Some Recent Developments of Interest in the Areas of Restitution and Forfeiture

As this blog has noted in the past, see here and here, financial penalties can reverberate deeply in an offender’s post-conviction life.  Several recent decisions provide some respite for offenders laboring under onerous restitution and forfeiture obligations. 

Government Not Entitled to Personal Money Judgment in Criminal Forfeiture Proceeding

[Update 3/11/2010: In United States v. Awad, issued 3/11/2010, Second Circuit disagrees with Surgent's holding and finds its reasoning "unpersuasive."] The gem of this series of cases is United States v. Surgent, 2009 WL 2525137 (E.D.N.Y. August 17, 2009), a key decision on the availability of personal money judgments in criminal forfeiture proceedings.  Ruling that “nothing in § 982, § 853, or the jurisprudence of the Second Circuit authorize[d him] to enter a personal money judgment, as opposed to an order forfeiting specific property, in sentencing a defendant convicted of a money laundering offense,” EDNY Judge Gleeson denied the government’s motion for the entry of a money judgment of $2.3M.  The ruling has broad implications for many other criminal cases, which involve similarly-worded forfeiture statutes. 

Stripping bare the echo chamber of precedents used to justify money judgments in forfeiture cases (many of the cases “which assume[d] the propriety of personal money judgments in forfeiture proceedings, are subsequently read as establishing the propriety of such judgments”), Judge Gleeson points out that “[t]he fact that the statutes in question do not provide for the enforcement of money judgments suggests that they do not authorize such judgments.”  There is a key difference between money judgments and forfeiture orders: the former may be enforced like any civil judgment, whereas the latter may only be enforced by the judge who entered it.  Congress hardly “deem[ed] this difference irrelevant, as there are legitimate reasons to prefer that the sentencing court oversee both the imposition and the execution of sentences containing federal forfeiture awards.”

The government’s recourse may lie in an order for substitute assets, assuming the defendant has some nominal assets at the time of conviction.  Under Fed.R.Crim.P. 32, this order may be amended at any time if the defendant later obtains assets.  As a practical matter, however, without a money judgment, the government is likely to leave the defendant alone. 

Lawyers: Steven Kessler (Third Party Petitioner Regina Surgent); AUSA Kathleen Nanden

Early Termination of Supervised Release Granted Despite Restitution Balance Owing

A defendant secured early termination of his supervised release term in United States v. Harris, 2010 WL 723762 (S.D.N.Y. March 1, 2010), based on “[p]ost-conviction conduct [that] has been beyond reproach” and the fact that supervised release status has created “multi-faceted obstacles” to his employment prospects.  The Government had opposed termination, citing the large balance owing on the defendant’s $200M restitution obligation.  SDNY Judge Haight concluded, however, that “t]he desirability of Harris’s continued rehabilitation through enhanced professional opportunity trumps whatever minimal restitution might be obtained by continued supervision.”  Interestingly, he noted that unlike cases that have “devastated individual victims” like that of Bernard Madoff, “the victims of Harris’s fraud were a consortium of sophisticated international banks, advised by accountants and attorneys, whose existence and business activities survived the fraud.”  Moreover, “[k]eeping Harris’s supervised release restitution obligation in effect until March 2012 will have no effect whatsoever upon the balance sheets of the bank victims.”

Restitution Denied for Losses Not Proximately Caused by Offense

In United States v. Morrison, 2010 WL 480866 (E.D.N.Y. February 12, 2010), EDNY Judge Hurley reminds us that “restitution may be ordered only for the loss caused by the specific conduct that is the basis of the offense of conviction.”  Morrison was convicted of a RICO conspiracy aimed at distributing cigarettes that lacked the applicable New York State tax stamps.  Concluding that New York State was a victim of this conspiracy under the MVRA (Mandatory Victims Restitution Act), the Court held, however, (for the first time in this circuit it appears), that the amount of the restitution would be limited by “the specific temporal scope of the criminal conduct as outlined in the indictment.”  After all, since “the government has control over the drafting of the [indictment], it bears the burden of includ[ing] language sufficient to cover all acts for which it will seek restitution.”  New York City, on the other hand, was not a victim for restitution purposes.  Its harm – that the bootleg sales deprived of it of local tax revenue – was “far too attenuated to demonstrate direct and proximate causation.”  The case is a lesson in not taking the government’s restitution claims at face value. 

Lawyers: William Murphy and Kenneth  Ravenell of William H. Murphy, Jr. & Associates, Peter Smith of Law Offices of Peter Smith & Associates, Daniel Nobel, Richard Levit of Levitt & Kaizer(Defendant); Eric Proshansky, Corporation Counsel of the City of New York, Law Department (the City of New York); David Paldy, Department of Taxation and Finance, Office of Tax Enforcement, Special Investigations Unit ( the State of New York); AUSAs James Miskiewicz, John Durham, Diane Leonardo-Beckman.

Court Denies Victim’s Request for Priority in Distribution of Restitution Monies

In United States v. Dreier, 2010 WL 424706 (S.D.N.Y. February, 5, 2010), SDNY Judge Rakoff tried to bring some sanity and order to the sprawling mess generated by the fraud schemes of convicted lawyer, Marc Dreier.  In the decision, he approved proposed settlement agreements between the government, the SEC and the bankruptcy trustees, noting that “[t]he forfeiture laws [.] authorize the Government to compromise competing claims to forfeited assets” and ) “nothing in the [Crime Victims' Rights Act] requires the Government to seek approval from crime victims before negotiating or entering into a settlement agreement.”  Notably, he rejected the claim of one victim that he should get priority since he was an “individual as opposed to an institutional investor.”  Confirming his previous order of pro rata distribution, Judge Rakoff noted:

The truth is that a fraud as large and egregious as Dreier’s is like an earthquake that savages its victims at random and is followed by a series of aftershocks that destroys still further assets. Any alternative to the pro rata approach would entail a costly and extensive inquiry into the circumstances of each victim's loss, which would likely devolve into a war of recriminations, to the detriment of all concerned.