throbber
Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 1
`FILED
`United States Court of Appeals
`Tenth Circuit
`
`July 2, 2024
`
`Christopher M. Wolpert
`Clerk of Court
`
`PUBLISH
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE TENTH CIRCUIT
`_________________________________
`
`UNITED STATES OF AMERICA,
`
` Plaintiff - Appellee,
`
`v.
`
`MEGAN HESS,
`
` Defendant - Appellant.
`
`–––––––––––––––––––––––––––––––
`
`UNITED STATES OF AMERICA,
`
` Plaintiff - Appellee,
`
`v.
`
`SHIRLEY KOCH,
`
` Defendant - Appellant.
`_________________________________
`
`
`
`
`
`Nos. 23-1008 & 23-1069
`
`
`
`
`
`
`
`
`
`
`
`Nos. 23-1009 & 23-1078
`
`
`Appeals from the United States District Court
`for the District of Colorado
`(D.C. Nos. 1:20-CR-00098-CMA-GPG-1 &
`1:20-CR-00098-CMA-GPG-2)
`_________________________________
`
`Jacob Rasch-Chabot (Virginia L. Grady, with him on the brief) of Office of the
`Federal Public Defender, Denver, Colorado, for Defendant-Appellant in 23-
`1008 and 23-1069.
`
`Elizabeth S. Ford Milani (Cole Finegan, with her on the brief) of United States
`Attorney’s Office, Denver, Colorado, for Plaintiff-Appellee in 23-1008 and 23-
`1069.
`
`
`
`

`

`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 2
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`Submitted on the briefs:*
`
`K. L. Penix of Alderman Law Firm, Fort Collins, Colorado, for Defendant-
`Appellant in 23-1009 and 23-1078.
`
`Elizabeth S. Ford Milani (Cole Finegan, with her on the brief) of United States
`Attorney’s Office, Denver, Colorado, for Plaintiff-Appellee in 23-1009 and 23-
`1078.
`
`_________________________________
`
`Before PHILLIPS, SEYMOUR, and MURPHY, Circuit Judges.
`_________________________________
`
`PHILLIPS, Circuit Judge.
`_________________________________
`
`Funeral-home owner and operator Megan Hess and her employee-mother,
`
`Shirley Koch, pleaded guilty to mail fraud for fraudulently obtaining, selling,
`
`and shipping dead bodies and body parts to medical research, plastination, and
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`body-broker companies. Despite the Defendants’ reaching plea agreements with
`
`the government that recommended guideline calculations and associated
`
`sentencing ranges under the United States Sentencing Guidelines, the district
`
`court applied additional enhancements and after doing so varied upward to the
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`statutory maximum of 20 years for Hess and to 180 months for Koch.
`
`Hess and Koch argue that the district court erred as a matter of law in its
`
`loss calculations, and Koch argues that the court incorrectly enhanced her
`
`
`* After examining the briefs and appellate record, this panel has
`determined unanimously to honor the parties’ request for a decision on the
`briefs without oral argument in 23-1009 and 23-1078. See Fed. R. App. P.
`34(a)(2); 10th Cir. R. 34.1(G). Those cases are therefore ordered submitted
`without oral argument.
`
`
`
`
`2
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`

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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 3
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`sentence based on the court’s finding that the offense involved a large number
`
`of vulnerable victims and that Koch committed the offense using sophisticated
`
`means. Hess also asks that we reassign her case to a different judge on remand.
`
`Because we agree with some of their arguments, we vacate their sentences and
`
`remand for further proceedings in accordance with this opinion.
`
`BACKGROUND
`
`I.
`
`Factual Background
`
`In 2009, Hess established a nonprofit organization, Sunset Mesa Funeral
`
`Foundation, Inc. (doing business as “Donor Services”), purportedly to “provide
`
`assistance to community members who have no resources for funeral/cremation
`
`services.” H. App. vol. I, at 155. According to the stipulated facts in both
`
`Defendants’ plea agreements, the primary purpose of Donor Services was to
`
`“harvest human remains—such as heads, torsos, arms, legs, and entire human
`
`bodies—and market them for sale to customers who used the remains for
`
`scientific, medical, or educational purposes.” Id.; see K. App. vol. I, at 30–31.
`
`Hess also operated a funeral business at the same location, Sunset Mesa Funeral
`
`Directors (Sunset Mesa), which she purchased on behalf of Donor Services in
`
`2011. As part of her funeral-home business, Hess would “frequently meet with
`
`victims seeking cremation services for themselves or their loved ones who had
`
`died” and often mislead those customers that “[Sunset Mesa] would cremate
`
`decedents and provide their cremated remains . . . back to the families.” H.
`
`App. vol. I, at 156.
`
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 4
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`With her mother’s help, Hess would “harvest body parts from, or prepare
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`the entire bodies of, the decedents for sale in body broker services.” Id. Koch
`
`was also “involved in meeting with families to discuss the disposition of
`
`deceased individuals, and processing and preparing bodies for body broker
`
`services.” K. App. vol. I, at 31.
`
`Sometimes customers would agree to donate partial or full remains for a
`
`reduced price on mortuary services, but this agreement was often obtained by
`
`“materially false representations.” H. App. vol. I, at 157. Hess, and sometimes
`
`Koch, “misled [some victims] to believe that only small samples, such as
`
`tumors or portions of skin, [or only specified body parts or organs] would be
`
`taken for testing or research.” Id. Other times, they falsely stated that the
`
`donated remains, including organs, would be used to treat living persons.
`
`Despite the limited nature of victims’ consent in these cases, Hess and Koch
`
`“[f]requently . . . exceeded the authorization they obtained.” Id.; see K. App.
`
`vol. I, at 33. Indeed, “[b]ody parts beyond those which were authorized, if not
`
`entire bodies, would be sold typically for purposes not even contemplated or
`
`agreed to by the victims.” H. App. vol. I, at 157. If decedents or their next of
`
`kin1 agreed to donation, Sunset Mesa would “give a discount” on the funeral-
`
`services costs. H. App. vol. V, at 20.
`
`
`1 We use the terms “next of kin” and “next-of-kin victims” because these
`are the terms the parties use to refer to customers who purchased funeral or
`cremation services on behalf of someone else.
`
`
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 5
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`Often, Hess and Koch “neither discussed nor obtained authorization for
`
`donation of decedents’ bodies or body parts for body broker services.” H. App.
`
`vol. I, at 23; K. App. vol. I, at 32. Other times, Hess and Koch raised the
`
`subject, but the next-of-kin customers declined to donate even for the offered
`
`discount. Even so, Hess and Koch would still dismember and sell those bodies.
`
`Over an eight-year span, they took the body parts or whole bodies of “hundreds
`
`of decedents.” H. App. vol. I, at 23.
`
`Hess developed donor authorization forms that were “purportedly . . .
`
`signed by victims when donation was authorized.” Id. at 157. As part of their
`
`investigation, FBI agents examined Donor Services files showing that the
`
`bodies or body parts of 811 individuals were sold. Only 447 of these files
`
`contained donor authorization forms, of which “at least 187 were determined to
`
`be forgeries.” Id. at 157–58. The FBI confirmed through interviews with next-
`
`of-kin victims that of the 811 individuals “at least 222 [deceased] victims were
`
`[confirmed] stolen” and an “additional 338 [deceased] victims . . . were almost
`
`certainly stolen.”2 Id. at 158. Many of those 338 decedents came from other
`
`funeral homes, with whom Sunset Mesa had subcontracted to provide cremation
`
`services. FBI interviews with those funeral homes “confirmed that donation
`
`was neither discussed with the victims nor authorized by the contracting funeral
`
`
`2 As we understand it, the government uses “stolen” to mean that body
`parts or bodies were sold without authorization.
`
`
`
`
`5
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 6
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`homes.” Id. So the bodies and body parts of 560 decedents were almost
`
`certainly obtained and sold by fraudulent means. Of the 811 individuals sold,
`
`only 42 individuals “were procured . . . through informed consent.” Id. For the
`
`remaining 209 victims, FBI agents were unable to determine whether informed
`
`consent was obtained.
`
`Through Donor Services, Hess advertised to purchasers that the available
`
`human remains had been “legitimately and freely donated for body broker
`
`services when this was often not the case.” Id. at 157. The medical-research
`
`organizations, plastination companies, and body-broker services (collectively,
`
`“body-parts purchasers”) that purchased remains from Donor Services “relied
`
`on the defendant’s representations that the remains were legitimately donated.”
`
`Id. at 158. Many of the body-parts purchasers required that the remains be
`
`disease-free, but in “dozens of instances,” Hess sold and shipped diseased parts
`
`despite having received positive test results for HIV and Hepatitis and forging
`
`negative test results. Id. at 159. But the government did not offer evidence that
`
`anyone contracted diseases from infected bodies and no reports were filed
`
`indicating that any health issues resulted.
`
`Because of Donor Services’ income, Sunset Mesa could offer cremations
`
`that were the “least expensive option in the area,” which “ensure[d] a constant
`
`supply of bodies.” Id. at 166. In many instances, families were given cremation
`
`remains (cremains) “that were represented as that of their loved ones when that
`
`was not true.” Id. Instead, those cremains were either replaced or mixed with
`6
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 7
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`the remains of others. Despite this, next of kin were still typically charged
`
`$1,000 or more “for cremations that never occurred and funeral services that
`
`they would not have agreed to had they been informed of the truth.” Id.
`
`In October 2017, the FBI began investigating Sunset Mesa. The FBI
`
`executed a search warrant of the premises, generated publicity about the case to
`
`find potential victims, interviewed Sunset Mesa employees, and contacted
`
`families whose contact information the agents acquired from customer files.
`
`II.
`
`Procedural Background
`A.
`The Indictment and Plea Agreements
`
`In March 2020, a grand jury indicted Hess and Koch on six counts of
`
`mail fraud in violation of 18 U.S.C. §§ 1341 and 2, and on three counts of
`
`transporting hazardous material in violation of 49 U.S.C. § 46312 and
`
`associated federal regulations.
`
`1.
`Hess’s Plea Agreement
`Hess pleaded guilty to one count of mail fraud for shipping the
`
`fraudulently obtained remains of twelve bodies, one of which was infected with
`
`Hepatitis C. In exchange, the government dismissed the remaining counts. As
`
`part of her plea agreement, Hess agreed to a base offense level of 7 under
`
`U.S.S.G. § 2B1.1(a)(1), a 2-level increase because the offense involved ten or
`
`more victims under § 2B1.1(b)(2)(A)(i), and a 3-level decrease based on
`
`acceptance of responsibility under § 3E1.1(a), (b).
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 8
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`As unstipulated terms, the government stated its intent to seek a 14-level
`
`increase under § 2B1.1(b)(1)(H), applicable if the loss exceeded $550,000. The
`
`government also stated its intent to seek a 2-level increase under
`
`§ 2B1.1(b)(9)(A), based on Hess’s misrepresentations that she was acting on
`
`behalf of a charitable or educational organization; a 2-level increase under
`
`§ 2B1.1(b)(10)(C), based on the offense involving sophisticated means; a 2-
`
`level increase under § 2B1.1(b)(16), because the conduct involved a conscious
`
`or reckless risk of death or serious bodily injury; a 4-level increase under
`
`§ 3A1.1(b)(1)–(2), because the offense involved a large number of vulnerable
`
`victims; a 2-level increase under § 3B1.1(c), because Hess was an organizer,
`
`leader, manager, or supervisor of the criminal activity; and a 2-level increase
`
`under § 3B1.3, based on Hess’s abuse of a position of trust. After a 3-level
`
`decrease for acceptance of responsibility, the government estimated a total
`
`offense level of 34 and a criminal-history category of I.
`
`2.
`Koch’s Plea Agreement
`Koch pleaded guilty to a different count of mail fraud for shipping the
`
`fraudulently obtained remains of nine victims, one infected with Hepatitis C.
`
`The government dismissed the remaining counts and agreed to recommend a
`
`sentence within the advisory guideline range, for a total offense level of 26 and
`
`a criminal-history category of I. Supporting the agreed total offense level of 26,
`
`the plea agreement listed a base offense level of 7; a 12-level increase under
`
`§ 2B1.1(b)(1)(G), because the loss exceeded $250,000 but was less than
`
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 9
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`$550,000; a 2-level increase under § 2B1.1(b)(2)(A)(i), because the offense
`
`involved ten or more victims; a 2-level increase under § 2B1.1(b)(9)(A),
`
`because Koch misrepresented that she was acting on behalf of a charitable
`
`organization; a 2-level increase under § 2B1.1(b)(16)(A), because the offense
`
`involved a conscious or reckless risk of death or serious bodily injury; a 2-level
`
`increase under § 3A1.1(b)(1), because Koch knew or should have known that
`
`the offense involved vulnerable victims; and a 2-level increase under § 3B1.3,
`
`because Koch abused a position of trust. The plea agreement provided for a 3-
`
`level reduction for acceptance of responsibility under § 3E1.1(a), (b).
`
`The government agreed to recommend a sentence within the resulting
`
`advisory guideline range of 63 to 78 months. Koch maintained her right to
`
`appeal if her sentence “exceed[ed] the top end of the advisory guideline range
`
`from the Sentencing Guidelines that applies for the defendant’s criminal history
`
`. . . at a total offense level of 26.” K. App. vol. I, at 25.
`
`B.
`
`The Presentence Reports (PSRs)
`1.
`Hess’s PSR
`In its PSR for Hess, the probation officer recommended all the
`
`government’s requested sentencing enhancements, resulting in a total offense
`
`level of 34, a criminal-history category of I, and an advisory guideline range of
`
`151 to 188 months. The PSR attributed $1,254,293.90 of actual loss to Hess.
`
`That figure included the amounts paid by the body-parts purchasers and the
`
`amounts paid by next of kin for cremation and funeral expenses. But the PSR
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 10
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`recommended no restitution payments for the body-parts purchasers, which the
`
`purchasers did not seek. The PSR concluded with a recommendation for an
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`upward variance to the maximum statutory sentence of 240 months.
`
`2.
`Koch’s PSR
`In its PSR for Koch, the probation officer acknowledged that the
`
`government had attributed only $441,779.05 of actual loss to her, representing
`
`the known losses to next-of-kin victims. Rejecting the parties’ agreed-upon
`
`figure, the PSR instead recommended the same 14-level adjustment as it did for
`
`Hess, contending that Hess and Koch were responsible for the same losses
`
`under relevant-conduct rules. Citing § 2B1.1 cmt. n.3(A)(iv), the PSR declared
`
`that the full actual losses—$1,254,293.90—should have been reasonably
`
`foreseeable to Koch. Thus, the PSR recommended a 14-level enhancement
`
`under § 2B1.1(b)(1)(H) for losses exceeding $550,000.
`
`The PSR also recommended more enhancements not sought by the
`
`government: two offense levels under the sophisticated-means enhancement
`
`under § 2B1.1(b)(10)(C); and two levels under the large-number-of-vulnerable-
`
`victims adjustment under § 3A1.1(b)(2). All told, the PSR recommended a total
`
`offense level of 32 and a criminal-history category of I, setting an advisory
`
`guideline range of 121 to 151 months. But as it did for Hess, the PSR
`
`recommended an upward variance for Koch, but to a sentence of 180 months.
`
`As justification, the PSR observed:
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 11
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`[Koch] was aware of what Hess was doing and was a willing
`participant in the crimes for many years. [Koch] met with families
`and made false representations for the sole purpose of securing their
`business and without any regard for the emotional turmoil related to
`their grieving. She bragged to a former employee and friend about a
`trip to Disneyland that was funded from selling gold teeth extracted
`from a decedent.
`
`K. App. vol. III, at 37.
`
`Hess and Koch each filed extensive written objections to their
`
`respective PSR’s recommendations.
`
`C.
`
`The Sentencing Hearing
`
`On January 3, 2023, the district court held a sentencing hearing for both
`
`Hess and Koch. The government called an FBI agent as a witness and furnished
`
`the court with victim-impact statements, reading some excerpts into the record.
`
`The defense called a paralegal in support of its claim for credits against loss.
`
`After considering this evidence, the district court overruled the Defendants’
`
`PSR objections. It then heard statements from various next-of-kin victims and
`
`held a moment of silence “to honor all of the deceased victims and their
`
`families.” H. App. vol. V, at 190. It considered the § 3553 factors, varied
`
`upward for both Defendants, and sentenced Hess to the statutory maximum of
`
`240 months and Koch to 180 months. In March 2023, the court held a
`
`restitution hearing. Ultimately, it ordered restitution of $419,398.47, for which
`
`Hess and Koch would be jointly and severally liable.
`
`
`
`11
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 12
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`DISCUSSION
`
`We review a district court’s sentence for an abuse of discretion. United
`
`States v. Conley, 89 F.4th 815, 819 (10th Cir. 2023). But when reviewing a
`
`district court’s application of the Sentencing Guidelines, “we review legal
`
`questions de novo and . . . factual findings for clear error.” Id. (quoting United
`
`States v. Maldonado-Passage, 4 F.4th 1097, 1103 (10th Cir. 2021)). The same
`
`standard applies to our review of loss calculations: If the petitioner raises a
`
`legal challenge to a loss calculation, then we review a district court’s decision
`
`de novo. United States v. Evans, 744 F.3d 1192, 1196 (10th Cir. 2014). For
`
`factual challenges to loss calculations, we review for clear error. Conley, 89
`
`F.4th at 819.
`
`Between them, the Defendants argue (1) that the district court erred in its
`
`loss calculations; (2) that the district court erred in applying the large-number-
`
`of-vulnerable-victims enhancement; (3) that the district court erred by applying
`
`the sophisticated-means enhancement; (4) that these procedural errors were not
`
`harmless; and (5) that we should reassign the case to a different judge for
`
`resentencing.3
`
`Exercising jurisdiction under 18 U.S.C. § 3742(a) and 28 U.S.C. § 1291,
`
`we grant the Defendants’ request to vacate their sentences and remand for
`
`
`3 Koch also challenges the substantive reasonableness of her sentence.
`But because we agree that her sentence was procedurally unreasonable, we do
`not reach her substantive-reasonableness arguments in this appeal.
`
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 13
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`further proceedings consistent with this opinion. But we deny Hess’s request to
`
`reassign her case to a different judge.
`
`I.
`
`The district court erred in calculating loss.
`
`Sentencing guideline § 2B1.1(b)(1) sets base-offense levels for fraud
`
`convictions. Relevant here, “actual loss” is defined as the “reasonably
`
`foreseeable pecuniary harm that resulted from the offense.” § 2B1.1 cmt.
`
`n.3(A)(i).4 And “[p]ecuniary harm” is “harm that is monetary or that otherwise
`
`is readily measurable in money,” which excludes “emotional distress, harm to
`
`reputation, or other non-economic harm.” § 2B1.1 cmt. n.3(A)(iii). Against
`
`actual loss, the sentencing court must credit “the fair market value of the
`
`property returned and the services rendered, by the defendant or other persons
`
`acting jointly with the defendant, to the victim before the offense was
`
`detected.” § 2B1.1 cmt. n.3(E)(i). So “loss equals loss (or intended loss) minus
`
`credits against loss.” United States v. Crowe, 735 F.3d 1229, 1237 (10th Cir.
`
`2013). Under § 2B1.1(b)(1), when the loss involved in the offense exceeds
`
`$250,000, then a 12-level increase applies, but if the loss exceeds $550,000,
`
`then a 14-level increase applies. § 2B1.1(b)(1)(G)–(H).
`
`
`4 “Commentary governs unless it runs afoul of the Constitution or a
`federal statute or is plainly erroneous or inconsistent with the guideline
`provision it interprets.” United States v. Maloid, 71 F.4th 795, 805 (10th Cir.
`2023) (cleaned up), cert. denied, 144 S. Ct. 1035 (2024).
`
`
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`Hess argues that the district court miscalculated loss in two ways: by
`
`including as loss the amounts paid to Hess by the body-parts purchasers, and by
`
`categorically refusing to credit against loss the value of the legitimate goods
`
`and services the next-of-kin victims received at the time of the fraud. Koch
`
`argues that the district court incorrectly attributed the same loss to her as it did
`
`to Hess.
`
`For the following reasons, we conclude (1) that the district court erred by
`
`including in the actual-loss total the amounts the body-parts purchasers paid
`
`Hess, (2) that the district court erred by categorically refusing to offset the
`
`value of goods and services the next of kin received at the time of the fraud,
`
`but (3) that the district court correctly attributed the same loss to Koch as it did
`
`to Hess.
`
`A.
`
`The body-parts purchasers did not suffer pecuniary loss.
`
`Hess challenges the district court’s determination that the body-parts
`
`purchasers suffered loss equal to the money that the body-parts purchasers paid
`
`her.5 The government bears the initial burden of proving that the body-parts
`
`purchasers suffered a “harm that is monetary or that otherwise is readily
`
`measurable in money.” § 2B1.1 cmt. n.3(A)(iii); see United States v. Sutton,
`
`
`5 Hess concedes that one purchaser, Innoved, suffered an actual loss of
`$13,575, because the FBI seized those body parts as evidence. The discussion
`of the purchasers’ pecuniary loss that follows here therefore excludes Innoved’s
`documented loss.
`
`
`
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 15
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`520 F.3d 1259, 1262 (10th Cir. 2008) (“[T]he government has the burden of
`
`proving loss by a preponderance of the evidence.”). In the proceedings below,
`
`the government estimated actual loss to the body-parts purchasers at
`
`$527,145.70, which it calculated based on invoices and bank records showing
`
`what the body-parts purchasers had paid Hess. It used an average amount per
`
`decedent to estimate transactions for which it could not find documentation.
`
`The government claimed that this was a conservative figure because “bank
`
`records show[ed] th[at Hess] received over $1.2 million for remains sold
`
`through Donor Services.” H. App. vol. I, at 166. The government reasoned that
`
`the total sales by Hess ($527,145.70) equaled actual loss to the body-parts
`
`purchasers because they “would not have purchased the remains had they
`
`known the remains were not, in fact, donated and instead were stolen,” and
`
`because “some of these body parts . . . contain[ed] infectious diseases.” H.
`
`App. vol. I, at 402. The government argued that the purchasers “relied on
`
`[Hess’s] representations that the remains were legitimately donated.” Id.
`
`Yet the PSRs for both Defendants found that no restitution was necessary
`
`for the body-parts purchasers because they did not request it and also because
`
`they “profited from the instant offense,” “received a product as negotiated,”
`
`and even “derived an economic benefit from the transaction.” H. App. vol. III,
`
`at 109; K. App. vol. III, at 18; see H. Reply Br. at 5. What’s more, the
`
`government did not object to the PSR’s findings below. Nor did it offer any
`
`evidence of pecuniary harm to the body-parts purchasers, instead just reciting
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`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 16
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`the sales amounts. It called as a witness the FBI agent assigned to investigate
`
`the case, who testified that the body-parts purchasers did not know that the
`
`body parts were stolen and would not have done business with Hess had they
`
`known the truth. But beyond this, the government presented no evidence
`
`showing that the body-parts purchasers suffered any pecuniary harm.
`
`At the sentencing hearing, the district court adopted the government’s
`
`argument that “the money paid to defendant Hess by the medical research
`
`companies was the reasonably foreseeable pecuniary harm resulting directly
`
`from fraud, and therefore constitutes loss for purposes of 2B1.1(b)(1).” H. App.
`
`vol. V, at 74. It also found that the government’s calculation of loss, as set out
`
`in the PSR, was “a reasonable estimate of loss based on available information
`
`and other enumerated factors.” Id.; see Sutton, 520 F.3d at 1263 (“A district
`
`court need only make a reasonable estimate of the loss.” (cleaned up)). The
`
`district court found that the body-parts purchasers “would not have purchased
`
`the remains had they known the remains were not in fact donated, and instead
`
`were stolen.” H. App. vol. V, at 73–74. But with no evidence in the record that
`
`the purchasers suffered pecuniary harm and given the uncontested statements in
`
`the PSR to the contrary, we lack a factual basis on which to defer to the district
`
`court’s estimate of actual loss to the purchasers. See Sutton, 520 F.3d at 1263.
`
`We next turn to the district court’s legal reasoning for this determination,
`
`examining it de novo. See Conley, 89 F.4th at 819. The district court’s
`
`conclusion that actual loss includes the money paid by the body-parts
`16
`
`
`
`

`

`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 17
`
`purchasers runs contrary to a plain reading of the Guidelines. Again, “[a]ctual
`
`loss” is defined as the “reasonably foreseeable pecuniary harm that resulted
`
`from the offense.” § 2B1.1 cmt. n.3(A)(i) (emphasis added). And harm, by
`
`definition, must involve some damage or injury. See Harm, Merriam-Webster
`
`Dictionary, https://www.merriam-webster.com/dictionary/harm#dictionary-
`
`entry-1 (last visited June 4, 2024) (defining “harm” as “physical or mental
`
`damage” and listing “injury” as a synonym for “harm”). “Pecuniary harm” is
`
`“harm that is monetary or that otherwise is readily measurable in money.”
`
`§ 2B1.1 cmt. n.3(A)(iii).
`
`The district court’s legal analysis is faulty. Pecuniary harm is not the
`
`money customers paid to a fraudster that they may not have paid had they
`
`known of the fraud. Instead, pecuniary harm equals the amount that the victim
`
`lost. See United States v. Qazah, 810 F.3d 879, 890 (4th Cir. 2015) (“Loss, by
`
`definition, would require a victim and would represent an amount that is lost or
`
`taken away from the victim.”).6 Aside from the loss suffered by one company,
`
`Innoved—from whom body parts were seized as evidence—the record provides
`
`
`6 The district court’s reliance on United States v. Executive Recycling,
`Inc., 953 F. Supp. 2d 1138 (D. Colo. 2013), is misplaced. The district court
`concluded in Executive Recycling that, absent the defendants’
`misrepresentations, “the Victims would not have contracted with Executive
`Recycling and would not have paid any money to Executive Recycling,” and so
`“the money paid to Defendants by the Victims was the reasonably foreseeable
`pecuniary harm resulting directly from the fraud, and therefore constitutes the
`‘loss’ for purposes of § 2B1.1(b)(1).” Id. at 1149–50. We do not find Executive
`Recycling persuasive and it lacks citation to any legal authority on this point.
`
`
`
`
`17
`
`

`

`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 18
`
`no support for a finding that the body-parts purchasers lost any money or
`
`suffered any financial harm as a result of the Defendants’ fraud.
`
`On appeal, the government defends the district court’s findings that “the
`
`fair market value to the Donor Services buyers was the price they paid to Hess,
`
`thinking they were buying legitimately donated and disease-free human
`
`remains.” H. Resp. Br. at 25. True, the Guidelines advise that an estimation of
`
`loss
`
`shall . . . tak[e] into account, as appropriate and practicable under
`the circumstances, factors such as . . . [t]he fair market value of the
`property unlawfully taken, . . . or, if the fair market value is
`impracticable to determine or inadequately measures the harm, the
`cost to the victim of replacing that property.
`
`§ 2B1.1 cmt. n.3(C)(i). But this guidance is appropriate in calculating loss to
`
`the person from whom something has been taken. See, e.g., United States v.
`
`Wasz, 450 F.3d 720, 724–25, 729 (7th Cir. 2006) (applying the total retail
`
`value—as opposed to the lesser amount of gross profit—of stolen items to
`
`calculate a retailer’s loss); United States v. Williams, 50 F.3d 863, 864 (10th
`
`Cir. 1995) (affirming the district court’s use of retail value of goods where
`
`goods were “stolen from a retail establishment, not from a wholesaler”). Such
`
`is not the case here. Fair market value as a measure of loss is simply not
`
`“appropriate . . . under the[se] circumstances.” § 2B1.1 cmt. n.3(C); see United
`
`States v. Machado, 333 F.3d 1225, 1228 (11th Cir. 2003) (“We are persuaded
`
`by the approach [of other circuits] measuring loss within the factual
`
`circumstances presented, rather than a universal retail market value.”).
`
`
`
`18
`
`

`

`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 19
`
`The government also argues that district courts can use “the gain that
`
`resulted from the offense [as an alternative measure of loss]” if the loss
`
`“reasonably cannot be determined.” H. Resp. Br. at 25 n.4 (quoting § 2B1.1
`
`cmt. n.3(B)). But the district court did not make a finding that the actual loss to
`
`the body-parts purchasers could not be determined. The government cannot
`
`short-circuit the loss calculation by using “the gain that resulted from the
`
`offense” without first attempting to prove actual loss in the first instance.
`
`§ 2B1.1 cmt. n.3(B); see United States v. Galloway, 509 F.3d 1246, 1252 (10th
`
`Cir. 2007) (“The defendant’s gain may be used only as an alternate estimate of
`
`that loss; it may not support an enhancement on its own if there is no actual or
`
`intended loss to the victims.” (cleaned up)).
`
`In sum, the district court erred in its legal conclusion that the body-parts
`
`purchasers suffered a pecuniary harm of $527,145.70 and received nothing of
`
`value because they would not have done business with the Defendants had they
`
`known about the fraud. And because the government did not meet its burden to
`
`show that the purchasers suffered any pecuniary harm, it “is not entitled to a
`
`remand so that it can present additional evidence and seek additional findings
`
`of fact and conclusions of law to support the . . . enhancement when it failed to
`
`offer such evidence and seek those findings and conclusions during the initial
`
`sentencing hearing.” United States v. Canty, 570 F.3d 1251, 1257 (11th Cir.
`
`2009).
`
`
`
`19
`
`

`

`Appellate Case: 23-1008 Document: 010111073757 Date Filed: 07/02/2024 Page: 20
`
`B.
`
`The district court erred by categorically refusing to offset
`actual loss with the value of legitimate goods and services
`provided to the next-of-kin victims.
`
`We turn next to Hess’s argument that the district court erred by
`
`categorically refusing to offset actual loss suffered by the next-of-kin victims
`
`with credits against loss under § 2B1.1 cmt. n.3(E)(i). Though we recognize
`
`that the next-of-kin victims have suffered emotional harms that may be
`
`redressable in another forum, the Sentencing Guidelines direct our focus to
`
`pecuniary harms. § 2B1.1 cmt. n.3(A)(iii).
`
`The Guidelines Commentary instructs that actual “[l]oss shall be reduced
`
`by . . . the fair market value of the property

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