United States of America v. Kelly Gearhart

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
KELLY GEARHART,
Defendant-Appellant.
No. 15-50305
16-50020
D.C. No.
2:12-cr-00631-ODW-1
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Otis D. Wright II, District Judge, Presiding
Argued and Submitted August 8, 2017
Pasadena, California
Before: CALLAHAN and OWENS, Circuit Judges, and FABER,** District Judge.
Defendant Kelly Gearhart appeals from the district court’s imposition of a
168-month sentence and a restitution award for his guilty plea convictions for mail
fraud, wire fraud, and money laundering. As the parties are familiar with the facts,
we do not recount them here. We have jurisdiction pursuant to 18 U.S.C.
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable David A. Faber, United States District Judge for the
Southern District of West Virginia, sitting by designation.
FILED
AUG 25 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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§ 3742(a) and 28 U.S.C. § 1291. We vacate the sentence and remand for
resentencing.
1. As the government concedes, it was plain error for the district court to
impose a 168-month sentence concurrently on counts 13, 14, and 15 because the
maximum sentence for a violation of 18 U.S.C. § 1957 (count 15) is 120 months.
18 U.S.C. § 1957(b)(1). Accordingly, we vacate the 168-month sentence and
remand for the district court to resentence on count 15 within the statutorily
allowable range.
2. In addition, Gearhart asserts that the district court failed to rule on
numerous factual disputes which affected the ultimate Guidelines calculation.
Federal Rule of Criminal Procedure 32(i)(3)(B) requires that a court “must—for
any disputed portion of the presentence report or other controverted matter—rule
on the dispute or determine that a ruling is unnecessary either because the matter
will not affect sentencing, or because the court will not consider the matter in
sentencing[.]” We have interpreted this requirement to mean that “all Rule 32
findings must be express or explicit.” United States v. Doe, 705 F.3d 1134, 1155
(9th Cir. 2013) (internal quotations and citation omitted). But we have also
clarified that “[t]he purpose and context of [Rule 32] demonstrate that the district
court need only address unresolved objections to the presentence report that relate
to matters in controversy.” United States v. Petri, 731 F.3d 833, 838 (9th Cir.

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2013).
A finding that Heritage Oaks Bank and San Luis Trust Bank were aware of
the partial reconveyances of lots Gearhart had promised to other investors would
impact whether these banks were actual victims of Gearhart’s fraud. If Heritage
Oaks Bank and San Luis Trust Bank were not victims, Gearhart’s Guidelines
calculation would change with respect to the total loss amount as well as the
enhancement for gross receipt of more than $1 million from financial institutions.
Thus, the district court was required to make a specific factual finding as to this
matter.
Resolving the exact amounts that each individual investor loaned Gearhart
may not materially change the sentencing determination because even if these
disputes were resolved in favor of Gearhart, the amount of losses would still result
in a Guidelines loss figure in excess of the $7,000,000 threshold. But the scope of
the joint undertaking between Gearhart and Miller is directly relevant to whether
all of the Hurst investors should be considered victims. Accordingly, we remand
for the district court to make a specific factual finding as to the scope of the joint
undertaking.
3. The government submitted victim impact letters on behalf of 38
individuals to inform sentencing. It then recommended a procedure for the court to
address the letters. Only two of the 38 letters were determined to be from victims

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for the purposes of sentencing. Nevertheless, during the July 2, 2015, sentencing
hearing, the district court stated, “I strongly believe that there are hundreds of
victims, and that feeling comes from all of these letters that were written where
many times each of these individual victims discuss the investors’ meetings where
over a thousand people are present.” It also stated, “I was greatly touched by the
numerous letters that I’d read from some of the elderly investors[.]”
Thus, it appears that the district court did take all of the victim letters into
account when determining Gearhart’s sentence even though most of those
individuals were not found by clear and convincing evidence to be victims of
Gearhart’s offense. Although “[n]o limitation shall be placed on the information
concerning the background, character, and conduct of a person convicted of an
offense which a court of the United States may receive and consider for the
purpose of imposing an appropriate sentence[,]” 18 U.S.C. § 3661, information
from individuals not determined to be victims does not concern the background,
character, and conduct of the defendant. Accordingly, the district court erred by
considering the victim impact letters of individuals not determined to be victims of
Gearhart’s offense.1
4. Additionally, the district court’s unwillingness to spend time calculating
1 Because we find reversible procedural error, we do not reach the sentence’s
substantive reasonableness. See, e.g., United States v. Cantrell, 433 F.3d 1269,
1280 (9th Cir. 2006).

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restitution awards was a violation of the requirement to determine proximate
causation. 18 U.S.C. § 3663A(a)(2) states that a “victim” for restitution purposes
“means a person directly and proximately harmed as a result of the commission of
an offense for which restitution may be ordered[.]” Here, the district court did not
conduct an inquiry into whether all of the Hurst investors were proximately
harmed by Gearhart, and instead required the parties to agree upon a blanket
percentage offset. Thus, we remand for the district court to determine whether
each victim suffered losses proximately caused by Gearhart, what those losses
were, and to award restitution accordingly. Cf. United States v. Hunter, 618 F.3d
1062, 1064 (9th Cir. 2010) (affirming the district court’s restitution award because
it had a “clear legal and factual basis for ordering restitution . . . for the amount of
loss sustained by each victim directly and proximately harmed as a result of th[e]
offense”).
5. Finally, we deny Gearhart’s request for reassignment, as this case does
not present the “rare and extraordinary circumstances” needed to justify relief.
Krechman v. County of Riverside, 723 F.3d 1104, 1112 (9th Cir. 2013) (citation
omitted).
VACATED AND REMANDED.

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