United States v. Alphas

785 F.3d 775

UNITED STATES of America, Appellee

v.John S. ALPHAS, Defendant, Appellant.

No. 14–2228.

United States Court of Appeals, First Circuit.

May 7, 2015.

Tracy A. Miner, with whom Megan A. Siddall and Demeo LLP were on brief, for appellant.

Brian A. Pérez–Daple, Assistant United States Attorney, with whom Carmen M. Ortiz, United States Attorney, was on brief, for appellee.

Before BARRON, SELYA and STAHL, Circuit Judges.

Opinion

SELYA, Circuit Judge.

When a criminal defendant is convicted of a fraud offense, the Sentencing Commission has established amount of loss—generally the higher of actual or intended loss—as a rough proxy for determining the seriousness of the offense and the relative culpability of the offender. Although this concept is easily stated, its application often has vexed sentencing courts. As in so many other instances, the devil is in the details.

This appeal requires us to decide two issues of first impression in this circuit. The first involves the method for calculating the guideline enhancement for amount of loss in an insurance fraud context. The second involves the method for calculating the amount of statutory restitution in that context. Concluding, as we do, that the court below erred in adopting its calculation methods, we vacate the appellant's sentence and remand for resentencing.

I. BACKGROUND

Because this sentencing appeal follows a guilty plea, we distill the pertinent facts from the plea agreement, the change-of-plea colloquy, the undisputed portions of the presentence investigation report (PSI Report), and the transcript of the disposition hearing. See United States v. Almonte–Nuñez, 771 F.3d 84, 86 (1st Cir.2014).

Defendant-appellant John S. Alphas owns and operates The Alphas Company, a wholesale produce distributor located in Chelsea, Massachusetts. During the relevant time frame, the appellant purchased large quantities of produce, often from distant purveyors. To protect his investment, the appellant routinely obtained insurance on these produce shipments.

In or around March of 2007, the appellant devised a scheme to defraud. Over the next four and one-half years, he submitted at least ten fraudulent claims to his insurers for lost, stolen, or damaged produce.¹ The appellant sought reimbursement for the value of allegedly lost, stolen, or damaged produce, together with disposal expenses, shipping fees, and the cost of procuring replacement stock. These claims were largely bogus: in each instance, the appellant either invented fictitious losses or artificially inflated legitimate losses. To make matters worse, he supported his submissions with documents that had been fraudulently altered or, in some cases, constructed out of whole cloth. He compounded his mendacity by making false and misleading statements to insurance adjusters.

The insurance policies at issue contained void-for-fraud clauses. A representative clause stated:

This Coverage Part is void in any case of fraud by you as it relates to this Coverage Part at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning:

1. This Coverage Part;

2. The Covered Property;

3. Your interest in the Covered Property; or

4. A claim under this Coverage Part.

Four of the appellant's claims were never paid: three were withdrawn after suspicions surfaced and the lone claim submitted to Selective Insurance Company was thwarted by early detection of the fraud. The other six claims were paid, but mostly in amounts less than their face value. In sum, the ten claims totaled over $490,000, yet the appellant received payments totaling only $178,568.41.

The appellant's persistent pattern of chicanery sparked a federal criminal investigation. In May of 2014, the government filed an information charging the appellant with a single count of wire fraud. See 18 U.S.C. § 1343. Waiving prosecution by indictment, the appellant pleaded guilty to the charge. In an accompanying plea agreement, the parties stipulated to a base offense level of 7. See USSG § 2B1.1(a)(1).

The parties could not agree, however, as to the amount of loss—a necessary step in determining the guideline sentencing range (GSR). To fill this void, the PSI Report recommended boosting the appellant's offense level by 14 levels based on an intended loss of approximately $480,000. See id. § 2B1.1(b)(1)(H)-(I) (increasing offense level by 14 for losses exceeding $400,000 but not greater than $1,000,000). This calculation derived from the probation officer's conclusion that intended loss should be measured by the face amount of the appellant's claims, less a $1000 per claim deductible.

The appellant objected to the recommendation. He argued that the loss figure should exclude legitimate losses embedded in the fraudulent claims. In conjunction with this argument, he submitted a competing set of calculations that purported to show which component amounts were legitimate. This set of calculations yielded an intended loss amount of roughly $178,000 which corresponded to an increase of 10 (rather than 14) in his adjusted offense level. See id. § 2B1.1(b)(1)(F).

The PSI Report also dealt with restitution. It recommended an award of $178,568.41 (the aggregate amount actually paid out on the claims). The appellant objected to this recommendation, envisioning a finding of actual loss (and, therefore, a restitution amount) of $58,931.36. Once again, the appellant attributed the reduced figure to the fact that a portion of the claims paid corresponded to legitimate losses.

The probation officer stood by her calculations regarding both the guideline enhancement and restitution. Although she conceded that the appellant may have incurred legitimate losses, she maintained that the appellant's fraud rendered the claims altogether illegitimate.

The disposition hearing was held on November 6, 2014. The district court concluded as a matter of law that where, as here, insurance policies contain void-for-fraud clauses, intended loss is equal to the aggregate face value of the claims submitted. Starting with this premise, the court overruled the appellant's objections; enhanced his offense level by 14 levels; deducted 3 levels for acceptance of responsibility, see id. § 3E1.1; placed the appellant in Criminal History Category I; and set the GSR at 27 to 33 months, see id. Ch. 5, Pt. A, sentencing table. The court then varied sharply downward, sentencing the appellant to an incarcerative term of 12 months and 1 day. In addition, the court fined the appellant $60,000; attached a 36–month term of supervised release; and ordered payment of restitution to Zurich North American in the amount of $178,568.41.

This timely appeal ensued. The district court refused to stay the appellant's sentence pending appeal. This court, however, granted a stay. See United States v. Alphas, No. 14–2228 (1st Cir. Dec. 31, 2014) (finding that appeal presented “ ‘substantial question’ within the meaning of 18 U.S.C. § 3143(b)(1)(B) ”).

II. ANALYSIS

The appellant assigns error to the district court's determination of the amount of loss with respect to both the guideline enhancement and the award of restitution. Because these determinations are controlled by different authorities, we bifurcate our analysis.

A. The Guideline Enhancement.

The appellant first contends that the sentencing court used an improper method of calculating intended loss and, thus, erred in enhancing his offense level by 14 levels. This contention is met at the threshold by the government's assertion that we need not reach the merits because any calculation error was harmless. We begin with that assertion and then proceed to the merits.

1. Harmlessness. The government's argument for harmlessness rests on the district court's imposition of a below-the-range sentence coupled with the court's later remark, made while denying the appellant's motion to stay the sentence pending appeal, that a recalculation of the GSR would be unlikely to result in a lower sentence. This argument flies in the teeth of conventional wisdom, which teaches that the improper calculation of a defendant's guideline range comprises a significant procedural error. See Gall v. United States, 552 U.S. 38, 51, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007). Such an error ordinarily requires resentencing. See United States v. Ramos–Paulino, 488 F.3d 459, 463–64 (1st Cir.2007). Indeed, a defendant normally can appeal from an error in calculating his GSR even though the district court imposed a sentence beneath the bottom of the GSR. See United States v. Paneto, 661 F.3d 709, 715 (1st Cir.2011).

To be sure, an appellate court may deem such an error harmless if, after reviewing the entire record, it is sure that the error did not affect the sentence imposed. See Williams v. United States, 503 U.S. 193, 203, 112 S.Ct. 1112, 117 L.Ed.2d 341 (1992). In other words, resentencing is required if the error either affected or arguably affected the sentence. See Ramos–Paulino, 488 F.3d at 463.

The case at hand does not fit within these narrow confines. Although the court below imposed a sentence beneath the bottom of the GSR, there is at least a possibility that the court would have imposed an even more lenient sentence had it started with a lower GSR. See United States v. Foley, 783 F.3d 7, 23 n. 13 (1st Cir.2015) [Nos. 13–1048, 13–1118, slip op. at 31 n. 13]. While the court stated that a lower GSR was “unlikely” to result in a different sentence, we have recently reaffirmed that the possibility of a lesser sentence is enough to preclude a finding that an error in calculating the GSR is harmless.See id. Such a possibility exists here: saying that an event is unlikely is not the same as a categorical assurance that the event will not come to pass. It follows that if the court below erred on the high side in fashioning the guideline enhancement for amount of loss (and, thus, the GSR), we cannot regard that error as harmless.

2. Calculating Intended Loss. Our...