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Alain Leibman writes:

In a previous post, we explored the views of the Tenth Circuit, seconded by the Second Circuit, that a sentencing court could reduce the "tax loss" charged against a defendant by crediting him with deductions not taken on the filed but false tax returns. As noted there, the Seventh Circuit held the contrary view that no offsetting deductions could be recognized.

Appellant in a recent Seventh Circuit case cited to the views of the Tenth and Second Circuits in an effort to persuade the former to overrule its precedent on this issue. He was, however, unsuccessful. In United States v. Psihos, 683 F.3d 777 (7th Cir. 2012), the defendant restaurateur pled guilty to several counts of false subscribing based on his understatement of receipts for one of his restaurants. Unfortunately for him, as part of his effort to sell the restaurant, he and his broker provided prospective buyers with records of sales activity which were at odds with his filed returns' report of such activity. IRS agents, posing undercover as prospective buyers, were provided with that discrepant receipt information, which led to searches of the restaurant and of off-site storage locations, all of which yielded a fairly complete second set of books for the restaurant.

Facing sentencing, Psihos argued that the unreported receipts should be offset by amounts he paid in cash payroll, cash transfers to another restaurant, cash payments for food to the other restaurant and so on. Both the trial court and then the Court of Appeals rejected his efforts to reduce the tax loss. The Court of Appeals reaffirmed the correctness of its earlier decision in United States v. Chavin, 316 F.3d 666 (7th Cir. 2002), which held that intended tax loss, and not actual loss to the IRS, was controlling under Section 2T1.1 of the Guidelines, making previously unreported deductions irrelevant. To Psihos's argument that the Tenth and Second Circuits had the better analysis of the relevant Guidelines section, the Court of Appeals pointed out that even if it followed those other courts, Psihos would do no better because he lacked contemporaneous supporting documentation for his proposed deductions, necessary to have them applied to reduce loss. So the keeper of a double set of books was a double loser, either applying existing and reaffirmed Seventh Circuit law or applying more favorable law from other circuits.
 

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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Alain Leibman writes:

Generally, governing ethics rules permit joint representation under circumstances where, at minimum, the affected clients have full knowledge of the potential for conflict of interest and knowingly waive any such conflict. Thus, it is not rare in civil litigation for one attorney to represent multiple parties or for attorneys from the same firm to jointly represent multiple parties, as long as appropriate disclosure, consent, and waiver has been put in place. It is quite a different matter in criminal cases, though. While the Sixth Amendment does assure a defendant the right to counsel, both Supreme Court precedent and the Federal Rules of Criminal Procedure require district courts to engage in a searching examination of the potential for conflict and of the particular dangers which joint representation poses for the integrity and fairness of the proceedings.

Under Fed. R. Crim. P. 44(c), a court is required to make inquiry in cases of joint representation, regardless of the expressed wishes of the defendants themselves. The Rule establishes a rebuttable presumption that joint representation is inappropriate; it provides that "[u]nless there is good cause to believe that no conflict is likely to arise," the court must take "appropriate measures" to preserve each defendant's right to counsel. In the Supreme Court case of Wheat v. United States, 486 U.S. 153 (1988), the Court held that an individual defendant's right to counsel of choice may be overcome merely by a showing of a "serious potential for conflict."

A recent illustration of the point is presented in United States v. Self, 681 F.3d 190 (3rd Cir. 2012), in which two brothers initially retained counsel from the same, small law firm. All disclosures and waivers necessary to meet the governing ethics rule were in place. After being questioned by the district court, the lawyer for one of the brothers had a change of heart and moved to withdraw from the case, agreeing that no ethical screen could practically be established to avoid a conflict between the two brothers and their partnered lawyers. After the first attorney was allowed to withdraw, the court turned its attention to the second attorney. While the second attorney insisted that his representation of the second brother would be unfettered by his firm's former representation of the first, he had during the joint representation period curiously changed positions on an important scheduling issue involving the timing of the trial; after indicating to the court that the second brother wanted to go to trial immediately, attorney number two then told the court that he had no objection to a continuance requested by his partner, attorney number one, for the first brother.

This flip-flop on the timing of the trial led to the second attorney's being involuntarily disqualified by the district court, and led the Third Circuit to uphold the ruling. Citing Wheat's concern with the "special dangers" presented by joint representation in a criminal case, the Court of Appeals found no abuse of discretion in the disqualification of the second attorney since there remained a serious potential conflict by virtue of his loyalty to the firm's former client, the first brother. The court's opinion relied heavily on the "puzzling decision" to first insist on proceeding to trial and then failing to oppose a motion to continue the trial when that motion was brought by the partner-attorney for the first brother.
 

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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Jana C. Volante writes:

Courts of Appeal have increasingly explored their authority to review variances under the Sentencing Guidelines for both procedural and substantive reasonableness and, using those rubrics, to impose limitations on the discretion of lower courts. For example, on March 12, 2012, the Ninth Circuit handed down its opinion in United States v Ressam, 2012 WL 762986 (9th Cir. Mar. 12, 2012). In Ressam, the Ninth Circuit provided a thorough step-by-step analysis regarding appellate review of the substantive reasonableness of a sentence imposed by a federal district court under the now advisory Guidelines. Then, the Ninth Circuit vacated a sentence in which a convicted terrorist had received a far shorter prison term than the range suggested by the Guidelines.

Ahmed Ressam was apprehended as he carried out a plan to detonate explosives in LAX airport. After being convicted of nine different counts, but before being sentenced, Ressam entered into a cooperation agreement with the government. However, after briefly cooperating, Ressam refused to cooperate any further and recanted the testimony that he had given while cooperating. Despite this breach of the cooperation agreement, the district court judge sentenced Ressam to 22 years in prison and five years of supervised release, a very substantial downward variance from the applicable range of 65 years to life under the Guidelines.

On an appeal heard en banc, the Ninth Circuit embarked on an extensive analysis regarding whether the sentence imposed on Ressam was substantively reasonable in light of the factors set forth in 18 U.S.C. § 3553(a), using an abuse-of-discretion standard of review and looking at the totality of the circumstances. According to the Ninth Circuit, when a sentencing judge determines that an outside-Guidelines sentence is warranted, he/she must consider the extent of the deviation and ensure that the justification is sufficiently compelling to support the degree of variance in light of the § 3553(a) factors.

According to the Ninth Circuit, Ressam’s sentence did not adequately reflect the seriousness of his offense, one of those factors. If his plan to blow up LAX had succeeded, he would have killed hundreds of people. Furthermore, many common criminals have been sentenced to much longer prison terms for offenses with much less serious consequences. The district court should also have considered the need to protect the public from further crimes. Under the sentence imposed by the district court, Ressam would be released from prison at the age of 51, an age when he would still be capable of organizing another terrorist attack. Because terrorists have a high likelihood of recidivism, are difficult to rehabilitate, and, thus, must be incapacitated to prevent future crimes, there is a substantial upward adjustment that the Guidelines provide for federal crimes of terrorism.

The Ninth Circuit also indicated that it is appropriate for a district court to consider a defendant’s cooperation when sentencing him. However, Ressam did not begin cooperating until he had been convicted by a jury and faced life in prison, leading to the conclusion that he did not cooperate out of sincere remorse or with an altruistic motive, and he then breached his agreement with the government.

Under Ressam’s cooperation agreement, even with his full and continuing cooperation, both parties committed to a prison sentence of “not less than 27 years.” The Ninth Circuit held that even if it was determined that Ressam should be given some credit for his cooperation in the absence of a government downward departure motion, he was not entitled to nearly enough credit to justify the substantial downward variance that would result if the district court’s 22-year sentence was to be affirmed.

Because the district court based its sentence on several findings that were clearly erroneous, the Ninth Circuit vacated the sentence imposed by the district court as being not substantively reasonable. District judges who effect significant variances from the Guidelines should increasingly expect that at some point, when the extent of the variance is great, appellate courts will place some boundaries on just how low (or, perhaps, high) they can go.
 

(Jana C. Volante, Esq., the author of this entry, is an associate with Fox Rothschild LLP, based in our Pittsburgh, PA office. Her practice concerns white collar criminal defense and commercial litigation)

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Federal prosecutors are seemingly encouraged by the DOJ to use their leverage to extract concessions from defendants who wish to limit their sentencing exposure in connection with negotiated pleas of guilty. Compelled waivers of the right to appeal have become de rigueur; fact stipulations with sentencing consequences are often demanded and waivers of Booker variance arguments are often sought, without little or no court oversight or review. But, sometimes, the government can go too far even in the view of courts which typically do not wade into areas of prosecutorial discretion.

The Second Circuit recently halted such a practice of prosecutorial overreaching, which had prevailed in at least one district. In United States v. Lee, 2011 WL 3084958 (2d Cir., July 26, 2011), a sentence in a drug case was vacated on appeal as procedurally unreasonable because the government had refused to seek a third level reduction for acceptance of responsibility. Its rationale, rejected by the court of appeals: at sentencing Lee had contested the basis for a single upward adjustment set forth in his presentence report, which necessitated a hearing, and as a result required the government to expend the effort to prepare for that hearing.

Under Sentencing Guidelines § 3E1.1(b), a sentencing court may reduce the total offense level by a third level or point for a defendant pleading guilty if he has timely notified the government of his intention to plead guilty, thereby “permitting the government to avoid preparing for trial ….” The Guidelines require a government motion for that third level of reduction, but under the case law that motion cannot be withheld for unconstitutional reasons or in bad faith. The Second Circuit first held that a plain reading of the section makes clear that, as long as the government is spared the effort of preparing for “trial,” it may not withhold its motion because of work it was obliged to undertake for sentencing. But the Court went further, resting its holding on a higher ground: the defendant “should not be punished” for exercising his due process right to reasonably contest errors in his presentence report; the government’s refusal to move under such circumstances was unlawful, an abuse of authority, and “grounds for reproach.”

Perhaps more federal courts will in the same way exercise oversight and undertake review as to other provisions imposed on defendants and their lawyers in an effort to limit their advocacy for a fair and reasonable sentence.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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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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Prior to Booker, the prosecution held the exclusive ability to trigger a downward departure for cooperation, that is to say, if the government could not be persuaded to file a 5K1.1 motion, then, absent a showing of a bad faith refusal to do so, the defendant had no hope of a departure. As Booker has changed the landscape generally, so it has specifically in the area of sentence reductions for cooperation. A government motion is no longer necessary to secure such a reduction, according to the Sixth Circuit in an opinion released on March 9th.

In United States v. Blue, 557 F.3d 682 (6th Cir. 2009), the defendant had argued unsuccessfully in the District Court that she was entitled to a 5K1.1 motion which the government had withheld as a result of unspecified cooperation. The Court of Appeals agreed with the District Court that the government's failure to move was not undertaken in bad faith, so affirmed on that point. However, the better argument to have been made below was not made there -- the defendant had failed to argue in the trial court, however, that under Booker, the court could have considered her cooperation under 18 U.S.C. § 3553 in imposing a below-Guidelines sentence. That failure effected a waiver of the point in this particular case. But the Court of Appeals held more broadly that a 5K1.1 motion is no longer necessary before a sentencing judge may sentence below the advisory Guidelines range. That kind of downward variance is available whether or not the prosecutor seeks it.
 

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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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