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PRIMER LOSS CALCULATIONS UNDER 2B1.1(b)(1) June 2015 Prepared by the Office of General Counsel, U.S. Sentencing Commission Disclaimer: This document provided by the Commission s Legal Staff is offered
PRIMER LOSS CALCULATIONS UNDER 2B1.1(b)(1) June 2015 Prepared by the Office of General Counsel, U.S. Sentencing Commission Disclaimer: This document provided by the Commission s Legal Staff is offered to assist in understanding and applying the sentencing guidelines. The information in this document does not necessarily represent the official position of the Commission, and it should not be considered definitive or comprehensive. The information in this document is not binding upon the Commission, courts, or the parties in any case. Pursuant to Fed. R. App. P (2007), some cases cited in this document are unpublished. Practitioners should be advised that citation of such cases under Rule 32.1 requires that such opinions be issued on or after January 1, 2007, and that they either be available in a publicly accessible electronic database or provided in hard copy by the party offering them for citation. TABLE OF CONTENTS I. INTRODUCTION... 1 II. THE DEFINITION OF LOSS UNDER 2B A. ACTUAL LOSS... 1 B. INTENDED LOSS Generally Specific Factual Settings... 6 C. NO ECONOMIC REALITY PRINCIPLE UNDER THE GUIDELINES... 9 D. LOSS CALCULATIONS POST-BOOKER... 9 III. GAIN AS ALTERNATIVE MEASURE IV. ESTIMATING LOSS A. GENERALLY B. RELEVANT FACTORS Fair Market Value Cost of Repairs Number of Victims Multiplied by Loss Reduction in Value of Securities C. SPECIAL RULES Stolen or Counterfeit Credit Cards and Access Devices Government Benefits Davis-Bacon Act Violations Ponzi and Other Fraudulent Schemes Certain Other Unlawful Misrepresentation Schemes Value of Controlled Substances Value of Cultural Heritage Resources Federal Health Care Offenses Involving Government Health Care Programs V. EXCLUSIONS FROM LOSS A. INTEREST, FINANCE CHARGES, LATE FEES, PENALTIES AND SIMILAR COSTS B. COSTS TO THE GOVERNMENT AND COSTS INCURRED BY VICTIMS VI. CREDITS AGAINST LOSS A. MONEY AND PROPERTY RETURNED/SERVICES RENDERED B. COLLATERAL VII. CONCLUSION ii I. INTRODUCTION This primer discusses issues often raised about economic loss and loss calculation under 2B Effective November 1, 2001, the Commission consolidated the theft and fraud guidelines into 2B1.1. As a part of this amendment, which is known as the Economic Crime Package, the Commission also modified the definition of loss such that it would be based on reasonably foreseeable pecuniary harm and would include intended loss. This primer focuses on some applicable cases and concepts relating to this definition of loss buy is not intended as a comprehensive compilation of all case law addressing these issues. II. THE DEFINITION OF LOSS UNDER 2B1.1 The sentencing guidelines define loss as the greater of actual loss or intended loss, 2 and provide that the sentencing judge need only make a reasonable estimate of the loss. 3 The estimate should be based on available information, and the court may consider a variety of different factors. 4 In making the loss calculation, the court may also choose from competing methods of calculating loss. Furthermore, restitution and loss are separate issues, and there need not be symmetry between the two. 5 A. ACTUAL LOSS Actual loss, which is often referred to as but for loss, is defined in the guideline application notes as the reasonably foreseeable pecuniary harm that resulted from the offense. 6 A loss enhancement may apply even where a defendant personally received no pecuniary gain. 7 As further explained by the application notes, pecuniary harm is reasonably foreseeable if it is harm that the defendant knew or, under the circumstances, reasonably should have known, was a potential result of the offense. 8 1 See United States Sentencing Commission, Guidelines Manual, 2B1.1 (Nov. 2012) [hereinafter USSG]. 2 USSG 2B1.1, comment. (n.3(a)). 3 USSG 2B1.1, comment. (n.3(c)). 4 Id. 5 United States v. Patterson, 595 F.3d 1324, (11th Cir. 2010); see also United States v. Certified Envmt l Serv., 753 F.3d 72, 103 (2d Cir. 2014) (reversing, inter alia, because district court conflated loss and restitution; emphasizing distinctions between these concepts); United States v. Riddell, 328 F. App x 328, 329 (6th Cir. 2009) (per curiam) (holding that a district court may look to intended loss in calculating total loss for the purposes of 2B1.1, but must base its order of restitution on actual losses). 6 USSG 2B1.1, comment. (n.3(a)(i)). 7 See, e.g., United States v. Ledee, 772 F.3d 21, 38 (1st Cir. 2015). 8 USSG 2B1.1, comment. (n.3(a)(iv)); see also, e.g., United States v. Domnenko, 763 F.3d 768, (7th Cir. 2014) (rejecting enhancement for loss that lender sustained on sale of home because it was not a reasonably foreseeable consequence of defendants own fraud, as they were not aware that the purchaser was fictional ). 1 For example, in United States v. Neadle, a defendant committed fraud in obtaining a Virgin Islands license to write property and casualty insurance. The actual loss for which he was held accountable at sentencing included millions in losses of his insureds who suffered catastrophic damages caused by a hurricane and were unable to recover from the defendant s insurance company. 9 Thus, all reasonably foreseeable losses that flow directly, or indirectly, from a defendant s conduct should be included in the loss calculation. Actual loss includes all relevant conduct, charged or uncharged. For example, in United States v. Hoffman-Vaile, the defendant was convicted of defrauding Medicare and, at sentencing, the district court included the losses not only to the Medicare program but to private insurers and patients. 10 The appellate court affirmed, holding that the private insurers and patients were victims of the same fraud scheme and, although not charged, those acts constituted relevant conduct for the purposes of loss calculation. 11 Furthermore, the loss figure is not limited to the losses that are directly attributable to acts of the defendant. Losses caused by the acts of co-conspirators that were reasonably foreseeable to the defendant should also be included in the loss calculation. 12 The sentencing court should, however, limit the defendant s liability to those acts of coconspirators that were reasonably foreseeable and part of the criminal activity that the defendant agreed to jointly undertake. 13 A sentencing court may be reversed if there are insufficient findings on this point F.3d 1104, 1108 (3d Cir. 1995), amended by 79 F.3d 14 (3d Cir. 1996) F.3d 1335, (11th Cir. 2009). 11 Id. 12 USSG 1B1.3(a)(1)(B) (defining relevant conduct for jointly undertaken activity). Numerous cases have addressed this issue. See, e.g., United States v. Moran, 778 F.3d 942, 973 (11th Cir. 2015); United States v. Robinson, 603 F.3d 230, 234 (3d Cir. 2010); United States v. Treadwell, 593 F.3d 990, 1003 (9th Cir. 2010); United States v. Jenkins-Watts, 574 F.3d 950, 961 (8th Cir. 2009); United States v. Nash, 338 F. App x 96, (2d Cir. 2009); United States v. Mauskar, 557 F.3d 219, 233 (5th Cir. 2009); United States v. Wilkins, 308 F. App x 920, 929 (6th Cir. 2009); United States v. Codarcea, 505 F.3d 68, 72 (1st Cir. 2007); United States v. Catalfo, 64 F.3d 1070, (7th Cir. 1995). 13 See, e.g., United States v. Rodriguez, 751 F.3d 1244, (11th Cir. 2014) (holding that defendant in mortgage scheme was properly attributed with losses associated with fraudulent use of her post office box because she participated in the conspiracy and did not withdraw from it and moreover because rerouting the mail was essential to the success of the fraudulent scheme ); United States v. Arojojoye, 753 F.3d 79 (7th Cir. 2014) (holding that defendant was properly attributed with losses caused by co-defendants when he created fraudulent documents and false address used in scheme; emphasizing that the district court properly considered supporting evidence in context and cumulation ); see also United States v. Sykes, 774 F.3d 1145, (7th Cir. 2014) (analyzing concept of foreseeability in detail). 14 See, e.g., United States v. Goodheart, 345 F. App'x 523, 525 (11th Cir. 2009) (finding that the sentencing judge made no required individualized findings about when the defendant actually joined the conspiracy for the purposes of establishing loss); United States v. McClatchey, 316 F.3d 1122, 1128 (10th Cir. 2003) (emphasizing distinction between involvement in conspiracy and scope of jointly undertaken activity); Treadwell, 593 F.3d at 1002 ( [A] district court may not automatically hold an individual defendant responsible for losses attributable to the entire conspiracy, but rather must identify the loss that fell within the scope of the defendant s agreement with his co-conspirators and was reasonably foreseeable to the 2 In considering the actual loss in a particular case, one of the most commonly litigated issues is whether the harm was, in fact, reasonably foreseeable. In determining whether loss is reasonably foreseeable, courts have found that the actual loss must have a causal link to the defendant s conduct. 15 For example, in United States v. Whiting, the defendant was convicted of converting funds from employees paychecks that were intended for medical benefits and making false statements related to those employees health benefits. 16 The actual loss was calculated using the total amount of unpaid medical claims made by the employees. 17 However, the Seventh Circuit reversed because the trial court stated on the record that there was no causal link between the defendant s misstatements about benefits and the losses caused by the medical claims in the case. 18 Similarly, in United States v. Rothwell, the Sixth Circuit found that there was no reasonable link between the fraud committed by the defendant during the construction of a building and the subsequent default on the construction loan. 19 Accordingly, the loan losses could not properly be attributed to the defendant at sentencing. 20 In recent years, this issue has received particular attention in the context of mortgage fraud. For example, several circuit courts have rejected arguments that defendants could not have reasonably foreseen the downturn in the housing market. 21 In one frequently cited case, the defendant obtained numerous mortgage loans through applications overstating the named purchaser s net worth and income, leading to default and subsequent foreclosure. 22 The district court calculated the actual loss as the difference between the unpaid principal balance of the twelve mortgages and the subsequent sales defendant. ). Findings may not, however, be required when a defendant's involvement in the conspiracy from the outset is apparent from the record. See, e.g., United States v. Ortiz, 560 F. App x 894, 897 (11th Cir. 2014) (distinguishing Goodheart on this basis). 15 See, e.g., United States v. Whiting, 471 F.3d 792, 802 (7th Cir. 2006); United States v. Rothwell, 387 F.3d 579, 584 (6th Cir. 2004) F.3d at Id. at Id. 19 Rothwell, 387 F.3d at Id.; see also United States v. Isaacson, 752 F.3d 1291, (11th Cir. 2014) (remanding because government failed to establish that fraudulent valuations caused losing investment; to the contrary, Morgan Stanley was going to make this investment, and had made its own internal decision that despite significant risk factors, it was going to invest, because it thought it was a good deal, and it was willing to overlook certain red flags, like the audited financial statements... being late ); Harrington v. United States, 489 F. App x 50, 57 (6th Cir. 2012) ( Rothwell stands for the uncontested proposition that a sentencing court applying 2B1.1 must make a reasonable estimate of loss using proximate cause as its measure. ). But cf. United States v. Curran, 525 F.3d 74, 81 (1st Cir. 2008) (finding that the government need not prove client by client the loss amount attributable to a specific misrepresentation, when it was established that all the defendant s actions were part of a fraudulent scheme in which he pretended to be a medical doctor). 21 United States v. McKanry, 628 F.3d 1010, 1017 (8th Cir. 2011); United States v. Turk, 626 F.3d 743, (2d Cir. 2010). 22 McKanry, 628 F.3d at price of the properties. 23 Although the defendant argued that the government failed to prove that the loss amount was fully attributable to him, as opposed to normal market conditions, 24 the Eighth Circuit held that the appropriate test is not whether market factors affected the loss amount but whether the market factors and the resulting loss were reasonably foreseeable. 25 B. INTENDED LOSS 1. Generally Intended loss is defined in the guidelines as pecuniary harm that was intended to result from the offense. 26 The guideline includes pecuniary harm that would have been impossible or unlikely to occur. 27 For example, intended loss would include pecuniary harm that a defendant intended, but could not have actually caused, in a case involving a government sting operation or where the offense involved an insurance fraud in which the claim exceeded the insured value. 28 In determining loss for purposes of the guidelines, there is no requirement that the court calculate actual loss before relying on intended loss; indeed, in some cases, it may be easier as a matter of proof to show intended loss. 29 However, actual losses, or losses actually completed before discovery, are to be included in any calculation of intended loss. 30 That is, the categories are not mutually exclusive and may be combined to calculate an overall intended loss Id. at Id. 25 Id.; see also Turk, 626 F.3d at 747 (rejecting claim that defendant s loss amount should be reduced because of the housing collapse); United States v. Crowe, 735 F.3d 1229 (10th Cir. 2013) (adopting the McKanry and Turk rule). But cf. United States v. Evans, 744 F.3d 1192, 1197 (10th Cir. 2014) (distinguishing the scenario in which victims were sold real estate securities whose value necessarily fluctuated as opposed to being simply promised loan payments ). 26 USSG 2B1.1, comment. (n.3(a)(i)). 27 USSG 2B1.1, comment. (n.3(a)(ii)). 28 Id.; see also United States v. Alphas, F.3d, 2015 WL , at *6-7 (1st Cir. May 7, 2015) (discussing intended loss in context of inflated insurance claims). 29 United States v. Thurston, 358 F.3d 51, 68 (1st Cir. 2004), vacated on other grounds, 543 U.S (2005). 30 See United States v. Ware, 334 F. App x 49 (8th Cir. 2009). 31 Id. at 50. 4 When calculating the intended loss, absolute accuracy is not required as long as the calculation is not outside the realm of permissible computations. 32 An estimate made by the sentencing judge need not be determined with precision. 33 In this regard, courts have held that a sentencing court does not commit clear error when a loss calculation is supported by the presumptively reasonable facts from the presentence report, and the defendant fails to rebut those facts. 34 For instance, in a case involving a fraudulent insurance claim, the court calculated the intended loss by using the figure quoted in the demand letter sent by the defendant s lawyer to the insurance company although the defendant ultimately collected a settlement amount that was less than half the demand amount from the insurance company. 35 In another insurance case, though, the court remanded the matter for additional findings, concluding that the trial court erred in calculating intended loss based on the face value of fraudulently obtained life insurance policies given that there was no dispute that the defendant accurately represented the age and health status of the applicants. 36 The court held that the government had the burden of establishing that the misrepresentations regarding the applicants financial status and various financing arrangements posed a risk of financial harm to the insurers that would not have existed if the information provided in the insurance applications were true. 37 Courts have differed as to whether the intended loss amount is based on the defendant s subjective intent or on an objective standard. For example, in United States v. Manatau, 38 the Tenth Circuit held that intended loss requires a subjective analysis and that intended loss must have been an object of the defendant s purpose 39 such that it was a loss that the defendant purposely sought to inflict. 40 According to Manatau, intended loss is not loss that the defendant merely knew would result from his scheme or a loss he might have possibly and potentially contemplated. 41 Various jurisdictions have taken a similar approach. 42 Other courts, in contrast, have held that intended loss requires an 32 United States v. Lopez, 222 F.3d 428, 437 (7th Cir. 2000). 33 Miller, 316 F.3d at United States v. McClain, 280 F. App x 425, 430 (5th Cir. 2008). 35 United States v. Al-Shahin, 474 F.3d 941, 950 (7th Cir. 2007). 36 United States v. Bazemore, F. App x, 2015 WL , at *7-8 (5th Cir. Apr. 21, 2015). 37 Id. at * F.3d 1048 (10th Cir. 2011). 39 Manatau, 647 F.3d at Id. at Id. at Id. at 1048, 1050 (analyzing case law on this issue); see also United States v. Killen, 761 F.3d 945, (8th Cir. 2014) (applying subjective standard but agreeing that district court properly concluded that defendant intended to obtain fraudulent SSI benefits until she reached 65 and thus was properly attributed with full amount of intended loss); United States v. Diallo, 710 F.3d 147, 151 (3d Cir. 2013) ( To make this determination, we look to the defendant s subjective expectation, not to the risk of loss to which he may have exposed his victims. ); United States v. Confredo, 528 F.3d 143, 152 (2d Cir. 2008) (remanding for consideration of whether defendant had proven a subjective intent to cause a loss of less than the aggregate 5 objective inquiry. 43 The Commission has promulgated an amendment to the definition of intended loss that, absent contrary action by Congress, will adopt the Tenth Circuit s approach as of November 1, Specific Factual Settings Determining intended loss is often a fact-specific inquiry, and courts have adapted their analysis depending on the particular case. 45 Thus, for example, in United States v. Moran, the Eleventh Circuit agreed that intended loss amounts varied in a health care fraud depending on whether specific defendants were aware of reimbursement details: for those defendants with such awareness, the intended loss was the lower reimbursable amount; for the defendant without such knowledge, the intended loss was a higher, billed rate. 46 Certain schemes and claims are particularly common, though, and some of these situations are discussed below. The potential scope of the intended loss definition is demonstrated in cases relating to theft of credit cards. In a case in which a defendant sold stolen credit cards to others, the sentencing judge fixed the intended loss at the total credit limits of all of the credit cards. 47 In upholding the sentencing court s decision, the First Circuit concluded that the defendant amount of fraudulent loans); United States v. Kopp, 951 F.2d 521 (3d Cir. 1991) (holding that intended loss is the loss the defendant subjectively intended to inflict on the victim); United States v. Sanders, 343 F.3d 511, 527 (5th Cir. 2003) ( our case law requires the government prove by a preponderance of the evidence that the defendant had the subjective intent to cause the loss that is used to calculate his offense level ). 43 Alphas, 2015 WL , at *4 (commenting that the intended loss standard focuses primarily on the offender s objectively reasonable expectations, though subjective intent may play some role ); United States v. Innarelli, 524 F.3d 286, 291 (1st Cir. 2008) ( [W]e focus our loss inquiry for purposes of determining a defendant s offense level on the objectively reasonable expectation of a person in his position at the time he perpetrated the fraud, not on his subjective intentions or hopes ); United States v. Lane, 323 F.3d 568, 590 (7th Cir. 2003) ( The determination of intended loss under the Sentencing Guidelines therefore focus
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