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Sample Government's Response to Defendant's Response and Objections to Presentence Report

COMES NOW the United States of America by and through Gaynelle Griffin Jones, United States Attorney in and for the Southern District of Texas, and the Office of Consumer Litigation, United States Department of Justice, and states as follows in response to defendant XXXXXX X. XXXXXX's Response and Objections to Presentence Report:

I. Introduction

The United States has filed a statement that it has no objections to the Presentence Report ("PSR") in this case. The government urges the Court to adopt the PSR as written, with the minor correction mentioned in note 1, infra. _____' Objections center on the determination of the amount of loss under the Fraud Guideline, 2F1.1. However, the methodology and conclusions of the PSR regarding the amount of loss are consistent with that in a related prosecution, United States v. Whitlow, 979 F.2d 1008 (5th Cir. 1992), in which the Fifth Circuit approved the loss determination. Moreover, since the time when the loss in the Whitlow prosecution was determined, additional studies and reports have buttressed the conclusion that a loss figure of approximately $4,000 per odometer rollback is extremely conservative. XXXXXX provides no basis for determining a lower loss figure; nor do his objections to the number of vehicles involved in his scheme carry any weight.

A. The PSR's determination of the number of vehicles involved in XXXXXX' conspiracy is reliable.
XXXXXX claims that the PSR's determination of the number of vehicles involved in his scheme is unreliable. XXXXXX' Objections, p. 2, ¶ 1. In calculating his offense level, the PSR attributes 2,000 rollbacks to XXXXXX. PSR ¶ 51.

This figure is based upon (1) records unearthed in the government's investigation, (2) the undisputed fact that XXXXXX paid employees in cash and did not maintain records of his business (his failure to keep required records formed the basis for conviction on Count 17), and (3) estimates of people XXXXXX employed in his business. PSR ¶¶ 27, 29, 30, 43. Indeed, XXXXXX' business was deliberately conducted to obfuscate any paper trail and made tabulation of his crimes difficult. The PSR nevertheless found 2,000 rollbacks.

XXXXXX' objection to this finding rests solely a self-serving estimate of his volume, and represents an attempt to capitalize on his surreptitious method of doing business. It deserves no credence. XXXXXX himself provided higher figures to Probation Office, admitting that he rolled an average of 50 vehicles per month (PSR ¶ 47).

XXXXXX' Objections state that XXX estimated that she altered approximately 900 titles for him,[FN1] that XXXXXX estimates that XXXXXXXXX XXXX altered approximately 100 titles for him, that these women were the only persons who did a "significant number of title modifications" for him, and thus the total number of titles should be 1,000 to 1,100. However, XXXXXX offers no support whatsoever for these assertions, so they deserve no weight in the face of the PSR. XXXXXX also fails to quantify the number of titles altered by others.

FN1. The PSR in ¶¶ 30 and 43 states that MX. XXXXXXX advised that she altered approximately 900 titles at XXXXXX' request in 1989 and 1990, or 1988 and 1989. The government believes that both statements should be amended to read that she altered approximately 900 titles at XXXXXX' request in "1988 - 1990."
In addition, Ms. XXX admitted that she altered approximately 50 titles monthly for XXXXXX between April and November of 1990. This would be a total of about 350 alterations.[FN2] Thus, XXXXXX' assertions are clearly self-serving and incomplete. Moreover, his bald assertion that only XXXX and XXXXXXX engaged in a "significant" number of modifications for him, coupled with his underestimate of the number of alterations that XXXX performed for him, leads only to the conclusion that XXXXXX' estimate of the total number of cars he rolled back is woefully incomplete.

FN2. Though her testimony was somewhat confused, the above is a fair reading of it. A transcript will be available at sentencing.
XXXXXX' assertion in his "Supplemental" Objections, Affidavit ¶ 8, that his place of business was closed for some time between October 1988 and March 1989, and November 1990 to August 1991 is similarly unavailing. Just taking 9 months from 1988, 9 months from 1989, and 10 months from 1990 (the periods in which XXXXXX admits to doing business), XXXXXX admits to being in business for 28 months. Since he estimated to the Probation Office that he rolled an average of 50 vehicles monthly (PSR ¶ 47), he has therefore admitted to approximately 1,400 rollbacks. At $4,002 loss per vehicle, this would yield a total loss of $5,602,800, which would yield the same loss-based offense level increase as the PSR. See PSR ¶ 51 and Guideline 2F1.1(b)(1)(O). Thus, XXXXXX' assertion that he was out of business for certain periods is of no consequence to the Guideline calculation.[FN3]

FN3. XXXXXX' objection, Supplemental Objections ¶ 1, to the characterization of XXXXX XXXXXXXX and others as "floorplanners" is similarly of no consequence. The point the PSR makes in ¶ 29 is that the investigation did not unearth records of all of XXXXXX' vehicle purchases. That is, there are gaps in the government's documentation of XXXXXX' vehicles, so the 1,315 documented sales do not represent all of XXXXXX' rollbacks. XXXXX XXXXXX, whom XXXXXX identifies as a floorplanner (Supplemental Objection, ¶ 1), for example, was never located during the investigation. The 1,315 documented vehicles times a $4,002 loss per vehicle would yield a loss figure of $5,262,630, yielding the same offense level increase under Guideline 2F1.1 as that caused by the rollback of 2,000 vehicles. The PSR is merely making the point that the 1,315 figure is incomplete.
XXXXXX' Supplemental Objection (¶ 2 on p. 2, rather than ¶ 2 on p. 1) to PSR ¶ 29 misstates the PSR paragraph. PSR ¶ 29 merely states that XXXXX estimated that he rolled 1,000 odometers annually for XXXXXX. The PSR's conclusion that XXXXXX was responsible for a total of 2,000 rollbacks reflects a discounting of XXXXXX's estimate.

The conclusion of the PSR that XXXXXX was responsible for at least 2,000 rollbacks should be adopted by the Court. This number is a conservative estimate based on the investigative results and estimates of witnesses who lack XXXXXX' interest in minimizing the number of vehicles attributed to this scheme. It is also consistent with XXXXXX' own admissions to the Probation Office.

B. The PSR's determination of loss per vehicle of $4,002 is reliable.
XXXXXX objects to the PSR finding of an average loss per vehicle of $4,002. Objections, pp. 3 - 4, ¶¶ 3 - 5. XXXXXX' complaints are based on misunderstandings of the PSR, ignore facts relied on by the PSR, and rest on misapplication of Guidelines principles.

XXXXXX ignores the fact that the average rollback was 45,000 miles (PSR ¶ 41). XXXXXX argues that since his spinners generally changed only one digit (the 10,000 mile figure), the mileage change should be 40,000 miles. Objections, ¶ 3. However, 45,000 is the average of numerous rollbacks, so XXXXXX' analysis is illogical.

Similarly, XXXXXX' analysis (Objections, ¶ 3) of the percentage of life left on a car ignores the fact that the vehicles he sold already had an average of 85,000 miles on them. In considering the average remaining economic life of these cars, XXXXXX computes a potential loss to consumers of 26.7%, which is 40,000 divided by 150,000, which is a meaningless computation. XXXXXX assumes an average lifespan of a new vehicle to be 150,000 miles. Objections, ¶ 3. What XXXXXX ignores is that consumers knew these were not new cars. Consumers knew they were buying less than 150,000 useful miles. They were tricked as to the average remaining miles of life the cars they purchased were likely to have.

These cars already had 85,000 miles on them (PSR ¶ 41), which would result in an average remaining life of 65,000 miles (assuming a 150,000 mile lifespan). Rolling them back to an average of 40,000 miles gave them an average apparent remaining life of 110,000 miles. The 45,000 miles rolled off therefore represent approximately 41% of the 110,000 miles an average consumer would have reasonably thought remained of a car's useful life. The analysis of PSR ¶ 41 is entirely accurate.

XXXXXX' comment that vehicles with more than 100,000 miles could not have been part of his scheme (Objections, ¶ 4) is nonsensical. Typically, the spinners only changed the 10,000 mile digit of the odometer. PSR ¶ 29. This does not mean that a vehicle with more than 100,000 miles could not be reset to an apparent low mileage.

XXXXXX' argument regarding the average loss figure (Objections, ¶ 5) ignores the costs and losses consumers suffer. XXXXXX would prefer to focus on his gains, which were less than consumer losses. However, the Guidelines properly acknowledge that often losses exceed gains to the criminal. "The offender's gain from committing the fraud is an alternative estimate [of loss] that ordinarily will underestimate the loss." Guideline 2F1.1, Application Note 8. Consider by analogy the burglar who breaks into a home through a window, steals the stereo, and fences it for $100. The homeowner loses not only the stereo and suffers the cost of replacement, but must repair his broken window as well. Losses suffered by victims cannot fairly be measured by gains to criminals.

For a variety of reasons, the PSR finding of $4,002 average loss per vehicle is conservative, and should be adopted by the Court.

1. The Guidelines contemplate the use of estimates as those in the PSR.

Guideline 2F1.1(b)(1) provides for an increase in offense level based on the amount of loss contemplated by a scheme or course of conduct such as that here.[FN4] Further, the amount of "loss need not be determined with precision." Application Note 8. Rather, a "reasonable estimate" is contemplated, given "available information." Id.

FN4. Application Note 6 provides: "The cumulative loss produced by a common scheme or course of conduct should be used in determining the offense level, regardless of the number of counts of conviction." Application Note 7 provides: "[I]f an intended loss that the defendant was attempting to inflict can be determined, that figure will be used if it is greater than the actual loss."
The guidelines specifically contemplate an estimate as that in the PSR based on the "approximate number of victims and an estimate of the average loss to each victim." Application Note 8. Since November 1, 1991, the Guidelines have clarified how this estimate is to be accomplished in consumer fraud cases as this. Application Note 7(a) provides: "In a case involving a misrepresentation concerning the quality of a consumer product, the loss is the difference between the amount paid by the victim for the product and the amount for which the victim could resell the product received."[FN5]

FN5. This Application Note was effective November 1, 1991. Prior to that date, the Application Notes were silent on how to estimate the loss in consumer fraud cases. The clarification in Application Notes 7(a) and (b) operates to give the defendant credit for value given in fraud cases, contrary to developing case law that did not give such credit. See, e.g., United States v. Johnson, 908 F.2d 396, 398 (8th Cir., 1990) (amount of loss incurred by a bank making a loan on false representations was the entire value of loan without credit for value of collateral); United States v. Brach, 942 F.2d 141, 143 (2d Cir. 1991) (same). Accordingly, Application Note 7(a) merely clarifies the Guideline and benefits the defendant, so no ex post facto concern inhibits its consideration. See 18 U.S.C. § 3553(a)(4) (defendant to be sentenced pursuant to guideline in effect at sentencing).
As the PSR found (¶ 40), a car with a rolled back odometer has lost much of its value. This conclusion rests not only on investigative experience, but on the statutory scheme governing resale of vehicles.

When the odometer on a motor vehicle is altered, and the vehicle resold, it becomes impossible to know the vehicle's true mileage. As a result, such vehicles must be sold with notice to the buyer of an odometer discrepancy. See 15 U.S.C. § 1988(a).[FN6] Consumers resist purchasing cars branded as having an odometer discrepancy, which diminishes their value dramatically (PSR ¶ 40). Because there is little market for such cars, a precise value the defrauded consumer might obtain for a "clocked" car cannot be determined. However, the Guidelines do not require a precise evaluation. United States v. Wilson, 900 F.2d 1350, 1356 (9th Cir. 1990); United States v. Lohan, 945 F.2d 1214, 1219 (2d Cir. 1991).[FN7]

FN6. The regulations implementing 15 U.S.C. § 1988(a) are found in 49 C.F.R. § 580. The regulation requires that the odometer disclosure statement for a vehicle whose odometer does not have the vehicle's true mileage must state "that the odometer reading does not reflect the actual mileage, and should not be relied upon. This statement shall also include a warning notice to alert the transferee that a discrepancy exists between the odometer reading and the actual mileage." 49 C.F.R. § 580.5(e)(3). "True Mileage Unknown," or "TMU," is an industry colloquialism that refers to vehicles that must be sold with this disclosure.
FN7. Application Note 7, Guideline 2F1.1, notes that the valuation of loss discussion in the Commentary to Guideline 2B1.1 applies. See Wilson, 900 F.2d at 1356. Guideline 2B1.1, Application Note 2, notes that ordinarily fair market value of property taken is used to evaluate a loss. However, where the "market value is difficult to ascertain or inadequate to measure harm to the victim, the court may measure loss in some other way, such as reasonable replacement cost to the victim." Thus, the Probation Office was not obligated to calculate a precise fair market value for the TMU cars, and could have considered replacement cost.
Thus, the PSR's estimate is valid. Indeed, it is conservative. The discussion in PSR ¶¶ 41 - 42 aptly demonstrates the conservative nature of the PSR's finding. The conservative nature of the $4,002 estimate is further underscored by reference to recent studies.

2. Published Studies and Analyses Pertinent to Quantifying Consumer Losses Indicate Losses Far in Excess of $4,000.

a. Department of Transportation / Pennsylvania Attorney General Bureau of Consumer Protection Study.

In January 1993 the United States Department of Transportation released a study done for it by the Pennsylvania Attorney General's Bureau of Consumer Protection (Ex. 1 hereto). The study deals with odometer fraud. Section D of the study, "Monetary Damage to Consumers," states:

Many consumers and dealers have told the Pennsylvania Bureau of Consumer Protection and NHTSA odometer fraud investigators that they simply would not knowingly purchase a rolled back vehicle regardless of price. Therefore, the proper measure of damages would often be the entire price the consumer paid for the car.
(Ex. 1, p. 13.) Since the consumer purchase price itself can appropriately be seen as a valid loss figure,[FN8] the $4,002 figure in the PSR is conservative.

FN8. See also People v. Ross, 25 Cal. App. 3d 190, 195, 100 Cal. Rptr. 703 (1972) (holding that proper determination of theft in case involving odometer fraud is the full purchase price paid by the victim).
Another approach to viewing loss is through the use of "book value." See PSR ¶ 42, "Purchase price" and "Finance charges" paragraphs. The Pennsylvania study cites automotive industry publications that provide deductions from "book" value that are associated with mileage. The figures cited are six cents and ten cents per mile.[FN9] For a 45,000 mile rollback, this deduction would convert to a $2,700 (at six cents per mile) or a $4,500 (at ten cents per mile) fraud.

FN9. The six cents per mile figure was from Automotive Market Report (AMR), while the ten cents/mile estimate comes from Galves Auto Price List (Ex. 1, p. 14). Both are among the more reliable mileage deduction indicators in the industry, according to a recent industry publication. "According to resale dealers, . . . [t]he used-car guides that did the best job of adding/subtracting for high miles, in order, were AMR, NADA, Galves, Kelley Blue Book, Black Book, and Gold Book." Automotive Fleet, April 1993, p. 68 (Ex. 2). Note that the graphic on page 1 of this article lists the "Top Factors in Determining Resale Price," and the first factor is "Mileage."
However, for reasons discussed above, in PSR ¶¶ 40, 42, and in the study itself, such "book" value deductions underestimate the impact of this type of fraud. "Book" values compare two vehicles with honest odometers. At most, this reflects only loss associated with purchase price as such. The Pennsylvania study attempts to quantify various losses beyond initial purchase price that consumers face. The study reaches a figure of $6,653 as the total loss, not including amounts for various losses that are difficult to quantify (Ex. 1, p. 17.)

b. National Association of Fleet Resale Dealers Bulletin.

Corroboration for this analysis can be found in a February 1993 bulletin published by the National Association of Fleet Resale Dealers (NAFRD) (Ex. 3). The bulletin reported a 1992 study by Associates Leasing which showed that resale value of cars fall off markedly after 60,000 miles (Ex. 3, p. 2). The NAFRD bulletin reported an 18% drop in value at about 60,000 miles, and another 10% reduction at about 70,000 miles. In other words, this report indicates a drop in value of 28% at these two marks alone.

The NAFRD bulletin also included a table (on page 2) showing that variable costs per mile for a car increase slowly to about ten cents per mile at about 45,000 miles, but reach twenty cents per mile after about 80,000 miles. Using the average involved in this case, rolling an odometer from 85,000 to 40,000 (PSR ¶ 41) would thereby push a car from being a high cost per mile vehicle to falsely appearing to be a low cost per mile vehicle. The costs of operating such a vehicle will thus be considerably higher than expected as a result of the fraud. If these excessive operating expenses are ten cents per mile to repeat the 45,000 miles rolled off the odometer, the consumer would be paying another $4,500 in costs attributable to the fraud.

3. Summary

In sum, the PSR's loss figure is very conservative. The PSR's analysis is consistent with the Whitlow opinion, and more recent studies only underscore the conservative nature of the $4,002 loss figure.

C. XXXXXX' other objections and comments have no bearing on determining his offense level.
XXXXXX' argument that XXXXXX XXXXXXXXXXX could not have rolled back odometers for XXXXXX for 20 years (Objections, ¶ 2) is irrelevant. The offense conduct forming the basis of the PSR's Guidelines calculation took place in 1987 - 1990 (PSR ¶¶ 30, 33, 43), a period as to which there is no dispute regarding XXXXXXXXXXX's participation. The Court need only find that a determination of the dispute over the 20 year period is not necessary because the disputed fact will not be taken into account in calculating XXXXXX' sentence. See Whitlow, 979 F.2d at 1011.

The government takes no position regarding the differences between XXXXXX' and Larry Scott Bennett's accounts of XXXXXX' involvement in the shooting of Charles Vance's place of business (Objections, ¶ 6). In the plea agreement with XXXXXX, the government agreed not to argue for or against an obstruction increase based on these facts, but acknowledged its obligation to bring these matters to the attention of the Probation Office (see PSR ¶ 11). The PSR's discussion of these matters, including XXXXXX' statements to the Probation Office about them are found in PSR ¶¶ 23 - 26 and 45 - 46.

Finally, in Section III of his objections, XXXXXX discusses matters that are not relevant to a Guidelines determination.[FN10] XXXXXX' alleged medical conditions do not make him a "seriously infirm defendant" within the meaning of Guideline 5H1.4 so as to warrant home confinement. See United States v. Guajardo, 950 F.2d 203, 208 (5th Cir. 1991) (cancer, high blood pressure, fused right ankle, amputated leg, and drug dependency did not warrant 5H1.4 departure); United States v. Hilton, 946 F.2d 955, 957, 960 (1st Cir. 1991) (because condition could adequately be treated in prison, no 5H1.4 departure warranted -- defendant suffered from skin condition requiring up to 30 surgeries over 3 year period).

FN10. Note that the Sheriff of Trinity County indicated in his letter that XXXXXX has been a property owner in Trinity County "for many years." The presentence investigation disclosed no such assets. PSR ¶ 73.

The Court should adopt the finding of the PSR, with the small correction in note 1, supra.

Dated: November 2, 1993 Respectfully submitted:


___________________________ ABRAN MARTINEZ Assistant United States Attorney (713) 238-9445

___________________________ KENNETH L. JOST Assistant Director

___________________________ DOUGLAS W. STEARN Attorney

Office of Consumer Litigation P.O. Box 386 Washington, D.C. 20044 (202) 307-00488

[cited in Civil Resource Manual 170]