New York Federal Criminal Practice Blog
June 11, 2008

Second Circuit Holds Government Did Not Breach Plea Agreement by Advocating Additional Upward Adjustments at Sentencing - Take Two


The scenario presented in United States v. Brumer, 07-0715-cr (2d Cir. June 10, 2008) is like a question on the bar exam: Two fraudsters enter into plea agreement with government, drafted by government, which estimates loss amount of crime at between $10 and $20 million.  All parties agree not to challenge estimate, or seek any other adjustments “not set forth herein.”  Turns out loss figure has been grossly overestimated.  Government offers to amend loss estimate to range of $5 million to $10 million.  Defendants say no dice.  Court holds hearing, and determines “a significantly lower loss amount” and therefore significantly lower sentencing ranges.  Government claims breach, and argues for upward adjustments.  Defendants then claim breach and demand guilty pleas be withdrawn.  Court ignores them all, and imposes sentences within lower sentencing range.  Who, if anyone, has breached?  What is the appropriate remedy?


On the bar exam, I would answer that there appeared to have been a mistake of fact – either a mutual one if the government’s overestimate of loss was a good faith mistake, or a unilateral one on the part of the defendants who had been misled by the government as to the true loss figure.  In either case, the remedy should be total rescission of the contract, or reformation of the contract to reflect the parties’ true intent, which was surely to include an accurate estimate of loss.  If reformation is elected, the contract otherwise remains intact, and the government is bound by its agreement not to seek any additional adjustments.  By seeking those adjustments after the district court had reformed the contract, the government breached.  Defendants should get their guilty pleas back.  


In fact, in its opinion, the Court makes no mention of the mistake-of-fact doctrine.  Meticulously applying several other principles of contract construction, the Court held that the defendants breached by rejecting the government’s “fair” offer to amend the loss estimate, and instead seeking a hearing to determine the correct loss figure.  Having lost “the benefit of its bargain” by being forced to prove its loss figure, the government was “excused from its reciprocal obligations” and free to argue for enhancements.  The defendants were not entitled to withdraw their guilty pleas.


This is a very odd decision.  It appears (though the recitation of facts is not that helpful) the defendants were punished for demanding that they be sentenced on accurate information once the inaccuracy of the information underlying the plea agreement was exposed.  A fundamental principle of contract law is an implied covenant of good faith and fair dealing.  Given that the district court determined “a significantly lower loss amount” (the Court doesn’t explain how much lower) and ignored the government’s advocacy at sentencing, there are serious questions presented here as to whether the government complied with that covenant, either in making its original loss estimate, or in making its mid-stream counter-offer, or in seeking additional enhancements contrary to the plea agreement.

This is yet another decision from the Court in less than two weeks (the other is discussed here) in which the Court applies selective principles of contract construction to plea agreements, and fails to recognize several realities of the plea bargaining process – like the superior bargaining power of the government, the fact that the government frequently controls key information, and that accuracy and truth are often casualties as defendants try to avoid guideline enhancements that can yield significant prison sentences.  

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