arose after the applicability of the guidelines.¹ 

The lower court imposed five year sentences for counts IV, XXVII, and XXXII, all of which related to activities occurring prior to the effective date of the sentencing guidelines. The sentences were to run consecutively with each other, for a total of fifteen years imprisonment, and concurrently with the sentences for counts I and XXXIV.

Regarding the counts ostensibly arising after the applicability of the sentencing guidelines, the lower court sentenced Paslay to thirty months imprisonment for count I, and to sixty months imprisonment for count XXXIV. The sixty and thirty month sentences were to run consecutively with each other but concurrently with the sentences for the pre-guidelines counts. In order to reach the ninety month total, the lower court departed from the guidelines by adding four points to Paslay's base offense level. The lower court justified its departure based on both the harm Paslay caused to his accomplices and Paslay's use of a weapon or dangerous instrumentality during the pendency of his scheme. See U.S.S.G. § 5K2.0 (general rule); id. at § 5K2.6 (weapon or dangerous instrumentality). Finally, the lower court sentenced Paslay to three years supervised release to follow his sentences, ordered him to pay $3.3 million in restitution,²  and imposed a $50 special assessment per count, for a total of $250 in special assessments.

In his direct appeal, Paslay argues that the lower court's upward departure from the sentencing guidelines was improper for two primary reasons. First, Paslay asserts that the lower court improperly relied on the "victimization" of his accomplices in making its four-level departure. Second, Paslay claims that he was not accorded proper notice of the lower court's grounds for departing from the guidelines under Burns v. United States, --- U.S. ----, ---- - ----, 111 S. Ct. 2182, 2186-87, 115 L. Ed. 2d 123 (1991). In addition, Paslay argues that the lower court abused its discretion by denying him a two-level reduction in offense level for acceptance of responsibility.

Paslay contends that the lower court's decision to add four points to his offense level was at least partly unauthorized by the guidelines. This Court employs a three-step test when evaluating a lower court's decision to depart from the guidelines. The first question is "whether the guidelines adequately consider a particular factor so as to preclude a district court from relying upon it as a basis for departure. We exercise de novo review of this question of law." United States v. Weaver, 920 F.2d 1570, 1573 (11th Cir. 1991). The second step is for the reviewing Court to examine the factual basis for the lower court's departure. Id. This review is limited to a search for "clear error." Id. Finally, if the first and second tests have been satisfied, this Court must make a de novo review of the "reasonableness" of the departure. Id.

A proper analysis of whether the lower court's upward departure was justified necessarily begins with an examination of the reasons proffered by the lower court for its departure. See id. In the case at bar, the lower court departed for two reasons: (1) "in effecting the scheme, violent behavior was utilized in that Mr. Paslay used an aluminum instrument, a baseball bat or hammer, to bash in Mrs. Mednick's [his corporate counsel] car ... and, on Mr. Paslay's instructions, one of his employees used a pistol to shoot and flatten one of Mrs. Mednick's automobile tires," and (2) some of the accomplices (the "singers") would not have become felons had Paslay not organized the scheme. Transcript, at 70-72. See also U.S.S.G. § 5K2.6 (use of weapon or dangerous instrumentality incident to crime); id. at § 5K2.0 (general statement regarding unguided departures--applicable to court's "victimization" of the accomplices rationale).

The sentencing court's reliance on the "victimization" of the singers was misplaced on the facts of this case. The guidelines provide for a four-level upward departure if a person is a "leader" or "organizer" of a criminal enterprise. U.S.S.G. § 3B1.1(a). The application notes to this provision provide that " [f]actors the court should consider include ... the recruitment of accomplices...." Id. at application note 3 (emphasis added). See U.S.S.G. § 3B1.1(a); Weaver, 920 F.2d at 1573. See generally United States v. Robinson, 898 F.2d 1111, 1118 (6th Cir. 1990) (§ 3B1.1(a) takes into account the use of an "intermediary" to commit a crime; consequently, sentencing court could not rely on defendant's use of an intermediary to justify an upward departure). Section 3B1.1(a)'s consideration of the "recruitment of accomplices" anticipates some degree of participation in the criminal activity by the accomplices. Moreover, a crime involving accomplices routinely will involve some level of "victimization," if by "victimization" one means that those recruited would not have become involved in a criminal enterprise and would have remained law-abiding citizens but for their recruitment.³  If a district court wishes to make an upward departure for the "victimization" of accomplices based on their recruitment, the victimization resulting from the recruitment must be of a kind or degree not inherent in their recruitment. See U.S.S.G. § 3B1.1(a); United States v. Sasnett, 925 F.2d 392, 398 (11th Cir. 1991); Weaver, 920 F.2d at 1573. In addition, the guidelines specifically take into account the exploitation of vulnerable victims. See U.S.S.G. § 3A1.1. Although the alleged "victims" in this case were also accomplices, we see no reason why fraud perpetrated on vulnerable accomplices could not be subsumed under this section. See generally United States v. Smith, 930 F.2d 1450, 1454-56 (10th Cir.) (applying section 3A1.1 to a person other than the direct victim of the crime of conviction), cert. denied, --- U.S. ----, 112 S. Ct. 225, 116 L. Ed. 2d 182 (1991). At the outset then, the district court's reliance on section 5K2.0 to support its "victimization" rationale must relate to "victimization" of a kind or degree not already subsumed within sections 3B1.1(a) or 3A1.1. Weaver, 920 F.2d at 1573.⁴ 

The government argues that section 3B1.1(a) does not take into account a scenario wherein the organizer "tricks" his accomplices into participating in a crime. Neither the government nor the district court considered the potential applicability of section 3A1.1. Assuming arguendo that an upward departure pursuant to section 5K2.0 for "victimization" of a kind or degree not comprehended by sections 3B1.1(a) or 3A1.1 would be proper, we find that the facts in this case do not establish "victimization" of a kind or degree sufficient to support an additional departure under section 5K2.0. The "victims"/accomplices in this case were the "singers": people who took money from Paslay to falsely represent to potential investors that they were happy, wealthy, distributors of Paslay's insurance products. In point of fact, the singers were not distributors and had no direct or actual knowledge of whether the distributorships that they were promoting had any value whatsoever. The astounding scope of the singers' lies regarding the quality of ALD investments belies any claim that they were mere innocents duped into participating in the scheme.⁵  Cf. United States v. Anderson, 895 F.2d 641, 642-44 (9th Cir. 1990) (where bona fide innocent dupe involved, dupe's participation improperly considered through section 3B1.1(a)), vacated and remanded, 942 F.2d 606 (9th Cir. 1991) (en banc). Thus, although the sentencing court's conclusion that the singers would not have participated in a fraudulent scheme had they not been recruited by Paslay may well be true, that observation does not justify a finding by this Court that the specific recruitment at issue in this case is not of the same sort expressly contemplated by section 3B1.1(a). Moreover, to the extent that victimization of particularly vulnerable persons is at issue, we fail to see how the victimization at issue differs from that already expressly considered in a potentially applicable guideline. See U.S.S.G. § 3A1.1 (praying upon vulnerable victims).

Because the guidelines provide adequate consideration of the recruitment of the "singers," the lower court's reliance on section 5K2.0 as a basis for an unguided upward departure was not permissible. See Sasnett, 925 F.2d at 398; Weaver, 920 F.2d at 1573. We do not foreclose the possibility of a sentencing court making an upward departure under section 5K2.0 based on the "victimization" of one's partners in crime. Rather, on the facts of this case, we have not found sufficient support in the record to remove the case from the compass of either sections 3A1.1 or 3B1.1(a). See generally United States v. Ponder, 963 F.2d 1506, 1509-10 (11th Cir. 1992).

The other reason proffered by the lower court to justify its upward departure from the guidelines--the use of a weapon or dangerous instrumentality--is entirely proper and is warranted in this case.⁶  The general guideline and offense characteristics for fraud do not take into account the use of a weapon or dangerous instrumentality, and the record shows that Paslay used a weapon or dangerous instrumentality incident to his crime. An upward departure of up to four levels would not necessarily be unreasonable on these facts. Weaver, 920 F.2d at 1573; U.S.S.G. § 5K2.6 (authorizing an upward departure for the use of a weapon or dangerous instrumentality). See also U.S.S.G. § 2F1.1 (guideline for fraud, which provides no special consideration for fraud involving the use of weapon or dangerous instrumentality); Sasnett, 925 F.2d at 395, 398 (approving an upward departure of 30 months under sections 5K2.2 and 5K2.5 on a sentence with a normal range of 24-30 months because of appropriate facts). The only problem the Court faces, then, is how to apportion the four-level increase between the two reasons proffered by the lower court. Because the record does not establish the relationship between the two reasons and the ultimate four-level departure,⁷  we conclude that a remand is necessary in order to allow the district court to either apportion the four-level increase (and omit the increase attributable to court's "victimization" rationale) or to explain why a four-level increase is appropriate under section 5K2.6 alone.⁸ 

Paslay claims that the lower court's upward departure pursuant to section 5K2.6 was improper because he did not receive advance notice of the court's intention to make an upward departure on the basis of this provision.

Paslay's sentencing hearing occurred in August 1990. In June 1991, the Supreme Court held that a sentencing court may not make an upward departure from the guidelines absent advance notice to the defendant. Burns v. United States, --- U.S. ----, ---- - ----, 111 S. Ct. 2182, 2186-87, 115 L. Ed. 2d 123 (1991).⁹  See also United States v. Cornog, 945 F.2d 1504, 1513 (11th Cir. 1991) (sentencing court must provide a defendant "notice and an opportunity to comment before it departs upward"). " [B]efore a district court can depart upward on a ground not identified as a ground for an upward departure either in the presentence report or in a prehearing submission by the Government, Rule 32 [of the Federal Rules of Criminal Procedure] requires that the district court give the parties reasonable notice that it is contemplating such a ruling." Burns, --- U.S. at ----, 111 S. Ct. at 2187. The Burns Court did not specify what constitutes a "reasonable" amount of time. Id. at ---- n. 6, 111 S. Ct. 2187 n. 6. However, in the case at bar, the district court provided Paslay with no time between its decision to contemplate an upward departure under section 5K2.6 and its announcement of the upward departure.¹⁰  This course of action is inconsistent with Burns.

To be sure, in Burns the sentencing court sua sponte decided to make an upward departure, at ---- - ----, 111 S. Ct. at 2184-85, whereas in the case at bar, the prosecutor suggested an upward departure based on section 5K2.6 at the sentencing hearing. Transcript, at 43-44, 71. However, this distinction is irrelevant to the application of Burns. Burns requires that pursuant to Fed. R. Crim. P. 32, criminal defendants be provided notice prior to the sentencing hearing of the specific grounds for any upward departure that a sentencing court is considering. Burns at ---- - ----, 111 S. Ct. at 2186-87. Just as in Burns, the criminal defendant in this case, Paslay, was put in the position of making an on-the-spot defense against a ground for an upward departure about which he had received no advance notice. On these facts, Burns is controlling. See id. See also United States v. Kalady, 941 F.2d 1090, 1096-97, 1101-02 (10th Cir. 1991) (applying Burns where presentence report did not adequately explain the particular recommended range for an upward departure). Although the government's sentencing memorandum did suggest an upward departure, it did not specifically suggest a departure based on section 5K2.6.¹¹ 

Finally, we note that Paslay did not object at the sentencing hearing to the lower court's decision to rely on section 5K2.6 based on a lack of prior notice. Nor has Paslay made a proffer as to how he was prejudiced by the lack of prior notice. Thus, it is unclear at this point whether Paslay actually suffered any prejudice from the lower court's failure to provide Burns notice. Rule 52(a) of the Federal Rules of Criminal Procedure instructs this Court to disregard errors that do not affect the "substantial rights" of the accused. Although the Burns Court did not expressly address the applicability of the harmless error doctrine to Burns violations, we see no reason why the harmless error rule would not apply with full force. Fed. R. Crim. P. 52(a); Arizona v. Fulminante, --- U.S. ----, ---- - ----, 111 S. Ct. 1246, 1263-66, 113 L. Ed. 2d 302 (1991); United States v. Lane, 474 U.S. 438, 448 n. 11, 106 S. Ct. 725, 731 n. 11, 88 L. Ed. 2d 814 (1986).¹²  The Supreme Court has repeatedly emphasized that Rule 52(a) is to be broadly applied. United States v. Mechanik, 475 U.S. 66, 71-72, 106 S. Ct. 938, 942-43, 89 L. Ed. 2d 50 (1986); Lane, 474 U.S. at 444-50, 106 S. Ct. at 729-32. We therefore hold that a Burns violation is subject to harmless error review.¹³  We also note that because the right to prior notice of the grounds for an upward departure implicates the due process clause of the Fifth Amendment, see Burns, --- U.S. at ----, 111 S. Ct. at 2187, the "harmless beyond a reasonable doubt" standard set forth in Chapman v. California, 386 U.S. 18, 22-24, 87 S. Ct. 824, 826-28, 17 L. Ed. 2d 705 (1967), applies to violations of Burns.¹⁴ 

Unfortunately, neither the appellant nor the appellee has addressed the potential applicability of the harmless error doctrine to this case. Moreover, our independent review of the record does not provide a clear answer as to whether the Burns violation at issue was "harmless beyond a reasonable doubt." Chapman at 24, 87 S. Ct. at 828. However, given the procedural posture of this case, we need not decide whether the error raised on appeal was harmless.

We have already determined that Paslay's sentence must be vacated and remanded for resentencing. See supra, part III(A). Because a remand is necessary on other grounds, we instruct the sentencing court to provide Paslay with the required Burns notice prior to resentencing him if the sentencing court wishes to make an upward departure on count XXXIV on a ground not previously specifically identified. See United States v. Pool, 937 F.2d 1528, 1531-32 (10th Cir. 1991). Simply put, in light of the need for resentencing on other grounds, we do not find it necessary to determine whether the lower court's initial failure to comply with Burns provides an independent basis for vacating the sentence. See id.

Section 3E1.1 allows sentencing courts to grant a two offense level reduction if the defendant has clearly accepted responsibility for his crime. U.S.S.G. § 3E1.1. This Court's review of a denial of a section 3E1.1 reduction is limited: "The district court is in a unique position to evaluate whether a defendant has accepted responsibility for his acts, and this determination is entitled to great deference on review." United States v. Pritchett, 908 F.2d 816, 824 (11th Cir. 1990). "Unless the court's determination is without foundation, it should not be overturned on appeal." Id. Consequently, this Court will overturn on appeal denials of the two point reduction only when the facts in the record clearly establish that a defendant has accepted personal responsibility. See United States v. Howard, 923 F.2d 1500, 1505 (11th Cir. 1991). The burden of proof on this issue is with Paslay; a defendant is entitled to the two-level reduction only if he "clearly demonstrates a recognition and affirmative acceptance of personal responsibility for his criminal conduct." U.S.S.G. § 3E1.1(a). See Howard, 923 F.2d at 1505.

Admittedly, this is a close question. Paslay pled guilty and cooperated with authorities. However, his probation officer testified that he did not seem at all remorseful. In addition, the lower court found that although Paslay had expressed regret, this expression was late in coming. Given the deference due to the lower court's finding in this matter, we decline to reverse the lower court's decision to deny Paslay the two-level reduction under section 3E1.1(a).

We VACATE Paslay's sentence on counts I and XXXIV and REMAND this case to the district court for further proceedings consistent with this opinion.