United States v. Gregory Torlai, Jr.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 11-10359
Plaintiff-Appellee,
D.C. No.
v. 2:08-cr-00329-
JAM-1
GREGORY PETER TORLAI, JR.,
Defendant-Appellant. OPINION
Appeal from the United States District Court
for the Eastern District of California
John A. Mendez, District Judge, Presiding
Argued and Submitted
January 18, 2013—San Francisco, California
Filed August 26, 2013
Before: J. Clifford Wallace, Jerome Farris,
and Jay S. Bybee, Circuit Judges.
Opinion by Judge Bybee
2 UNITED STATES V. TORLAI
SUMMARY*
Criminal Law
The panel affirmed the sentence imposed following a jury
conviction of sixteen counts of making a false claim for farm
benefits in connection with the Federal Crop Insurance Act.
The panel held that by virtue of the defendant’s fraud, he
was not eligible for any government benefit under the crop
insurance program, and therefore he was not an “intended
beneficiary” under U.S.S.G. § 2B1.1 cmt. n.3(F)(ii). The
panel thus rejected the defendant’s argument that the district
court erred, in its loss calculation, by failing to separate
legitimate from illegitimate claims.
The panel held that the district court did not err by
including in the loss amount the producer premiums the
defendant paid – i.e., the non-subsidized portion of the crop
insurance premium for which an insured farmer is
responsible.
The panel concluded that there was sufficient evidence
that administrative and operating expenses paid by the
government to the insurance company for selling and
servicing the policy, and premium subsidies paid by the
government to underwrite the crop insurance, were
reasonably foreseeable to the defendant, and that the district
court did not err by including them in its loss calculation.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
UNITED STATES V. TORLAI 3
COUNSEL
T. Louis Palazzo (argued), Palazzo Law Firm, Las Vegas,
Nevada; Allen Lichtenstein, Las Vegas, Nevada, for
Defendant-Appellant.
Michael D. Anderson (argued) and Kyle Reardon, Assistant
United States Attorneys, United States Attorney’s Office for
the Eastern District of California, Sacramento, California, for
Plaintiff-Appellee.
OPINION
BYBEE, Circuit Judge:
Thomas Jefferson once wrote to John Jay: “Cultivators of
the earth are the most valuable citizens. They are the most
vigorous, the most independent, the most virtuous, and they
are tied to their country and wedded to its liberty and interests
by the most lasting bands.” 8 The Papers of Thomas
Jefferson 426 (Julian P. Boyd et al. eds., Princeton University
Press) (1950) (spelling modernized). Although an industrious
cultivator of the earth, Gregory Peter Torlai did not prove the
most virtuous. Torlai was convicted of sixteen counts of
making a false claim for farm benefits in connection with the
Federal Crop Insurance Act. At sentencing, the district court
determined that Torlai had caused a loss of $410,372,
resulting in a 14-level sentencing guideline increase. In this
appeal, we consider whether the district court erred in its loss
calculation. These are matters of first impression. We
affirm.
4 UNITED STATES V. TORLAI
I. BACKGROUND AND PROCEDURAL HISTORY
A. Federal Crop Insurance Program
“Farming has literally been a feast or famine proposition
since the beginning of time.” David F. Rendahl, Federal
Crop Insurance: Friend or Foe?, 4 San Joaquin Agric. L.
Rev. 185, 185 (1994). “Most agricultural production is
subject to the vagaries of weather, and the nature of
agricultural supply and demand often results in volatile
market prices.” Dennis A. Shields, Cong. Research Serv.,
R40532, Federal Crop Insurance: Background 1 (2012). One
of the most vivid illustrations of agricultural risk is the
American Dust Bowl. In the 1930s, the myopic agricultural
practices of homesteaders coupled with severe drought
resulted in widespread crop failure that left wide swaths of
the Great Plains region of the United States highly susceptible
to wind erosion. See Richard Hornbeck, The Enduring
Impact of the American Dust Bowl: Short- and Long-Run
Adjustments to Environmental Catastrophe, 102 Am. Econ.
Rev. 1477, 1479 (2012). “Dust storms in the 1930s blew
enormous quantities of topsoil off Plains farmland; on ‘Black
Sunday’ in 1935, one such storm blanketed East Coast cities
in a haze.” Id. The destruction left in the Dust Bowl’s wake
was so severe that it triggered a massive exodus of farmers
and their families who lost their livelihoods long before the
dust settled.
The Dust Bowl’s awful destruction not only motivated
The Grapes of Wrath, but also spurred Congress to
“authorize[] federal crop insurance as an experiment to
address the effects of the Great Depression and crop losses
seen in the Dust Bowl.” Shields, supra at 1. It was only with
the Federal Crop Insurance Act of 1980 (“FCIA”), 7 U.S.C.
UNITED STATES V. TORLAI 5
§ 1501 et seq., however, that Congress permanently
authorized the federal crop insurance program. Id. The
FCIA’s express purpose is “to promote the national welfare
by improving the economic stability of agriculture through a
sound system of crop insurance.” Id. § 1502(a).
“The federal crop insurance program provides producers
with risk management tools to address crop yield and/or
revenue losses on their farms.” Shields, supra at 2. The
program is administered by the federal government, but the
insurance policies are sold through arrangements with private
insurance companies. Id. “Independent insurance agents are
paid sales commissions by the companies. The insurance
companies’ losses are reinsured by [the] USDA, and their
administrative and operating [(“A&O”)] costs are reimbursed
by the federal government.” Id.
“In purchasing a policy, a producer growing an insurable
crop [in a covered county] selects a level of coverage and
pays a portion of the premium, which increases as the level of
coverage rises. The remainder of the premium is covered by
the federal government (about 62% of total premium, on
average, is paid by the government).” Id. at 3. Thus, the
federal crop insurance program subsidizes the cost borne by
a farmer in obtaining crop insurance, increasing farmer
participation. See id.
Generally speaking, there are two types of crop insurance
policies: yield-based and revenue-based. Id. at 5. Yield-
based crop insurance policies provide insured farmers with
“an indemnity if there is a yield loss relative to the farmer’s
‘normal’ (historical) yield.” Id. In contrast, revenue-based
crop insurance policies are more comprehensive,
“protect[ing] against crop revenue loss resulting from
6 UNITED STATES V. TORLAI
declines in yield, price, or both.” Id. Like other insurance
products, the differing crop insurance policies only provide
an indemnity against certain risks of loss, usually related to
unpredictable, weather-related events that are beyond the
power of a farmer to control.
A farmer desiring to obtain crop insurance approaches a
private insurer and is required to fill out an application for
crop insurance containing detailed information: e.g., the type
of insurable crop; date of planting; applicable irrigation
practice, if any; and acreage under cultivation. The farmer
also provides an actual production history (“APH”) for the
parcel to be insured. The APH establishes a record of
productivity for the subject parcel, assisting in the calculation
of the policy premium and any benefits that might be required
to be paid. This information must be received prior to
planting the crop a farmer desires to insure. After planting,
however, the farmer must submit an acreage report certifying
the veracity of all final information submitted regarding the
insured crop, including the amount of the farmer’s insurable
interest in the crop. This cumulative information is used to
calculate the premium that applies to the issued crop
insurance policy.
If, during the course of the growing season, a farmer’s
insured crop suffers a covered cause of loss, the farmer must
comply with a claims procedure, including filing a notice of
loss, to obtain an indemnity payment. As part of the claims
process, an adjuster must inspect the crop to verify the
farmer’s asserted cause of loss and file a corresponding
report—certified by the farmer—detailing information about
the crop and the cause of loss. If the loss is determined to be
covered by the crop insurance policy, the required indemnity
will be paid to the farmer.
UNITED STATES V. TORLAI 7
Although the crop insurance premium is due when the
insurance policy is issued, in practice, the farmer is allowed
to delay payment until either the insured crop is harvested and
marketed, or a valid claim is submitted and an indemnity
paid. Normally, when a valid claim is submitted, the farmer
never pays the premium out-of-pocket; rather, the farmer
receives an indemnity payment that is net the crop insurance
premium the farmer remains owing.
B. Facts
Torlai is an experienced farmer. In fact, for
approximately thirty years, Torlai has been actively involved
in the cultivation of numerous different crops on varied
parcels of land throughout northern California, including in
Contra Costa, Lassen, and San Joaquin counties. As part of
his substantial farming operations, Torlai has long taken
advantage of federal crop insurance programs to hedge
against the risks he faces in his farming operations.
In 2008, an indictment was returned against Torlai
charging him with seventeen counts of making a false claim
for farm benefits. See 18 U.S.C. § 1014. The charges
stemmed from misrepresentations that Torlai made in order
to obtain crop insurance policies and collect indemnity
payments on those policies for Stoney Creek Ranch (Lassen
County) in 2001, 2002, and 2005; Union Island (San Joaquin
County) in 2001; and Quimby Island (Contra Costa County)
in 2001. Torlai’s alleged misrepresentations included
exaggerated acreage reports, misidentifying the crop planted,
incorrect planting dates, claiming non-irrigated crops were
irrigated, misrepresenting forage crops as crops for grain
production, and inventing causes of loss.
8 UNITED STATES V. TORLAI
C. Procedural History
At trial, the jury convicted Torlai of all sixteen counts
placed before them—the government having previously
dismissed one of the seventeen counts in the indictment. The
Pre-Sentence Report recommended that Torlai be given a 12-
level sentencing guideline increase based on an estimated
$350,000 loss. At the sentencing hearing, however, the
government argued that the appropriate loss amount should
be $410,372, requiring a 14-level sentencing guideline
increase.1 The government’s proposed loss amount required
the district court to determine that Torlai was not legitimately
entitled to any portion of the indemnity payments he received,
including (1) the gross amount of the indemnity without
subtracting Torlai’s portion of the crop insurance premium,
and (2) the premium subsidies and A&O expenses paid by the
government. The district court accepted the government’s
calculated loss amount, but varied from the sentencing
guideline range and imposed a below-Guidelines sentence of
concurrent terms of 30 months imprisonment and 36 months
supervised release. Torlai timely appealed, arguing that the
district court erred in imposing a 14-level sentencing
guidelines increase for loss based on the government’s
calculation. We have jurisdiction pursuant to 28 U.S.C.
§ 1291.
II. STANDARD OF REVIEW
Our appellate review of a sentence “is to determine
whether the sentence is reasonable; only a procedurally
1
United States Sentencing Guidelines §§ 2B1.1(b)(1)(G) and (H)
provide that a loss greater than $200,000 results in a 12-level increase, and
a loss greater than $400,000 results in a 14-level increase.
UNITED STATES V. TORLAI 9
erroneous or substantively unreasonable sentence will be set
aside.” United States v. Carty, 520 F.3d 984, 993 (9th Cir.
2008) (en banc); see also Gall v. United States, 552 U.S. 38,
46 (2007) (“Our explanation of ‘reasonableness’ review in the
Booker opinion made it pellucidly clear that the familiar
abuse-of-discretion standard of review now applies to
appellate review of sentencing decisions.”). Thus, we must
first consider “whether the district court committed
significant procedural error” when determining Torlai’s
sentence. Carty, 520 F.3d at 993. “Procedural errors include,
but are not limited to, incorrectly calculating the Guidelines
range, treating the Guidelines as mandatory, failing properly
to consider the § 3553(a) factors, using clearly erroneous
facts when calculating the Guidelines range or determining
the sentence, and failing to provide an adequate explanation
for the sentence imposed.” United States v. Armstead,
552 F.3d 769, 776 (9th Cir. 2008). “If we discern no
significant procedural error, we proceed to the second step
and ‘consider the substantive reasonableness of the
sentence.’” Id. (quoting Carty, 520 F.3d at 993).2
We review “the district court’s construction and
interpretation of the Sentencing Guidelines de novo,” United
States v. Nielsen, 694 F.3d 1032, 1034 (9th Cir. 2012), and
“the district court’s application[] of the Guidelines to the
facts” for abuse of discretion, United States v. Holt, 510 F.3d
1007, 1010 (9th Cir. 2007). We will only reverse a district
court’s decision as an abuse of discretion where we either
“determine de novo [that] the trial court identified the
[in]correct legal rule to apply,” or “determine [that] the trial
court’s application of the correct legal standard was (1)
illogical, (2) implausible, or (3) without support in inferences
2
Torlai does not contest the substantive reasonableness of his sentence.
10 UNITED STATES V. TORLAI
that may be drawn from the facts in the record.” United States
v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc)
(internal quotation marks omitted).
We review the district court’s factual determinations,
“including the calculation of the victim’s loss, . . . for clear
error.” United States v. Tulaner, 512 F.3d 576, 578 (9th Cir.
2008). “The clear error standard is significantly deferential
and is not met unless [we are] left with a definite and firm
conviction that a mistake has been committed.” Fisher v.
Tucson Unified Sch. Dist., 652 F.3d 1131, 1136 (9th Cir.
2011) (internal quotation marks omitted). “[I]f the district
court’s findings are plausible in light of the record viewed in
its entirety, [we] cannot reverse even if [we are] convinced
[we] would have found differently.” United States v.
McCarty, 648 F.3d 820, 824 (9th Cir. 2011) (internal
quotation marks omitted). Thus, “[w]here there are two
permissible views of the evidence, the factfinder’s choice
between them cannot be clearly erroneous.” United States v.
Elliott, 322 F.3d 710, 715 (9th Cir. 2003) (internal quotation
marks omitted).
III. DISCUSSION
When imposing a sentence upon an individual convicted
of making a false claim for farm benefits pursuant to
18 U.S.C. § 1014, a district court is guided by the United
States Sentencing Guidelines (“USSGs”) § 2B1.1. While the
USSGs are only advisory, see United States v. Booker,
543 U.S. 220, 245 (2005), a district court must correctly
calculate the guideline range before imposing a reasonable
sentence, see Gall, 552 U.S. at 51. At issue in the instant
appeal is the district court’s loss calculation used to derive the
sentencing guidelines range applicable to Torlai’s conviction.
UNITED STATES V. TORLAI 11
The “commentary in the Guidelines Manual that
interprets or explains a guideline is authoritative unless it
violates the Constitution or a federal statute, or is inconsistent
with, or a plainly erroneous reading of, that guideline.”
Stinson v. United States, 508 U.S. 36, 38 (1993); see also
United States v. Jackson, 697 F.3d 1141, 1146 (9th Cir. 2012)
(per curiam). The commentary to § 2B1.1 indicates that a
portion of the sentencing guideline range is dictated by the
loss table, and the relevant instructions for properly using the
loss table are contained in application note 3.
Specifically, “loss is the greater of actual loss or intended
loss,” subject to certain exceptions that are not relevant in this
case. U.S.S.G. § 2B1.1 cmt. n.3(A). The application note
continues by defining “actual loss” as “the reasonably
foreseeable pecuniary harm3 that resulted from the offense.”
Id. § 2B1.1 cmt. n.3(A)(I). “Intended loss” is defined as: (1)
“[T]he pecuniary harm4 that was intended to result from the
offense,” and (2) “includes intended pecuniary harm that
would have been impossible or unlikely to occur.” Id.
§ 2B1.1 cmt. n.3(A)(ii).
A special rule, however, applies to cases involving
government benefits:
3
“Reasonably foreseeable pecuniary harm” is defined as “pecuniary
harm that the defendant knew or, under the circumstances, reasonably
should have known, was a potential result of the offense.”
U.S.S.G. § 2B1.1 cmt. n.3(A)(iv).
4
“Pecuniary harm” is defined as “harm that is monetary or that
otherwise is readily measurable in money.” Pecuniary harm “does not
include emotional distress, harm to reputation, or other non-economic
harm.” U.S.S.G. § 2B1.1 cmt. n.3(A)(iii).
12 UNITED STATES V. TORLAI
In a case involving government benefits (e.g.,
grants, loans, entitlement program payments),
loss shall be considered to be not less than the
value of the benefits obtained by unintended
recipients or diverted to unintended uses, as
the case may be. For example, if the
defendant was the intended recipient of food
stamps having a value of $100 but
fraudulently received food stamps having a
value of $150, loss is $50.
Id. § 2B1.1 cmt. n.3(F)(ii) (emphasis added).5 Nevertheless,
the district court “need only make a reasonable estimate of
the loss. The sentencing judge is in a unique position to
assess the evidence and estimate the loss based upon that
evidence. For this reason, the court’s loss determination is
entitled to appropriate deference.” Id. § 2B1.1 cmt. n.3(C);
5
Crop insurance obtained through the federal crop insurance program
is a government benefit for purposes of § 2B1.1 cmt. n.3(F)(ii). The
federal crop insurance program is a subsidy program intended to benefit
farmers specifically, and society more generally, through a more stable
agricultural system. Although federal crop insurance is not identical to the
federal food stamp program included as an example in § 2B1.1 cmt.
n.3(F)(ii), the federal crop insurance program is similar in that it provides
a subsidy to a particular subset of the United States population. Thus, the
benefit a farmer receives through participation in the federal crop
insurance program—premium subsidy—is a government benefit similar
to “entitlement program payments.” See § 2B1.1 cmt. n.3(F)(ii); cf.
United States v. Maxwell, 579 F.3d 1282, 1306–07 (11th Cir. 2009)
(characterizing a contract received under a federally funded
Disadvantaged Business Enterprises program—for the purpose of
“help[ing] small minority-owned businesses develop and grow”—as a
government benefit); United States v. Tupone, 442 F.3d 145, 153–54 (3d
Cir. 2006) (characterizing federal workers’ compensation benefit
payments as a government benefit).
UNITED STATES V. TORLAI 13
see also United States v. W. Coast Aluminum Heat Treating
Co., 265 F.3d 986, 991 (9th Cir. 2001) (“[T]he district court’s
obligation is to adopt a reasonable ‘realistic, economic’
projection of loss based on the evidence presented.”).6
Torlai’s entire appeal is centered on an alleged error
committed by the district court in determining the loss
amount. In this regard, Torlai advances three main
arguments: (1) The district court improperly based its loss
calculation on the “premise that Torlai’s statements were
6
Torlai has argued that certain facts relied on by the district court in
sentencing either were not determined by the jury, or the jury did not find
certain facts beyond a reasonable doubt that the district court subsequently
relied on at sentencing. As we have previously stated:
This argument fundamentally misunderstands the
current state of constitutional law on sentencing. The
relevant Sixth Amendment question is not . . . whether
[the district court] found facts that were not proven
beyond a reasonable doubt by the jury in the process of
calculating the guidelines range. Rather, the Sixth
Amendment question . . . is whether the law forbids
[the district court] to increase a defendant’s sentence
unless the [district court] finds facts that the jury did not
find (and the offender did not concede). Because the
sentencing guidelines are advisory after Booker, the
Sixth Amendment does not require that the loss be
proved to a jury beyond a reasonable doubt.
United States v. Hickey, 580 F.3d 922, 932 (9th Cir. 2009) (internal
citations and quotation marks omitted); see also Dillon v. United States,
130 S. Ct. 2683, 2692 (2010) (“Taking the original sentence as given, any
facts found by a judge at a § 3582(c)(2) proceeding do not serve to
increase the prescribed range of punishment; instead, they affect only the
judge’s exercise of discretion within that range[,] . . . and the exercise of
such discretion does not contravene the Sixth Amendment even if it is
informed by judge-found facts.”).
14 UNITED STATES V. TORLAI
false in their entirety.” Torlai argues that this was error
because he was legitimately entitled to some insurance, even
if not everything he claimed. (2) The court erroneously
included his entire indemnity claim as loss, even though any
indemnity payment made by the government would have
been reduced by the amount that he owed as an insurance
premium. (3) The court impermissibly included amounts
spent by the government on A&O expenses and premium
subsidies as “reasonably foreseeable intended pecuniary
losses.”7 We consider each of Torlai’s arguments in turn.
A. Indemnity Payment as the Basis for Loss Calculation
First, Torlai argues that he actually planted and lost some
legitimately insured crops. Torlai asserts that he “[c]learly
. . . did, in fact, plant crops that were insured under the
policies issued,” but “[n]either the jury at trial nor the Court
7
Torlai also argues that the Rule of Lenity should apply because the
district court “readily admitted that there was no case law to guide [the
court] in [its] sentencing decisions” and, therefore, the district court
“invoked its interpretation of the Federal Sentencing Guidelines.” We
have previously held that the Rule of Lenity applies to our interpretation
of the USSGs, as well as penal statutes. United States v. Fuentes-
Barahona, 111 F.3d 651, 653 (9th Cir. 1997) (per curiam). Further, we
have held that “[t]he rule of lenity is applicable only where there is a
grievous ambiguity or uncertainty in the language and structure of [an]
Act, such that even after a court has seize[d] every thing from which aid
can be derived, it is still left with an ambiguous statute.” United States v.
Bendtzen, 542 F.3d 722, 727–28 (9th Cir. 2008) (internal quotation marks
omitted and alterations in original). Our analysis shows that the relevant
sentencing guideline is not “grievous[ly] ambigu[ous].” The mere fact
that there is a dearth of pre-existing caselaw does not ineluctably force us
to conclude that the district court could make no more than a guess as to
what the relevant sentencing guideline meant. Torlai’s Rule of Lenity
argument is without merit.
UNITED STATES V. TORLAI 15
at sentencing ever attempted to ascertain what portions of
those indemnities paid were legitimate and what portions
were not.” In Torlai’s estimation, the district court merely
assumed “that Defendant was not entitled to any of the money
he received in the form of indemnity payments,” with “[n]o
attempt [being] made to separate the legitimate from the
illegitimate claims for the purpose of determining how much
of the insurance claim was fraudulent . . . and how much of
the claim was not erroneous.” Thus, Torlai argues that the
district court should have conducted an analysis “to determine
how much of [his] claims or intended claims, [sic] were
legitimate under the policies in effect,” and that amount
should be subtracted from loss calculation under the
government benefits provision of § 2B1.1 cmt. n.3(F)(ii).
In a government benefits case, “loss shall be considered
to be not less than the value of the benefits obtained by
unintended recipients or diverted to unintended uses.”
U.S.S.G. § 2B1.1 cmt. n.3(F)(ii) (emphasis added). Only the
illegitimate portion of the value of the government benefits
should be included in the loss calculation. Id. Torlai argues
that if he truly planted some eligible crop that was covered
under a valid crop insurance policy but, for example, had
overstated the acreage under cultivation, and the crop
insurance policy was valid notwithstanding the false
statement, then the district court would have been required to
determine the amount of the resulting indemnity payment to
which Torlai would have been legitimately entitled under the
valid crop insurance policy. We need not address Torlai’s
argument because it assumes a premise he cannot sustain: that
Torlai retained a valid crop insurance policy despite his
misrepresentations. Importantly, however, each of the
applications for crop insurance submitted by Torlai contained
“Conditions of Acceptance,” providing that Torlai’s
16 UNITED STATES V. TORLAI
“Application [wa]s accepted and insurance attache[d] in
accordance with the policy unless . . . any material fact [wa]s
omitted, concealed or misrepresented in th[e] Application or
in the submission of th[e] Application.” (emphasis added).
This is consistent with the basic policy provisions that were
in effect when Torlai received crop insurance on the parcels
charged in the indictment. In each relevant year, the basic
Crop Revenue Coverage Insurance Policy provided: “[I]f you
or anyone assisting you has intentionally concealed or
misrepresented any material fact relating to this policy . . .
[the] policy will be voided .”8 See, e.g., Risk Mgmt. Agency,
8
The complete policy provision states:
27. Concealment, Misrepresentation or Fraud
(a) If you have falsely or fraudulently concealed
the fact that you are ineligible to receive
benefits under the Act or if you or anyone
assisting you has intentionally concealed or
misrepresented any material fact relating to
this policy:
(1) This policy will be voided; and
(2) You may be subject to remedial sanctions
in accordance with 7 CFR part 400,
subpart R.
(b) Even though the policy is void, you may still
be required to pay 20 percent of the premium
due under the policy to offset costs incurred
by us in the service of this policy. If
previously paid, the balance of the premium
will be returned.
(c) Voidance of this policy will result in you
having to reimburse all indemnities paid for
UNITED STATES V. TORLAI 17
USDA, 2001 Crop Revenue Coverage (CRC) Insurance
Policy, 01-CRC-BASIC 14 (2000) (emphasis added). Thus,
if Torlai misrepresented any material fact in his policy
application, then his crop insurance policies would be void
and the district court could determine that Torlai was not an
intended recipient of the government benefit at issue—crop
insurance indemnity payments.
Our review of the record reveals sufficient evidence that
Torlai was not entitled to any portion of the indemnity
payments.
1. Stoney Creek Ranch 2001
The Pre-Sentence Report found that Torlai actually
planted substantially less than the 499 acres of wheat for
Stoney Creek Ranch in 2001 he reported, and that the wheat
that was planted was not irrigated. Torlai also misstated his
interest in the crops grown on Stoney Creek Ranch.
Moreover, Torlai only purchased enough beardless wheat
seed to plant approximately 120 acres of non-irrigated
the crop year in which the voidance was
effective.
(d) Voidance will be effective on the first day of
the insurance period for the crop year in which
the act occurred and will not affect the policy
for subsequent crop years unless a violation of
this section also occurred in such crop years.
Risk Mgmt. Agency, USDA, 2001 Crop Revenue Coverage (CRC)
Insurance Policy, 01-CRC-BASIC 14 (2000); Risk Mgmt. Agency,
USDA, 2002 Crop Revenue Coverage (CRC) Insurance Policy, 02-CRC-
BASIC 15–16 (2001); Risk Mgmt. Agency, USDA, 2005 Crop Revenue
Coverage (CRC) Insurance Policy, 05-CRC-BASIC 24 (2004).
18 UNITED STATES V. TORLAI
land—though he had altered an invoice to make it appear as
if he had purchased a greater quantity of seed. Thus, the
record reveals that Torlai made multiple material
misstatements that rendered his crop insurance policy for
Stoney Creek Ranch in 2001 void. This evidence was clearly
sufficient for the district court to determine that Torlai was
not an intended beneficiary of any indemnity payment related
to Stoney Creek Ranch in 2001.
Furthermore, regardless of the validity of Torlai’s crop
insurance policy for Stoney Creek Ranch in 2001, the
government will not pay an indemnity unless the farmer has
filed a valid claim. That is, a farmer covered by a crop
insurance policy must show that the loss he suffered was
caused by a covered event. Regarding the 2001 Stoney Creek
Ranch crop, Torlai based his claim for an indemnity payment
on losses supposedly resulting from hail, wind, and excessive
precipitation. The evidence showed, however, that there was
“no crop to be impacted by the causes of loss.” The satellite
images introduced into evidence did not show any evidence
of a wheat crop that had developed to a sufficient stage of
maturation that could have been harmed by the purported
causes of loss. Even assuming that the weather events Torlai
reported did occur and that Torlai grew some portion of the
insured crop and had a valid crop insurance policy, the
evidence clearly showed that the weather events asserted in
the filed claim could not have caused any damage and,
therefore, Torlai was entitled to no indemnity. The absence
of a legitimate cause of loss means that Torlai was not an
intended beneficiary of any indemnity for Stoney Creek
Ranch in 2001, regardless of any other factors.
UNITED STATES V. TORLAI 19
2. Stoney Creek Ranch 2002
The Pre-Sentence Report found that Torlai actually
planted substantially less than the reported 836.1 acres of
wheat for Stoney Creek Ranch in 2002, and that the wheat
that was planted was not irrigated. The Pre-Sentence
Report’s conclusion is supported by the record. Likewise,
Torlai again misstated his interest in the crops grown on
Stoney Creek Ranch. In fact, satellite images revealed that
there was insufficient land cleared on Stoney Creek Ranch to
even plant 499 acres of wheat. “[A]pproximately 536 of the
836.1 acres reported as planted to wheat by [Torlai] ha[d] not
been converted from native vegetation grass” during the
relevant time period. Furthermore, crop insurance adjusters
did not find any wheat planted in fields that Torlai
represented as having been planted to wheat. What crop
insurance adjusters did find were large pits full of garbage
and debris, a far-cry from a wheat stand. Thus, the record
reveals that Torlai made material misstatements that render
his crop insurance policy for Stoney Creek Ranch in 2002
void. On that basis, the evidence was sufficient for the
district court to determine that Torlai was not an intended
beneficiary of any indemnity payment related to Stoney
Creek Ranch in 2002.
Regardless of the validity of Torlai’s crop insurance
policy for Stoney Creek Ranch in 2002, Torlai did not have
a valid claim for loss. During an unscheduled visit by crop
insurance adjusters, they discovered that the wheat had been
grazed off by cattle. In response, Torlai withdrew his claim.
Even assuming that Torlai had a valid crop insurance policy
and that the asserted cause of loss was legitimate, the fact that
horses or cattle had grazed off the purportedly insured crop
voided the insurance contract and nullified Torlai’s claim,
20 UNITED STATES V. TORLAI
entitling him to no indemnity payment. As a consequence,
Torlai was not an intended beneficiary of any indemnity for
Stoney Creek Ranch in 2002.
3. Stoney Creek Ranch 2005
As with the previous claims, the Pre-Sentence Report
concluded that Torlai had actually planted substantially less
than the reported 650 acres of wheat for Stoney Creek Ranch
in 2005, and that the wheat that was planted was not irrigated.
The Pre-Sentence Report’s conclusion is supported by the
record. Torlai also misstated his interest in the crops grown
on Stoney Creek Ranch. Thus, the record reveals that Torlai
made material misstatements that render his crop insurance
policy for Stoney Creek Ranch in 2005 void.
Furthermore, the evidence showed that Torlai had no
intention of harvesting any of the wheat that was planted
because the wheat was of a variety used as a forage crop for
beeves and thus was not eligible for crop insurance. Even if
the fields represented by Torlai as having been planted had
actually been planted to a variety of wheat intended for being
harvested as grain, Stoney Creek Ranch’s rocky, sagebrush-
covered terrain was such that a combine would have been
unable to harvest a wheat crop. The absence of an insurable
crop means that Torlai was not an intended beneficiary of any
indemnity for Stoney Creek Ranch in 2005.
We note that the Stoney Creek Ranch claims submitted by
Torlai in 2002 and 2005 were not actually paid. The evidence
is sufficient, however, to support a finding by the district
court that Torlai intended in both 2002 and 2005 to follow the
pattern of his successful Stoney Creek Ranch crop insurance
fraud perpetrated in 2001. Thus, the amounts that would have
UNITED STATES V. TORLAI 21
been paid as an indemnity for both the 2002 and 2005 claims
were properly considered by the district court as intended
losses. See U.S.S.G. § 2B1.1 cmt. n.3(A)(ii); United States
v. McCormac, 309 F.3d 623, 627–29 (9th Cir. 2002).
4. Union Island 2001
Torlai claimed that safflower was planted on Union Island
in 2001 and that the crop failed due to inclement weather.
Contemporaneous records show, however, that the fields that
were supposedly planted in safflower were actually planted
in corn and alfalfa. This evidence was supported by satellite
images. The satellite images did, however, show that
approximately 34.7 acres were planted in safflower, though
the record is ambiguous as to whether the 34.7 acres of
safflower documented by satellite images was on Torlai’s
property. Regardless, Torlai had reported that he had planted
199.3 acres in safflower on Union Island in 2001. Torlai’s
material misstatements render his crop insurance policy for
Union Island in 2001 void.
Furthermore, the evidence showed that the alleged date of
loss—April 10, 2001—was only five days after the date the
safflower was reportedly planted—April 5, 2001. The
testimony at trial established that “safflower emergence
usually takes between one and three weeks.” So, the
evidence showed that any safflower that might have actually
been planted on Union Island would not have emerged from
the soil before the date of the alleged cause of loss. Even if
Torlai had a valid crop insurance policy, there was sufficient
evidence for the district court to find that Torlai could not
have suffered a cognizable cause of loss within five days of
sowing.
22 UNITED STATES V. TORLAI
5. Quimby Island 2001
Quimby Island was mostly inundated with water at the
alleged time of planting, and wheat cannot be planted when
the soil is submerged. Moreover, evidence was presented that
at the alleged time of loss, the crop had not grown to a point
where it could have been adversely impacted by the hail,
excess precipitation, inclement weather, and wind that were
the causes of loss Torlai alleged. Even assuming that the
weather events did occur, the evidence clearly showed that
the weather could not have caused any damage, and Torlai
was not entitled to indemnity. The absence of a legitimate
cause of loss means that Torlai was not an intended
beneficiary of any indemnity for Quimby Island in 2001.
* * * * *
By virtue of his fraud, Torlai was not eligible for any
government benefit under the crop insurance program, and
therefore, he was not an “intended beneficiary.” The district
court did not err in including the full indemnity amount for all
claims from Stoney Creek Ranch in 2001, 2002, 2005; Union
Island in 2001; and Quimby Island in 2001.
B. Accounting for Premiums Withheld by the Insurer
Torlai argues that the district court erred by “not taking
into account the producer premiums [he] paid,” i.e., the non-
subsidized portion of the crop insurance premium for which
an insured farmer is responsible. As we have discussed,
although producer “premiums are owed at the start of the
growing season,” they do not have to be paid until after
harvesting the insured crop. So, when an event occurs that is
covered by crop insurance and a farmer has not yet satisfied
UNITED STATES V. TORLAI 23
the premium, the amount of the producer premium is
deducted from the actual amount paid to the insured. Torlai
argues that since “the indemnity payment actually received
would be the indemnity under the policy minus the producer
premium, that premium is not an offset,” and some $28,874
of producer premiums should not be included as a loss to the
government. Torlai asserts that he “would [n]ever be able to
obtain [these funds] for himself through fraud or otherwise.”
Essentially, Torlai contends that because he never expected
to get the full amount of the indemnity—i.e., he only ever
intended to obtain the indemnity less the producer
premium—the producer premiums should not be calculated
as part of the total loss.
The district court addressed this issue, stating:
To offset the losses in this case by any
money paid by [Torlai] to purchase his crop
insurance would be akin to giving an arsonist
credit for the cost of insurance premiums paid
by him on a house that he burned down.
That [Torlai’s] fraud occurred in the
context of crop insurance, where premiums
are owed at the start of the growing season,
but payable after harvest, as opposed to more
traditional forms of insurance, where
premiums are due upon the commencement of
coverage, does nothing to change the analysis.
Fraud is fraud, and [Torlai] is not entitled to
credit for monies he invested in order to
insure the success of his fraudulent scheme.
24 UNITED STATES V. TORLAI
We have not previously considered this issue, but we agree
with the district court.
Although the sentencing guidelines provide some
guidance as to what factors should offset a loss calculation,
U.S.S.G. § 2B1.1 cmt. n.3(E)9, in the end we think the
“Credits Against Loss” commentary is inapplicable. Rather,
as Torlai argues, the issue is not whether the producer
premiums are offsets, but whether the withheld producer
premiums should be included in the intended loss amount.
Viewed in this light, the district court properly applied the
Guidelines.
9
Application note 3 states, in part:
Loss shall be reduced by the following:
(I) The money returned, and the fair market value of
the property returned and the services rendered, by
the defendant or other persons acting jointly with
the defendant, to the victim before the offense was
detected. The time of detection of the offense is
the earlier of (I) the time the offense was
discovered by a victim or government agency; or
(II) the time the defendant knew or reasonably
should have known that the offense was detected
or about to be detected by a victim or government
agency.
(ii) In a case involving collateral pledged or otherwise
provided by the defendant, the amount the victim
has recovered at the time of sentencing from
disposition of the collateral, or if the collateral has
not been disposed of by that time, the fair market
value of the collateral at the time of sentencing.
U.S.S.G. § 2B1.1 cmt. n.3(E).
UNITED STATES V. TORLAI 25
Torlai points to a case from the Seventh Circuit, United
States v. Simpson, 995 F.2d 109 (7th Cir. 1993), that suggests
a farmer’s portion of crop insurance premiums should be
deducted from the calculated loss amount. Simpson is an
interesting case with a few more twists than presented here;
however, the core fact pattern is similar: Simpson was
convicted of filing false insurance forms under the USDA’s
crop insurance subsidy programs. Id. at 110. Regarding this
issue, the Seventh Circuit stated:
The district court erred when it figured the
amount of loss, however, in that it failed to
deduct a $74,000 premium from the $838,900
false claims. If Simpson had seen his scheme
through to payment, [the insurance company]
would have deducted the premium from the
amount of Simpson’s claims. As the
government conceded at oral argument, the
proper amount of loss was the amount of the
claims minus the premium . . . . This clear
error requires a remand so that the district
judge may recalculate Simpson’s sentence.
Id. at 113 (internal citation omitted). Thus, the Seventh
Circuit has at least implicitly held that it is clear error for a
district court to fail to deduct the producer premium from the
total indemnity.
We do not lightly cast aside reasoned decisions of our
sister circuits. See In re Taffi, 68 F.3d 306, 308 (9th Cir.
1995). We disagree, however, with the Seventh Circuit’s
brief analysis in Simpson. The lack of detailed analysis on
this issue may be the product of the fact that the government
conceded at oral argument before the Seventh Circuit that
26 UNITED STATES V. TORLAI
“the proper amount of loss was the amount of the claims
minus the premium.” Simpson, 995 F.2d at 113. Thus, a
critical concession by the government on this issue made
further analysis of this issue unnecessary by the Seventh
Circuit, rendering Simpson minimally persuasive and of
questionable precedent.
Considering the merits of the issue itself, quite simply, the
rule that Simpson stands for—loss calculations in crop
insurance fraud cases must only include indemnities minus
the producer premium—overlooks basic economic reality and
common sense. A farmer must pay the crop insurance
producer premium regardless of whether an indemnity will
be paid. The producer premium is due when the crop
insurance policy is issued, and the fact that a farmer can delay
payment until harvest or a valid claim is submitted for
payment does not negate the farmer’s responsibility for that
amount. In effect, the government has fronted the farmer his
crop insurance premium, which he took and then used to
defraud the government.10 Even though Torlai did not have
to withdraw money from his own bank account to pay the
producer premium, he, in effect, benefitted by the full amount
of the indemnity. From an economic perspective, Torlai was
in the same financial condition as he would have been had he
10
Where a farmer is found to have intentionally concealed or
misrepresented a material fact in obtaining crop insurance, “[e]ven though
the policy is void, [the farmer] may still be required to pay 20 percent of
the premium due under the policy.” Risk Mgmt. Agency, USDA, 2001
Crop Revenue Coverage (CRC) Insurance Policy, 01-CRC-BASIC 14
(2000).
UNITED STATES V. TORLAI 27
paid the producer premium up front and was paid the full
amount of the indemnity on the back end.11
11
To illustrate this point, we lay out two simplified scenarios for
pedagogical purposes: (1) Farmer 1 purchases crop insurance and is
required to pay the full amount of the producer premium ($10) on the date
the policy is issued; and (2) Farmer 2 purchases crop insurance, but can
delay premium payment until the date the insured crop is harvested so
that, if a valid claim is submitted, Farmer 2 will receive an indemnity
payment net the producer premium ($10). If a valid cause of loss occurs,
the indemnity payment is $30. For the sake of simplicity, we assume that
both Farmer 1 and 2 begin with an identical balance in their respective
bank accounts ($100).
In a situation where no covered cause of loss is suffered, Farmer 1’s
bank account will show the following balance: $100 - $10 = $90. Farmer
2’s bank account will have an identical balance: $100 - $10 = $90. The
only difference is the time when the $10 premium is withdrawn. Now
consider a situation where a valid claim is submitted. Farmer 1’s bank
account will show the following balance: $100 - $10 = $90 + $30 = $120.
Farmer 1 pays the $10 producer premium when purchasing insurance,
decreasing his bank account to $90; after Farmer 1 submits a valid claim,
he is entitled to the full indemnity amount, resulting in a terminal balance
of $120. Farmer 2’s bank account will show the following balance: $100
+ ($30 - $10) = $120. So, Farmer 2 would never pay the producer
premium out of his own bank account, but the end result is the same.
Again, the only difference is that Farmer 2 is able to have the benefit of
an extra $10 in his bank account over the course of the crop season.
Essentially, the government has provided Farmer 2 with an interest-free
loan in the amount of the crop insurance premium. Ultimately, however,
both Farmers 1 and 2 expect to receive an identical benefit from the
indemnity payment. Both would be in the same economic position.
In a more complicated economic world in which there is a time value
to money, Farmer 2 would be better off, since Farmer 2 had the benefit of
retaining the extra $10 in his bank account for a period of time—money
that he could have invested or put to other uses—and concluded at the
same time with an amount identical to Farmer 1. So, if anything, the
simple calculation applied by the district court understates the true
28 UNITED STATES V. TORLAI
Importantly, the only reason Torlai did not expect to pay
the producer premium, and expected to receive the indemnity
payments net the producer premium, was because Torlai
obtained crop insurance through fraud. As the district court
put it, “Fraud is fraud, and [Torlai] is not entitled to credit for
monies he invested in order to insure the success of his
fraudulent scheme.” An honest farmer, purchasing crop
insurance to hedge against agricultural risks would fully
expect to pay the producer premium. As an experienced
farmer with knowledge of the crop insurance system, Torlai
understood that if he successfully perpetrated his fraudulent
scheme, he would never have to pay the producer premium.12
Regardless, the actual loss to the government was the full
amount of the indemnity. In the context of crop insurance,
whether the producer premium is paid when the policy is
purchased or whether the government subtracts the producer
premium from the indemnity paid, the government is in the
same economic position. See United States v. Blitz, 151 F.3d
1002, 1010 (9th Cir. 1998) (“In other words, when we have
required a realistic economic approach we have indicated that
we should not ascribe a larger loss to the defendants than they
intended to or actually did inflict. We have not, however,
hesitated to hold defendants responsible for the full reach of
their intent, even when that intent was thwarted.”).
economic benefit that Torlai received by waiting to pay the producer
premium.
12
In this sense, the district court’s statement that subtracting the amount
of the producer premium from the loss calculation was like “giving an
arsonist credit for the cost of insurance premiums paid by him on a house
that he burned down” is quite apt.
UNITED STATES V. TORLAI 29
We conclude that the district court did not err by
including the total amount of the indemnities in the loss
calculation.
C. Accounting for Premium Subsidies and A&O Expenses in
Loss Calculation
In addition to calculating the total indemnities claimed,
whether the government actually paid them or not, the district
court also included in the loss calculation two other
categories of expenses: A&O expenses and premium
subsidies. The A&O expenses are fees the government pays
to the insurance company for selling and servicing the policy.
Premium subsidies are the amounts the government pays to
the insurance company to underwrite the crop insurance,
which the insurance company would not otherwise be willing
to do. In other words, a premium subsidy is the government’s
share of the premium; it is a measure of the actual cost of
having a crop insurance program above that paid by the
farmer.
The district court included the totals for both categories
of expenses in its loss calculation. It found that the A&O
expenses and premium subsidies were “reasonably
foreseeable pecuniary losses for which [Torlai] should be
held accountable. Even though he didn’t have a check cut to
him, it was money that was, in effect, . . . taken away from
other farmers. It was, in particular the premium subsidies,
not available [to other farmers].” The district court also
found that there was a non-speculative method to calculate
the “premium subsidy and A&O based on documents.”
Torlai argues that it was error for the district court to include
these expenses, and that “the inclusion of all premium
subsidy and A&O expenses as part of the loss calculation is
30 UNITED STATES V. TORLAI
based on an assumption that [he] was ineligible for any crop
insurance policy at all.” Torlai contends that no “evidence
[was] ever presented that [he] either knew about premium
subsidies or A&O expenses, or that circumstances existed
under which he reasonably should have known about them.”13
Contrary to Torlai’s contention, there was evidence to
support the district court’s conclusion that the premium
subsidies and A&O expenses were “reasonably foreseeable
pecuniary losses for which [Torlai] should be held
accountable.” Regarding the premium subsidies, the
evidence showed that the premium subsidies were
specifically disclosed to Torlai through his summaries of crop
insurance coverage. Moreover, the government presented
evidence showing that each crop insurance policy, including
Torlai’s, indicates “at the top of them, . . . that the policy is
reinsured by the federal government.” And, a witness
testified that “[t]he standard reinsurance agreements are
available online at the public website,” and the policies
specifically state that the crop insurance program is
administrated by the private insurer. The reinsurance
agreements provide detailed information about the details of
both the premium subsidies and A&O expenses. Considering
all this evidence, coupled with Torlai’s status as an
experienced farmer who has extensively used crop insurance
as a part of his operations, we conclude that this evidence is
sufficient to show that Torlai, at least, reasonably should have
13
Torlai also asserts that any increase in the loss calculation ascribable
to A&O expenses and premium subsidies “is a factual matter that should
properly have been determined by the jury” in light of Booker, 543 U.S.
at 231. The jury was not required to determine the amount of the A&O
expenses and premium subsidies. See supra note 6. At sentencing, all
that is required is that the government prove the loss by a preponderance
of the evidence. Armstead, 552 F.3d at 776.
UNITED STATES V. TORLAI 31
known of the premium subsidies and A&O expenses under
the circumstances. See U.S.S.G. § 2B1.1 cmt. n.3(A)(iv).14
IV. CONCLUSION
For the foregoing reasons, we AFFIRM Torlai’s
sentence.
14
Although § 2B1.1 cmt. n.3(A) of the Guidelines states that “loss is the
greater of actual loss or intended loss,” Torlai has not claimed that it was
error for the district court to calculate the total loss by adding together
some elements representing intended losses and others, including A&O
expenses, representing actual losses. Any argument to this effect has been
waived, see Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“[O]n
appeal, arguments not raised by a party in its opening brief are deemed
waived.”). We decline to reach the question whether it was proper to
consider both intended and actual losses together. See U.S. Sentencing
Guidelines Manual § 2B1.1 cmt. n.3(A) (“[L]oss is the greater of actual
loss or intended loss . . . .”); see also United States v. Manatau, 647 F.3d
1048, 1050 (10th Cir. 2011) (discussing that intended loss may include
actual losses “the defendant purposely sought to inflict.”).