The White Collar Appeal: Kirilyuk’s Luck Runs Out in his Second Trip to the Ninth Circuit Challenging the Meaning of “Loss” Under the Sentencing Guidelines

• In 2022, a split Ninth Circuit panel vacated a 324-month sentence for credit card fraud where the district court had relied on a “contrived” and unreasonable interpretation of loss from the Sentencing Guidelines commentary.  On remand, the district court re-sentenced the defendant, Ruslan Kirilyuk, based on the “intended loss” amount rather than the “actual loss.”

• In round two in the Court of Appeals, however, a split panel affirmed Kirilyuk’s sentence, finding no error in the district court’s reliance on a separate application note from the Guidelines commentary.

• These decisions illustrate both the complexity of calculating “loss” under the Guidelines and that district courts should not take the Guidelines’ application notes as gospel.  Defendants should challenge the Sentencing Commission’s commentary and other interpretive guidance where they would weigh in favor of harsher sentences.

Background

Kirilyuk involved a complex, multi-year, international credit card fraud in which the government alleged Ruslan Kirilyuk and his co-conspirators stole account information for nearly 120,000 American Express cards, created dozens of fake online businesses and merchant accounts using stolen identities, and used the merchant accounts to make fraudulent charges on the stolen AmEx cards in small amounts to avoid detection.  The alleged scheme even involved setting up phone lines for the fake businesses to field complaints from the AmEx customers and then refunding those charges to deter the customers from notifying AmEx.  The remaining funds then ultimately went to overseas accounts or funded purchases in the United States.  In total the scheme involved more than 70 shell companies, more than 220 stolen identities, nearly 120,000 victims, and more than 190,000 fraudulent transactions, with over $1.4 million actually stolen and the intended loss found to be more than $3.4 million.

The district court initially sentenced Kirilyuk to 324 months’ imprisonment based on multiple sentencing enhancements, including the calculation of “loss” as $500 per stolen credit card.  That figure derived from Application Note 3(F)(i) to the fraud guidelines, Section 2B1.1, which states that “loss” for purposes of “[c]ounterfeit [c]redit [c]ards” must be calculated at “not less than $500” per credit card used.  See U.S.S.G. § 2B1.1 cmt. n.3(F)(i).  In Kirilyuk, the effect of Note 3(F)(i) was enormous.  Although the offense only caused an actual loss of $1.4 million and had an intended loss of only $3.4 million, assuming $500 per card caused the loss amount to skyrocket to nearly $60 million and a 22-level enhancement.

A split Ninth Circuit panel vacated the sentence in 2022, concluding that the district court erred in, among other things, deferring to the Application Note and assuming a loss amount of $500 per card. See 29 F.4th 1128 (9th Cir. 2022) (“Kirilyuk I”).  Writing for the majority, Judge Bumatay explained that Application Notes are not formally part of the Sentencing Guidelines and instead serve to interpret and explain the Guidelines for district courts.  The majority noted that the Sentencing Commission had developed a “troubl[ing]” practice of using the Notes improperly to attempt to expand and alter the scope of Guidelines provision.  Application Note 3(F)(i) was a prime example, as it created a rigid, fictional $500 minimum loss amount per credit card—no matter the facts of the particular case.  Noting that Section 2B1.1 does not define “loss,” the panel looked to the dictionary for the term’s plain meaning, and although the dictionary definitions varied, none of them indicated that “loss” from a stolen credit card meant $500.

On remand, the district court re-sentenced Kirilyuk to 236 months’ imprisonment on the basis of a loss amount of $3.4 million.  The district court used that amount because it was the “intended loss” from the scheme.  Kirilyuk argued the court should have sentenced him based on the “actual loss,” which was $1.4 million and thus below the $1.5-million threshold under the fraud-loss table.  Kirilyuk appealed, arguing (as relevant here) that the district court again erred by deferring to an Application Note that suggested the court could use the intended loss rather than the actual loss.

Holding

This time the Court of Appeals affirmed, with Judge Bumatay in dissent rather than the majority as he was in Kirilyuk I.  The Kirilyuk II majority determined that the plain and ordinary meaning of “loss” can include “intended loss” in addition to “actual loss.”  In support, the majority cited the Sentencing Commission’s commentary to Section 2B1.1 which states that “the sentences of defendants convicted of federal offenses should reflect the nature and magnitude of the loss caused or intended by their crimes.”  U.S.S.G. § 2B1.1 cmt. background (2023) (emphasis added). 

The majority further found that the Commission’s commentary was entitled to controlling weight.  In particular, given the research and consideration the Commission gives to Section 2B1.1 crimes, the majority found the commentary “implicates the Commission’s substantive expertise and reflects its fair and considered judgment,” as well as its longstanding view of “loss.” 

Judge Bumatay’s dissent reprised the argument from Kirilyuk I that, although “loss” can have a range of meanings, each of the context-specific meanings share a common denominator:  they all refer to a diminution that actually happened, as in the case of “actual loss” or “economic loss.”  No reasonable user of the English language, in Judge Bumatay’s view, would use the term “loss” to refer to something that never happened.  And because an “intended loss” never happened, the Commission’s commentary did not, in Judge Bumatay’s view, present a reasonable agency interpretation entitled to deference.

Key Takeaways 

No one should take the Sentencing Commission’s interpretation as dispositive.  Although Kirilyuk II ultimately approved the district court’s deference to the Sentencing Commission’s interpretation of loss, it was not a rubber stamp.  Taken together, Kirilyuk I and II highlight courts’ evolving views on the appropriate measure of deference to the Sentencing Commission and the administrative state more broadly.  This skepticism follows from recent Supreme Court decisions in Kisor v. Willkie, 139 S. Ct. 2400 (2019) and Loper Bright v. Raimondo, 603 U.S. 369 (2024), which establish that courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.  These decisions, and Judge Bumatay’s dissent, indicate that courts may well be receptive to challenges to the Sentencing Commission’s Application Notes and other interpretative guidance.  Defense attorneys at sentencing thus should not hesitate to challenge the Application Notes where the Notes would enhance their clients’ sentencing ranges.

The lasting impact of Kirilyuk II’s resolution of intended loss vs. actual loss may be limited.  Kirilyuk dealt with the 2023 version of the Sentencing Guidelines that referred to intended loss only in the commentary.  Beginning in the 2024 version, however, the Guidelines incorporate directly into Section 2B1.1 that “[l]oss is the greater of actual loss or intended loss.”  As a result, the thornier questions of whether and when to defer to the Sentencing Commission’s interpretations of the Guidelines no longer arise.  But the broader principle—that district courts should not take the Guidelines’ commentary as gospel—continues to be relevant.