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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