United States of America v. Nicholas Stoupis

United States Court of Appeals
For the First Circuit
No. 07-1410
UNITED STATES OF AMERICA,
Appellee,
v.
NICHOLAS STOUPIS,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Lynch, Chief Judge,
Lipez and Howard, Circuit Judges.
Robert F. Casey for appellant.
Randall E. Kromm, Assistant United States Attorney with whom
Michael J. Sullivan, United States Attorney, was on brief, for
appellee.
June 26, 2008

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Information about Cisco's marketing practices during the relevant 1
time is derived from the testimony and affidavit of Cisco employee
Timothy Walker (the "Walker Declaration"). Subsequent to Stoupis's
actions, Cisco has, for reasons that will become clear, changed
certain of its marketing practices.
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HOWARD, Circuit Judge. Nicholas Stoupis pled guilty to
mail and wire fraud under 18 U.S.C. §§ 1341 and 1343, and he now
appeals the estimate of loss relied upon by the district court in
calculating his sentence. We affirm the sentence imposed by the
district court.
I.
The following facts are uncontested. From July 2004 to
March 2006 Stoupis worked for Northrup Grumman ("NG"), a defense
contractor, and was based at a computer help desk at Hanscom Air
Force Base in Lexington, Massachusetts. He embarked upon a scheme
to take advantage of his employer's relationship with Cisco
Systems, Inc., a vendor of computer networking equipment.
Cisco distributed its products in two different ways:
sales to distributors, and direct sales to large customers. Other 1
than to these large customers, Cisco did not typically retail
products to end users. The armed services, and military
contractors such as NG, were among those large customers that
bought products directly from Cisco. Typically, a large customer
such as NG would also receive a special service contract allowing
for advance replacement of any of Cisco's products that might be
recalled. Should a recall issue, Cisco would ship to NG

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The replacement equipment was sometimes new and sometimes 2
"reconditioned" or "refurbished," meaning assembled from used
parts.
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replacement equipment without requiring that the recalled 2
equipment first be shipped back. In fact, Cisco only required the
customer to report a serial number for the defective product.
Because his job at the computer help desk gave him access
to Hanscom Air Force Base's information technology systems, Stoupis
was able to create email addresses that appeared to belong to
different military personnel. When he saw a Cisco recall notice
posted on the Internet for specific equipment, he would use one of
the fictitious email addresses to request replacement equipment
from Cisco. Stoupis would either select a serial number within the
range listed in the recall notice or simply make one up to include
in his request. The replacement request would appear to be on
behalf of NG or the military, but Stoupis would arrange for the
equipment to be shipped to either his house or a relative's house.
Over the course of approximately a year and a half, he
received more than ninety shipments of products from Cisco. He
stored the products at his home and began selling them through the
online retailer eBay. Stoupis made approximately $515,000 by
selling the products on eBay. In the course of the sales he
sometimes indicated that he was "authorized" to sell the equipment.
In early 2006, law enforcement agents confronted Stoupis
and he agreed to cooperate and to turn over the equipment still in

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The plea agreement contained an appeal waiver, providing that 3
Stoupis waived his right to appeal or collaterally challenge the
"imposition by the District Court of a sentence which does not
exceed that being recommended by the U.S. Attorney pursuant to this
agreement. Defendant reserves the right to appeal the Court's
legal determination of whether retail, wholesale or other value of
the stolen merchandise is the appropriate measure of loss in his
case under the United States Sentencing Guidelines."
The MVRA requires courts to order restitution in connection with 4
certain specific types of crimes, including offenses against
property under title 18. Stoupis's convictions under §§ 1341 and
1343 qualify under this statute. Restitution for MVRA purposes
requires that a defendant pay to the victim of the property offense
"the value of the property on the date of the damage, loss, or
destruction" minus "the value . . . of any part of the property
that is returned." 18 U.S.C. § 3663A(b)(1)(B). Thus, "value" for
MVRA purposes is distinct from "loss" for Sentencing Guidelines
purposes.
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his possession. Stoupis pled guilty to two counts of mail fraud
and two counts of wire fraud under 18 U.S.C. §§ 1341 and 1343.3
Stoupis's Presentence Investigation Report ("PSR")
estimated the amount of loss he caused at $7.2 million, and also
indicated that he must pay restitution under the Mandatory Victims
Restitution Act ("MVRA"), 18 U.S.C. § 3663A. The district court 4
held a hearing in which the government introduced the Walker
Declaration, containing detailed product pricing information for
Cisco, and also introduced Cisco's own loss calculations based on
that information. The court stated that it believed the
appropriate methodology for loss calculation under the Sentencing
Guidelines was to take into account the retail value of both the
new and the refurbished goods shipped to Stoupis, and the
discounted pricing structure available to large customers like

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This amount differs from the PSR loss estimate because the PSR's 5
calculation did not include the large customer discount, and
because the Walker Declaration provided more accurate pricing
information than had been available at the time of the PSR.
Stoupis appears to suggest that he is also appealing from the 6
district court's order that he must pay restitution in the amount
of $3.7 million (a figure arrived at by adjusting the $4.7 million
loss calculation to account for the approximately $1 million worth
of equipment recovered from Stoupis and returned to Cisco.) We do
not consider this argument. The appeal waiver prevents Stoupis
from arguing to us that the restitution order was improper; he
reserved only the right to appeal the methodology for determining
loss under the Sentencing Guidelines, not the restitution order.
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military contractors. The court's loss calculation, for Guidelines
purposes, was $4.7 million.5
Pursuant to U.S.S.G. § 2B1.1(b)(1)(K), the $4.7 million
loss resulted in an eighteen-level sentence enhancement, bringing
Stoupis's total offense level to twenty-four and producing a
Guidelines Sentencing Range ("GSR") of fifty-one to sixty-three
months. Stoupis was sentenced to fifty-one months' imprisonment.
Stoupis now appeals the district court's loss
calculation, arguing that the court used the wrong methodology.6
II.
The standard of review for interpretations and
applications of the Sentencing Guidelines is de novo. See United
States v. Innarelli, 524 F.3d 286, 290 (1st Cir. 2008). We review
related findings of fact, including the district court's loss
calculation estimate of $4.7 million, for clear error. See id.;
see also United States v. McCoy, 508 F.3d 74, 78 (1st Cir. 2007).

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The Guidelines do not specify a formula for calculating
the loss attributable to a defendant's actions. Rather, the
Guidelines commentary suggests basing loss on the "fair market
value of the property unlawfully taken or destroyed; or, if the
fair market value is impracticable to determine or inadequately
measures the harm, the cost to the victim of replacing that
property." U.S.S.G. § 2B1.1 cmt. n.3(C) (2007). District courts
generally have flexibility in loss calculations. See U.S.S.G. §
2B1.1 cmt. n.3(C) (stating that a court "need only make reasonable
estimate of loss . . . based on available information."). "Courts
can, and frequently do, deal with rough estimates, and as such, a
party dissatisfied with [a] sentencing court's quantification of
the amount of loss . . . must go a long way to demonstrate clear
error." United States v. Rowe, 202 F.3d 37, 42 (1st Cir. 2000)
(internal citation and quotation marks omitted). In Rowe, however,
we did find error where the estimates of loss (the value of
defendant's house with various encumbrances) were zero (defendant)
and $60,000 (government), and the district court simply selected a
figure of $20,000 without a hearing. Id. We found that the
district court's loss calculation was "inconsistent with the record
and had no discernible connection to the amounts" proposed by the
parties. Id. We focus here on whether the district court's
estimate of the fair market value of Cisco's loss, $4.7 million,
was clearly erroneous.

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Stoupis also argues that the calculation did not account for the 7
fact that a large portion of the replacement products Stoupis
resold were refurbished rather than new. This argument is simply
incorrect, as the district court squarely addressed this issue and
adjusted the loss calculation to take into account the diminished
value associated with refurbished products.
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Stoupis argues that the district court erred because it
did not use one of his three preferred methods for calculating the
loss. Those three methods are as follows: 1) calculating fair
market value based on the market for replacement Cisco products; 2)
calculating fair market value based on the market for Cisco
products without attendant support services; and 3) valuing the
loss as the profits he made on eBay. This argument is essentially 7
irrelevant, because the district court was simply not required to
use any particular methodology. The court must merely make a
"reasonable estimate of loss . . . based on available information."
U.S.S.G. § 2B1.1 cmt. n.3(C). See United States v. Carrington, 96
F.3d 1, 6 (1st Cir. 1996) ("Loss need not be determined with
precision, and in fact may be inferred from any reasonably reliable
information.").
In fact, the district court considered the available
information in conducting a hearing that included submissions from
Stoupis and the government, and arrived at just such a "reasonable
estimate." The court began with an estimate of the retail value of
the stolen equipment, if new and purchased at full price: over $10
million. Next, the court reduced that amount to account for the

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portion of the stolen equipment that was refurbished. This was
done on the basis of information from the Walker Declaration
reflecting the portion of refurbished products contained within the
stolen shipments, and the discounts available on refurbished
products. These calculations reduced the estimated loss to $8.1
million. Finally, the court further reduced the amount of loss to
$4.7 million, to account for the discount pricing Cisco granted its
largest customers (also on the basis of the Walker Declaration).
The court's approach to loss calculation -- measuring
fair market value through a price reflecting the market out of
which the goods were stolen -- is perfectly consistent with our
precedent. See United States v. Coviello, 225 F.3d 54, 62-63 (1st
Cir. 2000) (where discount computer products outlet stole software
CDs from manufacturer, wholesale price of CDs is appropriate to use
as fair market value); see also Carrington, 96 F.3d at 6 (for cars
fraudulently obtained from car dealers, fair market value
calculation based on retail price of cars was reasonable). Here,
where the court valued the stolen equipment using the prices
Cisco's largest customers would have paid for it, $4.7 million is
a reasonable estimate.
Moreover, each of the three methods Stoupis advocates
suffer from their own flaws. The first two methods suggest that
fair market value should have been calculated with reference to a

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At sentencing, Stoupis argued that loss should have been 8
calculated as Cisco's "replacement cost" for the stolen equipment,
measured through Stoupis's eBay profits. On appeal Stoupis did not
use the term "replacement cost," and we do not address that concept
here. See Zannino, 895 F.2d at 17.
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different market. Where a victim-seller does not operate in a 8
particular market, it is not appropriate to value products based on
a market in which the victim-seller does not compete. See United
States v. Warshawsky, 20 F.3d 204, 213 (6th Cir. 1994) (where auto
parts stolen from GM assembly plant and sold to wholesale dealers,
and GM operated entirely in wholesale market, wholesale and not
retail price was appropriate for valuing loss caused by theft
because "retail market has literally no connection to this case.")
Here, Cisco neither sells equipment specifically as "product
replacement," nor does it sell equipment without support services.
Thus, reference to either of these two markets would be
inappropriate.
The third method Stoupis advocates, that the district
court should have measured loss through his profits from selling
these goods on eBay, is even more flawed. The Guidelines state
that a court may use the defendant's gain "as an alternative
measure of loss only if there is a loss but it reasonably cannot be
determined." U.S.S.G. § 2B1.1 cmt. n.3(B) (emphasis added). Where
there is evidence of the value of the products in the market within
which the victim operated, the Guidelines and our precedent are
united against using an alternative measure like defendant's

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We also note that in estimating the price of the stolen equipment, 9
the district court generously gave Stoupis the benefit of the
largest possible large customer discount. See Coviello, 225 F.3d
at 62-63 (without any evidence that stolen products had been
intended for below-wholesale sales, use of full-wholesale price to
calculate loss was appropriate where the victim-seller "would have
had the option to dispose of [the property] at the higher rather
than the lower price." (citing United States v. Colletti, 984 F.2d
1339, 1345 (3d Cir. 1992))).
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profits. See Coviello, 225 F.3d at 64 (where stolen good has a
market value, no reason to abandon market value in favor of
measuring gain to victim). Stoupis does not even make an argument
that the loss "reasonably cannot be determined" and the district
court should have used his profits as an estimate. See, e.g.,
United States v. Gottfried, 58 F.3d 648, 651 (D.C. Cir. 1995)
(where lost products were government documents and market value
could not be determined, a different method to estimate loss must
be used). He instead argues that the $515,000 figure is the actual
market value of the goods. As we have just stated, where a seller
does not participate in a market -- here, directly retailing
equipment on eBay -- that market is not relevant for estimating the
fair market value of the loss.9
Stoupis has failed to make a showing that the district
court clearly erred in calculating the loss he caused for purposes
of the Guidelines, and thus we affirm his sentence.

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