Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-00-03095/USCOURTS-caDC-00-03095-0/pdf.json

Parties Involved:
Soo Young Bae
Appellant
United States of America
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 20, 2001 Decided May 25, 2001

No. 00-3095

United States of America,

Appellee

v.

Soo Young Bae,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 99cr00284-01)

Mary Manning Petras argued the cause for appellant.

With her on the briefs was G. Allen Dale.

Catherine A. Szilagyi, Assistant U.S. Attorney, argued the

cause for appellee. With her on the brief were Wilma A.

Lewis, U.S. Attorney at the time the brief was filed, John R.

Fisher and Henry K. Kopel, Assistant U.S. Attorneys.

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Before: Ginsburg, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: The District of Columbia Lottery

Board licensed Soo Young Bae, then a Washington merchant,

to operate a terminal that prints and dispenses lottery tickets

for sale. Bae used the terminal to generate tickets with a

face value of $525,586, for which he did not pay. The winning

tickets among these had a total redemption value of $296,153,

of which Bae successfully obtained all but $72,000. Bae

pleaded guilty to computer fraud, 18 U.S.C. s 1030(a)(4), and

the district court sentenced him to 18 months in prison. Bae

challenges his sentence, in calculating which the district court

valued the "loss" due to the fraud at $503,650--the market

value of the tickets less the commission Bae would have

received from the Lottery Board had he sold those tickets.

We affirm.

In sentencing a defendant for fraud the district court must

make a "reasonable estimate" of the victim's "loss." U.S.S.G.

s 2F1.1(b) & application n.9. Although Bae challenges the

method by which the district court arrived at its estimate, he

does not contest any of the data potentially relevant to the

loss calculation, that is, the face value of the tickets, the

commission he would have earned for selling the tickets he

generated, and the value of the winning tickets. "The appropriate method for calculating loss amounts under the Guidelines is a prototypical question of legal interpretation, and we

review de novo." United States v. Walker, 234 F.3d 780, 783

(1st Cir. 2000) (emphasis omitted).

The general rule in a case involving property obtained by

fraud is that the measure of loss is "the fair market value of

the particular property at issue." U.S.S.G. s 2B1.1 application n.2 (incorporated by reference in U.S.S.G. s 2F1.1 application n.8). Bae argues that "[a]t the instant any lottery

ticket is printed," it is worth whatever value the lottery

drawing later assigns to it; losing tickets, that is, have no

value. Bae thus calculates the loss at $296,153, the value of

his winning tickets. His approach misconceives the probabilistic nature of the lottery ticket, however; as the Government

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notes, "the value of the ticket is the value of a chance to win."

Tickets are indistinguishable--and each has an equal probability of winning--until the drawing determines the winner(s).

Prior to that time, all tickets have the same market value

because they all have the same chance of winning a prize,

which is why they all sell at the same price. A ticket's

market value, moreover, always exceeds its expected payoff,

because the ticket is priced at a level that also reflects some

of the value consumers derive from playing the odds.

A ticket's value changes with the drawing, of course: once

the lucky numbers are announced, the value of the winning

tickets rises to the value of the prize money while the value of

the losing tickets goes to zero. Numerous goods, however--

from automobiles to common stocks--may change in value

soon after they are purchased. Nonetheless, for the purpose

of sentencing, the loss associated with their fraudulent procurement is equal to the value of the goods at the time of the

offense. See, e.g., Walker, 234 F.3d at 783 (partial return of

funds subsequent to embezzlement does not reduce valuation

of loss); accord United States v. Baker, 200 F.3d 558, 561 (8th

Cir. 2000); United States v. Burridge, 191 F.3d 1297, 1301

(10th Cir. 1999).

Bae also argues that in this case market price is an

inappropriate measure of loss because "[t]he act of printing

those tickets cost the D.C. Lottery nothing." There is no

basis, however, for Bae's implicit suggestion that market

price is an inadequate measure of loss merely because the

fraudulently obtained good has a low marginal cost of production. See United States v. Watson, 189 F.3d 496, 501 (7th

Cir. 1999) (value of stolen cigarette tax stamps is "fair market

value of the stamps, not their replacement cost"); United

States v. Jenkins, 901 F.2d 1075, 1083-84 (11th Cir. 1990)

(loss due to theft of nonnegotiable stock certificates is face

value, not cost of reprinting certificates). The Guidelines

adopt fair market value rather than replacement cost as the

measure of loss for good reason. See U.S.S.G. s 2B1.1

application n.2. As the Government points out, measuring

loss in terms of replacement costs rather than at fair market

value would result in anomalous and capricious sentences.

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For example, if loss were measured by reference to replacement cost, then fraudulently obtaining a good from a consumer would be punished more severely than fraudulently obtaining the same good from the manufacturer, which can replace

it at a lower cost. Similarly, defrauding a more efficient

producer would carry a lower sentence than defrauding a less

efficient producer of the same good. Nor does Bae offer any

reason to think that the instanced anomalies are somehow

ameliorated in cases where the fraudulently obtained item can

be replaced cheaply; on the contrary, using replacement cost

as the measure of loss only when replacement cost is low

would increase the arbitrariness of the sentencing regime.

Bae offers a variant upon this argument when he contends

that the fair market value of the tickets is an inappropriate

measure of the loss that he caused because generating his

tickets did not reduce the number of tickets that could be and

were sold to others. This suggests that loss is poorly measured by the fair market value of a good the replacement cost

of which is close to zero. For the reasons explicated above,

abandoning fair market value as a measure of loss in favor of

replacement cost only when replacement cost is low is a

perverse policy and we reject it.

We also reject Bae's alternative argument that the proper

measure of loss in this case is the Lottery Board's lost profit

($207,496), calculated as the market value of the fraudulently

obtained tickets less both (1) the commission the Board would

have paid Bae for selling those tickets and (2) the amount it

would have had to pay to redeem the winning tickets among

them had they been purchased lawfully. The Government

suggests that the Guidelines should lead courts to "hesitate[ ]

to engage in net loss calculations," and we agree. Lost profit

is an undesirable measure of loss for roughly the same

reasons that replacement cost is: Both measures would penalize frauds differently depending upon whether the victim is

a consumer or a producer; create disparities in sentencing for

the fraudulent procurement of identical items from different

producers; and require the courts to inquire into the costs of

production, rather than looking to the generally more accessible market value, in order to calculate a sentence. EstimatUSCA Case #00-3095 Document #598694 Filed: 05/25/2001 Page 4 of 6
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ing loss based upon lost profits rather than fair market value

is also inconsistent with the principle that the full value of a

stolen item is the measure of loss even if the item is later

returned. See U.S.S.G. s 2B1.1 application n.2; Walker, 234

F.3d at 783. (Because it is limited by the plea agreement it

entered into in this case, the Government does not contest the

district court's decision to deduct from its estimate of the loss

the commission that Bae would have received had he legitimately sold the tickets that he printed, although this deduction is in principle indistinguishable from the deduction of

payoffs foregone that Bae proposes here and we reject.)

Contrary to Bae's suggestion, our present conclusion is not

inconsistent with our statement in United States v. Gottfried

that estimates of loss under the Sentencing Guidelines seek

"to measure the economic harm ... caused" to the victim. 58

F.3d 648, 651 (1995). In Gottfried, an attorney in the Department of Veterans Affairs destroyed documents in order to

reduce his workload, and we held that the resulting loss to

the Government could be estimated as the costs of "undoing

the full extent of the damage." Id. at 652. There was no

market by which to value the destroyed records, so "market

value ... did not reflect the harm to the government," id.;

when fair market value does provide "a reasonable estimate

of the loss," U.S.S.G. s 2F1.1 application n.9, however, it is to

be preferred. See U.S.S.G. s 2B1.1 application n.2.

Finally, Bae suggests that using market value as the

measure of loss will "produce disparate sentences for similar

crimes" because defendants who generate the same number

of tickets but whose winnings differ will be sentenced similarly. As the Government properly points out, that is not a

disparity because "the fortuity of 'winning' the lottery" is

irrelevant. A lottery ticket is a chance to win a prize, and

two defendants, one of whom gets a losing and one a winning

ticket by fraud, commit the same act and therefore merit the

same treatment. There would be a disparity, however, under

Bae's approach: The unlucky malefactor who prints out only

losing tickets presumably would get no sentence at all. Bae

asks whether an offender who fraudulently obtains a single

ticket that proves to be worth millions should be subject only

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to the minimal sentence associated with the face value of one

ticket. Should such an offender attempt to redeem his

winnings, as did Bae, the actual or the intended loss associated with that attempt, see U.S.S.G. s 2F1.1 application n.8,

would be the full amount of the jackpot. (We need not decide

how to apply the Guidelines to a winner who, unlike Bae, was

apprehended before trying to claim his prize.)

In conclusion, a "reasonable estimate" of the loss caused by

Bae's fraud is the fair market value of the lottery tickets at

the time that Bae printed them. The sentence imposed by

the district court is therefore

Affirmed.*

* Bae also argues that the district court erred in refusing to grant

a downward sentencing departure due to his "extraordinary physical impairment[s]." U.S.S.G. s 5H1.4. When a district court is

aware of its discretion to permit such a departure, as the transcripts of the sentencing hearing make clear that it was here, its

refusal to exercise that discretion is unreviewable. See, e.g., United

States v. Studevent, 116 F.3d 1559, 1564 (D.C. Cir. 1997).

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