Opinion ID: 790692
Heading Depth: 3
Heading Rank: 2

Heading: The Enhancement Challenges

Text: 70
71 The government contends that the district court erred in concluding that no loss enhancement to the base offense level for fraud, see U.S.S.G. § 2F1.1(a), was supported by the evidence. It asserts that the record compelled a thirteen-level enhancement because defendant's crimes caused or were intended to cause a loss to Medicare of $5 million. See id. § 2F1.1(b)(1)(N). We review the factual determinations underlying a district court's loss calculation at sentencing for clear error and its application of the Sentencing Guidelines de novo. See United States v. Garcia, Nos. 03-1407, 03-1429, slip op. at 38-41, 2005 WL 1444146, ___ F.3d ___, ___ - ___ (2d Cir. June 21, 2005) (explaining that clear error standard of review remains applicable for appellate challenges to judicial fact-finding at sentencing after United States v. Booker ); United States v. Selioutsky, 409 F.3d 114, 119 (2nd Cir.2005) (recognizing that, after excision of § 3742(e), court continues to review issues of fact for clear error); see also United States v. Crosby, 397 F.3d at 112 (observing that, with the mandatory use of the Guidelines excised, a court's identification of the applicable sentencing range to be considered pursuant to 18 U.S.C. § 3553(a)(4)-(5) proceeds in the same manner as before Booker [ ]). 72 Because fraud is a crime of infinite variety, see generally United States v. Altman, 48 F.3d 96, 102 (2d Cir.1995), it presents particular challenges for sentencing courts striving to achieve proportionality in sentencing while reducing unwarranted disparity, see generally U.S. Sentencing Guidelines ch. 1, pt. A.3 (identifying reduced disparity and proportionality based on the severity of the offense as two key goals of the Sentencing Reform Act of 1984, 18 U.S.C. § 3551 et seq. ); United States v. Booker, 125 S.Ct. at 767 (explaining that post- Booker sentencing contemplates consideration of Guidelines to serve goals of avoiding unwarranted sentencing disparities and proportionality). The Sentencing Commission has identified loss as a critical factor in assessing the relative seriousness of a fraud offense. 21 It defines loss as the value of the money, property, or services unlawfully taken from the victim, U.S.S.G. § 2F1.1, cmt. n. 8, and provides for a series of step increases from the base offense level of six depending on the dollar loss at issue in the particular fraud offense, see id. § 2F1.1(b)(1). 73 The Commission has long recognized that the calculation of exact loss amounts in individual cases is no easy task. Accordingly, it instructs that, in applying the Sentencing Guidelines, loss need not be determined with precision; a sentencing court need only make a reasonable estimate of the loss, given the available information. Id. § 2F1.1, cmt. n. 9; see United States v. Carboni, 204 F.3d 39, 46 (2d Cir.2000); cf. United States v. Crosby, 397 F.3d at 112 (noting, in deciding whether to impose a non-Guidelines sentence, judges might avoid the need to resolve all of the factual issues necessary to make precise determinations, in appropriate cases, of monetary loss where either of two sentencing ranges is applicable). The district court acknowledged this principle, but concluded that the government had failed to adduce reliable evidence that it had sustained any loss from the testing fraud. Indeed, it noted that the defendant's evidence suggested that Medicare had suffered no loss of clinical value. We identify two flaws in this analysis. 74 (1) A Victim Who Pays for Goods or Services on the Fraudulent Representation that They Conform to Certain Specifications Has Sustained a Loss 75 To the extent defendant adduced evidence that the tests performed by Raytel were as clinically sound as the tests required by Medicare, this fact does not mean that the government sustained no loss from the charged fraud. Canova's fraudulent representations did not, after all, pertain to the clinical value of the tests performed, see U.S.S.G. § 2F1.1, cmt. n. 3(a); they pertained to the particular test specifications being performed, see id., cmt. n. 3(c). When a party fraudulently procures payment for goods or services by representing that they were produced or provided according to certain specifications, it is not the task of a sentencing court to second-guess the victim's judgment as to the necessity of those specifications. Whether the testing time on a pacemaker, the number of rivets on an airplane wing, or the coats of paint on a refurbished building is a matter of necessity or whim, the fact remains that the victim has been induced to pay for something that it wanted and was promised but did not get, thereby incurring some measure of pecuniary loss. See United States v. Bhutani, 266 F.3d 661, 670 (7th Cir.2001) (ruling that loss calculation did not depend on whether defendant's fraudulent adulteration of a drug in fact had an adverse medical effect; there was a loss because consumers did not get what they bargained for); cf. United States v. Maurello, 76 F.3d 1304, 1314 (3d Cir.1996) (noting that a victim who contracts to have a building constructed according to certain specifications and receives the services for which he bargained sustains no loss despite the fact that he has received them from a person who was not legally authorized to offer them; Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 244, 129 N.E. 889, 891 (1921) (Cardozo, J.) (explaining that doctrine of substantial performance is available only to the transgressor whose default is unintentional and trivial; by contrast, [t]he willful transgressor must accept the penalty of his transgression. For him there is no occasion to mitigate the rigor of implied conditions.) (citations omitted)). 76 United States v. Chatterji, 46 F.3d 1336 (4th Cir.1995), discussed at length by the parties, is not to the contrary. In that case, the Fourth Circuit concluded that a defendant's fraudulent representations to the Food and Drug Administration (FDA) to secure approval for a particular drug did not cause any loss to consumers because the marketed products were exactly what they purported to be. Id. at 1341. Under the circumstances, the court viewed the fraud as purely regulatory; nevertheless, it expressed little doubt that economic loss would exist if a drug with fraudulently-obtained FDA approval ... is something less than it is represented to be. Id. at 1342; see also U.S.S.G. § 2B1.1, cmt. n. 3(f)(v)(III) (now providing special rule for loss calculation in cases involving regulatory approval obtained by fraud). In this case, the tests for which the government paid Raytel millions of dollars were not exactly what they purported to be, i.e., 30-30-30 tests, but something less with respect to the specified production of thirty seconds of magnetic tape in the final test phase. Similarly distinguishable is United States v. Schneider, a case finding no loss to a victim where the defendant procured a contract by fraud but thereafter performed to the perfect satisfaction of the contracting agency. 930 F.2d 555, 558 (7th Cir.1991). 22 In this case, Raytel did not perform to the perfect satisfaction of the government. Instead, the very essence of Canova's fraud scheme was to conceal from the government the fact that Raytel was not performing pacemaker tests according to Medicare specifications in order to induce payments that would otherwise not have been made. 77 This does not mean that a victim's loss in a substitute goods or services case necessarily equals the full contract price paid. The Guidelines suggest that, in such cases, loss is properly measured by looking to the reasonably foreseeable costs of making substitute transactions and handling or disposing of the product delivered or retrofitting the product so that it can be used for its intended purpose, plus the reasonably foreseeable cost of rectifying the actual or potential disruption to [the victim's] operations caused by the product substitution. U.S.S.G. § 2F1.1, cmt. n. 8(c). In some circumstances, product adjustments may so easily be accomplished that the fraudulent substitution causes the victim only a small loss. In other circumstances, where the goods or services must be recommissioned, the loss may be considerable. But in no case do the Guidelines contemplate a court rewriting the parties' contract to excise specifications paid for but not received and, thereby, concluding that the victim sustained no loss. 78 The government does not appear to have urged the district court to engage in any calculation of loss along the lines outlined in Note 8(c). We need not here consider whether such a calculation could be made on the present record because, for reasons discussed in the next section, we conclude that the government's right to recoup monies paid Raytel for testing not conforming to specifications provides a satisfactory alternative for calculating intended loss. 23 Before turning to that discussion, however, we reiterate the key point of this part of our analysis: a party who contracts to have goods produced or services performed according to certain specifications, and who pays for those goods or services in reliance on a fraudulent representation that they conform to the specifications, has sustained a measure of pecuniary loss for purposes of calculating the fraud guideline, and a defendant cannot avoid a loss enhancement by offering evidence that no one other than the victim places any value on the demanded specification. 79 (2) The Defendant's Fraudulent Scheme to Prevent Medicare from Recovering Payments Made to Raytel Pursuant to the Testing Fraud Itself Caused a Calculable Intended Loss 80 The Sentencing Commission has clearly stated that if an intended loss that the defendant was attempting to inflict can be determined, this figure will be used if it is greater than the actual loss. Id. § 2F1.1, cmt. n. 8. As this court explained in United States v. Carboni, [i]ntended loss is tantamount to the probable loss from a particular misstatement because one is presumed to intend the natural and probable consequences of one's acts. 204 F.3d at 47 (quoting United States v. Jacobs, 117 F.3d 82, 95 (2d Cir.1997)) (quotation marks omitted). Canova submits that intended loss has no bearing on the calculation of his Guidelines range because it pertains only to unconsummated frauds, and his charged fraud was complete. We are skeptical as to whether fraud lends itself to the bright line drawing urged by Canova, but we need not resolve that question in this case because defendant's conspiratorial crime, in fact, involved two closely related fraud schemes. 81 Canova's completed conduct relates only to the first fraud: Raytel's procurement of millions of dollars in Medicare funds through false representations that it was testing pacemakers in accordance with government specifications. This was understandably the focus of the district court's attention when it considered whether the government had sustained a loss from Raytel's abbreviated testing procedures. But Canova also engaged in a second fraud, which was not fully consummated as a result of government detection. Pursuant to this fraud, Canova made further false representations to Medicare agents to obstruct an audit of Raytel, thereby preventing the government from recovering monies paid to Raytel pursuant to the testing fraud. Indeed, each of Canova's substantive § 1001 convictions involved false statements made in furtherance of this second fraud. 82 The parties apparently agree that the government, through its carrier United HealthCare, was legally entitled to recoup from Raytel its full payment for any pacemaker tests not performed according to Medicare specifications. 24 Nor does there appear to be any question that Canova was aware of this right. United HealthCare's December 2, 1999 letter demanded that Raytel reimburse Medicare its payment for two pacemaker tests that did not conform to specifications. The auditors' March 5, 2000 letter also ordered Raytel to reimburse Medicare the monies paid for fifteen tests that Raytel could not document complied with specifications. Canova's trial testimony made plain that he understood what was at stake: I processed in Connecticut about 15, 20,000 tests a month. That's a large bullet to take as a financial hit. Trial Tr. at 987. 83 The intended loss calculation from a fraud scheme aimed at preventing this recoupment is, therefore, relatively straightforward. 25 The Medicare payments to Raytel for pacemaker testing during the two-year period covered by the audit (approximately $10 million) can be multiplied by the percentage of tests found not to comply with Medicare specifications (65.3 to 78 percent). Opting for a more conservative approach, the government urged the district court to conclude that at least 50 percent of Raytel's tests did not conform to Medicare specifications, resulting in a loss of $5 million. This loss amount finds support not only in the cited trial evidence, but in Raytel's own acceptance of a $5-million restitution order as part of the plea agreement in its criminal case. While Canova may not be bound by Raytel's acknowledgment of this restitution obligation, such an admission by a perpetrator of the charged fraud scheme precludes a court from concluding that no reliable evidence supports a $5-million loss calculation. 84 In sum, although a district court enjoys considerable discretion in calculating the loss applicable to a particular fraud, the record in this case did not permit it to conclude that the government sustained no loss from Canova's fraudulent schemes to substitute an abbreviated pacemaker test for the longer one required by Medicare specifications and to conceal that fraudulent substitution in order to prevent the government from exercising its right to recoupment. The record supports an intended loss of recoupment in an amount of $5 million, and such a loss should have been factored into the Guidelines considered by the district court in imposing sentence. 85 Because there is a significant difference between a Guidelines range calculated to include this loss and the Guidelines range relied upon by the district court, the error might well have affected the ultimate sentence, even though the district court applied a downward departure. See generally United States v. Elefant, 999 F.2d 674, 678 (2d Cir.1993) (recognizing that [t]he degree of downward departure appropriate from one starting point will not necessarily be the same as is appropriate from a lower [or higher] starting point). Indeed, such an appreciable influence could obtain even under the discretionary sentencing regime that will govern [a] resentencing, because the applicable Guidelines range may serve as a benchmark or a point of reference or departure as the court exercises its expanded discretion. United States v. Rubenstein, 403 F.3d at 98. We do not here decide that every incorrectly calculated Guidelines sentence will necessarily require a remand for resentencing. See id. at 101 (Cardamone, J., concurring) (cautioning against such a conclusion). We conclude simply that the influence of a $5-million error in the calculation of a fraud guideline has sufficient potential to appreciabl[y] influence the ultimate sentence even under the more discretionary post- Booker sentencing regime to warrant a remand with instructions to vacate Canova's sentence and to resentence him. Id. at 101; cf. United States v. Godding, 405 F.3d 125, 127 (2d Cir.2005) ( per curiam ) (ordering Crosby remand and noting concern that the brevity of the term of imprisonment imposed ... does not reflect the magnitude of the theft of nearly $366,000 over a five-year period, explaining that 18 U.S.C. § 3553(a)(2)(A) requires sentencing court to consider the need for sentence to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense (quotation marks omitted)). 86
87 The government argues that the district court further erred in failing to enhance Canova's offense level for obstruction of justice pursuant to U.S.S.G. § 3C1.1 in light of his trial perjury. In reviewing a challenge to a district court's application of § 3C1.1, we examine its findings of fact only for clear error, and whether those facts constitute obstruction of justice is a question of law that we review de novo. See United States v. Garcia, ___ F.3d ___, ___ - ___, Nos. 03-1407, 03-1429, slip op. at [38-41]; see also United States v. Crosby, 397 F.3d at 112. 88 Section 3C1.1 provides for a two-level enhancement if a defendant willfully obstructs or attempts to obstruct justice in the course of prosecution. See U.S.S.G. § 3C1.1. The relevant commentary identifies perjury as conduct that can trigger this enhancement. See id., cmt. n. 4(b). The government submits that the district court misunderstood—and, therefore, likely misapplied—the relevant case law because it stated that a § 3C1.1 enhancement required it to find that the defendant not only perjured himself, but [that] he did so with the specific intent to obstruct justice, Sentencing Tr. at 26, when obstructive intent is already an element of perjury. The government further contends that the trial record compelled a finding that Canova intended to obstruct justice, and that the district court's findings to the contrary were not sufficiently specific to permit review. We reject these arguments as uniformly without merit. 89 To begin, we reject the government's contention that the district court misunderstood the elements of perjury. As the Supreme Court recognized in United States v. Dunnigan, the criminal law establishes three elements for perjury: (1) false testimony given under oath or affirmation; (2) concerning a material matter; (3) given with the willful intent to provide false testimony, rather than as a result of confusion, mistake, or faulty memory. 507 U.S. 87, 94, 113 S.Ct. 1111, 122 L.Ed.2d 445 (1993) (citing 18 U.S.C. § 1621); see also Leonard B. Sand, et al., 2 Modern Federal Jury Instructions (Criminal), Instr. 48-4 (2004). Acknowledging that some of its own precedents had not interpreted perjury to constitute obstruction of justice unless the perjury is part of some greater design to interfere with judicial proceedings, United States v. Dunnigan, 507 U.S. at 93, 113 S.Ct. 1111, the Supreme Court ruled that, when a defendant objects to a § 3C1.1 enhancement based on trial testimony, a district court must review the evidence and make independent findings necessary to establish a willful impediment to or obstruction of justice, or an attempt to do the same, under the perjury definition we have set out, id. at 95, 113 S.Ct. 1111 (emphasis added). 90 Following Dunnigan, this court, in United States v. Zagari, stated that to base a § 3C1.1 enhancement upon the giving of perjured testimony, a sentencing court must find that the defendant 1) willfully 2) and materially 3) committed perjury, which is (a) the intentional (b) giving of false testimony (c) as to a material matter. 111 F.3d 307, 329 (2d Cir.1997); accord United States v. Ben-Shimon, 249 F.3d 98, 102 (2d Cir.2001) ( per curiam ). 26 Indeed, Zagari emphasized that the willfulness contemplated by § 3C1.1 was distinct from the intent required to prove perjury. See 111 F.3d at 329 n. 20. The former refers to a defendant's specific purpose of obstructing justice, whereas the latter refers to his purposeful giving of the false testimony. Id. In light of this distinction and Zagari 's identification of perjury as one of three elements necessary to a § 3C1.1 enhancement, we cannot conclude that the district court erred as a matter of law in observing that application of a § 3C1.1 enhancement required it to find more than perjury. It was further required to find that the perjury had been committed with the specific intent to obstruct justice. 91 The district court having correctly identified the applicable law, its conclusion that the requisite obstructive intent was not established by a preponderance of the evidence is a finding of fact to which we accord considerable deference. Indeed, because a witness's obstructive intent, like his credibility, is sometimes revealed by the demeanor of his testimony as well as its content, we are particularly hesitant to second-guess a trial judge's finding that a witness's testimony, though perjurious, was not specifically intended to obstruct justice. See generally Mathie v. Fries, 121 F.3d 808, 812 (2d Cir.1997) (noting particularly strong deference due a district court's findings of fact based on credibility assessments of witnesses it has heard testify). 27 While the government points us to certain statements by Canova that are not easily attributed to confusion or mistake, or to some purpose other than obstruction, we cannot conclude that the record as a whole leaves us with the definite and firm conviction that the trial court erred in failing to find obstructive intent established by a preponderance of the evidence. United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948); accord Mathie v. Fries, 121 F.3d at 812. 92 Finally, to the extent the government suggests that the district court's findings on the issue of obstructive intent were inadequate, this court has already ruled that a district court is not required to support a decision not to apply an obstruction enhancement with specific findings of fact. See United States v. Vegas, 27 F.3d 773, 782 (2d Cir.1994). 93 For all these reasons, we find no error in the district court's decision not to apply an obstruction enhancement to the calculation of Canova's Sentencing Guidelines range.