United States v. Cottman

Opinions of the United

1998 Decisions States Court of Appeals

for the Third Circuit

2-18-1998

United States v. Cottman

Precedential or Non-Precedential:

Docket 96-5492

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Filed February 18, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96-5492

UNITED STATES OF AMERICA

v.

STANLEY COTTMAN,

Appellant.

On Appeal from the United States District Court

for the District of New Jersey

D.C. Criminal Action No. 95-cr-00661

Argued July 23, 1997

Before: SLOVITER, Chief Judge and ROTH, Circuit Judges,

LUDWIG,1 District Judge

(Opinion Filed February 18, 1998)

Faith S. Hochberg

United States Attorney

Allan Tananbaum (Argued)

Assistant U.S. Attorney

Kevin McNulty

Assistant U.S. Attorney

Office of United States Attorney

970 Broad Street, Room 502

Newark, NJ 07102

Attorneys for Appellee

_________________________________________________________________

1. Honorable Edmund V. Ludwig, United States District Court Judge for

the Eastern District of Pennsylvania, sitting by designation.

Karim Arzadi (Argued)

Law Office of Karim Arzadi

163 Market Street

Perth Amboy, NJ 08861

Attorney for Appellant

OPINION OF THE COURT

ROTH, Circuit Judge:

Stanley Cottman pled guilty to one count of conspiracy to

possess, sell, and dispose of stolen property in violation of

18 U.S.C. S 371. He was sentenced to 10 months in prison,

a three year term of supervised release, and restitution in

the amount of $32,420, payable to the FBI. He has

appealed two aspects of the sentence imposed by the

district court. First, he claims that the district court

incorrectly applied a four point upward adjustment under

Sentencing Guideline S 2B1.1(b)(4)(B) on the basis that he

was "in the business of " receiving and selling stolen cable

equipment. Second, he contends that the district court had

no authority to order him to pay restitution to the FBI for

funds it spent as part of an undercover sting operation to

acquire the stolen cable equipment from him. Wefind no

error in the sentence enhancement under S 2B1.1(b)(4)(B)

and we will affirm that portion of the sentence. However,

because we conclude that the FBI was not a victim of

Cottman's offense, we will vacate that portion of the

judgment of sentence, imposing restitution, and we will

remand this case for resentencing.

I. Factual Background and Procedural History

Pursuant to an ongoing investigation of cable television

piracy, the FBI established an undercover warehouse

operation in Kenilworth, New Jersey. Agents equipped the

premises with video and audio recording devices. An

undercover FBI agent (the UCA) was the principal operator

of the warehouse. Transcripts and videotapes of

2

conversations, as well as other evidence developed as part

of the sting, revealed the following events:2

On February 7, 1995, the UCA in a consensually

monitored telephone conversation, spoke to a person

known to the UCA as Frank Russo. Russo advised the UCA

that an individual known as George "the Animal" Kanter

expected to obtain approximately 80 General Instrument

Corporation (GI) cable boxes within a week. Russo inquired

whether the UCA would act as a "middle man" and receive

the boxes on his behalf. The terms of the transaction called

for a total cost of $150 per unit, which broke down into

$130 for the merchandise, $10 for Kanter's commission,

and $10 for the UCA. Russo further explained that, as this

was a "green deal," cash up front would be required. Russo

asked the UCA to front the cash for him because he would

be detained in Florida and unable to bring the money up

personally. When the UCA agreed to broker the deal, Russo

stated that he would have Kanter contact the UCA

immediately.

_________________________________________________________________

2. The Pre-Sentence Report (PSI) also discussed statements provided by

an anonymous source who advised the FBI in December 1994 about

many of Cottman's alleged activities. The Source made an

uncorroborated statement that sometime in 1994 or 1995 Cottman had

been involved in an armed robbery of a cable store in Philadelphia,

Pennsylvania, with another individual known only to the Source as "Al."

Al received approximately 70% of the proceeds from selling the units

obtained in the heist and $5,000 for his role in the robbery, while

Cottman received $14,000. See PSI at P 12.

The Source also disclosed details about Cottman's trade in cable

boxes. According to the Source, Cottman had suppliers from Baltimore

to New York who fed him cable boxes, chips, and cellular phones. The

Source indicated that Cottman sold an average of 300 to 400 stolen

General Instrument cable boxes per month. The Source also stated that

Cottman had branched out into reselling stolen vehicles. PSI P 13.

Finally, the source identified a number of Cottman's alleged sources.

These included individuals identified as Walay, Leo "the Chinaman" from

New York, Roger, Frank, and Kevin. The Source stated that Kevin was a

resident of Philadelphia and heavily involved in stolen credit cards and

cable boxes. The source credited Kevin with providing Cottman with

approximately 100 cable boxes per month. PSI P 14.

3

Within minutes the UCA heard from Kanter. Kanter

stated that he had 65 units and that "his guy," was going

to get more. Kanter said he would be in touch again when

they were ready to do the deal.

The following day, February 8, 1995, Kanter again

contacted the UCA. Kanter stated that "his guy" should be

back that day, that he would have the total number of

units by that night, and that a meeting would be arranged

shortly.

On February 10, Kanter and "his guy" Stanley Cottman

delivered about 70 boxes containing 65 GI baseband units,

many of which appeared to be in brand new unopened

shipping cartons. The UCA paid $8,650 in cash to Cottman

and $650 to Kanter. During the meeting, Cottman removed

all of the serial numbers from the cartons and instructed

the UCA to remove all the stickers from the original boxes.

Cottman also took the opportunity to elaborate on his

involvement in the illegal cable box trade. Cottman boasted

that "[A]t one point I get 3 hundred . . . . See, I deal with

the same ole people over and over and over, the same ole

people, no problems. . . . It's slow now since the people we

deal with is so good, they get stuff even if it's slow . . . ."

Later investigation revealed that at least 52 of the 65 GI

units were brand new. Approximately 9 of the units had

been shipped in late December 1994 to TCI Cablevision in

Baltimore, Maryland, while the remaining units had been

shipped to Comcast Corporation in Philadelphia just eleven

days before the sale.

Cottman, without Kanter, returned to the UCA's

warehouse on February 19, 1995, to consummate another

deal. Cottman explained that he had left Kanter out of this

transaction because he was unsure of his ability to obtain

the boxes. Cottman produced 75 GI baseband cable boxes

for which the UCA paid him $10,500.

The UCA engaged Cottman in further discussion about

his involvement in illegal cable box trafficking. At one point

Cottman said to Kanter: "It started out with one and two to

where me and him was moving thousands . . . a week. So

I had met a lucky connection up here." Cottman also

repeated his assertion that, although he usually got 100 or

4

200 units per week, at one time he was pulling in about

300 cable boxes a week from his sources. With further

inquiries from the UCA, Cottman explained that the people

he worked with at the cable companies would pilfer the

cable boxes by simply erasing them from the inventory lists

on the companies' computers.

Later investigation again revealed that 64 of the 70

baseband units Cottman sold to the UCA were new. All 64

had been shipped to TCI in Baltimore on February 7 and 8,

1995, and received on February 13 and 14. Of these, 62

had been in the possession of Excalibur Cable

Communications, Ltd., of Baltimore and had allegedly been

stolen in a strong arm robbery of one of its employees,

Steven Holder, on the evening of February 17, 1995, just

two days before Cottman sold them to the UCA.

Cottman later denied any involvement with the robbery

or knowledge of how he came to acquire the Excalibur

Cable boxes, insisting that all the cable boxes had been

provided by an Englishman named "Roger." However,

telephone records indicated that calls were made from

Cottman's residence to Holder on February 9, 19, and 26,

1995. Furthermore, Cottman's "800" number telephone

records showed that he was called by Holder's supervisor,

Dwight Chew, on January 15, 1995.

Finally, on February 21, 1995, Cottman and Kanter

together came to the warehouse to deliver about 86 GI

baseband cable boxes in exchange for $13,280 paid to

Cottman and $1650 paid to Kanter. Cottman again

physically removed the serial numbers from the outside

packing cartons and instructed the UCA that the serial

numbers needed to be stripped from the individual boxes.

Later investigation revealed that 40 of these units had been

shipped to Comcast of Philadelphia and TCI of Baltimore in

February 1995.

In these three transactions, Cottman sold a total of 231

cable boxes for $34,730.3

_________________________________________________________________

3. The restitution of $32,420, which the district court ordered Cottman

to pay, has had the amount paid to Kanter, $2,310, deducted from the

total payments of $34,730.

5

Cottman was indicted on one count of conspiring to

possess and sell stolen cable equipment, valued in excess

of $5,000, that had crossed state lines in violation of 18

U.S.C. S 371, and three substantive counts charging him

with the receipt and sale of stolen cable equipment, valued

in excess of $5,000, that had crossed state lines in violation

of 18 U.S.C. SS 2 and 2315. Federal authorities arrested

Cottman on March 7, 1995, at his residence in Perth

Amboy, New Jersey.

Cottman made a voluntary statement to the FBI following

his arrest in which he stated that he had been employed

with RTK Cable Company and had run a sideline business

called Incognito Sound Labs, Inc., which he operated out of

a public storage facility. According to Cottman, the

principal focus of his business was the installation of car

radios, for which he would charge $500. Cottman also

admitted that he had in the past worked for various cable

companies in order to make contacts who would later

provide him with cable boxes.

After negotiations, a written plea agreement was reached.

Pursuant to the agreement, Cottman entered a guilty plea

to the conspiracy count on March 7, 1996. The district

court then dismissed the three substantive counts of the

indictment.

On July 22, 1996, Cottman was sentenced by the district

court to a 10-month prison term to be followed by 3 years

of supervised release. As a special condition of supervised

release, the court ordered Cottman to pay as restitution the

$32,420 expended by the FBI to acquire the stolen cable

boxes from him. The district court denied Cottman's

request for bail pending appeal.4

Cottman immediately filed his notice of appeal. The

notice was dated July 22, 1996, but was not filed by the

clerk until July 25, 1996. One day later the district court

entered its final judgment and order of commitment.5

_________________________________________________________________

4. This Court denied a similar motion by Cottman on August 29, 1996.

5. While at one time this sequence of events might have been fatal to

Cottman's appeal, see United States v. Matthews, 462 F.2d 182, 183-84

(3d Cir. 1972), the rule is now firmly established in this Circuit that a

6

II. Sentencing Issues

A. Mootness

As a preliminary matter, we must consider the fact that

Cottman has completed his ten month term of

incarceration, leaving only his three years of supervised

release to be served.6 We must determine whether the

completion of his term of imprisonment has mooted

Cottman's challenge to the district court's application of the

"in the business" enhancement.

Although the Seventh and Eleventh Circuits have

determined that challenges of the length of defendants'

sentences are no longer viable after the defendant has been

released from custody, see, e.g., United States v. Ross, 77

F.3d 1525, 1549 n.6 (7th Cir. 1996); United States v.

Farmer, 923 F.2d 1557, 1568 (11th Cir. 1991), we do not

agree. We conclude that a finding of mootness is forestalled

here because Cottman may still suffer " `collateral legal

consequences' from a sentence already served."

Pennsylvania v. Mimms, 434 U.S. 106, 108 n.3 (1977) (per

curiam).

Two considerations, both of which are products of

the Federal Sentencing Guidelines, lead us to this

determination. First, the S 2B1.1(b)(4)(B) "in the business"

_________________________________________________________________

premature notice of appeal in a criminal case can ripen into valid notice

of appeal when the district court enters the judgment of sentence. See

United States v. Hashagen, 816 F.2d 899, 900-06 (3d Cir. 1987) (in

banc). The revised rule comes with the proviso that a premature notice

is prejudicial and will not preserve the appeal if it "is filed so early

that

it does not properly apprise the opposing party of its intention to appeal

the final judgment." Id. at 903.

We have no need to invoke the proviso here. Cottman's notice, while

premature, was filed just one day before the entry of the judgment of

sentence. The district court docket reveals no events intervening between

Cottman's notice and the entry of final judgment. Indeed, this Court has

considered this exact situation previously and found the notice of appeal

adequate to confer appellate jurisdiction. See United States v. Console,

13 F.3d 641, 649 n.3 (3d Cir. 1993).

6. Cottman's attorney informed us of this fact at oral argument.

7

sentencing enhancement increases Cottman's Criminal

History Category from I to II for any future convictions. See,

e.g., United States v. Kassar, 47 F.3d 562, 565 (2d Cir.

1995); United States v. Chaves-Palacios, 30 F.3d 1290,

1292-93 (10th Cir. 1994); United States v. Dickey, 924 F.2d

836, 838 (9th Cir. 1991). The district court's application of

the enhancement increased Cottman's total offense level

from ten to twelve, pushing him from Zone B to Zone C on

the Sentencing Table which determines his guideline range.

See U.S.S.G. S 5A (1995). Because his sentence placed him

in Zone C, Cottman no longer qualified for a sentence of

probation in lieu of imprisonment. See U.S.S.G. SS 5B1.1 &

5C1.1 (1995). Cottman, as a result, acquired two, rather

than one, criminal history points. The net outcome is that

a sentence for any future conviction which may be imposed

upon Cottman under the Guidelines will be significantly

increased.

Second, if we were to find an error in the application of

the "in the business" enhancement, the appropriate

sentencing range would be reduced from 10-16 months to

6-12 months. See U.S.S.G. S 5A. This reduction would

likely merit a credit against Cottman's period of supervised

release for the excess period of imprisonment to which

Cottman was subjected. See United States v. Fadayini, 28

F.3d 1236, 1241 (D.C. Cir. 1994).

For these reasons, we do not consider Cottman's appeal

to be moot even though he has served the imprisonment

portion of his sentence.

B. Application of the "In the Business" Enhancement

The first of Cottman's challenges to his sentence is to the

district court's application of the four level sentencing

enhancement for persons in the business of receiving and

selling stolen property. See U.S.S.G. S 2B1.1(b)(4).7 This

_________________________________________________________________

7. Section 2B1.1(4) provides:

(A) If the offense involved more than minimal planning increase by

2 levels; or

(B) If the offense involved receiving stolen property, and the

defendant was a person in the business of receiving and selling

stolen property, increase by 4 levels.

8

enhancement is seen as a more severe punishment for

"people who buy and sell stolen goods, thereby encouraging

others to steal, as opposed to thieves who merely sell the

goods which they have stolen." United States v. Sutton, 77

F.3d 91, 93 (5th Cir. 1996).

At sentencing, the district court in its bench ruling

extensively discussed United States v. King, 21 F.3d 1302

(3d Cir. 1994), the lone decision of this Circuit interpreting

the "in the business" enhancement of U.S.S.G. S 2B1.1. In

addition, the court thoroughly reviewed the evidence

adduced by the parties. The district court found that

"Cottman had a steady source of stolen cable boxes that

was generated from more than one robbery or theft" and

concluded that the operation in which Cottman participated

was a sophisticated one given that "his source of cable

boxes appear [sic] to have been persons employed by cable

companies who obtained the boxes in part by deleting the

boxes from the companies' inventories to conceal their

theft." Based on these findings the court found that

Cottman was "clearly an integral part of this operation" and

deserved the sentencing enhancement even if he was not

the "criminal mastermind" behind it.

In King, we briefly reviewed the approaches taken by

other circuits that have considered a defendant's eligibility

_________________________________________________________________

U.S.S.G. S 2B1.1 (Nov. 1, 1995).

This enhancement has a much traveled history in the Guidelines. It

first appeared with the initial promulgation of the Guidelines in 1987 at

S 2B1.2(b)(2)(A). As of January 1988, this language was relocated within

the same section at S 2B1.2(b)(3)(A), where it remained until November 1,

1990. See U.S.S.G. App. C., amend. 8. As of that date it was again

moved within the same section to S 2B1.2(b)(4)(A). See U.S.S.G. App. C.,

amend. 312. Finally, as of November 1, 1993, U.S.S.G. S 2B1.2 was

deleted and consolidated with U.S.S.G. S 2B1.1. From that point until

the present this provision has remained in that location. See U.S.S.G.

App. C., amend 481.

As originally promulgated, the section spoke only of "selling stolen

property." The Commission amended it in November 1989 to add the

words "receiving of " immediately before this language. See U.S.S.G. App.

C., amend. 102 (Nov. 1, 1989).

9

for the four point "in the business" enhancement. King, 21

F.3d at 1306. We turned to the First Circuit's decision in

United States v. St. Cyr, 977 F.2d 698 (1st Cir. 1992),

which set out the "totality of the circumstances" test. King,

21 F.3d at 1306. The St. Cyr court's approach placed

"particular emphasis on the regularity and sophistication of

a defendant's operation." St. Cyr, 977 F.2d at 703. We

explained that "regularity of conduct is one universal

thread in virtually all legal definitions of business." King, 21

F.3d at 1307 (quoting St. Cyr, 977 F.2d at 703-04). We

further elaborated that where the government offers proof

only of a defendant's irregular and occasional sales, it must

also provide "evidence upon which to base a conclusion

that . . . irregular and occasional sales underrepresented

the scope of his criminality or the extent to which he

encouraged or facilitated other crimes." Id. at 1308.

Cottman, however, argues that the enhancement was

improperly applied to him. Indeed, the Probation Office did

not include the "in the business" enhancement in

computing Cottman's Guidelines offense level.8 Cottman

first maintains that he was nothing more than a "low level

delivery boy." Cottman claims that he merely obtained the

cable boxes for resale from an Englishman named "Roger"

and that the sentencing enhancement is inapplicable

because Cottman was merely a middleman to Roger, the

true fence. To support this contention, Cottman asks

rhetorically why, if he was the "mastermind" of the scheme,

did he only remove the serial numbers from the outside of

the cartons, leaving the serial numbers actually attached to

the cable boxes for later removal.

Cottman's implicit assumption that the "in the business"

enhancement requires proof that he was the leader,

organizer, or driving force behind the operation is

_________________________________________________________________

8. The Pre-Sentence Investigative Report prepared by the Probation Office

imposed only the two point sentencing enhancement for the commission

of an offense involving more than minimal planning. See PSI P 34 (citing

U.S.S.G. S 2B1.1(b)(4)(a)). The Probation Office, over the Government's

objection, declined to apply the four point enhancement of U.S.S.G.

S 2B1.1(b)(4)(B), citing a lack of evidence that Cottman had committed

other acts of buying or selling stolen property. See Addendum to PSI, at

18-19.

10

misguided. Nothing in language, commentary, or

amendment history of U.S.S.G. S 2B1.1(b)(4)(B) suggests

that to earn the enhancement the defendant must be the

criminal "mastermind" behind the scheme. Nor does

Cottman produce any case law to this effect. Indeed, the

Sentencing Guidelines already provide for a two point

enhancement "[i]f the defendant was an organizer, leader,

manager, or supervisor of any criminal activity." U.S.S.G.

S 3B1.1(c) (Nov. 1, 1995). Thus, even if Cottman were

merely a "delivery boy" for the "true fence," his involvement

could be sufficient to warrant the enhancement.

Second, Cottman asserts that the three transactions in

which he participated do not establish a pattern of

trafficking in stolen goods with sufficient regularity to

support the enhancement. According to Cottman, the

record does not support the conclusion that he trafficked in

stolen cable boxes on occasions other than those for which

he was convicted. He dismisses his statement that he

regularly received up to 300 cable boxes per week as mere

puffery designed to impress his fellow conspirators.

Cottman's position is, however, belied by the facts adduced

at sentencing. Cottman's boasting about his history of

trafficking in illegal cable boxes, captured as it was on

video and audio tape, is a sufficient foundation from which

the district court could have concluded that he had

previously engaged in fencing activities. See, e.g., United

States v. Rosa, 17 F.3d 1531, 1551 (2d Cir. 1994),

(approving of application of enhancement where inter alia,

defendant "made clear that these were not hisfirst

transactions"); United States v. Russell, 913 F.2d 1288,

1294 (8th Cir. 1990) (same, where, inter alia, defendant

made "statement to an informant that he could supply

stolen checks, jewelry, and credit cards").

Implicit in this argument is Cottman's belief that the

sentencing enhancement cannot stand without proof that

he participated in transactions other than the three which

underlie his conviction. However, even if we were to assume

that the district court had before it proof only of the three

transactions of the conspiracy conviction, we would still

uphold the district court's application of the "in the

business" enhancement. Contrary to Cottman's suggestion,

11

it is not the law in this Circuit that the enhancement

cannot lie absent proof that the defendant has previously

engaged in "fencing" activities.

Our decision in King is not to the contrary.9 There we

merely distinguished a Fifth Circuit decision which made

the broad statement that an "in the business enhancement"

does not require a finding that a defendant has previously

engaged in the fencing of stolen property. See King, 21 F.3d

at 1306-07 (citing United States v. Esquivel, 919 F.2d 957,

960 (5th Cir. 1990)). We did not, however, hold that a

defendant must in all cases have been involved in previous

illicit transactions to warrant the enhancement.

Other Circuits have held that the enhancement remains

appropriate without proof of past sales of stolen property.

See, e.g., United States v. Sutton, 77 F.3d 91,93-94 (5th Cir.

1996) (holding that "a criminal can be `in the business' of

fencing even though this is his first time to fence); United

_________________________________________________________________

9. We had no occasion in King to consider the merits of the "fence" test

developed by the Seventh Circuit and since adopted by the First, Fifth,

and Sixth Circuits. See United States v. Braslawsky, 913 F.2d 466, 468

(7th Cir. 1990); United States v. McMinn, 103 F.3d 216, 219-21 (1st Cir.

1997); United States v. Warshawsky, 20 F.3d 204, 214-15 (6th Cir.

1994); United States v. Esquivel, 919 F.2d 957, 960 (5th Cir. 1990). This

test limits application of S 2B1.1(b)(4)(B) to a "professional fence and

not

a person who sells property that he has already stolen." Braslawsky,

917 F.2d at 468. Although some Circuits have described the "totality of

the circumstances" approach, upon which this Court relies, as a

"competing test," see, e.g., United States v. Peysano, 104 F.3d 191, 192

(8th Cir. 1997), nothing we said in King forecloses us from requiring in

the future that a defendant be a "fence" for the enhancement to apply.

Indeed, the First Circuit, which formulated the"totality of the

circumstances" test, has recently indicated that proof that a defendant

was in the business of receiving and selling stolen property is a

prerequisite to the four level increase. See McMinn, 103 F.3d at 222.

Moreover, we have no need to revisit the question here. Cottman does

not contend that he was the "thief," and there is ample evidence that the

majority of cable boxes, sold by Cottman, were actually pilfered by

others. Cf. McMinn, 103 F.3d at 222 ("Nothing prevents a professional

thief from also conducting a fencing operation of sufficient size and

continuity to qualify for the ITB enhancement; criminals, too, may have

more than one line of business.") (dictum).

12

States v. Salemi, 46 F.3d 207, 210-11 (2d Cir. 1995). But

see United States v. Connor, 950 F.2d 1267, 1275 (7th Cir.

1991) (suggesting that a defendant must have "engaged in

sufficient illegal conduct which is similar to the instant

offense").

The preponderance of the evidence here clearly

establishes that Cottman filled a "fencing" role, and thereby

created a market for those who would steal cable boxes by

force or stealth. Indeed, Cottman even admitted that he

took jobs in cable companies for the express purpose of

encouraging people within those companies to steal cable

boxes for him. PSI P 24.

The Government also asserts that "lack of regularity can

be made up for in a given case by a strong showing of

sophistication." Although we do not address this point in

King, the First Circuit's decision in St. Cyr, upon which

King draws heavily, speaks to it:

We can easily imagine situations in which a fencing

business, although very much a business, has been

recently launched and therefore traces no historical

pattern. In order to distinguish a new-to-the-business

fence from an amateur, however, the government must

at least offer a meaningful proxy for regularity, say, by

showing that the operation crossed a threshold of

sophistication and commitment.

St. Cyr, 977 F.2d at 704. This conclusion is consistent with

King's holding that the government can sustain application

of the enhancement, where sales are only "irregular or

occasional," if the sales underrepresent the true "scope of

the defendant's criminality or the extent to which he

encouraged or facilitated other crimes." King, 21 F.3d at

1308.

There is abundant evidence that the operation in which

Cottman took part was run with a large measure of

professionalism. In the Government's recordings, Cottman

extensively discusses the preparations he put into

developing sources. After his arrest, Cottman admitted that

he had taken jobs with cable companies in order to

cultivate contacts who would acquire boxes for him. Those

contacts were sophisticated enough to manipulate

13

computer systems at the cable companies to delete the

stolen boxes from inventory. And, notwithstanding

Cottman's ill-considered choice to ask the UCA to delete the

serial numbers for him, Cottman demonstrated an

awareness of measures which would help to elude

detection.

Finally, Cottman argues that the district court should

have given greater weight to the fact that he has held down

legitimate employment in the cable industry for many

years. Asserting that he "clearly is not a millionaire,"

Cottman suggests that his lifestyle and employment is

inconsistent with the criminal history attributed to him.

However, the fact that a defendant continues to hold down

a legitimate job does not foreclose an enhancement. See,

e.g., St. Cyr, 977 F.2d at 703 ("In searching for evidence of

regularity, we do not suggest that the selling of stolen

property must be the dominant source of a defendant's

income before his felonious activities become sufficiently

prominent to be regarded as a business."). The district

court's incredulity was warranted here since Cottman's

legitimate line of business also neatly facilitated his ability

to obtain illegal cable boxes. See PSI P 24.

In sum, the district court did not err in imposing the

U.S.S.G. S 2B1.1(b)(4)(B) enhancement. The evidence easily

supports the characterization of Cottman's activities as

regular and sophisticated.

C. Restitution of the Government's "Buy Money"

Cottman also disputes the district court's imposition, as

a condition of supervised release, of an order requiring him

to make restitution to the FBI for the money it paid him to

acquire the illegal cable boxes. Cottman argues that "the

Government voluntarily spent the money to buy the boxes,"

and therefore "was not the victim of the incident."

In the district court, the Government sought restitution

to the FBI as a condition of Cottman's supervised release.

The Government proffered alternate rationales for this

order. First, the Government argued that its request could

be sustained under the Victim Witness Protection Act

14

(VWPA), 18 U.S.C. S 3663 to 3664 (1985 & supp. 1995).10

Second, the Government asserted that the supervised

release statute, 18 U.S.C. S 3583 (1985 & supp. 1995),

provided an independent basis for an order of restitution.

See Dep't of Justice Letter of July 10, 1996, Appendix at

25-32.

The district court declined to order restitution under the

VWPA, finding that the FBI was not a "victim" of Cottman's

offense within the meaning of the Act. Appendix at 44-46.

However, the district court then proceeded to find that

Cottman could be required to reimburse the Government's

buy money under the supervised release statute. The

district court ruled from the bench that, pursuant to 18

U.S.C. S 3583(d), Cottman would be ordered to repay the

FBI as a condition of his supervised release since this

condition involved "no greater deprivation of liberty than is

reasonably necessary for the purposes of affording adequate

deterrence to criminal conduct." Appendix at 50.

The district court chose not to award restitution under

the VWPA because the prevailing view is that ordinarily the

Government cannot be a "victim" under the VWPA when its

losses were incurred as a result of its having provided the

"buy" money used in a government sting which led to the

defendant's arrest.11 See Appendix at 46 ("[T]he FBI, I find,

is not a victim of defendant Cottman's offense and the

_________________________________________________________________

10. The Mandatory Victims Restitution Act of 1996, enacted as Tit. II,

Subtitle A, of the Antiterrorism and Effective Death Penalty Act of 1996

(AEDPA), Pub. L. No. 104-132, Apr. 24, 1996, 110 Stat. 1227,

substantially revised the restitution scheme. Its provisions are not,

however, directly applicable to this case. AEDPA Subtitle B contains an

effective date provision providing that "[t]he amendments made by this

subtitle shall, to the extent constitutionally permissible, be effective

for

sentencing proceedings in cases in which the defendant is convicted on

or after the date of enactment of this Act." AEDPA S 211. Cottman

entered a plea of guilty on March 7, 1996, while AEDPA was not signed

into law until April 24, 1996.

11. See, e.g., United States v. Meacham, 27 F.3d 214, 218-19 (6th Cir.

1994); United States v. Salcedo-Lopez, 907 F.2d 97, 98 (9th Cir. 1990);

Gall v. United States, 21 F.3d 107, 111-12 (6th Cir. 1994); United States

v. Daddato, 996 F.2d 903, 905 (7th Cir. 1993); United States v. Findley,

783 F. Supp. 1123, 1127 (N.D. Ill. 1991).

15

$34,740 [sic] is not recoverable under the VWPA.");

Appellee's Br. at 26 (conceding in respect to restitution

orders requiring repayment of buy money as a condition of

probation, "such disgorgement is arguably improper under

the restitution statutes, given that they focus squarely on

compensation to victims and not punishment").

We have not yet had to determine whether the VWPA

allows restitution to the government for funds expended in

a sting, such as we have here.12 However, the other circuits,

which have considered the question, have held that

investigative costs and voluntary expenditures by the

government to procure evidence are not losses. See, e.g.,

United States v. Khawaja, 118 F.3d 1454, 1460 (11th Cir.

_________________________________________________________________

12. Although the government suggests otherwise, we have issued no

decisions inconsistent with the view that costs of prosecution generally

are not recoverable by the government. In the first case cited by the

government, United States v. Hand, 863 F.2d 1100 (3d Cir. 1988), the

appellant had pled guilty to one count of criminal contempt arising out

of improper contact she had had, while a juror in a criminal case, with

a defendant. Id. at 1101-02. As a result of her improper contact, the

trial

judge was forced to vacate the convictions of six defendants. Id. at 1102.

The district court made it a condition of the appellant's probation that

she make restitution to the government for the costs of reprosecuting the

five defendants whose convictions had been voided. Id. We concluded

that the United States Attorneys' Office was a victim directly affected by

the appellant's criminal conduct since resources expended in obtaining

the original convictions were wasted. Id. at 1103-05.

In the second case, United States v. Kress, 944 F.2d 155 (3d Cir.

1991), the appellant had been convicted for his role in a scheme to

defraud the United States Department of Defense on several contracts to

provide the military with educational and employment training

programs. Id. at 157 & n.1. The appellant, as a condition of probation,

was ordered to repay the government $300,000 overfive years with

interest at a rate of 18% per annum. Id. at 157. We concluded that

"defendants may be required under the VWPA to pay restitution to

federal governmental bodies as a special condition of probation." Id.

(citing Hand). Further, we held that the interest was properly imposed

since it facilitated the Act's goal of fully compensating the victim, here

the government. Id. at 159-60.

Both of these cases are, however, distinguishable since in each the

government was an unwilling participant in the defendant's criminal

activity and suffered direct and substantial losses therefrom.

16

1997); United States v. Gibbens, 25 F.3d 28, 36 (1st Cir.

1994); United States v. Meacham, 27 F.3d 214, 218 (6th

Cir. 1994); United States v. Salcedo-Lopez, 907 F.2d 97, 98

(9th Cir. 1990). We will follow this well considered

construction of the VWPA and hold that, when the

government chooses to apprehend offenders through a sting

operation, the government is not a "victim" under the

provisions of the VWPA.

However, the district court awarded restitution, not

under the VWPA, but under the "any other condition it

considers appropriate" language of 18 U.S.C. S 3583(d).13

Section 3583(d) of the supervised release statute authorizes

the imposition of certain of the discretionary conditions of

probation, set forth in 18 U.S.C. S 3563(b) (1985 & supp.

1995). When Cottman was sentenced, S 3563(b)(3)

permitted the district court to order a defendant as a

condition of probation to "make restitution to a victim of

the offense under sections 3663 and 3664 . . .."

The District Court employed the term "restitution" when

imposing repayment at the sentencing hearing. Appendix at

59. The amount of the repayment is also entered under

"Restitution" on the Judgment form. Appendix at 16.

Because this condition of supervised release was ordered

pursuant to S 3563(b), we deduce from the use of this

_________________________________________________________________

13. Section 3583(d) grants the sentencing judge discretion to:

order, as a further condition of supervised release, to the extent

that

such condition--

(1) is reasonably related to the factors set forth in section

3553(a)(1), (a)(2)(B), (a)(2)(C), and (a)(2)(D);

(2) involves no greater deprivation of liberty than is reasonably

necessary for the purposes set forth in section 3552(a)(2)(B),

(a)(2)(C), and (a)(2)(D); and

(3) is consistent with any pertinent policy statements issued by

the Sentencing Commission pursuant to 28 U.S.C. S 994(a);

any condition set forth as a discretionary condition of probation

in

section 3563(b)(1) through (b)(10) and (b)(12) through (b)(20), and

any other condition it considers to be appropriate.

18 U.S.C. S 3583(d).

17

language that the order of restitution followed the

provisions of that section and that it incorporated by

reference S 3563(b)'s terminology "restitution to the victim"

(emphasis added). Thus, we again are faced with the

requirement that restitution be made to a "victim." We

cannot see how the FBI can be a "victim" under S 3563(b)

if it is not a "victim" under the VWPA. We feel obliged to

conclude that the statutory provisions are parallel in their

definition of "victim." See Gall v. United States, 21 F.3d

107, 111 (6th Cir. 1994) (holding that "S 3583(d) via its

reference to . . . S 3563(b)(3) requires restitution to conform

with provisions of the VWPA").14

On remand, it may be that other victims of Cottman's

offense can be ascertained. However, for the reasons stated

above, we hold that the FBI was not a victim and, as a

result, the conditions of Cottman's supervised release

cannot include a requirement that he pay restitution to the

FBI.15

III. Conclusion

In view of the aforesaid, Cottman's judgment of sentence

will be affirmed insofar as it imposed a term of

imprisonment with an enhancement under S 2B1.1(b)(4)(B).

We will, however, vacate the conditions of supervised

release portion of the judgment of sentence, imposing the

condition of payment of restitution to the FBI. We will

remand this case to the district court for resentencing.

_________________________________________________________________

14. The dissent voices the concern that "a person who knowingly sells

stolen merchandise should not be permitted to profit from the sale. . . .

The taxpayer . . . should not have to bear the cost of `buy money.' The

. . . money involved has gone into the defendant's pocket and to the

extent practicable should be recovered." Dissent at 24-25. We are not

unsympathetic with this point of view. We note, however, that in future

cases the district court may consider imposing afine which is equivalent

to the amount of any buy money a defendant has received from the

Government. See U.S.S.G. S 5E1.2.

15. Because the district court may choose to consider other conditions of

supervised release, we remand rather than reverse. We note, however,

that at sentencing the district judge noted that Cottman did not have the

ability to pay a fine. Appendix at 59.

18

LUDWIG, District Judge, Concurring and Dissenting:

I join in the majority's decision on lack of mootness and

affirmance of the application of the four level "in the

business" Guidelines enhancement. U.S.S.G. S 2B1.1. I

respectfully dissent from its decision to vacate the condition

of supervised release requiring repayment to the

government of $32,420 in "buy money" provided to

defendant by the FBI. Defendant received those monies, in

various installments, from an undercover agent in exchange

for 231 stolen TV boxes - the subject matter of the

conspiracy charge to which defendant pleaded guilty. The

crime occurred in 1995, and the defendant was sentenced

on July 22, 1996.

The majority holds that restitution of "buy money" is not

an authorized condition of supervised release under the

Victim Witness Protection Act of 1982, 18 U.S.C.SS 3663-

3664 (1985 & supp. 1995) or the supervised release

statute, 18 U.S.C. S 3583 (1985 & supp. 1995). Its

reasoning is that the expenditure of "buy money" is a cost

of law enforcement and does not qualify the government as

a "victim" - the traditional prerequisite of restitution. I

agree with that analysis as relates to the VWPA. 1 However,

I do not believe it is necessary to decide that issue in

applying the supervised release statute to this case. First,

the sentencing judge did not intend to order "restitution" in

the victim-related sense of the word - which is the

underlying premise of the majority's conclusion. Second, I

would hold that the repayment of "buy money" is

authorized as a discretionary condition of supervised

release under 18 U.S.C. S 3583(d)(3).

_________________________________________________________________

1. 18 U.S.C. SS 3663-3664. See United States v. Gibbens, 25 F.3d 28, 32

(1st Cir. 1994) ("[T]he government is not a`victim' for purposes of the

VWPA [and may not be awarded restitution] to the extent that it incurs

costs in the clandestine provocation of a crime that, if carried to

fruition

under ordinary circumstances, would not directly harm the

government."); accord United States v. Meacham, 27 F.3d 214, 218 (6th

Cir. 1994); United States v. Salcedo-Lopez, 907 F.2d 97, 98 (9th Cir.

1990).

19

I

The sentencing judge stated, after discussing the victim-

restitution cases:

[T]he FBI, I find, is not a victim of defendant Cottman's

offense and the "buy money" is not recoverable under

the VWPA. Therefore, I agree with defendant's objection

to the award of restitution to the FBI. Restitution

should be made to the owners of the cable boxes ....

I'm ordering that the boxes be returned to their rightful

owners as restitution.

Appendix at 46-47. The sentencing judge then reviewed the

"buy-money" decision in United States v. Daddato, 996 F.2d

903 (7th Cir. 1993) and concluded that authority for a

repayment order was conferred by the supervised release

statute provision: "any other condition [the court] considers

to be appropriate." 18 U.S.C. S 3583(d)(3).

The sentencing judge - as the majority stresses - referred

at times to the repayment as "restitution" and the

repayment is so characterized on the judgment of sentence

form. Nevertheless, the judge's sentencing statement

unmistakably shows the intent to follow Daddato and to

exercise "any other condition" discretion, not to order

restitution to the FBI as a victim. Appendix at 47-50, 59.

The significance of the distinction is more than semantic.

By incorporating by reference the conditions authorized in

the probation statute, the supervised release statute also

empowers the sentencing judge to order "restitution to the

victim." 18 U.S.C. S 3563(b)(3). Under the VWPA cases, that

provision, by its own terminology, could not be utilized to

order a repayment of "buy money." Despite the finding of

the sentencing judge that the FBI was not a "victim" and

was not entitled to victim-related "restitution," the majority

conclusively infers that the condition was imposed under

S 3563(b)(3) and was, accordingly, invalid.

Moreover, the idea of restitution, which historically has

involved redress to a victim, has been evolving to include

victimless reparations.2 The sentencing judge's sporadic use

_________________________________________________________________

2. The VWPA amendment of 1996, 18 U.S.C. S 3663(c)(1), includes

restitution of "community harm" in drug cases where there is no

"identifiable victim."

20

of "restitution" in a non-victim-related sense to refer to the

repayment of "buy money" has good precedent. In Daddato,

now Chief Judge Posner's decision characterizes the

repayment of "buy money" as "in the nature of restitution,"

observing that "[we] need not determine whether such an

order is also classic `restitution'...." 996 F.2d at 903, 905.

See United States v. Brooks, 114 F.3d 106, 108 (7th Cir.

1997) ("In Daddato, after noting that an order to repay buy

money as "restitution" under the[VWPA] was not cricket,

we found that such an order would nevertheless pass

muster as a condition of supervised release" (bold in

original)). The majority's predicate that the sentencing judge

must have intended to act under 18 U.S.C. S 3563(b) simply

is not well founded. The sentencing judge was well aware of

both the traditional compensatory and the victimless, or

nontraditional, meaning of "restitution" - and clearly did

not believe he was invoking S 3563(b).3

II

Daddato dealt with precisely the same question as is

presented here:

Pursuant to his plea of guilty, James Daddato was

convicted of ... selling hallucinogenic mushrooms and

sentenced to 16 months in prison to be followed by

three years of supervised release. His appeal challenges

one of the conditions of supervised release: that he

repay the $3,650 that he received from law

enforcement officers in payment for mushrooms that

they bought from him in order to obtain conclusive

evidence of his guilt. The statute governing supervised

release empowers the sentencing judge to impose as a

condition of such release any condition authorized as

discretionary condition of probation plus "any other

condition it considers to be appropriate." 18 U.S.C.

S 3583(d). Obviously the language is broad enough to

encompass the requirement that the defendant make

good the government's "buy money"; nor could the

imposition of such a requirement be thought an abuse

_________________________________________________________________

3. The sentencing judge read a substantial excerpt of Daddato into the

record.

21

of discretion - it merely asks the defendant (if he is

financially able, once his release from prison enable

him to obtain a paying job) to make good the expense

to which he put the government by violating the laws

that prohibit drug trafficking in a selected subset of

mind-altering drugs.

996 F.2d at 903.

The opinion then rejects the argument that repayment of

"buy money" is beyond the sentencing judge's power

because "any other condition" must be comparable, by

virtue of "ejusdem generis," to the 20 specific conditions

that precede it. Daddato explains that the return of "buy

money" is comparable to, albeit not the same as, traditional

"restitution."

An order to repay the government's "buy money" is

similar in requiring the defendant to convey something

of value to the community, rather than to his victims

(if any there be) specifically. State v. Connelly, 143 Wis.

2d 500, 421 N.W.2d 859 (App. 1988)

* * * *

On the one hand, it seems unrealistic to describe the

defendant as having wrongfully taken money eagerly

tendered to him so that he could incriminate himself.

On the other hand, it was money that he obtained

through criminal activity and therefore had no right to

keep. No matter. The list in section 3563(b) is not

limited to restitution, or even to conditions that

resemble restitution (which this, at the very least,

does); it is enough that the order to repay the buy

money is of the same general kind as the items in the

list, and it is.

996 F.2d at 905 (bold in original).

The year after Daddato, a panel of the Sixth Circuit Court

of Appeals granted S 2255 relief where a supervised release

condition to repay "buy money" was imposed as to four

drug charges, although three of the charges had been

dismissed in exchange for the defendant's guilty plea to the

fourth. Gall v. United States, 21 F.3d 107 (6th Cir. 1994).

The decision, after confining "restitution" as a condition of

22

supervised release to crimes "charged and convicted,"

described the second part of its holding: "the government is

not a victim to which a district court may order a defendant

to pay restitution for the purpose of recovering drug `buy

money' and other costs of investigation voluntarily paid

out." 21 F.3d at 108 (bold in original). In much the same

way as our majority, which cites Gall for this point, it

ignores Daddato and equates repayment of "buy money"

with traditional "restitution"; it then summarily conflates

S 3563(b)(3) with the VWPA because of the incorporation by

reference of S 3563(b)(3) - "restitution to the victim."

The concurrence in Gall, however, focuses on Daddato

and criticizes it for having resorted to the "any other

condition" provision of S 3583(d). Interestingly, the rationale

is not that the restoration of "buy money" must be

classified or construed to be the same as victim-related

restitution.

Under S 3583(d)(2) ... a sentencing judge can only order

additional "appropriate" conditions of supervised

release that "involve no greater deprivation of liberty

than is reasonably necessary for the purposes of: (1)

affording adequate deterrence to criminal conduct; (2)

protecting the public from further crimes of the

defendant; and (3) providing the defendant with ...

training ... care ... or treatment....

* * * *

Ordering a criminal defendant, as a condition of

supervised release, to repay the government's buy

money or other investigative costs deprives the

defendant of liberty during the period of supervised

release, yet does not advance any of these three

purposes.... Indeed, such a deprivation of liberty ...

could actually encourage the defendant to commit

further crimes as a means of repaying such an onerous

financial burden.

21 F.3d at 112-113.

In the instant sentencing, the judge quoted the above-

portion of the concurrence and stated:

23

I disagree with Judge Jones' reasoning. This is because

I find that ordering the defendant, pursuant to

S 3583(d) to repay the FBI as a condition of his

supervised release, even though restitution of this

money to the FBI is not authorized under the VWPA,

involves no greater deprivation of liberty than is

reasonably necessary for the purposes of affording

adequate deterrence to criminal conduct.

Appendix at 50.

In my view, the sentencing judge correctly overruled

defendant's "buy money" objection that was based on the

Gall concurrence. The repayment of "buy money" imposes

no greater deprivation of liberty and is no less a deterrent

of criminal conduct than traditional restitution and other

specifically authorized conditions of supervised release.

III

The broader question presented by this case is the nature

and extent of the sentencing options that are statutorily

authorized to achieve the objectives of sentencing. Under 18

U.S.C. S 3553, the sentencing judge is directed to consider,

in part -

(1) the nature and circumstances of the offense and

characteristics of the defendant;

(2) the need for the sentence imposed -

(A) to reflect the seriousness of the offense, to

promote respect for the law, and to provide just

punishment for the offense;

Given these purposes, it would seem to be beyond

dispute that a person who knowingly sells stolen

merchandise should not be permitted to profit from the

sale. The provision of the supervised release statute that

authorizes "any other condition [the court] considers to be

appropriate," is in addition to - and not synonymous with

or subordinate to - the condition authorizing victim-related

restitution. The costs of law enforcement are paid from

taxes, and criminal defendants are not required to

reimburse the government for their day in court. The

24

taxpayer, however, should not have to bear the cost of "buy

money." The difference is that the money involved has gone

into the defendant's pocket and to the extent practicable

should be recovered. This is a self-evident corollary of

"respect for the law" and "just punishment."

The majority's decision today puts an incongruous and

unnecessary limitation on the power of the sentencing

judge to effectuate the legislatively mandated goals of

sentencing.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

25