Reply to professor Bowman's "loss" revisited.

Author:Guarnera, Daniel S.
Position:Article by Frank O. Bowman III in this issue, p. 1
 
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  1. INTRODUCTION

    No one has contributed more to our understanding of the history, operation, theory, and pathologies of the U.S. Sentencing Guidelines for economic crimes than Professor Frank Bowman. In addition to his extensive body of scholarship on these topics, Professor Bowman helped design the modern economic crime Guidelines and has remained a vocal advocate for more rational and just sentencing policies. (1) I have learned a great deal from his work, and I draw from it extensively in my 2016 Missouri Law Review article, A Fatally Flawed Proxy: The Role of "Intended Loss" in the U.S. Sentencing Guidelines for Fraud. (2)

    Based on Professor Bowman's response article, "Loss" Revisited: A Defense of the Centerpiece of the Federal Economic Crime Sentencing Guideline, (3) I am gratified to find that he and I share much common ground. In fact, I believe our respective positions are closer in many ways than his article suggests. I will use this Response primarily to clarify what I see as the key areas of disagreement about the proper role of loss--and, particularly, intended loss --in the economic crime Guidelines. I will then offer a few brief comments about possible directions for reform.

  2. THE MENTAL STATE BEHIND INTENDED LOSS

    In general, the U.S. Sentencing Guidelines are a list of instructions that allow judges to compute recommended sentences based on particular facts about the offender or offense. (4) If the sentencing judge finds that one of the facts identified in the Guidelines is present, he or she applies a predetermined sentencing enhancement; by design, the Guidelines limit judicial discretion. (5) The Guidelines can fairly be described as rule-oriented as opposed to standard-oriented, (6) with rules defined as legal directives that "bind[] a decisionmaker to respond in a determinate way to the presence of delimited triggering facts," whereas standards "collapse decisionmaking back into the direct application of the background principle or policy to a fact situation." (7) The rule-driven structure of the Guidelines is a means of maximizing uniformity (and minimizing disparities) between like offenders, while simultaneously respecting the principle that punishments should be proportional to the seriousness of the crime. (8)

    Section 2B1.1 of the Guidelines prescribes sentences for economic crimes such as fraud, theft, embezzlement, and property destruction, and it is one of the most frequently applied provisions in the Guidelines. (9) Under Section 2B1.1, the most important sentencing factor is the amount of pecuniary harm --loss--associated with the offense, with higher loss amounts yielding longer sentencing enhancements. (10) The weight given to the loss calculation has been a longstanding criticism of Section 2B1.1, (11) and it is one of the main reasons that judges are more likely to issue below-Guidelines sentences for economic crimes than almost any other type of offense. (12)

    For the purposes of calculating sentences under Section 2B1.1, loss is defined as the greater of the loss actually inflicted by the defendant and the loss that he or she intended to inflict. (13) As I have argued, actual loss serves primarily (though not exclusively) as a proxy for the harm inflicted by a crime, and intended loss serves primarily (though not exclusively) as a proxy for the defendant's culpability, (14) defined in this context as "[m]oral blameworthiness." (15) From 2001 until late 2015, the Guidelines defined intended loss merely as "the pecuniary harm that was intended to result from the offense." (16) As some courts noted, this definition was "seriously circular" (17) and "assumes that we already know what the word intended means" (18) This was especially problematic given that "[t]he meaning of the word 'intent' in the criminal law has always been rather obscure." (19)

    In November 2015, the U.S. Sentencing Commission adopted an amendment redefining intended loss as "the pecuniary harm that the defendant purposely sought to inflict" (20) Professor Bowman explains the Commission's reasoning as follows: "[T]he 2015 amendment was intended by the Commission to reaffirm the original meaning of the 2001 definition, to wit, intended loss embraces only those pecuniary harms the defendant subjectively desired to occur, and to squelch a small, but troublesome, strain of case law that risked muddying the waters." (21) I agree with Professor Bowman that the purposeful loss amendment was designed to reject the "objectivist" position. (22) This position was taken most prominently by the First Circuit, which held that intended loss equaled "the loss that a person standing in the defendant's shoes reasonably would have expected to cause at the time he perpetrated the fraud." (23) Moreover, I think that the amendment succeeds in clarifying that a subjective inquiry is required.

    Whether the purposeful loss amendment materially changed the prevailing definition of intended loss--and whether such a change is beneficial as a policy matter--depends on what the former definition was. Professor Bowman characterizes intended loss as "embrac[ing] only those pecuniary harms the defendant subjectively desired to occur," and thus he concludes that the amendment's use of the word "purpose" does not constitute any change in meaning. (24) I certainly agree that there is little daylight between "desire" and "purpose." This is true not only in ordinary usage, (25) but also in the more technical definition that "purpose" generally carries in criminal law. (26) The Model Penal Code ("MPC"), which has heavily influenced the terminology used to delineate mental states, holds that a person "purposes" a result if "it is his conscious object to... cause such a result." (27) Even though neither Congress nor the Commission has formally adopted the MPC, the Supreme Court has recognized and applied this definition of purpose on numerous occasions. (28) For these reasons, I would agree that if courts construed intended loss as "desired" or "purposeful" loss prior to the 2015 amendment, the amendment's introduction of the word "purpose" would merely codify that pre-existing interpretation.

    I do not think, however, that the courts typically restricted intended loss to the pecuniary harm that a defendant desired--nor should they have. Take, for example, the Second Circuit case of United States v. Confredo, which both Professor Bowman and I reference. (29) Confredo helped his clients apply for fraudulent loans, but he did not stand to benefit from their subsequent defaults. (30) Thus, his assistance in the fraudulent loan scheme was attenuated from the lenders' losses; Confredo was, at worst, indifferent as to whether or not his clients repaid their loans. As one court explained in an analogous case, if "intent must include an element of purpose or desire[,]... then [the defendant] would have a good argument that he intended no loss, because the evidence does not suggest that he desired anyone to lose money or even that his purpose was that the lenders lose money." (31) In other words, Confredo's purposeful loss was $0.

    But the Second Circuit did not apply such a narrow definition of intended loss. Instead, it held--quite sensibly, in my view--that "[i]ntended loss refers to the defendant's subjective expectation." (32) For example, the court explained that a defendant who helped others apply for $1 million in loans, anticipating that $250,000 would be repaid, only intended (i.e., subjectively expected) a loss of $750,000. (33) Other courts have defined intended loss similarly. (34) Because it is blameworthy to act with the expectation that one's actions will inflict harm on others--even if it is not one's purpose to do so--I believe that subjectively expected loss is the optimal loss-based metric for grading defendants by culpability. (35)

    The Supreme Court has recognized that the definition of "intent" is "ambiguous and elastic," (36) and this ambiguity enabled courts such as the Second Circuit in Confredo to calculate, when necessary, unrealized losses that the defendant did not desire but nonetheless subjectively expected would occur. In most fact patterns, the distinction between purposed and subjectively expected losses will not matter; (37) for example, if defendants undertake a scheme that involves a transfer of property directly from a victim to themselves, they will generally have the purpose of inflicting a loss equal to the loss that they subjectively expect to occur. But there are numerous offenses, similar to the loan fraud at issue in Confredo, for which the victim's losses are attenuated from the defendant's crime. Such crimes might include, for example, contracting frauds, crimes involving the sale of stolen checks or credit cards to third parties for flat fees, and accounting or financial reporting frauds committed for the benefit of one's employer. (38) Often, these defendants will not have "purposed" any loss at all.

    If a defendant such as Confredo had a purposeful loss of $0, then the loss calculation is based exclusively on the actual loss amount. (39) Professor Bowman is correct to point out that there is a correlation between actual loss and culpability--a scheme that actually imposes large losses is often more blameworthy than one that imposes small losses. (40) But actual loss is an even weaker proxy for culpability than intended loss. For example, (1) actual loss includes losses that the defendant never subjectively envisioned, so long as they were foreseeable to an objectively reasonable person; (41) (2) actual loss can fluctuate wildly based on the defendant's "moral luck" (i.e., because of factors unrelated to the defendant's subjective intentions, such as how quickly he or she was apprehended); (42) and (3) as with any loss measure, actual loss excludes a wide range of factors traditionally relevant to culpability, such as motive, the duration of the offense, contrition, the defendant's role in the...

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