Opinion ID: 1085401
Heading Depth: 3
Heading Rank: 1

Heading: EPA Letter

Text: Although not cited by the parties or the district court, the application notes to the sentencing guidelines establish a special framework, “notwithstanding” the general provisions of § 2B1.1 cmt. 3(A), for “cases involving government benefits,” including “grants.” U.S.S.G. § 2B1.1 cmt. 3(F)(ii); see United States v. Miller, 607 F.3d 144, 148 n.2 (5th Cir. 2010) (“Commentary contained in U.S.S.G. application notes is ‘authoritative unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that 6 Nelson does not challenge the $132,000 loss amount remaining, after subtracting the EPA and investor letter and kickback scheme valuations. Presumably, the $152,000 amount results from adding the $20,000 in cash bribes Nelson received, which Nelson argues should be considered as an alternative to the district court’s assessment of potential gain for Cifer from the EPA and investor letters. 21 Case: 12-30101 Document: 00512407432 Page: 22 Date Filed: 10/15/2013 No. 12-30101 guideline.’”) (quoting Stinson v. United States, 508 U.S. 36, 38 (1993)) (internal quotation marks omitted). For cases involving government benefits, “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.” Id. The application note provides an example: “[I]f 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. The intended loss analysis applies to such cases: “The intention to divert funds from the Government for unintended uses qualifies the . . . amounts as ‘intended losses.’” United States v. Dowl, 619 F.3d 494, 502 (5th Cir. 2010). The government benefits rule was instituted to clarify that even if benefits “flowed through an unauthorized intermediary, as long as they went to intended recipients or intended uses, the amount of those benefits should not be included in loss.” United States v. Harms, 442 F.3d 367, 380 (5th Cir. 2006) (quoting U.S.S.G. app. C vol. II, at 180 (2010)) (internal quotation marks omitted). We have clarified that a defendant should not be held accountable for the total amount of benefits obtained, when some portion of that benefit would have been obtained absent the fraudulent conduct. Id. Instead, the correct loss calculation is “the difference between the amount the defendant actually received and the amount he would have received absent the fraud”—in other words, “the amount of loss based on the amount of excess benefits received as a result of fraud.” Id. (emphasis added). Generally, it is the government’s burden to show by a preponderance of the evidence the amount of loss attributable to fraudulent conduct. United States v. Hebron, 684 F.3d 554, 563 (5th Cir. 2012). The government’s only evidence of Nelson’s intended loss in this case—Nelson’s understanding that the letter would “assist Cifer folks with obtaining a three to four million dollar grant from 22 Case: 12-30101 Document: 00512407432 Page: 23 Date Filed: 10/15/2013 No. 12-30101 the EPA”—is insufficient to hold Nelson accountable for an intended loss amount of $4 million.7 Nelson’s expectation that Cifer might be eligible for a multimillion dollar grant does not constitute a reasonable estimation of the amount of government funds Nelson intended to divert using his letter of support. See Hebron, 684 F.3d at 563. The letter itself did not identify a requested grant amount, nor did it constitute a grant application. Instead, the letter merely suggested that the EPA “consider taking a leadership role in promoting the development and implementation of standards for the sanitation of waste containers—perhaps under the auspices of federal grants allowing municipalities to invest in technologies such as the Cifer 5000.” (emphasis added). Nelson acknowledged he believed the letter would “assist Cifer folks . . . ,” not that the letter would secure $4 million in grant money. The wording of Nelson’s acknowledgment makes sense, because Cifer necessarily would have to complete various further steps on its own initiative and merit before receiving millions in federal funds. The record establishes that Nelson believed Cifer was a legitimate company with the ability to achieve its stated goals and put trucks on the ground in New Roads in a matter of months. There is insufficient evidence to adequately differentiate between legitimate funding Cifer could have received from the EPA, and any benefits that Nelson intended to stem from this false statement in his letter that he had met with other mayors regarding Cifer and similar projects. A defendant’s false statement in seeking government benefits is insufficient to render him accountable for all benefits received or intended to be received. See, e.g., United States v. Parsons, 109 F.3d 1002, 1005 (4th Cir. 1997) (“Just as in [a previous 7 After Nelson signed the letter, Myles told him it was worth “$4 million for your town.” Myles testified: “I had let him know that because of his letter that we could get federal assistance . . . if a municipality [said] that they were behind us, it is easy to raise the capital.” 23 Case: 12-30101 Document: 00512407432 Page: 24 Date Filed: 10/15/2013 No. 12-30101 case] where the FDA's approval was not automatically revoked on the basis of a false statement, here an entire travel reimbursement claim was not automatically forfeited because it was partially fraudulent.”). Where a defendant has “defraud[ed] the government to such an extent that an accurate loss calculation is not possible,” we have held that “the burden shifts to the defendant” to identify which benefits are legitimate. Hebron, 684 F.3d at 563 (noting that if the defendant fails to make such a showing, the district court may treat the entire claim as intended loss). Here, we cannot find such “extensive and pervasive” fraud, at least with regard to the EPA grant. See id. Nelson’s activity was limited to providing a letter of support, that, as noted above, was introductory in nature and did not specify a requested grant amount. We therefore conclude that this case, although close, is one in which the amount of loss cannot reasonably be determined, and it may therefore be more appropriate to use “the gain that resulted from the offense as an alternative measure of loss.” § 2B1.1, comment. (n.3(B)). The district court noted at sentencing, in response to Nelson’s argument that he was “not sure [whether Cifer or New Roads would be] the intended beneficiary” of the grant money, that the EPA was part of an overall “scheme . . . with the expectation that [Nelson] himself would receive a substantial sum of money as a result of it.” We have held, however, that the expectation of receiving a “substantial” amount of money is insufficiently specific to base a calculation of intended loss. Roussel, 705 F.3d at 201 (“‘Substantial sums’ . . . cannot constitute an estimate of an intended benefit for the purpose of the sentencing guidelines enhancement.”). The record in this case indicates that government agents requested the EPA letter in return for a $10,000 cash bribe. The FBI viewed the letter as Nelson’s repayment—along with the promised Cifer contract with New Roads—for the $10,000 amount. As Myles testified, the letter was designed to add “realism” to the operation: “I don’t look like a bank . . . I’m trying to advance my project. So 24 Case: 12-30101 Document: 00512407432 Page: 25 Date Filed: 10/15/2013 No. 12-30101 I will give you that money if you do this for me. That would be normal in any normal businessman transaction.” Thus, the most appropriate valuation of the EPA letter may be the amount Nelson received for writing it, i.e., $10,000.