Monday, March 22, 2010

Sentence vacated and remanded where the district court did not properly apply U.S.S.G. 2C1.1(b)(2) to determine the amount of a "benefit received"

In United States v. Lianidis, No. 09-1165 (D.NJ 03/19/10), the Court of Appeals vacated and remanded for re-sentencing where the district court did not properly apply section 2C1.1(b)(2) - a guideline provision which determines the amount of a “benefit received” for sentencing purposes.

Lianidis was the president of DMS, a computer engineering company founded by her husband. DMS was subsequently awarded government contracts to set up computer systems for the FAA. These contracts were awarded by a longtime friend of Lianidis, Darrell Woods (an employee of the FAA), who had received numerous cash payments (i.e bribes) from Lianidis which totaled over $150,000. While the contracts were secured with bribes, the work performed by Lianidis’ company was deemed “legitimate.” Thereafter, over a six year period, the FAA paid Lianidis’ company more than $6.7 million dollars.

Because of the bribes, Lianidis was indicted and pled guilty to three counts of bribery of a federal employee. Of importance, there was a plea agreement which expressly stated there was no agreement under § 2C1.1(b)(2) as to the calculation of “value, benefit, and loss.” This was the subject of dispute at sentencing and then again on appeal.

Prior to sentencing, the probation office recommended a 16-level increase, under § 2C1.1(b)(2), concluding that the “benefit received” by Lianidis was between $1,000,000 and $2,500,000. At sentencing, the district court agreed - the court calculated the “benefit received” using two approaches: the first was the “Landers approach” (based on United States v. Landers, 68 F.3d 82 (5th Cir. 1995)); and the second was the “salary approach.” The "Landers approach" calculates “benefit received” by deducting direct costs, but not indirect costs, from the gross proceeds of the illegally obtained contracts. The “salary approach” uses the salaries earned as a proxy for the “benefit received.”

Using both approaches, the district court found that the “benefit received” was in excess of $1,000,000. Consequently, the 16 level enhancement under § 2C1.1(b)(2) was applied which increased Lianidis’ base offense level to 25. With a criminal history category I the advisory guideline range was 57 - 71 months. Due to Lianidis’ personal circumstances, the Court granted a nine month downward variance and sentenced her to 48 months imprisonment. Lianidis appealed.
On appeal, Lianidis argued that the district court erred both in the application and use of the “Landers approach” as well as the use of the “salary approach.” And, as a result, Lianidis argued the district court committed clear error in its application of the 16-level enhancement.

First, with regard to the “Landers approach,” Liandis argued that the “benefit received” should be calculated by subtracting “legitimate costs” from the gross revenue - a slightly different approach than the method used in Landers. The Third Circuit disagreed. The Court, referring to an application note of § 2C1.1, observed the phrase “benefit received” was discussed in terms of “net value” and “profit.” With regard to “net value” the Court, relying on Landers, found that only "direct costs" should be subtracted because “indirect costs, like bribes, do not impact the harm caused by the bribery, and allowing the deduction of interest costs would foster inconsistency in sentencing.”

Liandis argued in the alternative, should the Court apply the "Landers approach," that "direct costs" should include both company overhead as well as her and her husband’s salaries. In response, the Third Circuit again referred to Landers to determine what constituted a “direct cost.” After providing lengthy definitions of both “direct” and “indirect costs,” the Court stated “succinctly whether a cost is direct or indirect depends on whether it can be easily attributable to the specific contract at issue.” In Lianidis’ case, the district court concluded (without explanation) that the company overhead and salaries were not “direct costs.” Consequently, the Third Circuit remanded the matter because the district court did not engage in the proper analysis.

Finally, with regard to the “salary theory,” Lianidis argued that the district court erred in calculating the “benefit received” in terms of “profit” based on her and her husband’s salaries. Again citing an application note to § 2C1.1, the Third Circuit agreed, stating that the “benefit received” is not the salary earned (legally), but rather the “net value” received by the company pursuant to the government contract.

In conclusion, the Court adopted the Fifth Circuit’s approach in Landers and concluded that “the ‘benefit received’ under § 2C1.1(b)(2) is the net value, minus direct costs, accruing to the entity on whose behalf the defendant paid the bribe.”

Of note, while Judge Hardiman agreed with the majority’s adoption of the "Landers approach," he dissented. He found no clear error and thought the sentence should have therefore been affirmed.

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