[00:00:04] Speaker 02:
The next case for argument is United States versus Hess, docket 23-1008.

[00:00:11] Speaker 02:
Counsel, we are ready to hear your argument.

[00:00:13] Speaker 02:
Please begin when you're ready.

[00:00:19] Speaker 01:
Thank you, Your Honors.

[00:00:21] Speaker 01:
May it please the court, Jake Rochevaux for the appellant, Megan Hess.

[00:00:26] Speaker 01:
In calculating actual loss to the victims, district court committed two related errors.

[00:00:32] Speaker 01:
First, the court thought all money paid by the medical research companies as a result of the fraud constituted actual loss, even though they suffered no economic harm.

[00:00:43] Speaker 01:
And second, the court categorically refused to apply any credits against loss for goods and services the next of kin victims actually received.

[00:00:51] Speaker 01:
Because these two errors together affected the guideline range and the second error alone affected the restitution order, this court should remand for resentencing.

[00:01:02] Speaker 01:
As for the medical research companies, the mere fact that they spent money as a result of the fraud does not mean that they lost money as a result of the fraud.

[00:01:10] Speaker 01:
Indeed, as the PSR made clear, the companies derived an economic benefit from the transaction.

[00:01:17] Speaker 01:
And therefore, they weren't entitled to any restitution because they suffered no actual loss.

[00:01:24] Speaker 01:
Now, the government tries to draw a distinction between the restitution calculation saying that that has no bearing, that the company's actual loss for purposes of restitution has no bearing on the guideline loss calculation.

[00:01:37] Speaker 01:
But that's true only in two contexts which don't exist here.

[00:01:42] Speaker 01:
First, that's where the victim is reimbursed after the fraud was discovered.

[00:01:47] Speaker 01:
In that case, they've already been compensated and can't be compensated again under a restitution order, but it still counts as actual loss under the guidelines.

[00:01:57] Speaker 01:
And second, there may be a difference where the guidelines calculation of loss isn't based on actual loss.

[00:02:04] Speaker 01:
It's where it could be based on intended loss or gain.

[00:02:08] Speaker 01:
But here, where the restitution order was based, or where the guidelines loss calculation was based on actual loss,

[00:02:16] Speaker 01:
the restitution and the guidelines loss calculation should have been the same.

[00:02:25] Speaker 01:
Ms.

[00:02:25] Speaker 01:
Hess was also entitled to offsets for goods and services provided to the next of kin victims.

[00:02:31] Speaker 01:
The guidelines provide that the court shall provide credits against loss.

[00:02:36] Speaker 01:
It's mandatory, not discretionary.

[00:02:40] Speaker 01:
To be sure, there are some exceptions under the guidelines, but none of them apply here.

[00:02:45] Speaker 03:
Wasn't they bargaining for a total product, and that is to have the remains of the victim either cremated or preserved.

[00:03:02] Speaker 03:
And to at least, if it was cremation, to get the remains.

[00:03:08] Speaker 03:
Many of these people didn't even get the remains.

[00:03:11] Speaker 03:
They may have gotten the remains of somebody else.

[00:03:13] Speaker 03:
Isn't that correct?

[00:03:14] Speaker 03:
And isn't that part of this whole product?

[00:03:18] Speaker 03:
And it doesn't matter much that they got a gravestone to a person in that capacity, does it?

[00:03:29] Speaker 01:
Well, it's true that in a few circumstances that they may not have received the ashes.

[00:03:35] Speaker 01:
That's true in a couple of instances.

[00:03:38] Speaker 03:
But that's why... How do you say a couple of words?

[00:03:40] Speaker 03:
Isn't it pretty clear that we can't tell what the numbers are as to them mixing remains?

[00:03:51] Speaker 01:
Your Honor, we certainly don't know absolutely for sure.

[00:03:54] Speaker 01:
I think there were assumptions that people did not receive their remains when medical research companies purchased whole bodies.

[00:04:02] Speaker 01:
But as for this idea that you can't separate out any of the goods and services provided,

[00:04:07] Speaker 01:
That's why there is an initial loss.

[00:04:11] Speaker 01:
The next victim certainly suffered some economic harm as a result of this.

[00:04:16] Speaker 03:
Well also part of the whole problem that some of the people bought was that they did not donate the remains and yet in some number of them the remains were taken anyway without authorization.

[00:04:35] Speaker 03:
So that's another piece of the product that

[00:04:37] Speaker 03:
some unknown number of these victims, of the victims, they didn't get the product.

[00:04:44] Speaker 03:
Why should you be able to nitpick and say, well, you know, you got a gravestone.

[00:04:49] Speaker 03:
Don't complain about that.

[00:04:50] Speaker 03:
So let me deduct that.

[00:04:52] Speaker 01:
Your Honor, because that's what the guidelines says to do.

[00:04:55] Speaker 01:
The guidelines specifically says to that the court shall provide credits against loss for the market value of goods and services that were in fact provided.

[00:05:07] Speaker 01:
And if I could just step back for a second and say that this wasn't the government's argument they're making on appeal, that none of these goods and services provided, that they necessarily had zero value.

[00:05:18] Speaker 01:
That wasn't the basis of the district court's ruling.

[00:05:21] Speaker 01:
That's an argument that is being presented for the first time on appeal.

[00:05:24] Speaker 01:
And it's only appropriate to affirm on alternative grounds if this court can rule that as a matter of law.

[00:05:33] Speaker 01:
And that's particularly inappropriate here, where it would be a factually intensive inquiry as to what services, for example, like death certificates.

[00:05:43] Speaker 01:
I mean, there were some things that necessarily had a monetary value.

[00:05:47] Speaker 03:
My understanding that the proposition was that 29 percent, do I have the right number?

[00:05:58] Speaker 03:
Yes.

[00:05:59] Speaker 03:
How was that arrived at?

[00:06:00] Speaker 03:
It was the 29 percent that she says that they got value.

[00:06:10] Speaker 01:
At the sentencing hearing, the defense presented testimony from a paralegal

[00:06:16] Speaker 01:
who had gone through all the records provided in discovery and identified about 20 categories of goods and services, not including cremations or anything related to cremation, that were in fact provided to the next of kin victims.

[00:06:32] Speaker 01:
The government didn't dispute that any of those goods and services were in fact provided or they didn't dispute that

[00:06:39] Speaker 01:
the amount that was charged was market rate.

[00:06:43] Speaker 03:
Okay, what were the items included in the 29%?

[00:06:47] Speaker 03:
You have headstones, what else?

[00:06:51] Speaker 01:
There were obituaries, death certificates, flowers, food, a clergy.

[00:07:00] Speaker 01:
There is a long list.

[00:07:02] Speaker 03:
It took all of those

[00:07:05] Speaker 03:
took an average figure and applied that to the total number of victims and just did the math.

[00:07:15] Speaker 01:
That's correct, Your Honor.

[00:07:17] Speaker 01:
And the government didn't dispute any of the math, any of the

[00:07:22] Speaker 01:
the value of the services provided, that they were in fact provided.

[00:07:26] Speaker 01:
They didn't say that that was an unreasonable estimate of the legitimate goods and services that were provided.

[00:07:31] Speaker 01:
The only argument was that, and this is the argument that the district court adopted, was that credits against loss are categorically prohibited where the business is systematically tainted with fraud.

[00:07:43] Speaker 01:
And that's the only ruling that is on review for this court, and that's clearly erroneous.

[00:07:49] Speaker 01:
I shouldn't say clearly erroneous, it is, but it's also on de novo review for this court because we're talking about the loss calculation methodology.

[00:08:00] Speaker 01:
There is no exception in the guidelines for refusing to provide credits against loss where a business was systematically tainted with fraud.

[00:08:09] Speaker 01:
The cases that the government relies on on appeal and are the same ones that the district court relied on below, in each of those cases, all three of them, the district court in fact did provide credits against loss.

[00:08:24] Speaker 01:
So there's just no support whatsoever for

[00:08:27] Speaker 01:
for this categorical rule prohibiting credits against loss when a business was systematically tainted with fraud.

[00:08:33] Speaker 01:
And it simply makes no sense.

[00:08:36] Speaker 01:
Just because a business is systematically tainted with fraud doesn't mean that as a matter of inevitable facts that

[00:08:45] Speaker 01:
that victims can't receive any value from that business.

[00:08:50] Speaker 02:
Is it enough though to defeat the average argument, the 29.2 based on a limited sample being across the whole population?

[00:08:59] Speaker 02:
I agree it's not enough in a specific case, but is it enough to stop that 29% against an entire class, which isn't an estimate.

[00:09:10] Speaker 01:
I don't think so, Your Honor.

[00:09:12] Speaker 01:
And that would be a factual finding that the district court would have had to have made in the first instance.

[00:09:17] Speaker 01:
That's not for this court to review in the first instance.

[00:09:21] Speaker 01:
Again, this is not an argument that the district court addressed.

[00:09:25] Speaker 01:
There was no dispute that 29% was what was come about as a reasonable estimate.

[00:09:33] Speaker 01:
The ruling that is before this court that this court actually made was this categorical rule prohibiting credits against loss.

[00:09:41] Speaker 01:
That is error as a matter of law.

[00:09:43] Speaker 01:
And to the extent that this court's not convinced that 29% is a reasonable estimate, then it could remand for further findings on that point.

[00:09:50] Speaker 01:
What was the dollar amount of the total of the 29%?

[00:09:57] Speaker 01:
Your Honor, I'm really not sure off the top of my head.

[00:10:00] Speaker 01:
It was 29% of

[00:10:03] Speaker 01:
I believe $700-something thousand dollars.

[00:10:07] Speaker 01:
But based on our calculation, reducing the next of kin's victims' loss amount by 29% to account for credits for goods and services actually provided, together with no loss to the medical research companies with the district with which the government failed to prove that they suffered any... Well, let me ask you this.

[00:10:30] Speaker 03:
Do I understand the calculations?

[00:10:32] Speaker 03:
Assume we accept your arguments that there should have been, you know, credit of the 29%.

[00:10:40] Speaker 03:
And assume we agree with you that the harvesting of the organs did not result in any losses to the purchasers.

[00:10:56] Speaker 03:
You still end up with, in my calculations, $549,000.

[00:11:02] Speaker 03:
which is $1,000 under the amount in the guidelines.

[00:11:13] Speaker 03:
Isn't that close enough?

[00:11:14] Speaker 03:
I mean, isn't the time for rounding up by $1,000 when you're talking about over half a million?

[00:11:22] Speaker 01:
No, Your Honor.

[00:11:23] Speaker 01:
And the map that I came up with in the opening brief, which I think is supported, is slightly lower than that by

[00:11:31] Speaker 01:
maybe $20,000, $30,000.

[00:11:32] Speaker 01:
I think it was closer to about $522,000, I want to say.

[00:11:36] Speaker 01:
But the reality is that error affects the guideline range.

[00:11:41] Speaker 03:
Well, some of my figures are correct and not yours.

[00:11:45] Speaker 03:
And it's a mere $1,000.

[00:11:46] Speaker 03:
Is there a close enough rule?

[00:11:50] Speaker 03:
Is there a rounding up rule?

[00:11:52] Speaker 03:
Not rule, but common sense application.

[00:11:58] Speaker 03:
in applying guidelines that are not mandatory?

[00:12:05] Speaker 01:
No, Your Honor.

[00:12:06] Speaker 01:
There's no it's okay to round up rule for the district court.

[00:12:09] Speaker 01:
If the district court had done that, said by my math, or everyone agrees that the number is 549,000, I'm just going to round up and say 550 to bump up into the next guideline range, that would be plainly incorrect.

[00:12:25] Speaker 01:
And it's worth mentioning the... Well, why?

[00:12:27] Speaker 01:
Yeah, why?

[00:12:28] Speaker 03:
I mean, I ask you a question and you say, it's incorrect.

[00:12:31] Speaker 03:
But why is that wrong?

[00:12:34] Speaker 03:
Is this a common sense approach to recommended guidelines?

[00:12:38] Speaker 03:
Because the district court has to correctly calculate the guideline range.

[00:12:42] Speaker 03:
We're assuming that the calculation is correct.

[00:12:45] Speaker 03:
It's $549,000.

[00:12:47] Speaker 01:
Why isn't that enough?

[00:12:50] Speaker 01:
Because the guideline

[00:12:51] Speaker 01:
specifically says if the loss amount is less than 550,000, but greater than, I can't remember where the floor is at this point, but let's say greater than 400,000, if it's in the 400 to 550,000 range, then this is the guideline range number, then it's a 12-level enhancement.

[00:13:08] Speaker 01:
A district court isn't free to just disregard that.

[00:13:11] Speaker 01:
Perhaps under some circumstance, the district court, they have to correctly calculate the guideline range.

[00:13:20] Speaker 03:
If you take Judge Phillips' approach or his questions, the 29% is not a hard and fast figure.

[00:13:29] Speaker 03:
It's a reasonable estimate.

[00:13:32] Speaker 03:
It's based on averages.

[00:13:34] Speaker 03:
And we know, I mean, the defendant would get kind of a benefit on that one, kind of a mathematical assumption.

[00:13:43] Speaker 03:
Why can't he do the same on the other end?

[00:13:47] Speaker 03:
roundup or assume it's close enough because the 29% is a little fuzzy.

[00:13:57] Speaker 01:
I think those will be factual findings that the district court would have to make.

[00:14:00] Speaker 01:
I think they could say

[00:14:02] Speaker 01:
29% is not a reasonable estimate.

[00:14:06] Speaker 01:
For whatever reason, these goods and services were not, and it could manufacture some way to get up past the 550.

[00:14:14] Speaker 01:
But just to say, I'm going to round up for no particular reason, I think would be clearly Errone's factual finding.

[00:14:24] Speaker 01:
And it's also worth mentioning that the difference in the guideline range

[00:14:30] Speaker 01:
was it's a two offense level change and which took three years off of the guideline range.

[00:14:38] Speaker 01:
And the loss did go from approximately 1.2 million down to 500 and let's say 49,000.

[00:14:44] Speaker 02:
It was the defendant's burden to prove the credits, right?

[00:14:48] Speaker 02:
Yes.

[00:14:50] Speaker 02:
The whole loss guideline and commentary is talking about sometimes you just can't be that sure and courts have to estimate and they get some discretion.

[00:15:01] Speaker 02:
If the court were to have said, no, it's only 25% and it came under 550, then you'd be fine with that.

[00:15:09] Speaker 02:
Your problem is that the court never said anything about 25% or zero percent.

[00:15:14] Speaker 02:
It ruled on an entirely different basis.

[00:15:17] Speaker 02:
That's exactly right.

[00:15:18] Speaker 02:
And so that's why it's not harmed.

[00:15:19] Speaker 01:
Is that your position?

[00:15:20] Speaker 01:
That's exactly my position, Your Honor.

[00:15:23] Speaker 01:
I see that I'm out of time.

[00:15:24] Speaker 01:
If no further questions, I'd ask this court to remand for resentencing.

[00:15:44] Speaker 00:
May I please the court?

[00:15:45] Speaker 00:
Elizabeth Ford-Milani on behalf of the United States.

[00:15:49] Speaker 00:
The loss inquiry here is a two-step process.

[00:15:52] Speaker 00:
First, the court decides whether there is a loss to the victim that is a reasonably foreseeable pecuniary harm resulting from the offense.

[00:16:01] Speaker 00:
Second, the court decides whether the defendant has proven that she is entitled to reduce that loss amount to account for the value of the goods and services she provided to the victims.

[00:16:13] Speaker 00:
The court properly applied that two-step analysis here.

[00:16:17] Speaker 00:
even if this court discerns a guidelines error, this is one of those rare cases where the record reveals that the court would have imposed the same sentence putting aside that guidelines error.

[00:16:29] Speaker 00:
And that's why this court should affirm.

[00:16:31] Speaker 02:
You mean even without the two levels, the court still would have said 240 months?

[00:16:34] Speaker 00:
Yes, I think the record reveals that.

[00:16:36] Speaker 02:
But that might

[00:16:39] Speaker 02:
Perhaps there would have been a substantive reasonableness challenge had the court done that.

[00:16:43] Speaker 02:
So there should be a re-roll on the dice on that, if that's the approach, shouldn't there?

[00:16:49] Speaker 00:
So I disagree, Your Honor, and I'd respectfully push back.

[00:16:51] Speaker 00:
I think for the same reasons that the record shows that the error here was harmless is the same reason that the sentence in this case is substantively reasonable.

[00:17:01] Speaker 00:
That is, the court anchored its entire sentence based on the 3553A factors

[00:17:07] Speaker 00:
and the statutory maximum, i.e.

[00:17:10] Speaker 00:
permissible bases to sentence the defendant, the record was fulsome as to why the court picked this particular sentence.

[00:17:18] Speaker 02:
But the court varied up from, I think it was 188, I could be wrong, to 240.

[00:17:22] Speaker 02:
Instead of from 151, that's a marked difference.

[00:17:25] Speaker 02:
And the court, to my knowledge, didn't say, and even if it were 151, I'd still go to 240.

[00:17:31] Speaker 02:
And even if the court did say that, we oftentimes send it back and say, we'll make sure about that.

[00:17:37] Speaker 00:
I think that the Geissewein case from this court makes clear that it's all about how the court got to its endpoint.

[00:17:43] Speaker 00:
And what's clear here is that it got to this endpoint based on those 3553A factors.

[00:17:48] Speaker 02:
OK.

[00:17:51] Speaker 02:
Maybe we just disagree on that, and I'll come around to your point, if you.

[00:17:54] Speaker 02:
But what about the chief point here, which is the district court had evidence presented to it about credit.

[00:18:05] Speaker 02:
And the guidelines say you shall credit.

[00:18:07] Speaker 02:
And instead of saying, well, wait a minute, what's your 27.2?

[00:18:11] Speaker 02:
I don't think that an urn should count in this instance because it wasn't even the decedent's ashes or something.

[00:18:18] Speaker 02:
And being more precise about it and coming to 23% saying, aha, you're still over 550 and so 14 levels.

[00:18:26] Speaker 02:
Instead of that, the court just uses that meal cases at 8th Circuit with rental deposits that weren't returned and says, you're tainted by fraud, so I take a blind eye to that.

[00:18:37] Speaker 02:
Don't even talk to me about credits because you're tainted with fraud.

[00:18:42] Speaker 02:
Why is that not reversed?

[00:18:43] Speaker 00:
So a few responses to that, Your Honor.

[00:18:45] Speaker 00:
First of all, I think it's clear while my opposing counsel disagrees that the court made this conclusion, but I think the record reveals that the goods and services provided to the next of kin victims had no value to them.

[00:19:00] Speaker 00:
And remember, the guidelines, the offset rule is termed in terms of value to the victim.

[00:19:07] Speaker 00:
It's not objective value.

[00:19:08] Speaker 02:
Did the district court say that or is that you saying that?

[00:19:11] Speaker 00:
So I think that the court's order is clear that that's how it got there because it set out that rule.

[00:19:15] Speaker 02:
Does it say that?

[00:19:17] Speaker 00:
So on page 73, Your Honor, the court cited Jarvis for the rule that no offset is proper when a defendant provides nothing of value.

[00:19:25] Speaker 00:
So it sets out this rule.

[00:19:26] Speaker 00:
Then a little bit later it says that all of Hess's interactions with the next of kin victims were steeped in fraud, intertwined with fraud, and you can't separate them from the fraud.

[00:19:37] Speaker 00:
And that's on page 75 and 76.

[00:19:39] Speaker 02:
Well, what if they got a funeral service and flowers were provided?

[00:19:42] Speaker 02:
A death certificate.

[00:19:44] Speaker 02:
And a death certificate and maybe a minister said a few words.

[00:19:48] Speaker 02:
Can you per se say, sorry, no value on that.

[00:19:52] Speaker 02:
We hereby decree.

[00:19:54] Speaker 00:
So I think that the court properly did and say,

[00:19:56] Speaker 00:
The value of those sorts of items to the victims were because of their associations with the decedents, right?

[00:20:05] Speaker 00:
And so an urn holding remains of someone who you don't know where they came from, I think that's perfectly proper for the court to say that is no value.

[00:20:13] Speaker 02:
That's a fraction.

[00:20:15] Speaker 02:
You're now chipping at the 27.2, which I'm all for that.

[00:20:19] Speaker 00:
Certainly, Ardern.

[00:20:19] Speaker 00:
And so a broader point in that regard

[00:20:22] Speaker 00:
It was the defense burden to prove these offsets.

[00:20:26] Speaker 00:
So like opposing counsel recognized, there were more than 15 different categories of reasons why they thought that they were entitled to this offset.

[00:20:37] Speaker 00:
If the defense were to parse through those,

[00:20:40] Speaker 00:
and indicate that some of them did have value to the victims, that was the defense's burden to do.

[00:20:46] Speaker 00:
For instance, it was the defense's burden to say the death certificates on average cost this much, there were 560 victims, therefore this is the value.

[00:20:55] Speaker 00:
They didn't do that.

[00:20:57] Speaker 00:
And it's not even clear from the record that we could do that on appeal.

[00:20:59] Speaker 03:
Would there be any attempt to cross-examine the paralegal on that?

[00:21:03] Speaker 00:
The paralegals test on that point, no.

[00:21:05] Speaker 00:
There was more about whether or not the paralegal agreed with forgeries and things like that, but no, there wasn't.

[00:21:12] Speaker 03:
Wouldn't that have been the appropriate thing for the government to do and shouldn't they have done that in order for you to rely on the pick and edit?

[00:21:24] Speaker 00:
I don't think so, Your Honor, because again, this is the defense burden to put on, this is the value of what we gave to the victims, and here's why.

[00:21:30] Speaker 00:
And it was the government's position in volume one, page 404, the government said, the funerals the defendants provided for the decedents were so undermined by the defendants' gruesome conduct that they were essentially worthless to the next of kin.

[00:21:46] Speaker 03:
To the extent that... That goes to the Layton Wood fraud theory, not

[00:21:53] Speaker 03:
counting the benefits, doesn't it?

[00:21:56] Speaker 03:
I mean, there are two different approaches to this.

[00:21:58] Speaker 00:
I think they were intertwined, Your Honor.

[00:22:00] Speaker 00:
I think that to the extent that the defendant argues that some of the goods and services provided to the next of kin victims were completely separate from the fraud, which is not what the court found, but that they did have some sort of objective value.

[00:22:15] Speaker 00:
It was the defense burden to prove that.

[00:22:18] Speaker 00:
And here they lumped in headstones with death certificates and didn't separate out what was the value.

[00:22:24] Speaker 03:
Headstones with what?

[00:22:25] Speaker 00:
Death certificates, Your Honor.

[00:22:27] Speaker 00:
So I think that this court can resolve this entire appeal by upholding the district court's conclusion that because the goods and services were not valuable, had no value to the next of kin victims, that no offset was proper.

[00:22:42] Speaker 00:
And that same analysis applies to restitution.

[00:22:45] Speaker 03:
Can you follow that analysis or you don't accept that?

[00:22:48] Speaker 03:
And that is that they had some value, but it was not established.

[00:22:53] Speaker 03:
Certainly.

[00:22:55] Speaker 00:
And in that case, that would be a perfectly appropriate way to affirm as well that the defendant didn't prove the offsets.

[00:23:02] Speaker 03:
Nor did the government choose to cross-examine on that.

[00:23:05] Speaker 00:
Right, but it's not the government's burden.

[00:23:07] Speaker 00:
It's only their burden to prove the losses.

[00:23:10] Speaker 00:
And the government put forth copious evidence about, you know,

[00:23:14] Speaker 00:
Well, there was stipulations, too, about the amounts that was paid by this compilation of 560 decedents as families and next of kin.

[00:23:24] Speaker 00:
And there was testimony at the sentencing hearing from the FBI special agent that talked about how we figured out the money aspect of this, which was complicated.

[00:23:34] Speaker 00:
And that's something that the defendant doesn't challenge on appeal.

[00:23:36] Speaker 00:
The initial $727,000 figure for those next of kin victims

[00:23:42] Speaker 00:
The defendant doesn't challenge.

[00:23:43] Speaker 00:
And I think that to the extent that this court is concerned that there wasn't more of a parsing out, I just want to reiterate, once again, that that was the defense burden.

[00:23:51] Speaker 00:
The defense burden to tell the court, no, this is how much, on average, we paid to provide the death certificates to those next-to-kin victims.

[00:23:59] Speaker 00:
And that never occurred.

[00:24:01] Speaker 00:
And I do think that a fair reading of the record is that this is exactly what the court concluded, that there was no value provided to the victims.

[00:24:09] Speaker 00:
Again, setting out the no value rule,

[00:24:12] Speaker 00:
from Jarvis stating that everything that the defendants provided to the next of kin victims was intertwined, inseparable from the fraud.

[00:24:21] Speaker 00:
And then circling back to that Jarvis case and saying that applying offsets would legitimize the way Ms.

[00:24:29] Speaker 00:
Hess earned her money from the goods and services.

[00:24:32] Speaker 00:
So the court concluded that there's this rule that offsets are improper when there's no value to the victims.

[00:24:38] Speaker 00:
and then concluded that the test didn't provide anything separate from the fraud.

[00:24:42] Speaker 00:
I think the natural upshot of that is that nothing of value was provided because it wasn't separate from the fraud.

[00:24:48] Speaker 00:
So I would be remiss if I didn't talk about the donor services buyers.

[00:24:55] Speaker 00:
So that's a different category of offsets, or that's a different category of losses, rather.

[00:24:59] Speaker 00:
And in that case, the court properly found that those buyers had a reasonably foreseeable pecuniary harm

[00:25:07] Speaker 00:
of about $527,000 under step one of the analysis, which is the only step that's pertinent here to this appeal.

[00:25:16] Speaker 00:
The court had to determine whether those buyers suffered pecuniary harm because of the offense.

[00:25:23] Speaker 00:
In other words, were those buyers out money because of the fraud?

[00:25:28] Speaker 00:
And was that reasonably foreseeable?

[00:25:31] Speaker 00:
The court correctly concluded yes.

[00:25:33] Speaker 00:
Buyers paid money to Ms.

[00:25:35] Speaker 00:
Hess, that's the pecuniary card, based on her fraudulent representations.

[00:25:41] Speaker 02:
Didn't the buyers get value?

[00:25:42] Speaker 02:
These were used in medical experiments, whatever.

[00:25:48] Speaker 00:
So I think that's two different questions, Your Honor.

[00:25:51] Speaker 02:
Well, it's one question.

[00:25:52] Speaker 02:
Did they get value?

[00:25:54] Speaker 00:
My apologies.

[00:25:55] Speaker 00:
I think that they did not get what they peed for.

[00:25:58] Speaker 00:
To the extent that they got some economic value, that was the defense burden.

[00:26:03] Speaker 02:
Did they get something different than if they had bought from someone else?

[00:26:06] Speaker 00:
Absolutely, Your Honor.

[00:26:07] Speaker 00:
I think that they did not get.

[00:26:08] Speaker 00:
They contracted for freely donated, legitimately donated remains that were free of infectious or potentially infectious disease.

[00:26:17] Speaker 00:
That is not what they received.

[00:26:19] Speaker 00:
And I think that Miss has stipulated to this fact that she did not provide what she had promised and what those buyers had relied upon.

[00:26:27] Speaker 00:
So I think that this is not a case where the victims in that regard got exactly what they bargained for.

[00:26:33] Speaker 02:
The victims would have spent the same money.

[00:26:36] Speaker 00:
Certainly, but that's a different question.

[00:26:38] Speaker 00:
I think that that is entirely.

[00:26:39] Speaker 00:
Remember that the loss measures the magnitude of the harm.

[00:26:43] Speaker 00:
It's not trying to make the victims whole.

[00:26:45] Speaker 00:
That's what restitution does.

[00:26:46] Speaker 00:
And that's perfectly reason why that the restitution order in this case didn't request

[00:26:52] Speaker 00:
anything for those donor services buyers with the recognition that, well, first of all, there wasn't a response as to whether those donor services buyers requested any restitution.

[00:27:03] Speaker 00:
But this sort of fleshes out the difference between the harm and the loss and putting those victims back in the position they were in.

[00:27:12] Speaker 00:
And I think it's very clear here, per Hess's stipulation, that she just didn't provide what was in the contract, basically.

[00:27:19] Speaker 00:
And so Miss Hess's real argument on appeal is the exact point that you brought up, Judge Phillips, that those buyers were able to get something out of what they received.

[00:27:30] Speaker 00:
But again, that is not a question of loss.

[00:27:33] Speaker 00:
That is a question of offsets or restitution, and in this case,

[00:27:37] Speaker 00:
the defendant didn't prove what value, if any, those donor services buyers received.

[00:27:43] Speaker 00:
It's difficult to discern how they would even make that point.

[00:27:48] Speaker 00:
I would be remiss if I didn't talk about the harmlessness argument.

[00:27:52] Speaker 00:
So we've sort of been talking about shaking out the monetary values here.

[00:27:56] Speaker 00:
If the court agrees with regard to one category of loss with the government's position and disagrees with the other,

[00:28:04] Speaker 00:
the amount would still exceed $550,000 for the reasons we set out in our brief.

[00:28:09] Speaker 00:
So I would encourage the court to consider that with regard to harmlessness.

[00:28:14] Speaker 00:
But even if the entire loss calculation was incorrect, I do think this is one of those rare cases where the record is replete with, the record just shows over and over that the court made this particular sentencing determination based on the offense characteristic itself,

[00:28:34] Speaker 00:
Ms.

[00:28:35] Speaker 00:
Hess's personal characteristics, the harm, the egregious harm for these heinous crimes on the victims in this case, and as well as protecting the public.

[00:28:45] Speaker 00:
I think that that is clear.

[00:28:46] Speaker 00:
She emphasized these factors repeatedly and said, not only

[00:28:52] Speaker 00:
Did the court say that the guidelines here isn't even enough to correctly satisfy the goals of sentencing?

[00:29:00] Speaker 00:
Immediately, the court pivoted and said, and that's why the statutory maximum sentence is what I'm going to impose here.

[00:29:06] Speaker 03:
You know, on the figures, if it is determined that 29% is correct.

[00:29:15] Speaker 00:
Yes, Your Honor.

[00:29:16] Speaker 03:
And you add the confirmed losses and the estimated losses, that's $727,000.

[00:29:23] Speaker 00:
with not before excluding the 29%.

[00:29:26] Speaker 00:
Right.

[00:29:26] Speaker 03:
Yeah, you exclude the 29%.

[00:29:30] Speaker 03:
Doesn't that take it down to 549 or something?

[00:29:33] Speaker 00:
516 is the math that I have, 516,000.

[00:29:35] Speaker 00:
But if you add, if the court was correct with regard to the donor services buyers, that's 527,000 on its own.

[00:29:41] Speaker 03:
Oh, you mean to the buyers of the organs.

[00:29:46] Speaker 03:
Right.

[00:29:47] Speaker 03:
Could you just assume that away?

[00:29:50] Speaker 03:
If you credit the 29,000, 29%, and you deduct that from the 727, it's below 550, correct?

[00:30:01] Speaker 00:
Correct, Your Honor.

[00:30:03] Speaker 03:
And if that's the way we calculate, what do we do with that?

[00:30:06] Speaker 03:
Send it back?

[00:30:07] Speaker 00:
So I think that then you'd have to decide whether the donor services losses were correctly calculated, because if they were... Okay, so this whole business is dependent on

[00:30:20] Speaker 03:
whether or not you accept completely the 29%.

[00:30:25] Speaker 03:
If you don't accept that, it's reduced by some amount.

[00:30:35] Speaker 00:
Yes, Your Honor.

[00:30:36] Speaker 00:
All right.

[00:30:37] Speaker 00:
So for the next of kin victims, that category would be reduced.

[00:30:39] Speaker 03:
That's what I'm talking about.

[00:30:41] Speaker 00:
I'm only talking about it.

[00:30:42] Speaker 00:
OK.

[00:30:43] Speaker 03:
Got it.

[00:30:43] Speaker 03:
Got it.

[00:30:43] Speaker 03:
I'm with you.

[00:30:44] Speaker 03:
OK.

[00:30:44] Speaker 03:
So that's correct.

[00:30:45] Speaker 03:
All dependent on that.

[00:30:46] Speaker 00:
Yes, Your Honor.

[00:30:48] Speaker 00:
All right.

[00:30:48] Speaker 00:
For these reasons, we'd ask to affirm.

[00:30:55] Speaker 02:
Did counsel have any time?

[00:30:57] Speaker 02:
I'll give you a minute if you want to and hold you to it unless there are questions.

[00:31:06] Speaker 01:
Thank you, Your Honor.

[00:31:08] Speaker 01:
First, the district court's findings are very clear that her theory was a categorical one that

[00:31:16] Speaker 01:
victims, that there are no credits against loss where the business is systematically tainted with fraud.

[00:31:22] Speaker 01:
It had nothing to do with the services, the 29% equaling exactly zero.

[00:31:28] Speaker 01:
And then as for the government's point that the value is based on the perspective of the victim, the case they rely on that is for an out of circuit unpublished case

[00:31:39] Speaker 01:
where what they mean by it's from the perspective of the victim, it's the amount that the victim who had received collateral, what they were able to get from it after the fraud was discovered.

[00:31:49] Speaker 01:
That's the value of the collateral and it's from the perspective of the victim in that regard as opposed to the value that the collateral was worth at the time of the fraud.

[00:31:57] Speaker 01:
And then just real quick as to restitution, if this court disagrees with the 29% and says that's not enough to get below the guideline range,

[00:32:06] Speaker 01:
it still would affect the restitution.

[00:32:11] Speaker 02:
Thank you counsel for your arguments.

[00:32:12] Speaker 02:
The case is submitted and counsel are excused.

[00:32:16] Speaker 02:
We'll now take a ten minute or so break before we pick up with the United States.