From a Fifth Circuit brief, October 1994. XXXXXXX also relies on the court's statement in Alborz
"the difference between defendant's purchase and sale prices sets
an outside limit to the amount of the loss." 818 F. Supp. at 1309.
The court reaches this conclusion by applying economic principles
the court views as requiring giving an odometer tamperer credit for
his "legitimate distributional activities", inasmuch as the
criminal in Alborz is seen as "perform[ing] an important
service to the economy[.]" Id.[FN2] But see
Richard A. Posner, "An Economic Theory of the Criminal Law," 85
Columbia Law Review 1193, 1195-96 (1985) (identifying fraud
as an inefficient bypassing of the market "no matter how much
utility it may confer on the offender").
3. The information considered by the district court formed
a proper basis for the loss estimate.
In determining the sentence, the district court noted that a
variety of sources of information and factors supported the loss
estimate. (Tr. 47, l. 1-6). The defendant contends on appeal that
this information was not adequate. Defendant cites United
States v. Alborz, 818 F. Supp. 1306 (N.D. Cal. 1993), for the
proposition that the value of "legitimate activities" must be
credited to him in computing the amount of loss. (Br. at 13-14).
Relying on Alborz, XXXXXX also contends that only
information about retail value could properly be used to determine
the loss estimate. However, Alborz is distinguishable on
its facts. Furthermore, Alborz disregards an important
principle of loss evaluation, leading to erroneous conclusions. It
has no application to the instant case.
In Alborz, the court stated:
the presentence report did not consider the effect of
any of this [detailing or rehabilitation] work on the value of the
cars sold and thus the victims' actual losses. There is no
suggestion that the detailing and rehabilitation work did not add
legitimate value to the cars.
818 F. Supp. at 1308. Indeed, in Alborz this issue was not
by the parties, but by the court. Id. at 1307-08, and n.1.
In the instant case, on the other hand, the PSR does discuss
"detailing" work. As stated above, the PSR notes that the vehicles
were "cosmetically improved" and that there was no evidence of
significant mechanical repairs. (PSR ¶ 28). The purpose of
these alterations was to disguise the vehicles so they would look
like the low mileage cars they were represented to be. (PSR ¶
36). This type of cosmetic "detailing" to conceal a vehicle's true
condition is typical of deceptive practices in the used car
industry. See Trade Regulation Rule Concerning the Sale of
Used Motor Vehicles, 49 Fed. Reg. 45692, 45701 (1984). The PSR
correctly rejects the notion that this part of the fraudulent
scheme somehow inures to the defendant's benefit in calculating
FN1. If these costs were to be considered a
"mitigating" item in valuation, then a defendant should be required
to survey his victims to learn the "value" to them of the cosmetic
improvements employed to disguise the true mileage of the vehicle.
(As discussed above, the burden is on the defendant to show
evidence contrary to the conclusions reached in the PSR.) The
defendant's cost of obtaining the services would vastly overstate
their value to the consumer who was gulled into purchasing the
vehicle on the basis of its false appearance.
FN2. Alborz cites an example of a Honda with
118,810 miles which the defendant sold at wholesale for
$6,400 represented as having 59,275 miles on the odometer. 818 F.
Supp. at 1307. Under common markups, a consumer somewhere likely
paid at least $8,000 for this vehicle which had over 118,000 miles
on it. To suggest that the consumer suffered a maximum of $1,600
damage under these circumstances (the difference between
defendant's purchase and sale price), demonstrates a total lack of
understanding of what in all likelihood befell that consumer who
thought the vehicle had, and paid $8,000 to obtain, many miles of
remaining useful service.
The Alborz court's analysis ignores controlling
regarding loss valuation. "A strict market approach measures only
gain to the defendant while virtually ignoring the harm suffered by
victim." United States v. Wilson, 900 F.2d 1350, 1356 (9th
1990). "That this measure of loss exceeds [defendant's] gain from
illegal business is of no moment." United States v. Kelly,
F.2d 702, 704 (9th Cir. 1993). In determining a sentence pursuant
U.S.S.G. § 2F1.1, the sentencing court is required to consider
to consumers, not net profit. See U.S.S.G. § 2F1.1,
Application Note 8 (an offender's gain from the fraud "ordinarily
underestimate the loss."). Indeed, Alborz is closer to an
abstract discussion of economic principles in an ideal marketplace
a realistic assessment of the costs borne by victims of odometer
In sum, this case is not like Alborz because the PSR
here did consider and properly rejected the proposition that the
defendant should get credit for the costs of disguising the true
mileage of the vehicles. Moreover, Alborz is, simply put,
The Guidelines specifically support estimations of loss beyond
consideration of retail values in appropriate cases. "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." U.S.S.G. §
2B1.1, Application Note 2.[FN3] Thus, the district court was not
obligated to calculate a fair market value for the clocked cars.
Instead, the court could have used replacement cost to determine
consumer loss. This would have resulted in a finding of consumer
harm far more than $4,002 per vehicle.
FN3. Application Note 7, Guideline 2F1.1, states that
the valuation of loss discussion in the Commentary to Guideline
2B1.1 applies. See Wilson, 900 F.2d at 1356.
Under the same principle the court could properly consider
from the PSR and the government's submissions that detailed losses
imposed on the owners of high mileage vehicles. These include
purchase prices, finance charges, insurance costs, taxes, and
costs, as well as lost time dealing with maintenance problems. (PSR
¶ 42; GSR, Ex. 1, pp. 14-17, & Ex. 3, p. 2). The dollar figures
attributed to these costs are not arbitrary, as XXXXXXX asserts.
To the extent the calculation of these types of losses are
imprecise, they have been construed to the defendant's benefit.
For example, the Pennsylvania Attorney General's Office study on
odometer tampering reaches a figure of $6,653 as the total loss,
not including amounts for various losses that are difficult to
quantify. (GSR, Ex. 1, p. 17.) Similarly, the National
Association of Fleet Retail Dealers' bulletin provides a basis for
a loss evaluation in excess of $4,000. The bulletin included a
table 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. (GSR, Ex. 3, p.
2). Using the average rollback involved in this case of 45,000
miles (PSR ¶ 29), rolling odometers with mileages between
70,000 and 110,000, such as those purchased by the conspirators
(PSR ¶ 28), 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.