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Civil Resource Manual

180. Sample Government Alborz Memorandum -- Fifth Circuit

 From a Fifth Circuit brief, October 1994.  

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 raised 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 losses.[FN1]

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.
XXXXXXX also relies on the court's statement in Alborz that "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").
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 admonitions regarding loss valuation. "A strict market approach measures only the gain to the defendant while virtually ignoring the harm suffered by the victim." United States v. Wilson, 900 F.2d 1350, 1356 (9th Cir. 1990). "That this measure of loss exceeds [defendant's] gain from the illegal business is of no moment." United States v. Kelly, 993 F.2d 702, 704 (9th Cir. 1993). In determining a sentence pursuant to U.S.S.G. § 2F1.1, the sentencing court is required to consider loss to consumers, not net profit. See U.S.S.G. § 2F1.1, Application Note 8 (an offender's gain from the fraud "ordinarily will underestimate the loss."). Indeed, Alborz is closer to an abstract discussion of economic principles in an ideal marketplace than a realistic assessment of the costs borne by victims of odometer fraud.

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, wrongly decided.

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 evidence from the PSR and the government's submissions that detailed losses imposed on the owners of high mileage vehicles. These include inflated purchase prices, finance charges, insurance costs, taxes, and repair 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. (Br. 13).

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.