Opinion
CRIMINAL ACTION No. 00-20091-01-KHV
July 31, 2003
SENTENCING MEMORANDUM
On July 23 and 24, 2003, the Court ruled on numerous objections and motions related to defendant's sentence. This memorandum memorializes the Court's oral rulings at sentencing.
I. Motion To Reconsider Or, In The Alternative, To Dismiss (Doc, #170)
A. Motion To Reconsider
Defendant asks the Court to reconsider its order overruling defendant's motion for judgment of acquittal on Counts 1 and 10. Count 10 charges defendant with violation of 18 U.S.C. § 2320, which provides that "[w]hoever intentionally traffics or attempts to traffic in goods . . . and knowingly uses a counterfeit mark on or in connection with such goods" shall be guilty of an offense against the United States, (emphasis added). Defendant argues that under the plain language of the statute, trafficking in a single good is not a crime.
Initially, the Court overrules defendant's motion because he did not raise the issue in his motion for judgment of acquittal, he did not timely request reconsideration of the Court's order overruling his motion for judgment of acquittal, and he has not alleged a sufficient basis for reconsideration. The Court filed its order on February 10, 2003, but defendant waited over four months — until shortly before sentencing — to challenge the Court's ruling. Defendant has not shown any basis for a motion to reconsider such as an intervening change in controlling law, availability of new evidence or the need to correct clear error or prevent manifest injustice.See D. Kan. Rule 7.3.
Defendant's motion also lacks substantive merit Defendant maintains that Congress did not intend to criminalize de minimis trafficking in a single counterfeit good. The Court disagrees. First, in determining the meaning of any Act of Congress, "unless the context indicates otherwise . . . words importing the plural include the singular. . . ." 1 U.S.C. § 1. Defendant has not presented any evidence which suggests that the context of Section232O indicates that Congress did not intend to punish trafficking in a single counterfeit good. See Smith v. Zachary, 255 F.3d 446, 449 (7th Cir. 2001) (distinction between plural and singular words is not scrupulously observed in legislative language). Indeed, the relevant "unit of prosecution under § 2320 is the counterfeit mark"United States v. Song, 934 F.2d 105, 109 (7th Cir. 1991);see id at 108-09 (use of conjunctive "and" preceding term "counterfeit mark" indicates congressional intent to prosecute one who traffics in goods and who uses a counterfeit "mark" in connection with those goods). Accordingly, the Court construes the pluralterm "goods" in Section 2320 as also including the singular term "good." See General Elec. Co. v. Speicher, 877 F.2d 531, 534 (7th Cir. 1989) ("the purpose of trademark law is not to guarantee genuine trademarks but to guarantee that every item sold under a trademark is the genuine trademarked product") (emphasis added); see also Sagansky v. United States, 358 F.2d 195, 200-01 (1st Cir. 1966) (even though 18 U.S.C. § 1084 referred to "bets or wagers" in plural, proof of one isolated bet sufficient to sustain conviction); United States v. Cardoza, 129 F.3d 6, 9-10 (1st Cir. 1997) ("ammunition" within meaning of l8 U.S.C. § 922(g) includes single bullet or cartridge).
In the area of copyrights, for example, Congress specifically provided a felony offense where tenor more copies of copyrighted work with total retail value of more than $2,500 are reproduced or distributed. See 18 U.S.C. § 2319(b).
In addition, "contraband" is defined elsewhere as "any good bearing a counterfeit mark (as defined in section 2320 of title 18)." 49 U.S.C. § 80302 (emphasis added).
To the extent defendant attempts to invoke the rule of lenity, the Court notes that "where the legislative purpose is the protection of individual victims, the rule of lenity does not obtain." United States v. Phillips, 640 F.2d 87, 96 (7th Cir.), cert. denied, 451 U.S. 991 (1981); see Song, 934 F.2d at 109 (purpose of section 2320 is protection of individual purchasers, manufacturers and retailers). In addition, the rule of lenity in no way "implies that language used in criminal statutes should not be read with a saving grace of common sense." Bell v. United States, 349 U.S. 81, 83 (1955). The context of the statute and its legislative history does not suggest that Congress intended to punish the sale of two infringing items, but not one, or to otherwise include any de minimis exception. Sale of one infringing item with a value of $100 causes as muchharm — if not more harm — than the sale of two infringing items with a value of $1 per item. For these reasons, the Court finds that the sale of a single counterfeit good may constitute an offense under 18 U.S.C. § 2320. The Court therefore overrules defendant's motion to reconsider.
B. Motion To Dismiss
Defendant argues that Count 10 fails to charge him with a crime because it charges only that he trafficked in a single good. As explained above, the Court finds that trafficking in a single counterfeit good constitutes a violation of 18 U.S.C. § 2320. Accordingly, defendant's motion to dismiss is overruled.
II. Whether Imprisonment And Supervised Release Is Permitted For Violation Of Section 2320
Defendant argues that incarceration, probation and supervised release cannot be imposed for violation of 18 U.S.C. § 2320(a). See Defendant's Sentencing Memorandum (Doc. #177) at 11; PSIR at 48-49. Section 2320(a) provides that "[w]hoever intentionally traffics or attempts to traffic in goods or services and knowingly uses a counterfeit mark on or in connection with such goods or services shall, if an individual, be fined not more than $2,000,000 or imprisoned not more than 10 years, or both." (emphasis added). Defendant argues that subsection (c) of Section 2320 effectively eliminates incarceration, probation and supervised release as potential punishment for violation of subsection(a). Subsection (c) provides that
All defenses, affirmative defenses, and limitations on remedies that would be applicable in an action under the Lanham Act shall be applicable in a prosecution under this section. In a prosecution under this section, the defendant shall have the burden of proof, by a preponderance of the evidence, of any such affirmative defense.18 U.S.C. § 2320(c) (emphasis added). Defendant argues that because incarceration, probation and supervised release are not remedies under the Lanham Act, the Court cannot impose such punishment for violation of Section 2320(a). Under defendant's creative reading of the statute, Congress intended to criminalize trademark infringement but at the same time restrict the prosecution to injunctive and in some limited cases, monetary relief.
Common sense dictates otherwise. Subsection (a) clearly reflects Congressional intent to allow for incarceration of individuals who violate Section 2320. See United States v. Sung, 51 F.3d 92, 93-94 (7th Cir. 1995) ("limitation on remedies" in subsection (c) applies to remedial limitations in criminal proceedings such as restitution; restitution in criminal case is counterpart to damages in civil litigation). Likewise, the Court believes that Congress did not intend to prohibit the imposition of a term of supervised release for violation of Section 2320. The Court therefore overrules defendant's objection. III.
III. Version Of Sentencing Guidelines
Defendant argues that the Court should apply the version of the guidelines dated November 1, 1998. See Defendant'sSentencing Memorandum (Doc. #177) at 1-6; PSIR at 37-42. The government maintains that the Court should apply the version dated May 1, 2000. See Government's Sentencing Memorandum (Doc. #180) at 1-8. Section 1B1.11 of the guidelines provides:
(a) The court shall use the Guidelines Manual in effect on the date that the defendant is sentenced.
(b)(1) If the court determines that use of the Guidelines Manual in effect on the date that the defendant is sentenced would violate the ex post facto clause of the United States Constitution, the court shall use the Guidelines Manual in effect on the date that the offense of conviction was committed
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(3) If the defendant is convicted of two offenses, the first committed before, and the second after, a revised edition of the Guidelines Manual became effective, the revised edition of the Guidelines Manual is to be applied to both offenses.
The government concedes that the guidelines manual which is currently in effect would result in a greater sentence than the version of May 1, 2000 or November 1, 1998. The government argues, however, that because defendant's conspiracy to traffic in counterfeit goods continued through October of 2000, the Court should apply the version dated May 1, 2000.
The parties agree that to determine which manual applies, the Court must determine by a preponderance of the evidence whether the conspiracy alleged in Count 1 continued to and beyond May 1, 2000. See United States v. Stanberry, 963 F.2d 1323, 1326-27 (10th Cir. 1992). The Court finds that based on Brandon Smith's testimony at the sentencing hearing and at trial, the conspiracy in Count 1 continued at least until May 18, 2000. No evidence suggests that defendant or Brandon Smith withdrew from or terminated the conspiracy before that date. See Id. at 1327 (crime of conspiracy is continuing crime and is not complete until withdrawal or termination). The Court therefore will apply the May 1, 2000 version of the Guidelines Manual.
Brandon Smith testified that until May 18, 2000, he and defendant continued to sell t-shirts, purses and watches similar to the items seized in December of 1998, including shirts with the Nike swoosh and Tommy Hilfiger marks on them and purses with Dooney Burke marks on them.
Defendant argues that the Court should consider evidence of his activity after May 1, 2000 only to the extent that it specifically relates to Mont Blanc pens. The Court disagrees. Defendant was generally convicted on Count 1 for conspiracy to traffic in counterfeit goods. No evidence suggests that the conspiracy was limited to Mont Blanc pens or any other specific brand of counterfeit goods. The fact that defendant was convicted of only one substantive violation of 18 U.S.C. § 2320 is irrelevant. The crime of conspiracy to traffic and attempt to traffic in counterfeit goods may be established even if 18 U.S.C. § 2320 was not actually violated. See Instructions To The Jury (Doc. #124) at 33.
IV. Enhancement For Use Of A Minor
Defendant argues that an enhancement for use of a minor is not appropriate because he simply employed minors in his retail store.See Defendant's Sentencing Memorandum (Doc. #177) at 12-13; PSIR at 23-25. Section 3B1.4 provides for a two-level enhancement "[i]f the defendant used or attempted to use a person less than eighteen years of age to commit the offense or assist in avoiding detection of, or apprehension for, the offense." "Used or attempted to use" includes "directing, commanding, encouraging, intimidating, counseling, training, procuring, recruiting, or soliciting." Application Note 1 to U.S.S.G. § 3B1.4.
Defendant argues that his behavior does not reflect the harm at which the guideline provision was aimed. The Court disagrees. Although the Court does not believe that defendant intimidated or threatened Brandon Smith to engage in the counterfeit operation, he certainly encouraged him. Brandon Smith started working for defendant at approximately the age of 15 — selling trademarked sunglasses to fellow high school students. Later, he helped defendant sell trademarked merchandise from his duplex, at fairs, and at the storefront location. At some point, defendant reassured Smith that selling the merchandise was no problem because (1) no one is ever punished for doing it, (2) the law is rarely enforced, (3) if it is enforced, only the goods would be taken, or (4) if customers are told they are replicas, it is legal to sell them.See PSIR ¶ 25. Defendant recruited Smith to work for him, encouraged him to continue to do so by offering false reassurances, and trained and directed him how to traffic in counterfeit goods. The Court therefore enhances defendant's sentence by two levels for use of a minor.
Defendant also argues that "using" a minor requires some affirmative act beyond acting as a partner with a minor. See Defendant's Sentencing Memorandum (Doc. #177) at 12. The Court finds that defendant's conduct with Smith went beyond merely acting as a partner. Defendant hired and trained Smith and clearly was the "boss."
Defendant argues that in this case, the harm which the guideline was intended to prevent was not present to the degree which the guidelines anticipated. He argues that the Court should therefore depart downward two levels. For the reasons stated above, the Court overrules defendant's request for a downward departure.
V. Organizer/Leader Enhancement
The PSIR includes a four level enhancement of defendant's offense level for being an organizer or leader. Section 3B1.1 (a) of the Guidelines Manual provides:
Based on the defendant's role in the offense, increase the offense level as follows:
(a) If the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive, increase by 4 levels.
(b) If the defendant was a manager or supervisor (but not an organizer or leader) and the criminal activity involved five or more participants or was otherwise extensive, increase by 3 levels.
(c) If the defendant was an organizer, leader, manager, or supervisor in any criminal activity other than described in (a) or (b), increase by 2 levels.
U.S.S.G. § 3B 1.1. Application Note 1 defines a "participant" as a "person who is criminally responsible for the commission of the offense, but need not have been convicted" "A participant need not be guilty of the offense for which the defendant is sentenced." United States v. Allemand, 34 F.3d 923, 931 (10th Cir. 1994). `Participants are criminally responsible for the offense if their own criminal conduct made it possible." Id. (quotations and citation omitted). Participants "include persons who are used to facilitate the criminal scheme." Id. (quoting United States v. Inigo, 925 F.2d 641, 659 (3d Cir. 1991)).
Defendant, Brandon Smith, Elizabeth Martindale and Cynthia Gibson qualify as participants under Section 3B 1.1. At sentencing, the government was unable to establish by a preponderance of the evidence that a fifth individual was "criminally responsible" or that defendant's criminal activity was "otherwise extensive." The Court finds, however, that a two level enhancement under Section 3B 1.1(c) is appropriate. Defendant was the organizer, leader, manager and supervisor of employees who assisted him in the trafficking of counterfeit merchandise.
VI. Obstruction Of Justice Enhancement
The government asks the Court to enhance defendant's sentence for obstruction of justice because he committed perjury at the hearing on his motion to dismiss and at the hearing on his motion for appointment of counsel. To establish perjury, the government must show that defendant made (1) a false statement under oath, (2) concerning a material matter, (3) with the willful intent to provide false testimony. See United States v. Dunnigan, 507 U.S. 87, 94 (1993). The Court agrees substantially with the findings of the Probation Office in the PSIR at pages 36 and 37. In addition, the Court does not believe that the government has (1) identified specific false statements defendant made under oath so as to satisfy the first prong ofDunnigan (2) shown that defendant made the statements with the intent to provide false testimony as required by the third prong ofDunnigan, or (3) established that any given falsity concerned a material matter. The Court therefore overrules the government's request.
VII. Motion For Downward Departure
If a case before the Court is a typical one, i.e., within the heartland of cases, the Court must impose a sentence within the applicable Sentencing Guidelines range. See United States v. Jones, 158 F.3d 492, 496 (10th Cir. 1998) (citing 18 U.S.C. § 3553(a)). The Court may depart from the applicable guidelines range, however, if it "finds that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described." 18 U.S.C. § 3553(b). If a departure is justified based on such circumstances, the Court may depart upward or downward to a reasonable degree. See Jones, 158 F.3d at 497.
Defendant seeks a departure because (1) his conduct was far less culpable than the activity of a typical counterfeiter, (2) the Bureau of Prisons engages in the same activity on a daily basis, (3) he did not know that he was committing a crime, and (4) he has community support. Under 18 U.S.C. § 3553(b), the Court may impose a sentence outside the range established by the applicable guidelines if the court finds "that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described." U.S.S.G. § 5K2.0. The Court finds that none of defendant's stated reasons take his case out of the heartland of cases covered by the guidelines. Accordingly, the Court overrules defendant's motion for downward departure.
VII. Infringement Amount
The Court will determine the infringement amount by multiplying the retail value of the infringed item by the number of infringing items.See U.S.S.G. § 2B5.3.
Defendant first argues that because FBI agents already had purchased a large number of items on November 22, 1998, the only apparent purpose of seizing more goods pursuant to a warrant in early December of 1998 was to increase defendant's sentence, not to establish his guilt. See Defendant's Sentencing Memorandum (Doc. #177) at 6-7; PSIR at 42-43. The Court ruled previously that the two warrants issued for defendant's business in December 1998 were invalid. In most circumstances, however, `?e exclusionary rule does not bar the introduction of the fruits of illegal searches and seizures during sentencing proceedings." United States v. Ryaa 236 F.3d 1268, 1271 (10th Cir. 2001). The Tenth Circuit has recognized a limited exception to this rule where officers violated defendant's rights "with the intent to secure an increased sentence." Id. at 1272;see United States v. Jessup, 966 F.2d 1354 (10th Cir. 1992),cert. denied, 507 U.S. 965 (1993). The Court finds no evidence, however, which suggests that FBI agents misled the magistrate in an attempt to increase defendant's sentence. Accordingly, defendant's objection is overruled.
In addition to counterfeit merchandise, the warrant of December 2, 1998 covered "business records, computer and computer hardware, books, business documents, inventory records of sales, inventory records of orders, records of promotional material or advertisements, and records of Federal Express and United Parcel Service (UPS) receipts and shipments relating to the purchase and sale of counterfeit merchandise." FBI agents apparently sought such records to establish defendant's guilt and the involvement of other individuals, not merely to increase defendant's sentence.
Defendant also argues that "egregious circumstances" other than intent to enhance defendant's sentence may warrant exclusion of the evidence for sentencing purposes. Defendant cites no authority for this proposition. Even if the Tenth Circuit recognized such an exception, the Court does not believe that the agents' conduct in this case was sufficiently egregious to justify exclusion of the evidence at sentencing.
The total infringement amount for the items seized and purchased by law enforcement agents is $59,854.00. Defendant argues that under Section 2B5.3, the Court cannot find any additional infringement amount because such an amount would be based on estimated retail value, not actual value. See Defendant's Sentencing Memorandum (Doc. #177) at 13-16; PSIR at 25-31. The Court agrees with the PSIR that estimation is appropriate, provided that the estimation approximates the value of the infringing merchandise. See PSIR at 31: see also United States v. Kim, 963 F.2d 65, 69-70 (5th Cir. 1992) (if measuring retail value under guideline for criminal trademark infringement is difficult, court may measure loss in some other way which may be inferred from any reasonably reliable information available).
Here, the Court finds that the best estimate of retail value is reflected by a portion of defendant's bank deposits from 1995 through 1999, plus the value of the counterfeit items seized or purchased by government agents ($59,854.00). Defendant had some legitimate gross receipts from real estate commissions in 1995, 1996 and 1997 ($70,333.00, $5,739.00 and $5,448.00 respectively). Accordingly, the Court has discounted the total bank deposits ($246,366.22) by defendant's gross real estate commissions ($81,520.00) for a total of $167,846.22, which represents defendant's gross revenue from the sale of merchandise from Replicas. The Court also finds that Replicas had a small portion of sales from non-infringing items such as watches or t-shirts with no trademarks. Viewing such evidence in a light favorable to defendant, the Court estimates that non-infringing merchandise sales accounted for 10 per cent of Replicas' sales. Although defendant objects to the Court's methodology, he does not contest the Court's finding that the sale of non-infringing items accounted for no more than 10 per cent of sales. The Court therefore further reduces the bank deposits ($164,846.22) by 10 per cent for a net total of $148,361.60. The total infringing amount therefore amounts to $208,215.60 (bank deposits of $148,361.60 plus $59,854.00, the value of counterfeit items seized or purchased by agents). Applying U.S.S.G. §§ 2B5.3(b)(1) and 2F1.1, the Court adds eight to defendant's offense level.
At the sentencing hearing, the government reduced the total amount of bank deposits by $3,000.00
IX. Restitution / Fine
Defendant argues that restitution is not appropriate because no victim was directly harmed, calculation of restitution would be too difficult and the merchandise did not include the required trademark registration notice. See Defendant's Sentencing Memorandum (Doc. # 177) at 7-10: PSIR at 44-48. The Court agrees that calculation of restitution would be unduly complicated in this case. The government has not proposed any reliable estimate of victim losses. See 18 U.S.C. § 3664(f)(1)(A) (court must consider full amount of victim loss); United States v. Young, 272 F.3d 1052, 1056 (8th Cir. 2001) (district court cannot order restitution based on victim's uncertain estimate of lost profits); United States v. Jimenez, 77 F.3d 95, 100 (5th Cir. 1996) (restitution requires real or actual loss to victim, not simply gain to defendant). Section 5E1.1 (b)(2)(B) provides that where "determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process," the Court need not enter a restitution order.
Although the Court finds that determining the amount of victim loss would be unduly complicated, it finds that a fine is appropriate based on defendant's gain pursuant to 18 U.S.C. § 3571(d) which provides:
If any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process.
Under this provision, the Court calculates defendant's gain in a similar manner as the infringing amount discussed above. Defendant's gain is equivalent to the amount of the bank deposits attributed to his sale of infringing merchandise which the Court determined above as $148,361.60. The maximum fine under Section 3571(d) would therefore be $296,723.20 ($148,361.60 multiplied by two). The guideline range for a fine for defendant's offense is $7,500 to $2,000,000.
The Court determines that a fine in the amount of $208,215.00 is appropriate. This amount represents the retail value of the infringing merchandise but is less than twice the amount of defendant's gain. Because of defendant's financial circumstances, however, the Court orders defendant to (1) pay a fine in the amount of $104,107.50 and (2) serve 3,000 hours of community service in lieu of an additional fine of $104,107.50. See U.S.S.G. § 5E1.2(f).
The Court intends that defendant shall serve his community service time at the rate of 1,000 hours per year during his three years of supervised release.
X. Motion For Release Pending Appeal
The decision whether to release a convicted defendant pending appeal is governed by 18 U.S.C. § 3143. That section provides in part:
(b) Release of detention pending appeal by the defendant. (1). . . the judicial officer shall order that a person who has been found guilty of an offense and sentenced to a term of imprisonment, and who has filed an appeal . . ., be detained, unless the judicial officer finds —
(A) by clear and convincing evidence that the person is not likely to flee or pose a danger to the safety of any other person or the community if released under section 3142(b) or (c) of this title; and
(B) that the appeal is not for the purpose of delay and raises a substantial question of law or fact likely to result in — (i) reversal, (ii) an order for a new trial, (iii) a sentence that does not include a term of imprisonment, or (iv) a reduced sentence to a term of imprisonment less than the total of the time already served plus the expected duration of the appeal process.
The Court begins with subsection (B). Defendant has not met his burden of demonstrating that his appeal raises a substantial question of law or fact. A "substantial question" is one of more substance than would be necessary to a finding that it was not frivolous. United States v. Affleck, 765 F.2d 944, 952 (10th Cir. 1985). A "substantial question" refers to a "close" question or one that "very well could be decided the other way." Id (quoting United States v. Giancola, 754 F.2d 898, 901 (11th Cir. 1985)). The Court has reviewed the six issues defendant intends to raise on appeal, see defendant's Motion For Release Pending Appeal (Doc. #176) filed July 18, 2003 at 3, and finds that none of the issues raise a substantial question of law or fact. Accordingly, defendant's motion for release pending appeal is overruled.