FILED
United States Court of Appeals
Tenth Circuit
PUBLISH December 10, 2009
Elisabeth A. Shumaker
UNITED STATES COURT OF APPEALS Clerk of Court
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff–Appellee,
v. No. 08-1296
JOSEPH MASEK,
Defendant–Appellant.
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 07-CR-248-WYD)
Thomas P. Sleisenger, Law Offices of Thomas P. Sleisenger, Los Angeles, California for
the Defendant–Appellant.
John M. Hutchins (David M. Gaouette and Robert Mydans with him on the briefs),
Office of the United States Attorney, Denver, Colorado for the Plaintiff–Appellee.
Before TACHA, BALDOCK, and LUCERO, Circuit Judges.
LUCERO, Circuit Judge.
Joseph Masek appeals his sentence of thirty-three months’ imprisonment and his
restitution order following a conviction for wire fraud. Masek created fraudulent
accounts in order to collect commissions and other payments from Echostar Satellite LLC
(“Echostar”). We conclude that the district court did not commit clear error in
calculating the loss for sentencing purposes or in determining the restitution owed to
Echostar. We further hold that Masek’s sentence was both procedurally and
substantively reasonable. Exercising jurisdiction under 18 U.S.C. § 742, we affirm.
I
Masek and his wife owned and operated Satellites and More, a retailer for
Echostar. Under a written retailer contract, Satellites and More marketed and sold
Echostar television programming services. Satellites and More also purchased Echostar
equipment—typically satellite dishes, receiver boxes, and programming cards—from
regional Echostar distribution centers and resold the equipment to individual customers.
When Satellites and More signed up a new Echostar customer or opened a new account,
it received two payments from Echostar: (1) a reimbursement for the equipment; and (2)
an incentive payment, or commission. The average amount paid to a retailer per account
is approximately $400 and is based on a two-tier system. The first-tier commission is
paid if a customer account remains open for ninety days, and the second-tier requires 360
days.
In 2005, Bruce Warner, Echostar’s general manager of risk and audit retail
services, learned about seventy-nine suspicious accounts related to Satellites and More.
Each account was registered in Tulsa, Oklahoma—even though Satellites and More was
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located in California—and each account featured an inexpensive receiver and
programming package, included no customer contact information, and was set up so that
statements would not be mailed to a physical address. This discovery led Warner to
investigate the 9067 accounts opened by Satellites and More. Of this total, Warner
identified 4310 he believed to be fraudulent; that is, accounts for which no actual
customer had ordered programming. Warner turned off service for these accounts but
only sixteen customers called to complain, leading Echostar to conclude that Satellites
and More had opened 4294 fraudulent accounts. Many of the fraudulent accounts were
opened using pre-paid debit cards set to make automatic payments with limited funds.
Most of these accounts were opened in states where Echostar offered promotions that
featured little or no payments in the first ninety days of service, allowing Satellites and
More to collect a commission before the account became delinquent.
Warner contacted the FBI, which interviewed Masek in the presence of his
attorney. Masek admitted creating numerous fraudulent accounts and collecting
commissions and other payments associated with those accounts. He was charged with
one count of wire fraud in violation of 18 U.S.C. § 1343. Masek pled guilty pursuant to a
written plea agreement. In the plea agreement, the government estimated the total loss
attributable to the charged crime at $2.5 million, but Masek reserved his right to
challenge the government’s loss calculations.
Echostar filed a civil complaint against Masek, and the parties settled prior to
Masek’s sentencing. Masek agreed to pay Echostar $1.24 million, including $150,828.03
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in attorneys’ fees. The parties mutually released each other from “any and all claims . . .
whatsoever . . . in law or in equity . . . relating in any manner to any and all causes of
action . . . that may be prosecuted.”
At the sentencing hearing, the government introduced testimony from Warner,
who had examined each of the fraudulent accounts and determined that Echostar had paid
Satellites and More a total of $2,453,793 for those accounts. Warner stated that this
number credited Masek for “chargebacks,” which are withdrawals of commissions and
incentives taken by Echostar from Satellites and More because customers cancelled
service prematurely. The figure did not credit Masek for payments made on the
fraudulent accounts from pre-paid debit cards. However, Warner testified that the total
amount paid into the 4294 fraudulent accounts was $290,757.80.
The government also presented Curtis Maleri, a special agent with the FBI who
acted as the case agent for the Satellites and More investigation. Maleri reviewed audit
information compiled by Warner and his staff and created consolidated transaction
worksheets detailing the fraud. Maleri calculated a “very, very, very conservative[]” total
loss figure of $2,043,658.25 by adding up the payments Echostar made to Satellites and
More, then deducting “chargebacks” later recouped by Echostar. Maleri’s figure differed
from Warner’s because Maleri excluded any Satellites and More accounts registered in
California on the theory that such accounts could have been legitimate.
Masek testified on his own behalf. He argued that the loss figure should be
lowered for a variety of reasons. Masek claimed: (1) that Warner substantially
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underreported the amount paid on the fraudulent accounts, with the correct figure totaling
over $1 million; (2) Echostar improperly charged back $23,299.75 from Satellites and
More; (3) Echostar included legitimate accounts in the list of 4294, inflating the loss
figure by $481,284.50; (4) Echostar failed to credit Satellites and More $198,113.00 for
equipment returned to Echostar; (5) Satellites and More ordered and paid for $38,766.00
worth of equipment that Echostar never delivered; and (6) Echostar seized more than
$100,000 from Satellites and More accounts. Based on Masek’s calculations, the total
loss amount was only $88,763.91.
The district court found that Warner and Maleri testified credibly, and that Masek
did not. It adopted a loss amount of $1,752,901.25, representing Maleri’s figure of
$2,043,658.25 less the debit card payments of $290,757. With a total offense level of 20
and a criminal history category of I, Masek’s advisory Guidelines range was thirty-three
to forty-one months. The court denied Masek’s motion for a downward departure, ruling
that the 18 U.S.C. § 3553(a) factors counseled in favor of a thirty-three month sentence.
In determining the restitution amount, however, the court subtracted the non-attorney fee
portion of Masek’s settlement payment from the total loss figure and ordered restitution
of $663,729.28 under the Mandatory Victims Restitution Act (“MVRA”). Masek now
appeals his sentence and the restitution order.
II
Masek’s primary contention is that the district court erred in calculating the loss
amount for both sentencing and restitution purposes. We review a district court’s legal
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sentencing determinations de novo and its factual findings for clear error. United States
v. Gallant, 537 F.3d 1202, 1234 (10th Cir. 2008). These same standards of review apply
to an order of restitution under the MVRA; however, the amount of restitution is
reviewed for abuse of discretion. Id.
In fraud cases, the Guidelines allow district courts to use either the actual or the
intended loss to establish a defendant’s offense level. U.S.S.G. § 2B1.1 n.3; see also
United States v. Messner, 107 F.3d 1448, 1455 (10th Cir. 1997). Actual loss is defined as
“the reasonably foreseeable pecuniary harm that resulted from the offense.” U.S.S.G. §
2B1.1 n.3(A)(i). Intended loss means “the pecuniary harm that was intended to result
from the offense.” U.S.S.G. § 2B1.1 n.3(A)(ii)(I). “The court need only make a
reasonable estimate of the loss.” U.S.S.G. § 2B1.1 n.3(C).
For MVRA purposes, the court must use actual loss as its metric. Gallant, 537
F.3d at 1247. “[I]n the case of fraud or theft, the loss need not be determined with
precision. The court need only make a reasonable estimate of the loss, given the
information available.” Id. at 1252 (quotation omitted). The government bears the
burden of proving the amount of loss by a preponderance of the evidence. Id. at 1247.
A
Masek filed a response to his pre-sentence report challenging Echostar’s loss
figures on ten specific grounds, and these challenges inform much of his appeal. His first
four alleged defects relate to payments he claims to have made on the fraudulent accounts
(via four different payment systems). Masek asserts that “the government has not
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rebutted evidence contained in” his exhibits “and there is no suggestion Masek has either
misrepresented or concealed information.” Masek is incorrect on both counts.
At the sentencing hearing, Masek testified that he purchased prepaid debit cards
and used them to make sufficient payments on the fraudulent accounts so that they would
remain open long enough for him to collect commissions. He introduced four exhibits
showing more than $1 million in prepaid card purchases and $66,036.85 in direct
transfers, and claimed that all of those funds went to Echostar. However, as the district
court noted, the documents show only that Masek purchased debit cards—they do not
demonstrate that the cards were actually used to pay Echostar.1 Masek claimed that he
had evidence tying the cards to the fraudulent accounts, but was unable to gather such
documents and present them to the court. The district court specifically rejected Masek’s
version of events as not credible. Instead, it relied on Warner’s testimony that he
examined each of the 4294 fraudulent accounts and found total payments on those
accounts of $290,757.80. Masek provides no basis to reject the district court’s factual
findings on this issue. See Wessel v. City of Albuquerque, 463 F.3d 1138, 1145 (10th
Cir. 2006) (“We give the district court’s determinations regarding the credibility of
witnesses great deference.” (quotation omitted)).
Masek also argues that he should be credited for a variety of “legitimately earned
1
One exhibit, showing “precash payments,” contains bank statements with
highlighted transfers. However, the document does not indicate that Echostar received
these transfers. Further, the precash payments total substantially less than the amount for
which Masek was credited and thus may represent a portion of that credit.
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commissions” and other “subcategories of offsets, debits, and chargebacks” discussed in
his defense exhibits. Most of these asserted credits related to legitimate business dealings
between Echostar and Satellites and More. Masek contends he was improperly “charged-
back” $23,299.75 and that Echostar froze $180,000 in payments the company owed him.
Masek also seeks credit for approximately $200,000 worth of receivers that were
allegedly returned to Echostar but for which Satellites and More received neither
payment nor replacements. Warner testified that these receivers were not related to the
fraudulent accounts and that no money was owed on these receivers in any event.
Finally, Masek seeks credit for equipment he ordered from Echostar that he claims was
never delivered.
Masek advances these claims as if the purpose of the sentencing hearing were to
conduct a final accounting between Echostar and Satellites and More. This assumption is
incorrect; the purpose of the hearing was to determine the amount of loss resulting from
the charged offense. See U.S.S.G. § 2B1.1 n.3. Regardless of whether Echostar owes
Satellites and More for separate, legitimate business transactions, such a debt would not
affect the loss calculation.2
The only other issue Masek’s exhibits identify is an alleged “discrepancy” in the
government’s tabulation of the total payments between Echostar and Satellites and More.
In his testimony at the sentencing hearing, Masek claimed that this discrepancy occurred
2
Further, Masek appears to have waived such claims for payment in his settlement
agreement with Echostar.
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because the government added “chargebacks” to the payment total rather than subtracting
them—an argument he repeats before this court. However, in his response to the
presentence report, Masek instead argued that the discrepancy was caused by Echostar
including legitimate accounts in its figures. Masek’s exhibit purporting to reflect this
discrepancy does not support either theory; rather, it is an account-by-account listing of
the amounts reflected in the government’s documents, and the difference between the
government’s totals and Masek’s. These differences do not appear to correspond to
chargeback amounts. The alleged “discrepancy” then, is simply a disagreement
regarding the amount Echostar paid to Satellites and More. Such a disagreement does not
establish that the district court clearly erred. It was free to credit the government’s
figures over Masek’s. See Gallant, 537 F.3d at 1234 (district court’s factual findings
reviewed for clear error).
In Masek’s final evidentiary challenge, he argues that the district court should not
have relied on the government’s witnesses and exhibits because they lacked “sufficient
indicia of reliability.” The government introduced two witnesses who oversaw a review
of every fraudulent account. Those witnesses tabulated the total amount paid to Satellites
and More, as well as the total paid to Echostar on those accounts. In adopting the most
conservative figures advanced by the government in determining the amount of loss and
restitution, the district court acted consistently with its obligation to arrive at a
“reasonable estimate” of each. Id. at 1237, 1252; U.S.S.G. § 2B1.1 n.3(C). Masek has
not presented evidence to bring the reliability of these witnesses’ conservative estimates
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or the court’s findings into doubt, let alone establish clear error.
B
In addition to his evidentiary arguments, Masek asserts that the settlement amount
should be credited against the loss figure for the purposes of calculating his Guidelines
range. We reject this contention. The Guidelines note that “money returned” should be
credited against the actual loss, but only if such funds are returned “before the offense
was detected.” U.S.S.G. § 2B1.1 n.3(E)(i). Because the settlement in this case occurred
after Masek’s scheme was discovered, he cannot seek a more lenient sentence because he
was forced to repay his victim under the threat of civil liability. See United States v.
Pappert, 112 F.3d 1073, 1079 (10th Cir. 1997) (“We do not allow defendants to barter
prison time in exchange for restitution.”). Masek’s “repentance is not so much regret for
the ill [he] ha[s] done as fear of the ill that may happen to [him] in consequence.”
Francois duc de La Rochefoucauld, Reflections or Sentences & Moral Maxims 41 (J.W.
Willis Bund & J. Hain Friswell trans., Kessinger Pub. 2005) (1871).
Masek also suggests that the amount of the civil settlement should cap the amount
of loss for both Guidelines and MVRA purposes. He cites United States v. Gallegos, 975
F.2d 710 (10th Cir. 1992), in which we noted it “would be incongruous to hold that the
actual loss to the bank was greater than the amount the bank now seeks to collect” after
reaching a settlement agreement with a defendant convicted of making a false statement
on a loan application. Id. at 711, 713. However, we never addressed the validity of the
court’s loss calculation, instead remanding for the court to clarify whether it based its
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order on actual or intended loss. Id. at 713. We have twice rejected attempts to read
Gallegos’ dictum as binding precedent. See United States v. Waldroop, 431 F.3d 736,
744 & n.1 (10th Cir. 2005) (“The district court properly excluded [defendant’s]
settlement with [the victim] when calculating the actual loss caused by his fraud.”);
Pappert, 112 F.3d at 1079 n.2.
Moreover, the facts of Gallegos are far different from those here. In Gallegos, the
victim bank had obtained some recovery from third parties and had “reduced its claim
against Mr. Gallegos to the amount of the settlement agreement.” 975 F.2d at 712-13.
By contrast, the settlement agreement in this case specifically notes that the parties
“acknowledge that there is a disagreement regarding the amount of actual damages,” but
“desire to resolve any and all disputes pending between them by way of compromise
rather than by further litigation.” Echostar may have settled with Masek for any number
of reasons. It may have sought to avoid the costs of trial, or it may have estimated that
Masek would be judgment proof beyond the settlement amount. Nothing in the record
suggests Echostar “reduced its claim” to the settlement total.
Masek also argues that the settlement agreement forecloses the possibility of a
restitution award. Again, we disagree. In Gallant, we held that a civil “settlement does
not bar restitution” under the MVRA. 537 F.3d at 1251. Masek asserts that by referring
to claims “in law or in equity . . . that may be prosecuted,” his settlement agreement
escapes the reach of Gallant, but the government correctly notes that Echostar cannot
waive the government’s rights: The United States was not a party to the settlement
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agreement. See id. (“The MVRA requires the sentencing court to provide restitution to
victims. A private settlement cannot abrogate that language.”).3
III
Masek further claims that his sentence was both substantively and procedurally
unreasonable, and that the court abused its discretion in refusing to grant a downward
departure for extraordinary acceptance of responsibility. We review criminal sentences
for reasonableness. See Rita v. United States, 551 U.S. 338, 340 (2007). Reasonableness
includes both procedural and substantive components. United States v. Sutton, 520 F.3d
1259, 1262 (10th Cir. 2008). The procedural component focuses on the manner in which
the sentence was calculated, and the “substantive component concern[s] the length of the
sentence actually imposed.” Id. When the district court correctly calculates a Guidelines
range based on factual findings that are not clearly erroneous and imposes a sentence
within that range, the sentence is entitled to a presumption of reasonableness on appeal.
Id.; see Rita, 551 U.S. at 347. We defer to the district court’s weighing of the 18 U.S.C.
§ 3553(a) factors. United States v. Smart, 518 F.3d 800, 808 (10th Cir. 2008).
In imposing Masek’s sentence, the district court stated: “After carefully
considering the advisory Guidelines and the sentencing factors found at [§] 3553(a), the
[c]ourt concludes that imposing a sentence within the advisory Guidelines range is a just
3
Gallant requires that a civil settlement be credited against a restitution award, as
the district court did here. See id. (“[W]hen determining the amount of a restitution
award under the MVRA, the court must reduce restitution by any amount the victim
received as part of a civil settlement.” (quotation omitted)).
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and appropriate sentence in this case.” Our review of the record on appeal demonstrates
that the district court did not commit procedural error, but carefully considered the
relevant statutory factors. “Magic words” are unnecessary. See United States v.
Rodriguez-Quintanilla, 442 F.3d 1254, 1258-59 (10th Cir. 2006).
With respect to substantive reasonableness, Masek cites two cases in which a
district court opted to depart downward in fraud cases, United States v. Thurston, 544
F.3d 22 (1st Cir. 2008), and United States v. Ruff, 535 F.3d 999 (9th Cir. 2008), but does
not explain how those cases lead to the conclusion that the district court here abused its
discretion. Indeed, Masek appears to have obtained a relatively light sentence in view of
his properly calculated Guidelines range, the length of his fraudulent scheme, and the
amount of loss he caused.
As to Masek’s final claim, we held in United States v. Chavez-Diaz, 444 F.3d
1223 (10th Cir. 2006), that “we do not have jurisdiction to review the district court’s
discretionary decision to deny a downward departure,” but may only “review the
sentence imposed for reasonableness.” Id. at 1229. Having concluded Masek’s sentence
was reasonable, we may not rule that the district court abused its discretion in denying a
downward departure.
IV
For the foregoing reasons, Masek’s sentence and restitution order are
AFFIRMED.
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