U.S. v. Tomasino, PLAINTIFF-APPELLANT

• Decision Date: 15 March 2000
• Docket Number: DEFENDANT-APPELLEE,PLAINTIFF-APPELLANT,No. 99-2796,99-2796
• Citation: 206 F.3d 739
• Parties: (7th Cir. 2000) UNITED STATES OF AMERICA,, v. MICHAEL J. TOMASINO,
• Court: U.S. Court of Appeals — Seventh Circuit

Page 739

206 F.3d 739 (7th Cir. 2000)

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT, v. MICHAEL J. TOMASINO, DEFENDANT-APPELLEE.

No. 99-2796

U.S. Court of Appeals, Seventh Circuit

Argued January 5, 2000

Decided March 15, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 CR 956--Robert W. Gettleman, Judge.

Sean M. Berkowitz (argued), Office of the United States Attorney, Criminal Appeals Division, Chicago, IL, for Plaintiff-Appellant.

Sergio F. Rodriguez (argued), Office of the Federal Defender Program, Chicago, IL, for Defendant-Appellee.

Before Posner, Chief Judge, and Easterbrook and Ripple, Circuit Judges.

Posner, Chief Judge.

The government appeals from the district court's refusal (reported at 57 F. Supp. 2d 565 (N.D. Ill. 1999)) to enhance the defendant's mail fraud sentence under U.S.S.G. sec. 2F1.1(b)(7)(B), which provides for a 4-level increase in sentence if the fraud "affected a financial institution and the defendant derived more than $1,000,000 in gross receipts from the offense." The appeal confronts us with the question, left open in United States v. Lauer, 148 F.3d 766, 768-70 (7th Cir. 1998), of the guideline's validity.

The guideline was promulgated in response to section 2507(a) of the Crime Control Act of 1990, Pub. L. 101-647, 104 Stat. 4789, 4862, which commands increased punishment of persons who derive more than $1 million in gross receipts from mail fraud affecting "a financial institution (as defined in Section 20 of title 18, United States Code)." The list of financial institutions in section 20 does not include, either explicitly or implicitly, pension funds, yet the only "financial institution" affected by Tomasino's fraud was a pension fund. However, the Sentencing Commission's authority to promulgate sentencing guidelines is not limited to ones that interpret or apply a statute. On the contrary, the Commission's major task is that of picking sentencing ranges within statutory minimum and maximum limits--a legislative rather than an interpretive task. So even though Congress did not command the Commission to increase the punishment of people who commit a mail fraud that affects a pension fund and yields the malefactor more than $1 million, the Commission was free to legislate such an increase (within the statutory maximum) by means of a guideline. United States v. Rutherford, 54 F.3d 370, 374 n. 11 (7th Cir. 1995). The question is whether in including pension funds in the punishment-increasing guideline the Commission was exercising its legislative authority or merely misreading section 2407(a) by overlooking the cross-reference to section 20. In the latter event, the guideline is invalid as applied to pension funds. See United States v. Lightbourn, 115 F.3d 291, 292-93 (5th Cir. 1997), where the general point is clearly stated.

There is no doubt that the guideline embraces pension funds. Application Note 14 (now 16) to guideline section 2F1.1 says so, and the application notes are part of the guidelines themselves, and not mere commentary on them. Stinson v. United States, 508 U.S. 36, 38 (1993); United States v. Joseph, 50 F.3d 401, 402-03 (7th Cir. 1995). But a background note to subsection (b)(7)(B), the subsection under which the government sought to increase Tomasino's sentence, says that the subsection "implements the instruction to the Commission in Section 2507" of the Crime Control Act. Standing alone, this implies that the Commission thought erroneously that section 2507 requires the Commission to treat a pension fund as a financial institution within the meaning of the section. If this is what it thought, it presumably never considered whether such a guideline would be a good idea if not commanded by Congress.

History may cast some light on the question. A year before subsection (b)(7)(B) was promulgated, the Commission had added a similar subsection to section 2F1.1-- (b)(7)(A)--in response to section 961(m) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. 101-73, 103 Stat. 183, 501, which had similarly required the Commission to up the punishment of defrauders of financial institutions. That statute, however, was limited to "federally insured financial institutions," a term that, appearing as it did in a statute concerned with the savings and loan crisis, was unlikely to be thought to include pension funds. By Application Note 14 the Commission had made the guideline that it promulgated in response to section 961(m) of FIRREA include pension funds, but the background note had been explicit that in doing so the Commission was "implement[ing], in a broader form, the instruction to the Commission in section 961(m)" (emphasis added). It was clear, therefore, that the Commission believed that it was exercising its legislative power rather than merely interpreting the statute. When one year later the Commission added (b)(7)(B) to the guideline in response to the Crime Control Act, it did not change Application Note 14, and so (B) like (A) includes pension funds. But the background note to (B) omits "in a broader form."

This omission could have been inadvertent, as the government argues. Another possibility, however, is that the Commission overlooked the cross-reference to 18 U.S.C. sec. 20, the provision which makes clear that section 2507 does not cover pension funds. The Commission was less likely to have made such a mistake with reference to FIRREA, the scope of which would have seemed clearer without looking up the definition of "federally insured financial institution."

The question is not whether the application note takes precedence over the background note, or vice versa. Stinson v. United States, supra, 508 U.S. at 43. There is no conflict. Unquestionably the Commission wanted Tomasino punished more heavily than he was, and this intention is expressed in both notes. The question is whether the Commission wanted this because it thought Congress had ordered it to want this, as it were, or because it had made its own independent legislative judgment--prompted by section 2507, but not commanded by it--that frauds affecting pension funds should be punished as severely as frauds affecting the financial institutions enumerated in 18 U.S.C. sec. 20. That is a question on which the application note casts no light. The only clue to the Commission's thinking on whether it was engaged in legislation or interpretation is the background note. Read literally, the note says that the application note is interpretive ("implements the instruction to the Commission in Section 2507" of the Crime Control Act), not legislative. A textualist would stop there. And the history behind the note does nothing to dispel the impression that a literal reading creates.

If the Commission had not published a background note to the new subsection, the natural inference would be that it was doing just what it had done a year before--assimilating pension funds to financial institutions as a matter of legislative judgment. The Commission is not required to publish background notes, and in their absence courts will assume that the Commission knows when it is exercising a legislative judgment, especially since that is what it usually does in issuing guidelines. A presumption of regularity attends the Commission's doings, as it does that of other official bodies. But if a background note said, "This is a dumb guideline we're promulgating, and we're doing it only because Congress has commanded us to," and this was wrong--Congress had not commanded, but merely authorized--the courts could not overlook the error. Discretion is abused when the decision maker erroneously thinks that he is compelled to make a particular decision and so fails to exercise judgment. The fact that the error might be concealed does not justify overlooking it when it is disclosed, blatantly in our example. And, although the Commission has like other administrative agencies a discretionary power that is legislative in character, we do not think the background note can be dismissed as mere "legislative history," or a demand for clarification as a demand for "subsequent legislative history," both being aids to interpretation that are derided in some influential quarters. Lacking the democratic legitimacy of legislatures, agencies do not have the same freedom to base decisions on arbitrary grounds, let alone on misunderstandings of their own powers. The issue here, moreover, is not whether the Sentencing Commission was legislating wisely, but whether it was legislating at all; if it thought it was interpreting, as the background note suggests, it was acting ultra vires, purporting to carry out a congressional command that had never been given.

Despite what we have said, it is of course possible that the Commission dropped the words "in a broader form" inadvertently. We are not so devoted to literalism in interpretation that we are unwilling to consider such a possibility. But before jacking up a defendant's sentence on the basis of a legislative determination by the Sentencing Commission, a court should have at least minimal confidence, here lacking, that the Commission was not simply misinterpreting a statute. If we do not know whether the Commission was exercising its legislative judgment, we do not know whether Tomasino was lawfully sentenced.

Any risk of underpunishing Tomasino can be avoided by the district court's deferring, on remand, resentencing Tomasino until the Sentencing Commission has had a reasonable opportunity to clarify its understanding in issuing the pension-fund guideline under which he was sentenced. (The needed clarification, of course, is not of the application note itself, which is pellucid, but of the background note.) Although the membership of the Commission has turned over since the guideline was promulgated, we assume that like any administrative agency it has an institutional...