The opinion of the court was delivered by: Hurley, Senior District Judge
The defendant Rodney Arnoldo Morrison ("defendant" or "Morrison") stands convicted of conspiracy under the Racketeer Influenced and Corrupt Organizations Act ("RICO") pursuant to 18 U.S.C. § 1962(d) as charged in Count Two of the second superseding indictment ("indictment"). More specifically, the jury found that he conspired to conduct the affairs of the Peace Pipe Smoke Shop (the "Enterprise" or "Peace Pipe")*fn1 through a pattern of racketeering via the sale of contraband cigarettes in violation of 18 U.S.C. § 2342(a).*fn2
The government now seeks forfeiture in the form of a personal "money judgment . . . against the defendant" under Count Two "in accordance with 18 U.S.C. §§ 1963(a)(1) and (a)(3)('RICO forfeiture')." (Gov't's Mar. 6, 2009 Mem. of Law Regarding Certain Forfeiture Issues ("Gov't's Mar. 6, 2009 Mem.") at 1.) As a result, the Court is required to "determine the amount of money that the defendant will be ordered to pay." Fed. R. Crim. P. 32.2(b)(1). That determination is the subject of this opinion.
Familiarity with the facts and procedural background of this case is presumed. Thus, the Court states only those facts necessary for disposition of the instant matter. The Peace Pipe is a retail and wholesale marketer of untaxed cigarettes operating on the Poospatuck Indian Reservation located in Mastic, Suffolk County, New York. Although the business is owned by defendant's spouse Charolette Morrison (Gov't's Ex. 238 ¶¶ 4, 5; see also Gov't's Ex. 159b),*fn3 it has been operated and otherwise solely controlled by the defendant during the relevant time period.
The racketeering acts underlying Morrison's RICO conspiracy conviction entail the knowing and intentional sale of "contraband cigarettes . . . lacking valid New York State tax stamps, in violation of Title 18, United States Code, Sections 2342(a) and 2" from January 8, 1997 to August 2, 2004. (Indictment ¶ 21.) 18 U.S.C. § 2342(a) is part of the Contraband Cigarettes Trafficking Act ("CCTA"), 18 U.S.C. §§ 2341 et seq., and provides:
It shall be unlawful for any person knowingly to ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes or contraband smokeless tobacco.
18 U.S.C. § 2342(a). Contraband cigarettes are defined in § 2341 as follows: a quantity in excess of 60,000[*fn4 ] cigarettes, which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp, impression, or other indication to be placed on packages or other containers of cigarettes to evidence payment of cigarette taxes, and which are in the possession of any person other than [setting forth exempted persons]
Article 20 of the New York State Tax Law imposes "a tax on all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose such tax" or on certain sales to the United States. N.Y. Tax Law § 471(1). Federal law forbids the collection of these taxes on cigarettes sold on Native American reservations to enrolled tribal members for their personal consumption. See Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S. 463 (1976). However, when cigarettes are sold on the reservation to non-Native Americans, the taxes may be collected. See Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980).
In sum, a sale of unstamped cigarettes (with the exception of on-reservation sales to a Native American for his or her own consumption*fn5 and other exceptions not presently relevant), is violative of New York Tax Law § 471(1) and, to the extent such a sale exceeds 60,000 cigarettes, it violates § 2342(a). Conversely, a sale of unstamped cigarettes in a lesser amount is not a matter of federal concern in the sense it does not run afoul of federal law.
The government seeks "a money judgment from the Defendant for the gross proceeds of the RICO enterprise, or approximately $172,000,000." (Gov't's Mar. 13, 2009 Letter Br. at 1; see also Gov't's June 8, 2009 Supplemental Mem. of Law Regarding Certain Forfeiture Issues ("Gov't's June 8, 2009 Suppl. Mem.") at 7 and Gov't's June 15, 2009 Reply Mem. of Law Regarding Certain Forfeiture Issues ("Gov't's June 15, 2009 Reply Mem.") at 9.) This sum represents the "total amount of the gross sales of the enterprise for [the period from January 1, 2000 through August 4, 2004]"*fn6 as evidenced by government's exhibit 228. (Gov't's June 8, 2009 Suppl. Mem. at 3.)
While steadfastly adhering to the position that $172,000,000 represents the appropriate number for forfeiture purposes, the government also presented information at the forfeiture hearing pertaining to an alternate theory of recovery. That alternate theory is based, not on the total cigarette sales for the relevant period, but on the CCTA sales which the government estimates to be $33,503,139.86. (See Gov't's Ex. 231.)*fn7 The 33 million plus figure is the result of the government reviewing the Peace Pipe sales records for 6 of the 40 customers who purchased over $100,000 of unstamped cigarettes from the Enterprise during the previously referenced period, and determining the percentage of their total purchases which constituted CCTA purchases, i.e. purchases in excess of 60,000 cigarettes at a time. That percentage is approximately 66.99%. (See May 28, 2009 Tr. at 49 and Gov't's Ex. 231.) The percentage was then applied by the government to the other 34 entities which spent in excess of $100,000 as well as to other big customers which fell within the following categories: "$10,000-$25,000," "$25,000-$50,000," and "$50,000-$100,000." (Gov't's Ex. 231.) Based on that process, the government estimates the total CCTA sales to be $33,503,139.86.
As explained infra, defendant maintains that after the gross amount subject to forfeiture is determined, the cost of goods sold must be deducted.*fn8 In response, the government contends, in categorizing what it incorrectly perceives to be the defendant's argument, that "even if net profits were the appropriate measure,*fn9 which it is not, the Defendant, not the Government, bears the burden of proving costs" which burden he has not met. (Gov't's June 15, 2009 Reply Mem. at 8.)
Defendant maintains that any sum subject to forfeiture must be related to a CCTA violation and, therefore, the government's principal argument calling for the forfeiture of all of the sales proceeds arising from Peace Pipe's marketing of unstamped cigarettes, whether constituting CCTA violations or otherwise, necessarily suffers from overbreadth.
As to the government's fall-back position, defendant contends:
The government's estimate that CCTA sales totaled $33,503,139.86 is grossly inaccurate, for two principal reasons. First, Agent Wanderer's[*fn10 ] average figure of 66.99% was calculated without regard to the 0% figure for Tin Tin - even though Agent Wanderer testified, inaccurately, that "by including him in there, he actually pulled the rest of the percentages down" (Tr. 53 ["Tr." references are to the May 28, 2009 transcript unless otherwise noted]). Had the government in fact included Tin Tin in the averaging process - and there was no reason to not do so - then Agent Wanderer's inaccurate 66.99% figure is reduced to 55.67%.
The government's percentage estimate is inaccurate for the additional reason that it assumes that the purchases of the smallest purchasers were as likely to be in CCTA quantities as purchases of the largest purchasers. Not only is this counter-intuitive, but also Agent Wanderer's own Exhibit 231 suggests otherwise. Taken from Exhibit 231, the six "large customers" analyzed by Agent Wanderer had the following Total Purchases, CCTA Purchases and resulting "CCTA purchases as a % to total purchases," in descending order of total purchases:
CustomerTotal PurchasesCCTA Purchases% CCTA
The numbers in the table reflect a clear downward trend in the ratio of CCTA purchases to total purchases as the total purchases by customer decreases, and logically this trend would continue, or even accelerate, as other customers, with even smaller total purchases, are considered; after all, the largest customers would likely make a larger percentage of large wholesale purchases (as in fact is reflected in the table). Yet rather than attempting to factor this trend into its calculations the government simply assumes the same (inaccurate) percentage of CCTA purchases was made by the smallest of the "big" customers (i.e. those 2,113 customers each spending a total of $10,000-25,000 [see Exhibit 232]) as those 40 customers each spending in excess of $100,000 (see Exhibit 232). (Def.'s June 8, 2009 Letter Br. at 2-3 (footnote omitted).)
Defendant opines that the total amount of CCTA sales should be determined by focusing solely on purchases made by those big customers who spent $100,000 or more. Purchases by that group totaled $9,136,092.53. (Gov't's Ex. 232.) That sum multiplied by defendant's 55.67% produces a CCTA revenue figure of $5,086,092. From that, the argument continues, the cost of goods sold - which defendant estimates to be approximately 85% - should be deducted, ...