§840 Sentencing of Organizations
(U.S.S.G. Chapter 8)
Commission adjusts loss and fine tables for inflation. (218)(370)(630)(840) Recognizing the effects of inflation, the Commission amended the Guidelines’ seven monetary tables to increase the amounts using a specific multiplier derived from the Consumer Price Index (CPI). For example, the loss amount necessary for a two-level increase under §2B1.1 is increased from “more than $5,000” to “more than $6,500.” The effect is to reduce sentences for a given loss amount. On the other hand, for fines, the effect is to increase the amount of the fine for a given offense level. To avoid ex post facto issues for fines, the Commission added a special instruction to both §§5E1.2 and 8C2.4 requiring use of the 2014 guidelines for offenses committed prior to November 1, 2015. Proposed amendment 2, effective November 1, 2015.
Supreme Court holds that Apprendi applies to fines. (840) Defendant, a corporation, was convicted of environmental crimes. The statute under which defendant was convicted allows imposition of a fine of not more than $50,000 for each day that the offense occurs. The Probation Office determined that defendant committed the offense for 762 days and therefore was liable for a fine of more than $38 million. Defendant objected that the jury's verdict allowed the court to impose a fine for only one day. The district court found that defendant had violated the statute for 762 days and imposed a fine of $6 million. The Supreme Court, in a decision by Justice Sotomayor, held that its decision in Apprendi v. New Jersey, 530 U.S. 466 (2000), applied to fines and that the district court had violated Apprendi by finding that defendant committed the offense on 762 days and was liable to a fine of $38 million. Justice Breyer, joined by Justice Kennedy and Alito, dissented. Southern Union Co. v. U.S., 567 U.S. __, 132 S.Ct. 2344 (2012).
1st Circuit says Rule 35(b) did not allow reduction in corporation’s fine. (840) Defendant and a corporation of which he owned 85 percent pled guilty to violating campaign finance laws. Defendant’s written plea agreement called for him to pay a fine of $1 million and serve six months of confinement. The corporation agreed to pay a fine of $5 million. The fines reflected a discount because the government could collect a substantial portion from the parties “right up front.” The court imposed sentences consistent with the plea agreements. More than a year later, the corporation filed a Rule 35(b) motion to offset the fine, citing § 8C3.4, which says a court “may” offset the fine on a closely held corporation if an owner holding at least a five percent interest has been fined for the same conduct. The First Circuit held that the district court had no authority to grant the Rule 35(b) motion. A lawful sentence becomes final when judgment is entered. Rule 35(b) was deliberately amended to restrict the opportunity for the judge to revisit a lawfully imposed sentence. Section 8C3.4 says that a court “may” (not “must”) offset the fine imposed on a close corporation. U.S. v. Aqua-Leisure Industries, 150 F.3d 95 (1st Cir. 1998).
3rd Circuit holds that face value of cancelled contract not loss where defendant prepared to perform. (840) Defendant corporation supplied the U.S. military with electronic components made by foreign companies, in direct violation of its government contract. The district court included in the loss calculation a $139,200 claim defendant made against the Air Force for a cancelled contract. Defendant and the Air Force had a dispute over a contract, reaching a tentative settlement that defendant would provide pin diode switches as required by the contract and be paid $139,200 if it was not convicted. When defendant was convicted, that settlement became void and the contract was cancelled. The district court held that the full amount of the settlement was part of the “loss” to the Air Force. The Third Circuit found that the face value of the contract was not a reliable loss figure. Because defendant was prepared to provide the components to the Air Force, the value of these components must be offset against the amount the Air Force agreed to pay. Moreover, the harm to the Air Force was already reflected in the $170,660 loss charged to defendant that related to the investigation and procurement costs of two contracts, one of which was the pin diode switch contract. U.S. v. Nathan, 188 F.3d 190 (3d Cir. 1999).
3rd Circuit agrees that loss was cost of repairs rather than full cost of new converters. (840) Defendant corporation supplied electronic components to the U.S. military. In direct violation of its agreement with the government, defendant contracted with foreign companies to build the components. The district court included in the loss calculation the cost of buying four new converters ($57,245.70) that defendant agreed to provide to NASA in a restitution agreement. However, two of the converters were already in NASA’s possession, but were damaged during the criminal investigation when investigators opened them to look for foreign components. The restitution agreement contemplated that defendant would fulfill its obligation by repairing those two converters, which it did for a cost of $2,000. The Third Circuit agreed that the proper measure of harm was the cost of repairs, not the full cost of the converters. However, the district court properly rejected defendant’s claim that the value of a sample converter that defendant provided NASA under the restitution agreement was “de minimis” since defendant already had the converter in its possession. Defendant was mistaking its costs with the harm inflicted on NASA. If NASA was deprived of a converter by defendant’s criminal conduct, then it was harmed by the value of one converter, which was about $14,000. U.S. v. Nathan, 188 F.3d 190 (3d Cir. 1999).
3rd Circuit says not all contracts payments available to pay a fine. (840) After pleading guilty to violating the Arms Export Control Act, defendant corporation was suspended from new government contracts and lost its export privileges. The district court found that because defendant failed to specify the expenses involved in completing the remaining contracts, it would deem the full amount of the projected sales available to pay a fine. The Third Circuit held that the district court erred in deeming all contract payments available to pay a fine. Defendant must have had some expenses in fulfilling its remaining contracts. Although defendant did not provide sufficient information about its current expenses, the corporation may have been legitimately surprised by the district court’s conclusion that the two remaining contracts represented pure profit, given that the PSR stated otherwise and the government never argued the issue. On remand, defendant should be required to offer proof of its expenses in carrying out the remaining parts of the contracts. The burden of proving expenses is on defendant, and the district court may properly conclude that money not accounted for is available to pay a fine. U.S. v. Nathan, 188 F.3d 190 (3d Cir. 1999).
3rd Circuit holds that court erred in finding future progress payment immediately available to pay fine. (840) Section 8C3.2(b) requires organizations to pay fines immediately unless the court finds that they are financially unable to do so or that immediate payment imposes an undue burden. Full payment should be required at the earliest possible date or in installments, within five years. The Third Circuit held that the district court abused its discretion in findings that several progress payments due defendant under government contracts were immediately available to pay a fine. It was incontrovertible that defendant did not yet have that money. U.S. v. Nathan, 188 F.3d 190 (3d Cir. 1999).
3rd Circuit says statement that restitution and loss are equitable did not address challenge. (840) Defendant corporation argued that in determining its base fine under § 8C2.3 and § 8C2.4, the district court based the fine on a stipulated amount of restitution when in fact, the restitution was not an accurate reflection of loss. Defendant had challenged the PSR’s use of the stipulated restitution as loss, explaining that the restitution amount inflated the amount of loss because some of the loss figures were double-counted and some of the restitution was being paid in kind rather than in money. The district court rejected that argument, stating only that if the figure was good enough for restitution, than it was good enough for loss. The Third Circuit ruled that this conclusory statement did not sufficiently resolve the issue raised by defendant to constitute a Rule 32 finding. The nature of the finding precluded meaningful appellate review of the issue. The case was remanded. U.S. v. Electrodyne Systems Corporation, 147 F.3d 250 (3d Cir. 1998).
3rd Circuit refuses to limit judge’s ability to order fine. (840) Defendant corporation’s plea agreement contained a stipulation that $140,000 was an appropriate fine. The appellate court remanded because the district court did not resolve various disputed matters before sentencing. Defendant asked the appellate court to order the district court not to impose a fine over $140,000. Defendant said the PSR confirmed its inability to pay more than the stipulated fine and argued that by adopting the factual findings of the PSR, the district court also made this finding. The Third Circuit refused to limit the judge’s ability to order a fine. A constant problem in establishing fines is that defendants control the flow of information to the probation office. This is exacerbated by probation officers’ lack of accounting training and the fact that here, the defendant was a corporation, which could be less than forthcoming without facing the risk of jail. The financial statements provided by defendant were merely an accountant’s compilation, rather than an audited financial statement. Such compilations are not designed to be relied upon by one who does not have other financial information about the company. On remand, the district judge has the power to require production of necessary financial documents so as to have a basis for any fine which is to be imposed. U.S. v. Electrodyne Systems Corporation, 147 F.3d 250 (3d Cir. 1998).
3rd Circuit says court’s refusal to allow six months to pay fine did not mandate plea withdrawal. (840) Defendant corporation’s plea agreement contained a stipulation that $140,000 was an appropriate fine and that the fine should be paid no later than six months after sentencing. Defendant argued that the six-month provision for payment of the fine was part of a specific recommended sentence, and the district court’s failure to give defendant six months to pay the ordered fine required that it be given the opportunity to withdraw its plea. The Third Circuit held that the court’s refusal to provide six months for paying the fine did not mandate plea withdrawal. The plea agreement also stated that its stipulations were not binding on the court. Also, the district court advised defendant that if the penalty imposed was more severe than anticipated by defendant, the plea could not be withdrawn. U.S. v. Electrodyne Systems Corporation, 147 F.3d 250 (3d Cir. 1998).
3rd Circuit holds that court’s incorrect advice as to maximum fine was harmless error. (840) When taking defendant corporation’s plea, the district judge, apparently misled by defendant’s plea agreement and the government’s plea memorandum, advised defendant’s representative that the maximum fine for one count was the greatest of $10,000 or twice the gain or twice the loss. In fact, the correct maximum statutory fine on this count was the greatest of $500,000 or twice the loss or gain. The Third Circuit held that the incorrect advice was harmless error since the total fine actually imposed was less than the total fine to which defendant believed it was exposed. The district court correctly advised defendant that the maximum fine on its other count was one million dollars or twice the gain or loss. The district court imposed a total fine for both counts of one million dollars, which was less than the $1,010,000 exposure defendant believed he had. Under these circumstances, the error was harmless and defendant would not be permitted to withdraw its plea on these grounds. U.S. v. Electrodyne Systems Corporation, 147 F.3d 250 (3d Cir. 1998).
3rd Circuit rules court did not make sufficient findings on defendant’s employment of 50 or more people. (840) Defendant corporation argued that the district court erroneously found that it had 50 or more employees, which increased the fine range under § 8C2.5(b)(4). The Third Circuit remanded for specific findings on this issue. The PSR stated that defendant had “approximately 50 people,” but defendant argued that its workforce consisted of fewer than 50 employees on average and only at time reached 50. Defendant argued that the guidelines provision should be based on the average number of employees. The government did not take a position on the issue. The district court merely stated “I’ll rule against you on that.” This summary dismissal of defendant’s argument was insufficient to give the appellate court a basis for review. At a minimum, the district court must offer a factual basis for rejecting defendant’s assertion that its workforce did not satisfy the 50-person criteria, including a finding as to the number of days defendant had 50 or more employees in whatever the district court finds is the relevant time frame. The PSR’s conclusion that “approximately 50” people were employed by defendant could not serve as a basis for finding that the “50 or more” criteria was met. U.S. v. Electrodyne Systems Corporation, 147 F.3d 250 (3d Cir. 1998).
3rd Circuit upholds $500,000 fine under Corrupt Organizations Act. (840) Defendant companies and their chief operating officer were convicted of visa fraud, environmental crimes, conspiracy and racketeering. They contended that the $500,000 fine imposed under the Corrupt Organizations Act, 14 V.I.C. § 605, was excessive. The Third Circuit affirmed the fine since defendants conceded that the fine fell within the range permitted by law and did not point to any legal or factual error underlying the assessment of a fine in this amount. U.S. v. West Indies Transport, 127 F.3d 299 (3d Cir. 1997).
3rd Circuit upholds restitution where each Title 33 offense also charged a violation of 18 U.S.C. § 2. (840) Defendant companies and their chief operating officer were convicted of visa fraud, environmental crimes, conspiracy and racketeering. The district court ordered defendants to pay restitution to offset the costs of cleaning up their environmental damage. Restitution is only authorized for violations of Title 18 and some Title 49 provisions. Defendants contended that the trial court erred by ordered restitution for Title 33 offenses. The Third Circuit found the argument meritless, since each Title 33 offense also charged a violation of 18 U.S.C. § 2. Restitution is authorized for violation of 18 U.S.C. § 2. The amount of restitution ordered was not excessive since it was based on Coast Guard estimates of the costs required to clean up the environmental damage. The district court also ordered that if the ultimate cost of the clean-up is lower than the estimate, any amount over actual costs shall be returned to the defendants. U.S. v. West Indies Transport, 127 F.3d 299 (3d Cir. 1997).
3rd Circuit says fully biodegradable pollution does not warrant different treatment under environmental guidelines. (840) Defendant companies discharged several pollutants into navigable waters, including raw human sewage from the toilet system of a barge on which it housed its workers. They challenged a § 2Q1.3(b)(1)(A) enhancement for an ongoing, continuous, or repetitive discharge of a pollutant because the raw human sewage was “fully biodegradable.” The Third Circuit held that untreated human sewage or fully biodegradable pollution does not warrant different treatment under the guidelines. Untreated human sewage falls within the clear meaning of “pollutant” under § 2Q1.3(b)(1)(A). U.S. v. West Indies Transport, 127 F.3d 299 (3d Cir. 1997).
4th Circuit holds that counsel’s perjurious grand jury testimony supported company’s obstruction increase. (840) Defendant corporation, a government contractor, fraudulently represented to the government that Brothers, a “disadvantaged business enterprise” (DBE), had performed work on a highway construction project, as required by defendant’s contract. The Fourth Circuit affirmed a three-level enhancement for obstruction of justice under § 8C2.5(e) based on the grand jury testimony by Samol, defendant’s in-house counsel. The testimony by two of defendant’s employees contradicted Samol’s grand jury testimony. For example, Taylor testified that, after defendant received a letter from the government indicating that defendant was not going to meet its DBE requirement because Brothers had not performed its work, Samol directed Taylor to look into the matter; Samol denied doing so. Taylor also testified that he and Samol discussed the subcontract before Samol sent the government a letter indicating the DBE requirement had been satisfied; Samol denied knowledge of the subcontract. This provided an adequate basis for the obstruction increase. U.S. v. Brothers Const. Co. of Ohio, 219 F.3d 300 (4th Cir. 2000).
4th Circuit says defendant not entitled to same departure in loss calculation as co-conspirator. (840) Defendant corporation, a government contractor, fraudulently represented that Brothers, a “disadvantaged business enterprise” (DBE), had performed work on a highway construction project, as required by defendant’s contract. Defendant challenged the district court’s finding of a $146,710.52 loss, since co-conspirator Ware, the president of Brothers, was only held responsible for a loss of $10,000. The Fourth Circuit found no error. The sentencing court arrived at the $10,000 loss for Ware by departing downward because the guideline amount overstated the seriousness of Ware’s individual conduct. Thus, for defendant to argue that it was entitled to the $10,000 loss figure was to argue that it was entitled to a downward departure because Ware received one. Apart from the fact that sentencing court cannot depart merely because of a disparity in sentencing, there were obvious differences between the two defendants. U.S. v. Brothers Const. Co. of Ohio, 219 F.3d 300 (4th Cir. 2000).
4th Circuit says fraud resulted in loss even though defendant ultimately met contract requirements. (840) Defendant corporation, a government contractor, fraudulently represented that Brothers, a “disadvantaged business enterprise” (DBE), had performed work on a highway construction project, as required by defendant’s contract. Defendant and Brothers argued that no loss was attributable to their conduct under § 2F1.1, since after the government determined that Brothers had not contributed to the project, defendant was permitted to use another certified DBE to perform additional work on the project, at no additional cost to the government. Moreover, the government counted excess DBE “credit” from other projects of defendant, so that defendant was ultimately credited as having satisfied the DBE requirement on the highway project. Nonetheless, the Fourth Circuit found that there was a loss under the guidelines. Over $185,000 was earmarked for DBE project participation by Brothers. Even though defendant’s DBE goal was met, the funds were not put to the intended use—to compensate Brothers for its work on the underdrain construction. Moreover, defendant conspired in a scheme to divert this money to a non-DBE. If not for the audit, the DBE funds would not have reached a DBE. Loss under § 2F1.1 can be based on the intended loss. U.S. v. Brothers Const. Co. of Ohio, 219 F.3d 300 (4th Cir. 2000).
5th Circuit says that defendant’s alter ego corporations were not participants. (840) Acting alone, defendant used his companies to defraud sellers of computer equipment. The district court imposed a § 3B1.1(a) leadership enhancement, finding that the criminal activity was “otherwise extensive.” In the alternative, it held that if another criminally responsible person was required, that requirement was satisfied by the two corporations defendant used to defraud his victims. The 5th Circuit reversed, holding that a § 3B1.1 adjustment applies only if an offense is committed by more than one criminally responsible person. Even assuming a corporation can be a participant under § 3B1.1, the corporations here were merely alter egos of defendant. He was the sole shareholder, sole officer, and sole director of both corporations. The court could not “bootstrap” the existence of a second participant by counting defendant’s alter ego corporations when defendant was the sole agent whose acts could make the corporation vicariously liable under § 8A1.1 U.S. v. Gross, 26 F.3d 552 (5th Cir. 1994).
6th Circuit holds enhancement for discharge without a permit is not double counting. (840) Defendant was convicted of knowingly storing and disposing of hazardous waste without a permit. The district court applied a § 2Q1.2(b)(4) enhancement for discharge without a permit. Defendant argued that this constituted double counting because his conduct of storing and disposing of hazardous waste without a permit, was punished twice--once under § 2Q1.2(a) for his statutory violation, and then again under § 2Q1.2(b)(4). The Sixth Circuit rejected the double counting argument. Section 2Q1.2 governs sentencing for a wide range of environmental crimes involving hazardous or toxic substances. Section 2Q1.2(a) contains the base offense level for all of these offenses, including those that do not involve failure to obtain a permit. Thus, the enhancement under § 2Q1.2(b) for storage or disposal without a permit does not provide a second penalty for the same conduct. U.S. v. Kelley Technical Coatings, 157 F.3d 432 (6th Cir. 1998).
6th Circuit holds environmental guideline is consistent with enabling legislation. (840) Defendant was convicted of knowingly storing and disposing of hazardous waste without a permit. He argued for the first time on appeal that § 2Q1.2 was inconsistent with the Sentencing Guidelines’ enabling legislation because it violated the mandate in 28 U.S.C. § 994(m) that, as a starting point, the Commission ascertain the average sentence imposed in each category of cases before creating the guideline. The Sixth Circuit rejected this challenge. Defendant did not identify a single court that has questioned the validity of this guideline as applied to a conviction under any environmental statute. There is no requirement that the Sentencing Commission keep records of the “average sentences.” Although the Commission is required to ascertain the average sentences imposed in different categories of cases, the Commission is not bound by such averages. Congress and the Sentencing Commission have determined that the environmental offenses covered by § 2Q1.2 are serious offenses. U.S. v. Kelley Technical Coatings, 157 F.3d 432 (6th Cir. 1998).
6th Circuit says volume of commerce in price-fixing case includes all sales regardless of targeted price. (840) Defendants, an oil company and its president, conspired with other dealers to control retail gasoline prices in one town over a four-year period. Because of dealer cheating and other factors, the conspiracy was only partially effective. Section 2R1.1 bases a conspirator’s fine on the “volume of commerce,” which is defined as the conspirator’s volume of commerce that was “affected” by the anti-trust violation. The district court interpreted “volume of commerce” to include only the sales made by defendant when the conspirators successfully achieved their target prices. The Sixth Circuit disagreed, holding that the volume of commerce includes all sales made by the defendant during the conspiracy, regardless of the target price. It would be anomalous to make price-fixing illegal per se, but to provide for a fine only if it is successful. This interpretation is also supported by the Sentencing Commission’s commentary to §2R1.1. U.S. v. Hayter Oil Co. of Greeneville, Tenn., 51 F.3d 1265 (6th Cir. 1995).
8th Circuit holds that use of term "illegal alien" did not violate corporate defendant's due process rights. (840) Defendant, a Subchapter S corporation, pled guilty to harboring illegal aliens for commercial advantage. Defendant argued that the district court committed reversible error by using the term "illegal alien" during the sentencing hearing. The Eighth Circuit disagreed. The case was distinguishable from U.S. v. Cruz-Padilla, 227 F.3d 1064 (8th Cir. 2000), where the prosecutor used the term during closing arguments of a jury trial to suggest that defendant' status as an illegal alien made him more likely to commit crimes. Here, the term "illegal alien" was never used in front of a jury – this case resulted in a conviction by plea. Moreover, the term "illegal alien" was used to describe the individuals working for the defendant, not the defendant himself. U.S. v. Acambaro Mexican Restaurant Inc., 631 F.3d 880 (8th Cir. 2011).
8th Circuit says court did not pierce corporate veil by asking about finances of defendant's sole shareholder. (840) Defendant, a Subchapter S corporation, pled guilty to harboring illegal aliens for commercial advantage. Defendant argued the court erred in imposing a fine because it "pierced the corporate veil" by considering the personal financial situation of Reyes, the sole owner of defendant's stock. The Eighth Circuit disagreed. All profits and losses in a Subchapter S corporation are passed through to shareholders in proportion to the percentage of stock owned by the shareholders. Determining whether the corporate veil was pierced requires more than just recognizing the nexus between a corporation and its shareholders. Here, the court simply inquired how it could conclude that it was readily ascertainable that defendant could not pay a fine when it had no information on Reyes' personal financial picture. Inquiring about Reyes' financial status without imposing any personal liability for defendant's obligations was not tantamount to piercing the corporate veil. U.S. v. Acambaro Mexican Restaurant Inc., 631 F.3d 880 (8th Cir. 2011).
8th Circuit upholds $250,000 fine for corporate defendant despite negative net worth. (840) Defendant, a Subchapter S corporation, pled guilty to harboring illegal aliens for commercial advantage. The court calculated defendant's guideline fine range to be $420,000-$500,000. Defendant argued that it lacked the resources to pay a fine, especially in light of the $400,000 it spent on satisfying a forfeiture claim. The Eighth Circuit held that the district court did not plainly err in imposing a fine of $250,000. Although the PSR calculated the defendant as having a substantial negative net worth, the district court considered other factors in concluding that it was "not readily ascertainable" that defendant could not pay a fine. The court noted that defendant was still operating at least four restaurants and retained at least $400,000 of equity in the properties as to which the government originally asserted a forfeiture claim. U.S. v. Acambaro Mexican Restaurant Inc., 631 F.3d 880 (8th Cir. 2011).
8th Circuit holds that court’s reliance on its own understanding of accounting principles was not plain error. (840) Defendant corporation, which provided ambulance transport services, was convicted of filing false Medicare and Medicaid claims. Defendant challenged the court’s imposition of a $500,000 fine, complaining that the district court relied on its own understanding of certain accounting principles and used a questionable method of determining the company’s ability to pay and that the company did not have the ability to pay the fine. The Eighth Circuit held that the district court did not commit plain error by relying on its own understanding of accounting principles. Defendant did not expressly state what it believed was wrong about the court’s method of calculation, nor pointed to anything unusual about it. It also cited no case that supported its argument that the court should be reversed because its method of calculating the amount of fine defendant was able to pay. The court explained in detail both the manner in which it calculated defendant’s assets, liabilities and future earning estimates, and the rationale behind those calculations. U.S. v. Patient Transfer Service, 465 F.3d 826 (8th Cir. 2006).
8th Circuit applies risk of serious injury enhancement for falsifying truck driver logs. (840) Defendant was the president and sole shareholder of an interstate trucking company whose employees systematically falsified truck driver logs to conceal non-compliance with hours-of-service regulations. The Eighth Circuit affirmed a § 2F1.1(b)(4)(A) enhancement for a fraud offense that involved the “conscious or reckless risk of serious bodily injury.” The enhancement is not limited to convictions for procurement fraud under 18 U.S.C. § 1031¾it applies to all fraud offenses. A nationwide study found accident rates increase as drivers go beyond eight hours of continuous driving. However, this did not, by itself, support the enhancement. The government must also prove that each defendant was aware of and consciously or recklessly disregarded that risk. To prove criminal recklessness, the government must show particularized proof of a defendant’s knowledge of the safety risk involved in his conduct. Here, the government did not establish such recklessness because it did explain defendant’s role in the falsification of records and did not refute the company’s excellent safety record during the applicable period. However, the court questioned defendant at length before ruling on this issue. Defendant, an experienced truck driver, admitted his company had been found guilty of similar violations in the past, admitted knowing the practice had continued, admitted knowing it was wrong, and failed to end the practice. U.S. v. McCord, Inc., 143 F.3d 1095 (8th Cir. 1998).
9th Circuit says Apprendi does not apply to facts that trigger restitution. (840) In Southern Union Co. v. U.S., 132 S.Ct. 2344 (2012), the Supreme Court stated that the rule it announced in Apprendi v. New Jersey, 530 U.S. 466 (2000), which held that a fact that increases a defendant’s maximum sentence must be alleged in the indictment and proved at trial, applies to facts that increase the amount of a fine imposed on a corporation. The Ninth Circuit held that Southern Union does not require the government to allege and prove the facts that trigger restitution under 18 U.S.C. § 3663A. U.S. v. Green, 722 F.3d 1146 (9th Cir. 2013).
9th Circuit says extent of downward departure is not reviewable. (840) In imposing a fine on this organizational defendant, the district court departed downward from the minimum guideline fine of $6,425,013 under the Chapter 8 guidelines, and imposed a fine of only $1.5 million. On appeal, the defendant organization argued that the fine was still too great, but the Ninth Circuit held that “the extent to which a district court chooses to exercise its discretion to depart downward in sentencing is not reviewable on appeal.” This is so regardless of whether the sentence is for a prison term or a fine. U.S. v. Eureka Laboratories Inc., 103 F.3d 908 (9th Cir. 1996).
9th Circuit says court may impose fine that jeopardizes viability of organization. (840) Defendant organization argued that the court’s downward departure to a $1.5 million fine substantially jeopardized its continued viability as an organization, in violation of guideline § 8C3.3. The Ninth Circuit found no merit in the argument, noting that although § 8C3.3(b) authorizes a reduction “to the extent necessary to avoid substantially jeopardizing the continued viability of the organization,” this language applies only when the fine would impair the organization’s ability to make restitution. In this case, because the fine was payable in five annual installments, it did not impair the organization’s ability to make restitution. Unlike the fine guidelines for individual defendants in 5E1.2, the organizational guidelines, 8C3.3 and 8C2.2 do not require a sentencing court to consider whether the defendant can pay a fine, as long as the ability to pay restitution is not impaired. The district court adequately considered the factors in 18 U.S.C. § 3572 in imposing the fine. U.S. v. Eureka Laboratories Inc., 103 F.3d 908 (9th Cir. 1996).
11th Circuit concludes that any error in calculating corporation's fine was harmless. (840) Defendant corporation and several of its owners were convicted of crimes related to multiple schemes to defraud the Florida and California Medicaid programs. Guideline § 8C2.7 mandates that the district court impose on a defendant's corporation a fine within the prescribed range. That range is determined by using maximum and minimum multipliers corresponding to the defendant's culpability score as well as certain other factors. The district court reached a culpability score of 10, which corresponds to a minimum multiplier of 2.00 and a maximum of 4.00. A total offense level of 36 corresponded to a fine amount of $45.5 million, § 8C2.4(d), which far exceeded the pecuniary gain/loss amount identified in the PSR – about $34 million. Thus, the Guidelines fine range for defendant came to between $91 million and $182 million. The district court instead imposed the statutory maximum fine of $26.5 million. The Eleventh Circuit found that any error in calculating the fine amount was harmless. U.S. v. Bradley, 644 F.3d 1213 (11th Cir. 2011).
D.C. Circuit rejects upward departure for illegal gratuities to cabinet member. (840) A large agricultural cooperative was convicted of making illegal gifts to former Secretary of Agriculture Mike Espy, committing wire fraud, and making illegal campaign contributions. Section 2C1.2 provides for an 8-level enhancement if the gratuity was given to an elected official or any official holding a high-level decision-making or sensitive position. The district court applied this enhancement, but then, finding that the guidelines did not adequately take into account Espy’s position as a cabinet-level official, departed upward an additional two levels. The D.C. Circuit reversed, holding that § 2C1.2 adequately accounts for the fact that the gratuity was made to a member of the President’s cabinet. The Secretary of Agriculture does not hold a position that differs in any material respect from the persons in Application Note 1. A straightforward reading the application note strongly suggests that Espy falls within the “agency administrator” category. U.S. v. Sun-Diamond Growers, 138 F.3d 961 (D.C. Cir. 1998).
D.C. Circuit rejects conditions imposed on individual member cooperatives of large defendant cooperative. (840) Defendant was a large agricultural cooperative owned by individual member cooperatives. It was convicted of making illegal gifts to former Secretary of Agriculture Mike Espy, committing wire fraud, and making illegal campaign contributions. The district court ordered, as a condition of probation, that defendant and each of its individual member cooperatives provide quarterly reports of the organization’s expenses related to all federal employees, office holders or candidates for federal office. The D.C. Circuit held that the court was without authority to order probationary conditions on the member cooperatives, who were not defendants in the case. There is no precedent for the imposition of probation conditions on entities who are not defendants, nor even agents of defendants. Defendant was not a mere alter ego of the member cooperatives. The member cooperatives each had their own corporate identities, boards of directors, employees, assets and liabilities, as did defendant. Their power to control defendant was no greater than the power of ordinary shareholders to control a corporation. U.S. v. Sun-Diamond Growers, 138 F.3d 961 (D.C. Cir. 1998).
Commission amends organizational guidelines regarding compliance and ethics programs. (840) Subsection (b)(7) to § 8B2.1 requires an organization, after criminal conduct has been detected, to take reasonable steps (1) to respond appropriately to the criminal conduct and (2) to prevent further similar criminal conduct. The Commission added a Commentary Note for subsection (b)(7) to provide that after criminal conduct has been detected, the organization should take reasonable steps to remedy the harm from the criminal conduct and to assess its compliance and ethics program to make modifications necessary to ensure that the program is effective. The amendment also modified subsection (f) of § 8C2.5 (culpability score) to create a limited exception to the general prohibition against applying the three-level increase for having an effective compliance and ethics program when an organization's high-level or substantial authority personnel are involved in the offense. The Commission also amended § 8D1.4 to remove the distinction between conditions of probation imposed solely to enforce a monetary penalty and conditions of probation imposed for any other reason. Amendment 744, effective November 1, 2010).
Commission removes language regarding waiver of attorney-client privilege. (840) In response to complaints from the bar, the Commission deleted the last sentence of Application Note 12 to § 8C2.5 to eliminate language that appeared to encourage waivers of the attorney-client privilege in connection with the guidelines for organizations and corporations. Amendment 695, effective November 1, 2006.
Commission amends guidelines for organizations. (840) Culminating a multi-year review of the organizational guidelines, the Commission revised the introductory commentary to Chapter 8 to highlight the importance of structural safeguards designed to prevent and detect criminal conduct. It also provided a new guideline in § 8B2.1 to strengthen the existing criteria an organization must follow in order to establish and maintain an effective program to prevent and detect criminal conduct. The new guideline replaces the requirement in Application Note 3 (k)(2) to § 8A1.2 that “specific individual(s) within high-level personnel of the organization must have been assigned overall responsibility to oversee compliance,” with more specific and exacting requirements. In addition to the seven requirements for a compliance and ethics program, § 8B2.1(c) expressly provides, as an essential component of an effective program, that an organization must periodically assess the risk of criminal conduct. Application Note 12 to § 8C2.5 provides that the waiver of the attorney client privilege and of work product protections is not a prerequisite to a reduction in culpability score unless the waiver is necessary to provide disclosure of all pertinent information. Amendment 673, effective November 1, 2004.
Article assesses the reliability of Commission’s corporation sentencing data. (840) In the course of a recent study of the Sentencing Commission’s organizational sanctions, three researchers considered the quality of federal corporate sentencing data that the Commission makes available to the Inter-University Consortium for Political and Social Research at the University of Michigan. They “raise[d] concerns about the thoroughness of the Commission’s post-guidelines data and the adequacy of the information reported.” The authors found a substantial number of cases missing from the Commission’s data on organizational sanctions and found that the data was missing important variables. The data reveal little about offense severity, and do not reveal the Judge’s identity, “even though there is evidence to suggest that the background of a judge affects sentencing practice.” Finally the data do not include the name of the offender, corporate or individual. The authors conclude that these difficulties limit the usefulness of the Commission’s data in drawing conclusions about sentencing trends. Cindy R. Alexander, Jennifer Arlen, and Mark A. Cohen, Evaluating Trends in Corporate Sentencing: How Reliable are the U.S. Sentencing Commission’s Data?, 13 Fed. Sent. Rptr. 108 (Sept/Oct 2000).
Article analyzes statistics on sentencing of organizations. (840) A professor of Criminal Justice at Minot State University analyzed the Sentencing Commission’s data on organizations sentenced under the guidelines and found that most organizational defendants are “closely held” with fewer that 50 employees and are first-time offenders. Of the 270 organizations studied, only 169 were sentenced to probation, and the remaining 101 were not sentenced to probation. Forty-five percent of the convictions involved “equity skimming,” that is, embezzling funds or property associated with federal housing loans, 11 percent involved price fixing or smuggling goods, and seven percent involved money laundering. The total monetary penalty (fines and restitution combined) varied greatly, with a median of about $45,000 and an average of $476,000). Although USSG § 8D1.1(7) requires that probation be ordered when no fine is imposed, 22 organizations were neither fined nor placed on probation. Gary S. Green, Organizational Probation under the Federal Sentencing Guidelines, 62 Fed. Probation 25 (Dec. 1998).
Article suggests prosecutors are tempering organizational guidelines. (840) Saul M. Pilchen shows how federal substantive criminal law imposes corporate liability in instances where corporate culpability is slight. He reviews the operation of the guidelines for sentencing organizations, which increase the sentences for corporate offenders. The first 50 cases sentenced under these guidelines, however, have primarily involved corporations that would have been viewed as significantly culpable. Prosecutors may be declining to prosecute less culpable corporations, though the severe guidelines sentences may still affect whether those corporations agree to stiff civil penalties. Saul M. Pilchen, When Corporations Commit Crimes: Sentencing under the Federal “Organizational Guidelines”, 78 Judicature 202-06 (1995).
Article notes possible reasons for expanding factors considered under guidelines. (110) In a book review entitled Deborah Young suggests reform of the guidelines based on a study of preguidelines sentencing, S. Wheeler, K. Mann & A. Sarat, “Sitting in Judgment: The Sentencing of White-Collar Criminals” (1988). According to the study, preguidelines sentencing was not as unprincipled as is commonly depicted; indeed, judges tended to agree on the factors that were important in determining sentence. Among those factors were specific characteristics of the offender’s situation that, Young notes, are often difficult to consider under the guidelines system. Further development of the guidelines system to accommodate such factors might be warranted, Young concludes. Deborah Young, “Federal Sentencing: Looking Back to Move Forward,” 60 Cinn. L. Rev. 135-51 (1991).
Article commends organizational guidelines. (840) Jennifer Moore surveys the guidelines’ treatment of organizational defendants. She concludes that the guidelines have succeeded by identifying the most promising theory of corporate culpability and implementing it in a generally accurate way. Because pre-guidelines law failed adequately to take account of the concept of corporate culpability, focusing instead on deterrence, the guidelines promise to improve corporate sentencing. However, the guidelines place too much emphasis on post-offense cooperation and obstruction of justice, and some differences between the treatment of large and small organizations deserve rethinking. Jennifer Moore, Corporate Culpability Under the Federal Sentencing Guidelines, 34 Ariz. L. Rev. 743-97 (1992).
Article analyzes guidelines for organizational defendants. (840) Emmett H. Miller III examines theoretical approaches to the sentencing of organizations, describes the Sentencing Commission’s efforts to promulgate guidelines for organizations, and analyzes the new guidelines for organizational defendants in light of their statutory purpose. He concludes that these guidelines meet the goals of sentencing in varying degrees, and proposes several amendments to remedy the deficiencies, including extending the fine provisions to cover all organizational offenses, eliminating reduced fines based on inability to pay, coordinating all monetary penalties, considering the probability of detection and conviction in determining the total monetary penalty, and limiting probation conditions requiring organizations to implement prevention and detection programs. Emmett H. III Miller, Federal Sentencing Guidelines for Organizational Defendants, 46 Vand. L. Rev. 197 (1993).
Article advocates departures for corporate environmental offenders. (840) A student author traces the rules applicable to holding corporate officials responsible for crimes committed by their underlings. While these rules originally applied only to strict liability offenses, which tended to carry modest penalties, they now have been extended to crimes requiring proof of knowledge, like environmental crimes, which carry more significant penalties. The author argues that officers convicted under the responsible-corporate-officers approach should receive downward sentencing departures. The environmental guidelines’ authorization of downward departures for those who are merely negligent supports this position. Moreover, the guidelines do not adequately consider whether a reduction should be allowed for those convicted on a responsible-corporate-officers theory. Note, Ignorance Is Not Bliss -- Responsible Corporate Officers Convicted of Environmental Crimes and the Federal Sentencing Guidelines, 42 Duke L.J. 145-65 (1992).
Article recommends considering civil penalties at sentencing. (840) David Yellen and Carl J. Mayer examine the proliferation of civil sanctions that appear to serve “punitive” purposes. The authors argue that both constitutional law and sound punishment theory suggest the need to consider such civil penalties when making criminal sentencing decisions for the same conduct. The sentencing guidelines’ recent treatment of organizational defendants increases both the need for coordination and the opportunity to coordinate. Though the authors’ primary focus is the corporate defendant, they suggest that their analysis also may be applicable to individual defendants who are subject to civil penalties. David Yellen, and Carl J. Mayer, Coordinating Sanctions for Corporate Misconduct -- Civil or Criminal Punishment, 29 Am. Crim. L. Rev. 961-1024 (1992).
Articles discuss “credit for compliance” aspects of the new guidelines for sentencing of corporations. (840) A series of articles in the Corporate Conduct Quarterly, published by the Forum for Policy Research at Rutgers University, discuss the new guidelines for organizations. In The New Federal Sentencing Guidelines: Three Keys to Understanding the Credit for Compliance Programs, the principal drafters of the organizational guidelines, Sentencing Commission legal counsel Winthrop M. Swenson and Nolan E. Clark, explain that the organizational guidelines are structured to give credit to businesses that have effective programs to prevent and detect violations of law. The Commission “intended that punishment should be lighter for ‘good citizen’ companies who become entangled in the criminal law solely because of what is frequently called the ‘rogue’ employee.” In other articles, William Lytton discusses The Criminalization of the American Corporation, and Joseph E. Murphy suggests 12 Ways to Encourage Voluntary Compliance. 1 Corp. Conduct Quarterly 1-7 (Winter 1991).
Article suggests limits on corporate probation. (840) The 1991 guidelines for the sentencing of organizations provide for a sentence of corporate probation, which permits a judge to monitor convicted companies and to force them to develop internal programs to prevent and detect misconduct. In “Corporate Probation under the New Organizational Sentencing Guidelines,” a student author advocates revising the guidelines to limit the probation sanction to only the most extraordinary situations. The author traces the development of the organizational guidelines and provides a summary of them. Note, Corporate Probation under the New Organizational Sentencing Guidelines, 101 Yale L. J. 2017-42 (1992).
Dept. of Justice says organizational guidelines do not apply to offenses committed before November 1, 1991. (840) On November 7, 1991, Robert S. Mueller, III, Assistant Attorney General for the Criminal Division of the Department of Justice, issued a memorandum to all federal prosecutors advising them that the position of the Department of Justice is that the new Guidelines for Sentencing of Organizations (Chapter 8 of the Guidelines Manual which became effective on November 1, 1991) are not retroactive. The memo says the new guidelines apply only to offenses committed on or after November 1, 1991, but not to offenses committed before that date, regardless of whether application of the guidelines would have a potentially advantageous or an adverse effect on the defendant.