APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Douglas P. Woodlock, U.S. District Judge.
Vacated and Remanded.
Tracy A. Miner, with whom Megan A. Siddall and Demeo LLP were on brief, for appellant.
Brian A. Pérez-Daple, Assistant United States Attorney, with whom Carmen M. Ortiz, United States Attorney, was on brief, for appellee.
Before Barron, Selya and Stahl, Circuit Judges.
SELYA, Circuit Judge.
When a criminal defendant is convicted of a fraud offense, the Sentencing Commission has established amount of loss -- generally the higher of actual or intended loss -- as a rough proxy for determining the seriousness of the offense and the relative culpability of the offender. Although this concept is easily stated, its application often has vexed sentencing courts. As in so many other instances, the devil is in the details.
This appeal requires us to decide two issues of first impression in this circuit. The first involves the method for calculating the guideline enhancement for amount of loss in an insurance fraud context. The second involves the method for calculating the amount of statutory restitution in that context. Concluding, as we do, that the court below erred in adopting its calculation methods, we vacate the appellant's sentence and remand for resentencing.
Because this sentencing appeal follows a guilty plea, we distill the pertinent facts from the plea agreement, the change-of-plea colloquy, the undisputed portions of the presentence investigation report (PSI Report), and the transcript of the disposition hearing. See United States v. Almonte-Nuñez, 771 F.3d 84, 86 (1st Cir. 2014).
Defendant-appellant John S. Alphas owns and operates The Alphas Company, a wholesale produce distributor located in Chelsea, Massachusetts. During the relevant time frame, the appellant purchased large quantities of produce, often from distant
purveyors. To protect his investment, the appellant routinely obtained insurance on these produce shipments.
In or around March of 2007, the appellant devised a scheme to defraud. Over the next four and one-half years, he submitted at least ten fraudulent claims to his insurers for lost, stolen, or damaged produce. The appellant sought reimbursement for the value of allegedly lost, stolen, or damaged produce, together with disposal expenses, shipping fees, and the cost of procuring replacement stock. These claims were largely bogus: in each instance, the appellant either invented fictitious losses or artificially inflated legitimate losses. To make matters worse, he supported his submissions with documents that had been fraudulently altered or, in some cases, constructed out of whole cloth. He compounded his mendacity by making false and misleading statements to insurance adjusters.
The insurance policies at issue contained void-for-fraud clauses. A representative clause stated:
This Coverage Part is void in any case of fraud by you as it relates to this Coverage Part at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning:
1. This Coverage Part;
2. The Covered Property;
3. Your interest in the Covered Property; or
4. A claim under this Coverage Part.
Four of the appellant's claims were never paid: three were withdrawn after suspicions surfaced and the lone claim submitted to Selective Insurance Company was thwarted by early detection of the fraud. The other six claims were paid, but mostly in amounts less than their face value. In sum, the ten claims totaled over $490,000, yet the appellant received payments totaling only $178,568.41.
The appellant's persistent pattern of chicanery sparked a federal criminal investigation. In May of 2014, the government filed an information charging the appellant with a single count of wire fraud. See 18 U.S.C. § 1343. Waiving prosecution by indictment, the appellant pleaded guilty to the charge. In an accompanying plea agreement, the parties stipulated to a base offense level of 7. See U.S.S.G. § 2B1.1(a)(1).
The parties could not agree, however, as to the amount of loss -- a necessary step in determining the guideline sentencing range (GSR). To fill this void, the PSI Report recommended boosting the appellant's offense level by 14 levels based on an intended loss of approximately $480,000. See id. § 2B1.1(b)(1)(H)-(I) (increasing offense level by 14 for losses exceeding $400,000 but not greater than $1,000,000). This calculation derived from the probation officer's conclusion that intended loss should be measured by the face amount of the appellant's claims, less a $1000 per claim deductible.
The appellant objected to the recommendation. He argued that the loss figure should exclude legitimate losses embedded in the fraudulent claims. In conjunction with this argument, he submitted a competing set of calculations that purported to show which component amounts were legitimate. This set of calculations yielded an intended loss amount of roughly $178,000 which corresponded to an increase
of 10 (rather than 14) in his adjusted offense level. See id. § ...