Opinion

United States v. Nathan

188 F.3d 190

Court: Court of Appeals for the Third Circuit
Filed: Aug 18, 1999
On the bench: Becker, Rendell, Garth
Cited by: 4 cases
Authority: More cited than 40.1%

“The sentencing court must take account of the corporate defendant’s financial resources, putting the burden on the defendant to produce relevant materials, before setting a fine that may consume all of the defendant’s assets.”

How later courts described this case

“The sentencing court must take account of the corporate defendant’s financial resources, putting the burden on the defendant to produce relevant materials, before setting a fine that may consume all of the defendant’s assets.”

Written by the judges who cited it.

The opinion

Opinions of the United

1999 Decisions States Court of Appeals

for the Third Circuit

8-18-1999

USA v. Nathan, et. al.

Precedential or Non-Precedential:

Docket 98-6262, 98-6264, & 98-6299

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1999

Recommended Citation

"USA v. Nathan, et. al." (1999). 1999 Decisions. Paper 229.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/229

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1999 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Filed August 18, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NOS. 98-6262, 98-6263, 98-6299

UNITED STATES OF AMERICA

DENNIS NATHAN, Appellant in No. 98-6262

(D.C. Crim. No. 96-cr-00127-2)

UNITED STATES OF AMERICA

VICTOR ARON LANDER, Appellant in No. 98-6263

(D.C. Crim. No. 96-cr-00127-3)

UNITED STATES OF AMERICA

ELECTRODYNE SYSTEMS CORPORATION,

Appellant in No. 98-6299

(D.C. Crim. No. 96-cr-00127-1)

On Appeal From the United States District Court

For the District of New Jersey

District Judge: Honorable Alfred J. Lechner, Jr.

Argued: May 20, 1999

BECKER, Chief Judge, RENDELL and GARTH,

Circuit Judges.

(Filed August 18, 1998)

MICHAEL CRITCHLEY, ESQUIRE

(ARGUED)

JOHN MICHAEL VAZQUEZ,

ESQUIRE

354 Main Street

West Orange, NJ 07052

Counsel for Appellant Dennis Nathan

LAWRENCE S. LUSTBERG,

ESQUIRE (ARGUED)

MARK A. BERMAN, ESQUIRE

Gibbons, Del Deo, Dolan, Griffinger

& Vecchione

A Professional Corporation

One Riverfront Plaza

Newark, NJ 07102-5497

Counsel for Appellant Victor Aron

Lander

J. BARRY COCOZIELLO, ESQUIRE

(ARGUED)

LISA J. TREMBLY, ESQUIRE

Podvey, Sachs, Meanor, Catenacci,

Hildner & Cocoziello

One Riverfront Plaza

Newark, NJ 07102

Counsel for Appellant Electrodyne

Systems Corporation

FAITH S. HOCHBERG, ESQUIRE

United States Attorney

GEORGE S. LEONE, ESQUIRE

Assistant United States Attorney

NOEL L. HILLMAN, ESQUIRE

(ARGUED)

Assistant United States Attorney

970 Broad Street

Newark, NJ 07102

Counsel for Appellee United States of

America

OPINION OF THE COURT

BECKER, Chief Judge.

This opinion addresses a number of sentencing issues

presented by the consolidated appeal of three defendants:

Dennis Nathan, who pled guilty to importing goods into the

United States that were not marked with the country of

origin in violation of 18 U.S.C. S 545; Victor Lander, who

pled guilty to unlawfully introducing merchandise into the

United States in violation of 18 U.S.C. S 542; and

Electrodyne Systems Corporation, which pled guilty to

violating the Arms Control Export Act, 22 U.S.C.S 2778,

and making false statements in violation of 18 U.S.C.

S 1001. Only two of the issues are of general interest and

precedential value. The first involves the proper definition of

a "stipulation" under U.S.S.G. S 1B1.2, the presence of

which may take a sentence to a higher guideline level. We

conclude that statements made during the factual basis

portion of the plea colloquy after the plea agreement has

been made are not stipulations for the purpose of section

1B1.2, as such statements cannot be said to be part of a

plea agreement. Because the District Court relied on such

non-cognizable statements in finding that Nathan and

Lander had stipulated to the greater offense of fraud, we

will reverse the judgment to the extent that it relied on the

fraud guidelines in sentencing the defendants.

The second question concerns whether the president of a

defense contracting company occupies a position of trust

with regard to the government, an issue we must resolve to

decide whether the District Court correctly applied the

adjustment for the abuse of a position of trust. We

conclude that the District Court's findings that Nathan held

a position of trust, and that he breached that trust, are

supported by the record and are legally correct. We will

therefore affirm the District Court's decision to increase

Nathan's base offense level two points on this ground. For

these reasons and the reasons that follow in our discussion

of the other more fact-bound issues before us, we will

affirm in part, reverse in part, and remand to the District

Court so that each defendant can be resentenced.

I. Facts and Procedural History

A. The Charges and the Pleas

Electrodyne Systems Corporation, a defense contracting

company, specialized in providing military components to

the United States government. Nathan was Electrodyne's

president and vice-president. Lander was its director of

marketing. Between November 1989 and March 1994,

Electrodyne entered into six contracts to provide United

States government agencies and the United States

military--including the National Aeronautics and Space

Administration ("NASA") and the United States Air

Force--with electronic components to be used in research,

communications, radar, and weapons systems. Each

contract required Electrodyne to comply with the Buy

American Act, 41 U.S.C. S 10a-10d (1988), and in each

contract Nathan (on Electrodyne's behalf) represented that

Electrodyne (a) intended to manufacture the components in

the United States; (b) would not use foreign components;

and (c) would not use offshore manufacturing sites.

Despite their contractual and statutory obligations,

Nathan and Electrodyne entered into agreements with

foreign companies in Russia and the Ukraine to build the

components specified in the contracts. In so agreeing,

Nathan disclosed to the foreign manufacturers the

drawings, specifications, and technology of the contracted-

for components. To conceal this plan, Nathan instructed

Electrodyne's employees not to disclose the use of foreign

components, instructed the foreign manufacturers not to

mark the components with the country of manufacture,

and directed his own employees to mark the components to

make it appear as if they had been manufactured in the

United States. Nathan failed to disclose these foreign

contracts to the government and failed to register with the

State Department as a manufacturer or exporter of defense

articles.

A federal grand jury returned a thirteen-count indictment

charging Electrodyne, Nathan, and Lander with, inter alia,

violating the Arms Export Control Act ("AECA") and the

International Traffic in Arms Regulations ("ITAR"), making

false or fraudulent claims, and smuggling goods into the

United States. A few months later, pursuant to written plea

agreements, all three defendants pled guilty to various

parts of the indictment. Electrodyne pled guilty to exporting

defense-related items in violation of the AECA and to

making false statements in violation of 18 U.S.C.S 1001.

Nathan pled guilty to Count 12 of the indictment, which

alleged that he had illegally imported goods into the United

States because he failed to mark the items with the country

of origin, in violation of 18 U.S.C. S 545. Lander pled guilty

to a one-count information alleging unlawful introduction of

merchandise into the commerce of the United States in

violation of 18 U.S.C. S 542.

As part of their plea agreements, Nathan and Lander and

the government drafted a schedule of stipulations. They

stipulated that the applicable sentencing guideline was the

smuggling guideline, which is found at section 2T3.1,1 and

that the government would not seek an upward departure

for either defendant. They also stipulated that Nathan's and

Lander's actions did not threaten national security. In

Nathan's plea agreement, the government stated that it did

not suffer a tax loss as a result of Nathan's conduct.

Finally, each of Nathan's and Lander's agreements recited

_________________________________________________________________

1. Appendix A of the U.S.S.G. lists S 2T3.1 as the applicable guideline

section for violations of 18 U.S.C. SS 542 and 545.

that the schedule attached to the agreement contained all

of their stipulations and that any changes to the agreement

had to be in writing and signed by both the defendant and

the government.

At the plea hearing for Nathan and Lander, the District

Court questioned them on their understanding of the

agreement, and then asked each of them to provide a

factual basis for the plea, using questions contained in a

government plea memorandum. During this questioning,

Nathan admitted that, when he entered into a contract with

the Naval Research Laboratory ("NRL") to provide it with

amplifiers, he knew that Lander had ordered the amplifiers

from a Ukrainian company. He also admitted that he had

instructed Electrodyne's employees to obscure markings

indicating foreign manufacturing and to affix Electrodyne

labels to the amplifiers in an effort to deceive the NRL.

Lander in turn conceded that Electrodyne had contracted

with the Ukrainian company, that he had instructed the

Ukrainian manufacturer not to mark the components in a

way that indicated where they were made, and that he had

informed the manufacturer that Electrodyne would relabel

all future shipments of amplifiers to indicate that the

amplifiers were made in the United States. Lander admitted

that he knowingly assisted Electrodyne in deceiving the

United States government.

B. The Sentencing Proceedings

1. The Factual Record

Prior to sentencing, Nathan submitted to the Court a

report from Retired Rear Admiral Lawrence Layman of the

United States Navy stating that no American troops had

been put in danger by Nathan's disclosure of information.

In addition, the government researched whether the

defendants had divulged any sensitive information and

concluded: (i) that they had not revealed sensitive

information; (ii) that all relevant information was already in

the public domain; and (iii) that the parts supplied by the

defendants to the government agencies were not defective.

In its sentencing memorandum, the government: (1)

represented that all affected government agencies approved

of the plea agreement; (2) conceded that the defendants had

taken action to prevent classified material from being

disclosed; and (3) noted that some of the components

imported by the defendants actually represented aflow of

technology into, rather than out of, the United States.

Also prior to sentencing, the U.S. Probation Office

submitted a proposed Presentence Investigation Report

("PSI"). The PSI recommended that Nathan and Lander be

sentenced under the fraud guidelines (section 2F1.1),

rather than the smuggling guidelines (section 2T3.1). The

PSI acknowledged that, under section 1B1.2, the more

severe fraud guidelines would in normal circumstances

apply only if Nathan and Lander stipulated to the greater

offense of fraud, but opined that their statements during

the District Court's "factual basis" inquiry at the plea

hearing were stipulations sufficient to establish fraud

offenses. The PSI also suggested that the case was

"atypical" under Appendix A of the Guidelines, such that

the fraud guidelines might at all events apply. Both

Nathan's and Lander's counsel objected to a number of

paragraphs in the PSI. In addition, Lander informed the

Court that he intended to move for a downward departure

at sentencing based upon his status as a political refugee.

The Probation Office issued a revised PSI. The PSI

continued to recommend that the fraud guidelines should

apply, but now implicitly conceded that the defendant's

verbal admissions were not stipulations. For example, the

PSI for Lander stated, "Although not a stipulation, the

probation office posits that the defendant's verbal

admissions, under oath and on the record, are more

persuasive or, at least, as binding as a stipulation to a

more serious offense." Lander PSI P148 (emphasis added).

An addendum to Nathan's revised PSI argued that, if the

court applied section 2T3.1 rather than section 2F1.1,

Nathan could be subject to an upward departure under

section 5K2.0 on the ground that the smuggling guidelines

inadequately captured the seriousness of Nathan's offense.

The District Court sentenced Electrodyne to a five year

term of probation, $1,000,000 in fines, and restitution to

three government agencies, part in cash and part in kind.

Electrodyne filed a timely notice of appeal from the

judgment on the ground that the corporation lacked the

ability to pay such fines. In United States v. Electrodyne

Systems Corp., 147 F.3d 250 (3d Cir. 1998) (Electrodyne I),

we vacated the $1,000,000 fine and remanded with

instructions to the District Court to make more detailed

findings on the company's ability to pay.

2. The Present Sentences

At sentencing for Nathan and Lander, both the

government and the defendants' attorneys asked the Court

to sentence them in accordance with their plea agreements,

but the Court declined to do so. It offered two bases for the

sentences it was about to impose. First, it found that the

parties had stipulated to a more serious offense under

section 1B1.2 based on Nathan's and Lander's responses to

the questions posed at the plea colloquy. The Court deemed

the facts that came out at the colloquy to be "stipulations"

to fraud offenses, rendering the fraud guidelines applicable.

Second, the Court stated that even if it sentenced the

defendants under the smuggling guidelines, it would reach

the same ultimate sentence by relying on Application Note

2 of section 2T3.1 and section 5K2.0.

Application Note 2 provides that an upward departure

may be warranted where the items for which the defendant

evaded paying import duties were items whose import was

prohibited or limited, since the duties evaded may not

adequately reflect the harm to society. The Court

determined that the duties evaded by Nathan and Lander

did not adequately reflect the harm to society and that the

dismissed counts of the indictment more accurately

measured that harm. Finding that Nathan and Lander had

shared with the Ukraine and Russia information that was

"not generally known," see United States v. Electrodyne Sys.

Corp., 28 F. Supp. 2d 213, 268 (D.N.J. 1998) (Electrodyne

II), the Court repeatedly stated that the defendants' conduct

threatened national security and the safety of United States

troops, see, e.g. id. at 262-63, 268, 269, 270. On this basis,

the Court departed upward nine levels from section 2T3.1's

base offense level of four. The Court also determined that

Nathan was in a position of trust vis-a-vis the government

because he received military data, and that he abused this

trust by sharing the information with foreign

manufacturers. It therefore added two points to his offense

level in accordance with section 3B1.3. We now describe

the actual sentences: first Nathan, then Lander, then

Electrodyne.

The District Court concluded that Nathan's base offense

level under the fraud guidelines was six; that the loss was

between $350,000 and $500,000 and thus, in accordance

with the table set out in section 2F1.1(b)(1), Nathan

warranted a nine-level increase of his base offense level;

that he deserved a two-level increase for more than minimal

planning and a four-level increase under section 3B1.1(a)

for his role as the leader or organizer of an extensive

criminal activity; and that he should receive a three-point

reduction for acceptance of responsibility. This calculation

led to a total offense level of eighteen, and with a criminal

history category of I, the Guideline imprisonment range is

27-33 months. The District Court imposed a thirty-month

sentence.

The Court calculated an alternative sentence for Nathan

as follows, using the smuggling guidelines: a base offense

level of four; an increase of two points for use of

sophisticated means; an increase of four points for his role

in the offense; an increase of two points for abuse of trust;

a nine-level upward departure for the atypical nature of the

offense (based on the national security threats resulting

from the offense, the violations of the Buy American Act

and the AECA, and the fraud that the defendants

committed); and a three-point reduction for acceptance of

responsibility. The total offense level in the wake of these

calculations is also eighteen. As noted above, with a

criminal history category of I, the Guidelines imprisonment

range is 27-33 months; the thirty-month sentence imposed

was mid-range.

The Court determined that Lander's offense level under

the fraud guidelines was fourteen: his base offense level

was six; the loss was between $350,000 and $500,000,

which, under section 2F1.1(b)(1), calls for a nine-level

increase of his base offense level; he deserved a two-level

increase for more than minimal planning; and he should

receive a three-point reduction for acceptance of

responsibility. With a criminal history category of I, the

Guideline imprisonment range was therefore 15-21 months.

The Court sentenced Lander to eighteen months in prison,

which was in the middle of that range.

As it did with Nathan, the Court sentenced Lander in the

alternative under the smuggling guidelines: it calculated a

base offense level of four; an increase of two points for use

of sophisticated means; an increase of four points for his

role in the offense; a nine-level upward departure for the

atypical nature of the offense (based on the security threats

seen to have resulted from the offense, the violations of the

Buy American Act and the AECA, and the fraud that the

defendants committed); and a three-point reduction for

acceptance of responsibility, for a total offense level of

thirteen. The applicable imprisonment range under the

smuggling guideline was 12-18 months, so the Court's

eighteen-month sentence was at the very top of that range.

Before re-sentencing, Electrodyne argued--and the

government agreed--that the appropriate loss amount was

$189,255.65. Nevertheless, the District Court, referencing

the PSI's statement that Electrodyne had stipulated to

paying $369,105.70 in restitution, concluded that the

restitution amount served as an appropriate measure of

loss. The District Court calculated that the restitution

broke down as follows: $170,660 was for investigation and

reprocurement costs associated with two Air Force

contracts; $139,200 reflected the value of a settlement

agreement between the Air Force and Electrodyne relating

to one of the contracts, because the settlement agreement

had been canceled as a result of the plea agreement; $2000

was to go to the Naval Research Lab ("NRL"); and either (a)

$14,595.65 plus three converters or (b) $42,650.05 plus

one converter was to go to NASA.2 The Court also ordered

Electrodyne to pay $500,000 in fines.

All three defendants appeal from the District Court's

sentencing determinations. We have jurisdiction under 28

_________________________________________________________________

2. The District Court stated that the total amount of restitution could be

paid by the defendants collectively. Electrodyne appears to have

assumed full responsibility for paying restitution.

U.S.C. S 1291 and 18 U.S.C. S 3742(a). Nathan and Lander

argue that the District Court erred in applying the fraud

guidelines since, they contend, their factual basis

statements did not constitute a stipulation to the greater

offense of fraud. Second, assuming that the District Court

did err in using the fraud guidelines, they submit that the

Court abused its discretion in departing upward under the

smuggling guidelines and section 5K2.0. Nathan contests

the District Court's conclusion that he abused a position of

trust. Lander objects to the Court's decision not to depart

downward based on his status as a political refugee.

Electrodyne argues that the District Court overvalued the

loss the company caused to the government and that the

Court erred in concluding that Electrodyne had the current

or future ability to pay any amount over $140,000. Each

defendant argues that, on remand, we should assign the

case to a different judge.

II. Nathan and Lander

A. Sentencing Under Section 2F1.1 (Fraud Guidelines):

Was There a "Stipulation"?

A court must sentence a defendant under the guideline

most applicable to the offense of conviction (here,

smuggling) unless: (1) as explained in Appendix A of the

Guidelines, the case is an "atypical" case such that the

guideline section indicated for the statute of conviction is

inappropriate for the particular conduct involved; or (2)

under U.S.S.G. S 1B1.2(a), the parties stipulated to a more

serious offense in a written or oral plea agreement.

The relevant smuggling guideline's introductory

commentary states: "This Subpart deals with violations of

18 U.S.C. SS 496, 541-45, 547, 548 . . . and is designed to

address violations involving revenue collection or trade

regulation." The text of the section 2T3.1 guideline states:

(a) Base Offense Level:

(1) The level from S2T4.1 (Tax Table) corresponding to

the tax loss, if the tax loss exceeded $1,000; or

(2) 5, if the tax loss exceeded $100 but did not exceed

$1,000; or

(3) 4, if the tax loss did not exceed $100.

For purposes of this guideline, the "tax loss" is the

amount of the duty.

U.S.S.G. S 2T3.1. While the District Court expressly

determined that this case was not "atypical" in the context

of Appendix A, see Electrodyne II, 28 F. Supp. 2d at 244-

45, it did find that Nathan's and Lander's answers to the

factual basis questions were stipulations to fraud (which

the Guidelines treat more seriously than smuggling) and

thus that section 2F1.1 was the proper sentencing

guideline.

We must perforce determine whether the District Court

erred as a matter of law by treating Nathan's and Lander's

oral statements at the factual basis hearing as

"stipulations," an issue over which we have plenary review.

See United States v. Morelli, 169 F.3d 798, 803 (3d Cir.

1999). This Court has not yet determined what constitutes

a stipulation for the purpose of U.S.S.G. S 1B1.2(a). If the

statements on which the District Court based itsfinding of

fraud were not stipulations, then it erred in applying the

fraud guidelines rather than the smuggling guidelines.

Nathan and Lander contend that: (i) the PSI conceded

that their statements at the hearing were not stipulations;

(ii) the plea agreement and its attendant stipulations

contained a "four corners" provision that all stipulations

between the parties were contained therein and could only

be modified in writing; and (iii) they never signed the plea

memorandum from which the government asked its

questions at the factual basis colloquy. The government

does not argue that the District Court was correct to deem

Nathan's and Lander's responses "stipulations"; in fact, it

argues only that, since the District Court properly

sentenced Nathan under section 2T3.1, we need not resolve

this issue. However, the Court clearly relied on the fraud

guidelines in sentencing Nathan. See Electrodyne II, 28 F.

Supp. 2d at 251 ("Accordingly, the Individual Defendants

stipulated to the more serious offense of fraud and Section

2F1.1 is the applicable Guideline."). We therefore must

determine the meaning of "stipulation" in the section

1B1.2(a) context.

The Supreme Court was presented with (but did not

decide) the meaning of "stipulation" in Braxton v. United

States, 500 U.S. 344 (1991). The version of section 1B1.2

that existed in 1991 stated:

Provided, however, in the case of conviction by plea of

guilty . . . containing a stipulation that specifically

establishes a more serious offense than the offense of

conviction, [the court should] determine the offense

guideline section . . . most applicable to the stipulated

offense.

U.S.S.G. S 1B1.2(a) (emphasis added). In Braxton, the

defendant pled guilty to assault but not to attempted

murder, though there was no formal plea agreement.

Nevertheless, he agreed with the version of the facts

proffered by the government at the plea hearing, which

facts included a basis for an attempted murder charge. The

district court, which sentenced him under the attempted

murder guidelines, found--and the court of appeals

agreed--that the defendant had stipulated to the more

serious charge. Before the Supreme Court, the defendant

argued that a stipulation had to be part of a formal plea

agreement. The Court acknowledged a circuit split on the

meaning of "stipulation" but declined to resolve the

question, since the Sentencing Commission had just

requested public comment on whether section 1B1.2(a)

should be "amended to provide expressly that such a

stipulation must be as part of a formal plea agreement."

See Braxton, 500 U.S. at 348 (quoting 56 Fed. Reg. 1891

(1991)).

In 1991, the Sentencing Commission amended section

1B1.2(a) to read:

[A court must determine] the offense guideline section

. . . most applicable to the offense of conviction. . . .

Provided, however, in the case of a plea agreement

(written or made orally on the record) containing a

stipulation that specifically establishes a more serious

offense than the offense of conviction, [the court must]

determine the offense guideline section . . . most

applicable to the stipulated offense.

U.S.S.G. S 1B1.2(a) (emphasis added); U.S.S.G. App. C,

amend. 434. Application Note 1 to this section provides:

Where a stipulation . . . made between the parties on

the record during a plea proceeding specifically

establishes facts that prove a more serious offense or

offenses than the offense or offenses of conviction, the

court is to apply the guideline most applicable to the

more serious offense or offenses established.

Id. at application note 1.

Section 6B1.4 of the Guidelines, which governs

stipulations, states, "A plea agreement may be accompanied

by a written stipulation of facts relevant to sentencing." See

id. S 6B1.4(a) (emphasis added). The Commentary to this

section notes that

[b]ecause of the importance of the stipulations and the

potential complexity of the factors that can affect the

determination of sentences, stipulations ordinarily

should be in writing. However, exceptions to this

practice may be allowed by local rule. The Commission

intends to pay particular attention to this aspect of the

plea agreement procedure as experience under the

guidelines develops.

Id. (emphasis added). Though the Commission has not

foreclosed the possibility that stipulations may be oral, it

clearly favors written stipulations over oral ones. 3

While neither the language of section 1B1.2(a) itself nor

the language of section 6B1.4 is dispositive of whether

Nathan's and Lander's statements during the factual basis

were stipulations, section 1B1.2(a)'s reference to a

stipulation as something contained within the plea

agreement strongly suggests that statements made in

factual basis colloquies are not stipulations. Section

1B1.2(a) speaks of stipulations as part of a plea agreement.

A scrupulous reading of section 1B1.2(a), which will require

_________________________________________________________________

3. We note that the District Court for the District of New Jersey has not

established local rules providing for oral stipulations.

that all of the defendant's stipulations be either part of or

annexed to his plea agreement, would provide notice to the

defendant as to exactly what facts underlying his offense he

is agreeing to and will ensure that the defendant receives

the benefit of his bargain. In addition, though section 1B1.2

itself provides for oral plea agreements and, presumably,

oral stipulations contained therein, the Guidelines favor

written stipulations over oral ones. The Application Note

also suggests that we should give a common sense reading

to "stipulation," such that it refers to situations in which

both parties specifically and explicitly agree, on the record,

to the truth of the relevant facts. We thus think the

language of the Guidelines compels the conclusion that

Nathan's and Lander's statements should not be construed

as stipulations.

We find support for our position in the caselaw,

especially in United States v. Guerrero, 863 F.2d 245 (2d

Cir. 1988). Guerrero held that a stipulation between the

government and defense counsel, entered into to obviate

fact-finding at a sentencing hearing, did not trigger the

proviso of section 1B1.2(a). The court explained that section

1B1.2(a)

applies only to a stipulation contained in a plea of

guilty or nolo contendere, not to a stipulation

negotiated after a plea in connection with sentencing.

Prior to plea, the prosecution has the opportunity to

condition its willingness to accept a plea to less than

all counts of an indictment on the defendant's

willingness to stipulate that he committed crimes in

addition to those to which he is pleading guilty. In

offering to reduce the defendant's maximum exposure

to the penalties in the conviction counts, the

prosecution is entitled to extract an admission of facts

that may justify a substantial sentence within that

maximum. But once the Government agrees to a plea

bargain without extracting such an admission, facts

admitted by the defendant to shorten or obviate a

sentencing hearing do not establish a "stipulated

offense" within the meaning of section 1B1.2(a).

Id. at 248; see also United States v. Gardner, 940 F.2d 587,

591 (10th Cir. 1991) (requiring a "knowing agreement by

the defendant, as part of a plea bargain, that facts

supporting a more serious offense occurred and could be

presented to the court" for the court to apply section

1B1.2(a)); United States v. McCall, 915 F.2d 811, 816 n.4

(2d Cir. 1990) (requiring that any stipulation be part of the

plea agreement itself); United States v. Rutter, 897 F.2d

1558, 1561 (10th Cir. 1990) (explaining that once the

government agrees to a plea bargain without extracting an

admission, facts admitted by the defendant can be

considered only as relevant conduct in determining the

appropriate guideline range, not as stipulations under

section 1B1.2(a)). But see United States v. Loos, 165 F.3d

504, 508 (7th Cir. 1998) (concluding that the objective

behind section 1B1.2(a) is best achieved by reading

"stipulation" to mean any acknowledgment by the

defendant that he committed the acts that justify use of the

more serious guideline), cert. denied, 119 S. Ct. 1090

(1999); United States v. Domino, 62 F.3d 716, 722 (5th Cir.

1995) (assuming that the factual resume--the equivalent of

the "factual basis" in this case--can contain stipulations).

In this case, where the parties drafted and agreed to a

document that explicitly contained all of the relevant

stipulations between them, it is clear that their"deal"

encompassed only those stipulations contained in that

document. Though it is true that Nathan, Lander, and their

attorneys had, in advance, read the plea memorandum

from which the government asked its questions at the

factual basis, see Electrodyne II, 28 F. Supp. 2d at 228

n.20 & 231 n.22, the defendants never signed it or in any

other way assented to it. Here the facts at issue came out

at the plea hearing itself while the judge was deciding

whether to accept the plea, rather than in negotiations after

the plea had been accepted, as in Guerrero. We nevertheless

conclude that the plea agreements between the government

and the defendants were complete before the factual basis

hearing, and that the facts admitted in the factual basis

hearing were in no way part of the government's "deal" with

Nathan and Lander. We also think it significant that the

government did not attempt to defend the District Court's

determination that Nathan's and Lander's comments were

stipulations.

In sum, we conclude that the text of section 1B1.2(a),

examined especially in light of the changes the Commission

made from the earlier version of that section, indicates that

a statement is a "stipulation" only if: (i) it is part of a

defendant's written plea agreement; (ii) it is explicitly

annexed thereto; or (iii) both the government and the

defendant explicitly agree at a factual basis hearing that

the facts being put on the record are stipulations that

might subject a defendant to the provisions of section

1B1.2(a). Nathan's and Lander's statements at the factual

basis hearing do not meet this definition of "stipulation,"

and we conclude that the District Court erred infinding

otherwise.

Because the District Court rejected the only other ground

on which it could have relied to invoke the fraud guidelines

when it concluded that the defendants' case was not

atypical under Appendix A of the Guidelines, we hold that

the District Court erred in applying the fraud guidelines in

sentencing Nathan and Lander. In light of this, we examine

whether he correctly sentenced Nathan and Lander in the

alternative using the smuggling guidelines.

B. Sentencing Under Section 2T3.1 (Smuggling Guidelines)

As noted above, after sentencing Nathan and Lander

under the fraud guidelines, the District Court held that

even if the defendants did not stipulate to fraud, it would

have reached the same sentence had it used the smuggling

guidelines, which were the guidelines to which the

defendants had stipulated. See Electrodyne II , 28 F. Supp.

2d at 272. Because a court may properly sentence in the

alternative, we must analyze the propriety of the sentence

under section 2T3.1. See United States v. Bermingham, 855

F.2d 925, 934-35 (2d Cir. 1988) (noting that a court may

still affirm a sentence despite an alleged error in the

application of the Guidelines when it is clear that the

sentencing judge would have imposed the same sentence

under the alternative Guidelines scheme proposed); see

also United States v. Barnes, No. 98-50418, 1999 WL

459223 (9th Cir. June 30, 1999) (reviewing each of two

alternative Guidelines grounds on which District Court

sentenced defendant); United States v. Gonzalez-Lopez, 911

F.2d 542 (11th Cir. 1990) (considering both of District

Court's alternative grounds for sentencing and reversing on

both grounds).

Having invoked the smuggling guidelines, the District

Court found that an upward departure under section 5K2.0

was appropriate based on the "seriousness of the offenses."

Electrodyne II, 28 F. Supp. 2d at 266. The Court relied on

Application Note 2 to section 2T3.1, which states:

Particular attention should be given to those items for

which entry is prohibited, limited, or restricted.

Especially when such items are harmful or protective

quotas are in effect, the duties evaded on such items

may not adequately reflect the harm to society or

protected industries resulting from their importation.

In such instances, an upward departure may be

warranted.

Id. The Court concluded that the duties evaded by the

defendants did not adequately measure the harm they

caused. Specifically, the Court found that four aspects of

the defendants' conduct rendered this case an "atypical"

smuggling case: the fact that the defendants defrauded the

government for their own financial gain; the fact that the

actions of the defendants compromised and may in the

future compromise the national security of the United

States; the fact that they violated the AECA; and the fact

that they violated the Buy American Act, which permitted

them to gain an unfair financial advantage over those

companies that complied with the statute. The Court

appears to have used the fraud guidelines as a framework

to help it determine how large an upward departure to

impose, since it reached a total offense level of 18 under the

smuggling guidelines, just as it did under the fraud

guidelines.

Nathan and Lander object to the upward departure for

several reasons. First, the Court earlier had found that this

case was not atypical under section 2T3.1, and so should

not have departed upwards in light of the Commentary to

section 5K2.0, which requires that a case be "sufficiently

atypical" before a court may depart upward. Second, the

Court's four bases for an upward departure--that Nathan

and Lander defrauded the government for their own

financial gain, that they violated the BAA, that they violated

the AECA and the regulations promulgated thereunder, and

most importantly that their actions threatened the

operational integrity of the United States military--were

either not factually supported by the record or could not be

said to render their offense atypical. Third, even if one of

the four bases was a proper basis on which to upwardly

depart, they argue that we must remand for resentencing

under Koon v. United States, 518 U.S. 81, 98-99 (1996),

since the other bases were improper.

The government responds that the Court properly relied

on Application Note 2 to section 2T3.1 to conclude that acts

like those committed by the defendant warranted an

upward departure. The government stresses that the

components at issue here were, contrary to the defendants'

assertions, "prohibited, limited, or restricted" under 19

U.S.C. S 1304(d), which says that items that do not bear

proper markings may not be brought into United States

commerce. It submits that, because of the prohibited

nature of the components, Application Note 2 suggests that

an upward departure may be warranted. Nevertheless, the

government also acknowledges that it never alleged that the

defendants' actions posed any threat to national security.

Section 5K2.0 states:

Under 18 U.S.C. S 3553(b), the sentencing court may

impose a sentence outside the range established by the

applicable guidelines, if the court finds that "there

exists an aggravating or mitigating circumstance of a

kind, or to a degree, not adequately taken into

consideration by the Sentencing Commission in

formulating the guidelines that should result in a

sentence different from that described."

Id. The Commentary to this section requires that the case

be "sufficiently atypical" before a departure is warranted. As

a preliminary matter, we note an anomaly in this case. In

discussing whether the case was sufficiently atypical to

take it out of the smuggling guidelines under the terms of

Appendix A, the Court found that, because the smuggling

guidelines intended to target offenses involving revenue

collection or trade regulation, Nathan's case was not atypical.4

It stated, "Accordingly, the instant matter is not atypical as

to the Guideline section ordinarily applicable to the offense

of conviction." Electrodyne II, 28 F. Supp. 2d at 245. For

the Court to later find that the case is sufficiently atypical

to warrant an upward departure is enigmatic. We believe

that the Court's later decision can be reconciled on the

theory that it thought the case was mechanically similar

enough to a typical smuggling case for it to fall within the

smuggling guidelines, but was so much more offensive than

most smuggling cases that an upward departure was

warranted.

At all events, the District Court decided that the case was

sufficiently atypical that it would depart upward from the

base offense level. We must examine the bases for the

District Court's departure under section 5K2.0 under an

abuse of discretion standard. See Koon, 581 U.S. at 97-98.

The dominant basis for the District Court's upward

departure was its conviction that the defendants had

threatened the national security of the United States. At the

sentencing hearing, the District Court stated:

I find the position [that there was no threat to national

security or the safety of any member of the military]

laughable. . . . Maybe [there was no threat to national

security] on a strategic basis, but for the ships' crews,

the troops in place, for the pilots, it certainly did. I

think [the government's] position flies in the face of

logic and I can't and will not accept it.

Sent. Tr. at 14. In its opinion, the Court wrote,"The actions

of the Individual Defendant potentially could have

compromised, and in the future may compromise, the

operational safety of the military and/or the operational

readiness and effectiveness of communications, weapons

and radar systems." Electrodyne II, 28 F. Supp. 2d at 268.

It repeated this theme several more times. See, e.g., id. at

262-63, 269, 270.

_________________________________________________________________

4. The Introductory Commentary to section 2T3.1 states, "This Subpart

deals with violations of 18 U.S.C. SS 496, 541-545 . . . and is designed

address violations involving revenue collection or trade regulation."

Despite the Court's oft-expressed concern that the

defendants' actions posed a current or future threat to

national security, its reference to the fact that the

defendants shared information with the Ukraine that was

not generally known, and its determination that this harm

was not adequately captured by the monetary duties

evaded by the defendants, there is no support in the record

for the District Court's concerns. In fact, the record is

uniformly and explicitly to the contrary. The government

stipulated that: (a) there were no defects in the products

imported by the defendants; (b) no confidential information

was disclosed to Russia or the Ukraine; and (c) the

defendants' acts posed no threat to national security or the

safety of the military.

More importantly, the government consulted each

affected government agency before it agreed to accept the

defendants' plea agreements, all of which assented. In

addition, the government conceded in its sentencing

memorandum that the defendants had taken affirmative

action to prevent classified material from being disclosed. It

also noted that some of the components imported by the

defendants represented a flow of technology into, rather

than out of, the United States. In sum, the District Court

clearly erred to the extent that it found that the defendants'

conduct created a threat to national security and it abused

its discretion in departing upward on the ground that the

defendants' actions threatened national security, since

there is no support in the record for that conclusion.

Nor was the District Court correct in using the presence

of fraud as a reason to find the instant case atypical. The

Court stated, "The focus and intent of the conduct

underlying the crimes . . . were to criminally and

fraudulently deviate from the contract provisions entered

into with the United States Government . . . ." Electrodyne

II, 28 F. Supp. 2d at 268. Conceiving of the smuggling as

a way to further that fraud, the Court treated the fraud as

something that made the defendants' smuggling case

atypical.

But this use of fraud is problematic. Smuggling by

definition involves some element of fraud, and often occurs

to further fraud. The statute to which Lander pled guilty,

18 U.S.C. S 542, states:

Whoever enters or introduces . . . into the commerce of

the United States any imported merchandise by means

of any fraudulent or false invoice, declaration . . . or by

means of any false statement . . . or by means of any

false or fraudulent practice . . . shall befined for each

offense under this title or imprisoned not more than

two years, or both.

Id. Likewise, 18 U.S.C. S 545, to which Nathan pled guilty,

states:

Whoever knowingly and willfully, with intent to defraud

the United States . . . passes . . . any false, forged, or

fraudulent invoice . . . or [w]hoever fraudulently or

knowingly imports or brings into the United States, any

merchandise contrary to law . . . [s]hall be fined under

this title . . . .

Id. A number of courts have noted that "the intent to

defraud element of that statute should be construed as

meaning intent to avoid and defeat the United States

customs laws . . . rather than the narrower construction

`intent to deprive the United States of revenue.' " See United

States v. Robinson, 147 F.3d 851, 853 (9th Cir. 1998), cert.

denied, 119 S. Ct. 1249 (1999); see also United States v.

Borello, 766 F.2d 46, 51 (2d Cir. 1985). Given that fraud is

a critical part of the crime of smuggling, the mere fact that

Nathan and Lander engaged in fraud as part of their

smuggling violation does not render the smuggling atypical.

Third, the District Court's upward departure was in part

based on the defendants' violations of the AECA and the

ITAR, violations that the Court found had been established

by a preponderance of the evidence. See Electrodyne II, 28

F. Supp. 2d at 269-70. However, as with fraud, the fact

that the defendants' smuggling scheme also violated the

AECA does not render their smuggling atypical. The AECA

provides that "no defense articles or defense services . . .

may be exported or imported without a license for such

export or import . . . ." 22 U.S.C.S 2778(b)(2). The

smuggling offenses to which Nathan and Lander pled guilty

included this self-same conduct: knowingly and willfully

bringing certain merchandise into the United States

contrary to law or introducing such merchandise into the

commerce of the United States by means of a false or

fraudulent practice. A violation of the AECA is arguably the

archetypal smuggling offense.

To the extent that there is anything about a violation of

the AECA that makes such act an atypical smuggling

offense, it is the fact that the AECA applies only to defense

articles and services, to which national security concerns

may attach. However, as discussed supra, any violations of

national security in this case are chimerical. Therefore, the

District Court abused its discretion to the extent that it

relied on the presence of an AECA violation to find this case

to be an atypical smuggling case.

Finally, the District Court stated that the defendants'

violations of the Buy American Act created additional harm

that was not accounted for under the smuggling guidelines,

thereby rendering the case atypical. See Electrodyne II, 28

F. Supp. 2d at 270. The Court reasoned that Congress

enacted the BAA to protect American labor and industry,

that the defendants received an unfair commercial

advantage by using cheaper manufacturers abroad, and

that they profited financially from this advantage. The BAA

is a civil statute, and the penalty for its violation is simply

that a contractor shall not be awarded such contracts for

three years after the violation is detected. See 41 U.S.C.

S 10b. This facet of the sentencing decision appears to be

only a small factor in the upward departure, given the

Court's emphasis on the threat to national security, as well

as fraud. At all events, to the extent that the BAA, standing

alone, would be a ground for upward departure, it could

not begin to support one of the magnitude applied here.

Because the District Court improperly determined that

national security concerns, fraud, and an AECA violation

rendered this case an atypical smuggling case, we will

vacate Nathan's and Lander's sentences under the

smuggling guidelines and remand for further sentencing

proceedings. The District Court may consider on remand

whether their violations of the BAA caused harm to "society

or protected industries" to an extent not captured by the

smuggling guidelines and, if so, whether this factor justifies

an upward departure.

C. Abuse of Position of Trust

In determining that Nathan should receive a thirty-month

sentence, the District Court concluded that Nathan had

abused a position of trust under U.S.S.G. S 3B1.3 and, in

accordance with that section, added two points to his total

offense level. The Court opined that a double-counting

problem would arise if it enhanced Nathan's section 2F1.1

sentence based on abuse of a position of trust, but

concluded that it was appropriate to enhance his section

2T3.1 sentence for that factor. See Electrodyne II, 28 F.

Supp. 2d at 260 n.80. Under section 3B1.3, the court must

find (i) that the defendant was in a position of trust; and (ii)

that he abused the position of trust in a manner that

significantly facilitated the crime. See United States v.

Sokolow, 91 F.3d 396, 412 (3d Cir. 1996).

Nathan argues that he and the government should be

treated merely as arm's length parties to a contract, and

thus that he held no specific position of trust. He points

out that the government assigned Electrodyne a quality

assurance representative, who was to monitor Electrodyne's

compliance with its government contracts. He also submits

that if he held such a position of trust, that position did not

facilitate the offenses here. The Court found significant

facilitation based on the fact that Nathan was able to

provide plans to Russia and the Ukraine for the

components in question, but Nathan reminds us that those

plans were public. And to the extent that the Court found

facilitation based on Nathan's order to his employees that

they conceal foreign markings, he contends that this

offense was included in the "role in the offense" adjustment

and that to consider it here would be double-counting.

The government responds that the quality assurance

representative was not assigned to oversee the contracts in

question here. It also notes that Nathan's position allowed

him to cover his tracks by directing employees to cover over

foreign markings, and it contends that the District Court's

finding on this point does not constitute double-counting

because the two different enhancements serve different

sentencing goals: the aggravating role targets those whose

conduct uses others to create more extensive harm, while

the abuse of trust role targets those defendants who abuse

their own positions. The government argues that we can

affirm on the ground that Nathan's abuse of trust consisted

of instructing his employees to cover foreign markings, and

that we need not address whether Nathan abused his trust

by transferring military data.

We review de novo whether Nathan occupied a position of

trust, and we review for clear error whether he used his

position of trust to significantly facilitate the offense. See id.

1. Existence of a Position of Trust

In deciding whether a defendant holds a position of trust,

a court must consider:

(1) whether the position allows the defendant to

commit a difficult-to-detect wrong; (2) the degree of

authority which the position vests in defendant vis-a-

vis the object of the wrongful act; and (3) whether there

has been reliance on the integrity of the person

occupying the position.

United States v. Pardo, 25 F.3d 1187, 1192 (3d Cir. 1994).

Application Note 1 to section 3B1.3 states:

"Public or private trust" refers to a position of public or

private trust characterized by professional or

managerial discretion (i.e., substantial discretionary

judgment that is ordinarily given considerable

deference). Persons holding such positions ordinarily

are subject to significantly less supervision than

employees whose responsibilities are primarily non-

discretionary in nature.

S 3B1.3 application note 1. The Court found that Nathan's

position allowed him to commit hard-to-detect crimes, since

he was able to breach contracts without interference from

superiors and was able to conceal those breaches through

instructions to subordinates. (Though it also found that the

government had relied on Nathan's integrity in revealing

military information to him, this finding has no potency in

light of the fact that the information was already in the

public domain.) The Court took note of the fact that Nathan

submitted to the government an agreement acknowledging

all of his responsibilities under United States export control

laws and stating that he would not provide access to critical

military data to persons other than Electrodyne's employees

without Department of Defense consent.

We have frequently determined that individuals who held

high positions in their companies had positions of trust.

For example, in Sokolow, we concluded that the defendant,

as president and owner of his company, held a position of

trust because he "was able to commit difficult-to-detect

wrongs, as he had sole control over [the company's]

accounts without oversight or supervision." Sokolow, 91

F.3d at 413. We also noted that he had the authority to

withdraw his victims' funds from his company and that

such authority was necessary to complete the offense. See

id. Nathan similarly had the authority to determine how his

company would fulfill its contracts, which authority was

critical to the success of his fraud.

In United States v. Bennett, 161 F.3d 171 (3d Cir. 1998),

petition for cert. filed, 67 U.S.L.W. 3758 (U.S. June 4, 1999)

(No. 98-1957), we held that the defendant, who held a

fiduciary position "as president and sole director of the . . .

organizations" and who possessed "absolute control over

the organizations," id. at 195, held a position of trust. The

defendant created a phony board of directors, invented

benefactors, and used the contributions for his own

businesses. The court concluded that his victims--donors

who were told that their money would be used for

charitable purposes--trusted him and that his position

enabled him to abuse that trust. See id. at 196. Like

Bennett, Nathan held the highest position in the company,

managed to conceal the breaches of contract forfive years,

and owned a controlling block of stock.

In analyzing whether a defendant held a position of trust

in a contracting situation, courts have given weight to

whether the victim reposed additional trust in the

defendant by ceding its ability to confirm compliance with

the contract, thus relying more heavily on the honesty of

the defendant than an ordinary party to a contract would.

In a government contract case, United States v. Glymph, 96

F.3d 722 (4th Cir. 1996), the Fourth Circuit concluded that

a defense contractor who was allowed to certify his own

compliance with his contract with the Department of

Defense ("DoD") deserved an abuse of position of trust

enhancement. The defendant, who was convicted of

knowingly supplying to the DoD parts that did not conform

to the agency's specifications, owned a company that was

approved to participate in the DoD's "Alternate Release

Procedure." This procedure allowed the company to ship

parts without prior inspection by a government quality

assurance representative so long as Glymph certified that

each shipment had passed the required tests and

conformed to the specifications. Though Glymph argued

that he was merely an arm's length contractor with the

government, the court held that in light of the self-

certification procedure and the difficulty in detecting the

fraud, he held a position of trust.

Likewise, in United States v. Velez, 168 F.3d 1137 (9th

Cir. 1999), the defendant, who operated a private

immigration consulting firm, helped aliens file applications

with the INS. He also directed a group that was a"qualified

designated entity" (QDE), which meant that it had been

given statutory authority to assist aliens in preparing

legalization applications. Over three years, Velez submitted

six thousand applications to the INS, many of which

contained false information. At some points in time, the INS

was only accepting applications from QDEs. The Ninth

Circuit affirmed the district court's conclusion that Velez

held a position of trust because of his special status with

the INS as a director of a QDE and because his false

documents could not be discovered as a matter of routine.

See id. at 1139. It also affirmed that he had used his

position to facilitate the offense, since he used his status to

attract clients and to expedite the filing process at a time

when only QDEs could file applications.

Velez is a more clear-cut case than the present one, since

Velez had statutory authorization (comparable to an

oligopoly) that entitled him to benefits--and

responsibilities--other entities did not have. However, like

Velez, Nathan had a formal understanding with the

government that he would perform certain services in a

certain way, and it was difficult for the government to

monitor compliance with that understanding. See also

United States v. Sherman, 160 F.3d 967, 970 (3d Cir. 1998)

(holding that doctor who committed insurance fraud

abused a position of trust because the victim-insurer used

an honor system and costs to insurer of double-checking

doctor's submissions would be prohibitively high).

Much like the defendants in Glymph, Velez, and

Sherman, Nathan, as president of the company, was in a

unique position to make decisions for the company and to

decide how Electrodyne would fill the government

contracts. Since no one else--neither the government nor

anyone at Electrodyne--was supervising his acts, he held a

position that allowed him to commit wrongs, and that

permitted him to make those wrongs harder to detect by

requiring subordinates to mark over foreign labels and add

"Made in the U.S.A." labels. Importantly, the government

did not appoint a quality assurance representative to

monitor the contracts at issue here, diverging from what

appears to be its regular practice; thus, the government

vested a significant degree of authority in Nathan. Finally,

the government relied on Nathan's integrity not only in

opting to contract with him (as the head of Electrodyne),

but also in deciding not to assign an enforcement

representative to ensure that he was complying with his

contracts. Applying this court's abuse of position of trust

jurisprudence, which is captured in the tripartite test set

forth in Pardo, we conclude that the District Court correctly

determined that the government was a victim within the

meaning of Sokolow and that accordingly Nathan held a

position of trust vis-a-vis the government.5

_________________________________________________________________

5. In another government contracting case, United States v. Broderson,

67 F.3d 452 (2d Cir. 1995), the Second Circuit concluded that the

defendant, who was an executive at Grumman, did not hold a position

of trust. Grumman and NASA had contracted for Grumman to buy a

supercomputer and lease it to the government; NASA was to pay fees

based on the interest rate Grumman was paying to its bank. Broderson,

a vice president of business operations, lied about the rate, charging the

government a higher rate than Grumman was paying. This lie violated

statutes requiring truth in contracting with the government.

2. Abuse of Position of Trust

Since we conclude that Nathan held a position of trust,

we must determine whether the evidence supports the

conclusion that he used that position of trust to

significantly facilitate his crimes. The District Court

concluded that he abused his position because he revealed

technical plans that had been entrusted to him. As

discussed above, none of the evidence suggests that Nathan

revealed confidential information. The Court also found,

however, that his position allowed him to instruct his

employees to paint over marks that identified the goods as

made in Russia and the Ukraine and to re-mark the items

as made in the United States. We review this finding of fact

for clear error. See United States v. Coyle, 63 F.3d 1239,

1250 (3d Cir. 1995).

In United States v. Hickman, 991 F.2d 1110 (3d Cir.

1993), we stated, "To abuse a position of trust, a defendant

_________________________________________________________________

The court decided that, though Broderson had discretion, the

discretion was entrusted to him by his company, not by the victim

agency. See id. at 456 (stating that "whatever `trust' NASA placed in

Broderson was based strictly on the explicit commands of" the two

relevant statutes he breached). In addition, the court was concerned that

the government's theory might cause anyone who, by statute, must

make accurate reports to the government (including taxpayers) to be

subject to S 3B1.3. Finally, the court found that any abuse of trust that

may have occurred was subsumed in the underlying base offense. See id.

The court declined to hold that Broderson held a position of trust.

We believe that Broderson is distinguishable both from Glymph and

from the instant case. In Glymph, the DoD specifically delegated its

inspection responsibilities to Glymph when it allowed him to certify his

own compliance with his contract. In Nathan's case, the government

essentially relied on Nathan to certify compliance with his contract,

since

it did not or could not appoint an inspector to comply with the particular

set of contracts at issue in this case. In Broderson, the government

simply trusted the defendant in the same way that parties to a contract

trust each other to comply with the terms thereof. The additional

certification responsibilities in Glymph, and the added level of trust by

the government in deciding not to install an inspector to watch over

Nathan's particular contracts, render those cases worthy of an abuse of

trust enhancement.

must, by definition, have taken criminal advantage of a

trust relationship between himself and his victim." Id. at

1112. In Sokolow, we found such abuse where the

defendant's role as president facilitated the commission of

the money laundering offenses, and by virtue of his

position, he was free to spend the money as he wished. See

Sokolow, 91 F.3d at 413. The Sherman court readily

concluded that "by virtue of the discretion given to

Sherman [a doctor] in his position of trust," he was able to

submit medical charges with no supervision, and he

abused his position of trust when he submitted bills to the

insurance company for services never provided and created

fraudulent progress notes to support the fraudulent bills.

See Sherman, 160 F.3d at 970. In a similar vein, in United

States v. Lieberman, 971 F.2d 989 (3d Cir. 1992), we

stated:

Lieberman stresses that he was only one of 40 vice

presidents of the bank, that he merely transferred the

funds from one account to another, and that the

detection of missing funds occurred in a routine

examination. We believe, to the contrary, that the

apparent ease with which Lieberman was able to effect

the crime over a four-year period shows the nexus

between the position of trust which he held and the

commission and concealment of the embezzlement.

Id. at 993.

The District Court did not clearly err in concluding that

Nathan had abused his position of trust, since Nathan (i)

was able to order his employees to help him cover up the

telltale signs that his products were not being made in the

United States; (ii) could instruct the Ukrainian and Russian

companies not to label their products; and (iii) was

successful in covering up the operation for five years.

D. Summary

We will reverse the District Court's decision to apply the

fraud guidelines to Nathan and Lander. We also will vacate

its alternative sentence based on the smuggling guidelines.

However, we will remand for the District Court to

resentence Nathan and Lander under the smuggling

guidelines, cautioning that violations of the BAA cannot

merit an upward departure of the magnitude previously

imposed. We will affirm to the extent that the District Court

concluded that Nathan abused a position of trust. We

dispose in the margin of Lander's appeal of the District

Court's refusal to grant a departure based on his alleged

status as a refugee who fled oppression and religious

persecution in the Soviet Union, finding the argument

lacking in merit.6

III. Electrodyne

The District Court calculated that Electrodyne's conduct

caused a loss of $369,105.70. "Loss" as defined in the

Guidelines represents the loss to the victims before

restitution takes place, and is used to set a fine

corresponding to the monetary harm caused by the

defendants' conduct. The Court imposed a $500,000fine,

which was within the Guideline range for losses of that

magnitude, after finding that Electrodyne had the ability to

_________________________________________________________________

6. As an initial matter, we must determine whether the District Court

recognized its discretion to depart on this ground and declined to do so,

or whether it concluded that it was legally precluded from departing. In

the letter opinion, which the Court stated would control in cases of

conflict with oral statements on the record, the Court discussed Lander's

argument that his refugee status was not adequately taken into

consideration by the Sentencing Guidelines. The Court considered United

States v. Vue, 865 F. Supp. 1353, 1359-60 (D. Neb. 1994), in which the

sentencing court granted a departure to defendants convicted of

smuggling a large amount of heroin based on the fact that they were

refugees from Laos who had been persecuted in their home country for

spreading democratic ideals. The Vue court reasoned, inter alia, that the

defendants were not voluntarily governed by American law but were

forced here because they fought our enemies. The District Court rejected

the "reasoning and rationale" of Vue. Electrodyne II, 28 F. Supp. 2d at

274 n.102. Rather, the Court found, Lander lives here and must be

governed by our law. While the written opinion is arguably unclear as to

the basis of its rejection of Lander's argument, it is supplemented by the

sentencing hearing, during which the Court concluded that it had the

legal authority to depart on the requested ground. Because the Court

recognized its discretion but declined to exercise it, we lack

jurisdiction

over Lander's appeal on this point, see United States v. McQuilkin, 97

F.3d 723, 729 (3d Cir. 1996), and to that extent it is dismissed.

pay such a fine. Our review of the District Court's findings

of fact is for clear error. See United States v. Figueroa, 105

F.3d 874, 876 (3d Cir.), cert. denied, 520 U.S. 1248 (1997).

A. The Loss Calculation

Loss must be established by a preponderance of the

evidence. See United States v. Evans, 155 F.3d 245, 253

(3d Cir. 1998). Application Note 9 (formerly Note 8) to

section 2F1.1 states, however, that a loss need not be

determined with precision, but can be a reasonable

estimate. Here, where Electrodyne pled guilty to unlawfully

exporting defense-related items and to making false

statements, we think that its conduct should be treated as

loss from fraud rather than loss from theft. In general, the

loss from fraud is the financial loss actually suffered by the

victim, or the loss that the criminal intended the victim to

suffer if that is greater. See United States v. Maurello, 76

F.3d 1304, 1309 (3d Cir. 1996).7 Because of the nature of

the crime, which involved manufacturing fully functional

parts, albeit in foreign countries, it is difficult to see what

the monetary loss was, though both Electrodyne and the

government use the restitution amount as a starting point.8

Because Electrodyne agrees that some version of the

restitution amount is the touchstone for the loss

calculation, we direct our attention to that figure.

The District Court found that Electrodyne stipulated to a

$369,105.70 loss by stipulating to that amount in

_________________________________________________________________

7. The offender's gain is an alternative estimate that, according to the

Guidelines, ordinarily understates loss. The PSI attempted to calculate

Electrodyne's gain from the fraud, but concluded that it was impossible

because the foreign components were just part of the overall assemblies

that Electrodyne contracted with the government to deliver.

8. Nathan and Lander argue that Electrodyne's stipulation on restitution

did not mean that they themselves had stipulated to an amount of loss

attributable to their conduct. Because we have concluded that the

District Court should not have used the fraud guidelines, and therefore

that the amount of loss should not be used to set the individual

defendants' threshold offense levels, and because it appears that

Electrodyne has assumed responsibility for any fine, we need not reach

this issue.

restitution. However, because the restitution agreement

contained various provisions, including in-kind transfers, it

does not have an obvious face value. Electrodyne offers a

loss calculation of $189,255.65, calculated by eliminating

two items that the District Court and the Probation Office

considered part of the restitution, on the ground that those

two items did not reflect any actual or intended loss. The

government acceded to Electrodyne's calculation in the

District Court, though it argues before us that the Court

did not clearly err in finding otherwise. We turn to the

specific items whose valuation Electrodyne contests.

1. The Air Force Contract

The first contested item is the District Court's inclusion

of $139,200 in the loss calculation, which represented

Electrodyne's claim against the Air Force for a canceled

contract. Electrodyne represents that this claim arose from

a contract pursuant to which Electrodyne had to provide

the Air Force with pin diode switches. During the pendency

of the criminal investigation, the Air Force canceled the

contract, which was one of Electrodyne's two contracts with

the Air Force, on the grounds of delay. Electrodynefiled an

administrative appeal, arguing that the contract had been

canceled for the convenience of the Air Force. The parties

reached a tentative settlement that Electrodyne would fulfill

the contract and be paid $139,200 if Electrodyne was not

convicted. When Electrodyne pled guilty, that settlement

became void and the contract was canceled.

The District Court found that the full amount of the

$139,200 settlement was part of the "loss" to the Air Force.

Therefore, the District Court calculated a total loss to the

Air Force of $309,860, which also included $170,660

relating to investigation and reprocurement costs for two

contracts: the pin diode contract that was the subject of the

settlement agreement and a separate contract for phase

shifters. Electrodyne submits that, as a legal matter, the

District Court's finding was in error. Our review of what

constitutes "loss" is plenary and requires us to look for

actual or intended harm to the victim. See Evans, 155 F.3d

at 252.

The government argues that the $139,200 would have

been Electrodyne's but for the plea agreement, and that the

money would have been fraudulently acquired. However,

the issue is not Electrodyne's potential total gain but the

Air Force's actual or intended loss, if any, stemming from

the criminal conduct. We have repeatedly emphasized that

the amount of loss in a fraud case, unlike that in a theft

case, often depends on the actual value received by the

defrauded victim. See United States v. Dickler, 64 F.3d 818,

825 (3d Cir. 1995). Thus, when a defendant obtains a

secured loan by means of fraudulent representations, the

amount of loss is the difference between what the victim

paid and the value of the security, because only that

amount was actually lost. See United States v. Kopp, 951

F.2d 521, 528-31 (3d Cir. 1991). In a fraudulent

procurement case, the principles enunciated in Dickler and

Kopp require us to offset the contract price by the actual

value of the components provided in order to determine the

amount of loss. See United States v. Schneider, 930 F.2d

555, 558 (7th Cir. 1991) (following this procedure in a

fraudulent procurement case).

In short, the face value of the contract does not reflect a

reliable loss figure because Electrodyne was prepared to

provide the components to the Air Force, and the value of

those components must be offset against the amount the

Air Force agreed to pay. This is true whether we speak of

actual or intended loss. The government's argument ignores

the value that the Air Force would have received for its

money if the settlement had proceeded. That is, if the

parties had carried out the agreement, the Air Force would

have received pin diode switches that, for all this record

shows, were worth $139,200. Because the loss to the

government would not have been the full settlement

amount, we cannot charge Electrodyne with the full

amount as intended loss.

More importantly, the government does not address the

argument that the harm suffered by the Air Force was

reflected in the $170,660 already attributed to

Electrodyne's conduct. The crucial consideration here is

that the District Court included the loss attributable to

investigation and reprocurement relating to the pin diode

switches in its calculation of $170,660 due to the Air Force,

independent of the $139,200 in dispute here. See

Electrodyne II, 28 F. Supp. 2d at 255 & n.67. Thus, the

difference between the value that would have been received

by the Air Force and the materials Electrodyne was

supposed to have provided has already been taken into

account in the $170,660 loss calculation, which included

the costs to the Air Force of getting the components from

another source.

We find that the settlement amount of $139,200

duplicates the $170,660 for reprocurement and

investigation, regardless of whether actual or intended loss

is considered. The Air Force only suffered one loss relating

to the pin diode switches, and the District Court double-

counted that loss when it included both the canceled

settlement and the reprocurement. We conclude that the

Court erred when it treated this element of the restitution

agreement as having value over and above the $170,660 for

reprocurement of the items covered by the canceled

settlement agreement.

2. The Four Converters for NASA

The District Court adopted the PSI's calculation that the

four converters (a type of electronic component)

contemplated in Electrodyne's restitution agreement had a

value of $57,245.70, the cost of buying four new

converters. The restitution agreement provided that

Electrodyne would provide NASA with either (1) $14,595.65

and three functioning converters, or (2) $42,650.05 and one

functioning converter. The Probation Office apparently

added the two dollar amounts together to come up with a

total value, presumably on the theory that $14,595.65 was

the value of one converter and $42,650.05 was the value of

three, although $42,650.05 is not three times $14,595.65.

Electrodyne does not challenge the inclusion of the

converters' value in the loss calculation as such; rather, it

disputes the valuation of particular converters. Thus, we

need not address how the converters became part of the

loss initially.

The parties agree that two of the converters were already

in NASA's possession.9 They were damaged during the

criminal investigation when government investigators

opened them to look for foreign-manufactured components.

Electrodyne argues that the restitution agreement

contemplated that Electrodyne would fulfill part of its

obligation by repairing those two converters, which it did at

a cost of $2000. Electrodyne also provided NASA with a

sample converter already in stock; it represents that the

cost of that converter was "de minimis." Therefore,

Electrodyne argues, the appropriate value of the particular

four converters involved in this case is $14,595.65 (one

converter) plus $2000 (repairs to two converters) plus zero

(the fourth, sample converter), because this reflects the cost

of restitution to Electrodyne.

The government again responds that Electrodyne

obtained the underlying contract through fraud by

promising American-made components for the contract

price and thus can be charged with the full contract price.

This ignores the distinction in our caselaw between fraud

and theft; NASA's gains have to be counted against the

loss.

We are persuaded by Electrodyne's argument about the

repairs, but not by its argument about the sample

converter. NASA had two converters that were damaged by

Electrodyne's criminal conduct.10 As part of its restitution,

Electrodyne repaired the harm for $2000. It seems logical

that the proper measure of harm is the cost of repairs when

that was all that was required, and not the full cost of the

converters. See United States v. Sablan, 92 F.3d 865, 869

(9th Cir. 1996) (charging the defendant with the cost of

repairs when the result of her activity was damage, not

destruction). Indirect support for this proposition is

provided by Maurello, supra, in which we held that

customers who were satisfied by the services of a defendant

_________________________________________________________________

9. The government points out that the restitution agreement said that

Electrodyne would "provide" converters, but it concedes that two of the

converters were in NASA's possession at the time of the agreement.

10. We consider the damage caused by the investigation as included in

the harm of Electrodyne's crime, because detection of the fraud required

physical inspection of the components.

who fraudulently represented that he could practice law did

not suffer "losses." Though the defendant's actions risked

harm to them, if that harm did not materialize he could not

be assessed with a "loss." Similarly, if the harm that

materialized was a need for repairs and not a need to

replace the entire machine, then the repairs should serve

as the measure of the loss. The government does not

dispute that the repairs were worth approximately $2000.

When it comes to the sample converter, though,

Electrodyne is mistaking its costs (which may well be de

minimis) with the harm inflicted on NASA. If NASA was

deprived of a converter by Electrodyne's criminal conduct,

then it was harmed by the value of one converter, which is

apparently worth about $14,000 to a buyer. It was not clear

error to value the converter at approximately $14,000,

reflecting its market value, even if it was not worth as

much to Electrodyne, the manufacturer.

Basing our calculation of loss on actual harm, it appears

from the record that NASA was harmed by being deprived

of two converters and by needing repairs to two others.

Therefore, the total amount associated with the NASA

converters would be approximately $30,000, the value of

two converters plus $2000 in repairs.

3. Summary

We conclude that the Air Force contract and the full

prices of two converters were improperly included in the

loss calculation; hence vacatur and remand is necessary.

The full price of a third converter was, however, properly

included. Our rough calculation, derived from Electrodyne's

plea agreement, is as follows:

Stipulated restitution to Air Force $170,660.00

Stipulated restitution to Naval

Research Laboratory 2,000.00

Value of one converter 14,595.65

Approximate value of sample

converter 14,000.00

Repair of two converters for NASA 2,000.00

Total Approximate Loss $203,255.65

(The first three items have values that are not here in

dispute.) This recalculation affects the Guideline range for

Electrodyne's fine. On remand, the District Court may

clarify its finding on the value of one converter to set the

exact fine.

B. Ability to Pay

1. Background

Electrodyne argues that it is unable to pay a $500,000

fine.11 As a result of its plea, Electrodyne was suspended

from new government contracts and lost its export

privileges, which constituted 80% of its business before the

plea. At the time of the plea, Electrodyne had $1.9 million

in back orders from the government and anticipated no

profit on those contracts. The PSI stated that Electrodyne

would cease to exist once it fulfilled its obligation under

those remaining contracts. Electrodyne sold its assets to

another company, AdComm; contracted out most of the

remaining contract work; and fired all but five employees.

The District Court calculated Electrodyne's ability to pay

as follows:

$25,219.48 First Union Account

$162,000 Promissory note from AdComm

$31,486 Security deposit from AdComm

$340,000 Navy contract

_________________________________________________________________

11. Electrodyne also contends that the government is estopped from

arguing that Electrodyne can pay more than $140,000, because the plea

agreement included an agreement on the appropriatefine to be

presented to the District Court. This argument is without merit.

Electrodyne had the benefit of its bargain: The government diligently

argued the position set forth in the plea agreement to the District Court,

which on its own initiative rejected the government's position. The plea

agreement allowed the government to take any position on appeal. The

appeal provision of the plea agreement contemplated exactly this sort of

situation, in which a sentencing court rejects the government's position

but the government chooses to support the court on appeal. See United

States v. Griswold, 57 F.3d 291, 298-99 & n.10 (3d Cir. 1995).

$132,000 "Equitable adjustment" requested on

Defense Supply Center contract12

Total: $690,705.48.

Guideline section 5E1.2 requires that a fine be waived

when an individual defendant is unable to pay. By contrast,

section 8C3.3(b), the corresponding provision in the

corporate Sentencing Guidelines, does not require waiver or

reduction. At all events, as we recognized in Electrodyne I,

the fine must not be unrealistic. The sentencing court must

take account of the corporate defendant's financial

resources, putting the burden on the defendant to produce

relevant materials, before setting a fine that may consume

all of the defendant's assets. See Electrodyne I, 147 F.3d at

255.

Currently, Electrodyne states, it has only those physical

assets that are being used to fulfill the remaining contracts.

There is also a $162,000 balance on the promissory note

AdComm gave for Electrodyne's inventory. Moreover,

AdComm gave Electrodyne a security deposit of $31,486.

Finally, Electrodyne submitted a statement showing that it

had $1200 in its bank account as of May 31, 1998. It

represents that these various sources of income will allow

it to pay the $140,000 fine contemplated in its plea

agreement, but no more.

2. The Remaining Contracts

In Electrodyne I, we remanded for findings on

Electrodyne's ability to pay. By the time of resentencing, in

August 1998, two of Electrodyne's remaining five contracts

had been completed. The PSI had initially stated that the

_________________________________________________________________

12. We admit to some confusion here. The contract amount, according to

the facts recited by the District Court, was $173,000. The amount used

by the District Court, $132,000, was apparently the upward adjustment

in the contract amount requested by Electrodyne but not yet granted at

the time of sentencing. We are unsure why the Court used the

adjustment number and not $173,000 or the combined total of

$305,000. Although the parties do not discuss this issue, it might be

useful for the Court to clarify its finding on remand, particularly if the

contract amount has been resolved.

contracts were break-even projects, and no further evidence

on their profitability was presented. On one of the three

outstanding contracts, the Defense Supply Center has

declared Electrodyne in default. Electrodyne is appealing

that declaration, and if it wins it will owe the government

nothing, while if it loses it will owe $49,458. Thus, there are

two remaining executory contracts, one with the Defense

Supply Center and another with the Navy.

On the contract with the Defense Supply Center,

Electrodyne submitted an affidavit stating that it was

negotiating for a $132,000 increase in the contract price

(originally $173,000). On the contract with the Navy, the

contract amount was $340,000, and Electrodyne had

delivered $88,000 worth of product and had received a

$100,000 progress payment. The affidavit does not state

whether these contracts are break-even; Electrodyne argues

that it was entitled to rely on the PSI, which stated that the

five contracts remaining at the time of the PSI were break-

even. However, the District Court found that, because

Electrodyne failed to specify the expenses incurred in

connection with the manufacture of the components under

the two remaining contracts, it would deem the full amount

of the projected sales--$472,000--available to pay a fine.

But see supra note 12 (noting that this might not be the full

amount of the projected sales). Electrodyne argues that the

Court ignored the obvious fact that manufacturing has

costs, and that it made its findings in the face of the

information in the PSI.

The government suggests that, consistent with our

opinion in Electrodyne I, Electrodyne's failure to provide all

the financial information requested by the Court upon

remand insulates the Court's conclusions from attack. The

government submits that the Court did not clearly err in

deciding that the entire income stream from the remaining

contracts would be available to pay a fine. It suggests that

the materials for the contract might already have been

manufactured and merely awaiting delivery, and so there

might be no remaining manufacturing costs.

Electrodyne responds that it did not culpably fail to

provide information. It points out that, after remand in

Electrodyne I, the District Court ordered Electrodyne to

produce a number of documents relating to past expenses

and profits, but did not order Electrodyne to set forth

expenses projected for the remaining contracts. Moreover,

Electrodyne produced a good deal of the requestedfinancial

information, and it explained its inability to produce the

missing information. It had never been subject to an audit

according to generally accepted accounting principles. It

submitted an affidavit from an accountant that a

retroactive audit would not provide any reliable information

because inventory could no longer be verified, that a full

audit could cost up to $12,000 per year, and that because

of the cost it was not standard for a business Electrodyne's

size to undergo audits unless an investor or lender required

them. It also submitted an affidavit from Sol Schneiderman,

a consultant who was by mid-1998 the only person working

full-time for Electrodyne, identifying the years for which

Electrodyne did not have complete records and noting the

current status of the remaining contracts. The District

Court amended its order, relieving Electrodyne of the

burden of producing documents that did not, according to

Schneiderman, exist.

Electrodyne was able to provide tax returns from 1990 to

1997 and unaudited financial statements and balance

sheets for 1990-1991, 1994-1997, and through May 31,

1998. The balance sheets showed sales costs between 65%

(1995) and 82% (1994) of gross sales and operating

expenses between 17% (1994) and 34% (1995 & 1996) of

gross sales. In every year but 1990, therefore, Electrodyne's

balance sheets show net operating pretax income of under

1% of gross sales. Electrodyne argues that the District

Court ignored this record in concluding that Electrodyne

would have no expenses for the remaining contracts. It

asserts that if Electrodyne's net profit on the executory

contracts averaged what it had been between 1990 and

1997, it would make $3304 in profit from the two

contracts, a sum consistent with the prediction that the

remaining contracts would be break-even propositions.

We have been unable to find guidance in the extant

caselaw on determination of ability to pay. We find it

difficult to believe that Electrodyne had no expenses when

fulfilling its remaining contracts, but we are also

unconvinced that Electrodyne provided sufficient

information. As Electrodyne changed from a going concern

to a dying business, it is not obvious that past expenses are

an appropriate guide; a one- or five-employee operation that

is contracting out most of its work doubtless runs

differently than a business that employs nearlyfifty

employees. Therefore, Electrodyne's proposed measure of

profit from the remaining contracts seems as unlikely to be

accurate as the conclusion that the contract amounts

represent pure profit.

However, Electrodyne may have been legitimately

surprised by the District Court's conclusion that the two

remaining contracts represented pure profit, given that the

PSI stated otherwise and that the government never argued

the issue. Because the only record evidence on the

remaining contracts comes from the PSI, which labeled

them break-even, we conclude that the District Court erred

in deeming all contract payments available to pay afine.

We emphasize that, were there other evidence in the record

to the contrary, the District Court could have accepted it.

On remand, we think that Electrodyne should be required

to offer proof of its expenses in carrying out the remaining

parts of the contracts. See Evans, 155 F.3d at 252 n.8

(sentencing court should inquire about the defendant's

financial prospects). The burden of proving expenses is

properly on Electrodyne, and the District Court may

conclude that money not accounted for is available to pay

a fine. See Electrodyne I, 147 F.3d at 254; United States v.

Carr, 25 F.3d 1194, 1211-12 (3d Cir. 1994) (court may sua

sponte recalculate a defendant's net worth in determining

his ability to pay if the PSI recommends a fine; the burden

is on the defendant to prove inability to pay a larger fine).13

_________________________________________________________________

13. Electrodyne also argues that the District Court clearly erred in

concluding that Electrodyne's May 1998 checking account balance of

$25,219.48 was available in August. Schneiderman's June 26, 1998

affidavit stated that Electrodyne had $1200 in the bank, while a First

Union bank statement dated June 30, 1998 listed $419.57 in the

account. The government does not contest this point. On remand, the

District Court should put together as accurate a picture of Electrodyne's

financial position as possible, although we reiterate that it may properly

place the burden on Electrodyne to account for funds.

3. Payment Schedule

Electrodyne further argues that it should not have to pay

the total fine immediately. Guideline section 8C3.2(b)

requires organizations to pay immediately unless the court

finds that they are financially unable to do so or that

immediate payment imposes an undue burden. Full

payment should be required at the earliest possible date or

in installments, within five years. See U.S.S.G. S 8C3.2(b).

In Electrodyne I, we remanded for findings on the time

within which Electrodyne's fine should be paid; while, on

remand, the District Court ordered immediate payment, it

did not specifically address the question whether all the

assets it had identified were immediately available to pay a

fine.

The District Court counted $162,000 on AdComm's

promissory note as available funds. However, that money is

paid monthly in $1566.35 increments, scheduled to end in

February 2002. Similarly, the Court considered the

amounts due on the executory contracts immediately

available. However, the government had, at the time of

briefing, made only a $100,000 progress payment on one of

the two contracts. An unaudited balance sheet from May

31, 1998, showed that Electrodyne's liabilities exceeded its

assets by $32,156 on that date. The government does not

address the issue of a payment schedule. In view of the

foregoing, we are constrained to conclude that the District

Court abused its discretion in finding the total amounts

due from AdComm and from the remaining government

contracts immediately available, because it is

incontrovertible that Electrodyne does not yet have that

money. Again, the judgment must be set aside, and on

remand the District Court should determine a proper

schedule of payments.

IV. Reassignment on Remand

An impartial judge is a basic due process requirement.

We have on occasion exercised our supervisory power to

reassign judges on remand in order to preserve the reality

and appearance of impartiality. See Alexander v. Primerica

Holdings, Inc., 10 F.3d 155 (3d Cir. 1993); Haines v. Liggett

Group, Inc., 975 F.2d 81, 98 (3d Cir. 1992).

The defendants argue that the District Court appears to

have made up its mind about important elements of the

case without having any information to back up its

suppositions. It is clear that the District Court repeatedly,

and contrary to the record, stated that the defendants'

conduct had endangered the safety of American troops,

arguably relying on its own deeply held patriotic views in

derogation of the clear record and skewing the sentencing

decision. Therefore, the defendants submit, the judge gave

an appearance of partiality and prejudgment sufficient to

justify reassignment to a different judge on remand. The

government responds that there is no evidence that the

District Court would defy our mandate. It did indeed cut

Electrodyne's fine in half, from $1 million to $500,000, after

the first remand, and it adhered to our mandate while

exercising its discretion to resolve a number of contested

issues (though not all) against the defendants.

The matters left for resolution in the wake of this opinion

are few and relatively circumscribed. We conclude that the

drastic remedy of reassignment is not necessary here.

Moreover, the case remains a complex one that would

weigh heavily on a sentencing judge unfamiliar with the

facts. We have every confidence that the able and

industrious District Judge will, as he has before, follow our

mandate.

V. Conclusion

For the foregoing reasons, the judgment of the District

Court will be reversed, and the cases will be remanded for

further proceedings consistent with this opinion.14

_________________________________________________________________

14. In one respect, the appeal is dismissed. See supra note 6 and

accompanying text.

RENDELL, Circuit Judge, concurring and dissenting:

I concur in part and dissent in part from Chief Judge

Becker's comprehensive opinion, because I would affirm the

District Court's upward departure decision.

This is a difficult case, factually and legally. It is made

perhaps more difficult by several "disconnects" along the

way. Principal among these are: first, the government's

willingness to accept guilty pleas to violations of statutes

punishing false entry documents and false markings on

goods, when the admitted conduct consisted of a well-

orchestrated scheme to produce, in foreign countries, goods

for military use that were, by law and by contract, to be

produced in the United States, in violation of several federal

statutes; and second, the lack of "fit" of the crime charged

and the conduct conceded with the specified sentencing

guideline, which applies primarily to crimes involving

revenue collection and trade regulation.15

I fault these mismatches for the District Court's need to

resort to an upward departure. Unlike the majority, I read

the District Court's upward departure as having been based

not so much on the threat to the military that the majority

references, but rather, on entirely proper grounds. These

are: (1) that the offense was outside the heartland duty

evasion case because the falsification and absence of

markings was done not merely to evade duties, but to

conceal an extensive criminal scheme that violated several

other laws; and (2) to account for the uncharged fraudulent

conduct (i.e., dismissed counts) clearly conceded by

defendant at the guilty plea colloquy, both permissible

grounds for upward departure under our holding in United

States v. Baird, 109 F.3d 856 (3d Cir. 1997). 16

_________________________________________________________________

15. The majority characterizes the applicable guideline as a "smuggling"

guideline and it is in the sense that it applies to improper introduction

of goods into the country, but it is addressed primarily at duty evasion.

The guideline itself notes that importing of contraband or restricted

goods is covered by other guideline provisions.

16. It is ironic that while a sentencing court could not start with an

applicable guideline offense level unless the defendant actually

stipulated to the conduct, the sentencing court can clearly arrive at that

level in the end by departing upward, based upon relevant conduct

admitted in connection with the plea but uncharged (or dismissed). In

United States v. Baird, we held that result to be quite permissible.

This sentencing would have proceeded differently had

there been a more suitable starting point than a duty

evasion guideline. The absence of a more specific guideline

as to the type of crime committed -- which is, by its nature,

not your run-of-the-mill duty evasion or, even, fraud,

offense -- was, I believe, at the heart of the dilemma facing

the sentencing judge. The District Court did the best it

could with the hand it was dealt by the Sentencing

Commission. The majority concludes that the sentencing

judge abused his discretion. I submit that he reached an

understandable -- and, I believe, appropriate-- result.

I agree with the thorough analysis of my colleague with

respect to all of the issues, save this one. I would affirm the

upward departure determination of the District Court and

therefore respectfully dissent from that portion of the

opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.