Case o' The Week: Ninth Sputters About Loss Amount, Tulaner

Know much about platinum sputtering disks? Neither do we, except that they're wicked expensive - $200,000 a pop. In an important (though brief) new case on loss amount in fraud cases, Judge Tallman upholds hitting a defendant with twelve of these disks for sentencing (a loss of $2.3 million), although the defendant only negotiated for delivery of four ($800k) before he was arrested. United States v. Tulaner, __ F.3d __, 2008 WL 80703 (9th Cir. Jan. 9, 2008), decision available here. Disappointing new rule on fraud loss calculation under USSG § 2B1.1 Application Note 17 -- attempted fraud.

Players: Decision by Judge Tallman, dissent by Judge Thomas.

Facts: Tulaner cooked up a scheme to purchase platinum “sputtering disks” without paying for them. 2008 WL 8073, *1. These disks, used in semiconductor chip manufacture, were worth roughly $200k each. He tried to purchase twelve ($2.3 million worth) on credit, and when that didn’t work agreed to start out with a shipment of four. Id. The seller got suspicious, alerted the feds, and they delivered a fake package for the four in the initial shipment. Id.

Tulaner pleaded guilty to one count of wire fraud, and over his objection at sentencing was hit for relevant conduct for all twelve disks ($2.3 million), instead of for the four disks “delivered” ($700k to $800k).

Issue(s): “Tulaner argued that even if the district court properly found that he intended to steal all twelve discs, he should have received an ‘attempt reduction’ for a partially completed offense . . . Tulaner argues that because the count of wire fraud to which he pled guilty was based on a phone call made on the day of his arrest, after the package he believed contained four sputtering discs had been delivered, the call was made to obtain four discs, not all twelve. Therefore, he argues, the ‘completed offense’ of wire fraud involved a scheme to obtain four discs and the scheme to defraud JMI out of twelve discs for a total loss of $2.3 million was only ‘partially completed’ entitling him to the attempt reduction.” Id. at *3-*4.

Held: “[I]n the case of wire fraud, the attempt reduction for partially completed offenses is inapplicable even where, as here, the substantive content of the wire transmission for which the defendant is convicted relates to only part of the overall scheme to defraud . . . The fact that Tulaner would have had to take additional steps to get the other eight discs is irrelevant to determining whether the substantive scheme to defraud by mail or wire had been completed.” Id. at *4.

Of Note: This entire (troubling) case is about calculating relevant conduct for intended loss in fraud cases. It is an important (albeit brief) opinion on that issue. The issue of most interest is the discussion of Guideline § 2B1.1 Application Note 17, which allows for a reduction of intended loss for a “partially completed offense” (such as a fraud that is part of a larger, attempted fraud).

By its plain words, Note 17 seems to apply squarely to this case – a point forcibly made in a persuasive dissent by Judge Thomas. Id. at *5. Judge Thomas agrees that the intended loss is for all twelve disks, but under Note 17 would have reduced the loss amount to the value of the four disks to be delivered on the first shipment. Id. The dissent squares with prior Ninth Circuit authority on the issue; the majority opinion's attempt to distinguish that authority is not terribly persuasive. Id. at *4 & n.2.

How to Use: Judge Tallman draws a (fine) distinction between an earlier Ninth Circuit case that endorsed the "attempted fraud" reduction in Application Note 17. It appears that the new rule is that a defendant can get the Note 17 “attempt” reduction if there are additional steps necessary “to complete the substantive offense.” Id. One doesn’t get the reduction, however, if the substantive offense (such as one count of wire fraud) is completed, with other fraudulent activity to follow.

Frankly, that new rule is not supported in the text of the note – anticipate much litigation about whether a fraud case is a “completed substantive offense” (Tulaner) or an incomplete substantive offense still resulting in conviction (United States v. Martinez-Martinez, 156 F.3d 936, 940 (9th Cir. 1998)). The former doesn’t get the benefit of Note 17, the latter does, and the difference can mean a huge swing in the offense level.

For Further Reading: For an interesting article on how the guidelines deal with loss, see Frank Bowman, Coping with “Loss:” A Re-Examination of Sentencing Federal Economic Crimes Under the Guidelines, 51 Vand. L. Rev. 461 (1998).

(Professor Bowman, unfortunately, lost much goodwill among the defense bar when he proposed the “topless guidelines” after Blakely – a position that he later recanted. See testimony here.)

Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org.

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