F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
April 17, 2007
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
UNITED STATES OF AM ERICA,
Plaintiff–Appellee, No. 06-6199
v.
M ARVIN DANIEL HUDSON,
Defendant–Appellant.
A PPE AL FR OM T HE UNITED STATES DISTRICT COURT
FO R TH E W ESTERN DISTRICT O F O K LAH O M A
(D.C. No. CR-06-00003-001-M )
Submitted on the briefs: *
W illiam P. Earley, Assistant Federal Public Defender, Oklahoma City, Oklahoma
for Defendant–Appellant.
John C. Richter, United States Attorney, and James F. Robinson and Sue Tuck
Richmond, Assistant United States Attorneys, Oklahoma City, Oklahoma, for
Plaintiff–Appellee.
Before KELLY, M cKA Y, and LUCERO, Circuit Judges.
M cK A Y, Circuit Judge.
*
After examining the briefs and the appellate record, this panel has
determined unanimously to honor the parties’ request for a decision on the briefs
without argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Defendant pled guilty to conspiracy to infringe a copyright in violation of
17 U.S.C. § 506(a)(1) and 18 U.S.C. §§ 371 and 2319(b)(1). The district court
sentenced him to a one-year term of imprisonment and ordered him to pay
restitution to M icrosoft in the amount of $321,663. In his plea agreement with
the government, Defendant waived his right to challenge his conviction or
sentence, but he now seeks to appeal the restitution order on the ground that
M icrosoft suffered no actual loss from the offense.
B ACKGROUND
Defendant and his co-conspirators advertised via facsimile a “M icrosoft
Closeout Sale” offering steep discounts on various M icrosoft products. Builder’s
FirstSource (“BFS”), a M aryland company, responded to the advertisement and
placed an order for 537 copies of M icrosoft Office 2000 Professional Edition at a
total purchase price of $85,383. Upon receiving the software, however, the
company’s operations manager became suspicious of the software’s authenticity
and contacted M icrosoft, which confirmed that the software was counterfeit. BFS
refused to pay for the software and turned all copies over to the government.
Defendant w as then charged with the instant offense.
The presentence report (“PSR”) prepared for the district court following
Defendant’s plea of guilty stated that the estimated retail price for the counterfeit
software was $599.99 per copy and that Defendant was therefore “responsible for
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a loss of $322,194.63 for guideline calculation purposes and restitution.” (PSR at
10.) The PSR further stated that M icrosoft had submitted a declaration of loss
statement claiming that it was “owed restitution in the amount of $321,663.00.”
(Id.) The PSR provided no facts supporting this figure beyond the earlier
estimated retail price for the software.
In a memorandum filed eight days before the sentencing hearing, Defendant
argued that there was “a complete lack of information identifying the pecuniary
harm suffered by M icrosoft” and, therefore, that there was no basis for the district
court to order restitution. (Doc. 19 at 13.) At the sentencing hearing, neither
party mentioned this objection until after the district court had rendered its
judgment. Defendant’s counsel then reminded the court of the objection and
asked whether he could assume that it had been overruled. The court responded,
“Y es, the Court missed that.” (Sent. Tr. at 37.) W ithout explanation, the court
then overruled the objection. The court made no factual findings regarding the
amount of actual loss suffered by M icrosoft.
D ISCUSSION
As an initial matter, we must consider whether Defendant waived his right
to appeal this issue. “[W ]e generally enforce plea agreements and their
concomitant waivers of appellate rights.” United States v. Hahn, 359 F.3d 1315,
1318 (10th Cir. 2004) (en banc) (per curiam). However, because “‘a defendant
who waives his right to appeal does not subject himself to being sentenced
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entirely at the whim of the district court,’” not every issue can be waived by
agreement. United States v. Black, 201 F.3d 1296, 1301 (10th Cir. 2000) (quoting
United States v. M arin, 961 F.2d 493, 496 (4th Cir. 1992)). For instance, “a
waiver may not be used to preclude appellate review of a sentence that exceeds
the statutory maximum.” Id.
In United States v. Broughton-Jones, 71 F.3d 1143 (4th Cir. 1995), the
Fourth Circuit considered whether challenges to the legality of a restitution order
can be waived by agreement. Citing to M arin, the court concluded that
“[b]ecause a restitution order imposed when it is not authorized by the [applicable
restitution statute] is no less ‘illegal’ than a sentence of imprisonment that
exceeds the statutory maximum, appeals challenging the legality of restitution
order are similarly outside the scope of a defendant’s otherwise valid appeal
waiver.” Id. at 1147. Therefore, the court held that the defendant’s valid waiver
of her right to appeal did not bar her from contesting the district court’s
restitution order on the ground that it exceeded the court’s statutory authority
under 18 U.S.C. § 3663(a)(1). In a recent decision, the Fourth Circuit reiterated
the Broughton-Jones rationale:
Although we enforce appeal waivers that are knowing and voluntary, even
valid appeal waivers [do] not bar appellate review of every sentence. . . .
Just as a defendant could not be said to have waived his right to appellate
review of a sentence imposed in excess of the maximum penalty provided
by statute or based on a constitutionally impermissible factor such as race,
a defendant could not be said to have waived his right to appellate review
of a restitution order imposed when it is not authorized by the [applicable
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restitution statute]. This is because federal courts do not have the inherent
authority to order restitution, but must rely on a statutory source.
United States v. Cohen, 459 F.3d 490, 497-98 (4th Cir. 2006) (alterations in
original) (citations and quotations omitted). The Ninth Circuit has adopted the
Broughton-Jones rule, holding that even a voluntary and knowing waiver of the
general right to appeal does not affect a defendant’s ability to appeal a district
court’s violation of the restitution statute. United States v. Phillips, 174 F.3d
1074, 1076 (9th Cir. 1999). But see United States v. Schulte, 436 F.3d 849, 851
(8th Cir. 2006) (reaching contrary conclusion).
W e find the Broughton-Jones reasoning persuasive. Following the lead of
the Fourth and Ninth Circuits, we conclude that regardless of whether
Defendant’s waiver of appellate rights would otherwise be enforceable, he cannot
be deemed to have waived his right to appeal the legality of the court’s restitution
order. This conclusion is supported by the recent panel decision in United States
v. Gordon, --- F.3d ---, 2007 W L 915074 (10th Cir. M ar. 28, 2007), published
while this opinion was under consideration. See id. at *3-4 (questioning whether
defendant can ever waive right to appeal unlawful restitution order; suggesting
that plea agreement contains implied term providing that judge will order
restitution in legal manner). W e therefore turn to the merits of D efendant’s
appeal, reviewing the legality of the restitution order de novo. United States v.
Nichols, 169 F.3d 1255, 1278 (10th Cir. 1999).
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Defendant argues that the district court erred in imposing the restitution
order because M icrosoft suffered no actual losses from his conduct. “A
restitution order must be based on actual loss,” which the government bears the
burden of proving. United States v. Quarrell, 310 F.3d 664, 678, 680 (10th Cir.
2002). The purpose of restitution “is not to punish defendants or to provide a
windfall for crime victims but rather to ensure that victims, to the greatest extent
possible, are made whole for their losses.” United States v. Arutunoff, 1 F.3d
1112, 1121 (10th Cir. 1993). Consequently, a district court that “order[s]
restitution in an amount greater than the total loss caused by” the offense thereby
“exceed[s] its statutory jurisdiction and impose[s] an illegal sentence.” Id.
The government contends that M icrosoft suffered the actual loss of “the
sale that M icrosoft would have made to Builder’s FirstSource had Defendant not
sold Builder’s FirstSource counterfeit M icrosoft products.” (Appellee’s Br. at
19.) W e disagree. The government provides no support for its contention that
Defendant’s actions thwarted this theoretical future sale. 1 Cf. United States v.
Young, 272 F.3d 1052, 1056 (8th Cir. 2001) (holding that district court clearly
erred in larceny case by ordering restitution for lost profits based only on victim’s
undocumented estimate of lost retail sales; concluding that because government
1
Even if the government’s argument were correct, the restitution order
would still exceed actual loss. Restitution must be based on net lost profits, not
on total retail price. See United States v. Beydoun, 469 F.3d 102, 108 (5th Cir.
2006).
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failed to prove lost profits below, restitution must be limited to insurance losses).
As an initial matter, we are very skeptical of the implicit suggestion that BFS’s
agreement to purchase 537 copies of the software for a total price of less than
$86,000 proves that BFS w ould have agreed to purchase the same number of
copies from M icrosoft for more than $321,000. Furthermore, given the fact that
BFS quickly turned the counterfeit software over to the government, we are
unable to see how Defendant prevented M icrosoft from selling its software to
BFS. Nothing in the record suggests that M icrosoft’s potential to sell software to
BFS w as changed by Defendant’s actions— if anything, M icrosoft was just made
aware that BFS w as a potential purchaser of its products. W hile we can conceive
of instances where the distribution of a counterfeit good to a consumer for even a
limited period of time could deprive the copyright owner of a potential sale, this
case involves professional office software, all copies of which were turned over to
the government within fifteen days of receipt and without having been used.
There is no reason to believe that the purchaser’s demand for this software would
have changed within those fifteen days, and thus there is no reason to believe that
any sales were diverted from M icrosoft by Defendant’s actions.
W hile we have been unable to find any cases directly addressing the issue
presented here, we find informative the Fourth Circuit’s reasoning in United
States v. Adam s, 19 Fed. App’x 33 (4th Cir. 2001) (per curiam) (unpublished).
Adam s presented a somewhat different factual situation, as the infringing goods in
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that case were confiscated before the defendant could sell them. However, the
court’s reasoning extends to the instant situation. In Adams, the Fourth Circuit
vacated the district court’s restitution order because “the immediate confiscation
of A dams’ shipment prevented A dams from usurping the copyright holders’
potential sales and deriving personal gain.” Id. at 35. Similarly, in this case
BFS’s refusal to pay for the software prevented Defendant from deriving any
personal gain from the sale, and because all copies of the infringing software
were quickly seized from BFS by the government, M icrosoft’s ability to sell the
genuine software to BFS was in no way affected by Defendant’s actions. W e
therefore conclude that, just as in Adams, the copyright holder in this case
suffered no actual loss.
The government’s assertion that Defendant’s actions deprived M icrosoft of
potential sales is not supported by the record, and the government does not
contend that M icrosoft suffered loss in any other way. W e are thus unable to see
how the order of restitution can be viewed as anything but a windfall for
M icrosoft. Because the government failed to prove that M icrosoft suffered any
actual loss, no restitution should have been ordered. W e therefore REV ER SE
and VAC ATE the district court’s restitution order.
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