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The Seventh Circuit recently held that, on a government motion under Rule 35(b) to reduce a sentence for new cooperation, the district court may not use the occasion to reopen sentencing to assess whether a reduction is justified under the 18 U.S.C. § 3553(a) factors.  Cooperation is the only basis for a post-sentencing reduction within the Rule. United States v. Shelby, 2009 WL 3335548 (7th Cir., Oct. 19, 2009).

Rarely, one might imagine, would sentencing judges so regret the severity of their initial sentence that they would relish a subsequent opportunity to broadly reexamine and reduce that sentence. However, one such instance occurred in the Northern District of Illinois when the trial court sentenced Gregory Shelby in 1996 to serve 285 months under then-mandatory Sentencing Guidelines for drug and firearms offenses. When the government moved 12 years later under Rule 35(b)(2) to reduce Shelby's sentence to 255 months on the strength of his post-sentencing cooperation, the same sentencing judge leapt at the opportunity to instead reduce the sentence to 180 months, basing his departure not only on Shelby's cooperation but on the § 3553(a) factors. The Seventh Circuit reversed.

Judge Posner wrote for the majority that Rule 35(b) -- which in subsection (2) concerns cooperation motions made more than one year after sentencing and limits the kinds of cooperation which qualify -- is not intended to create a kind of judicially-administered parole system which considers the defendant as a whole, and was created solely to assist law enforcement by encouraging cooperation. While a sentencing judge may look to § 3553(a) in determining the extent of a cooperation departure, and may exceed the government's recommended extent of departure in doing so, the judge may not consider those factors in determining the basis for a post-sentencing departure.
 

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Adding its voice to a split among the circuits, the D.C. Circuit recently joined the Third Circuit in holding that, as the result of an interplay between two sentencing statutes, the perceived need to rehabilitate a defendant is not a permissible basis upon which to impose a longer sentence.

Under 18 U.S.C. § 3553(a), courts are directed to consider a range of factors in imposing sentence.  Among them is the need to provide a defendant with educational or vocational training or other correctional treatment.  However, 18 U.S.C. § 3582 provides that in determining whether to impose imprisonment or, if imprisonment is imposed, the length of sentence, the sentencing court must recognize that imprisonment is not an appropriate means of promoting rehabilitation.  Several courts of appeal have held that the statutes taken together do not prohibit consideration of a rehabilitation need in selecting the length of a sentence, but only prohibit its consideration in deciding whether or not to incarcerate at all.  United States v. Duran, 37 F.3d 557 (9th Cir. 1994); United States v. Hawk Wing, 433 F.3d 622 (8th Cir. 2006); United States v. Giddings, 37 F.3d 1091 (5th Cir. 1994); United States v. Jackson, 70 F.3d 874 (6th Cir. 1995).

Recently, in In re Sealed Case, 573 F.3d 844 (D.C. Cir. 2009), the D.C. Circuit departed from the preceding courts to sensibly read the plain language of Section 3582 as barring any consideration of the need for rehabilitation in either imposing prison in the first instance or in deciding on the length of incarceration.  Accord United States v. Manzella, 475 F.3d 152 (3d Cir. 2007); United States v. Yehuda, 238 Fed. Appx. 712 (2nd Cir. 2007). 

The defendant in In re Sealed Case had distributed a small quantity of heroin, so his Criminal History category of VI yielded a range of only 24-30 months.  But he also qualified as a career offender under  § 4B1.1, resulting in an enhanced range of 151-188 months.  The trial court selected a sentence of 132 months, indicating that it had imposed a longer period that it might have otherwise because the defendant would benefit from BOP programs and training.  Based on its reading of Section 3582, the appeals court vacated the sentence and remanded.

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Once the government opens the door post-sentencing to a reduction of sentence under Rule 35(b), defense counsel is free to argue, and a court should consider, all of the 18 U.S.C. § 3553(a) factors which must be weighed at the initial sentencing, the Sixth Circuit has held in a case of first impression.

While the post-sentencing cooperation of the defendant is a precondition to the government's filing a motion, it is not a limiting condition in terms of the factors which drive the resulting reduction. United States v. Grant, 567 F.3d 776 (6th Cir. 2009). In a 2-1 decision, the court of appeals held in Grant that current Rule 35(b) requires only that cooperation be the condition precedent to any reduction; it no longer requires, as did a previous iteration of the Rule, that any reduction "reflect" that cooperation. Indeed, the majority wrote, cooperation may still be the predominant consideration in determining the extent of any reduction. But the consideration of a defendant's cooperation does not limit the district court's assessment of the full array of Section 3553(a) factors which must be considered in imposition of any sentence.

The dissenting judge maintained that, since the Section 3553(a) factors will already have been considered at the original sentencing, the majority's ruling invites a "redo" of sentencing, an invitation unlikely to be welcomed by trial judges who already sentence an average of 117 defendants each year.
 

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In the recent case of United States v. Tomko, the en banc Third Circuit upheld a probationary, below-Guidelines sentence for a run of the mill tax evader. 562 F.3d 558, 2009 U.S. App. LEXIS 8227 (3rd Cir., Apr. 17, 2009). Tomko, a plumbing contractor, had faced an advisory Guidelines range of 12-18 months, but instead received probation, community service, and a large fine.

The Court of Appeals rejected the government's argument that the sentence was substantively unreasonable because Tomko was an ordinary tax evasion defendant, that is, nothing about the offense or offender was extraordinary. But the Third Circuit found no abuse of discretion; the sentencing court had considered all of the 18 U.S.C. § 3553(a) factors and provided specific reasons for the variance from the Guidelines, including the defendant's "negligible" criminal history (driving a boat while intoxicated); employment record; community ties; and substantial record of charitable works. Id. at *34. (Although Tomko had presented evidence at sentencing that his incarceration would threaten ruination for his contracting business and its 300 employees, neither the district court nor the Court of Appeals addressed that circumstance only by tersely subsuming it under the rubric of "employment record," with no extended discussion of the weight to be assigned to that circumstance).

The Court of Appeals rejected any argument that the variance in this case was so substantial as to be per se unreasonable. The Court cited various cases involving greater departures to reach a probationary sentence. Id. at *40. In any event, it is highly uncommon to strike down a sentence on this quantitative basis. "It will be a rare case when it is clear that no acceptable reasoning can justify a given sentence." Ibid. (citation omitted).
 

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The Third Circuit recently vacated a six-year sentence imposed by Judge Chesler in a child pornography case, even though the sentence was substantially below Guidelines, because the trial court failed to adequately consider and give weight to all of the 18 U.S.C. § 3553(a) factors. United States v. Olhovsky, 2009 U.S. App. LEXIS 7895 (3rd Cir., Apr. 16, 2009).

In an evidentiary ruling prior to sentencing, the sentencing judge had denied a defense motion to subpoena Olhovsky's treating psychologist, in part because the court held that it was improper to subpoena a witness to give expert testimony. Id. at *33-34. The Third Circuit held this ruling to be incorrect, finding no rule, civil or criminal, which prohibits compelling expert testimony by subpoena. Ibid. Moving to the sentencing phase, the appeals court held that a sentencing court must give meaningful consideration to all of the 3553(a) factors; although they need not each be discussed by the court, they must each be taken into account at sentencing. Id. at *44-45. Nor did the below-Guidelines nature of the sentence render it immune to substantive reasonableness review. Id. at *51.

In taking into account the individual 3553(a) factors, the sentencing court must abide by the "parsimony provision" in that statute, which requires the court to impose a sentence which is sufficient but not greater than necessary to comply with the purposes of sentencing. Id. at *45. This sentencing court, so focused on the nature of the crime, failed to obey these precepts; "it is exceedingly difficult to review this sentencing transcript without becoming convinced that the district court was so appalled by the offense that it lost sight of the offender." Id. at *50.

Finding the sentence substantively unreasonable and vacating it, the appeals court noted, in words sure to become popular in sentencing memoranda throughout the Circuit:

[I]t is not severe punishment that promotes respect for the law, it is appropriate punishment  …     unduly severe punishment can negatively affect the public's attitude toward the law and toward the criminal justice system.

Id. at *56-57.
 

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It is nearly an article of faith that, in negotiating a guilty plea to a Title 26 offense, the prosecutor and the CI agent working the case for the IRS will invariably agree to take into consideration in reaching a "tax loss" number for sentencing purposes a wide array of tax return considerations which effectively reduce the taxes due and owing. Chief among the considerations which traditionally serve to allow a reworking, and lowering, of the tax loss figure are deductions or credits which the target's attorney and/or accounting expert can identify as having been overlooked on the filed return. Occasionally, the argument that a target taxpayer should be allowed to alter filing status will serve to pave the way for agreement on a reduced tax loss.

But if plea negotiations fail, and the taxpayer now charged as a defendant pursues a similar formula for reducing "tax loss" before the court, the near-universal position of the federal courts is that those considerations are of no avail. In United States v. Clarke, 2009 U.S. App. LEXIS 6169 (11th Cir., March 20, 2009), the Eleventh Circuit joined the Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, and Tenth Circuits in holding that the "tax loss" calculated under U.S.S.G. § 2T1.1 is the loss intended by the defendant and not the actual loss to the IRS, precluding consideration of overlooked and recalculated deductions or credits, or for altered filing status. Only the Second Circuit (United States v. Gordon, 291 F.3d 181, 188 (2nd Cir. 2002)) requires the consideration of unclaimed deductions in calculating "tax loss" for sentencing purposes.
 

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In United States v. Cavera, 550 F.3d 180 (2d Cir. 2008), the Second Circuit (en banc) considered the interesting issue of when, under federal criminal sentencing in the aftermath of United States v. Booker, 543 U.S. 220 (2005)¸ a sentencing court may properly consider community conditions in varying from the advisory Sentencing Guidelines range. In concluding that such consideration was appropriate in this gun trafficking case, the court vacated an earlier panel decision (United States v. Cavera, 505 F.3d 216 (2d Cir. 2007)), which held that the district court had erred in imposing a non-Guidelines sentence that relied upon a demographics-based approach to sentencing.

Gerard Cavera pled guilty to one count of conspiring to deal in and transport firearms in violation of 18 U.S.C. § 371. When it came time for Cavera to be sentenced, the district court (Eastern District of New York), calculated the Sentencing Guidelines range for the defendant’s offense as 12 to 18 months imprisonment, but, rather than impose a sentence within that range, the district court imposed a more severe sentence outside the Guidelines of 24 months imprisonment. Id. at 185-186. In support of this upward variance from the Guidelines, the district court pointed to factor (a)(2) of 18 U.S.C. § 3553, which instructs the court to consider the seriousness of the offense and the need for deterrence of this type of crime. The district court reasoned that firearm trafficking in an urban environment such as New York City mandated a heavier sentence. Id.

On appeal to the Second Circuit, Cavera argued that the district court had committed legal error by considering the population density of New York City in imposing a non-Guidelines sentence. The panel which heard his appeal reversed, concluding that the district court’s sentence constituted legal error and was unreasonable, noting that the district court’s “demographics-based approach to sentencing” contradicted one of the primary purposes of the Sentencing Guidelines, which is to diminish unwarranted sentencing disparity.

Rehearing en banc was ordered to allow the parties to brief the effect of the intervening decisions in Gall v. United States, 128 S. Ct. 586 (2007) and Kimbrough v. United States, 128 S. Ct. 558 (2007). Based on guidance gleaned from those two rulings, the full Court of Appeals vacated the decision of the panel and affirmed the judgment of the district court.

The court began its analysis by noting that Booker rendered the Sentencing Guidelines “effectively advisory” and allowed sentencing courts to tailor the appropriate sentence to each offense in light of other concerns. Going further, the court explained that, after Gall and Kimbrough, the Guidelines should be considered the “starting point” and “initial benchmark” for sentencing, even though they are “truly advisory.” Id. at 189. Subsequent to the decisions in Gall and Kimbrough, appellate courts play a “clearly secondary” role in determining an appropriate sentence, reviewing the district court’s decisions under a “deferential abuse-of-discretion standard.” Id., quoting Gall, 128 S. Ct. at 591. This analysis consists of both a procedural review and a substantive review of the sentence imposed by a district court.

The court explained that it would set aside a substantive decision of the district court only in “exceptional circumstances” where the district court’s decision “cannot be located within the range of permissible decisions.” Id. However, this degree of deference is only warranted if the appellate court is convinced that the district court complied with the procedural requirements of the Sentencing Reform Act. When conducting a substantive review, the court would take into account the totality of the circumstances, and afford significant deference to the discretion of the sentencing judge, who has a certain institutional advantage. Id. at 190. The court would not necessarily presume that a non-Guidelines sentence is unreasonable or require “extraordinary” circumstances to support a deviation from the range suggested by the Sentencing Guidelines. Id. The court explained that sentencing responsibility “is placed largely in the precincts of the district court,” and noted that Gall and Kimbrough require appellate courts to afford more latitude to sentencing judges than would have been afforded before those decisions.

The Second Circuit then explained that one of the procedural requirements is that a district court must explain its reason for a chosen sentence, and, where the chosen sentence is outside the range of the Guidelines, the court must explain its reasons “with specificity in the written order of judgment and commitment.” Id. at 192, citing 18 U.S.C. § 3553(c). The district judge’s justification for a “major departure” from the Guidelines should be supported with a more significant justification than a minor one. However, as the court noted, “[w]hen all is said and done though, once we are sure that the sentence resulted from the reasoned exercise of discretion, we must defer heavily to the expertise of district judges.” Id. at 193.

The court noted that, in appropriate circumstances, a district court may rely on categorical factors to increase or decrease sentences, and, in particular, the environment in which a crime was committed may inform a district court’s decision as to the appropriate punishment. Id. at 195. The district court here justified its decision to impose a sentence above the Guidelines as necessary to satisfy the § 3553(a)(2) factors on two separate grounds: (i) non-specific geographical and demographic fact that New York City is a large metropolitan area and (ii) New York’s stricter gun regulatory scheme, which, according to the district court, justified a more severe penalty to produce adequate deterrence.

The Second Circuit was divided on the permissibility of the first ground relied upon by the district court, but found it unnecessary to resolve the disagreement because the second ground, deterrence, provided an “independently sufficient justification” for the district court’s decision to impose a non-Guidelines sentence. The court noted that the district judge had addressed the issue of unwarranted sentencing disparities, a major concern of the panel of the Second Circuit, and that the district judge concluded that sentencing disparities among different federal districts were warranted by factors such as the greater need for deterrence in New York, which has a profitable black market for firearms. Id. at 197. In light of the deference owed to district courts, especially after the decisions in Gall and Kimbrough, the Second Circuit found that the district court’s deterrence-based rationale “easily suffices” to justify the non-Guidelines sentence it had imposed. Id.
 

(With appreciation to Beth L. Weisser, Esq., for contributing this entry)

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Federal judges sentencing white collar defendants are increasingly disregarding the guideline calculated/recommended sentences and focusing more on the defendants and their actions. In a recent decision issued by Judge Droney of the United States District Court for the District of Connecticut, the Court sentenced one of the defendants to two years in prison, rather than the guideline-recommended life in prison. See United States v. Ronald E. Ferguson, 3:06 CR 137 (D. Conn., Oct. 31, 2008).

In Ferguson, the defendants, who were executives at General Reinsurance Corp. (“Gen Re”), were charged with seven counts of securities fraud, five counts of making false statements to the SEC, and three counts of mail fraud. The charges arose from a loss portfolio transfer (“LPT”) reinsurance transaction negotiated between Gen Re and AIG. The defendants, including Ferguson, were all executives of Gen Re at the time of the transaction and were convicted on all counts.

The base offense level for Ferguson was 7. United States Sentencing Commission Guidelines, § 2B.1.1 (Nov. 2007). A significant factor in calculating sentences was the amount of loss the caused by the fraud. Id. The maximum loss under the guidelines, $400 million, causes the offense level to increase by 30 levels. Id. A second important factor is the number victims that the fraud involved, with 250 or more victims resulting in an increase by 6 levels. Id. at 2B.1.1(b)(2).
The amount of loss was calculated by the Standard Event Study method. The method analyzed the reaction of the stock price of AIG on the specific dates that news about the LPT transaction was reported by the media. See Ferguson, "Ruling on Loss Calculation, Victim Enhancement, and Restitution," at 10 [Doc. # 1164]. As a result, the sentencing court found that the loss attributed to the fraud was between $544 million and $597 million, causing a 30 level increase in the sentence. Id. at 11. Also, the number of shareholders far exceeded 250, resulting in another increase of 6 levels. Id. at 16. Thus, the guidelines called for an offense level of over 43, recommending life in prison.

Judge Droney, however, sentenced Ferguson to two years' imprisonment. The Court, noting the outpouring of support for the defendant, was clearly influenced by recent Second Circuit jurisprudence affirming trial court's substantial variance downwards from lengthy sentencing terms suggested by the Sentencing Guidelines. See United States v. Adelson, Nos. 06-2738-cr(L), 06-3179(XAP) (2008). Thus, some judges, in sentencing white-collar defendants, appear open to arguments which focus on the defendant and not simply on mathematical computations.
 

(With appreciation to Amit Shah, Esq. for contributing this entry)

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