December 24, 2012

Short Wins - Mayan Apocalypse Edition; The World Didn't End, But There Are New Cases On Restitution, Health Care Fraud, Federal Stalking, and Sequestration of Witnesses

One would have thought that, with the end of the world predicted for Friday of last week, our nation's appellate courts would have spent their last week on Earth with family or friends, rather than cranking out wins for folks charged with federal crimes.

Perhaps circuit court judges have access to better science than those who thought that the movie 2012 was a documentary set in the future. Our federal courts of appeal cranked out a whopping 6 victories for people accused of crimes in federal court last week. Perhaps they were simply trying to clear their docket up for more relaxed figgy pudding on Tuesday.

There are some good cases here involving a wide range of federal criminal topics - restitution, gun sentencing, trial sequestration, stalking using a telecommunications device, and civil rights violations. It's a nice stocking stuffer of law for this slow week.

To the victories!

1155650_berlin_siegessule.jpg1. United States v. McRae et al, Fifth Circuit: Former police officers David Warren, Gregory McRae, and Travis McCabe were convicted in the same trial of offenses arising out of the death of Henry Glover, a private citizen, in the aftermath of Hurricane Katrina. Because Mr. Warren demonstrated that he suffered specific and compelling prejudice based on the district court's refusal to sever his trial from his co-defendants, the court abused its discretion in denying Mr. Warren's motions to sever. Consequently, Mr. Warren's convictions and sentences were vacated and the case remanded for a new trial. As to Mr. McRae, the evidence was insufficient to support his conviction for denying Mr. Glover's descendants and survivors the right of access to the courts. As a result, that conviction was vacated and the case remanded for resentencing. As to Mr. McCabe, the district court did not abuse its discretion in granting him a new trial because of newly discovered evidence.

2. United States v. Cochrane, Sixth Circuit: Appellant was convicted of being a felon in possession of a firearm. He was sentenced to 41 months in prison for the firearms conviction and to a consecutive one-year term for violating the conditions of his supervised release. The district court's failure to explain why it imposed consecutive sentences was an abuse of discretion. As a result, appellant's supervised release violation sentence was vacated and the case remanded for resentencing.

3. United States v. Engelmann, Eighth Circuit: Appellant was convicted of several bank and wire fraud offenses. He filed a motion for a new trial and evidentiary hearing based on, among other things, an alleged conversation between two government witnesses during the trial that apparently violated the sequestration order. The district court abused its discretion in denying appellant's request for an evidentiary hearing. Without the hearing, the court lacked a principled way to determine whether the alleged conversation violated the sequestration order or whether any violation prejudiced appellant. Consequently, remand was required to further develop those issues.

4. United States v. Sharma, Fifth Circuit: Two doctors pled guilty to defrauding health care insurers. As part of their sentences, the district court ordered them to pay over $43 million in restitution to 32 victims and 30 private insurers. Because the amount awarded exceeded the insurers' actual losses by millions of dollars, the district court abused its discretion in adopting the unsupported loss figures. The restitution order was vacated and the case remanded for recalculation of the award.

5. United States v. Tucker, Third Circuit: Appellant pled guilty to possession of a firearm by a convicted felon. At sentencing, the government argued that appellant should be subject to a 15-year mandatory minimum sentence based on three prior convictions for "serious drug offenses." Because one of the prior convictions did not qualify as a serious drug offense, appellant's sentence was vacated and the case remanded for resentencing.

6. United States v. Grimes, Eighth Circuit: Appellant was convicted of 19 counts based on stalking and using the mail and telephone to make threatening and harassing communications. Counts 12-17 were multiplicitous because they arose out of a single course of conduct. Counts 13-17, as well as the special assessments applicable to these counts, were vacated.

December 19, 2012

The Eleventh Circuit Discusses When The Government Can Take Your Wife's Stuff To Make Resitution For A Crime You Committed

When a person is convicted of a federal crime, especially in a fraud case, but in lots of other kinds of federal criminal cases too, the district court sometimes also orders that the person pay restitution.

The point of restitution is that the person has to pay back any money that they took - they have to make any victims of the crime whole again.

To satisfy a restitution judgment, the federal government can go try to get that money from assets that a person has - they can go after bank accounts and retirement accounts and houses.

A frequent question many folks have is whether they can also go after property that a person jointly owns with his or her spouse.

The Eleventh Circuit recently opined on how this works in United States v. Duran.

Duran Duran

Lawrence Duran and Carmen Duran were married.

Then Lawrence Duran was convicted of participating in a conspiracy to defraud Medicare. As a part of his sentence, he was ordered to pay restitution of more than $85 million. He was also sentenced to 50 years in prison.

1389190_new_york.jpgBefore Mr. Duran's legal troubles, he owned an apartment with Mrs. Duran in New York City.

The Durans divorced before Mr. Duran was sentenced. In the divorce, it appears that Mrs. Duran was given sole title to the New York apartment.

Hungry Like The Wolf

After Mr. Duran was sentenced, the government wanted its $85 million. It applied for a writ to execute the restitution judgment. In the application for the writ, the government said that the apartment was a substantial asset that it should be able to collect.

When the prosecutors applied for the writ of execution, they told the court that they were serving it by using the district court's electronic case filing system. By filing it, in other words, it would be sent electronically to any attorney who had filed a notice of appearance in the case.

Because Carmen Duran wasn't a lawyer involved in the case - and didn't have a lawyer in the case - she didn't get a copy of the motion asking for a writ.

The Reflex

Getting an application from the government, though, caused the Court to approve the application for a writ. The writ ordered the Marshals Service to satisfy the judgment against Lawrence Duran by "levying on and selling" the apartment.

Carmen Duran filed a motion to dissolve the writ and not have her apartment sold. She said she was an innocent owner of the apartment who deserved an evidentiary hearing. Mrs. Duran said that she got half the apartment in the divorce anyway.

The government opposed Mrs. Carmen's motion, saying that she could get half of whatever they collected when the Marshals sold it. They said that their judgment lien had priority over Mrs. Duran's unrecorded claim.

When you look at the property records of New York, apparently, the apartment is listed as jointly owned by both Durans.

It seems that Mrs. Duran's divorce lawyer failed to record the new deed that showed she owned the apartment alone.

So Misled

The district court said it didn't have jurisdiction to hear the claim. If Mrs. Duran wants to challenge this, the district court's view was that the right place for a property dispute in New York was a state court in New York.

Mrs. Duran appealed.

The Eleventh Circuit started by looking at the Fair Debt Collections Act - the statute that the government has to use to collect a restitution judgment.

As the Eleventh Circuit explained,

The Act limits the authority of the United States to levy against jointly-owned property. The United States may levy "property which is co-owned by a debtor and any other person only to the extent allowed by the law of the State where the property is located." Id. § 3010(a). With regard to levying against property under a writ of execution, "[c]o-owned property [is] subject to execution [only] to the extent such property is subject to execution under the law of the State in which it is located." Id. § 3203(a).

The Act also says the government has to give notice to any co-owner or any other person with an interest in the property before they can take it. And the government has an affirmative burden to look for people who might have an interest.

Most importantly, the Eleventh Circuit said,

The Act obliges a district court to adjudicate any contested ownership interests in property subject to a writ of execution. The Act provides that the United States may levy only property in which a judgment debtor has a "substantial nonexempt interest." Id. § 3203(a). To that end, the district court must determine whether the debtor has any ownership interests in the property, and the district court must determine the ownership interests of any person who moves to dissolve or modify any writ.

So, all ended well for Mrs. Duran - except as to her ex-husband's fifty year prison sentence.

The Eleventh Circuit directed that

On remand, the district court must determine the respective ownership interests, if any, of Carmen and Lawrence in the apartment when the United States obtained the writ of execution and whether Lawrence had a "substantial nonexempt interest" in the apartment that the United States could levy.
December 18, 2012

The Eighth Circuit On How To Get Your Stuff Back After The Government Takes It Using A Search Warrant

There's little judicial attention paid to folks who have their stuff taken by the police executing a search warrant - and who want it back later.

Thankfully, just in time for Christmas, the Eighth Circuit breaks out with United States v. Bailey.

1382778_old_brick_cell_phone.jpgNot George Bailey And Perhaps Not A Wonderful Life

In 2003 Mr. Bailey was arrested in Minneapolis on prostitution-related charges. Some of his personal items - a wallet, a cell phone, and $2,000 in cash - were taken pursuant to a search warrant.

He was prosecuted - and convicted - in federal court in Minnesota of transporting someone across state lines for the purpose of engaging in prostitution.

He filed an appeal and lost.

It's hard out there for a pimp.

He still wanted his stuff back.

Mr. Bailey Goes (back) To Court

He filed a motion under Rule 41. As the Eighth Circuit explains,

Rule 41 provides that a person "aggrieved by an unlawful search and seizure" or "deprivation of property" may seek the return of the property by filing a motion in the district where the property was seized. Fed. R. Crim. P. 41(g). The court must receive evidence on "any factual issue necessary to decide the motion," and if it grants the motion it must order the government to return the property.

The government told the judge that Mr. Bailey's stuff was returned to the Minneapolis police department - the federal government didn't have Mr. Bailey's things any more.

Mr. Bailey appealed, saying that he had a right to a hearing.

The Eighth Circuit agreed and sent the case back. If a man has a right to a hearing, said the Eighth Circuit, then the man ought to get a hearing.

That was not this case.

Mr. Bailey Gets A Hearing

On remand, Mr. Bailey got his hearing - he didn't get one witness, the AUSA who presided over the trial is now a state judge in Minnesota. Mr. Bailey wanted to subpoena her but the district court refused. She sent a letter saying she didn't know anything about where Mr. Bailey's wallet, cash, and cell phone went.

But a number of other folks did testify. They said that Mr. Bailey's things went back to the Minneapolis police department.

The supervisor of the Minneapolis police department said that they searched the Minneapolis police property room and didn't find Mr. Bailey's things.

Mr. Bailey Wants To Be Made Whole

After the testimony ended, the government asked the court to dismiss the proceeding. There was no evidence the government had anything that they could return, so the government argued the motion had to be dismissed.

Mr. Bailey asked that the district court convert his case to a claim for damages. The government lost his stuff, and he wanted to be paid for it.

The district court said no, saying that it had "completed its assigned responsibility by the remand."

One has the sense that the district court was not enthusiastic about this case.

Every Time A Defendant Wins An Appeal An Angel Gets Its Wings

Mr. Bailey appealed.

The Eighth Circuit held that

We have previously considered whether compensatory damages are available under Rule 41 when the government has lost or destroyed a defendant's property. See United States v. Hall, 269 F.3d 940 (8th Cir. 2001). In Hall, the federal government had improperly disposed of a pickup truck and a waterbed which had been seized from the defendant. Id. at 941. Since the property could no longer be returned, the district court granted damages equal to the fair market value of the items. Id. Although such an award was not authorized under Rule 41 itself, "the court should grant the movant . . . an opportunity to assert an alternative claim" under a statute which authorizes money damages against the government. Id. at 943.

So the law in the Eighth Circuit is clear - if the government loses your stuff you get to ask for the fair market value of it.

The district court was, apparently, not familiar with Hall.

The case was remanded to figure out what Mr. Bailey's damages would be.

I assume the next appeal in this case will be over the value of a cell phone purchased in 2003. Stay tuned!

December 17, 2012

Short Wins - Stealing the Identity of a Corporation, Conspiracies to Distribute Marijuana, and Jury Instructions for Sexual Assault

This week's wins cover three circuits and four diverse areas of law.

Particularly interesting (to me) are the Fourth Circuit's opinion holding that it may not be a crime to steal the identity of a corporation. It feels like corporate personhood and its limits are popping up in all sorts of ways these days.

The Eighth Circuit has an interesting jury instruction issue in a sexual assault case, and, remarkably, the First Circuit has a remand based on the sufficiency of the evidence in a marijuana conspiracy case. A good set of wins all around.

And good work Fourth Circuit for having two entries on the list!

To the victories!

1155650_berlin_siegessule.jpg1. United States v. Hilton, Fourth Circuit: Appellants Jacqueline, Tamatha, and Jimmy Hilton were convicted of offenses arising out of their scheme to defraud a furniture manufacturer. Jacqueline and Jimmy were convicted of, among other crimes, identity theft and aggravated identity theft. Because the statutes governing these crimes are ambiguous as to whether they include the theft of a corporation's identity, Jacqueline's and Jimmy's convictions on these counts were vacated. As to the remaining counts, the court vacated Jacqueline's and Jimmy's sentences and remanded for resentencing.

2. United States v. Rouillard, Eighth Circuit: At appellant's trial for rape, he requested that the jury be instructed that the knowledge element of rape required the jury to find not only that (1) he engaged in a sexual act with a woman when she was incapable of consenting, but also that (2) he knew of the woman's incapacity or inability to consent. The district court declined to provide instruction (2). This was error, as (2) is an element of the offense and deprived appellant of his defense. Consequently, appellant's conviction was reversed and the case remanded for a new trial.

3. United States v. Torres-Miguel, Fourth Circuit: Appellant was convicted of illegal reentry by an aggravated felon. At sentencing, the district court imposed a 16-level enhancement based on its finding that appellant's state conviction for a criminal threat constituted a prior "crime of violence" under Sentencing Guideline § 2L1.2(b)(1)(A)(ii). Because the state conviction did not qualify as a crime of violence, the enhancement was improper. Appellant's sentence was vacated and the case remanded for resentencing.

4. United States v. Burgos, First Circuit: In drug conspiracy case, a rational jury could not have concluded beyond a reasonable doubt that appellant had knowledge of or was willfully blind to a marijuana distribution operation. Because the government did not meet its burden of proving that appellant knowingly and voluntarily participated in the conspiracy, appellant's conviction was vacated with instructions for the district court to enter a judgment of acquittal.

December 13, 2012

A Federal Judge Can't Reopen A Sentencing Hearing, Even When There's $17 million In Restitution At Stake

It's hard, when things go wrong, not to seek a mulligan. And we all get off on the wrong foot sometimes.

When a case is in front of a federal judge for sentencing, though, a mulligan is only very rarely available.

The Fifth Circuit case of United States v. Murray shows why.

498474_eraser.jpgThree Men and a Ponzi (scheme)

Ted Murray, David Lapin, and Jeffrey Wigginton were charged with mail fraud, conspiracy to commit mail fraud, securities fraud, and money laundering. The charges arose out of a Ponzi scheme.

Mr. Murray took his case to trial and was convicted of everything but the money laundering.

Mr. Wigginton entered a plea to conspiracy to commit mail and securities fraud. In the plea,

He agreed to pay "full restitution to the victim(s) regardless of the counts of conviction"; admitted" that any fine or restitution imposed by the Court will be due and payable immediately upon sentencing"; and pledged that he would "not attempt to avoid or delay punishment." Wigginton also agreed to "waive the right to appeal the sentence imposed or the manner in which it was determined," unless the sentence exceeded the statutory maximum.

Mr. Lapin pled guilty to misprison of a felony. I'm thinking he either had great facts or a good lawyer.

Each man was sentenced, at the latest, on March 1, 2010.

At the sentencing hearings, the district court determined that none of the men owed restitution.

A Federal Prosecutor Later Discovered a $ 17,564,534.21 Mistake

The government, a few months after the sentencing hearings, realized that it meant to seek restitution. In the amount of $17,564,534.21.

It filed a motion to have the district court order restitution. The men - who were trying to move on after the sentencing hearing - objected.

The district court held a number of hearings. Finally, it ordered that the men pay the restitution.

They appealed.

A District Court Can't Reopen A Sentencing Willy-Nilly

The Fifth Circuit set the table of issues this way,

A trial judge lacks authority to correct a sentencing error unless Congress has provided otherwise. Outside of such a provision of authority, errors at sentencing may be corrected only on appeal. The court below amended defendants' sentences, requiring defendants to make restitution to their victims. We are pointed to no potential source of authority for this change of sentence except the Mandatory Victims Restitution Act of 1996 (MVRA).

The MVRA, though, doesn't let a district court go back to reopen a sentencing hearing when the district court has already made a finding, under the MVRA, that restitution wasn't appropriate because, in the language of the statute

(A) the number of identifiable victims is so large as to make restitution impracticable; or (B) determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process

What's great about this is that in two of the men's cases, the district court didn't make this finding explicitly. Rather, by adopting the PSRs as factual findings - which contained language that the number of victims was not determinable - and the Fifth Circuit held that this counted as the required finding under the statute.

So, the MVRA doesn't let the district court reopen the case.

Then the general rule that a federal sentencing can't be reopened applies, and the district court's imposition of $17 million and change in restitution was vacated.

When Is An Appeal Waiver Not An Appeal Waiver

Mr. Wigginton gave up his right to appeal his sentence, however. The government argued that this meant he also gave up his right to appeal the new restitution order.

The Fifth Circuit disagreed.

Because an appeal waiver has to be unambiguous, if it could be interpreted two ways, it won't be enforceable.

Here, the court of appeals found that the appeal waiver could be read to apply to "any sentence imposed at the end of any sentencing process regardless of how extended and illegal" or it could mean "an appeal of a sentence imposed as long as it's done during the authorized sentencing process."

Personally, I find that second reading a little strained, but I'm glad it worked out for Mr. Wigginton.

Because the appeal waiver can be read two ways, it didn't bar his appeal.

And the men avoided a massive restitution judgment.

December 12, 2012

Drug Trafficking in the Waters of Panama Is Not A Crime In The United States

Sometimes a boat ride - a three hour cruise - can take you places you could never have anticipated.

For Yimmi Bellaizac-Hurtado, Pedro Felipe Angulo-Rodallega, Albeiro Gonzalez-Valois, and Luis Carlos Riascos-Hurtado, a ride in a wooden boat off the coast of Panama took them to the Eleventh Circuit, the Bureau of Prisons, and through the heart of the Constitution's grant of power to Congress to make laws to punish "Offenses against the Law of Nations."

Welcome to the Jungle

The four men were spotted in Panamanian waters by the United States Coast Guard in 2010. Their boat was wooden and had no lights or flag.

1383970_fishing_boat.jpgThe Coast Guard told the Panamanian National Aero-Naval Service. I'm guessing that's both their navy and air force, but the webpage Google gives me for them is down. Tech support is probably out chasing fishing boats.

Anyway, the Aero-Naval Service chased the boat. It ran to land, and the four men jumped off and ran into the jungle.

The Aero-Naval Service found 760 kilos of cocaine in the boat. This did not diminish their interest in the four men.

Give Me Your Tired, Your Poor, Your Huddled Masses

The four men were caught in the jungle. The United States and Panama agreed that they would he prosecuted in the United States.

A grand jury in Miami indicted the four for "conspiracy to possess with intent to distribute five kilograms or more of cocaine, and for actual possession with intent to distribute five kilograms or more of cocaine, on board a vessel subject to the jurisdiction of the United States."

For the statutory provisions undergirding this charge, see 46 U.S.C. §§ 70503(a), 70506 and 21 U.S.C. § 960(b)(1)(B).

Astute readers may be wondering what it means to be "on board a naval vessel operating in the jurisdiction of the United States." How bounded is the jurisdiction of the United States - if at all?

Or, more belligerently, what gives Congress the right to make laws about operating a fishing boat with 760 kilograms of cocaine off the shore of Panama?

Congress's view, apparently, is that it has this power because of the Constitution. Our Constitution contains a provision, at Article I, section 8, clause 10, which says that Congress can "define and punish . . . Offences against the Law of Nations."

These four men - this huddled mass - clearly had good counsel. They filed a motion to dismiss the case against them because Congress does not have the authority to regulate drug-laden fishing boats in Panama.

The district court was uninterested in this argument. The motion was referred to a magistrate judge who denied the motion. As the Eleventh Circuit summarized it:

The magistrate judge reasoned that the district court had jurisdiction because the defendants were operating a stateless vessel and that the Act was constitutional as applied because Congress and several courts had determined that drug trafficking was "universally condemned" by various nations with "reasonably developed" legal systems.

The district court adopted the magistrate judge's findings.

Movin' On Up

The men pled guilty, with an agreement that they can challenge whether Congress has the power to criminalize their conduct. They were sentenced to between 25 to 90 months in prison and went to the Eleventh Circuit.

In United States v. Belliaizac-Hurtado, the Eleventh Circuit reversed.

Offenses Against the Law of Nations

The Supreme Court, according to the Eleventh Circuit, has said that the Offenses Against the Law of Nations clause covers three things: "the power to define and punish piracies, the power to define and punish felonies committed on the high seas, and the power to define and punish offenses against the law of nations."

This isn't a case of piracy, and it isn't a case of a felony committed on the high seas.

The Eleventh Circuit held that the power to define and punish offenses against the law of nations is limited only to offenses which are "customary violations of international law."

Congress can't expand what's meant by the law of nations under this Clause. For example, the Supreme Court held (in 1820) that Congress can't define piracy to include murder and then have murder be punishable under a grant of power from this clause:

Nor is it any objection to this opinion, that the law declares murder to be piracy. These are things so essentially different in their nature, that not even the omnipotence of legislative power can confound or identify them. Had Congress, in this instance, declared piracy to be murder, the absurdity would have been felt and acknowledged; yet, with a view to the exercise of jurisdiction, it would have been more defensible than the reverse, for, in one case it would restrict the acknowledged scope of its legitimate powers, in the other extend it. If by calling murder piracy, it might assert a jurisdiction over that offence committed by a foreigner in a foreign vessel, what offence might not be brought within their power by the same device?

It goes on like that. And makes you grateful for Scalia's writing.

Ok - so Congress can't just make up new "law of nations" to expand its power under this Clause. The Eleventh Circuit, relying on a practically recent Supreme Court opinion, held that,

on the issue whether Congress must declare the conduct to be an offense against the law of nations to exercise its power under the Offences Clause, the Supreme Court has explained that "[w]hether the offense as defined is an offense against the law of nations depends on the thing done, not on any declaration to that effect by congress." United States v. Arjona, 120 U.S. 479, 488, 7 S. Ct. 628, 632 (1887).

The law of nations, then, is the same as "customary international law." And the Eleventh Circuit defines "customary international law" as the "general and consistent practice of states followed by them from a sense of legal obligation."

The court of appeals goes on to note that

"Private criminal activity will rarely be considered a violation of customary international law because private conduct is unlikely to be a matter of mutual legal concern"

From that it falls out relatively straightforwardly that PWID in a fishing boat in Panama isn't within the power of Congress to regulate under this statutory framework.

Preserved in Amber

This opinion reads like it's preserved in amber. Doubtless it's an artifact of being about an area of law where there's been no action since the 19th Century.

But still, the idea that categories of legal things have essences that Congress can't define away is precious. And, in the criminal realm at least, almost completely absent.

Congratulations, though, to our four Panamanian friends. I hope that if they're prosecuted in Panama for what it surely a violation of Panamanian law, that they get credit for the time they served in the land of the free.

December 10, 2012

Short Wins - Off-Label Drug Use And the First Amendment in the Second Circuit; Machine Guns and Grenades in the Eighth Circuit

It's an odd week for wins in the federal appellate courts.

The Second Circuit ruled that the First Amendment protects (some kinds of) promotional activity for off-label use of drugs. Any time the First Amendment is intersecting with criminal law it makes for good reading - expect fuller coverage later this week.

The Eighth Circuit sent a Fair Sentencing Act case back for resentencing, and there was a bizarre grenade case from the Eighth Circuit as well. Good Times.

Also, the Supreme Court is going to hear a challenge to the Defense Against Marriage Act and California's Prop 8. It's not terribly relevant to what we do on this blog, but everyone else is talking about it, and I'd hate to not be one of the cool kids.

To the Victories:

1155650_berlin_siegessule.jpg1. United States v. Caronia, Second Circuit: Appellant was convicted of conspiracy to introduce a misbranded drug into interstate commerce because he promoted an FDA-approved drug for "off-label use." Because this conviction violated appellant's First Amendment right to free speech, it was vacated.

2. United States v. Orozco, Eighth Circuit: Appellant was convicted of possessing cocaine and crack cocaine. The court imposed the ten-year mandatory minimum sentence for the crack conviction. After the acts giving rise to the convictions, but before appellant's sentencing, the Fair Sentencing Act went into effect, which amended the crack sentencing provisions. The case was remanded to the district court to address the applicability of the Act and the possibility of resentencing.

3. United States v. Mann, Eighth Circuit: Appellant was convicted of eight offenses arising out of his use of a grenade that cause severe and permanent personal injury. Because Appellant's conviction for possessing a machine gun (count 6) was a lesser-included offense of possessing an unregistered machinegun (count five), these convictions were remanded with instructions to vacate one of the convictions. Additionally, the district court erroneously imposed two sentencing enhancements: (1) an enhancement for directing the assault of a federal inmate under Guideline § 3C1.1 for obstruction of justice; and (2) a firearms enhancement for possession of grenades containing an altered serial number under Guideline § 2K2.1(b)(4). The case was remanded for resentencing on counts 1, 2, 3, and 5 or 6.

December 3, 2012

Short Wins - Remands On The Fourth Amendment, Restitution, Fines, Sales of Parts of Golden Eagles, and What You Need to Know To Help Make Meth

I strongly suspect that many of our nation's circuit court judges worked over the Thanksgiving break, because they're back with nine wins for folks accused of crimes in our nation's federal appellate courts.

It's a potpourri of cases - multiplicity in the sale of Bald Eagle Parts, an innocent spouse issue in a restitution award, the reduction of a fine in an Ernst & Young tax shelter fraud case, and a few Fourth Amendment cases.

Heck, there's even a case on a Rule 41 motion. When's the last time you saw a federal appeals court issue a published opinion on a motion for the return of property?

My great hope for this section of the blog is that it will increase the ease with which folks can monitor cases to send 28(j) letters in federal criminal appeals. This week's list of cases has a lot to offer the criminal appellate advocate. Let's get those 28(j) letters rolling!

To the victories:

1155650_berlin_siegessule.jpg1. United States v. Munguia, Ninth Circuit: Appellant was convicted of drug conspiracy and possession. The key issue at trial was whether she knew or had reason to know that the drugs she purchased were being used to manufacture methamphetamine. Given this focus, she requested a jury instruction explaining that "reasonable cause to believe" must be evaluated from her perspective, based on her knowledge and sophistication. Because the district court erred in refusing her request and because the error was not harmless, appellant's conviction was reversed.

2. United States v. Berry, Fifth Circuit: Appellant pled guilty to possessing more than five grams of crack and was sentenced to five years in prison followed by three years of supervised release. Although the acts giving rise to this conviction occurred before the effective date of the Fair Sentencing Act, his sentencing occurred after. For the purposes of appellant's case, the Act was significant because it modified the terms of imprisonment and supervised release applicable to simple crack possession. Because appellant's prison and supervised release terms exceeded the maximum terms under the Act, his sentence was vacated and the case remanded for resentencing.

3. United States v. Wahchumwah, Ninth Circuit: Appellant was convicted of offenses relating to the sale of Golden Eagle parts. Counts 2 and 3 were related to the sale of eagle tails and counts 4 and 5 were related to the sale of eagle plumes. Because counts 2 and 3 and 4 and 5, respectively, prohibited the same offenses, and because Congress did not intend to allow multiple punishments for a single tail or plume sale, the case was remanded for the district court to vacate count 2 or 3 and 4 or 5.

4. United States v. Cervantes, Ninth Circuit: Police officers performed a warrantless search of appellant's car that led to the discovery of cocaine. The search was not justified under (1) the automobile exception, which allows officers to search a car and the containers within it where they have probable cause to believe contraband or evidence is contained, or (2) the community caretaking exception, which permits officers to impound cars that jeopardize public safety and the efficient movement of traffic. Because the warrantless search was not justified by an exception to the warrant requirement, the district court erred in denying appellant's motion to suppress the cocaine. Accordingly, the Ninth Circuit reversed the lower court's denial of the motion and remanded the case.

5. United States v. I.E.V., Ninth Circuit: Appellant was a passenger in his brother's car when they entered a United States Border Patrol checkpoint. At the checkpoint, a police dog alerted that the car contained drugs or concealed people. After a search of the car revealed no contraband, an officer frisked appellant and, without his permission, lifted appellant's shirt and found a brick of marijuana. Because the officer was not justified in frisking appellant, and because the frisk exceeded its constitutional scope, the district court erred in denying appellant's motion to suppress the marijuana. Consequently, the court's decision was reversed and the case remanded with instructions to grant the motion to suppress.

6. United States v. Coplan, et. al, Second Circuit: Five appellants were convicted of fraud-related crimes arising out of their development and defense of tax shelters that were sold or implemented by Ernst & Young. The convictions of appellants Shapiro and Nissenbaum were reversed on counts 1-3 because of the insufficiency of the evidence of appellants' intent. Nissenbaum's conviction on count 4 - obstruction of the IRS - was also reversed because the record reflected that a reasonable jury would have had a reasonable doubt as to whether he corruptly obstructed or impeded the IRS. Finally, the portion of appellant Bolton's sentence imposing a $3 million fine was vacated because it exceeded the statutory maximum. On remand, the fine was to be reduced to the $250,000 statutory maximum.

7. United States v. Duran, Eleventh Circuit: After appellant was convicted of conspiring to defraud Medicare, the government secured a substantial restitution judgment. The government obtained a writ of execution against an apartment that, according to property records, was owned jointly by appellant and his former wife. The former wife argued that because she was the sole owner of the apartment before her former husband's prosecution, the government could not look to the apartment for restitution. The district court refused to adjudicate the wife's motion. This was error. Consequently, the order denying the former wife's motion was vacated and the case remanded.

8. United States v. Delgado, Seventh Circuit: Appellant's convictions for being a felon in possession of a firearm and possession of an unregistered firearm were the result of police officers' warrantless search of his apartment. Because the search was not a valid protective sweep and was not justified by the exigent circumstances exception to the warrant requirement, the district court erred in denying appellant's motion to suppress the firearms. For these reasons, appellant's convictions were vacated and the case remanded to the district court with instructions to grant the suppression motion.

9. United States v. Bailey, Eighth Circuit: As a result of appellant's arrest on prostitution-related charges, his property was seized and eventually transferred to a U.S. Attorney's Office. After his conviction was upheld on appeal, he filed a motion for the return of his property under Federal Rule of Criminal Procedure 41. At a hearing, the district court determined that the government no longer possessed the property and denied appellant's motion to convert the action into a civil claim for damages. Under these circumstances, the court was required to give appellant an opportunity to assert such a civil claim. Accordingly, the court's ruling was reversed and the case remanded.

November 30, 2012

The Confrontation Clause, Business Records, and Child Pornography

It would be hard to overstate the impact of the Supreme Court's recent cases on the Confrontation Clause.

Starting with Crawford v Washington, the Court has given much more meat to the requirement that if testimony is going to be used against someone in a criminal case, the person giving the testimony has to be in the courtroom and actually testifying.

Some of these changes are slow moving. Even though Crawford was decided in 2004 - whether business records provide an exception to the confrontation requirement has been a little unclear. Happily, the First Circuit clarified that business records are not automatically excluded from the Confrontation Clause.

If you're a criminal defense lawyer, that last paragraph made sense. If you're not, it was probably soup. A little background is in order (feel free to skip to the next heading if you already know this).

A Little Background

The Confrontation Clause deals with out-of-court statements. Of course, as any good viewer of Law and Order can tell you, these statements are also hearsay. The interplay between hearsay and the Confrontation Clause and the hearsay rules used to be quite strong. It is now significantly weaker.

Back in the day, the rule was that if the government wanted to introduce someone's out of court statement against a person accused of a crime, the statement had to be generally reliable. Being "generally reliable" meant, generally, that the statement fell within a hearsay exception.

The Confrontation Clause analysis collapsed significantly into the hearsay analysis.

Crawford changed that. In Crawford, the Supreme Court held that out of court statements which are "testimonial" have to be subject to cross-examination - meaning the person who made them has to show up in court and be asked questions by the defense lawyer. It won't do under the Confrontation Clause to simply have someone else repeat the out of court statement, or introduce into evidence some place where the person wrote it down.

Fair enough, but what counts as a "testimonial" statement?

Generally speaking, the Court explained that a testimonial statement is one that was prepared in preparation for a court case. I say "generally speaking" because the Supreme Court has yet to provide us with a comprehensive definition of what counts as testimonial.

288786_personal_files.jpgCan Business Records Be Testimonial?

In Crawford, the Court suggested that business records don't seem to be testimonial. Normally, the phone company doesn't create a phone bill so that it can be used in a later prosecution - it does it so I know how many minutes I've used and so they'll get paid.

Prosecutors, being a crafty sort, then tried to argue that all kinds of law enforcement records were just "business records" - so the Confrontation Clause didn't apply.

In Melendez-Diaz, for example, the government tried to argue that lab reports from a drug testing lab were just business records.

The Court wasn't sympathetic to that view. While it may be that the D.E.A.'s lab's "business" is to generate drug test reports, it's also true that these reports are made pretty much for the exclusive purpose of putting people in prison later.

So, again, if what you focus on is whether these records were created with a later prosecution in mind, you'll see that sometimes business records are testimonial (at least has the Court has gestured at a definition of "testimonial").

Child Pornography in Maine

Which brings us to United States v. Cameron.

Yahoo! was tipped off to the presence of some child pornography somewhere in the tendrils of its internet domain.

Yahoo!, like any internet company, is required to make a report to the National Center for Missing and Exploited Children (we'll call it "NCMEC" from here on out). when it hears that there's child porn in its internet world.

Yahoo!, as is its practice, then compiled a report about what the child porn was, where it was, and the IP address of where it was found. This report was sent to the NCMEC.

NCMEC forwarded that report along to law enforcement.

Law enforcement tracked down the IP address, and found that it went to Mr. Cameron's house.

A search warrant was obtained, and child pornography was found at Mr. Cameron's house.

He was charged with a number of child porn offenses and went to a bench trial. He lost and was sentenced to 192 months in prison.

The Business Records At Trial

At trial, two kinds of business records were introduced against Mr. Cameron.

The first kind were logs of activities on the Yahoo! (and also a Google) account. These the First Circuit had no trouble finding were not a Confrontation Clause problem. They were kept because that's what internet companies do in order to keep their internet companies running. Once the right foundation that they were business records was laid, they were properly admissible, the court found.

The second, though, were not. The reports to NCMEC, the First Circuit found, were "testimonial." So even though they were also business records, the information in them had to come in through a live witness who collected the child pornography information in the first place.

As the First Circuit said of these Child Pornography (or "CP") Reports:

Thus, although the CP Reports may have been created in the ordinary course of Yahoo!'s business, they were also testimonial; the receipts of the Reports, therefore, should not have been admitted without giving Cameron the opportunity to cross-examine the Yahoo! employees who prepared the CP Reports.

The appellate court's analysis is nice.

We start by objectively viewing the evidence to determine the "primary purpose" of the Reports. Firstly, we note that the CP Reports refer to a "Suspect Screen Name," a "Suspect Email Address," and a "Suspect IP Address." A "suspect" is "one who is suspected; esp. one suspected of a crime or of being infected." Webster's Third New International Dictionary 2303 (2002). There was no testimony from Lee, nor any other evidence, that Yahoo! treated its customers as "suspects" in the ordinary course of its business.

Also, the reports are automatically forwarded to NCMEC, which exists, in part, to forward such reports to law enforcement.

The First Circuit concluded that

Given that Yahoo! created CP Reports referring to "Suspect[s]" and sent them to an organization that is given a government grant to forward any such reports to law enforcement, itis clear that under the "objective test" required by Williams, 132 S. Ct. at 2243, the primary purpose of the CP Reports was to "establish[] or prov[e] past events potentially relevant to later criminal prosecution."

It's a lovely opinion. If you have a child pornography case or a confrontation clause case, please read it, there's a lot I haven't covered here.

Mr. Cameron's convictions for a number of counts were vacated and the case was remanded for either a new trial or resentencing.

November 27, 2012

Short Wins - A Few Things Happened Before Thanksgiving

After yesterday's heady news from the ABA Law Journal (did I mention you can vote for this blog here), I completely neglected to, you know, actually blog. Apologies.

Here are brief treatments of the wins from the week with Thanksgiving in it. Like Thanksgiving leftovers, there's not a lot here to be tremendously excited about, but, if you're really into yams and there are yams in the fridge, you're happy.

To carry the metaphor forward, let's hope you're really into sentencing remands.

The three cases are all on sentencing issues. The Ninth Circuit reversed on a sentencing issue in an illegal reentry case based on a change in the probation revocation guidelines, the Fourth Circuit reversed on a Fair Sentencing Act case, and the Fifth Circuit reversed a restitution award in Ponzi scheme case.

There's a backlog of interesting cases (no offense to these guys) from prior weeks. Later this week I'll have a few posts up about those.

To the Victories:

1155650_berlin_siegessule.jpg1. United States v. Catalan, Ninth Circuit: After Appellant was convicted of drug trafficking and served his six-month jail term, he was deported. When he later pled guilty to illegal reentry, his probation on the drug charge was revoked and he was sentenced to 360 days in jail. At his illegal reentry sentencing, the court imposed a 16-level enhancement under Sentencing Guideline 2L1.2(b)(1) based on appellant's six-month sentence and his 360-day sentence. Guideline 2L1.2(b)(1) provides for a 16-level enhancement if the defendant was previously deported after a drug trafficking conviction for which the "sentence imposed" was greater than 13 months. After appellant's sentencing, the Sentencing Commission clarified that a probation revocation sentence served after deportation should not be used to calculate the "sentence imposed" under the Guideline. Because the court used the probation revocation sentence to calculate the "sentence imposed," appellant's sentence was vacated and the case remanded for resentencing.

2. United States v. Edmonds, Fourth Circuit: Appellant was convicted of conspiracy to distribute more than 50 grams of crack cocaine, among other drug offenses. He was sentenced to life imprisonment on the conspiracy charge on the effective date of the Fair Sentencing Act, which increased the amount of crack cocaine needed to trigger the life imprisonment mandatory minimum from 50 grams to 280 grams. Because appellant was entitled to the benefits of the Act and the Act was not addressed below, appellant's sentence was vacated and the case remanded for resentencing with directions for the court to consider the Act.

3. United States v. Murray et al, Fifth Circuit: Appellants were convicted and sentenced for crimes arising out of a Ponzi scheme. None of appellants' sentences required restitution and none deferred determination of the amount of restitution to a later date. Because the district court found that restitution was inapplicable, the Mandatory Victims Restitution Act did not authorize the court to reopen appellants' final sentencing judgments to amend the sentences to include a restitution requirement. Because the right to appeal the timing of the court's order was not waived, the restitution orders were reversed.

November 26, 2012

The ABA Law Journal Thinks This Is One of the 100 Best Law-Related Blogs In The Land

I'm grateful that the ABA Law Journal has, again, decided this is one of the 100 best law-related blogs in the country.

That's right, your very own Federal Criminal Appeals Blog is on the 2012 ABA 100 list.

Here's what the ABA Law Journal said about the blog:

Described by fans as informative, useful and insightful with a dose of nonsnarky humor, D.C. lawyer Matt Kaiser exclusively covers cases involving defendants successful on appeal. Reader Dan Kaplan of the Federal Public Defender's Office in Phoenix says, "I get regular summaries of criminal appellate decisions in my circuit (the 9th), but this blog supplements that with interesting decisions from other circuits. The summaries are thorough but short and very readable, and best of all, they include only defense wins. I have on a few occasions cited in briefs cases I learned about from this blog."


vote_rec_orange.jpg

This means three things:

(1) I am worried the editors at the ABA Law Journal are still drinking.

(2) I owe Dan Kaplan at least a drink (redeemable in Washington, D.C.).

(3) You can vote for this Blog to win the "Criminal Justice" category. Voting takes place here. (or you can click the big button above).

Thank you, very much, to everyone who lobbied the ABA Journal on my behalf. Thanks also to the friendly folks at the ABA Journal for reading my stuff and liking it.

November 19, 2012

Short Wins - Thanksgiving Week Edition

It's a slow week here in the federal circuit courts, at least for people accused of a crime who won their cases - only three cases were reversed in the federal court of appeals in published opinions last week.

Happily, what last week's opinions lost in quantity they made up in quality.

Judge Posner weighed in on restitution in child porn cases. Always a fun writer to read.

In other child pornography news, the First Circuit reversed and remanded in a Confrontation Clause case. If you have a Confrontation Clause case on appeal, you should read United States v. Cameron.

Finally, the Tenth Circuit reversed a sentence because the defendant was denied a right to allocute. We've seen this issue before, and, frankly, I find it bizarre that district court's don't get this right every time.

If you're traveling this week, be safe. And remember, take the turkey out of the wrapper before you cook it.

To the victories!

1155650_berlin_siegessule.jpg1. United States v. Laraneta, Seventh Circuit (Posner, J.): In child pornography case, the restitution award to two women, pornographic images of whom were found in appellant's possession, required remand for the district court to determine (1) how much to subtract from one of the victim's losses to reflect payment of restitution that she has received in other cases, and (2) whether appellant uploaded any of the victims' images. Additionally, the district court erred in ruling that appellant's liability for restitution was joint and several, as appellant was the sole defendant in this case and could not seek contribution from others.

2. United States v. Cameron, First Circuit: Appellant was convicted of 13 crimes involving child pornography. Because the admission of certain reports violated appellant's Confrontation Clause rights, and because these errors were not harmless with respect to six of the offenses, appellant's convictions for the six offenses were reversed and his sentences vacated.

3.United States v. Castillo, Tenth Circuit: In felon in possession of a firearm case, the district court violated appellant's right of allocution when it failed to allow him a meaningful opportunity to speak on his own behalf before the imposition of his 28-month sentence. Consequently, the case was remanded to the district court with directions to vacate appellant's sentence and for resentencing.

November 16, 2012

The Second Circuit Limits Bank Fraud Prosecutions Where A Check Is Validly Issued (and other facts don't get in the way)

If you're ever involved in a bank fraud case, you should probably read the Second Circuit's opinion reversing Mr. Felix Nkansah's bank fraud conviction. If the government wants to convict someone for bank fraud, the Second Circuit says they've got to show that the person was trying to defraud a bank (as opposed to trying to defraud someone or something else).

The Company You Keep

Felix Nkansah fell in with some bad company.

He worked with a number of other people to steal identity information for people, like names, dates of birth, and social security numbers. Specifically, he stole this information from hospitals, childcare databases, and foster care.

The group then filed false tax returns with the names and social security numbers they had stolen. Cleverly, they didn't file tax returns that showed taxes were owed. Instead, they filed returns that triggered tax refunds.

The fraudulent returns had refunds that totaled more than two million dollars. The group actually received a little more than half a million dollars.

When the refund checks came to a group member, the member would forge a signature on the check and deposit it in a bank account that the group controlled.

Mr. Nkansah was charged with conspiracy to file false claims with the IRS, filing false claims with the IRS, bank fraud, aggravated identity theft in connection with the bank fraud, and identity theft.

He was convicted of all of them at trial.

1390009_dollar.jpgThe Second Circuit

On appeal, though, the Second Circuit reversed his conviction for bank fraud. This was tax fraud, sure. But bank fraud? Nope.

Let's start at the start - with 18 U.S.C. § 1344, the bank fraud statute:

Whoever knowingly executes, or attempts to execute, a scheme or artifice-- (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; [is guilty of bank fraud]

Mr. Nkansah argued on appeal that there was a lot of evidence that he intended to defraud the federal Treasury, but there wasn't any evidence that he intended to defraud a bank.

While defrauding the Treasury is really bad, he was convicted of bank fraud. And there wasn't evidence that he committed that crime.

In fact, Mr. Nkansah argued that there was no reason to think that the banks lost money through this whole transaction. As the Second Circuit summarized it:

In essence, he argues that the banks were no more victims of his deceptions than a bank in which someone opens an account under a false identity to conceal funds from a spouse or business partner.

The Second Circuit agreed with the law undergirding the prosecution:

Appellant is correct that the bank fraud statute is not an open-ended, catch-all statute encompassing every fraud involving a transaction with a financial institution. Rather, it is a specific intent crime requiring proof of an intent to victimize a bank by fraud. See United States v. Rubin, 37 F.3d 49, 54 (2d Cir. 1994). "[A] federally insured or chartered bank must be the actual or intended victim of the scheme."

Summarizing all of this,

The government had to prove beyond a reasonable doubt that appellant intended to expose the banks to losses.

The Evidence Of What Was In Mr. Nkansah's Mind

The government had two kinds of evidence to try to show that Mr. Nkansah intended to defraud the banks. First, they relied on statements made to other folks in the group.

Mr. Nkansah had talked to others about which banks would be least likely to discover the scheme. The Second Circuit rejected these arguments -

While these concerns surely support an inference of an intent to avoid detection, on this record they have no probative value as to an intent to injure the banks.

Second, the government tried to show that because the bank was actually going to suffer a loss - or the bank said it was going to suffer a loss - that was enough to show that Mr. Nkansah thought the bank would suffer a loss.

The Second Circuit has allowed such an inference where a person forged a check and went to the bank to cash it (though, interestingly, the court of appeals said such an inference isn't required). But this isn't such a case - here Mr. Nkansah had a legitimate check (which was issued under false pretenses). That exposes the issuer of the check to a loss, but not, on these facts, the bank.

Because there was no evidence to support the conclusion that Mr. Nkansah intended to defraud the banks - as opposed to the Treasury - his conviction for bank fraud was reversed.

As was his conviction for aggravated identity theft based on the bank fraud.

November 15, 2012

How Not To Do Legal Research

I like to work with other lawyers when the case warrants it. In fact, it's rare that I don't have a few cases in the office where I have co-counsel.

Normally, this is good because I get to see how others are handling the same issues I am. I get to learn what other people are doing and I have an opportunity to improve my game.

There are exceptions, though. Three times this calendar year, I've been working with a lawyer at another firm and I've stumbled upon an inexcusably lazy way to do legal research. More on that in a second.

Two trends in lawyer culture are mixing to create a storm of bad lawyering.

68915_law_education_series_1.jpgThe Rise Of Law-Related Stuff On The Internet

First, lawyers and law firms want to do well in search results. To do well in search results requires lawyers to generate content (formerly known as "writing"). Lawyers want to reach out to potential clients with news and information that's relevant to these potential clients.

As a result, lawyers are pumping out articles and blog posts and other marketing materials about how the law works.

On balance, I think this is good. Citizens ought to know how the law works. If a lawyer can't explain a concept in a blog post, she likely can't explain it in a client meeting either.

Yet now the internet is drowning in lawyer marketing material (also cat videos). Some of this material is really good. Some of it is questionable.

Little of it has the same rigor or analytical depth of a brief. Blog posts are rarely cite-checked. Marketing white-papers are not written to go to judges.

More importantly, just about every legal rule has some exception, or limit to its application. A marketing article isn't written to cover every nuance. It's written to get a potential to say "Hey, the person who wrote this knows sort of what she's talking about. I should call her."

That's a very narrow purpose.

The Rise of Google

The second trend creating a mass of bad lawyering is the rise of Google.

Everyone uses Google. I no longer know the local pizza delivery place's phone number, because I just Google it each time I need pizza. Google has become the place people go to for knowledge.

As a result, even good lawyers now routinely go to Google for the answer to a legal problem instead of Westlaw or Lexis. Heck, sometimes I'd rather use Google which is at my fingertips, than turn and reach two feet for a book.

The problem is with what you find when you Google.

If you need a cite, Googling "18 U.S.C. 2319" to get to the criminal copyright statute makes sense. Everyone understands that a statute is an accurate statement of the law. Sure, there may be some interpretation you want to look at from the case law, but if you just want the plain language of the statute, Google will get you there.

It's different, though, if the question is more nuanced. If you need to know how criminal copyright prosecutions work, Googling "criminal copyright" may, or may not, get you to something reliable (though it does get you to this kind of cool Maggie Gyllenhaal video called "Copyright Criminals").

Google is only as good as what it gets you. And these days, because of the rise of law firm marketing on the internet, Google is more likely to get you to some law firm's quick discussion of a topic as it is to get you to anything rigorous or reliable.

Law firm marketing material shows you the contours of what the law looks like, but it's nothing you'd want to lean on too heavily.

Google Is Not The End Of Legal Research

Which brings me back to where I started. Three times this year I've been working with other lawyers. We've been trying to figure out the answer to a subtle legal question.

Then, the other lawyer tells me that he or she has figured out the answer and sends me a link to a two-page marketing article from some law firm in, say, St. Louis.

This is not how legal research ought to be done.

Law firm marketing material is not meant to bear the weight of a case or a statute. I'm waiting to see a successful malpractice suit because a lawyer relied on some other lawyer's blog or webpage when giving advice to a client.

If you'd like to use Google as a way of starting real research into an issue - Googling to find a law firm marketing article about a topic, then look at the cases cited in the article - fine. But a lawyer is not done simply because Google sends back an answer from some yokel with a Wordpress blog.

For lawyers, who are chronically busy, sending in a Google search is a tempting prospect. But it's also insane. If you wouldn't cite it to a court, it isn't reliable as a part of a research project.

So, if you're reading my blog, The Federal Criminal Appeals Blog, and you think there's a statement of the law, please don't think that you've looked it up.

November 14, 2012

The DC Circuit Vacates A Restitution Order In A Criminal Copyright Case - Or, Making Money Off Pirated Adobe Software Doesn't Necessarily Hurt Adobe As Much As It Helps The Person Making The Money

Gregory Fair was an internet entrepreneur. Of sorts.

Mr. Fair's Criminal Copyright Enterprise

He sold pirated copies of outdated Adobe software on Ebay. His customers could buy this outdated software, then, with an update code Mr. Fair was also able to provide, they could pay Adobe to upgrade their software to the most current version.

1335026_friendly_skull.jpgMr. Fair's customers would then pay, for example, $325 and a little bit of legwork for Adobe software that would cost more than $700 on the open market.

A deal like that sells itself, and over the course of six years his total sales came in around $1.4 million.

All good things must come to an end.

The Postal Service, after hearing complaints from Adobe, launched a sting. Mr. Fair was charged with a criminal copyright offense under 18 U.S.C. § 2319. He pled guilty.

Restitution Arguments at the Sentencing Hearing

Though the plea agreement contained a lot of concessions, it did not contain an agreement about any restitution amount.

Before sentencing, the government provided a spreadsheet of the amount of revenue that Mr. Fair made selling software as a part of his software enterprise. His total sales were $767,465.99. The government proposed that this would be an adequate measure of Adobe's loss for restitution purposes.

Mr. Fair disagreed. He argued that

(1) restitution under the MVRA must take the form of "actual loss" to the victim; (2) "actual loss cannot be equated to 'intended loss' or to gain by the defendant"; and (3) the government had offered "no proof . . . of any actual loss by [the victim,] Adobe Systems."

Moreover, in a move that may be genius or chutzpah, he argued that "his piracy might in fact have benefitted Adobe Systems by increasing consumers' awareness and use of its products."

A temperate man, he did not request payment from Adobe for his work as a part of the sentencing proceeding.

The district court agreed with the government. The district court reasoned that

"[i]t's undisputed that [Fair]'s revenue from the sales of pirated Adobe products was at least $767,000," and that "if anyone held the right to collect revenue from the sale of these products, it was Adobe [Systems]," and so it followed that "since the sales did occur and revenue was generated, and the right to the revenue was held by Adobe [Systems] and not by [Fair], that Adobe [Systems] has the right to be restored to the revenue that it lost [in] its right to collect on actual sales that were made."

Mr. Fair appealed.

Mr. Fair Goes To The D.C. Circuit

The D.C. Circuit, in United States v. Fair, reversed the restitution award.

About the district court's reasoning, the D.C. Circuit started by saying that just about no federal appellate court thinks the district court's approach is supported by the law.

The circuit courts of appeals are in general agreement that the defendant's gain is not an appropriate measure of the victim's actual loss in M[andatory Victim Restitution Act] calculations. See Zangari, 677 F.3d at 92-93 (2d Cir.); Arledge, 553 F.3d at 899 (5th Cir.); United States v. Gallant, 537 F.3d 1202, 1247 (10th Cir. 2008); Chalupnik, 514 F.3d at 754 (8th Cir.); United States v. Galloway, 509 F.3d 1246, 1253 (10th Cir. 2007); cf. United States v. Kuo, 620 F.3d 1158, 1164-65 (9th Cir. 2010); United States v. Harvey, 532 F.3d 326, 341 (4th Cir. 2008); United States v. Badaracco, 954 F.2d 928, 942-43 (3d Cir. 1992).

So the amount that Mr. Fair made on the sales of copyright-violating software isn't the right measure of what Adobe lost. Fair enough. What is?

Sometimes, in a criminal copyright case, the copyright violator puts things into the market that completely block the legitimate seller from selling at all.

For example, if I sell bootlegged copies of The Green Bag ("an entertaining journal of law") for a mere $35 a subscription per year, it would prevent The Green Bag from being sold for many consumers.

In a case like that, the D.C. Circuit said, the restitution owed to The Green Bag would be not the cost of its lost sales - so not $40 per subscription I sold - but rather The Green Bag's profits per subscription. Or, as the D.C. Circuit put it,

the actual loss to the displaced (authentic) seller is the profit lost from the displaced sales -- not the retail value of the goods that would have been sold.

Here, though, the government put on no such evidence of Adobe's lost profits

the government offered no evidence of either the number of sales that Adobe Systems likely lost as a result of Fair's scheme or the profit that Adobe Systems would have made on any such diverted sales. The record contains only a spreadsheet tallying Fair's eBay sales and unsubstantiated, generalized assertions of government counsel regarding Adobe Systems' lost sales. . . . There thus was no evidentiary basis on which the district court could find that had Fair's customers not purchased pirated Adobe software from him at a greatly reduced price, all or any portion of them would have purchased full-priced versions from Adobe Systems.

Moreover, to the extent that the government thought that it could simply use the guidelines infringement loss number as a restitution amount, the court of appeals slapped it down

To the extent the government defends the use of gross proceeds as "consistent with the calculation of loss under the Sentencing Guidelines," Appellee's Br. at 15, it ignores the different approaches in the Guidelines and the M[andatory Victims Restitution Act]. Essentially, the government blurs the line between the "infringement amount" calculated under Sentencing Guidelines § 2B5.3 in criminal copyright cases, which is derived by multiplying the retail value of the infringed or infringing items by the quantity of infringing items, and the restitution amount calculated under the MVRA, which must reflect the actual, provable loss suffered by the victim.

But that's not all, gentle readers.

No Second Bite on Remand

The government, perhaps seeing which way the wind was blowing, asked the D.C. Circuit to limit the damage. If we lose, the government asked, please at least remand for a new hearing on restitution.

The government wanted another bite at the apple.

The D.C. Circuit was having none of it.

No special circumstances are present that would warrant reopening the record on restitution in Fair's case. The government's burden to prove actual loss under the MVRA was well-established before sentencing. See also Tr. Oct. 22, 2009 at 23 (government counsel stating, "[w]e welcome the burden to prove restitution."). The government was allowed to present evidence . . . . Indeed, whether the government had offered evidence demonstrating actual loss was the central issue addressed during the parties' restitution discussion at the sentencing hearing.

Because the government already had a full and fair opportunity to prove that restitution was appropriate, and it failed to do so, the D.C. Circuit vacated the restitution award and denied the government another chance to meet its burden.

Fair enough.