C. Miller Letter of May 20, 1990
On May 20, 1990, Mr. Miller sent a cash call letter to the partners stating that the Douglas Street partnership needed a capital infusion. Def. Ex. 12. The letter included an itemization of "out-of-pocket" expenses totalling $ 30,629 that Mr. Miller had incurred from 1987 to 1990 in connection with the construction and development of the property for which he had not yet been reimbursed. The letter also contained a description of services that Mr. Miller and Martin Miller Properties were providing or had provided to the partnership. Over the course of the next three years, Mr. Miller apparently reimbursed himself for most of these expenses by writing checks to himself or to MMP from partnership bank accounts. Tr. at 171 (Miller testimony). At the hearing, defendant argued that these expenses were legitimately incurred and should be subtracted from the amount of loss.
The letter is strong evidence that the partnership agreements were understood by the partners to include overhead expenses as part of Mr. Miller's out-of-pocket expenses. According to Mr. Spikell's testimony, the letter was sent after the meeting at which expenses were discussed. Yet the partners did not respond to the letter or otherwise indicate that it contradicted their understanding. While Mr. Spikell asserts that he understood the letter's itemization of services to be mere puffery, the Court is convinced that Mr. Miller intended the letter to reflect his actual activities and expenses incurred thereby and that the partners were put on notice of his intent to take reimbursement for them. Mr. Miller therefore is entitled to these expenses for Douglas Street Associates.
In light of the plain language of the partnership agreements, the meeting and the May 20, 1990 letter, the Court finds that Mr. Miller was contractually entitled to reimbursement for overhead expenses in the management of the five victim partnerships. While the term "out-of-pocket expenses" may admit of some ambiguity, the surrounding circumstances establish that the partners and Mr. Miller intended expenses to include the overhead expenses needed to operate Mr. Miller's business on behalf of the partnerships. See Carey Canada, Inc. v. California Union Ins. Co., 708 F. Supp. 1, 4 (D.D.C. 1989) ("It is well settled that whether a contract term is ambiguous is a question to be determined by the trial judge.").
D. Legitimate and Illegitimate Expenses
Defendant has provided the Court with several figures representing Mr. Miller's allegedly legitimate expenses: $ 95,727 representing administrative expenses based on partnership tax returns; $ 30,629 representing uncollected expenses from Douglas Street Associates as reflected in the May 20, 1990 letter; and $ 59,579 in construction costs associated with Fifth Street Ventures which, because they were construction costs and not expenses for tax purposes, were not accounted for on partnership tax returns.
Although Mr. Miller was entitled to his expenses for running the properties, not all expenses are necessarily deductible from the amount of loss. Insofar as these expenses are attributable to overhead incurred by Mr. Miller's work for non-victim partnerships, they should not be subtracted from the amount of loss. In addition, any monies taken for personal or other illegitimate purposes, not related to the operation of the victim partnerships, should not be deducted from the amount of loss.
It is not entirely clear from the evidence presented to the Court which individual expense items or checks written were legitimate and which were illegitimate. It is further unclear what percentage of Mr. Miller's and Martin Miller Properties' time was spent on behalf of the five victim partnerships. See Tr. at 111. The amount of loss issue, however, is an enhancement of the base offense level, and as such the government bears the burden of proving the enhancement by a preponderance of the evidence. United States v. Salmon, 292 U.S. App. D.C. 184, 948 F.2d 776, 778-79 (D.C. Cir. 1991). Furthermore, the Court need not determine with precision the amount of loss but only make a reasonable estimate given the available information. U.S.S.G. § 2F1.1, comment.(n.8).
With respect to the expenses identified in the May 20, 1990 letter, by defendant's own testimony it appears that Mr. Miller reimbursed himself for at least some of these expenses and that those reimbursements would have been included in the Douglas Street tax returns for the years 1990-1993. Tr. at 171. The defendant's proffered estimation of $ 95,727 for Mr. Miller's expenses is also based on the partnership tax returns. As a result, some of the $ 30,629 to which Mr. Miller is entitled may already be accounted for by the $ 95,727 figure. Mr. Miller was unable to testify as to precisely how much of that amount he collected from the partnerships, however, and the government has presented no evidence on this point. Since the government has not met its burden on this issue, the Court will deduct some portion of the $ 30,629 amount from the total amount of loss.
Although Mr. Miller emphatically should not be permitted to use money taken for personal expenses, or expenses incurred on other projects, or double count expenses in order to reduce his sentence, the defense has provided sufficient information to establish that significant legitimate expenses were incurred. The government has not met its burden of showing that individual expense reimbursement checks written to Mr. Miller and to Martin Miller Properties were illegitimate, or that some determinate percentage of Mr. Miller's and MMP's time was spent on other projects, or that Mr. Miller is not entitled to the construction costs identified by defendant. Therefore, absent such a showing by the government, the Court accepts the evidence and representations presented by the defendant.
In sum, Mr. Miller is entitled to deduct from the amount of loss his overhead and administrative expenses ($ 95,727), some portion of the uncollected expenses from Douglas Street Associates itemized in the May 20, 1990 letter ($ 30,629), and construction costs incurred from Fifth Street Ventures ($ 59,579), for a maximum total of $ 185,935. The minimum total amount of loss would thus be $ 173,017 ($ 358,952 minus $ 185,935). The Court therefore finds that the amount of loss is between $ 173,017 and $ 200,000. Correspondingly, Mr. Miller's base offense level is enhanced by seven levels, not nine levels. U.S.S.G § 2F1.1(b)(1)(H).
III. ABUSE OF TRUST
Defendant offers two arguments against the imposition of a two-level enhancement for abuse of trust under U.S.S.G. § 3B1.3. First he argues that since his sentence is already being enhanced for "more than minimal planning" under U.S.S.G. § 2F1.1(b)(2), the imposition of an abuse of trust enhancement would penalize him twice for the same conduct. Defendant seeks to distinguish his case from United States v. Gottfried, 58 F.3d 648 (D.C. Cir. 1995), in which the D.C. Circuit imposed both abuse of trust and more than minimal planning enhancements.
The Court reads Gottfried to permit the imposition of both enhancements in this case. In Gottfried, the court reasoned that the underlying conduct -- multiple instances of document destruction and abuse of public trust -- were distinct and did not necessarily follow from one another. The court wrote:
It does not follow that because an individual holds a position of trust, he necessarily must engage in more than minimal planning when he . . . willfully removes or destroy[s] documents filed in a public office. If Gottfried, in a fit of frustration over his workload, had burned one of the case files assigned to him, the minimal planning enhancement doubtless would not have applied. And a person does not necessarily have to hold a position of trust to violate 18 U.S.C. § 2071 with more than minimal planning. If the night janitor systematically tampered with case files . . . he would deserve a planning enhancement but not an additional boost for abusing the sort of position Gottfried held.
58 F.3d 648, 653. The same logic applies in the case at bar. If Mr. Miller, in a fit of insecurity, had faxed a hurriedly altered bank statement to only one partner, the more than minimal planning enhancement might not have applied. Similarly, as defense counsel argued in open court, even if Mr. Ritter, who was the office bookkeeper and an employee of Mr. Miller's, had repeatedly faxed forged bank statements, he still would not be abusing the sort of position of trust held by Mr. Miller. The two enhancements address different aspects of Mr. Miller's conduct and thus do not constitute double counting.
Defendant also contends that Mr. Miller did not occupy the sort of position of trust covered by § 3B1.3 and that, even if he did, he did not abuse that position of trust "in a manner that significantly facilitated the commission or concealment of the offense." U.S.S.G. § 3B1.3. Defendant argues that he "wore two hats": one as a co-equal partner which carried with it a fiduciary duty to other partners, and one as manager which did not carry a similar duty, and that he engaged in the charged conduct while wearing the second hat. Defendant claims that there was no significant nexus between Mr. Miller's position of trust and the conduct for which he is charged.
The D.C. Circuit addressed the abuse of trust issue in United States v. West, 56 F.3d 216, 1995 U.S. App. LEXIS 14309 (D.C. Cir. 1995), and in United States v. Smaw, 306 U.S. App. D.C. 21, 22 F.3d 330 (D.C. Cir. 1994). In both cases the court declined to apply the abuse of trust enhancement because the nature of the defendants' activities was non-managerial or non-discretionary. In Smaw, the court noted that to "include a time and attendance clerk within the scope of positions 'characterized by professional or managerial discretion' the definition becomes so boundless as to be meaningless." United States v. Smaw, 22 F.3d at 332 (citations omitted). In West, the court concluded that defendant's "duties as a courier did not involve substantial professional or managerial discretion" notwithstanding the fact that the defendant was also the president of the courier company. United States v. West, 1995 U.S. App. LEXIS 14309, *13.
The Court finds that, unlike the defendants in West and Smaw, Mr. Miller occupied a position of professional and managerial discretion and that the nexus between his position and his illegal conduct was sufficiently significant to warrant the enhancement. As an initial matter, the partnership agreements contain almost no restrictions on Mr. Miller's discretion. They state in part:
10.2 The Managing General Partner shall be responsible for the day to day management of the Partnership and shall have such duties and responsibilities as may be assigned to him from time to time by the General Partners.
Indeed, as defense counsel has emphasized, Tr. at 10, Mr. Miller was far more than a mere manager; he was a full partner with an equity stake in the ventures and it was in this capacity that the other partners entrusted him with the partnership's affairs. See, e.g., United States v. West, 1995 U.S. App. LEXIS 14309, *20-*22 (Wald, J., dissenting) (arguing that defendant abused his position of trust not as a simple courier but as president of a courier company).
As a practical matter, Mr. Miller ran all partnership operations, he wrote checks from partnership accounts and he made discretionary decisions regarding development and construction, all in his capacity as managing partner. While the other partners had the right to inspect bank statements and other partnership records, these records were apparently kept in Mr. Miller's office and the partners relied almost exclusively on Mr. Miller's representations about the financial state of the partnerships. While it is true that the mere faxing of an altered bank statement could have been accomplished by someone who did not hold a position of trust, the partners' reliance on the faxed statement from Mr. Miller, the ensuing deception, and many of the other events charged in the original indictment also contribute to the abuse. See U.S.S.G. § 1B1.3 & comment.(n.1 & 6) (court may consider relevant conduct not charged in determining adjustments). The Court therefore finds that Mr. Miller abused a position of trust pursuant to U.S.S.G. § 3B1.3.
Mr. Miller's base level offense for fraud is six. The amount of loss is between $ 173,017 and $ 200,000 which enhances his sentence by seven levels. He engaged in more than minimal planning which adds two levels, and he abused a position of trust which adds another two levels, for a total of 17. He has accepted responsibility for his conduct which reduces his total by three levels for a final total of 14. As he has a Criminal History Category of I, the sentencing range is 15-21 months.
PAUL L. FRIEDMAN
United States District Judge