NOTE: This is a continuation from Civil Resource Manual 183 Civil Resource Manual at 183.
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 (Att. C). 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.
(See Att. C, p. 13.) Since the consumer purchase price itself can appropriately be seen as a valid loss figure, the $4,000 figure set forth in the presentence report is altogether reasonable.
Another approach to viewing loss is through the use of "book value." 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.[FN10] For a 40,000 mile rollback, this deduction would convert to a $2,400 (at six cents per mile) or a $4,000 (at ten cents per mile) fraud. See also Att. A, Morse Declaration.
FN10. The six cents per mile figure was from Automotive Market Report (AMR), while the ten cents/mile estimate comes from Galves Auto Price List (Att. C, 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 (Att. D). 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 the Declaration of Richard Morse, 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 (Att. C, p. 17).
b. National Association of Fleet Resale Dealers Bulletin
This analysis is corroborated by a study reported in a February 1993 bulletin published by the National Association of Fleet Resale Dealers (NAFRD). The bulletin reported a 1992 study by Associates Leasing which showed that resale value of cars fall off markedly after 60,000 miles (See Att. E, 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 67,746 miles to 28,923 miles would 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 38,823 miles rolled off the odometer, the consumer would be paying another $3,823 in costs attributable to the fraud.[FN11]
FN11. Losses suffered by victims cannot fairly be measured by gains to criminals. It is for reasons such as those discussed in the text that the Guidelines provide that "[t]he offender's gain from committing the fraud . . . 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.
c. Other Sentencing Findings
The Fifth Circuit has affirmed a district court's finding of $4,000 loss per car in an odometer rollback case. United States v. Whitlow, 979 F.2d 1008, 1012 (5th Cir. 1992) (per curiam). Three other district courts have adopted the same $4,000 per car loss figure. See United States v. Welch, Cr. No. 93-300004-F (D. Mass. Oct. 19, 1993); United States v. Cooper, Cr. No. HCR 92-0149 (N.D. Ind. March 3, 1993); United States v. Coker, Cr. No. H-92-00089 (S.D. Tex. Aug. 7, 1992).
In Whitlow, the district court had noted that the National Automobile Dealers Association guide for used car values stated that "High Mileage" deductions should not reduce the value of a vehicle by more than forty percent. Accordingly, the district court calculated the loss per vehicle as forty percent of the average $10,000 retail purchase price of the cars. This resulted in a loss per car of $4,000, which the Fifth Circuit said was plausible in light of the record as a whole. Id. In Whitlow, the Government provided the probation office and district court information similar to that provided here. The analysis of the Fifth Circuit in Whitlow is directly applicable. As in Whitlow, the cars the defendants sold had an average sale price of approximately $10,000. If the loss per vehicle is calculated again at forty percent of the average retail purchase price, the loss per vehicle would again amount to $4,000.
B. The fraud loss is not diminished because of the condition of the vehicles
The defendant asserts that the loss is overstated because the vehicles were in "good condition," and were "driven on the highway" (Defendant's Sentencing Memorandum at 3). He rationalizes that because "highway driving does not reduce the engine efficiency to the same extent as other driving" (id.), the loss could not be as great as stated in the presentence report. Defendant provides no support for this assertion. Automobile industry price guides for used cars, such as the Galves book mentioned above, in no way distinguish between "highway" miles and other miles when determining the value of a car based on mileage.
Furthermore, any mechanical or body work performed on the vehicles before being sold was merely to mask their true condition as road-weary cars with 65,000, 75,000, or even 100,000 miles on them. For defendant to now state that the fraud loss calculation should be diminished because he caused the cars to appear to have less mileage than they had truly is a circular argument. He is being sentenced for fraudulently selling cars with altered odometers, an endeavor in which he succeeded for over six years. His argument fails to consider that in cosmetically enhancing the appearance of the vehicles, he enabled the deception and fraud to remain unnoticed.
The presentence report loss estimate of $4,000 per car is well-supported. This estimate, if anything, is conservative when compared to the size of the rollbacks, the prices consumers paid for these cars, and to published studies or "book" values. This estimate, moreover, is consistent with findings of other courts confronted with opposing views regarding loss at sentencing hearings.
The substantial loss consumers face results from the reality that clocked vehicles have but a fraction of the value of a car with known low mileage, which is what the consumers thought they purchased. A consumer with a clocked car is in a poor position to discover the true mileage of the vehicle, and faces the fact that dealers simply do not want to purchase clocked cars at all.[FN12]
FN12. Dealers holding a clocked vehicle may have the knowledge and resources to determine the vehicle's approximate actual mileage. This, along with their business contacts, may allow them to resell the vehicle at a price resulting in less than a total loss. Most consumers trying to "unload" a clocked vehicle will not have the resources and knowledge to research the mileage and find a buyer willing to pay more than a fraction of what the consumer had paid for the vehicle.
Moreover, the losses generated by odometer-tampering activities are generally suffered by those persons least able to afford them. Buyers of used cars include elderly people on fixed incomes, younger people who have not yet earned enough to afford new cars, and others who, for many reasons, are simply unable to buy new cars.
Additionally, and perhaps more importantly, rolling back a car's odometer directly affects the safety of the car. Indeed, in enacting the federal odometer laws, Congress expressly found that "an accurate indication of the mileage traveled by a motor vehicle assists the purchaser in determining its safety and reliability." 15 U.S.C. § 1981. See also Att. A, Morse Declaration, ¶ 8 (odometer tampering prevents purchasers from using the car's mileage as a reliable guide for proper maintenance).[FN13]
FN13. The importance of this fact is illustrated by the manufacturers' owners' manuals that accompany new cars. Most, if not all, of these manuals tie the schedule for preventive maintenance and parts replacement to the car's actual mileage. If a car's odometer has been rolled back, the individual operating the vehicle will not be aware that the car's actual mileage is vastly in excess of the odometer reading. As a result, the individual is much less likely to have preventive maintenance performed, and accordingly, is more likely to be involved in accidents due to mechanical failure. See Att. A, Morse Declaration, ¶ 8. Here, the typical or average rollback by the defendant was approximately from 67,746 miles to 28,923 miles. A change of this magnitude is likely to alter drastically the perceived maintenance needs of a car. Moreover, the threat to safety represented by a single rollback is multiplied when a criminal operation like the defendants' changes the odometers on hundreds of cars.
In short, the harm caused by the defendant's odometer fraud scheme not only includes the monetary damages incurred by the hundreds of customer victims, but also higher safety risks.
III. The defendant should not receive a downward departure under U.S.S.G. § 5K2.13 for diminished capacity
XXXXX contends that this Court should grant him a downward departure because he has been diagnosed as suffering from manic depressive illness. He argues that this illness caused him to "impair his occupational judgments" (Defendant's Sentencing Memorandum at 7), and that therefore this illness caused "erratic and compulsive behavior" which compelled him to commit the instant offenses. As support, defendant offers a letter from a psychiatrist who treated him in 1982, and again since 1993. However, defendant offers no medical records documenting his illness for the time period involved in this conspiracy: 1987-1993.
A. The Law Regarding Downward Departures
A district court must sentence within the applicable Guideline range, unless the court finds that there exist mitigating circumstances of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission. United States v. Tsai, 954 F.2d 155, 164 (3d Cir.), cert. denied, 113 S.Ct. 93 (1992); United States v. Kikumura, 918 F.2d 1084, 1098 (3d Cir. 1990); 18 U.S.C. § 3553(b); U.S.S.G. §§ 1A.4(b), 5K2.0. This injunction is mandatory. United States v. Uca, 867 F.2d 783, 786 (3d Cir. 1989).The burden of proving such a mitigating factor is on the defendant and must be by a preponderance of the evidence. United States v. Sheffer, 896 F.2d 842, 846 (4th Cir.), cert. denied, 498 U.S. 968 (1990). Cf. Kikumura, 918 F.2d at 1100-1102 (clear and convincing standard for large departures).
B. Diminished mental capacity
Criminals and social scientists, for different reasons, often seek to "explain" criminal behavior by reference to mental illness. However, mental and emotional conditions ordinarily are not relevant to the issue of sentencing outside the Guideline range. United States v. Rosen, 896 F.2d 789, 792 (3d Cir. 1990);[FN14] U.S.S.G. § 5H1.3.FN14. In Rosen, an extortionate letter writer diagnosed as a compulsive gambler was denied a downward departure. United States v. Rosen, supra, 896 F.2d at 791 n.2.Section 5K2.13 ("Diminished Capacity") provides a narrow window, but it requires more than a post hoc rationalization to justify the radical step of a downward departure. Under § 5K2.13, a lower sentence "may be warranted" where the defendant "suffer[ed] from significantly reduced mental capacity not resulting from voluntary use of drugs or other intoxicants . . . which . . . contributed to the commission of the offense." Thus, the Guideline directly raises the issues of severity of any reduced mental capacity ("significantly reduced") and of a causal or contributory link between that reduced capacity and the criminal acts ("contributed"). United States v. Piervinanzi, 23 F.3d 670, 675, 684-85 (2d Cir.), cert. denied, 115 S. Ct. 267 (1994) (departure denied for post-traumatic stress disorder in money laundering case); United States v. Munoz-Realpe, 21 F.3d 375, 379 (11th Cir. 1994).
Reduced mental capacity means some significant impact on cognitive function or a significant inability to absorb or process information or to reason. United States v. Frazier, 979 F.2d 1227, 1229-30 (7th Cir. 1992); United States v. Johnson, 979 F.2d 396, 401 (6th Cir. 1992); United States v. Hamilton, 949 F.2d 190, 193 (6th Cir. 1991).
A diagnosis of mental illness, even if serious, is not enough. Frazier, 979 F.2d at 1229-30 (cannot assume that diagnosed suicidal depression automatically contributes to crime). The illness must be found to have created a reduced ability to reason or to absorb and process information, and that deficit must be significant and have contributed to the crime, or XXXXX's motion must fail. See United States v. Gentry, 925 F.2d 186, 188 (7th Cir. 1991) (food tampering case, diagnosis of emotional problems; departure vacated for consideration of severity and causation factors); accord, United States v. Chigbo, 38 F.3d 543, 546 (11th Cir. 1994).
1. "Significantly reduced" mental capacity
XXXXX concedes that he intended to commit the offenses and was aware he was committing crimes when he undertook to roll back odometers on used motor vehicles. He therefore is admitting that he carefully and in calculating fashion established and controlled numerous phony wholesale dealerships with the sole purpose of rolling back odometers. For each dealership he established, he recruited someone else to front the dealership, he advised them on how to set up a wholesale dealership, and controlled the flow of money in and out of the dealership's bank account. In elaborate fashion, he moved money amongst various bank accounts in an attempt to disguise himself as the individual in control of the proceeds of the scheme. If a "straw" was caught submitting altered titles to the New Jersey Department of Motor Vehicles, his business was shut down, and another one started.
XXXXX himself was responsible for most of the "artwork" in altering the titles for the vehicles, which involved the use of pens, razors, and typewriters. He also created stationery and notary public and sales tax stamps that would disguise a vehicle's true title history. He falsified letters from previous owners of the cars, and submitted forged lien releases and powers of attorney in order to retitle the cars in New Jersey.
Once it was clear that he was being investigated, XXXXX also advised those who had worked for him against retaining counsel until an indictment was produced. This clearly was self-serving advice, designed to prevent others from implicating him in the conspiracy. Yet despite this elaborate, longterm scheme, he asserts that his behavior was "erratic" because of manic depressive illness. It is noteworthy that the only documented treatment for depression XXXXX received after 1982 was after he knew he was under federal investigation.
XXXXX's arguments must fail. Although he contends that he has suffered from manic depressive illness for some thirty-five years, he managed to operate several used car businesses during that same time period, during which he never was arrested for involvement in illegal activities. His friends and family portray him as a reliable, generous man who can be counted on in times of need and who is genuinely concerned with their welfare. As noted above, he conceived and directed a complex, comprehensive, long-term scheme to defraud used car buyers. Even if his behavior could be termed "erratic," it in no way can be attributed to "significantly reduced mental capacity."
As is evident, XXXXX demonstrated social skills, mental agility, and the capacity to make rational decisions in his own interest. His familial, professional, social, and criminal activities are wholly inconsistent with a person suffering impaired self-control or an inability to make reasoned decisions. Piervinanzi, 23 F.3d at 675, 684-85 (defendant's actions belied one whose mental capacity was significantly reduced). Nothing in the real world indicates that XXXXX suffered a significant inability "to process information or to reason." Johnson, 979 F.2d at 401; Hamilton, 949 F.2d at 193 (downward departure denied where defendant was "able to absorb information in the usual way and to exercise the power of reason").
In Johnson, a defendant with a "severe adjustment disorder" and convicted of a two-year fraud scheme was denied a Section 5K2.13 downward departure. Johnson, 979 F.2d at 401 (defendant demonstrated considerable mental agility in affairs personal and professional). Similarly, in United States v. Soliman, 954 F.2d 1012 (5th Cir. 1992), a downward departure was denied to a pornographer for whom experts testified that depression contributed to his crime. Id. at 1013-14. The district court stressed that such a conclusion flew in the face of the empirical facts that the defendant worked at a good job, wrote articles and was a good employee. Id. at 1014.
XXXXX is no different than Johnson and Soliman. As such, he cannot sustain his burden to show he suffered from "significantly reduced mental capacity."[FN15]FN15. Nor does the case law cited by XXXXX lend support for his position. In United States v. Lewinson, 988 F.2d 1005, 1006 (9th Cir. 1993), a downward departure for diminished capacity was upheld where the defendant had unspecified, but "long-standing psychological problems." The exact nature of those problems is not explained, nor is it clear from the Ninth Circuit's opinion that Lewinson's crime in any way matched the breadth, complexity, and planning accomplished by XXXXX over the six years that his odometer fraud activities lasted, and which realistically could not have been carried on by one suffering from "significantly reduced mental capacity." Similarly, in United States v. Glick, 946 F.2d 335, 339 (4th Cir. 1991), the Fourth Circuit upheld a downward departure under U.S.S.G. § 5K2.13 where the defendant's disorder "impaired his ability to cope with stress" such that he became self-destructive. XXXXX does not claim he cannot cope with stress, and has shown no signs of being self-destructive. Indeed, each time one of his co-defendants was caught with altered titles, he shut down the "straw" company and consciously started up a new business to carry on the fraud.Finally, XXXXX's citation to United States v. Gaskill, 991 F.2d 82 (3d Cir. 1993) is wholly inappropriate. In Gaskill, the Court remanded the case for sentencing based on the district court's belief that it was prohibited from granting a downward departure based on extraordinary family circumstances. There, Gaskill's wife suffered from serious mental illness and was not only house-bound, but largely bedridden. The Court found that a downward departure of but two months would allow Gaskill to remain home and care for his invalid wife. Unlike XXXXX, Gaskill's wife was unable to perform simple tasks such as "balanc[ing] a checkbook or mak[ing] correct change." 991 F.2d at 84. XXXXX's argument that allowing a downward departure to care for a mentally ill wife equates with this Court granting a departure to someone who for six years orchestrated a complex web of deception and fraud is wholly without merit.
2. XXXXX's use of alcohol and drugs
Another prerequisite to the application of the diminished capacity downward departure is that the defendant's mental condition cannot have resulted from "voluntary use of drugs or other intoxicants." XXXXX admitted he was a drug and alcohol abuser for many years, coinciding with his claimed treatment for manic depressive illness. Significantly, the psychiatric evaluation of XXXXX ordered by this Court included a diagnosis of XXXXX as having "Mixed Substance Abuse" (Psychological Evaluation Report of XXXXXX XXXXX, Ph.D., at 6). DX. XXXXX's report also noted that "MX. XXXXX's years of alcohol abuse may also have taken their toll on some of his cognitive capabilities" (id.). This was also referred to in the Psychiatric Evaluation of DX. XXXXXX.
XXXXX's heavy drinking and use of illegal drugs was totally voluntary. Clearly XXXXX cannot seek a downward departure based on a condition for which he is responsible.
As to causation, XXXXX's crimes involved many discrete affirmative acts of planning and deceit spanning over six years. He has failed to show how his alleged condition specifically contributed to these criminal acts -- forging names, falsifying motor vehicle titles, recruiting others to act as "fronts" for him, to name but a few such acts. He has simply failed to meet his burden of proving that he suffered a significantly reduced mental capacity at the time of his crimes and that this reduced capacity contributed to his many crimes by impairing his ability to make reasoned decisions. United States v. Cantu, 12 F.3d 1506, 1512 (9th Cir. 1993).
For the reasons discussed above, the United States respectfully recommends that the Court accept the facts, offense level computation, and guideline range contained in the presentence report. The government also urges the Court to deny the defendant's motion for a downward departure for diminished capacity.
MICHAEL R. STILES United States Attorney Eastern District of Pennsylvania
_____________________________ LINDA I. MARKS Attorney Office of Consumer Litigation P.O. Box 386 Washington, D.C. 20004 (202) 307-0060 Dated: _____________________