United States v. Coviello , 225 F.3d 54 ( 2000 )

United States Court of Appeals
For the First Circuit
No. 99-1756
UNITED STATES OF AMERICA,
Appellee,
v.
GERALD P. COVIELLO,
Defendant, Appellant.
No. 99-1782
UNITED STATES OF AMERICA,
Appellee,
v.
ROBERT S. SIMONS,
Defendant, Appellant.
No. 99-1783
UNITED STATES OF AMERICA,
Appellee,
v.
MARC N. ROSENGARD
Defendant, Appellant.
No. 99-1814
UNITED STATES OF AMERICA,
Appellee,
v.
MAXINE SIMONS
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
Before
Torruella, Chief Judge
Lipez, Circuit Judge
and Schwarzer, Senior District Judge.*
John J. Barter for appellant Gerald P. Coviello.
James L. Sultan, with whom Charles W. Rankin, Michelle
Menken, and Rankin & Sultan were on brief, for appellants Robert
Simons and Maxine Simons.
Paul M. Yee for appellant Marc N. Rosengard.
Ben T. Clements, Assistant United States Attorney, with whom
Donald K. Stern, United States Attorney, was on brief, for
appellee.
September 7, 2000
* Of the Northern District of California, sitting by
designation.
LIPEZ, Circuit Judge. Crazy Bob's, a discount computer
products store in Wakefield, Massachusetts, sold stolen
Microsoft software. The owners of Crazy Bob's, Robert Simons
and his wife Maxine,1 and several employees were charged with,
inter alia, a conspiracy to transport stolen property in
interstate commerce. Robert and Crazy Bob's buyer, Marc
Rosenberg, pled guilty and now appeal their sentences. Maxine
and Gerald Coviello (a friend of Robert's who sold some of the
stolen merchandise) went to trial, and now appeal their
convictions and sentences.
The central issue, common to all appellants, is whether
the district court erred in calculating the "loss" caused by the
crime under the United States Sentencing Guidelines. See USSG §
2B1.1(b)(1). The appellants also assert other sentencing
errors: (1) the Simonses and Rosengard argue that they were not
"in the business" of receiving and selling stolen property, id.
§ 2B1.1(b)(4)(B); (2) Robert argues that restitution and
supervised release should not be imposed because of errors in
his Fed. R. Crim. P. 11 colloquy; (3) Coviello argues that he
was a "minimal" or "minor" participant, USSG § 3B1.2; and (4)
1
For the sake of convenience, we will identify the Simonses
by their first names, Robert and Maxine, following the
convention used by their counsel.
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Rosengard claims he was entitled to a greater downward
departure. Maxine and Coviello raise trial errors as well,
claiming that the court should have dismissed the stolen
property counts because the physical discs containing the
software were "virtually worthless" and that the court should
not have given a "willful blindness" jury instruction. Maxine
also challenges the district court's ruling that the government
could impeach a witness by establishing that the witness had
been represented by Maxine's trial counsel during grand jury
proceedings. We reject all of these arguments and affirm the
convictions and sentences.
I. Background
During the 1990s, Robert and Maxine Simons operated a
discount computer products outlet in Wakefield, Massachusetts
known as Crazy Bob's. In 1994, Robert and Maxine met David
LaPointe and, acting through Crazy Bob's, began purchasing
computer diskettes, tapes, and CDs which had been stolen from
KAO Infosystems ("KAO"), a computer disc manufacturer. LaPointe
obtained the products through several KAO employees, including
John Costello. Each shipment of stolen goods was either
delivered by LaPointe to Crazy Bob's or picked up from
Costello's shed by Marc Rosengard, a long-time employee and
buyer for Crazy Bob's.
-4-
In June 1996, LaPointe obtained more than 10,000
Microsoft Windows 95 ("Windows") CD-ROMS, which were sold to
Crazy Bob's for fifteen dollars each even though the wholesale
value was approximately $165 per disc. Almost all of the discs
were sold to Crazy Bob's without any legitimate packaging
materials, such as Microsoft boxes, licenses, manuals, or
certificates of authenticity. Instead, the discs were packaged
on spindles of 100 discs each and shrink-wrapped in plastic.
Crazy Bob's then resold the stolen Windows discs to companies in
Great Britain and California. LaPointe told Crazy Bob's buyer
Rosengard that he insisted on cash for the Windows discs so that
there would be no "paper trail." This request was approved by
Bob and Maxine Simons and more than $240,000 in cash was
delivered to LaPointe over the course of several transactions,
mostly by Rosengard. Maxine often structured these payments so
that each check for cash would be for less than $10,000, thereby
avoiding the requirement that banks file with the Treasury
Department a currency transaction report of any cash transaction
of $10,000 or more.
In December 1996, LaPointe met with Rosengard and
Robert Simons to negotiate the sale of at least 32,000 Microsoft
Office 97 Professional Edition ("Office") CD-ROMs. Robert
agreed to pay LaPointe in a series of installment payments
-5-
because, as Robert explained, he would have to sell the discs
slowly to avoid attracting suspicion. Maxine Simons then wrote
a $116,000 check to Costello for his role in obtaining the
stolen property, falsely documenting his status with the IRS so
that he would appear to be a Crazy Bob's employee. Like the
Windows discs, the Office discs did not contain Microsoft
packaging materials and were on spindles of 100 discs apiece.
As the stolen discs did not include the "key codes" necessary to
access the software, Rosengard and other Crazy Bob's employees
devised a formula for creating their own key codes and printed
key code stickers. Between February and July 1997 Crazy Bob's
sold a total of 13,962 Office discs, at prices ranging from
fifty to one hundred dollars per disc, for a total of $908,108.
On March 22, 1997, Costello was arrested by the FBI.
At Robert's direction, Crazy Bob's began executing documents to
transfer $425,000 of stolen property proceeds from Crazy Bob's
bank account through another account, which was then closed so
that checks could be distributed to Bob, Maxine, and their
children. When the FBI interviewed Maxine about Costello, she
informed them that he was a "consultant" for the store and that
LaPointe had sold back-up tapes to Crazy Bob's on one occasion.
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Crazy Bob's was able to remove at least 8,000 of the
Office discs before the FBI obtained a search warrant and seized
the remainder. Robert then offered to sell the 8,000 discs to
Jasper "Jay" Knabb, who operated a computer store in North
Carolina, informing him that they were "hot" and would need to
be sold out of the country and for cash. Knabb reported these
conversations to Microsoft and to the FBI, and agreed to
cooperate. Knabb then told Robert that he had a customer in
South America who would buy the discs. After settling on a
price, they agreed that defendant Gerald Coviello (a friend of
Robert's) would handle the transaction and receive ten dollars
per disc (which amounted to over $80,000) for his troubles.
Coviello negotiated a cash payment from Knabb and set a meeting
in a restaurant parking lot to deliver the discs. At that
meeting, he was arrested.
Robert, Maxine, Coviello and Rosengard (along with
three co-defendants not parties to this appeal) were all
indicted for conspiracy to transport stolen property in
interstate commerce, in violation of 18 U.S.C. § 371. Robert,
Maxine, and Rosengard were charged with sixteen counts of
interstate transportation of stolen property. See id. § 2314.
Robert and Maxine were also charged with one count of conspiracy
to launder money, in violation of 18 U.S.C. § 371, and eleven
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counts of money laundering, in violation of 18 U.S.C. §
1956(a)(1)(B)(i).2 Finally, Maxine was charged with three counts
of structuring to evade reporting requirements, in violation of
31 U.S.C. § 5324, and one count of making false statements to
federal agents, in violation of 18 U.S.C. § 1001.
Robert and Rosengard pled guilty and were sentenced to
seventy months and thirty-three months imprisonment,
respectively. Maxine and Coviello were convicted on all counts
following a jury trial, and were sentenced to thirty-three and
thirty months each.
We will first address the loss calculation issue,
raised by all appellants, and then turn to the other sentencing
and trial error issues.
II. Loss Calculation
The Simonses, Coviello and Rosengard all argue that the
district court misapplied Section 2B1.1(b)(1) of the Sentencing
Guidelines. Section 2B1.1(b)(1) provides for enhancements to
the base offense level in cases involving the transfer of stolen
property depending on the amount of "loss." The application
notes explain that "'[l]oss' means the value of the property
taken, damaged, or destroyed" and that "[o]rdinarily, when
2The money laundering counts against Maxine were dismissed
prior to trial.
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property is taken or destroyed the loss is the fair market value
of the particular property at issue." USSG § 2B1.1(B)(1)
(Comment n.2); see also United States v. Carrillo-Figueroa, 34
F.3d 33, 43 (1st Cir. 1994); United States v. Skrodzki, 9 F.3d
198, 203 (1st Cir. 1993). We note that "the loss need not be
determined with precision" and that the court need only "make a
reasonable estimate of the loss, given the available
information." USSG § 2B1.1 (Comment n.3); see also United States
v. Paquette, 201 F.3d 40, 44 (1st Cir. 2000).
The district court calculated the loss by considering
the "valu[e] of the property at the time it [was] taken from the
rightful owner." Applying this standard, the court determined
that Microsoft was the owner of the property for purposes of
§ 2B1.1(b)(1) (despite the fact that the discs were stolen from
KAO) and that the loss should be based on Microsoft's wholesale
prices for these products. Relying on testimony from Microsoft
and one of its large wholesale customers, the court concluded
that Microsoft could have sold the 32,000 Office CD-ROMs
wholesale for $486 each and that it could have sold the 10,000
Windows CD-ROMs wholesale for $165 each. Thus the loss caused
by the Simonses and Rosengard through the sale of all of these
discs was $17 million, resulting in the seventeen-level
enhancement that applies to loss between $10 and $20 million.
-9-
See § 2B1.1(B)(1)(R). The court found Coviello responsible only
for the 8,000 Office discs he attempted to sell, resulting in a
loss figure of $3.9 million and a sentencing enhancement of 15
levels. See § 2B1.1(B)(1)(P) (15 level enhancement for loss
between $2.5 and $5 million).
The appellants' challenges to the loss calculation fall
into three basic categories. First, they claim that the
district court erred in identifying Microsoft (rather than KAO)
as the victim, resulting in a higher loss figure. Second,
accepting the "fair market value" approach to loss calculation
used by the district court, the appellants make several related
arguments that the discs had a lower market value than the
district court identified. Third, the appellants suggest that
some method other than the "fair market value" approach should
have been employed.
We analyze each of these claims in turn, keeping in
mind that the defendants bear a "heavy burden of demonstrating
that the district court finding is clearly erroneous," and that
loss does not have to be determined with precision. Skrodzki,
9 F.3d at 203; see also United States v. Tardiff, 969 F.2d 1238,
1283 (1st Cir. 1992) (district court's finding reversed only if
"outside the universe of acceptable computations"). As the
Simonses and Rosengard received the seventeen-point enhancement
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applicable to losses between $10 and $20 million, they can only
prevail on appeal if they demonstrate that the loss was clearly
less than $10 million rather than the $17 million the district
court identified. Similarly, as Coviello received the fifteen
point enhancement for losses falling within the $2.5 to $5
million range, he can only prevail by showing that the loss was
below $2.5 million rather than the $3.9 million the district
court found.
A. Identifying the Victim
The appellants claim that because the CD-ROMs were
stolen from the custody of KAO, and because KAO was required to
indemnify Microsoft for lost discs, the "victim" in this case
was KAO, and the district court should have considered the loss
caused to it, not to Microsoft. There is much at stake in this
argument. Although Microsoft sold Windows for $165 and Office
for $486, the fair market value of the discs to KAO would be no
more than the $7 they charged Microsoft for the duplication
services. Indeed, the appellants even argue that the discs were
"overages" and destined for destruction, having no market value
to KAO whatsoever. They also note that KAO could replace the
discs for thirty-six cents per unit.
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The argument that KAO should have been treated as the
victim is flawed in several ways. First, there was sufficient
evidence for the district court to conclude that Microsoft had
a more significant ownership interest in the CD-ROMs. Kristi
Bankhead, a product ID specialist at Microsoft, testified that
although KAO was under contract to manufacture and package the
discs, Microsoft retained ownership rights in the software. The
Facility Agreement between KAO and Microsoft provides additional
support, as it states that the entire inventory of discs is held
by KAO "exclusively for distribution to Customers as authorized
by Microsoft and for no other purpose, use or disposition,
except as may be directed in writing by Microsoft." While the
Facility Agreement did give KAO some ownership interest in the
physical CD-ROMs in its possession, the substantial value here
was not the discs themselves, but the computer programs on those
discs--intellectual property that plainly belonged to Microsoft.
Appellants attempt to defeat this finding by noting
that the Agreement gave KAO some interest in the physical CD-
ROMs, and that the Agreement required KAO to indemnify Microsoft
for lost or damaged product, typically at the rate of
Microsoft's replacement cost.3 However, the district court is
3
Notably, the appellants simply ignore the most relevant
"risk of loss provision" in the Agreement--the one that requires
KAO to pay 55% of the retail price of the software (rather than
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not charged with resolving a contract dispute. It is charged
with assessing the value of the property so that the §
2B1.1(b)(1) determination comports with the magnitude of the
theft. Whatever the arrangements between KAO and Microsoft on
the duplication of thirty-six cent discs, those discs contained
intellectual property, indisputably belonging to Microsoft, with
a wholesale market value of $168 for Windows and $486 for
Office. It was this intellectual property that Crazy Bob's was
interested in buying and selling, not the KAO plastic on which
it was contained. Treating KAO as the "victim" and measuring
loss in terms of the value of the CD duplication services rather
than the value of the intellectual property would simply be
ignoring reality. See United States v. Lyons, 992 F.2d 1029,
1033 (10th Cir. 1993) ("In an age where the intangible
intellectual property value of goods may vastly exceed the
intrinsic worth of accompanying tangible goods, application of
the letter and intent of the Sentencing Guidelines mandates that
courts include intangible value when thefts of tangible objects
occur.").
B. Calculation of Market Value
the mere replacement costs) if KAO fails to take "reasonable
security precautions" or if it loses more than 25,000 copies of
software.
-13-
The appellants argue that even if Microsoft owned the
discs, the court erred in relying on the price of $486 per unit
of Office and $165 per unit of Windows. Appellants advance
several related arguments as to why the "fair market value"
should be calculated on the basis of lower wholesale prices.
First, they claim that the wholesale price the
district court relied upon was too high because Microsoft
sometimes sold its products at lower rates. Bankhead of
Microsoft stated that the standard wholesale price of Windows
was $165 and that the wholesale price of Office was $486. A
representative from Staples, an international office supplies
store, stated that these were the prices it paid for Microsoft
products during the relevant time period. While there was
evidence, as the district court noted, that "Microsoft on
occasion disposed of its product in channels other than the
regular wholesale distribution channel," there was no evidence
that the stolen discs were destined for such lower price sales.
Under these circumstances, it was not clear error for the
district court to reason that the full wholesale price was the
appropriate figure since Microsoft "would have the option to
dispose of [the property] at the higher rather than lower
price." See United States v. Colletti, 984 F.2d 1339, 1345 (3d
Cir. 1992) (value of stolen jewelry properly calculated based on
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retail value, despite evidence that victim sold product at
discount); United States v. Ellerbee, 73 F.3d 105, 109 (6th Cir.
1996) (compact discs valued at full retail price, despite fact
that victim actually sold discs for less).
The appellants also argue that the discs were worth
much less (or even nothing at all) because they were
"blemished." In support, the appellants point out that John
Costello, the KAO employee who stole the discs, testified that
there was a minor silkscreen blemish on the disc artwork.4
However, the record supports the district court's conclusion
that the discs were not blemished. Bankhead testified that she
had the expertise to identify flaws in the discs; based on her
examination, they had no defects. LaPointe described the discs
as in "perfect condition." There is no evidence that the
purchasers of the discs were told of defects or ever complained
of them. Although the defense had samples of the stolen discs
(as did the court), they offered no expert or other witnesses on
this point.
4
The government also acknowledges that when the FBI searched
Crazy Bob's it found some scratched Office discs that had been
dumped, unwrapped, into a large box. As the evidence was clear
that the discs were delivered to Crazy Bob's in shrink-wrapped
spindles, it was not erroneous for the district court to
conclude that any scratches were caused by Crazy Bob's.
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The appellants next claim that the price should be
discounted because the CD-ROMs did not contain legitimate
licenses. We easily reject this claim. The lack of a license
did not prevent the users from accessing the software. It
simply prevented them from doing so with Microsoft's blessing.
This argument, then, boils down to the claim that the loss
should be discounted because the goods were "hot" and therefore
could not be sold at the market price for legitimate products.
Obviously, the fact that a product is sold for less because it
is stolen provides no basis for lowering the loss calculation,
which is based on the wholesale price in a legitimate market
rather than the black market price. See e.g., United States v.
Pervaz, 118 F.3d 1, 10 (1st Cir. 1997); United States v.
Carrington, 96 F.3d 1, 5-6 (1st Cir. 1996).
Finally, we reject the appellants' related claim that
the wholesale price of the discs should be discounted because
the discs did not contain packaging materials. For the Simonses
and Rosengard to prevail on this theory, they would have to show
that the lack of packaging reduced the fair market value of the
discs from $17 million by approximately forty percent to the
less than $10 million required for a lower enhancement under the
Guidelines. Coviello would have to demonstrate that the missing
packaging reduced the value from $3.9 million by approximately
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thirty-five percent to less than $2.5 million. The district
court did not clearly err in failing to make such a dramatic
reduction.
Bankhead stated that "almost all of the value in the
$486 price charged by Microsoft for [Office] and the $165 price
charged for Windows[] derived from the intellectual property–-
that is, the software code contained on the CD-ROM." Indeed,
Microsoft paid KAO only seven dollars per unit for its services
in performing disc duplication and adding packaging. Even
assuming that the lack of packaging or any other offset (such as
a blemish on the disc artwork) warranted some reduction in the
market value, this would only be a minor discount that would not
affect the sentences. The court supportably found that the
market value of the software attributable to the Simonses and
Rosengard was between $10 and $20 million and the value
attributable to Coviello was between $2.5 and $5 million.
C. Alternative Measures of Loss
The appellants suggest that "fair market value" may be
an inappropriate measure of loss in this case. Coviello
actually proposes that the replacement cost of the discs should
be the basis for calculating loss–-thirty-six cents per unit
(for a total of $2,880 rather than $3.9 million). Acknowledging
that this replacement cost would be inadequate, the Simonses
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propose that loss should be measured by the gain for the
defendants, about $1.3 million. Rosengard suggests a similar
approach.
In support of departing from fair market value, the
appellants point to an application note which states that
"[w]here the fair market value is difficult to ascertain or
inadequate to measure harm to the victim, the court may measure
loss in some other way, such as reasonable replacement cost to
the victim." USSG § 2B1.1 (Comment n.2). Courts have noted
that market value is inadequate in cases where the products--
such as government documents--have no market value. See, e.g.,
United States v. Gottfried, 58 F.3d 648, 651 (D.C. Cir. 1995)
(government documents, with no market value, considered in terms
of replacement costs); United States v. Berkowitz, 927 F.2d
1376, 1390 (7th Cir. 1991) (same). Here, however, the
Microsoft products had a market value and, as the above analysis
indicates, one that can be calculated with sufficient precision
under the Guidelines. See USSG § 2B1.1(B)(1) (Comment n.3)
("The court need only make a reasonable estimate of the loss,
given the available information."). It does not matter, as
appellants claim, that Crazy Bob's sales might not have
displaced $17 million worth of legitimate Microsoft product.
What matters is that the stolen CD-ROMs contained intellectual
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property that was worth between $10 million and $20 million if
they had been sold legitimately. Appellants present no
authority or persuasive argument as to why the ordinary market
value approach should be abandoned here.5
III. Other Alleged Sentencing Errors
A. "In the Business of Receiving and Selling Stolen Property"
The Simonses and Rosengard argue that the district
court erred in finding that they, through Crazy Bob's, were "in
the business of receiving and selling stolen property," so as to
warrant a four-level guideline enhancement under USSG §
2B1.1(b)(4)(B). In determining whether the "in-the-business" or
"ITB" enhancement should apply, the district court must consider
"the totality of the circumstances, with particular emphasis on
the regularity and sophistication of a defendant's operation."
United States v. Richardson, 14 F.3d 666, 674 (1st Cir. 1994);
see also United States v. McMinn, 103 F.3d 216, 222 (1st Cir.
1997); United States v. St. Cyr., 977 F2.d 698, 703 (1st Cir.
1992). While de novo review applies with respect to the
"meaning and scope" of the ITB enhancement, St. Cyr, 977 F.2d at
5
Coviello claims that the high loss should have served as a
basis for a downward departure. The court's discretionary
refusal to depart downward is not subject to appellate review.
See United States v. Harotunian, 920 F.2d 1040, 1044 (1st Cir.
1990).
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701, challenges to the evidentiary support are reviewed only for
clear error, see Richardson, 14 F.3d at 673.
The Simonses argue that they cannot be considered "in-
the-business" of buying and selling stolen property because
Crazy Bob's was a legitimate business that sold many lawful
products. We disagree. There is nothing in the Guidelines, the
commentary or our case law to suggest that the enhancement
applies to a "fence" who sells only stolen goods, but not to a
"fence" who sells stolen goods through the cover of a legitimate
business. To the contrary, we have noted that the concern with
those in the business of receiving and selling stolen property
is "especially serious . . . when the professional fence
utilizes a legitimate 'front,' such as a pawn shop or an outlet
dealing in distressed goods at sharply lower prices." McMinn,
103 F.3d at 221 n.4; see also United States v. Koehler, 24 F.3d
867, 871 (6th Cir. 1994) (rejecting argument that the business
enhancement was precluded by defendant's claim that he "was a
legitimate businessman who, in his 24 years in the auto parts
business, had engaged in only two transactions regarding stolen
property").
The district court did not clearly err in determining
that the Simonses, through Crazy Bob's, were in the business of
receiving and selling stolen property. The "most important
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[factor] . . . the regularity of defendant's dealings in stolen
merchandise," Richardson, 14 F.3d at 674, was easily satisfied.
Likewise, the sales "proceeded with all the accouterments of a
business." Id. at 675. From late 1994 until the arrest of John
Costello in March 1997, Crazy Bob's purchased, in multiple
transactions, roughly 40,000 stolen Windows and Office CD-ROMs
worth approximately $17 million, as well as recordable compact
discs, back-up tapes, and other items stolen from KAO. These
transactions involved a number of Crazy Bob's employees, and
they generated some of the largest profits the business had ever
seen. Finally, the Simonses conducted the fencing operation in
a sophisticated fashion, see id. at 674, selling to multiple
out-of-state and foreign buyers to avoid attracting suspicion
and laundering the proceeds through various bank accounts.6
While Rosengard does not challenge the district court's
finding that Crazy Bob's was in the business of receiving and
selling stolen property, he claims that the enhancement cannot
6 The Simonses suggest that the business enhancement is
particularly inappropriate for Maxine. However, Maxine was
highly involved in Crazy Bob's business of selling stolen
property. She was the President, director, and sole officer of
the company, and, as the 60% owner, received 60% of the profits.
She was personally involved with the sale of stolen property,
issuing forty-nine checks for payment to LaPointe, falsely
documenting the $116,000 payroll check to Costello, approving
the purchase prices for the stolen goods, structuring financial
transactions to conceal the profits from stolen property, and
personally receiving the stolen property from LaPointe.
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apply to him as a mere employee. The government responds that
even a "delivery boy" involved in the sale of stolen property is
subject to the enhancement, citing United States v. Cottman, 142
F.3d 160, 166 (3rd Cir. 1998) (rejecting argument that in the
business enhancement cannot apply to "low level delivery boy" in
fencing scheme).
The evidence shows that Rosengard was far more than a
delivery boy. As Crazy Bob's buyer, Rosengard was LaPointe's
primary contact in virtually all of the stolen property
dealings, arranging which items would be purchased, for how
much, and how LaPointe was to be paid. Moreover, Rosengard
personally delivered the payments to LaPointe and personally
received the stolen Microsoft software. Rosengard was the only
defendant personally involved with making sales of the stolen
Office discs to some of Crazy Bob's buyers. Rosengard's claim
that "he did not sell the Windows95 or the Office 97 for his own
gain or business" is belied by his admission that he received
"approximately $20,000" in commissions for his role in the
purchase and sale of the stolen Office discs. Indeed, from
March 6 to July 10, 1997–-when most of the Office discs were
stolen-– Rosengard's salary jumped from $500 per week to $2,350
per week. The district court did not err in applying the ITB
enhancement.
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B. Robert Simons' Restitution and Supervised Release
Robert Simons pled guilty and received a sentence of
seventy months imprisonment, three years supervised release, and
restitution of $908,108. He now argues, for the first time,
that because he was not warned of the possibility of restitution
or supervised release in his Fed. R. Crim. P. 11 plea colloquy,
we should eliminate these portions of his sentence. Under these
circumstances, where there has been a failure by the defendant
to raise the error in the Rule 11 colloquy before the trial
court, we nevertheless will determine Rule 11 compliance for the
first time on appeal. See United States v. Martinez-Martinez, 69
F.3d 1215, 1219 (1st. Cir. 1995).7
The government concedes that Robert did not receive
these warnings. There is no question that the district court
should have warned Robert of the possibilities of supervised
release and restitution, as Rule 11(c)(1) explicitly requires.
The omission represented a partial failure to address Rule 11's
7The government suggests that Robert waived the right to
challenge the Rule 11 errors by proposing supervised release and
restitution in his sentencing memorandum, and hence cannot
challenge these errors on appeal. However, we find no waiver
because these recommendations at the time of sentencing did not
amount to "an intentional relinquishment or abandonment" of the
claim that the Rule 11 colloquy was defective. United States v.
Mitchell, 85 F.3d 800, 807 (1st Cir. 1996). These
recommendations are relevant, however, to the Rule 11 harmless
error inquiry. See infra.
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"core concern" that the defendant have "knowledge of the
consequences of the guilty plea." United States v. Bierd, 217
F.3d 15, 19 (1st Cir. 2000). However, even the partial failure
to address a core concern is harmless under Rule 11 if it does
not affect "substantial rights." Fed. R. Crim. P. 11(h) ("Any
variance from the procedures required by this rule which does
not affect substantial rights shall be disregarded.").8
Substantial rights are not affected by
a failure to fully explain the consequence of the guilty plea
where the defendant had no reason to expect a lesser penalty
than he ultimately received. See United States v. Raineri, 42
F.3d 36, 42 (1st Cir. 1994).
The failure to warn of supervised release was harmless
because Robert "receive[d] a combined sentence of imprisonment
and supervised release that was less than the maximum term of
imprisonment" of which he was warned." Id. (noting that in such
cases the error is ordinarily harmless). With respect to
8
It is not entirely clear whether a defendant raising a Rule
11 challenge for the first time on appeal must satisfy only the
harmless error test in Rule 11(h), or whether the defendant must
also show "a fundamental defect which inherently results in a
complete miscarriage of justice" or "an omission inconsistent
with the rudimentary demands of fair procedure." Martinez, 69
F.3d at 1219; see also Bierd, 217 F.3d at 19 (noting two
standards); Noriega-Milan, 110 F.3d 162, 166 n.4 (1st Cir. 1997)
(same); United States v. Miranda-Santiago, 96 F.3d 517, 522 &
n.9 (1st Cir. 1996) (same). We need not address this issue as
Robert's claim fails under either standard.
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restitution, we have previously held that "where a defendant who
is not warned of the potential for restitution is nevertheless
ordered to pay such restitution, but in an amount less than the
total potential criminal fine of which he was warned, the
arguable error is harmless." United States v. Gonzalez, 202
F.3d 20, 28 (1st Cir. 2000); see also Padin-Torres, 988 F.2d at
284. This principle, however, does not dispose of Robert's
claim. Although he was warned of the possibility of fines, the
plea colloquy did not make clear that the monetary assessment
could reach $908,108.
Still, there is no indication that the missing
information "led [Robert] to expect a lesser penalty than he
actually received." Raineri, 42 F.3d at 42. Robert has never
alleged that he was unaware that the restitution would be
ordered at the time he entered his plea, let alone that he pled
guilty in reliance on that belief. Moreover, the evidence
indicates that Robert was aware at the time of his plea that
monetary remunerations in these amounts could be required. At
the arraignment, Robert was told that the maximum fines on each
of the twenty-five counts against him ranged from $250,000 to
$925,000. Finally, Robert affirmatively requested a restitution
order at the time of his sentencing, suggesting that he had been
well aware of this possibility at the time of the plea hearing.
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As the Rule 11 errors were harmless, we need not consider the
unusual remedy Robert seeks (vacating the challenged portions of
the sentences rather than withdrawing the guilty plea). Cf.
Padin-Torres, 988 F2d at 284 (discussing this remedy).
C. Coviello's Role In Offense Adjustment
Coviello argues that the district court should have
found him to be a "minimal participant" (entitled to a four-
level decrease) or "minor participant" (entitled to a two-level
decrease) pursuant to USSG § 3B1.2. To be eligible for either
"role in the offense" adjustment, the defendant must demonstrate
that he was "substantially less culpable than the average
participant." United States v. Ocasio, 914 F.2d 330, 333 (1st
Cir. 1990) (quoting USSG § 3B1.2 commentary, background).
Coviello contends that he is entitled to at least "minor
participant" status because he participated in only one
transaction (the sale of 8,000 stolen Office discs) during the
two-year long conspiracy. Our review is for clear error. See
id.
For Coviello to obtain a "role in the offense,"
adjustment, he cannot simply show that he was a minimal or minor
participant in the conspiracy overall. He must demonstrate that
he was a minimal or minor participant in the conduct that formed
the basis of his sentence. See, e.g., United States v. James,
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157 F.3d 1218, 1220 (10th Cir. 1998) (where sentence "was based
not on the collective amount of drugs distributed by all members
of the conspiracy, but only on the amount of drugs distributed"
by the defendant, no role reduction is appropriate); United
States v. Atanda, 60 F.3d 196, 198 (5th Cir. 1995) ("When a
sentence is based on an activity in which a defendant was
actually involved, § 3B1.2 does not require a reduction in the
base offense level even though the defendant's activity in a
larger conspiracy may have been minor or minimal."); cf. United
States v. Neal, 36 F.3d 1190, 1211 (1st Cir. 1994) (defendant
"mistakenly refers to the overall conspiracy encompassing five
robberies as the benchmark for arguing that he played a minimal
role," rather than the offenses for which he was convicted).
Coviello's offense level was not based on the broader two-year
conspiracy: it was based only on the single transaction in which
Coviello engaged. Coviello received a fifteen-level increase
for his participation in the attempted sale of $3.9 million
worth of stolen Office discs. He did not receive the full
seventeen-level increase other defendants received for selling
all $17 million worth of stolen property.
Given these principles, the district court properly
found that Coviello's sentence was based on "his part in this
aspect of the conspiracy, as to which he was a full, not a minor
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participant." Coviello played a critical role in the sale of
the 8,000 stolen Office discs–-the largest single sale attempted
by Crazy Bob's, representing twenty-five percent of the total of
32,000 stolen Office discs. Coviello made the final
arrangements with the buyer; he sent sample discs; he had
custody of the stolen property and he delivered the property.
Coviello was also set to keep a full one-third of the proceeds
for the sale, amounting to about $80,000.
D. Downward Departure for Rosengard
Rosengard received a two-level downward departure
because the court found such a departure was needed "to provide
a rough proportionality amongst the various sentences for all
the participants so that this sentence, dictated by the
guidelines, is not out of sync . . . with the other sentences,
some of which have been arrived at by departures as well for
other reasons." Rosengard now argues that the district court
did not depart far enough because he was less culpable than
other defendants who received downward departures.
We have "no jurisdiction to review the extent of a
departure merely because the affected defendant is dissatisfied
with the quantification of the district court's generosity."
United States v. Pighetti, 898 F.2d 3, 4 (1st Cir. 1990); United
States v. Fisher, 3 F.3d 456, 464 (1st Cir. 1993) (no
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jurisdiction to hear claim that defendant was entitled to
greater downward departure because his sentence was "excessive
in light of the amount of time given to codefendant"). The
government also notes that any downward departure based solely
on the perceived need "to equalize sentencing outcomes for
similarly situated codefendants" is unlawful. United States v.
Kneeland, 148 F.3d 6, 16 (1st Cir. 1998) (collecting cases); see
also United States v. Rodriguez, 162 F.3d 135, 153 (1st Cir.
1998). As the government has not cross-appealed, this issue is
not before us. See United States v. Gonzalez-Vazquez, Nos. 98-
2108 & 98-2109, 2000 WL 967224, at *5 (1st Cir. July 18, 2000).
IV. Trial Errors
Maxine Simons and Coviello–-the two appellants who went
to trial–-raise several alleged errors by the trial court.
A. Motion for Judgment of Acquittal
The National Stolen Property Act applies, in relevant
part, to "[w]hoever transports, transmits, or transfers in
interstate or foreign commerce any goods, wares, merchandise,
securities or money, of the value of $5,000 or more, knowing the
same to have been stolen, converted or taken by fraud." 18
U.S.C. § 2314. Maxine argues that the district court should
have granted her motion for judgment of acquittal on the stolen
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property counts because the property consisted solely of CD-ROM
discs which were "virtually worthless," aside from the
intellectual property contained on them. Maxine relies on
Dowling v. United States, 473 U.S. 207, 216 (1985), in which the
Supreme Court held that 18 U.S.C. § 2314 does not apply to the
theft of copyrighted material without "physical taking of the
subject goods."
Maxine ignores the fact that Crazy Bob's committed
high-tech piracy the old-fashioned way--by buying and selling
more than 40,000 pieces of tangible stolen property. There is
no authority for Maxine's proposition that when the physical
property derives most of its value from its intellectual
content, the defendant cannot be prosecuted under § 2314.
Indeed, Dowling itself forecloses Maxine's argument. In
discussing the law of
§ 2314, the Supreme Court stated:
Nor does it matter that the item owes a
major portion of its value to an intangible
component. See, e.g., United States v.
Seagraves, 265 F.2d 876 (CA3 1959)
(geophysical maps identifying possible oil
deposits); United States v. Greenwald, 479
F.2d 320 (CA 6 1973) (documents bearing
secret chemical formulae) [citation]. But
these cases and others prosecuted under §
2314 have always involved physical "goods,
wares [or] merchandise" that have themselves
been "stolen, converted or taken by fraud."
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473 U.S. at 216. See also United States v. Brown, 925 F.2d
1301, 1308 n.14 (10th Cir. 1991) ("[F]or § 2314 to apply there
must be some tangible item taken, however insignificant or
valueless it may be, absent the intangible component.")
B. References To Maxine's Trial Attorney
Leatha Bowdoin, an employee of Crazy Bob's, testified
for the government at trial pursuant to a grant of immunity.
Although she had implicated Maxine Simons in her grand jury
testimony, her trial testimony presented Maxine as playing a
more minimal role. On redirect examination, the government
attempted to demonstrate that Bowdoin had a motive to slant her
testimony in favor of the defense. The government asked Bowdoin
whether Maxine was paying her attorney's fees, to which Bowdoin
answered "Maxine or myself. It hasn't been determined yet."
The government then asked whether, at her initial grand jury
appearance, she was represented by "the same or different
counsel as who was representing Robert and Maxine Simons at the
time." When Bowdoin answered "I believe it was the company's
lawyers," the government asked whether this meant she had been
represented by Mr. Sultan, one of Maxine's trial counsel.
Bowdoin responded that Sultan was indeed her lawyer during the
grand jury and she admitted that Crazy Bob's had paid those
fees.
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Maxine objected to this line of questioning and now
argues that the district court abused its discretion in
admitting the evidence because it was irrelevant, see Fed. R.
Evid. 401, and, even if relevant, unduly prejudicial, see Fed.
R. Evid. 403. In support, she cites our recent decision in
United States v. Gaines, 170 F.3d 72, 82 (1st Cir. 1999), as
laying down a broad rule against such evidence. It does no such
thing. In that case, Gaines was accused of supplying drugs to
Franklin, a government witness. As Gaines's defense was that he
barely knew Franklin and did not know he was involved in drugs,
we found Franklin's testimony that Gaines had once referred him
to an attorney to defend him on a drug charge "highly relevant."
Id. However, given that the actual identity of the lawyer was
not necessary to challenge Gaines' defense, we were troubled
that the government had "needlessly" elicited the fact that the
lawyer Franklin was referred to was the very same lawyer
defending Gaines at trial. Id. Although we found any error
harmless, we noted that this irrelevant fact "created the
troubling possibility that Gaines's choice of a trial attorney
could be used by the jury to draw a negative inference about
Gaines's involvement with drugs." Id.While Gaines makes clear that some evidence of prior
representations may be irrelevant and unduly prejudicial, the
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evidence of prior representation in this case was neither.
Bowdoin's trial testimony minimized Maxine's role in the
conspiracy and contradicted earlier statements. Thus, she
opened the door for the government to attack her credibility.
To show bias, it was relevant to show that Maxine might pay for
Bowdoin's attorney's fees at trial; that Maxine in fact had paid
these fees during the grand jury proceedings; and that Crazy
Bob's lawyers had provided the prior representation. The
government only brought out the fact that it was Maxine's trial
counsel, Sultan, who had provided the shared prior
representation when Bowdoin evaded a more general question about
whether they had shared the same lawyer during grand jury
proceedings. The only inference the jury might have drawn-–
that Bowdoin was slanting her testimony to protect Maxine in
part because she had been represented by Crazy Bob's lawyers and
might have her legal fees paid by Maxine–-was permissible.
Contrary to Maxine's protestations, where evidence of prior
representation is relevant and not unduly prejudicial, there is
no per se rule barring its admission. See United States v.
Frazier, 944 F.2d 820, 823-27 (11th Cir. 1991) (allowing
evidence of source of defendant's attorney's fees to show, in
perjury prosecution, the defendant's motive to cover up for her
employer); cf. United States v. Simmons, 923 F.2d 934, 948-49
-33-
(2d Cir. 1991) (holding that when members of alleged conspiracy
all used same attorney, and one member paid for attorney, the
multiple representation could be used to show the association
between clients provided other evidence existed of the
association).
C. Willful Blindness
The sole defense offered by Coviello and Maxine Simons
was that they lacked knowledge that the software was stolen.
The government requested, and the district court gave, a
standard "willful blindness" instruction.9 Maxine and Coviello
objected to the instruction, and they now appeal this ruling.
We review the propriety of a willful blindness instruction for
abuse of discretion. See United States v. Cunan, 152 F.3d 29,
39 (1st Cir. 1998).
A willful blindness instruction is appropriate "if [1]
a defendant claims a lack of knowledge, [2] the facts suggest a
9The court stated:
In addition, you may infer that a defendant
had knowledge of a particular fact if you
find beyond a reasonable doubt that he or
she deliberately avoided information about
the fact that would otherwise have been
obvious . . . . [This] does not mean that a
person's carelessness or mistake in failing
to learn about a fact would support an
inference of knowledge; it would not. There
must be a deliberate effort to remain
ignorant of the fact.
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conscious course of deliberate ignorance, and [3] the
instruction, taken as a whole, cannot be misunderstood as
mandating an inference of knowledge." United States v.
Richardson, 14 F.3d 666, 671 (1st Cir. 1994). Maxine and
Coviello challenge the second element,10 claiming that the facts
did not suggest that they were deliberately avoiding knowledge
that the products were stolen. In determining whether the
facts suggest the type of deliberate avoidance warranting an
instruction, we must consider whether the record evidence
reveals "flags" of suspicion that, uninvestigated, suggest
willful blindness. Richardson, 14 F.3d at 668, 671-672; see
also Gabriele, 63 F.3d at 66-67 (looking to presence of red
flags); Cunan, 152 F.3d at 39 (same).
There were sufficient "flags of suspicion" to justify
the instruction. Maxine knew that: (1) the supplier of the
stolen goods, LaPointe, used a business name ("Dave's Media")
that had no bank account or place of business, and that he told
her he was having trouble cashing checks in the business name;
10In her reply brief, Maxine argues for the first time on
appeal that the willful blindness instruction was inappropriate
because she was not raising a "lack of knowledge" defense. The
well-settled rule is that arguments made for the first time in
a reply brief are waived. See United States v. Brennan, 994 F.2d
918, 922 n.7 (1st Cir. 1993). In any event, the argument is
frivolous, as both Maxine's closing and her cross-examination
made plain that her only defense was that she did not know the
products were stolen.
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(2) that LaPointe insisted upon being paid in cash as the volume
of their dealings increased; (3) when LaPointe delivered goods
to Maxine, he never provided invoices, receipts or other
paperwork; (4) LaPointe discussed with Maxine issuing a $116,000
check to John Costello, whom Maxine falsely documented as an
employee. The jury could have also inferred that Maxine was
aware, through her employee Rosengard, that the computer goods
were picked up at a shed at a private home and that LaPointe
told Rosengard "ask me no questions and I'll tell you no lies"
on the one occasion when Rosengard asked about the source of the
goods.
Similarly, there were sufficient "flags" that Coviello
should have taken note of, including the fact that: (1) Knabb
referred to the Office discs in code as "Wheaties Boxes"; (2)
the $245,000 payment for the discs would be made in cash, after
delivering the CDs to a restaurant parking lot; (3) Coviello was
to personally receive about $80,000 for simply finalizing the
deal and delivering the product; (4) the Office discs did not
include any legitimate licenses, manuals, or other packaging;
(5) Crazy Bob's created a formula to fabricate unauthorized key
codes to access the software, which Coviello provided to Knabb;
and (6) the goods were unaccompanied by any documentation such
as a bill of sale, invoice or receipt.
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Coviello further argues that even if the "flags of
suspicion" were present, the instruction was inappropriate in
his case because he was prosecuted only for conspiracy, and the
instruction might cause a jury to conclude that he could join a
conspiracy without actually entering an agreement. This
argument is unpersuasive. The district court first gave
complete instructions on the conspiracy elements (emphasizing
that the evidence must show "that the defendant knowingly and
intentionally became a participant or member of the
conspiracy"), and only then turned to the instructions on the
substantive crimes, including the willful blindness instruction.
It is plain that the willful blindness instruction related to
whether the defendants knew that the property was stolen, not to
joining the conspiracy. As such, the instruction was proper.
See United States v. Hurley, 63 F.3d 1, 10 (1st Cir. 1995)
(instruction proper where district court gave detailed
explanation of conspiracy count and then gave willful blindness
instruction "aimed at the 'knowing' requirements of the
substantive counts"); United States v. Brandon, 17 F.3d 409, 453
n.75 (1st Cir. 1994) (rejecting claim that willful blindness
instruction was improper in conspiracy case where the
instruction "had to do with the finding that 'defendant acted
-37-
knowingly' and not with a finding that defendant willfully
joined the conspiracy.")
Affirmed.
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