United States v. Ritchey

In United States v. Ritchey, —- F.4th —-, No. 23-60468 (5th Cir. Sept. 26, 2024), the Fifth Circuit remanded Ritchey’s case for resentencing after agreeing with his argument that the district court had incorrectly calculated the financial loss caused by his crimes.

Ritchey had admitted his guilt for overcharging the Department of Veterans Affairs for medical supplies during the pandemic. For instance, Ritchey would buy N-95 masks for $3.49 per mask and resell them at $20 to $25 per mask. In its indictment, the Government alleged that Ritchey and others had defrauded the government by “quoting prices that exceed prevailing market price, utilizing high pressure sales tactics, omitting GCPP’s actual costs of PPE, omitting the source of the PPE, and sending correspondence attempting to justify GCPP’s excessive pricing.”

Before sentencing, Ritchey’s Presentence Report (“PSR”) calculated his Guidelines based on the “loss,” which was determined by subtracting “the fair market value of the property returned and the services rendered . . . to the victim before the offense was detected” from the amount the victim actually paid for the goods or services. USSG § 2B1.1, cmt. n.3(E)(i). The PSR chose to calculate the fair market value based on what had been paid “both pre-pandemic and during the pandemic, from more honest sources of PPE supplies.”

Ritchey objected and presented an expert report from an economics professor. That report stated that in “the competitive PPE market, … buyers necessarily paid a price that was either equal to, or below, the fair market value of that limited supply.”

The district court did not adopt that opinion and instead used an old case’s definition of “fair market value”: “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.” United States v. Cartwright, 411 U.S. 546, 551 (1973). As a result, the court calculated a total loss of $2,328,347.14. It sentenced Ritchey to 60 months in prison.

Holding: It was error for the district court to calculate the fair market value based on prices “before the pandemic as opposed to prices prevailing at the time the goods were sold.” A court errs if it “overemphasize[s] [its] discretion as factfinder at the expense of economic analysis.” United States v. Olis, 429 F.3d 540, 548 (5th Cir. 2005). In the court’s words, “[t]hat is what happened here.”

The Fifth Circuit identified two flaws in the district court’s calculation method. First, “the PSR calculated the price of surgical and other masks based on ‘pre-pandemic (and some pandemic) prices that [various] facilities paid for these masks.’” As a result, it used a mask price of $0.37, even though Ritchey’s company had actually bought them for $1.16, on average, per surgical mask. “Low-balling the FMV in this way would have understated any credit due to Ritchey.”

Second, “the PSR relied entirely on 3M pricing to determine the fair market value of N-95 masks even though 3M ‘did not raise prices during the pandemic.’” This led the PSR to decide that the fair value of “all but one model of N-95 masks was worth less than $2,” even though GCPP actually paid, on average, $3.49 per N-95 mask. The record showed that 3M was not able to keep up with demand, so it rationed its inventory of N-95 masks. Basing the fair market value calculation on just one supplier did not adequately reflect “realistic, economic” reasoning. United States v. Harris, 821 F.3d 589, 606 (5th Cir. 2016).

This error was not harmless even though the district court had said that it would have “imposed the same sentence as a variance or non-guideline sentence based upon the record in this matter, the nature and circumstances of the offense, and the other 3553 factors.” Such a statement is “relevant,” but “not decisive” in the harmlessness analysis. Under prior precedent, an error is not harmless — despite such a statement — if the record fails to show “that the within-Guidelines sentence imposed . . . had nothing to do with the Guidelines calculation.” United States v. Tanksley, 848 F.3d 347, 353 (5th Cir. 2017).