A trial judge incorrectly calculated the sentences of a mother and daughter who pleaded guilty to fraudulently obtaining and selling body parts as part of an eight-year scheme, the federal appeals court based in Denver ruled on Tuesday.

Megan Hess operated Sunset Mesa Funeral Directors in Montrose, catering to customers seeking cremation as well as medical-research companies and other entities interested in purchasing body parts. Her mother, Shirley Koch, was an employee.

The two women pleaded guilty to mail fraud in federal court after they sold cadavers and body parts without customers’ consent or by misleading them. The purchasers of the body parts were also misled about the nature of the donations. In all, the deceit encompassed at least 560 cadavers.

At a January 2023 sentencing hearing, U.S. District Court Senior Judge Christine M. Arguello imposed the maximum sentence of 20 years on Hess and a 15-year sentence on Koch. Both women appealed, arguing Arguello made multiple mistakes in calculating the sentences.

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A three-judge panel of the U.S. Court of Appeals for the 10th Circuit agreed with them.

First, Hess argued Arguello incorrectly attributed $527,145 in financial losses to the defendants, representing the value of sales to the medical-research companies and other purchasers. But Hess pointed out the buyers had actually gotten what they asked for, so there was no loss to them.

“To be sure, the parties did stipulate that the medical research companies would not have purchased the remains had they known they were stolen. Of course they wouldn’t have,” wrote public defender Jacob Rasch-Chabot. “But the mere fact that they would not have knowingly purchased stolen remains does not mean that they automatically lost money as a result of the transactions.”

Judge Gregory A. Phillips, writing in the panel’s July 2 opinion, agreed Arguello’s calculation was 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,” he noted.

Second, Hess disputed the $727,148 in losses to the next-of-kin of the deceased victims. She asserted 29% of that alleged loss encompassed services the family members did receive — urns, memorial services, receptions, death certificates, headstones and more.

Arguello declined to exclude those amounts, stating Hess’ funeral home business was “systematically tainted with fraud such that all services were affected by fraud in some way.” Once again, the 10th Circuit concluded Arguello misunderstood the sentencing guidelines.

Trial judges “must determine which goods and services did provide value to the victims at the time of the fraud,” Phillips directed.

He added the miscalculations were not harmless, as losses under $550,000 would have reduced Hess’ offense level to the point where the shortest recommended sentence would now become the maximum recommended sentence under the federal guidelines.

The 10th Circuit reached similar conclusions for Koch. Arguello applied a sentence enhancer for Koch because of the large number of “vulnerable” victims — meaning those who were “particularly susceptible” to the fraud.

Arguello believed the deceased victims were “clearly vulnerable due to their physical condition. They could no longer make their own decisions or protect themselves from what happened to their bodies after death.” As for the surviving family members, Arguello added that “those in grief are vulnerable victims.”

Yet again, the 10th Circuit found Arguello misunderstood the nature of the sentence enhancer. In this instance, Arguello had not determined how each individual victim’s vulnerability facilitated the fraud.

“The Defendants were able to commit their fraud by virtue of their positions of trust and their unsupervised custody over the decedents’ bodies, and we see nothing in the record that explains how either of these enabling conditions would depend on any individual’s vulnerability,” Phillips wrote.

Finally, Arguello further enhanced Koch’s sentence by finding she committed fraud through “sophisticated means.” Specifically, Arguello concluded Koch was involved in “so many facets of this scheme” and “this offense would not likely have gone on as long undetected” if not for Koch’s participation.

But Koch argued on appeal that even the government admitted Koch was “not in a similar position” as her daughter, and Hess had the “dominant role” in the operation.

“We agree with Koch that the enhancement does not apply to her,” Phillips concluded.

The 10th Circuit returned the case to Arguello for resentencing. In doing so, the panel rejected Hess’ request to order a new judge to take over. Hess alleged Arguello injected bias into the sentencing by sharing an anecdote about how her own husband’s death greatly affected her, and also by prompting everyone to bow their heads and take a moment of silence in the courtroom for the victims.

“The district court’s remarks and rulings in this case do not, at least at this stage, warrant reassignment,” Phillips wrote, while conceding Arguello’s stray comments at sentencing were mildly concerning.

The case is United States v. Hess and United States v. Koch.