Opinion ID: 2673094
Heading Depth: 2
Heading Rank: 4

Heading: 10-Victim Enhancement

Text: The central issue on appeal is whether the District Court correctly determined the number of appellants’ victims, as defined in § 2B1.1(b)(2). We exercise plenary review over the District Court’s interpretation of the Guidelines and review its factual findings for clear error. Grier, 475 F.3d at 570. Under the Guidelines, a defendant convicted of a theft or fraud offense is subject to a two-offense-level enhancement if the offense “involved 10 or more victims.” U.S.S.G. § 2B1.1(b)(2)(A). The Commentary to the 2005 version of the Guidelines, which all parties agree is the version applicable to sentencing in this case, defined “victim” as “any person who sustained . . . actual loss.” Id. § 2B1.1 cmt. n.1.8 “Actual loss,” in turn, is defined as “the reasonably 8 Guidelines Commentary “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. 15 foreseeable pecuniary harm that resulted from the offense.” Id. cmt. n.3(A)(i). The Application Notes explain that “‘[p]ecuniary harm’ means harm that is monetary or that otherwise is readily measurable in money,” and, therefore, does not include non-economic harm. Id. cmt. n.3(A)(iii). Certain forms of economic damages are also excluded from the Guidelines’ definition of “actual loss.” These include “costs incurred by victims primarily to aid the government in[] the prosecution and criminal investigation of an offense.” Id. cmt. n.3(D). As we mentioned at the outset of this Opinion, we interpreted § 2B1.1(b)(2)’s victim enhancement provision in United States v. Kennedy. The defendant in Kennedy used her position as a manager of senior citizen benefits accounts to steal money from 34 individual account holders. After reviewing the statutory language in light of the Commentary which, we note, is still applicable in this case, we held that only those parties who suffer permanent “pecuniary harm” constitute “victims” under § 2B1.1(b)(2). Kennedy, 554 F.3d at 419. We, therefore, found that the district court in Kennedy erred by including as victims individual account holders who were later reimbursed the money that the defendant had removed from their accounts. The government, we stated, “failed to meet its burden to prove that the account holders even knew that their funds had been stolen before they were completely reimbursed.”9 Id. 36, 38 (1993); see also United States v. Keller, 666 F.3d 103, 108 (3d Cir. 2011). 9 The government correctly points out that, later in 2009, the Commentary to § 2B1.1 was amended and expanded the definition of “victim” to include not only persons who suffered actual loss but also those “whose means of identification [were] used unlawfully or without authority.” U.S.S.G. § 2B1.1 cmt. n.4(E)(ii). In making this change, the Sentencing Commission cited our decision in Kennedy. The Commission explained that any individual whose identity is stolen should be considered a victim for purposes of the enhancement, “even if fully reimbursed,” because a target of identity theft “must often spend significant time resolving credit problems and related issues, and such lost time may not 16 Our opinion in Kennedy went on to explain that our interpretation was consistent with the law of other circuits, and we surveyed opinions of several of our sister courts of appeals. Chief among them was the Sixth Circuit’s decision in United States v. Yagar. Yagar held that an account holder who is fully reimbursed for stolen funds cannot be considered a victim under the Guidelines. Id. at 419-20 (reviewing Yagar, 404 F.3d at 971). Yagar suggested, however, that account holders who recoup those monies might still be victims if, as a practical matter, they suffered some additional pecuniary harm. Id. at 420. Drawing on this “Yagar carveout,” the Second, Ninth, and Eleventh Circuits found that individuals who expend time, effort, and money before successfully obtaining reimbursement suffer an actual loss and remain victims under § 2B1.1(b)(2). 10 Id. at 421-22 be adequately accounted for in the loss calculations under the guidelines.” Id. app. C (2011) (discussing amendment 726). No party contends that this change has any bearing on this case. 10 For his part, Norman contends that the account holders cannot be victims because their monetary losses were not specifically calculated and counted as part of the District Court’s loss calculation. The Second, Ninth, and Tenth Circuits have all found that a party may be considered a victim only if the party’s loss was included in the court’s overall loss estimate. Armstead, 552 F.3d at 780-81; Abiodun, 536 F.3d at 169; United States v. Leach, 417 F.3d 1099, 1106-07 (10th Cir. 2005). Norman did not raise this argument in the District Court, however, and we, therefore, review for plain error. United States v. Russell, 564 F.3d 200, 203 (3d Cir. 2009); Fed. R. Crim. P. 52(b). To prevail on appeal under plain error review, a defendant “must establish an error that is plain, which affect his substantial rights, and which, if not rectified, would seriously affected the fairness, integrity or public reputation of judicial proceedings.” United States v. Ward, 626 F.3d 179, 183 (3d Cir. 2010). Here, Norman fails to satisfy that standard because he has not established an error that was plain. We note that, unlike the Second, Ninth, and Tenth Circuits, we have not spoken as to how district courts must account for the number of victims in the loss calculation, and we decline to do so here. 17 (discussing United States v. Abiodun, 536 F.3d 162 (2d Cir. 2008); United States v. Armstead, 552 F.3d 769 (9th Cir. 2008); United States v. Pham, 545 F.3d 712 (9th Cir. 2008); Lee, 427 F.3d at 895). We agreed with the general approach of those courts, and stated that “had the Government shown that the account holders that Kennedy defrauded spent time or money seeking reimbursement, this would be a closer case.” Id. at 422. No such evidence had been presented, however. Our apparent approval of the carve-out recognized in “the Yagar line of cases” was, therefore, obiter dictum. Id. This case presents the opportunity to adopt Kennedy’s dicta as a holding of our Court: a party that is reimbursed for stolen funds but, as a practical matter, suffers additional pecuniary harm may qualify as a victim suffering “actual loss” under § 2B1.1(b)(2).11 We see no need to define the full scope of pecuniary harm capable of conferring victim status. For purposes of this case, it is sufficient to hold that one example of cognizable pecuniary harm is the expenditure of time and money to regain misappropriated funds and replace compromised bank accounts. This interpretation of “actual loss” and “victim” comports with both the Guidelines and the conclusions of coordinate appellate courts, not to mention the commonsense proposition that an account holder who must spend time and resources to dispute fraudulent activity, recoup stolen funds, and repair his or her credit and financial security has suffered a monetizable loss that is a reasonably foreseeable and direct consequence of the defendant’s theft or fraud. See, e.g., Pham, 545 F.3d at 721; Abiodun, 536 F.3d at 168-69. Here, the District Court did not clearly err in determining that appellants’ offenses involved twelve victims, 11 Again, the 2009 amendments to the Guidelines Commentary, which do not apply in this case, appear to make it easier for targets of identity theft to qualify as victims. Thus, what we say here regarding the requirements for victim status may not necessarily extend to the subjects of identity theft under the revised Guidelines Commentary. See Keller, 666 F.3d at 108 (finding that we are bound by amendments to Guidelines Commentary). 18 a number sufficient to trigger the ten-or-more-victims enhancement. The parties, save one, agree that the four banks from which funds were taken constitute victims of appellants’ bank fraud conspiracy.12 The government also presented evidence that the eight individual account holders suffered actual, pecuniary losses as a result of appellants’ conduct. Appellants are correct that the time and money spent by these account holders to assist in the investigation by law enforcement and the eventual prosecution—their trips, e.g., to the police station and to court—cannot be deemed actual loss. U.S.S.G. § 2B1.1 cmt. n.3(D)(ii). Even so, the account holders suffered monetizable harm in their efforts to regain the funds taken from their accounts, efforts that necessarily included reporting the fraud to their respective banks and disputing the unauthorized activity in the first instance. After noticing suspicious activity and prior to being reimbursed by her bank, each of the eight account holders traveled to a branch office at least once to deal with the fraud. Some of them were required to make multiple trips or phone calls to have their funds restored and establish new accounts, spending hours of their time to do so. These account holders were not reimbursed for the expenses involved with their trips or the time spent in communication with the banks. Additionally, Ponzio, Cogswell, and Peffley had to take time off from work and use vacation days to attend meetings at their banks, Diaz was forced to cut short her vacation to resolve her financial troubles, and Rosmarin paid a credit service to investigate her credit rating in the wake of the unauthorized account activity she had suffered. These are the very sorts of actual losses recognized by courts following Yagar, and are sufficient to confirm the eight account holders’ status as victims under the Guidelines. See Pham, 545 F.3d at 721 (finding forfeited vacation days and the cost 12 Only Smith disagrees. He challenges the inclusion of M&T Bank as a victim of his conduct, as he was acquitted of the bank fraud charge with respect to it. His claim is of dubious merit, given that he was convicted of conspiracy to commit bank fraud and the conspiracy’s activity targeted that bank. But even if we do not consider M&T Bank’s victim status as to Smith, there remain ten or more victims of his conduct. 19 of gas for trips to and from banks, telephone calls, stamps, and replacement checks related to resolution of disputed account activity and initiation of fraud investigations with credit reporting services could constitute “actual loss” under the Guidelines); Abiodun, 536 F.3d at 168-69 (finding the value of “lost time” spent securing reimbursement could constitute “actual loss”); cf. Conner, 537 F.3d at 491 (noting the possibility that the value of “business time” spent paying fraudulent charges could be considered an “actual loss”). Appellants counter that it is only the expenditure of substantial or appreciable amounts of time and money that constitutes actual loss—far more, they suggest, than that spent by the account holders here. It is certainly true that Yagar found that the account holders in that case could not qualify as victims because the money taken from their accounts was “immediately covered by a third-party” and their losses were “short-lived.” Yagar, 404 F.3d at 971. Other courts, relying on this language, have intimated that the speed of reimbursement or the magnitude of costs realized bears on whether an account holder has suffered an actual loss. See, e.g., Pham, 545 F.3d at 719-20; Lee, 427 F.3d at 895. But the controlling question for the Yagar court was whether the account holders “suffered [an] adverse effect as a practical matter from [the defendant’s] conduct,” not the number of days or amount of money it took to regain their stolen funds.13 Yagar, 404 F.3d at 971. In Yagar’s factual recitation, there is simply no indication that the account holders had to expend any time or resources to secure reimbursement. In view of Yagar’s rationale, which we adopt, we see no principled reason to treat only appreciable or substantial 13 Indeed, the Yagar court went so far as to analyze whether there was sufficient evidence to find that six account holders suffered pecuniary harm when they had to order new checks. Yagar, 404 F.3d at 971-72. Although the court found that the record failed to establish who ultimately paid for the new checks, the account holders or their banks, it did not find that reordering checks, which assuredly requires minimal time and money, was too small a cost to constitute an “actual loss.” 20 expenditures of time and money as “actual losses” under the Guidelines. The size of the loss has no bearing on its ability to be monetized, its foreseeability to the defendant, or its nexus to the offense conduct. Nor would the lack of an “appreciable” loss requirement transform every customer whose account is invaded into a Guidelines victim, rendering superfluous the “actual loss” element. As the facts of Kennedy demonstrate, some account holders may be reimbursed before they even realize that money has been taken from their accounts. See Kennedy, 554 F.3d at 419. In sum, the account holders in this case suffered unreimbursed, albeit small, losses in attempting to redress the fraudulent activity perpetrated by appellants. We hold that they are victims under the Guidelines. Smith makes one last argument against application of the victim enhancement, an argument that need not long detain us. He argues that a separate Guideline provision, § 2B1.6, renders the § 2B1.1(b)(2) victim enhancement inapplicable. The Application Notes to § 2B1.6 state that, if a sentence for aggravated identity theft under 18 U.S.C. § 1028A is imposed in conjunction with a sentence for a separate, underlying offense, as it was in this case, the district court should not apply an enhancement “for the transfer, possession, or use of a means of identification when determining the sentence for the underlying offense.” U.S.S.G. § 2B1.6 cmt. n.2. Quite plainly, the victim enhancement under § 2B1.1(b)(2) is not an enhancement based on the use of a “means of identification”; it is an enhancement based on the number of victims. Section 2B1.6 does not preclude application of the victim enhancement with respect to appellants’ bank fraud offenses.