## Facts

- James A. Chalupnik, a janitorial supervisor at the Fargo, North Dakota post office, oversaw disabled workers performing janitorial services.
- BMG Columbia House (BMG) sold CDs and DVDs by mail and arranged with USPS to gather and discard undeliverable discs because replacement was cheaper than return and restocking.
- Starting in 2001, Chalupnik removed undeliverable discs from the post office trash and sold them to used record stores in Minnesota and South Dakota.
- After a USPS investigation, surveillance in 2006 showed Chalupnik concealing discs; investigators found 3,580 CDs and 125 DVDs in his possession.
- Store records showed payments to Chalupnik totaling $78,818 for several thousand discs.
- Chalupnik pleaded guilty to misdemeanor copyright infringement (17 U.S.C. § 506(a); 18 U.S.C. § 2319(b)(3)).
- The district court sentenced Chalupnik to probation and ordered $78,818 in restitution to BMG, using Chalupnik’s documented sales proceeds as the measure of loss.
- Chalupnik appealed only the restitution order.

## Issues

1. Whether restitution may be based on the defendant’s gross proceeds when the government has not proved the victim’s actual, proximately caused loss.
2. Whether the government met its burden to prove, by a preponderance of the evidence, the amount of loss to BMG caused by Chalupnik’s offense.

## Decision

- The Eighth Circuit vacated the restitution award and remanded for resentencing as to restitution.
- The court held the government failed to prove the amount of loss to BMG proximately caused by the offense.
- The district court erred by equating Chalupnik’s gross receipts with BMG’s compensable loss without evidentiary support.
- The court found the government’s market-substitution and lost-royalty theories too speculative on this record, particularly because the discs had been designated for disposal.

## Legal Principles

- Restitution under federal restitution statutes is compensatory and limited to a victim’s actual loss.
- The government must prove the amount of loss by a preponderance of the evidence and must show proximate causation between the offense and the claimed loss.
- A court may not substitute the defendant’s gain for the victim’s loss absent evidence showing the victim’s loss equals that gain.
- General assertions that resale in a secondary market displaced sales in a primary market are insufficient to quantify loss without supporting evidence.

## Conclusion

The court vacated the restitution order because the government proved only Chalupnik’s resale proceeds, not BMG’s actual, proximately caused loss, and remanded for a restitution determination tied to proven loss rather than the defendant’s gain.


United States v. Chalupnik, 514 F.3d 748 (8th Cir. 2008)