STATEMENT OF FACTS

On March 1, 2000, agents of the Federal Bureau of Investigation arrested Scarlet O’Hara for bank fraud. (R.6-4) Ms. O’Hara attempted to pass ten stolen checks to Rhett Butler whom she believed would fence the stolen instruments for her. The record suggests the FBI learned of Ms. O’Hara’s scheme to defraud numerous victims by forging stolen checks through Mr. Butler who may have been acting as an informant, Mr. Butler. (R.6-5) The ten checks were part of an ongoing scheme Ms. O’Hara devised. Ms. O’Hara herself stole the checks, forged the signatures, and determined the face value of each check. (R.6-5) In turn, she would endorse them to Mr. Butler who, on two prior occasions, deposited them into accounts at various banks. (R.6-5) After withdrawing the entire amount, Ms. O’Hara and Mr. Butler then divided the proceeds between them. (R.6-5)

Ms. O’Hara’s first victim was Frank Kennedy, her employer. (R.6-5) On January 6, 2000, Ms. O’Hara met Mr. Butler to deliver the check she had stolen from her employer. (R.6-5) She wrote the check to Mr. Butler in the amount of $24,000. (R.6-5) Forging Frank Kennedy’s signature, Ms. O’Hara endorsed the check and the next day Mr. Butler deposited it into an account he opened at the First National Bank of Tara. (R.6-6) He subsequently withdrew the entire amount on January 8, 2000, received half of the proceeds of Ms. O’Hara’s scheme. (R.6-6)

Ms. O’Hara struck once again on January 14, 2000. One again, she presented another stolen check to Mr. Butler. This time, Ms. O’Hara wrote the check out for $37,000. (R.6-6) Mr. Butler, in turn, deposited the check into a different account he had opened in the First Tara Bank. As he had done previously, Mr. Butler withdrew the full amount and received half of the proceeds. (R.6-7)

Mr. Butler became increasingly nervous after the January 14 incident. He informed Ms. O’Hara he was no longer willing to participate further in her scheme. Ms. O’Hara, however, wanted to continue the bank fraud. (R.6-7) She tried to persuade Mr. Butler to continue. When that failed, Ms. O’Hara threatened to report Butler to the authorities and expose his role in the theft of the first two checks if he refused to continue with the scheme. (R.6-7)

However, on January 24, 2000, Mr. Butler turned himself in to Agent Melanie Hamilton of the Federal Bureau of Investigation. In exchange for reduced charges, Agent Hamilton discussed with him the possibility of becoming a government informant against Ms. O’Hara. (R.6-7) The record does not reveal what further transpired at that meeting nor does it indicate whether Agent Hamilton and Mr. Butler reached any agreements. In late January, however, Mr. Butler arranged a meeting with Ms. O’Hara in order to assure her that he was willing to participate in her scheme once more. (R.6-7) At that meeting, Ms. O’Hara assured Mr. Butler that she had the means of procuring more checks for her scheme. (R.6-7)

On the day of the Ms. O’Hara’s arrest, Mr. Butler had arranged a meeting with her. (R.6-7) He informed her they could resume their plans once more. Ms. O’Hara was visibly excited in anticipation of her share of the profits, boasting of how rich they would be once her plan was completed. The record does not reveal how the FBI learned of this meeting Butler. However, as Ms. O’Hara was showing Butler ten checks she had stolen, Agent Hamilton and other FBI agents stormed into Ms. O’Hara’s home and arrested her.

STATEMENT OF THE CASE

This case comes on appeal from the United States District Court of Tara. A federal Grand Jury indicted Ms. O’Hara on two counts of knowingly and willingly executing a scheme to defraud a financial institution by cashing a stolen check in violation of 18 U.S.C. § 1344. (R.6-2) The Grand Jury also indicted Ms. O’Hara on ten counts of knowingly and willingly attempting to execute a scheme to defraud a financial institution by cashing a stolen check in violation of 18 U.S.C. § 1344. (R.6-2) At trial, a federal jury found Ms. O’Hara guilty on all charges. (R.6-3) The probation officer followed the United States Sentencing Guidelines § 2F1.1 in calculating Ms. O’Hara’s sentence. (R.6-7) The probation officer calculated “intended loss” by taking the average of the face value of the checks Ms. O’Hara had successfully cashed and applying this amount by the number of blank checks found in Ms. O’Hara’s possession at the time of the arrest. (R.6-7) At the sentencing hearing, Ms. O’Hara’s attorney raised no objections to the method used to determine “intended loss.” (R.6-12)

Defendant’s attorney argued that Ms. O’Hara’s offense should be based on “actual loss” rather than “intended loss” where no loss is possible. Acting upon the Presentence Investigation Report, the sentencing judge imposed a sentence of thirty (30) years and supervised release for a period of two (2) years. (R.6-13) Ms. O’Hara moved for leave to appeal to the United States Court of Appeals for the Fourteenth District. (R.6-15) The chief judge granted her motion but limited the appeal to the question of whether § 2F1.1 measures “loss” as the “actual loss” occasioned by the fraud or as the “intended loss” contemplated by the defendant. (R.6-16)

ARGUMENT

PROPOSITION OF LAW NUMBER ONE

The COMMENTARY TO § 2F1.1 states that “intended loss” is used to determine sentencE LENGTH FOR FRAUD OFFENCES when it is greater than the “actual losS.”

A. Commentary to the Sentencing Guidelines is binding on the courts.

Section 2F1.1 of the United States Sentencing Guidelines (the fraud guideline) provides for a base offense level of six (6) and an increase in offense level “if the loss exceeds $2,000.” 18 U.S.C.S. Appx. § 2F1.1 (1999). The language of the fraud guideline does not specify whether “loss” is defined as the “intended loss” or the “actual loss.” Id. However, commentary that accompanies the fraud guideline states, “if an intended loss that the defendant was attempting to inflict can be determined, this figure will be used if it is greater than the actual loss.” Id. Furthermore, § 1B1.7 of the Sentencing Guidelines provides that commentaries in the sentencing manual serve to “interpret the guideline and explain how it is to be applied,” “suggest circumstances which ... may warrant departure from the guidelines,” or “provide background information, including factors considered in promulgating the guideline or reasons underlying promulgation of the guideline.” 18 U.S.C.S. Appx. § 1B1.7 (1999). Indeed, § 1B1.7 warns that failure to follow the sentencing guidelines may result in the misapplication of the guidelines, subjecting the sentence to possible reversal upon appeal. Id.

The Supreme Court decision Stinson v. United States, further supports an authoritative role for the commentary to the Sentencing Guideline. In Stinson, a unanimous Court held that commentary which accompanies the Sentencing Guidelines “is authoritative unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline.” In that case, defendant Stinson plead guilty to one count of possession of a firearm by a convicted felon. Defendant was sentenced under the career criminal guideline, which requires that “the instant offense of conviction [be] a crime of violence.” While Stinson’s appealed was pending, the Sentencing Commission amended the guideline by adding commentary which excluded the felon-in-possession offense as a “crime of violence.” The appellate court refused to apply the amendment retroactively, holding that the commentary, though persuasive, was not binding on the courts.

The Supreme Court, however, recognized that the Sentencing Reform Act of 1984 authorized the Sentencing Commission to promulgate guidelines, policy statements and official commentary. By promulgating official commentary, the Sentencing Commission it was, in essence, interpreting its own legislative rule. Thus, giving the commentary controlling authority on how the guidelines are to be applied is consistent with the role the Sentencing Reform Act carved out for the Sentencing Commission.

The commentary to § 2F1.1 violates neither the Constitution nor federal statute. It is not a “plainly erroneous reading” of § 2F1.1. Nor is the commentary inconsistent with § 2F1.1. Indeed, the commentary to § 2F1.1 serves to clarify and instruct the sentencing court on how loss should be calculated. Thus commentary instructing the court on loss valuation is, thus binding on the sentencing court.

B. Application note 7 distinguishes between loss resulting from a fully completed offense and loss resulting from a partially completed offense.

Application note 7 of the fraud guideline refers to § 2B1.1, the theft guideline, for a discussion of loss valuation. 18 U.S.C.S. Appx. § 2F1.1 cmt. 7 (1999). When the fraud offense is similar to a theft offense, loss is defined as “the value of the money, property, or services unlawfully taken” by the defendant. Id. Note 7 also cross-references § 2X1.1, the attempt guideline. Id. Consistent with § 2X1.1, note 7 instructs that, “if an intended loss that the defendant was attempting to inflict can be determined, this figure will be used if it is greater than the actual loss.” Id. Thus, note 7 suggests that “actual loss” applies to fully completed offenses but “intended loss” to partially completed offenses. See 18 U.S.C.S. Appx. § 2F1.1 cmt. 7 (1999).

The instant case involves two fully completed offenses and ten partially completed offenses. With respect to the latter, Ms. O’Hara completed the acts necessary to complete her part of the bank fraud. But for the FBI’s intervention, she would have completed that fraud since she was not limited to using Mr. Butler as her sole fence. Thus the procurement of the ten stolen checks are partially completed offenses within the meaning of § 2X1.1. As such, note 7 instructs the sentencing court to use “intended loss.”

C. The plain language of the commentary to § 2F1.1 does not qualify “intended loss.”

In United States v. Studevent, defendant stole a blank check and subsequently gave it to his employer. After the employer deposited the check in the company account, defendant received a portion of the amount of the stolen check. The crime was brought to the attention of the Federal Bureau of Investigation, which assigned an agent to operate as a fence for future checks the defendant could obtain. Defendant subsequently passed eleven stolen checks to agent. The court sentenced defendant to 18 months imprisonment based on an intended loss of over $500,000.

Defendant argued that “intended loss” should be limited to that which he could have realistically caused. The checks defendant passed to the FBI agent, therefore should not be included in the loss calculation because: 1) the government would not have deposited the stolen checks and the rightful owners of those checks would not have been defrauded; and 2) there was no evidence that the accounts on which the checks were drawn were open and contained sufficient funds.

The Court of Appeals disagreed, noting that the language in note 7 does not qualify “intended loss.” It cited United States v. Robinson for the proposition that nothing in the plain reading of note 7 “mandates the defendant be capable of inflicting the loss he intends.” The Studevent court also cited United States v. Ismoila which held that “the plain language of comment 7 makes clear that ‘intent is critical’ regardless of likelihood of success.” In addition, the court recognized that use of “intended loss” must be consistent with the attempt guideline, which does not qualify “any intended offense conduct.” Application notes 2 and 4 suggest that a sentence should be based on the loss the defendant intended regardless of the defendant’s success. Therefore, neither the fraud guideline nor the attempt guideline imposes a limit that “intended loss” be realistically possible.

Application note 10 further supports this interpretation. 18 U.S.C.S. Appx. § 2F1.1 cmt. 10 (1999). It states that, “where a defendant attempted to negotiate an instrument that was so obviously fraudulent that no one would seriously consider honoring it,” a downward departure is appropriate. If “intended loss” were already limited to that which is realistically possible, there would be no reason to allow a downward departure. Coffman, 94 F.3d at 336; Studevent, 116 F.3d at 1563.

Some courts, however, have grafted an “economic reality” limitation to “intended loss.” See generally United States v. Watkins, 944 F.2d 1192, 1196 (6th Cir. 1993). In Watkins, defendant deposited checks into an account and proceeded to withdraw funds against that account before the bank could determine whether the checks were worthless. Defendant, convicted of check kiting, was sentenced based on an “intended loss” of $40,000. On appeal, defendant argued that the sentencing court erred in relying on the face value of the checks she presented rather than the amount she succeeded in withdrawing against those checks. The Watkins court held that “intended loss” must have been possible in order for it be relevant for the purpose of sentencing.

Watkins sets forth a three-prong test to limit the broad reach of the “intended loss” rule. First, defendant must have intended the loss. Second, it must have been possible for defendant to inflict the loss. Third, but for some interruption, the defendant must have completed or been about to complete all of the acts necessary to bring about the loss.

Ms. O’Hara meets this three-prong test. She desired to inflict the “intended loss.” (R.6-7). Although the checks she attempted to pass were did not bear an amount, application note 8 states that “intended loss” need not be determined precisely. 18 U.S.C.S. Appx. cmt 8 (1999). A sentencing court can make “a reasonable estimate of the loss given the available information.” Id. In this case, that reasonable estimate was accomplished using the averaging method. (R.6-7). Second, it was also possible for Ms. O’Hara to inflict the loss. The record does not indicate that the FBI took precautionary measures to prevent any loss to potential victims once it became aware of Ms. O’Hara’s scheme. Nor does the record clearly indicate that Mr. Butler was cooperating with the FBI at the time of Ms. O’Hara’s arrest, thus eliminating a risk of loss to Ms. O’Hara’s victims. Lastly, but for the FBI’s intervention, Ms. O’Hara’s would have completed her fraud. She had already stolen the ten checks and was ready to pass them to Mr. Butler who had on prior occasions fenced stolen checks for her. For her role in the fraud, the theft of the checks and the meeting with Mr. Butler were all the acts “necessary to bring about the loss.”

D. The 1991 amendment to § 2F1.1 changed the standard for loss valuation from “probable and intended loss” to “intended loss” only.

The seminal case for the proposition that “intended loss” is limited to that which is probable is United States v. Schneider. In Schneider, defendant was convicted of defrauding and conspiring to defraud federal agencies through misrepresentations on two contract bids. As a result of defendant’s fraud, the government awarded the jobs to other contractors at considerably higher prices. The trial court calculated the loss as the “excess procurement cost,” the difference between defendant’s bid and the replacement bids. However, defendant’s wife, a co-conspirator, was sentenced based on the total value of the two fraudulent bids submitted. The trial court gave no reason for the difference in the two sentences.

On appeal, defendant’s sentence was vacated. In his opinion, Judge Posner wrote that “’loss’ within the meaning of the Guidelines includes intended, probable, or otherwise expected loss.” Posner bases his interpretation of “loss” on the pre-1991 version of note 7 that was in effect at the time of the defendant’s sentencing. That version of note 7 espouses a “probable or intended” standard for loss valuation. In November 1991, however, the Sentencing Commission amended the fraud guideline. The new guideline did not retain the “probable or intended” language. This suggests that sentences, imposed subsequent to the amendment, are no based on loss that is probable or economically realistic.

Sentencing courts must apply the version of the Sentencing Guideline in effect at the time of sentencing. United States v. Sneed, 814 F. Supp. 964, 967 (D. Colo. 1993). Yet despite the 1991 amendment, some courts have retained the “probable and intended” standard. See United v. Khan; United States v. Santiago; United States v. Holiusa.

In Holiusa, defendant was convicted of mail fraud and sentenced based on an intended loss of The court held that the 1991 amendment merely reflected the Commission’s goal of tailoring the fraud guideline’s language to that of the theft and attempts guideline. Id. The changes, therefore, do not reflect any substantive change to the definition of “intended loss”. Id. This is an untenable conclusion.

It is true that one of the Commission’s goals in amending the fraud guideline was to conform the language in note 7 to the relevant notes in the theft and attempt guidelines. It is also true that the Commission wanted to provide guidance to sentencing courts “with respect to the determination of loss.” 18 U.S.C.S. Appx., Appendix C (2000).

Furthermore, words in a statute have intended meanings. In this instance, the deletion of the word “probable” substantially altered the meaning of note 7. Such a change should not be interpreted to include a limitation that the amendment removed. If, indeed, the Commission intended to keep the “probable and intended” standard, it could simply have revised both the theft and attempts guidelines to reflect this limitation on “intended loss.” It chose not to do so. Thus the change to an unqualified “intended loss” standard implies that loss need not be economically realistic in order for it to be intended.

PROPOSITION OF LAW NUMBER TWO

The use of “intended loss” as the measure of sentence length ACHIEVES THE CONGRESSIONAL AIMS EMBODIED IN THE SENTENCING GUIDELINES.

In 1984, Congress enacted the Sentencing Reform Act which established the Sentencing Commission. The principal purpose of the Sentencing Commission is to establish sentencing guidelines that “assure the end of justice by promulgating detailed guidelines prescribing appropriate sentences.” 18 U.S.C.S. Appx. § 1A3 (1999). Prior to the Act, disparity among sentences of similarly situated defendants undermined public confidence in the justice system. Id. Congress charged the Commission to establish guidelines that would further fundamental policies of just punishment, deterrence of future crimes, and public protection. Id. Thus, Congress sought to create a uniform, national standard that imposed sentences commensurate to the severity of the offense. Id. Among other things, the Guidelines take into account the seriousness of the crime and the defendant’s degree of culpability. Id.

Offense levels linked to “intended loss” advances the Congressional aim to eliminate disparity in sentencing of similarly situated defendants. Id. The greater the loss the defendant intended to inflict, the greater the culpability. United States v. Geevers, 226 F.3d 186, 194 (3d Circ. 2000). The “intended loss” approach allows sentencing courts to distinguish between a defendant who attempts to defraud the bank of $1,000,000 and a defendant who attempts to defraud the bank of $100,000. See Studevent, 116 F.3d at 1563. Where the amounts successfully taken are equal (e.g. $10,000), use of “intended loss” to determine the offense level would take into account the relative levels of culpability of each defendant. Thus the defendant who intended to cause the $1,000,000 loss will have a longer sentence than the defendant who intended to cause a loss of $100,000.

By contrast, the “actual loss” approach will erode this distinction and repeatedly understate the seriousness of the offense. Studevent 116 F.3d at 1563; 226 F.3d 186 at 195. The “actual loss” approach would set the offense level of both defendants equally even though one had a more malicious intent than the other. This approach would contravene the Congressional goal of proportionality. See 18 U.S.C.S. Appx.. § 1A3.

Furthermore, this approach will not effectively deter defendants from perpetrating the same offense again.

As the Galbraith court points out, a sentencing court could theoretically depart upward if “actual loss” understates defendant’s culpability and the gravity of the crime. However, such an approach would require a sentencing court make to individual factual findings of whether the “intended loss” was realistically possible. This will place a heavy burden on a sentencing court’s resources. See William W. Wilkins, The Federal Sentencing Guidelines: Striking an Appropriate Balance, 25 U.C. Davis L. Rev. 571, 574 (1992). Second, the current version of the fraud guideline does not provide factors a sentencing court can use to determine when an upward departure is appropriate. See 18 U.S.C.S. Appx. § 2F1.1. Therefore, whether an upward departure is appropriate and by how many levels would be at the sentencing court’s discretion. The uniformity and proportionality that are at the heart of the Sentencing Guidelines will be undermined. Imposition of an “economic reality” limitation on “intended loss” will greatly increase 1) the complexity of the Guidelines and 2) the amount of discretion a sentencing court has to determine offense level. This result makes the Guidelines less workable and would compromise the “certainty of punishment and its deterrent effect.” Wilkins, 25 U.C. Davis L. Rev. at 574.

PROPOSITION OF LAW NUMBER THREE

“ACTUAL LOSS” IS LIMITED TO CASES INVOLVING SPECIALLY STRUCTURED GOVERNMENT STING OPERATIONS.

The Galbraith court has held that “the loss [a] defendant subjectively intended to cause is not controlling if he was incapable of inflicting that loss.” 20 F.3d 1054 at 1059. Galbraith involved an undercover sting in which government agents created a fictitious victim. Therefore, the defendant could not have inflicted any loss even if the scheme had been completed. Id. The court set the “intended loss” at zero and used “actual loss” to determine the offense level. Id. However, Galbraith should be limited to specially structured sting operations where the victim incurs no loss.

Alternatively, Galbraith should not control in the instant case because this does not involve a sting operation. A government sting involves law enforcement officers who pose as criminals to catch actual criminals engaging in illegal acts. Black’s Law Dictionary 1426 (Bryan A. Garner ed., 7th ed., West 1999). There is no evidence in the record that FBI ever set into motion a sting operation to catch Ms. O’Hara. The FBI did not create victims from whom Ms. O’Hara could steal checks. It did not assign agents to pose as fences. Agent Hamilton merely gave Mr. Butler the opportunity to reduce the charges against him by being an informant. Thus, Ms. O’Hara was arrested as a result of information the FBI received from one of its informants rather than through a sting operation.

CONCLUSION

The Commentary to the fraud guideline instructs the sentencing court to use the loss the defendant intended to inflict when that amount can be determined and when it is greater than the actual loss occasioned.

For these reasons, the Court should affirm the Sentencing Court’s determination of Ms. O’Hara’s sentence based on the loss she intended to inflict.

PROOF OF SERVICE

I certify that a copy of this Brief was served on counsel of record for Defendant-Appellant, Robert Kinder, 2557 North Haven Boulevard, Cuyahoga Falls, Ohio 44223, by depositing it in the United States Mail on February 20, 2001.

Raechelle C. Yballe

Counsel of Plaintiff-Appellee

HONOR CODE

I did not give, receive or witness any unpermitted aid.