Vol. 8, No. 37	Covering Cases Published in the Advance Sheets through September 10, 2001

Highlights of this Issue:

Sentencing Factor Manipulation and Application Note 15 to U.S.S.G. § 2D1.1:

• Panduro is a significant reverse string drug case in which District Judge Scheindlin of the S.D.N.Y. issued two important sentencing rulings. First, she rejected the Government's attempts to attribute 70 kilos of cocaine to the defendant - noting it was "estopped" from so doing after it had previously stipulated to 35 kilos for a co-defendant on the exact same facts. Second, she granted a downward departure under Application Note 15 of U.S.S.G. § 2D1.1 after finding the Government had artificially inflated the drug quantity through the use of "overly generous credit terms" - holding that Note 15 applies equally to situations in which the Government sells drugs at discount prices or offers unusually generous credit terms - a proposition that only a few courts have accepted to date.
  

Hearsay and the Declarant Unavailable Exception:

• In the Photogrammetric case, the Fourth Circuit held that a corporate employee's self-incriminating statements to law enforcement officers are admissible against the corporation in a criminal case, where the employee does not testify, without violating the corporation's 6th Amendment right to confront an accuser.
  

Revocation of Supervised Release:

• In Naranjo, a sharply divided panel from the Fifth Circuit stretched the provisions of 18 U.S.C. § 3583(i) to its outer limits by holding that a district court had the authority to revoke a term of supervised release almost three years after the supervision term expired, because the probation officer had previously initiated revocation procedures based on totally different charges.

U.S.S.G. and Sentencing Issues:

• In both Spinello and Alvarez-Pineda, the Third and Tenth Circuits, respectively, held that U.S.S.G. § 5K2.20, which became effective on November 1, 2000, and which adopted a new definition of "aberrant behavior," was a "substantive", rather than a "clarifying" amendment to the Guidelines and thus does not apply to crimes committed prior to its effective date.
  
  
  
• In Castano-Vasquez, the Third Circuit became the first Circuit Court to rule on the interpretation of U.S.S.G. § 5K2.20 in a sentencing that occurred after November 1, 2000; and its detailed analysis will likely become the seminal case on the meaning and intent of that provision.

The outpouring of messages of prayers and sympathy and hope in the aftermath of the terrorist bombings on September 11, 2001 has been nothing short of inspirational. One in particular caught our eye. Cantor Fitzgerald, the bond trading firm which lost more than 700 employees, published an ad in which it quoted the following thoughts from Mahatma Gandhi: "When I despair, I remember that all through history the way of truth and love has won. There have been tyrants and murderers and for a time they seem invincible, but in the end, they always fall - think of it, ALWAYS."

United States v. Panduro, 152 F.Supp.2d 398 (S.D.N.Y. 2001) (Judge Scheindlin)

This is an important sentencing case because it finally puts some teeth in the provisions of Application Note 15 to U.S.S.G. § 2D1.1. In our opinion, if the approach followed by Judge Scheindlin in this case is adopted by other courts, it will significantly expand the range of circumstances under which a court will be permitted to grant downward departures to defendants in reverse sting drug cases when the Government engages in the practice known as "sentencing factor manipulation."

In 1993, some six years after the Guidelines initially took effect, the Sentencing Commission finally took cognizance of the fact that sentencing factor manipulation was occurring through the use of artificially low prices in reverse sting operations. That practice enabled Government agents to inflate the quantity of drugs that could be attributed to a defendant for sentencing purposes. By adopting Application Note 15 to U.S.S.G. § 2D1.1, the Commission specifically authorized the district court to grant a downward departure at sentencing "if, in a reverse sting operation, the court finds that the government agent set a price for the controlled substance that was substantially below market value and thereby significantly inflated the quantity of controlled substance purchased by the defendant beyond the amount the defendant otherwise could have afforded." (Guideline Amendment No. 486).

That provision was moderately successful in limiting some of the more outrageous examples in which the Government offered to sell vast quantities of drugs at totally unrealistic prices solely for the purpose of inflating the defendant's sentence. However, in the real world, Application Note 15 was deficient in two respects. First, it does not address the difficult task of ascertaining the real market value of drugs. Defendants can't produce drug dealers as experts to establish that real value; and so the value is generally established through the use of Government charts and DEA testimony. Unfortunately those charts and testimony can be skewed because they reflect drug prices that are based on both the below market prices charged in phony reverse sting transactions, as well as the real prices used in direct buys. The charts used by the Government do not distinguish between those two kinds of transactions. Second, Application Note 15 does not address the reality that inflated drug quantities could be achieved just as easily through overly generous credit terms as through discounted pricing.

In this case, Judge Scheindlin recognized and addressed at least the second of those concerns. She granted a downward departure based on the Government's use of such overly generous credit terms; and, in so doing, she held that Application Note 15 applies equally to situations in which the Government employs either discount pricing or overly generous credit terms - a position taken to date by only two other courts, namely Judge Gertner, in U.S. v. Lora, 129 F.Supp.2d 77 (D.Mass. 2001) and Judge Nickerson, in U.S. v. Cambrelen, 29 F.Supp.2d 120 (E.D.N.Y. 1998).

The defendant, Mario Panduro, was one of a number of defendants who were arrested when they attempted to purchase drugs from Special Agent Rhett Fonesca (Fonesca) in a reverse sting operation. After extended negotiations, the defendants agreed to purchase 35 kilograms of cocaine from Fonesca at $16,000 per kilo. Although the parties also discussed a possible purchase of an additional 35 kilos "at a later unspecified date," even Fonesca had to admit that the parties had only a "firm agreement" covering the purchase of 35 kilograms of cocaine. In addition, when the defendants indicated that they had limited resources, Fonesca proposed that the defendants pay only half the purchase price at the time the 35 kilos of cocaine were delivered, and the other half could be paid "at an unspecified later time."

At Panduro's sentencing, the Government contended that the record "clearly establishes that Panduro and his co-conspirators agreed to purchase 70 kilograms of cocaine from Agent Fonesca and that this amount should set Panduro's base offense level." (Id., at 403). Panduro argued that the agreed-upon quantity was 35 kilograms and that the Government had failed to carry its burden of proving any greater amount. Panduro also moved for a downward departure based on Application Note 15.

In response to those contentions, Judge Scheindlin made two rulings of significance in this case. First she agreed that the quantity of drugs properly attributable to Panduro for sentencing purposes was 35 kilos of cocaine - not the 70 advocated by the Government. Second, she concluded that Panduro was entitled to a three-level downward departure under Application Note 15 "to adjust for the artificially low price of the cocaine resulting from the overly generous credit terms." (Id., at 407).

Drug Quantity Issue:

One of Panduro's co-defendants, Alberto Bare (Bare), pled guilty in a different and separate proceeding arising out of the identical drug transaction. Bare entered into a plea agreement with the Government in which the parties stipulated to a Guideline offense level based on 35 kilos of cocaine; and he was sentenced to 70 months in prison. Panduro also pled guilty to the charges in the indictment, but he refused to sign a plea agreement because he would have had to waive his rights to seek any downward departures and his rights to appeal his sentence. Probably in response to that act of defiance, the Government then sought to charge him with 70 kilos of cocaine for sentencing purposes.

At Panduro's request, the Court held a lengthy Fatico hearing. At sentencing, Judge Scheindin refused to accept the Government's position. After a discussion that addressed the contours of Application Note 12 to U.S.S.G. § 2D1.1, she concluded, in part, as follows: "Here, while the parties may have discussed 70 kilograms, they only agreed to 35. This is most evident from the fact that financing was never discussed for the second 35 kilogram installment. . . . Although Agent Fonseca repeatedly referred to ‘70 kilograms,' mere repetition is not tantamount to an agreement." (Id., at 404).

Significantly, Judge Scheindlin also paid heed to the stipulation that the Government had agreed to in co-defendant Bare's case. She noted that "in the case of co-defendant Alberto Bare, the parties stipulated to an offense level based on 35 kilograms of cocaine. While this stipulation is not binding on the Government for all defendants, it highlights the arbitrary nature of setting the offense level based on the negotiated quantity of the sale." (Id., at 404). She also concluded that Bare's plea agreement was "relevant to this proceeding" because "[a]ssuming the Government acted in good faith, Bare's plea agreement is presumed to have been based upon a reasonable interpretation of the relevant facts. As there has been no change in the facts since Bare's sentencing, the Government is estopped from seeking a higher drug quantity for a similarly situated co-defendant." (Id., at 405-06).

Based on that rationale, Judge Scheindlin concluded: "There appears to be no principled reason here to hold Bare responsible for 35 kilograms, but to hold Panduro responsible for 70 kilograms, except for the vagaries of the plea bargaining process. See United States v. Correa-Vargas, 860 F.2d 35, 39 (2d Cir.1988) (‘It must be remembered that plea bargaining, which the prosecutor largely controls, can bring about a huge difference in the sentences imposed for approximately the same conduct.'). The Government has not sufficiently distinguished Panduro's culpability from that of Bare to justify such a sentencing disparity. . . . Panduro, who did not enter into a plea agreement, would be facing a sentence of 108-135 months if 70 kilograms were found to be the agreed-upon amount of drugs, while Bare was sentenced to 70 months. Such disparities are contrary to the spirit of the Guidelines . . ." (Id., at 404-05).

Sentencing Factor Manipulation and Application Note 15:

Turning to the second issue created by the Government's "generous credit terms," Judge Scheindlin concluded that "[i]f Agent Fonesca had not extended credit for half of the purchase price for the 35 kilograms, defendants would have been limited to 19 kilograms" (id., at 407). She also observed that "the Sentencing Commission recognizes that defendants are sometimes induced to purchase more drugs than they otherwise would have through discount pricing." (Id., at 406). Then , in interpreting the scope of that Note, she held that a "natural corollary to Application Note 15 is that the same rationale should apply where the inflated quantity is set by offering overly generous credit terms, rather than [just] discount pricing." (Id.).

Judge Scheindlin acknowledged that drugs "are often sold on consignment or on credit with a down payment. . . . However, when such sales are made, there is generally some assurance that payment will be made. Such indicia include a pre-existing business relationship or a detailed understanding of the purchaser's drug distribution network. Here, there are neither. All of the defendants were strangers to Agent Fonseca. Moreover, Agent Fonseca knew virtually nothing of the purchaser's drug distribution network or their capacity to move multi-kilos of cocaine. Finally, the changing cast of characters would have made any real world wholesaler wary. Under these circumstances, an extension of credit for 50% percent of the purchase price is both unreasonable and below market. Accordingly, to adjust for the artificially low price of the cocaine resulting from the overly generous credit terms, a downward departure of three levels is appropriate." (Id., at 407). She then sentenced the defendant to 63 months in prison.

Up to now, most courts have applied Application Note 15 only to cases in which there has been clear evidence of discount pricing. Judge Scheindlin has persuasively argued that the "natural corollary" of that rationale is that Application Note 15 must also apply to cases in which the Government has offered "overly generous credit terms." That expansion of Application Note 15 obviously concerns the Government. Panduro's defense counsel, Jonathan Marks, Esq. of New York, has advised us that he expects the United States Attorney to appeal the downward departure that Judge Scheindlin granted.

United States v. Naranjo, 259 F.3d 379 (5th Cir. 2001) (Judge Barksdale)

This is one of those absurdly contorted decisions of convenience that shows America's fixation on doing whatever is necessary to justify long prison sentences - at least for American prisoners. Yet, we submit that if China or Cuba or some banana republic seized one of our citizens and did the same thing to him or her, the United States would howl and seek to have the United Nations impose all kinds of sanctions for violating basic rights of due process.

The defendant in this case, Sammy Naranjo, was convicted in 1988 of various drug charges and he was sentenced to 46 months in prison and five years supervised release. On May 20, 1997, four days before the expiration of that term of supervised release, Naranjo's probation officer filed a petition alleging that, nearly a year earlier, Naranjo had been caught by state authorities on a charge of driving while intoxicated and under the influence of a controlled substance - a violation of one of his conditions of his supervised release. The petition requested that a warrant be issued for Naranjo's arrest, but also requested that the warrant be held in abeyance pending a final disposition of the state DIU case. The warrant was issued and, as requested, it was held in abeyance.

As the Court then explained: "Almost three years later, on 24 January 2000, long after the supervised-release-term had expired, Naranjo's probation officer filed a second petition, modifying the first to allege Naranjo had violated his supervised-release-conditions by pleading guilty on 27 October 1999 to 35 counts of a 54-count federal indictment, concerning offenses committed during the supervised-release-term. The next day, the Government moved to revoke Naranjo's supervised release because of that 27 October guilty plea. The motion did not reference the 1996 conduct that had been the basis for the original, pre-term-expiration revocation petition." (Id., at 381) (Emphasis in original).

Over Naranjo's objections, the district court (Judge Garcia) ultimately did revoke the original term of supervised release - and tacked a 12 month consecutive sentence on to the 216 months of imprisonment that was imposed when Naranjo pled guilty to the charges contained in the 1999 indictment - even though the probation officer admitted, at the probation hearing, that the basis for the second revocation hearing was totally different from that for the first; and that the Government's second revocation motion was not based on the allegations made in the first petition. (Id.).

Naranjo appealed the 12 month sentence, arguing that the district court was without authority to revoke his original term of supervised release since the second revocation petition was not timely. Essentially, the issue came down to a question of statutory interpretation: was the post-term revocation permitted by the applicable statute, 18 U.S.C. § 3583(i), a provision enacted in 1994 to extend the power of the courts to revoke a term of supervised release after it has expired - but only in limited circumstances.

Section 3583(i) provides: "The power of the court to revoke a term of supervised release for violation of a condition of supervised release, and to order the defendant to serve a term of imprisonment . . . extends beyond the expiration of the term of supervised release for any period reasonably necessary for the adjudication of matters arising before its expiration if, before its expiration, a warrant or summons has been issued on the basis of an allegation of such a violation." (Emphasis added).

Except for an unpublished district court decision, no court has yet addressed the narrow statutory issue raised by this case: whether the warrant or summons that must be issued under § 3583(i) to extend the court's power has to relate to a violation known and identified as of that date, or whether that warrant also covers other unidentified and unrelated conduct.

Over the strong dissent of Judge Garwood, the majority somehow concluded that the final three words of § 3583(i) - "such a violation" - were broad enough to cover the conduct underlying the 1999 Federal indictment - even though that conduct was not only unrelated to the conduct described in the first petition for revocation, it was unidentified and uncharged at the time the warrant was issued.

Judge Garwood had a series of objections to the majority's ruling. He commented that "this is apparently the first decision which has ever held that a timely initiation of proceedings to revoke supervised release or probation on a particular ground or grounds extends the jurisdiction of the district court to revoke on completely unrelated grounds as to which no revocation proceedings were initiated or summons or warrant issued within the supervised release or probationary term." (Id., at 386-87). He concluded that "nothing in previously existing law supports the majority's holding." (Id., 387). And he argued that the present case "is not governed by section 3583(i) because Naranjo's sentence and supervised release were imposed in 1988 and section 3583(i) was not enacted until 1994."

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