United States v. Kononchuk ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
5-8-2007
USA v. Kononchuk
Precedential or Non-Precedential: Precedential
Docket No. 06-2484
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-2484
UNITED STATES OF AMERICA,
Appellant
v.
DMITRI I. KONONCHUK, also known as, DMITRI SMITH
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D. C. No. 05-cr-00045-2E)
District Judge: Hon. Arthur J. Schwab
Argued on January 29, 2007
Before: BARRY and ROTH, Circuit Judges
DEBEVOISE*, District Judge
*The Honorable Dickinson R. Debevoise, United States
District Judge, District of New Jersey, sitting by designation.
(Opinion filed: May 8, 2007)
Mary Beth Buchanan, Esquire
United States Attorney
Laura S. Irwin, Esquire (ARGUED)
Assistant United States Attorney
700 Grant Street, Suite 4000
Pittsburgh, PA 15219
Counsel for Appellant
Robert E. Stewart, Esquire (ARGUED)
Stewart, Melograne & Zinski
428 Forbes Avenue, Suite 1710
Pittsburgh, PA 15219
Counsel for Appellee
OPINION
ROTH: Circuit Judge
In this case, the District Court imposed a sentence of
probation and home confinement even though the advisory
United States Sentencing Guidelines called for incarceration and
specifically excluded the option of probation. The government
appealed, contending that the sentence was unreasonably low.
Because we conclude that the District Court failed to address
2
specific concerns and objections raised by the government at
sentencing, we will vacate the sentence and remand for
resentencing consistent with this opinion.
I. Background
Dmitri Kononchuk is a permanent resident alien, living
in the United States. He ran afoul of the criminal justice system
because for three years he sold counterfeit software over the
Internet. Born in Kiev, Ukraine, Kononchuk has tried many
trades and endeavors. As a young man, he served in the
military, obtained both a medical degree in orthopedic surgery
and a masters degree in computer science, and engaged in
extensive international travel. In 1997, Kononchuk
permanently relocated to the United States, settling first in
Pittsburgh.
At age 29, Kononchuk, with Maxim Dolgosheev (then a
minor, aged 17 years), established a corporation, Inominatus
Inc., and, through it, sold counterfeit versions of software for
which Microsoft Corporation held the copyright. Initially,
Dolgosheev did not know that the software was counterfeit.
When he discovered that it was, he explained to Kononchuk that
he, Dolgosheev, did not want to be a pirate. Kononchuk
convinced Dolgosheev to continue with the scheme. Over a
three-year period from June 1998 through July 2001,
Kononchuk and Dolgosheev sold at least $265,000 in counterfeit
Microsoft software. Thus, Kononchuk and Dolgosheev together
3
are responsible to Microsoft for this loss.1
Law enforcement officials first questioned Dolgosheev
on July 17, 2001. He was cooperative from the start. He was
charged by information with four counts: (1) conspiracy to
engage in trademark counterfeiting and copyright infringement
under 18 U.S.C. § 371; (2) trademark counterfeiting under 18
U.S.C. § 2320(a); and (3-4) two counts of copyright
infringement under 17 U.S.C. § 506(a)(1) and 18 U.S.C.
§ 2319(b)(1). He pled guilty to all four counts and agreed to
cooperate against Kononchuk. Dolgosheev substantially
assisted the government over a four-year period, including
testifying to the grand jury against Kononchuk.
Because of Dolgosheev’s cooperation, the government
filed for a downward departure pursuant to §5K1.1 of the 2000
United States Sentencing Guidelines. Additionally, although the
Guidelines called for incarceration, the government advocated
a sentence of probation based on several factors. Dolgosheev
was a minor when the criminal activity began and fell under the
influence of Kononchuk, an older and more experienced person.
He finished at the top of his economics section at Carnegie
Mellon University and, although he lost a post-graduate job due
to his illegal conduct, he cooperated fully from the beginning of
the case. Based on these reasons and the government’s
recommendation, the District Court sentenced Dolgosheev to
1
By Dolgosheev’s admission, he and Kononchuk actually
saw profits totaling $1.4 million. Because the government could
confirm sales of only $265,000, this was the amount to which
the parties stipulated for sentencing purposes.
4
five years probation and ordered him to pay $265,000 in
restitution to Microsoft, jointly and severally with Kononchuk,
at a rate of 20% of Dolgosheev’s income.
Events unfolded quite differently for Kononchuk. In the
spring of 2001, he moved to South Carolina, where he had
obtained a job. Also in 2001, Kononchuk separated from his
first wife. Because she would not grant him a divorce, he
traveled to Haiti and obtained a divorce there in 2002. In 2003,
he married a co-worker, Jane Redden, whose father, Richard
Redden, was the retiring CEO of two Fortune 500 companies.
This marriage significantly improved Kononchuk’s financial
situation. Kononchuk earned an annual salary of $50,000, and
his wife earned $72,000. In addition, the couple received
significant financial support from the Redden family.
Kononchuk and his wife live in a home purchased and paid for
in full by the Reddens. Richard Redden also has made a number
of loans and gifts to Kononchuk and his wife.
On March 1, 2005, a grand jury returned an indictment
against Kononchuk, containing the same four counts that were
brought against Dolgosheev. Although Kononchuk initially
denied his culpability and proved uncooperative, he eventually
entered a guilty plea to Count One (conspiracy to engage in
trademark counterfeiting and copyright infringement under 18
U.S.C. § 371), acknowledged his responsibility for the conduct
charged in the remaining three counts, and agreed to pay
mandatory restitution. The parties stipulated $265,000 as the
amount of loss for purposes of Guidelines calculation and
restitution.
5
After his guilty plea, Kononchuk faced a statutory
maximum of five years of imprisonment, 18 U.S.C. § 371;
supervised release for not more than three years, 18 U.S.C. §
3583(b)(2); mandatory restitution, 18 U.S.C. § 3663A; a
maximum fine of $250,000, 18 U.S.C. § 3571(b)(3); and a
mandatory special assessment of $100, 18 U.S.C. §
3013(a)(2)(A).
The presentence report, using the 2000 version of the
Guidelines, applied U.S.S.G. §2B5.3 to obtain a base offense
level of 8, then applied an 8-level increase based on an amount
of loss more than $200,000 but less that $350,000, pursuant to
§2F1.1(b)(1)(i). Kononchuk also qualified for a 2-level increase
under §3B1.4 for his use of a minor under age 18 in his
commission of the offense. Finally, because Kononchuk waived
the indictment and pleaded guilty to an information in a timely
manner, he qualified for a 3-level reduction under §3E1.1. His
total offense level was 15. Given his criminal history category
of I, Kononchuk’s advisory Guidelines range was 18 to 24
months of imprisonment. This range fell within Zone D of the
sentencing table, under which the minimum sentence to be
served must include imprisonment. Thus, under the provisions
of the Guidelines, a probationary sentence was not an option.
U.S.S.G. §5C1.1(f). The Guidelines also advised a fine in the
range of $4,000 to $40,000. U.S.S.G. §5E1.2(c)(3).
Although neither Kononchuk nor the government filed an
objection to the presentence report, Kononchuk did submit a
sentencing memorandum and a letter from his father-in-law. In
these submissions, Kononchuk and Redden described the
admirability of Kononchuk’s character and his complete
6
rehabilitation from his criminal past. Sentencing took place on
March 24, 2006, before the same judge who had sentenced
Dolgosheev. At the sentencing hearing, Redden testified that
Kononchuk was “a person of very high integrity and honesty.”
Redden also explained to the court that his own success in
business was due in large part to his skill as a judge of character.
Throughout the hearing, the District Court focused on the
repayment of restitution. Kononchuk’s initial proposal was to
pay 25% of his $50,000 annual salary towards restitution, but
the District Court made it clear that this plan would be
insufficient because it would take approximately twenty years
for Microsoft to be repaid in full. Instead, the District Court
suggested calling a recess during which Kononchuk could come
up with “a plan that people can live with, not [a] some[-]day
plan, but a real plan of how that restitution is going to be
repaid.” The District Court also implied that if, during that
recess, Kononchuk could arrive at a satisfactory plan, he would
be able to avoid imprisonment. Specifically, the District Court
instructed Kononchuk that “I would like to hear not only what
we are going to do on a payment plan, but what kind of other
penalty, short of imprisonment, would be wise.” After hearing
from the government, the District Court called a recess.
After the recess, Kononchuk proposed paying restitution
of approximately $53,000 a year, a figure which was higher than
Kononchuk’s annual salary but which would allow him to
complete his payments within five years. Kononchuk’s counsel
speculated that his client would look for higher-paying
employment and perhaps take a second job. Counsel indicated
that Kononchuk would be obtaining substantial financial
7
assistance from his father-in-law. Counsel also represented that
Kononchuk would be amenable to some form of electronic
home monitoring.
In reply, the government emphasized the sophistication
and deliberateness of Kononchuk’s scheme, as well as the need
for consistency in punishment between like offenders. It argued
that Dolgosheev should not be considered a like offender for
sentencing purposes because he had obtained a reduced sentence
in recognizance of his cooperation against Kononchuk. The
government objected strenuously to what it saw as the District
Court’s willingness to allow someone to avoid a sentence of
imprisonment simply because he had the financial capability to
pay restitution, while someone without such a capability would
have no such option. The government also pointed out that
because of Kononchuk’s status as an alien, he potentially could
be deported before paying complete restitution. The
government argued that, by incarcerating Kononchuk, the court
could at least ensure that he had served his sentence before he
left the country.
The District Court then sentenced Kononchuk to serve a
five-year term of probation, including twelve months of home
detention. The District Court waived any fine because it found
that Kononchuk lacked the ability to pay. It also ordered
Kononchuk to pay $265,000 in restitution to Microsoft, jointly
and severally with Dolgosheev, through monthly payments of at
least $4,000, totaling minimum annual payments of $48,000,
with any unpaid remainder being due in a lump sum at the end
of Kononchuk’s five-year probationary period. Finally, the
District Court imposed a mandatory special assessment of $100.
8
The District Court expressed its belief that the sentence
imposed would meet the goals of 18 U.S.C. § 3553(a)(2),
quoting the language of that section:
The Court considers the sentence imposed to be
sufficient but no greater than necessary for the
sentence to reflect the seriousness of the offense,
promote respect for the law, and provide just
punishment for the offense; to afford adequate
deterrence; to protect the public against
commission of further crimes by this Defendant;
and to provide Defendant with needed and
effective educational or vocational training,
medical care, or other correctional treatment.
The District Court also stated that it had considered the other
factors set forth in 18 U.S.C. § 3553(a):
Other factors I’ve considered are those that are set
forth in Title 18 United States Code, Section
3553(A) [sic], including the nature and
circumstances of the offense and Defendant’s
history and characteristics; the kinds of sentences
available to this offense; the sentencing guideline
range under the advisory guidelines adopted by
the United States Sentencing Commission for the
category of offense and Defendant’s criminal
history; any applicable policy statements adopted
by the Sentencing Commission; the need to avoid
unwarranted sentence disparities among
Defendants with similar records who have been
9
found guilty of similar conduct; and the need to
provide restitution to any victims of the offense.
In addition to reciting the factors found in § 3553(a), the
District Court provided the following explanation of its decision
not to follow the advisory provisions of Zone D of the
Guidelines sentencing table, which exclude the option of
probation for a sentence of the magnitude called for under the
Guidelines:
As to my decision not to incarcerate the
Defendant, I don’t see that anything is going to
be gained by making him serve a period of time
in prison which one could argue might be just
punishment, but then produce an otherwise
productive full-time worker who would then
potentially be unemployable.
I also think it is important that the end product of
any punishment be to increase the likelihood that
the individual will be a productive citizen, and
probation of five years with 12 months home
detention seems, in my judgment, to achieve that
goal more than incarcerating him.
Earlier in the hearing, the District Court had made clear
that its concern for Kononchuk’s employability was based on
the need for Kononchuk to pay restitution:
Well, when you balance sentencing versus
restitution, where do you come out? Because if
10
he is sentenced, he loses his employment and
becomes less employable when he comes out. So
you don’t get your restitution at the end of the
day.
Pursuant to 18 U.S.C. § 3742(b), the government timely
appealed Kononchuk’s sentence as unreasonably low.
II. Discussion2
In United States v. Booker, the Supreme Court directed
that sentences imposed by federal district courts shall be
reviewed for “reasonableness.” 543 U.S. 220, 261-62 (2005).
To determine if the District Court acted reasonably in imposing
a sentence, we must be satisfied that the court appropriately
exercised its discretion by considering the relevant factors under
18 U.S.C. § 3553(a).3 United States v. Cooper, 437 F.3d 324,
2
The District Court had subject matter jurisdiction over the
case pursuant to 18 U.S.C. § 3231 because an indictment
charged Kononchuk with violations of federal criminal law. We
have jurisdiction over the Government’s appeal under 18 U.S.C.
§ 3742 and 28 U.S.C. § 1291.
3
Under § 3553(a), a District Court “shall impose a sentence
sufficient, but not greater than necessary, to comply with the
purposes set forth in paragraph (2) of this subsection. The court,
in determining the particular sentence to be imposed, shall
consider--
(1) the nature and circumstances of the offense and the
11
history and 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;
(B) to afford adequate deterrence to criminal
conduct;
(C) to protect the public from further crimes of
the defendant; and
(D) to provide the defendant with needed
educational or vocational training, medical care,
or other correctional treatment in the most
effective manner;
(3) the kinds of sentences available;
(4) the kinds of sentence and the sentencing range
established for . . . the applicable category of offense
committed by the applicable category of defendant as set
forth in the guidelines . . .
(5) any pertinent policy statement . . . issued by the
Sentencing Commission . . . and . . . that, except as
provided in section 3742(g), is in effect on the date the
defendant is sentenced. [sic]
12
329 (3d Cir. 2006). The record must demonstrate that the
district court gave “meaningful consideration” to the § 3553(a)
factors. See id.
Although the district court need not discuss and make
findings as to each of the § 3553(a) factors if the record makes
clear that the court took the factors into account in sentencing,
a rote statement of the § 3553(a) factors “should not suffice if at
sentencing either the defendant or the prosecution properly
raises a ground of recognized legal merit (provided it has a
factual basis) and the court fails to address it.” Id. (internal
quotation marks omitted). In addition, we have made clear that
“significant” variances from the advisory Guidelines range must
be “adequately supported by the record.” United States v. King,
454 F.3d 187, 195 (3d Cir. 2006).
Thus, when the district court imposes a sentence that
varies significantly from the advisory Guidelines range and a
party has made objections with legal merit that the variance is
unjustified by the record, the district court has an obligation to
explain why the variance is justified. After cogent objections
have been raised, the explanations of the relevant sentencing
factors must go beyond mere formalism. Otherwise, it is
(6) the need to avoid unwarranted sentence disparities
among defendants with similar records who have been
found guilty of similar conduct; and
(7) the need to provide restitution to any victims of the
offense.
13
difficult for us to apply effective appellate oversight. See United
States v. Grier, 475 F.3d 556, 572 (3d Cir. 2007) (en banc).
There are several reasons for the need for this fuller
explanation. First, when the variance is large, the reviewing
court needs to hear a coherent articulation of the District Court’s
reasoning. Cf. Cooper, 437 F.3d at 329 (“[T]here is no way to
review [a court’s] exercise of discretion if it does not articulate
the reasons underlying its decision” (quoting, in part, United
States v. Johnson, 388 F.3d 96, 101 (3d Cir. 2004)) (quotation
marks omitted and second alteration in original)). Second, when
the objections have legal merit, the considerations
countervailing the district court’s judgment are significant and
worthy of response. See United States v. Wallace, 458 F.3d 606,
614 (7th Cir. 2006) (“The district court acknowledged that it
was giving [the defendant] a significant break – a ‘World Series’
break, in fact. Such a break requires, we hold, a ‘World Series’
explanation.”).
The District Court granted Kononchuk a remarkably
favorable variance, to which the government objected
strenuously as unsupported by the factors of § 3553(a). More
specifically, the District Court imposed a sentence of probation
and home arrest, even though the Guidelines called for
incarceration without the option of probation4 and even though
4
Under Booker, the Guidelines’ disallowance of the option of
probation is, of course, merely advisory. We do not decide
today how much weight a court must give to this “advisory
prohibition.” All we suggest is that, under § 3553(a)(4), the
position taken by the Guidelines does have some weight.
14
the government emphasized the sophistication and
deliberateness of Kononchuk’s scheme, the need for
consistency in punishment between like offenders, and the
dissimilarities between Kononchuk and Dolgosheev. The
government also noted the unfairness of allowing Kononchuk to
avoid incarceration because of his financial capability to pay
restitution and it cited Kononchuk’s status as an alien, who
could be subject to deportation before the completion of
restitution. These arguments were relevant and cogent.
Following the government’s objections, the District Court
was obliged to explain why a significant variance was warranted
under § 3553(a) in light of the concerns raised by the
government. It did not do so. Beyond its entirely rote recitation
of the § 3553(a) factors, the District Court focused its
explanation exclusively on the need for Kononchuk to remain
productive and employable and the need for Kononchuk to
maintain the financial capacity to pay restitution to Microsoft.
Regardless of whether and to what extent these considerations
are valid under § 3553(a), it should be clear that the District
Court’s explanation was insufficiently responsive to the
government’s objections. The District Court did not explain
what warranted the disparity in treatment between Kononchuk
and other defendants convicted under 18 U.S.C. § 371 who are
imprisoned consistent with the Guidelines. It did not explain
why Kononchuk and Dolgosheev – two defendants who were
not similarly situated – should receive similar sentences.5
5
The imposition of home detention for one defendant but not
the other is, of course, a difference. Where, however, the
defendant in question receives an enhancement for involving a
15
The court essentially conceded that it was subordinating
the goal of just punishment (§ 3553(a)(2)(A)) to the goal of
keeping Kononchuk employable, but it did not explain how such
a subordination was justified in light of Kononchuk’s obvious
deliberateness as an offender and his decision to ensnare a minor
in the offense. The court did not respond to the government’s
concern that, as an alien offender, Kononchuk might be deported
before paying his restitution in full. Even when the District
Court expressed its concerns regarding Kononchuk’s
employability, it said nothing at all about Kononchuk as an
individual offender.6
Finally, we fail to see the trade-off between incarceration
and restitution which motivated the District Court. The court
sentenced Kononchuk to pay restitution at an amount set
roughly equal to his income. Looking at the financial
information which was before the court, it would have been
minor, and that enhancement puts the defendant in a sentencing
range in which probation is not even an option, a difference of
twelve months home detention between that defendant and the
minor he involved is modest, to say the least. The government
suggested as much at sentencing, and the District Court failed to
address this concern.
6
The concern with employment prospects is universal among
defendants; a term of incarceration is rarely, if ever, a favorable
addition to one’s resumé. The District Court did not identify
any reason why Kononchuk’s employability should be of greater
concern to a sentencing court than should the employability of
any other defendant.
16
impossible for Kononchuk to pay both restitution and living
expenses. All parties understood that the funds for these
payments would come largely from the Redden family; indeed,
Kononchuk stated at his sentencing hearing that they would. As
a result, it appears that Kononchuk’s ability to pay restitution is
more dependent on the generosity of the Reddens than on his
own ability to maintain gainful employment. It is conceivable
that in some circumstances — where, for example, a defendant
has caused serious loss to a particularly vulnerable victim, the
need for restitution would be great enough to subordinate certain
penal interests.7 The District Court has, however, identified no
such circumstances here. Given that fact, and in light of the
source of Kononchuk’s restitution payments, we see no reason
to favor the restitution aspect of punishment over the
incarceration aspect.
The District Court ignored the valid concerns raised by
the government and imposed an extraordinarily lenient sentence.
If there is a way to find this sentence reasonable in light of the
§ 3553(a) factors, the District Court did not articulate it. Due to
this failure of articulation, we cannot be satisfied that the
7
Since Booker, several courts of appeals have considered
whether the facilitation of restitution can be grounds for a
variance. These courts determined that it may, but only under
extraordinary circumstances. See United States v. Repking, 467
F.3d 1091, 1096 (7th Cir. 2006); United States v. Crisp, 454
F.3d 1285, 1291-92 (11th Cir. 2006). We express no view as to
what circumstances justify a reduction in sentence to facilitate
payment of restitution, except to note that the District Court has
identified no such circumstances in this case.
17
District Court gave “meaningful consideration” to the § 3553(a)
factors. See Cooper, 437 F.3d at 329. We will therefore vacate
the sentence and remand this case for resentencing.
III. Conclusion
The District Court failed to respond to the government’s
concerns and objections, raised at sentencing. This constituted
an inadequate explanation of the § 3553(a) factors. For that
reason, we will vacate Kononchuk’s sentence and remand for
resentencing.
18