Tuesday, July 29, 2008

Panel Splits Over Whether Credit-Card Holder Who Is Reimbursed for Fraudulent Charges Is a "Victim" Under U.S.S.G. §2B1.1(b)(2)

United States v. Conner, No. 06-50218 (5th Cir. July 28, 2008) (Reavley, Jolly; Garza, dissenting in part)

Conner was sentenced to 100 months for his participation in a conspiracy to commit access-device fraud and mail fraud. The scheme used commercial credit card accounts, sans authorization, to purchase merchandise and gift cards from Home Depot, Lowe's, and Sam's Club. Conner purchased gift cards in bulk from another co-conspirator, and resold them on eBay. He and the others also used the gift cards to purchase power tools from the stores, which they also resold on eBay.

Conner raised several unsuccesful challenges to his conviction (evidentiary sufficiency, evidentiary rulings, jury instructions), but prevailed on one of his sentencing arguments. When calculating Conner's offense level under the fraud guideline, the district court found that the offense involved between 50 and 250 victims, triggering a four-level enhancement under §2B1.1(b)(2). The district court arrived at that number by treating each of the commercial credit card account holders as a separate victim. "Conner argued below that the account holders should not be counted as victims because the credit company for each account (five in total) fully reimbursed the accounts for all temporary charges."

The panel majority agreed with Conner. It held that because the account holders weren't out any money, they had not suffered the "actual loss" required for victim status under §2B1.2's commentary. Instead, "there were only five victims under § 2B1.1(b)(2): Home Depot, Lowe’s, Sam’s Club, Citicorp Credit Services, (Home Depot’s issuing credit company), and G.E. Consumer Credit (the issuing credit company for Lowe’s and Sam’s Club)."

On the way to that holding, the majority also pointed out something that applies to all Guidelines calculations, not just victim determinations under §2B1.1(b)(2): Guidelines factual findings must be supported by evidence, not speculation and conjecture.
In finding that the account holders were victims, the district court reasoned that some account holders must have paid bills with fraudulent account charges before ultimately being reimbursed, and this logically involved a loss of business time. Although it did not specifically say so, perhaps this was the district court finding that the account holders ultimately incurred pecuniary harm. The court admitted that it did not have “any evidence” for this conclusion, but that it was just “garden-variety logic.” It is possible that with a proper evidentiary foundation these types of unreimbursed business losses could be considered “actual losses” for the purposes of counting “victims[,]" [keeping in mind that the Application Notes exclude certain types of damages from "loss"]. But the district court’s speculation as to the existence of these facts was an insufficient basis to enhance Conner’s sentence. “[A] finding under the Guidelines must be based on reliable information and a preponderance of the evidence, see U.S.S.G. § 6A1.3, commentary.” And it is the “[t]he Government [that]bears the burden of proving . . . that the facts support a sentencing enhancement.” This standard was not met here. . . . Here, the district court did not point to any evidence of the pecuniary costs incurred by the account holders. Therefore, we cannot accept enhancing Conner’s sentence on this basis.

(some cites omitted). Because of this Guidelines calculation error, the court vacated Connor's sentence and remanded for resentencing.

Judge Garza dissented from the majority's number-of-victims holding. In his view, "[t]he fact that the account holders were later reimbursed for the fraudulent charges they incurred does not mean that the account holders failed to suffer an actual loss." As an example of "how the majority has turned the enhancement on its head," Judge Garza offered a comparison between "a defendant who defrauds 1,000 individuals that, after the fact, have their losses reimbursed by a single insurer and a defendant who defrauds 10 uninsured individuals. Assuming an equal amount of loss, there can be no doubt that the first defendant’s crime is more serious and therefore deserving of a more severe sentence. The majority’s interpretation of the victim enhancement leads to the incongruous result of the second defendant receiving the higher Guidelines range." (Although not adressing the dissent directly, the majority constructively responds by noting that "[t]he district court could properly consider the large number of individual account holders affected by Conner’s crime as part of its consideration of § 3553(a) factors if the court decided to issue a non-guidelines sentence.")

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