United States v. Gonzalez-Alvarez

United States Court of Appeals
For the First Circuit
_______________________
No. 00-2180
UNITED STATES,
Plaintiff, Appellant,

v.

VICTOR R. GONZALEZ-ALVAREZ,
Defendant, Appellee.

_______________________

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. Carmen Consuelo Cerezo, U.S. District Judge]

_____________________
Before

Boudin, Chief Judge,
Kravitch,* Senior Circuit Judge,
and Lynch, Circuit Judge.
____________________

Matthew M. Collette with whom David W. Ogden, Assistant
Attorney General, Stuart E. Schiffer, Acting Assistant Attorney
General, Guillermo Gil, U.S. Attorney, and Douglas N. Letter,
Attorney, Appellate Staff Civil Division, Department of Justice,
were on brief for appellant.
Carlos R. Noriega for appellee.

_____________________

January 17, 2002
____________________
____________________
*Of the Eleventh Circuit, sitting by designation.

KRAVITCH. Senior Circuit Judge. Victor Gonzalez-Alvarez, a Puerto

Rican dairy farmer, pleaded guilty to conspiracy to adulterate milk, in

violation of 18 U.S.C. § 371, and causing the delivery of adulterated

food into interstate commerce, in violation of 21 U.S.C. §§ 331(a),

333(a)(2) and 18 U.S.C. § 2. This appeal by the government of the

sentence imposed presents the questions of how loss is to be calculated

under U.S.S.G. § 2F1.1(b)(1) and whether the district court erred in

finding that the defendant did not violate a position of public trust

under U.S.S.G. § 3B1.3.

I. Background

The commercial milk industry in Puerto Rico is regulated by the

Officina de Reglamentación de la Industria Lechera (ORIL), a division

of the Puerto Rico Department of Agriculture. ORIL licenses dairy

farmers to produce milk according to assigned quotas, and designates

the milk from each farm to a specific processing plant. The designated

plant then hires truck drivers to collect the milk from its assigned

dairy farms for delivery to the plant. Prior to accepting the milk,

these drivers perform tests to make a preliminary determination that

the milk is of acceptable quality. If the driver accepts the milk for

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delivery, he completes a daily manifest with information regarding the

volume of milk being transported to the processing plant from that

dairy farm. When the milk arrives at the plant, it is emptied from the

tanker truck into large silos. The milk from all the dairy farms

assigned to that processing plant is mixed in the silos; regulations

then require that a sample be tested both by the processing plant and

ORIL to ensure that the milk is acceptable for consumption and to

detect any adulteration. If the milk is approved, it is then

distributed to consumers, both inside and outside of Puerto Rico, and

the processing plant compensates each dairy farmer according to the

volume of milk he contributed.

Gonzalez-Alvarez, a licensed-dairy farmer acting in concert

with an employee and two truck drivers employed by his assigned

processing plant, Tres Monjitas, Inc. (Tres), adulterated milk from his

dairy farm with water and salt.1 The water increased the volume of the

milk for which he was compensated; the salt masked detection of the

water by increasing the weight of the adulterated product. The

procedures used at the processing plant in testing the quality of its

milk were unable to detect the type of contamination that occurred

here. In total, once mixed into the silos at Tres, Gonzalez-Alvarez’s

scheme caused 197,906 liters of adulterated milk to be disseminated to

1The defendant adulterated the milk from his farm with
contaminated water, but we note that the results reached in this case
would be same had he used clean water.

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the public.

Gonzalez-Alvarez was indicted, along with his co-

conspirators, on several charges. He pleaded guilty to one count of

conspiracy to adulterate milk in violation of 18 U.S.C. § 371 and two

counts of delivering or causing to be delivered for introduction into

interstate commerce adulterated food in violation of 21 U.S.C. §§

331(a), 333(a)(2), and 18 U.S.C. § 2.

At sentencing, pursuant to U.S.S.G. § 3D1.2(b), the counts

were grouped together into a combined offense level. The district

court then increased that offense level, pursuant to U.S.S.G. §

2F1.1(b)(1), for the loss attributable to the defendant’s adulteration

scheme.2 Although the government argued that such loss should be based

on the amount paid by consumers for all milk in the silos contaminated

as a result of Gonzalez-Alvarez’s conduct– a calculation which would

have resulted in a 7-level enhancement– the district court rejected

that measure. The court also refused to figure the loss using the

amount of tainted milk in the tanker trucks assigned to the defendant’s

farm, which would have resulted in an enhancement of 5 levels. Rather,

the court calculated the loss under § 2F1.1(b)(1) based upon the price

Tres paid to Gonzalez-Alvarez for the volume of water he had added to

2“If the loss exceeded $2,000, increase the offense level as
follows: ...(F) more than $40,000, add 5; (G) more than $70,000, add
6; (H) more than $120,000, add 7... .” U.S. Sentencing Guidelines, §
2F1.1(b)(1) (1998).

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his milk. The court reasoned that the guideline had been applied that

way in previous cases with similar facts, and the court was obligated

to give the provision a consistent application. The court also

explained why it thought this standard was an appropriate assessment of

the loss. The government further advocated that the defendant receive

a 2-level increase under U.S.S.G. § 3B1.3 for violating a position of

public trust, but the district court also rejected that request. The

court did not offer its grounds for this decision.

Taking into account all the relevant offense level

departures, the district court arrived at a final offense level of 6,

and sentenced the defendant within the normal range. Gonzalez-Alvarez

received 3 years’ probation for each count, to run concurrently, as

well as a $2,500 fine and a $100 special assessment for each.

II. Discussion

A. Calculation of Loss Under U.S.S.G. § 2F1.1(b)(1)

The court here calculated the loss attributable to the

defendant under § 2F1.1(b)(1) as the amount the processing plant paid

for the water Gonzalez-Alvarez added to the plant’s milk supply.

Further, because the milk at issue was sold to consumers despite its

adulterated state, the court reasoned that “the actual loss to the

consumers was the actual amount of water added to each liter of milk

bought by them, which obviously reduced the amount of Grade A milk that

they would otherwise had [sic] obtained.” Although this statement

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suggests that the district court considered the actual loss caused by

Gonzalez-Alvarez’s conduct and found it to be minimal, the court also

considered the intended loss in this case. It reasoned that the

defendant having added salt to mask the adulteration evinced a clear

intent that the milk be sold and consumed, rather than disposed of for

a total loss.

We review a district court’s findings of fact for clear

error, and give due deference to its application of the sentencing

guidelines to those facts. United States v. Caraballo, 200 F.3d 20, 24

(1st Cir. 1999). Where, however, we determine the legal meaning of a

guideline– that is how loss is to be calculated under U.S.S.G. §

2F1.1(b)(1)– our review is de novo. See United States v. Walker, 234

F.3d 780, 783 (1st Cir. 2000) (holding in a case under U.S.S.G. § 2B1.1

that the appropriate method for calculating loss amounts under the

Guidelines is a prototypical question of legal interpretation reviewed

de novo).

In crimes involving fraud, the base offense level under the

Guidelines is increased if the amount of loss caused by the defendant’s

conduct is greater than $2,000. U.S. Sentencing Guideline §

2F1.1(b)(1) (1998).3 A defendant who misrepresents the quality of a

3We note that U.S.S.G. § 2F1.1 has been eliminated from
the 2001 edition of the Sentencing Guidelines, having been
subsumed under a now broader § 2B1.1. Gonzalez-Alvarez,
however, was sentenced under § 2F1.1 of the 1998 version of
the Guidelines, and that is the provision that we consider in

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consumer product is responsible for the difference between the amount

paid by the victim for the product and the amount for which the victim

could resell the product received. Id. at cmt. 8(a).4 Where the

product misrepresented by the defendant is worthless, loss should be

calculated using the entire price paid for the product, unreduced by

any offsetting value. Id. at cmt. 8. Thus, according to the

government, the loss here should be calculated on the basis of the

amount paid by the ultimate consumers for all of the tainted milk in

the silos--96 cents per liter. This can be based on either the actual

loss caused by Gonzalez-Alvarez’s conduct, or the loss intended by him.

This is because the Guidelines direct that whichever measure results in

a greater figure should be used to apply the enhancement under §

2F1.1(b)(1). Id.

In assessing loss under U.S.S.G. § 2F1.1(b)(1) in this case,

we consider all the relevant factors to that calculation: the value of

the adulterated milk; the relevant volume of adulterated milk; and the

relevant price paid by the victim or victims of Gonzalez-Alvarez’s

conduct.

We first determine the value of the adulterated milk. The

this case.
4The commentary to the Guidelines are considered binding
authority on this court unless either violative of the Constitution
or a federal statute, or clearly inconsistent with the guideline the
commentary purports to explain. Stinson v. United States, 508 U.S.
36, 45 (1993).

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government contends that because the adulterated milk could not

lawfully be distributed in interstate commerce, 21 U.S.C. § 331(a), and

was subject to seizure, 21 U.S.C. § 334(a)(1),5 the value of the milk

in the silos was zero as a matter of law. Because the milk would have

been worthless had the scheme been terminated before the adulterated

product was sold, it should not acquire an increased value merely

because the defendant’s scheme was successful and the tainted milk

reached the consumers. We accept this argument, and hold that where a

product cannot be sold lawfully it has a value of zero for the purpose

of calculating loss under U.S.S.G. § 2F1.1(b)(1). The value of the

milk is the same whether we apply actual loss or intended loss.

Next, we determine the relevant volume of milk to be

5 “The following acts and the causing thereof are prohibited:
[t]he introduction or delivery for introduction into interstate
commerce of any food... that is adulterated or misbranded.”
21 U.S.C. § 331(a).
“Any article of food... that is adulterated or misbranded
when introduced into or while in interstate commerce or
while held for sale (whether or not the first sale) after
shipment in interstate commerce... shall be liable to be
proceeded against while in interstate commerce, or at any
time thereafter, on libel of information and condemned in
any district court of the United States or United States
court of a Territory within the jurisdiction of which the
article is found. ...”
21 U.S.C. § 334(a)(1).
“A food shall be deemed adulterated if any substance has
been added thereto or mixed or packed therewith so as to
increase its bulk or weight, or reduce its quality or
strength, or make it appear better or of greater value
than it is.”
21 U.S.C. § 342(b)(4).

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considered in calculating the loss here, that is, how much milk was

rendered valueless by Gonzalez-Alvarez’s scheme. 21 U.S.C. §

342(b)(4) states that “[a] food shall be deemed adulterated if any

substance has been added thereto or mixed or packed therewith so as to

increase its bulk or weight, or reduce its quality or strength, or make

it appear better or of greater value than it is.” Accordingly, all of

the milk in the silos with which the watered down milk from Gonzalez-

Alvarez’s farm was mixed became adulterated, and its reduced quality

constituted a loss. Cf. United States v. Roggy, 76 F.3d 189, 193 (8th

Cir. 1996) (holding that where the defendant applied a pesticide to raw

oats which had not been approved by the EPA for such use he was

properly held responsible under § 2F1.1 for not only the oats he

sprayed, but also those oats that were indirectly contaminated by being

at the same facilities as the sprayed oats); United States v. West, 942

F.2d 528, 531-32 (8th Cir. 1991) (holding, in case involving meat

adulteration, that proper calculation of loss included the value of

“good” meat that was mixed with the adulterated meat provided by the

defendant). This statutory definition and our reading of it make sense

where, as here, the adulterated product– the milk– and the adulterating

product– the water– ceased to be independent entities after they were

combined.

Although it is clear from the statute why the total volume

of milk in the silos provides the appropriate volume in assessing

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actual loss, it merits further explanation why the same amount of milk

should be used to figure intended loss as well. Gonzalez-Alvarez

pleaded guilty to causing adulterated milk to be introduced into

interstate commerce. A plea of guilty and the ensuing conviction

comprehend all of the factual and legal elements necessary to sustain

a binding, final judgment of guilty and a lawful sentence. United

States v. Broce, 488 U.S. 563, 569 (1989). We construe the mixing of

the milk in the silos before its eventual distribution as a necessary

factual predicate to its entering interstate commerce, and Gonzalez-

Alvarez’s plea as admitting that he knew the adulterated milk he

provided would enter the silos at the plant. It is irrelevant that he

did not know the exact volume of milk contained in the silos because

regardless of how many liters were there, he knew and intended that it

would all be adulterated. Intended, in the context of § 2F1.1(b)(1),

means results of the defendant’s conduct that are both foreseeable and

an essential component of the success of the defendant’s fraudulent

scheme.

Finally, we look to the relevant price term to use in

assessing loss under § 2F1.1(b)(1). In assessing the loss attributable

to the defendant’s conduct, it is the price paid by the victim that is

relevant. See U.S.S.G. § 2F1.1, cmt. 8. Thus, under either the actual

or intended loss measure we must determine the victims of the

defendant’s scheme. If the processing plant were the only victim, then

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the appropriate price term to use would be the amount Tres paid its

providing dairy farms for the milk they contributed; this was the term

employed by the district court at sentencing. Instead, the government

contends that the 96 cents per liter paid by personal consumers for the

milk is the proper price to use.

Unfortunately, neither comment 8 to the guideline nor the

language of U.S.S.G. § 2F1.1(b)(1) itself offers any direction on how

to determine the relevant victim or victims of a fraudulent scheme for

this purpose. Despite this lack of direction, we have no trouble

concluding that both Tres and the ultimate consumers of the adulterated

product were victims of Gonzalez-Alvarez’s crimes. Although Tres alone

paid money directly to the defendant for the worthless milk, the plant

was able to pass along the contaminated milk to distributers for the

same price it would have received had the milk been pure. It was the

ultimate consumers who suffered a real loss as a result of the scheme;

they believed that they were purchasing actual Grade A milk, when in

fact they paid value for a tainted product. The plant was one victim

of the scheme, but the consumers were the ultimate victims, and thus

the price they paid for the milk is the relevant price term under §

2F1.1(b)(1).6 Although this money did not all go into Gonzalez-

6We recognize that comment 4 to § 2F1.1 explains the language,
“a scheme to defraud more than one victim” as used in §2F1.1(b)(2)(B)
and refers to “victims” as only those persons or entities from which
funds are directly paid to the defendant. See U.S.S.G. § 2F1.1, cmt.
4. We reject that comment, however, as providing insight into what

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Alvarez’s pocket, “[t]he offender’s gain from committing the fraud is

an alternative estimate that ordinarily will underestimate the loss.”

Id. at cmt. 9. There being two victims in this case, there are two

price terms to choose between in calculating loss. Because the

guideline does not direct courts to apply the lesser price term where

the object of the fraud has been resold by the initial victim, we apply

the higher price paid by the consumers-- 96 cents per liter. See id.

at cmt. 8. Again, this is the case under either actual or intended

loss, as Gonzalez-Alvarez’s guilty plea established that he knew the

milk was going to enter interstate commerce and thus would end up in

the hands of consumers.

Despite the defendant’s contentions to the contrary,

consumers who purchased the adulterated milk in this case suffered an

actual loss of 96 cents per liter. Gonzalez-Alvarez contends that

because no consumers became sick as a result of his scheme, there was

no actual loss on their part. Not only is his supposition

insupportable, however, for there is no way to know with any certainty

if anyone suffered ill-effects from consumption of the adulterated

milk, but it would be irrelevant even if true. Where a product has a

value of zero as a matter of law, but consumers pay for the product as

victim means in the context we consider. In fact, comment 4
explicitly states that other persons or entities who do not fall into
the definition of “victim” it offers might nonetheless be considered
victims for other purposes. Id.

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if it had value, the buyers have been robbed of the benefit of their

bargain. Consumers have every reason to believe that the milk they

buy, whether from supermarkets, wholesalers, or processing plants, is

Grade A and meets with all FDA and, in this case, ORIL regulations.

Where the milk does not meet these standards, as a result of a

defendant’s conduct, the consumers suffer an actual loss and the

defendant is responsible for that loss. Support for this reasoning is

in an example in the Application Notes to this guideline provision.

Comment 8 notes that if the fraud by the defendant consists of selling

or attempting to sell $40,000 in worthless securities, or representing

that a forged check for $40,000 was genuine, the loss under the section

would be $40,000. Id. at cmt. 8. We find that example applicable to

the instant case.

Although no First Circuit case law exists directly on point,

the Fourth Circuit has interpreted § 2F1.1(b)(1) in a manner consistent

with this understanding of actual loss. That court held that where a

drug is represented to possess FDA approval, but in fact does not, and

its safety is unknown, that drug “does not provide consumers with the

benefit of their bargain” because the product is not what it purports

to be. United States v. Marcus, 82 F.3d 606, 610 (4th Cir. 1996). We

find this reasoning persuasive, and conclude that the consumers here

who reasonably believed they were purchasing milk compliant with all

government health regulations, but in fact received a different product

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of unknown safety, were denied the benefit of their bargain and

suffered an actual loss.

Moreover, as all the factors leading to this calculation of

actual loss were foreseeable and essential to the success of Gonzalez-

Alvarez’s adulteration scheme, the intended loss in this case is the

identical figure.

Finally, Gonzalez-Alvarez argues that the government was

guilty of sentencing factor manipulation. He asserts that participants

in the investigation which resulted in his arrest discovered the

adulteration of the milk before it was added to the silos, and thus

conduct by the government led to an increased volume of tainted milk.

Gonzalez-Alvarez contends that he cannot be held responsible under the

Guidelines for any loss which is attributable to the government’s

conduct.

With regard to calculating actual loss, Gonzalez-Alvarez is

unable to make out a case of sentencing factor manipulation, as he has

not made the required showing of bad faith on the government’s part.

See United States v. Rizzo, 121 F.3d 794, 801 (1st Cir. 1997). As

for loss which Gonzalez-Alvarez intended to occur as a result of his

scheme, the addition of the salt to his watered down milk product shows

that he did not intend to get caught before the adulterated milk

reached the silos. Even had the agents prevented the adulterated milk

from reaching the silos, therefore, it would not change the measure of

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loss for purposes of the Sentencing Guidelines because the loss a

defendant intends to cause by his fraudulent scheme is used when it is

greater than the actual loss caused. U.S.S.G. § 2F1.1, cmt. 8.

B. District Court’s Determination on Public Trust

The Presentence Report in this case recommended that

Gonzalez-Alvarez be given an upward adjustment under U.S.S.G. § 3B1.3

for abuse of a position of public trust, and this adjustment was not

objected to by the defendant.7 The district court, however, found that

in prior cases with similar facts such an enhancement had been

rejected. To be consistent with these prior rulings, the court did not

apply the enhancement for abuse of public trust.

We determine the legal meaning of the Sentencing Guidelines

de novo, and review the district court’s fact-finding for clear error.

Caraballo, 200 F.3d at 24. We then give due deference to the district

court’s application of the Guidelines to those facts. Id.

Section 3B1.3 of the Sentencing Guidelines provides for a 2-

level enhancement “[i]f the defendant abused a position of public or

private trust... in a manner that significantly facilitated the

commission or concealment of the offense... .” The government argues

7“If the defendant abused a position of public or private
trust, or used a special skill, in a manner that significantly
facilitated the commission or concealment of the offense, increase by
2 levels. This adjustment may not be employed if an abuse of trust
or skill is included in the base offense level or specific offense
characteristic. ...” U.S.S.G. § 3B1.3 (1998).

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that along with his ORIL-issued license to sell milk, Gonzalez-Alvarez

came under a corresponding duty to ensure his milk was safe for public

consumption and that this duty placed the defendant in a position of

public trust.

Although there is no clear First Circuit case law dispositive

of this issue, we consider relevant to a § 3B1.3 inquiry whether the

public expects that people in the position of the defendant will comply

with health and safety regulations for which they are responsible. See

United States v. White, 270 F.3d 356, 372-73 (6th Cir. 2001) (holding

that officials at a water plant responsible for reporting turbidity

levels in water held positions of trust with respect to area residents

who drank the water, and abused the trust when making false reports

about water quality to government agencies; United States v. Turner,

102 F.3d 1350, 1360 (4th Cir. 1996) (holding that mine owners

responsible for compliance with federal mine safety laws are in a

position of public trust); cf. United States v. Rehal, 940 F.2d 1, 12

(1st Cir. 1991) (holding that a police officer occupies a position of

public trust because the public expects that an officer will not

violate the laws which they are charged to enforce). It is true that

the public likely looks to milk processing plants like Tres to ensure

the safety of their dairy products, but simply because one entity

occupies a position of public trust does not mean another cannot also

occupy such a position. We find no authority to the contrary. The

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public was entitled to have dairy farmers like Gonzalez-Alvarez provide

milk to processing plants compliant with all FDA and ORIL regulations,

and accordingly we conclude that the defendant occupied a position of

public trust.

Gonzalez-Alvarez provided contaminated milk to Tres,

intending that it reach the public in its adulterated state. It is

clear from the record that his position as an ORIL-licensed dairy

farmer significantly facilitated his commission of this offense. See

U.S.S.G. § 3B1.3. We therefore hold that Gonzalez-Alvarez abused the

position of public trust with which he was entrusted, and that the

district court should have applied a 2-level enhancement pursuant to §

3B1.3.

III. Conclusion

Based on the foregoing, we REVERSE the judgment of the

district court with respect to both the calculation of the loss and its

determination not to apply an enhancement for abuse of a position of

public trust. The judgment of the district court is REVERSED and the

matter is REMANDED for resentencing in accordance with this opinion.

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