United States v. Cottman ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
4-21-1998
United States v. Cottman
Precedential or Non-Precedential:
Docket 96-5492
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Filed April 21, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-5492
UNITED STATES OF AMERICA
v.
STANLEY COTTMAN,
Appellant.
On Appeal from the United States District Court
for the District of New Jersey
D.C. Criminal Action No. 95-cr-00661
Argued July 23, 1997
Before: SLOVITER, Chief Judge and ROTH, Circuit Judges
LUDWIG,1 District Judge
(Amended Opinion Filed 4/21/98)
Faith S. Hochberg
United States Attorney
Allan Tananbaum (Argued)
Assistant U.S. Attorney
Kevin McNulty
Assistant U.S. Attorney
Office of United States Attorney
970 Broad Street, Room 502
Newark, NJ 07102
Attorneys for Appellee
_________________________________________________________________
1. Honorable Edmund V. Ludwig, United States District Court Judge for
the Eastern District of Pennsylvania, sitting by designation.
Karim Arzadi (Argued)
Law Office of Karim Arzadi
163 Market Street
Perth Amboy, NJ 08861
Attorney for Appellant
OPINION OF THE COURT
ROTH, Circuit Judge:
Stanley Cottman pled guilty to one count of conspiracy to
possess, sell, and dispose of stolen property in violation of
18 U.S.C. S 371. He was sentenced to 10 months in prison,
a three year term of supervised release, and restitution in
the amount of $32,420, payable to the FBI. He has
appealed two aspects of the sentence imposed by the
district court. First, he claims that the district court
incorrectly applied a four point upward adjustment under
Sentencing Guideline S 2B1.1(b)(4)(B) on the basis that he
was "in the business of" receiving and selling stolen cable
equipment. Second, he contends that the district court had
no authority to order him to pay restitution to the FBI for
funds it spent as part of an undercover sting operation to
acquire the stolen cable equipment from him. Wefind no
error in the sentence enhancement under S 2B1.1(b)(4)(B)
and we will affirm that portion of the sentence. However,
because we conclude that the FBI was not a victim of
Cottman's offense, we will vacate that portion of the
judgment of sentence, imposing restitution, and we will
remand this case for resentencing.
I. Factual Background and Procedural History
Pursuant to an ongoing investigation of cable television
piracy, the FBI established an undercover warehouse
operation in Kenilworth, New Jersey. Agents equipped the
premises with video and audio recording devices. An
undercover FBI agent (the UCA) was the principal operator
of the warehouse. Transcripts and videotapes of
2
conversations, as well as other evidence developed as part
of the sting, revealed the following events:2
On February 7, 1995, the UCA in a consensually
monitored telephone conversation, spoke to a person
known to the UCA as Frank Russo. Russo advised the UCA
that an individual known as George "the Animal" Kanter
expected to obtain approximately 80 General Instrument
Corporation (GI) cable boxes within a week. Russo inquired
whether the UCA would act as a "middle man" and receive
the boxes on his behalf. The terms of the transaction called
for a total cost of $150 per unit, which broke down into
$130 for the merchandise, $10 for Kanter's commission,
and $10 for the UCA. Russo further explained that, as this
was a "green deal," cash up front would be required. Russo
asked the UCA to front the cash for him because he would
be detained in Florida and unable to bring the money up
personally. When the UCA agreed to broker the deal, Russo
stated that he would have Kanter contact the UCA
immediately.
_________________________________________________________________
2. The Pre-Sentence Report (PSI) also discussed statements provided by
an anonymous source who advised the FBI in December 1994 about
many of Cottman's alleged activities. The Source made an
uncorroborated statement that sometime in 1994 or 1995 Cottman had
been involved in an armed robbery of a cable store in Philadelphia,
Pennsylvania, with another individual known only to the Source as "Al."
Al received approximately 70% of the proceeds from selling the units
obtained in the heist and $5,000 for his role in the robbery, while
Cottman received $14,000. See PSI at P 12.
The Source also disclosed details about Cottman's trade in cable
boxes. According to the Source, Cottman had suppliers from Baltimore
to New York who fed him cable boxes, chips, and cellular phones. The
Source indicated that Cottman sold an average of 300 to 400 stolen
General Instrument cable boxes per month. The Source also stated that
Cottman had branched out into reselling stolen vehicles. PSI P 13.
Finally, the source identified a number of Cottman's alleged sources.
These included individuals identified as Walay, Leo "the Chinaman" from
New York, Roger, Frank, and Kevin. The Source stated that Kevin was a
resident of Philadelphia and heavily involved in stolen credit cards and
cable boxes. The source credited Kevin with providing Cottman with
approximately 100 cable boxes per month. PSI P 14.
3
Within minutes the UCA heard from Kanter. Kanter
stated that he had 65 units and that "his guy," was going
to get more. Kanter said he would be in touch again when
they were ready to do the deal.
The following day, February 8, 1995, Kanter again
contacted the UCA. Kanter stated that "his guy" should be
back that day, that he would have the total number of
units by that night, and that a meeting would be arranged
shortly.
On February 10, Kanter and "his guy" Stanley Cottman
delivered about 70 boxes containing 65 GI baseband units,
many of which appeared to be in brand new unopened
shipping cartons. The UCA paid $8,650 in cash to Cottman
and $650 to Kanter. During the meeting, Cottman removed
all of the serial numbers from the cartons and instructed
the UCA to remove all the stickers from the original boxes.
Cottman also took the opportunity to elaborate on his
involvement in the illegal cable box trade. Cottman boasted
that "[A]t one point I get 3 hundred . . . . See, I deal with
the same ole people over and over and over, the same ole
people, no problems. . . . It's slow now since the people we
deal with is so good, they get stuff even if it's slow . . . ."
Later investigation revealed that at least 52 of the 65 GI
units were brand new. Approximately 9 of the units had
been shipped in late December 1994 to TCI Cablevision in
Baltimore, Maryland, while the remaining units had been
shipped to Comcast Corporation in Philadelphia just eleven
days before the sale.
Cottman, without Kanter, returned to the UCA's
warehouse on February 19, 1995, to consummate another
deal. Cottman explained that he had left Kanter out of this
transaction because he was unsure of his ability to obtain
the boxes. Cottman produced 75 GI baseband cable boxes
for which the UCA paid him $10,500.
The UCA engaged Cottman in further discussion about
his involvement in illegal cable box trafficking. At one point
Cottman said to Kanter: "It started out with one and two to
where me and him was moving thousands . . . a week. So
I had met a lucky connection up here." Cottman also
repeated his assertion that, although he usually got 100 or
4
200 units per week, at one time he was pulling in about
300 cable boxes a week from his sources. With further
inquiries from the UCA, Cottman explained that the people
he worked with at the cable companies would pilfer the
cable boxes by simply erasing them from the inventory lists
on the companies' computers.
Later investigation again revealed that 64 of the 70
baseband units Cottman sold to the UCA were new. All 64
had been shipped to TCI in Baltimore on February 7 and 8,
1995, and received on February 13 and 14. Of these, 62
had been in the possession of Excalibur Cable
Communications, Ltd., of Baltimore and had allegedly been
stolen in a strong arm robbery of one of its employees,
Steven Holder, on the evening of February 17, 1995, just
two days before Cottman sold them to the UCA.
Cottman later denied any involvement with the robbery
or knowledge of how he came to acquire the Excalibur
Cable boxes, insisting that all the cable boxes had been
provided by an Englishman named "Roger." However,
telephone records indicated that calls were made from
Cottman's residence to Holder on February 9, 19, and 26,
1995. Furthermore, Cottman's "800" number telephone
records showed that he was called by Holder's supervisor,
Dwight Chew, on January 15, 1995.
Finally, on February 21, 1995, Cottman and Kanter
together came to the warehouse to deliver about 86 GI
baseband cable boxes in exchange for $13,280 paid to
Cottman and $1650 paid to Kanter. Cottman again
physically removed the serial numbers from the outside
packing cartons and instructed the UCA that the serial
numbers needed to be stripped from the individual boxes.
Later investigation revealed that 40 of these units had been
shipped to Comcast of Philadelphia and TCI of Baltimore in
February 1995.
In these three transactions, Cottman sold a total of 231
cable boxes for $34,730.3
_________________________________________________________________
3. The restitution of $32,420, which the the district court ordered
Cottman to pay, has had the amount paid to Kanter, $2,310, deducted
from the total payments of $34,730.
5
Cottman was indicted on one count of conspiring to
possess and sell stolen cable equipment, valued in excess
of $5,000, that had crossed state lines in violation of 18
U.S.C. S 371, and three substantive counts charging him
with the receipt and sale of stolen cable equipment, valued
in excess of $5,000, that had crossed state lines in violation
of 18 U.S.C. SS 2 and 2315. Federal authorities arrested
Cottman on March 7, 1995, at his residence in Perth
Amboy, New Jersey.
Cottman made a voluntary statement to the FBI following
his arrest in which he stated that he had been employed
with RTK Cable Company and had run a sideline business
called Incognito Sound Labs, Inc., which he operated out of
a public storage facility. According to Cottman, the
principal focus of his business was the installation of car
radios, for which he would charge $500. Cottman also
admitted that he had in the past worked for various cable
companies in order to make contacts who would later
provide him with cable boxes.
After negotiations, a written plea agreement was reached.
Pursuant to the agreement, Cottman entered a guilty plea
to the conspiracy count on March 7, 1996. The district
court then dismissed the three substantive counts of the
indictment.
On July 22, 1996, Cottman was sentenced by the district
court to a 10-month prison term to be followed by 3 years
of supervised release. As a special condition of supervised
release, the court ordered Cottman to pay as restitution the
$32,420 expended by the FBI to acquire the stolen cable
boxes from him. The district court denied Cottman's
request for bail pending appeal.4
Cottman immediately filed his notice of appeal. The
notice was dated July 22, 1996, but was not filed by the
clerk until July 25, 1996. One day later the district court
entered its final judgment and order of commitment.5
_________________________________________________________________
4. This Court denied a similar motion by Cottman on August 29, 1996.
5. While at one time this sequence of events might have been fatal to
Cottman's appeal, see United States v. Matthews, 462 F.2d 182, 183-84
(3d Cir. 1972), the rule is now firmly established in this Circuit that a
6
II. Sentencing Issues
A. Mootness
As a preliminary matter, we must consider the fact that
Cottman has completed his ten month term of
incarceration, leaving only his three years of supervised
release to be served.6 We must determine whether the
completion of his term of imprisonment has mooted
Cottman's challenge to the district court's application of the
"in the business" enhancement.
Although the Seventh and Eleventh Circuits have
determined that challenges of the length of defendants'
sentences are no longer viable after the defendant has been
released from custody, see, e.g., United States v. Ross, 77
F.3d 1525, 1549 n.6 (7th Cir. 1996); United States v.
Farmer, 923 F.2d 1557, 1568 (11th Cir. 1991), we do not
agree. We conclude that a finding of mootness is forestalled
here because Cottman may still suffer " ``collateral legal
consequences' from a sentence already served."
Pennsylvania v. Mimms, 434 U.S. 106, 108 n.3 (1977) (per
curiam).
Two considerations, both of which are products of
the Federal Sentencing Guidelines, lead us to this
determination. First, the S 2B1.1(b)(4)(B) "in the business"
_________________________________________________________________
premature notice of appeal in a criminal case can ripen into valid notice
of appeal when the district court enters the judgment of sentence. See
United States v. Hashagen, 816 F.2d 899, 900-06 (3d Cir. 1987) (in
banc). The revised rule comes with the proviso that a premature notice
is prejudicial and will not preserve the appeal if it "is filed so early
that
it does not properly apprise the opposing party of its intention to appeal
the final judgment." Id. at 903.
We have no need to invoke the proviso here. Cottman's notice, while
premature, was filed just one day before the entry of the judgment of
sentence. The district court docket reveals no events intervening between
Cottman's notice and the entry of final judgment. Indeed, this Court has
considered this exact situation previously and found the notice of appeal
adequate to confer appellate jurisdiction. See United States v. Console,
13 F.3d 641, 649 n.3 (3d Cir. 1993).
6. Cottman's attorney informed us of this fact at oral argument.
7
sentencing enhancement increases Cottman's Criminal
History Category from I to II for any future convictions. See,
e.g., United States v. Kassar, 47 F.3d 562, 565 (2d Cir.
1995); United States v. Chaves-Palacios, 30 F.3d 1290,
1292-93 (10th Cir. 1994); United States v. Dickey, 924 F.2d
836, 838 (9th Cir. 1991). The district court's application of
the enhancement increased Cottman's total offense level
from ten to twelve, pushing him from Zone B to Zone C on
the Sentencing Table which determines his guideline range.
See U.S.S.G. S 5A (1995). Because his sentence placed him
in Zone C, Cottman no longer qualified for a sentence of
probation in lieu of imprisonment. See U.S.S.G. SS 5B1.1 &
5C1.1 (1995). Cottman, as a result, acquired two, rather
than one, criminal history points. The net outcome is that
a sentence for any future conviction which may be imposed
upon Cottman under the Guidelines will be significantly
increased.
Second, if we were to find an error in the application of
the "in the business" enhancement, the appropriate
sentencing range would be reduced from 10-16 months to
6-12 months. See U.S.S.G. S 5A. This reduction would
likely merit a credit against Cottman's period of supervised
release for the excess period of imprisonment to which
Cottman was subjected. See United States v. Fadayini, 28
F.3d 1236, 1241 (D.C. Cir. 1994).
For these reasons, we do not consider Cottman's appeal
to be moot even though he has served the imprisonment
portion of his sentence.
B. Application of the "In the Business" Enhancement
The first of Cottman's challenges to his sentence is to the
district court's application of the four level sentencing
enhancement for persons in the business of receiving and
selling stolen property. See U.S.S.G. S 2B1.1(b)(4).7 This
_________________________________________________________________
7. Section 2B1.1(4) provides:
(A) If the offense involved more than minimal planning increase by
2 levels; or
(B) If the offense involved receiving stolen property, and the
defendant was a person in the business of receiving and selling
stolen property, increase by 4 levels.
8
enhancement is seen as a more severe punishment for
"people who buy and sell stolen goods, thereby encouraging
others to steal, as opposed to thieves who merely sell the
goods which they have stolen." United States v. Sutton, 77
F.3d 91, 93 (5th Cir. 1996).
At sentencing, the district court in its bench ruling
extensively discussed United States v. King, 21 F.3d 1302(3d Cir. 1994), the lone decision of this Circuit interpreting
the "in the business" enhancement of U.S.S.G. S 2B1.1. In
addition, the court thoroughly reviewed the evidence
adduced by the parties. The district court found that
"Cottman had a steady source of stolen cable boxes that
was generated from more than one robbery or theft" and
concluded that the operation in which Cottman participated
was a sophisticated one given that "his source of cable
boxes appear [sic] to have been persons employed by cable
companies who obtained the boxes in part by deleting the
boxes from the companies' inventories to conceal their
theft." Based on these findings the court found that
Cottman was "clearly an integral part of this operation" and
deserved the sentencing enhancement even if he was not
the "criminal mastermind" behind it.
In King, we briefly reviewed the approaches taken by
other circuits that have considered a defendant's eligibility
_________________________________________________________________
U.S.S.G. S 2B1.1 (Nov. 1, 1995).
This enhancement has a much traveled history in the Guidelines. It
first appeared with the initial promulgation of the Guidelines in 1987 at
S 2B1.2(b)(2)(A). As of January 1988, this language was relocated within
the same section at S 2B1.2(b)(3)(A), where it remained until November 1,
1990. See U.S.S.G. App. C., amend. 8. As of that date it was again
moved within the same section to S 2B1.2(b)(4)(A). See U.S.S.G. App. C.,
amend. 312. Finally, as of November 1, 1993, U.S.S.G. S 2B1.2 was
deleted and consolidated with U.S.S.G. S 2B1.1. From that point until
the present this provision has remained in that location. See U.S.S.G.
App. C., amend 481.
As originally promulgated, the section spoke only of "selling stolen
property." The Commission amended it in November 1989 to add the
words "receiving of" immediately before this language. See U.S.S.G. App.
C., amend. 102 (Nov. 1, 1989).
9
for the four point "in the business" enhancement. King, 21
F.3d at 1306. We turned to the First Circuit's decision in
United States v. St. Cyr, 977 F.2d 698 (1st Cir. 1992),
which set out the "totality of the circumstances" test. King,
21 F.3d at 1306. The St. Cyr court's approach placed
"particular emphasis on the regularity and sophistication of
a defendant's operation." St. Cyr, 977 F.2d at 703. We
explained that "regularity of conduct is one universal
thread in virtually all legal definitions of business." King, 21
F.3d at 1307 (quoting St. Cyr, 977 F.2d at 703-04). We
further elaborated that where the government offers proof
only of a defendant's irregular and occasional sales, it must
also provide "evidence upon which to base a conclusion
that . . . irregular and occasional sales underrepresented
the scope of his criminality or the extent to which he
encouraged or facilitated other crimes." Id. at 1308.
Cottman, however, argues that the enhancement was
improperly applied to him. Indeed, the Probation Office did
not include the "in the business" enhancement in
computing Cottman's Guidelines offense level.8 Cottman
first maintains that he was nothing more than a "low level
delivery boy." Cottman claims that he merely obtained the
cable boxes for resale from an Englishman named "Roger"
and that the sentencing enhancement is inapplicable
because Cottman was merely a middleman to Roger, the
true fence. To support this contention, Cottman asks
rhetorically why, if he was the "mastermind" of the scheme,
did he only remove the serial numbers from the outside of
the cartons, leaving the serial numbers actually attached to
the cable boxes for later removal.
Cottman's implicit assumption that the "in the business"
enhancement requires proof that he was the leader,
organizer, or driving force behind the operation is
_________________________________________________________________
8. The Pre-Sentence Investigative Report prepared by the Probation Office
imposed only the two point sentencing enhancement for the commission
of an offense involving more than minimal planning. See PSI P 34 (citing
U.S.S.G. S 2B1.1(b)(4)(a)). The Probation Office, over the Government's
objection, declined to apply the four point enhancement of U.S.S.G.
S 2B1.1(b)(4)(B), citing a lack of evidence that Cottman had committed
other acts of buying or selling stolen property. See Addendum to PSI, at
18-19.
10
misguided. Nothing in language, commentary, or
amendment history of U.S.S.G. S 2B1.1(b)(4)(B) suggests
that to earn the enhancement the defendant must be the
criminal "mastermind" behind the scheme. Nor does
Cottman produce any case law to this effect. Indeed, the
Sentencing Guidelines already provide for a two point
enhancement "[i]f the defendant was an organizer, leader,
manager, or supervisor of any criminal activity." U.S.S.G.
S 3B1.1(c) (Nov. 1, 1995). Thus, even if Cottman were
merely a "delivery boy" for the "true fence," his involvement
could be sufficient to warrant the enhancement.
Second, Cottman asserts that the three transactions in
which he participated do not establish a pattern of
trafficking in stolen goods with sufficient regularity to
support the enhancement. According to Cottman, the
record does not support the conclusion that he trafficked in
stolen cable boxes on occasions other than those for which
he was convicted. He dismisses his statement that he
regularly received up to 300 cable boxes per week as mere
puffery designed to impress his fellow conspirators.
Cottman's position is, however, belied by the facts adduced
at sentencing. Cottman's boasting about his history of
trafficking in illegal cable boxes, captured as it was on
video and audio tape, is a sufficient foundation from which
the district court could have concluded that he had
previously engaged in fencing activities. See, e.g., United
States v. Rosa, 17 F.3d 1531, 1551 (2d Cir. 1994),
(approving of application of enhancement where inter alia,
defendant "made clear that these were not hisfirst
transactions"); United States v. Russell, 913 F.2d 1288,
1294 (8th Cir. 1990) (same, where, inter alia, defendant
made "statement to an informant that he could supply
stolen checks, jewelry, and credit cards").
Implicit in this argument is Cottman's belief that the
sentencing enhancement cannot stand without proof that
he participated in transactions other than the three which
underlie his conviction. However, even if we were to assume
that the district court had before it proof only of the three
transactions of the conspiracy conviction, we would still
uphold the district court's application of the "in the
business" enhancement. Contrary to Cottman's suggestion,
11
it is not the law in this Circuit that the enhancement
cannot lie absent proof that the defendant has previously
engaged in "fencing" activities.
Our decision in King is not to the contrary.9 There we
merely distinguished a Fifth Circuit decision which made
the broad statement that an "in the business enhancement"
does not require a finding that a defendant has previously
engaged in the fencing of stolen property. See King, 21 F.3d
at 1306-07 (citing United States v. Esquivel, 919 F.2d 957,
960 (5th Cir. 1990)). We did not, however, hold that a
defendant must in all cases have been involved in previous
illicit transactions to warrant the enhancement.
Other Circuits have held that the enhancement remains
appropriate without proof of past sales of stolen property.
See, e.g., United States v. Sutton, 77 F.3d 91,93-94 (5th Cir.
1996) (holding that "a criminal can be ``in the business' of
fencing even though this is his first time to fence); United
_________________________________________________________________
9. We had no occasion in King to consider the merits of the "fence" test
developed by the Seventh Circuit and since adopted by the First, Fifth,
and Sixth Circuits. See United States v. Braslawsky, 913 F.2d 466, 468
(7th Cir. 1990); United States v. McMinn, 103 F.3d 216, 219-21 (1st Cir.
1997); United States v. Warshawsky, 20 F.3d 204, 214-15 (6th Cir.
1994); United States v. Esquivel, 919 F.2d 957, 960 (5th Cir. 1990). This
test limits application of S 2B1.1(b)(4)(B) to a "professional fence and
not
a person who sells property that he has already stolen." Braslawsky,
917 F.2d at 468. Although some Circuits have described the "totality of
the circumstances" approach, upon which this Court relies, as a
"competing test," see, e.g., United States v. Peysano, 104 F.3d 191, 192
(8th Cir. 1997), nothing we said in King forecloses us from requiring in
the future that a defendant be a "fence" for the enhancement to apply.
Indeed, the First Circuit, which formulated the"totality of the
circumstances" test, has recently indicated that proof that a defendant
was in the business of receiving and selling stolen property is a
prerequisite to the four level increase. See McMinn, 103 F.3d at 222.
Moreover, we have no need to revisit the question here. Cottman does
not contend that he was the "thief," and there is ample evidence that the
majority of cable boxes, sold by Cottman, were actually pilfered by
others. Cf. McMinn, 103 F.3d at 222 ("Nothing prevents a professional
thief from also conducting a fencing operation of sufficient size and
continuity to qualify for the ITB enhancement; criminals, too, may have
more than one line of business.") (dictum).
12
States v. Salemi, 46 F.3d 207, 210-11 (2d Cir. 1995). But
see United States v. Connor, 950 F.2d 1267, 1275 (7th Cir.
1991) (suggesting that a defendant must have "engaged in
sufficient illegal conduct which is similar to the instant
offense").
The preponderance of the evidence here clearly
establishes that Cottman filled a "fencing" role, and thereby
created a market for those who would steal cable boxes by
force or stealth. Indeed, Cottman even admitted that he
took jobs in cable companies for the express purpose of
encouraging people within those companies to steal cable
boxes for him. PSI P 24.
The Government also asserts that "lack of regularity can
be made up for in a given case by a strong showing of
sophistication." Although we do not address this point in
King, the First Circuit's decision in St. Cyr, upon which
King draws heavily, speaks to it:
We can easily imagine situations in which a fencing
business, although very much a business, has been
recently launched and therefore traces no historical
pattern. In order to distinguish a new-to-the-business
fence from an amateur, however, the government must
at least offer a meaningful proxy for regularity, say, by
showing that the operation crossed a threshold of
sophistication and commitment.
St. Cyr, 977 F.2d at 704. This conclusion is consistent with
King's holding that the government can sustain application
of the enhancement, where sales are only "irregular or
occasional," if the sales underrepresent the true "scope of
the defendant's criminality or the extent to which he
encouraged or facilitated other crimes." King, 21 F.3d at
1308.
There is abundant evidence that the operation in which
Cottman took part was run with a large measure of
professionalism. In the Government's recordings, Cottman
extensively discusses the preparations he put into
developing sources. After his arrest, Cottman admitted that
he had taken jobs with cable companies in order to
cultivate contacts who would acquire boxes for him. Those
contacts were sophisticated enough to manipulate
13
computer systems at the cable companies to delete the
stolen boxes from inventory. And, notwithstanding
Cottman's ill-considered choice to ask the UCA to delete the
serial numbers for him, Cottman demonstrated an
awareness of measures which would help to elude
detection.
Finally, Cottman argues that the district court should
have given greater weight to the fact that he has held down
legitimate employment in the cable industry for many
years. Asserting that he "clearly is not a millionaire,"
Cottman suggests that his lifestyle and employment is
inconsistent with the criminal history attributed to him.
However, the fact that a defendant continues to hold down
a legitimate job does not foreclose an enhancement. See,
e.g., St. Cyr, 977 F.2d at 703 ("In searching for evidence of
regularity, we do not suggest that the selling of stolen
property must be the dominant source of a defendant's
income before his felonious activities become sufficiently
prominent to be regarded as a business."). The district
court's incredulity was warranted here since Cottman's
legitimate line of business also neatly facilitated his ability
to obtain illegal cable boxes. See PSI P 24.
In sum, the district court did not err in imposing the
U.S.S.G. S 2B1.1(b)(4)(B) enhancement. The evidence easily
supports the characterization of Cottman's activities as
regular and sophisticated.
C. Restitution of the Government's "Buy Money"
Cottman also disputes the district court's imposition, as
a condition of supervised release, of an order requiring him
to make restitution to the FBI for the money it paid him to
acquire the illegal cable boxes. Cottman argues that "the
Government voluntarily spent the money to buy the boxes,"
and therefore "was not the victim of the incident."
In the district court, the Government sought restitution
to the FBI as a condition of Cottman's supervised release.
The Government proffered alternate rationales for this
order. First, the Government argued that its request could
be sustained under the Victim Witness Protection Act
14
(VWPA), 18 U.S.C. S 3663 to 3664 (1985 & supp. 1995).10
Second, the Government asserted that the supervised
release statute, 18 U.S.C. S 3583 (1985 & supp. 1995),
provided an independent basis for an order of restitution.
See Dep't of Justice Letter of July 10, 1996, Appendix at
25-32.
The district court declined to order restitution under the
VWPA, finding that the FBI was not a "victim" of Cottman's
offense within the meaning of the Act. Appendix at 44-46.
However, the district court then proceeded to find that
Cottman could be required to reimburse the Government's
buy money under the supervised release statute. The
district court ruled from the bench that, pursuant to 18
U.S.C. S 3583(d), Cottman would be ordered to repay the
FBI as a condition of his supervised release since this
condition involved "no greater deprivation of liberty than is
reasonably necessary for the purposes of affording adequate
deterrence to criminal conduct." Appendix at 50.
The district court chose not to award restitution under
the VWPA because the prevailing view is that ordinarily the
Government cannot be a "victim" under the VWPA when its
losses were incurred as a result of its having provided the
"buy" money used in a government sting which led to the
defendant's arrest.11 See Appendix at 46 ("[T]he FBI, I find,
is not a victim of defendant Cottman's offense and the
_________________________________________________________________
10. The Mandatory Victims Restitution Act of 1996, enacted as Tit. II,
Subtitle A, of the Antiterrorism and Effective Death Penalty Act of 1996
(AEDPA), Pub. L. No. 104-132, Apr. 24, 1996, 110 Stat. 1227,
substantially revised the restitution scheme. Its provisions are not,
however, directly applicable to this case. AEDPA Subtitle B contains an
effective date provision providing that "[t]he amendments made by this
subtitle shall, to the extent constitutionally permissible, be effective
for
sentencing proceedings in cases in which the defendant is convicted on
or after the date of enactment of this Act." AEDPA S 211. Cottman
entered a plea of guilty on March 7, 1996, while AEDPA was not signed
into law until April 24, 1996.
11. See, e.g., United States v. Meacham, 27 F.3d 214, 218-19 (6th Cir.
1994); United States v. Salcedo-Lopez, 907 F.2d 97, 98 (9th Cir. 1990);
Gall v. United States, 21 F.3d 107, 111-12 (6th Cir. 1994); United States
v. Daddato, 996 F.2d 903, 905 (7th Cir. 1993); United States v. Findley,
783 F. Supp. 1123, 1127 (N.D. Ill. 1991).
15
$34,740 [sic] is not recoverable under the VWPA.");
Appellee's Br. at 26 (conceding in respect to restitution
orders requiring repayment of buy money as a condition of
probation, "such disgorgement is arguably improper under
the restitution statutes, given that they focus squarely on
compensation to victims and not punishment").
We have not yet had to determine whether the VWPA
allows restitution to the government for funds expended in
a sting, such as we have here.12 However, the other circuits,
which have considered the question, have held that
investigative costs and voluntary expenditures by the
government to procure evidence are not losses. See, e.g.,
United States v. Khawaja, 118 F.3d 1454, 1460 (11th Cir.
_________________________________________________________________
12. Although the government suggests otherwise, we have issued no
decisions inconsistent with the view that costs of prosecution generally
are not recoverable by the government. In the first case cited by the
government, United States v. Hand, 863 F.2d 1100 (3d Cir. 1988), the
appellant had pled guilty to one count of criminal contempt arising out
of improper contact she had had, while a juror in a criminal case, with
a defendant. Id. at 1101-02. As a result of her improper contact, the
trial
judge was forced to vacate the convictions of six defendants. Id. at 1102.
The district court made it a condition of the appellant's probation that
she make restitution to the government for the costs of reprosecuting the
five defendants whose convictions had been voided. Id. We concluded
that the United States Attorneys' Office was a victim directly affected by
the appellant's criminal conduct since resources expended in obtaining
the original convictions were wasted. Id. at 1103-05.
In the second case, United States v. Kress, 944 F.2d 155 (3d Cir.
1991), the appellant had been convicted for his role in a scheme to
defraud the United States Department of Defense on several contracts to
provide the military with educational and employment training
programs. Id. at 157 & n.1. The appellant, as a condition of probation,
was ordered to repay the government $300,000 overfive years with
interest at a rate of 18% per annum. Id. at 157. We concluded that
"defendants may be required under the VWPA to pay restitution to
federal governmental bodies as a special condition of probation." Id.(citing Hand). Further, we held that the interest was properly imposed
since it facilitated the Act's goal of fully compensating the victim, here
the government. Id. at 159-60.
Both of these cases are, however, distinguishable since in each the
government was an unwilling participant in the defendant's criminal
activity and suffered direct and substantial losses therefrom.
16
1997); United States v. Gibbens, 25 F.3d 28, 36 (1st Cir.
1994); United States v. Meacham, 27 F.3d 214, 218 (6th
Cir. 1994); United States v. Salcedo-Lopez, 907 F.2d 97, 98
(9th Cir. 1990). We will follow this well considered
construction of the VWPA and hold that, when the
government chooses to apprehend offenders through a sting
operation, the government is not a "victim" under the
provisions of the VWPA.
However, the district court awarded restitution, not
under the VWPA, but under 18 U.S.C. S 3583(d).13 Section
3583(d) of the supervised release statute authorizes the
imposition of certain of the discretionary conditions of
probation, set forth in 18 U.S.C. S 3563(b) (1985 & supp.
1995). When Cottman was sentenced, S 3563(b)(3)
permitted the district court to order a defendant as a
condition of probation to "make restitution to a victim of
the offense under sections 3663 and 3664 . . .."
_________________________________________________________________
13. In imposing "restitution" as a condition of supervised release, the
district court did not indicate what portion ofS 3583(d) it was referring
to. Section 3583(d) grants the sentencing judge discretion to:
order, as a further condition of supervised release, to the extent
that
such condition--
(1) is reasonably related to the factors set forth in section
3553(a)(1), (a)(2)(B), (a)(2)(C), and (a)(2)(D);
(2) involves no greater deprivation of liberty than is reasonably
necessary for the purposes set forth in section 3552(a)(2)(B),
(a)(2)(C), and (a)(2)(D); and
(3) is consistent with any pertinent policy statements issued by
the Sentencing Commission pursuant to 28 U.S.C.S 994(a);
any condition set forth as a discretionary condition of probation
in
section 3563(b)(1) through (b)(10) and (b)(12) through (b)(20), and
any other condition it considers to be appropriate.
18 U.S.C. S 3583(d) (emphasis added). The district court may, therefore,
have been referring to the "discretionary conditions of probation" prong
or to the "any other condition" catch-all prong. Since, however, the
condition of probation being imposed was "restitution," we conclude, for
the reason we state infra, that "restitution" must have been imposed
under S 3563(b).
17
The District Court employed the term "restitution" when
imposing repayment at the sentencing hearing. Appendix at
59. The amount of the repayment is also entered under
"Restitution" on the Judgment form. Appendix at 16.
Because this condition of supervised release was specified
to be "restitution" and because it is S 3563(b) which permits
the imposition of "restitution" as a condition of supervised
release, we conclude from the use of this term that the
order of restitution must follow the provisions of S 3563.
Otherwise, the "catch-all" exception prong of S 3583(d)
would swallow the rule.
For this reason, we conclude that the order incorporated
by reference S 3563(b)'s terminology "restitution to the
victim" (emphasis added). Thus, we again are faced with the
requirement that restitution be made to a "victim." We
cannot see how the FBI can be a "victim" under S 3563(b)
if it is not a "victim" under the VWPA. We feel obliged to
conclude that the statutory provisions are parallel in their
definition of "victim." See Gall v. United States, 21 F.3d
107, 111 (6th Cir. 1994) (holding that "S 3583(d) via its
reference to . . . S 3563(b)(3) requires restitution to conform
with provisions of the VWPA").14
On remand, it may be that other victims of Cottman's
offense can be ascertained. However, for the reasons stated
above, we hold that the FBI was not a victim and, as a
result, the conditions of Cottman's supervised release
cannot include a requirement that he pay restitution to the
FBI.15
_________________________________________________________________
14. The dissent voices the concern that "a person who knowingly sells
stolen merchandise should not be permitted to profit from the sale. . . .
The taxpayer . . . should not have to bear the cost of ``buy money.' The
. . . money involved has gone into the defendant's pocket and to the
extent practicable should be recovered." Dissent at 26. We are not
unsympathetic with this point of view. We note, however, that in future
cases the district court may consider imposing afine which is equivalent
to the amount of any buy money a defendant has received from the
Government. See U.S.S.G. S 5E1.2.
15. Because the district court may choose to consider other conditions of
supervised release, we remand rather than reverse. We note, however,
that at sentencing the district judge noted that Cottman did not have the
ability to pay a fine. Appendix at 59.
18
III. Conclusion
In view of the aforesaid, Cottman's judgment of sentence
will be affirmed insofar as it imposed a term of
imprisonment with an enhancement under S 2B1.1(b)(4)(B).
We will, however, vacate the conditions of supervised
release portion of the judgment of sentence, imposing the
condition of payment of restitution to the FBI. We will
remand this case to the district court for resentencing.
19
LUDWIG, District Judge, concurring and dissenting:
I join in the majority's decision on lack of mootness and
affirmance of the application of the four level "in the
business" Guidelines enhancement. U.S.S.G. S 2B1.1. I
respectfully dissent from its decision to vacate the condition
of supervised release requiring repayment to the
government of $32,420 in "buy money" provided to
defendant by the FBI. Defendant received those monies, in
various installments, from an undercover agent in exchange
for 231 stolen TV boxes - the subject matter of the
conspiracy charge to which defendant pleaded guilty. The
crime occurred in 1995, and the defendant was sentenced
on July 22, 1996.
The majority holds that restitution of "buy money" is not
an authorized condition of supervised release under the
Victim Witness Protection Act of 1982, 18 U.S.C. SS 3663-
3664 (1985 & supp. 1995) or the supervised release
statute, 18 U.S.C. S 3583 (1985 & supp. 1995). Its
reasoning is that the expenditure of "buy money" is a cost
of law enforcement and does not qualify the government as
a "victim" - the traditional prerequisite of restitution. I
agree with that analysis as relates to the VWPA.1 However,
I do not believe it is necessary to decide that issue in
applying the supervised release statute to this case. First,
the sentencing judge did not intend to order "restitution" in
the victim-related sense of the word - which is the
underlying premise of the majority's conclusion. Second, I
would hold that the repayment of "buy money" is
authorized as a discretionary condition of supervised
release under 18 U.S.C. S 3583(d)(3).
_________________________________________________________________
1. 18 U.S.C. SS 3663-3664. See United States v. Gibbens, 25 F.3d 28, 32
(1st Cir. 1994) ("[T]he government is not a``victim' for purposes of the
VWPA [and may not be awarded restitution] to the extent that it incurs
costs in the clandestine provocation of a crime that, if carried to
fruition
under ordinary circumstances, would not directly harm the
government."); accord United States v. Meacham, 27 F.3d 214, 218 (6th
Cir. 1994); United States v. Salcedo-Lopez, 907 F.2d 97, 98 (9th Cir.
1990).
20
I
The sentencing judge stated, after discussing the victim-
restitution cases:
[T]he FBI, I find, is not a victim of defendant Cottman's
offense and the "buy money" is not recoverable under
the VWPA. Therefore, I agree with defendant's objection
to the award of restitution to the FBI. Restitution
should be made to the owners of the cable boxes ....
I'm ordering that the boxes be returned to their rightful
owners as restitution.
Appendix at 46-47. The sentencing judge then reviewed the
"buy-money" decision in United States v. Daddato, 996 F.2d
903 (7th Cir. 1993) and concluded that authority for a
repayment order was conferred by the supervised release
statute provision: "any other condition [the court] considers
to be appropriate." 18 U.S.C. S 3583(d)(3).
The sentencing judge - as the majority stresses- referred
at times to the repayment as "restitution" and the
repayment is so characterized on the judgment of sentence
form. Nevertheless, the judge's sentencing statement
unmistakably shows the intent to follow Daddato and to
exercise "any other condition" discretion, not to order
restitution to the FBI as a victim. Appendix at 47-50, 59.
The significance of the distinction is more than semantic.
By incorporating by reference the conditions authorized in
the probation statute, the supervised release statute also
empowers the sentencing judge to order "restitution to the
victim." 18 U.S.C. S 3563(b)(3). Under the VWPA cases, that
provision, by its own terminology, could not be utilized to
order a repayment of "buy money." Despite the finding of
the sentencing judge that the FBI was not a "victim" and
was not entitled to victim-related "restitution," the majority
conclusively infers that the condition was imposed under
S 3563(b)(3) and was, accordingly, invalid.
Moreover, the idea of restitution, which historically has
involved redress to a victim, has been evolving to include
victimless reparations.2 The sentencing judge's sporadic use
_________________________________________________________________
2. The VWPA amendment of 1996, 18 U.S.C. S 3663(c)(1), includes
restitution of "community harm" in drug cases where there is no
"identifiable victim."
21
of "restitution" in a non-victim-related sense to refer to the
repayment of "buy money" has good precedent. In Daddato,
now Chief Judge Posner's decision characterizes the
repayment of "buy money" as "in the nature of restitution,"
observing that "[we] need not determine whether such an
order is also classic ``restitution'...." 996 F.2d at 903, 905.
See United States v. Brooks, 114 F.3d 106, 108 (7th Cir.
1997) ("In Daddato, after noting that an order to repay buy
money as "restitution" under the[VWPA] was not cricket,
we found that such an order would nevertheless pass
muster as a condition of supervised release" (bold in
original)). The majority's predicate that the sentencing judge
must have intended to act under 18 U.S.C. S 3563(b) simply
is not well founded. The sentencing judge was well aware of
both the traditional compensatory and the victimless, or
nontraditional, meaning of "restitution" - and clearly did
not believe he was invoking S 3563(b).3
_________________________________________________________________
3. After the government's Petition for Panel Rehearing was granted, the
majority modified its opinion to say that the sentencing judge "did not
indicate what portion of 18 U.S.C. S 3583(d) it was referring to..." - the
"discretionary conditions of probation" prong or the "any other condition"
catch-all prong. Majority at note 13. This, in my view, mischaracterizes
the clear record. The sentencing judge read into the record a substantial
excerpt of Daddato including the citation of the "any other condition"
catch-all prong of S 3583(d) as the statutory basis for its holding.
Appendix at 48. He also stated that the government relied on Daddato
and that Daddato "relied on the catch-all phrase of the supervised
release statute." Id. at 47. His ruling was that "the government's request
is granted and defendant will be ordered to repay the FBI the amount
of " the "buy money." Id. at 50. In so ruling, he did not refer to
"restitution," id., albeit he did elsewhere.
Moreover, the parties in their argument to us had no doubt that the
sentencing judge intended to invoke the "any other condition" clause. As
set forth in appellant's brief, "the United States ... relied upon the
``catch-
all' provision of 18 U.S.C. Sec. 3583(d) and United States v. Daddato...."
Appellant's brief at 8. Appellant did not resort to the majority's
"discretionary condition" distinction - but instead specifically
challenged
the sentencing judge's utilization of the "catch-all" prong. The very
ground that the majority regards as not before us was argued by both
sides as the basis for the sentencing judge's decision.
On remand, the availability of the "catch-all" provision has at this
point not been ruled on, and it is unclear whether the sentencing judge
22
II
Daddato dealt with precisely the same question as is
presented here:
Pursuant to his plea of guilty, James Daddato was
convicted of ... selling hallucinogenic mushrooms and
sentenced to 16 months in prison to be followed by
three years of supervised release. His appeal challenges
one of the conditions of supervised release: that he
repay the $3,650 that he received from law
enforcement officers in payment for mushrooms that
they bought from him in order to obtain conclusive
evidence of his guilt. The statute governing supervised
release empowers the sentencing judge to impose as a
condition of such release any condition authorized as
discretionary condition of probation plus "any other
condition it considers to be appropriate." 18 U.S.C.
S 3583(d). Obviously the language is broad enough to
encompass the requirement that the defendant make
good the government's "buy money"; nor could the
imposition of such a requirement be thought an abuse
of discretion - it merely asks the defendant (if he is
financially able, once his release from prison enable
him to obtain a paying job) to make good the expense
to which he put the government by violating the laws
that prohibit drug trafficking in a selected subset of
mind-altering drugs.
996 F.2d at 903.
_________________________________________________________________
may now order repayment of the "buy money" so long as he explicitly
states that he is using the "catch-all" provision and does not mention the
word "restitution." At a minimum, I would have remanded to permit the
sentencing judge to re-clarify his intent on this subject in view of the
majority's concerns.
Given the majority's modification of the language in its original
decision, Part III of my dissent may have little remaining significance.
Nevertheless, I have not removed Part III because it emphasizes the need
of the sentencing judge to be able to order the return of "buy money" as
a condition of supervised release under the "any other appropriate
condition" provision of S 3583(d).
23
The opinion then rejects the argument that repayment of
"buy money" is beyond the sentencing judge's power
because "any other condition" must be comparable, by
virtue of "ejusdem generis," to the 20 specific conditions
that precede it. Daddato explains that the return of "buy
money" is comparable to, albeit not the same as, traditional
"restitution."
An order to repay the government's "buy money" is
similar in requiring the defendant to convey something
of value to the community, rather than to his victims
(if any there be) specifically. State v. Connelly, 143 Wis.
2d 500, 421 N.W.2d 859 (App. 1988).
* * * *
On the one hand, it seems unrealistic to describe the
defendant as having wrongfully taken money eagerly
tendered to him so that he could incriminate himself.
On the other hand, it was money that he obtained
through criminal activity and therefore had no right to
keep. No matter. The list in section 3563(b) is not
limited to restitution, or even to conditions that
resemble restitution (which this, at the very least,
does); it is enough that the order to repay the buy
money is of the same general kind as the items in the
list, and it is.
996 F.2d at 905 (bold in original).
The year after Daddato, a panel of the Sixth Circuit Court
of Appeals granted S 2255 relief where a supervised release
condition to repay "buy money" was imposed as to four
drug charges, although three of the charges had been
dismissed in exchange for the defendant's guilty plea to the
fourth. Gall v. United States, 21 F.3d 107 (6th Cir. 1994).
The decision, after confining "restitution" as a condition of
supervised release to crimes "charged and convicted,"
described the second part of its holding: "the government is
not a victim to which a district court may order a defendant
to pay restitution for the purpose of recovering drug ``buy
money' and other costs of investigation voluntarily paid
out." 21 F.3d at 108 (bold in original). In much the same
way as our majority, which cites Gall for this point, it
ignores Daddato and equates repayment of "buy money"
24
with traditional "restitution"; it then summarily conflates
S 3563(b)(3) with the VWPA because of the incorporation by
reference of S 3563(b)(3) - "restitution to the victim."
The concurrence in Gall, however, focuses on Daddato
and criticizes it for having resorted to the "any other
condition" provision of S 3583(d). Interestingly, the rationale
is not that the restoration of "buy money" must be
classified or construed to be the same as victim-related
restitution.
Under S 3583(d)(2) ... a sentencing judge can only order
additional "appropriate" conditions of supervised
release that "involve no greater deprivation of liberty
than is reasonably necessary for the purposes of: (1)
affording adequate deterrence to criminal conduct; (2)
protecting the public from further crimes of the
defendant; and (3) providing the defendant with ...
training ... care ... or treatment....
* * * *
Ordering a criminal defendant, as a condition of
supervised release, to repay the government's buy
money or other investigative costs deprives the
defendant of liberty during the period of supervised
release, yet does not advance any of these three
purposes.... Indeed, such a deprivation of liberty ...
could actually encourage the defendant to commit
further crimes as a means of repaying such an onerous
financial burden.
21 F.3d at 112-113.
In the instant sentencing, the judge quoted the above-
portion of the concurrence and stated:
I disagree with Judge Jones' reasoning. This is because
I find that ordering the defendant, pursuant to
S 3583(d) to repay the FBI as a condition of his
supervised release, even though restitution of this
money to the FBI is not authorized under the VWPA,
involves no greater deprivation of liberty than is
reasonably necessary for the purposes of affording
adequate deterrence to criminal conduct.
25
Appendix at 50.
In my view, the sentencing judge correctly overruled
defendant's "buy money" objection that was based on the
Gall concurrence. The repayment of "buy money" imposes
no greater deprivation of liberty and is no less a deterrent
of criminal conduct than traditional restitution and other
specifically authorized conditions of supervised release.
III
The broader question presented by this case is the nature
and extent of the sentencing options that are statutorily
authorized to achieve the objectives of sentencing. Under 18
U.S.C. S 3553, the sentencing judge is directed to consider,
in part -
(1) the nature and circumstances of the offense an d
characteristics of the defendant;
(2) the need for the sentence imposed -
(A) to reflect the seriousness of the offense, to
promote respect for the law, and to provide just
punishment for the offense;
Given these purposes, it would seem to be beyond
dispute that a person who knowingly sells stolen
merchandise should not be permitted to profit from the
sale. The provision of the supervised release statute that
authorizes "any other condition [the court] considers to be
appropriate," is in addition to - and not synonymous with
or subordinate to - the condition authorizing victim-related
restitution. The costs of law enforcement are paid from
taxes, and criminal defendants are not required to
reimburse the government for their day in court. The
taxpayer, however, should not have to bear the cost of "buy
money." The difference is that the money involved has gone
into the defendant's pocket and to the extent practicable
should be recovered. This is a self-evident corollary of
"respect for the law" and "just punishment."
The majority's decision today puts an incongruous and
unnecessary limitation on the power of the sentencing
judge to effectuate the legislatively mandated goals of
sentencing.
26
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
27