United States of America v. Mark Arlin Hammerschmidt

Mark Arlin Hammerschmidt (Mark) pleaded guilty to two counts of conspiracy

to defraud the United States in violation of 18 U.S.C. § 286 and was sentenced to 135

months’ imprisonment. Ornella Angelina Hammerschmidt (Ornella) pleaded guilty

to one count of making false claims for refunds in violation of 18 U.S.C. § 287 and

was sentenced to 48 months’ imprisonment. The Hammerschmidts appeal from their

sentences. Mark argues that the district court erred in calculating his offense level and

his criminal history points. Ornella argues that the district court erred in calculating

her offense level and in imposing a sentence above the range set forth in the United

States Sentencing Guidelines Manual (Guidelines or U.S.S.G.). Because the district

court did not make the findings required to increase Mark’s offense level for being a

manager or supervisor and because it should not have assessed criminal history points

for a 2008 purged disposition of civil contempt, we vacate Mark’s sentence and

remand for resentencing. We affirm Ornella’s sentence.

I. Background

This case involves two schemes to obtain fraudulent tax refunds from the

United States Department of the Treasury through the Internal Revenue Service (IRS).

The first scheme involved the Hammerschmidts’ providing accounting and tax

preparation services through their businesses, American Group and Liberty Tax. They

also offered immigration services, with Ornella Hammerschmidt falsely claiming that

she was an attorney.

1The Honorable Richard W. Goldberg, Judge, United States Court of

International Trade, sitting by designation.

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From January 2011 through February 2013, the Hammerschmidts completed

income tax returns for taxpayers in Florida and Minnesota, many of whom were

immigrants who did not speak English. The Hammerschmidts reported false

information on the returns to qualify the taxpayers for additional refunds. The false

information included incorrect filing statuses, false household-help income, fictitious

businesses and business losses, and fraudulent tax credits. The taxpayers were not

aware that the Hammerschmidts were making false statements on their returns.

Ornella sometimes signed the returns on behalf of the taxpayers, and American Group

did not always provide clients with copies of their returns. The Hammerschmidts did

not identify themselves on the returns as paid tax preparers.

Most of the refunds were deposited directly into a bank account managed by the

Hammerschmidts, who thereafter deducted fees and remitted partial refunds to the

taxpayers. All told, the first scheme involved twenty-two federal tax returns that

claimed more than $95,000 in fraudulent refunds, on which the IRS paid out more

than $45,000. The first scheme also involved Minnesota tax returns that claimed

$110,000 in fraudulent refunds, on which the Minnesota Department of Revenue

suffered no identifiable actual loss.

In the second scheme, Mark conspired with others to file false federal income

tax returns on behalf of Guatemalan citizens (the Guatemalan conspiracy). From 2010

until February 2012, co-conspirators provided Mark with identifying information of

Guatemalan citizens, which he used to obtain individual taxpayer identification

numbers. Mark then filed fraudulent federal income tax returns for multiple tax years

in the names of the Guatemalan citizens, none of whom resided or worked in the

United States. The refunds were sent to addresses or deposited in bank accounts

associated with Mark. Mark filed more than five hundred of these fraudulent federal

tax returns, claiming approximately $1.8 million in fraudulent refunds, on which the

IRS paid out $1,787,621.

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A federal grand jury returned a thirty-seven count indictment. Counts 1 through

23 charged Mark and Ornella with offenses related to the first scheme. Counts 24

through 37 charged only Mark and related to the second scheme.

Mark pleaded guilty to the two counts of conspiracy to defraud the United

States (counts 1 and 24), and Ornella pleaded guilty to one count of making a false

claim for refunds (count 18). While released on bond pending sentencing, the

Hammerschmidts violated a condition of their release by participating in the

preparation of tax returns. Ornella helped another tax preparer complete a fraudulent

tax return for an undercover agent, who posed as a tax client. The district court placed

Mark on location monitoring with home confinement and revoked Ornella’s release,

concluding that Ornella’s “egregious violation of her conditions of release and her

involvement in advising the undercover agent to file a fraudulent tax return support

a determination that her release must be revoked.” D. Ct. Order of Apr. 19, 2016.

The district court determined that Mark’s total offense level was 31, that his

criminal history category was III, and that his advisory sentencing range was 135 to

168 months’ imprisonment. To impose a sentence of 135 months’ imprisonment, the

district court sentenced Mark to the statutory maximum term of imprisonment of 120

months on each count, see 18 U.S.C. § 286, with 105 months on count 24 to be served

concurrently with count 1 and the remaining 15 months to be served consecutively.

The district court determined that Ornella’s total offense level was 16, that her

criminal history category was II, and that her advisory sentencing range was 24 to 30

months’ imprisonment. The district court varied upward from the Guidelines

sentencing range and imposed a 48-month sentence.

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II. Mark Hammerschmidt

Mark argues that the district court erred by applying the aggravating role

adjustment set forth in Guidelines § 3B1.1(b) and increasing his offense level by 3 for

being a manager or supervisor in the Guatemalan conspiracy. He contends that the

adjustment applies only if he managed or supervised at least one other participant, a

fact that the government failed to prove by a preponderance of the evidence. The

government maintains that the adjustment was appropriate because Mark exercised

management responsibility over the activities of the Guatemalan conspiracy, even if

he did not exercise control over another participant. We review de novo the question

whether the government was required to prove that Mark managed or supervised at

least one participant in the Guatemalan conspiracy. See United States v. Reid, 827

F.3d 797, 800-01 (8th Cir. 2016) (“We review the district court’s interpretation of the

sentencing guidelines de novo and its factual findings for clear error.”).

Guidelines § 3B1.1 instructs the district court to increase the defendant’s

offense level if the defendant served as an organizer, leader, manager, or supervisor

in committing the offense. There has long been confusion about whether a defendant

must exercise some degree of control over another participant to qualify as an

organizer, leader, manager, or supervisor for purposes of § 3B1.1. To resolve a split

that had developed among the courts of appeals, the United States Sentencing

Commission adopted Amendment 500 in 1993. U.S.S.G. app. C, amend. 500; see

United States v. McFarlane, 64 F.3d 1235, 1237 (8th Cir. 1995) (noting the circuit

split and citing cases). The amendment added the following application note to

§ 3B1.1:

To qualify for an adjustment under this section, the defendant must have

been the organizer, leader, manager, or supervisor of one or more other

participants. An upward departure may be warranted, however, in the

case of a defendant who did not organize, lead, manage, or supervise

another participant, but who nevertheless exercised management

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responsibility over the property, assets, or activities of a criminal

organization.

U.S.S.G. § 3B1.1 cmt. n.2. The note thus clarified that a § 3B1.1 adjustment was

appropriate only if the defendant had organized, led, managed, or supervised another

participant. See United States v. Fones, 51 F.3d 663, 668 (7th Cir. 1995) (“[T]his note

now requires that a defendant have control over at least one participant of the criminal

activity in order to be subject to a sentencing enhancement under § 3B1.1.”); United

States v. Capers, 61 F.3d 1100, 1110 (4th Cir. 1995) (“[A]n enhancement (as opposed

to an upward departure) is the appropriate vehicle only for those defendants who

controlled people.”).

We conclude that for the § 3B1.1(b) adjustment to apply, the government was

required to prove that Mark managed or supervised another participant in the

Guatemalan conspiracy. See United States v. Padilla-Pena, 129 F.3d 457, 470 (8th

Cir. 1997) (“If the evidence does not support the finding that [the defendant] managed

or supervised other participants, then her offense level could only be increased by

means of a departure and not by means of an adjustment.”); see also United States v.

Irlmeier, 750 F.3d 759, 764 (8th Cir. 2014) (“[W]e have always required evidence that

the defendant directed or procured the aid of underlings.”) (quoting United States v.

Rowley, 975 F.2d 1357, 1364 n.7 (8th Cir. 1992)). Because the district court did not

determine whether Mark managed or supervised another participant in the Guatemalan

conspiracy, we must remand the case. See United States v. Musa, 830 F.3d 786, 788-

89 (8th Cir. 2016) (“[W]e remand the case to provide the district court the opportunity

to clarify whether [the defendant] organized or led at least one other participant, and

to identify what evidence in this record supports that finding.”).

We are not persuaded by the government’s argument that a footnote from

United States v. Gaines allows us to uphold the application of the § 3B1.1(b)

adjustment to Mark’s offense level. 639 F.3d 423, 428-29 n.4 (8th Cir. 2011).

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Although the Gaines footnote concluded that proof of control over another participant

was not necessary to sustain a § 3B1.1 adjustment, it did not cite or otherwise address

§ 3B1.1 application note 2. Moreover, to the extent that the Gaines footnote conflicts

with our earlier precedent, e.g., United States v. Pena, 67 F.3d 153, 156-57 (8th Cir.

1995); McFarlane, 64 F.3d at 1237-38, we are bound by the decisions of the panels

that predate Gaines.2 See Owsley v. Luebbers, 281 F.3d 687, 690 (8th Cir. 2002) (per

curiam) (“It is a cardinal rule in our circuit that one panel is bound by the decision of

a prior panel.”).

Mark next argues that the district court erred in determining his criminal history

category. He contends that he should not have received criminal history points for a

purged sentence for contempt that did not result in an adjudication of guilt or a

definite sentence. The government agrees and has requested resentencing. We review

de novo this issue of law. See Reid, 827 F.3d at 800-01 (standard of review).

In 2008, Mark was sentenced to “[s]erve 60 days in jail, with a purge of $1,500”

for contempt of court, a misdemeanor, in the Orange County, Florida, Domestic

Relations Court. Mark did not remember being charged with contempt, but believed

that he likely was past due on child support payments. During the sentencing hearing,

Mark proffered that he had paid the $1,500 purge amount and served only an hour in

jail. The district court accepted those representations as true. Over Mark’s objection,

2The footnote in Gaines relied on a statement in United States v. Brown, 311

F.3d 886, 890 (8th Cir. 2002), that “[w]e will uphold this enhancement if the

defendant controlled at least one other participant in the drug trafficking offense.”

Our holding in Brown, however, was that the district court did not clearly err in

finding that the defendant was an organizer, in light of evidence that he had organized

cross-country transport and delivery of drugs and had “paid operatives . . . to serve in

supporting roles.” Id. at 891 (citing U.S.S.G. § 3B1.1 cmt. n.2; Pena, 67 F.3d at 157

(“The guidelines only require that [the defendant] supervised ‘one or more other

participants’ to trigger this enhancement.”)).

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however, the district court added 2 criminal history points for the contempt

disposition. Those 2 points raised his criminal history category from II to III.

Guidelines § 4A1.1(b) instructs the district court to add 2 points “for each prior

sentence of imprisonment of at least sixty days.” A “prior sentence” is defined as a

“sentence previously imposed upon adjudication of guilt . . . for conduct not part of

the instant offense.” U.S.S.G. § 4A1.2(a)(1). Sentences for misdemeanor offenses

of “contempt of court” or of “non-support” are counted under § 4A1.1 only in certain

circumstances, including if the sentence was a term of imprisonment of at least thirty

days. U.S.S.G. § 4A1.2(c)(1).

Mark’s contempt disposition does not meet the definition of “prior sentence”

because he purged his contempt by paying $1,500. Imprisonment in a case of civil

contempt “is intended to coerce the defendant to do the thing required by the order.”

Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 442 (1911). The term of

imprisonment is indefinite because the defendant can “end the sentence and discharge

himself at any moment by doing what he had previously refused to do.” Id. Here,

Mark was behind in child support payments. Presumably, his arrest and hour-long

imprisonment were intended to coerce him to pay. When he did pay the past-due

amount, he purged his contempt and ended his sentence. Accordingly, he was never

adjudicated guilty, and he did not receive a definite sentence. Because the contempt

disposition was not a “sentence previously imposed upon adjudication of guilt,” see

U.S.S.G. § 4A1.2(a)(1), Mark should not have received the disputed criminal history

points. See United States v. Pratt, 351 F.3d 131, 139-40 (4th Cir. 2003) (concluding

that the defendant’s six-month sentences for contempt were properly awarded criminal

history points because the sentences “were ‘for a definite period’ and could not be

purged by any affirmative act”).

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III. Ornella Hammerschmidt

Ornella argues that the district court erred when it applied Guidelines

§ 2T1.4(b)(1)(B) and increased her offense level by 2 for being “in the business of

preparing or assisting in the preparation of tax returns.” Ornella claims that she “only

occasionally or sporadically” assisted her husband in the preparation of tax returns and

that the government presented no evidence that she profited from her assistance.

Appellant Ornella’s Br. 20. The record, however, belies these claims.

As part of the factual basis for her plea agreement, Ornella admitted that she

and Mark operated a tax preparation business that they used to prepare and file more

than 1,000 federal income tax returns. Ornella served as the vice president of the

business, and it is undisputed that the business collected fees for its services.

Moreover, Ornella continued to assist in the preparation of tax returns after she was

indicted in this case. Ornella’s conduct falls squarely within the application note that

explains that § 2T1.4(b)(1)(B) “applies to persons who regularly prepare or assist in

the preparation of tax returns for profit.” U.S.S.G. § 2T1.4 cmt. n.2.

Ornella next argues that the district court erred in relying on “victim impact”

as a reason for varying above the Guidelines sentencing range. According to Ornella,

“[t]he district court did not elaborate on why victim impact was a basis for the upward

variance, but [Ornella] contends the court relied on erroneous facts to support the

variance.” Appellant Ornella’s Br. 26. On plain error review, she essentially asks us

to assume that the district court relied upon erroneous facts to support the variance.

See United States v. Phelps, 536 F.3d 862, 865 (8th Cir. 2008) (“If a defendant fails

to timely object to a procedural sentencing error, the error is forfeited and may only

be reviewed for plain error.”). This we will not do.

The district court did not err in finding that Ornella’s conduct had a serious

impact on her victims. Ornella helped prepare and file fraudulent federal income tax

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returns on behalf of tax and immigration clients. She made false statements on those

returns to obtain fraudulent refunds. Ornella also falsely claimed to be an attorney

who specialized in immigration, and she charged clients for immigration services that

she did not provide. The conspiracies caused the IRS to suffer monetary loss. During

the sentencing hearing, three victims spoke of the havoc wreaked in their lives

because of the fraudulent tax returns that Mark and Ornella had filed for them and

because of the errors that Mark and Ornella had made in their immigration cases. The

government read a statement by a fourth victim. The record thus supports the district

court’s decision to rely on “victim impact” as a reason to vary above Ornella’s

Guidelines sentencing range.

We likewise find no plain error in the district court’s reliance on Ornella’s

criminal history as a reason to vary above the Guidelines sentencing range. Ornella

contends that the Guidelines adequately addressed her criminal history, but “[w]e have

held that a district court may impose an upward variance based on facts already

included in the advisory sentencing guidelines where the advisory guidelines do not

fully account for those facts.” United States v. Fiorito, 640 F.3d 338, 352 (8th Cir.

2011) (alteration in original) (quoting United States v. Jones, 509 F.3d 911, 914 (8th

Cir. 2007)). Ornella began defrauding the government as early as 2002. Although the

schemes varied, she continued to engage in fraudulent conduct until she was

incarcerated. The district court adequately explained its reasons for the variance:

The court has varied upward from the guidelines range because of

defendant’s continued course of fraudulent conduct dating back to 2002.

And as set forth in the presentence report, this is defendant’s second

federal conviction for fraud-related conduct and the fourth-charged fraud

offense. Further, although not charged with a crime for such conduct,

the PSR establishes that between 2010 and 2014 defendant posed as an

immigration attorney and charged immigration clients for services not

provided. And, finally, the defendant committed the instant offense

while on probation for another federal fraud conviction.

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Sent. Tr. 30-31. Ornella’s reliance on Guidelines § 4A1.3, Departures Based on

Inadequacy of Criminal History Category, is misplaced. The district court did not

depart on the basis of § 4A1.3, but rather varied from the Guidelines sentencing range

after considering the sentencing factors set forth in 18 U.S.C. § 3553(a). See U.S.S.G.

§ 1B1.1 (setting forth the procedure to determine a defendant’s sentence); see also

Irizarry v. United States, 553 U.S. 708, 714 (2008) (“‘Departure’ is a term of art under

the Guidelines and refers only to non-Guidelines sentences imposed under the

framework set out in the Guidelines.”).

Finally, we do not address Ornella’s argument that the district court erred by

denying a mitigating role adjustment under Guidelines § 3B1.2. Ornella conceded the

argument in her reply brief. See Appellant Ornella’s Reply Br. 5. Nor do we address

the additional arguments that Ornella raised for the first time in her reply brief and in

a pro se document that she filed with the court on October 30, 2017. See United

States v. Williams, 796 F.3d 951, 958 n.4 (8th Cir. 2015) (“[A]s a general rule we do

not entertain arguments that are first raised in a reply brief.”); United States v.

Donnell, 596 F.3d 913, 925-26 (8th Cir. 2010) (“[W]e generally do not accept pro se

motions or briefs when an appellant is represented by counsel.”) (alteration in

original) (quoting United States v. Barker, 556 F.3d 682, 690 n.3 (8th Cir. 2009)).

We vacate Mark’s sentence and remand his case for resentencing. We affirm

Ornella’s sentence.