United States v. Gee, Jim ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 99-2348, 99-2622, 99-2623, 99-3093
United States of America,
Plaintiff-Appellee/Cross-Appellant,
v.
Jim Gee and William C. Norris,
Defendants-Appellants/Cross-Appellees.
Appeals from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 3:93-CR-13RM--Robert L. Miller, Jr., Judge.
Argued April 3, 2000--Decided September 11, 2000
Before Flaum, Chief Judge, and Bauer and Williams,
Circuit Judges.
Williams, Circuit Judge. The United States
government charged William C. Norris and Jim Gee
in a 32-count indictment in connection with a
scheme to assist in the unauthorized reception of
cable television signals./1 Before submitting
the case to the jury, the government dropped two
of the counts against Norris. The jury returned
guilty verdicts on all remaining counts.
Defendants appeal their convictions and their
sentences. The government appeals defendants’
sentences. For the reasons stated below, we
reverse defendants’ convictions on mail fraud,
wire fraud, and conspiracy. We affirm Norris’s
conviction for assisting unauthorized reception
of cable service, but we remand for resentencing
consistent with this opinion.
I
Little of the evidence at trial was in dispute.
The government charged, and the defense readily
admitted, that Gee and Norris were involved in
the production of equipment that buyers could use
to transform cable television converters into
devices that could descramble all encrypted cable
programming. A cable television subscriber who
acquires a descrambler from a source other than
the cable company can access premium programming
without paying the cable company any additional
fees. The evidence showed that Bryan Corrigan, a
cooperating witness, developed chips and modules
that could modify cable converter boxes to
descramble all encrypted cable programming. Gee
took Corrigan’s work product and sold it to
Norris and other after-market dealers. Norris
sold these chips and modules, and cable boxes
modified by these chips and modules, to home
viewers. These devices allow the user to, among
other things, descramble and view premium cable
television channels without the cable provider’s
permission.
A jury found Norris guilty of thirteen counts
of wire fraud, violating 18 U.S.C. sec. 1343;
five counts of mail fraud, violating 18 U.S.C.
sec. 1341; seven counts of misdemeanor assisting
unauthorized reception of cable service and four
counts of felony assisting unauthorized reception
of cable service, violating 47 U.S.C. sec.
553(a)(1); and one count of conspiracy, violating
18 U.S.C. sec. 371. The same jury found Gee
guilty of ten counts of wire fraud and one count
of conspiracy.
The district court sentenced Norris to 37
months of home confinement and imposed a fine and
special assessments totaling $16,325. The court
sentenced Gee to 37 months of imprisonment and
imposed a fine and special assessments totaling
$8,050.
II
A. Material Falsehood
Norris and Gee claim that their convictions on
wire and mail fraud should be reversed because
the government did not properly allege or prove
materiality and because the court did not
properly instruct on materiality. We review de
novo the sufficiency of an indictment. See United
States v. Agostino, 132 F.3d 1183, 1189 (7th Cir.
1997).
In 1999, the Supreme Court ruled that a "scheme
to defraud" under the wire and mail fraud
statutes must include the element of a material
falsehood. See Neder v. United States, 527 U.S.
1, 25 (1999). "[A] false statement is material if
it has ’a natural tendency to influence, or [is]
capable of influencing, the decision of the
decisionmaking body to which it was addressed.’"
Id. at 16 (quoting Kungys v. United States, 485
U.S. 759, 770 (1988)).
Earlier in this case, in 1997, defendants filed
an unsuccessful motion to dismiss, arguing, inter
alia, that the indictment failed "to allege any
false or misleading statements" to customers or
cable companies. In response to that motion, the
government acknowledged that the indictment does
not base fraud charges on any misleading
statements or fraudulent omissions./2 Under the
law at that time, the district court correctly
ruled that a material falsehood was not an
essential element of the wire or mail fraud
statutes./3
On appeal, the government argues that the
indictment does in fact allege false and
misleading statements./4 However, as the
government acknowledged in 1997, the indictment
does not allege that defendants misrepresented or
concealed a material fact in aid of their scheme.
All the government can point to is the language
in the indictment and argue that the court should
view it as a whole, rather than in a
hypertechnical manner./5 The government
acknowledges that the indictment does not use the
words "material," "misrepresentation," or
"concealment" but suggests that the indictment
sufficiently apprized defendants of the nature of
the charges and all essential elements, including
materiality. The indictment merely alleges a
"scheme to defraud," however, which the Neder
court ruled insufficient. See id. at 20.
The government next argues that even if
material falsehoods were not in the indictment,
it introduced sufficient evidence of material
falsehoods at trial to support the verdict. We
review sufficiency of the evidence under a
substantial evidence standard. See United States
v. Durrive, 902 F.2d 1221, 1229 (7th Cir. 1990).
We "view the evidence in the light most favorable
to the government and accept circumstantial
evidence as support, even sole support, for a
conviction." Id. If we find insufficient evidence
to support the verdict, we must reverse with
instructions that the district court grant a
judgment of acquittal. See United States v.
Locklear, 97 F.3d 196, 199-200 (7th Cir. 1996).
The government claims that it introduced
evidence that end-users misrepresented and
concealed the use of the illegal descrambler
units from cable operators. This evidence does
not prove, however, that defendants
misrepresented or concealed material facts.
Furthermore, the government did not proffer any
evidence that Norris or Gee ever induced any of
their customers to make false or misleading
statements to their customers’ cable companies.
The government also points to trial testimony
that demonstrated that the chips and descramblers
sold by Norris and Gee were designed to allow
free access to premium cable channels and to
block the subscriber’s descrambler unit from
receiving electronic authorization instructions
from the cable operator. The devices’
capabilities do not, however, prove material
falsehoods by Norris and Gee. The government did
not proffer any evidence that defendants made any
false or misleading statements. Therefore, even
after viewing the evidence in the light most
favorable to the government, no rational jury
could have found the essential element of a
material falsehood.
We find that the government not only failed to
allege but also failed to prove that Norris or
Gee made any false or misleading statements.
Consequently, we reverse their mail and wire
fraud convictions and remand with instructions
that the district court grant a judgment of
acquittal on these charges. Accordingly, we find
it unnecessary to review whether the district
court’s jury instructions on material falsehoods
were sufficient.
B. Conspiracy
Defendants next argue that their conspiracy
convictions should be reversed on two grounds.
First, they contend that the government failed to
proffer substantial evidence of an agreement
between Norris and Gee to violate 28 U.S.C. sec.
553(a)(1)./6 Second, they argue that the
district court’s failure to include a buyer-
seller instruction is reversible error.
1. Substantial Evidence
As noted above, we review sufficiency of the
evidence under a substantial evidence standard.
See Durrive, 902 F.2d at 1228. We also note that
a sufficiency of the evidence challenge is hard
to win, given the standard of appellate review.
We consider the evidence in the light most
favorable to the government, and we must affirm
the conviction so long as any rational factfinder
could have found the essential elements of the
offense to have been established beyond a
reasonable doubt. We will overturn the verdict
"only if the record contains no evidence,
regardless of how it is weighed, from which the
jury could find guilt beyond a reasonable doubt."
United States v. Menting, 166 F.3d 923, 928 (7th
Cir. 1999) (internal citations omitted) (quoting
United States v. Granados, 142 F.3d 1016, 1019
(7th Cir. 1998)).
The trial evidence establishes that: 1) Gee
programmed chips that descrambled premium cable
programming; 2) Norris regularly purchased these
chips from Gee; 3) Norris installed the chips
into descrambling equipment and sold the
equipment or just the chips to customers and
distributors; 4) Gee programmed different kinds
of chips, depending on Norris’s order; 5) Norris
and Gee established a routine for their joint
venture; 6) Norris and Gee had regular contact
with each other via telephone and facsimile; 7)
Gee visited Norris’s shop on at least two
occasions; 8) Norris and Gee collaborated by
sharing instructions, warnings, and disclaimers
and by having Norris train Gee’s employee; and 9)
after Gee found out that authorities raided
Norris’s shop, Gee shipped all of his cable
supplies out of state. Defendants counter,
however, that this circumstantial evidence
suggests only that they had an arm’s-length
business relationship, not a conspiracy.
A conspiracy requires the government to prove
(1) the existence of an agreement to commit an
unlawful act; (2) that defendants knowingly and
intentionally became members of the conspiracy;
and (3) the commission of an overt act that was
committed in furtherance of the conspiracy. See
United States v. Lahey, 55 F.3d 1289, 1293 (7th
Cir. 1995). "The existence of a mere buyer-seller
relationship between [defendants, however,]
without more, is not sufficient to establish a
defendant’s guilt. The government must prove that
a defendant knowingly and intentionally joined
the charged conspiracy, knowing the conspiracy’s
aims and intending to achieve them." Menting, 166
F.3d at 927; accord United States v. Mims, 92
F.3d 461, 465 (7th Cir. 1996); see also United
States v. Townsend, 924 F.2d 1385, 1394 (7th Cir.
1991) ("The buy-sell transaction is simply not
probative of an agreement to join together to
accomplish a criminal objective beyond that
already being accomplished by the transaction.").
A conspiracy is more than a buyer-seller
agreement. A conspiracy
is an agreement with a particular kind of object-
- an agreement to commit a crime. . . . What is
required for conspiracy in such a case is an
agreement to commit some other crime beyond the
crime constituted by the agreement itself. . . .
But insofar as there was an agreement between
[defendants] merely on one side to sell and on
the other to buy, there was no conspiracy between
them no matter what [the buyer] intended to do
with the [contraband] after he bought [it]. . .
. A person who sells a gun knowing that the buyer
intends to murder someone may or may not be an
aider or abettor of the murder, but he is not a
conspirator, because he and his buyer do not have
an agreement to murder anyone.
United States v. Lechuga, 994 F.2d 346, 349 (7th
Cir. 1993) (en banc); see also Direct Sales Co.
v. United States, 319 U.S. 703, 709 (1943)
(ruling "that one does not become a party to a
conspiracy by aiding and abetting it . . . and
the inference of [conspiracy] cannot be drawn
merely from knowledge that the buyer will use the
goods illegally").
To find sufficient evidence of a conspiracy, we
have "looked for evidence of ’a prolonged and
actively pursued course of sales coupled with the
seller’s knowledge of and a shared stake in the
buyer’s illegal venture’. . . . Other important
indicia of conspiracy include ’the length of
affiliation, the established method of payment,
. . . the extent to which the transactions are
standardized, and the demonstrated level of
mutual trust.’" Menting, 166 F.3d at 928 (quoting
United States v. Pearson, 113 F.3d 758, 761 (7th
Cir. 1997)). If enough of these factors show more
than a mere buyer-seller agreement, this court
will not reverse a jury’s conclusion that a
conspiracy existed. See United States v. Clay, 37
F.3d 338, 342 (7th Cir. 1994); accord Pearson,
113 F.3d at 761.
Here, the government proffered sufficient
evidence to conclude that Gee knew what Norris
was doing with the chips. Moreover, over a period
of 13 months, Gee and Norris had regular dealings
with each other and developed a routine for their
orders and payments. Defendants argue, however,
that their transactions could just as easily be
construed as routine commercial transactions
between business associates and not as
"standardized" transactions between conspirators.
The supplies Gee sold to Norris and the equipment
Norris sold to his customers were not contraband
per se./7 Furthermore, Gee and Norris did not
have a financial interest in each other’s
business or share in any of their business
profits or losses.
We will not reverse the verdict if we find that
the jury, when looking at the evidence in the
light most favorable to the government, could
have rationally determined that a conspiracy
existed. See Durrive, 902 F.2d at 1229-30. While
defendants’ arguments have merit, a rational
factfinder could find that the government
established the essential elements of conspiracy
beyond a reasonable doubt. Evidence of a 13-month
cooperative relationship between Norris and Gee,
which included standardized transactions, the
sharing of disclaimers, and Norris’s training of
Gee’s employee, supported the conspiracy
allegations. Consequently, we find sufficient
evidence to support the jury’s conspiracy
verdict.
2. Buyer-Seller Jury Instruction
Defendants also argue that the district court
should have included a buyer-seller jury
instruction. They make this argument though they
did not suggest this instruction below and never
argued this theory of the case to the jury. We
review jury instructions not objected to at trial
under a plain error standard. See United States
v. Reynolds, 189 F.3d 521, 524 n.2 (7th Cir.
1999). Plain error is: (1) an error; (2) that is
plain, meaning obvious or clear; and (3) that
affects substantial rights. See United States v.
Olano, 507 U.S. 725, 732-34 (1993). Furthermore,
"[i]n order to reverse a conviction for plain
error, [we] must determine . . . that the error
’seriously affects the fairness, integrity or
public reputation of judicial proceedings.’"
Mims, 96 F.3d at 465 (quoting Olano, 507 U.S. at
732).
District judges should inform juries that
repeated transactions do not constitute a
conspiracy. See United States v. Thomas, 150 F.3d
743, 745 (7th Cir. 1998). "If a jury rationally
could find in the defendant’s favor on some
material issue, then the jury must be instructed
on that subject." Id. at 746 (citing Mathews v.
United States, 485 U.S. 58, 63 (1988)).
Furthermore, because the line between a
conspiracy and a mere buyer-seller relationship
is difficult to discern, district judges should
instruct juries in appropriate situations on the
distinction. See Mims, 92 F.3d at 464.
This case presents one of those situations. The
proffered evidence of a conspiracy was
circumstantial and not overwhelming. The evidence
was as consistent with a buyer-seller
relationship as it was with a conspiracy. The
instructions allowed the jury to make a guilty
finding without determining whether the
government had proved the existence of a
conspiracy. Cf. id. at 466.
We have no way of knowing whether, had the jury
understood the distinction between a conspiracy
and a buyer-seller relationship, it would still
have convicted Norris and Gee of conspiracy.
Because a rational jury could find that Gee dealt
with Norris without any agreement between them to
commit any future crimes, the district court
should have included a buyer-seller jury
instruction. Moreover, the district court should
have sua sponte included a buyer-seller
instruction because it knew that the conspiracy
evidence was weak./8
The district judge’s reservation about the proof
of a conspiracy should have alerted him to be
certain that the jury correctly evaluated the
evidence before determining whether a conspiracy
existed. See Thomas, 150 F.3d at 745-46. This
plain error substantially affected defendants’
rights. The jury could have concluded that
defendants had a buyer-seller relationship and
thus acquitted them on the conspiracy charge.
Therefore, the failure to give a buyer-seller
instruction
affected the substantial rights of the defendants
because we cannot be sure whether the jury made
the factual findings of conspiratorial agreement
necessary for a verdict of guilt. Though we
cannot know the probability that the error
changed the outcome--a properly instructed jury
might, nonetheless, have determined that there
was a conspiratorial agreement--we are certain
that the error had a substantial potential to
affect the outcome. Thus the error affected the
defendants’ substantial rights.
Mims, 92 F.3d at 466.
Having satisfied the prerequisites for reversal
on grounds of plain error in this case, we must
determine whether the error is one that
"seriously affects the fairness, integrity and
public reputation of judicial proceedings."
Olano, 507 U.S. at 732. As we found in Mims, this
is a difficult question when the evidence was
sufficient to support a conspiracy conviction.
See Mims, 92 F.3d at 466. However, where, as
here, "the existence of a conspiratorial
agreement was closely contested and conflicting
evidence was presented on the issue, the failure
to ensure a jury finding on this essential
element undermines the essential fairness and
integrity of the trial." Id. Consequently, we
must reverse the conspiracy convictions.
C. Norris’s Proposed Jury Instructions
Norris proposed several instructions to advise
the jury that the cable equipment at issue in
this case was not contraband or illegal per se
and that this circuit had ruled in 1988 that a
person could not be convicted under 47 U.S.C.
sec. 553 for selling a descrambler with the
intent that the buyer use it for lawful
purposes./9 We review the district court’s
refusal to give a party’s instruction by
determining whether the omission prejudiced the
party. See United States v. Katalinich, 113 F.3d
1475, 1482 (7th Cir. 1997)./10
A defendant is only entitled to an instruction on
his theory of defense if: (1) the defendant
proposed a correct statement of the law; (2) the
evidence lends some support to the defendant’s
theory; (3) the defendant’s theory of defense is
not part of the charge; and (4) the failure to
include the defendant’s instruction would deny
him a fair trial.
Id. The district court rejected defendants’
proposed instructions, finding that Instruction
18 properly covered the topics addressed in
Norris’s proposed instructions. Instruction 18
states:
The government does not have to prove that the
equipment involved in a particular count was sold
for the sole and specific purpose of cable
television theft, or that the equipment was
actually used illegally. The government must
prove that Mr. Norris intended the equipment
involved in a particular count to be used for
unauthorized reception of cable service, or that
he acted with specific knowledge that the
equipment involved would be so used./11
While Norris’s Proposed Instruction No. 5 would
have provided more direct guidance than
Instruction 18, the district court’s refusal to
use his instruction did not prejudice Norris. His
proposed instruction accurately states that cable
descramblers are not per se illegal and that a
person is criminally liable only if he sells the
devices with the intent or specific knowledge
that the buyer will use them for unauthorized
purposes. Like Norris’s proposed instructions,
Instruction 18 states the wilfulness requirement
to convict under sec. 553. Consequently, the
district court’s refusal to use his proposed
instructions did not prejudice Norris.
Accordingly, we find that the district court
did not err when it rejected Norris’s Proposed
Instructions Nos. 5 through 8. While we would
have preferred Norris’s Proposed Instruction No.
5, we do not find that he was prejudiced by the
use of Instruction 18.
D. Norris’s Relevant Conduct Under U.S.S.G. sec.
1B1.3
Defendants contend that the district court erred
in its loss calculations by holding against
defendants conduct not necessarily found criminal
by the jury and not found criminal by the court
at all. First, they maintain that because the
district judge determined for purposes of his
evidentiary ruling that the government had not
proven its conspiracy case,/12 the court
should not have considered as relevant conduct
any losses other than those related to the
descrambler sales specifically charged in the
indictment. In other words, the court should
ignore any losses only attributable to the
conspiracy conviction. Second, defendants
maintain that losses from sales not addressed by
a specific count in the indictment cannot be
included as relevant conduct because the jury did
not specifically find such sales illegal. While
we have already ruled that defendants’ conspiracy
convictions must be reversed, we will offer some
comments on this relevant conduct question
because it will be relevant at Norris’s
resentencing.
The Supreme Court allows the sentencing court
to include acts or omissions in its sentencing
calculations even if the jury acquitted the
defendant on those acts or omissions. See United
States v. Watts, 519 U.S. 148, 157 (1997). This
apparent contradiction exists because sentence
calculations require a lower standard of proof
than criminal convictions. "The Guidelines state
that it is ’appropriate’ that facts relevant to
sentencing be proved by a preponderance of the
evidence, and we have held that application of
the preponderance standard at sentencing
generally satisfies due process." Id. at 156; see
also U.S.S.G. sec. 6A1.3 cmt. Given the district
judge’s determination prior to the jury verdict
that there was not a preponderance of evidence to
support the conspiracy counts, a novel question
arises. May the district judge ignore acts that
the jury found attributable to a defendant beyond
a reasonable doubt if the judge believes that
they do not pass the preponderance standard?
In Edwards v. United States, the Supreme Court
ruled that "regardless of the jury’s actual, or
assumed, beliefs about the conspiracy, the
Guidelines nonetheless require the judge to
determine [relevant conduct]." 523 U.S. 511, 514
(1998) (emphasis added). Moreover, we have
consistently held that the sentencing judge alone
is left to determine all issues of relevant
conduct. See United States v. Joiner, 183 F.3d
635, 643 (7th Cir. 1999); see also United States
v. Bell, 154 F.3d 1205 (10th Cir. 1998); United
States v. Brown, 148 F.3d 1003 (8th Cir. 1998),
cert. denied, 525 U.S. 1169 (1999). The district
judge may not, however, ignore specific conduct
for which the jury found a defendant guilty. See
Edwards, 523 U.S. at 514 (ruling that "relevant
conduct" includes conduct for which the defendant
is convicted).
The district court addressed defendants’
arguments in its April 6, 1999, opinion denying
defendants’ motion for a new trial and denying
their motion to reconsider the loss calculations.
After summarizing defendants’ arguments, the
court concluded:
The court’s ruling under Fed. R. Evid.
801(d)(2) (E) was not the final word on whether
the charged conspiracy was proven. In count 32,
the jury found Mr. Norris and Mr. Gee guilty of
the conspiracy that had not been proven to the
court’s satisfaction in the government’s case in
chief. While the jury was not required to find
each charged overt act to have been proven, the
jury had to find that Mr. Norris and Mr. Gee
agreed to assist criminal conduct. It is one
thing to say as the Watts Court said, that a
jury’s finding that a count was not proven beyond
a reasonable doubt does not preclude a sentencing
judge from finding that the activity charged in
the count was proven by a preponderance of the
evidence. It is quite another to say (as the
court believes it must to accept the defendant’s
argument) that a sentencing judge may disregard
a jury’s finding of guilt on a count when
constructing a "sentencing package," see
Woodhouse v. United States, 109 F.3d 347 (7th
Cir. 1997), that includes that count.
The jury found the defendants guilty of
conspiracy to assist, knowingly and willfully, in
the authorized and illegal interception and
reception of communications services offered over
a cable system and for the purpose of commercial
advantage and private financial gain. The court
cannot sentence either defendant for that crime
without assuming the verdict’s truth, and the
court cannot determine the guideline range
without accepting the truth of the verdict,
whatever the sentencing judge might have found
under Fed. R. Evid. 104(a) at the conclusion of
the government’s case in chief. When it is
accepted--as [it] must be accepted to impose any
sentence on the conspiracy count-- that Mr.
Norris and Mr. Gee agreed with each other and
with others to assist the unlawful interception
of cable signals, the rest of the evidence
persuades the court that it is more likely than
not than [sic] all of the sales reflected in the
Norris Electronics invoices were part of that
conspiracy. They must all be considered in
determining the sentencing range.
(emphasis added.)
If the district judge concluded that it was
more likely than not that the jury included the
relevant conduct in its conspiracy conviction,
then the judge misread Edwards and Watts. The
jury could have convicted defendants of
conspiracy with the commission of only one overt
act. The district judge made the correct
sentencing determination under Edwards and Watts,
however, if he independently determined that the
government proved by a preponderance of the
evidence that all of the relevant conduct
included in his sentencing calculations were part
of the conspiracy.
Accordingly, at Norris’s resentencing, the
district judge should make an independent
evaluation of the relevant conduct to include in
his sentence calculations. Norris’s relevant
conduct includes the specific convictions that
still stand--the eleven counts of assisting
unauthorized reception of cable service. The
district judge can also include conduct that is
"part of the same course of conduct or common
scheme or plan as the offense of conviction,"
U.S.S.G. sec. 1B1.3(a)(2); accord Edwards, 523
U.S. at 514, if the district judge finds that the
government proved this other conduct by a
preponderance of the evidence.
E. Loss Calculation Under U.S.S.G. sec.
2F1.1(b)(1)
The government appeals the district court’s loss
calculations. This loss calculation issue will
resurface when the district court resentences
Norris. At defendants’ sentencing, the government
argued that the district court should calculate
loss using the formula devised by the National
Cable Television Association ("NCTA"), which
computes loss based on the value of the cable
television programming to which the descramblers
afforded unauthorized access. Under this
approach, the losses attributed to Norris are
$15,176,364 and to Gee are $13,233,864.
Defendants urged the court to employ a method
used by the government in a similar case from New
Jersey, which computed loss by summing the sale
prices of the equipment sold. Under this method,
the losses attributed to Norris are $1,240,875
and to Gee are $1,041,510.
The district court adopted the defendants’
approach. We review the district court’s loss
determinations under U.S.S.G. sec. 2F1.1(b)(1)
for clear error. See United States v. Saunders,
129 F.3d 925, 929 (7th Cir. 1997). Guideline
interpretations are questions of law, however,
which we review de novo. Id.
The Guidelines increase the offense level for
offenses involving fraud or deceit based on the
amount of "loss." The Guidelines suggest that
the loss need not be determined with precision.
The court need only make a reasonable estimate of
the loss, given the available information. This
estimate, for example may be based on the
approximate number of victims and an estimate of
the average loss to each victim, or on more
general factors, such as the nature and duration
of the fraud and the revenues generated by
similar operations. The offender’s gain from
committing the fraud is an alternative method
that ordinarily will underestimate the loss.
U.S.S.G. sec. 2F1.1 cmt. 9. Courts may use the
gain from participation in the fraud when the
exact amount of the loss to the victim is
unknown. See United States v. Craig, 178 F.3d
891, 899 (7th Cir. 1999); see also United States
v. Andersen, 45 F.3d 217, 221 (7th Cir. 1995)
(ruling that "the defendant’s gain may provide a
reasonable approximation of a victim’s loss when
more precise means of measuring loss are
unavailable").
The district court found the NCTA calculation
unreasonable because this calculation assumes
that each purchaser used the descrambler
illegally and that each purchaser used the
descrambler to view all available premium
programming. More important, according to the
district court, the NCTA calculation assumes,
without any evidence, that had Norris not sold
descramblers, his customers would have purchased
all of the available premium channels from the
cable companies. Accordingly, the district court
opted to compute loss based on defendants’ gross
revenue because a precise method of calculating
loss was unavailable. Nothing in the government’s
arguments on appeal convinces us that the
district court’s determination was clearly
erroneous. The government makes the same
arguments on appeal that it did before the
district court. The district court evaluated the
government’s arguments but found that the
defendants’ approach was the better method of
calculating loss. The government would be well
served in cases like this to include a survey or
statistical sampling to support its estimate of
the loss.
Accordingly, at Norris’s resentencing, the
district judge can calculate the meaning of
"loss" under U.S.S.G. sec. 2F1.1 (b)(1) by using
the gross revenue that Norris derived from his
relevant conduct. Based on our above relevant
conduct analysis, the district judge may
attribute a different loss amount to Norris at
his resentencing.
F. Departure Under U.S.S.G. sec. 5K2.0
Although Norris was not eligible for a
reduction in his offense level for acceptance of
responsibility under U.S.S.G. sec. 3E1.1,/13
the district court granted him a two-level
downward departure for acceptance of
responsibility under sec. 5K2.0./14 The
district court found that Norris demonstrated a
"non-heartland" acceptance of responsibility. He
made early and consistent offers to the
government to determine the legality of his
business through a prompt civil declaratory
judgment action. Moreover, he immediately
discontinued his business following the verdict
against him. The government argues that the
district court had no authority to grant Norris
a departure for "quasi-acceptance of
responsibility" after denying him a reduction
under sec. 3E1.1.
We review a district court’s departure decision
for abuse of discretion and its findings of fact
for clear error. See United States v. Wilke, 156
F.3d 749, 753 (7th Cir. 1998). We review de novo
a district court’s grounds for departure. See
United States v. Bradley, 196 F.3d 762, 771 (7th
Cir. 1999). A sentencing judge has broad
discretion to depart downward when not blocked by
a specific guideline. See United States v.
Stefonek, 179 F.3d 1030, 1038 (7th Cir. 1999)
(citing Koon v. United States, 518 U.S. 81, 98-
100 (1996)), cert. denied, 120 S. Ct. 1177
(2000). The Guidelines apply to a "heartland" of
typical cases. See Koon, 518 U.S. at 94. If the
case is within the "heartland," a district judge
must impose a sentence falling within the
applicable Guideline range. See id. at 92.
However, the Guidelines "authorize[ ] district
courts to depart in cases that feature
aggravating or mitigating circumstances of a kind
not adequately taken into consideration by the
[Sentencing] Commission." Id. Here, the
Guidelines do not explicitly bar the district
court’s departure. Moreover, the district judge
found many reasons why this case, and Norris’s
actions, fell outside the "heartland" of the
applicable guidelines.
Norris consistently believed that he was
operating a legal business because his product
was ambiguous in the sense that customers could
use it for legal--as well as illegal--purposes.
He offered for more than five years to play a
lower-stakes game with the government--one in
which his ante would be his business, but not his
freedom. He invited a civil suit, seeking an
injunction, which would have prevented the sales
of any items found illegal. Early on, Norris
prevailed: counts brought under one statute were
dismissed, and the dismissal was affirmed, see
United States v. Norris, 34 F.3d 530 (7th Cir.
1994); detention was denied because it did not
appear to the court that Norris’s conduct had
been shown to violate the statute; counts brought
under another statute were also dismissed, and
that dismissal was also affirmed, see United
States v. Norris, 88 F.3d 462 (7th Cir. 1996).
Even as Norris won these early battles, he
continued to suggest to the government that it
pursue the civil alternative.
After his conviction, Norris immediately ceased
his business, froze his inventory, offered
negotiations with the government concerning the
disposal of his inventory, and offered his full
assistance to the government with respect to
access to his inventory.
In the ordinary ("heartland") case, such post-
trial conduct would be unremarkable, but in the
unusual circumstances of this case, it
demonstrates a different form of acceptance of
responsibility that seems to echo the concerns
that led the drafters of the guidelines to allow
a finding of sec. 3E1.1(a) when a defendant goes
to trial to determine a statute’s applicability
to his conduct. This case’s circumstances are far
too unusual to have been contemplated by the
Sentencing Commission when it drafted sec. 3E1.1.
Norris April 9, 1999 Sentencing Mem. at 13.
The government argues that the district court
did not have authority to grant this departure
after denying Norris a sec. 3E1.1 departure. The
government suggests that a "quasi-acceptance of
responsibility" departure under sec. 5K2.0 is
available only to defendants who have already
received the maximum reduction under sec. 3E1.1.
The government’s cited cases, however, are
unavailing.
In United States v. Bean, 18 F.3d 1367, 1368-69
(7th Cir. 1994), the district court allowed a
six-level downward departure for "extraordinary
acceptance of responsibility" because the
defendant had voluntarily repaid the money that
he had defrauded from a bank. We reduced the
departure to two levels because the defendant
continued to insist on his innocence even after
his conviction and because his conviction was his
third for defrauding a financial institution.
Contrary to the government’s assertion, Bean does
not stand for the proposition that sec. 5K2.0
departures for acceptance of responsibility are
unavailable for defendants who do not qualify for
a sec. 3E1.1 departure. Furthermore, Bean is
clearly distinguishable from this case. Norris
did not insist on his innocence after the jury
convicted him, and he has not displayed a pattern
of fraudulent activity.
In United States v. Bailey, 97 F.3d 982, 986
(7th Cir. 1996), we affirmed the trial court’s
denial of a sec. 3E1.1 departure. The trial court
determined that the defendant did not display
genuine remorse or contrition. Bailey does not
help the government. Bailey merely reinforces the
requirements for a sec. 3E1.1 departure; it does
not address the prerequisites for a sec. 5K2.0
departure.
Likewise, we easily distinguish the facts in
Stefonek from the instant case. In Stefonek, we
reversed the district court’s "community service"
ground for departure because the services were
provided by the same businesses that were the
vehicles of Stefonek’s multiple violations of
federal law. 179 F.3d at 1038. No such "Robin
Hood theory of sentencing" exists here. Cf. id.
The district court correctly applied the
applicable grounds for departure. Therefore, we
conclude that it was not clear error for the
district court to depart downward two-levels
under sec. 5K2.0.
G. Norris’s Downward Departure for his Physical
Condition and Imposition of Home Detention
After reviewing more than 500 pages of medical
records, watching a videotaped deposition of
Norris’s cardiologist, observing Norris at trial
and during sentencing, and listening to the in-
court testimony of both Norris and his mental
health therapist, the district court concluded
that imprisonment posed a substantial risk to
Norris’s life and, therefore, departure under
U.S.S.G. sec. 5H1.4 was warranted./15 The
government contends that Norris’s physical
condition was not an "extraordinary physical
impairment" within the meaning of sec. 5H1.4 and
that the Bureau of Prisons ("BOP") could provide
adequate medical care to Norris. We review a
district court’s departure decision for abuse of
discretion and its findings of fact for clear
error. See Wilke, 156 F.3d at 753. We review de
novo a district court’s grounds for departure.
See Bradley, 196 F.3d at 771.
We have developed a three-part test to
facilitate our analysis:
First, we must determine whether the district
court has stated adequate grounds for departure.
This is a question of law and is reviewed de
novo. Second, we must determine whether the facts
which underlie the grounds for the departure
actually exist. This determination is reviewed
using the clearly erroneous standard of review.
Third, we must determine whether the degree of
departure is linked to the structure of the
Guidelines. The district court’s findings on what
degree of departure is appropriate are given
deference.
United States v. Hendrickson, 22 F.3d 170, 175
(7th Cir. 1994). Unlike the cases cited by the
government, the district court in this case made
particularized findings that Norris was entitled
to a departure under sec. 5H1.4. In United States
v. Sherman, 53 F.3d 782, 787 (7th Cir. 1995), we
rejected the district court’s downward departure
under sec. 5H1.4 because the "judge made no legal
finding with regard to the treatment [the
defendant] was likely to receive in jail in
relation to his medical needs, nor did he rely on
a competent medical diagnosis of [the
defendant’s] condition." In United States v.
Woody, 55 F.3d 1257, 1275-76 (7th Cir. 1995), we
affirmed the district court’s decision not to
depart under sec. 5H1.4 because the defendant
presented "no sound factual foundation" to
support the departure. In this case, moreover,
the district court found that the BOP’s
letter/16 was merely a form letter trumpeting
the BOP’s ability to handle medical conditions of
all kinds. Consequently, it was not an abuse of
discretion for the district court to conclude
that Norris’s medical condition warranted a
downward departure.
The government also argues that the district
court’s imposition of a nonprison sentence--
probation and home monitoring--is not available
because Norris’s offense level of 21 falls in
Zone D of the sentencing table. Imprisonment
substitutes are not available for offense levels
that fall in Zone D. See U.S.S.G. sec.sec. 5B1.1
cmt. 2, 5C1.1(f) & cmt. 8, 5F1.2./17
The district court tried to keep Norris’s
sentence consistent with the Guidelines while
also keeping him out of prison. Consequently,
instead of departing through the offense levels,
the judge departed from the restrictions of sec.
5B1.1 and sec. 5C1.1. The district court
recognized that the Guidelines do not provide for
37 months of home detention, but ruled the
Guideline’s restriction
no impediment, because this case involves factors
not adequately considered by the Sentencing
Commission. Finally, the court believes the
sentence properly considers the structure of the
guidelines, because, among other reasons noted
thus far, the guidelines include the recognition
in U.S.S.G. sec. 5H1.4 that "in the case of a
seriously infirm defendant, home detention may be
as efficient as . . . imprisonment."
Norris April 9, 1999 Sentencing Mem. at 13.
The district court improperly departed outside
the Guidelines. Although sec. 5H1.4 allows the
use of home detention, the defendant’s offense
level must be in Zone A or B to satisfy the
requirements of sec. 5B1.1(a) (probation not
allowed for Zone C or D offense levels), sec.
5C1.1(f) ("if the applicable guideline range is
in Zone D of the Sentencing Table, the minimum
term shall be satisfied by a sentence of
imprisonment"), and sec. 5F1.1 ("community
confinement may be imposed as a condition of
probation or supervised release"). Consequently,
upon resentencing, unless Norris’s offense level
is in Zone A or B, the district court may not
sentence him to home detention.
III
For the reasons stated above, we REVERSE Jim
Gee’s and William C. Norris’s convictions on mail
fraud, wire fraud, and conspiracy. We AFFIRM
Norris’s conviction for assisting unauthorized
reception of cable service, but we VACATE his
sentence and REMAND for resentencing consistent
with this opinion.
/1 Norris was originally charged over six years ago
with unauthorized decryption of satellite cable
programming under 47 U.S.C. sec. 605(e)(4). The
district court granted Norris’s motion to dismiss
on the ground that his alleged conduct concerned
coaxial cable rather than satellite signals. We
affirmed. See United States v. Norris, 34 F.3d
530 (7th Cir. 1994). The government next indicted
Norris with violating the second part of 47
U.S.C. sec. 605(e)(4), which by reference to 47
U.S.C. sec. 605(a) prohibits the unauthorized
interception of radio communications. The
district court also dismissed these counts,
ruling that the cable television programming that
Norris allegedly helped intercept did not
constitute radio communications, and we affirmed.
See United States v. Norris, 88 F.3d 462 (7th
Cir. 1996). After these two interlocutory appeals
by the government and two superseding
indictments, Norris and Gee came to be charged
under the present indictment on January 9, 1997.
/2 "It is clear from a reading of the indictment
that the fraud charges are not based on
misleading statements or fraudulent omissions."
Gov’t’s Resp. in Opp’n to Mot. to Dismiss Second
Superseding Indictment at 2.
/3 Norris first moved the district court to dismiss
the wire and mail fraud charges in 1993, well
before Gee was ever involved in this case. The
district court denied the motion, stating that
"[c]ontrary to Mr. Norris’s assertions, a charge
of wire or mail fraud need not be supported by an
underlying false representation or statement."
United States v. Norris, 833 F. Supp. 1392, 1396
(N.D. Ind. 1993), aff’d, 34 F.3d 530 (7th Cir.
1994). Thereafter, in response to a superseding
indictment in 1997, in which Gee was also named
as a defendant, defendants moved for a dismissal
of the wire and mail fraud charges.
/4 The government concedes that the Neder holding
will be retroactively applied to this case.
/5 Count 1 charges that
William Norris . . . knowingly devised a scheme
and artifice to defraud cable television
companies . . . of premium and special
programming transmissions and subscription fee
revenues. The scheme and artifice to defraud
include the assembly, modification, sale and
distribution of modified cable television
converter-decoders and other decoding devices
which enabled basic cable television subscribers
to receive premium and special cable programming
without the knowledge and authorization of the
cable television companies and without payment of
the required subscription fee.
Superseding Indictment, Count 1 para. 14.
Count 2 charges that Norris bought chips from Gee
who
programmed the chips and modules so that the
cable converter-decoder in which they were
installed would receive all premium cable
television programming, including Pay-Per-View,
without detection and without payment of the
required fee or subscription fee to the cable
television company.
Id. Count 2 para. 2.
/6 Count 32 of the Superseding Indictment alleges
that defendants
did combine, conspire, confederate and agree
among themselves and with other persons both
known and unknown to the Grand Jury, to . . .
violat[e] 47 U.S.C. sec. 553(a)(1), by knowingly
and willfully, for the purpose of commercial
advantage and private financial gain, assist[ ]
in intercepting and receiving certain
communications services offered over a cable
system, which was not specifically authorized by
a cable operation and otherwise not specifically
authorized by law, in that they manufactured and
distributed and caused to be manufactured and
distributed equipment intended for unauthorized
reception of premium and Pay-Per-View cable
television programming.
Superseding Indictment, Count 32 para. 2.
/7 In this regard, Norris’s and Gee’s case is unlike
the quintessential illegal drug case that forms
the basis for conspiracy case law in this
circuit. See, e.g., Menting, 166 F.3d at 925
(cocaine); United States v. Thomas, 150 F.3d 743,
743 (7th Cir. 1998) (crack cocaine); Pearson, 113
F.3d at 759 (cocaine); Mims, 92 F.3d at 462
(same); Lechuga, 994 F.2d at 346 (same);
Townsend, 924 F.2d at 1388 (heroin, cocaine, and
marijuana).
/8 During the trial, the district court ruled that
the government could not admit coconspirator
statements under Fed. R. Evid. 801 (d)(2)(E). The
district court found that the government had not
shown, by a preponderance of the evidence, that
a conspiracy existed between the defendants. See
generally Bourjaily v. United States, 483 U.S.
171, 175-76 (1987) (ruling that "when the
preliminary facts relevant to Rule 801(d)(2)(E)
are disputed, the offering party must prove them
by a preponderance of the evidence"). The
district court observed that:
This is not a matter of the sufficiency of the
evidence to allow Count 32 of the Indictment to
survive the motion for judgment of acquittal at
the close of the government’s case. This is not
a matter of the sufficiency of the evidence for
the trier of fact to find the predicate facts to
be true. It’s a question for me to decide. So I
can’t just sit here and decide whether the jury
could find these things to have been proven. I
must find that these things have been proven by
a preponderance of the evidence. And in making
that determination, I weigh the evidence as
though we were at the end of a bench trial.
. . .
. . . .
Sitting as a fact finder, . . . I find myself
unpersuaded that there was an agreement to assist
others in the unauthorized reception of cable
signals.
The district court did find, however, that there
was sufficient evidence to let the jury decide
whether the government had proven a conspiracy.
/9 Norris tendered the following as his proposed
Instructions Nos. 5 through 8.
A person does not violate 47 U.S.C. sec. 553 for
being engaged in the production or sale of a
device or equipment which is used for legal
purposes merely because the same device or
equipment is capable of being used for
unauthorized reception of cable service. The
particular device or equipment that is the
subject of any count brought in the Indictment
under 47 U.S.C. sec. 553 must have been provided
with the intent or specific knowledge that it
will be used for unauthorized reception of cable
service before any provider could be convicted.
Norris’s Proposed Instruction No. 5.
This proposed instruction was adopted from the
Cable Communications Policy Act’s legislative
history. See H.R. Rep. No. 98-934, at 84 (1984),
reprinted in 1984 U.S.C.C.A.N. 4721 ("The
Committee does not intend that manufacturers,
distributors or retailers be subject to liability
under this section if they are engaged in the
production or sale of a device or equipment which
is used for legal purposes merely because the
same device or equipment is capable of being used
for unauthorized reception of cable service, if
they do not provide the equipment with the intent
or specific knowledge that it will be used for
the unauthorized reception of cable service.").
There is no federal law making it a crime merely
to manufacture, distribute, or own a descrambler.
It is a federal crime to manufacture, distribute,
or own a descrambler only if there is an intent
to receive or assist in receiving unpurchased
programming.
Norris’s Proposed Instruction No. 6.
It is not a violation of sec. 553 to use a
customer-owned descrambler to view programming
that a customer has purchased.
Norris’s Proposed Instruction No. 7.
In 1988 the United States Court of Appeals for
the Seventh Circuit (the federal appellate court
having jurisdiction over federal cases brought in
Indiana, Illinois, and Wisconsin) handed down a
case entitled United States v. Gardner, 860 F.2d
1391 (7th Cir. 1988). The United States Court of
Appeals stated in that Gardner case that a person
could not be convicted of an offense under 47
U.S.C. sec. 553 if he sold so-called black boxes
(meaning nonaddressable descramblers) with the
intent that they be used for lawful purposes.
Norris’s Proposed Instruction No. 8.
/10 The government argues that this court should
review Norris’s rejected jury instructions for
plain error because Norris did not properly
object to the court’s Instruction No. 18. "Merely
submitting an instruction is not enough. A
defendant must object to the judge’s refusal on
the record and clearly state the reasons for his
objections. Otherwise, we will review a district
court’s refusal of a proposed jury instruction
for plain error." Katalinich, 113 F.3d at 1482;
accord Fed. R. Crim. P. 30. The government
suggests that because Norris did not properly
object to Instruction 18, he waived his right to
object to the court’s refusal to use his proposed
Instructions 5 through 8. The government’s
argument is absurd. Just because Norris’s
proposed instructions are related to Instruction
18 does not require Norris to object to
Instruction 18 in order to preserve his
objections to the court’s declination of his
proposed instructions. Norris clearly alerted the
district court to the potential problems with the
court’s instructions and the reasons for his
objections. See United States v. O’Neill, 116
F.3d 245, 247 (7th Cir. 1997); see also Tr. V-21,
V-34-35. Accordingly, we will not review Norris’s
rejected instructions for plain error.
/11 Instruction 18 was adopted from our Gardner
opinion. See 860 F.2d at 1399 ("To convict under
sec. 553, the jury was not required to find that
the black boxes were sold for the sole and
specific purpose of cable piracy, nor that the
boxes were actually used illegally. Rather, the
jury only needed to find that [defendant]
intended the black boxes to be used for the
unauthorized reception of cable service when he
sold the boxes to [his customer].").
/12 See supra note 8.
/13 U.S.S.G. sec. 3E1.1 allows a two-level offense
level reduction if "the defendant clearly
demonstrates acceptance of responsibility for his
offense." This reduction does not generally
apply, however, in situations, like here, where
the defendant "puts the government to its burden
of proof at trial by denying the essential
factual elements of guilt." U.S.S.G. sec. 3E1.1
cmt. 2.
/14 U.S.S.G. sec. 5K2.0 states:
an offender characteristic or other circumstance
that is, in the Commission’s view, "not
ordinarily relevant" in determining whether a
sentence should be outside the applicable
guideline range may be relevant to this
determination if such characteristic or
circumstance is present to an unusual degree and
distinguishes the case from the "heartland" of
cases covered by the guidelines.
/15 U.S.S.G. sec. 5H1.4 states:
Physical condition or appearance, including
physique, is not ordinarily relevant in
determining whether a sentence should be outside
the applicable guideline range. However, an
extraordinary physical impairment may be a reason
to impose a sentence below the applicable
guideline range; e.g., in the case of a seriously
infirm defendant, home detention may be as
efficient as, and less costly than, imprisonment.
/16 This was the only evidence presented by the
government at Norris’s sentencing in arguing
against departure.
/17 U.S.S.G. sec. 5B1.1 cmt. 2 states: "Where the
applicable guideline range is in Zone C or D of
the Sentencing Table . . ., the guidelines do not
authorize a sentence of probation."
U.S.S.G. sec. 5C1.1(f) states that "[i]f the
applicable guideline range is in Zone D of the
Sentencing Table, the minimum term shall be
satisfied by a sentence of imprisonment." Comment
8 to sec. 5C1.1(f) precludes the use of any
imprisonment substitutes where the applicable
guideline range is in Zone D.
U.S.S.G. sec. 5F1.2 states that "Home detention
may be imposed as a condition of probation or
supervised release, but only as a substitute for
imprisonment."