United States v. Nathan

BECKER, Chief Judge, RENDELL GARTH, and Circuit Judges. OPINION OF THE COURT BECKER, Chief Judge. opinion

This addresses a number of sen- tencing presented issues by the consolidat- ed appeal of three defendants: Dennis Na- than, who pled guilty to importing goods into the United States that were not marked with the country origin of in viola- tion of 545; § U.S.C. Victor Lander, pled who guilty to unlawfully introducing into merchandise the United vio- lation of 542; § U.S.C. and Electrodyne Systems Corporation, pled guilty to violating Export the Arms Act, Control § U.S.C. making and false state- ments in violation of 18 § U.S.C. Only two of the issues are general inter- est precedential value. The first in- volves the proper definition of a “stipula- tion” under 1B1.2, § U.S.S.G. presence the of which may take a sentence to higher guideline level. We conclude that state- ments made during the factual por- basis tion of plea colloquy after plea agreement has been made are not stipula- tions for purpose 1B1.2, section Michael Critchley (Argued), John Mi- such statements cannot be said to part chael Vazquez, West NJ, Orange, for Ap- of a plea agreement. Because the District pellant Dennis Nathan. Court relied on such non-cognizable state- Lawrence S. Lustberg (Argued), Mark ments finding that Nathan and Lander Berman, A. Gibbons, Deo, Dolan, Del Grif- stipulated greater offense of finger & Vecchione A Professional Corpo- fraud, we will the judgment reverse ration, Newark, NJ, for Appellant Victor extent that it relied on the fraud guidelines Aron Lander. defendants. compa- foreign with agreements into tered whether concerns question

The second build Ukraine and the Russia compa- nies contracting defense of a president contracts. in the specified regard components with of trust position occupies ny for- disclosed Nathan must re- agreeing, so an issue the government, specifi- drawings, District Court eign manufacturers whether decide solve contracted technology adjustment cations, applied correctly Na- plan, conclude this trust. We To conceal position components. aof abuse Na- findings employees Electrodyne’s Court’s than instructed trust, compo- foreign held use of than to disclose trust, supported are foreign manufactur- breached nents, instructed willWe correct. legally are with record components to mark ers deci- Court’s the District affirm therefore his manufacture, and directed country lev- offense base Nathan’s to increase sion components to mark employees own For these ground. points two el manu- they had been ifas appear make in our follow the reasons reasons Nathan States. in the United factured fact-bound more other discussion foreign contracts these to disclose failed part, in us, affirm will before issues with register to failed and remand and part, in reverse a manufacturer Department as the State can be resen- defendant each so articles. defense exporter of tenced. thir- jury returned grand A federal History Electro- charging Procedural Facts and indictment I. teen-count alia, with, inter Nathan, Lander and dyne, Pleas Charges and A. Act Control Export Arms violating the a de- Corporation, Traffic Systems International Electrodyne (“AECA”) and specialized false company, (“ITAR”), making contracting Regulations fense Arms to the Unit- components military claims, goods providing smuggling and or fraudulent Elec- Nathan government. ed States A months few the United States. into vice-president. and president trodyne’s agreements, plea to written later, pursuant ' Be- marketing. of director was its Lander to various pled guilty three defendants all March and November tween pled Electrodyne indictment. of parts contracts into six Electrodyne entered items defense-related exporting guilty agen- States United provide making and AECA of the in violation military States the United cies and —in- U.S.C. of 18 violation false statements and Aeronautics National cluding 12 of guilty Count pled § 1001. Nathan (“NASA”) and Space Administration indictment, alleged that electronic Air Force—with States United United into the goods imported illegally research, com- to be used components mark the items he failed because States systems. radar, weapons munications, and in violation origin, country of with Electrodyne to required Each contract ato guilty pled Lander § 545. 18 U.S.C. Act, 41 Buy American -with comply in- alleging unlawful information one-count (1988), in each con- and § 10a-10d U.S.C. com- into merchandise troduction behalf) (on Electrodyne’s tract Nathan in violation merce .United (a) intended Electrodyne represented § 542. 18 U.S.C. in the components manufacture foreign (b) not use States; would Na- agreements, plea their part As use off- (c) and components; the government and and Lander than sites. manufacturing shore They stipulations. a schedule drafted applicable stipulated statutory and contractual Despite their guideline, smuggling was the guideline en- Nathan obligations, which is found 2T3.1,1 at section and that Admiral Layman Lawrence of the United the government would not an upward seek States Navy stating that no American departure for either defendant. They also troops put had been in danger by Nathan’s stipulated that Nathan’s and Lander’s ac- disclosure of information. addition, In tions did not threaten national security. government researched whether the defen- plea Nathan’s agreement, the govern- dants had divulged any sensitive informa- ment stated that it did not suffer a tax loss tion (i) and concluded: that they had not as a result of Nathan’s conduct. Finally, revealed (ii) sensitive information; that all each of Nathan’s and agreements Lander’s relevant information was already in the recited that the schedule attached to the public domain; (iii) parts agreement contained all of stipula- their supplied by the tions and defendants changes govern- to the agree- ment had ment agencies to be in writing signed by defective. In its both the defendant and the government. sentencing memorandum, government: (1) represented that

At all plea affected hearing govern- for Nathan and Lan- der, ment agencies the District approved Court questioned plea them on agree- their understanding ment; (2) agreement, conceded that the defendants then asked each of them provide a had taken prevent action to classified ma- factual basis for plea, using questions terial from disclosed; being (3) noted contained a government plea memoran- that some of the components imported by dum. During this questioning, Nathan ad- the defendants actually represented a flow that, mitted when he entered into a con- of technology into, rather of, than out tract with the Naval Research Laboratory United States. (“NRL”) provide to it with amplifiers, he

knew that Lander had ordered the amplifi- prior Also to sentencing, the U.S. Proba- ers from a Ukrainian company. He also tion Office submitted a proposed Presen- admitted that he had instructed Electro- tence Investigation Report (“PSI”). The dyne’s employees to obscure markings in- PSI recommended that Nathan and Lan- dicating foreign manufacturing and to affix der be sentenced under the fraud guide- Electrodyne labels to the amplifiers in an (section lines 2F1.1), rather than the effort to deceive the NRL. Lander in turn (section smuggling guidelines 2T3.1). The conceded that Electrodyne had contracted PSI that, acknowledged under section with the Ukrainian company, that he had 1.2, IB the more severe guidelines fraud instructed the Ukrainian manufacturer not would in normal to circumstances apply mark components the in a way that if Nathan indicated and they stipulated where Lander made, were and that the he had greater informed fraud, the offense of opined manufacturer that but that Electrodyne would all relabel their ship- future statements during the District ments of amplifiers to indicate that the Court’s “factual basis” inquiry at plea the amplifiers were made in the United States. hearing stipulations were sufficient es- Lander admitted that knowingly assist- tablish fraud offenses. The PSI sug- also ed Electrodyne in deceiving the United gested that the case was “atypical” under government. States Appendix A of Guidelines, the such that the fraud guidelines might at all events

B. The Sentencing Proceedings apply. Both Nathan’s and Lander’s coun- 1. The Factual Record objected sel to a number of paragraphs in Prior to sentencing, Nathan the addition, submitted PSI. In Lander informed the to the Court a report from Retired Rear Court that he intended to move for a 1. Appendix A of the § U.S.S.G. lists 2T3.1 as of 18 §§ U.S.C. 542 and 545. applicable guideline section for violations fraud “stipulations” to be colloquy based at departure downward guidelines fraud offenses, rendering the refugee. political as a his status upon that Second, stated the Court applicable. a revised issued Office Probation under defendants if it sentenced even to recommend continued The PSI PSI. reach guidelines, smuggling apply, should guidelines fraud that the on relying sentence ultimate the same defen- conceded implicitly now and 2T3.1 section Note Application stipula- not were admissions verbal dant’s 5K2.0. section for Lander PSI example, For tions. up an provides Note Application stipulation, “Although stated, where be warranted may departure defendant’s ward posits office probation evaded the defendant and admissions, oath the items under verbal whose least, items or, import duties paying record, persuasive more are limited, since prohibited a more serious stipulation import aas binding reflect adequately ¶ may (emphasis evaded PSI duties Lander offense.” deter Court society. The revised Nathan’s harm added). addendum An by Nathan evaded sec- duties applied that, if the court mined argued PSI 2F1.1, adequately reflect Na- did not section Lander than and 2T3.1 rather tion dismissed depar- society and upward subject to harm could be than accurately more the indictment ground 5K2.0 counts section under ture Na Finding that harm. inadequately measured guidelines smuggling that the with shared of- Lander Nathan’s than seriousness captured that was information Russia Ukraine fense. States known,” see United generally “not Electro- Court sentenced F.Supp.2d Corp., Sys. Electrodyne probation, term five year to a dyne II), (Ele ctrodyne (D.N.J.1998) 213, 268 three fines, restitution $1,000,000in defen stated repeatedly cash part agencies, security national conduct threatened dants’ timely filed in kind. part see, troops, safety United on the judgment appeal notice this 268, 269, 270. On 262-63, e.g. id. at the lacked corporation the ground nine lev upward basis, departed the Court fines. pay such ability level offense 2T3.1’s base section els F.3d Corp., Systems v. Electrodyne determined also The Court of four. I), va Cir.1998) (Electrodyne vis-a-vis trust in a was Nathan remanded fine and $1,000,000 the cated mili received because he government District Court to the instructions

'with trust abused data, and that tary compa findings detailed more make foreign man with sharing the information ability pay. ny’s points two added It therefore ufacturers. sec with in accordance offense level to his Sentences The Present actual describe nowWe tion 3B1.3. Lander, and Nathan sentencing for At Lander, Nathan, then first sentences: defendants’ and the both Electrodyne. then sentence the Court attorneys asked that Na- concluded District Court The agree- plea their with them accordance fraud under level offense base than’s so. It to do declined ments, Court loss be- six; guidelines it was sentences for two bases offered thus, in $500,000 $350,000 tween First, found that impose. about section out in set the table with accordance serious to a more stipulated parties had a nine-level 2Fl.l(b)(l), warranted Nathan Na- 1B1.2 based section under offense level; that he base offense of his increase ques- responses and Lander’s than’s for more increase a two-level deserved colloquy. plea posed tions in- a four-level planning minimal than out at came the facts deemed Court 3Bl.l(a) crease under section for his role itAs did Nathan, with the Court sen- as the leader organizer of an extensive tenced Lander in the alternative under the activity; criminal and that he should smuggling re- guidelines: it a calculated base ceive three-point reduction for offense accep- four; level of an increase of two tance of responsibility. points This calculation use of sophisticated means; a led to a total offense level of nine-level eighteen, upward departure for the atypi- with a criminal cal history I, (based nature of category offense on the Guideline security imprisonment range threats 27-33 seen have resulted from offense, months. The District imposed Court violations of the Buy thirty-month American Act sentence. AECA, and the and the fraud that the defendants committed); and The Court calculated an alternative sen- point two reduction for acceptance of tence for follows, Nathan as using the responsibility, for a total offense level of smuggling guidelines: a base offense level thirteen. The applicable imprisonment four; an increase of points two for use range under the smuggling guideline was sophisticated means; an increase of four months, 12-18 so the Court’s eighteen- points for his role offense; in the an in- month sentence atwas the very top of that crease of points two trust; abuse of range. upward nine-level departure for atypi- Before re-sentencing, Electrodyne ar- cal (based nature of the offense on the gued' agreed —and —-that national security threats resulting from the appropriate loss $189,- amount was offense, the violations of the Buy 255.65. Nevertheless, Court, American AECA, Act and the and the referencing the PSI’s statement fraud that the committed); defendants and Electrodyne had stipulated to paying a three-point reduction for acceptance of $369,105.70 in restitution, concluded that responsibility. The total offense level in the restitution amount served as an ap- the wake of these calculations is also eigh- propriate measure of loss. The District teen. above, As noted with a criminal Court calculated that restitution history I, category of the Guidelines im- broke down $170,660 as follows: was for prisonment range is months; 27-33 investigation reprocurement costs as- thirty-month imposed sentence was mid- sociated with two Air contracts; Force range. $139,200 reflected the value of a settle- ment agreement between the Air Force determined that Lander’s of- and Electrodyne relating to fense level one under the fraud guidelines was contracts, because the settlement agree- fourteen: his base offense level six; ment had been canceled a as result of loss was $350,000 between $500,- plea agreement; $2000 which, go was to under 2F1.1(b)(1), section calls Naval Research (“NRL”); for a Lab nine-level either increase of his base offense (a) $14,595.65 plus level; (b) three converters or deserved a two-level increase for $42,650.05plus one more converter was to go than minimal planning; and he NASA.2 The Court also should ordered receive a Electro- three-point reduction for dyne $500,000 pay in acceptance fines. of responsibility. With a crimi- nal history category I,of the Guideline All three defendants appeal from the imprisonment range was therefore 15-21 District Court’s sentencing determinations. months. The Court sentenced Lander to We jurisdiction have under 28 U.S.C. eighteen in months prison, which § was in 1291 and 3742(a). § 18 U.S.C. Nathan the middle of that range. argue Lander that the District Court 2. The District Court stated that the total [or have assumed full responsibility paying amount of restitution paid could restitution. defendants collectively. Electrodyne appears (2) 5, if the tax loss exceeded guidelines $100 fraud applying in

erred $1,000; or contend, not did exceed since, they their factual basis stipulation not a statements did constitute (3) 4, exceed the tax loss did not $100. if Second, fraud. greater offense of to the the “tax guideline, purposes For this did err in District Court assuming that the duty. is the amount of loss” they submit guidelines, the fraud using the District Court § 2T3.1. While U.S.S.G. in its abused discretion Court case was expressly determined departing upward smuggling under Appendix “atypical” in the context con- Nathan and section 5K2.0. guidelines II, A, at F.Supp.2d see conclusion that the District Court’s tests 244-45, that Nathan’s and Lan it did find Lander a of trust. he abused ques factual basis to the der’s answers not to de- objects to the decision Court’s (which stipulations fraud tions were as a on his status part downward based than seriously treat more Guidelines Electrodyne argues that refugee. political 2F1.1 and thus section smuggling) overvalued the loss the the District Court proper sentencing guideline. was the government and company caused to the concluding the Court erred perforce determine We must or future abil- Electrodyne had the current a mat Court erred as whether District $140,000. ity pay amount over Nathan’s and Lan by treating ter of law that, remand, argues Each defendant factual basis der’s oral statements assign the a different we should case to an over hearing “stipulations,” as issue judge. plenary have review. See Unit which we Morelli, 798, 803

ed 169 F.3d and Lander II. Nathan Cir.1999). yet has not This Court deter stipulation mined what constitutes 2F1.1 Sentencing Under Section A. lB1.2(a). § If the purpose of U.S.S.G. Guidelines): (Fraud Was There on which statements “Stipulation”? stipula of fraud were not finding based A a defendant court must sentence tions, applying the fraud then erred applicable under the most guideline smuggling guidelines rather than the (here, un smuggling) of conviction offense guidelines. (1) A of explained Appendix less: (i) that: Nathan and Lander contend Guidelines, “atypical” the case case statements at the PSI conceded that their guideline indicated such that section (ii) stipulations; plea hearing were inappropri statute of conviction is for the stipulations agreement and its attendant involved; or particular ate for conduct provision corners” contained “four (2) lB1.2(a), § parties under U.S.S.G. stipulations parties all between the stipulated to a more serious offense only be modi- contained therein and could plea agreement. written oral (in) writing; they signed never fied in- smuggling guideline’s The relevant gov- plea memorandum from which the troductory commentary states: “This Sub- questions at factual ernment asked its 18 part deals with violations of U.S.C. The does not colloquy. basis 541-45, 547, 496, de- §§ 548 ... and is that the District Court was correct argue reve- signed involving violations address responses Lander’s deem Nathan’s and regulation.” nue collection or trade The that, fact, “stipulations”; argues guideline text of the section 2T3.1 states: properly since the District Court sen- (a) Base Offense Level: 2T3.1, section tenced Nathan under However, (Tax Table) (1) § 2T4.1 need not resolve this issue. The level from loss, on the fraud clearly guidelines if tax Court relied corresponding to the tax II, $1,000; Nathan. See or loss exceeded F.Supp.2d at 251 (“Accordingly, In- [A court must determine] the offense dividual stipulated Defendants to the more guideline section ... most applicable to serious offense of fraud and Section 2F1.1 the offense of conviction.... Provided, Guideline.”). is the applicable We there- however, in the case plea aof agreement fore must determine the meaning (written “stip- of or made orally record) on the lB1.2(a) ulation” in the section context. containing a stipulation specifical- ly establishes more serious Supreme offense presented with than the conviction, offense of [the court (but decide) did meaning “stipu- of must] determine the offense guideline lation” in States, Braxton v. United section ... applicable most stipu- 344, U.S. 1854, S.Ct. 114 L.Ed.2d 385 lated offense. (1991). The version of section 1B1.2 that lB1.2(a) § U.S.S.G. existed in (emphasis added); stated: U.S.S.GApp. C, amend. 434. Application Provided, however, in the case of convic- Note 1 to this provides: section by tion plea guilty ... containing a a stipulation Where ... made between stipulation that specifically establishes parties on the record during a plea a more serious than the offense offense proceeding specifically establishes facts of conviction, [the court should] deter- that prove a more serious offense or mine the guideline offense section ... offenses than the offense or offenses most applicable to stipulated offense. conviction, the court is to apply the lB1.2(a) § added). U.S.S.G. (emphasis In guideline applicable most to the more Braxton, pled defendant guilty to as- serious offense offenses established. sault but not to attempted murder, though Id. at application note 1. there was no plea formal agreement. Section 6B1.4 Nevertheless, Guidelines, agreed with the version governs stipulations, states, proffered “A plea facts agree- by the government may ment be accompanied at plea hearing, a written which facts included a stipulation of facts basis relevant for an attempted sentencing.” murder charge. 6B1.4(a) § See id. (emphasis added). court, district which sentenced him The Commentary to under the this attempted section notes that guidelines, murder found—and the court appeals [b]ecause agreed— importance of the stipu- stipulated defendant had lations and potential complexity of more serious charge. Before the factors that Supreme can affect the determi- Court, the defendant argued sentences, nation of that a stipula- stipulations ordi- tion had to be part narily plea a formal should agree- be in writing. However, ment. The Court acknowledged exceptions to this practice circuit may be al- split on the meaning of lowed “stipulation” local rule. The Commission declined to resolve the question, pay intends to particular since the attention to Sentencing just aspect Commission had requested plea agreement proce- public comment experience dure whether as section under guidelines 1.2(a) IB should be develops. “amended provide expressly that stipulation such a must be added). Id. (emphasis Though the Com- part of a plea formal agreement.” See mission has not foreclosed the possibility Braxton, U.S. 111 S.Ct. 1854 that stipulations may oral, it clearly (quoting (1991)). 56 Fed.Reg. 1891 favors stipulations written over oral ones.3 the Sentencing Commission While neither the language of section lB1.2(a) amended section to read: lB1.2(a) itself nor the language of section 3. We note that the District Court for the Dis- rules providing stipulations. for oral trict Jersey of New has not established local

200 pleading ishe to which to those addition Nathan’s of whether dispositive is

6B1.4 defen- the reduce to offering In guilty. factu- the during statements Lander’s penal- the to exposure maximum dant’s section stipulations, al basis counts, prose- the conviction the ties in as stipulation a lB1.2(a)’s to reference admission an extract to is entitled cution plea the within contained something a substantial may justify that of facts state- that suggests strongly agreement But maximum. that within sentence are colloquies basis in factual made ments plea to a agrees Government the lB1.2(a) once speaks Section stipulations. not ad- such an extracting without bargain agree- plea a part of as stipulations of by defendant the mission, admitted facts section reading scrupulous A ment. hear- sentencing a or obviate to shorten all of that require 1.2(a), will IB of- “stipulated a establish not ing do part either be stipulations defendant’s meaning of section within fense” agreement, plea to his annexed or lB1.2(a). ex- toas the defendant to notice provide his offense underlying facts v. Gard actly what States 248; also see Id. United de- (re that the Cir.1991) will ensure (10th to and agreeing 591 ner, F.2d 940 his bar- the benefit de by receives fendant “knowing agreement a quiring IB 1.2 addition, though section that bargain, gain. plea fendant, part of a as plea agreements oral for provides offense serious itself a more supporting facts con- stipulations oral and, to presumably, presented could be occurred favor writ- therein, Guidelines apply tained section the court court” Ap- ones. McCall, oral stipulations over 915 ten v. lB1.2(a)); States United that suggests Cir.1990) also Note (2d plication (requiring 4 811, 816 n. F.2d reading sense a plea common give part should be stipulation any situa- Rutter, it refers such “stipulation,” v. itself); States United agreement specifically Cir.1990) (ex parties both (10th in which tions 1561 F.2d 897 record, agree, agrees explicitly once the plaining think thusWe facts. relevant extracting of the truth without plea bargain a compels of the Guidelines language the defendant by admission, admitted facts Lander’s Nathan’s conclusion conduct relevant as can considered as be construed not should guideline statements appropriate determining stipulations. under section stipulations range, Loos, v. lB1.2(a)). States United see But in the support our findWe (conclud Cir.1998) (7th 504, 508 F.3d v. States in United caselaw, especially section objective behind ing that Cir.1988). Guerrero, F.2d “stip reading lB1.2(a) achieved is best between stipulation a held that Guerrero acknowledgment mean ulation” counsel, en- and defense acts committed that he defendant fact-finding at to obviate into tered guideline), more serious justify use trigger hearing, did — U.S. -, S.Ct. denied, rt. lB1.2(a). court ce section proviso (1999); 1090, 143 L.Ed.2d lB1.2(a) that section explained Cir.1995) (5th 716, 722 Domino, F.3d contained stipulation only to applies resume —the factual (assuming that contendere, not nolo guilty plea of “factual basis” equivalent plea after negotiated stipulation ato stipulations). contain case—can Prior sentencing. with connection drafted parties case, where In this opportuni- has prosecution plea, explicitly to a document agreed accept a willingness ty to condition stipulations the relevant all of contained an indict- all counts to less than plea “deal” their them, it is clear that to between willingness the defendant’s ment con- stipulations only those encompassed crimes he committed stipulate

201 Though in it is tained that document. trae sentenced Nathan and in the Lander alter- Nathan, Lander, attorneys and them using native the smuggling guidelines. had, advance, plea in read the memoran from dum which the asked its Sentencing B. Under Section 2TS.1 basis, at factual see questions Electro Guidelines) (Smuggling II, dyne F.Supp.2d at 228 n. 20 & 231 n. above, As noted after sentencing 22, or signed the defendants never in it Nathan and guide Lander under the fraud way other assented it. Here the lines, the District Court held even if plea came out at the hearing facts at issue fraud, stipulate defendants did not it judge deciding itself while the whether would have reached the same sentence had accept plea, negotia rather than it used guidelines, the smuggling which plea accepted, after the tions had been guidelines were the to which the defen in Guerrero. We nevertheless conclude stipulated. II, dants had See Electrodyne plea agreements gov between the F.Supp.2d at 272. may Because court ernment com and the defendants were properly alternative, in the sentence we plete before the factual basis hearing, must analyze propriety sentence facts admitted the factual basis under section 2T3.1. See United States v. hearing way part in no govern of the Bermingham, F.2d 934-35 ment’s “deal” with and Lander. Nathan Cir.1988) (noting may that a court still significant gov We also think it that the affirm a despite sentence an alleged error attempt ernment did not to defend the in the application of the Guidelines when it District Court’s determination that Na clear that sentencing is judge would stipu than’s and Lander’s comments were imposed have the same sentence under the lations. alternative Guidelines proposed); scheme sum, In we conclude text that the Barnes, see also United States v. 185 F.3d lB1.2(a), especially section examined (9th 1999) (reviewing Cir. each of two light of changes the Commission made grounds alternative Guidelines on which section, from the earlier version of that defendant); District Court sentenced “stipulation” indicates that a statement is a United States v. Gonzalez-Lopez, 911 F.2d (i) only part if: it is a defendant’s (11th Cir.1990) (considering both of (ii) plea agreement;

written is explicitly it grounds District Court’s alternative (iii) thereto; annexed or the govern both both reversing explicitly ment the defendant agree grounds). hearing being factual basis that the facts put stipulations on the record are Having smuggling invoked the subject might provi a defendant guidelines, the District Court found that lB1.2(a). sions section upward departure Nathan’s and under section 5K2.0 Lander’s at the statements factual basis appropriate based on the “seriousness hearing not “stip II, do meet this definition of of the offenses.” ulation,” and we conclude that the District F.Supp.2d at 266. The Court relied on in finding 2T3.1, Court erred Application otherwise. Note to section states: rejected Because the District Court ground other on which it have could Particular attention be given should guidelines

relied invoke the fraud when those for which entry prohibit- items limited, ed, that the concluded defendants’ case was Especially or restricted. atypical A Appendix under when harmful protec- such items are or Guidelines, effect, we that the quotas hold District Court tive are the duties evad- in applying guidelines may erred the fraud adequately ed such items sentencing Nathan light society protected and Lander. reflect the harm to this, examine correctly whether he resulting importa- industries their States, v. United Koon under de- instances, upward an In such tion. 2035, 135 S.Ct. 98-99, 116 U.S. may be warranted. parture other bases (1996), the since L.Ed.2d the duties that concluded The Court

Id. improper. ade- not did defendants by the evaded the that responds government The they caused. the harm measure quately Note Application relied properly as- Court four that found the Court Specifically, like acts that to conclude 2T3.1 section to rendered conduct defendants’ the of pects war- defendant the committed those the case: smuggling “atypical” an case govern- The departure. upward an ranted the defrauded defendants the that fact at issue components that the stresses ment gain; financial own their for government as- defendants’ contrary to the were, here defendants of the the actions that fact the limited, restrict- or sertions, “prohibited, com- the future may in compromised says 1304(d), § which 19 U.S.C. ed” under the security United national the promise mark- proper bear do not that items that the they violated that fact States; the United into brought be may not ings the they violated that AECA; the fact that, be- It submits commerce. States them permitted Act, which Buy American the com- nature prohibited the cause over advantage an unfair financial gain that 2 suggests Note Application ponents, with the complied that companies those warranted. may be departure upward an have used appears Court The statute. ac- also Nevertheless, the framework aas guidelines fraud the the that alleged it never knowledges that upward an large how determine help it any threat posed actions defendants’ it reached since impose, departure security. national smug- under of 18 level offense total under it did 5K2.0 states: just as Section guidelines, gling 3553(b), sentenc- § U.S.C. guidelines. fraud Under outside impose a sentence may court ing up- object and Lander Nathan applicable by the range established First, reasons. several for departure ward “there finds that court if the guidelines, this case had found earlier Court cir- mitigating or aggravating an exists 2T3.1, and section under atypical not not kind, degree, atoor aof cumstance upwards departed not have should so consideration into taken adequately 5K2.0, to section Commentary light formulat- Sentencing Commission “sufficiently be a case requires in a result that should guidelines ing up- depart may court before atypical” described.” different sentence four bases Second, the Court’s ward. re- this section Commentary to Nathan Id. departure upward —that atypi- “sufficiently case be quires defrauded Lander As warranted. departure is they violated cal” before gain, financial own their anomaly matter, note an preliminary AECA BAA, violated they discussing whether thereunder, case. in this promulgated regulations out take it atypical sufficiently actions case was their importantly most under guidelines smuggling integrity operational threatened A, found Appendix not terms either military —were in- guidelines smuggling that, because or could by the record supported factually reve- involving target offenses tended atypical. offense their to render said not Na- regulation, or trade collection a nue four bases Third, one of if even stated, It atypical.4 case was than’s depart, upwardly which to basis proper matter instant “Accordingly, for re- remand must that we they argue involving reve- violations designed to address Commentary to section Introductory regulation.” trade or collection with viola- nue states, deals Subpart “This 2T3.I and is ... §§ 541-545 18 U.S.C. tions atypical as the Guideline section ordi- current future threat to national securi- narily applicable ty, to the offense of convic- its reference to fact that the defen- II, Electrodyne F.Supp.2d at tion.” dants shared information with the Ukraine For the Court to later find that the known, that was not generally and its de- sufficiently atypical is to warrant case termination that this harm was not ade- enigmatic. be- upward departure is We quately captured by the monetary duties that the Court’s can be lieve later decision defendants, evaded sup- there is no thought it theory reconciled port in the record for the District Court’s mechanically enough case similar was fact, In concerns. uniformly record is typical to a case it fall smuggling for explicitly contrary. gov- smuggling guidelines, within the but was (a) stipulated ernment that: there were no more smug- so much offensive than most products in defects imported by the upward that an gling departure cases (b) defendants; no confidential information warranted. Ukraine; disclosed Russia or the (c) the defendants’ posed acts no events,

allAt the District Court threat to security national safety or the sufficiently atyp decided that the case was the military. depart upward ical that it would from the We must base offense level. examine the importantly, More the government con- departure bases for the District Court’s sulted each affected agency under section 5K2.0 under an abuse it agreed accept before the defendants’ Koon, discretion standard. See 518 U.S. plea agreements, all of which In assented. 97-98, at 116 S.Ct. 2035. The dominant addition, in conceded its upward basis the District Court’s de sentencing memorandum that defen-

parture was its conviction that the defen dants taken pre- had affirmative action to security dants threatened the national vent being classified material from dis- of the United States. At It closed. also noted that some hearing, Court stated: components imported by the defendants I find the no [that there was represented into, a flow technology security safety threat to national or the of, rather than out the United States. any member of military] laugha- sum, the clearly District Court erred to Maybe ble.... [there was no threat to the extent it found that the defen- basis, security] strategic national on a dants’ conduct created threat to national crews, ships’ but for the in troops security and it abused its discretion place, pilots, certainly for the I did. departing upward on the ground that the think government’s] position [the flies defendants’ actions threatened national se- logic face of and I can’t and will curity, since there is no support accept it. record for that conclusion. Sent. Tr. at 14. In opinion, the Court Nor was the District Court correct wrote, “The actions of the Individual De- presence using the of fraud as reason to potentially fendant could compro- have find atypical. the instant case The Court mised, may compromise, the future stated, “The focus and intent of the con- operational safety military of the underlying duct ... crimes were to operational readiness and effec- and/or criminally and fraudulently deviate from communications, weapons tiveness of provisions the contract entered into with II, systems.” radar 28 the United States Government....” Elec- F.Supp.2d at 268. It repeated this theme II, trodyne F.Supp.2d at 268. Conceiv- See, e.g., several more times. id. 262- ing smuggling way as a to further 63, 269, 270. fraud, the Court the fraud as treated

Despite oft-expressed something the Court’s con- that made the defendants’ cern that posed smuggling atypical. defendants’ actions case articles defense that “no provides AECA problematic. of fraud use But this exported may be ... services defense or ele- some involves by definition Smuggling such license without imported further or fraud, occurs and often

ment 22 U.S.C. import....” or export pled Lander which statute fraud. offenses smuggling 2778(b)(2). The § § states: U.S.C. guilty, 18 in- pled guilty Lander Nathan ... into introduces enters Whoever knowingly conduct: self-same cluded the United commerce merchandise certain willfully bringing and any of by means merchandise imported or to law contrary the United States into invoice, declaration false or fraudulent the into merchandise introducing such statement any false of by means ... or by means States of the United commerce fraudu- or false any of by ... or means A viola- practice. or fraudulent false of a for each fined be ... shall practice lent the arche- arguably is AECA of the tion imprisoned this title or under offense offense. typal smuggling or both. years, two than not more anything is 545, which there § to that Likewise, extent U.S.C. the 18 To Id. makes that AECA of the states: a violation guilty, about pled Nathan offense, it smuggling atypical willfully, with act an such and knowingly Whoever to only applies AECA ... that the fact States the United is the defraud to intent na- services, which false, fraudu- articles forged, or defense ... passes How- may attach. concerns [wjhoever security fraudulent- tional or ... invoice lent any violations supra, brings ever, into as discussed imports or knowingly ly or chimeri- are case security con- this States, any merchandise national the United abused Court Therefore, under District be fined the cal. [s]hall ... law trary to it relied that extent its discretion this title.... find violation of AECA an presence that have noted courts A number Id. case. smuggling atypical be an case to this stat of that element to defraud intent “the intent that meaning stated as Court be construed the District Finally, should ute Buy cus States violations and defeat avoid defendants’ that the narrower harm than ...' rather additional Act created laws toms American the United deprive smuggling for under ‘intent not accounted construction ” v. States case rendering the See United thereby revenue.’ guidelines, States Cir.1998), (9th II, 851, 28 Robinson, Electrodyne 853 F.3d 147 See atypical. — U.S. -, 119 S.Ct. reasoned denied, Court at 270. F.Supp.2d cert. (1999); protect also United see BAA 346 L.Ed.2d enacted Congress Cir. de- Borello, that the industry, F.2d labor and American part of ad- a critical 1985). is commercial fraud unfair received Given fendants mere fact manufacturers smuggling, cheaper using crime vantage financially in fraud engaged profited they and Lander abroad, Nathan does civil violation is a smuggling BAA advantage. The part of their this atypical. violation smuggling penalty statute, render be shall a contractor simply that de- upward Court’s Third, District years for three contracts such awarded defen- on the part based was in parture See is detected. the violation after and the AECA of the dants’ violations § This facet 10b. had U.S.C. found that the Court ITAR, violations a small factor to be appears decision preponderance established been the Court’s given departure, II, upward in the See evidence. securi- to national threat on the However, emphasis as with at 269-70. F.Supp.2d events, allAt as fraud. ty, as well smug- defendants’ fraud, that the fact alone, would BAA, standing extent that does the AECA violated scheme also gling it could departure, upward ground a be atypical. The smuggling their not render not begin support one the magnitude that Nathan was provide able to plans to applied here. Russia and the Ukraine for the compo- question, nents in but Nathan reminds

Because the us District Court improperly plans those public. And determined that national security con- extent cerns, fraud, Court found and an AECA facilitation violation ren- based on Nathan’s order to dered this case an his employees atypical case, smuggling they conceal foreign will vacate markings, Nathan’s and Lander’s sen- contends that under tences offense was included smuggling guidelines “role adjustment remand for offense” further sentencing proceed- that to ings. The consider it here may consider on double- counting. remand whether their violations of the BAA caused harm to “society protected responds that quali-

industries” to an not captured extent by ty assurance representative was not as- the smuggling guidelines and, so, if wheth- signed to oversee the contracts in question er justifies this factor an upward depar- here. It also notes that position Nathan’s ture. allowed him to cover his by tracks direct- ing employees to cover over foreign mark- C. Abuse Position Trust of of ings, and it contends that the District In that determining Nathan should finding Court’s point does not con- receive a thirty-month sentence, the Dis stitute double-counting because the two trict Court concluded Nathan had different enhancements serve different position a abused of trust under U.S.S.G. sentencing goals: the aggravating role tar- § and, 3B1.3 in accordance with that sec gets those whose conduct uses others to tion, added points two to his total offense create more harm, extensive while the level. The opined Court that a double- abuse of trust role targets those defen- counting problem would arise if it en dants who abuse their positions. own hanced Nathan’s section 2F1.1 sentence government argues that we can affirm on based on of abuse a position trust, of the ground that Nathan’s abuse of trust concluded that it appropriate to en consisted of instructing his employees to hance his section 2T3.1 sentence for that cover foreign markings, and that we need factor. II, See Electrodyne 28 F.Supp.2d not address whether Nathan abused his at n. 260 3B1.3, Under section trust transferring military data. (i) court must find that the defendant was in a position trust; (ii) of that he We de review novo whether Na position abused of trust in a manner occupied than a position trust, of and we significantly facilitated the crime. review for clear error whether he used his See United Sokolow, States v. 91 F.3d position of trust to significantly facilitate (3d Cir.1996). the offense. See id.

Nathan argues that he and govern- ment should be treated merely as arm’s 1. Existence a Position Trust of length parties contract, to a and thus that In deciding whether a defen he specific held no position of trust. He dant position trust, holds a court must points out assigned consider: Electrodyne a quality represen- assurance tative, who was to (1) monitor Electrodyne’s position whether allows de- compliance with its contracts. fendant to commit a difficult-to-detect He also submits that if he (2) held such a wrong; degree of authority position trust, that position did not facil- which the position vests defendant itate the offenses here. The Court found the object vis-a-vis of the wrongful act; significant facilitation (3) based on the fact whether there has been reliance authority to de- similarly Nathan occupying person integrity on the fulfill company his how termine position. critical authority was contracts, which 1187, 1192 Pardo, 25 F.Sd v. States United fraud. of his success sec 1 to Cir.1994). Note Application Bennett, F.3d states: 3B1.3

tion filed, cert. (3d Cir.1998),petition posi- to a refers trust” private for or “Public (No. 98- 4, 1999) (U.S. June character- trust U.S.L.W. private or public tion defendant, who 1957), dis- held managerial professional ized president “as discretionary fiduciary position (i.e., held substantial cretion organizations” ... consid- ordinarily given director that is sole judgment over control “absolute deference). holding such possessed Persons who erable position held subject signif- id. organizations,” ordinarily are positions phony created employees The defendant than supervision trust. less icantly benefactors, directors, invented non- primarily are responsibilities board whose own his contributions in nature. used discretionary his concluded court businesses. 1. The note application 3B1.3 § told that their who victims—donors him allowed position Nathan’s found pur charitable be used money would crimes, since hard-to-detect commit his him and poses inter- without contracts —trusted to breach able at id. trust. See that to him abuse enabled to able and was superiors from ference high Bennett, held Nathan Like 196. through instruc- breaches those conceal to managed company, in position est it also (Though subordinates. to tions five contract the breaches conceal relied had government that found controlling block a owned years, in- military revealing in integrity Nathan’s stock. po- has no him, finding to formation informa- that the held of the fact a defendant light tency analyzing whether domain.) situation, public contracting already in the in a was of trust tion position that Na- the fact note of to took whether given weight have courts an de- government in the to the trust reposed submitted additional than victim re- of his all confirm ability to acknowledging ceding its agreement fendant export contract, relying States thus United under with the sponsibilities compliance he honesty of the defen- stating heavily laws control more to military data a contract party critical to ordinary access provide dant than case, Electrodyne’s employ- contract other than In a government persons would. (4th con- of Defense F.3d Department Glymph, without ees concluded Cir.1996), Circuit the Fourth sent. was allowed who contractor in- defense determined frequently haveWe con- his compliance with certify his own positions their high who held dividuals of Defense Department tract with For ex- of trust. positions had companies position (“DoD”) an abuse deserved Sokolow, we concluded ample, in defendant, who enhancement. of his trust and owner defendant, president as supplying knowingly convicted because of trust position held a company, conform to that did parts the DoD difficult-to-detect to commit able “was he company owned specifications, agency’s [the over control had sole he wrongs, as participate approved that was oversight accounts without company’s] Procedure.” Release “Alternate DoD’s Sokolow, 91 F.3d supervision.” company allowed procedure This authority to he had also noted We aby inspection prior without ship parts his com- from funds his victims’ withdraw representa- assurance quality government authority was neces- that such pany that each certified Glymph long as tive so id. See offense. complete sary shipment had passed the required tests to monitor compliance with specifications. conformed that understanding. See also United Though Glymph argued that he was mere- Sherman, States v. 160 F.3d ly an arm’s length contractor Cir.1998) with the (holding that doctor who commit- government, the court held that light ted insurance fraud position abused a procedure self-certification and the dif- trust because the victim-insurer used an ficulty in fraud, detecting the he held a system honor and costs to insurer of dou- position of trust. ble-checking doctor’s submissions would be prohibitively high). Likewise, in Velez, United States v. (9th F.3d 1137 Cir.1999), defendant, Much like the defendants in Glymph, who operated private immigration con- Velez, Sherman, Nathan, president firm, sulting helped aliens file applications of the company, was in a unique position to with the INS. He also directed a group make decisions for the company and to that was a “qualified designated entity” decide how Electrodyne would fill gov- (QDE), which meant given been ernment contracts. Since no one else— statutory authority to assist in pre- aliens neither the government nor anyone at paring legalization applications. Over Electrodyne supervising acts, his —was years, three Velez submitted six thousand position held a that allowed him to commit applications INS, many of which wrongs, and permitted him to make contained false information. At some those wrongs harder to detect by requir- points time, the INS accepting ing subordinates to mark over foreign la- applications QDEs. The Ninth Circuit bels and add “Made in the U.S.A.” labels. affirmed the district court’s conclusion that Importantly, not ap- did Velez held a of trust because of point a quality representative assurance special his status with the INS as a di- monitor the here, contracts at issue di- QDE rector of a and because his false verging from what appears to be its regu- documents not could be discovered as a practice; lar thus, government vested matter of routine. See at id. 1139. It also a significant degree authority in Na- affirmed that he had position used his to than. Finally, government relied on offense, facilitate the since he used his Nathan’s integrity only not opting in to status to attract clients and to expedite the (as contract with him the head of Electro- filing process aat time when only QDEs dyne), but in also deciding not assign could applications. file representative enforcement to ensure that Velez is a more clear-cut case than the he was complying with his contracts. Ap- present one, since Velez had statutory au- plying this court’s abuse of position of thorization (comparable to an oligopoly) trust jurisprudence, which captured in that entitled him to respon- benefits—and tripartite test set Pardo, forth in we sibilities—other entities did not have. conclude that the District correctly Court However, Velez, like Nathan had a formal determined that the government was a understanding with government victim within the meaning of Sokolow and he perform certain services in a that accordingly Nathan held a position of certain way, and it was difficult for the trust vis-a-vis government.5 5. In case, another contracting operations, of business rate, lied about the Broderson, United States v. (2d 67 F.3d 452 charging higher rate than 1995), Cir. the Second Circuit concluded Grumman paying. was This lie violated stat defendant, who was an executive at utes requiring truth in contracting with the Grumman, did position not hold a of trust. government. Grumman and NASA had contracted for that, buy super Grumman to The court computer though decided and lease Broderson government; discretion, pay NASA was to fees discretion was entrusted based on the interest rate pay Grumman was him company, his not by the victim ing Broderson, to its bank. president a vice agency. See (stating id. at 456 that “whatever

208 compa- to the insurance he submitted bills 2. Position Trust Abuse of and provided never created ny services we that Nathan Since conclude support progress fraudulent notes to trust, we position of must determine held a Sherman, 160 F.3d bills. See fraudulent supports the conclu the evidence whether vein, in In United States similar position of trust used that sion he (3d Cir.1992), Lieberman, v. 971 F.2d The Dis facilitate his crimes. significantly we stated: he his concluded that abused trict Court revealed technical position because he one stresses that he Lieberman bank, to him. As plans that had been entrusted that he presidents vice above, sug evidence none discussed from one merely transferred funds in confidential gests another, Nathan revealed and that the detec- account found, also howev formation. in a rou- missing tion funds occurred er, him to instruct allowed believe, his We tine examination. marks that paint over employees his apparent ease with contrary, as made Russia goods identified to effect the which Lieberman was able as Ukraine to re-mark items period shows the four-year crime over a We review made the United States. position of between the trust nexus See finding of fact clear error. he held and the commission and Coyle, F.3d United concealment embezzlement. (3d Cir.1995). Id. at 993. Hickman, F.2d States v. clearly not District Court did err stated, Cir.1993), “To we abuse a his concluding that Nathan had abused trust, must, by position of a defendant (i) trust, able position of since Nathan was definition, advantage have taken criminal him employees help his cover to order relationship himself and of a trust between up signs products his the telltale Sokolow, 1112. In victim.” Id. at his (ii) States; being made the United found abuse where the defendant’s such could instruct the Ukrainian Russian president the commis- role as facilitated companies products; their label offenses, money laundering sion of the (iii) up oper- covering was successful his free to position, virtue of years. ation for five money spend the he wished. See Soko- F,3d low, at court 413. The Sherman Summary D. readily “by concluded that virtue of the the We will reverse in given [a doctor] discretion to Sherman trust,” apply guide to the fraud sub- Court’s decision position of was able to his will supervision, lines to Nathan and Lander. We also mit medical with no charges on position of when vacate its alternative sentence based and he abused his trust compliance placed certify him to his own 'trust' NASA in Broderson was based allowed case, strictly explicit gov- of” the two with his contract. In Nathan's the on commands breached). addition, essentially on certi- In ernment relied Nathan to relevant statutes he contract, fy govern- compliance with since it did the court was concerned that his who, appoint theory anyone by inspector might cause not or could not to com- ment's statute, reports ply particular to the with the set of contracts must make accurate Broderson, govern- (including sub- issue in this taxpayers) to be case. In Finally, simply § ject to the court found that ment trusted defendant in 3B1.3. way parties a each may have occurred same that to contract trust abuse of trust underlying comply with the thereof. The was subsumed in the base offense. other to terms responsibilities id. court declined to hold that Bro- additional certification See Glymph, by level trust of and the added of derson held trust. deciding distinguishable not to install an in- We believe Broderson is spector particular Glymph to watch over Nathan's from and from the instant case. both contracts, worthy Glymph, specifically of an delegated its render those cases DoD inspection responsibilities Glymph it enhancement. when abuse trust However, guidelines. Figueroa, smuggling we See United States v. 105 F.3d (3d 874, Cir.), denied, to re- will remand for District Court cert. 520 U.S. 1248, 1860, Nathan and Lander under the sentence S.Ct. 137 L.Ed.2d 1061 (1997). smuggling guidelines, cautioning vio- upward BAA

lations of the cannot merit an A. The Loss Calculation departure magnitude previously im- posed. affirm We will to the extent that Loss must be aby established concluded that Nathan District Court preponderance of the evidence. See Unit dispose a position abused of trust. We Evans, ed States v. 155 F.3d appeal margin of Lander’s of the Dis- Cir.1998). Application (formerly Note 9 departure trict grant Court’s refusal to 8) states, however, Note to section 2F1.1 alleged refugee based on his status as a that a loss need not be determined with oppression persecu- religious who fled precision, can reasonable esti Union, finding argu- tion in the Soviet Here, mate. Electrodyne pled where lacking ment in merit.6 guilty unlawfully exporting defense-re lated items and to making false state Electrodyne

III. ments, we think that its conduct should be calculated District Court treated as loss from fraud rather than loss Electrodyne’s conduct In general, caused a loss of from theft. the loss from $369,105.70. “Loss” actually as defined fraud is the financial loss suffered victim, represents Guidelines the loss the vic the loss that the criminal place, tims before takes restitution is intended the victim to if suffer is Maurello, corresponding used set a fíne greater. See United States v. (3d Cir.1996).7 monetary harm caused the defendants’ 76 F.3d Because $500,000 crime, imposed conduct. The Court nature of the which involved fine, range fully which was within the Guideline manufacturing parts, functional albeit countries, of that magnitude, finding foreign losses after it is difficult to see Electrodyne was, had the ability pay monetary though what the loss both such a fine. Our review the District and the government use the findings Court’s fact is for error. a starting point.8 clear restitution amount as matter, governed by As an initial we must determine and must be our law. While recognized opinion whether the arguably District Court its dis written is unclear depart ground rejection argument, cretion on this declined basis its of Lander's so, supplemented by sentencing hearing, to do or whether it concluded that it precluded during legally departing. which the Court In the let concluded it had legal authority depart opinion, requested ter which the Court stated on the ground. recognized control in Because the Court cases conflict with oral state it, record, discretion but declined to we lack ments the Court discussed Lan exercise argument jurisdiction refugee appeal over Lander's der’s that his status was not McQuilkin, point, see v. adequately by United States 97 F.3d taken into consideration the 723, (3d Cir.1996), Sentencing 729 and to is Guidelines. The Court considered that extent it Vue, 1353, F.Supp. v. dismissed. 865 1359-60 ( 1994), in which the D.Neb. granted departure gain 7. court a to defendants The offender's is an alternative esti- con that, Guidelines, smuggling large according victed a amount of mate heroin ordi- refugees narily attempted they based on the fact that were understates loss. The from PSI fraud, Electrodyne's gain persecuted Laos who had calculate the been in their home country spreading impossible that for democratic ideals. The but concluded it was because reasoned, alia, foreign components just part Vue the the were court inter that defen of the voluntarily governed by Electrodyne dants not Amer overall assemblies that contract- they ican but ed with the law were forced here because deliver. fought our Court re enemies. The District jected “reasoning argue the and rationale” of Vue. 8. Nathan and Lander that Electro- II, Electrodyne F.Supp.2d dyne’s stipulation at 274 n. 102. on restitution did not mean Rather, found, they the Court an stipulated Lander lives here themselves had the The found that District Court agrees that some Electrodyne Because $139,200 the amount is the full amount of settlement of the restitution version calculation, we di- Air There part the loss the “loss” to the Force. touchstone for fore, figure. attention to that a total rect our the District Court calculated $309,860, the Air Force of which loss to that Electro- District Court found $170,660 relating to investi also included $369,105.70 by to a loss dyne stipulated two reprocurement costs for gation to that amount restitution. stipulating that was pin contracts: diode contract However, agree- the restitution because subject agreement settlement provisions, includ- various ment contained phase shifters. separate and a contract transfers, not have an ing in-kind it does that, legal mat a Electrodyne submits Electrodyne obvious face value. offers ter, finding Court’s the District $189,255.65, calculation of calculated loss of what constitutes error. Our review by two the District eliminating items that plenary requires us to look “loss” Office considered the Probation or intended harm to victim. restitution, actual ground on the part of Evans, F.3d at 252. two actual See those items did reflect acced- loss. The intended government argues Dis- Electrodyne’s ed calculation $139,200 Electrodyne’s been would have Court, though argues us that trict before plea agreement, and that but for clearly finding err in Court did ac money fraudulently would have been specific We turn to the otherwise. items However, not Electro- quired. the issue is Electrodyne valuation contests. whose dyne’s gain total the Air potential loss, The Air Force Contract any, if actual or intended Force’s stemming from the criminal conduct. We item The first contested is the repeatedly emphasized have $139,200in Court’s inclusion of case, in a unlike that amount of loss fraud calculation, represented which Elec- loss case, depends often on the actual in theft against the Air Force for a trodyne’s claim by the defrauded victim. value received Eleetrodyne repre contract. canceled Dickler, 818, 64 F.3d See United States arose from a contract sents this claim Cir.1995). Thus, a defendant when pursuant Electrodyne pro had to obtains secured loan means fraudu pin Air Force vide the with diode switches. representations, lent the amount of loss is During pendency of criminal inves between what the victim difference Air con tigation, the Force canceled the paid security, because value tract, Electrodyne’s two which was one actually lost. See amount was Force, Air contracts on the with 951 F.2d 528- Kopp, United States v. delay. grounds Electrodyne filed (3d Cir.1991). procure In a fraudulent appeal, arguing administrative case, principles ment enunciated contract had been canceled for the conve Kopp require Didder and us to offset parties nience of the Air Force. The price contract the actual value of that Elec- reached tentative settlement components provided order deter trodyne would fulfill the contract and be $139,200 mine the amount of loss. See United paid Electrodyne if was not con (7th Schneider, States v. 930 F.2d pled guilty, victed. When Cir.1991) procedure (following con in that settlement became and the void case). procurement tract was canceled. fraudulent levels, it and because amount of loss attributable to their conduct. dants' threshold offense Because we have concluded that the District appears Electrodyne re- has assumed guide- fine, the fraud Court should not have used sponsibility for need not reach lines, and that the amount of loss therefore this issue. used defen- should not be to set the individual short, the face value of the contract ment and reprocurement. We con- does not reflect a reliable loss be- figure clude that the Court erred when it treated Electrodyne cause was prepared pro- this element of the restitution agreement components vide the Force, to the Air as having value over $170,- above the the value of components those must be reprocurement for of the items cov- against offset the amount the Air Force by ered the canceled agree- settlement agreed pay. This is true whether we ment. speak of actual intended gov- loss. The ernment’s argument ignores the 2. The Four value that Converters NASA the Air Force have would received for its The District Court adopted the money if the proceeded. settlement had PSI’s calculation that the four converters is, That if parties had carried out the (a type of electronic component) contem agreement, the Air Force would have re- plated in Electrodyne’s restitution agree pin ceived that, diode switches for all this ment had a value $57,245.70, the cost of shows,

record $139,200. were worth Be- buying four new converters. The restitu cause loss to government would tion agreement provided that Electrodyne not have the full amount, been settlement provide would (1) NASA with $14,- either we cannot charge Electrodyne with the full 595.65 and three functioning converters, or amount as intended loss. (2) $42,650.05and one functioning convert

More importantly, the government does er. The Probation Office apparently add not address the argument that the harm ed the two dollar amounts together suffered Air Force was reflected up value, come with a total presumably on $170,660 already attributed to Electro- theory $14,595.65 was the value of dyne’s conduct. The crucial consideration one $42,650.05 converter and was the value here is that the District Court three, included the $42,650.05 although is not three loss attributable to investigation $14,595.65. and re- times Electrodyne does not procurement relating to pin diode challenge the inclusion of the converters’ switches in its $170,660 calculation of due value the loss such; calculation as rath Force, Air independent $139,- er, disputes particular valuation of dispute II, here. See Electrodyne Thus, converters. we need not address 28 F.Supp.2d at Thus, 255 & n. 67. how the part converters became of the loss difference between the value that would initially. have been received the Air Force and parties agree that two of the con- the materials Electrodyne was supposed to verters were already posses- NASA’s provided have has already been taken into sion.9 They were damaged during the $170,660 account in the calculation, loss criminal investigation when which included the costs to the Air Force investigators opened them to look for for- of getting the components from another eign-manufactured components. Electro- source. dyne argues that the agreement restitution We find that the settlement amount of contemplated that Electrodyne ful- $139,200 duplicates $170,660 repro- fill part of obligation by repairing those curement and investigation, regardless of converters, two which it did at a cost of whether actual or intended loss is consid- $2000. also provided NASA ered. The Air Force only suffered one with a sample converter already stock; loss relating to the pin switches, diode and it represents that the cost of that convert- the District Court double counted that loss er was “de Therefore, minimis.” Electro- when it included both the canceled settle- dyne argues, the appropriate value of the 9. The points out that the restitu- of the converters possession were in NASA’s agreement tion said that Electrodyne would time agreement. “provide” converters, but it concedes that two minimis) (which de with the may in this well be particular four converters involved (one converter) If was $14,595.65 plus harm inflicted on NASA. NASA is case converters) plus Electrodyne’s zero by two (repairs deprived of a converter $2000 (the fourth, converter), conduct, sample because by then it was harmed criminal restitution to Elec- converter, this reflects the cost of appar- which is the value of one trodyne. $14,000 buyer. It worth about to a ently the converter was not clear error value responds that again The government $14,000, reflecting its approximately con- underlying Electrodyne obtained value, it if was worth as market even not Ameri- through by promising fraud tract Electrodyne, manufacturer. much components for the contract can-made full charged thus with the price and can on actual Basing our calculation of loss price. ignores This distinc- contract harm, it from the record that appears between fraud and tion our caselaw by being deprived harmed of NASA was theft; gains NASA’s have to be counted repairs by needing two converters and against the loss. Therefore, amount two others. the total Electrodyne’s ar persuaded by We are the NASA converters associated with by gument repairs, about the its $30,000, the approximately would be value sample about converter. argument repairs. plus of two converters $2000 converters that were dam NASA two by Electrodyne’s criminal conduct.10 aged Summary 3. restitution, re part its As conclude that the Air Force contract We paired logi It the harm for seems $2000. prices full and the of two converters proper that the of harm is the cal measure calculation; improperly the loss included repairs when that all that cost was necessary. vacatur remand is hence full con required, and not the cost was, price The full of a third converter Sablan, 92 See verters. United States however, (9th Cir.1996) rough properly included. Our (charging F.3d calculation, Electrodyne’s derived from repairs when defendant with cost plea agreement, as is follows: activity damage, the result of her destruction). support Indirect for this $170,660.00 Stipulated Air restitution to Force Maurello, Stipulated proposition provided by to Naval Re- is su restitution 2,000.00 Laboratory search pra, which we held that customers who 14,596.65 Value of one converter defen were satisfied services Approximate sample value of con- 14,000.00 fraudulently represented that dant who verter 2,000.00 Repair for NASA of two converters practice could law did not suffer “losses.” $203,255.65 Approximate Total Loss Though the defendant’s actions risked (The first three values that are items have them, not materi harm if harm did dispute.) not here in This recalculation not be with a alize he could assessed range affects the Guideline for Electro- Similarly, if the harm that materi “loss.” remand, dyne’s On fine. the District repairs alized was need for and not a may clarify finding its on the value machine, replace then need entire converter to the exact fine. one set repairs as should serve the measure of dis the loss. The does not Pay Ability B. pute repairs approxi that the were worth mately $2000. Background 1. converter, sample When it comes to the un- Electrodyne mistaking Electrodyne argues is though, costs damage required physical inspection We caused com- consider fraud investigation included in the harm of Elec- ponents. crime, trodyne’s because detection of the $500,000 pay to fine.11As a result of a fíne setting may able all of consume plea, Electrodyne suspended its was from I, Electrodyne defendant’s assets. See government new contracts and its ex- lost F.3d at 255. 80%

port privileges, constituted states, Electrodyne Currently, it has plea. its business before the At the time physical those assets that are being plea, Electrodyne of the million in $1.9 used to fulfill remaining contracts. back from the and an- government orders $162,000 There is also balance on the ticipated profit no on those contracts. The promissory note gave AdComm for Elec- Electrodyne PSI stated would cease trodyne’s Moreover, inventory. AdComm it obligation to exist once fulfilled its under gave Electrodyne deposit security remaining Electrodyne those contracts. $31,486. Finally, Electrodyne submitted a company, sold its assets another Ad- Comm; showing most statement it had contracted out of the remain- its $1200 work; ing 31, contract and fired all but May five bank account as of It rep- 1998. employees. resents that these various sources of in- $140,000 come will allow it pay fine The District Court calculated Electro- contemplated in plea agreement, its but no dyne’s ability pay as follows: more. $25,219.48 $162,000 $31,486 $340,000 First UnionAccount Promissory note from AdComm Security deposit from AdComm Navy contract 2. The Remaining Contracts $132,000 adjustment” “Equitable requested Supply on Defense Center con- I, In Electrodyne we remanded for find- tract12 ings on Electrodyne’s ability pay. By resentencing, the time of in August $690,705.48. Total: of Electrodyne’s two remaining five con- requires Guideline section 5E1.2 completed. tracts had been The PSI had that a fine be waived when individual initially stated that- the contracts were contrast, pay. defendant By is unable to projects, break-even and no further evi- 8C3.3(b), provi section the corresponding profitability dence on their presented. was corporate sion Guide Sentencing contracts, one of outstanding On the three lines, require does not waiver or reduction. Supply events, Defense Center has declared all recognized At as we in Electro- I, Electrodyne in Electrodyne ap- default. fine dyne must not be unrealistic. declaration, pealing The and if it wins it sentencing court must take account of corporate government will owe nothing, defendant’s while if financial re sources, Thus, putting $49,458. it the burden on loses it will owe the defen there materials, to produce contracts, dant relevant remaining executory before are two Griswold, Electrodyne govern- appeal. also contends that on See United States v. (3d Cir.1995). estopped arguing ment is F.3d that Electro- 298-99 & n. 10 dyne $140,000, pay can more than because plea agreement agreement included an on 12. We admit some here. The confusion appropriate presented fine amount, according contract to the facts recit- argument District Court. This Court, is without $173,000. ed the District The merit. had the benefit its bar- Court, $132,000, amount used the District gain: government diligently The argued the apparently upward adjustment in the plea agreement set forth in the requested by Electrodyne contract amount Court, which on its own initiative yet granted sentencing. but not at the time of rejected government’s position. plea why adjust- We are Court used unsure agreement $173,000 allowed the to take ment number and not com- any position $305,000. appeal. appeal provision Although parties bined total of agreement plea contemplated issue, exactly might do not discuss this be useful for situation, remand, this sort of which a clarify finding the Court to rejects government's position court particularly if the has contract amount been support chooses the court resolved. 214 More- contracts. remaining for the jected and Center Supply Defense with the one of deal good a over, Electrodyne produced Navy. the with another information, it and financial requested the Supply the Defense contract with theOn miss- produce the inability to its explained an affidavit submitted Center, Electrodyne sub- had never been It information. ing $132,- a for negotiating it was that stating generally to according audit to an ject (original- price in contract increase It principles. submit- accounting accepted with contract On $173,000). ly that a accountant an affidavit from ted $340,000, was amount the contract Navy, provide not would audit retroactive $88,000 delivered Electrodyne had and inventory because information reliable $100,- had and received product of

worth verified, a full that longer be no could does The affidavit payment. progress $12,000 per year, up to cost could audit are contracts these not state whether not it was of cost because that and it argues Electrodyne break-even; size Electrodyne’s a business for standard PSI, which rely on the to entitled an investor unless audits undergo to remaining five contracts that the stated It also submitted them. required lender were break-even. the PSI the time of Schneiderman, a con- from Sol an affidavit that, found However, District Court by mid-1998 who sultant specify failed to Electrodyne because Electrodyne, for working full-time person with connection in expenses incurred which Electro- for years identifying under components of manufacture and complete records not did have dyne contracts, it would deem remaining two remaining of the status current noting the sales— projected of the full amount its amended District Court The contracts. But see pay to fíne. $472,000—available of the burden Electrodyne order, relieving might (noting that this note supra not, ac- did documents producing sales). projected full amount be the Schneiderman, exist. cording to ignored argues that Court Electrodyne manufacturing has fact that obvious re- tax provide to able Electrodyne was findings in its costs, it made and that 1997 and unaudited to from turns in the PSI. the information face sheets and balance financial statements May 1994-1997, through 1990-1991, and that, consis- suggests sales showed sheets I, The balance Electrodyne in opinion with our tent (1994) (1995) and 82% 65% fi- between all costs provide failure Electrodyne’s be- expenses operating gross sales by the requested information nancial 1996) (1995 (1994) & and 34% 17% tween the Court’s insulates upon remand Court every year but sales. gross from attack. conclusions sheets balance therefore, Electrodyne’s clearly err did the Court submits that under pretax income operating net show stream income that the entire deciding argues Electrodyne sales. gross 1% of be would remaining contracts from record ignored District Court suggests It pay fine. available have would Electrodyne concluding al- might contract for the the materials remaining contracts. expenses merely no have manufactured ready been profit Electrodyne’s net if asserts It might be there delivery, so awaiting what averaged executory contracts manufacturing costs. remaining no 1997, it between had been cul- it did not Electrodyne responds the two profit make $3304 would points It information. provide fail to pably pre- with the contracts, a sum consistent I, Electrodyne that, remand after out contracts remaining that the diction Electrodyne ordered the District propositions. break-even relating to documents a number produce guidance find unable have been We not or- did profits, but expenses past determination caselaw extant pro- expenses forth to set Electrodyne der ability ability pay. termining pay find it difficult be- his if We the PSI Electrodyne fine; no expenses lieve that recommends a the burden is on the contracts, prove fulfilling remaining inability when defendant to pay larger fine).13 also unconvinced that are provided sufficient information. As Elec- Payment 3. Schedule from a

trodyne changed going concern a business, past it is not dying obvious that Electrodyne further argues that it expenses appropriate guide; are an a one pay should not have to the total fine imme- operation five-employee that is contract- 8C3.2(b) diately. Guideline section re- ing out most of its work runs doubtless quires organizations to pay immediately differently employs than that a business they unless the court finds that are finan- Therefore, fifty Elec- nearly employees. cially unable to do so or that immediate trodyne’s proposed profit measure of from payment imposes an undue burden. Full remaining unlikely the contracts seems as payment required at should be the earliest be accurate as conclusion that the installments, possible in date or within five represent pure profit. contract amounts 803.2(b). § years. See U.S.S.G. In Elec- I, trodyne we remanded for findings on the However, Electrodyne may have time within Electrodyne’s which fine surprised by been the District legitimately while, paid; remand, should be on remaining conclusion that two Court’s District pay- Court ordered immediate represented profit, pure given contracts ment, it did not specifically address that the PSI stated and that the otherwise question whether all the it assets had iden- government argued never the issue. Be immediately tified pay were available to a only cause the record evidence on fine. PSI, remaining contracts comes break-even, $162,- labeled them we con The District Court counted clude that the District in promissory Court erred 000 on AdComm’s as note all deeming payments However, contract money available available funds. is that, pay emphasize monthly increments, a fine. in paid We $1566.35 there other February evidence the record scheduled to end in 2002. Simi larly, contrary, District Court could have the Court considered amounts remand, accepted executory it. On we think due on the contracts immediate However, Electrodyne required should be offer ly available. had,

proof expenses carrying of its out the at the a briefing, time of made remaining parts $100,000 of the contracts. Ev on progress payment See one of the ans, F.3d 252 n. (sentencing 8 court two contracts. An unaudited balance 31, 1998, inquire should about the finan May defendant’s sheet from showed that cial prospects). proving The burden of Electrodyne’s liabilities exceeded its assets $32,156 expenses properly is on on Electrodyne, that date. The may mon payment District Court conclude that does not address the issue of a ey pay not accounted for is available a the foregoing, schedule. we are view I, 254; Electrodyne fine. See F.3d at constrained to conclude that the District Carr, 1194, 1211- United States v. 25 F.3d finding Court abused discretion (court (3d Cir.1994) may sponte sua total amounts due from and from AdComm im- remaining government recalculate defendant’s net worth in de- contracts Electrodyne argues gov- $419.57 also that the District in the account. listed clearly concluding point. Court Elec- erred ernment does not contest this re-On mand, trodyne's May checking put together account balance the District should $25,219.48 August. picture Electrodyne's was* available in as accurate a finan- possible, although Schneiderman's June stated cial 1998 affidavit reiterate bank, Electrodyne may properly place $1200 while burden on a First Union bank statement dated June to account for funds. available, reassignment is nec- remedy of it is incontro- drastic mediately because Moreover, essary case remains yet here. Electrodyne does vertible that heavily complex weigh one money. Again, judgment have aside, judge unfamiliar with the remand must be set every have confidence that proper facts. We Court should determine District will, as Judge and industrious payments. able schedule before, our mandate. has follow Reassignment on Remand IV. V. Conclusion judge

An a basic due impartial reasons, judgment foregoing We have on occa For process requirement. reversed, Court will be and supervisory power our of the District sion exercised for further on in order to the cases will remanded reassign judges remand opinion.14 with this reality appearance proceedings of im consistent preserve and partiality. See Alexander v. Primenca RENDELL, Judge, concurring Circuit (3d Inc., Cir.1993);

Holdings, 10 F.3d 155 dissenting: and Inc., 81, v. 975 F.2d Liggett Group, Haines (3d Cir.1992). part part I concur in and dissent comprehensive opin- Chief Becker’s Judge argue The defendants ion, I affirm the because would District made appears up to have its District upward departure Court’s decision. important elements of case mind about case, factually and up to back This is a difficult having without information perhaps more difficult legally. It clear that the Dis It is made suppositions. its along way. repeatedly, contrary by and several “disconnects” trict Court first, record, Principal among gov- are: that the defendants’ conduct these stated willingness accept safety guilty American ernment’s endangered pleas punishing arguably deeply on own to violations of statutes troops, relying its entry markings and false patriotic derogation views in of the false documents held on conduct con- skewing goods, clear and when the admitted record Therefore, of a well scheme to decision. the defendants sub sisted orchestrated countries, mit, produce, for appearance par foreign goods judge gave were, military by law tiality prejudgment justify and sufficient to use and contract, produced in the reassignment judge different re to be United States, in federal responds mand. The violation of several stat- utes; second, lack “fit” no there is evidence that District Court defy charged mandate. It indeed cut crime and the conduct conceded our did half, sentencing guideline, with the Electrodyne’s specified fine in from million $1 remand, $500,000, applies primarily involving first it which to crimes after the regulation.15 exercising adhered our mandate while revenue collection and trade to resolve a number of con discretion I fault mismatches these for all) (though against tested issues upward depar- Court’s need to resort to an defendants. majority, Unlike the I read Dis- ture. upward departure having left resolution in trict as The matters Court’s relatively not so much on the opinion wake of are few and been based threat references, majority that the military circumscribed. We conclude goods country, respect, appeal 14. but it is In one is dismissed. duction of into supra accompanying duty See note text. primarily at evasion. The addressed importing guideline itself notes that contra- majority applicable 15. The characterizes the goods is band or restricted covered other guideline guideline ''smuggling” and it is guideline provisions. applies improper in the sense that intro- rather, entirely but proper grounds. (1)

These are: that the offense was outside HANKINS, Cecil duty Appellant, heartland evasion case because the falsification and absence of markings merely duties,

was done not to evade to conceal an extensive criminal scheme CITY PHILADELPHIA; OF American laws; (2) violated several other State, County Federation of and Mu- account for uncharged fraudulent con nicipal Employees; American Federa- (i.e., counts) duct dismissed clearly con State, County tion of Municipal ceded by guilty plea defendant at the collo Employees District Council Local quy, permissible both grounds upward 2187. departure under our holding Baird, States v. No. 98-1327. F.3d 856 Cir.

1997).16 United States Court of Appeals, This sentencing proceeded would have Third Circuit. differently had there been a more suitable Sept. starting point than a evasion duty guide- line. The absence of specific a more BECKER, Before: Judge, Chief

guideline as type of crime commit- SLOVITER, MANSMANN, is, nature, ted—which by its your run- GREENBERG, SCIRICA, NYGAARD, or, of-the-mill duty even, evasion fraud, ALITO, ROTH, was, McKEE believe, COWEN, I at the heart of the offense— Circuit Judges. dilemma facing the sentencing judge. The District Court did the best it could with

the hand it was dealt by the Sentencing BY THE COURT: Commission. The majority concludes that A majority of judges the active having the sentencing judge his abused discretion. voted for rehearing en banc in the above I submit that he reached an understanda- appeal, it is ORDERED that the Clerk of and, believe, I appropriate ble— —result. this Court opinion vacate the judg- I agree with the thorough analysis my ment August filed list colleague respect issues, with all above for rehearing en banc at the conve- save this one. I would affirm the upward nience of the Court.

departure determination of the District

Court and therefore respectfully dissent portion

from that opinion. It is ironic that sentencing while a end'by'departing court upward, upon based rele- could not start with an applicable guideline vant conduct admitted connection with the offense level unless the actually plea (or dismissed). defendant uncharged In United stipulated conduct, Baird, States v. we held that quite result court clearly can arrive at permissible. that level in the

Case Details

Case Name: United States v. Nathan

Court Name: Court of Appeals for the Third Circuit

Date Published: Aug 18, 1999

Citation: 188 F.3d 190

Docket Number: 98-6262, 98-6264, & 98-6299

Court Abbreviation: 3rd Cir.