UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
November 10, 1995
UNITED STATES OF AMERICA
ROBERT C. RUCH, JR.
The opinion of the court was delivered by: ROBRENO
AND NOW, this 10th day of November, 1995, upon consideration of the Government's Submission Regarding Rule 11(e)(1)(C) Plea (docket no. 34), the defendant's Memorandum in Support of Rule 11(e)(1)(C) Plea Agreement (docket no. 33), and after a hearing with counsel for the parties, it is hereby ORDERED that the parties' Rule 11(e)(1)(C) plea agreement is REJECTED for the following reasons:
I. Factual Background
1. On July 13, 1995, the defendant was charged in a five-count indictment with income tax evasion in violation of 26 U.S.C. §§ 7201 and 7206(1). On October 12, 1995, the defendant and the Government submitted a plea agreement to the Court in connection with a change-of-plea hearing that was scheduled for October 13, 1995.
2. In the plea agreement, the Government agreed to dismiss counts 1, 2, 4, and 5 of the indictment, in exchange for the defendant pleading guilty to count 3 of the indictment. The Government and the defendant also agreed that "this plea is entered under Rule 11(e)(1)(C), Fed.R.Crim.P. . . . [and that] the applicable tax loss is more than $ 20,000, but less than $ 40,000, resulting in an offense level of 10." See Plea Agreement, P 6.
In addition, the parties stipulated that the defendant would receive a two-level reduction for acceptance of responsibility. Using the 1990 Guidelines Manual, the Government and the defendant calculated that the defendant's total offense level would be 8, the criminal history category would be I, and the guidelines range would be 2-8 months of incarceration. Under the terms of the 1990 Guidelines Manual, a total offense level of 8 falls within Zone B. Thus, according to the plea agreement, the defendant would be eligible for a sentence involving a combination of conditions requiring intermittent confinement, community confinement, or home detention.
The Court heard the arguments of counsel on October 13, 1995, and took the matter under advisement.
II. The Court's Discretion
3. The Government argues that Section 6B1.1(c) of the United States Sentencing Guidelines prescribes the procedure that the Court should follow in deciding whether to accept or reject the proffered plea agreement. Section 6B1.1(c) provides that,
The Court shall defer its decision to accept or reject any nonbinding recommendation pursuant to Rule 11(e)(1)(B), and the Court's decision to accept or reject any plea agreement pursuant to Rules 11(e)(1)(A) and 11(e)(1)(C) until there has been an opportunity to consider the presentence report, unless a report is not required under § 6A1.1.
Section 6B1.1(c), United States Sentencing Guidelines (emphasis added). The Government contends that this language requires the Court to consider the presentence report before deciding whether to accept or reject the plea agreement, unlike when a plea agreement is proffered pursuant to Federal Rule of Criminal Procedure 11(e)(1)(B).
4. The mandatory language of Section 6B1.1(c), however, contradicts the permissive language of Rule 11(e)(2) of the Federal Rules of Criminal Procedure. Rule 11(e)(2) provides that, "if the agreement is of the type specified in subdivision (e)(1)(A) or (C), the court may accept or reject the agreement, or may defer its decision as to the acceptance or rejection until there has been an opportunity to consider the presentence report." Fed. R. Crim. P. 11(e)(2) (emphasis added). In other words, while Section 6B1.1(c) mandates that a court consider a presentence report before accepting or rejecting a plea agreement, the plain language of Rule 11(e)(2) yields to the discretion of the court whether to follow such a procedure.
5. "The Sentencing Commission promulgates [the sentencing] guidelines by virtue of an express congressional delegation of authority for rulemaking, see Mistretta v. United States, 488 U.S. 361, 109 S. Ct. 647, 654-58, 102 L. Ed. 2d 714 (1989), and through the informal rulemaking procedures in 5 U.S.C. § 553, see 28 U.S.C. § 994(x)." Stinson v. United States, 508 U.S. 36, 123 L. Ed. 2d 598, 113 S. Ct. 1913, 1919 (1993). Thus, the guidelines are the equivalent of legislative rules adopted by federal agencies, and the Commission's policy statements and commentary regarding the guidelines are akin to an agency's interpretation of its own legislative rules. Id. The guidelines as well as "the policy statements and commentary contained in the guidelines are binding on the federal courts." United States v. Holifield, 53 F.3d 11, 13 n. 2 (3rd Cir. 1995). When a particular guideline or the Commission's interpretation of that guideline violates the Constitution or a federal statute, however, the Constitution or statute obviously must be given "controlling weight." Stinson v. United States, 113 S. Ct. at 1918-19.
6. Chapter 6, Part B of the guidelines, entitled "Plea Agreements," contains several policy statements that provide standards for courts to use in deciding whether to accept or reject plea agreements. The Sentencing Commission itself acknowledges that Rule 11 of the Federal Rules of Criminal Procedure takes precedence over Chapter 6 of the guidelines. "The Commission decided not to make major changes in plea agreement practices in the initial guidelines, but rather to provide guidance by issuing general policy statements concerning the acceptance of plea agreements in Chapter 6, Part B (Plea Agreements). The rules set forth in Fed. R. Crim. P. 11(e) govern the acceptance or rejection of such agreements." See United States Sentencing Guidelines, Chapter 1, Part A(4)(c).
Thus, the Court concludes that Rule 11(e)(2) trumps Section 6B1.1(c), and that under Rule 11(e)(2), it has the discretion to accept or reject a plea agreement either before or after it considers a presentence report.
In this case, for the reasons set forth below the Court will reject the plea agreement before ordering the presentence report.
III. The Amount of the Tax Loss
7. The federal courts of appeal are divided regarding the issue whether a district court must expressly state its reasons for rejecting a plea agreement. Compare United States v. Miller, 722 F.2d 562, 566 (9th Cir. 1983) (court must expressly state reason for rejecting plea agreement) with U.S. v. Foy, 28 F.3d 464, 472 (5th Cir. 1994) (decision to reject a plea agreement is proper as long as the record as a whole renders the basis of the decision reasonably apparent to the reviewing court and a decision on that basis is within the district court's discretion). While the Third Circuit has not spoken on this issue, the Court believes that it is the better practice to set forth its reasons for rejecting plea agreements.
8. Upon a review of the plea agreement, the indictment and the supporting documentation proffered by the Government, the Court concludes that the amount of the loss agreed upon by the Government with the defendant, which would form the basis for determining the defendant's offense level, understates the amount of the loss caused by the defendant's conduct. If the Court concludes that accepting the plea agreement may result in too light a sentence to the defendant, it may reject such agreement. See U.S. v. Foy, 28 F.3d at 472 (quoting United States v. Bean, 564 F.2d 700, 704 (5th Cir. 1977) ("A decision that a plea bargain will result in the defendant's receiving too light a sentence . . . is a sound reason for a judge's refusing to accept the agreement."). The Court finds this to be the case here.
9. The Government calculates that the loss caused by the defendant's alleged tax fraud is $ 39,644.22. In reaching this total, contrary to the IRS's determination, the Government agreed that certain personal expenses such as carpeting, windows, and aluminum siding for the defendant's home, which he charged off to his corporation, were ordinary and necessary business expenses. See Government's Change of Plea Memorandum, at 5 n. 4. The Government also agreed that the defendant could take certain travel and entertainment deductions that the IRS had not allowed. See Government's Change of Plea Memorandum, at 7 n. 5. It is the Government's failure to include the disputed personal expense deductions in its calculation of the loss caused by the defendant's conduct that informs the judgment of the Court in its decision to reject the plea agreement.
10. The Government justifies the allowance of these deductions by arguing that, in criminal tax prosecutions, as a matter of policy, it does not criminally prosecute taxpayers for taking deductions about which there might be a legitimate dispute, and that the deductions at issue in this case fit that description. While it is not entirely clear what the effect of allowing the questionable deductions is in the calculation of the total offense level, even under the Government's version, at the very least, the plea agreement will effect the maximum sentence that the Court could impose on the defendant. See Government's Submission Regarding Rule 11(e)(1)(C) Plea (docket no. 34), at 2 ("The government notes that even if the Court disagrees with the parties' view of the tax loss, the effect of accepting the agreement will be to deprive the Court of the possibility of imposing a maximum sentence of 10 months imprisonment and limit it to a maximum of 8 months imprisonment.").
11. This is important because, in calculating the defendant's total offense level in this case, the United States Probation Office would not be bound by the Government's own prosecutorial policy. Rather, under the "relevant conduct" standard set forth in § 1B1.3 of the Guidelines, the defendant can be held accountable for improper deductions even if the Government chose not to criminally prosecute him for them. "The principles and limits of sentencing accountability under this guideline are not always the same as the principles and limits of criminal liability. Under subsections (a)(1) and (a)(2), the focus is on the specific acts and omissions for which the defendant is to be held accountable in determining the applicable guideline range, rather than on whether the defendant is criminally liable for an offense as a principal, accomplice, or conspirator." See U.S.S.G. § 1B1.3, Application Note 1.
12. Thus, since the plea agreement entered into by the Government and the defendant in this case would limit the Court's discretion to a level below that which could result from a calculation of the total offense level under the "relevant conduct" standard of Section 1B1.3, the Court will REJECT the plea agreement.
AND IT IS SO ORDERED.
EDUARDO C. ROBRENO, J.