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Havis – Not Just for Drugs Anymore, 6th Circuit Says – Update for March 12, 2021

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We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

6TH CIRCUIT EXPANDS HAVIS HOLDING TO FRAUD GUIDELINES

The 6th Circuit expanded its groundbreaking United States v. Havis decision to white-collar cases last week in a fraud decision that suggests a Guidelines defense for a lot of defendants.

devil180418The devil’s in the details. Most federal crimes carry a statutory penalty of from a minimum to a maximum sentence. Distributing 100 grams of powder cocaine, for example, carries a punishment of zero-to-20 years. Where precisely within that range a judge should sentence a defendant is where the Sentencing Guidelines come in.

The Guidelines consider a variety of factors in determining an offense level – such as, in our cocaine example, the quantity of drugs, whether the defendant supervised other people, lied to the authorities, had a weapon in hand while dealing the powder, entered a guilty plea, and so on. Then, the defendant gets points for prior convictions (varying – drunk driving doesn’t score like a prior bank robbery, for instance), and a sentencing range is determined from a matrix with the criminal history as the abscissa and the total offense level as the ordinate.

The Guidelines are written by the U.S. Sentencing Commission, a judicial branch agency established by Congress. When a Guideline is written or amended, the provision is adopted by the Commission. Congress then has six months to either reject the change (kind of a legislative veto) or do nothing. If Congress does nothing, the Guideline provision is deemed adopted.

All of which brings us to Havis. I wrote about this decision in summer 2019 (way back before the pandemic). Each Guideline has appended to it commentary, which may be Application Notes – instructing a court on how to apply the provision – or just background. This is often useful stuff, but – unlike the Guideline itself – commentary is added by the Commission but not subject to Congressional approval.

humpty210312In Havis, the 6th Circuit was considering a particular piece of commentary attached to USSG § 4B1.2.  That Guideline defined “drug trafficking” crime in detail, but it did not specify that an attempt to commit a drug trafficking crime (or, for that matter, to conspire to commit such a crime), was included in the definition. No problem for the Commission staff – it just wrote into the commentary that attempts and conspiracies were included.

“Not so fast,” the 6th Circuit said in Havis. The Commission is not allowed to add to a Guideline definition approved by Congress with its own gloss. Sure, the definition could be expanded to include attempts and conspiracies, but to do so, it had to be approved by the Commission and subjected to Congressional oversight first.

Whew! Time for a break.  Get a cup of coffee and then let’s resume.

Last week, the 6th Circuit took up the case of Jennifer Riccardi, a postal employee who pled guilty to stealing 1,505 gift cards from the mail.

mail210312Jen worked in the Cleveland, Ohio, U.S. Postal Service distribution center (Motto: ‘Where Quality is a Slogan, and Chaos is a Lifestyle‘). In September 2017, an Ohioan mailed a $25 Starbucks gift card from Mentor, Ohio, to nearby Parma.  The card never arrived.  The sender complained to the U.S. Postal Service, which – in perhaps the only recorded instance in history – took the complaint seriously. opened an investigation. Investigators learned that supervisors at a Cleveland distribution center had been finding lots of opened mail in the processing area. Now you’d think this would have caused some puzzlement, but it did not until investigators followed the trail to Jen. When confronted, she admitted that she had been stealing mail that might contain cash or gift cards for quite some time. A search of her home uncovered over 100 pieces of mail that she had taken just that day, $42,102 in cash, and 1,505 gift cards.  The gift cards were laid out on the floor organized by the 230 or so merchants at which they could be redeemed.  Sad she hadn’t used such organizational skills at the Postal distribution center.

Most of the cards were worth about $35.00, for a total value of about $47,000. Under § 2B1.1 of the Guidelines, Jen’s offense level based on the amount of the loss, something § 2B1.1 does not define. But the Guidelines commentary to § 2B1.1 helpfully “instructs that the loss shall be not less than $500.00 for each unauthorized access device, a phrase that… covers stolen gift cards. Applying that definition, the district court pumped Jen’s loss up from $47,000 (which what the stolen cards were actually worth) to $752,500 (that is, 1,505 cards multiplied by $500.00 per card).

“So what?” you might ask. The ‘so what’ is that Jen’s Guidelines offense level depends a lot on the amount of loss.  A loss of $47,000 elevated her range by six levels. But if you pretend the loss was $752,500 – and it would really be pretending – her offense level would shoot up 14 levels. In Jen’s case, the difference was a sentencing range of 10-16 months and a range of 46-57 months. The district court gave Jen 56 months.

loss210312Based on its Havis holding, the 6th rejected the loss calculation and sentence. Havis held “guidelines commentary may only interpret, not add to, the guidelines themselves… And even if there is some ambiguity in 2B1.1’s use of the word “loss,” the commentary’s bright-line rule requiring a $500 loss amount for every gift card does not fall “within the zone of ambiguity” that exists. So this bright-line rule cannot be considered a reasonable interpretation of — as opposed to an improper expansion beyond — 2B1.1’s text.”

Ohio State University law prof Doug Berman thinks this case is a big deal. He wrote in his Sentencing Law and Policy blog, “the fraud guideline is not the only one important part of the federal sentencing guideline with an intricate set of commentary instructions that might be challenged as full of ‘improper expansions.’ I sense a growing number of litigants and courts are starting to hone on potentially problematical guideline commentary and that some variation of this issue with be getting to the U.S. Supreme Court before too long. In the meantime, defense attorneys would be wise to challenge (and preserve arguments around) any application of guideline commentary that even might be viewed as ‘expansionary’.”

United States v. Riccardi, Case No 19-4232, 2021 U.S. App. LEXIS 6163 (6th Cir. March 3, 2021)

Sentencing Law and Policy, Did a Sixth Circuit panel largely decimate the federal sentencing fraud guidelines (and perhaps many others)? (March 5)

– Thomas L. Root

Why Be Precise When a WAG will Do? – Update for October 11, 2019

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We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

THE COURT HAS HEARD THAT GOVERNMENT EXCUSE ON LOSS CALCULATIONS BEFORE

lollipopcost191011For the countless federal criminal defendants whose sentence is driven by a calculation of the amount of loss their offense caused, the excuse of “close enough for government excuse” has special meaning: all too often, the Government gins up some number – often enough, a WAG – and tells the Court that the precise loss figure cannot be calculated, but here’s a “reasonable estimate.”

And of course, the Government reminds the court that “a district court may accept a ‘reasonable estimate’ of the loss based on the evidence presented.” And the court usually goes along with it.

The loss amount is crucial to the defendant, not only because the he or she is going to be ordered to pay that amount in restitution, but because the Guidelines offense level under USSG § 2B1.1(b)(1) –  and the suggested sentencing range – skyrockets with the amount of estimated loss.

That “reasonable estimate” standard has slid over the years to seemingly permit the government to give a “reasonable estimate” (usually heavy in favor of the government) in virtually any case. Steal candy from a baby? The Government will tell the court that all it can do is estimate that the Tootsie Pop was worth $200,000.

Last week, the 11th Circuit pushed back.

Roberta Sheffield was convicted of running an IRS tax scheme that netted unjustified $1,000 tax refunds to a lot of people. At sentencing, the government produced a spreadsheet showing a loss of $3.46 million. Roberta complained that the spreadsheet contained duplicate entries, but she had no list of what entries were wrong. The government admitted there might be some errors, but argued that the burden was on the defendant to prove the spreadsheet wrong.

The 11th Circuit disagreed. It held that “once the government acknowledged that there was in fact some duplication, it could not carry its burden without correcting the spreadsheet.” The Circuit noted that recent studies show 90% of restitution is uncollectible, and that it was unlikely Roberta and her co-conspirators would ever satisfy the award.

broke191011At oral argument, Roberta asserted that the duplicate entries totaled $136,000. The Court noted that the error amounted “to a mere 4% of the government’s proposed total of $3,461,638. So one may wonder why it is that we are reversing a multi-million dollar restitution order when the result on remand is likely to be approximately the same and payment (at least full payment) is unlikely. The reason is a simple one. Ms. Sheffield has the right not to be sentenced on the basis of inaccurate or unreliable information, and is not required to pay restitution she is not responsible for.”

United States v. Sheffield, 2019 U.S. App. LEXIS 29502 (11th Cir. Oct. 1, 2019)

– Thomas L. Root

Saying It Doesn’t Make It So – Update for January 12, 2017

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We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

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DADDY SAYS…

Because170112Serial college football coach Terry Bowden – who spent sojourns between his many coaching gigs as a TV sports analyst – delighted in quoting his father, legendary Florida State coach Bobby Bowden. “Daddy says…” Terry would start out, and then deliver a gem of football wisdom like Moses delivering the stone tablets.

We almost regret that Bobby’s been busy the past year coaching the University of Akron Zips to a lackluster 5-7 season, because we would like hearing him tell us “Daddy says… boys without fathers wear earrings to be like their mommas…” Yeah, really. Bobby said that.

Our point is that just because “Daddy says” it, it doesn’t mean it’s so. That’s the same point the 5th Circuit made in a decision handed down earlier this week.

fraud170112Euneisha Hearns was a mortgage loan officer involved in a rather plain vanilla conspiracy. She held customers lie to get mortgages, which was something of a sport in the halcyon days before the market collapsed in 2008. In Euneisha’s case, buyer interested in purchasing property on Brownstone Court in Dallas lacked the cash for a down payment. Hearns whipped up a loan application for him that puffed the value of the place and his ability to pay, netting enough for the buyer to close the deal and use some of the loan proceeds for the down payment (sort of like a snake eating itself).

Unsurprisingly, the buyer defaulted, the false statements came to light, and Euneisha was indicted. An old lawyer we used to work with liked to say, “no thief only steals once,” and this maxim apparently held here. There wasn’t just one bad loan at Euneisha’s. There were at least ten the government knew of.

Euneisha figured she was on the hook for about $180,000 (the amount of the Brownstone loan, an amount that will probably buy a storage shed in San Francisco). But the Sentencing Guidelines let a court set the loss based on the offense itself and related conduct. The presentence report prepared after trial said the conspiracy was responsible for total loss of $866,000, which included the Brownstone loan and “loss amounts related to nine other properties.”

“What other properties?” asked Euneisha. The PSR retorted that  “the Government has identified 10 properties [including the Brownstone Property] that involved fraud in the mortgage loan process. Government records reflect that with respect to these properties… Hearns [and her co-conspirators] were all involved in the scheme to defraud.”

Ah, the “Daddy says…” gambit. The PSR otherwise provided no information or evidence to support the loss amounts or Euneisha’s involvement in the other nine deals. The government presented evidence with respect to three of these properties at trial, but the remaining six properties were not mentioned either at trial or at sentencing. Nothing in the record showed when the six remaining transactions occurred, whether criminal activity was associated with the transactions, or whether Euneisha had even heard of them. Who bother? The government says, the PSR repeats. Game, set, match.

history170112Euneisha did not offer evidence to show that she was not involved with the other properties. It would have been hard to do so, to prove a negative. It’s especially tough in loss calculation, because loss amounts “need not be determined with precision” and “all that is necessary is that the finding be plausible in light of the record as a whole.” What’s more, PSRs – which, like history, are written by the winners – are generally considered “reliable evidence for sentencing purposes.” The district court concluded that “the information contained in the presentence report has sufficient indicia of reliability to support its probable accuracy.” It held Euneisha responsible for all $866,000.

Bcorso170112ut as another sportscasters, the equally legendary Lee Corso, likes to say, “Not so fast, my friend!” This week, the 5th Circuit vacated the sentence. Sure, the Court said, “a district court may adopt the findings of the PSR without additional inquiry if those facts have an evidentiary basis with sufficient indicia of reliability and the defendant does not present rebuttal evidence or otherwise demonstrate that the information is materially unreliable.” What’s more, a defendant has the burden of showing that the information in the PSR is materially unreliable.

However, the problem here is that the PSR contained no information to support the loss amounts and no evidence Euneisha had anything to do with the other transactions. The government only mentioned three of the nine properties at trial. As for the others, “the facts contained in the PSR regarding these six properties lack an evidentiary basis with sufficient indicia of reliability,” the Circuit said. “Although a PSR may be considered as evidence by the court when making sentencing determinations, bare assertions made therein are not evidence standing alone.”

negative170112The appellate panel made clear that Euneisha was not at fault for failing to disprove the PSR’s loss claim. “If the factual recitation in the PSR lacks sufficient indicia of reliability,” the Court held, “then it is error for the district court to consider it at sentencing — regardless of whether the defendant objects or offers rebuttal evidence.”

The case will go back for resentencing.

United States v. Hearns, Case No. 16-40222 (5th Cir., Jan. 9, 2017)

– Thomas L. Root

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