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United States v. Torlai

United States Court of Appeals, Ninth Circuit

August 26, 2013

United States of America, Plaintiff-Appellee,
Gregory Peter Torlai, Jr., Defendant-Appellant.

Argued and Submitted January 18, 2013 —San Francisco, California

Appeal from the United States District Court for the Eastern District of California John A. Mendez, District Judge, Presiding D.C. No. 2:08-cr-00329-JAM-1

T. Louis Palazzo (argued), Palazzo Law Firm, Las Vegas, Nevada; Allen Lichtenstein, Las Vegas, Nevada, for Defendant-Appellant.

Michael D. Anderson (argued) and Kyle Reardon, Assistant United States Attorneys, United States Attorney's Office for the Eastern District of California, Sacramento, California, for Plaintiff-Appellee.

Before: J. Clifford Wallace, Jerome Farris, and Jay S. Bybee, Circuit Judges.


Criminal Law

The panel affirmed the sentence imposed following a jury conviction of sixteen counts of making a false claim for farm benefits in connection with the Federal Crop Insurance Act.

The panel held that by virtue of the defendant's fraud, he was not eligible for any government benefit under the crop insurance program, and therefore he was not an "intended beneficiary" under U.S.S.G. § 2B1.1 cmt. n.3(F)(ii). The panel thus rejected the defendant's argument that the district court erred, in its loss calculation, by failing to separate legitimate from illegitimate claims.

The panel held that the district court did not err by including in the loss amount the producer premiums the defendant paid – i.e., the non-subsidized portion of the crop insurance premium for which an insured farmer is responsible.

The panel concluded that there was sufficient evidence that administrative and operating expenses paid by the government to the insurance company for selling and servicing the policy, and premium subsidies paid by the government to underwrite the crop insurance, were reasonably foreseeable to the defendant, and that the district court did not err by including them in its loss calculation.


BYBEE, Circuit Judge

Thomas Jefferson once wrote to John Jay: "Cultivators of the earth are the most valuable citizens. They are the most vigorous, the most independent, the most virtuous, and they are tied to their country and wedded to its liberty and interests by the most lasting bands." 8 The Papers of Thomas Jefferson 426 (Julian P. Boyd et al. eds., Princeton University Press) (1950) (spelling modernized). Although an industrious cultivator of the earth, Gregory Peter Torlai did not prove the most virtuous. Torlai was convicted of sixteen counts of making a false claim for farm benefits in connection with the Federal Crop Insurance Act. At sentencing, the district court determined that Torlai had caused a loss of $410, 372, resulting in a 14-level sentencing guideline increase. In this appeal, we consider whether the district court erred in its loss calculation. These are matters of first impression. We affirm.


A. Federal Crop Insurance Program

"Farming has literally been a feast or famine proposition since the beginning of time." David F. Rendahl, Federal Crop Insurance: Friend or Foe?, 4 San Joaquin Agric. L. Rev. 185, 185 (1994). "Most agricultural production is subject to the vagaries of weather, and the nature of agricultural supply and demand often results in volatile market prices." Dennis A. Shields, Cong. Research Serv., R40532, Federal Crop Insurance: Background 1 (2012). One of the most vivid illustrations of agricultural risk is the American Dust Bowl. In the 1930s, the myopic agricultural practices of homesteaders coupled with severe drought resulted in widespread crop failure that left wide swaths of the Great Plains region of the United States highly susceptible to wind erosion. See Richard Hornbeck, The Enduring Impact of the American Dust Bowl: Short- and Long-Run Adjustments to Environmental Catastrophe, 102 Am. Econ. Rev. 1477, 1479 (2012). "Dust storms in the 1930s blew enormous quantities of topsoil off Plains farmland; on 'Black Sunday' in 1935, one such storm blanketed East Coast cities in a haze." Id. The destruction left in the Dust Bowl's wake was so severe that it triggered a massive exodus of farmers and their families who lost their livelihoods long before the dust settled.

The Dust Bowl's awful destruction not only motivated The Grapes of Wrath, but also spurred Congress to "authorize[] federal crop insurance as an experiment to address the effects of the Great Depression and crop losses seen in the Dust Bowl." Shields, supra at 1. It was only with the Federal Crop Insurance Act of 1980 ("FCIA"), 7 U.S.C. § 1501 et seq., however, that Congress permanently authorized the federal crop insurance program. Id. The FCIA's express purpose is "to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance." Id. § 1502(a).

"The federal crop insurance program provides producers with risk management tools to address crop yield and/or revenue losses on their farms." Shields, supra at 2. The program is administered by the federal government, but the insurance policies are sold through arrangements with private insurance companies. Id. "Independent insurance agents are paid sales commissions by the companies. The insurance companies' losses are reinsured by [the] USDA, and their administrative and operating [("A&O")] costs are reimbursed by the federal government." Id.

"In purchasing a policy, a producer growing an insurable crop [in a covered county] selects a level of coverage and pays a portion of the premium, which increases as the level of coverage rises. The remainder of the premium is covered by the federal government (about 62% of total premium, on average, is paid by the government)." Id. at 3. Thus, the federal crop insurance program subsidizes the cost borne by a farmer in obtaining crop insurance, increasing farmer participation. See id.

Generally speaking, there are two types of crop insurance policies: yield-based and revenue-based. Id. at 5. Yield-based crop insurance policies provide insured farmers with "an indemnity if there is a yield loss relative to the farmer's 'normal' (historical) yield." Id. In contrast, revenue-based crop insurance policies are more comprehensive, "protect[ing] against crop revenue loss resulting from declines in yield, price, or both." Id. Like other insurance products, the differing crop insurance policies only provide an indemnity against certain risks of loss, usually related to unpredictable, weather-related events that are beyond the power of a farmer to control.

A farmer desiring to obtain crop insurance approaches a private insurer and is required to fill out an application for crop insurance containing detailed information: e.g., the type of insurable crop; date of planting; applicable irrigation practice, if any; and acreage under cultivation. The farmer also provides an actual production history ("APH") for the parcel to be insured. The APH establishes a record of productivity for the subject parcel, assisting in the calculation of the policy premium and any benefits that might be required to be paid. This information must be received prior to planting the crop a farmer desires to insure. After planting, however, the farmer must submit an acreage report certifying the veracity of all final information submitted regarding the insured crop, including the amount of the farmer's insurable interest in the crop. This cumulative information is used to calculate the premium that applies to the issued crop insurance policy.

If, during the course of the growing season, a farmer's insured crop suffers a covered cause of loss, the farmer must comply with a claims procedure, including filing a notice of loss, to obtain an indemnity payment. As part of the claims process, an adjuster must inspect the crop to verify the farmer's asserted cause of loss and file a corresponding report—certified by the farmer—detailing information about the crop and the cause of loss. If the loss is determined to be covered by the crop insurance policy, the required indemnity will be paid to the farmer.

Although the crop insurance premium is due when the insurance policy is issued, in practice, the farmer is allowed to delay payment until either the insured crop is harvested and marketed, or a valid claim is submitted and an indemnity paid. Normally, when a valid claim is submitted, the farmer never pays the premium out-of-pocket; rather, the farmer ...

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