664 F. App'x 212
3rd Cir.2016Background
- From 1993–2008 SPI/CDS (non-DBE companies controlled by Nagle and Fink) used a certified DBE (Marikina) as a pass-through to win ~336 federally‑sponsored construction subcontracts worth ~$135 million; SPI/CDS performed the work and paid Marikina a fixed fee.
- Nagle (trial) and Fink (plea) were convicted of offenses including conspiracy, wire/mail fraud, and money laundering for fraudulently procuring DBE contracts.
- At initial sentencing the Probation Office treated loss as the full face value of the fraudulently procured contracts; the District Court adopted that view and calculated very large loss amounts, later granting downward departures and imposing prison terms.
- On appeal in 2015 (Nagle I), this Court held the District Court must subtract the fair market value of services/materials provided from the contract face value when calculating loss under U.S.S.G. §2B1.1, and remanded for recalculation with attention to DBE program goals.
- On remand the District Court calculated loss as the net profits SPI/CDS earned from those DBE contracts (i.e., profits diverted from legitimate DBEs) and reimposed sentences; defendants appealed the loss calculation.
- The Third Circuit affirmed: fair market value credit does not include defendants’ profits; where measuring the full economic harm to the government is infeasible, the defendants’ gain (net profit) is a reasonable alternative loss measure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper measure of "loss" under U.S.S.G. §2B1.1 for DBE‑procured contracts | Gov't: loss may be the face value when the program benefit is diverted; but on remand the Government accepted computation issue and loss should be established by proof | Nagle/Fink: credit fair market value of services rendered; equate "fair market value" with contract price — so loss is zero or only profits should be excluded | Court: Loss = face value minus fair market value of services/materials; profits are not part of fair market value. When actual loss cannot feasibly be determined, the defendants’ gain (net profits) is an appropriate alternative measure. |
| Whether "fair market value" includes defendants' profits | N/A (Gov't did not insist on profits inclusion on remand) | Defendants: fair market value = contract price, includes their profit; thus no loss or smaller loss | Court: Fair market value is the willing‑buyer/willing‑seller price for goods/services and does not include fraudulently obtained profits; profits need not be credited as services rendered. |
| Whether alternative loss measure may be the defendant’s gain when measuring what the government would have paid is impracticable | Gov't: complex to compute differential; gain can be used when loss not reasonably determinable | Defendants: argued for zero loss (contracts fully performed) or at least offset by contract price | Court: §2B1.1 cmt. n.3(B) permits using gain as alternative when actual loss cannot reasonably be determined; here, duration and number of contracts make other measures infeasible, so net profit is acceptable. |
| Whether District Court abused discretion denying Fink a downward variance for age | N/A | Fink: sentence substantively unreasonable; should receive variance due to advanced age and health needs | Court: District Court considered and rejected age‑based variance; no abuse of discretion; sentence reasonable. |
Key Cases Cited
- United States v. Nagle, 803 F.3d 167 (3d Cir. 2015) (remanding and instructing loss = contract face value minus fair market value of services/materials)
- Amerada Hess Corp. v. C.I.R., 517 F.2d 75 (3d Cir. 1975) (classic willing‑buyer/willing‑seller formulation of fair market value)
- United States v. Dickler, 64 F.3d 818 (3d Cir. 1995) (in reciprocal value transfers, victim’s loss is value given minus value received)
- United States v. Martin, 796 F.3d 1101 (9th Cir. 2015) (difference between actual payment and competitive price can measure loss in procurement fraud)
- United States v. Maxwell, 579 F.3d 1282 (11th Cir. 2009) (describing DBE program goals in procurement context)
- Chatlos Sys., Inc. v. Nat’l Cash Register Corp., 670 F.2d 1304 (3d Cir. 1982) (contract price may be relevant to fair market value but is not controlling)