united states v. alphas, 1st cir. (2015)

7/26/2019 United States v. Alphas, 1st Cir. (2015)

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United States Court of AppealsFor the First Circuit

No. 14- 2228

UNI TED STATES OF AMERI CA,

Appel l ee,

v.

J OHN S. ALPHAS,

Def endant , Appel l ant .

APPEAL FROM THE UNI TED STATES DI STRI CT COURT

FOR THE DI STRI CT OF MASSACHUSETTS

[ Hon. Dougl as P. Woodl ock, U. S. Di st r i ct J udge]

Bef or e

Bar r on, Sel ya and St ahl ,Ci r cui t J udges.

Tr acy A. Mi ner , wi t h whomMegan A. Si ddal l and Demeo LLP wer eon br i ef , f or appel l ant .

Br i an A. Pr ez- Dapl e, Assi st ant Uni t ed St at es At t or ney, wi t hwhom Car men M. Or t i z, Uni t ed St at es At t or ney, was on br i ef , f orappel l ee.

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SELYA, Circuit Judge. When a cr i mi nal def endant i s

convi ct ed of a f r aud of f ense, t he Sent enci ng Commi ssi on has

est abl i shed amount of l oss gener al l y t he hi gher of act ual or

i nt ended l oss as a rough pr oxy f or det er mi ni ng the ser i ousness of

t he of f ense and t he r el at i ve cul pabi l i t y of t he of f ender . Al t hough

t hi s concept i s easi l y st at ed, i t s appl i cat i on of t en has vexed

sent enci ng cour t s. As i n so many ot her i nst ances, t he devi l i s i n

t he det ai l s.

Thi s appeal r equi r es us t o deci de t wo i ssues of f i r st

i mpr essi on i n t hi s ci r cui t . The f i r st i nvol ves t he met hod f or

cal cul at i ng t he gui del i ne enhancement f or amount of l oss i n an

i nsurance f r aud cont ext . The second i nvol ves t he met hod f or

cal cul at i ng t he amount of st at ut or y rest i t ut i on i n t hat cont ext .

Concl udi ng, as we do, t hat t he cour t bel ow er r ed i n adopt i ng i t s

cal cul at i on met hods, we vacat e t he appel l ant ' s sent ence and remand

f or r esent enci ng.

I. BACKGROUND

Because thi s sent enci ng appeal f ol l ows a gui l t y pl ea, we

di st i l l t he per t i nent f act s f r omt he pl ea agr eement , t he change- of -

pl ea col l oquy, t he undi sput ed por t i ons of t he pr esent ence

i nvest i gat i on r epor t ( PSI Repor t ) , and t he t r anscri pt of t he

di sposi t i on hear i ng. See Uni t ed St at es v. Al mont e- Nuez, 771 F. 3d

84, 86 ( 1st Ci r . 2014) .

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Def endant - appel l ant J ohn S. Al phas owns and operat es The

Al phas Company, a whol esal e pr oduce di st r i but or l ocat ed i n Chel sea,

Massachuset t s. Dur i ng t he r el evant t i me f r ame, t he appel l ant

pur chased l ar ge quant i t i es of pr oduce, of t en f r om di st ant

pur veyor s. To pr ot ect hi s i nvest ment , t he appel l ant r out i nel y

obt ai ned i nsur ance on these pr oduce shi pment s.

I n or around March of 2007, t he appel l ant devi sed a

scheme t o def r aud. Over t he next f our and one- hal f years, he

submi t t ed at l east t en f r audul ent cl ai ms t o hi s i nsur er s f or l ost ,

st ol en, or damaged produce. 1 The appel l ant sought r ei mbur sement

f or t he val ue of al l egedl y l ost , st ol en, or damaged pr oduce,

t oget her wi t h di sposal expenses, shi ppi ng f ees, and t he cost of

pr ocur i ng r epl acement st ock. These cl ai ms wer e l ar gel y bogus: i n

each i nst ance, t he appel l ant ei t her i nvent ed f i ct i t i ous l osses or

ar t i f i ci al l y i nf l at ed l egi t i mat e l osses. To make mat t er s wor se, he

support ed hi s submi ssi ons wi t h document s t hat had been f r audul ent l y

al t er ed or , i n some cases, const r uct ed out of whol e cl ot h. He

compounded hi s mendaci t y by maki ng f al se and mi sl eadi ng st at ement s

t o i nsur ance adj ust er s.

The i nsur ance pol i ci es at i ssue cont ai ned voi d- f or - f r aud

cl auses. A r epr esent at i ve cl ause st at ed:

1Ni ne of t hese cl ai ms wer e submi t t ed t o Zur i ch Nort h Amer i canand t he f i nal cl ai m t o Sel ect i ve I nsur ance Company. Though al l oft he cl ai ms were submi t t ed i n t he name of The Al phas Company, t hesent enci ng cont ext r equi r es us t o at t r i but e t hose cl ai ms and t heunder l yi ng l osses t o t he appel l ant .

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Thi s Coverage Par t i s voi d i n any case off r aud by you as i t r el at es t o t hi s Cover agePar t at any t i me. I t i s al so voi d i f you orany ot her i nsur ed, at any t i me, i nt ent i onal l yconceal or mi sr epr esent a mat er i al f actconcer ni ng:

1. Thi s Cover age Par t ;2. The Covered Propert y;3. Your i nt er est i n t he Cover ed Pr oper t y; or4. A cl ai m under t hi s Cover age Par t .

Four of t he appel l ant ' s cl ai ms wer e never pai d: t hr ee

wer e wi t hdr awn af t er suspi ci ons sur f aced and t he l one cl ai m

submi t t ed t o Sel ect i ve I nsur ance Company was t hwar t ed by ear l y

det ect i on of t he f r aud. The ot her si x cl ai ms wer e pai d, but most l y

i n amount s l ess t han t hei r f ace val ue. I n sum, t he t en cl ai ms

t ot al ed over $490, 000, yet t he appel l ant r ecei ved payment s t ot al i ng

onl y $178, 568. 41.

The appel l ant ' s persi st ent pat t er n of chi caner y sparked

a f eder al cr i mi nal i nvest i gat i on. I n May of 2014, t he gover nment

f i l ed an i nf or mat i on char gi ng t he appel l ant wi t h a si ngl e count of

wi r e f r aud. See 18 U. S. C. 1343. Wai vi ng pr osecut i on by

i ndi ct ment , t he appel l ant pl eaded gui l t y t o t he char ge. I n an

accompanyi ng pl ea agr eement , t he part i es st i pul ated t o a base

of f ense l evel of 7. See USSG 2B1. 1( a) ( 1) .

The par t i es coul d not agree, however , as t o t he amount of

l oss a necessary st ep i n det er mi ni ng t he gui del i ne sent enci ng

r ange ( GSR) . To f i l l t hi s voi d, t he PSI Repor t r ecommended

boost i ng t he appel l ant ' s of f ense l evel by 14 l evel s based on an

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i nt ended l oss of appr oxi mat el y $480, 000. See i d. 2B1. 1( b) ( 1) ( H) -

( I ) ( i ncr easi ng of f ense l evel by 14 f or l osses exceedi ng $400, 000

but not gr eat er t han $1, 000, 000) . Thi s cal cul at i on der i ved f r om

t he pr obat i on of f i cer ' s concl usi on t hat i nt ended l oss shoul d be

measur ed by t he f ace amount of t he appel l ant ' s cl ai ms, l ess a $1000

per cl ai m deducti bl e.

The appel l ant obj ect ed t o t he r ecommendat i on. He ar gued

t hat t he l oss f i gur e shoul d excl ude l egi t i mat e l osses embedded i n

t he f r audul ent cl ai ms. I n conj unct i on wi t h t hi s ar gument , he

submi t t ed a compet i ng set of cal cul at i ons t hat pur por t ed t o show

whi ch component amount s wer e l egi t i mate. Thi s set of cal cul at i ons

yi el ded an i nt ended l oss amount of r oughl y $178, 000 whi ch

cor r esponded t o an i ncr ease of 10 ( r at her t han 14) i n hi s adj ust ed

of f ense l evel . See i d. 2B1. 1( b) ( 1) ( F) .

The PSI Repor t al so deal t wi t h r est i t ut i on. I t

r ecommended an awar d of $178, 568. 41 ( t he aggregat e amount act ual l y

pai d out on t he cl ai ms) . The appel l ant obj ect ed t o t hi s

r ecommendat i on, envi si oni ng a f i ndi ng of act ual l oss ( and,

t her ef or e, a r est i t ut i on amount ) of $58, 931. 36. Once agai n, t he

appel l ant at t r i but ed t he r educed f i gur e t o t he f act t hat a por t i on

of t he cl ai ms pai d cor r esponded t o l egi t i mat e l osses.

The pr obat i on of f i cer st ood by her cal cul at i ons r egar di ng

bot h t he gui del i ne enhancement and r est i t ut i on. Al t hough she

conceded t hat t he appel l ant may have i ncur r ed l egi t i mate l osses,

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she mai nt ai ned t hat t he appel l ant ' s f r aud r ender ed t he cl ai ms

al t oget her i l l egi t i mat e.

The di sposi t i on hear i ng was hel d on November 6, 2014.

The di st r i ct cour t concl uded as a mat t er of l aw t hat where, as

her e, i nsur ance pol i ci es cont ai n voi d- f or - f r aud cl auses, i nt ended

l oss i s equal t o t he aggr egat e f ace val ue of t he cl ai ms submi t t ed.

St ar t i ng wi t h t hi s pr emi se, t he cour t over r ul ed t he appel l ant ' s

obj ect i ons; enhanced hi s of f ense l evel by 14 l evel s; deduct ed 3

l evel s f or accept ance of r esponsi bi l i t y, see i d. 3E1. 1; pl aced t he

appel l ant i n Cr i mi nal Hi st or y Cat egor y I ; and set t he GSR at 27 t o

33 mont hs, see i d. Ch. 5, Pt . A, sent enci ng t abl e. The cour t t hen

var i ed shar pl y downwar d, sent enci ng t he appel l ant t o an

i ncar cer at i ve t er m of 12 mont hs and 1 day. I n addi t i on, t he cour t

f i ned the appel l ant $60, 000; at t ached a 36- mont h t er mof super vi sed

r el ease; and or der ed payment of r est i t ut i on t o Zur i ch Nor t h

Amer i can i n t he amount of $178, 568. 41.

Thi s t i mel y appeal ensued. The di st r i ct cour t r ef used t o

st ay t he appel l ant ' s sent ence pendi ng appeal . Thi s cour t , however ,

gr ant ed a st ay. See Uni t ed St at es v. Al phas, No. 14- 2228 ( 1st Ci r .

Dec. 31, 2014) ( f i ndi ng t hat appeal pr esent ed " ' subst ant i al

quest i on' wi t hi n t he meani ng of 18 U. S. C. 3143( b) ( 1) ( B) " ) .

II. ANALYSIS

The appel l ant assi gns er r or t o t he di st r i ct cour t ' s

det er mi nat i on of t he amount of l oss wi t h r espect t o bot h t he

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gui del i ne enhancement and t he award of r est i t ut i on. Because t hese

det er mi nat i ons ar e cont r ol l ed by di f f er ent aut hor i t i es, we

bi f ur cat e our anal ysi s.

A. The Guideline Enhancement.

The appel l ant f i r st cont ends t hat t he sentenci ng cour t

used an i mpr oper met hod of cal cul at i ng i nt ended l oss and, t hus,

er r ed i n enhanci ng hi s of f ense l evel by 14 l evel s. Thi s cont ent i on

i s met at t he thr eshol d by t he gover nment ' s asser t i on t hat we need

not r each t he mer i t s because any cal cul at i on er r or was har ml ess.

We begi n wi t h that assert i on and then pr oceed to t he mer i t s.

1. Harmlessness. The government ' s ar gument f or

har ml essness r est s on t he di st r i ct cour t ' s i mposi t i on of a bel ow-

t he- r ange sent ence coupl ed wi t h t he cour t ' s l ater r emark, made

whi l e denyi ng the appel l ant ' s mot i on to st ay t he sent ence pendi ng

appeal , t hat a r ecal cul at i on of t he GSR woul d be unl i kel y t o r esul t

i n a l ower sent ence. Thi s ar gument f l i es i n t he t eet h of

convent i onal wi sdom, whi ch t eaches t hat t he i mpr oper cal cul at i on of

a def endant ' s gui del i ne r ange compr i ses a si gni f i cant pr ocedur al

er r or . See Gal l v. Uni t ed St at es, 552 U. S. 38, 51 ( 2007) . Such an

er r or or di nar i l y r equi r es r esent enci ng. See Uni t ed St at es v.

Ramos- Paul i no, 488 F. 3d 459, 463- 64 ( 1st Ci r . 2007) . I ndeed, a

def endant nor mal l y can appeal f r oman er r or i n cal cul at i ng hi s GSR

even though the di st r i ct cour t i mposed a sent ence beneath the

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bot t omof t he GSR. See Uni t ed St ates v. Panet o, 661 F. 3d 709, 715

( 1st Ci r . 2011) .

To be sure, an appel l at e cour t may deem such an er r or

har ml ess i f , af t er r evi ewi ng t he ent i r e r ecor d, i t i s sur e t hat t he

er r or di d not af f ect t he sent ence i mposed. See Wi l l i ams v. Uni t ed

St at es, 503 U. S. 193, 203 ( 1992) . I n other wor ds, r esent enci ng i s

r equi r ed i f t he er r or ei t her af f ect ed or ar guabl y af f ect ed t he

sent ence. See Ramos- Paul i no, 488 F. 3d at 463.

The case at hand does not f i t wi t hi n t hese nar r ow

conf i nes. Al t hough t he cour t bel ow i mposed a sent ence beneat h t he

bot t om of t he GSR, t her e i s at l east a possi bi l i t y t hat t he cour t

woul d have i mposed an even more l eni ent sent ence had i t st ar t ed

wi t h a l ower GSR. See Uni t ed St at es v. Fol ey, ___ F. 3d ___, ___

n. 13 ( 1st Ci r . 2015) [ Nos. 13- 1048, 13- 1118, sl i p op. at 31 n. 13] .

Whi l e t he cour t st at ed t hat a l ower GSR was " unl i kel y" t o r esul t i n

a di f f er ent sent ence, we have r ecent l y reaf f i r med t hat t he

possi bi l i t y of a l esser sent ence i s enough t o pr ecl ude a f i ndi ng

t hat an er r or i n cal cul at i ng t he GSR i s har ml ess. See i d. Such a

possi bi l i t y exi st s her e: sayi ng t hat an event i s unl i kel y i s not

t he same as a cat egor i cal assur ance t hat t he event wi l l not come t o

pass. I t f ol l ows that i f t he cour t bel ow er r ed on t he hi gh si de i n

f ashi oni ng t he gui del i ne enhancement f or amount of l oss ( and, t hus,

t he GSR) , we cannot r egard that er r or as harml ess.

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2. Calculating Intended Loss. Our r ej ect i on of t he

government ' s har ml essness argument br i ngs us t o t he mer i t s of t he

appel l ant ' s cl ai m t hat t he di st r i ct cour t commi t t ed a cal cul at i on

er r or . We r evi ew de novo t he cour t ' s i nt er pr et at i on and

appl i cat i on of t he sent enci ng gui del i nes, i ncl udi ng t he pr opr i et y

of i t s l oss- comput at i on met hod. See Uni t ed St at es v. Pr ange, 771

F. 3d 17, 35 ( 1st Ci r . 2014) ; Uni t ed St at es v. Wal ker , 234 F. 3d 780,

783 ( 1st Ci r . 2000) .

I n f r aud cases l i ke t hi s one, t he gui del i nes di r ect t he

sent enci ng cour t t o augment t he def endant ' s of f ense l evel based on

t he amount of l oss. See USSG 2B1. 1( b) ( 1) . For t hi s pur pose, l oss

i s def i ned as "t he gr eat er of act ual l oss or i nt ended l oss. " I d.

2B1. 1, comment . ( n. 3( A) ) . Her e, t he di st r i ct cour t based i t s

gui del i ne cal cul at i on on i nt ended l oss. That t er m means "t he

pecuni ar y har m t hat was i nt ended t o r esul t f r om t he of f ense. " I d.

at n. 3( A) ( i i ) . I nt ended l oss i s not synonymous wi t h pr obabl e l oss.

Rat her , t he t er m" i ncl udes i nt ended pecuni ar y har mt hat woul d have

been i mpossi bl e or unl i kel y t o occur . " I d. Seen i n t hi s l i ght ,

i nt ended l oss " i s a ter m of ar t meani ng t he l oss t he def endant

r easonabl y expect ed to occur at t he t i me he per pet r at ed t he f r aud. "

Uni t ed St at es v. I nnar el l i , 524 F. 3d 286, 290 ( 1st Ci r . 2008) .

Thi s st andar d f ocuses pr i mar i l y on t he of f ender ' s obj ect i vel y

r easonabl e expect at i ons, see i d. , t hough subj ect i ve i nt ent may pl ay

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some r ol e, see i d. at 291 n. 6; Uni t ed St ates v. McCoy, 508 F. 3d 74,

79 ( 1st Ci r . 2007) .

I n t hi s case, t he sent enci ng cour t concl uded t hat t he

i nt ended l oss was equal t o t he aggr egate f ace val ue of t he cl ai ms

submi t t ed by t he appel l ant t o hi s i nsur er s, not t he aggr egat e

amount by whi ch t he appel l ant f r audul ent l y i nf l at ed t hose cl ai ms. 2

The cour t r easoned t hat had t he i nsur er s known of t he f r aud when

t hey recei ved t he cl ai ms, t hey woul d have i nvoked t he voi d- f or -

f r aud cl auses and pai d not hi ng. The cour t di d not expl ai n what

bear i ng the voi d- f or - f r aud cl auses may have had on t he amount of

l oss t hat t he appel l ant i nt ended t o cause. I t sai d onl y t hat i f

i nt ended l oss wer e t o be vi ewed sol el y as t he amount of f r audul ent

i nf l at i on, f r audst er s woul d have an i ncent i ve t o i nf l at e cl ai ms

because, i f caught i n t he act , t hey woul d be puni shed onl y f or t he

i nf l at ed amount .

The gover nment appl auds t hi s r easoni ng, but t he appel l ant

decr i es i t . He not es t hat t he sent enci ng gui del i nes t r eat l oss as

a pr oxy f or r el at i ve cul pabi l i t y. I n hi s vi ew, basi ng an i nt ended

l oss comput at i on on t he ent i r e amount of an i nsur ance cl ai m r at her

t han on t he amount f r audul ent l y cl ai med i r r at i onal l y conf l at es t he

2 We expr ess no opi ni on on whether any por t i on of t heappel l ant ' s cl ai ms was l egi t i mat e. Thi s i s a mat t er t he di st r i ctcour t wi l l need t o addr ess on r emand. See t ext i nf r a. For presentpur poses, we assume as t he appel l ant cont ends t hat he di dsuf f er some l egi t i mat e l osses.

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cul pabi l i t y of f r audst er s who commi t si gni f i cant l y di f f er ent

of f enses.

Fraud has many mani f est at i ons, and cal cul at i ng t he l oss

associ ated wi t h a part i cul ar scheme i s somet i mes more ar t t han

sci ence. As a r esul t , we have eschewed r i gi d r ul es and i nst ead

t aken "a pr agmat i c, f act - speci f i c appr oach" t o l oss cal cul at i on.

Pr ange, 771 F. 3d at 35 ( i nt er nal quot at i on mar k omi t t ed) . Such a

pr agmat i c vi ew suggest s t hat l oss comput at i on shoul d di st i ngui sh

bet ween an out r i ght swi ndl er who peddl es, say, a f or ged t i t l e t o a

br i dge i n Br ookl yn and a f r audst er who cont r i ves t o render some

val ue ( al bei t l ess t han pr omi sed) t o t he vi ct i m. See i d. at 36;

Uni t ed St at es v. Bl ast os, 258 F. 3d 25, 30 ( 1st Ci r . 2001) . By any

pr act i cal measur e, t he f ormer seems more cul pabl e t han t he l at t er .

Appl yi ng t he degr ee- of - cul pabi l i t y appr oach t o t he

i nsur ance f r aud cont ext , i t i s appr opr i at e f or t he l oss- comput at i on

met hod to di st i ngui sh bet ween a f r audst er who whol l y f abr i cat es a

non- exi st ent cl ai m and a f r audster who ar t i f i ci al l y i nf l at es a

l egi t i mat e cl ai m. A f r audst er who has suf f er ed no l oss at al l but

i nvent s a $100, 000 cl ai m out of t hi n ai r i s not t he same as a

f r audst er who has suf f er ed a l egi t i mat e $50, 000 l oss but

ar t i f i ci al l y i nf l at es hi s cl ai mt o $100, 000. See Uni t ed St at es v.

Smi t h, 951 F. 2d 1164, 1167 ( 10t h Ci r . 1991) .

Thi s gets t o t he hear t of t he mat t er . Under t he

sent enci ng gui del i nes, l oss gener al l y does not i ncl ude sums t hat a

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vi ct i m woul d have pai d t o t he def endant absent t he f r aud. See,

e. g. , Uni t ed St at es v. Evans, 155 F. 3d 245, 253 ( 3d Ci r . 1998)

( hol di ng t hat act ual l oss i n i nsur ance f r aud case does not i ncl ude

val ue of l egi t i mat e cl ai ms) ; Uni t ed St at es v. Par sons, 109 F. 3d

1002, 1004 ( 4t h Ci r . 1997) ( same, i n cont ext of gover nment benef i t s

f r aud) ; see al so Uni t ed St at es v. Mi l l er , 316 F. 3d 495, 498- 99 ( 4t h

Ci r . 2003) ( appl yi ng t hi s pr i nci pl e t o i nt ended l oss) . Gi ven t hi s

r ul e, t he quest i on r educes t o whet her t he pr esence of a voi d- f or -

f r aud cl ause makes a di sposi t i ve di f f er ence when cal cul at i ng l oss

under t he sent enci ng gui del i nes.

I n r esol vi ng t hi s quest i on, we f i nd i nst r ucti ve t he l i ne

of cases i nvol vi ng gover nment benef i t s f r aud. When a per son

f r audul ent l y obt ai ns gover nment benef i t s, t he Uni t ed St at es

t ypi cal l y i s ent i t l ed t o r ecover al l sums pai d ( i n a ci vi l

f or f ei t ur e pr oceedi ng) even t hough some benef i t s woul d have been

pai d anyway ( t hat i s, absent t he f r aud) . See, e. g. , 5 U. S. C.

8148( a) ; 28 U. S. C. 2514. But when t he same f r audul ent conduct

under gi r ds a cr i mi nal convi ct i on, cour t s have st eadf ast l y ref used

t o equate t he amount of l oss under t he sent enci ng gui del i nes wi t h

t he amount r ecover abl e by the gover nment t hr ough ci vi l f or f ei t ur e.

That i s because " [ f ] or f ei t ure i s a penal t y i mposed on a cr i mi nal

i ndependent of any l oss t o t he cr i me vi ct i m. " Par sons, 109 F. 3d at

1005. Consequent l y, "[ t ] he l oss i t sel f ( whet her t he act ual or

i nt ended l oss) i s l i mi t ed t o t he t angi bl e economi c l oss of t he

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vi ct i m. " I d. at 1004. The f or f ei t abl e amount does not count

t oward the gover nment ' s l oss, whi ch i s measur ed by t he amount of

benef i t s t hat was ( and, i n t he case of i nt ended l oss, woul d have

been) pai d as a r esul t of t he f r aud. See Uni t ed St at es v. Har ms,

442 F. 3d 367, 380 ( 5t h Ci r . 2006) ; Uni t ed St ates v. Dawki ns, 202

F. 3d 711, 715 ( 4t h Ci r . 2000) .

To be sure, gover nment benef i t s f r aud i s gover ned by a

speci al appl i cat i on not e, whi ch expl ai ns t hat i n such cases l oss

"shal l be consi der ed t o be not l ess t han t he val ue of t he benef i t s

obt ai ned by uni nt ended r eci pi ent s or di ver t ed t o uni nt ended uses. "

USSG 2B1. 1, comment . ( n. 3( F) ( i i ) ) . We bel i eve t hat t hi s not e

mer el y repr esent s a speci al i zed appl i cat i on of t he gui del i nes'

gener al f ocus on a def endant ' s r el at i ve cul pabi l i t y. See, e. g. ,

Dawki ns, 202 F. 3d at 714; Par sons, 109 F. 3d at 1004- 05. Si nce t hi s

i s so, i t makes good sense t o t r anspl ant t he reasoni ng of t he

gover nment benef i t s cases t o the anal ogous cont ext of i nsurance

f r aud.

We di scer n no sound basi s f or t r eat i ng a voi d- f or - f r aud

cl ause ( i n t he i nsur ance f r aud cont ext ) di f f er ent l y t han a ci vi l

f or f ei t ur e ( i n t he benef i t s f r aud cont ext ) . Bot h t he voi d- f or -

f r aud cl ause and t he ci vi l f or f ei t ur e anodyne af f or d r el i ef af t er

t he f act . So, t oo, such a cl ause, l i ke t he swor d of Damocl es

i nher ent i n a t hr eat of ci vi l f or f ei t ur e, ser ves t he sal ut ar y

pur pose of encour agi ng t r ansact i onal honest y. And such a cl ause,

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l i ke a ci vi l f or f ei t ur e, i mposes a penal t y on t he f r audst er f or

act i ng cor r upt l y: i f t he i nsur er di scover s t he f r aud, t he i nsur ed

f or f ei t s ever yt hi ng.

The concept of l oss under t he sentenci ng gui del i nes

serves a compl et el y di f f er ent pur pose. See Uni t ed St at es v.

Hamaker , 455 F. 3d 1316, 1337 ( 11t h Ci r . 2006) ; Dawki ns, 202 F. 3d at

715. The gui del i nes are desi gned t o ensure t hat t he sent ence

i mposed on a def endant " r ef l ect [ s] t he natur e and magni t ude of t he

l oss caused or i nt ended by [ hi s] cr i mes. " USSG 2B1. 1, comment .

( backg' d. ) . Consonant wi t h t hi s desi gn, t he gui del i nes use amount

of l oss as t he pr i mar y met r i c by whi ch " t he ser i ousness of t he

of f ense and t he def endant ' s r el at i ve cul pabi l i t y" ar e measur ed.

I d. Sums f or f ei t ed under a voi d- f or - f r aud cl ause ( whi ch i s r eal l y

not hi ng mor e than an af t er - t he- f act penal t y) do not conf or m

nat ur al l y t o t hi s met r i c. Cf . i d. 2B1. 1, comment . ( n. 3( D) ( i ) )

( pr ovi di ng t hat "l oss" does not i ncl ude "[ i ] nt er est of any ki nd,

f i nance char ges, l at e f ees, penal t i es, amount s based on an agr eed-

upon r et ur n or r at e of r et ur n, [ and] ot her si mi l ar cost s") . I t

woul d t her ef or e be anomal ous t o r ead t he gui del i nes t o di st i ngui sh

bet ween t wo f r audst er s who f r audul ent l y i nf l at e t hei r cl ai ms by

exact l y t he same amount si mpl y because one i s cover ed by an

i nsur ance pol i cy t hat cont ai ns a voi d- f or - f r aud cl ause and t he

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ot her i s cover ed by an i nsur ance pol i cy t hat does not cont ai n such

a cl ause. 3

The gover nment r esi st s t hi s r easoni ng, assever at i ng t hat

t he appel l ant i nt ended t o depr i ve hi s i nsurer s of t he ent i r e amount

cl ai med r egardl ess of whet her some por t i on of t hat amount

r epr esent ed l egi t i mat e l osses. To achi eve t hi s count er i nt ui t i ve

r esul t , t he gover nment asks us t o consi der what an obj ect i vel y

r easonabl e f r audst er st andi ng i n t he appel l ant ' s shoes woul d have

expect ed t o be pai d were t he f r aud di scover ed. Because such a

f r audst er woul d be awar e of t he voi d- f or - f r aud cl auses and know

t hat t he mi sr epr esent at i on woul d r el i eve hi s i nsur er s of t hei r

payment obl i gat i on, t he gover nment ' s t hesi s r uns, t he f r audst er

woul d expect hi s i nsur er s t o suf f er l osses i n t he f ul l amount of

t he submi t t ed cl ai ms.

We rej ect t he gover nment ' s t hesi s, whi ch appr oaches

i nt ended l oss f r omt he wr ong angl e. Fraudst er s do not expect t o be

f ound out but , r at her , expect t o r eap t he benef i t s of t hei r

cont r i vance. The r el evant i nqui r y, t hen, i s what t he f r audst er

r easonabl y expect ed t o euchr e out of hi s vi ct i m, cf . i d. at

3 We base t hi s concl usi on on t he l anguage and pur pose of t he

sent enci ng gui del i nes, not t he l anguage of t he par t i cul ar pol i ci esat i ssue. Whet her and t o what extent an i nsur ance cont r act i s voi dor voi dabl e i s of t en a t hor ny i ssue and we do not need t o resol vet hat i ssue her e. For t he r easons di scussed above, an i nsur er ' sl oss f or gui del i ne pur poses i s di st i nct f r om any r ecover y t o whi chi t mi ght be ent i t l ed under a voi d- f or - f r aud cl ause i n a ci vi lpr oceedi ng.

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n. 3( A) ( i i ) ( def i ni ng "i nt ended l oss" as "t he pecuni ar y har m t hat

was i nt ended t o r esul t f r omt he of f ense" ( emphasi s suppl i ed) ) , not

what woul d have sl i pped t hr ough hi s f i ngers had he been caught i n

t he act .

That amount necessar i l y excl udes any sums t hat t he

f r audst er woul d have been pai d absent t he f r aud. See Bur r age v.

Uni t ed St at es, 134 S. Ct . 881, 887- 88 ( 2014) ( expl ai ni ng t hat t he

phr ase "r esul t s f r om" i mpl i es " a requi r ement of act ual causal i t y, "

whi ch t ypi cal l y "r equi r es pr oof t hat t he har m woul d not have

occur r ed i n t he absence of t hat i s, but f or t he def endant ' s

conduct " ( i nt er nal quot at i on mar ks omi t t ed) ) . The sent enci ng

cour t , t hen, shoul d have determi ned whet her and t o what ext ent

l egi t i mat e cl ai ms were embedded i n t he f r aud.

St r uct ur i ng " i nt ended l oss" i n t hi s way makes good sense.

Af t er al l , l oss i s meant t o ser ve as a pr oxy f or t he ser i ousness of

t he cr i me and t he r el at i ve cul pabi l i t y of t he of f ender . The best

way t o gauge t he ser i ousness of a f r aud of f ense i s t o det er mi ne how

much t he f r audst er set out t o swi ndl e and no f r audst er set s out

t o swi ndl e sums t hat he woul d have been pai d anyway. That i s al so

t he best way t o gauge a f r audst er ' s cul pabi l i t y.

The best case f or t he gover nment ' s cont r ar y posi t i on i s

Uni t ed St at es v. Tor l ai , 728 F. 3d 932 ( 9t h Ci r . 2013) but Tor l ai

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cannot carr y t he wei ght t hat t he gover nment l oads upon i t . 4 Tor l ai

i nvol ved a def endant who had obt ai ned cr op i nsur ance pol i ci es f r om

pr i vat e i nsur er s thr ough a f eder al pr ogr am. See i d. at 935- 36.

Those pol i ci es and t hei r appl i cat i on documents i ncl uded voi d- f or -

f r aud cl auses. See i d. at 940 & n. 8. The def endant made a number

of mi sr epr esent at i ons both when he pr ocur ed t he pol i ci es and when

he submi t t ed cl ai ms under t hem. See i d. at 936, 941- 43.

Appeal i ng hi s sent ence, t he def endant argued t hat t he

di st r i ct cour t er r ed i n cal cul at i ng l oss by f ai l i ng t o det er mi ne

whi ch por t i ons of hi s i ndemni t y cl ai ms wer e l egi t i mat e. The Ni nt h

Ci r cui t di sagr eed, not i ng t hat t he case i nvol ved a gover nment

benef i t s pr ogr amand, t her ef or e, l oss const i t ut ed "t he val ue of t he

benef i t s obt ai ned by uni nt ended r eci pi ent s. " I d. at 938 ( emphasi s

omi t t ed) ( quot i ng USSG 2B1. 1, comment . ( n. 3( F) ( i i ) ) ) . The cour t

st at ed t hat "[ b] y vi r t ue of hi s f r aud, [ t he def endant ] was not

el i gi bl e f or any gover nment benef i t under t he cr op i nsur ance

pr ogr am, and t her ef or e, he was not an ' i nt ended benef i ci ar y. ' " I d.

at 943.

Cer t ai n f act s under l yi ng t he cour t ' s " uni nt ended

benef i ci ar y" r at i onal e hel p t o di st i ngui sh Tor l ai f r om t hi s case.

Fi r st , t he Ni nt h Ci r cui t f ound suf f i ci ent evi dence t hat t he

4 The gover nment ' s ci t at i on to Uni t ed St at es v. Ost r om, 80 F.App' x 67 ( 10t h Ci r . 2003) , need not det ai n us. That deci si on l ackspr ecedent i al f or ce even i n t he ci r cui t of i t s or i gi n. See 10t hCi r . R. 32. 1( A) .

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def endant had suf f er ed no rei mbur sabl e l osses, see i d. at 941- 43,

so he woul d not have recei ved anyt hi ng absent hi s f r audul ent

cl ai ms. Second, t he def endant made mater i al mi sr epr esent at i ons to

pr ocur e t he crop i nsur ance pol i ci es, see i d. , maki ng i t unl i kel y

t hat t he i nsur er woul d have i ssued t he pol i ci es had i t been t ol d

t he t r ut h. Thi s l at t er f act i ndi cat es t hat , r egar dl ess of t he

l egi t i macy vel non of t he cl ai med l osses, t he i nsur er woul d not

have been obl i ged t o pay. Cases i n whi ch an i nsur er woul d have

pai d not hi ng absent t he f r aud ar e mat er i al l y di f f er ent f r om t hose

i n whi ch t he i nsurer woul d have pai d somet hi ng ( but l ess t han t he

f ul l amount cl ai med) absent t he f r aud. See Uni t ed St at es v.

Sharma, 703 F. 3d 318, 324- 25 ( 5t h Ci r . 2012) . 5

To r ecapi t ul at e, we concl ude t hat t he di st r i ct cour t

er r ed i n cal cul at i ng t he amount of i nt ended l oss at t r i but abl e t o

t he f r aud and, t hus, i n f ashi oni ng t he gui del i ne enhancement . We

are, t her ef ore, const r ai ned t o r emand f or r esent enci ng. On r emand,

t he di st r i ct cour t shoul d compar e what t he appel l ant sought t o

bamboozl e hi s i nsurer s i nt o payi ng wi t h what t hey woul d have pai d

had the appel l ant submi t t ed onl y bona f i de cl ai ms.

We add a coda. I t i s apodi ct i c t hat t he government bears

t he bur den of pr ovi ng t he appl i cabi l i t y of a sent enci ng enhancement

by pr eponderant evi dence. See Paneto, 661 F. 3d at 715. But i n a

5 To t he extent t hat Tor l ai can be r ead t o suppor t t heposi t i on advocat ed by t he gover nment here, we decl i ne t o adopt i t sr easoni ng.

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case such as t hi s wher e a def endant ' s cl ai ms wer e demonst r abl y

r i f e wi t h f r aud a sent enci ng cour t may use the f ace val ue of t he

cl ai ms as a st ar t i ng poi nt i n comput i ng l oss. See Uni t ed St at es v.

Campbel l , 765 F. 3d 1291, 1304- 05 & n. 13 ( 11t h Ci r . 2014) ; Uni t ed

St ates v. Hebr on, 684 F. 3d 554, 562- 63 ( 5t h Ci r . 2012) . The bur den

of pr oduct i on wi l l t hen shi f t t o t he def endant , who must of f er

evi dence t o show ( i f possi bl e) what amount s r epr esent l egi t i mat e

cl ai ms. See Hebr on, 684 F. 3d at 563; Uni t ed St ates v. J i menez, 513

F. 3d 62, 86 ( 3d Ci r . 2008) . Af t er t he r ecor d i s f ul l y f or med, t he

sent enci ng cour t must det ermi ne t he amount of l oss t hat t he

gover nment ( whi ch r et ai ns t he bur den of pr oof ) i s abl e t o

est abl i sh. The cour t , however , "need onl y make a r easonabl e

est i mat e of t he l oss. " USSG 2B1. 1, comment . ( n. 3( C) ) ; see

Bl ast os, 258 F. 3d at 30. Dependi ng on t he def endant ' s of f er of

pr oof , t he cour t mi ght wel l concl ude that t he amount of l oss i s

equal t o t he f ace val ue of t he submi t t ed cl ai ms.

B. The Restitution Order.

The appel l ant f ur t her cont ends t hat t he di st r i ct cour t

er r ed i n cal cul at i ng r est i t ut i on. The gover nment count er s bot h

t hat t hi s cl ai m i s wai ved and t hat i t i s i mpui ssant .

1. Purported Waiver. Wai ver t ypi cal l y occur s when a

par t y i nt ent i onal l y r el i nqui shes a known r i ght . See Uni t ed St at es

v. Rodr i guez, 311 F. 3d 435, 437 ( 1st Ci r . 2002) . I n t he sent enci ng

cont ext , an appel l ant may wai ve an i ssue when he i ni t i al l y r ai ses

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i t as an obj ect i on t o t he PSI Repor t but l at er expl i ci t l y wi t hdr aws

t he obj ect i on. See Uni t ed St at es v. Ei som, 585 F. 3d 552, 556 ( 1st

Ci r . 2009) ; Rodr i guez, 311 F. 3d at 437. Once an i ssue i s wai ved,

t her e i s not hi ng f or an appel l at e cour t t o r evi ew. See Rodr i guez,

311 F. 3d at 437.

Her e, t he appel l ant chal l enged t he l oss comput at i on bot h

i n obj ect i ons t o t he PSI Repor t and i n hi s sent enci ng memorandum.

Hi s obj ect i on was di r ect ed t o t he cal cul at i on of bot h t he gui del i ne

enhancement and t he r est i t ut i on award. A common t hread r an t hrough

both hal ves of hi s ar gument : l oss si mpl y does not i ncl ude amount s

t hat t he vi ct i m woul d have pai d absent t he f r aud. At t he

di sposi t i on hear i ng, t he appel l ant ' s t r i al counsel f or cef ul l y

pr esent ed thi s argument i n connect i on wi t h t he cal cul at i on of t he

gui del i ne enhancement . The cour t r ej ect ed i t . Lat er on, t he

appel l ant ' s counsel was asked whether he want ed t he cour t t o

consi der any ot her modi f i cat i ons t o t he PSI Repor t . Counsel

r esponded i n t he negat i ve.

The sentenci ng pr oceedi ng cont i nued. At one poi nt , t he

cour t r emar ked t hat i t di d not under st and t he amount of r est i t ut i on

t o be di sputed and asked def ense counsel whet her he was l ooki ng at

t he same set of number s. Counsel r esponded t hat he was.

The gover nment urges us t o f i nd t hat t hese ( and si mi l ar )

st at ement s amount ed t o an i nt ent i onal r el i nqui shment of t he r i ght

t o cont est t he amount of r est i t ut i on. Thi s exhor t at i on has some

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super f i ci al appeal : t aken i n a vacuum, t he sent enci ng col l oquy can

be read as an acknowl edgment t hat t he appel l ant was not pr essi ng

any ar gument s about t he amount of r est i t ut i on. I t sur el y woul d

have been bet t er pr act i ce f or counsel t o have cl ar i f i ed t hat he had

no obj ect i ons t o t he rest i t ut i on amount save f or t he met hod of

cal cul at i on ( t hat i s, t he cour t ' s announced unwi l l i ngness t o deduct

any l egi t i mat e por t i ons of t he cl ai ms f r om t he l oss cal cul at i on) .

But r eadi ng t he sent enci ng t r anscr i pt as a whol e, we do not t hi nk

t hat def ense counsel ' s st at ement s cl ear t he hi gh bar needed f or a

f i ndi ng of wai ver .

Wai ver s ar e st r ong medi ci ne, see Pi ke v. Guar i no, 492

F. 3d 61, 72 ( 1st Ci r . 2007) , and t hat medi ci ne shoul d not be

di spensed i n cr i mi nal cases wher e ambi gui t y l ur ks, see Uni t ed

St at es v. Br adst r eet , 207 F. 3d 76, 79- 80 ( 1st Ci r . 2000) . On t hi s

scumbl ed r ecord, def ense counsel ' s st atement s, t aken i n t he cont ext

of t he sent enci ng hear i ng as a whol e, were ambi guous. The mai n

event at sent enci ng was t he bat t l e over t he met hod of cal cul at i ng

l oss. 6 Havi ng l ost t hat bat t l e af t er a f ul l ai r i ng, counsel ' s

st atement s can f ai r l y be read as an acknowl edgment t hat t he cour t ' s

ar i t hmet i c ( t hough not i t s met hod of cal cul at i on) was cor r ect wi t h

r espect t o r est i t ut i on. Any ot her r eadi ng woul d be i l l ogi cal : i t

6 Al t hough t he di st r i ct cour t speci f i cal l y addr essed t hemet hod of cal cul at i on onl y i n connect i on wi t h t he gui del i neenhancement , i t s r easoni ng pl ai nl y encompassed r est i t ut i on as wel l .I ndeed, t he gover nment , both bef ore us and i n the cour t bel ow, hasmade i dent i cal argument s concerni ng t he t wo i ssues.

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woul d have been odd f or t he appel l ant t o pr ess hi s comput at i onal

ar gument t o t he bi t t er end wi t h r espect t o t he gui del i ne

enhancement and t hen i mpl i edl y abandon t he very same ar gument wi t h

r espect t o r est i t ut i on.

The shor t of i t i s t hat t here was no wai ver . Def ense

counsel ' s st at ement s are most sensi bl y read as a r ecogni t i on t hat

t he cr i t i cal i ssue al r eady had been deci ded agai nst hi s cl i ent , not

as a concessi on of t hat i ssue.

As a f al l back, t he gover nment suggest s t hat t he appel l ant

f or f ei t ed t he r est i t ut i on i ssue by not r ai si ng i t at t he

di sposi t i on hear i ng, t hus engender i ng r evi ew f or pl ai n er r or . See

Rodr i guez, 311 F. 3d at 437. Thi s ar gument i s f r ui t l ess: t he

appel l ant r ai sed t he i ssue i n wr i t t en obj ect i ons t o t he PSI Repor t

and i n hi s sent enci ng memorandum, and hi s at t orney pr esent ed a

l egal basi s f or t he argument t o t he sent enci ng cour t . No more was

exi gi bl e t o avoi d a f i ndi ng of f or f ei t ur e. See Uni t ed St at es v.

Theodore, 468 F. 3d 52, 58 ( 1st Ci r . 2006) .

2. Amount. The di st r i ct cour t or der ed r est i t ut i on

pur suant t o t he Mandatory Vi ct i ms Rest i t ut i on Act ( MVRA) , 18 U. S. C.

3663A. Si nce t he appel l ant ' s chal l enge t o t he r est i t ut i on or der

i s based on an al l eged er r or of l aw, our r evi ew i s pl enar y. See

Uni t ed St at es v. Cut t er , 313 F. 3d 1, 6 ( 1st Ci r . 2002) ; see al so

Wal ker , 234 F. 3d at 783 ( expl ai ni ng t hat pr oper met hod of l oss

comput at i on i s "a pr ot ot ypi cal quest i on of l egal i nt er pr et at i on") .

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The MVRA aut hor i zes a cour t t o awar d r est i t ut i on onl y i n

t he amount of a vi ct i m' s act ual l oss. See I nnar el l i , 524 F. 3d at

294- 95. Thus, t he quest i on boi l s down t o whet her t he pr esence of

t he voi d- f or - f r aud cl auses i n t he i nsur ance pol i ci es conver t s t he

ent i r e amount pai d i n r esponse to t he appel l ant ' s cl ai ms i nt o an

act ual " l oss. "

The answer depends, i n r el evant par t , on t he MVRA' s

def i ni t i on of a vi ct i mas a "per son di r ect l y and pr oxi mat el y har med

as a r esul t of t he commi ssi on of an of f ense f or whi ch r est i t ut i on

may be or der ed. " 7 18 U. S. C. 3663A( a) ( 2) . Mi ndf ul of t hi s

def i ni t i on, we have hel d t hat , under t he MVRA, a cour t may onl y

or der r est i t ut i on f or l osses t hat have an adequat e causal l i nk t o

t he def endant ' s cr i mi nal conduct . See Cut t er , 313 F. 3d at 7.

I mpor t ant l y, we have made i t pel l uci d t hat "r est i t ut i on

shoul d not be or der ed i f t he l oss woul d have occur r ed r egar dl ess of

t he def endant ' s mi sconduct . " I d. Thi s means t hat t he gover nment

must est abl i sh a but - f or connect i on bet ween t he def endant ' s f r aud

and t he vi ct i m' s l oss. See Uni t ed St at es v. Vakni n, 112 F. 3d 579,

590 ( 1st Ci r . 1997) ( i nt er pr et i ng par al l el pr ovi si on i n Vi cti mand

Wi t ness Pr ot ect i on Act , 18 U. S. C. 3663) . Our case l aw on t hi s

7 Because the appel l ant ' s of f ense of convi ct i on i nvol ves, asan el ement , a "scheme or ar t i f i ce t o def r aud, " 18 U. S. C. 1343,vi ct i ms i ncl ude t hose "di r ect l y har med by t he def endant ' s cr i mi nalconduct i n t he cour se of t he scheme, " i d. 3663A( a) ( 2) . Thi sl anguage does not al t er t he di r ect causat i on r equi r ement . SeeUni t ed St at es v. Hensl ey, 91 F. 3d 274, 277 ( 1st Ci r . 1996) .

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poi nt i s consi st ent wi t h t he wei ght of aut hor i t y under t he MVRA.

Act ual l oss i s wi del y ( and cor r ect l y) t hought t o be l i mi t ed t o

pecuni ary harmt hat woul d not have occur r ed but f or t he def endant ' s

cr i mi nal act i vi t y. See, e. g. , Shar ma, 703 F. 3d at 324; Uni t ed

St at es v. Pet r uk, 484 F. 3d 1035, 1038 ( 8t h Ci r . 2007) ; Uni t ed

St ates v. Fel dman, 338 F. 3d 212, 220- 21 ( 3d Ci r . 2003) ; Dawki ns,

202 F. 3d at 715.

Appl yi ng t he MVRA and t he case l aw i nt er pr et i ng i t , we

t hi nk i t evi dent t hat t he di st r i ct cour t er r ed i n or der i ng

r est i t ut i on i n t he f ul l amount pai d t o t he appel l ant si mpl y because

t he i nsur ance pol i ci es i ncl uded voi d- f or - f r aud cl auses. Whi l e such

cl auses may suf f i ce t o gr ound cl ai ms f or di sgor gement i n ci vi l

pr oceedi ngs, an i nsur er ' s r ecover abl e l oss f or MVRA pur poses i s

conf i ned t o the amount t he i nsurer woul d not have pai d but f or t he

f r aud. See Uni t ed St at es v. Chal upni k, 514 F. 3d 748, 754 ( 8t h Ci r .

2008) ; Pet r uk, 484 F. 3d at 1038- 39.

Thi s gets t he grease f r om t he goose. The appel l ant has

cont ended al l al ong t hat some port i on of hi s cl ai ms r epr esent ed

l egi t i mat e l osses. Thi s r emai ns t o be pr oven. But i f i t i s t r ue,

Zur i ch Nor t h Amer i can pr esumabl y woul d have rei mbur sed hi m f or

t hose l osses had he pr esent ed t hem wi t hout embel l i shment . The

di st r i ct cour t must , t her ef or e, r econsi der i t s rest i t ut i on or der ,

t aki ng i nt o account t he ext ent ( i f at al l ) t o whi ch t he appel l ant ' s

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cl ai ms encompassed l egi t i mate l osses. 8 The di st r i ct cour t need

onl y make "a r easonabl e det er mi nat i on of appr opr i at e r est i t ut i on by

r esol vi ng uncer t ai nt i es wi t h a vi ew t owar ds achi evi ng f ai r ness t o

t he vi ct i m. " Uni t ed St at es v. Bur di , 414 F. 3d 216, 221 ( 1st Ci r .

2005) ( i nt er nal quot at i on mar ks omi t t ed) .

III. CONCLUSION

We need go no f ur t her . For t he r easons el uci dat ed above,

we vacat e t he appel l ant ' s sent ence ( i ncl udi ng t he r est i t ut i on

or der ) and r emand f or r esent enci ng consi st ent wi t h t hi s opi ni on.

On r emand, t he onl y i ssues open t o consi der at i on shal l be the

appr opr i ate amount of i nt ended l oss f or pur poses of t he gui del i ne

enhancement , t he appr opr i ate amount of actual l oss f or pur poses of

r est i t ut i on, and, of cour se, t he di mensi ons of t he sent ence t o be

i mposed.

Vacated and Remanded.

8 The appel l ant al t er nat i vel y suggest s f or t he f i r st t i me onappeal t hat i f t he voi d- f or - f r aud cl auses di ct at e t he amount ofl oss, t he r est i t ut i on awar d shoul d be of f set by t he amount ofpr emi ums pai d. Gi ven our hol di ng, we do not have any occasi on t oconsi der t hi s al t er nat i ve suggest i on.

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united states v. alphas, 1st cir. (2015)

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