United States v. Sun Diamond Growers

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 11, 1997 Decided March 20, 1998
No. 97-3072
United States of America,
Appellee
v.
Sun-Diamond Growers of California,
Appellant
Appeal from the United States District Court
for the District of Columbia
(No. 96cr00193-01)
Eric W. Bloom argued the cause for appellant. With him
on the briefs were Richard A. Hibey, Michael K. Atkinson
and Charles B. Klein.
Theodore S. Greenberg, Deputy Independent Counsel, ar-
gued the cause for appellee. With him on the briefs were
Donald C. Smaltz, Independent Counsel, and Charles M.
Kagay, Chief Appellate Counsel.
Carter G. Phillips and Griffith L. Green were on the brief
for amicus curiae American League of Lobbyists.
Before: Williams, Henderson and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Williams.
Williams, Circuit Judge: Sun-Diamond is a large agricul-
tural cooperative owned by individual member cooperatives
including Diamond Walnut Growers, Sun-Maid Growers of
California, Sunsweet Growers, Valley Fig Growers, and Ha-
zelnut Growers of Oregon. It came within the sights of an
independent counsel, Donald C. Smaltz, who was responsible
for investigating allegations of unlawful activity by former
Secretary of Agriculture Mike Espy. The independent counsel
charged Sun-Diamond with making illegal gifts to Espy,
committing wire fraud, and making illegal campaign contribu-
tions.
Linking Sun-Diamond and Espy was the figure of Richard
Douglas. As Sun-Diamond's vice president for corporate
affairs, Douglas was responsible for (among other things)
representing the interests of the corporation and its member
cooperatives in Washington. Given Sun-Diamond's business,
the Department of Agriculture ("USDA") was naturally part
of his bailiwick. According to performance evaluations signed
by Sun-Diamond's president, Douglas was a diligent and able
representative. He once described his approach to lobbying
by paraphrasing Lord Palmerston: "We have no permanent
friends or permanent enemies, only a permanent interest in
Sun-Diamond Growers of California." Permanent friends
aside, he had a long-time friend in Mike Espy--the two had
gone to college together at Howard University and had
stayed close in the years since.
The crimes charged to Sun-Diamond grow out of two
largely independent stories. One involves illegal gratuities
given to Espy while he was Secretary of Agriculture, the
other wire fraud and illegal contributions to the congressional
campaign of the Secretary's brother, Henry Espy. We save
the recitation of facts for the discussion of the distinct legal
issues raised by each story.
Sun-Diamond argues that under the facts alleged and
proven it could not properly be found guilty of any of the
offenses, and, as to the illegal gratuities, that the trial court's
charge allowed the jury to convict on a theory precluded by
the statute. We disagree with Sun-Diamond's claims of
entitlement to dismissal of the indictment and to acquittal,
but we agree that the jury charge on the gratuity counts was
error and requires a remand for a new trial. Sun-Diamond
also attacks the sentence, saying that the trial judge, having
increased the offense level by eight for Espy's high-level
status as required by the Guidelines, wrongly bumped it up
another two levels on the theory that the Guidelines inade-
quately took that status into account. It also objects to the
trial court's imposition of probationary conditions on Sun-
Diamond's member cooperatives, who were neither defen-
dants nor agents of the defendant. We agree with Sun-
Diamond on both sentencing points.
* * *
IllegalGratuities
The key dispute here is over how close a link the govern-
ment must show between Sun-Diamond's gifts and official
acts that the Secretary of Agriculture performed or might
perform. The indictment detailed two specific issues on
which Sun-Diamond had a clear interest in favorable action
by the Secretary. The first was the market promotion pro-
gram ("MPP"), a grant fund administered by USDA and
designed to prop up U.S. agricultural exports. See 7 U.S.C.
s 5623. The Secretary of Agriculture was authorized to
allocate MPP money to trade organizations like Sun-
Diamond, who would in turn use it to defray overseas market-
ing expenses. According to the independent counsel, be-
tween 1990 and 1995 the Sun-Diamond member cooperatives
received $23.9 million from MPP. In August 1993 Congress
enacted budget legislation requiring the Secretary to give
preference to "small-sized entities" in disbursing MPP funds.
Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-
66, s 1302(b)(2)(A), 107 Stat. 312, 331 (1993). Sun-Diamond
and its members were hardly mom-and-pop organizations--
they reported net sales of $648 million for fiscal year 1993--
but many of their constituent growers were quite modest in
size. Sun-Diamond therefore wanted the Secretary to adopt
a regulatory definition of "small-sized entities" that would
include cooperatives such as its members.
Sun-Diamond also took an interest in federal regulation of
methyl bromide, a pesticide used by some of the growers who
belonged to its member cooperatives. In late 1992 the Envi-
ronmental Protection Agency began review of a proposal to
phase out the use of the chemical in the United States
because of its potential to contribute to ozone depletion.
Although the methyl bromide issue was not technically before
USDA, a rational jury could conclude from the trial evidence
that Sun-Diamond wanted Espy to help persuade EPA to
delay or reject the proposed phase-out.
Count I of the indictment charged the company with giving
Espy (via Douglas) around $5,900 in illegal gratuities: tickets
to the 1993 U.S. Open Tennis Tournament worth $2,295,
luggage worth $2,427, meals worth $665, and a framed print
and crystal bowl worth $524.1 The indictment further alleged
that Sun-Diamond reimbursed Douglas for these outlays,
treating them as business expenses.
Sun-Diamond challenges Count I, asserting that the gratui-
ty statute, 18 U.S.C. s 201(c)(1)(A), requires the government
to prove a nexus between each unauthorized gift and some
specifically identified official act--performed or hoped to be
performed--for which the gift was given. Because the indict-
__________
1 Count II charged Sun-Diamond with paying $3,100 for Espy's
girlfriend to accompany him to the International Nut Conference in
Athens. The jury acquitted on this count.
ment failed to allege any such one-to-one relationship, con-
tends Sun-Diamond, the district court erred in denying its
motion to dismiss Count I. See United States v. Sun-
Diamond Growers of California, 941 F. Supp. 1262 (D.D.C.
1996) (denying motion to dismiss); United States v. Sun-
Diamond Growers of California, 964 F. Supp. 486 (D.D.C.
1997) (denying renewed motion for acquittal). In a narrower
variation on this argument, Sun-Diamond also challenges the
jury instructions, saying that they impermissibly allowed the
jury to convict if it found that Sun-Diamond gave Secretary
Espy things of value merely in recognition of his official
position, regardless of official acts that might have supplied
the motivation. We reject Sun-Diamond's broader argument
but agree with its challenge to the jury instructions, and it is
with that challenge that we begin.
The gratuity statute provides:
Whoever ... otherwise than as provided by law for the
proper discharge of official duty ... directly or indirectly
gives, offers, or promises anything of value to any public
official, former public official, or person selected to be a
public official, for or because of any official act per-
formed or to be performed by such public official, former
public official, or person selected to be a public official
... shall be fined under this title or imprisoned for not
more than two years, or both.
18 U.S.C. s 201(c)(1)(A) (emphasis added).
The statute defines an "official act" as "any decision or
action on any question, matter, cause, suit, proceeding or
controversy, which may at any time be pending, or which may
by law be brought before any public official, in such official's
official capacity, or in such official's place of trust or profit."
18 U.S.C. s 201(a)(3).
The trial court charged the jury in full accord with the
independent counsel's theory that gifts motivated by an offi-
cial's status or position run afoul of the statute, regardless of
whether the donor had any intent to affect or reward official
conduct. Indeed, time and again the jury instructions ham-
mered home that theme:
The gratuity statute makes it a crime for a person or
company to knowingly and willingly give a public official
a thing of value because of his official position whether
or not the giver or receiver intended that particular
official's acts be influenced. * * *
The essence of the crime is the official's position of [sic]
as the receiver of the payment not whether the official
agrees to do anything in particular, that is, not whether
the official agrees to do any particular official act in
return. Therefore ... to prove that a gratuity offense
has been committed, it is not necessary to show that the
payment is intended for a particular matter then pending
before the official. It is sufficient if the motivating
factor for the payment is just to keep the official happy
or to create a better relationship in general with the
official. * * *
It is sufficient if Sun-Diamond provided Espy with unau-
thorized compensation simply because he held public
office. * * *
In order for you to convict Sun-Diamond of violating the
gratuity statute, you must find beyond a reasonable
doubt that Sun-Diamond gave the gifts to Mr. Espy for
or because of Mr. Espy's official government position
and not solely for reasons of friendship or social purpose.
* * *
[T]he government must prove that Sun-Diamond Grow-
ers of California, acting through its senior vice president
for corporate affairs, Richard Douglas, and knowingly
and willingly gave the gratuities, at least in part, because
of the Secretary's position in appreciation of Sun-Dia-
mond Growers of California's relationship with him as a
public official or in anticipation of the continuation of
its relationship with him as a public official. The
government need not prove that the alleged gratuity was
linked to a specific or identifiable official act or any act
at all.
(Emphases added.)
The language of the charge is far broader than that of the
statute. To satisfy the criminal intent requirement embodied
in the phrase "for or because of any official act," the giver
must intend either to reward some past concrete official act
or acts, or to enhance the likelihood of some future act or
acts. This is the meaning we found in our most extensive
discussion of the gratuity statute, United States v. Brewster,
506 F.2d 62 (D.C. Cir. 1974). In addressing the claim that a
violation of the gratuity statute is a lesser included offense
subsumed within a violation of the bribery statute, now
codified at s 201(b)(1)(A),2 we necessarily compared the two
provisions, explaining that the bribery provision required a
more exacting showing of intent. Id. at 71-74. We charac-
terized one aspect of the difference as follows:
The bribery section makes necessary an explicit quid pro
quo which need not exist if only an illegal gratuity is
involved; the briber is the mover or producer of the
official act, but the official act for which the gratuity is
given might have been done without the gratuity, al-
though the gratuity was produced because of the official
act.
Id. at 72 (emphasis added). As this passage makes tolerably
clear, to say that the gratuity provision lacks a quid pro quo
__________
2 Section 201(b)(1)(A) imposes criminal penalties upon:
Whoever ... directly or indirectly, corruptly gives, offers or
promises anything of value to any public official or person who
has been selected to be a public official, or offers or promises
any public official or any person who has been selected to be a
public official to give anything of value to any other person or
entity, with intent ... to influence any official act.
Because Brewster involved the acceptance rather than the giving of
gratuities and bribes, the court in fact focused on 18 U.S.C.
s 201(c)(1) (1969) (covering receipt of bribes, now codified with
minor differences in language at s 201(b)(2)(A)), and 18 U.S.C.
s 201(g) (1969) (covering receipt of gratuities, now codified with
minor differences in language at s 201(c)(1)(B)). The elements of
the offense at issue here are the same, however, regardless of
whether the defendant is the donor or donee, so Brewster stands as
a controlling precedent for our case.
requirement is not to read the "official act" language out of
the statute. It is only to say that, in contrast to bribery, the
gratuity and the official act need not each motivate the other.
But the gratuity statute by its terms does still require at least
a unidirectional relationship--the gift must be "for or because
of" the act.
The relation may be simply one of reward. "As the word
'gratuity' implies, the intent most often associated with the
offense is the intent to 'reward' an official for an act taken in
the past or to be taken in the future." United States v.
Sawyer, 85 F.3d 713, 730 (1st Cir. 1996) (construing virtually
identical Massachusetts gratuity statute). Even in such a
case, the giver presumably hopes that his gratuity will affect
the recipient's future conduct--and this was undoubtedly the
concern that motivated Congress to bring rewards for past
acts within the coverage of the statute. But, in contrast to
bribery, it is enough under the gratuity statute if the defen-
dant gives an unpromised benefit for a past governmental
favor. And, whatever degree of intent to influence may be
necessary for a bribe, a gift looking to future acts can be an
unlawful gratuity where the giver is motivated simply by the
desire to increase the likelihood of one or more specific,
favorable acts. In summary, as we explained in Brewster,
"under the gratuity section, 'otherwise than as provided by
law ... for or because of any official act' carries the concept
of the official act being done anyway, but the payment only
being made because of a specifically identified act." 506
F.2d at 82 (emphasis added).
The independent counsel appears to accept this analysis of
Brewster, but claims that in that decision we restricted appli-
cation of the official act requirement to cases involving elect-
ed officials or candidates for elective office. Indeed, Brew-
ster was a senator, and we noted that in cases involving
elected officials the official act requirement served the impor-
tant function of distinguishing illegal gratuities from ordinary
campaign contributions. See id. at 73 n.26, 81. But in a
footnote we postponed the question of non-elected officials to
another day, distinguishing and declining to express ultimate
disagreement with United States v. Umans, 368 F.2d 725 (2d
Cir. 1966), a decision that dispensed altogether with the
intent requirement in a case involving gratuities offered to
I.R.S. agents. Brewster, 506 at 73 n.26.
Even assuming the footnote could be read as suggesting a
readiness to jettison the intent requirement in cases involving
appointed officials, we disappointed any such expectation
eight years later by reaffirming the official act requirement in
United States v. Campbell, 684 F.2d 141 (D.C. Cir. 1982).
Campbell concerned a Superior Court judge who received
free moving services from a trucking firm that he had treated
remarkably lightly, issuing nominal or suspended sentences
on over 1,000 traffic tickets. We approved a jury charge
requiring "that the alleged gratuities be given and received
'knowingly and willingly,' and 'for or because of an official
act.' " Id. at 150 (emphasis added). To be sure, the attack in
Campbell came from the defendants, who claimed a right to
an even more restrictive charge. But Campbell cannot possi-
bly be said to have stripped the statute of its "for or because
of" requirement.
A detail from that case underscores how we have refused to
allow the official act requirement to be satisfied by some
vague hope of inducing warm feelings toward the donor.
Campbell had served as Assistant Corporation Counsel for
the District of Columbia before becoming a judge in 1973, and
was reputed to have been "sympathetic to trucking interests"
during that time. Id. at 149 n.13. Yet, responding to a
somewhat unclear claim that the jury might have convicted
for uncharged prior acts, we noted that "[i]t is not even clear
which 'acts' of Robert Campbell could have been the basis for
[the trucking company's] gratuities prior to 1973, because
'sympathy to trucking interests' does not constitute an official
act." Id. at 149 n.14.3 Here, too, if Douglas furnished Espy
with gifts merely to win his generalized sympathy for Sun-
__________
3 The independent counsel claims that these passages in Campbell
turn on the notion that an Assistant Corporation Counsel is not in a
position to perform official acts. The notion is false--under District
law an Assistant Corporation Counsel may, for example, choose to
Diamond, those gifts would not be illegal gratuities, unless
the jury could find that Douglas sought this generalized
sympathy to influence Espy to perform one or more official
acts sometime in the future.
At oral argument we questioned the representative of the
independent counsel on the application of his theory to in-
stances where an old friend of some newly appointed office-
holder took him to a meal or sports event while his firm had
matters pending before the officeholder. Counsel appeared
to assert that this scenario fell within his view of the statute.4
Indeed, it would have been squarely within the district court's
charge to the jury. But we trust that, should Congress
__________
prosecute (or not prosecute) traffic violations, D.C. Code ss 23-101,
40-622. Perhaps because of its falsity, the notion is never men-
tioned by the Campbell court. Had the government charged Camp-
bell with a pre-1973 decision not to prosecute the trucking compa-
ny, rather than alleging mere "sympathy," such a decision might
well have constituted an official act sufficient to support a gratuity
charge.
4 The colloquy at oral argument was as follows:
THE COURT: So if an old friend of mine from law school
who's a partner in a firm that has a pending case before this
Court takes me to a baseball game, as we've done for years,
that's an illegal gratuity?
COUNSEL: It may well be, yes.
THE COURT: You're serious?
COUNSEL: If you have a case, if [counsel for Sun-Diamond]
takes you to the game tomorrow, takes you to the Redskins
game on Sunday while you have this case pending before you,
that's a gratuity.
Oral Arg. Tr. at 30-31. The independent counsel's theory here
seems truly sweeping: if this hypothetical baseball arrangement
has been in place "for years," stretching back to before the judge's
investiture, it is difficult to see how it could be motivated by the
judge's position. Even if the baseball invitation represented an
increment in the donor's hospitality to his friend since the latter's
appointment, under this circuit's reading of the statute it would
violate s 201(c)(1)(A) only if offered, as the statute says, "for or
because of any official act."
someday decide to criminalize such conduct, it will not require
that the gifts be given "for or because of any official act."
The independent counsel points to United States v. Secord,
726 F. Supp. 845, 847 (D.D.C. 1989), as well as several
decisions by other courts of appeals apparently holding that
gifts motivated solely by the recipient's official position may
be illegal gratuities. See United States v. Evans, 572 F.2d
455, 480 (5th Cir. 1978); United States v. Standefer, 610 F.2d
1076, 1080 (3d Cir. 1979) (en banc);5 Umans, 368 F.2d at 730;
United States v. Bustamante, 45 F.3d 933, 940 (5th Cir. 1995);
cf. United States v. Alessio, 528 F.2d 1079, 1082 (9th Cir.
1976) (suggesting that donee's ability to use his position for
donor's benefit was enough to satisfy the official act require-
ment). These decisions appear to leap from the gratuity
statute's lack of a reciprocal quid pro quo requirement to an
assumption that it has dispensed with any need to show intent
focused on an official act or acts. Thus, the court in Busta-
mante says, "Generally, no proof of a quid pro quo is
required; it is sufficient for the government to show that the
defendant was given the gratuity simply because he held
public office." 45 F.3d at 940. Any such leap disregards the
explicit language of the statute and contradicts Brewster and
Campbell. Other out-of-circuit cases seem to take the official
act requirement more seriously. See, e.g., United States v.
Muldoon, 931 F.2d 282, 287 (4th Cir. 1991) ("an illegal
gratuity is a payment made for an act by the recipient that
might have been done without any payment") (citing Brew-
ster ); cf. Sawyer, 85 F.3d at 735-36 (construing virtually
identical Massachusetts gratuity statute).
Finally, the independent counsel asserts that in United
States v. Baird, 29 F.3d 647 (D.C. Cir. 1994), we embraced his
broad interpretation of the gratuity statute. The question in
Baird was whether the conflict of interest statute, 18 U.S.C.
s 203(a), requires the government to prove that a defendant
knew the statute covered him. We held that the clause
"otherwise than as provided by law," which appears both in
_____________
5The independent counsel's brief made no mention of Standefer, but in a petition for reharing he notes that the Supreme
Court, in affirming the judgment on other grounds, Standefer v. United States, 447 U.S. 10 (1980), said in a footnote that "the
instructions to the jury on criminal intent" were "correct." Id. at 14 n. 8. Standefer's briefs in the Supreme Court and the Third
Circuit's unpublished panel opinion, United States v. Standefer, 1979 WL 4863 (3d Cir. 1979), however, make clear the defendant's
challenge was to the absence of a quid pro quo requirement, and to the trial court's refusal to instruct the jury that the defendant's
gifts to an I.R.S. agent had not in fact resulted in the favorable audit sought by the donor. Id.at *4-8. In any event, tahe instructions
in Standefer, reprinted in relevant part in the Third Circuit's panel opinion, id. at *5, *6, were far narrower than the charge in this
case, repeatedly emphasizing the requirement that the gifts be given for or because of tax audits performed by the donee.
s 203(a) and in s 201(c) (then codified at ss 201(f) and (g)),
did not embody such a scienter requirement; rather, it
merely required a showing that the public official received
money to which he was not lawfully entitled. Id. at 652.
Although the Baird opinion cited approvingly to both Evans
and Standefer, see id., it did not address directly the "for or
because of any official act" language--doubtless because the
conflict of interest statute at issue contained no such lan-
guage.
Given that the "for or because of any official act" language
in s 201(c)(1)(A) means what it says, the jury instructions
invited the jury to convict on materially less evidence than
the statute demands--evidence of gifts driven simply by
Espy's official position. The difference may not seem very
great, for whenever a donor has matters actually or potential-
ly pending before his donee, gifts motivated by the latter's
position will usually also be motivated by a desire to reward
or elicit favorable official action. But the terms of the statute
require a finding that the gifts were motivated by more than
merely the giver's desire to ingratiate himself with the official
generally, or to celebrate the latter's status.
In his effort to salvage the instructions, the independent
counsel points to other portions of the charge in which the
judge simply repeated the terms of the statute or the indict-
ment verbatim, e.g., by reciting the words "for or because of
an official act." These recitations could not possibly, howev-
er, have overcome the broader message. Thus the charge
failed to give the jury an adequate understanding of the
issues, see United States v. DeFries, 129 F.3d 1293, 1304
(D.C. Cir. 1997), and the error cannot be called technical or
harmless, see United States v. Lemire, 720 F.2d 1327, 1339
(D.C. Cir. 1983). We reverse and remand for a new trial on
Count I.6
__________
6 We reject Sun-Diamond's contention that the gratuity statute is
unconstitutionally vague as applied to its conduct. United States v.
At the same time, we reject Sun-Diamond's broad attack
on the indictment. Again Campbell controls. Campbell ar-
gued, much as Sun-Diamond does here, that the jury should
have been required "to find that the gratuity was conferred
with 'specific knowledge' of 'a definite official action for which
compensation was intended.' " 684 F.2d at 149. We rejected
that argument, holding that it was sufficient for the jury to
find that the trucking company had provided free services to
Campbell because it believed the judge had been, or would
later be, "generally lenient" in dealing with the company's
voluminous traffic citations. Id. at 149-50. The government,
we held, was not required to show that any particular free
service provided to Campbell was earmarked for any particu-
lar ticket or tickets; leniency in a multitude of specific acts
was enough. That an official has an abundance of relevant
matters on his plate should not insulate him or his benefac-
tors from the gratuity statute--as long as the jury is required
to find the requisite intent to reward past favorable acts or to
make future ones more likely.
The Fraudulent Scheme
Sun-Diamond was found guilty on Counts III and IV of
committing wire fraud in violation of 18 U.S.C. ss 1343 &
1346, and on Counts V through IX of violating the Federal
Election Campaign Act, 2 U.S.C. ss 441b(a) & 441f
("FECA"). Both sets of convictions flow from a scheme of
Richard Douglas and James H. Lake to help repay the debts
of the failed congressional campaign of Mike Espy's brother
Henry. The following facts about the scheme come from the
testimony of Lake, who was granted immunity by prosecutors
in exchange for his cooperation.
Lake was one of the founding partners of a Washington-
based firm, Robinson Lake Sawyer & Miller ("RLSM"), which
handled communications and public relations matters for
__________
Campbell, 684 F.2d 141, 150 n.17 (D.C. Cir. 1982); cf. United States
v. Brewster, 506 F.2d 62, 76-78 (D.C. Cir. 1974).
Sun-Diamond.7 Sun-Diamond retained RLSM for a fee of
$20,000 a month; Douglas oversaw Sun-Diamond's dealings
with RLSM and maintained his own office there. RLSM was
a wholly-owned subsidiary of Bozell Worldwide, Inc. ("Bo-
zell").
After Mike Espy became Secretary of Agriculture, Henry
Espy unsuccessfully pursued election to his brother's vacant
seat in Congress, building up a sizable campaign debt in the
process. In February 1994 Douglas left a telephone message
at Lake's office--a crucial act for jurisdiction over one of the
wire fraud counts. When Lake contacted Douglas, he
learned that Secretary Espy had asked Douglas for help in
retiring his brother's campaign debt. Lake immediately of-
fered to donate $1,000, the maximum permissible individual
contribution. Douglas replied that he had to raise at least
$5,000 fast, and that he needed Lake's help. He then pro-
posed a way around the campaign finance restrictions. If
Lake would get five RLSM employees (including Lake him-
self) to write a check for $1,000 each, Douglas would find a
way for Sun-Diamond to reimburse them all. Lake knew the
scheme was illegal--corporations are forbidden to make con-
tributions "in connection with any election" for Congress, 2
U.S.C. s 441b(a), and no one may make a campaign contribu-
tion in the name of another person, 2 U.S.C. s 441f--but
agreed to participate anyway. Lake testified that no one else
at RLSM or Bozell knew about the plan.
Lake wrote a $1,000 check in his own name and then
approached the four RLSM employees identified by Douglas.
Three of them agreed to pay up. (A fourth--presumably
suspicious about the notion of a reimbursable campaign con-
tribution--declined.) Lake then passed the checks worth
__________
7 At certain points in the record this firm is referred to by
somewhat different names, such as "RLLM/SMG" (Robinson, Lake,
Lerer, Montgomery/Sawyer, Miller Group). For simplicity we will
refer to Lake's partnership as RLSM throughout.
$4,000 to Douglas, who deposited them in a "Henry Espy for
Congress" account he had opened.
As the vehicle for reimbursement, Douglas settled on the
Joint Center Dinner, an annual benefit for which RLSM and
Lake had in the past routinely bought tickets on Sun-
Diamond's behalf. Lake's staff prepared an internal RLSM
document authorizing reimbursement to Lake for his sup-
posed purchase of tickets to the dinner in the amount of
$5,000 (even though he had raised only $4,000 for Henry
Espy). The same document became part of the monthly
invoice sent to Sun-Diamond, billing the client $5,000 for the
fictitious dinner attendance on top of its $20,000 monthly
retainer and other expenses. Lake received a $5,000 reim-
bursement check from Bozell, which he cashed and used to
pay back the three other individual contributors (apparently
pocketing the extra $1,000 for himself). Douglas, as part of
his normal duties at Sun-Diamond, approved the payment to
RLSM, which eventually went through. The net result: a
$5,000 expenditure by Sun-Diamond, $4,000 of which went
into Henry Espy's campaign coffers and $1,000 into James H.
Lake's pocket.8 The independent counsel charged that the
scheme worked a fraud on Bozell and RLSM, depriving the
former (albeit temporarily) of $5,000, and depriving the latter
of the "honest services" of its agent Lake under 18 U.S.C.
s 1346. The jury convicted, evidently convinced that at least
one such deprivation occurred. The jury also found Sun-
Diamond guilty of making illegal campaign contributions in
violation of FECA, 2 U.S.C. ss 441b(a) & 441f.
As a threshold matter, Sun-Diamond raises a challenge
which it says goes equally to the wire fraud and FECA
counts. Richard Douglas's campaign contribution scheme
cannot be attributed to it, Sun-Diamond argues, because
Douglas was not acting with an intent to benefit the corpora-
__________
8 In October 1995 RLSM terminated its relationship with Sun-
Diamond and returned the $5,000 payment.
tion. It is true, as the district court instructed the jury in
this case, that an agent's acts will not be imputed to the
principal in a criminal case unless the agent acts with the
intent to benefit the principal.9 Here, Sun-Diamond says,
Douglas's scheme was designed to--and did in fact--defraud
his employer, not benefit it. In this circumstance, it strenu-
ously argues, there can be no imputation: "[T]o establish
precedent holding a principal criminally liable for the acts of
an agent who defrauds and deceives the principal while
pursuing matters within his self-interest merely because the
agent's conduct may provide some incidental benefit to the
principal serves to punish innocent principals with no counter-
vailing policy justifications." Appellant's Reply Br. at 16 n.9.
This argument has considerable intuitive appeal--Sun-
Diamond does look more like a victim than a perpetrator, at
least on the fraud charges. The facts in the record, howev-
er--that Douglas hid the illegal contribution scheme from
others at the company and used company funds to accomplish
it--do not preclude a valid finding that he undertook the
scheme to benefit Sun-Diamond. Part of Douglas's job was
to cultivate his, and Sun-Diamond's, relationship with Secre-
tary Espy. By responding to the Secretary's request to help
his brother, Douglas may have been acting out of pure
friendship, but the jury was entitled to conclude that he was
acting instead, or also, with an intent (however befuddled) to
further the interests of his employer. The scheme came at
some cost to Sun-Diamond but it also promised some benefit.
See, e.g., United States v. Automated Medical Laboratories,
Inc., 770 F.2d 399, 406-07 (4th Cir. 1985) (agent's conduct
which is actually or potentially detrimental to corporation
may nonetheless be imputed to corporation in criminal case if
__________
9 In a civil case, there may be no need to show that the agent
acted to further the principal's interests--a showing of "apparent
authority" is often enough. See American Society of Mechanical
Engineers v. Hydrolevel Corp., 456 U.S. 556, 573-74 (1982) (private
antitrust action).
motivated at least in part by intent to benefit it); cf. Local
1814, International Longshoremen's Association, AFL-CIO
v. NLRB, 735 F.2d 1384, 1395 (D.C. Cir. 1984) ("[T]he acts of
an agent motivated partly by self-interest--even where self-
interest is the predominant motive--lie within the scope of
employment so long as the agent is actuated by the princi-
pal's business purposes 'to any appreciable extent.' ") (quoting
Restatement (Second) of Agency s 236 & comment b (1957)).
Where there is adequate evidence for imputation (as here),
the only thing that keeps deceived corporations from being
indicted for the acts of their employee-deceivers is not some
fixed rule of law or logic but simply the sound exercise of
prosecutorial discretion.
And the answer to Sun-Diamond's claim of the absence of
any "countervailing policy justification" is simply the justifica-
tion usually offered in support of holding corporate principals
liable for the illegal acts of their agents: to increase incen-
tives for corporations to monitor and prevent illegal employee
conduct. See Kevin B. Huff, Note, The Role of Corporate
Compliance Programs in Determining Corporate Criminal
Liability: A Suggested Approach, 96 Colum. L. Rev. 1252,
1263 & n.49 (1996). One might well question this justifica-
tion--and scholars have. See, e.g., Daniel R. Fischel and
Alan O. Sykes, Corporate Crime, 25 J. Legal Stud. 319 (1996)
(arguing that corporate criminal liability spurs excessive mon-
itoring and litigation costs and should be discarded in favor of
civil liability); Jennifer Arlen, The Potentially Perverse Ef-
fects of Corporate Criminal Liability, 23 J. Legal Stud. 833(1994) (arguing that strict corporate liability may deter corpo-
rate monitoring by making criminal exposure more likely, so
that its imposition may increase the likelihood of crime).
Moreover, the justification may be at its weakest in cases like
this one, where the offending employee breaches a duty of
honesty to the very corporation whose goals he aims to
advance. In any event, Sun-Diamond's argument here, what-
ever its merit as an issue of policy, has no real grounding in
the relevant statutes. And Sun-Diamond does not invoke the
Constitution, which in any event would require either an
overruling of the Supreme Court's rejection of a due process
attack on corporate liability, New York Cent. & Hudson River
R.R. Co. v. United States, 212 U.S. 481 (1909), or the develop-
ment of some new theory.
Sun-Diamond also raises a narrower objection concerning
imputation, one which goes only to the fraud counts. To the
extent Douglas's conduct is to be imputed to his employer,
argues Sun-Diamond, then so must Lake's be imputed to his
employers (RLSM and Bozell). Both men occupied high-level
management positions in their respective firms, and both
men's firms sought to establish and maintain good relations
with Secretary Espy. If Douglas's knowledge can be imput-
ed to Sun-Diamond to hold it responsible for Douglas's acts,
then Lake's must be imputed to his employers, RLSM and
Bozell, and they cannot be victims.
Even assuming the evidence showed the balance of private
and corporate purpose in Douglas's and Lake's motivation to
be identical, Sun-Diamond's argument rests on a faulty as-
sumption--that the imputation rules must be the same on
both the perpetrator and victim sides. They need not be, and
indeed are not. Imputation is a legal fiction designed to
assist in the allocation of liability, not a literal description of
the state of a principal's knowledge. The law imputes the
wrongdoer's conduct to the corporation in order to encourage
monitoring, but it is not at all clear that imputation on the
other side of the equation would be useful in eliciting addi-
tional caution on the part of would-be fraud victims. A rule
that makes victim wariness a condition of criminally punish-
ing the perpetrator--unlike, say, a rule of contributory negli-
gence in tort--might not inspire much extra precaution in
potential victims. However much they may benefit from the
criminalization of fraud generally, potential victims (who have
many incentives to avoid being gulled, independent of the
criminal law) seem unlikely to step up their precautions just
to increase the ex ante chances that their deceivers will face
criminal sanctions--or so Congress could reasonably con-
clude. Thus, when an individual is swindled, the offender
does not escape mail or wire fraud liability just because the
victim was unwary, or even "gullible." See United States v.
Brien, 617 F.2d 299, 311 (1st Cir. 1980). Indeed, Congress's
adoption of 18 U.S.C. s 1346, specifying that the term
"scheme or artifice to defraud," as used in various federal
criminal fraud statutes, should include schemes to deprive a
principal "of the intangible right of honest services," is hard
to square with an imputation rule on the victim side as broad
as the one governing corporate criminal responsibility.
We pause briefly over a final threshold issue before ad-
dressing the core of Sun-Diamond's challenge to the fraud
convictions. The wire fraud statute forbids the use of the
interstate telephone system "for the purpose of executing" a
scheme or artifice to defraud. 18 U.S.C. s 1343. Sun-
Diamond says the telephone message left by Douglas for
Lake preceded their joint concoction of the campaign contri-
bution scheme and thus could not, as a matter of law, have
furthered the scheme.10 There was, however, ample evidence
from which the jury could find that Douglas already had some
sort of fraudulent plan in mind when he placed the initial call
and left the message. In other words, the jury could have
found that Douglas used the telephone system "prior to, and
as one step toward, the receipt of the fruits of the fraud,"
Kann v. United States, 323 U.S. 88, 94 (1944), placing the
case within the coverage of s 1343.
Sun-Diamond's core challenge to the wire fraud counts
raises more serious concerns. The district court charged the
jury on two alternative routes to fraud liability. It could
convict, said the court, if it found "that Sun-Diamond Grow-
ers of California devised a scheme or artifice to defraud with
one or both [of] the two following objectives. One, to obtain
even temporarily $5,000 from Bozell, Inc. by means of false
pretense and representations in order to make an illegal
corporate campaign contribution to Henry Espy for Congress
Committee. Two, to deprive Bozell, Inc. and [RLSM] of the
honest, conscientious, faithful, loyal, disinterested and unbi-
__________
10 This challenge goes only to Count III. The wire communication
underlying Count IV was the electronic transmission of the $5,000
billable expense report from RLSM to Bozell.
ased services of its employee, James Lake." Because the
jury charge was phrased in the disjunctive we must examine
the legal sufficiency of each basis for liability, to ensure that
the jury did not convict on a legally impermissible ground.
See Griffin v. United States, 502 U.S. 46, 59 (1991) (general
verdict based on alternative grounds of liability will be upheld
as long as both grounds are legally adequate, even if one is
factually inadequate).
As for the first possible objective, we admit that it is not
immediately obvious how the contribution scheme could have
been designed to deprive Bozell even temporarily of its
money or property. Sun-Diamond, through Douglas, caused
Bozell to make a routine advance of $5,000 with every expec-
tation that Sun-Diamond would provide prompt reimburse-
ment, and in fact it reimbursed the expense promptly and in
full. As the district court correctly noted in the sentencing
phase, Bozell was deprived only of the time value of the sum
advanced, a deprivation it surely considered negligible judg-
ing from the routine and informal nature of the transaction.
In a case involving fraudulently obtained consumer credit,
however, we held that where a defendant makes "material
misrepresentations designed to induce an extension of credit
that would not otherwise be made, the jury [may] reasonably
infer intent to defraud," even if the borrower intended in
good faith to repay the loan. United States v. Alston, 609
F.2d 531, 538 (D.C. Cir. 1979). Moreover, other courts have
held that actual repayment is no defense to a charge of
fraudulently obtaining a loan, presumably because a loan
obtained by fraud subjects the lender to a greater risk of loss
than it would have voluntarily borne were it fully informed.
United States v. Scott, 701 F.2d 1340, 1346-48 (11th Cir.
1983); United States v. Sindona, 636 F.2d 792, 800 (2d Cir.
1980); see also United States v. Hollis, 971 F.2d 1441, 1452-
53 (10th Cir. 1992) (repayment not a defense to bank fraud
under 18 U.S.C. s 1344); United States v. Allen, 76 F.3d
1348, 1358-59 (5th Cir. 1996) (bank was defrauded, at least
temporarily, when cashier's checks were fraudulently drawn
on bank's account, even though bank was reimbursed in full
by holding company at end of month). Notably, to the extent
repayment in those cases included interest they did not even
feature the time-value deprivation that is present here.
Moreover, although the misrepresentation here did not go to
the likelihood of the advance being repaid, it was nonetheless
material: had Bozell known that the $5,000 was being used to
launder an illegal campaign contribution rather than to re-
serve a table at a charitable dinner, it would not have
authorized the advance. Just as deceitful assurances of legal-
ity in a conventional loan expose the lender to costly legal
entanglements (quite apart from risks of non-repayment), so
too did the concealment here.11
The second alternative ground of liability was that Sun-
Diamond defrauded RLSM of the honest services of its agent,
James H. Lake, in violation of 18 U.S.C. s 1346. Congress
enacted that provision in response to the Supreme Court's
decision in McNally v. United States, 483 U.S. 350 (1987),
which held that the mail fraud statute's coverage was limited
to deprivations of property.12 Section 1346 says simply that
"[f]or the purposes of this chapter, the term 'scheme or
__________
11 Sun-Diamond also offers another reason why Douglas could not
have intended to defraud Bozell. According to Sun-Diamond,
Douglas anticipated that Sun-Diamond would reimburse Lake di-
rectly, or at least that Lake's employer would await payment from
Sun-Diamond before reimbursing Lake, thus avoiding even a tem-
porary deprivation. (In fact Sun-Diamond contends, implausibly,
that there was no evidence from which a jury could infer that
Douglas even knew of Bozell's existence.) Given Douglas's experi-
ence with Sun-Diamond/RLSM billing practices, however, he could
reasonably have foreseen the possibility that Lake would seek an
advance from his employer or its parent company at the time he
hatched the scheme.
12 The elements required for conviction under s 1341 (mail fraud)
and s 1343 (wire fraud) are identical except for the means of
artifice to defraud' includes a scheme or artifice to deprive
another of the intangible right of honest services." 18 U.S.C.
s 1346. The "honest services" theory has typically been
used, both in cases up to McNally and again under s 1346, as
a tool for prosecuting corrupt public officials who have de-
prived citizens of their right to honest representation. See
United States v. Paradies, 98 F.3d 1266, 1283 n.30 (11th Cir.
1996) (collecting cases). But it has also been used, as here, to
prosecute private citizens who defraud private entities. See,
e.g., United States v. Lemire, 720 F.2d 1327 (D.C. Cir. 1983);
United States v. DeFries, 129 F.3d 1293, 1305-06 (D.C. Cir.
1997); United States v. Jain, 93 F.3d 436 (8th Cir. 1996);
United States v. Frost, 125 F.3d 346 (6th Cir. 1997); United
States v. D'Amato, 39 F.3d 1249 (2d Cir. 1994); United States
v. Cochran, 109 F.3d 660 (10th Cir. 1997); United States v.
Gray, 96 F.3d 769 (5th Cir. 1996).
In the private sector context, s 1346 poses special risks.
Every material act of dishonesty by an employee deprives the
employer of that worker's "honest services," yet not every
such act is converted into a federal crime by the mere use of
the mails or interstate phone system. Aware of the risk that
federal criminal liability could metastasize, we held in Lemire
that "not every breach of a fiduciary duty works a criminal
fraud." Lemire, 720 F.2d at 1335, quoting United States v.
George, 477 F.2d 508, 512 (7th Cir. 1973). Rather, "[t]here
must be a failure to disclose something which in the knowl-
edge or contemplation of the employee poses an independent
business risk to the employer." Id. at 1337.13 Absent rea-
sonably foreseeable economic harm, "[p]roof that the employ-
er simply suffered only the loss of the loyalty and fidelity of
__________
communication. United States v. Lemire, 720 F.2d 1327, 1334-35
n.6 (D.C. Cir. 1983).
13 Lemire was a pre-s 1346 decision, but Congress's evident
intent in enacting that provision was to revive pre-McNally caselaw,
at least with respect to the deprivation of honest services. See, e.g.,
the [employee] is insufficient to convict." Frost, 125 F.3d at
368.
The independent counsel says that Douglas and Lake's
fraudulent scheme threatened serious economic harm to
RLSM, because disclosure of a name partner's fraudulent use
of RLSM's offices to funnel illegal contributions to a political
candidate would severely damage the firm's reputation. The
district court agreed, 964 F. Supp. at 493-94. As Lake
testified, the chief assets of a public relations firm are its
legitimacy and credibility in the eyes of current and potential
clients. Both stood to be undermined by Douglas and Lake's
actions. There is no doubt that Douglas and Lake could have
foreseen that their actions would cause substantial economic
harm to RLSM once word of the scheme got out.
Sun-Diamond, however, says this is not enough. It con-
tends that in the private sector context s 1346 and Lemire
demand a showing that the defendant intended to cause
economic harm to his victim, not merely that he could have
reasonably foreseen such harm. Since the economic harm
identified by the independent counsel flows exclusively from
disclosure of the contribution scheme, and since Douglas
surely did not intend for his scheme to be revealed (except
possibly to Mike Espy, so that the Secretary's gratitude could
be properly directed), Sun-Diamond reasons that it is free
from liability under s 1346. In response to this argument, it
will not do to cite "the presumption, common to the criminal
and civil law, that a person intends the natural and foresee-
able consequences of his voluntary actions." Personnel Ad-
ministrator of Mass. v. Feeney, 442 U.S. 256, 278 (1979).
Applying the presumption to the actual detection and revela-
tion of an illegal scheme would threaten to turn the word
__________
Frost, 125 F.3d at 364 ("We therefore hold that s 1346 has restored
the mail fraud statute to its pre-McNally scope, according to
previous opinions interpreting the intangible right to honest ser-
vices.").
"intent" inside out. Is a criminal who foresees his own
capture thereby said to intend it? If so, are especially elusive
criminals, whose apprehension is ex ante relatively unlikely,
in a better legal position than clumsy ones?
We need not address these questions, because we disagree
with Sun-Diamond's contention that s 1346 and Lemire re-
quire the government to show that the defendant intended to
cause economic harm to his victim. Sun-Diamond appears to
confuse the requirement of an intent to defraud (amply met
here, since the crux of the scheme was the submission of a
fictitious expense report to RLSM) with a requirement of
intent to cause economic harm. But Lemire did not go so far
as to say that economic harm must be part of the defendant's
intent in a private-sector "honest services" case--only that
economic harm be within the defendant's reasonable contem-
plation. Although Lemire dealt with failure to disclose a
conflict of interest rather than with an active scheme to
defraud, its treatment of the foreseeability issue governs this
case:
So long as the jury finds the non-disclosure furthers a
scheme to abuse the trust of an employer in a manner
that makes an identifiable harm to him, apart from the
breach itself, reasonably foreseeable, it may convict the
employee of wire fraud. The crucial determination must
be whether the jury could infer that the defendant might
reasonably have contemplated some concrete business
harm to his employer ...
Lemire, 720 F.2d at 1337 (emphasis added); see also United
States v. Barta, 635 F.2d 999, 1005-06 n.14 (2d Cir. 1980)
(relied on in Lemire). As we reaffirmed recently, "Lemire
held that breaches of fiduciary duty are criminally fraudulent
only when 'accompanied by a misrepresentation or non-
disclosure that is intended or is contemplated to deprive the
person to whom the duty is owed of some legally significant
benefit.' " DeFries, 129 F.3d at 1306, quoting Lemire, 720
F.2d at 1335 (emphasis added). See also Frost, 125 F.3d at
368 (holding that, in cases where employee is charged with
defrauding private employer of his own honest services, "[t]he
prosecution must prove that the employee intended to breach
a fiduciary duty, and that the employee foresaw or reasonably
should have foreseen that his employer might suffer an
economic harm as a result of the breach.") (emphasis added);
D'Amato, 39 F.3d at 1257 (pre-s 1346 case holding that
misrepresentations amounting only to a deceit "must be
coupled with a contemplated harm to the victim").
We therefore affirm the convictions for wire fraud on
Counts III and IV.14
SentencingIssues
Sun-Diamond challenges two aspects of its sentence: the
district court's upward departure based on Espy's position as
Secretary of Agriculture, and the imposition of reporting
requirements on the member cooperatives. We agree with
Sun-Diamond and reverse on both points.
District courts may make upward departures from the
Sentencing Guidelines only if "there exists an aggravating ...
circumstance of a kind, or to a degree, not adequately taken
into consideration by the Sentencing Commission in formulat-
ing the guidelines." 18 U.S.C. s 3553(b); U.S. Sentencing
Guidelines Manual ("U.S.S.G.") s 5K2.0. We review district
court determinations that a given factor is present in a
particular case to a degree not adequately considered by the
Commission only for abuse of discretion, because "[d]istrict
courts have an institutional advantage over appellate courts in
making these sorts of determinations, especially as they see
so many more Guidelines cases than appellate courts do."
Koon v. United States, 116 S. Ct. 2035, 2047 (1996). But
whether a given factor could ever be a permissible basis for
departure is a question of law which we address de novo. Id.Here, the issue is in a sense one of degree--how much
authority and status might elevate a position above even the
__________
14 Sun-Diamond does not challenge the adequacy of the jury
charge on the "honest services" theory of liability under ss 1343 &
1346.
rank for which the Guidelines prescribe an eight-level hike--
but it also poses the onetime issue of whether cabinet-level
officers enjoy such lofty status, hardly the sort of fact-
intensive issue calling for extreme deference.
The guideline applicable to violations of the gratuity statute
prescribes a base offense level of 7. U.S.S.G. s 2C1.2. It
calls for a two-level increase if the offense involved more than
one gratuity, and an eight-level increase
[i]f the gratuity was given, or to be given, to an elected
official or any official holding a high-level decision-
making or sensitive position.
Id. The district court imposed both the two-level and the
eight-level increase, bringing the offense level to 17. It then
appended an additional two-level increase, finding that the
Guidelines did not adequately take into account Espy's posi-
tion as a cabinet-level official. This increase in offense level
from 17 to 19 doubled Sun-Diamond's base fine from $250,000
to $500,000. U.S.S.G. s 8C2.4. The court then assigned
Sun-Diamond a "culpability score" of 9 out of a possible 10,
see id. s 8C2.5, a determination Sun-Diamond does not
challenge here. This culpability score dictated a minimum
multiplier of 1.8 and a maximum of 3.6, id. s 8C2.6, leading
to an applicable fine range of $900,000 to $1,800,000, from
which the court chose a figure in the "upper range"--
$1,500,000.
In support of departing upward on account of the high level
of the donee's position, the district court reasoned:
The President has but one cabinet with select members
who the court deems to be on a higher level with regard
to the type of responsibility which is otherwise contem-
plated by the guidelines, and the Secretary of Agricul-
ture, in fact, is tenth in the order of succession to the
Office of the Presidency. That is not an insignificant
fact, and as unlikely as it may be that the Secretary of
Agriculture would assume the Presidency of the United
States because circumstances would not normally present
that opportunity, nevertheless, there is a reason for
creating a pecking order to the position which many
believe is the position of the most powerful person on the
face of the earth.
In any event, the court [notes] for example that Secre-
tary Espy administered a budget of $65 and one half
billion, this figure represents 4.3 percent of the total
federal budget. He's responsible for a great work force
and makes decisions frequently that have a significant
and broad and wide-ranging effect on the American
population, and some might believe on the population of
... other parts of the world.
As the Secretary of Agriculture obviously holds a "high-level
decision-making or sensitive position," it is clear that the
district court rested its departure not on a finding that
cabinet-level status was the kind of factor the Sentencing
Commission failed to consider in formulating s 2C1.2, but on
a belief that his position is so high-level that it represents an
aggravating circumstance present to a degree not taken into
account by the Commission.
This conclusion is at odds with the Sentencing Commis-
sion's explanation of s 2C1.2.15 The Application Notes ex-
plain that " 'Official holding a high-level decision-making or
sensitive position' includes, for example, prosecuting attor-
neys, judges, agency administrators, supervisory law enforce-
ment officers, and other governmental officials with similar
levels of responsibility." U.S.S.G. s 2C1.2, App. Note 1. We
do not think the Secretary of Agriculture holds a position that
in level or sensitivity differs in any material degree from
persons the Application Note explicitly says were within the
Commission's contemplation.
Since the Secretary administers an agency, a straightfor-
ward reading of the Application Note strongly suggests that
he falls within the "agency administrator" category. The
independent counsel says that this term was meant to refer to
lower-level program administrators, of which it says there are
__________
15 "In determining whether a circumstance was adequately taken
into consideration the court shall consider only the sentencing
guidelines, policy statements, and official commentary of the Sen-
tencing Commission." 18 U.S.C. s 3553(b).
85 or so within USDA alone, Appellee's Br. at 43 n.15, but
never explains why we should assume the Sentencing Com-
mission had such a limited category in mind. The Application
Note expressly lists judges as the sort of high-level officials
for which the eight-level departure is appropriate. Perhaps
our perspective is skewed, but offering a gratuity to a life-
tenured federal judge seems to us at least as culpable as
offering one to a cabinet secretary--indeed, we suspect most
citizens would consider the former a more troubling breach of
public trust than the latter. To permit a two-level departure
for the latter, when such a departure is specifically precluded
for the former, appears illogical.
Nor is the district court's decision rescued by its observa-
tions about presidential succession. The Guideline includes
elected officials without apparent regard to the loftiness or
sensitivity of their positions, and the Application Note says
nothing to suggest variation within the elected-official catego-
ry. Thus it appears to sweep in officials ranging in rank from
Representative to President. Even assuming that a case
involving the President might present a sui generis situation
warranting departure, Sun-Diamond points out that the
Speaker of the House is second in line to the presidency after
the Vice President, 3 U.S.C. s 19, and yet is also presumably
taken into account by s 2C1.2 as an "elected official." The
independent counsel responds that "perhaps the Sentencing
Commission did not take into consideration the position and
power of the Speaker of the House when it drafted the
bribery and gratuity guidelines." Appellee's Br. at 45 n.16.
Conceivably, but more likely the Commission meant, as it
said, to lump all federal elected officials together, in contrast
with other officials whose rank was seen to vary enough to
require consideration of levels of responsibility. Similarly,
the Attorney General--seventh in line to the presidency--
seems to fit within the Application Note's "supervisory law
enforcement officers" category. Though we need not, and do
not, decide today the status of these officials with respect to
s 2C1.2, their seeming inclusion argues strongly against the
idea that the Sentencing Commission failed to take adequate-
ly into account the degree of responsibility of an official
further down the line of presidential succession.
Moreover, the district court's approach makes one wonder
how far one must go down the line of succession before one
finally reaches the heartland of s 2C1.2. The Secretary of
Agriculture is in fact ninth in the line of succession, 3 U.S.C.
s 19, not tenth as the district court stated.16 This makes his
connection to ultimate power just as attenuated as that of the
anti-hero of "Kind Hearts and Coronets," who had to murder
eight Alec Guinnesses to become Duke of Chalfont. What of
the Secretary of Health and Human Services, at number
twelve in the queue, id., or the Secretary of Veterans Affairs,
at seventeen, id.? Of course, questions of line-drawing are
often difficult, and in the sentencing arena such questions are
normally best resolved by the district courts on a case-by-
case basis. Here, however, the factor invoked in support of
departure--cabinet-level status--is not one that the district
courts enjoy any comparative advantage in assessing, unlike
such fine-grained, fact-bound circumstances as extreme psy-
chological injury, see U.S.S.G. s 5K2.3, or victim misconduct,
see id. s 5K2.10. We conclude that the two-level upward
departure was impermissible.
Sun-Diamond also challenges the imposition of reporting
requirements on its member cooperatives. The district court
declared, as a condition of probation, that "Sun-Diamond and
its members [sic] cooperatives shall provide quarterly submis-
sions to the probation officer reporting all of the organiza-
tion's expenditures related to all federal employees, office
holders or candidates for federal office [including] any expen-
diture related [to] the procurement of any federal govern-
ment contract, creation of a federal law or regulation, or the
__________
16 The current Secretary of Agriculture, however, is in practical
effect eighth in line, since Secretary of State Madeleine Albright,
having been born abroad, is ineligible. See U.S. Const. art. II, s 1,
cl. 5.
development of any federal policy." These requirements
were to continue in force for five years.
We recognize that the sentencing judge has broad discre-
tion to establish conditions of probation. Lemire, 720 F.2d at
1352. But we know of no precedent for the imposition of
probationary conditions on entities who are not defendants,
nor even agents of defendants--the latter category proble-
matic in its own right, but much more plausibly legitimate
than the present case. Although the independent counsel
paints Sun-Diamond as a mere alter ego of the cooperatives
that own it, we are not persuaded. The member cooperatives
have their own corporate identities, boards of directors, em-
ployees, assets and liabilities, as does Sun-Diamond. Their
power to control Sun-Diamond seems no greater than the
power of ordinary shareholders to control a corporation.
As the Ninth Circuit has explained, imposition of a condi-
tion on a third party exposes the defendant to revocation of
probation for "violations" by persons not under his control.
United States v. Sweeney, 914 F.2d 1260, 1263 (9th Cir. 1990).
Cf. Fiore v. United States, 696 F.2d 205, 208-09 (2d Cir. 1982)
(reversing condition of probation imposed on defendant who
was president, secretary, sole stockholder and only full-time
employee of corporate co-defendant, which had required him
to pay fine imposed on corporation). And 18 U.S.C. s 3563,
which enumerates mandatory and discretionary conditions of
probation, specifies in every one of them the "defendant" as
the person to be burdened. See Sweeney, 914 F.2d at 1263.
As the member cooperatives were not made defendants and
given an opportunity to be heard, they may not now be
subjected to probation.
* * *
We reverse and remand for new trial on Count I; we
affirm the convictions on Counts III through IX; and we
vacate Sun-Diamond's sentence and remand for further pro-
ceedings consistent with this opinion.
So ordered.