good morning everyone the first order of business recognize judge hartman for purposes of admission of one of his clerks thank you judge fisher when i ask  it's a privilege for me judges fisher and stapleton to move the admission of this young lawyer joseph anthony valenti he's a two thousand and five graduate of duquesne university and a two thousand and nine graduate of its law school i've had the privilege of working with joseph since september of this year and i can personally attest to his moral character and fitness to practice he is a member of good standing in good standing of the bar of the commonwealth of pennsylvania and i have every hope and expectation that joe is about t embark as he enters private practice next month on what will be a very rich rewarding and successful law practice most importantly the he'll be a credit to the members of the bar of this court and the bar of pennsylvania with that i moved his admission as their second seconded by judge stapleton and without objection that request will be granted no minutes of my time in a regional group thank you sir although the this record imposed a discretionary sentence in this case somewhat below the guideline range the sentence was clearly compute not just by looking at the guidelines but measured from the guidelines and so our issue today is one of about whether the guidelines were correctly calculated the guideline determination for for private sector public use a public sector bribery to see one point one as applied here incorporated a six level error in determining the value of the benefit which resulted in a virtual doubling performed it well according to specifications the value of the benefit should have been determined and calculated on the net profit to the company that performed the contract d m s instead the district court looked at the benefit in a different sense to the defendant and her family and used a figure which was the combined and cumulative salaries of the defendant and her husband during that period of time this is not a method which is suggested by the guideline and its commentary so the outcome turns on what it's really a fairly narrow question of law the guidelines are set of rules the guideline establishes the rule that applies here the district court did not apply that rule it's not a question of what the district judge might think is more fair it's not a question of how the judge feels about a contract that's won by bribery those decisions are made by the sentencing commission a matter of policy the district judge should disagree with them then we have most book or post go all other ways of calculating the sentence but you have to calculate the guideline sentence correctly the work and it's undisputed that in this family company family owned company mr and mrs particularly mrs lee s were not mere investors they were workers they were computer engineers they designed these contracts they they designed these programs very sophisticated programs that control  how airplanes are managed on the tarmac in airports they did a lot of the work the professional work they did the travel to oversee the implementation of that work around the country they entitled and were entitled to be paid for that work just as if they had been outside investors and in the amount that had they been outside investors they would have paid some other computer engineer to do the work and to treat instead their salary as if it were the same as profit is just to misunderstand the counting of small corporations that's just not now mr goldberg surely the district court added the sixteen point one handsome and yes really based on two alternative theories that are not as i read the record but i understand what you're saying and what first of all wasn't there amount do you argue the lander's case the lender's case is one of the cases from another circuit that you have in a similar situation the seventh circuit how do you say that the district court calculated the sixteen point han the record shows that the court adopted the pre sentence report analysis the court discussed with counsel a number of ways that the judge thought it could be looked at right in the end the ruling was and i think a stand that to be a question that that if the benefit to the diff the benefit and the judge you this is that if a to the defendant but that's not what the guideline says is greater than the amount of the bribe then you use the benefit to the defendant and that the benefit to the defendant should be measured as the cumulative salaries paid to her and her husband for work done under this contract an amount somewhat just over one million dollars ok over the four years that was the ruling and  would start i think with cohen where the government argued the opposite position from the one they're arguing here and the court said the government was right that is to govern or you can call in the position i'm taking here because that's the law the circuit that is that where  individual pays a private to obtain work for the individual's employer a company the corporation that the benefits the net benefit profit in the case of a company on a that's fully performed is the benefit that is to say the net profit to the company not the amount put in the pocket along the way of the individual who paid the bribe appropriate ok punishment for that and appropriate punishment is defined in the guideline if the contract then is fully performed if the person if the beneficiary the other contracting party here in the united states government receives full value of a fairly fairly valued contract and want to fairly awarded contract because of course the presumption is it's affected by the bribe how do you measure the net amount to measure the seriousness of the crime and the guideline says if the person doesn't go free and the person doesn't get a free pass on sense that the guideline says you start with and ought to use the amount of the bribe as the amount unless the this case the profit was shown by an can by undisputed evidence to be less or benefit in a sense of the guidelines don't talk about the personal salary which was more but it isn't a true though in a closely held corporation such as this one the principals have a lot of control over what salary to pay themselves yes my recollection of cohen was that the benefits were dispersed throughout the corporation that is a factual distance i would say it is and it's a fact to be just to do be addressed at the district court if the government had the position that the salaries were disguised just skies the way of paying profits were in excess of the true market value of these professional services absolutely ought to show that that we presented the defense presented so the report of an accountant the the amounts of salaries were stated and i think even th pre sentence report i forget now if it was a percent report or if it was something was said at the at the sentencing hearing to be appropriate and fair if they were not appropriate and fair if they were inflated to eat up some profit as in the hypot i thought it was given by all means i should be knocked down because it's not just whatever they choose to pay themselves so you're saying this is a valid issue but the government didn't carry the burden on the sure they didn't even raise what about you other i think i look at and see if you look at the amounts it bears out what i'm saying they're paid each year sixty five thousand eighty thousand this is not an unreasonable amount to be paying a professional computer engineer for them for the work they were doing i thought the district court also analyzed the gross revenues of some six point seven million and then there was a deduction for labor costs and your expert i thought clearly connected the sub contractor costs of some two point one million dollars to the illegally procured contracts but i didn't see in the record where all of the other costs were tied to those contracts and it seemed to me that you would need to show that to get below the the minimum the one million dollars threshold which is so important for the guidelines purposes yes the defense accounting report that was submitted stated and was undisputed by the government in stating and showing that all of the account all the costs were variable that they were listed on that report they were not the books and records of the company that were presented it were an accounting report where the instructions of the accountant were determine the variable direct cost of performing this contract this contract so yes that whole and we've tried to summarize them and make them easier to read in the a denim to the brief out of our at the defense expert accounting report you can't have one side present an expert report the other side not dispute it and then come in and argue maybe it wasn't right maybe it isn't fair maybe these are the government has a factual burden in the trial they had to prove the value and they said instead the u s attorney got up and said we dispute here about the facts well that you've your home right in on my concern which is is it their burden or your burden once they come forward with evidence to show what the gross revenues are isn't it your burden to show that these costs are direct as opposed to the indirect costs that argument wasn't made but i think the burden is on the government i think the court's cases without refinement of that kind of say that the burden to show value is on the government and the there is no you do all the pluses we do all the negatives but even so we submitted the evidence and they didn't the an accountant a qualified expert present we presented in a report which he said these are very bill direct costs of this contract if the government want to say no that isn't true you're playing games with the numbers they would have to show that it isn't so mr goldberg i thought you said to me that when i apologize the ruling was made on a single basis i didn't see and i don't believe i could be mistaken if you show me otherwise that that there was an alternate holding i can see that and it's what my reading of the record i think is borne out by the official statement of he said that's the wrong method he said you don't you don't get to count your profit when or or not when you win a prize of a contract by bribery that's dishonest we're not interested in that because you want this contract i bribery that's just not what the guidelines say not what the what the case last us if the contract is one by bribery and the person performs the contract then you do look at the profit so that was legal error by the top i guess the put the bottom line to this to your point is is there any support in the record to support a sixteen point and handsome that's really what you're arguing is it not no i don't if i understand the current correctly i don't think so in application i want to add to the guidelines and that is that the net value which is the measure that's used if it's higher than the amount of the bribe is the profit on the contract respect that's right ok attain a looked at a wash basin i don't know why you're so concerned about saying this is not a lander's analysis of why i'm i'm not adamant about that i knew you only because this court's only discussion of that was under the lander's approaches the figure but to the extent we were challenging individual cost as direct cost it did reach a finding and disallowed those so i think either of those is open and also our third argument but let me start with what i think is the government's strongest argument which is the salary argument and i just fundamentally disagree with the guidelines analysis that mr goldberger put forward on that and let me see beginning with the guidelines what we know is relooking for the benefit of the contract to see one point one provides for three alternative means of getting to that can be the value of the bride can be the benefit received to be the last of a government those are all distinct and i think the problem that the government has with mr goldberg is argument is he tries to conflate last of the government with benefit received  if you look at the application note it says that law shall be determined in accord with no to a to b one point one that's lost that's different from benefit benefit received or to be received is separately defined in the application out they give  a few examples one of the examples is a contract with a twenty thousand dollars profit it's a fairly simple example but it's not meant to be an all encompassing example as this court's case law has shown for example the the example can be more detailed you could have one hundred fifty thousand dollars contract in which there's twenty thousand dollars in profit but also fifty thousand going directly to the wrongdoer if it's a closely held corporation that's this case it's a more specific example and it needs a special rule when you're trying to find out the government's loss it's very important to actually know what the government got in return but when you're trying to find out the benefit received by the payer of the bride it becomes irrelevant women you you assume the result there when you company it was a closely held family company and in fact let me point out that during the guilty pleas your honor there was a question that was asked miss leigh anytus it was on page eighty a ninety i believe of the appendix and they asked her was your salary a commensurate with the profit of the company and she answered yes and that's in the record and what was  was was your i mean if i was your compensation commensurate with the profit of this company and she said yes well and what do you get from the well from that you're of the question is if you're trying to determine profit and she's the owner of this company she she really has the ability as judge hart in the suggesting she can she can say that whatever's left over at the end of the day she can pay for itself in salary or she can say it's profit to the corporation  matter it's just an accounting device that she has complete control over at least she and her husband have complete control over the evidence is undisputed is that that she was giving value some value absolutely a not say that i asked you that this was a scam and a finding he did not value her service and if you were to make it and if you were to make a finding relevant yeah i mean if you were make a finding we would have no problem with a finding that she gave full value because that's not what we think this case turns on we think again the question is take a step back if you're not trying to calculate loss to the government which absolutely you have to know how much should the government get in return are you trying to say benefit received to the buy pay or take a step back what didn't mislead you need us want to do when she was paying this broad to the government employee what did she want to get i'll tell you what she didn't want to get which she didn't care about was how much she paid sub contractors and employees and all those costs that of course it is proper to subtract she wanted to know how much money is going into my pocket at the end of the day and at the end of the day that was going to be the profits of the company and the salaries they paid to herself and her husband those were all the benefits she was going to receive and it's the example that judge fisher gave if you pay a bribe in order to get a absolutely make that eighty thousand or one hundred thousand a year quote salary that you pay yourself in a closely held corporation yeah and i guess the government's position is it doesn't matter if you had to work seventy hours a week you weren't entitled to that eighty thousand lower salary because but for the illegal procurement of the contract where would you make that kind of money now i mean absolutely right i mean in the illegal gambling case in pain it didn't matter that obviously there are costs associated with running a legal gambling business there is time there are expenses not everything is profit but that's not what the guidelines were keyed to i mean here the question is obviously these people knew they were going to have to perform work under the contract that that's sort of the risk that they took when they paid the bribe that's what they want how can you attribute all of their salary though to the bribe because the record seemed to me undisputed that they had legitimate contracts that they were presumably earning well these are that would that were we distinguish the contracts that they were paying a bribe to an individual contracting officer who had control over them those were separated from the contracts that that individual didn't control so you discount of the salaries i know the salaries were for the contracts that were the subject of the indictment they weren't for the other work that were done on the legitimate on the legitimate contracts the salaries are tied to just the illegal the illegal f a a contracts that the government procurement officer helped them obtain and they had other salary and profits presumably from the other contracts but that's not what we're talking their own salaries i mean you i guess i'm confused are you attribute ing one hundred percent of their salary i thought you were yes one hundred percent can you how can you do that they're they're running in my mind anyway correct me if i'm wrong they're running a business that's partially legitimate and partially illegitimate isn't it your burden to unpack which portion of their salaries just mr or mrs loonies which portion of their salaries are attributable to the illegal portion of their business and the legal portion their business my understanding of the record is that a million dollars in salary that was attributed by the government was agreed by the parties as the salary that was reflected for the illegal contracts and was not if there may have been additional salary for the for the others but that that was see the way this contract works your honor and the record isn't as clear as it should be the way this contract works is they actually are paid a salary they they are they were paid employees sort of like the contractors the government awarded a certain dollar figure for everybody's work and mr need us and this is we any of us were two of the people who even under the we started with six point seven million and then we subtracted the salaries which included the million dollars to the you need to that two point four figure it's in the record includes the one million dollars that the league in the dew point four does yes that  or two point four does yes all right now does the record clearly enough on to the net benefit analysis analyze the other indirect costs which were disallowed would argue yes under under a categorical approach if if what the court did was it basically said that except for except for certain categories that it was willing to accept  like salaries fringe benefits employee employee benefits doesn't two point four include the rent the two point four does not include so that it's you they didn't get credit for the rent right and the correct quote made a finding that that was a direct cost but this is related to judge part of this question earlier which is who bears the burden and i would point this court to chew cases landers at page eighty five and click at page five twenty five that both say that it's the defendant's burden to establish which costs are direct costs in both those cases which are two of the principle cases that everyone is relying on here it was the defendant's burden to establish that once the government came up with its general gross analysis lenders basically said that the salary since a salary was between over one million therefore you know it was improperly of pain that can be attributed as the benefit yes don't you really have to look at the corporation as opposed to the individuals and making a calculation here on it's a corporation that received the contract on i think that's a distinction without a difference in this case i mean it is a difference here of well it would be if this quote were to allow that sort of that sort of i don't want to i don't use legalism in such a pejorative word but but i do i do think that obviously the guidelines are looking to the substance of what's going on rather than the four i mean these bribes as far as the record but flex didn't come out of the corporate funding they came out of you know mrs levy is and her husband's bank account they're paid really have complete control to say that there's no profit in any in any contract and you know certainly the government you know was very suspicious of the accounting here and we didn't really try to fight it on you know i have a full scale you know war on the accounting and the it would be in the government interest to be arguing over the large number of cases you're arguing against your client's interest i dollars to the public official to get a corporate contract and the corporate contract is likely to be many profit likely to be in most cases millions and millions i absolutely agree judge staple and that was the other case you know that is being thrust back at us but the point is it's the greater of the two i mean i don't have to say it's always the corporation or it's always the individual and you certainly can have as a special rule for when an individual and the corporation are essentially the same thing you don't have to look to one or the other you can look to both i mean that's not you know certainly an unusual concept to do what you do with cohen and with the fact that they provided the judge have any problem with that holding your honor i mean i think cohen supports supports what we're trying to do here it's the net value accruing to the end to the on whose behalf the individuals paid the bride i mean here i just think you have to take a broad value of what that means it means they were they were giving these bribes to get more money into their pocket did they have to perform work for that absolutely but they wanted to perform that work rather than have other people perform that work and that to them was a benefit they said i'm going to make one hundred thousand dollars or eighty thousand or sixty thousand dollars a year and i'm going to have to work for it i know that but i'm going to get it and you're not or they're not and that's money that they were able to spend on their mercedes or whatever it was that they chose to buy as property so whether they characterize it as profit whether they characterize it as salary that's something they were getting and you have to subtract the value they gave if you're calculating loss to the government but this wasn't a loss to the government case we never tried to prove that we said what are they getting what's their benefit from the bride and if you can't take their set i understand ok argument to use ok if you're going to use benefit to the corporation you didn't i'm a chart that he says summarizes what their expert says and that's absolutely true it does those were not the numbers that were agreed upon by the parties those were the defense numbers before we reached agreement the numbers the parties agreed on i think numbers that are in the p s are those are the numbers that are in the sentencing memorandum that the government submitted and the defendant submitted before the defendants numbers to the court before sentencing are not those numbers that are at the at that they came from the defense expert they are different numbers so we there was a dispute about the numbers you cannot accept what's in the expert report as a given because those were not the things after final agreement that we agreed upon  and if you want to again try to see what's agreed upon it's in that they were agreed upon figures what's this argument about not carrying the burden of proof i don't know and understand i guess that there was a disagreement before the the court as to whether or not particular categories of things ought to be counted as direct or indirect we argued it's not the numbers it's the it's how you characterize them right yeah yeah the distinction between indirect and direct is the fulcrum that decides who wins on that issue right i think most right maybe mr going to do with carrying the burden of proof i just don't understand i'm sympathetic to the question because i i think that to some extent it might have been valuable for the district court to have heard some testimony on this on the other hand the government's position below was that for entire categories of expenses they are just overhead and so you didn't know need to know the detail so owning a building is overhead you know paying landscaping and pest control is overhead and things that are directly attributed to this contract are things like the people they hired to perform it and that was how it was argued below and it would have been to the defense advantage as well as the government's at that is frankly i think to to have some testimony on this so to the extent that testimony is lacking i think whose burden of proof that is is crucial here ok thank you thank you mr goldberg the key mr goldberg can i ask you to start with where opposing counsel left off because that's what was going to do you agree that the the burden of proof is critical because your expert didn't come forward with those many costs and say well our landscaping budget was increased by forty percent because we took on all this new work that we got through these illicit contracts that sort of analysis wasn't done and if it's not your burden it doesn't matter because they didn't do it either if it's their burden they lose on that but if it's your burden don't you lose on that i think you're imagining the way the company operated incorrectly if i may say so that because the expert did in fact that the expert report was about the costs of executing this contract the s m a contract it was not about the company as a whole and with respect to the building it's the best illustration of that they did not have this building before they got this contract they had to acquire this building for the performance of this contract the contract stated the kind of building they had to have and the location it ha d to be the sole purpose of this building and it's landscaping and it's pest control and everything else you need to have the building was this contract it was absolutely a direct cost of the performance of this big contract expenses meals and entertainment utilities professional education dues and subscriptions as far as i can tell the record does not eliminate at all which portion of those many costs that this company  were trivial to it's illegal if i may say that portion of its business and it would generate portion of it but may i dispute the use of that terminology because this company is one hundred percent legitimate and all of its business is legal it won some of that widget image and legal business by the payment of a bribe and all of this court's cases and the guideline commentary require us to make that distinction that you can't look at it as an illegitimate business and get the right answer but when you have a legitimate business which secures a legitimate contract which it fully performs by the payment of a pride we treat the business not as an illegitimate but as a legitimate business and we don't disallow nor business costs including so what salaries paid for services performed and we rent paid for the you wouldn't concede that some of his contracts are illegitimate no not in the way that term is used in this  course it's illegitimate to pay a bribe but the contract in the relevant sense in which we make the distinction in the painted case between the gambling business and in cohen the food business the legitimate food business that want to contract a fellow who's an astrophysicist who has a ph d from mit procures a defense contract through bribery it's a ten million dollar contract he has five employees he says hey the fair market value of my labor in this contract is three million dollars a year i'm going to pay myself a salary of three million dollars a year and the companies a break even company when he gets caught up on bribery the benefit received this zero because the company has made no profit if the government does not contest if he presents evidence not just because he says it but if he presents evidence that in the market for the certs a supervisory mill is worth three million or unquote worth three hundred invalidly aren't was going to pay three million dollars to somebody for the performance of those services then the net value of that contract to the company that one it through bribery zero that defendant gets hit for two point nine million in benefit whereas the other defendant gets it was zero but if that's what the rule says and if it's comes out wrong in justice and fairness we don't ti ourselves with handcuffs to the guidelines the judge can look at a case and say you know the rule produces an unjust result and an unfair result in this case it doesn't take count of the seriousness of the offense or something like that but you can't change the rule on a case by case basis as the government is trying to do saying whichever comes out better for us is the right rule that's has to be the wrong answer mr goldberger in this case yes we're looking at whether or not the court appropriately applied a sixteen point hands correct if we look at the numbers and if we accept what you said and deduct the salaries as a direct cost and the rent is a direct cost yes isn't the net benefit still in excess of one million dollars based on the figures that are in  if you subtract those two i don't have all the numbers in my head but i think the answer the question is no no if you can you subtract how all right how much was the rent to how much there is in a the agreement that the judge stopped that analysis short because in the end it's not the analysis that the judge used to reach the decision the other work was going on in this facility you agreed with i don't think so does the record show that i don't trust when we're working on other contracts were they not not in this facility i don't believe i think this facility was limited to them maybe incidentally but many no significant measure this was  contract they had this is a second facility yes and but it was like really good because they secured this thanks contra which was the biggest contract they ever had they were hoping that it would be the beginning of a new level of of career for them yes thank you ok thank you very