United States v. Bae, Soo Young

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 20, 2001 Decided May 25, 2001

No. 00-3095

United States of America,
Appellee

v.

Soo Young Bae,
Appellant

Appeal from the United States District Court
for the District of Columbia
(No. 99cr00284-01)

Mary Manning Petras argued the cause for appellant.
With her on the briefs was G. Allen Dale.

Catherine A. Szilagyi, Assistant U.S. Attorney, argued the
cause for appellee. With her on the brief were Wilma A.
Lewis, U.S. Attorney at the time the brief was filed, John R.
Fisher and Henry K. Kopel, Assistant U.S. Attorneys.

 Before: Ginsburg, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: The District of Columbia Lottery
Board licensed Soo Young Bae, then a Washington merchant,
to operate a terminal that prints and dispenses lottery tickets
for sale. Bae used the terminal to generate tickets with a
face value of $525,586, for which he did not pay. The winning
tickets among these had a total redemption value of $296,153,
of which Bae successfully obtained all but $72,000. Bae
pleaded guilty to computer fraud, 18 U.S.C. s 1030(a)(4), and
the district court sentenced him to 18 months in prison. Bae
challenges his sentence, in calculating which the district court
valued the "loss" due to the fraud at $503,650--the market
value of the tickets less the commission Bae would have
received from the Lottery Board had he sold those tickets.
We affirm.

In sentencing a defendant for fraud the district court must
make a "reasonable estimate" of the victim's "loss." U.S.S.G.
s 2F1.1(b) & application n.9. Although Bae challenges the
method by which the district court arrived at its estimate, he
does not contest any of the data potentially relevant to the
loss calculation, that is, the face value of the tickets, the
commission he would have earned for selling the tickets he
generated, and the value of the winning tickets. "The appro-
priate method for calculating loss amounts under the Guide-
lines is a prototypical question of legal interpretation, and we
review de novo." United States v. Walker, 234 F.3d 780, 783
(1st Cir. 2000) (emphasis omitted).

The general rule in a case involving property obtained by
fraud is that the measure of loss is "the fair market value of
the particular property at issue." U.S.S.G. s 2B1.1 applica-
tion n.2 (incorporated by reference in U.S.S.G. s 2F1.1 appli-
cation n.8). Bae argues that "[a]t the instant any lottery
ticket is printed," it is worth whatever value the lottery
drawing later assigns to it; losing tickets, that is, have no
value. Bae thus calculates the loss at $296,153, the value of
his winning tickets. His approach misconceives the probabil-
istic nature of the lottery ticket, however; as the Government

notes, "the value of the ticket is the value of a chance to win."
Tickets are indistinguishable--and each has an equal proba-
bility of winning--until the drawing determines the winner(s).
Prior to that time, all tickets have the same market value
because they all have the same chance of winning a prize,
which is why they all sell at the same price. A ticket's
market value, moreover, always exceeds its expected payoff,
because the ticket is priced at a level that also reflects some
of the value consumers derive from playing the odds.

A ticket's value changes with the drawing, of course: once
the lucky numbers are announced, the value of the winning
tickets rises to the value of the prize money while the value of
the losing tickets goes to zero. Numerous goods, however--
from automobiles to common stocks--may change in value
soon after they are purchased. Nonetheless, for the purpose
of sentencing, the loss associated with their fraudulent pro-
curement is equal to the value of the goods at the time of the
offense. See, e.g., Walker, 234 F.3d at 783 (partial return of
funds subsequent to embezzlement does not reduce valuation
of loss); accord United States v. Baker, 200 F.3d 558, 561 (8th
Cir. 2000); United States v. Burridge, 191 F.3d 1297, 1301
(10th Cir. 1999).

Bae also argues that in this case market price is an
inappropriate measure of loss because "[t]he act of printing
those tickets cost the D.C. Lottery nothing." There is no
basis, however, for Bae's implicit suggestion that market
price is an inadequate measure of loss merely because the
fraudulently obtained good has a low marginal cost of produc-
tion. See United States v. Watson, 189 F.3d 496, 501 (7th
Cir. 1999) (value of stolen cigarette tax stamps is "fair market
value of the stamps, not their replacement cost"); United
States v. Jenkins, 901 F.2d 1075, 1083-84 (11th Cir. 1990)
(loss due to theft of nonnegotiable stock certificates is face
value, not cost of reprinting certificates). The Guidelines
adopt fair market value rather than replacement cost as the
measure of loss for good reason. See U.S.S.G. s 2B1.1
application n.2. As the Government points out, measuring
loss in terms of replacement costs rather than at fair market
value would result in anomalous and capricious sentences.

For example, if loss were measured by reference to replace-
ment cost, then fraudulently obtaining a good from a consum-
er would be punished more severely than fraudulently obtain-
ing the same good from the manufacturer, which can replace
it at a lower cost. Similarly, defrauding a more efficient
producer would carry a lower sentence than defrauding a less
efficient producer of the same good. Nor does Bae offer any
reason to think that the instanced anomalies are somehow
ameliorated in cases where the fraudulently obtained item can
be replaced cheaply; on the contrary, using replacement cost
as the measure of loss only when replacement cost is low
would increase the arbitrariness of the sentencing regime.

Bae offers a variant upon this argument when he contends
that the fair market value of the tickets is an inappropriate
measure of the loss that he caused because generating his
tickets did not reduce the number of tickets that could be and
were sold to others. This suggests that loss is poorly mea-
sured by the fair market value of a good the replacement cost
of which is close to zero. For the reasons explicated above,
abandoning fair market value as a measure of loss in favor of
replacement cost only when replacement cost is low is a
perverse policy and we reject it.

We also reject Bae's alternative argument that the proper
measure of loss in this case is the Lottery Board's lost profit
($207,496), calculated as the market value of the fraudulently
obtained tickets less both (1) the commission the Board would
have paid Bae for selling those tickets and (2) the amount it
would have had to pay to redeem the winning tickets among
them had they been purchased lawfully. The Government
suggests that the Guidelines should lead courts to "hesitate[ ]
to engage in net loss calculations," and we agree. Lost profit
is an undesirable measure of loss for roughly the same
reasons that replacement cost is: Both measures would pe-
nalize frauds differently depending upon whether the victim is
a consumer or a producer; create disparities in sentencing for
the fraudulent procurement of identical items from different
producers; and require the courts to inquire into the costs of
production, rather than looking to the generally more accessi-
ble market value, in order to calculate a sentence. Estimat-

ing loss based upon lost profits rather than fair market value
is also inconsistent with the principle that the full value of a
stolen item is the measure of loss even if the item is later
returned. See U.S.S.G. s 2B1.1 application n.2; Walker, 234
F.3d at 783. (Because it is limited by the plea agreement it
entered into in this case, the Government does not contest the
district court's decision to deduct from its estimate of the loss
the commission that Bae would have received had he legiti-
mately sold the tickets that he printed, although this deduc-
tion is in principle indistinguishable from the deduction of
payoffs foregone that Bae proposes here and we reject.)

Contrary to Bae's suggestion, our present conclusion is not
inconsistent with our statement in United States v. Gottfried
that estimates of loss under the Sentencing Guidelines seek
"to measure the economic harm ... caused" to the victim. 58
F.3d 648, 651 (1995). In Gottfried, an attorney in the Depart-
ment of Veterans Affairs destroyed documents in order to
reduce his workload, and we held that the resulting loss to
the Government could be estimated as the costs of "undoing
the full extent of the damage." Id. at 652. There was no
market by which to value the destroyed records, so "market
value ... did not reflect the harm to the government," id.;
when fair market value does provide "a reasonable estimate
of the loss," U.S.S.G. s 2F1.1 application n.9, however, it is to
be preferred. See U.S.S.G. s 2B1.1 application n.2.

Finally, Bae suggests that using market value as the
measure of loss will "produce disparate sentences for similar
crimes" because defendants who generate the same number
of tickets but whose winnings differ will be sentenced similar-
ly. As the Government properly points out, that is not a
disparity because "the fortuity of 'winning' the lottery" is
irrelevant. A lottery ticket is a chance to win a prize, and
two defendants, one of whom gets a losing and one a winning
ticket by fraud, commit the same act and therefore merit the
same treatment. There would be a disparity, however, under
Bae's approach: The unlucky malefactor who prints out only
losing tickets presumably would get no sentence at all. Bae
asks whether an offender who fraudulently obtains a single
ticket that proves to be worth millions should be subject only

to the minimal sentence associated with the face value of one
ticket. Should such an offender attempt to redeem his
winnings, as did Bae, the actual or the intended loss associat-
ed with that attempt, see U.S.S.G. s 2F1.1 application n.8,
would be the full amount of the jackpot. (We need not decide
how to apply the Guidelines to a winner who, unlike Bae, was
apprehended before trying to claim his prize.)

In conclusion, a "reasonable estimate" of the loss caused by
Bae's fraud is the fair market value of the lottery tickets at
the time that Bae printed them. The sentence imposed by
the district court is therefore

Affirmed.*

* Bae also argues that the district court erred in refusing to grant
a downward sentencing departure due to his "extraordinary physi-
cal impairment[s]." U.S.S.G. s 5H1.4. When a district court is
aware of its discretion to permit such a departure, as the tran-
scripts of the sentencing hearing make clear that it was here, its
refusal to exercise that discretion is unreviewable. See, e.g., United
States v. Studevent, 116 F.3d 1559, 1564 (D.C. Cir. 1997).