FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

GREGORY PETER TORLAI, JR.,

Defendant-Appellant.

No. 11-10359

D.C. No.

2:08-cr-00329-

JAM-1

OPINION

Appeal from the United States District Court

for the Eastern District of California

John A. Mendez, District Judge, Presiding

Argued and Submitted

January 18, 2013—San Francisco, California

Filed August 26, 2013

Before: J. Clifford Wallace, Jerome Farris,

and Jay S. Bybee, Circuit Judges.

Opinion by Judge Bybee
2 UNITED STATES V. TORLAI

SUMMARY*

Criminal Law

The panel affirmed the sentence imposed following a jury

conviction of sixteen counts of making a false claim for farm

benefits in connection with the Federal Crop Insurance Act.

The panel held that by virtue of the defendant’s fraud, he

was not eligible for any government benefit under the crop

insurance program, and therefore he was not an “intended

beneficiary” under U.S.S.G. § 2B1.1 cmt. n.3(F)(ii). The

panel thus rejected the defendant’s argument that the district

court erred, in its loss calculation, by failing to separate

legitimate from illegitimate claims.

The panel held that the district court did not err by

including in the loss amount the producer premiums the

defendant paid – i.e., the non-subsidized portion of the crop

insurance premium for which an insured farmer is

responsible.

The panel concluded that there was sufficient evidence

that administrative and operating expenses paid by the

government to the insurance company for selling and

servicing the policy, and premium subsidies paid by the

government to underwrite the crop insurance, were

reasonably foreseeable to the defendant, and that the district

court did not err by including them in its loss calculation.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
UNITED STATES V. TORLAI 3

COUNSEL

T. Louis Palazzo (argued), Palazzo Law Firm, Las Vegas,

Nevada; Allen Lichtenstein, Las Vegas, Nevada, for

Defendant-Appellant.

Michael D. Anderson (argued) and Kyle Reardon, Assistant

United States Attorneys, United States Attorney’s Office for

the Eastern District of California, Sacramento, California, for

Plaintiff-Appellee.

OPINION

BYBEE, Circuit Judge:

Thomas Jefferson once wrote to John Jay: “Cultivators of

the earth are the most valuable citizens. They are the most

vigorous, the most independent, the most virtuous, and they

are tied to their country and wedded to its liberty and interests

by the most lasting bands.” 8 The Papers of Thomas

Jefferson 426 (Julian P. Boyd et al. eds., Princeton University

Press) (1950) (spellingmodernized). Although an industrious

cultivator of the earth, Gregory Peter Torlai did not prove the

most virtuous. Torlai was convicted of sixteen counts of

making a false claim for farm benefits in connection with the

Federal Crop Insurance Act. At sentencing, the district court

determined that Torlai had caused a loss of $410,372,

resulting in a 14-level sentencing guideline increase. In this

appeal, we consider whether the district court erred in its loss

calculation. These are matters of first impression. We

affirm.
4 UNITED STATES V. TORLAI

I. BACKGROUND AND PROCEDURAL HISTORY

A. Federal Crop Insurance Program

“Farming has literally been a feast or famine proposition

since the beginning of time.” David F. Rendahl, Federal

Crop Insurance: Friend or Foe?, 4 San Joaquin Agric. L.

Rev. 185, 185 (1994). “Most agricultural production is

subject to the vagaries of weather, and the nature of

agricultural supply and demand often results in volatile

market prices.” Dennis A. Shields, Cong. Research Serv.,

R40532, Federal Crop Insurance: Background 1 (2012). One

of the most vivid illustrations of agricultural risk is the

American Dust Bowl. In the 1930s, the myopic agricultural

practices of homesteaders coupled with severe drought

resulted in widespread crop failure that left wide swaths of

the Great Plains region of the United States highly susceptible

to wind erosion. See Richard Hornbeck, The Enduring

Impact of the American Dust Bowl: Short- and Long-Run

Adjustments to Environmental Catastrophe, 102 Am. Econ.

Rev. 1477, 1479 (2012). “Dust storms in the 1930s blew

enormous quantities of topsoil off Plains farmland; on ‘Black

Sunday’ in 1935, one such storm blanketed East Coast cities

in a haze.” Id. The destruction left in the Dust Bowl’s wake

was so severe that it triggered a massive exodus of farmers

and their families who lost their livelihoods long before the

dust settled.

The Dust Bowl’s awful destruction not only motivated

The Grapes of Wrath, but also spurred Congress to

“authorize[] federal crop insurance as an experiment to

address the effects of the Great Depression and crop losses

seen in the Dust Bowl.” Shields, supra at 1. It was only with

the Federal Crop Insurance Act of 1980 (“FCIA”), 7 U.S.C.
UNITED STATES V. TORLAI 5

§ 1501 et seq., however, that Congress permanently

authorized the federal crop insurance program. Id. The

FCIA’s express purpose is “to promote the national welfare

by improving the economic stability of agriculture through a

sound system of crop insurance.” Id. § 1502(a).

“The federal crop insurance program provides producers

with risk management tools to address crop yield and/or

revenue losses on their farms.” Shields, supra at 2. The

program is administered by the federal government, but the

insurance policies are sold through arrangements with private

insurance companies. Id. “Independent insurance agents are

paid sales commissions by the companies. The insurance

companies’ losses are reinsured by [the] USDA, and their

administrative and operating [(“A&O”)] costs are reimbursed

by the federal government.” Id.

“In purchasing a policy, a producer growing an insurable

crop [in a covered county] selects a level of coverage and

pays a portion of the premium, which increases as the level of

coverage rises. The remainder of the premium is covered by

the federal government (about 62% of total premium, on

average, is paid by the government).” Id. at 3. Thus, the

federal crop insurance program subsidizes the cost borne by

a farmer in obtaining crop insurance, increasing farmer

participation. See id.

Generally speaking, there are two types of crop insurance

policies: yield-based and revenue-based. Id. at 5. Yieldbased crop insurance policies provide insured farmers with

“an indemnity if there is a yield loss relative to the farmer’s

‘normal’ (historical) yield.” Id. In contrast, revenue-based

crop insurance policies are more comprehensive,

“protect[ing] against crop revenue loss resulting from
6 UNITED STATES V. TORLAI

declines in yield, price, or both.” Id. Like other insurance

products, the differing crop insurance policies only provide

an indemnity against certain risks of loss, usually related to

unpredictable, weather-related events that are beyond the

power of a farmer to control.

A farmer desiring to obtain crop insurance approaches a

private insurer and is required to fill out an application for

crop insurance containing detailed information: e.g., the type

of insurable crop; date of planting; applicable irrigation

practice, if any; and acreage under cultivation. The farmer

also provides an actual production history (“APH”) for the

parcel to be insured. The APH establishes a record of

productivity for the subject parcel, assisting in the calculation

of the policy premium and any benefits that might be required

to be paid. This information must be received prior to

planting the crop a farmer desires to insure. After planting,

however, the farmer must submit an acreage report certifying

the veracity of all final information submitted regarding the

insured crop, including the amount of the farmer’s insurable

interest in the crop. This cumulative information is used to

calculate the premium that applies to the issued crop

insurance policy.

If, during the course of the growing season, a farmer’s

insured crop suffers a covered cause of loss, the farmer must

comply with a claims procedure, including filing a notice of

loss, to obtain an indemnity payment. As part of the claims

process, an adjuster must inspect the crop to verify the

farmer’s asserted cause of loss and file a corresponding

report—certified by the farmer—detailing information about

the crop and the cause of loss. If the loss is determined to be

covered by the crop insurance policy, the required indemnity

will be paid to the farmer.
UNITED STATES V. TORLAI 7

Although the crop insurance premium is due when the

insurance policy is issued, in practice, the farmer is allowed

to delay payment until either the insured crop is harvested and

marketed, or a valid claim is submitted and an indemnity

paid. Normally, when a valid claim is submitted, the farmer

never pays the premium out-of-pocket; rather, the farmer

receives an indemnity payment that is net the crop insurance

premium the farmer remains owing.

B. Facts

Torlai is an experienced farmer. In fact, for

approximately thirty years, Torlai has been actively involved

in the cultivation of numerous different crops on varied

parcels of land throughout northern California, including in

Contra Costa, Lassen, and San Joaquin counties. As part of

his substantial farming operations, Torlai has long taken

advantage of federal crop insurance programs to hedge

against the risks he faces in his farming operations.

In 2008, an indictment was returned against Torlai

charging him with seventeen counts of making a false claim

for farm benefits. See 18 U.S.C. § 1014. The charges

stemmed from misrepresentations that Torlai made in order

to obtain crop insurance policies and collect indemnity

payments on those policies for Stoney Creek Ranch (Lassen

County) in 2001, 2002, and 2005; Union Island (San Joaquin

County) in 2001; and Quimby Island (Contra Costa County)

in 2001. Torlai’s alleged misrepresentations included

exaggerated acreage reports, misidentifying the crop planted,

incorrect planting dates, claiming non-irrigated crops were

irrigated, misrepresenting forage crops as crops for grain

production, and inventing causes of loss.
8 UNITED STATES V. TORLAI

C. Procedural History

At trial, the jury convicted Torlai of all sixteen counts

placed before them—the government having previously

dismissed one of the seventeen counts in the indictment. The

Pre-Sentence Report recommended that Torlai be given a 12-

level sentencing guideline increase based on an estimated

$350,000 loss. At the sentencing hearing, however, the

government argued that the appropriate loss amount should

be $410,372, requiring a 14-level sentencing guideline

increase.1 The government’s proposed loss amount required

the district court to determine that Torlai was not legitimately

entitled to any portion of the indemnity payments he received,

including (1) the gross amount of the indemnity without

subtracting Torlai’s portion of the crop insurance premium,

and (2) the premium subsidies and A&O expenses paid by the

government. The district court accepted the government’s

calculated loss amount, but varied from the sentencing

guideline range and imposed a below-Guidelines sentence of

concurrent terms of 30 months imprisonment and 36 months

supervised release. Torlai timely appealed, arguing that the

district court erred in imposing a 14-level sentencing

guidelines increase for loss based on the government’s

calculation. We have jurisdiction pursuant to 28 U.S.C.

§ 1291.

II. STANDARD OF REVIEW

Our appellate review of a sentence “is to determine

whether the sentence is reasonable; only a procedurally

1 United States Sentencing Guidelines §§ 2B1.1(b)(1)(G) and (H)

provide that a loss greater than $200,000 results in a 12-level increase, and

a loss greater than $400,000 results in a 14-level increase.
UNITED STATES V. TORLAI 9

erroneous or substantively unreasonable sentence will be set

aside.” United States v. Carty, 520 F.3d 984, 993 (9th Cir.

2008) (en banc); see also Gall v. United States, 552 U.S. 38,

46 (2007) (“Our explanation of ‘reasonableness’ review in the

Booker opinion made it pellucidly clear that the familiar

abuse-of-discretion standard of review now applies to

appellate review of sentencing decisions.”). Thus, we must

first consider “whether the district court committed

significant procedural error” when determining Torlai’s

sentence. Carty, 520 F.3d at 993. “Procedural errors include,

but are not limited to, incorrectly calculating the Guidelines

range, treating the Guidelines as mandatory, failing properly

to consider the § 3553(a) factors, using clearly erroneous

facts when calculating the Guidelines range or determining

the sentence, and failing to provide an adequate explanation

for the sentence imposed.” United States v. Armstead,

552 F.3d 769, 776 (9th Cir. 2008). “If we discern no

significant procedural error, we proceed to the second step

and ‘consider the substantive reasonableness of the

sentence.’” Id. (quoting Carty, 520 F.3d at 993).2

We review “the district court’s construction and

interpretation of the Sentencing Guidelines de novo,” United

States v. Nielsen, 694 F.3d 1032, 1034 (9th Cir. 2012), and

“the district court’s application[] of the Guidelines to the

facts” for abuse of discretion, United States v. Holt, 510 F.3d

1007, 1010 (9th Cir. 2007). We will only reverse a district

court’s decision as an abuse of discretion where we either

“determine de novo [that] the trial court identified the

[in]correct legal rule to apply,” or “determine [that] the trial

court’s application of the correct legal standard was (1)

illogical, (2) implausible, or (3) without support in inferences

2 Torlai does not contest the substantive reasonableness of his sentence.
10 UNITED STATES V. TORLAI

that may be drawn from the facts in the record.” United States

v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc)

(internal quotation marks omitted).

We review the district court’s factual determinations,

“including the calculation of the victim’s loss, . . . for clear

error.” United States v. Tulaner, 512 F.3d 576, 578 (9th Cir.

2008). “The clear error standard is significantly deferential

and is not met unless [we are] left with a definite and firm

conviction that a mistake has been committed.” Fisher v.

Tucson Unified Sch. Dist., 652 F.3d 1131, 1136 (9th Cir.

2011) (internal quotation marks omitted). “[I]f the district

court’s findings are plausible in light of the record viewed in

its entirety, [we] cannot reverse even if [we are] convinced

[we] would have found differently.” United States v.

McCarty, 648 F.3d 820, 824 (9th Cir. 2011) (internal

quotation marks omitted). Thus, “[w]here there are two

permissible views of the evidence, the factfinder’s choice

between them cannot be clearly erroneous.” United States v.

Elliott, 322 F.3d 710, 715 (9th Cir. 2003) (internal quotation

marks omitted).

III. DISCUSSION

When imposing a sentence upon an individual convicted

of making a false claim for farm benefits pursuant to

18 U.S.C. § 1014, a district court is guided by the United

States Sentencing Guidelines (“USSGs”) § 2B1.1. While the

USSGs are only advisory, see United States v. Booker,

543 U.S. 220, 245 (2005), a district court must correctly

calculate the guideline range before imposing a reasonable

sentence, see Gall, 552 U.S. at 51. At issue in the instant

appeal is the district court’s loss calculation used to derive the

sentencing guidelines range applicable to Torlai’s conviction.
UNITED STATES V. TORLAI 11

The “commentary in the Guidelines Manual that

interprets or explains a guideline is authoritative unless it

violates the Constitution or a federal statute, or is inconsistent

with, or a plainly erroneous reading of, that guideline.” 

Stinson v. United States, 508 U.S. 36, 38 (1993); see also

United States v. Jackson, 697 F.3d 1141, 1146 (9th Cir. 2012)

(per curiam). The commentary to § 2B1.1 indicates that a

portion of the sentencing guideline range is dictated by the

loss table, and the relevant instructions for properly using the

loss table are contained in application note 3.

Specifically, “loss is the greater of actual loss or intended

loss,” subject to certain exceptions that are not relevant in this

case. U.S.S.G. § 2B1.1 cmt. n.3(A). The application note

continues by defining “actual loss” as “the reasonably

foreseeable pecuniary harm3that resulted from the offense.” 

Id. § 2B1.1 cmt. n.3(A)(I). “Intended loss” is defined as: (1)

“[T]he pecuniary harm4that was intended to result from the

offense,” and (2) “includes intended pecuniary harm that

would have been impossible or unlikely to occur.” Id.

§ 2B1.1 cmt. n.3(A)(ii).

A special rule, however, applies to cases involving

government benefits:

3

“Reasonably foreseeable pecuniary harm” is defined as “pecuniary

harm that the defendant knew or, under the circumstances, reasonably

should have known, was a potential result of the offense.” 

U.S.S.G. § 2B1.1 cmt. n.3(A)(iv).

4

“Pecuniary harm” is defined as “harm that is monetary or that

otherwise is readily measurable in money.” Pecuniary harm “does not

include emotional distress, harm to reputation, or other non-economic

harm.” U.S.S.G. § 2B1.1 cmt. n.3(A)(iii).
12 UNITED STATES V. TORLAI

In a case involving government benefits (e.g.,

grants, loans, entitlement program payments),

loss shall be considered to be not less than the

value of the benefits obtained by unintended

recipients or diverted to unintended uses, as

the case may be. For example, if the

defendant was the intended recipient of food

stamps having a value of $100 but

fraudulently received food stamps having a

value of $150, loss is $50.

Id. § 2B1.1 cmt. n.3(F)(ii) (emphasis added).5 Nevertheless,

the district court “need only make a reasonable estimate of

the loss. The sentencing judge is in a unique position to

assess the evidence and estimate the loss based upon that

evidence. For this reason, the court’s loss determination is

entitled to appropriate deference.” Id. § 2B1.1 cmt. n.3(C);

5 Crop insurance obtained through the federal crop insurance program

is a government benefit for purposes of § 2B1.1 cmt. n.3(F)(ii). The

federal crop insurance program is a subsidy program intended to benefit

farmers specifically, and society more generally, through a more stable

agricultural system. Although federal crop insurance is not identical to the

federal food stamp program included as an example in § 2B1.1 cmt.

n.3(F)(ii), the federal crop insurance program is similar in that it provides

a subsidy to a particular subset of the United States population. Thus, the

benefit a farmer receives through participation in the federal crop

insurance program—premium subsidy—is a government benefit similar

to “entitlement program payments.” See § 2B1.1 cmt. n.3(F)(ii); cf.

United States v. Maxwell, 579 F.3d 1282, 1306–07 (11th Cir. 2009)

(characterizing a contract received under a federally funded

Disadvantaged Business Enterprises program—for the purpose of

“help[ing] small minority-owned businesses develop and grow”—as a

government benefit); United States v. Tupone, 442 F.3d 145, 153–54 (3d

Cir. 2006) (characterizing federal workers’ compensation benefit

payments as a government benefit).
UNITED STATES V. TORLAI 13

see also United States v. W. Coast Aluminum Heat Treating

Co., 265 F.3d 986, 991 (9th Cir. 2001) (“[T]he district court’s

obligation is to adopt a reasonable ‘realistic, economic’

projection of loss based on the evidence presented.”).6

Torlai’s entire appeal is centered on an alleged error

committed by the district court in determining the loss

amount. In this regard, Torlai advances three main

arguments: (1) The district court improperly based its loss

calculation on the “premise that Torlai’s statements were

6 Torlai has argued that certain facts relied on by the district court in

sentencing either were not determined by the jury, or the jury did not find

certain facts beyond a reasonable doubt that the district court subsequently

relied on at sentencing. As we have previously stated:

This argument fundamentally misunderstands the

current state of constitutional law on sentencing. The

relevant Sixth Amendment question is not . . . whether

[the district court] found facts that were not proven

beyond a reasonable doubt by the jury in the process of

calculating the guidelines range. Rather, the Sixth

Amendment question . . . is whether the law forbids

[the district court] to increase a defendant’s sentence

unlessthe [district court] finds facts that the jury did not

find (and the offender did not concede). Because the

sentencing guidelines are advisory after Booker, the

Sixth Amendment does not require that the loss be

proved to a jury beyond a reasonable doubt.

United States v. Hickey, 580 F.3d 922, 932 (9th Cir. 2009) (internal

citations and quotation marks omitted); see also Dillon v. United States,

130 S. Ct. 2683, 2692 (2010) (“Taking the original sentence as given, any

facts found by a judge at a § 3582(c)(2) proceeding do not serve to

increase the prescribed range of punishment; instead, they affect only the

judge’s exercise of discretion within that range[,] . . . and the exercise of

such discretion does not contravene the Sixth Amendment even if it is

informed by judge-found facts.”).
14 UNITED STATES V. TORLAI

false in their entirety.” Torlai argues that this was error

because he was legitimately entitled to some insurance, even

if not everything he claimed. (2) The court erroneously

included his entire indemnity claim as loss, even though any

indemnity payment made by the government would have

been reduced by the amount that he owed as an insurance

premium. (3) The court impermissibly included amounts

spent by the government on A&O expenses and premium

subsidies as “reasonably foreseeable intended pecuniary

losses.”7 We consider each of Torlai’s arguments in turn.

A. Indemnity Payment as the Basis for Loss Calculation

First, Torlai argues that he actually planted and lost some

legitimately insured crops. Torlai asserts that he “[c]learly

. . . did, in fact, plant crops that were insured under the

policies issued,” but “[n]either the jury at trial nor the Court

7 Torlai also argues that the Rule of Lenity should apply because the

district court “readily admitted that there was no case law to guide [the

court] in [its] sentencing decisions” and, therefore, the district court

“invoked its interpretation of the Federal Sentencing Guidelines.” We

have previously held that the Rule of Lenity applies to our interpretation

of the USSGs, as well as penal statutes. United States v. FuentesBarahona, 111 F.3d 651, 653 (9th Cir. 1997) (per curiam). Further, we

have held that “[t]he rule of lenity is applicable only where there is a

grievous ambiguity or uncertainty in the language and structure of [an]

Act, such that even after a court has seize[d] every thing from which aid

can be derived, it is still left with an ambiguous statute.” United States v.

Bendtzen, 542 F.3d 722, 727–28 (9th Cir. 2008) (internal quotation marks

omitted and alterations in original). Our analysis shows that the relevant

sentencing guideline is not “grievous[ly] ambigu[ous].” The mere fact

that there is a dearth of pre-existing caselaw does not ineluctably force us

to conclude that the district court could make no more than a guess as to

what the relevant sentencing guideline meant. Torlai’s Rule of Lenity

argument is without merit.
UNITED STATES V. TORLAI 15

at sentencing ever attempted to ascertain what portions of

those indemnities paid were legitimate and what portions

were not.” In Torlai’s estimation, the district court merely

assumed “that Defendant was not entitled to any of the money

he received in the form of indemnity payments,” with “[n]o

attempt [being] made to separate the legitimate from the

illegitimate claims for the purpose of determining how much

of the insurance claim was fraudulent . . . and how much of

the claim was not erroneous.” Thus, Torlai argues that the

district court should have conducted an analysis “to determine

how much of [his] claims or intended claims, [sic] were

legitimate under the policies in effect,” and that amount

should be subtracted from loss calculation under the

government benefits provision of § 2B1.1 cmt. n.3(F)(ii).

In a government benefits case, “loss shall be considered

to be not less than the value of the benefits obtained by

unintended recipients or diverted to unintended uses.” 

U.S.S.G. § 2B1.1 cmt. n.3(F)(ii) (emphasis added). Only the

illegitimate portion of the value of the government benefits

should be included in the loss calculation. Id. Torlai argues

that if he truly planted some eligible crop that was covered

under a valid crop insurance policy but, for example, had

overstated the acreage under cultivation, and the crop

insurance policy was valid notwithstanding the false

statement, then the district court would have been required to

determine the amount of the resulting indemnity payment to

which Torlai would have been legitimately entitled under the

valid crop insurance policy. We need not address Torlai’s

argument because it assumes a premise he cannot sustain: that

Torlai retained a valid crop insurance policy despite his

misrepresentations. Importantly, however, each of the

applications for crop insurance submitted byTorlai contained

“Conditions of Acceptance,” providing that Torlai’s
16 UNITED STATES V. TORLAI

“Application [wa]s accepted and insurance attache[d] in

accordance with the policy unless . . . any material fact [wa]s

omitted, concealed or misrepresented in th[e] Application or

in the submission of th[e] Application.” (emphasis added). 

This is consistent with the basic policy provisions that were

in effect when Torlai received crop insurance on the parcels

charged in the indictment. In each relevant year, the basic

Crop Revenue Coverage Insurance Policy provided: “[I]f you

or anyone assisting you has intentionally concealed or

misrepresented any material fact relating to this policy . . .

[the] policy will be voided .”8

See, e.g., Risk Mgmt. Agency,

 

8

 The complete policy provision states:

27. Concealment, Misrepresentation or Fraud

(a) If you have falsely or fraudulently concealed

the fact that you are ineligible to receive

benefits under the Act or if you or anyone

assisting you has intentionally concealed or

misrepresented any material fact relating to

this policy:

(1) This policy will be voided; and

(2) You may be subject to remedial sanctions

in accordance with 7 CFR part 400,

subpart R.

(b) Even though the policy is void, you may still

be required to pay 20 percent of the premium

due under the policy to offset costs incurred

by us in the service of this policy. If

previously paid, the balance of the premium

will be returned.

(c) Voidance of this policy will result in you

having to reimburse all indemnities paid for
UNITED STATES V. TORLAI 17

USDA, 2001 Crop Revenue Coverage (CRC) Insurance

Policy, 01-CRC-BASIC 14 (2000) (emphasis added). Thus,

if Torlai misrepresented any material fact in his policy

application, then his crop insurance policies would be void

and the district court could determine that Torlai was not an

intended recipient of the government benefit at issue—crop

insurance indemnity payments.

Our review of the record reveals sufficient evidence that

Torlai was not entitled to any portion of the indemnity

payments.

1. Stoney Creek Ranch 2001

The Pre-Sentence Report found that Torlai actually

planted substantially less than the 499 acres of wheat for

Stoney Creek Ranch in 2001 he reported, and that the wheat

that was planted was not irrigated. Torlai also misstated his

interest in the crops grown on Stoney Creek Ranch. 

Moreover, Torlai only purchased enough beardless wheat

seed to plant approximately 120 acres of non-irrigated

the crop year in which the voidance was

effective.

(d) Voidance will be effective on the first day of

the insurance period for the crop year in which

the act occurred and will not affect the policy

for subsequent crop years unless a violation of

this section also occurred in such crop years.

Risk Mgmt. Agency, USDA, 2001 Crop Revenue Coverage (CRC)

Insurance Policy, 01-CRC-BASIC 14 (2000); Risk Mgmt. Agency,

USDA, 2002 Crop Revenue Coverage (CRC) Insurance Policy, 02-CRCBASIC 15–16 (2001); Risk Mgmt. Agency, USDA, 2005 Crop Revenue

Coverage (CRC) Insurance Policy, 05-CRC-BASIC 24 (2004).
18 UNITED STATES V. TORLAI

land—though he had altered an invoice to make it appear as

if he had purchased a greater quantity of seed. Thus, the

record reveals that Torlai made multiple material

misstatements that rendered his crop insurance policy for

Stoney Creek Ranch in 2001 void. This evidence was clearly

sufficient for the district court to determine that Torlai was

not an intended beneficiary of any indemnity payment related

to Stoney Creek Ranch in 2001.

Furthermore, regardless of the validity of Torlai’s crop

insurance policy for Stoney Creek Ranch in 2001, the

government will not pay an indemnity unless the farmer has

filed a valid claim. That is, a farmer covered by a crop

insurance policy must show that the loss he suffered was

caused by a covered event. Regarding the 2001 StoneyCreek

Ranch crop, Torlai based his claim for an indemnity payment

on losses supposedly resulting from hail, wind, and excessive

precipitation. The evidence showed, however, that there was

“no crop to be impacted by the causes of loss.” The satellite

images introduced into evidence did not show any evidence

of a wheat crop that had developed to a sufficient stage of

maturation that could have been harmed by the purported

causes of loss. Even assuming that the weather events Torlai

reported did occur and that Torlai grew some portion of the

insured crop and had a valid crop insurance policy, the

evidence clearly showed that the weather events asserted in

the filed claim could not have caused any damage and,

therefore, Torlai was entitled to no indemnity. The absence

of a legitimate cause of loss means that Torlai was not an

intended beneficiary of any indemnity for Stoney Creek

Ranch in 2001, regardless of any other factors.
UNITED STATES V. TORLAI 19

2. Stoney Creek Ranch 2002

The Pre-Sentence Report found that Torlai actually

planted substantially less than the reported 836.1 acres of

wheat for Stoney Creek Ranch in 2002, and that the wheat

that was planted was not irrigated. The Pre-Sentence

Report’s conclusion is supported by the record. Likewise,

Torlai again misstated his interest in the crops grown on

Stoney Creek Ranch. In fact, satellite images revealed that

there was insufficient land cleared on Stoney Creek Ranch to

even plant 499 acres of wheat. “[A]pproximately 536 of the

836.1 acres reported as planted to wheat by [Torlai] ha[d] not

been converted from native vegetation grass” during the

relevant time period. Furthermore, crop insurance adjusters

did not find any wheat planted in fields that Torlai

represented as having been planted to wheat. What crop

insurance adjusters did find were large pits full of garbage

and debris, a far-cry from a wheat stand. Thus, the record

reveals that Torlai made material misstatements that render

his crop insurance policy for Stoney Creek Ranch in 2002

void. On that basis, the evidence was sufficient for the

district court to determine that Torlai was not an intended

beneficiary of any indemnity payment related to Stoney

Creek Ranch in 2002.

Regardless of the validity of Torlai’s crop insurance

policy for Stoney Creek Ranch in 2002, Torlai did not have

a valid claim for loss. During an unscheduled visit by crop

insurance adjusters, they discovered that the wheat had been

grazed off by cattle. In response, Torlai withdrew his claim. 

Even assuming that Torlai had a valid crop insurance policy

and that the asserted cause of loss was legitimate, the fact that

horses or cattle had grazed off the purportedly insured crop

voided the insurance contract and nullified Torlai’s claim,
20 UNITED STATES V. TORLAI

entitling him to no indemnity payment. As a consequence,

Torlai was not an intended beneficiary of any indemnity for

Stoney Creek Ranch in 2002.

3. Stoney Creek Ranch 2005

As with the previous claims, the Pre-Sentence Report

concluded that Torlai had actually planted substantially less

than the reported 650 acres of wheat for Stoney Creek Ranch

in 2005, and that the wheat that was planted was not irrigated. 

The Pre-Sentence Report’s conclusion is supported by the

record. Torlai also misstated his interest in the crops grown

on Stoney Creek Ranch. Thus, the record reveals that Torlai

made material misstatements that render his crop insurance

policy for Stoney Creek Ranch in 2005 void.

Furthermore, the evidence showed that Torlai had no

intention of harvesting any of the wheat that was planted

because the wheat was of a variety used as a forage crop for

beeves and thus was not eligible for crop insurance. Even if

the fields represented by Torlai as having been planted had

actually been planted to a variety of wheat intended for being

harvested as grain, Stoney Creek Ranch’s rocky, sagebrushcovered terrain was such that a combine would have been

unable to harvest a wheat crop. The absence of an insurable

crop means that Torlai was not an intended beneficiary of any

indemnity for Stoney Creek Ranch in 2005.

We note that the StoneyCreek Ranch claims submitted by

Torlai in 2002 and 2005 were not actually paid. The evidence

is sufficient, however, to support a finding by the district

court that Torlai intended in both 2002 and 2005 to follow the

pattern of his successful Stoney Creek Ranch crop insurance

fraud perpetrated in 2001. Thus, the amounts that would have
UNITED STATES V. TORLAI 21

been paid as an indemnity for both the 2002 and 2005 claims

were properly considered by the district court as intended

losses. See U.S.S.G. § 2B1.1 cmt. n.3(A)(ii); United States

v. McCormac, 309 F.3d 623, 627–29 (9th Cir. 2002).

4. Union Island 2001

Torlai claimed that safflower was planted on Union Island

in 2001 and that the crop failed due to inclement weather. 

Contemporaneous records show, however, that the fields that

were supposedly planted in safflower were actually planted

in corn and alfalfa. This evidence was supported by satellite

images. The satellite images did, however, show that

approximately 34.7 acres were planted in safflower, though

the record is ambiguous as to whether the 34.7 acres of

safflower documented by satellite images was on Torlai’s

property. Regardless, Torlai had reported that he had planted

199.3 acres in safflower on Union Island in 2001. Torlai’s

material misstatements render his crop insurance policy for

Union Island in 2001 void.

Furthermore, the evidence showed that the alleged date of

loss—April 10, 2001—was only five days after the date the

safflower was reportedly planted—April 5, 2001. The

testimony at trial established that “safflower emergence

usually takes between one and three weeks.” So, the

evidence showed that any safflower that might have actually

been planted on Union Island would not have emerged from

the soil before the date of the alleged cause of loss. Even if

Torlai had a valid crop insurance policy, there was sufficient

evidence for the district court to find that Torlai could not

have suffered a cognizable cause of loss within five days of

sowing.
22 UNITED STATES V. TORLAI

5. Quimby Island 2001

Quimby Island was mostly inundated with water at the

alleged time of planting, and wheat cannot be planted when

the soil is submerged. Moreover, evidence was presented that

at the alleged time of loss, the crop had not grown to a point

where it could have been adversely impacted by the hail,

excess precipitation, inclement weather, and wind that were

the causes of loss Torlai alleged. Even assuming that the

weather events did occur, the evidence clearly showed that

the weather could not have caused any damage, and Torlai

was not entitled to indemnity. The absence of a legitimate

cause of loss means that Torlai was not an intended

beneficiary of any indemnity for Quimby Island in 2001.

* * * * *

By virtue of his fraud, Torlai was not eligible for any

government benefit under the crop insurance program, and

therefore, he was not an “intended beneficiary.” The district

court did not err in including the full indemnity amount for all

claims from StoneyCreek Ranch in 2001, 2002, 2005; Union

Island in 2001; and Quimby Island in 2001.

B. Accounting for Premiums Withheld by the Insurer

Torlai argues that the district court erred by “not taking

into account the producer premiums [he] paid,” i.e., the nonsubsidized portion of the crop insurance premium for which

an insured farmer is responsible. As we have discussed,

although producer “premiums are owed at the start of the

growing season,” they do not have to be paid until after

harvesting the insured crop. So, when an event occurs that is

covered by crop insurance and a farmer has not yet satisfied
UNITED STATES V. TORLAI 23

the premium, the amount of the producer premium is

deducted from the actual amount paid to the insured. Torlai

argues that since “the indemnity payment actually received

would be the indemnity under the policy minus the producer

premium, that premium is not an offset,” and some $28,874

of producer premiums should not be included as a loss to the

government. Torlai asserts that he “would [n]ever be able to

obtain [these funds] for himself through fraud or otherwise.” 

Essentially, Torlai contends that because he never expected

to get the full amount of the indemnity—i.e., he only ever

intended to obtain the indemnity less the producer

premium—the producer premiums should not be calculated

as part of the total loss.

The district court addressed this issue, stating:

To offset the losses in this case by any

money paid by [Torlai] to purchase his crop

insurance would be akin to giving an arsonist

credit for the cost of insurance premiums paid

by him on a house that he burned down.

That [Torlai’s] fraud occurred in the

context of crop insurance, where premiums

are owed at the start of the growing season,

but payable after harvest, as opposed to more

traditional forms of insurance, where

premiums are due upon the commencement of

coverage, does nothing to change the analysis. 

Fraud is fraud, and [Torlai] is not entitled to

credit for monies he invested in order to

insure the success of his fraudulent scheme.
24 UNITED STATES V. TORLAI

We have not previously considered this issue, but we agree

with the district court.

Although the sentencing guidelines provide some

guidance as to what factors should offset a loss calculation,

U.S.S.G. § 2B1.1 cmt. n.3(E)9, in the end we think the

“Credits Against Loss” commentary is inapplicable. Rather,

as Torlai argues, the issue is not whether the producer

premiums are offsets, but whether the withheld producer

premiums should be included in the intended loss amount. 

Viewed in this light, the district court properly applied the

Guidelines.

 

9

 Application note 3 states, in part:

Loss shall be reduced by the following:

(I) The money returned, and the fair market value of

the property returned and the services rendered, by

the defendant or other persons acting jointly with

the defendant, to the victim before the offense was

detected. The time of detection of the offense is

the earlier of (I) the time the offense was

discovered by a victim or government agency; or

(II) the time the defendant knew or reasonably

should have known that the offense was detected

or about to be detected by a victim or government

agency.

(ii) In a case involving collateral pledged or otherwise

provided by the defendant, the amount the victim

has recovered at the time of sentencing from

disposition of the collateral, or if the collateral has

not been disposed of by that time, the fair market

value of the collateral at the time of sentencing.

U.S.S.G. § 2B1.1 cmt. n.3(E).
UNITED STATES V. TORLAI 25

Torlai points to a case from the Seventh Circuit, United

States v. Simpson, 995 F.2d 109 (7th Cir. 1993), that suggests

a farmer’s portion of crop insurance premiums should be

deducted from the calculated loss amount. Simpson is an

interesting case with a few more twists than presented here;

however, the core fact pattern is similar: Simpson was

convicted of filing false insurance forms under the USDA’s

crop insurance subsidy programs. Id. at 110. Regarding this

issue, the Seventh Circuit stated:

The district court erred when it figured the

amount of loss, however, in that it failed to

deduct a $74,000 premium from the $838,900

false claims. If Simpson had seen his scheme

through to payment, [the insurance company]

would have deducted the premium from the

amount of Simpson’s claims. As the

government conceded at oral argument, the

proper amount of loss was the amount of the

claims minus the premium . . . . This clear

error requires a remand so that the district

judge may recalculate Simpson’s sentence.

Id. at 113 (internal citation omitted). Thus, the Seventh

Circuit has at least implicitly held that it is clear error for a

district court to fail to deduct the producer premium from the

total indemnity.

We do not lightly cast aside reasoned decisions of our

sister circuits. See In re Taffi, 68 F.3d 306, 308 (9th Cir.

1995). We disagree, however, with the Seventh Circuit’s

brief analysis in Simpson. The lack of detailed analysis on

this issue may be the product of the fact that the government

conceded at oral argument before the Seventh Circuit that
26 UNITED STATES V. TORLAI

“the proper amount of loss was the amount of the claims

minus the premium.” Simpson, 995 F.2d at 113. Thus, a

critical concession by the government on this issue made

further analysis of this issue unnecessary by the Seventh

Circuit, rendering Simpson minimally persuasive and of

questionable precedent.

Considering the merits of the issue itself, quite simply, the

rule that Simpson stands for—loss calculations in crop

insurance fraud cases must only include indemnities minus

the producer premium—overlooks basic economic realityand

common sense. A farmer must pay the crop insurance

producer premium regardless of whether an indemnity will

be paid. The producer premium is due when the crop

insurance policy is issued, and the fact that a farmer can delay

payment until harvest or a valid claim is submitted for

payment does not negate the farmer’s responsibility for that

amount. In effect, the government has fronted the farmer his

crop insurance premium, which he took and then used to

defraud the government.10 Even though Torlai did not have

to withdraw money from his own bank account to pay the

producer premium, he, in effect, benefitted by the full amount

of the indemnity. From an economic perspective, Torlai was

in the same financial condition as he would have been had he

10 Where a farmer is found to have intentionally concealed or

misrepresented a material fact in obtaining crop insurance, “[e]ven though

the policy is void, [the farmer] may still be required to pay 20 percent of

the premium due under the policy.” Risk Mgmt. Agency, USDA, 2001

Crop Revenue Coverage (CRC) Insurance Policy, 01-CRC-BASIC 14

(2000).
UNITED STATES V. TORLAI 27

paid the producer premium up front and was paid the full

amount of the indemnity on the back end.11

11 To illustrate this point, we lay out two simplified scenarios for

pedagogical purposes: (1) Farmer 1 purchases crop insurance and is

required to pay the full amount of the producer premium ($10) on the date

the policy is issued; and (2) Farmer 2 purchases crop insurance, but can

delay premium payment until the date the insured crop is harvested so

that, if a valid claim is submitted, Farmer 2 will receive an indemnity

payment net the producer premium ($10). If a valid cause of loss occurs,

the indemnity payment is $30. For the sake of simplicity, we assume that

both Farmer 1 and 2 begin with an identical balance in their respective

bank accounts ($100).

In a situation where no covered cause of loss is suffered, Farmer 1’s

bank account will show the following balance: $100 - $10 = $90. Farmer

2’s bank account will have an identical balance: $100 - $10 = $90. The

only difference is the time when the $10 premium is withdrawn. Now

consider a situation where a valid claim is submitted. Farmer 1’s bank

account will show the following balance: $100 - $10 = $90 + $30 = $120. 

Farmer 1 pays the $10 producer premium when purchasing insurance,

decreasing his bank account to $90; after Farmer 1 submits a valid claim,

he is entitled to the full indemnity amount, resulting in a terminal balance

of $120. Farmer 2’s bank account will show the following balance: $100

+ ($30 - $10) = $120. So, Farmer 2 would never pay the producer

premium out of his own bank account, but the end result is the same. 

Again, the only difference is that Farmer 2 is able to have the benefit of

an extra $10 in his bank account over the course of the crop season. 

Essentially, the government has provided Farmer 2 with an interest-free

loan in the amount of the crop insurance premium. Ultimately, however,

both Farmers 1 and 2 expect to receive an identical benefit from the

indemnity payment. Both would be in the same economic position.

In a more complicated economic world in which there is a time value

to money, Farmer 2 would be better off, since Farmer 2 had the benefit of

retaining the extra $10 in his bank account for a period of time—money

that he could have invested or put to other uses—and concluded at the

same time with an amount identical to Farmer 1. So, if anything, the

simple calculation applied by the district court understates the true
28 UNITED STATES V. TORLAI

Importantly, the only reason Torlai did not expect to pay

the producer premium, and expected to receive the indemnity

payments net the producer premium, was because Torlai

obtained crop insurance through fraud. As the district court

put it, “Fraud is fraud, and [Torlai] is not entitled to credit for

monies he invested in order to insure the success of his

fraudulent scheme.” An honest farmer, purchasing crop

insurance to hedge against agricultural risks would fully

expect to pay the producer premium. As an experienced

farmer with knowledge of the crop insurance system, Torlai

understood that if he successfully perpetrated his fraudulent

scheme, he would never have to pay the producer premium.12

Regardless, the actual loss to the government was the full

amount of the indemnity. In the context of crop insurance,

whether the producer premium is paid when the policy is

purchased or whether the government subtracts the producer

premium from the indemnity paid, the government is in the

same economic position. See United States v. Blitz, 151 F.3d

1002, 1010 (9th Cir. 1998) (“In other words, when we have

required a realistic economic approach we have indicated that

we should not ascribe a larger loss to the defendants than they

intended to or actually did inflict. We have not, however,

hesitated to hold defendants responsible for the full reach of

their intent, even when that intent was thwarted.”).

economic benefit that Torlai received by waiting to pay the producer

premium.

12 In this sense, the district court’s statement that subtracting the amount

of the producer premium from the loss calculation was like “giving an

arsonist credit for the cost of insurance premiums paid by him on a house

that he burned down” is quite apt.
UNITED STATES V. TORLAI 29

We conclude that the district court did not err by

including the total amount of the indemnities in the loss

calculation.

C. Accounting for Premium Subsidies and A&O Expenses in

Loss Calculation

In addition to calculating the total indemnities claimed,

whether the government actually paid them or not, the district

court also included in the loss calculation two other

categories of expenses: A&O expenses and premium

subsidies. The A&O expenses are fees the government pays

to the insurance company for selling and servicing the policy. 

Premium subsidies are the amounts the government pays to

the insurance company to underwrite the crop insurance,

which the insurance company would not otherwise be willing

to do. In other words, a premium subsidy is the government’s

share of the premium; it is a measure of the actual cost of

having a crop insurance program above that paid by the

farmer.

The district court included the totals for both categories

of expenses in its loss calculation. It found that the A&O

expenses and premium subsidies were “reasonably

foreseeable pecuniary losses for which [Torlai] should be

held accountable. Even though he didn’t have a check cut to

him, it was money that was, in effect, . . . taken away from

other farmers. It was, in particular the premium subsidies,

not available [to other farmers].” The district court also

found that there was a non-speculative method to calculate

the “premium subsidy and A&O based on documents.” 

Torlai argues that it was error for the district court to include

these expenses, and that “the inclusion of all premium

subsidy and A&O expenses as part of the loss calculation is
30 UNITED STATES V. TORLAI

based on an assumption that [he] was ineligible for any crop

insurance policy at all.” Torlai contends that no “evidence

[was] ever presented that [he] either knew about premium

subsidies or A&O expenses, or that circumstances existed

under which he reasonablyshould have known about them.”13

Contrary to Torlai’s contention, there was evidence to

support the district court’s conclusion that the premium

subsidies and A&O expenses were “reasonably foreseeable

pecuniary losses for which [Torlai] should be held

accountable.” Regarding the premium subsidies, the

evidence showed that the premium subsidies were

specificallydisclosed to Torlai through his summaries of crop

insurance coverage. Moreover, the government presented

evidence showing that each crop insurance policy, including

Torlai’s, indicates “at the top of them, . . . that the policy is

reinsured by the federal government.” And, a witness

testified that “[t]he standard reinsurance agreements are

available online at the public website,” and the policies

specifically state that the crop insurance program is

administrated by the private insurer. The reinsurance

agreements provide detailed information about the details of

both the premium subsidies and A&O expenses. Considering

all this evidence, coupled with Torlai’s status as an

experienced farmer who has extensively used crop insurance

as a part of his operations, we conclude that this evidence is

sufficient to show that Torlai, at least, reasonably should have

13 Torlai also asserts that any increase in the loss calculation ascribable

to A&O expenses and premium subsidies “is a factual matter that should

properly have been determined by the jury” in light of Booker, 543 U.S.

at 231. The jury was not required to determine the amount of the A&O

expenses and premium subsidies. See supra note 6. At sentencing, all

that is required is that the government prove the loss by a preponderance

of the evidence. Armstead, 552 F.3d at 776.
UNITED STATES V. TORLAI 31

known of the premium subsidies and A&O expenses under

the circumstances. See U.S.S.G. § 2B1.1 cmt. n.3(A)(iv).14

IV. CONCLUSION

For the foregoing reasons, we AFFIRM Torlai’s

sentence.

14 Although § 2B1.1 cmt. n.3(A) of the Guidelines states that “loss is the

greater of actual loss or intended loss,” Torlai has not claimed that it was

error for the district court to calculate the total loss by adding together

some elements representing intended losses and others, including A&O

expenses, representing actual losses. Any argument to this effect has been

waived, see Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“[O]n

appeal, arguments not raised by a party in its opening brief are deemed

waived.”). We decline to reach the question whether it was proper to

consider both intended and actual losses together. See U.S. Sentencing

Guidelines Manual § 2B1.1 cmt. n.3(A) (“[L]oss is the greater of actual

loss or intended loss . . . .”); see also United States v. Manatau, 647 F.3d

1048, 1050 (10th Cir. 2011) (discussing that intended loss may include

actual losses “the defendant purposely sought to inflict.”).