UNITED STATES of America, Plaintiff-Appellee, v. Joshua FERDMAN, Defendant-Appellant.
No. 13-2196.
United States Court of Appeals, Tenth Circuit.
Feb. 13, 2015.
779 F.3d 1129
III. Conclusion
Because EPA reasonably interpreted CAA
Laura Fashing, Assistant United States Attorney (Damon P. Martinez, Acting United States Attorney, with her on the brief), Albuquerque, NM, for Plaintiff-Appellee.
Before LUCERO, BALDOCK, and HOLMES, Circuit Judges.
BALDOCK, Circuit Judge.
Defendant Joshua Ferdman and three co-conspirators concocted a scheme to fraudulently obtain cellular phones from Sprint stores in Arizona, California, and New Mexico, and resell them. To make a long story short, Defendant illicitly obtained the account information of numerous Sprint corporate customers. With this information in tow, Defendant went to various Sprint stores and purchased phones by impersonating the corporate account representatives. Defendant charged the price of the phones to the corporate accounts, and then sold at least some of the phones to onе of his co-conspirators for online resale.
In one particular instance, on May 25, 2011, Defendant entered a Sprint store in Albuquerque, New Mexico, and held himself out as an authorized representative of Double Vision Glass and Mirror. Defendant charged thirteen smartphones to Double Vision‘s corporate account and left the store with the phones. Shortly thereafter, Defendant phoned the same Sprint store and ordered seven additional phones, once again charging them to Double Vision‘s account. A suspicious Sprint employee contacted Double Vision to confirm the order. After learning Defendant was an imposter, the employee lured him back to the store by sending him a text messаge advising him that his phones were ready for pickup. Albuquerque police officers arrested Defendant when he returned to the store.
Defendant subsequently pled guilty to a two-count indictment. The first count charged Defendant and his three co-conspirators with (a) conspiracy to transport in interstate commerce fraudulently obtained goods valued at $5,000 or more, and (b) conspiracy to use unauthorized access devices to obtain goods valued at $1,000 or more, both in violation of
As part of his sentence, the court ordered Defendant to pay Sprint $48,715.59 in restitution pursuant to the Mandatory Victims Restitution Act (MVRA),
Our jurisdiction arises under
I.
To better understand the particulars of this case, let us first consider the law generally applicable to the district court‘s order of restitution. A district court may order criminal restitution only as authorized by federal statute. Id. at 1154. As relevant here, the MVRA “shall
Where return of the stolen proрerty is not feasible, the defendant must pay “the value of the property” to the victim of the offense, plus, in any event, “expenses incurred during participation in the investigation or prosecution of the offense.”
A district court shall issue and enforce an order of restitution under the MVRA in accordance with
Concurrent with the passage of the MVRA in 1996, Congress amended
All this is not to say that the restitution phase of criminal sentencings should become a substitute for civil trials. For instance, although the MVRA allows recovery of losses “actually caused by the defendant‘s offense,” it does not allow recovery of consequential or incidental damages. Shengyang Zhou, 717 F.3d at 1154 (internal quotations omitted). According to the MVRA‘s legislative history: “It is the committee‘s intent that courts order full restitution to all identifiable victims of covered offenses, while guaranteeing that the sentencing phase of criminal trials do not become fora for the determination of facts and issues better suited to civil proceedings.” S.Rep. No. 104-179, at 189 (1996), reprinted in 1996 U.S.C.C.A.N. 924, 931.
But this does not mean a district court may dispense with the necessity of proof as mandated by the MVRA and simply “rubber stamp” a viсtim‘s claim of loss based upon a measure of value unsupported by the evidence. A district court “may resolve restitution uncertainties with a view towards achieving fairness to the victim so long as it still makes a reasonable determination of appropriate restitution rooted in a calculation of actual loss.” United States v. Gallant, 537 F.3d 1202, 1252 (10th Cir.2008) (emphasis added). True, the MVRA does not require a court to calculate a victim‘s actual loss with “exact” precision. United States v. Parker, 553 F.3d 1309, 1323 (10th Cir.2009). Considered in its entirety, however, the MVRA undoubtedly “require[s] some precision when calculating restitution. Speculation and rough justice are not permitted.” United States v. Anderson, 741 F.3d 938, 954 (9th Cir.2013) (emphasis added). Where a district court concludes the record contains insufficient information to permit a timely calculation of a victim‘s actual loss, the MVRA provides the court with three non-mutually exclusive options: (1) ask the Government to submit additional evidence, (2) hold an evidentiary hearing, or (3) decline to order restitution.
II.
Mindful of the foregoing, we turn to the particulars of this case. Sprint‘s regional manager of investigations submitted to the probation office an unverified or unsworn two-page letter purporting to list the amount of the phone losses Sprint sustained from May 8 through May 25, 2011,
The investigative travel costs were estimated costs for travel to [New Mexico] to deal with this issue on a trip. The investigative manhours was my estimated investigative time for conducting Sprint‘s investigation into this issue. The $65/hr rate is an estimate of costs to Sprint for salary and various overhead costs. The shipping costs were estimated to be able to ship new phones to the stores to replace phones that were lost due to these fraud events. The GPS tracking was our costs for setting up a GPS tracking in the case for law enforcement.
Consistent with the letter, the PSR recommended the court award Sprint restitution in the amount of $48,715.59 for losses sustained between May 15 and May 25, 2011, with each co-conspirator to be held jointly and severally liable for that amount. The PSR explained that Sprint would not pursue restitution for losses sustained between May 8 and May 14, 2011, because sales receipts were unavailable for those losses. The PSR itemized the proposed restitution award as follows:
| Merchandise Losses (05/15/11-05/25/11) | $45,035.59 |
| Shipping Costs | $300.00 |
| Investigative Travel to NM | $750.00 |
| Investigative Hours [$65/hr × 40 hrs] | $2,600.00 |
| GPS Tracking | $30.00 |
| Total Loss: | $48,715.59 |
In both his written and oral objections to the PSR, Defendant challenged Sprint‘s claim of loss for lack of proof. Defendant pointed out the Government did not present any evidence that his crimes caused Sprint to lose retail sales and attendant profits. Because cell phones are fungible goods readily replaceable through Sprint‘s voluminous supply chain (a point the Government has never disputed), Defendant argued that in the absence of evidence of the phones’ wholesale or replacement costs, the actual prices he “paid” for the cell phones—discounted prices ranging from $149.99 to $199.99 as also shown on the sales receipts—were the better estimate of actual loss. Defendant reasoned:
The loss of the phones is not the retail price of the phones. The loss to Sprint is the true wholesale replacement costs of the phones. No retail contracts or sales were lost due to the actions of Mr. Ferdman or the others. Sprint sells millions of phones per quarter and is in the business of replacing them continually. Thus the loss of 100 or even 1000 phones would be insignificant to Sprint‘s supply chain. They would simply be replaced in the ordinary course of business.
Defendant stressed that Sprint had not provided the probation office with the cell phones’ actual replacement or wholesale costs, so the “best approximation of the loss” was the actual purchase price of the phones. In the alternative, Defendant
In response, the Government did not address with any specificity the evidence (or lack thereof) of Sprint‘s actual loss, but rather told the district court “the PSR is on solid ground in assessing the full retail value of the phones for purposes of restitution.” According to the Government, “when merchandise is stolen from a retail establishment the full retail price of the merchandise gives us an appropriate measure of the loss.” The Government acknowledged that “the Tenth Circuit has not squarely addressed the question whether a restitution award may include lost profits in a retail theft case.” Notwithstanding, the Government suggested to the district court that the “use of lost profits would seem particularly appropriate in this case because Defendant‘s conduct was not limited to stealing phones, but then reselling them to his co-defendants thereby fostering a black market for mobile phones. That market presumably has a small but perceptible effect on Sprint‘s sales and profits.” (emphasis added).
The district court denied Defendant an evidentiary hearing, overruled his objections to the PSR‘s proposed restitution award, and ordered him, as part of his sentence, to pay Sprint $48,715.59. In a lengthy opinion entered subsequent to sentencing, the court recognized, unremarkably, that “awarding Sprint the cellular telephones’ retail value would include the profits Sprint would have made had it sold those phones.” United States v. Ferdman, 2013 WL 6504300, at *17 (D.N.M.2013) (unpublished). Though Defendant had not raised the issue, the court first addressed whether the meaning of the phrase “value of the property” as used in the MVRA,
The district court next addressed “whether the retail value of the cellular phones fraudulently obtained is the proper measure for restitution.” Id. at *17. In holding that the phones’ full retail value was the proper measure of Sprint‘s actual loss, the court found that Sprint‘s letter, “without anything to undermine it,” satisfied the Government‘s burden of proof, making an evidentiary hearing unnecessary. Id. at *29 n. 16.
[H]ad Ferdman not fraudulently obtained the telephones, Sprint would have had them available to sell to other customers. Sprint sells the telephones to end users at retail value, and if not at this full value, at a subsidized price, relying on the accompanying service contract and fees. Ferdman prevented Sprint from receiving any of these sales, which would have provided Sprint with the telephones’ cost as well as overhead operating expenses and profits. The United States has produced enough evidence to establish by a preponderance of the evidence that Sprint‘s actual losses include the full retail value of the telephones. See Sprint Letter at 1 (“The phones losses are the retail unsubsidized price of these phones.“). The letter, as well as receipts from the various transactions, provided evidence that the telephones’ retail prices ranged from $499.99 to $549.99. See Sprint Letter at 1-2; Receipts at 2-3, 21.
Id. at *29.
Lastly, the court asked whether the Government had “produced enough evidence regarding Sprint‘s shipping and investigative costs to satisfy its burden of proof and to include those amounts in the restitution award.” Id. at *17. The court again held Sprint‘s unverified letter satisfied the Government‘s burden:
Id. at *30.
III.
Before commencing our analysis of the district court‘s restitution award, we need point out what this case is not about. This case is not about whether a district court may ever properly include lost retail sales or profits in a restitution award for property damage, destruction, or loss under the MVRA, and in particular
Accordingly, we simply assume the MVRA, and in particular
A.
Defendant asserts that in awarding Sprint criminal restitution, the district court abused its discretion by basing the “value” of Sprint‘s cell phones on their “retail unsubsidized price,” absent any evidence that Defеndant‘s fraud diverted sales from Sprint, thereby affecting its profits. The district court found as follows:
[H]ad Ferdman not fraudulently obtained the telephones, Sprint would have had them available to sell to other customers. Sprint sells the telephones to end users at retail value, and if not at this full value, at a subsidized price, relying on the accompanying service contract and fees. Ferdman prevented Sprint from receiving any of these sales, which would have provided Sprint with the telephones’ cost as well as overhead operating expenses and profits.
Ferdman, 2013 WL 6504300, at *29 (emphasis added).
Given the district court‘s findings, one would think the record contains some evidence—beyond Sprint‘s unverified statement that “[t]he phone losses are the retail unsubsidizеd price of these phones“—tending to show Ferdman‘s theft caused Sprint to lose retail sales. Instead of pointing us to such evidence, however, the Govern-
The [MVRA] required the district court to order Ferdman to pay Sprint the value of the phones he stole. . . . The district court estimated this value to be the retail price of the phones, given that Ferdman stole the phones from retail stores. . . .
* * *
Because this case involved only theft, the Government was not required to prove that Sprint lost any sales because of Ferdman‘s fraudulent activity.
(emphasis added). But the Government‘s argument surely “collapses under the plain text of the MVRA, which places the burden on the Government . . . to prove actual loss by a preponderancе of the evidence.” Fair, 699 F.3d at 516 (emphasis added) (citing
Perhaps the closest we have come to addressing the necessity of proof under the MVRA where a merchant seeks the retail value of stolen goods is a case involving counterfeit goods. In United States v. Hudson, 483 F.3d 707 (10th Cir.2007), the defendant counterfeited Microsoft software and attempted, unsuccessfully, to sell it to a Maryland company. The district court ordered defendant to pay $322,194.63 in restitution to Microsoft based on the PSR‘s representation, much like here, that the “estimated retail price for thе counterfeit software was $599.99 per copy.” Id. at 708. Again similar to our case, the PSR based its restitution calculation on Microsoft‘s “declaration of loss.” Id. On appeal, defendant challenged the restitution award, arguing that “Microsoft suffered no actual losses from his conduct.” Id. at 710. At the outset of our analysis in Hudson, we recognized that in the case of counterfeit goods, “[r]estitution must be based on net lost profits, not on total retail price.” Id. at 710 n. 1. After reviewing the record, we concluded the Government failed to present evidence of lost sales, and therefore failed to prove Microsoft suffered any actual loss of profit.
The Government tells us this case is not like Hudson because the MVRA does not require proof of lost sales in the case of simple retail theft. What the Gоvernment effectively says is that we should overlook the procedural dictates of the MVRA and dispense with the necessity of proof in cases like this one. See Paroline, 134 S.Ct. at 1733 (Roberts, C.J., dissenting) (observing that the Government did not “really contest” its inability to meet
The Government‘s proposed approach seems to us rooted only in a theory of loss which the facts may or may not support. We well understand that whereas “[a] legitimate seller is harmed by a counterfeit good only when the product enters the market[,] a seller who is fraudulently deprived of [the] goods [themselves] is harmed as soon as those goods are stolen.” United States v. Robertson, 493 F.3d 1322, 1333 (11th Cir.2007) (affirming an award of the wholesale price of stolen goods). So unlike copyright infringement, the theft of retail goods causes the retailer to lose
Undeterred, the Government cites two cases purportedly standing for the proposition that in calculating criminal restitution “[t]he best estimate of the value of the phones when Ferdman stole them was their retail price.” (emphasis added). The problem is neither of those cases involved calculation of restitution under the MVRA, but rather calculation of loss for the purpose of establishing the defendant‘s offense level under the Sentencing Guidelines. In United States v. Lige, 635 F.3d 668 (5th Cir.2011), the defendant fraudulently obtained cellular phones from Sprint and Nextel. Applying
Neither does our decision in United States v. Williams, 50 F.3d 863 (10th Cir.1995), address the actual loss to a victim of retail theft. There, the defendant challenged the calculation of his guideline offense level for transporting stolen jewelry. The statute under which the defendant was charged,
The PSR does state that Defendant sold some of the phones, many of which had been blocked from accessing the Sprint network, to a co-conspirator for resale.3 Defendant also sold some phones to at
So what the district court relied on in awarding Sprint the “retail unsubsidized price” of its phones was a sort of “kink-in-the-supply-chain” theory of lost sales, rather than a “lost-profits-on-diverted-sales” theory. See Anderson, 741 F.3d at 952. The former theory seems simple enough. All the Government would have to establish is that Defendant‘s theft of the cell phones caused a retail shortage at Sprint stores or interfered with the maintenance of its usual stock, and, as a consequence, caused Sprint to lose potential retail sales. See Illinois Cent. R.R. Co. v. Crail, 281 U.S. 57, 62, 50 S.Ct. 180, 74 L.Ed. 699 (1930). And we would think Sprint could provide the Government with evidence of a kink in its supply chain if in fact Defendant‘s theft caused such a kink. But the Government never presented any such evidence, and as the record now stands, nothing therein even remotely suggests Defendant‘s theft, by removing readily replaceable cell phones from Sprint stores, prevented Sprint from realizing any retail sales. See id. at 65 (tying “retail price” to situations where the seller “suffered special damage by reason of the shortage,” and “wholesale price” to situations where the seller “could replace [the gоods] . . . in the ordinary course of business“).
Let us make perfectly clear that the controlling metric for an award of restitution pursuant to the MVRA in every case is actual loss suffered; nothing more, nothing less. Therefore, we assume that where supported by the evidence, a district court in the case of retail theft might rely on lost sales and accompanying profits to calculate the amount of the victim‘s actual loss under the MVRA. Before the court relies on such measure of loss in the case of fungible or readily replaceable goods, however, the Government must present more than a claim that but for a defendant‘s theft, the victim may have made additional sales. See United States v. Boccagna, 450 F.3d 107, 119 (2d Cir.2006) (“Criminal restitution . . . is not concerned with a victim‘s disappointed expectations but only with [its] actual loss.“). The Government must present at least some evidence—we need not now decide how much—from which the court could reasonably infer lost sales. See United States v. Ahidley, 486 F.3d 1184, 1189 (10th Cir.2007) (recognizing that in calculating restitution, “courts are permitted to draw inferences from the totality of the circumstances through an exercise of ‘logical and probabilistic reasoning‘“).4 And, under a supply chain theory of loss, unless the Government can show the defendant‘s crime depleted the stock of a particular fungible or readily replaceable good like a cell phone, at a time when the victim might otherwise have been able to sell that good to a willing buyer, something akin to replacement or wholesale cost clearly appears the more accurate measure of actual loss. See Crail, 281 U.S. at 63-65. Of course, because the MVRA‘s controlling metric is actual loss, the Government still must satisfy its burden to prove the amount of the victim‘s cost.
This brings us to our second and final inquiry: Whether the evidence supports the award of the estimated expenses Sprint incurred in investigating Defendant‘s fraud. By this point, the answer to that question should be painfully apparent. All we have before us are estimates of Sprint‘s expenses supported by the unverified signature of a Sprint officer. The record contains no actual proof, not even an affidavit, of what those expenses were. That those expenses for the most part appear reasonable is not enough to satisfy the evidentiary dictates of the MVRA. The likelihood that certain facts exist to confirm Sprint‘s estimates, no matter how probable, does not relieve the Government of its burden, after proper objection, to establish their actuality. See United States v. Hosking, 567 F.3d 329, 334 (7th Cir.2009) (“On remand, the government must, to the extent feasible, provide an explanation, supported by evidence, of how each employee‘s time was spent in pursuing the investigation.“) (emphasis in original).
IV.
While the abuse-of-discretion standard under which we ultimately review a district court‘s award of restitution is deferential and highly so, such standard will not countenance a finding of lost sales based on a victim‘s unverified claim that “my losses are X and the value of X is shown on the sales’ receipts.” Unremarkably, where the amount of restitution proposed in a PSR is contested, the MVRA requires the Government to prove to a reasonable degree that the two values—“my losses” and “X“—are more or less commensurate. The MVRA binds courts to its statutory standards; in the criminal restitution context, that means a fair determination pursuant to
Accordingly, the district court‘s order awarding Sprint restitution in the amount of $48,715.59 is vacated. The remainder of Defendant‘s sentence is unaffected. This matter is remanded to the district court for further proceedings consistent with this opinion.
VACATED and REMANDED.
BALDOCK
CIRCUIT JUDGE