California Appeals Court Affirms $150,001 Criminal Restitution Award to Record Companies
In People v. Fattah, 2007 WL 1018573 (Cal App. 5 Dist. Apr. 5, 2007), the California Fifth District Court of Appeals upheld an award to the RIAA of $150,001 in restitution for lost profits in a state criminal counterfeiting prosecution. The State charged Fadel Ahmad Abdel Fattah and his wife with selling or possessing for sale counterfeits of a registered mark in violation of California Penal Code Section 350(a)(2) and with failing to disclose the origin of a recording or audiovisual work in violation of Penal Code Section 653w(b)(1). Fattah pled no contest to the counterfeiting count and admitted a $150,000 loss enhancement under a provision of the Penal Code which requires the court to impose an additional sentence of two years in cases in which the loss exceeds $150,000. At the restitution hearing, the Government and Fattah agreed that he had engaged in the business of distributing CDs and cassette tapes to various stores, that law enforcement officers seized 19,700 cassettes and 22,160 CDs from his garage and van, and that investigators for the RIAA examined 13,881 of the
seized CDs and determined that they consisted of either illegal copies or illegal compilations of songs.
The Government sought $179,758 in restitution for lost profits, calculated by multiplying the 13,881 examined CDs by Fattah’s $12.95 selling price per CD. Fatah argued for restitution of $38.85, the $12.95 purchase price multiplied by the three CDs officers actually purchased during their investigation. The sentencing judge required Fattah to pay $150,001 as restitution to the RIAA for lost profits. (The judge also required Fattah to pay $10,230.35 to the RIAA for reimbursement of out-of-pocket investigative and storage costs.)
On appeal, Fatah argued that the trial court abused its discretion by basing its restitution award on potential loss as opposed to actual loss. He asserted that he only caused $38.85 in actual lost profits to the record companies. While he admitted that the police found invoices in his home from CD purchases totaling approximately $120,000, he argued that there was no evidence to show he sold any of them aside from the three CDs bought by law enforcement.
The Court of Appeals noted that it was “tempted to hold appellant's admission to the loss enhancement alone precludes him from now arguing he did not cause an actual loss of $150,001. It is illogical for appellant to admit he caused a loss of at least $150,000 but simultaneously argue it is not an actual loss.” However, it did not rely solely on this reasoning in affirming the restitution order. In addition, it found ample other evidence in the record to support the restitution award; namely that: Fatah was distributing counterfeit CDs on a large scale; he purchased 30,000 CDs within a two-year period at an average cost of $4.01 per CD, far below the average wholesale price for non-counterfeit CDs; and most of his CDs were recent titles from contemporary artists. The appeals court found it irrelevant that the police found no cash or other indicia from which the trial court could extrapolate an amount for lost sales.