United States v. Gee, Jim

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."