United States v. Richard Berger ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA  No. 08-50171
Plaintiff-Appellee, D.C. No.
v.  2:00-cr-00994-
RICHARD I. BERGER, RMT-1
Defendant-Appellant.
 OPINION
Appeal from the United States District Court
for the Central District of California
Robert M. Takasugi, District Judge, Presiding
Argued and Submitted
June 1, 2009—Pasadena, California
Filed November 30, 2009
Before: William A. Fletcher, Richard R. Clifton, and
Milan D. Smith, Jr., Circuit Judges.
Opinion by Judge Milan D. Smith, Jr.
15617
15620 UNITED STATES v. BERGER
COUNSEL
Paul J. Watford, Jacob S. Kreilkamp, and Alexandra Lang
Susman, Munger, Tolles & Olson LLP, Los Angeles, Califor-
nia, for defendant-appellant Richard I. Berger.
Leon W. Weidman and Brent A. Whittlesey, Assistant United
States Attorneys, United States Attorneys Office for the Cen-
tral District of California, Los Angeles, California, for
plaintiff-appellee United States of America.
UNITED STATES v. BERGER 15621
OPINION
MILAN D. SMITH, JR., Circuit Judge:
Defendant-Appellant Richard I. Berger appeals the sen-
tence imposed by the district court following our affirmance
of his conviction for twelve counts of bank and securities
fraud. Berger argues that, in sentencing him on remand, the
district court erred by: (1) not adhering to the civil loss causa-
tion principle in finding shareholder loss, as described by the
Supreme Court in Dura Pharmaceuticals, Inc. v. Broudo, 544
U.S. 336, 342-48 (2005); and (2) applying an erroneous stan-
dard of proof in determining total loss for sentencing
enhancement purposes. While we decline to extend the Dura
Pharmaceuticals principle to criminal securities fraud, we
conclude that the district court’s loss calculation approach
was nevertheless flawed. Thus, although we conclude that the
district court used the correct standard of proof in determining
the total loss, we vacate Berger’s sentence and remand to the
district court for resentencing.
FACTS AND PROCEDURAL BACKGROUND
Craig Consumer Electronics, Inc. (Craig) was a publicly
traded consumer electronics business that primarily distrib-
uted its products to retail electronics stores. During the rele-
vant time frame, Berger was Craig’s President, Chief
Executive Officer, and Chairman of the Board. Two other
corporate officers, Donna Richardson and Bonnie Metz,1 par-
ticipated in the fraudulent scheme and were convicted along
with Berger for their involvement.
In August 1994, Craig entered into a $50 million revolving
1
Richardson, Craig’s Chief Financial Officer until May 31, 1997, pled
guilty to three counts of the indictment prior to trial. Metz was at various
times a Vice President in Craig’s Hong Kong and Cerritos, California
locations.
15622 UNITED STATES v. BERGER
credit agreement with a consortium of banks. Under the
agreement, the amount Craig was permitted to borrow was
based on the value of its current inventory and accounts
receivable. To determine the fluctuating amount Craig was
eligible to borrow, Berger and his co-defendants were
required to provide the lending banks with a daily certifica-
tion concerning those assets.
Berger and his accomplices began the fraudulent scheme as
early as 1995.2 Starting at that time and continuing through
September 1997, Craig lacked sufficient qualifying accounts
receivable and inventory to continue borrowing the funds
needed for Craig’s ongoing operations. To conceal Craig’s
true financial condition from the lending banks, Berger and
his cohorts employed various accounting schemes to falsify
the information contained in the certifications. Relying on
these false statements, the banks lent millions of dollars to
Craig based on either nonexistent or substantially overstated
collateral.
In May 1996, Craig made an initial public offering (IPO)
of its stock. In connection with the IPO, Berger publicly mis-
represented the company’s fiscal viability, misstating Craig’s
financial condition in several mandatory reports filed with the
Securities and Exchange Commission (SEC). At the time of
the IPO, Craig was actually operating in default of its credit
agreement with the lending banks, and was substantially over-
drawn on its credit line. None of this information was dis-
closed in Craig’s mandatory SEC filings, or to its lenders.
In 1997, an audit of the company’s records by Craig’s
accounting firm uncovered various accounting irregularities.
As a result of the audit, Craig was required to restate its earn-
ings for 1995 and part of 1996, thereby revealing that its earn-
2
Our prior decision in this case provides a more detailed description of
the scheme. See United States v. Berger, 473 F.3d 1080, 1083-85 (9th Cir.
2007).
UNITED STATES v. BERGER 15623
ings were substantially lower than those shown in its previous
financial statements. In the months following this restatement,
Craig’s stock price fell from $4.99 to $0.99 per share.3 In July
1997, Craig’s stock was delisted from the Nasdaq because of
its failure to meet Nasdaq’s minimum bid price. The securities
fraud and accounting irregularities noted were not publicly
revealed until after the delisting. The lending banks did not
discover the full extent of the fraud until August 1997, when
Craig filed for bankruptcy.
In March 2003, Berger was indicted for thirty-six counts of
bank and securities fraud including: conspiracy, loan fraud,
falsification of corporate books and records, making false
statements to accountants of a publicly traded company, and
making false statements in reports filed with the SEC. Berger
went to trial and was convicted on twelve of those counts. In
September 2004, the district court, believing controlling
authority prohibited it from applying any sentencing facts not
found by the jury, calculated an applicable sentencing range
of zero to six months and sentenced Berger to six months
imprisonment. The district court also ordered Berger to pay
restitution of $3.14 million and a $1.25 million fine. Berger
appealed his conviction and restitution order, and the govern-
ment cross-appealed the sentence.
We affirmed the conviction and the restitution amount.
However, we vacated Berger’s sentence and remanded to the
district court for resentencing in light of United States v.
Booker, 543 U.S. 220 (2005). On remand, using a preponder-
ance of the evidence standard, the district court found several
facts that significantly increased Berger’s sentencing range.4
Among other things, the district court found that Berger’s
fraud caused a loss of $3.14 million to the various banks with
3
It is unclear the extent to which this decline resulted from the restated
earnings, as opposed to unrelated external market forces or other factors.
4
The district court used the 1995 version of the Sentencing Guidelines
to avoid creating a potential ex post facto problem.
15624 UNITED STATES v. BERGER
which Craig did business, thereby triggering a thirteen-level
enhancement under U.S.S.G. § 2F1.1.
To determine the loss to shareholders, the court adopted
one of the government’s suggested calculation methods, the
so-called “modified market capitalization theory,” i.e., com-
paring the change in stock value of other, unaffiliated compa-
nies after accounting irregularities in those companies’
records were disclosed to the market. The court determined
that the average depreciation of those selected companies’
stock was 26.5% and applied that figure to the value of
Craig’s initial public offering (although in Craig’s case, the
fraud was never disclosed to the market before trading was
halted). The court calculated the resulting shareholder loss at
$2.1 million.
Therefore, the total calculated loss was $5.2 million, which
triggered a fourteen-level sentencing enhancement, from level
sixteen to thirty. This enhancement increased the applicable
sentencing range from 21-27 months to 97-121 months. The
district court imposed a 97-month sentence. Berger appeals
the sentence, arguing that the district court committed two
significant legal errors in calculating the applicable sentenc-
ing range.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction pursuant to 28 U.S.C. § 1291. We
review de novo the district court’s interpretation of the Sen-
tencing Guidelines, United States v. Kimbrew, 406 F.3d 1149,
1151 (9th Cir. 2005), which are relevant to this case because
the Guidelines address the permissible methods for loss calcu-
lation. We review for abuse of discretion the district court’s
application of the Guidelines to the facts of this case.5 Id. “If
5
But see United States v. Williamson, 439 F.3d 1125, 1137 n.12 (9th
Cir. 2006) (“We review . . . application of the Guidelines de novo.”
(emphasis added)). Because we conclude that the district court’s applica-
tion of the Guidelines in calculating loss was erroneous under either de
novo or abuse of discretion review, we do not attempt to resolve this con-
flict in our case law.
UNITED STATES v. BERGER 15625
the district court makes a material miscalculation in the advi-
sory guidelines range, . . . we must vacate the sentence and
remand for resentencing.” United States v. Zolp, 479 F.3d
715, 721 (9th Cir. 2007). Whether the district court violated
due process by using an improper standard of proof is a ques-
tion of constitutional law that we review de novo. United
States v. Johansson, 249 F.3d 848, 853 (9th Cir. 2001).
DISCUSSION
Berger raises two issues on appeal. First, he argues that in
calculating loss in securities fraud cases, district courts must
employ the civil securities fraud “loss causation” approach as
described in Dura Pharmaceuticals, 544 U.S. 336, and that
the district court erred by not doing so here. He also contends
that the district court erred in finding facts resulting in a sig-
nificant sentencing enhancement by a preponderance of the
evidence—rather than a clear and convincing evidence—
standard of proof.
I. Loss Causation Principles Applied to Criminal
Securities Fraud
Berger first argues that the district court erred by including
losses in its $2.1 million shareholder loss figure that did not
actually occur, or that were not caused by his fraudulent con-
duct.
A. Civil Securities Fraud Standard
[1] The Supreme Court has ruled that to sustain a damages
claim for civil securities fraud under 15 U.S.C. §§ 78j(b) and
78u-4, a plaintiff must show that the fraud was publicly
revealed and that the disclosure caused the shareholders to
suffer loss. Dura Pharms., 544 U.S. at 346-47 (finding that
plaintiff must show that “share price fell significantly after the
truth [of the fraud] became known”). In so holding, the Dura
Pharmaceuticals Court rejected the notion that stock over-
15626 UNITED STATES v. BERGER
valuation resulting from so-called “fraud-on-the-market” may
form the basis for a plaintiff’s damages award in a private
securities action. Id. at 341-43. In other words, a sharehold-
er’s allegation that he was led to buy stock at a price that was
artificially inflated due to fraud does not state a claim for loss.
Id. (noting that while “one might say that the inflated pur-
chase price suggests that the misrepresentation . . . ‘touches
upon’ a later economic loss” that is insufficient because “[t]o
‘touch upon’ a loss is not to cause a loss” (internal citations
omitted) (citing 15 U.S.C. § 78u-4(b)(4))). As a result, it is
now clear in civil securities fraud actions that “the complaint
must allege that the practices that the plaintiff contends are
fraudulent were revealed to the market and caused the result-
ing losses.” Metzler Inv. GMBH v. Corinthian Colls., Inc.,
540 F.3d 1049, 1063 (9th Cir. 2008).
B. Application of Civil Rule to Criminal Securities
Fraud
[2] The Supreme Court has not applied its Dura Pharma-
ceuticals loss causation principle to sentencing enhancements
in criminal securities fraud cases, but two federal circuit
courts have suggested that they are applicable in this context.
In United States v. Olis, the Fifth Circuit intimated that the
civil loss causation principle described in Dura Pharmaceuti-
cals should inform criminal securities fraud sentencing. See
Olis, 429 F.3d 540, 546 (5th Cir. 2005) (“The civil damage
measure should be the backdrop for criminal responsibility
both because it furnishes the standard of compensable injury
for securities fraud victims and because it is attuned to stock
market complexities.”) (citing Dura Pharms., 544 U.S. 336,
341-43). Olis cited several out-of-circuit cases, including vari-
ous so-called “cook the books” scenarios, and noted with
approval that “each case takes seriously the requirement to
correlate the defendant’s sentence with the actual loss caused
in the marketplace, exclusive of other sources of stock price
decline.” Id. at 547.
UNITED STATES v. BERGER 15627
And in United States v. Rutkoske, the Second Circuit
endorsed the application of Dura Pharmaceuticals’s principle
to criminal sentencing even more strongly, stating that:
[t]he Government contends that the principles set
forth in Dura Pharmaceuticals, a civil case, should
not apply to loss calculation in a criminal case. The
dicta in [our decision in United States v. Ebbers, 458
F.3d 110, 128 (2d Cir. 2006)] strongly undermines
that position. Moreover, we see no reason why con-
siderations relevant to loss causation in a civil fraud
case should not apply, at least as strongly, to a sen-
tencing regime in which the amount of loss caused
by a fraud is a critical determinant of the length of
a defendant’s sentence.
506 F.3d 170, 179 (2d Cir. 2007).
[3] This court has not applied Dura Pharmaceuticals’s
strict loss causation standard to criminal fraud cases, but we
have endorsed a more general loss causation principle, per-
mitting a district court to impose sentencing enhancements
only for losses that “resulted from” the defendant’s fraud.
United States v. Hicks, 217 F.3d 1038, 1048 (9th Cir. 2000).
In Hicks, we stated that “[t]he Guidelines’ ‘relevant conduct’
provision requires a defendant’s sentence to be based on ‘all
harm that resulted from the acts or omissions’ of the defen-
dant.” Id. (quoting U.S.S.G. § 1B1.3(a)(3) (1995)); id. at
1048-49 (holding that government must show both “but-for”
and “proximate” causation in establishing loss).6 Berger now
urges us to take the next step and follow the Second Circuit
in expressly applying Dura Pharmaceuticals’s civil principle
to criminal securities fraud sentencing.
6
The government in this case concedes that, “in order to be a basis for
an increase in base offense level under the guidelines, the losses from
defendant’s securities fraud offenses must have resulted from those
offenses.”
15628 UNITED STATES v. BERGER
[4] We decline to do so for two reasons. First, we believe
that the primary policy rationale of Dura Pharmaceuticals for
proscribing overvaluation as a valid measure of loss does not
apply in a criminal sanctions context. Second, application of
Dura Pharmaceuticals’s civil rule to criminal sentencing
would clash with the parallel principles in the Sentencing
Guidelines, which have persuasive value in federal courts. See
United States v. Staten, 466 F.3d 708, 710 (9th Cir. 2006)
(holding that failure to consider Guidelines note in applying
sentencing enhancement was reversible error).
As noted, Dura Pharmaceuticals rejected the notion that an
allegation by a private plaintiff that he purchased securities
that were overvalued because of fraud is sufficient to state a
damages claim for civil securities fraud. 544 U.S. at 342(reversing Broudo v. Dura Pharms., Inc., 339 F.3d 933 (9th
Cir. 2003)). A key component of the Court’s holding was that
“as a matter of pure logic, at the moment the transaction takes
place, the plaintiff has suffered no loss; the inflated purchase
payment is offset by ownership of a share that at that instant
possesses equivalent value.” Id. Because “[s]hares are nor-
mally purchased with an eye toward a later sale[,] . . . if, say,
the purchaser sells the shares quickly before the relevant truth
begins to leak out, the misrepresentation will not have led to
any loss.” Id. Moreover, the Court reasoned, “the common
law has long insisted that a plaintiff in such a case show not
only that had he known the truth he would not have acted but
also that he suffered actual economic loss.” Id. at 343-44 (cit-
ing e.g., Pasley v. Freeman, 100 Eng. Rep. 450, 457 (1789)).
Thus, the Court was concerned principally with the plaintiff’s
ability to show that he suffered actual loss caused directly—
and exclusively—by the defendant’s fraudulent misrepresen-
tation.
The Dura Pharmaceuticals Court’s concern is not impli-
cated in the criminal sentencing arena. As demonstrated, in a
private civil fraud action, a court gauges loss from the per-
spective of the plaintiff-victim, i.e., whether the plaintiff can
UNITED STATES v. BERGER 15629
show the amount and cause of loss he sustained. Id. Because
a civil plaintiff bears the burden to show loss, it is logical to
require that the plaintiff show that any loss he sustained was
attributable directly to devaluation caused by revelation of the
defendant’s fraud. It likewise follows that a plaintiff’s mere
allegation that he purchased overvalued stock is insufficient
to state a claim, because the allegation does not by itself
establish that the plaintiff personally incurred loss commensu-
rate with the overvaluation.
In criminal sentencing, however, a court gauges the amount
of loss caused, i.e., the harm that society as a whole suffered
from the defendant’s fraud. See, e.g., Zolp, 479 F.3d at 720.
Whether and to what extent a particular individual suffered
actual loss is not usually an important consideration in crimi-
nal fraud sentencing. Therefore, where the value of securities
have been inflated by a defendant’s fraud, the defendant may
have caused aggregate loss to society in the amount of the
fraud-induced overvaluation, even if various individual vic-
tims’ respective losses cannot be precisely determined or
linked to the fraud. As a result, the principle underlying the
Dura Pharmaceuticals Court’s reluctance to allow mere over-
valuation as a basis for establishing loss is generally not pres-
ent in the criminal sentencing context, and we are not
persuaded that it would be appropriate to expand the Dura
Pharmaceuticals rule to the criminal sentencing context.7
The Sentencing Guidelines provide further support for lim-
iting the scope of Dura Pharmaceuticals’s loss causation rule
in a criminal sentencing context. In arguing for this interpreta-
7
We note that, based on this reasoning, Dura Pharmaceuticals may be
more relevant in the context of criminal restitution under, for instance, the
Mandatory Victims Restitution Act of 1996 (MVRA), 18 U.S.C. § 3663A,
which, unlike the sentencing enhancement scheme, focuses on harm to the
victims as opposed to loss caused by the defendant. See, e.g., Berger, 473
F.3d at 1104 (“The MVRA requires a defendant to pay restitution to a vic-
tim who is ‘directly and proximately harmed as a result of’ the fraud.”
(quoting 18 U.S.C. § 3663A(a)(2)).
15630 UNITED STATES v. BERGER
tion, the government cites the commentary to the 1995 Guide-
lines (the version applied at Berger’s sentencing), specifically
its endorsement of a flexible approach to loss calculation in
criminal sentencing.8 E.g., Zolp, 479 F.3d at 718-19. The gov-
ernment notes that § 2F1.1 commentary note 8 of the 1995
Guidelines9 states that:
The court need only make a reasonable estimate of
the loss, given the available information. This esti-
mate, for example, may be based on the approximate
number of victims and an estimate of the average
loss to each victim, or on more general factors, such
as the nature and duration of the fraud and the reve-
nues generated by similar operation. The offender’s
gain from committing the fraud is an alternative esti-
mate that ordinarily will underestimate the loss.10
In addition, the government contends that § 2F1.1 condones
measuring loss by overvaluation. See U.S.S.G. § 2F1.1, cmt.
n.7(a) (1995). That note states:
[a] fraud may involve the misrepresentation of the
value of an item that does have some value (in con-
trast to an item that is worthless). Where, for exam-
8
The Guidelines, including those for enhancements purposes, “are ordi-
narily applied in light of available commentary, including application
notes.” Staten, 466 F.3d at 715 (citing United States v. Allen, 434 F.3d
1166, 1173 (9th Cir. 2006) (“The application notes to the Guidelines are
exactly that—notes about when a particular Guideline applies and when
it does not.”)).
9
Section 2F1.1 was repealed in 2001.
10
Similarly, the government points out that § 2B1.1 commentary note 3
provides that:
The court need only make a reasonable estimate of the loss, given
the available information. This estimate, for example, may be
based upon the approximate number of victims and the average
loss to each victim, or on more general factors such as the scope
and duration of the offense.
UNITED STATES v. BERGER 15631
ple, a defendant fraudulently represents that stock is
worth $40,000 and the stock is worth only $10,000,
the loss is the amount by which the stock was over-
valued (i.e., $30,000).
Thus, were Dura Pharmaceuticals’s loss causation rule
applied to criminal sentencing enhancements, that principle’s
plain rejection of the overvaluation loss measurement method,
see 544 U.S. at 343, would collide with Congress’s clear
endorsement of that method, see U.S.S.G. § 2F1.1, cmt.
n.7(a).
[5] For these reasons, we decline to require, in finding facts
relevant to sentencing, a showing that “share price fell signifi-
cantly after the truth became known.” Dura Pharms., 544
U.S. at 347. We instead reiterate our broader rule that “[t]he
Guidelines’ ‘relevant conduct’ provision requires a defen-
dant’s sentence to be based on ‘all harm that resulted from the
acts or omissions’ of the defendant.” Hicks, 217 F.3d at 1048(quoting U.S.S.G. § 1B1.3(a)(3) (1995)).
C. The District Court’s Loss Valuation Approach
While the district court was not required to follow Dura
Pharmaceuticals’s loss causation approach, the loss-
calculation method it did employ troubles us; it leaves us with
little confidence that the government demonstrated, by the
applicable standard of proof,11 that shareholder loss occurred,
let alone that approximately $2.1 million of loss occurred.
[6] Though the Guidelines state that courts may employ
various methodologies to determine loss and that loss need
not be established with precision, the fact that “[t]he court
need only make a reasonable estimate of the loss,” U.S.S.G.
§ 2B1.1, cmt. n.3, § 2F1.1, cmt. n.8, does not obviate the
11
As we discuss below, the standard in this case should be preponder-
ance of the evidence.
15632 UNITED STATES v. BERGER
requirement to show that actual, defendant-caused loss
occurred. Rather, the plain language of the Guidelines com-
mentary merely indicates that, in arriving at the loss figure,
some degree of uncertainty is tolerable.
First, the Guidelines’ statement that the “estimate [of loss]
. . . may be based on the approximate number of victims and
an estimate of the average loss to each victim,” U.S.S.G.
§ 2F1.1, cmt. n.8, presupposes that the court has already
determined that some defendant-caused loss occurred. Indeed,
without any loss to victims, there would be nothing on which
to base an estimate. In the same way, the fact that the loss
estimate “may be based on . . . general factors, such as the
nature and duration of the fraud and the revenues generated
by similar operation,” id., or on the “offender’s gain from
committing the fraud,” id., does not suggest that a court is
relieved of the duty to determine that some loss actually
occurred. Even the overvaluation method example in § 2F1.1
commentary note 7(a) does not suggest that a showing of
actual loss is unnecessary. That illustration provides a model
for calculating the amount of loss where fraud caused the
value of stock to decrease, but where the stock retained resid-
ual value. The example assumes that the stockholders were
left holding stock that depreciated because of the fraud. In
sum, each of these possible methodologies assumes that some
loss was proximately caused by the defendant, while recog-
nizing that the amount of loss may not be easily measurable.
[7] In determining that the shareholder loss was $2.1 mil-
lion in this case, the district court employed a counterfactual
approach. The method examined the effect on the stock value
of other, unrelated companies after accounting irregularities
were disclosed to the market. Using that method, the court
determined that the average depreciation in value was 26.5%.
That figure was applied to the value of Craig’s initial public
offering. The court’s method appears to have assumed that
defendant-caused shareholder loss existed, and only then pur-
ported to measure that loss. Moreover, that measure of loss
UNITED STATES v. BERGER 15633
was not based on Craig’s finances or on the actual effect of
Berger’s fraud, but rather on data from other companies in
previous years and different economic conditions. More
importantly, it was based on cases in which there had been
disclosure of accounting irregularities to the market, despite
the fact that Craig’s accounting irregularities were never dis-
closed while its stock was still publicly traded. As a result,
because the method did not properly establish that Berger’s
sentence was based only on “ ‘all harm that resulted from the
acts or omissions’ of the defendant,” Hicks, 217 F.3d at 1048(quoting U.S.S.G. § 1B1.3(a)(3) (1995)), it was an abuse of dis-
cretion.12
[8] We therefore remand to the district court to redeter-
mine, based on the principles described herein, how much of
the shareholders’ loss was actually caused by Berger’s fraud.
While we do not dictate the exact method the district court
must use, we note that whatever method is chosen should
attempt to gauge the difference between Craig’s share price—
as inflated through fraudulent representation—and what that
price would have been absent the misrepresentation.
12
In concluding that the district court’s method was erroneous, we do
not suggest that Berger’s fraud caused no loss to investors. The district
court found that Craig’s spring 1997 stock value decline was “unrelated
to Berger’s criminal conduct” because it resulted not from disclosure of
fraud, but from disclosure of the company’s poor financial status. But that
conclusion is valid only in the narrowest sense. While revelation of Ber-
ger’s fraud to the public did not depreciate Craig’s stock value (as Craig
was no longer publicly traded by that point), it appears that the stock value
was overvalued, at least in part, because of the fraud. As a result, many
investors were likely induced to buy Craig stock at its IPO price under the
false pretenses created by Berger and his cohorts. Had Craig’s financial
troubles not been masked by fraud during the IPO, then surely (assuming
the IPO had happened at all) Craig’s stock price would already have been
significantly lower in spring 1997, Craig’s earnings would not have
required restatement, and the stock value would not have plummeted.
15634 UNITED STATES v. BERGER
II. Standard of Proof in Finding Sentencing Facts
Berger next argues that, in circumstances such as these, due
process requires the district court to find the loss amount by
clear and convincing evidence, rather than by a preponder-
ance of the evidence.
A. Nature of Dispute
Maintaining that preponderance of the evidence is the
proper standard, the government first argues that Berger chal-
lenged only the methodology of the district court’s determina-
tion, which is a purely legal dispute. See, e.g., United States
v. Hardy, 289 F.3d 608, 613 (9th Cir. 2002). The government
asserts that where there is no factual dispute, but only a legal
dispute, preponderance of the evidence is the appropriate
standard of proof for the district court to use in determining
facts relevant to sentencing. In support, the government cites
United States v. Romero-Rendon, 198 F.3d 745, 748 (9th Cir.
1999),13 withdrawn by 220 F.3d 1159, 1165 (9th Cir. 2000)).
This argument fails for two reasons. First, contrary to the
government’s characterization, Romero-Rendon declined to
address the appropriate standard of proof; instead, the court
held that the unchallenged pre-sentence report constituted
clear and convincing evidence of the critical predicate fact.
See id. at 1165. Here, however, Berger vigorously challenged
the loss calculations before the district court.
Second, although the parties disputed the validity of the
district court’s loss calculation, making such a calculation
13
The government cites only a withdrawn version of Romero-Rendon,
198 F.3d at 748, withdrawn by 220 F.3d 1159. The government maintains
that Romero-Rendon states that preponderance of the evidence is an ade-
quate standard where the defendant did not challenge the accuracy of the
sentencing report. The superceding version of our decision in that case,
however, did not so hold.
UNITED STATES v. BERGER 15635
necessarily involved the district court’s determination of how
much loss was suffered, an issue we have held to be one of
fact. See, e.g., United States v. Garro, 517 F.3d 1163, 1167
(9th Cir. 2008) (citing United States v. Lawrence, 189 F.3d
838, 844 (9th Cir. 1999)) (holding that “[a] calculation of the
amount of loss is a factual finding”). Thus, by challenging the
loss amount, Berger raised both a factual and legal dispute.
We proceed to consider what standard of proof the district
court should have employed in resolving the factual dispute.
We review the issue de novo because it, like the question
regarding calculation method, is a question of law.
B. Standard of Proof for Finding Sentence-Enhancing
Facts
[9] A district court typically uses a preponderance of the
evidence standard when finding facts pertinent to sentencing.
United States v. Armstead, 552 F.3d 769, 776 (9th Cir. 2008)
(citing United States v. Moreland, 509 F.3d 1201, 1220 (9th
Cir. 2007)). In United States v. Restrepo, however, we con-
cluded that, “when a sentencing factor has an extremely dis-
proportionate effect on the sentence relative to the offense of
conviction,” due process may require a district court to apply
a heightened standard. 946 F.2d 654, 659-60 (9th Cir. 1991)
(en banc) (emphasis added) (citing McMillan v. Pennsylvania,
477 U.S. 79, 87-91 (1986), for the proposition that dispropor-
tionate effect may require the application of the heightened
standard but concluding that such an effect was not relevant
in that case).
Since Restrepo, we have not been a model of clarity in
deciding what analytical framework to employ when deter-
mining whether a disproportionate effect on sentencing may
require the application of a heightened standard of proof.
Some of our cases have explicitly stated that where the sen-
tencing enhancements are based on charged conduct, i.e., the
“offense of conviction,” employing a preponderance of the
evidence standard does not implicate Restrepo’s due process
15636 UNITED STATES v. BERGER
concerns. See, e.g., United States v. Harrison-Philpot, 978
F.2d 1520, 1524 (9th Cir. 1992). We have also held that there
is no “bright-line rule for the disproportionate impact test,”
and instead look to the “ ‘totality of the circumstances,’ with-
out considering any one factor as dispositive.” See, e.g.,
United States v. Jordan, 256 F.3d 922, 928 (9th Cir. 2001)
(citing United States v. Valensia, 222 F.3d 1173, 1182 (9th
Cir. 2000), cert. granted, judgment vacated, and remanded
by, 532 U.S. 901 (2001) (reversing and remanding on other
grounds)). We have followed the “totality of the circum-
stances” approach even where the enhancement was based on
the “offense of conviction.” Johansson, 249 F.3d at 853-58.
Berger argues that our case law is irreconcilable, or prem-
ised on an indefensible distinction between an enhancement
based on the “offense of conviction” and one based on “un-
charged” or “acquitted” conduct. He asserts that we have not
always been diligent in maintaining this distinction, or even
if we have, there is no basis for holding that facts relating to
uncharged or acquitted conduct are subject to a heightened
standard of proof, while facts relating to the offense of con-
viction are not.
[10] We decline Berger’s invitation to decide this case on
such broad grounds, because a number of our cases squarely
address the factual situation presented here. Those cases
involve a defendant’s fraudulent conduct where sentencing
enhancements for financial loss are based on the extent of the
fraud conspiracy. They hold that facts underlying the disputed
enhancements need only be found by a preponderance of the
evidence. United States v. Riley, 335 F.3d 919, 926-27 (9th
Cir. 2003); Armstead, 552 F.3d at 777-78; Garro, 517 F.3d at
1168-69.
In Riley, the defendant pled guilty to one count of conspir-
acy to produce fictitious obligations, one count of possession
of fictitious obligations, and one count of identification fraud.
335 F.3d at 923. At sentencing, the district court applied a
UNITED STATES v. BERGER 15637
nine-level enhancement to the defendant’s sentence under
§ 2F1.1(b)(1)(J), for a financial loss greater than $350,000 but
less than or equal to $500,000. Id. We held that because this
enhancement was “based entirely on the extent of the conspir-
acy to which Riley pled guilty,” it was properly determined
based on a preponderance of the evidence. Id. at 926-27.
In Armstead, a jury convicted the defendant of nine counts
of bank fraud and one count of conspiracy to commit bank
fraud. 552 F.3d at 774. The district court applied a fourteen-
level enhancement for the amount of loss under
§ 2B1.1(b)(1). Id. at 775-76. The defendant disputed
$173,576.88 of the total loss, which represented the difference
between a twelve-level and a fourteen-level increase. Id. at
777 n.6. We held that the district court did not need to employ
a clear and convincing standard of proof to the two-level
enhancement because the loss amount was attributable to the
extent of the conspiracy. Id. at 777-78.
Finally, in Garro, the defendant was convicted of eight
counts of wire fraud, eleven counts of money laundering, and
one count of tax evasion. 517 F.3d at 1165. The district court
found that the amount of loss in the defendant’s fraudulent
scheme exceeded $20 million, resulting in a sixteen-level sen-
tencing enhancement. Id. at 1167. Again, citing Riley, we held
that the district court’s enhancement was based on conduct for
which the defendant had been charged and convicted, and
therefore the district court properly used a preponderance of
the evidence standard of proof. Id. at 1169.
[11] Here, like in Riley, Armstead, and Garro, the enhance-
ment under U.S.S.G. § 2F1.1 is based entirely on the extent
of the fraud conspiracy for which Berger was convicted. See
Riley, 335 F.3d at 926.14 Applying the holdings of Riley, Arm-
14
Berger’s reliance on Staten and Zolp is misplaced. Neither Staten nor
Zolp focused on the standard of proof, and therefore neither calls into
question our holdings in Riley, Armstead, or Garro. See United States v.
15638 UNITED STATES v. BERGER
stead, and Garro to this case, we conclude that the district
court did not err in using a preponderance of the evidence
standard to determine the amount of loss for purposes of
§ 2F1.1.
CONCLUSION
For the reasons described, we vacate Berger’s sentence,
affirm the district court’s ruling on the applicable standard of
proof in finding sentence-enhancing facts in this context, and
remand to the district court for resentencing before a new dis-
trict judge15 consistent with the standards articulated in this
opinion.
AFFIRMED in part, REVERSED in part, VACATED
and REMANDED.
Johnson, 256 F.3d 895, 915 (9th Cir. 2001) (en banc) (holding that where
a statement is “merely a prelude to another legal issue that commands the
panel’s full attention,” it is not binding on later panels). Rather, Staten
considered the viability of the “disproportionate impact” rule following
the Supreme Court’s decision in Booker, Staten, 466 F.3d at 717-20, and
Zolp addressed a district court’s factual finding that the stock at issue was
worthless after the defendant’s fraud came to light, Zolp, 479 F.3d at 718-
21. While each noted that the clear and convincing standard of proof
applies “ ‘where an extremely disproportionate sentence results from the
application of an enhancement,’ ” Id. at 718 (quoting Staten, 466 F.3d at
717), that statement was “merely a prelude to another legal issue that com-
mand[ed] the panel’s full attention,” Johnson, 256 F.3d at 915. To the con-
trary, Riley specifically held that the preponderance standard applied to a
sentencing enhancement for the amount of loss under U.S.S.G. § 2F1.1.
Riley, 335 F.3d at 926. We note also that Staten and Zolp were both
decided by three-judge panels, and “a three-judge panel may not overrule
a prior decision of the court.” Miller v. Gammie, 335 F.3d 889, 899 (9th
Cir. 2003) (en banc).
15
The district judge in this case, the Honorable Robert M. Takasugi,
passed away on August 4, 2009.