United States v. Crummy
249 F. Supp. 3d 475
D.D.C.2017Background
- Walter Crummy pled guilty to conspiracy to commit wire fraud for steering two Coast Guard contracts (totaling $1,631,377) to MCC through a sham relationship with an SBA Section 8(a) firm (C1).
- MCC was not an 8(a) participant; C1 was nominal prime and MCC actually performed most work, paid through joint accounts and a 97% subcontract arrangement that violated SBA subcontracting rules.
- MCC performed the contracts but ultimately incurred an actual loss (no profit) on both Coast Guard contracts.
- Sentencing dispute centered on how to calculate "loss" under U.S.S.G. §2B1.1(b)(1): government argued loss equals full contract value (and that 15 U.S.C. §632(w)(1) supports that), defense argued loss should be reduced by fair market value of services rendered per Application Note 3(E)(i).
- Court (Judge Ketanji Brown Jackson) followed the Fifth Circuit approach: Section 8(a) contracts are not "government benefits" for Note 3(F)(ii), the general procurement-fraud rule applies, and loss is reduced by the fair market value of services rendered — resulting in total loss of zero and a Guidelines range of 0–6 months (after adjustments).
Issues
| Issue | Plaintiff's Argument (Gov't) | Defendant's Argument (Crummy) | Held |
|---|---|---|---|
| Whether Section 8(a) contracts qualify as "government benefits" under U.S.S.G. §2B1.1 cmt. n.3(F)(ii) | Contracts are government-administered benefits; loss should be at least full contract value | Section 8(a) contracts are procurement awards, not grants/entitlements; general loss rule governs | Held: Not "government benefits" for §2B1.1 purposes; general procurement-fraud rule applies |
| Whether loss equals full contract price or should be reduced by value of services rendered (Application Note 3(E)(i)) | No reduction; must not credit services for fraudulently obtained contracts | Loss must be reduced by fair market value of services rendered before detection | Held: Loss is contract price minus fair market value of services; credits-against-loss applies |
| Effect of 15 U.S.C. §632(w)(1) (SBJA presumption) on Guidelines loss calculation | Statute creates presumption that loss = total contract value and displaces credits | Statute does not displace Guidelines' credit rule; at most sets baseline that can be reduced | Held: Even if §632(w)(1) sets a presumptive baseline, it does not preclude reduction by services rendered under Note 3(E)(i) |
| Whether non-pecuniary harms to program integrity require treating loss as full contract value or warrant upward departure | Programmatic harm and diversion of contracts justify treating loss as full value or upward adjustment | Non-pecuniary harms can be addressed by departure/variance; §2B1.1(b)(1) measures pecuniary harm only | Held: Non-pecuniary harms do not convert loss metric; court may consider upward departure/variance separately but none warranted here |
Key Cases Cited
- United States v. Harris, 821 F.3d 589 (5th Cir.) (procurement fraud under Section 8(a) is governed by general rule and subject to credit for services rendered)
- United States v. Martin, 796 F.3d 1101 (9th Cir.) (crediting services rendered avoids treating fraud as equivalent to theft and guides loss calculation)
- United States v. Nagle, 803 F.3d 167 (3d Cir.) (calculating loss by subtracting fair market value of services from contract face value)
- United States v. Maxwell, 579 F.3d 1282 (11th Cir.) (contrasting view treating set-aside contracts akin to entitlement payments)
- United States v. Leahy, 464 F.3d 773 (7th Cir.) (earlier circuit decision treating contracts as government benefits)
- United States v. Bros. Constr. Co. of Ohio, 219 F.3d 300 (4th Cir.) (earlier decision on recovery of contracts under prior Guidelines)
- Gall v. United States, 552 U.S. 38 (2007) (district courts must correctly calculate Guidelines range as starting point)
- Stinson v. United States, 508 U.S. 36 (1993) (Guidelines commentary is authoritative absent inconsistency with statute or Constitution)