In the Courts

Eighth Circuit Dissent Provides Passionate Rebuke of Guidelines Sentencing in High-Loss Fraud Cases

On Nov. 7, 2012, the United States Court of Appeals for the Eighth Circuit issued a relatively non-controversial opinion in United States v. Spencer, —F.3d.—, 2012 WL 5416151 (2012), in which the court ruled on several evidentiary challenges and upheld a below-guidelines sentence against a substantive reasonableness challenge. In his dissent from the majority's opinion, however, Circuit Judge Myron H. Bright offered a notably passionate and thoughtful critique of the U.S. Sentencing Guidelines as applied to high-loss fraud sentences. In his dissent, Judge Bright criticizes the reliance the sentencing guidelines place on loss in sentencing calculation, likening the injustice of this approach to the critiques levied by many critics regarding the emphasis of weight calculation in drug sentencing.

The case involved a real estate broker, John Anthony Spencer, who was found guilty by a jury with respect to 13 fraud-related counts for his role as the architect in a real estate fraud scheme. Id. at *1. The scheme began in 2005, when Spencer began recruiting buyers to participate in a series of fraudulent transactions, in which he and the staff at his real estate firm, Mortgage One, provided false information and documentation to lenders, including fraudulent appraisals, in order to generate additional funds for himself and the participating buyers. Id. Spencer was indicted on 10 counts of wire fraud and one count each of bank fraud, conspiracy to commit wire and bank fraud and money laundering under 18 U.S.C. ' 1957. Id. He was convicted on all counts and sentenced to 125 months' imprisonment and to pay $7,874,089.21 in restitution to the lenders that were defrauded as part of the scheme. Id.

Spencer challenged both his conviction and his sentence on a number of grounds, each of which was rejected by the Eighth Circuit. First addressing two evidentiary challenges, the court upheld the district court's decision to allow testimony by Spencer's accountant, rejecting Spencer's argument that the testimony was privileged merely because the accountant also held a license to practice law and received confidential information. Id. at 2-3. He also raised prejudice objections and challenged the district court's failure to give certain instructions relating to the appropriate weight to be given to the testimony provided by another witness ' arguments the court likewise rejected. Id. at 3.

With respect to his sentence, Spencer argued that the 125-month sentence and fine were substantively unreasonable, despite the fact that, with an offense level of 39, the guidelines range for Spencer's sentence was 262 to 327 months. Id. at 2. At sentencing, Spencer argued that his rocky upbringing as well as the even more lenient sentences provided in other similar cases justified a still greater departure from the guidelines. Id. at 3. The court upheld the sentence, holding that the district court reasonably rejected Spencer's arguments as well as his challenge to the amount of restitution awarded to the lenders. Id.

In his dissent, Judge Bright argued that the district court failed to provide sufficient explanation of its analysis of the factors presented under ' 3553(a) of the Sentencing Guidelines and that, therefore, the sentence should be remanded to require such explanation. Id. at 5. To allow for meaningful appellate review, sentencing judges are required to consider each of the factors under this section and to “make an individualized assessment based on the facts presented.” Gall v. United States, 552 U.S. 38, 50, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007). Judge Bright stressed in his dissent that “[i]t is impossible for an appellate court to meaningfully review a sentence without the underlying rationale. This is especially true in areas like fraud, where the guidelines have been consistently and repeatedly disregarded by sentencing judges.” Id. at 7.

Here, the district court's discussion of the ' 3553(a) factors consisted of the following two sentences: “The Court finds that the sentence imposed is appropriate and reasonable in light of the considerations set forth in 18 United States Code, Section 3553(a). The Court has taken into account the nature and circumstances of the instant offense, as well as the history and characteristics of the defendant and the need to avoid unwarranted sentence disparities, and finds that the sentence is sufficient, but not greater than necessary, to afford adequate deterrence to future criminal conduct.” Id. at 6. Agreeing that the district court properly disregarded the guidelines in sentencing Spencer, and noting in particular his lack of criminal history, Judge Bright nonetheless would have remanded the sentence based on procedural error, in that the district court's justification provided “no way to tell how the judge weighed the factors and ultimately why he chose Spencer's sentence.” Id.

Judge Bright went on in his dissent to provide a detailed discussion of his opinion that the sentencing guidelines with respect to high-loss fraud cases rely too heavily on loss calculations that, much like weight measures in drug sentencing, many believe unreasonably drive up sentences, particularly when considering other, perhaps more significant, factors such as criminal history and the seriousness of the offense. Id. at 8. Concluding his dissent, Judge Bright calls for Congressional review and “drastic changes” to the Sentencing Guidelines. Id. In the meantime, Judge Bright emphasized the need for sentencing judges to provide detailed analysis under ' 3553(a), as the current standard requiring that district judges merely state that they have considered the relevant factors gives sentencing courts “virtually unlimited” discretion. Id. at 9.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie Schafer and Matthew J. Alexander, respectively. Both are associates at Kirkland & Ellis LLP, Washington, DC.

Eighth Circuit Dissent Provides Passionate Rebuke of Guidelines Sentencing in High-Loss Fraud Cases

On Nov. 7, 2012, the United States Court of Appeals for the Eighth Circuit issued a relatively non-controversial opinion in United States v. Spencer, —F.3d.—, 2012 WL 5416151 (2012), in which the court ruled on several evidentiary challenges and upheld a below-guidelines sentence against a substantive reasonableness challenge. In his dissent from the majority's opinion, however, Circuit Judge Myron H. Bright offered a notably passionate and thoughtful critique of the U.S. Sentencing Guidelines as applied to high-loss fraud sentences. In his dissent, Judge Bright criticizes the reliance the sentencing guidelines place on loss in sentencing calculation, likening the injustice of this approach to the critiques levied by many critics regarding the emphasis of weight calculation in drug sentencing.

The case involved a real estate broker, John Anthony Spencer, who was found guilty by a jury with respect to 13 fraud-related counts for his role as the architect in a real estate fraud scheme. Id. at *1. The scheme began in 2005, when Spencer began recruiting buyers to participate in a series of fraudulent transactions, in which he and the staff at his real estate firm, Mortgage One, provided false information and documentation to lenders, including fraudulent appraisals, in order to generate additional funds for himself and the participating buyers. Id. Spencer was indicted on 10 counts of wire fraud and one count each of bank fraud, conspiracy to commit wire and bank fraud and money laundering under 18 U.S.C. ' 1957. Id. He was convicted on all counts and sentenced to 125 months' imprisonment and to pay $7,874,089.21 in restitution to the lenders that were defrauded as part of the scheme. Id.

Spencer challenged both his conviction and his sentence on a number of grounds, each of which was rejected by the Eighth Circuit. First addressing two evidentiary challenges, the court upheld the district court's decision to allow testimony by Spencer's accountant, rejecting Spencer's argument that the testimony was privileged merely because the accountant also held a license to practice law and received confidential information. Id. at 2-3. He also raised prejudice objections and challenged the district court's failure to give certain instructions relating to the appropriate weight to be given to the testimony provided by another witness ' arguments the court likewise rejected. Id. at 3.

With respect to his sentence, Spencer argued that the 125-month sentence and fine were substantively unreasonable, despite the fact that, with an offense level of 39, the guidelines range for Spencer's sentence was 262 to 327 months. Id. at 2. At sentencing, Spencer argued that his rocky upbringing as well as the even more lenient sentences provided in other similar cases justified a still greater departure from the guidelines. Id. at 3. The court upheld the sentence, holding that the district court reasonably rejected Spencer's arguments as well as his challenge to the amount of restitution awarded to the lenders. Id.

In his dissent, Judge Bright argued that the district court failed to provide sufficient explanation of its analysis of the factors presented under ' 3553(a) of the Sentencing Guidelines and that, therefore, the sentence should be remanded to require such explanation. Id. at 5. To allow for meaningful appellate review, sentencing judges are required to consider each of the factors under this section and to “make an individualized assessment based on the facts presented.” Gall v. United States , 552 U.S. 38, 50, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007). Judge Bright stressed in his dissent that “[i]t is impossible for an appellate court to meaningfully review a sentence without the underlying rationale. This is especially true in areas like fraud, where the guidelines have been consistently and repeatedly disregarded by sentencing judges.” Id. at 7.

Here, the district court's discussion of the ' 3553(a) factors consisted of the following two sentences: “The Court finds that the sentence imposed is appropriate and reasonable in light of the considerations set forth in 18 United States Code, Section 3553(a). The Court has taken into account the nature and circumstances of the instant offense, as well as the history and characteristics of the defendant and the need to avoid unwarranted sentence disparities, and finds that the sentence is sufficient, but not greater than necessary, to afford adequate deterrence to future criminal conduct.” Id. at 6. Agreeing that the district court properly disregarded the guidelines in sentencing Spencer, and noting in particular his lack of criminal history, Judge Bright nonetheless would have remanded the sentence based on procedural error, in that the district court's justification provided “no way to tell how the judge weighed the factors and ultimately why he chose Spencer's sentence.” Id.

Judge Bright went on in his dissent to provide a detailed discussion of his opinion that the sentencing guidelines with respect to high-loss fraud cases rely too heavily on loss calculations that, much like weight measures in drug sentencing, many believe unreasonably drive up sentences, particularly when considering other, perhaps more significant, factors such as criminal history and the seriousness of the offense. Id. at 8. Concluding his dissent, Judge Bright calls for Congressional review and “drastic changes” to the Sentencing Guidelines. Id. In the meantime, Judge Bright emphasized the need for sentencing judges to provide detailed analysis under ' 3553(a), as the current standard requiring that district judges merely state that they have considered the relevant factors gives sentencing courts “virtually unlimited” discretion. Id. at 9.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie Schafer and Matthew J. Alexander, respectively. Both are associates at Kirkland & Ellis LLP, Washington, DC.