Feature Article Vol. 231-New York Law Journal

Monday, March 29, 2004

Sentencing Discretion in Cases Involving Multiple Enhancements
The Lauersen Decision

By Jonathan P. Bach

AS CORPORATE executives come to be sentenced in cases involving considerable economic loss, a new line of cases in the U.S. Court of Appeals for the Second Circuit will be closely watched. Tucked away in a few short paragraphs at the end of United States v. Lauersen [FN1] is a doctrine that gives courts some flexibility to depart from the sentencing guidelines in cases where multiple sentencing enhancements combine to significantly increase a defendant's sentence. The doctrine has so far been applied only in the context of financial crimes, but potentially has broader application. And with the passage of the Feeney Amendment and heightened concern about whether flexibility will be removed from the federal sentencing process, [FN2] the new doctrine suggests at least one way in which courts can continue to maintain a meaningful role within the guidelines system

The 'Lauersen' Decision
Neils Lauersen, a prominent obstetrician-gynecologist, was convicted of defrauding health insurance companies. He provided fertility treatments not covered under his patients' insurance policies, and then filed insurance claims falsely representing that he had provided other types of treatment.

A presentence report applying the sentencing guidelines put Dr. Lauersen at offense level 33 of the guidelines table. That calculation took into account several upward adjustments or sentencing "enhancements." Thus, beyond the base offense level of 6 that applies in all fraud cases, Dr. Lauersen was assigned 13 additional levels based on the financial amount involved in his offenses, two additional levels because his offenses involved more than minimal planning, two additional levels because he had abused a position of trust, two additional levels because he had obstructed justice, four additional levels because he led others involved in the same conspiracy, and four additional levels because his offenses affected a financial institution and he had derived more than $1 million in proceeds. [FN3] Each of these enhancements was based on a separate provision of the sentencing guidelines.

The result, when all of these enhancements were combined, was a proposed sentencing range of more than 10 years of imprisonment. A large portion of this sentence was attributable to the accumulation of enhancements. Had Dr. Lauersen simply been held accountable for his fraud, the financial amount and degree of planning involved, and his subsequent obstruction of justice, his sentencing range would have been no more than 4 or 5 years. Additional enhancements based on his leadership role, position of trust and the effect on a financial institution had thus more than doubled the sentence to which he was exposed.

The district court declined to apply one of the enhancements -- the four-level enhancement for affecting a financial institution -- on the ground that insurance companies do not qualify as a "financial institution" within the meaning of the applicable guideline. Dr. Lauersen thus received a sentence of just over 7 years. On a cross-appeal brought by the government, however, the Second Circuit found that the sentence was in error and that the financial institution enhancement applied. The case was remanded for resentencing and Dr. Lauersen again faced the prospect of a sentence of more than 10 years.

But, before returning the matter to the district court, the Second Circuit raised a new possibility that neither party had briefed. Writing for the panel, Judge Jon O. Newman observed that the district court would have the authority to depart downward from the applicable guidelines sentencing range, at its discretion, on the ground that the multiple sentencing enhancements, all applicable in this case, had "substantial overlap.' [FN4] Judge Newman noted, for example, that the 13-level enhancement for the financial amount involved already took into consideration the more than $1 million in proceeds upon which the four-level enhancement for affecting a financial institution was also based in part. [FN5]

Judge Newman explained, however, that the justification for a downward departure was not solely the accumulation of overlapping enhancements, but the disproportionate impact that such enhancements have as a sentence rises toward the higher end of the guidelines table. The guidelines table is calibrated to increase the increment of punishment at each successive level, so that the same enhancement results in a greater term of imprisonment if applied in combination with other enhancements than if applied by itself.

Judge Newman concluded that the combined effect of (1) overlapping enhancements and (2) their progressively more severe impact as a defendant's offense level increases "presents a circumstance that is present 'to a degree' not adequately considered by the [U.S. Sentencing] Commission ... and therefore permits a sentencing judge to make a downward departure.' [FN6]

Before Lauersen, the only question for district courts to consider in applying multiple sentencing enhancements was whether the result would involve "impermissible double-counting" -- a situation that arises when two or more enhancements address an identical aspect of the defendant's conduct. But the prohibition against double-counting has been narrowly applied. Multiple enhancements are generally permissible whenever "a single act is relevant to two dimensions of the Guidelines analysis.' [FN7] The significance of Lauersen is that it allows district courts to consider the possibility of a lower sentence where multiple enhancements, though not impermissibly duplicative, may nevertheless overlap.

The 'Jackson' Decision
In United States v. Jackson, [FN8] decided less than a month after Lauersen, the Second Circuit reaffirmed that a downward departure could be considered where multiple sentencing enhancements substantially overlap. James Rinaldo Jackson had pleaded guilty to participating in a fraudulent scheme that involved stealing identification information from his victims and then purchasing valuable items on their credit cards.

At sentencing, the district court had applied the sentencing guidelines to enhance his base offense level of 6 by 10 additional levels based on the financial amount involved, two additional levels for more than minimal planning, four additional levels based on his role as a leader of the scheme, and two additional levels because his offense involved the use of "sophisticated means." After a three-level downward adjustment based on the acceptance of responsibility he demonstrated by pleading guilty, his guidelines offense level was 21.

On appeal, the Second Circuit held that a remand was appropriate to allow the district court to consider the possibility of a downward departure as recognized in Lauersen, which had not been decided at the time of Mr. Jackson's original sentencing. Writing for the panel again, Judge Newman observed that, "[a]lthough the enhancements imposed by the District Court are permissible, they are all little more than different ways of characterizing closely related aspects of Jackson's fraudulent scheme." He further observed that "[m]ost fraud schemes that obtain more than one half million dollars involve careful planning, some sophisticated techniques, and are extensive.' [FN9]

Jackson differs from Lauersen in one interesting respect. Despite multiple enhancements, Mr. Jackson's offense level was not within the higher ranges of the guidelines table. His offense level of 21 falls at the table's approximate midpoint -- a first-time offender at level 21 would typically receive a sentence of just over 3 years. Jackson thus recognizes that multiple enhancements can have an impact worthy of departure even within the mid-to- lower ranges of the guidelines table.Use in Future Cases Both Lauersen and Jackson are currently being reconsidered by the same panel of the Second Circuit that originally decided them. Whether their doctrine will remain intact thus remains unclear. Assuming the panel continues to abide by its prior ruling, however, district courts will have the authority to consider a departure in any case involving multiple enhancements. The granting of a departure will depend on the district court's determination, in each individual case, whether the applicable enhancements substantially overlap and whether departure is appropriate under all the relevant facts and circumstances.

The departure recognized in Lauersen is not limited to financial crimes but potentially applies to any offense. There are other types of offenses that may trigger multiple enhancements regarded as overlapping in a particular case. In Lauersen, Judge Newman cited his prior opinion in United States v. Sofsky concerning a defendant convicted of receiving child pornography. [FN10] Sofsky notes -- in a long and conspicuous footnote -- that the defendant's sentence was the product of multiple enhancements triggering progressively greater increments of punishment at each successive level of the guidelines table.

After having been assigned a base offense level designed to reflect the seriousness of his having received material involving the sexual exploitation of a minor, Gregory Sofsky had his sentenced enhanced for, among other things, receiving material that included photographs of a minor under the age of 12 and for receiving images transmitted by computer. Although Judge Newman had yet to write his opinion in Lauersen, it seems that he was already beginning to consider the issue. It should be noted, however, that both Mssrs. Sofsky and Lauersen were sentenced before the Feeney Amendment was adopted. The Feeney Amendment restricts the availability of downward departures in cases involving child pornography and in all other cases as well. Future cases will determine how the Lauersen doctrine applies in the post-Feeney context.

One can easily see Lauersen becoming an issue in the wave of recent cases involving high-ranking executives of large public corporations who have been accused of fraud. Because of the large dollar amounts involved, such defendants, if convicted, may find themselves in the relatively high ranges of the guidelines table, where the impact of each incremental enhancement is profound. Such fraud typically involves an executive in a leadership role, an abuse of a position of trust, and an effect on a financial institution -- each providing a separate basis for enhancement under the guidelines.

Lauersen would allow a district court to fashion a sentence that takes into account the extent to which various applicable enhancements are only marginally distinct and tend to overlap with aspects of the conduct already inherent in the underlying offense. Lauersen, however, does not detract from the guidelines' imperative that all applicable enhancements must be applied and leaves the question of departure to each individual judge in each individual case. The granting of a departure continues to be a matter of sentencing discretion.

One of the principles behind Lauersen appears to be that where each new enhancement differs only by a nuance from the rest, the result should be only a modest increase in the overall punishment -- rather than the progressively greater increases called for by the guidelines table. This principle is reflected in other aspects of the guidelines, such as the grouping rules for multiple offenses, which are designed to yield only a marginal increase in punishment for each additional offense. [FN11] In that sense, the departure recognized in Lauersen is consistent with the basic structure and principles of the guidelines themselves.

In its petition for rehearing, however, the government argued that the availability of a downward departure for substantially overlapping enhancements should not be recognized, because, according to the government, the U.S. Sentencing Commission had already considered the issue and deliberately drafted the guidelines to require the accumulation of multiple enhancements on a sentencing table that rises in expanding increments.

The government noted that, in specific instances, the guidelines expressly limit the impact of certain cumulative enhancements. For example, one of the fraud guidelines states that "[t]he cumulative adjustments" for enhancements based on the number of victims involved and on jeopardizing the soundness of a financial institution "shall not exceed 8 levels.' [FN12] According to the government, the Sentencing Commission thus intended to have multiple enhancements applied to their full cumulative effect, except in the few limited instances where the commission expressly states otherwise.

The Second Circuit will soon determine whether the government's argument requires it to revise its holding in Lauersen. It could adopt the view -- consistent with its prior opinion -- that although the guidelines generally require the application of multiple sentencing enhancements to their fullest effect, the Sentencing Commission has not considered or precluded the possibility of departure in certain individual cases where the sentencing judge determines that the accumulation of enhancements yields an unjust or unforeseen result.

The Second Circuit has traditionally recognized the availability of departures where different aspects of the guidelines system -- each of them operating soundly in its own right -- may interact in combination to produce a questionable result. In United States v. Gigante, [FN13] for example, the Second Circuit recognized that a departure may be appropriate where the application of multiple enhancements, combined with a preponderance of the evidence standard, yields a sentence that cannot ultimately be justified by the factual record.

Similarly, in United States v. Broderson, [FN14] the Second Circuit recognized that multiple grounds for downward departure may, in combination, justify a lower sentence, even though each ground considered individually presented an insufficient basis for departure. The Lauersen case provides an interesting opportunity to return to this terrain. By affirming its prior decision, the Second Circuit would suggest that judges have a meaningful role to play even in a mandatory sentencing regime, by making sure that the various parts of the system work well in combination. Jonathan P. Bach is a partner at the New York office of Morrison & Foerster. J. Alexander Lawrence, an associate, assisted in the preparation of this article.

FN1. 348 F.3d 329 (2d Cir. 2003).

FN2. PROTECT Act, P.L. 108-21, 117 Stat. 650 et seq. (2003).

FN3. U.S.S.G. ß 2F1.1(b)(1)(N) (consolidated with U.S.S.G. ß 2B1.1 effective Nov. 1, 2001); U.S.S.G. ß 3B1.3 (consolidated with U.S.S.G. ß 2B1.1 effective Nov. 1, 2001); U.S.S.G. ß 2F1.1(b)(8)(B) (consolidated with U.S.S.G. ß 2B1.1 effective Nov. 1, 2001).

FN4. 348 F.3d at 344.

FN5. 348 F.3d at 343.

FN6. 348 F.3d at 344 (citing 18 U.S.C. ß 3553(b)(1)).

FN7. United States v. Campbell, 967 F.2d 20, 25 (2d Cir. 1992).

FN8. 346 F.3d 22 (2d Cir. 2003).

FN9. 346 F.3d at 26.

FN10. 287 F.3d 122 (2d Cir. 2002).

FN11. U.S.S.G. Ch. 3, Pt. D, intro comment ('The rules in this Part seek to provide incremental punishment for significant additional criminal conduct... The amount of the additional punishment declines as the number of additional offense increases.').

FN12. United States v. Lauersen, Nos. 01-1526, 01-1600 and United States v. Jackson, No. 02-1338, Reply Brief in Support of the United States' Petition for Panel Rehearing, at 5 (Jan. 6, 2004) (citing 2B1.1(b)(12)(C)).

FN13. 94 F.3d 53 (2d Cir. 1996).

FN14. 67 F.3d 452 (2d Cir. 1995).

3/29/2004 NYLJ 9, (col. 5)

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