- In a case of first impression in the federal Courts of Appeals, the Second Circuit held that district courts may not consider a defendant’s potential eligibility for a sentence reduction under the First Step Act or programs like the Residential Drug Abuse Program as a basis to impose a longer sentence.
- The court also rejected the district court’s forfeiture and restitution analyses, which failed to distinguish the defendant’s lawful proceeds from his ill-gotten gains.
- United States v. James thus provides strong arguments that defendants can employ at sentencing with respect to custodial sentences and the 18 U.S.C. § 3553(a) factors, as well as restitution and forfeiture calculations.
Background
Mathew James ran a third-party medical billing practice that prepared and submitted claims to insurance companies on behalf of doctors. While most of James’s business was legitimate, approximately 20 percent involved fraud, such as upcoding procedures to more expensive ones and unbundling single procedures into multiple billable items. James also impersonated patients—including the general counsel of the NFL and an NBA All-Star point guard—when communicating with insurers about denied claims. Over the course of six years, James submitted hundreds of millions of dollars in claims. He was convicted at trial in 2022 of health care fraud, conspiracy to commit health care fraud, wire fraud, and aggravated identity theft.
At sentencing, the district court suggested that it intended to impose a sentence of ten years, which prompted the government to explain that, under the First Step Act and other BOP programs, James “could effectively halve the court’s sentence.” Ultimately, the district court imposed a 12-year term of imprisonment, explaining that it had not appreciated that “there are a variety of ways that [the defendant] may come up with half the sentence,” identifying specifically time in the Residential Drug Abuse Program (“RDAP”), as well as home confinement, halfway house, and First Step Act credits.
The district court also imposed a restitution order of $63 million and a forfeiture order of approximately $337 million. The proceedings that resulted in those figures were, to borrow the Second Circuit’s phrasing, “confused and confusing.” Ultimately, it appears that the district court simply adopted the government’s proposed figures without providing much explanation beyond “the government put in the work in their submission.”
Holding
The Second Circuit vacated the prison sentence and the forfeiture and restitution orders.
First Step Act Credits. The court held that a sentencing court may not use potential First Step Act credits as a stand-alone factor to enhance sentences. As relevant here, the First Step Act provides a mechanism for certain prisoners to reduce their time in custody through “successful participation in evidence-based recidivism reduction programming or productive activities.” 18 U.S.C. § 3632(d)(4)(A)(i)–(ii). An individual’s “[s]uccessful participation” in these programs “requires a determination by [BOP] staff that an eligible inmate has participated in” the relevant programming “and has complied with [its] requirements.” 28 C.F.R. § 523.41(c)(2).
Returning to first principles, the court held that the statutory sentencing factors articulated in 18 U.S.C. § 3553(a) do not contemplate consideration of contingencies such as potential reduction of time in custody under the First Step Act. While it may be appropriate to consider potential sentence reductions in certain circumstances—such as a prisoner’s age at release from custody, which correlates with recidivism—it is not permissible to consider “potential availability of earned time credits under the First Step Act as a standalone factor to lengthen [a defendant’s] sentence.”
RDAP. The court reached the same conclusion as to potential reductions from rehabilitation programs like RDAP. Just as sentencing courts may not impose (or increase) a term of imprisonment for the purpose of promoting rehabilitation (under Tapia v. United States, 564 U.S. 319 (2011), nor can they do so for the purpose of counteracting the potential reduction in prison time that might result from a defendant’s efforts to rehabilitate.
Forfeiture and Restitution. The court vacated the forfeiture and restitution orders, as well. The fundamental problem with both orders was that they failed to distinguish between the defendant’s and his company’s legitimate business income versus the ill-gotten gains—problems inherent in the government’s calculations and which the district court adopted nearly wholesale.
Key Takeaways
The First Step Act, RDAP, and similar programs are off-limits at sentencing. James is a firm rebuke of district courts’ attempt to “game” sentence lengths based on anticipated reductions through prison programs. The opinion emphasizes that, in enacting the FSA, Congress sought to provide incentive structures for rehabilitation, and that a district court errs when it attempts to subvert those prerogatives by doling out a longer sentence. By extension, the government should not raise such issues in their sentencing positions, and defense counsel should be poised to respond forcefully when the government does so.
Defendants should present detailed and reasoned analyses at sentencing. By making a record before the district court, the defendant in James was able to contrast the district court’s cursory and unreasoned analysis with a tangible alternative that the Second Circuit apparently found compelling. At a minimum, defense counsel should present some framework, even informal, that distinguishes legitimate from fraudulent income and urge the district court to focus on ill-gotten proceeds.
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