In the Courts

Second Circuit Upholds Restitution Award for Cost of Internal Investigation and Attorneys' Fees Under MVRA

The Second Circuit has held that the Mandatory Victim's Restitution Act (MVRA) allows district courts to impose restitution orders for certain expenses, such as the cost of conducting an internal investigation or related attorneys' fees, that are incurred by victims of criminal conduct. See United States v. Amato, No. 06-5600-CR (2d Cir. Aug. 21, 2008).

The defendants in Amato operated a company that was purchased by Electronic Data Systems Corporation (EDS). Part of the deal included an incentive plan where the defendants would be compensated with bonuses based on their ability to meet certain financial targets. The defendants were convicted of defrauding EDS by submitting fraudulent financial information, which EDS relied on to pay the defendants large bonuses. At sentencing, the judge ordered the defendants to pay $12.7 million to EDS in restitution. The restitution order included $3 million in attorneys' fees and accounting costs that the district court said EDS incurred as a result of its participation in the investigation and prosecution of the defendants.

The primary legal question addressed by the Second Circuit was whether the district court's restitution award was permitted by the MVRA, which requires district courts to “reimburse the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” 18 U.S.C. ' 3663A(b)(4). The defendants argued that legal and accounting fees were not the kinds of “other expenses” contemplated by the statute. The Second Circuit rejected the defendants' argument, which aligns the Second Circuit with the Ninth and Fifth Circuits.

Citing the “plain language” of the statute, and the broad authority it confers on district courts to award restitution, the appeals court held that the MVRA allows an order for restitution such as the one imposed in Amato. The Second Circuit specifically rejected the defendants' argument that “other expenses” should be read to include only those expenses similar in nature to the ones preceding it, such as lost income, necessary child care, and transportation. The defendants' claim that the expenses were not sufficiently documented was also rejected. The appeals court left for another day a different question: whether the expenses must be a direct and foreseeable result of a defendant's offenses. The court sidestepped the question by stating that the expenses in Amato were clearly direct and foreseeable.

First Circuit Affirms Substantial Downward Variance

In an opinion that underscores the substantial discretion afforded to district courts following the Supreme Court's opinion in Gall v. United States, the First Circuit affirmed a substantial downward variance that it had vacated on two prior occasions. United States v. Thurston, No. 05-2271 (2d Cir. Oct. 2, 2008). William Thurston was convicted of conspiring to defraud Medicare of more than $5 million. The Guidelines' range for the offense was 63 to 78 months' imprisonment, but the maximum penalty was 60 months. Thurston's first sentence, which came before Booker, was for three months' imprisonment and 24 months of supervised release. Thurston's first sentence was imposed as a Chapter 5 Guidelines departure.

The First Circuit vacated the sentence and remanded for resentencing because the departure was not permitted under the then-mandatory guidelines. Then the Supreme Court decided Booker and vacated the First Circuit's judgment in Thurston. A second judge sentenced Thurston to the same sentence: three months' imprisonment and 24 months of supervised release. Unlike the first sentence, the second sentence was predicated on the district court's authority to impose a sentence below what the guidelines recommend based on the factors in 18 U.S.C. ' 3553(a). The government appealed the sentence as unreasonably lenient, and the First Circuit again vacated the sentence and remanded for resentencing. This time, the Supreme Court had just decided Gall, and that Court vacated the First Circuit's judgment for a second time for reconsideration in light of Gall.

After requesting and receiving briefing on Gall's impact on Thurston's case, the appeals court observed that even under Gall, it could vacate the sentence and remand it for resentencing, but it concluded that doing so “would serve little purpose.” The First Circuit explained that the district court's sentence was properly based on section 3553(a) factors, such as specific deterrence, Thurston's charitable work, and community service. Considering Gall's command that appellate courts look at the “totality of the circumstances,” the First Circuit affirmed the sentence.

In the Courts and Business Crimes Hotline were written by Associate Editor Jason Hernandez, Kirkland & Ellis LLP, Washington, DC.

Second Circuit Upholds Restitution Award for Cost of Internal Investigation and Attorneys' Fees Under MVRA

The Second Circuit has held that the Mandatory Victim's Restitution Act (MVRA) allows district courts to impose restitution orders for certain expenses, such as the cost of conducting an internal investigation or related attorneys' fees, that are incurred by victims of criminal conduct. See United States v. Amato, No. 06-5600-CR (2d Cir. Aug. 21, 2008).

The defendants in Amato operated a company that was purchased by Electronic Data Systems Corporation (EDS). Part of the deal included an incentive plan where the defendants would be compensated with bonuses based on their ability to meet certain financial targets. The defendants were convicted of defrauding EDS by submitting fraudulent financial information, which EDS relied on to pay the defendants large bonuses. At sentencing, the judge ordered the defendants to pay $12.7 million to EDS in restitution. The restitution order included $3 million in attorneys' fees and accounting costs that the district court said EDS incurred as a result of its participation in the investigation and prosecution of the defendants.

The primary legal question addressed by the Second Circuit was whether the district court's restitution award was permitted by the MVRA, which requires district courts to “reimburse the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” 18 U.S.C. ' 3663A(b)(4). The defendants argued that legal and accounting fees were not the kinds of “other expenses” contemplated by the statute. The Second Circuit rejected the defendants' argument, which aligns the Second Circuit with the Ninth and Fifth Circuits.

Citing the “plain language” of the statute, and the broad authority it confers on district courts to award restitution, the appeals court held that the MVRA allows an order for restitution such as the one imposed in Amato. The Second Circuit specifically rejected the defendants' argument that “other expenses” should be read to include only those expenses similar in nature to the ones preceding it, such as lost income, necessary child care, and transportation. The defendants' claim that the expenses were not sufficiently documented was also rejected. The appeals court left for another day a different question: whether the expenses must be a direct and foreseeable result of a defendant's offenses. The court sidestepped the question by stating that the expenses in Amato were clearly direct and foreseeable.

First Circuit Affirms Substantial Downward Variance

In an opinion that underscores the substantial discretion afforded to district courts following the Supreme Court's opinion in Gall v. United States, the First Circuit affirmed a substantial downward variance that it had vacated on two prior occasions. United States v. Thurston, No. 05-2271 (2d Cir. Oct. 2, 2008). William Thurston was convicted of conspiring to defraud Medicare of more than $5 million. The Guidelines' range for the offense was 63 to 78 months' imprisonment, but the maximum penalty was 60 months. Thurston's first sentence, which came before Booker, was for three months' imprisonment and 24 months of supervised release. Thurston's first sentence was imposed as a Chapter 5 Guidelines departure.

The First Circuit vacated the sentence and remanded for resentencing because the departure was not permitted under the then-mandatory guidelines. Then the Supreme Court decided Booker and vacated the First Circuit's judgment in Thurston. A second judge sentenced Thurston to the same sentence: three months' imprisonment and 24 months of supervised release. Unlike the first sentence, the second sentence was predicated on the district court's authority to impose a sentence below what the guidelines recommend based on the factors in 18 U.S.C. ' 3553(a). The government appealed the sentence as unreasonably lenient, and the First Circuit again vacated the sentence and remanded for resentencing. This time, the Supreme Court had just decided Gall, and that Court vacated the First Circuit's judgment for a second time for reconsideration in light of Gall.

After requesting and receiving briefing on Gall's impact on Thurston's case, the appeals court observed that even under Gall, it could vacate the sentence and remand it for resentencing, but it concluded that doing so “would serve little purpose.” The First Circuit explained that the district court's sentence was properly based on section 3553(a) factors, such as specific deterrence, Thurston's charitable work, and community service. Considering Gall's command that appellate courts look at the “totality of the circumstances,” the First Circuit affirmed the sentence.

In the Courts and Business Crimes Hotline were written by Associate Editor Jason Hernandez, Kirkland & Ellis LLP, Washington, DC.