Federal Sentencing Issues: Calculation of Loss — Great Decision

On September 30, 2015, the Third Circuit decided United States v. Nagle, 2015 U.S. App. LEXIS 17187. Joseph Nagle and Ernest Fink appealed the District Court’s calculation of loss from which their lengthy prison sentences were derived. For federal sentencing fanatics, of which I am one, Nagle is momentous for reversing the District Court’s USSG actual loss sentencing enhancement.

In the 1950’s Nagle’s family formed Schuylkill Products, Inc. (“SPI”), a Pennsylvania manufacturer of concrete beams utilized in highway and mass transit construction projects. In 2004 Joseph Nagle inherited a 50.1% interest in SPI, becoming CEO. In 1993 CDS Engineers, Inc., was formed. Fink owned 49.9% and was Vice President and general manager. After 2004 SPI became a wholly-owned subsidiary of SPI, installing SPI’s manufactured concrete beams.

Federal regulations require states utilizing federal highway funds to establish and meet goals of participation for qualified disadvantaged business enterprises (“DBEs”). The DBE must be certified and perform a commercially useful function in the project. The DBE cannot be a fabricated front for an otherwise non-certified DBE. Neither SPI nor CDS were certified DBEs. Marikina Engineers and Construction Corp (“Marikina”) was a Connecticut based certified DBE subcontractor.

SPI and CDS paid Marikina a fixed fee for DBE participation in SEPTA and PennDOT contracts but kept the contracts’ profits. Nagle, through CDS, prepared and submitted project applications utilizing Marikina’s email and stationary. SPI accessed electronic PennDOT contract management systems through Marikina’s login passwords. SPI employees carried Marikina’s business cards and cellular telephones. During the conspiracy, Marikina received $54 million in SEPTA DBE contracts and over $119 million in PennDOT contracts.

Nagle and Fink were charged with and convicted of orchestrating a scheme between 1993-2008 of utilizing Marikina to bid for PennDOT and SEPTA DBE construction projects which SPI and CDS would perform but were otherwise not entitled as a non-DBE. Prior to Nagle’s trial, Fink and three of Marikina’s principles plead guilty.

As a fraud case, the sentencing court first looks at United States Sentencing Guideline (“USSG”) § 2B1.1 for the offense level associated with a specific amount of fraud. Subsection (b) lists adjustments based upon the amount of loss. As the loss increases, offense levels unscientifically increase. (A loss between $70,000 and $119,999 adds eight to the offense level. A loss over $1 million but less than $2.5 million increases 18 offense levels. Losses between $50 and $100 million allow for a 24 level increase.)

On June 30, 2010 the District Court concluded that USSG § 2B1.1(b) required Fink’s loss to equal the contracts’ face value, $135.8 million. This occurred in Nagle’s co-defendant’s case. United States v. Campbell, 2010 U.S. Dist. LEXIS 65770 (M.D. Pa., June 30, 2010). The Court employed USSG § 2B1.1, cmt.n.3(F)(ii) as the case was associated with fraudulent receipt of government benefits.

Note 3(F)(ii) reads “in a case involving government benefits (grants, loans, entitlement program payments), the loss shall be considered to be not less than the value of the benefits obtained by the unintended recipient.” The court held that § 2B1.1 cmt.n.3(A) defines actual loss as the reasonably foreseeable pecuniary harm that resulted from the offense. The court determined Note 3(A) applicable because Marikina, SPI, and CDS defendants were unintended recipients of DBE funds not entitled to a credit for services rendered and they had not refunded the contract price to allow for an eligible DBE to perform the work.

After his conviction, Nagle’s presentence report relied on the Court’s June 2010 opinion to value his § 2B1.1(b) cmt.n.3(A) loss at $54 million. This increased by 24 Nagle’s offense level calculus. Nagle’s objections, similar to Fink’s which were held under advisement until after Nagle’s trial, argued the loss is offset by the value of services rendered based upon § 2B1.1 cmt.n.3(A), United States v. White, 2012 WL 4513489 (SDNY Oct 2, 2012), and its interpretation of U.S.S.G. §2B1.1(1)(h). There the court offset the loss with the value of services provided, resulting in a 14, not 24, offense level increase. The District Court reviewed § 2B1.1(b) and (h) and rejected White.

Nagle’s cumulative offense level was 40. When combined with a Zone I criminal history his jail range was 292-365 months. Nagle received eighty four (84) months in prison. No restitution was ordered. The court concluded the Government received what it paid for in the contracts. United States v. Nagle, 2014 U.S. District Lexis 63033 (M.d.Pa. May 2014).

In reversing the District Court’s loss calculation of $54 million against Nagle, the appeals court focuses on the concepts of fraud and theft, not the USSG. In theft cases, a victim’s loss is equal to the value of the theft for which nothing is received in return. Here, a loss calculation is truly a gage of the injury inflicted.

In fraud cases, however, value passes in each direction of the transaction. Real estate secured through fraud still possesses value which can be sold to mitigate a victim’s losses. The court recognizes this analysis is an accepted ‘value of loss’ mitigation tool in mortgage fraud jurisprudence. Since 1999 the Third Circuit has also applied net loss to federal procurement fraud cases; the value of components provided reduces the § 2B1.1(b) actual loss value calculation. In adopting this reasoning to DBE fraud cases, the appeals court daftly reasserts District Courts’ authority to determine loss outside the constraints of the non-scientifically derived, and now discretionary, sentencing guidelines.

The court did comply with its obligatory responsibility of evaluating USSG definitions. After a lengthy analysis of the parties’ positions, the court rejects the government’s and Congress’ one size fits all (you stole therefore you disgorge) windfall argument. The court turned to § 2B1.1 cmt.n.3(E)(i) to buttress its fraud based conclusion that credit must be given for services and goods provided. The Court also rejects the government’s argument that solely because SPI and CDS were not the intended beneficiaries of the DBE program they could not render a valuable service.

The court’s fraud analysis compels its ruling that in DBE cases value of loss is reached only after subtracting the fair market value of labor and materials rendered and of transporting and storing the materials. This is momentous. In DBE fraud prosecutions, the government must now conduct pre-indictment contract profit analysis. Profit size and distribution, shareholders versus private corporate owners, could become a major factor in the decision to criminally charge corporate officers in DBE and other government fraud cases.

For several years district courts have enjoyed renewed latitude in sentencing defendants. Noteworthy judicial objections to specious mandatory minimum sentences and unscientific USSG offense level enhancements appear in opinions and newspapers monthly. Nagle follows this trend by limiting the Guideline’s and Congressional intent to punish through vastly overvaluing a monetary benefit to individual corporate officer defendants based solely upon the gross value of the government contract. In Nagle the Third Circuit gives district courts more sentencing authority by eliminating mandatory judicial compliance with USSG policy of exorbitant sentences enhancements randomly assigned from monetary value that lack any relation to an appropriate sentence.

Offense level calculations typically determine the high water mark of a defendant’s potential sentence. Nagle is noteworthy because it limits Guideline escalation of offense levels through arbitrary enhancements which raise suggested time of incarceration. This restriction, in turn, reinforces district courts’ sentencing discretion to vary or depart downward because that analysis will now simply start at a lower offense level. Nagle invigorates the argument that speciously derived and arbitrary USSG enhancements pursuant to the § 2B1.1(b) monetary loss figures will no longer dictate district courts’ sentences.

Nagle furthers the Supreme Court’s goal of bringing equity and sensibility to sentencing decisions. The gross cost of government contracts, for which services and goods are properly rendered, is now appropriately excluded as a basis for sentencing enhancements. To the extent the government, and thus the country’s citizens, receive the ultimate intended benefit of the federal transportation highway program (properly designed and built roads, bridges, and mass transit) the government is not entitled to a windfall and not pay for the services. Only illegally secured profits will factor into a sentencing scheme.

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ALL NURSES MUST REPORT CRIMINAL CHARGES FILED AGAINST THEM WITHIN 30 DAYS OF ARREST.

Effective October 17, 2015 The Pennsylvania Nursing Board rules now require all Pennsylvania licensed RNs, LPNs, CRNPs, LDNs, and CNSs to report being charged with any misdemeanor or felony criminal charge, regardless of which jurisdiction the charges originate. The same practitioners must also within 90 days report any discipline from another jurisdiction.

§ 21.29a. Reporting of crimes and disciplinary action.

(a) A registered nurse shall notify the Board of pending criminal charges within 30 days of the filing of the criminal charges or on the biennial renewal application under § 21.29(c)(4) (relating to expiration and renewal of license), whichever is sooner.

(b) A registered nurse shall notify the Board of a criminal conviction, plea of guilty or nolo contendere, or an admission into a probation without verdict or accelerated rehabilitative disposition program within 30 days of the disposition or on the biennial renewal application under § 21.29(c)(4), whichever is sooner.

(c) A registered nurse shall notify the Board of disciplinary action in the nature of a final order taken against the registered nurse by the licensing authority of another state, territory or country within 90 days of receiving notice of the disciplinary action, or on the biennial renewal application under § 21.29(c)(4), whichever is sooner.

http://www.pabulletin.com/secure/data/vol45/45-42/1827.html

§ 21.156b. Reporting of crimes and disciplinary action.

(a) An LPN shall notify the Board of pending criminal charges within 30 days of the filing of the criminal charges or on the biennial renewal application under § 21.156 (relating to renewal of license), whichever is sooner.

(b) An LPN shall notify the Board of a criminal conviction, plea of guilty or nolo contendere, or admission into a probation without verdict or accelerated rehabilitative disposition program within 30 days of the disposition or on the biennial renewal application under § 21.156, whichever is sooner.

(c) An LPN shall notify the Board of disciplinary action in the nature of a final order taken against the LPN by the licensing authority of another state, territory or country within 90 days of receiving notice of the disciplinary action or on the biennial renewal application under § 21.156, whichever is sooner.

The Board is specifically concerned with the fact that practitioners were being charged with criminal acts and then enrolled in and completed the ARD program, with an expungement, between reporting periods. As such, the Board found that:

Background and Purpose

This final-form rulemaking accomplishes two goals: (1) amends current continuing education regulations for registered nurses; and (2) requires licensees to report criminal and disciplinary actions sooner than currently required. The Board published continuing education regulations implementing section 12.1 of the RN Act at 38 Pa.B. 3796 (July 12, 2008). To ease implementation, the Board provided registered nurses with a grace period of 6 months to cure deficiencies. Now that licensees have had an opportunity to obtain the continuing education and seek renewal, this grace period is no longer warranted and, in its place, the Board is implementing a procedure for continuing education compliance identical to that applied by the other licensing boards within the Bureau of Professional and Occupational Affairs. Additionally, the final-form rulemaking provides the Board with the flexibility to require licensees to complete continuing education on a specific topic as the necessity arises. This is particularly important when there are advances or changes in practice that affect the entire profession or significant modifications to the Board’s regulations.

Regarding the reporting of criminal and disciplinary actions, § 21.29(c)(4) (relating to expiration and renewal of license) requires registered nurses to report these actions on their biennial renewal. Similarly, § 21.723 (relating to license renewal) requires licensed dietitian-nutritionists to report criminal and disciplinary actions at biennial renewal. Conversely, § 21.156 (relating to renewal of license), which applies to practical nurses, formerly did not require reporting of criminal and disciplinary actions at all. In many circumstances, especially in cases when licensees enter into an Accelerated Rehabilitation Disposition (ARD) Program, licensees avoid notifying the Board of the criminal action because the matter has been expunged by the time of renewal. The Board is authorized to discipline licensees who receive ARD, disposition instead of trial or probation without verdict in the disposition of felony charges. In addition, licensees who receive ARD or other pretrial disposition of DUIs and other drug offenses may suffer from mental or physical illnesses or conditions or physiological or psychological dependence on alcohol, hallucinogenic or narcotic drugs, or other drugs which tend to impair judgment or coordination, authorizing the Board to require mental and physical examinations under section 14(a)(2) and (2.1) of the RN Act (63 P. S. § 224(a)(2) and (2.1)) or section 16(a)(6) of the PN Law (63 P. S. § 666(a)(6)). It is therefore imperative that the Board receive these reports in a timely manner.

 

Call to discuss your criminal case and your reporting requirements.

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