Opinion ID: 1385481
Heading Depth: 2
Heading Rank: 2

Heading: Did the Government Prove a BMG Loss?

Text: When an MVRA victim is identified, the government must prove the amount of the loss sustained by [the] victim as a result of the offense by a preponderance of the evidence. 18 U.S.C. § 3664(e); see United States v. Searing, 250 F.3d 665, 667 (8th Cir.2001). Chalupnik argues that the government failed to prove that BMG suffered lost profits, or any other actual loss, as a result of his committing the offense of conviction. On this barren record, we agree. In concluding that BMG was an MVRA victim, the district court commented that it was appropriate to award restitution in the amount of Chalupnik's $78,818 in sale proceeds because BMG could recover these ill-gotten gains in a civil lawsuit. The government stresses this disgorgement concept on appeal. However, we rejected this approach to criminal restitution some two months after the district court ruled: The modern trend in private civil litigation endorses use of the common law remedy of restitution to punish intentional wrongdoers by compelling the disgorgement of all ill-gotten gain. See Restatement (Third) of Restitution and Unjust Enrichment § 51 (Tentative Draft No. 5, Mar. 12, 2007). . . . However, while restitution under the MYRA may be a form of punishment for Ex Post Facto Clause purposes . . . it is clear that Congress intended that restitution be a compensatory remedy from the victim's perspective. Therefore . . . MVRA victims, should be limited to compensation for their actual losses. Petruk, 484 F.3d at 1038. In other words, while the availability of a civil remedy is relevant in determining who is an MVRA victim, the amount of restitution that may be awarded is limited to the victim's provable actual loss, even if more punitive remedies would be available in a civil action. Thus, while the fact that a defendant profited from the crime without causing actual loss to an identifiable victim may be an appropriate reason to increase his punishment, Petruk and the plain language of the MVRA confirm that punishment of a federal criminal defendant must be imposed by means of criminal penaltiesfines, criminal forfeitures, and imprisonment. Restitution to MVRA victims must be based on the amount of loss actually caused by the defendant's offense. Id. at 1036 (quotation omitted, emphasis in original). Stripped of a disgorgement rationale, it is clear that the government proved no actual loss to BMG. The PSR recommended, and the district court agreed, that BMG suffered a lost opportunity when Chalupnik stole BMG's undeliverable discs and sold them to competing retail sellers. The PSR's lost opportunity rationale is valid in the sense that all authorized retailers of the copyrighted discsWal-Mart, Best Buy, iTunes, BMG, and countless othersas well as the copyright owners, suffered collective financial injury when infringer Chalupnik sold purloined discs at cut-rate prices to used record stores. But it would be a windfall to award BMG this entire collective injury to the market. And the large number of victims and the difficulty of determining each victim's actual loss make the collective injury inappropriate for MVRA restitution. See 18 U.S.C. § 3663A(c)(3). The government argues that the price at which Chalupnik sold the stolen discs is a reasonable, indeed conservative estimate of BMG's lost sales. One problem with this argument is that, for goods held by a merchant for sale, lost profits rather than lost sales revenues are the proper measure of actual loss. A more fundamental problem is that proof of lost sales, like proof of lost profits, may not be based entirely upon speculation. United States v. Young, 272 F.3d 1052, 1056 (8th Cir.2001). Here, the letter from BMG's senior counsel asserted that Chalupnik sold discs to used record stores whose customers theoretically could have purchased them [from BMG], resulting in lost sales to BMG. But BMG's practice of destroying rather than restocking undeliverable discs meant that the discs Chalupnik stole would not have been sold by BMG, and there is no evidence that Chalupnik's sales diverted specific business from BMG. From this standpoint, BMG's position resembles that of the purported MVRA victims whose restitution awards were reversed because the government failed to prove actual loss through lost sales in Hudson, 483 F.3d at 710-11, where counterfeit Microsoft software was turned over to the government by the infringing defendant's customer before any payment to the infringer, and in United States v. Adams, 19 Fed.Appx. 33, 35 (4th Cir.2001) (unpublished), where, pirated videocassettes were confiscated before the infringer could sell them. Finally, the government argues that BMG should receive restitution on behalf of the unidentified copyright owners who would have been paid royalties had BMG sold the purloined discs. This argument is without merit because restitution to each victim is limited to the full amount of each victim's losses. 18 U.S.C. § 3664(f)(1)(A). The letter from BMG's senior counsel admitted that Chalupnik's criminal conduct resulted in no royalty payments being made [by BMG] to the artists, record labels, music publishers, and movie studios, so there was no proof of actual loss to. BMG arising out of its unproven relationships with copyright owners. For the foregoing reasons, we vacate the restitution portion of the district court's judgment and remand for resentencing. Because our decision in Petruk clarified the applicable law after the district court entered the judgment, we leave to the district court's discretion on remand whether to reconsider the restitution issue on an expanded sentencing record as well as its previous decision not to impose a fine.