Opinion ID: 1085401
Heading Depth: 2
Heading Rank: 3

Heading: Sentencing Loss Calculation

Text: Nelson argues that the district court arrived at the wrong guidelines sentencing range by miscalculating the value of his bribery activity. Although we review the district court’s loss calculations for clear error, United States v. Scher, 601 F.3d 408, 412 (5th Cir. 2010), we review the district court’s method of determining the amount of loss, as well as its interpretations of the meaning of a sentencing guideline, de novo. United States v. Harris, 597 F.3d 242, 251 (5th Cir. 2010); United States v. Roussel, 705 F.3d 184, 197 (5th Cir. 2013). The sentencing guidelines provide that the offense level for bribery-related offenses is to be increased as follows: If the value of the payment, the benefit received or to be received in return for the payment, the value of anything obtained or to be obtained by a public official or others acting with a public official, or the loss to the government from the offense, whichever is greatest, exceeded $5,000, increase by the number of levels from the table in § 2B1.1 . . . corresponding to that amount. U.S.S.G. § 2C1.1(b)(2). The application notes to § 2B1.1 state that for the purpose of this calculation, “loss is the greater of actual loss or intended loss.” U.S.S.G. § 2B1.1 cmt. n.3(A). Intended loss “means the pecuniary harm that was intended to result from the offense” and “includes intended pecuniary harm that would have been impossible or unlikely to occur (e.g., as in a government sting operation, or an insurance fraud in which the claim exceeded the insured value).” Id. cmt. n.3(A)(ii). Intended loss need not be limited to the amount the defendant is “capable of inflicting.” United States v. Edwards, 303 F.3d 606, 645 n.27 (5th Cir. 2002). Nonetheless, the calculation of intended loss cannot be “purely speculative.” Roussel, 705 F.3d at 201. There must be a “reasonable estimate of the ‘intended 20 Case: 12-30101 Document: 00512407432 Page: 21 Date Filed: 10/15/2013 No. 12-30101 loss that the defendant was attempting to inflict.’” Id. We use a “fact-specific, case-by-case inquiry into the defendant’s intent in determining ‘intended loss.’” United States v. Isiwele, 635 F.3d 196, 203 (5th Cir. 2011). “Although it may be theoretically possible to intend a loss that is greater than the potential actual loss, our case law requires the government [to] prove by a preponderance of the evidence that the defendant had the subjective intent to cause the loss that is used to calculate his offense level.” Id. (quoting United States v. Sanders, 343 F.3d 511, 527 (5th Cir. 2003)) (internal quotation marks omitted). The district court increased Nelson’s offense level by 18 corresponding to its valuation of the bribery amount at $6,382,000. See U.S.S.G. § 2B1.1(b)(1). Nelson suggests a 10–level increase corresponding to his suggested loss calculation of $152,000.6 Nelson challenges the district court’s calculations relating to three aspects of the bribery activity: first, the letter to the EPA; second, the letter to private investors; and third, the kickback scheme for public contracts. The district court valued the EPA letter at $4 million; the private investor letter at $2 million; and the kickback scheme at $250,000.
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.
Second, Nelson challenges the valuation of the letter he wrote to private investors as $2 million in intended benefit for Cifer. The district court found “by a preponderance of the evidence [that] the defendant believed the investor letter would be used to generate at least two million dollars . . . if not three million dollars . . . and maybe [just] as a starting point.” The guideline commentary defines the value of “the benefit received or to be received” as “the net value of such benefit.” U.S.S.G. § 2C1.1(b)(2)(A), cmt. n.2. The commentary provides two examples: (1) A government employee, in return for a $500 bribe, reduces the price of a piece of surplus property offered for sale by the government from $10,000 to $2,000; the value of the benefit received is $8,000. (2) A $150,000 contract on which $20,000 profit was made was awarded in return for a bribe; the value of the benefit received is $20,000. Do not deduct the value of the bribe itself in computing the value of the benefit received or to be received. In the above examples, therefore, the value of the benefit received would be the same regardless of the value of the bribe. U.S.S.G. § 2C1.1, cmt. n.2; see United States v. Griffin, 324 F.3d 330, 366 (5th Cir. 2003). Nelson gave Cifer a letter expressing his official support for the Cifer project to Quorum Venture Group, which had been set up by the FBI. The original letter, drafted by undercover agents, suggested the New Roads City Council supported the contract, but Nelson edited it to state that while New Roads was “committed to working towards a contract” to use Cifer, it was contingent on the approval of the City Council and public input. Id. The letter concluded: “Be assured that the appropriate steps will be taken to ensure that 25 Case: 12-30101 Document: 00512407432 Page: 26 Date Filed: 10/15/2013 No. 12-30101 the city makes a good faith effort to reach a final agreement with [Cifer] that is both fair and reasonable.” Id. Nelson told the FBI after the investigation had ended that the letter “was to be used to obtain two to three million dollars in private investment money for the Cifer 5000.” As with the EPA letter, while Nelson may have expected the letter to contribute to Cifer’s ability to obtain private investments, the letter itself was not a funding application, nor did it explicitly request any funds. The record indicates that Nelson expected Cifer to use its investment funds to launch a legitimate waste receptacle cleaning business. See United States v. Sublett, 124 F.3d 693, 695 (5th Cir. 1997) (where a defendant “uses fraud to procure a contract but intends to provide the contracted for services,” the defendant “should not be characterized as causing as much loss as one who intends to totally cheat the victim, giving nothing in return.”). In overruling Nelson’s objection to the $2 million valuation, the district court found that Nelson “not only knew that there would be large profits generated as a result in part from this letter, but also that . . . the letter was yet one step perhaps in a series of steps of activities, the ultimate goal of which would result in a large sum of money to [Nelson] personally.” In making that finding, the district court referenced Nelson’s stated concern that Cifer would walk away with millions and leave Nelson with “some chump change.”That statement, however, was made in connection with the kickback scheme, see infra, and not in connection with the private investor letter. As noted above, furthermore, we have held that the expectation of receiving a large or “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.”). 26 Case: 12-30101 Document: 00512407432 Page: 27 Date Filed: 10/15/2013 No. 12-30101 Because we have concluded that a loss recalculation for the EPA letter is appropriate on remand, and because the district court’s reasoning with regard to the private investor letter relied in part on Nelson’s general expectation to generate “a large sum of money,” we deem that closer scrutiny is advisable regarding the valuation of the private investor letter.8
Finally, Nelson challenges the district court’s $250,000 valuation of his expected benefit from the kickback scheme. This valuation was based on Nelson’s proposal to help obtain other government contracts for Cifer, in exchange for 10% of Cifer’s profits from the resulting contracts. Myles and Nelson agreed that if Nelson helped Cifer obtain a $10-million contract resulting 8 Because we remand on these issues, we need not address Nelson’s argument that the district court erred in calculating the full rather than net benefit from the EPA and private investor letters. We nonetheless note that this argument is inconsistent with our precedent. Nelson asserts that the benefit figures should be reduced by the costs Cifer would incur by moving into New Roads, such as purchasing equipment and hiring employees. The application note to § 2C1.1 provides that“[t]he value of ‘the benefit received or to be received’ means the net value of such benefit.” U.S.S.G. § 2C1.1 cmt. n.3. We have held that the guidelines’ use of the phrase “net value” does not mean “net profits.” United States v. Landers, 68 F.3d 882, 885 (5th Cir. 1995). Instead, we have distinguished between direct costs—which are properly deducted from the benefits calculation—and indirect or fixed costs, which are not. Id. at 885–86. As further guidance on remand, we observe that Nelson also argues the $2 million and $4 million values were “set by the government operatives, arguably as a way of enhancing Mr. Nelson’s sentence or encouraging a plea.” Nelson did not raise this objection below, and does not expand on it on appeal. We have not “expressly determined whether we have accepted the concept of ‘sentencing factor manipulation.’” United States v. Termelling, 43 F.3d 148, 151 (5th Cir. 1995). We note, nonetheless, that this court considered a similar argument in United States v. Richardson, 925 F.2d 112, 117–18 (5th Cir. 1991). In that case, the defendant claimed that the government brought more money to the table in a money-laundering sting operation in order to raise the eventual sentence. Id. This court affirmed the sentence because the defendant had “knowledge and acceptance of the amount of funds involved,” since he “demonstrated an affirmative desire to launder the money presented to him” and “urged agents to invest greater sums of money, suggested additional laundering scenarios to enlarge the operation, and initiated calls to expedite the receipt of funds.” Id. at 118. Here, on plain error review there is sufficient evidence that Nelson demonstrated an affirmative desire to earn millions from working with Cifer; that Grace, not the government, first suggested the idea of obtaining federal grant money; and that Nelson suggested the kickback scheme himself. 27 Case: 12-30101 Document: 00512407432 Page: 28 Date Filed: 10/15/2013 No. 12-30101 in $2.5 million in profit for Cifer, Nelson would retain $250,000. Nelson argues that basing the calculation on a hypothetical contract is overly speculative because “Myles could have picked any amount” for the hypothetical contract. We conclude, however, that the record supports the district court’s determination that Nelson expected to receive at least $250,000 for his role in the kickback scheme. Nelson stated that his “money goal” for the project was to “stack a few mill.” He told Myles, in discussing the scheme, that he did not want Cifer to be bought out, “walk away with $300 million and leave [Nelson] with some chump change.” Although the $250,000 figure was mentioned as part of a hypothetical scenario, as the application notes to the sentencing guidelines caution, a sentencing court “need only make a reasonable estimate of the loss.” U.S.S.G. § 2B1.1 cmt. n.3(C). With regard to the kickback scheme, the government presented sufficient evidence that Nelson intended to secure benefits for himself of at least that amount, if not significantly more, and $250,000 is thus a reasonable—indeed, generous—estimate of the intended loss amount.9