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Copr. © West 2001 No Claim to Orig. U.S. Govt. Works
930 F.2d 555
59 USLW 2693
(Cite as: 930 F.2d 555)
<KeyCite Yellow Flag>
United
States Court of Appeals,
Seventh Circuit.
UNITED
STATES of America, Plaintiff-Appellee,
v.
Marlene Cox SCHNEIDER and Paul S. Schneider, Defendants-Appellants.
Nos.
90-2230, 90-2256.
Argued
March 1, 1991.
Decided April 16, 1991.
Defendants, a husband and wife, were convicted of conspiring to defraud and defrauding federal agencies in connection with misrepresentations during contract bidding process. The United States District Court for the Southern District of Illinois, East St. Louis Division, William L. Beatty, J., sentenced defendants to 30 and 15 months in prison, respectively. On appeal, the Court of Appeals, Posner, Circuit Judge, held that: (1) differential sentencing treatment of defendants was irrational, and (2) calculation of expected loss to government through addition of bids, for purposes of determining wife's offense level, was irrational.
Conviction
affirmed, sentences vacated, and case remanded for resentencing.
West Headnotes
[1]
Sentencing and Punishment k636
(Formerly 184k69(1))
Under
Sentencing Guidelines, "loss" from fraud need not be actual; it is enough if it
is probable or intended. U.S.S.G.
§ 2F1.1, comment. (n.7),
18 U.S.C.A.App.
[2]
Sentencing and Punishment k736
(Formerly 110k983)
Differential
sentencing treatment of husband and wife convicted of conspiring to defraud and
defrauding federal agencies, with respect to increase in offense level by reason
of loss to victim, was irrational; in husband's case, district judge had added
together the amounts by which prices at which contracts were ultimately let to
other contractors had exceeded the prices defendants had bid, whereas in wife's
case judge had simply added together the defendants' bids. 18
U.S.C.A. §§ 2,
371,
1001,
1341;
U.S.S.G.
§ 2F1.1(b)(1),
18 U.S.C.A.App.
[3]
Sentencing and Punishment k636
(Formerly 184k69(1))
Amount
bid for contract procured by fraud is not reasonable estimate of loss to the
other party to contract, for purposes of determining offense level under
guidelines, in cases where contract is terminated before that other party, the
intended victim of fraud, has paid a dime. U.S.S.G.
§ 2F1.1(b)(1),
18 U.S.C.A.App.
[4]
Fraud k69(2)
It
is necessary to distinguish between two types of fraud in order to determine
loss to other party to contract for purposes of determining offense level under
guidelines; one is where offender does not intend to perform contract but means
to pocket entire contract price without rendering any service in return, in
which case contract price is reasonable estimate of expected loss, and the
other
is committed in order to obtain contract that might not otherwise be obtained
but defendant means to (and is able to) perform contract and to pocket only the
difference between contract price and costs as profit from fraud. U.S.S.G.
§§ 2F1.1(b)(1),
2F1.1,
comment. (n.8),
18 U.S.C.A.App.
[5]
Sentencing and Punishment k736
(Formerly 91k51)
[5]
Fraud k69(2)
In
calculating expected loss to Government from contractors' conspiracy to defraud
and defrauding of two federal agencies for purposes of determining applicable
offense level, it was irrational to simply add the amounts defendants bid for
the contract, in view of likelihood that contracts would in fact have been
performed despite misrepresentations during bidding process; although Government
might have been placed at risk through contractor's false certification that he
had not been charged with a criminal offense within the past three years and
submission of fraudulent payment and performance bond, Government made no effort
to quantify that risk despite liberal requirements therefor.
18
U.S.C.A. §§ 2,
371,
1001,
1341;
U.S.S.G.
§§ 2B1.1(b)(1),
2F1.1(b)(1),
18 U.S.C.A.App.
[6]
Conspiracy k28(3)
[6]
Fraud k68.10(1)
Statutes
under which contractors were convicted of conspiring to defraud and defrauding
federal agencies did not require minimum loss to victim, and Government's utter
failure to prove any loss thus did not mean that defendants would go scot free,
but merely that Government would not be awarded bonus punishment points.
18
U.S.C.A. §§ 2,
371,
1001,
1341;
U.S.S.G.
§§ 2B1.1(a),
2F1.1(a),
18 U.S.C.A.App.
*556 Gerald M. Burke, Office of U.S. Atty., East St. Louis, Ill., for plaintiff-appellee.
Renee
E. Schooley, Federal Public Defender, Office of Federal Public Defender, St.
Louis, Mo., for defendant-appellant Marlene Cox Schneider.
Bruce
H. Bornstein,
Freedman & Bornstein, Chicago, Ill., for defendant- appellant Paul S.
Schneider.
Before POSNER, FLAUM, and MANION, Circuit Judges.
POSNER,
Circuit Judge.
[1]
This pair of criminal appeals presents an important question concerning the
meaning of "loss" in the Sentencing Guidelines. The Guidelines for property
crimes such as larceny and fraud make the punishment vary with the loss to the
victim of the crime. §§
2B1.1(b)(1)
(larceny and closely related crimes such as embezzlement), 2F1.1(b)(1) (fraud).
In the case of fraud, the loss need not be actual; it is enough if it is
probable or intended. Application Note 7 to §
2F1.1;
United
States v. Haddon, 927 F.2d 942, 951 (7th Cir.1991).
In the case of attempted larceny, the Guidelines reach the same result by
analogy to other attempts. Application Note 2 to §
2B1.1.
The dangerousness of an attempt--and hence the fitness and apt degree of
punishment--is a function not only of the likelihood that it would have been
completed but for interruption or mischance, but also of the gravity of the
completed crime; so attempted murder is a more serious crime than attempted
theft. Many fraudulent schemes are interrupted before they reach fruition. From
a practical standpoint they are attempts, and their gravity depends in
significant degree on the size of the loss that would have been
inflicted had the scheme not been interrupted.
The
defendants, a husband and wife, were sentenced to 30 and 15 months in prison,
respectively, for conspiring to defraud, and defrauding, two federal agencies,
in violation of various federal statutes. Mr. Schneider, an experienced building
contractor, submitted a bid for $65,900 on a contract let by the General
Services Administration for alterations in a federal building. In the papers
accompanying the bid, he certified falsely that he had not been charged with a
criminal offense within the past three years; in fact a charge of forgery was
pending against him in an Illinois *557
state court. He also submitted a fraudulent payment and performance bond. He was
the low bidder and won the contract. But before performance began or any payment
was made under the contract, the GSA canceled it on the ground of
misrepresentation and awarded the job to another--and considerably
higher--bidder.
Mrs.
Schneider, who was associated with her husband in the building business,
submitted to the Defense Department a bid for $76,500 (we are rounding off all
dollar figures to the nearest $100), also for building alterations. The bid was
accompanied by the same type of fraudulent payment and performance bond. The
Department rejected the bid, being unsatisfied with the bond (though it didn't
know at first that it was fraudulent), and later accepted a higher bid from
another contractor.
[2]
Although the two different bids were submitted by two different Schneiders,
they were acting in concert and each was convicted of both frauds. But they were
treated differently in sentencing with respect to increase in offense level by
reason of loss to the victim, that is, the government. In the case of Mr.
Schneider, the district judge added together the amounts by which the prices at
which the two contracts were ultimately let to other contractors exceeded the
prices that the Schneiders had bid--a total of $82,700. In the case of Mrs.
Schneider, the judge simply added together the Schneiders' two bids, producing a
sum in excess of $100,000. As a result, Mrs. Schneider's offense level rose by
six points because of victim loss, whereas her husband's rose by only five
points because the method of computing victim loss in his case placed him in a
lower bracket. The Guidelines' brackets for translating dollars of such loss
into punishment "bonus" points have since been changed, so that the Schneiders
might receive a greater or lesser punishment if they committed their crimes
today, but the changes have no significance for our analysis.
The
judge gave no reason for treating husband and wife differently and the
government does not defend the difference in treatment. It could not do so. The
difference is irrational. Not only is the loss that the Schneiders caused the
government (or rather would have caused it, if his bid had not been cancelled
and hers had been accepted) a joint one that cannot be apportioned; not only, if
it could be apportioned, would there still be no basis for apportioning
a larger share to Mrs. Schneider; but in addition the two methods of calculating
loss make opposite assumptions about the significance of the size of the bid.
For Mrs. Schneider, the higher the bid, the heavier the punishment, because for
her the loss to the victim was equated to the amount of the bid. For Mr.
Schneider, the higher the bid, the lighter the punishment, because the higher
the Schneiders' bid the smaller the difference between their bid and that at
which the contract was ultimately let; and it is this difference, the "excess
procurement cost" as the government calls it, that is the measure of victim loss
that the judge applied to Mr. Schneider.
Forced,
as it believes itself to be, to choose between the two methods used by the
district judge, the government says--naturally, for it is the position that
yields the heavier punishment--that the proper method for calculating loss to
the victim in a case such as this is the one that the judge used on Mrs.
Schneider. And so the government proposes that "the calculation of appellant
Paul Schneider's total offense level should be raised one level to account for
the error committed by the district court." But since the government neglected
to appeal, we cannot raise Schneider's sentence.
[3]
The government's failure to appeal is academic, since the method of calculating
Mrs. Schneider's offense level was incorrect. The amount bid for a contract
procured by fraud is not a reasonable estimate of the loss to the other party to
the contract in a case such as this where the contract is terminated
before that other party--the intended victim of the fraud--has paid a dime.
There may be a loss. The victim may have incurred expenses in terminating the
contract or in obtaining a *558
substitute contract. One of the latter expenses might be a higher contract
price, if the delay occasioned by the first termination forced the victim to
recontract in a market that had moved against him. No evidence was presented of
either type of expense with respect to either contract involved in this case;
and the face amount of the contract would not be a reasonable estimate of either
type of expense.
[4]
That is not the end of the analysis, however, because "loss" within the meaning
of the Guidelines includes intended, probable, or otherwise expected loss, a
qualification of vital importance in a case such as this where the fraud is
discovered or otherwise interrupted before the victim has been fleeced.
United
States v. Davis, 922 F.2d 1385, 1391-92 (9th Cir.1991).
But it is necessary to distinguish between two types of fraud. One is where the
offender--a true con artist (as in Davis
)--does
not intend to perform his undertaking, the contract or whatever; he means to
pocket the entire contract price without rendering any service in return. In
such a case the contract price is a reasonable estimate of what we are calling
the expected loss, and we repeat that no more than a reasonable estimate is
required. Id.
at 1392;
United
States v. Haddon, supra, 927 F.2d at 951-53;
Sentencing
Guidelines §
2F1.1,
Application Note 8. The other type of fraud is committed in order to obtain a
contract that the defendant might otherwise not obtain, but he means to perform
the contract (and is able to do so) and to pocket, as the profit from the fraud,
only the difference between the contract price and his costs. This is such a
case. Mr. Schneider had at the time of the offenses for which he was convicted
in this case performed some fifty contracts for federal agencies. Unless he is a
fraudfeasor of monumental proportions--which is not suggested--he could not have
kept getting government contracts if he never performed any of them. And as a
matter of fact, so far as appears he performed all of them, and to the perfect
satisfaction of the contracting agency. There is no reason to believe that he
and his wife would not have performed these two contracts to the equal
satisfaction of the contracting agencies. The Schneiders would not have walked
away with anything close to (let alone in excess of) $100,000 in net profit and
the government would not have incurred a loss of anything close to $100,000. As
a matter of fact, the government--which is not famous for being a fast payer of
its bills-- would not have paid any part of the contract price until the
Schneiders had rendered commensurate part performance. Since the willingness and
ability of the Schneiders to perform the contracts are not questioned and they
were the low bidders, chances are the government would have gained, not lost, by
dealing with the Schneiders.
At
least in a narrow financial sense; for we do not mean to suggest that the
expected loss to the government was necessarily zero when all relevant
consequences are brought into view. Satisfaction of the government's desire to
avoid contracting with recent felons and to have a valid bond guaranteeing
payment and performance must have some value to the contracting agencies, and
the Guidelines permit an increase in offense level for nonmonetizable losses.
Application Note 9 to §
2F1.1;
cf. United
States v. Fousek, 912 F.2d 979 (8th Cir.1990)
(per curiam). The Schneiders would not be permitted to offset such losses by
showing that because they were the low bidders they would have conferred a net
gain on the taxpayer even after due consideration of any added risk (which of
course might not have materialized) that their failure to obtain a proper bond
might have created. Felix culpa is not a doctrine of the criminal law. Rejecting
a parallel argument, we have remarked that "just as it is embezzlement if an
employee takes money from his employer and replaces it before it is missed, so
it is fraud to impose an enormous risk of loss on one's employer through
deliberate misrepresentation even when the risk does not materialize." United
States v. Dial, 757 F.2d 163, 170 (7th Cir.1985)
(citation omitted).
The
government might also have incurred expenses of recontracting, as we have said.
But no estimate of such expenses was presented, and the government
*559
did not argue that there should be an upward adjustment in punishment in
recognition of the impairment of any nonquantifiable values embodied in the
bidding requirements that the Schneiders flouted.
[5]
The government argues that its suggested method of calculating victim loss is
simple. Simple it is. But it is irrational. For it would mean that the
Schneiders would (other things being equal) be punished as severely as a con
artist who intended to winkle $142,400 ($65,900 + $76,500) from a senile old
lady.
We
can find no cases in point, but United
States v. Whitehead, 912 F.2d 448, 452 (10th Cir.1990),
is close and it too reversed a sentence because the estimate of the loss bore no
relation to economic reality. True, sentences based on victim losses measured by
the entire amount of loans that the defendants had obtained by fraud were upheld
in United
States v. Johnson, 908 F.2d 396, 398 (8th Cir.1990),
and United
States v. Connor, 920 F.2d 927 (4th Cir.1990)
(per curiam), against the argument that since the loans were secured the
lenders' loss was less than the full amount of the loans. But the borrower in
Johnson
had no intention of repaying her loans (Connor
simply repeats the reasoning of Johnson
),
and the fact that the victims might have been able to recover some of the money
taken from them by enforcing their security interests no more reduced the
victims' loss in the contemplation of the law than if a pickpocket got cold feet
and returned his victim's wallet before the victim discovered it had been
missing. The crime is complete when the
thief obtains the victim's property. United
States v. Kucik, 844 F.2d 493, 497 (7th Cir.1988).
What happens later is irrelevant. But here the defendants got (or would have
gotten, had their fraud succeeded) nothing from the government but a pair of
contracts, and the defendants were experienced contractors and the low bidders
to boot. They may have placed the government at risk, but the government has
made no effort to quantify that risk, liberal as the requirements are for such
quantification.
[6]
We add that of course the Schneiders will not go scot free merely because the
government failed--failed utterly--to prove any loss to the victim of their
fraud. The statutes under which they were convicted do not require a minimum
loss to the victim. 18
U.S.C. §§ 2,
371,
1001,
1341;
Sentencing Guidelines §§
2B1.1(a),
2F1.1(a);
United
States v. Gilliland, 312 U.S. 86, 92-93, 61 S.Ct. 518, 521-22, 85 L.Ed. 598
(1941);
United
States v. Lea, 618 F.2d 426, 429 n. 3 (7th Cir.1980).
It is simply that the Guidelines award bonus punishment points for different
levels of proven loss beginning with $2,000. The government did not earn a bonus
in this case.
The
Schneiders have challenged their convictions as well as their sentences, but on
grounds that palpably lack merit and do not require discussion (ditto regarding
their other grounds for challenging the sentences). Shortly before the argument
of this appeal, Mrs. Schneider wrote this court a letter stating that
if her lawyer did not argue one of those grounds, then she--Mrs. Schneider--did
not want that lawyer to appear for her in this court. Well, her lawyer didn't
argue it, but she was wise not to and Mrs. Schneider has no cause to complain.
If Mrs. Schneider nevertheless wants to discharge her and request us to appoint
another lawyer, she should submit a motion to that effect to us. We shall merely
offer her our opinion that she would be ill advised to follow that course. After
argument, Mr. Schneider submitted a handwritten petition for remand that is
legally frivolous, and is hereby denied.
The
conviction is affirmed but the sentences are vacated and the case is remanded to
the district court for resentencing in accordance with the principles set forth
in this opinion, that is, without an additional punishment based on a proven
monetary loss--for none was proved.
END
OF DOCUMENT