U.S. v. Kononchuk

• Citation: 485 F.3d 199
• Decision Date: 08 May 2007
• Docket Number: No. 06-2484.,06-2484.
• Parties: UNITED STATES of America, Appellant v. Dmitri I. KONONCHUK, also known as, Dmitri Smith.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

485 F.3d 199

UNITED STATES of America, Appellant v. Dmitri I. KONONCHUK, also known as, Dmitri Smith.

No. 06-2484.

United States Court of Appeals, Third Circuit.

Argued January 29, 2007.

Opinion Filed: May 8, 2007.

Mary Beth Buchanan, United States Attorney, Laura S. Irwin, (Argued), Assistant United States Attorney, Pittsburgh, PA, for Appellant.

Robert E. Stewart, (Argued), Stewart, Melograne & Zinski, Pittsburgh, PA, for Appellee.

Before: BARRY and ROTH, Circuit Judges, DEBEVOISE,^* District Judge.

OPINION

ROTH, Circuit Judge.

In this case, the District Court imposed a sentence of probation and home confinement even though the advisory United States Sentencing Guidelines called for incarceration and specifically excluded the option of probation. The government appealed, contending that the sentence was unreasonably low. Because we conclude that the District Court failed to address specific concerns and objections raised by the government at sentencing, we will vacate the sentence and remand for resentencing consistent with this opinion.

I. Background

Dmitri Kononchuk is a permanent resident alien, living in the United States. He ran afoul of the criminal justice system because for three years he sold counterfeit software over the Internet. Born in Kiev, Ukraine, Kononchuk has tried many trades and endeavors. As a young man, he served in the military, obtained both a medical degree in orthopedic surgery and a masters degree in computer science, and engaged in extensive international travel. In 1997, Kononchuk permanently relocated to the United States, settling first in Pittsburgh.

At age 29, Kononchuk, with Maxim Dolgosheev (then a minor, aged 17 years), established a corporation, Inominatus Inc., and, through it, sold counterfeit versions of software for which Microsoft Corporation held the copyright. Initially, Dolgosheev did not know that the software was counterfeit. When he discovered that it was, he explained to Kononchuk that he, Dolgosheev, did not want to be a pirate. Kononchuk convinced Dolgosheev to continue with the scheme. Over a three-year period from June 1998 through July 2001, Kononchuk and Dolgosheev sold at least $265,000 in counterfeit Microsoft software. Thus, Kononchuk and Dolgosheev together are responsible to Microsoft for this loss.¹

Law enforcement officials first questioned Dolgosheev on July 17, 2001. He was cooperative from the start. He was charged by information with four counts: (1) conspiracy to engage in trademark counterfeiting and copyright infringement under 18 U.S.C. § 371; (2) trademark counterfeiting under 18 U.S.C. § 2320(a); and (3-4) two counts of copyright infringement under 17 U.S.C. § 506(a)(1) and 18 U.S.C. § 2319(b)(1). He pled guilty to all four counts and agreed to cooperate against Kononchuk. Dolgosheev substantially assisted the government over a four-year period, including testifying to the grand jury against Kononchuk.

Because of Dolgosheev's cooperation, the government filed for a downward departure pursuant to § 5K1.1 of the 2000 United States Sentencing Guidelines. Additionally although the Guidelines called for incarceration, the government advocated a sentence of probation based on several factors. Dolgosheev was a minor when the criminal activity began and fell under the influence of Kononchuk, an older and more experienced person. He finished at the top of his economics section at Carnegie Mellon University and, although he lost a post-graduate job due to his illegal conduct, he cooperated fully from the beginning of the case. Based on these reasons and the government's recommendation, the District Court sentenced Dolgosheev to five years probation and ordered him to pay $265,000 in restitution to Microsoft, jointly and severally with Kononchuk, at a rate of 20% of Dolgosheev's income.

Events unfolded quite differently for Kononchuk. In the spring of 2001, he moved to South Carolina, where he had obtained a job. Also in 2001, Kononchuk separated from his first wife. Because she would not grant him a divorce, he traveled to Haiti and obtained a divorce there in 2002. In 2003, he married a co-worker, Jane Redden, whose father, Richard Redden, was the retiring CEO of two Fortune 500 companies. This marriage significantly improved Kononchuk's financial situation. Kononchuk earned an annual salary of $50,000, and his wife earned $72,000. In addition, the couple received significant financial support from the Redden family. Kononchuk and his wife live in a home purchased and paid for in full by the Reddens. Richard Redden also has made a number of loans and gifts to Kononchuk and his wife.

On March 1, 2005, a grand jury returned an indictment against Kononchuk, containing the same four counts that were brought against Dolgosheev. Although Kononchuk initially denied his culpability and proved uncooperative, he eventually entered a guilty plea to Count One (conspiracy to engage in trademark counterfeiting and copyright infringement under 18 U.S.C. § 371), acknowledged his responsibility for the conduct charged in the remaining three counts, and agreed to pay mandatory restitution. The parties stipulated $265,000 as the amount of loss for purposes of Guidelines calculation and restitution.

After his guilty plea, Kononchuk faced a statutory maximum of five years of imprisonment, 18 U.S.C. § 371; supervised release for not more than three years, 18 U.S.C. § 3583(b)(2); mandatory restitution, 18 U.S.C. § 3663A; a maximum fine of $250,000, 18 U.S.C. § 3571(b)(3); and a mandatory special assessment of $100, 18 U.S.C. § 3013(a)(2)(A).

The presentence report, using the 2000 version of the Guidelines, applied U.S.S.G. § 2B5.3 to obtain a base offense level of 8, then applied an 8-level increase based on an amount of loss more than $200,000 but less that $350,000, pursuant to § 2F1.1(b)(1)(i). Kononchuk also qualified for a 2-level increase under § 3B1.4 for his use of a minor under age 18 in his commission of the offense. Finally, because Kononchuk waived the indictment and pleaded guilty to an information in a timely manner, he qualified for a 3-level reduction under § 3E1.1. His total offense level was 15. Given his criminal history category of I, Kononchuk's advisory Guidelines range was 18 to 24 months of imprisonment. This range fell within Zone D of the sentencing table, under which the minimum sentence to be served must include imprisonment. Thus, under the provisions of the Guidelines, a probationary sentence was not an option. U.S.S.G. § 5C1.1(f). The Guidelines also advised a fine in the range of $4,000 to $40,000. U.S.S.G. § 5E1.2(c)(3).

Although neither Kononchuk nor the government filed an objection to the presentence report, Kononchuk did submit a sentencing memorandum and a letter from his father-in-law. In these submissions, Kononchuk and Redden described the admirability of Kononchuk's character and his complete rehabilitation from his criminal past. Sentencing took place on March 24, 2006, before the same judge who had sentenced Dolgosheev. At the sentencing hearing, Redden testified that Kononchuk was "a person of very high integrity and honesty." Redden also explained to the court that his own success in business was due in large part to his skill as a judge of character.

Throughout the hearing, the District Court focused on the repayment of restitution. Kononchuk's initial proposal was to pay 25% of his $50,000 annual salary towards restitution, but the District Court made it clear that this plan would be insufficient because it would take approximately twenty years for Microsoft to be repaid in full. Instead, the District Court suggested calling a recess during which Kononchuk could come up with "a plan that people can live with, not [a] some[-]day plan, but a real plan of how that restitution is going to be repaid." The District Court also implied that if, during that recess, Kononchuk could arrive at a satisfactory plan, he would be able to avoid imprisonment. Specifically, the District Court instructed Kononchuk that "I would like to hear not only what we are going to do on a payment plan, but what kind of other penalty, short of imprisonment, would be wise." After hearing from the government, the District Court called a recess.

After the recess, Kononchuk proposed paying restitution of approximately $53,000 a year, a figure which was higher than Kononchuk's annual salary but which would allow him to complete his payments within five years. Kononchuk's counsel speculated that his client would look for higher-paying employment and perhaps take a second job. Counsel indicated that Kononchuk would be obtaining substantial financial assistance from his father-in-law. Counsel also represented that Kononchuk would be amenable to some form of electronic home monitoring.

In reply, the government emphasized the sophistication and deliberateness of Kononchuk's scheme, as well as the need for consistency in punishment between like offenders. It argued that Dolgosheev should not be considered a like offender for sentencing purposes because he had obtained a reduced sentence in recognizance of his cooperation against Kononchuk. The government objected strenuously to what it saw as the District Court's willingness to allow someone to avoid a sentence of imprisonment simply because he had the financial capability to pay restitution, while someone without such a capability would have no such option. The government also pointed out that because of Kononchuk's status as an alien, he potentially could be deported before paying complete restitution. The government argued that, by incarcerating Kononchuk, the court could at least ensure that he had served his sentence before he left the country.

The District Court then sentenced Kononchuk to serve a five-year term of probation, including twelve months of home detention. The District Court waived any fine because it found that Kononchuk lacked the ability to pay. It also ordered...