Second Circuit Applies Supreme Court's Dolan Decision

United States v. Pickett, Docket No. 09-0683-cr (2d Cir. July 20, 2010) (found here)

In Dolan v. United States, --- S.Ct. ---, No. 09-367, 2010 WL 2346548 (June 14, 2010), the Supreme Court held that "a sentencing court that misses the 90-day deadline nonetheless retains the power to order restitution . . . where . . . the sentencing court made clear prior to the deadline's expiration that it would order restitution, leaving open (for more than 90 days) only the amount."  In doing so, the Supreme Court noted that "the statute seeks primarily to assure that victims of crime receive full restitution," and not "to provide defendants with certainty as to the amount of their liability."

In Pickett, as in Dolan, the district court's judgment made clear prior to the deadline that the court would order restitution, leaving open only the amount -- which was set after the deadline expired.  Relying on Dolan, the Second Circuit found in Pickett that the "District Court acted within its authority in ordering restitution ninety-eight days after Pickett's sentencing hearing."

Guest Blogger Marshall Mintz: District Court Authority To Amend Restitution Orders

Guest Blogger Marshall Mintz provides his take below of United States v. Kyles, No. 06-4196 (2d Cir. April 2, 2010) (found here), in which the Second Circuit held (in an appeal that Mr. Mintz handled) that a district court has implied authority to amend a restitution order, entered under the Victim and Witness Protection Act of 1982, 18 U.S.C. § 3663 et seq. (the "VWPA"), during the period that the defendant was incarcerated.  As he notes, though, because the district court's order in Kyles improperly designated the setting of a payment schedule to the Bureau of Prisons, the Second Circuit remanded for further proceedings.

The Facts

Kyles was convicted in 1993 of armed bank robbery, in violation of 18 U.S.C. § 2113(a) and (d), and sentenced to 262 months' imprisonment to be followed by five years' supervised release.  As a special condition of his supervised release, Kyles was directed to pay $4,133 in restitution on a schedule to be determined by the United States Probation Office.  However, the Probation Office never set any schedule for those payments.  In October 1998, the district court, for reasons unknown, issued an Order Amending Judgment which directed Kyles to “pay restitution of $2 per month, while incarcerated,” and reserved authority to alter that amount in the future.

In June 2006, in response to a letter from the Bureau of Prisons (the context of which is not clear), the district court further amended the judgment in Kyles's case, "to reflect an increase in the defendant's restitution payment obligation from $2 each month to $25 each month, while incarcerated," while again reserving the right to make further alterations in the future.

Kyles sought reconsideration of that order, arguing that the district court lacked authority to issue either the October 1998 order or the June 2006 order, as neither had been entered within seven days of sentencing as required by Rule 35 of the Federal Rules of Criminal Procedure.  Further, Kyles argued that even if the court had the authority, he lacked the means to pay $25 per month.  In September 2006, the district court vacated its earlier order and directed that "restitution payments shall be increased in accordance with the guidelines of the Inmate Financial Responsibility Program" of the Bureau of Prisons.

The Appeal

On appeal, Kyles contended that the district court lacked statutory authority under the VWPA to modify his restitution schedule while he remained incarcerated.  Further, even if the district court did have the authority to enter the Order Amending Judgment, the provision that restitution payments should be set “in accordance with the guidelines of the Inmate Financial Responsibility Program” was an improper delegation of judicial authority to the Bureau of Prisons. 

While the appeal was pending, the government filed a motion seeking to have the initial 1993 restitution schedule vacated so that the district court could clarify its initial intent with respect to the payment of restitution while Kyles was incarcerated.  That motion was denied without prejudice to the government seeking the same relief in its brief.  In its brief, the government argued that the 2006 order should be vacated because the district court lacked authority to enter it under Rule 35 but that the 1998 order should stand because no timely appeal was taken. 

In June 2009, the Second Circuit ordered the parties to submit further briefing on whether the VWPA gave the district court inherent authority to amend the payment schedule.

The District Court's Authority to Modify the Schedule

In holding that the district court had the authority to amend the judgment in the first place, the Second Circuit held that “[t]o the extent it allowed Kyles to pay the sentenced amount in installments, that departure from the statutory presumption in favor of immediate restitution is not reasonably understood as a ‘sentence,’ but rather as an application of equity to performance of the pronounced sentence, providing a means for Kyles fully to compensate his victim consistent with his limited means.”  Thus, a modification of the restitution schedule only changes the application of equity and not the amount of restitution.  As such, the Second Circuit found there was “no change in sentence.”

In rejecting Kyles’s argument that the VWPA precluded a district court from amending the restitution schedule while a defendant was incarcerated, the Second Circuit held that the statute gave district courts an inherent authority “to adjust [restitution] orders when the circumstances informing them change.”  As it reasoned, “[u]nless the equitable authority conferred by § 3663(f)(1) is construed to permit a court to modify a payment schedule as warranted by changed circumstances, a defendant who encounters unanticipated financial setbacks may be burdened with an unreasonable schedule.” 

With respect to the fact that a later statute, the Mandatory Victims Restitution Act, 18 U.S.C. § 3663 (1996), includes an explicit authorization for a district court to amend a payment schedule if a defendant experiences a material change in his economic circumstance (thus making clear that Congress knew how to give a district court the authority if it chose to), the Second Circuit held that the provision merely “clarifies and strengthens what is implicit in the VWPA.” 

The Delegation to the Bureau of Prisons

The Second Circuit did find that the district court exceeded its authority when it ordered that the payments should “be increased in accordance with the guidelines of the Inmate Financial Responsibility Program,” citing to United States v. Mortimer, 94 F.3d 89 (2d Cir. 1996). 

In Mortimer, the district court had similarly ordered that the defendant “pay restitution while in prison according to a schedule to be determined pursuant to the Bureau of Prisons Inmate Financial Responsibility Program.”  The Second Circuit rejected that provision, reasoning that since the payment schedules under the IFRP are not fixed but instead left to the discretion of the BOP personnel, such a delegation of judicial authority to BOP staff is improper.

The Second Circuit further found that there was "little to distinguish the challenged order . . . from that held invalid in Mortimer," and remanded for further proceedings.

Possible Signal Concerning Higher Level Of Scrutiny For Restitution Orders From The Second Circuit?

United States v. Pearson, No. 07-0142-cr (2d Cir. July 2, 2009) (found here)

Pearson appealed from a judgment convicting him, following a guilty plea, of multiple counts of producing, transporting, receiving and possessing child pornography.  He was sentenced to fifteen years imprisonment and ordered to pay $974,902 in restitution to the child victims of his crime to account for future medical expenses.  On appeal, Pearson challenged whether a restitution order pursuant to 18 U.S.C. § 2259 may include an amount for future estimated medical expenses and, if so, whether the amount of restitution ordered was reasonable.  The Second Circuit answered "yes" to the first question (future medical expenses are authorized by the statute), but concluded "no" on the second question (the amount of the restitution ordered was not reasonable).

The Second Circuit acknowledged that it had not yet addressed the question of whether Section 2259 authorizes compensation for future medical expenses.  Relying on the conclusions of three of its sister circuits, the Second Circuit agreed that future medical expenses are contemplated by Section 2259 because "the amount of loss is too difficult to confirm or calculate."

But the Second Circuit also concluded that the district court failed to properly estimate those future medical expenses.  Specifically, "although the record contains evidence of the victims' need for long-term counseling and of the cost of that counseling, the district court did not explain how it estimated the victims' future expenses. . . . [W]ithout more information as to how the district court reached the lower figure, we are unable to conduct even deferential review of whether the final restitution order reflect a reasonable estimate of the cost of future counseling."  Accordingly, the Second Circuit remanded "to secure a more thorough explanation from the district court as to the basis for its restitution determination."

Could this have wide implications for, say, restitution in financial fraud cases in circumstances in which a district court does not build a sufficient record concerning restitution?  With United States v. Rutkoske in mind, is the Second Circuit signaling increased interest and awareness of restitution decisions?

Second Circuit: Investment Loss Includes Potential Gain

United States v. Scott, No. 08-1489-cr (2d Cir. April 14, 2009) (found here)

On appeal Scott contended that the district court incorrectly calculated the amount of restitution he owed his victims because it had included "lost investment returns, calculated as of the date of sentencing from funds that when stolen were invested in either a variable annuity or an IRA."  More specifically, Scott argued that "his victims' losses would be fully compensated by an award of the nominal value of the property he stole from their accounts and that the district court therefore erred by including lost investment earnings in the restitution award."

The Second Circuit disagreed.  It found that Scott had stolen from customer retirement accounts, and that "[h]ad the assets remained in those accounts, two of the three accounts would have increased in value by the date of sentencing. . . .  Accordingly, the actual value of the stolen property, the funds in the retirement accounts, at the time of sentencing was the nominal value of the stolen funds plus the subsequent investment gains lost as a result of the theft."

Hmmm...In light of the performance of the financial markets in the past year, the Second Circuit's analysis begs an interesting question.  Say a defendant steals money from a client's IRA account last June, and say that IRA account had a value of $100,000 on the date of the theft.  Say further that the defendant is coming up for sentencing today, when the value of that IRA account -- if no theft had occurred -- would have dropped 40% because of the turmoil in the financial markets.  Would that individual be responsible for: (A) the value of the account on the date of the theft ($100,000); or (B) the value of the account on the date of sentencing ($60,000)?  In other words, is the Second Circuit giving an inadvertent windfall to those who have committed financial frauds in the past twelve months?

Order to Immediately Pay Restitution in Full When Defendant Has No Ability to Pay Constitutes an Abuse of Discretion

United States v. Mammedov, No. 06-2971-cr., 2008 WL 5411080 (2d Cir. Dec. 30, 2008)

Notwithstanding his undisputed lack of financial resources and inability to pay, the district court in Mammedov failed to provide a restitution schedule for a $325,000 award of restitution, thereby implicitly ordering that Mammedov pay the amount immediately.  Indeed, the district court imposed that restitution obligation apparently for "symbolic" reasons.  On appeal, the Second Circuit held that "requiring the immediate payment of restitution when nothing suggests that a defendant can pay such restitution constitutes an abuse of discretion."  Thus, the Second Circuit remanded the case so that the district court could fashion a payment schedule.

Losses Caused By Market Forces Must Be Excluded From Calculation Of Securities Fraud Losses

United States v. Rutkoske, Docket No. 06-4067-cr (2d Cir. Oct. 25, 2007) (found here)

Rutkoske had the general guts to challenge the Government's loss calculation, which the district court accepted for purposes of sentencing.  And he won based on a very simple principle: A defendant can only be held accountable for the losses that he caused; he cannot be held accountable for "[l]osses from causes other than the fraud," which "must be excluded from the loss calculation."  As the Second Circuit held, the "District Court's basic failure at least to approximate the amount of the loss caused by the fraud without even considering other factors relevant to a decline in [] share price requires a remand to redetermine the amount of the loss . . . ." 

Significantly for those of us whose practice frequently involves charges of securities fraud, the Second Circuit noted that these principles apply even to thinly traded stocks, like those upon which Rutkoske's conviction were based.

Non-Guidelines Sentence As The Best Means For Fulfilling Restitution Order

United States v. Villela, No. 07 Cr. 287-02 (RWS), 2007 WL 2845290 (S.D.N.Y. Sept. 25, 2007)

Villela, a Brown University graduate, pled guilty to one count of tax evasion.  Based on a total offense level of 12 and a criminal history category if I, the court concluded that the applicable Guidelines offense level was 12, indicating a range of imprisonment of between 10 and 16 months.  The court, however, imposed a non-Guidelines sentence of 60 months probation.  Why?  Simply put, the Probation Department recommended that probationary sentence, and the court found that Villela had "been convicted of a non-violent crime and has no prior criminal record.  Furthermore, his continued employment will aid in the collection of restitution payments to the victims of the offense."

Villela points up an argument that I have always found persuasive and that has been successful in persuading courts in this post-Booker era to impose non-Guidelines sentences on offenders convicted of non-violent, economic crimes -- to wit, the best means for making the victims whole is a non-custodial sentence.  Restitution should be the court's primary concern in fraud-type cases, and non-Guidelines sentences are often the best means for achieving same (particularly for offenders who have low Guidelines offense levels -- it's a more difficult goal to achieve in large-scale frauds involving losses in the millions).

Second Circuit Reverses Large Downward Departure (And Makes New Law?)

United States v. Canova, Docket No. 05-6439-cr, 2007 WL 1321286 (2d Cir. May 8, 2007) (found here)

In sum, Canova "concerns the reasonableness of a downward departure from a Sentencing Guidelines calculation and the reasonableness of the resulting sentence."  In a word, the Second Circuit reversed the downward depature and remanded the case for resentencing.  As always, however, the devil is in the details.

Canova was convicted of a series of fraud offenses.  At his original senetencing (this, after all, was his second appeal), the district court determined to impose a Guidelines sentence.  The PSR calculated an advisory Guidelines range of 57 to 71 months imprisonment based largely on a loss of $5,000,000.  The district court, however, conducted its own factual and Guidelines analysis, and determined an advisory Guidelines offense level of 8 (0-6 months imprisonment) based on an absence of loss.  And then the district court departed downward by 6 offense levels based on Sanova's "extraordinary record of civil and public service."  In the end, the district court imposed a sentence of one year probation.

The Government -- as would be expected -- appealed Canova's sentence, challenging the district court's loss calculation and charitable service departure.  (The Government also challenged the district court's denial of an obstruction of justice enhancement.)  The Second Circuit reversed the district court, finding the sentence to have been erroneous because of its failure to consider loss, and stated that the district court could consider the extent of its "charitable services" departure based on the higher advisory Guidelines range dictated by proper consideration of loss. 

At resentencing, the district court calculated the advisory Guidelines offense level using a loss figure of $5,000,000.  But -- in what can only be described as a single-finger salute to the Second Circuit -- it then departed by 15 offense levels on the ground that the monetary loss overstated the seriousness of the offense and bceause "the previous departure for public service [did] not fully reflect the Court's sentencing objectives in light of the newly imposed loss enhancement."  As the district court explained: "[T]he higher guideline range calls for a more extended downward depature for the defendant's service to the country and community."  After applying the 15 level departure, the district court -- no surprise here -- arrived at the same offense level and imposed the same one year probationary sentence. 

The Government appealed.  Again.  And the Second Circuit reversed.  Again.  Why?  Because the sentence was both procedurally and substantively unreasonable.

Procedural Reasonableness -- The Second Circuit found that the probationary sentence was procedurally unreasonable for three reasons.  First, the Second Circuit found that the 15 level departure was procedurally unreasonable because the "District Judge exceeded his discretion in deciding that the $5 million loss overstated the seriousness of the offense."  Specifically, the Second Circuit found (among other things) that the the district court considered only actual harm and failed to consider intended loss.  Second, the Second Circuit found that the district court's reliance on the victim's conduct as a gorund for departure was procedurally unreasonable because it is not a permissible ground for a departure.  Third, the Second Circuit found that the sentence was procedurally unreasonable because it relied on another party's restitution payment as a basis for depature (not a terribly important point for the decision and therefore just noted here).

Substantive Unreasonableness -- Making what seems like new law, the Second Circuit found that:

In many cases involving a departure, it would be appropriate to consider separately the reasonableness of the extent of the depature and the reasonableness of the resulting sentence.  In this case, however, where the departure resulted in a sentence of no imprisonment at all, the considerations that bear on the reasonableness of the extent of the departure apply equally to the reasonableness of the sentence, and at this point we need only consider the reasonableness of the extent of the departure.

Hmmm...  If procedural reasonableness involves consideration of error in a Guidelines calculation (inclusive of any Guideline departures that are necessarily part of the Guidelines calculation) and substantive reasonabless involves the actual reasonableness of the ultimate sentence imposed, what is the Second Circuit doing in considering the reasonableness of the extent of the depature when considering whether or not the sentence is substantively reasonable?  Why is the Second Circuit blurring the lines between what it has clearly set forth in numerous other opinions as the distinctions between procedural and substantive reasonableness?  This question in this case is particularly peculiar since the Second Circuit's decision on the first appeal in this matter specifically stated that the district court could consider the extent of its "charitable services" departure based on the higher advisory Guidelines range dictated by proper consideration of loss. 

But that's not all.  The Second Circuit went on to consider the "method for assessing the extent of a departure in order to determine its reasonableness."  The Second Circuit considered two "plausible" methods for that assessment.  First, an absolute assessment, which "would gage the extent of the departure, measured in levels, without regard to the starting point from which the departure was made."  Second, a relative assessment, which "would gage the extent of the departure either by the increase or decrease in the resulting prison time . . . or by the percentage of increase or decrease of either prison time or levels."  Although the Second Circuit declined to expressly adopt either measure, it expressed a preference for one or more of the relative assessment methods because "[w]henever the extent of a decrease (or increase) is assessed for reasonableness, it seems evident that the starting point should be considered."

And that's not even all.  The Second Circuit went on to state that "[t]randscending the numbers in this case, however, is the blunt fact that the effect of the departure and resulting sentence was to treat Canova as though he had intended to cause no loss at all."  Even if it matched the first sentence (as the Second Circuit noted), so what?  Isn't it at least possible that a departure under the Guidelines could completely counter an increase in an advisory Guidelines offense level due to some other factor, such as loss?  And what business does the Second Circuit have in second-guessing the district court's determination of how much impact a ground for a downward depature should have?

As Fielding Melish (Woody Allen's character in Bananas) said: "I object, your honor! This trial is a travesty. It's a travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham."  Well, maybe that's going too far.  But Canova is surely a bit of a mystery.

Lessons In Restitution And Probation

United States v. Hamburger, 414 F. Supp.2d 219 (E.D.N.Y. 2005)

In Hamburger, the district court was called upon to address (and answer) the following five questions:

1.  Does the Mandatory Victim Restitution Act preclude a court from limiting a restitution order amount to the amount settled upon by the defendant and his victim?  Yes.  A defendant who settles with a victim for an amount less than the full restitution amount is still subject to a full restitution order under the Mandatory Victim Restitution Act.  As described by Hamburger, in "fashioning a restitution order, a pre-existing civil settlement is properly considered by the Court, but only as an offset against the calculation of total loss to the victim" in part because "restitition serves traditional purposes of punishment.  The prospect of having to make restitution adds to the deterrent effect of imprisonment and fines."  (It bears noting that the Hamburger court was not happy with this conclusion, which it felt compelled to reach.)

2.  Does a district court, in modifying terms of probation, have the authority to modify a resitution order?  No.  Probation and restitution are separate and arise from different statutory sources.  Thus, any modification of probation can have no impact on any restitution order.

3.  What effect does a victim's renunciation of his interest in receiving restitution have on the obligation of an offender to fulfill his/her restitution obligation?  None.  The obligation to pay restitution continues even if the victim declines receipt of restitution.  And, if so, the district court has the authority to order that such restitution payments be made to the Crime Victims Fund (or other victims of the defendant).

4.  Should a defendant be credited for assets transferred back to a victim of an economic offense?  Yes if they have economic value, and no if they do not have economic value.  In Hamburger, the defendant transferred stock to the victim that was not publicly traded (i.e., had no market value) and therefore had no ascertainable economic value.  To obtain credit for any such transfer, Hamburger would have had to have "liquidate[d] those assets and use[d] the proceeds for restitution."  In this regard, it also bears noting that the Mandatory Victim Restitution Act does not clearly authorize a court to modify the form of restitution payments, as opposed to the schedule for those payments.

5.  Can a defendant be relieved of home detention as a condition of probation when the defendant has fulfilled his/her restitution obligation?  Yes.  But Hamburger had not, in fact, fulfilled his restitution obligation.  Thus, the court declined to relieve him of the terms of his probation.