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July 6, 2001


The opinion of the court was delivered by: Rebecca R. Pallmeyer, United States District Judge


More than one year ago, Defendants Richard A. Hendershot, James A. Battista, and Clifford J. Lanas were convicted by a jury on mail fraud charges growing out of an illegal kickback scheme involving Hendershot's former employer. Hendershot was the central figure in this scheme: He collected kickbacks from private investigators whom he hired to perform surveillance work for his employer, Alexsis, Inc., a third-party administrator for workers' compensation claims. Defendant Lanas operated one of the private investigation services which paid kickbacks to Hendershot, and Defendant Battista served as "bagman," passing the kickback money from P.I. firms to Hendershot while retaining a portion for himself.

On July 7, 2000, the court denied all Defendants' motions for acquittal or a new trial. Sentencing was delayed for several months, initially at the request of defense counsel and more recently due to the court's trial schedule. Now before the court are the Presentence Investigation Reports ("PSRs") concerning each of the Defendants. Each Defendant has submitted objections to the PSR and the government has filed a consolidated response. The court addresses the Defendants' objections below.

I. Guideline § 2B4.1

The PSRs recommend that the court apply U.S.S.G. § 2B4.1, the guideline for cases of "Commercial Bribery and Kickbacks." It commands a base offense level of 8, see § 2B4.1(a), and commands a specific offense characteristics increase of "the corresponding number of levels from the table in § 2F1.1" if "the greater of the value of the bribe or the improper benefit to be conferred exceeded $2,000." § 2B4.1(b)(1). Each of the three Defendants here objects to the use of § 2B4.1, and urges the court instead to apply U.S.S.G. § 2F1.1, the guideline applicable to offenses involving fraud and deceit. The base offense level for fraud is 6, see § 2F1.1(a), and the specific offense characteristics increase is based on the amount of "loss" rather than the amount of the bribes. See § 2F1.1(b)(1). The court notes, initially, its uncertainty about whether selection of § 2F1.1 would make a genuine difference in this case, where each Defendant is likely to face a two-level increase for the specific offense characteristic of "more than minimal planning." See § 2F1.1(b)(2).

In any event, the court concurs with the Probation Office's choice of § 2B4.1 as the appropriate guideline here. U.S.S.G. § 1B1.2 requires the court to "[d]etermine the offense guideline in Chapter Two (Offense Conduct) most applicable to the offense of conviction." There is little doubt that section 2B4.1, and not section 2F1.1, is most applicable here. Section 2B4.1 applies by its title to "commercial bribery and kickbacks," precisely the conduct involved in this case. The government prosecuted this case as a bribery case, not a fraud case. For example, the Indictment uses the term "kickback" dozens of times, but characterizes Defendants' conduct as "false and fraudulent" far less frequently. See United States v. Anderson, 85 F. Supp.2d 1084, 1104 (D.Kan. 1999) (choosing § 2B4.1 over § 2F1.1 in Medicare kickback prosecution where indictment used the word "bribe" thirty-four times, but "fraud" or "defraud" only twice). Although this case, like Anderson, unquestionably involves elements of fraud, the central focus of the charges against Defendants Hendershot and Battista are the kickbacks demanded by Defendant Hendershot and paid through Defendant Battista by Defendant Lanas and others.

Other case law supports the probation officer's recommendation here. In a case similar to this one, United States v. Montani, 204 F.3d 761 (7th Cir. 2000), defendant Montani was assigned by his employer to sell furniture inventory and took a large kickback from the purchaser. A jury convicted Montani of depriving his employer of the right to honest services, and the Seventh Circuit affirmed sentencing under § 2B4.1. Similarly, in United States v. Jain, 93 F.3d 436, 442-43 (8th Cir. 1996), cert. denied, 520 U.S. 1273 (1997), the Eighth Circuit affirmed the use of section 2B4.1 in determining the base offense level in the sentence of a psychologist who received payment from a hospital in exchange for referring patients to that hospital.

In United States v. Hauptman, 111 F.3d 48, 50-51 (7th Cir. 1997), the Seventh Circuit affirmed a determination that the fraud guideline, § 2F1.1, applied, rather than the commercial bribery guideline, but the court noted that in that case defendant bribed a purchasing agent to purchase a vast supply of unnecessary cleaning supplies from defendant's company. Upbraiding the government for having agreed to application of the bribery guideline, the court noted, "the bribing of [the purchasing agent], rather than being the essence of the offense, was merely the means for defrauding [the purchasing agent]'s employer." 111 F.3d at 50. The court explicitly distinguished these circumstances from "the usual case of commercial bribery . . . [in which] either the person giving the bribe is being shaken down by a customer's purchasing agent, or, if the briber is the one taking the initiative, his objective is merely to get `his share' of the customer's business." Id. (citations omitted). In this court's view, the conduct of Defendants Hendershot and Battista present "the usual case of commercial bribery." Defendant Lanas argues that the evidence concerning his conduct requires a different conclusion. He notes the evidence that when he received payment from Alexsis for investigative work, he wrote checks to Richard Lantini and to cash for himself but had no direct contact with Defendant Hendershot. As the government points out, however, Lantini and Lanas agreed that Three Star and Park Investigation, the private investigation firms owned or controlled by Lanas or Lantini, would make cash kickback payments of $700 per job in return for their share of the investigation business. (Government's Consolidated Response, at 21.) True enough, Lanas inflated some of the invoices by billing Alexsis for two investigators on jobs where only one was used; but Lantini testified that this double-billing was done at Battista's direction, and the double bills had the effect of increasing Battista's own unlawful profits. Lanas' conduct may fairly be characterized as fraudulent, as well, but the court agrees that commercial bribery most closely describes his wrongdoing.

Defendants' objections to the application of the commercial bribery guideline § 2B4.1 are, therefore, overruled.

II. Loss Calculations

Each Defendant has objected to the probation officer's calculation of the amount of loss for which that Defendant is responsible. A defendant has "a due process right to be sentenced on the basis of accurate information," United States v. Westbrook, 986 F.2d 180, 182 (7th Cir. 1993), but the amount of loss "need not be determined with precision." U.S.S. G. § 2B1.1, app. note 3. "So long as the information the sentencing judge considers has a sufficient indicia of reliability to support its probable accuracy, the information may properly be taken into account in passing sentence." United States v. Cedano-Rojas, 999 F.2d 1175, 1180 (7th Cir. 1993). In this case, the court heard testimony concerning the amounts involved and has before it the business records of Alexsis, of some of the P.I. firms, and of banks. As explained below, the court finds minor errors in the probation officer's calculation of the amount of loss for which each of the defendants is responsible, but concludes that only the error with respect to Lanas changes the calculation of his base offense level.

A. Hendershot

The probation officer calculates that Defendant Hendershot received $233,720 in illegal kickbacks from private investigation firms. Hendershot objects to this calculation, adopting Defendant Lanas' and Battista's arguments and raising additional objections to the calculations of kickbacks associated with Thomas Herley. As Exhibit A to its presentence submission, the government has furnished a list of Alexsis checks deposited to Thomas Herley's Citibank account, identifying the amount of the check and the amount of cash Herley recovered. The government and the probation officer suggest these kickback amounts reflect the pattern of $250 per case, and, later, $350 per case cash kickbacks.

As part of his objections to the loss calculations, Defendant Hendershot has submitted excerpts from this list, reflecting cash withdrawals in amounts other than $250 or $350. (Position of the Defendant Richard Hendershot with Respect to Sentencing Factors, at 12-13.) Hendershot urges he is entitled to a hearing to determine the precise amount of cash kickbacks paid him by Herley. In considering this argument, the court first notes that the government did not argue that, for every Alexsis check, Herley recovered cash back in an amount precisely equal to the expected kickback. Herley testified that when he deposited a check, he would obtain cash back to cover the kickback amount, plus some spending money for himself. On those occasions where there was not enough money in the account, Herley waited a few days for the Alexsis check to clear and then wrote a check to cash.*fn1

The court has compared Hendershot's excerpted list carefully against the government's Exhibit A. With respect to many of the checks listed in Hendershot's excerpt, the court notes that the deposits were made within days of another deposit, and that adding the cash back from that other deposit with the cash back for the check Hendershot has listed yields an amount sufficient to fund the kickback payment. For example, Hendershot's excerpt lists the January 31, 1992 check deposit for two jobs, on which Herley recovered only $600 cash back. Just a week earlier, however, Hendershot took cash back of $1500 from an $1832 Alexsis check. The same observation can be made concerning the August 8, 1991 check and $100 cash back (grouped with $600 and $100 cash back for checks deposited on August 9 and August 10, total $800); the October 7, 1991 check and $200 cash withdrawal (coupled with $600 cash back for a check deposited on October 12, 1991, total $800); the July 10, 1992 check and $200 withdrawal (coupled with $900 cash back for a check deposited on July 14, 1992, total $1100); the April 7, 1993 check and $500 cash back (coupled with $1500 cash back for a check deposited on April 12, 1993, total $2000); the September 20, 1993 check and $100 withdrawal (coupled with $1300 cash back for a check deposited on September 21, 1993, total $1400). Herley recovered no cash back at all from checks deposited on November 29 and December 14, 1993, but in each of these instances he deposited another check three days later and took a substantial cash withdrawal on each of these (December 2, 1993, $1500, and December 17, 1993, $1000).

For a handful of other checks, it appears that Herley took cash back in amounts less than $350, but supplemented the withdrawal by writing a check to cash within a few days. See Government Exhibit Schedule B to Government's Consolidated Presentencing Submission. Thus, he deposited an Alexsis check on March 11, 1992 and took only $200 cash back, but he had written a check for $500 only two days earlier. On December 15, 1992, Herley deposited a check for three jobs but took only $500 cash back; but seven days later he wrote a check to cash in the amount of $2700. The $2700 check also amply explains Herley's recovery of a mere $200 on December 30, 1992. The March 19, 1993 and March 29, 1993 cash withdrawals of only $200 each were supplemented by the $1000 checks to cash that Herley wrote on March 8 and March 22. On April 7, 1993, Herley deposited a check and recovered cash back of only $500 for the two jobs reflected in that deposit, but five days earlier he had written a check to cash in the amount of $1100. The August 10, 1993 cash withdrawal of only $500 for four jobs appears to have been supplemented by a $1200 check to cash that Herley wrote on August 13. Finally, the November 15, 1993 check and $300 cash withdrawal took place just four days before a $600 check to cash that Herley wrote on November 19, 1993. Only two transactions are not obviously susceptible to such simple explanation. Herley deposited Alexsis checks on April 13, 1992 and February 26, 1993, and took cash withdrawals of only $100 on ...

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