United States v. Chalupnik

BMG Columbia House (BMG) was a mail-order seller of CDs and DVDs. In normal operations, many of the discs were undeliverable. Rather than pay for return of the discs, BMG instructed the United States Postal Service to discard undeliverable discs. James Chalupnik (defendant) worked as a janitorial manager at a post office in North Dakota. Between 2001 and 2006, Chalupnik took undeliverable discs from the office’s trash. Chalupnik then sold the discs to second-hand retailers. Chalupnik admitted that his total gain from sale of the discs was $78,818. Although Chalupnik was initially charged with felony mail theft, Chalupnik pled guilty to misdemeanor copyright infringement under 17 U.S.C. § 506(a) and 18 U.S.C. § 2319(b)(3). Chalupnik was sentenced to two years of probation. Both the government and Chalupnik filed sentencing memorandums regarding payment of restitution to BMG. Chalupnik argued that BMG did not hold any of the copyrights he infringed, and therefore BMG was not a victim entitled to restitution under federal law. Chalupnik also argued that BMG did not suffer any losses, because (1) the undeliverable discs were to be discarded, and (2) buyers from secondhand retailers would not have purchased new discs from BMG. The government argued that BMG suffered losses, because (1) BMG competed with secondhand retailers in the larger music market, and (2) each time one of Chalupnik’s discs was sold, the artist lost royalty payments, and BMG lost a potential sale. The government argued, and the district court agreed, that BMG’s losses were best measured by Chalupnik’s gross revenues of $78,818. Chalupnik appealed the restitution award.