United States of America v. Juncal

Filing

OPINION, Concurring, by S. UNDERHILL, copy to pro se appellant, FILED.[997025] [10-1800, 10-2047, 10-3314]

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UNDERHILL, District Judge, concurring:

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Although I agree that appellants’ sentences should be vacated and remanded for

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procedural error, the real problem is that those sentences are shockingly high. For that reason, I

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would reach the question of substantive reasonableness and would reverse on the merits.

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In my view, the loss guideline is fundamentally flawed, and those flaws are magnified

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where, as here, the entire loss amount consists of intended loss. Even if it were perfect, the loss

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guideline would prove valueless in this case, because the conduct underlying these convictions is

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more farcical than dangerous. If substantive review of sentences actually exists other than in

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theory, it must be undertaken at least occasionally. This would have been an appropriate case in

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which to do so, because it raises so starkly the problems with the loss guideline. Until this Court

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weighs in on the merits of the loss guideline, sentences in high-loss cases will remain wildly

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divergent as some district judges apply the loss guideline unquestioningly while others

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essentially ignore it. The widespread perception that the loss guideline is broken leaves district

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judges without meaningful guidance in high-loss cases; that void can only be filled through the

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common law, which requires that we reach the substantive reasonableness of these sentences.

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Ordinarily, we review a sentence to determine whether there was a procedural error in a

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district court’s sentencing before we consider “the substantive reasonableness of the sentence

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imposed under an abuse-of-discretion standard, taking into account the totality of the

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circumstances.” United States v. Rigas, 583 F.3d 108, 121 (2d Cir. 2009) (internal quotation

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marks omitted). That approach is wholly appropriate in the vast majority of sentencing appeals.

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Nothing, however, “prevents us from reaching both the procedural and substantive

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reasonableness of the sentence in the course of an appeal where we find both types of error.”

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United States v. Dorvee, 616 F.3d 174, 182 (2d Cir. 2010) (citations omitted). Indeed,

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addressing both procedural and substantive reasonableness in the same appeal can serve the

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interest of judicial economy. Id. It is also the only means of addressing systemic problems with

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the Sentencing Guidelines. In short, “because procedural error and substantive error are

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permeable concepts . . . postponing the consideration of substantive reasonableness [can be] a

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mistake and a missed opportunity.” United States v. Stewart, 597 F.3d 514, 515 (2d Cir. 2010)

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(Jacobs, C.J., concurring) (denying rehearing in banc).

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Substantive review of sentences provides “a backstop for those few cases that, [even if]

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procedurally correct, would nonetheless damage the administration of justice because the

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sentence imposed was shockingly high, shockingly low, or otherwise unsupportable as a matter

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of law.” Rigas, 583 F.3d at 123 (citation and footnote omitted). Not surprisingly, we have only

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rarely held that a sentence is substantively unreasonable. E.g., Dorvee, 616 F.3d at 181, 184

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(vacating “a within-Guidelines sentence”; “the amount by which a sentence deviates from the

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applicable Guidelines range is not the measure of how ‘reasonable’ a sentence is.

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Reasonableness is determined instead by the district court’s individualized application of the

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statutory sentencing factors” (citing Gall v. United States, 552 U.S. 38, 46-47 (2007))). In sum,

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we will set aside a district court’s substantive determination of the appropriate sentence only “in

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exceptional cases where the trial court’s decision cannot be located within the range of

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permissible decisions.” United States v. Cavera, 550 F.3d 180, 189 (2d Cir. 2008) (citation and

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internal quotation marks omitted). This is such a case.

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The twenty-year sentences imposed on appellants are not merely harsh, they are

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dramatically more severe than can be justified by the crime the appellants committed. This was

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a clumsy, almost comical, conspiracy to defraud a non-existent investor of three billion dollars.

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That scheme never came close to fruition. During his first meeting with Thomas Re, Emerson

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Corsey described Magnolia International Bank and Trust as the central bank for scores of Native

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American governments, including the Yamasee Indian tribe, which a Wikipedia search would

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have revealed as a tribal confederation that was broken up and defeated early in the 18th century.

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See http://en.wikipedia.org/wiki/Yamasee. It took only a brief Google search for Re and his

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associates to understand that the proposal “smelled” – which is why the appellants were recorded

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by Re for months before their arrest. At one point, Corsey provided Re with a certificate signed

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by John Juncal that listed CUSIP numbers for the T-notes; when Re shared the certificate with

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his colleagues, they responded by bursting into laughter. Even the terms of the proposed deal

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itself were laughable: the lender of three billion dollars would, according to the appellants,

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receive fourteen billion dollars in profit over five years. This scheme amounted to a series of

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absurd lies piled on top of even more absurd lies. Appellants’ conduct was not dangerous

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because they had absolutely no hope of success.

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A single factor — loss, specifically intended loss — drove the Guidelines calculation,

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and a single section 3553(a) factor — deterrence — provided the basis for accepting the

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Guidelines recommended sentence. A district court may not presume that a sentence within the

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Guidelines range is reasonable. Cavera, 550 F.3d at 189. Although the District Court used the

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intended loss amount correctly for purposes of calculating the Sentencing Guidelines range, the

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Court erred by failing to dramatically discount that calculation when weighing the section

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3553(a) factors against the totality of the circumstances of this case. This conspiracy to defraud

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involved no actual loss, no probable loss, and no victim. The scheme was treated as

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sophisticated, but could be more accurately described as a comedic plot outline for a “Three

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Stooges” episode. Because the plan was farcical, the use of intended loss as a proxy for

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seriousness of the crime was wholly arbitrary: the seriousness of this conduct did not turn on the

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amount of intended loss any more than would the seriousness of a scheme to sell the Brooklyn

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Bridge turn on whether the sale price was set at three thousand dollars, three million dollars, or

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three billion dollars. By relying unquestioningly on the amount of the intended loss, the District

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Court treated this pathetic crime as a multi-billion dollar fraud – that is, one of the most serious

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frauds in the history of the federal courts. See United States v. Parris, 573 F. Supp. 2d 744, 753

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(E.D.N.Y. 2008) (collecting sentences for major securities fraud convictions).

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The error of accepting intended loss as a proxy for the seriousness of this crime was

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“compounded by the fact that the district court was working with a Guideline that is

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fundamentally different from most and that, unless applied with great care, can lead to

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unreasonable sentences that are inconsistent with what § 3553 requires.” Dorvee, 616 F.3d at

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184. The loss guideline, like the child pornography guideline at issue in Dorvee, was not

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developed by the Sentencing Commission using an empirical approach based on data about past

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sentencing practices. As such, district judges can and should exercise their discretion when

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deciding whether or not to follow the sentencing advice that guideline provides. See Kimbrough

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v. United States, 552 U.S. 85, 109-10 (2007); see also United States v. Diaz, No. 11-Cr.-00821-

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2(JG), 2013 WL 322243 at *3-7 (E.D.N.Y. Jan. 28, 2013) (expressing disagreement with

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Guidelines ranges for drug trafficking offenses because they are not based on empirical data and

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national experience).

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The fraud guideline was initially set forth in Guideline section 2F1.1. The Sentencing

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Commission set the original 1987 Guidelines for economic offenses higher than historical

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sentences in order to further the deterrence and just punishment goals of sentencing. In 1989, in

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response to the savings and loan crisis, Congress passed legislation increasing the maximum

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penalties for financial fraud offenses and directing the Sentencing Commission to include

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specific offense characteristic enhancements in the fraud guideline. See Robert S. Bennett, et al.,

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Taking it to the Banks: The Use of the Criminal Process to Regulate Financial Institutions, 109

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BANKING L. J. 28, 28-34 (1992). In 2001, the Sentencing Commission amended the Guidelines

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to combine the fraud, theft and embezzlement, and property destruction guidelines into a single

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guideline, section 2B1.1. That change was accompanied by the publication of a new loss table

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that had the effect of increasing offense level calculations, especially for high-dollar-value

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crimes. See U.S. SENTENCING COMM’N, REPORT TO THE CONGRESS: INCREASED PENALTIES

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UNDER THE SARBANES-OXLEY ACT OF 2002 at 7 (2003). Most recently, the fraud guideline was

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amended in 2003 in response to Congressional directives in the Sarbanes-Oxley Act. Id. Those

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amendments included further changes to the loss table that added offense level points in the

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highest loss cases. U.S.S.G. app. C amend. 647 (Nov. 1, 2003). The three sets of amendments

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to the loss table of the fraud guideline alone have effectively multiplied several times the

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recommended sentence applicable in 1987 for large-loss frauds, which itself was set higher than

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historic sentences. Each of the three increases in the recommended Guideline ranges for fraud

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crimes was directed by Congress, without the benefit of empirical study of actual fraud sentences

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by the Sentencing Commission.

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The history of bracket inflation directed by Congress renders the loss guideline

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fundamentally flawed, especially as loss amounts climb. The higher the loss amount, the more

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distorted is the guideline’s advice to sentencing judges. As a well-known sentencing

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commentator has put it, “For the small class of defendants . . . convicted of fraud offenses

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associated with very large guidelines loss calculations, the guidelines now are divorced both

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from the objectives of Section 3553(a) and, frankly, from common sense. Accordingly, the

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guidelines calculations in such cases are of diminished value to sentencing judges.” Frank O.

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Bowman, III, Sentencing High-Loss Corporate Insider Frauds After Booker, 20 FED. SENT’G

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REP. 167, 168 (2008).

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When the Guidelines range zooms off the sentencing table, sentencing judges are

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discouraged from undertaking close examination of the circumstances of the offense and the

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background and characteristics of the offender. That certainly happened here. But the low

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marginal utility of the guideline in this very high intended loss case should have prompted

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greater, not lesser, reliance on the section 3553(a) factors other than the Guidelines. As one

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District Court applying the loss guideline put it, “Where the Sentencing Guidelines provide

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reasonable guidance, they are of considerable help to any judge in fashioning a sentence that is

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fair, just, and reasonable. But where, as here, the calculations under the guidelines have so run

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amok that they are patently absurd on their face, a Court is forced to place greater reliance on the

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more general considerations set forth in section 3553(a), as carefully applied to the particular

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circumstances of the case and of the human being who will bear the consequences.” United

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States v. Adelson, 441 F. Supp. 2d 506, 515 (S.D.N.Y. 2006), aff’d mem., 301 F. App’x 93 (2d

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Cir. 2008).

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In this case, it is impossible to describe the sentences imposed on appellants as

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substantively reasonable. In my view, none of the section 3553(a) factors, singly or in

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combination, can justify these shockingly high punishments, which are far greater than necessary

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to punish or deter appellants’ conduct. The District Court provided “no reason why the

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maximum sentence of incarceration was required to deter [the appellants] and offenders with

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similar history and characteristics.” Dorvee, 616 F.3d at 184. The bare assertion of the need to

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deter, unconnected to the background and characteristics of a defendant or the nature and

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circumstances of a crime, provides only superficial support for a sentence of imprisonment.

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Here, the factor of deterrence simply cannot “bear the weight assigned it under the totality of

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circumstances in the case.” Cavera, 550 F.3d at 191. None of the appellants had ever served a

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significant term of imprisonment and two of the three had spent no time in prison whatsoever.

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This raised the question whether a statutory maximum sentence is necessary to deter future

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wrongdoing. See United States v. Mishoe, 241 F.3d 214, 220 (2d Cir. 2001) (counseling district

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courts to consider previous terms of incarcerations and calibrating new sentences to reflect prior

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time behind bars). That is especially true here because appellants are older than most defendants

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and, accordingly, can be expected to have a lower risk of recidivism than most. See U.S.

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Sentencing Commission, MEASURING RECIDIVISM: THE CRIMINAL HISTORY COMPUTATION OF

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THE FEDERAL SENTENCING GUIDELINES

16 (2004). Indeed, one of the appellants will surely die

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in prison, if required to serve a sentence anywhere close to twenty years; although an effective

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life sentence, by definition, provides complete deterrence, imposing such a sentence for the

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conduct underlying this conviction would be senseless.

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The absence of any actual loss whatsoever and especially the absence of a victim

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significantly undercut any argument that this crime was particularly serious. Outside the context

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of Sentencing Guidelines calculations, intended loss is always less serious than actual loss, so its

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value as a proxy for seriousness of a crime must be carefully examined. And not all actual loss is

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equally serious. A fraud that results in the loss of even a few thousand dollars by an elderly or

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sick person who, as a result of the loss, becomes unable to afford the necessities of life or

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medical care is much more serious than a fraud that results in ten or a hundred times that loss by

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a large corporation able to absorb the financial consequences without a need to close plants, fire

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employees, or even declare the loss as material in public financial reports. Simply put, contrary

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to the assumption underlying the loss guideline, not all dollars of loss are fungible.

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Moreover, the convictions in this case were for conspiracy, which proscribes an

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agreement to commit fraud and punishes that agreement the same whether or not a fraud was

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actually committed. “[W]e punish unconsummated efforts to cause harm as ‘attempts’ or

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‘conspiracies’ (albeit usually less severely than completed crimes) so long as the would-be-

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perpetrator has come close enough to success that we can be confident his malignant designs

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were real and not mere fantasy, and thus that his conduct was morally blameworthy.” Frank O.

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Bowman, III, Coping with ‘Loss’: A Re-examination of Sentencing Federal Economic Crimes

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Under the Guidelines, 51 VAND. L. REV. 461, 559 (1998). The circumstances of these

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convictions put them very close to the boundary of mere fantasy (or perhaps the boundary of

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mental competence) and the sentences should have reflected that fact. As with most attempt

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crimes and unconsummated conspiracies, the actual loss here was zero. The wrongfulness of the

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appellants’ conduct does not turn in any meaningful sense on the amount that the conspirators

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sought to obtain; all other things equal, an effort to secure $3 billion for construction of an

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imaginary pipeline is not 100 times as serious as an effort to secure $30 million for construction

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of an imaginary factory. Accordingly, factors other than intended loss become critical in

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distinguishing the seriousness of unconsummated criminal conduct.

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District judges are not permitted to treat the Sentencing Guidelines as reasonable.

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Cavera, 550 F.3d at 189. The corollary of that proposition is that district judges have an

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obligation to consider whether a sentence other than a Guidelines sentence would be sufficient,

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but not greater than necessary, to serve the purposes of sentencing. 18 U.S.C. § 3553(a).

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Accordingly, district judges have an obligation to consider whether to depart from the Guidelines

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sentencing range or to impose a non-Guidelines sentence in every case. That duty will

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frequently require judges applying the loss guideline to evaluate whether the calculated

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Guidelines range substantially overstates the seriousness of a crime. See U.S.S.G. § 2B1.1

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application note 19(C) (“There may be cases in which the offense level determined under this

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guideline substantially overstates the seriousness of the offense. In such cases, a downward

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departure may be warranted.”). That duty went unfulfilled in this case, and the result was the

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imposition of shockingly high sentences on the appellants.

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The Court of Appeals missed an opportunity in this case to provide much needed

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guidance to district judges who must apply the misguided loss guideline. Thankfully, the District

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Court will have the opportunity at resentencing to undertake the difficult task of weighing all of

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the section 3553(a) factors under the circumstances of these cases to reach sentences that are

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sufficient, but not greater than necessary, to serve the purposes of sentencing.

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