United States v. James Kennedy , 726 F.3d 968 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-2630
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
JAMES KENNEDY,
Defendant-Appellant.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 08 CR 009 — Joan B. Gottschall, Judge.
ARGUED FEBRUARY 25, 2013 — DECIDED AUGUST 9, 2013
Before BAUER, POSNER, and SYKES, Circuit Judges.
BAUER, Circuit Judge. James Kennedy pleaded guilty to mail
fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343, and
threatening an informant, 18 U.S.C. § 1513(b), for his role in a
scheme to sell counterfeit art. The district court sentenced him
2 No. 12-2630
to 96 months’ imprisonment and ordered him to pay restitu-
tion in the amount of $316,425.65. On appeal, Kennedy
challenges the district court’s Sentencing Guidelines calculation
as to loss amount and number of victims as well as the restitu-
tion amount. We affirm.
I. BACKGROUND
From 2000 to 2008, Kennedy was involved in a scheme to
sell counterfeit fine art prints of well-known artists, including
Alexander Calder, Salvador Dali, Marc Chagall, Roy
Lichenstein, Joan Miro, and Pablo Picasso. The prints Kennedy
sold bore forged signatures or false markings that made the
prints appear as if they were part of an original limited edition
or prepared for the artist’s own use. Kennedy obtained many
prints knowing they had forged signatures and markings, and
sometimes Kennedy himself forged the signatures of the artists
on the prints or added other markings indicative of an original
limited edition print. Kennedy then sold the prints on eBay and
at art shows throughout the country, representing to customers
that the prints were genuine limited edition prints signed and
authorized by the artists.
On March 18, 2008, a grand jury returned a superseding
indictment charging Kennedy with three counts of mail fraud,
in violation of 18 U.S.C. § 1341, three counts of wire fraud, in
violation of 18 U.S.C. § 1343, and one count of threatening
bodily harm to a witness, in violation of 18 U.S.C. § 1513(b).
Kennedy pleaded guilty to all counts on September 23, 2010.
Kennedy’s sentencing was originally set for August 3, 2011.
At the sentencing, the parties disagreed on the number of
victims and the loss amount for the fraud, so the district court
No. 12-2630 3
set a hearing to permit the parties to present evidence regard-
ing the number of victims, loss amount, and restitution. The
district court held hearings on September 16, 2011, October 21,
2011, June 20, 2012, and June 29, 2012, to resolve these issues.
At the hearings on September 16 and October 21, the
government argued that the loss amount in this case exceeded
a million dollars, and was likely far greater, and presented
testimony from two witnesses in support. FBI Special Agent
Brian Brusokas, a case agent who was involved in investigating
Kennedy and the fraudulent art scheme, testified regarding
interviews with Kennedy in January and February 2007. At one
interview, on January 17, 2007, after initially denying that he
knowingly sold fraudulent artwork, Kennedy admitted to
engaging in such conduct and told Agent Brusokas that he had
forged various artists’ signatures “hundreds of times.” In an
interview the following month, Kennedy said that he had three
primary sources of fraudulent artwork: Leon Amiel, Jr.,
Michael Zabrin, and Giuseppe Concepcion. Kennedy said that
he had paid Concepcion approximately $500,000 for fraudulent
artwork. Agent Brusokas also testified regarding an interview
with Zabrin, who said that he and Kennedy had traded fake
artwork back and forth over the years. The Milwaukee Police
Department, which had investigated Kennedy for selling
fraudulent art in 2004, provided Agent Brusokas an invoice for
a single transaction of fraudulent art between Kennedy and
Zabrin that had an estimated value of $129,600. Agent Brusok-
as also testified that Zabrin said he marked the price of
counterfeit art up for resale by approximately three times the
wholesale price he paid.
4 No. 12-2630
U.S. Postal Inspector John Donnelly also testified regarding
his investigation of the fraudulent art scheme. He said that
over the course of his multi-year investigation, he consulted
with art experts and participants in the counterfeit art scheme
to identify the counterfeit prints. He then identified sales of
prints he believed were fake using Kennedy’s business records
from November 2005 to January 2007, including sales invoices,
copies of checks and credit card receipts, and bank statements,
and estimated that there were at least $744,108 of sales attribut-
able to fraudulent art for this fifteen-month period.
Inspector Donnelly also reviewed records from the account-
ing firm that prepared tax returns for Kennedy’s business since
at least 2000, from which he obtained the total sales amounts
Kennedy reported for 2000 through 2005: $721,019 in 2000;
$389,862 in 2001; $398,920 in 2002; $369,191 in 2003; $453,126 in
2004; $630,124 in 2005. For the years 2000 through 2002,
Inspector Donnelly obtained detailed schedules of invoices for
the sales of some of the artwork sold by Kennedy, and based
on his knowledge from the investigation, identified the sales of
counterfeit art. He estimated that between 2000 and 2002, at
least $255,550 of sales were related to counterfeit artwork.1
Inspector Donnelly also estimated $285,000 in counterfeit art
sales in 2004, and identified $35,407 in counterfeit art sales
based on eBay records from 2005 and 2006. Additionally,
1
Because the documents were incomplete, the information pertained to
only a portion of the total sales for the year. For example, in 2002, the
documents indicated $398,000 in total sales, but there were only detailed
invoices for about $125,000 of the sales, and of that $125,000, Inspector
Donnelly identified $90,275 in sales of counterfeit art. There were no
invoices for the period of 2003 to 2005.
No. 12-2630 5
Inspector Donnelly testified that he had identified $73,375 in
counterfeit art sales based on information from victims whose
purchases were not evident in the available records, but who
contacted the government during the investigation.
Kennedy contended that the loss amount was less than
$1,000,000. He argued that many of the documents and records
upon which Inspector Donnelly relied for his calculations were
not reliable and that a much smaller percentage of Kennedy’s
sales were of counterfeit art than the government estimated.
At the end of the second hearing, the district court found
that the loss amount exceeded $1,000,000 and applied an
enhancement under § 2B1.1(b)(1)(I). In support of this loss
amount, which the district court noted was imprecise, the
district court relied upon Kennedy’s admission that he paid
one of his three suppliers $500,000 for fraudulent art, and that
he then marked up the price of the art by at least twice what he
paid, and sometimes even ten times as much as he paid. The
district court also considered the calculations of Inspector
Donnelly, whose estimates of Kennedy’s sales of fraudulent art
from 2000 to 2007 exceeded $1,000,000 and did not include the
sales of fraudulent art from periods from which records were
not available and any sales Kennedy conducted in cash.
When the district court asked whether there were any
remaining objections to the PSR, Kennedy’s attorney men-
tioned that the PSR calculated 312 victims, but that only 130
victims had responded to the government during its investiga-
tion, and that many of those victims had only lost around $300.
The district court agreed that the victims in this case were not
harmed as seriously as is common in cases where the number-
6 No. 12-2630
of-victims enhancement is applied and stated that it would
take that into account under the 18 U.S.C. § 3553(a) factors. The
district court indicated, though, that it suspected that “there
probably are 250 victims.” Kennedy’s attorney then said, “I’ll
back off on that.” The district court accordingly adopted the
PSR’s calculation that the number of victims was at least
250 and applied a six-level enhancement under U.S.S.G.
§ 2B1.1(b)(2)(c). After the loss amount and number-of-victim
enhancements, the resulting Guidelines range was 108 months
to 135 months. The district court considered the § 3553(a)
factors and ultimately imposed a sentence of 96 months’
imprisonment.
At the end of the hearing, when the district court turned to
the issue of restitution, the parties agreed to submit further
briefing on the issue because the government had not yet
completed a list specifying each victim and the corresponding
loss. The government submitted additional briefs on
October 28, 2011, and November 18, 2011. In the submissions,
the government provided a list of 135 victims’ names, ad-
dresses, and loss amounts, and requested restitution totaling
$821,714.65. The government relied upon the evidence it
provided at sentencing to prove loss amount for purposes of
the Sentencing Guidelines but did not submit any additional
evidence supporting the loss amount claimed for each named
victim for purposes of restitution. The district court accord-
ingly issued an order on June 8, 2012, indicating that the
government had failed to establish by the preponderance of the
evidence actual losses by specific victims as required by 18
U.S.C. § 3664(e), with the exception of two victims. The district
court gave the government an opportunity to submit addi-
No. 12-2630 7
tional evidence as to the other victims it identified, such as
proof that the transactions listed on invoices in the govern-
ment’s possession occurred, that the victim had not returned
the artwork, and that any money obtained through a restitu-
tion order could be returned to the victim. The government
then produced a reduced list of 41 victims’ names and re-
quested a revised total restitution amount of $469,131.65. In
support of the requested amount, the government submitted
several files of documents on the eve of the restitution hearing,
which was held on June 20 and June 29, 2012. The district court
sifted through the documents, which included bank records,
victim questionnaires, copies of cancelled checks, and other
financial records, and ultimately found that the government
had met its burden as to 21 victims and ordered Kennedy to
pay $316,425.65. The district court rejected the government’s
request as to twenty victims for a variety of reasons, including
a complete lack of evidence to support the restitution request
in six cases, insufficient evidence to support the requested loss
amount in thirteen cases, and in one case, a lack of evidence
that the identified party had purchased fraudulent art from
Kennedy.
II. DISCUSSION
Kennedy appeals the restitution award and the loss amount
and number of victims the district court used to enhance his
sentence. We address each in turn.
A. Restitution
The Mandatory Victims Restitution Act of 1996 requires
that a court sentencing a defendant for certain crimes in which
“an identifiable victim … has suffered a … pecuniary loss”
8 No. 12-2630
must order that the defendant make restitution to the victim of
the offense. 18 U.S.C. §§ 3663A(a)(1), (b)(1), (c)(1).
The amount of restitution is limited to the actual losses
caused by the specific conduct underlying the offense, see 18
U.S.C. § 3663A(a); United States v. Dokich, 614 F.3d 314, 319 (7th
Cir. 2010), and the government must establish the loss amount
by the preponderance of the evidence. 18 U.S.C. § 3664(e);
United States v. Hosking, 567 F.3d 329, 333 (7th Cir. 2009). We
review a district court’s calculation of restitution for abuse of
discretion, viewing the evidence in the light most favorable to
the government. United States v. Hassebrock, 663 F.3d 906, 925
(7th Cir. 2011) (citations omitted).
Kennedy contends that the district court’s restitution
calculation lacked sufficient evidentiary support, pointing to
the dwindling nature of the government’s request for restitu-
tion over the course of the sentencing and restitution proceed-
ings. As we have noted, the government’s request for restitu-
tion fell from $821,714.65 for 135 victims to $468,131.65 for 41
victims, and the district court ultimately ordered $316,425.65
paid to 21 victims. Additionally, the government failed to
provide any specific support for its initial requested restitution
amount for each victim, and when given a chance by the
district court to support its request, provided the evidence to
the district court in a haphazard manner.2
2
Even in its final submission, the district court was unable to locate any
records that supported the government’s request as to six of the victims on
the government’s list.
No. 12-2630 9
We agree with Kennedy that the government’s handling
of its restitution request in this case was difficult to follow. The
restitution amount sought in a case may evolve as the govern-
ment obtains more information during its investigation. E.g.
Dokich, 614 F.3d at 316–17. Here, though, the government
revised its request not because of additional evidence, but
because the district court reminded the government of its
burden of proof. Nonetheless, the government’s less-than-ideal
handling of its restitution request does not mean that the final
amount determined by the district court lacked evidentiary
support. Fortunately for the government, the district court here
went to great lengths to sort through the disorganized record
to ensure that its calculation of restitution was precise and
victim-specific, relying upon sworn complaints submitted to
the government, copies of invoices indicating that payment
was made, victim interviews by postal inspectors, copies of
bank records, and copies of cancelled checks.
Kennedy’s only specific challenge to the calculation of the
restitution amount pertains to the $247,000 awarded to one
victim, Linden N.3 The district court found that Linden N.
suffered an actual loss of this amount based on Inspector
Donnelly’s testimony that Linden N. told Inspector Donnelly
that “he was out” $240,000; a copy of a fax sent from Kennedy
to Linden N. that states “You gave me 75,000 money[,] 60,000
3
Kennedy raises specific arguments regarding the restitution amounts
awarded to eleven of the victims in his reply brief, taking issue with the
evidence the district court relied upon to determine the loss amount for
each victim. Arguments raised for the first time in a reply brief, however,
are waived. Broaddus v. Shields, 665 F.3d 846, 854 (7th Cir. 2011).
10 No. 12-2630
watch[,] 22,000 auto[,] 90,000 watch[e]s”; and that the govern-
ment seized 23 pieces of art from Linden N. that were deemed
to be fakes. The government also submitted three sets of
invoices for sales of art by Kennedy to Linden N. totaling
$375,960.4
Kennedy contends that this evidence was unreliable and
argues that the amount awarded to Linden N. reflects only an
“approximation” for his loss as opposed to his actual loss. We
disagree. While Linden N. offered “approximations” of what
he paid Kennedy to the FBI investigators during his interviews
(according to Inspector Donnelly, Kennedy said he “was out”
around $240,000; the records from his FBI interview said he
had lost about $250,000), the final amount reached by the
district court was supported by the fax Kennedy sent
Linden N., which listed $247,000 worth of money and goods
Linden N. paid Kennedy. While this was clearly not an
orthodox transaction or typical invoice, Kennedy fails to
convince us that the district court erred in relying upon it in
determining that Linden N. paid Kennedy $247,000 for artwork
that turned out to be fraudulent. We therefore conclude that
the district court did not abuse its discretion in ordering
Kennedy to pay $316,425.65 in restitution to his victims.
4
Linden N. told the government that he was not owed that full amount
because he had not paid Kennedy for some of the art and had returned
some of the pieces.
No. 12-2630 11
B. Loss Calculation and Number of Victims
Kennedy next challenges the district court’s factual findings
regarding the loss amount and number of victims used for
sentencing. We review a district court’s factual determinations
at sentencing for clear error. United States v. McKinney, 686 F.3d
432, 434 (7th Cir. 2012). To establish clear error, Kennedy must
show that the district court’s determination “was inaccurate
and outside the realm of permissible computations.” United
States v. Borrasi, 639 F.3d 774, 783 (7th Cir. 2011) (citation
omitted).
On appeal, Kennedy rehashes many of the arguments he
made regarding loss amount before the district court, including
that the documents and records that Inspector Donnelly used
for his calculations were not reliable. Specifically, Kennedy
contends that Inspector Donnelly’s use of invoices was
problematic because the invoices may document sales that
were never consummated or sales in which the artwork was
returned to Kennedy, as in the case of Linden N. The district
court recognized this possibility, however, but noted that even
if the invoices might overstate the actual loss, the invoices were
evidence of Kennedy’s intent to sell the fake pieces of artwork
listed on the invoice, and the invoice amounts were therefore
accurate indicators of intended loss. See Dokich, 614 F.3d at318–19 (noting that unlike with restitution, “loss” for purposes
of calculating the offense level for someone convicted of mail
fraud under the Sentencing Guidelines is defined as “the
greater of actual or intended loss” under § 2B1.1(b)(1)).
Additionally, in arriving at the loss amount, the district court
gave only limited weight to Inspector Donnelly’s calculations
and primarily relied upon Kennedy’s own admissions regard-
12 No. 12-2630
ing the amount he had spent purchasing counterfeit art from
just one dealer—$500,000—and then marked up before selling
to his customers. Kennedy identifies no problems with the
district court’s reliance on these admissions, and we therefore
find no error in the district court’s determination that the loss
amount exceeded $1,000,000.
We likewise reject Kennedy’s contention that the district
court erred in finding that Kennedy’s offense involved 250 or
more victims because he waived any objection to the finding
at sentencing. Waiver is the intentional relinquishment or
abandonment of a known right, and forfeiture is the failure to
make a timely assertion of a right. United States v. Irby, 558 F.3d
651, 655 (7th Cir. 2009) (citing United States v. Olano, 507 U.S.
725, 733 (1993)). The waiver of a right precludes appellate
review, but when the right is merely forfeited, we may review
the district court ruling for plain error. Id. While “[w]aiver
principles must be construed liberally in favor of the defen-
dant,” United States v. Anderson, 604 F.3d 997, 1002 (7th Cir.
2010) (citation omitted), we find waiver “when there are sound
strategic reasons explaining why counsel would elect to pursue
a route as a matter of strategy.” Swanson v. United States, 692
F.3d 708, 716 (7th Cir. 2012) (internal quotation marks and
citations omitted).
As we noted above, Kennedy’s attorney expressed concern
that only 130 victims had come forward during the govern-
ment’s investigation, but he “back[ed] off” this argument after
the district court indicated that it would be receptive to an
argument from Kennedy under the § 3553(a) factors that while
the fraud in this case involved a significant number of victims,
they had been defrauded only a relatively small amount. By
No. 12-2630 13
making this strategic decision to abandon his objection to the
calculation of the number of victims and instead focus on
arguments in mitigation under the § 3553(a) factors, Kennedy
waived his objection to the finding that the offense involved
more than 250 victims. See United States v. Jaimes-Jaimes, 406
F.3d 845, 848 (7th Cir. 2005) (“There may be sound strategic
reasons why a criminal defendant will elect to pursue one
sentencing argument while also choosing to forgo another, and
when the defendant selects as a matter of strategy, he also
waives those arguments he decided not to present.”). We
accordingly decline to review Kennedy’s arguments regarding
the number-of-victims enhancement under U.S.S.G.
§ 2B1.1(b)(2)(C).
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.