The Third Circuit dropped what could be a groundbreaking sentencing decision Nov. 30 when it invalidated the use of intended loss as a sentencing enhancement.
The court in United States v. Banks held that the loss enhancement in the US Sentencing Guidelines’ commentary “impermissibly expands the word ‘loss’ to include both intended and actual loss.”
If the decision stands, the holding will have an immediate impact in the Third Circuit, and it may spread elsewhere as defendants raise the same challenge in other circuits. The government is considering an appeal.
The loss guideline in Section 2B1.1(b)(1) states that the base offense level should be increased based on a graduated scale. The overall offense level, along with the criminal history category, determines the guideline range, which district courts take into account when deciding a sentence.
Loss Amount Crucial for Sentencing
The loss amount can drastically impact the guidelines’ sentence range. For instance, a $5,000 loss amount would involve no increase to the base offense level for wire fraud, which would result in a sentencing range of 0–6 months for a first-time offender without other enhancements. In contrast, if the same conviction involved a $1 million loss, it would result in a 14-level loss enhancement and yield a guideline range of 37–46 months.
Until Banks, courts have treated intended loss the same as actual loss when calculating the offense-level increase under Section 2B1.1(b)(1). This is because Application Note 3(A)(ii) instructs that the general rule for calculating loss is that “loss is the greater of actual loss or intended loss,” and that intended loss “means the pecuniary harm that the defendant purposely sought to inflict.”
The government and defendants are therefore left to argue the state of mind of the defendant and, specifically, whether the defendant sought to cause the victim any pecuniary loss, in the absence of an actual loss. In cases involving theft of trade secrets or securities law violations, intended loss—as opposed to actual loss—is frequently relied upon by prosecutors to massively inflate the sentencing guidelines range a defendant will face.
However, this is no longer true in the Third Circuit because the Banks court held that the intended loss application note improperly expands the Section 2B1.1(b)(1) loss guideline. The panel observed that courts previously applied Auer deference—based on the US Supreme Court’s decision in Auer v. Robbins—by deferring to the sentencing commission’s interpretation of its own regulations unless it was plainly erroneous or inconsistent with the guideline.
The Third Circuit reasoned that the Supreme Court’s decision in Kisor v. Wilkie modified that approach. The court explained that, under Kisor, a court must “exhaust all the ‘traditional tools’ of construction,” including the “text, structure, history, and purpose of a regulation,” and determine that the regulation is genuinely ambiguous before relying on the application notes.
Even then, the court added, it must make an “independent inquiry” into the “character and context of an agency’s interpretation” to decide if it falls within the regulation’s “zone of ambiguity” and can have controlling weight.
Applying Kisor to the application note, the court held that the plain meaning of “loss” in the context of Section 2B1.1 is “actual loss” based on its dictionary definition, and it does not include “intended loss.” Instead, it is “the loss the victim actually suffered.”
The court accorded the “commentary no weight” and remanded for resentencing.
Influential Decision
The Banks decision presents a sea change, at least in the Third Circuit, as to how district courts should calculate guidelines ranges in white collar cases involving intended losses. The cases are relatively common when a defendant is arrested or charged before the victim suffers an actual loss.
Defense counsel in other jurisdictions with cases involving an alleged intended loss should consider challenging the intended loss application note during sentencing, at least to preserve the issue.
Given the likelihood of a circuit split—and the disparity in sentences from jurisdiction to jurisdiction that could arise from such a split—it would not be surprising if the sentencing commission sought to revise the guideline or for the Supreme Court to resolve the issue.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Michael F. Dearington is an associate with ArentFox Schiff, where his practice focuses on complex civil litigation, white-collar defense, and government investigations and enforcement.
Peter R. Zeidenberg is a partner with ArentFox Schiff, where he represents individuals and business organizations in white-collar criminal matters. Earlier in his career, he spent 17 years as a federal prosecutor at the DOJ.