United States v. Hudson

• Court: Court of Appeals for the Tenth Circuit
• Decided: April 17, 2007
• Docket: 06-6199
• Status: Published

Opinion

F I L E D United States Court of Appeals Tenth Circuit PUBLISH April 17, 2007 UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT

UNITED STATES OF AM ERICA, Plaintiff–Appellee, No. 06-6199 v. M ARVIN DANIEL HUDSON, Defendant–Appellant.

A PPE AL FR OM T HE UNITED STATES DISTRICT COURT FO R TH E W ESTERN DISTRICT O F O K LAH O M A (D.C. No. CR-06-00003-001-M )

Submitted on the briefs: *

W illiam P. Earley, Assistant Federal Public Defender, Oklahoma City, Oklahoma for Defendant–Appellant.

John C. Richter, United States Attorney, and James F. Robinson and Sue Tuck Richmond, Assistant United States Attorneys, Oklahoma City, Oklahoma, for Plaintiff–Appellee.

Before KELLY, M cKA Y, and LUCERO, Circuit Judges.

M cK A Y, Circuit Judge.

* After examining the briefs and the appellate record, this panel has determined unanimously to honor the parties’ request for a decision on the briefs without argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. Defendant pled guilty to conspiracy to infringe a copyright in violation of

17 U.S.C. § 506(a)(1) and 18 U.S.C. §§ 371 and 2319(b)(1). The district court

sentenced him to a one-year term of imprisonment and ordered him to pay

restitution to M icrosoft in the amount of $321,663. In his plea agreement with

the government, Defendant waived his right to challenge his conviction or

sentence, but he now seeks to appeal the restitution order on the ground that

M icrosoft suffered no actual loss from the offense.

B ACKGROUND

Defendant and his co-conspirators advertised via facsimile a “M icrosoft

Closeout Sale” offering steep discounts on various M icrosoft products. Builder’s

FirstSource (“BFS”), a M aryland company, responded to the advertisement and

placed an order for 537 copies of M icrosoft Office 2000 Professional Edition at a

total purchase price of $85,383. Upon receiving the software, however, the

company’s operations manager became suspicious of the software’s authenticity

and contacted M icrosoft, which confirmed that the software was counterfeit. BFS

refused to pay for the software and turned all copies over to the government.

Defendant w as then charged with the instant offense.

The presentence report (“PSR”) prepared for the district court following

Defendant’s plea of guilty stated that the estimated retail price for the counterfeit

software was $599.99 per copy and that Defendant was therefore “responsible for

-2- a loss of $322,194.63 for guideline calculation purposes and restitution.” (PSR at

10.) The PSR further stated that M icrosoft had submitted a declaration of loss

statement claiming that it was “owed restitution in the amount of $321,663.00.”

(Id.) The PSR provided no facts supporting this figure beyond the earlier

estimated retail price for the software.

In a memorandum filed eight days before the sentencing hearing, Defendant

argued that there was “a complete lack of information identifying the pecuniary

harm suffered by M icrosoft” and, therefore, that there was no basis for the district

court to order restitution. (Doc. 19 at 13.) At the sentencing hearing, neither

party mentioned this objection until after the district court had rendered its

judgment. Defendant’s counsel then reminded the court of the objection and

asked whether he could assume that it had been overruled. The court responded,

“Y es, the Court missed that.” (Sent. Tr. at 37.) W ithout explanation, the court

then overruled the objection. The court made no factual findings regarding the

amount of actual loss suffered by M icrosoft.

D ISCUSSION

As an initial matter, we must consider whether Defendant waived his right

to appeal this issue. “[W ]e generally enforce plea agreements and their

concomitant waivers of appellate rights.” United States v. Hahn, 359 F.3d 1315,

1318 (10th Cir. 2004) (en banc) (per curiam). However, because “‘a defendant

who waives his right to appeal does not subject himself to being sentenced

-3- entirely at the whim of the district court,’” not every issue can be waived by

agreement. United States v. Black, 201 F.3d 1296, 1301 (10th Cir. 2000) (quoting

United States v. M arin, 961 F.2d 493, 496 (4th Cir. 1992)). For instance, “a

waiver may not be used to preclude appellate review of a sentence that exceeds

the statutory maximum.” Id.

In United States v. Broughton-Jones, 71 F.3d 1143 (4th Cir. 1995), the

Fourth Circuit considered whether challenges to the legality of a restitution order

can be waived by agreement. Citing to M arin, the court concluded that

“[b]ecause a restitution order imposed when it is not authorized by the [applicable

restitution statute] is no less ‘illegal’ than a sentence of imprisonment that

exceeds the statutory maximum, appeals challenging the legality of restitution

order are similarly outside the scope of a defendant’s otherwise valid appeal

waiver.” Id. at 1147. Therefore, the court held that the defendant’s valid waiver

of her right to appeal did not bar her from contesting the district court’s

restitution order on the ground that it exceeded the court’s statutory authority

under 18 U.S.C. § 3663(a)(1). In a recent decision, the Fourth Circuit reiterated

the Broughton-Jones rationale:

Although we enforce appeal waivers that are knowing and voluntary, even valid appeal waivers [do] not bar appellate review of every sentence. . . . Just as a defendant could not be said to have waived his right to appellate review of a sentence imposed in excess of the maximum penalty provided by statute or based on a constitutionally impermissible factor such as race, a defendant could not be said to have waived his right to appellate review of a restitution order imposed when it is not authorized by the [applicable

-4- restitution statute]. This is because federal courts do not have the inherent authority to order restitution, but must rely on a statutory source.

United States v. Cohen, 459 F.3d 490, 497-98 (4th Cir. 2006) (alterations in

original) (citations and quotations omitted). The Ninth Circuit has adopted the

Broughton-Jones rule, holding that even a voluntary and knowing waiver of the

general right to appeal does not affect a defendant’s ability to appeal a district

court’s violation of the restitution statute. United States v. Phillips, 174 F.3d

1074, 1076 (9th Cir. 1999). But see United States v. Schulte, 436 F.3d 849, 851

(8th Cir. 2006) (reaching contrary conclusion).

W e find the Broughton-Jones reasoning persuasive. Following the lead of

the Fourth and Ninth Circuits, we conclude that regardless of whether

Defendant’s waiver of appellate rights would otherwise be enforceable, he cannot

be deemed to have waived his right to appeal the legality of the court’s restitution

order. This conclusion is supported by the recent panel decision in United States

v. Gordon, --- F.3d ---, 2007 W L 915074 (10th Cir. M ar. 28, 2007), published

while this opinion was under consideration. See id. at *3-4 (questioning whether

defendant can ever waive right to appeal unlawful restitution order; suggesting

that plea agreement contains implied term providing that judge will order

restitution in legal manner). W e therefore turn to the merits of D efendant’s

appeal, reviewing the legality of the restitution order de novo. United States v.

Nichols, 169 F.3d 1255, 1278 (10th Cir. 1999).

-5- Defendant argues that the district court erred in imposing the restitution

order because M icrosoft suffered no actual losses from his conduct. “A

restitution order must be based on actual loss,” which the government bears the

burden of proving. United States v. Quarrell, 310 F.3d 664, 678, 680 (10th Cir.

2002). The purpose of restitution “is not to punish defendants or to provide a

windfall for crime victims but rather to ensure that victims, to the greatest extent

possible, are made whole for their losses.” United States v. Arutunoff, 1 F.3d

1112, 1121 (10th Cir. 1993). Consequently, a district court that “order[s]

restitution in an amount greater than the total loss caused by” the offense thereby

“exceed[s] its statutory jurisdiction and impose[s] an illegal sentence.” Id.

The government contends that M icrosoft suffered the actual loss of “the

sale that M icrosoft would have made to Builder’s FirstSource had Defendant not

sold Builder’s FirstSource counterfeit M icrosoft products.” (Appellee’s Br. at

19.) W e disagree. The government provides no support for its contention that

Defendant’s actions thwarted this theoretical future sale. 1 Cf. United States v.

Young, 272 F.3d 1052, 1056 (8th Cir. 2001) (holding that district court clearly

erred in larceny case by ordering restitution for lost profits based only on victim’s

undocumented estimate of lost retail sales; concluding that because government

1 Even if the government’s argument were correct, the restitution order would still exceed actual loss. Restitution must be based on net lost profits, not on total retail price. See United States v. Beydoun, 469 F.3d 102, 108 (5th Cir. 2006).

-6- failed to prove lost profits below, restitution must be limited to insurance losses).

As an initial matter, we are very skeptical of the implicit suggestion that BFS’s

agreement to purchase 537 copies of the software for a total price of less than

$86,000 proves that BFS w ould have agreed to purchase the same number of

copies from M icrosoft for more than $321,000. Furthermore, given the fact that

BFS quickly turned the counterfeit software over to the government, we are

unable to see how Defendant prevented M icrosoft from selling its software to

BFS. Nothing in the record suggests that M icrosoft’s potential to sell software to

BFS w as changed by Defendant’s actions— if anything, M icrosoft was just made

aware that BFS w as a potential purchaser of its products. W hile we can conceive

of instances where the distribution of a counterfeit good to a consumer for even a

limited period of time could deprive the copyright owner of a potential sale, this

case involves professional office software, all copies of which were turned over to

the government within fifteen days of receipt and without having been used.

There is no reason to believe that the purchaser’s demand for this software would

have changed within those fifteen days, and thus there is no reason to believe that

any sales were diverted from M icrosoft by Defendant’s actions.

W hile we have been unable to find any cases directly addressing the issue

presented here, we find informative the Fourth Circuit’s reasoning in United

States v. Adam s, 19 Fed. App’x 33 (4th Cir. 2001) (per curiam) (unpublished).

Adam s presented a somewhat different factual situation, as the infringing goods in

-7- that case were confiscated before the defendant could sell them. However, the

court’s reasoning extends to the instant situation. In Adams, the Fourth Circuit

vacated the district court’s restitution order because “the immediate confiscation

of A dams’ shipment prevented A dams from usurping the copyright holders’

potential sales and deriving personal gain.” Id. at 35. Similarly, in this case

BFS’s refusal to pay for the software prevented Defendant from deriving any

personal gain from the sale, and because all copies of the infringing software

were quickly seized from BFS by the government, M icrosoft’s ability to sell the

genuine software to BFS was in no way affected by Defendant’s actions. W e

therefore conclude that, just as in Adams, the copyright holder in this case

suffered no actual loss.

The government’s assertion that Defendant’s actions deprived M icrosoft of

potential sales is not supported by the record, and the government does not

contend that M icrosoft suffered loss in any other way. W e are thus unable to see

how the order of restitution can be viewed as anything but a windfall for

M icrosoft. Because the government failed to prove that M icrosoft suffered any

actual loss, no restitution should have been ordered. W e therefore REV ER SE

and VAC ATE the district court’s restitution order.

-8-