PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 09-1165
UNITED STATES OF AMERICA
v.
MARIA LIANIDIS,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 07-cr-00665-001)
District Judge: Honorable Garrett E. Brown, Jr.
Argued December 2, 2009
Before: FISHER, HARDIMAN
and STAPLETON, Circuit Judges.
(Filed: March 19, 2010 )
Anna M. Durbin
Peter Goldberger (Argued)
50 Rittenhouse Place
Ardmore, PA 19003-2276
Counsel for Appellant
George S. Leone
Office of United States Attorney
970 Broad Street, Room 700
Newark, NJ 07102
Glenn J. Moramarco (Argued)
Office of United States Attorney
Camden Federal Building & Courthouse
401 Market Street, 4th Floor
P.O. Box 2098
Camden, NJ 08101
Counsel for Appellee
OPINION OF THE COURT
FISHER, Circuit Judge.
Maria Lianidis pled guilty to three counts of bribery of a
federal employee in violation of 18 U.S.C. § 201. On appeal,
Lianidis contends that the District Court erred at sentencing by
imposing a 16-level increase based on its determination that the
“benefit received” under U.S.S.G. § 2C1.1(b)(2) was between
$1,000,000 and $2,500,000. To resolve this issue, we must
2
define the proper calculation of “benefit received” in cases
where illegal bribes are used to obtain what would otherwise be
legal contracts. Following the Fifth Circuit’s approach in
United States v. Landers, 68 F.3d 882 (5th Cir. 1995), we hold
that “benefit received” under § 2C1.1(b)(2) is the net value,
minus direct costs, accruing to the entity on whose behalf the
defendant paid the bribe. Because the District Court did not
properly articulate and apply this standard, we will vacate and
remand for re-sentencing.
I.
A.
From 1992 through 2001, Lianidis worked as a computer
specialist for the Federal Aviation Administration (“FAA”) at
the Atlantic City International Airport. During this period,
Steven Lianidis, Maria Lianidis’s husband, founded Digital
Management Systems, Inc. (“DMS”), a family-owned computer
services engineering company located in Absecon, New Jersey.
DMS designed and supported computer applications for aviation
systems through contracts with the FAA. In 2001, Lianidis left
the FAA to serve as DMS’s president, a position she held
through 2007.
Darrell Woods, an FAA employee at the Atlantic County
Technical Center from 1996 through 2005 and a long time
friend of Lianidis, was in charge of overseeing the DMS
contracts. From July 9, 2001, through December 26, 2004,
Lianidis made a series of about 19 cash payments, totaling
3
approximately $155,000,1 to Woods. In return, Woods
improperly steered contracts supporting the FAA’s “Service
Movement Advisor” computer system (“SMA contracts”) to
DMS and, once the contracts were awarded, improperly
authorized increases on those contracts.
The SMA Statement of Work (“SOW”) specified certain
award conditions, including the following:
“As a condition of award the Contractor shall
perform the work activities described in this SOW
primarily at the [FAA Technical Center] and shall
maintain an office within 5 miles of that site.”
(App. at SA59 & SA142, § 1.2.) To comply with this office
requirement, DMS initially rented a small facility, presumably
from a third party. Then, in June 2003, Lianidis’s husband
formed a real estate company named DESFO, LLC and used it
to purchase a larger facility within five miles of the Technical
Center, which DESFO then rented to DMS. In addition to its
rent, DMS incurred a litany of costs at the DESFO office,
including, inter alia, salaries, payroll taxes, and costs associated
with computer equipment, supplies, cleaning, insurance, legal
and professional assistance, and meals and entertainment. (Id.
at 72-79.)
1
Although the Presentence Investigation Report states
that the total was $159,000, the parties agreed at the Sentencing
Hearing that the total was closer to $155,000. (App. at 12.)
4
The SMA contracts were in effect for a total of six years.
Although the contracts were procured with bribes, DMS’s actual
work on the contracts was legitimate. (PSR ¶ 37.) Overall, the
FAA paid DMS a total of $6,783,877.33 under the SMA
contracts. During the six-year period, Lianidis received a total
salary of $445,298, and her husband received a total salary of
$601,525.2
From September 2004, through March 11, 2005, the FAA
prepared a competitive solicitation for work related to a separate
computer system, Surface Management Systems (“SMS”). On
November 23, 2004, after asking for Lianidis’s suggestions,
Woods inserted a provision in the SMS solicitation that
excluded larger qualified bidders and restricted competition to
smaller businesses closer to DMS in size. However, the
solicitation was canceled – apparently due to the bribery
investigation – prior to any contract award.
B.
On August 9, 2007, a grand jury charged Lianidis with
one count of conspiracy to defraud the United States, in
violation of 18 U.S.C. § 371; seventeen counts of bribery of a
federal employee, in violation of 18 U.S.C. § 201; and eight
counts of money laundering, in violation of 18 U.S.C. § 1957.
On February 6, 2008, Lianidis pled guilty to three counts of
bribery of a federal employee in the United States District Court
2
Any minor discrepancies as to the exact figures do not
affect this appeal.
5
for the District of New Jersey. The Plea Agreement expressly
stated that the parties were unable to agree on the calculation of
value, benefit, and loss pursuant to U.S.S.G. § 2C1.1(b)(2).
(App. at 88.)
The Presentence Investigation Report (“PSR”)
recommended that the District Court impose a 16-level increase
based on its conclusion that the “benefit received” under
§ 2C1.1(b)(2) and the reference table in § 2B1.1 was between
$1,000,000 and $2,500,000. (PSR ¶¶ 37-38.) At the December
23, 2008 Sentencing Hearing, the District Court agreed, based
on what appears to be two, alternate theories.
First, citing the Fifth Circuit’s decision in United States
v. Landers, 68 F.3d 882 (5th Cir. 1995), the District Court held
that the proper calculation of “benefit received” under
§ 2C1.1(b)(2) deducts direct costs, but not indirect costs, from
the gross proceeds of the illegally obtained contracts. (App. at
14.) In applying the Landers rule, the District Court refused to
include Lianidis’s proposed additional costs as direct costs:
“Now, the defendant also asserts that she had
costs of purchasing a building within five miles of
the FAA site with a security system, a lab,
computer equipment, backup equipment,
additional landscaping, trash removal, pest
control, dues and subscriptions, cleaning services,
and rent which was paid by DMS, the defendant’s
corporation, to the defendant who purchased the
building and [that] this should be considered a
direct cost and deducted. [The] Government
6
disputes that. I do not find that that is direct
cost.”
(Id. at 15.) The District Court reiterated shortly thereafter,
“As far as the deduction for the overhead of the
building as a direct cost to the contract, building
that they purchased and they received rent from
the corporation, I don’t think that is a direct cost
and I will not consider it as such under the
guidelines.”
(Id. at 16.) In so holding, the District Court evidenced its
agreement with the Government, which estimated the “benefit
received” to be $3,287,192 by subtracting as direct costs only
“direct labor costs and other salary and wages paid, payroll
taxes, [and] employee benefits.” (Id. at 13.)
As an alternative theory, the District Court used
Lianidis’s and her husband’s salaries as a proxy for “benefit
received”:
“As far as the alternative theory, . . . [Lianidis]
was able to enjoy the lifestyle provided by [her
and her husband’s] salaries which totaled over a
million dollars. And although she says that she
worked for it, that’s not the point. The point is
that we have these bribes paid in connection with
this work.
...
7
The defendant and her husband were not the only
employees, but this was their company and they
obtained over a million dollars in cash salaries.
What would have happened had they competed
fairly for the contract is not before me. There’s
no good work exception to the bribery laws.”
(Id. at 15-16.) Finding that the salaries also warranted a 16-level
increase, the Court adopted the PSR’s recommendation.3
3
Counsel for Lianidis contended at oral argument that the
salary theory was the sole basis for the District Court’s decision
because it was the only theory set forth in the PSR. (PSR ¶ 37-
38.) The record is unclear. On one hand, the Court began with
a discussion of Landers and classified the salary theory “as the
alternative theory.” (App. at 15.) On the other hand, the Court
stated, in conclusion, that it was adopting the PSR:
“So having evaluated the presentence report, I
adopt it and find it to be correct. So what we do
have here is an offense level of 25, a criminal
history category one, which gives us a range of 57
to 71 months under the advisory guidelines.”
(Id. at 17.) Furthermore, the Court imposed a 16-level increase
even though the Court could have imposed an 18-level increase
under the Landers direct cost approach. See U.S.S.G. § 2B1.1.
We will address both theories. The District Court’s use
of a new legal theory is not problematic because neither Federal
8
The 16-level increase resulted in a total offense level of
25, which, when combined with Lianidis’s criminal history
category of I, produced an advisory Sentencing Guidelines range
of 57 to 71 months of imprisonment. After granting a two-level
downward variance of nine months on account of the
defendant’s compelling personal circumstances, the Court
imposed a sentence of 48 months of imprisonment, followed by
three years of supervised release. The Court also ordered a fine
of $75,000 – $25,000 for each count – and a special assessment
of $300. The Court entered judgment on December 30, 2008,4
Rule of Criminal Procedure 32 nor our case law require a district
court to abide by a probation officer’s interpretation of the
Sentencing Guidelines. Cf. United States v. Hudson, 491 F.3d
590, 596 (6th Cir. 2007) (“While case law requires notice before
a district court departs or varies from the recommended
guideline sentence, . . . [it does] not require notice when a
district court interprets the guidelines differently from the
probation officers-when it applies the Guidelines in a manner
different from what is recommended in the presentence report.”
(quotations and citations omitted)). Moreover, Lianidis has not
asserted that she was unduly surprised by the Government’s
$3,287,192 figure, which was calculated using the PSR’s
proceeds figure of $6,783,877.33 and the salary, tax, and benefit
figures provided by Lianidis herself.
4
The judgment did not become final, and thus the appeal
did not ripen, until the filing of an agreed order for the criminal
forfeiture of $150,000 on June 10, 2009.
9
and Lianidis filed a timely notice of appeal of the 16-level
increase on January 13, 2009.
II.
The District Court had jurisdiction under 18 U.S.C.
§ 3231, and this Court has jurisdiction pursuant to 28 U.S.C.
§ 1291 and 18 U.S.C. § 3742(a). “We review the District
Court’s interpretation of the Sentencing Guidelines de novo,”
but we review the District Court’s application of law to fact with
due deference. United States v. Aquino, 555 F.3d 124, 127 (3d
Cir. 2009). “We review the District Court’s factual findings for
clear error.” United States v. Cohen, 171 F.3d 796, 802 (3d Cir.
1999).
III.
Lianidis argues on appeal that the District Court erred in
imposing a 16-level increase pursuant to § 2C1.1(b)(2) under
both its Landers approach and its salary theory. We will address
the problems with each approach in turn, after a brief overview
of § 2C1.1(b)(2).
A. Background
Under U.S.S.G. § 2C1.1(b)(2), the offense level of a
defendant convicted of bribing a federal employee increases
based on the “benefit received or to be received” in exchange
for the bribe:
10
“If the value of the payment, the benefit received
or to be received in return for the payment, the
value of anything obtained or to be obtained by a
public official or others acting with a public
official, or the loss to the government from the
offense, whichever is greatest, exceeded $5,000,
increase by the number of levels from the table in
§ 2B1.1 . . . corresponding to that amount.”
U.S. Sentencing Guidelines Manual § 2C1.1(b)(2). We have
held that the Government bears the burden of showing “benefit
received.” United States v. Pena, 268 F.3d 215, 220 (3d Cir.
2001) (citing United States v. McDowell, 888 F.2d 285, 291 (3d
Cir. 1989)). Here, the Government alleges that the “benefit
received” is between $1,000,000 and $2,500,000, which
warrants a 16-level increase. U.S.S.G. § 2B1.1(b)(1).
To determine whether the Government has met its
burden, we must define the scope of “benefit received.” We are
aided by the § 2C1.1 application notes, which discuss “benefit
received” in terms of “net value” and “profit”:
“The value of ‘the benefit received or to be
received’ means the net value of such benefit.
Examples: (1) A government employee, in return
for a $500 bribe, reduces the price of a piece of
surplus property offered for sale by the
government from $10,000 to $2,000; the value of
the benefit received is $8,000. (2) A $150,000
contract on which $20,000 profit was made was
awarded in return for a bribe; the value of the
11
benefit received is $20,000. Do not deduct the
value of the bribe itself in computing the value of
the benefit received or to be received. In the
preceding examples, therefore, the value of the
benefit received would be the same regardless of
the value of the bribe.”
U.S.S.G. § 2C1.1 cmt. n.3. Because the Sentencing Guidelines
commentary “is akin to an agency’s interpretation of its own
legislative rules[,]” we will give the application notes
“controlling weight” unless the commentary “violate[s] the
Constitution or a federal statute[]” or “is plainly erroneous or
inconsistent with the regulation.” Stinson v. United States, 508
U.S. 36, 45 (1993) (quotations and citations omitted).
B. The Landers Approach
Lianidis takes issue with two aspects of the District
Court’s application of Landers in calculating “benefit received.”
First, Lianidis asserts that, under our decision in Pena, 268 F.3d
215, the proper measurement of “benefit received” is the gross
revenue less legitimate costs of the SMA contracts, which
Lianidis suggests is slightly distinct from the Landers approach.
Second, Lianidis argues that, even following Landers, the
District Court erred in refusing to include her and her husband’s
salaries and DMS overhead as direct costs of the SMA
contracts. The Government maintains that the District Court’s
analysis is sound.
12
1.
Although this Court has addressed the scope of “benefit
received,” or “net value,” in some instances, we have yet to
define the calculation of “benefit received” in a case where, as
here, the contract underlying the bribery is legal. We first
examined “net value” in United States v. Schweitzer, where a
defendant bribed a public official to obtain confidential
information held by the Social Security Administration. 5 F.3d
44, 45 (3d Cir. 1993). There, we held that the “benefit received”
is “the market value of the information secured for [the
defendant’s] client.” Id. at 47. We declined to subtract the
value of the bribe in calculating “benefit received” because the
“concept of ‘net value received’ has nothing to do with the
expense incurred by the wrongdoer in obtaining the net value
received.” Id. This, we continued, “is clear from the Note’s
instruction that the value of the bribe is not to be deducted in
calculating the ‘net value.’” Id. (referencing U.S.S.G. § 2C1.1
cmt. n.3 (“Do not deduct the value of the bribe itself in
computing the value of the benefit received or to be received.”)).
We extended Schweitzer in Pena, which, like Schweitzer
and unlike the instant case, concerned an illegal underlying
transaction: the defendant police officer accepted bribes in
return for permitting illegal gambling machines to operate
without interference. Pena, 268 F.3d at 216. In calculating the
“benefit received,” we refused to subtract operation costs when
the transaction was illegal: “the concept of netting out costs to
arrive at profit is inappropriate under the Guidelines section
when the transactions are entirely illegitimate.” Id. at 219. We
expressly declined to follow United States v. Sapoznik, where
13
the Seventh Circuit, in another case involving illegal gambling,
remanded for re-sentencing because the government had not set
forth evidence regarding the costs of the illegal enterprise,
which, according to the Seventh Circuit, prevented the
calculation of net value. Id. (citing Sapoznik, 161 F.3d 1117,
1119-20 (7th Cir. 1998)). We explained in conclusion that the
“‘net value’ of the ‘benefit’ received does not mean ‘net
proceeds.’ Rather, it means benefit received after netting out the
value of what-if anything-of legitimate value, was provided.”
Id. at 221. We found that there was “no such value” in that case.
Id.
Lianidis hones in on the Pena phrase “legitimate value.”
However, contrary to Lianidis’s characterization, Pena does not
stand for the proposition that “net value” is necessarily
calculated by subtracting all “legitimate” costs from gross
revenue. Rather, Pena held that it is inappropriate to subtract
the costs of illegal transactions in calculating “net value.” Since
the Pena court did not give meaningful discussion to the costs
of legal transactions, nor to whether any differentiation between
direct and indirect costs should exist, the precise calculation of
“net value” under § 2C1.1(b)(2) when the underlying transaction
is legal is still, at the very least, an open issue for this Court.
We can look to our sister circuits for guidance. The
seminal case is Landers, the Fifth Circuit decision applied here
by the District Court. Similar to the instant case, the defendant
in Landers made cash bribes to obtain favorable contracts for
the company he represented. 68 F.3d at 883. The district court
calculated “net value” by subtracting the costs of the goods sold
from the gross value of the contracts. Id. at 884-85. On appeal,
14
the defendant argued that the district court should have
subtracted both the cost of the goods sold and a share of his
company’s overhead from the contract price. Id. at 884. In a
well-reasoned opinion, the Fifth Circuit agreed with regards to
the cost of the goods sold, but not with regards to the overhead.
Id. at 886.
To start, the Fifth Circuit determined that the use of the
adjective “net” before “value,” as well as the examples in the
§ 2C1.1 application notes, “implies that some costs should be
deducted” in the calculation of “benefit received.” Id. at 884.
The court then drew a line between “direct” costs, which it held
were deductible, and “indirect” costs, which it held were not.5
Id. at 884-86. The court’s rationale was two-fold. First, the
court analogized “indirect costs” to the bribe itself, which
application note 3 of § 2C1.1 states is not subtracted in the
calculation of “net value”:
“The rationale for refusing to deduct the amount
of a bribe from gross value applies equally to
indirect costs. Like a bribe, indirect costs have no
5
The Fifth Circuit rejected the defendant’s contention that
“net value” is synonymous with “net profits”: “If the
Sentencing Commission wanted courts to use a ‘net profit’
figure, presumably it would have employed that term.” Landers,
68 F.3d at 885. The court also held that the Sentencing
Commission had implicitly rejected the concept of “net profits”
“by noting that one type of direct costs, bribes, is not deductible
from gross profits.” Id.
15
impact on the harm caused by the illegal conduct.
This is true whether one considers the pecuniary
benefit to the bribing party or the pecuniary loss
to a competitor. For both parties, the benefit of an
additional contract is measured by gross revenue
minus direct costs. By definition, indirect costs
do not affect that value.”
Id. at 885. Second, the court held that excluding “indirect costs”
is consistent with the Guidelines’ general goal of achieving
reasonable uniformity in sentencing because “[a]llowing a
wrongdoer to deduct indirect costs would result in differing
culpability not only for similar acts, but also for the very same
act.” Id. The court provided a hypothetical as an example:
“Take for example a case in which two
defendants bribe the same government official for
the same contract. If indirect costs were
deductible, the defendants could receive different
sentences if one of them worked for a company
with higher indirect costs.”
Id. at 886. In conclusion, the court calculated “net value” by
subtracting the costs of the goods sold, but not the company’s
overhead. Id.
Landers has not fallen on deaf ears. The Courts of
Appeals that have addressed this issue – the Second, Seventh,
and Eleventh Circuits – have cited Landers with approval. See
United States v. Glick, 142 F.3d 520, 525 (2d Cir. 1998) (“In
calculating the amount of ‘improper benefit[]’ [under
16
§ 2E5.1(b)(2)]6 only direct costs, not indirect costs, should be
subtracted from the gross value received.”); Sapoznik, 161 F.3d
at 1119 (agreeing that fixed costs should be included in net
value but finding it unclear whether the costs at issue were
indeed fixed); United States v. DeVegter, 439 F.3d 1299, 1304
(11th Cir. 2006) (“We agree with the Fifth Circuit’s approach
which subtracts direct costs, but not indirect costs, from profits
to determine the net improper benefit [under § 2B4.1(b)(1)].”).7
See also Cohen, 171 F.3d at 803 (citing Landers generally);
United States v. Leon, 2 F. Supp. 2d 592, 596 (D.N.J. 1998) (“I
hold that only ‘direct costs’ are deductible in calculating the
amount of the benefit conferred [under § 2B4.1(b)(1)]. . . .
Indirect costs are not deductible.”). We agree that the Fifth
Circuit’s reasoning is sound: indirect costs, like bribes, do not
impact the harm caused by the bribery, and allowing the
deduction of indirect costs would foster inconsistency in
sentencing. Accordingly, we will adopt the Landers approach
and subtract only direct costs, and not indirect costs, when
calculating “net value” under § 2C1.1(b)(2).
6
Application note 4 of U.S.S.G. § 2E5.1, which concerns
bribery affecting an employee benefit plan, directs courts to the
commentary of § 2C1.1 in determining “value of the improper
benefit to the payer.”
7
Application note 2 of U.S.S.G. § 2B4.1, which applies
in cases of commercial bribery, directs courts to the commentary
of § 2C1.1 in determining “value of the improper benefit to be
conferred.”
17
2.
Lianidis also challenges the District Court’s application
of Landers. Lianidis asserts that both the overhead of the DMS
office, which Lianidis alleges only serviced the SMA contracts,
and her and her husband’s reasonable salaries under the SMA
contracts are direct costs of the SMA contracts. In response, the
Government argues that it would be misleading to claim that one
hundred percent of the DMS overhead can be attributed to the
SMA contracts and that Lianidis’s and her husband’s salaries
must be included in “benefit received” as a matter of law.8
We hold at the outset that, although it is the
Government’s burden to show “net value,” Pena, 268 F.3d at
220, the defendant bears the burden of producing the necessary
documents. To hold otherwise would, in practice, prevent the
Government from meeting its burden of proof.
In applying the Landers rule, we will look to the Fifth
Circuit’s sound definitions of “direct” and “indirect” costs. We
hold that “direct” costs are
“all variable costs that can be specifically
identified as costs of performing a contract. This
might include, for example, transportation costs
for the goods in question. Thus, variable
overhead costs that cannot easily be identified to
8
We address this latter incorrect statement of law more
fully in Section C, infra.
18
a specific contract are not direct costs. This
definition differs from the accounting term ‘direct
costs’ in that it excludes those variable costs that
cannot readily be apportioned to the contract.”
Landers, 68 F.3d at 884 n.2. “Indirect” or “fixed” costs are, on
the other hand,
“the costs incurred independently of output. For
example, rent and debt obligations are costs a
business incurs no matter how many contracts it
receives. For the most part, overhead costs are
fixed costs. The marginal increase in variable
overhead costs from a wrongfully obtained
contract is normally so de minimis that accounting
for them during sentencing would be impractical.”
Id. at 885 n.3. Put succinctly, whether a cost is direct or indirect
depends on whether it can be easily attributed to the specific
contract at issue.
Here, the District Court, after summarizing Lianidis’s
proposed additional direct costs, merely concluded without
explanation, “I do not find that that is direct cost.” (App. at 15.)
Because the Court did not engage in the foregoing analysis, we
will remand for the District Court to consider whether any
portion of the DMS overhead or Lianidis’s and her husband’s
salaries can be easily attributed to solely the SMA contracts.
19
C. The Salary Theory
Lianidis also argues on appeal that the District Court
erred in basing its calculation of “benefit received” on her and
her husband’s salaries. According to Lianidis, the proper
measurement of “benefit received” or “net value” under
§ 2C1.1(b)(2) is the gross revenue minus legitimate costs to
DMS under the SMA contracts, not the salary paid to Lianidis
or her husband. The Government disagrees. Asserting that
Lianidis’s benefit came in two forms – company profit as well
as her and her husband’s salaries – the Government contends
that the calculation of “benefit received” “should not change
depending on whether a business owner who ultimately will
receive all of the company’s profit, chooses to designate some
of that profit as salary.” (Appellee’s Br. at 18.) In response,
Lianidis argues that this “ordinary language approach” to
“benefit” is inappropriate under the Guidelines. (Appellant’s
Br. at 22.)
We must agree with Lianidis. The District Court’s use of
Lianidis’s and her husband’s salaries as a proxy for “benefit
received” runs contrary to the Guidelines commentary and our
own precedent in Cohen, 171 F.3d 796.
Example 2 of U.S.S.G. § 2C1.1, application note 3
clarifies the proper measurement of “benefit received” in cases
where bribery is used to procure contracts. The pertinent
language is as follows:
20
“(2) A $150,000 contract on which $20,000 profit
was made was awarded in return for a bribe; the
value of the benefit received is $20,000.”
U.S.S.G. § 2C1.1 cmt. n.3 (2008). The example clearly directs
courts to consider the profit made on the illegally obtained
contract. Although the example does not expressly disallow the
use of salaries paid under such contracts, we must give
“controlling weight” to the note’s suggested use of contract
profit. See Stinson, 508 U.S. at 45.
Our opinion in Cohen confirms this reading of
§ 2C1.1(b)(2). In Cohen, a wholesale meat distribution
salesman was found guilty of mail fraud based on his
participation in a company bribing scheme: he received $500 a
week in cash from the company, in addition to his regular salary
paycheck, in exchange for distributing the company’s kickbacks.
171 F.3d at 799-800. Like the instant case, the parties disagreed
at sentencing over the correct interpretation of “improper
benefit” under U.S.S.G. § 2B4.1.9 Id. at 802. The Government
argued that the phrase refers to the net value gained by the
company as a result of the defendant’s kickbacks; the defendant
argued that the phrase refers to the money pocketed by the
defendant himself. Id. at 802-03. The district court agreed with
the defendant, but we reversed. Citing example 2 of U.S.S.G.
§ 2C1.1, application note 3, we held that “‘improper benefit’
refers to the net value accruing to the entity on whose behalf the
individual paid the bribe.” Id. at 803. Accordingly, we
9
See note 7, supra.
21
remanded the case to the district court to re-calculate “improper
benefit” with instructions to examine the company’s alleged
profit on the $10 million worth of meat purchased from the
company as a result of the bribes. Id. at 803-04.
The instant case presents the same issue. Similar to the
salesman who distributed kickbacks to encourage customers to
purchase his company’s meat, Lianidis gave Woods illegal cash
payments to obtain FAA contracts for DMS. Lianidis contends
that, under Cohen, the “benefit received” is the gross revenue
minus costs accruing to DMS. The Government, in contrast,
argues not only that “benefit received” refers to the money that
accrued to Lianidis as an individual, but also that “benefit
received” includes Lianidis’s salary. Bound as we are by
Cohen, we cannot accept the Government’s argument. The
“benefit received” under § 2C1.1(b)(2) is not the salary paid to
Lianidis and her husband, for which she and her husband legally
worked and which the Government does not dispute was
reasonable, but rather the “net value” received by DMS itself
under the SMA contracts.10
10
The dissent would hold that “net benefit” includes the
salaries paid to Lianidis and her husband in part because a
sentencing judge would be unable to discern whether a company
owner like Lianidis was hiding company profit through the
payment of excessive salaries. We do not share this concern.
Regardless, we are not free to disregard the § 2C1.1 application
notes, which direct us to determine profit and which have
“controlling weight,” simply because we conclude that
compliance with the notes will be onerous. See Stinson, 508
22
This interpretation of § 2C1.1(b)(2) makes sense. Basing
a calculation of “benefit received” on a salary paid under an
illegally obtain contract is both over- and under-inclusive. The
use of salary is over-inclusive because Lianidis and her husband
gave their labor, not just a bribe, in exchange for their salaries.
The use of salary is under-inclusive because Lianidis and her
husband, as owners of DMS, did not depend on their salaries to
receive benefits under the SMA contracts.
In summary, we hold that the District Court erred in
finding that Lianidis had between $1,000,000 and $2,500,000 in
“benefit received” under § 2C1.1(b)(2) based on Lianidis’s and
her husband’s salaries.
IV.
To reiterate, we hold that the proper calculation of
“benefit received” under U.S.S.G. § 2C1.1(b)(2) is the net value,
minus direct costs, accruing to the entity on whose behalf the
defendant paid the bribe. We will vacate Lianidis’s sentence
and remand to the District Court for re-sentencing in accordance
with this standard.11
U.S. at 45.
11
The Government asks that we affirm on alternate
grounds based on its argument that the “benefit . . . to be
received” by Lianidis under the SMS contract was between
$1,000,000 and $2,500,000. Because the District Court did not
engage in the necessary factfinding, we decline to reach this
23
issue. It is not our role as an appellate court to investigate
Lianidis’s intent, the extent to which Lianidis’s bribes were
connected to the SMS contract, or the SMS contract’s value.
See Ingersoll-Rand Financial Corp. v. Anderson, 921 F.2d 497,
504 (3d Cir. 1990) (“This court is not a factfinding tribunal.”).
24
HARDIMAN, J., dissenting.
I agree with the Majority’s adoption of the Landers test
to interpret USSG § 2C1.1(b)(2). I likewise agree that Lianidis
bore the burden of producing the evidence necessary to
determine the nature and amount of her costs that were directly
attributable to performing work procured by the bribe. Unlike
my colleagues, however, I would affirm Lianidis’s judgment of
sentence for two independent reasons. First, the District Court
did not clearly err in determining which costs incurred by DMS
were directly attributable to its ill-gotten contracts. Second,
because DMS was a closely-held business and Lianidis was its
President, the District Court did not clearly err when it held that
the portions of the salaries Lianidis and her husband paid
themselves that were attributable to their work on the ill-gotten
contracts constituted the “benefit received” from her bribes.
The District Court expressly adopted the Landers test in
calculating the net value of the benefit received, and held
Lianidis’s proposed deductions were not direct costs. The
Majority concludes that the District Court reached this
conclusion “without explanation” and “did not engage” in a
more elaborate analysis of the Landers test. But the Majority
does not endeavor to explain how the District Court’s finding of
fact, curt though it was, constituted “clear error.” See United
States v. Cohen, 171 F.3d 796, 802 (3d Cir. 1999). Lianidis
bore the burden of producing evidence to support her claim that
some costs were deductible because they were directly
attributable to the ill-gotten contracts. The record indicates that
she presented the District Court with a laundry list of business
expenses and requested a deduction for each. Several of these
expenses were classic “fixed costs,” such as rent and upkeep of
DMS’s office space, and Lianidis offered little or no evidence
connecting them to the FAA contracts she procured through
bribery. Absent such proof, I find no “clear error” in the District
Court’s conclusion that those costs were not deductible in
determining the “benefit received” under § 2C1.1(b)(2).1
Even if Lianidis had carried her burden of showing which
costs were directly attributable to her ill-gotten FAA contracts,
I would affirm the judgment of the District Court because it
correctly found that the $1,046,823.80 in wages Lianidis and her
husband paid themselves for work they performed on the
contracts procured through bribery were part of the “net benefit”
received as a result of her bribe. In this regard, I disagree with
the Majority’s treatment of DMS as “the entity on whose behalf
the defendant paid the bribe.” Because DMS was a closely-held
corporation and Lianidis, as its President, controlled her salary
and her husband’s salary, I would hold that Lianidis was the
beneficiary of the bribes.
In holding otherwise, the Majority relies on United States
v. Cohen, 171 F.3d 796 (3d Cir. 1999). In Cohen, an employee
obtained contracts for his employer through bribery, and we
concluded that the employer was “the entity on whose behalf”
1
Lianidis proffered evidence through her accountant that
DMS paid $2,128,207 in wages to subcontractors for work
performed on the FAA contracts at issue here. This does not
change the Guidelines range found by the District Court,
however, because the net benefit received by the company still
would have exceeded $1 million.
-2-
the bribe was paid. Id. at 803. This conclusion made perfect
sense because Cohen was not an owner or officer of the
company. That is decidedly not the case here. Lianidis owned
and controlled DMS, she was the beneficiary of the company’s
profits, and she determined her own and her husband’s salaries.
This control enabled Lianidis to pay herself as an employee
(salary) or as a shareholder (distribution of profits). Under the
rule established by the Majority, the owner of a closely-held
business who pays herself a handsome salary, as did Lianidis, is
subject to a lower Guidelines range than an owner who pays
herself a modest salary during the year and pays out the profits
of the company at year end, even though both owners end up
with the same amount of money. Even worse, an employee such
as Cohen—who through bribery procures a contract that results
in great financial benefit to his employer but little or no benefit
to himself—would be subject to a higher Guidelines range than
Lianidis, who chose to pay herself and her husband over
$1,000,000 generated by her own bribery.2
For the foregoing reasons, I would hold that when an
employee pays bribes to win contracts for a corporation that she
owns and controls, the employee herself is the beneficiary of the
bribe, and the amount of the benefit is equal to the sum of (1)
the portion of her salary attributable to the bribe-induced
2
The Majority’s analysis of Application Note 2(2) works
fine in the typical case where the person who commits the
bribery does so on behalf of a corporation that employs him. I
find Application Note 2(2) factually inapposite to closely-held
companies like DMS for the reasons stated herein.
-3-
contract3 and (2) the profits the corporation earned from that
contract (after paying her salary). Because the District Court did
not clearly err in calculating either of these amounts,4 I
respectfully dissent.
3
I recognize that salaries are not pure profit to an
employee because working imposes a labor cost on the
employee. As a matter of theory, the net benefit accruing to an
employee would be the amount by which her salary exceeds this
cost. In practice, however, I can discern no way for a sentencing
court to determine this cost. Moreover, I am loathe to permit a
deduction for the value of labor that one had the opportunity to
perform only through bribery. Even if such a determination
were feasible, the employee would still be required to submit
evidence demonstrating that her labor costs were directly
attributable to the ill-gotten contract. Because Lianidis has
made no effort to do so here, I view the entire portion of the
salaries she paid to herself and her husband as part of the net
benefit she received from her bribes.
4
The District Court did not add these amounts together
in calculating the benefit received, instead treating them as
alternative measures of the benefit. This was the approach
advocated by the government, which was bound by its plea
agreement with Lianidis not to argue for an offense level higher
than 17, and as a result could not argue that the value of the
benefit received was greater than $1 million to $2.5 million.
-4-