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. e du/thir dc ir c uit_1998/84Filed April 21, 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 Jud ges LUDWIG,1 District Judge

(Amended Opinion Filed 4/21/98)

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

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1. Honorable Edmund V. Ludwig, United States Distri ct Court Judge for the Eastern District of Pennsylvania, sitting by de signation.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 conspir acy to possess, sell, and dispose of stolen property in vi olation of 18 U.S.C. S 371. He was sentenced to 10 months in p rison, a three year term of supervised release, and restit ution 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 stol en cable equipment. Second, he contends that the district co urt had no authority to order him to pay restitution to the FBI for funds it spent as part of an undercover sting opera tion 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. Ho wever, because we conclude that the FBI was not a victim o f Cottman's offense, we will vacate that portion of t he 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 telev ision piracy, the FBI established an undercover warehouse operation in Kenilworth, New Jersey. Agents equippe d the premises with video and audio recording devices. An undercover FBI agent (the UCA) was the principal op erator of the warehouse. Transcripts and videotapes of

2conversations, 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" Kan ter expected to obtain approximately 80 General Instrum ent Corporation (GI) cable boxes within a week. Russo i nquired
whether the UCA would act as a "middle man" and rec eive
the boxes on his behalf. The terms of the transacti on called for a total cost of $150 per unit, which broke down into $130 for the merchandise, $10 for Kanter's commissi on, 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 mone y up personally. When the UCA agreed to broker the deal, Russo
stated that he would have Kanter contact the UCA immediately.

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2. The Pre-Sentence Report (PSI) also discussed sta tements provided by an anonymous source who advised the FBI in December 1994 about many of Cottman's alleged activities. The Source ma de an
uncorroborated statement that sometime in 1994 or 1 995 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 th e robbery, while Cottman received $14,000. See PSI at P 12.

The Source also disclosed details about Cottman's t rade in cable boxes. According to the Source, Cottman had supplie rs from Baltimore to New York who fed him cable boxes, chips, and cel lular phones. The Source indicated that Cottman sold an average of 30 0 to 400 stolen General Instrument cable boxes per month. The Sourc e also stated that Cottman had branched out into reselling stolen vehi cles. 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 state d that Kevin was a resident of Philadelphia and heavily involved in st olen credit cards and cable boxes. The source credited Kevin with providi ng Cottman with approximately 100 cable boxes per month. PSI P 14.

3Within 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" sho uld be back that day, that he would have the total number of units by that night, and that a meeting would be ar ranged shortly.

On February 10, Kanter and "his guy" Stanley Cottma n 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 Co ttman and $650 to Kanter. During the meeting, Cottman rem oved
all of the serial numbers from the cartons and inst ructed the UCA to remove all the stickers from the origina l boxes. Cottman also took the opportunity to elaborate on h is 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 sam e ole people, no problems. . . . It's slow now since the people we deal with is so good, they get stuff even if it's s low . . . ."

Later investigation revealed that at least 52 of th e 65 GI units were brand new. Approximately 9 of the units had been shipped in late December 1994 to TCI Cablevisi on 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 anoth er 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 bo xes for which the UCA paid him $10,500.

The UCA engaged Cottman in further discussion about his involvement in illegal cable box trafficking. A t one point
Cottman said to Kanter: "It started out with one an d 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 go t 100 or

4200 units per week, at one time he was pulling in a bout

300 cable boxes a week from his sources. With furth er 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 invento ry lists on the companies' computers.

Later investigation again revealed that 64 of the 7 0
baseband units Cottman sold to the UCA were new. Al l 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 allegedl y been stolen in a strong arm robbery of one of its employ ees, 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 robbe ry or knowledge of how he came to acquire the Excalibu r Cable boxes, insisting that all the cable boxes had been provided by an Englishman named "Roger." However, telephone records indicated that calls were made fr om Cottman's residence to Holder on February 9, 19, an d 26, 1995. Furthermore, Cottman's "800" number telephone records showed that he was called by Holder's super visor, 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 t o Cottman and $1650 paid to Kanter. Cottman again physically removed the serial numbers from the outs ide packing cartons and instructed the UCA that the ser ial numbers needed to be stripped from the individual b oxes. Later investigation revealed that 40 of these units had been shipped to Comcast of Philadelphia and TCI of Balti more in February 1995.

In these three transactions, Cottman sold a total o f 231 cable boxes for $34,730.3

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3. The restitution of $32,420, which the the distri ct court ordered Cottman to pay, has had the amount paid to Kanter, $2,310, deducted from the total payments of $34,730.

5Cottman 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 violatio n 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 i n violation
of 18 U.S.C. SS 2 and 2315. Federal authorities arr ested Cottman on March 7, 1995, at his residence in Perth Amboy, New Jersey.

Cottman made a voluntary statement to the FBI follo wing his arrest in which he stated that he had been empl oyed with RTK Cable Company and had run a sideline busin ess called Incognito Sound Labs, Inc., which he operate d out of a public storage facility. According to Cottman, th e principal focus of his business was the installatio n of car radios, for which he would charge $500. Cottman als o 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 re ached. Pursuant to the agreement, Cottman entered a guilty plea to the conspiracy count on March 7, 1996. The distr ict
court then dismissed the three substantive counts o f the
indictment.

On July 22, 1996, Cottman was sentenced by the dist rict court to a 10-month prison term to be followed by 3 years of supervised release. As a special condition of su pervised release, the court ordered Cottman to pay as restit ution the $32,420 expended by the FBI to acquire the stolen c able
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 b y the clerk until July 25, 1996. One day later the distri ct court entered its final judgment and order of commitment. 5

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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, 46 2 F.2d 182, 183-84 (3d Cir. 1972), the rule is now firmly established in this Circuit that a

6II. 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 supe rvised
release to be served.6 We must determine whether th e completion of his term of imprisonment has mooted Cottman's challenge to the district court's applica tion of the
"in the business" enhancement.

Although the Seventh and Eleventh Circuits have determined that challenges of the length of defenda nts' 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 fo restalled 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"

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premature notice of appeal in a criminal case can r ipen into valid notice of appeal when the district court enters the judgme nt 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 even ts intervening between Cottman's notice and the entry of final judgment. I ndeed, this Court has considered this exact situation previously and foun d the notice of appeal adequate to confer appellate jurisdiction. See Unit ed States v. Console, 13 F.3d 641, 649 n.3 (3d Cir. 1993).

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

7sentencing enhancement increases Cottman's Criminal

History Category from I to II for any future convic tions. See, e.g., United States v. Kassar, 47 F.3d 562, 565 (2d Cir. 1995); United States v. Chaves-Palacios, 30 F.3d 12 90, 1292-93 (10th Cir. 1994); United States v. Dickey, 924 F.2d 836, 838 (9th Cir. 1991). The district court's appl ication of
the enhancement increased Cottman's total offense l evel 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 plac ed him in Zone C, Cottman no longer qualified for a senten ce of probation in lieu of imprisonment. See U.S.S.G. SS 5B1.1 & 5C1.1 (1995). Cottman, as a result, acquired two, r ather than one, criminal history points. The net outcome is that a sentence for any future conviction which may be i mposed upon Cottman under the Guidelines will be significa ntly
increased.

Second, if we were to find an error in the applicat ion 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 woul d likely merit a credit against Cottman's period of s upervised release for the excess period of imprisonment to wh ich Cottman was subjected. See United States v. Fadayin i, 28 F.3d 1236, 1241 (D.C. Cir. 1994).

For these reasons, we do not consider Cottman's app eal to be moot even though he has served the imprisonme nt portion of his sentence.

B. Application of the "In the Business" Enhancement

The first of Cottman's challenges to his sentence i s to the district court's application of the four level sent encing enhancement for persons in the business of receivin g and selling stolen property. See U.S.S.G. S 2B1.1(b)(4) .7 This

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

(A) If the offense involved more than minima l planning increase by 2 levels; or

(B) If the offense involved receiving stolen property, and the defendant was a person in the business of re ceiving and selling stolen property, increase by 4 levels.

8enhancement is seen as a more severe punishment for

"people who buy and sell stolen goods, thereby enco uraging others to steal, as opposed to thieves who merely s ell the goods which they have stolen." United States v. Sut ton, 77 F.3d 91, 93 (5th Cir. 1996).

At sentencing, the district court in its bench ruli ng extensively discussed United States v. King, 21 F.3 d 1302 (3d Cir. 1994), the lone decision of this Circuit i nterpreting
the "in the business" enhancement of U.S.S.G. S 2B1 .1. In addition, the court thoroughly reviewed the evidenc e adduced by the parties. The district court found th at "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 parti cipated was a sophisticated one given that "his source of c able boxes appear [sic] to have been persons employed by cable companies who obtained the boxes in part by deletin g the boxes from the companies' inventories to conceal th eir theft." Based on these findings the court found tha t Cottman was "clearly an integral part of this opera tion" and deserved the sentencing enhancement even if he was not
the "criminal mastermind" behind it.

In King, we briefly reviewed the approaches taken b y other circuits that have considered a defendant's e ligibility

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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 rema ined until November 1, 1990. See U.S.S.G. App. C., amend. 8. As of that da te 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. Fro m that point until the present this provision has remained in that loc ation. See U.S.S.G. App. C., amend 481.

As originally promulgated, the section spoke only o f "selling stolen property." The Commission amended it in November 19 89 to add the words "receiving of" immediately before this langua ge. See U.S.S.G. App. C., amend. 102 (Nov. 1, 1989).

9for the four point "in the business" enhancement. K ing, 21

F.3d at 1306. We turned to the First Circuit's deci sion in United States v. St. Cyr, 977 F.2d 698 (1st Cir. 19 92), which set out the "totality of the circumstances" t est. King, 21 F.3d at 1306. The St. Cyr court's approach place d "particular emphasis on the regularity and sophisti cation of a defendant's operation." St. Cyr, 977 F.2d at 703. We explained that "regularity of conduct is one univer sal thread in virtually all legal definitions of busine ss." 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 sale s, it must also provide "evidence upon which to base a conclus ion that . . . irregular and occasional sales underrepr esented the scope of his criminality or the extent to which he encouraged or facilitated other crimes." Id. at 130 8.

Cottman, however, argues that the enhancement was improperly applied to him. Indeed, the Probation Of fice did
not include the "in the business" enhancement in computing Cottman's Guidelines offense level.8 Cott man first maintains that he was nothing more than a "lo w level delivery boy." Cottman claims that he merely obtain ed the cable boxes for resale from an Englishman named "Ro ger" and that the sentencing enhancement is inapplicable because Cottman was merely a middleman to Roger, th e true fence. To support this contention, Cottman ask s rhetorically why, if he was the "mastermind" of the scheme, did he only remove the serial numbers from the outs ide of the cartons, leaving the serial numbers actually at tached to

the cable boxes for later removal.

Cottman's implicit assumption that the "in the busi ness" enhancement requires proof that he was the leader, organizer, or driving force behind the operation is

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8. The Pre-Sentence Investigative Report prepared b y the Probation Office imposed only the two point sentencing enhancement f or 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, o ver the Government's objection, declined to apply the four point enhance ment of U.S.S.G. S 2B1.1(b)(4)(B), citing a lack of evidence that Co ttman had committed other acts of buying or selling stolen property. Se e Addendum to PSI, at

18-19.

10misguided. Nothing in language, commentary, or

amendment history of U.S.S.G. S 2B1.1(b)(4)(B) sugg ests
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 poi nt enhancement "[i]f the defendant was an organizer, l eader, manager, or supervisor of any criminal activity." U .S.S.G. S 3B1.1(c) (Nov. 1, 1995). Thus, even if Cottman we re merely a "delivery boy" for the "true fence," his i nvolvement
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 regular ity to support the enhancement. According to Cottman, the record does not support the conclusion that he traf ficked in
stolen cable boxes on occasions other than those fo r which
he was convicted. He dismisses his statement that h e regularly received up to 300 cable boxes per week a s 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 fr om 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 inte r 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, defe ndant made "statement to an informant that he could suppl y stolen checks, jewelry, and credit cards").

Implicit in this argument is Cottman's belief that the sentencing enhancement cannot stand without proof t hat he participated in transactions other than the thre e which underlie his conviction. However, even if we were t o 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 sugges tion,

11it is not the law in this Circuit that the enhancem ent

cannot lie absent proof that the defendant has prev iously 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 enhanc ement" does not require a finding that a defendant has pre viously 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 tha t a defendant must in all cases have been involved in p revious
illicit transactions to warrant the enhancement.

Other Circuits have held that the enhancement remai ns appropriate without proof of past sales of stolen p roperty. See, e.g., United States v. Sutton, 77 F.3d 91,93-9 4 (5th Cir. 1996) (holding that "a criminal can be `in the busi ness' of fencing even though this is his first time to fence ); United

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9. We had no occasion in King to consider the merit s 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, 21 4-15 (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 "p rofessional fence and

not a person who sells property that he has already sto len." Braslawsky, 917 F.2d at 468. Although some Circuits have descri bed the "totality of the circumstances" approach, upon which this Court relies, as a "competing test," see, e.g., United States v. Peysa no, 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 en hancement to apply. Indeed, the First Circuit, which formulated the"tot ality of the circumstances" test, has recently indicated that pr oof 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 h ere. Cottman does not contend that he was the "thief," and there is a mple evidence that the majority of cable boxes, sold by Cottman, were actu ally pilfered by others. Cf. McMinn, 103 F.3d at 222 ("Nothing preve nts a professional thief from also conducting a fencing operation of s ufficient size and continuity to qualify for the ITB enhancement; crim inals, too, may have more than one line of business.") (dictum).

12States v. Salemi, 46 F.3d 207, 210-11 (2d Cir. 1995 ). But

see United States v. Connor, 950 F.2d 1267, 1275 (7 th Cir. 1991) (suggesting that a defendant must have "engag ed 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, a nd thereby

created a market for those who would steal cable bo xes by force or stealth. Indeed, Cottman even admitted tha t he took jobs in cable companies for the express purpos e of encouraging people within those companies to steal cable
boxes for him. PSI P 24.

The Government also asserts that "lack of regularit y can be made up for in a given case by a strong showing of sophistication." Although we do not address this po int 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 hi storical pattern. In order to distinguish a new-to-th e-business fence from an amateur, however, the governme nt must at least offer a meaningful proxy for regula rity, say, by showing that the operation crossed a thresho ld of sophistication and commitment.

St. Cyr, 977 F.2d at 704. This conclusion is consis tent with King's holding that the government can sustain appl ication 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 wh ich Cottman took part was run with a large measure of professionalism. In the Government's recordings, Co ttman extensively discusses the preparations he put into developing sources. After his arrest, Cottman admit ted 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

13computer systems at the cable companies to delete t he

stolen boxes from inventory. And, notwithstanding
Cottman's ill-considered choice to ask the UCA to d elete the serial numbers for him, Cottman demonstrated an awareness of measures which would help to elude
detection.

Finally, Cottman argues that the district court sho uld have given greater weight to the fact that he has h eld down legitimate employment in the cable industry for man y years. Asserting that he "clearly is not a milliona ire," Cottman suggests that his lifestyle and employment is inconsistent with the criminal history attributed t o him. However, the fact that a defendant continues to hol d down a legitimate job does not foreclose an enhancement. See, e.g., St. Cyr, 977 F.2d at 703 ("In searching for e vidence of regularity, we do not suggest that the selling of s tolen property must be the dominant source of a defendant 's
income before his felonious activities become suffi ciently prominent to be regarded as a business."). The dist rict court's incredulity was warranted here since Cottma n'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 activiti es as regular and sophisticated.

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

Cottman also disputes the district court's impositi on, as a condition of supervised release, of an order requ iring him to make restitution to the FBI for the money it pai d him to acquire the illegal cable boxes. Cottman argues tha t "the Government voluntarily spent the money to buy the b oxes,"
and therefore "was not the victim of the incident."

In the district court, the Government sought restit ution to the FBI as a condition of Cottman's supervised r elease. The Government proffered alternate rationales for t his order. First, the Government argued that its reques t could
be sustained under the Victim Witness Protection Ac t

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. 199 5), provided an independent basis for an order of resti tution. See Dep't of Justice Letter of July 10, 1996, Appen dix at

25-32.

The district court declined to order restitution un der the VWPA, finding that the FBI was not a "victim" of Co ttman'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 Governme nt'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 liber ty 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 u nder the VWPA because the prevailing view is that ordina rily the
Government cannot be a "victim" under the VWPA when its losses were incurred as a result of its having prov ided the "buy" money used in a government sting which led to the defendant's arrest.11 See Appendix at 46 ("[T]he FB I, I find,
is not a victim of defendant Cottman's offense and the

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10. The Mandatory Victims Restitution Act of 1996, enacted as Tit. II, Subtitle A, of the Antiterrorism and Effective Deat h Penalty Act of 1996 (AEDPA), Pub. L. No. 104-132, Apr. 24, 1996, 110 St at. 1227, substantially revised the restitution scheme. Its p rovisions are not, however, directly applicable to this case. AEDPA Su btitle B contains an effective date provision providing that "[t]he amen dments made by this subtitle shall, to the extent constitutionally perm issible, be effective

for sentencing proceedings in cases in which the defend ant 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 AE DPA was not signed into law until April 24, 1996.

11. See, e.g., United States v. Meacham, 27 F.3d 21 4, 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); Unit ed 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 resti tution orders requiring repayment of buy money as a condit ion of probation, "such disgorgement is arguably improper under the restitution statutes, given that they focus squ arely on compensation to victims and not punishment").

We have not yet had to determine whether the VWPA allows restitution to the government for funds expe nded 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 t he government to procure evidence are not losses. See, e.g., United States v. Khawaja, 118 F.3d 1454, 1460 (11th Cir.

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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 (3 d 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 imp roper contact, the
trial judge was forced to vacate the convictions of six d efendants. Id. at 1102. The district court made it a condition of the appel lant's probation that she make restitution to the government for the cost s of reprosecuting the
five defendants whose convictions had been voided. Id. We concluded that the United States Attorneys' Office was a vict im directly affected by the appellant's criminal conduct since resources ex pended in obtaining the original convictions were wasted. Id. at 1103-0 5.

In the second case, United States v. Kress, 944 F.2 d 155 (3d Cir. 1991), the appellant had been convicted for his rol e in a scheme to defraud the United States Department of Defense on several contracts to provide the military with educational and employmen t training programs. Id. at 157 & n.1. The appellant, as a con dition of probation, was ordered to repay the government $300,000 overfi ve 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 r estitution to federal governmental bodies as a special condition of probation." Id. (citing Hand). Further, we held that the interest w as properly imposed since it facilitated the Act's goal of fully compen sating the victim, here the government. Id. at 159-60.

Both of these cases are, however, distinguishable s ince in each the government was an unwilling participant in the defe ndant's criminal activity and suffered direct and substantial losses therefrom.

161997); United States v. Gibbens, 25 F.3d 28, 36 (1s t Cir.

1994); United States v. Meacham, 27 F.3d 214, 218 ( 6th Cir. 1994); United States v. Salcedo-Lopez, 907 F.2 d 97, 98 (9th Cir. 1990). We will follow this well considere d 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 t he provisions of the VWPA.

However, the district court awarded restitution, no t under the VWPA, but under 18 U.S.C. S 3583(d).13 Se ction 3583(d) of the supervised release statute authorize s the imposition of certain of the discretionary conditio ns 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 a s a condition of probation to "make restitution to a vi ctim of
the offense under sections 3663 and 3664 . . .."

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13. In imposing "restitution" as a condition of sup ervised release, the district court did not indicate what portion ofS 35 83(d) it was referring to. Section 3583(d) grants the sentencing judge dis cretion 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 liber ty than is reasonably necessary for the purposes set forth in sect ion 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 c ondition of probation

in section 3563(b)(1) through (b)(10) and (b)(1 2) through (b)(20), and any other condition it considers to be appro priate.

18 U.S.C. S 3583(d) (emphasis added). The district court may, therefore, have been referring to the "discretionary condition s of probation" prong or to the "any other condition" catch-all prong. Si nce, however, the condition of probation being imposed was "restituti on," we conclude, for the reason we state infra, that "restitution" must have been imposed under S 3563(b).

17The District Court employed the term "restitution" when

imposing repayment at the sentencing hearing. Appen dix at 59. The amount of the repayment is also entered und er "Restitution" on the Judgment form. Appendix at 16. Because this condition of supervised release was sp ecified to be "restitution" and because it is S 3563(b) whi ch permits the imposition of "restitution" as a condition of s upervised release, we conclude from the use of this term that the order of restitution must follow the provisions of S 3563. Otherwise, the "catch-all" exception prong of S 358 3(d)

would swallow the rule.

For this reason, we conclude that the order incorpo rated by reference S 3563(b)'s terminology "restitution t o 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 35 63(b)
if it is not a "victim" under the VWPA. We feel obl iged 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) v ia its reference to . . . S 3563(b)(3) requires restitutio n 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 reason s stated above, we hold that the FBI was not a victim and, a s a result, the conditions of Cottman's supervised rele ase cannot include a requirement that he pay restitutio n to the

FBI.15

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14. The dissent voices the concern that "a person w ho knowingly sells stolen merchandise should not be permitted to profi t 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 26. We are not unsympathetic with this point of view. We note, how ever, that in future cases the district court may consider imposing afin e which is equivalent to the amount of any buy money a defendant has rece ived from the

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

15. Because the district court may choose to consid er other conditions of supervised release, we remand rather than reverse. We note, however, that at sentencing the district judge noted that Co ttman did not have the ability to pay a fine. Appendix at 59.

18III. Conclusion

In view of the aforesaid, Cottman's judgment of sen tence 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 supervis ed release portion of the judgment of sentence, imposi ng the condition of payment of restitution to the FBI. We will
remand this case to the district court for resenten cing.

19LUDWIG, District Judge, concurring and dissenting:

I join in the majority's decision on lack of mootne ss 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 th e condition of supervised release requiring repayment to the government of $32,420 in "buy money" provided to defendant by the FBI. Defendant received those moni es, in various installments, from an undercover agent in e xchange 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 sente nced 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 governm ent as a "victim" - the traditional prerequisite of restit ution. I agree with that analysis as relates to the VWPA.1 H owever, I do not believe it is necessary to decide that iss ue in applying the supervised release statute to this cas e. First, the sentencing judge did not intend to order "resti tution" in
the victim-related sense of the word - which is the underlying premise of the majority's conclusion. Se cond, I would hold that the repayment of "buy money" is authorized as a discretionary condition of supervis ed release under 18 U.S.C. S 3583(d)(3).

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1. 18 U.S.C. SS 3663-3664. See United States v. Gib bens, 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 ex tent that it incurs costs in the clandestine provocation of a crime tha t, if carried to
fruition under ordinary circumstances, would not directly ha rm the government."); accord United States v. Meacham, 27 F.3d 214, 218 (6th Cir. 1994); United States v. Salcedo-Lopez, 907 F.2 d 97, 98 (9th Cir. 1990).

20I

The sentencing judge stated, after discussing the v ictimrestitution cases:

[T]he FBI, I find, is not a victim of defend ant Cottman's offense and the "buy money" is not recoverab le under the VWPA. Therefore, I agree with defendant' s objection
to the award of restitution to the FBI. Rest itution

should be made to the owners of the cable bo xes .... I'm ordering that the boxes be returned to t heir rightful
owners as restitution.

Appendix at 46-47. The sentencing judge then review ed the "buy-money" decision in United States v. Daddato, 9 96 F.2d 903 (7th Cir. 1993) and concluded that authority fo r a repayment order was conferred by the supervised rel ease 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- re ferred at times to the repayment as "restitution" and the repayment is so characterized on the judgment of se ntence form. Nevertheless, the judge's sentencing statemen t unmistakably shows the intent to follow Daddato and to exercise "any other condition" discretion, not to o rder restitution to the FBI as a victim. Appendix at 47- 50, 59. The significance of the distinction is more than se mantic. By incorporating by reference the conditions author ized in the probation statute, the supervised release statu te also empowers the sentencing judge to order "restitution to the victim." 18 U.S.C. S 3563(b)(3). Under the VWPA cas es, that provision, by its own terminology, could not be uti lized to order a repayment of "buy money." Despite the findi ng of the sentencing judge that the FBI was not a "victim " and was not entitled to victim-related "restitution," t he majority conclusively infers that the condition was imposed under S 3563(b)(3) and was, accordingly, invalid.

Moreover, the idea of restitution, which historical ly has involved redress to a victim, has been evolving to include victimless reparations.2 The sentencing judge's spo radic use

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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."

21of "restitution" in a non-victim-related sense to r efer to the

repayment of "buy money" has good precedent. In Dad dato, now Chief Judge Posner's decision characterizes the repayment of "buy money" as "in the nature of resti tution," observing that "[we] need not determine whether suc h an order is also classic `restitution'...." 996 F.2d a t 903, 905. See United States v. Brooks, 114 F.3d 106, 108 (7th Cir. 1997) ("In Daddato, after noting that an order to r epay buy money as "restitution" under the[VWPA] was not cric ket, 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 sente ncing 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 victimles s, or nontraditional, meaning of "restitution" - and clea rly did not believe he was invoking S 3563(b).3

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3. After the government's Petition for Panel Rehear ing was granted, the majority modified its opinion to say that the sente ncing judge "did not indicate what portion of 18 U.S.C. S 3583(d) it was referring to..." - the "discretionary conditions of probation" prong or th e "any other condition" catch-all prong. Majority at note 13. This, in my v iew, mischaracterizes the clear record. The sentencing judge read into th e record a substantial excerpt of Daddato including the citation of the "a ny other condition" catch-all prong of S 3583(d) as the statutory basis for its holding. Appendix at 48. He also stated that the government relied on Daddato and that Daddato "relied on the catch-all phrase of the supervised release statute." Id. at 47. His ruling was that "t he government's request is granted and defendant will be ordered to repay t he FBI the amount of " the "buy money." Id. at 50. In so ruling, he d id not refer to "restitution," id., albeit he did elsewhere.

Moreover, the parties in their argument to us had n o doubt that the sentencing judge intended to invoke the "any other condition" clause. As set forth in appellant's brief, "the United States ... relied upon the
`catchall' provision of 18 U.S.C. Sec. 3583(d) and United States v. Daddato...." Appellant's brief at 8. Appellant did not resort to the majority's "discretionary condition" distinction - but instead specifically challenged the sentencing judge's utilization of the "catch-al l" prong. The very ground that the majority regards as not before us w as argued by both sides as the basis for the sentencing judge's decis ion.

On remand, the availability of the "catch-all" prov ision has at this point not been ruled on, and it is unclear whether the sentencing judge

22II

Daddato dealt with precisely the same question as i s presented here:

Pursuant to his plea of guilty, James Daddat o was convicted of ... selling hallucinogenic mush rooms and sentenced to 16 months in prison to be follo wed by three years of supervised release. His appea l challenges one of the conditions of supervised release: that he repay the $3,650 that he received from law enforcement officers in payment for mushroom s that they bought from him in order to obtain conc lusive evidence of his guilt. The statute governing supervised release empowers the sentencing judge to imp ose as a condition of such release any condition auth orized as discretionary condition of probation plus "a ny other condition it considers to be appropriate." 1 8 U.S.C. S 3583(d). Obviously the language is broad e nough 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 of discretion - it merely asks the defendant (if he is financially able, once his release from pris on 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.

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may now order repayment of the "buy money" so long as he explicitly states that he is using the "catch-all" provision a nd does not mention the word "restitution." At a minimum, I would have rema nded to permit the sentencing judge to re-clarify his intent on this s ubject in view of the majority's concerns.

Given the majority's modification of the language i n its original decision, Part III of my dissent may have little re maining significance. Nevertheless, I have not removed Part III because i t emphasizes the need of the sentencing judge to be able to order the ret urn of "buy money" as a condition of supervised release under the "any ot her appropriate condition" provision of S 3583(d).

23The opinion then rejects the argument that repaymen t of

"buy money" is beyond the sentencing judge's power because "any other condition" must be comparable, b y virtue of "ejusdem generis," to the 20 specific con ditions that precede it. Daddato explains that the return o f "buy money" is comparable to, albeit not the same as, tr aditional
"restitution."

An order to repay the government's "buy mone y" is similar in requiring the defendant to convey something of value to the community, rather than to hi s victims (if any there be) specifically. State v. Con nelly, 143 Wis. 2d 500, 421 N.W.2d 859 (App. 1988).

* * * *

On the one hand, it seems unrealistic to des cribe the defendant as having wrongfully taken money e agerly
tendered to him so that he could incriminate himself. On the other hand, it was money that he obta ined 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 condition s that resemble restitution (which this, at the ver y least, does); it is enough that the order to repay the buy money is of the same general kind as the ite ms in the list, and it is.

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

The year after Daddato, a panel of the Sixth Circui t Court of Appeals granted S 2255 relief where a supervised release condition to repay "buy money" was imposed as to fo ur drug charges, although three of the charges had bee n dismissed in exchange for the defendant's guilty pl ea to the fourth. Gall v. United States, 21 F.3d 107 (6th Cir . 1994). The decision, after confining "restitution" as a co ndition of supervised release to crimes "charged and convicted ," described the second part of its holding: "the gove rnment is not a victim to which a district court may order a defendant to pay restitution for the purpose of recovering dr ug `buy money' and other costs of investigation voluntarily paid out." 21 F.3d at 108 (bold in original). In much th e same way as our majority, which cites Gall for this poin t, it ignores Daddato and equates repayment of "buy money "

24with traditional "restitution"; it then summarily c onflates

S 3563(b)(3) with the VWPA because of the incorpora tion by reference of S 3563(b)(3) - "restitution to the vic tim."

The concurrence in Gall, however, focuses on Daddat o and criticizes it for having resorted to the "any o ther condition" provision of S 3583(d). Interestingly, t he rationale is not that the restoration of "buy money" must be
classified or construed to be the same as victim-re lated
restitution.

Under S 3583(d)(2) ... a sentencing judge ca n only order additional "appropriate" conditions of super vised release that "involve no greater deprivation of liberty than is reasonably necessary for the purpose s of: (1) affording adequate deterrence to criminal co nduct; (2) protecting the public from further crimes of the defendant; and (3) providing the defendant w ith ... training ... care ... or treatment....

* * * *

Ordering a criminal defendant, as a conditio n of supervised release, to repay the government' s buy money or other investigative costs deprives the defendant of liberty during the period of su pervised release, yet does not advance any of these t hree purposes.... Indeed, such a deprivation of l iberty ... could actually encourage the defendant to co mmit further crimes as a means of repaying such a n onerous financial burden.

21 F.3d at 112-113.

In the instant sentencing, the judge quoted the abo veportion of the concurrence and stated:

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 t han is reasonably necessary for the purposes of aff ording adequate deterrence to criminal conduct.

25Appendix at 50.

In my view, the sentencing judge correctly overrule d defendant's "buy money" objection that was based on the Gall concurrence. The repayment of "buy money" impo ses no greater deprivation of liberty and is no less a deterrent
of criminal conduct than traditional restitution an d other specifically authorized conditions of supervised re lease.

III

The broader question presented by this case is the nature and extent of the sentencing options that are statu torily 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 offe nse an d characteristics of the defendant;

(2) the need for the sentence imposed -

(A) to reflect the seriousness of the offen se, 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 statu te that authorizes "any other condition [the court] conside rs to be appropriate," is in addition to - and not synonymou s with or subordinate to - the condition authorizing victi m-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. Th e taxpayer, however, should not have to bear the cost of "buy money." The difference is that the money involved h as gone into the defendant's pocket and to the extent pract icable
should be recovered. This is a self-evident corolla ry of "respect for the law" and "just punishment."

The majority's decision today puts an incongruous a nd unnecessary limitation on the power of the sentenci ng judge to effectuate the legislatively mandated goal s of sentencing.

26A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

27