U.S. v. Pena, 00-5169

• Decision Date: 10 October 2001
• Docket Number: No. 00-5169,00-5169
• Citation: 268 F.3d 215
• Parties: (3rd Cir. 2001) UNITED STATES OF AMERICA, v. ARTHUR PENA, APPELLANT
• Court: U.S. Court of Appeals — Third Circuit

Page 215

268 F.3d 215 (3rd Cir. 2001)

UNITED STATES OF AMERICA, v. ARTHUR PENA, APPELLANT

No. 00-5169

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued July 20, 2001

Filed October 10, 2001

On Appeal from the United States District Court for the District of New Jersey District Judge: Honorable Jerome B. Simandle (D.C. Criminal No. 98-CR-00022-4) Anthony J. Iacullo, Esq. (Argued), Iacullo & Saluti, 103 Park Street, 3rd Floor Montclair, NJ 07042, Counsel for Appellant Arthur Pena

Elizabeth S. Ferguson, Esq. (Argued), George S. Leone, Esq., Office of United States Attorney, 970 Broad Street, Room 700 Newark, NJ 07102, Counsel for Appellee United States of America

Before: Scirica, Rendell, and Rosenn, Circuit Judges,

OPINION OF THE COURT

Rendell, Circuit Judge.

Arthur Pena was a veteran police officer of the West New York, New Jersey, Police Department ("WNYPD"), who, along with other officers, accepted bribes in return for permitting illegal poker video gambling machines to operate without interference in certain areas of New Jersey. At issue on appeal is the proper application of S 2C1.1 of the United States Sentencing Guidelines to the facts of this case, and, specifically, the propriety of the District Court's 13-level increase in Pena's offense level based on the benefit received by the payor of the bribes from Pena's illegal conduct between 1989 and 1992. He contends that, because the government failed to prove the "net benefit" to the gambling machine distributors who paid the bribes at issue, he should have been sentenced based on the aggregate amount of the bribes. As a part of this argument, he urges that the "net benefit" calculation requires a showing of the net profit to the distributor. The District Court correctly rejected his arguments based on our prior decision in United States v. Schweitzer, 5 F.3d 44 (3d Cir. 1993). We will affirm.

Pena was convicted by a jury in the United States District Court for the District of New Jersey of conspiracy to commit extortion in violation of 18 U.S.C. S 1951(a) for "protection" payments made between 1989 and 1996 by one of the distributors of the machines at issue, GMOG.¹ GMOG was owned by George Riveiro, who operated it with the help of his brother Luis. GMOG placed the machines in establishments such as bars and restaurants, maintained the machines, and split the profits with the establishments' owners. Patrons would deposit money into the machines for game credits on which they made wagers; at the end of the game, the credits would be exchanged for cash. GMOG collected the money from the machines weekly, figured out the credits, reimbursed the establishment for the money paid out to winners, and then split the profit with the establishment on a 50:50 basis.

The evidence at trial revealed routine payments had been made by GMOG to Pena in the amount of $2,000 each month from 1989 through April 1993. At sentencing, the government introduced the affidavit of FBI Special Agent Kenneth O'Connor recounting interviews he had with Luis Riveiro on December 3 and 7, 1999, regarding the monies derived from the operations. The affidavit contained the following evidentiary averments:

4. During the above-described conversation,[Luis] Riveiro told me, in substance and in part, that approximately two years ago he totaled the weekly figures and determined how much GMOG collected on a yearly basis from 1988 through 1995. Riveiro stated that in 1988 they earned $323,000, in 1989 the amount was $986,300, in 1990 the amount was $1,021,700, in 1991 they earned $726,800, in 1992 they earned $452,110, in 1993 they earned $302,630, in 1994 they earned about $158,290, and in 1994 they earned about $41,380. He further told me that about ten to fifteen percent of these figures were derived from legal activity such as children's games and juke boxes and that about ninety-five percent of these earnings were from machines in West New York, New Jersey.

5. In December 1999 I spoke to George Riveiro, the owner of GMOG. He told me in substance and in part, that GMOG earned an average of $5,000-$6,000 in profit per week during the most profitable years. George Riveiro also told me that his brother Luis Riveiro actually collected the revenues from the locations where they placed machines and thus, would be in a better position to provide a more accurate recollection of GMOG's revenues.

App. at 107.

Pena argued at sentencing that the government had failed to prove the specific "net profit" or "net benefit" and that the court must sentence him based on the aggregate bribe amount proven -- $96,000. The government argued that it had in fact proven the benefit received by GMOG, namely, the revenues GMOG realized from the illegal operation.

The District Court considered the parties' arguments and adjourned the hearing in order to consider the issue in the context of a recent split in the rulings of the courts of appeals as to the meaning of "net benefit" under the sentencing guidelines.

The District Court reconvened the sentencing hearing two months later and ruled that, consistent with our opinion in United States v. Schweitzer, "net benefit" in this situation was the monies realized from the illegal operation, quoting our statement in Schweitzer that "net benefit... has nothing to do with expense incurred by the wrongdoer in obtaining the net value received" where the transaction was wholly illegal. 5 F.3d at 47.

The District Court then relied on the revenues shown to have been received by GMOG for the 50:50 split from illegal operations. Then, based on the information Luis Riveira provided O'Connor, the Court netted out 20% to account for business outside of West New York and the proceeds from the few legitimate machines, and therefore made a fact finding of $2,573,000 as "GMOG's net benefit received for the years 1989 through 1997." App. at 81-82.

The District Court noted that the government had offered two different calculation methods, but both arrived at approximately the same number.² Based on this finding, Pena's offense level was 25, and with a Criminal History level of 1, the guideline range was 57 to 71 months. The District Court sentenced Pena to 57 months.

The District Court had jurisdiction pursuant to 18 U.S.C. S 3231. We exercise jurisdiction over this appeal of the Court's sentencing determination based on 28 U.S.C. S 1291 and 18 U.S.C. S 3742(a)(2).

We begin our review by examining the guideline provisions at issue found at S 2C1.1, which states that the base offense level of 10 is to be increased in certain circumstances:

Offering, Giving, Soliciting, or Receiving a Bribe; Extortion Under Color of Official Right

(A) If the value of the payment, the benefit received or to be received in return for the payment, or the loss to the government from the offense, whichever is greatest, exceeded $2,000, increase by the corresponding number of levels from the table in S 2F1.1 (Fraud and Deceit).

U.S. Sentencing Guidelines Manual S 2C1.1(b)(2)(A) (2000) (emphasis added).

It is conceded that, here, the value of the "benefit received in return for the payment" was greater than the value of the payment, or the loss to the government. Accordingly, we look to Application Note 2, which explains:

... 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 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 above examples, therefore, the value of the benefit received would be the same regardless of the value of the bribe.

U.S. Sentencing Guidelines S 2C1.1, cmt. n. 2 (2000).

The "Background" section of the Application Notes states, further:

Where the value of the bribe exceeds the value of the benefit or the value of the benefit cannot be determined, the value of the bribe is used because it is likely that the payer of such a bribe expected something in return that would be worth more than the value of the bribe. Moreover, for deterrence purposes, the punishment should be commensurate with the gain to the payer or the recipient of the bribe, whichever is higher.

U.S. Sentencing Guidelines S 2C1.1, cmt. background (2000).

While Pena criticizes the vague nature of the numbers contained in the O'Connor affidavit as a basis for calculating the dollar amounts for purposes of sentencing, he does not challenge its sufficiency or the court's factual finding as such.³ Rather, he attacks the District Court's ruling that the revenues, rather than the net profits, are the proper measure of "net value" of the benefit. He complains that the District Court has misinterpreted the guidelines. Accordingly, we will review the District Court's ruling under a de novo standard. United States v. Geevers, 226 F.3d 186, 189 (3d Cir. 2000).

Pena relies to a great extent on the decision of the Seventh Circuit Court of Appeals in United States v. Sapoznik, 161 F.3d 1117 (7th Cir. 1998), decided after our ruling in Schweitzer. Pena limits his discussion to the consideration of these two cases. We note that if we were to follow Sapoznik, Pena might in fact succeed, while, under Schweitzer, he clearly will not.

Sapoznik also involved illegal gambling operations, and the court there held that the government had failed to prove net profit. Interestingly, Chief Judge Posner, in his opinion, notes:

The government concedes that the relevant "benefit received" is indeed profit (net revenue) and not (gross) revenue. U.S.S.G. S 2C1.1, Application Note 2; United States v. Glick, 142 F.3d 520, 525-26 (2d Cir. 1998); United States v. Schweitzer,...