United States v. David Bagdy ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 13-2975
_____________
UNITED STATES OF AMERICA
v.
DAVID BAGDY,
Appellant
_____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 2-07-cr-00191-001)
District Judge: Honorable David S. Cercone
_____________
Argued May 13, 2014
Before: SMITH, VANASKIE, and SHWARTZ, Circuit
Judges.
(Filed: August 21, 2014)
Candace Cain, Esq. [Argued]
Office of the Federal Public Defender
1001 Liberty Avenue
1500 Liberty Center
Pittsburgh, PA 15222
Counsel for Appellant
Donovan J. Cocas, Esq. [Argued]
Rebecca R. Haywood, Esq.
Office of the United States Attorney
700 Grant Street
Suite 4000
Pittsburgh, PA 15219
Counsel for Appellees
_____________
OPINION
_____________
VANASKIE, Circuit Judge.
At issue on this appeal is whether supervised release
may be revoked and an offender sent to prison based upon a
District Court’s finding that the offender acted in bad faith in
relation to his obligation to make restitution to the victims of
his criminal conduct. In this case, although Appellant David
Bagdy complied with the letter of the District Court’s
restitution order by ultimately paying more than one-third of a
$435,000 inheritance he had received while on supervised
release, he engaged in a lavish spending spree that dissipated
the balance of the inheritance while delaying the proceedings
intended to modify the restitution order. Like the District
2
Court, we find Bagdy’s conduct reprehensible. We conclude,
however, that the District Court could not revoke supervised
release for such bad faith conduct because Bagdy did not
violate a specific condition of supervised release in relation to
the restitution obligation. Accordingly, we will vacate the
judgment and remand for further proceedings.1
I.
Bagdy pled guilty to a charge of wire fraud arising
from a scheme to embezzle hundreds of thousands of dollars
from a small family-owned lumber business for which he
served as a consultant. The District Court sentenced him to
36 months’ imprisonment and three years of supervised
release. The District Court also ordered that Bagdy make
restitution in the amount of $566,115.57. As a condition of
supervised release, the District Court ordered that Bagdy
“make periodic payments of at least ten percent of his gross
monthly income toward any outstanding balance of
restitution. Payments shall be made in such amounts and at
such times as directed by his probation officer and approved
by the Court.” App. 32-33. Furthermore, Bagdy was
required to “provide his probation officer with access to any
requested financial information” to enable the probation
1
Bagdy may have violated other conditions of supervised
release. For example, he may have violated a condition that
required him to make certain reports to his probation officer
on financial matters. On remand, the District Court is free to
consider whether Bagdy violated a specific condition of
supervision, and, if so, what the appropriate sanction for that
violation should be.
3
office to determine an appropriate payment schedule. App.
33.
Bagdy completed his prison term and commenced
supervised release in July of 2011. In March of 2012, Bagdy
reported to his probation officer that he had received
$409,799.13 in inheritance from his aunt. Bagdy consulted
with his probation officer regarding his restitution obligation
in regards to the inheritance and paid $41,000 of the total
toward restitution. Bagdy maintains that this contribution
reflected the ten percent of his gross monthly income that he
believed the District Court’s judgment obligated him to put
toward restitution.
On April 9, 2012, the government filed a motion to
modify the order of restitution under 18 U.S.C. § 3664(k).2
2
Section 3664(k) instructs that:
A restitution order shall provide
that the defendant shall notify the
court and the Attorney General of
any material change in the
defendant's economic
circumstances that might affect
the defendant's ability to pay
restitution. The court may also
accept notification of a material
change in the defendant's
economic circumstances from the
United States or from the victim.
The Attorney General shall certify
to the court that the victim or
victims owed restitution by the
4
Shortly after filing the motion, the government met with
Bagdy and his counsel in an attempt to reach a settlement as
to the amount of his inheritance Bagdy would put toward
restitution. Although no formal agreement was reached at the
meeting, Bagdy contributed an additional $60,000 of his
inheritance toward restitution and remained in
communication with the government regarding a possible
settlement.
While negotiations between the government and
Bagdy continued, Bagdy requested several extensions of time
to file a response to the government’s § 3664(k) motion,
representing to the District Court that he was engaged in
“good faith negotiations to resolve all restitution issues by
agreement” with the government. Government’s Supp. App.
9. For months, the government did not oppose Bagdy’s
extension motions and the District Court granted five of them.
When no settlement had been reached as of early November
2012, the government emailed Bagdy’s counsel to express its
concern that Bagdy may be stalling the hearing while
depleting his inheritance.
defendant have been notified of
the change in circumstances.
Upon receipt of the notification,
the court may, on its own motion,
or the motion of any party,
including the victim, adjust the
payment schedule, or require
immediate payment in full, as the
interests of justice require.
5
The District Court finally held the § 3664(k) hearing
on December 3, 2012. At the hearing, the government
informed the District Court that Bagdy had inherited from his
aunt an additional $25,000 that it had previously been
unaware of, bringing his total inheritance to $434,799.13.
The government also told the court that it had just learned that
Bagdy had spent all but about $52,000 of the inheritance.
The government requested to have Bagdy’s conditions of
supervised release modified to order payment of the $52,000
balance of his inheritance. Bagdy’s counsel did not object
and the District Court granted the motion.3
The government candidly acknowledged that it did not
know if Bagdy had violated any condition of supervised
release by depleting his inheritance. The District Court
instructed the government to “[c]onsult with the probation
department and do your research and look for precedent and
see if potentially if the bad faith on the part of the Defendant
under all of these circumstances somehow constitutes a
constructive breach of the conditions [of supervised release].”
App. 58.
On February 6, 2013, the government filed a motion
requesting that the District Court hold a hearing regarding
Bagdy’s alleged violation of his supervised release. The
motion noted that “since receiving a total of $434,000 last
year from an inheritance, the defendant has paid $152,048.48
toward restitution, and has spent the remaining $281,952.”
3
Thus, approximately $153,000 from an inheritance of nearly
$435,000 was applied against the restitution obligation of
more than $565,000.
6
App. 69. The government’s motion detailed Bagdy’s
expenditures during this period, as reported to the probation
office, but also alleged that copies of Bagdy’s bank records
reflected additional expenditures that had not been reported to
the probation office. Unreported expenditures included
$41,000 in ATM withdrawals, $21,800 in Western Union
transfers, and $5,800 in purchases from a business named
Fragile Paradise Florist. The government argued that
Bagdy’s failure to put a greater amount of his inheritance
toward restitution while making extravagant personal
expenditures constituted a willful violation of the conditions
of supervised release.
At the June 4, 2013 hearing on the motion, the
government maintained that Bagdy’s conditions of supervised
release required him to pay the full amount of restitution and
that “[t]he requirement that he pay not less than 10 percent is
merely setting a floor during the term of his supervised
release that he has to satisfy.” App. 117. Bagdy’s counsel
responded by contending that “a specific violation of a
condition of this Court’s judgment has not been adequately
alleged” because nothing in the restitution order had indicated
that Bagdy could be found in violation for not making
payments in good faith. App. 115.
The District Court concluded:
Mr. Bagdy, I have to agree with
the Government, I think that your
conduct in this case, you knew
you owed this money, and to have
inherited this large sum and to
spend it the way you did was not
acting in good faith and it does
7
constitute a violation of my
restitution order. So I do find that
you violated the condition and I
am going to sentence you to six
months incarceration.
App. 120. This appeal followed.4
II.
The District Court had jurisdiction under 18 U.S.C. §
3583(e)(3) and we have jurisdiction under 28 U.S.C. § 1291.
“The District Court’s decision to revoke supervised release is
reviewed for abuse of discretion. However, the factual
findings supporting that decision are reviewed for clear error;
legal issues are subject to de novo review.” United States v.
Maloney, 513 F.3d 350, 354 (3d Cir. 2008) (internal citations
omitted).
A.
A District Court may revoke a defendant’s supervised
release and impose a term of imprisonment “if the court,
pursuant to the Federal Rules of Criminal Procedure
applicable to revocation of . . . supervised release, finds by a
preponderance of the evidence that the defendant violated a
condition of supervised release . . . .” 18 U.S.C. § 3583(e)(3).
The issue presented here is whether Bagdy violated a specific
condition of supervised release by remitting only $152,048.84
from his inheritance.
4
The District Court agreed to allow Bagdy to continue under
supervision pending this appeal.
8
We have repeatedly expressed concern that conditions
of supervised release be sufficiently clear to enable
individuals on supervised release to freely choose between
compliance and violation. In this regard, our precedents
require that conditions of supervised release provide a
defendant with “adequate notice of what he may and may not
do . . . .” United States v. Loy, 237 F.3d 251, 267 (3d Cir.
2001). Similarly, we have held that conditions of supervised
release “must provide specific standards which avoid
arbitrary and discriminatory enforcement.” Maloney, 513
F.3d 350, 357 (3d Cir. 2007) (quoting Tolchin v. Supreme
Court of New Jersey, 111 F.3d 1099, 1115 (3d Cir. 1997)).
At the revocation hearing, the District Court did not
identify an explicit condition of supervised release that Bagdy
had violated.5 The District Court took issue with Bagdy’s
depletion of his inheritance on personal expenses, finding that
the dissipation of assets constituted bad faith in light of
Bagdy’s obligation to make complete restitution to his
victims. Bagdy, however, had informed his probation officer
and consulted the officer before making his initial payment of
5
The District Court’s written order found that Bagdy’s
conduct had violated the condition of supervised release
“directing that the defendant make periodic payments of at
least ten (10%) percent of his gross monthly income toward
the outstanding balance of restitution.” App. 1. The
revocation hearing transcript makes clear that the District
Court believed Bagdy’s depletion of his assets violated a duty
of good faith implied by that condition, rather than the
explicit terms of the condition itself. It is undisputed that
Bagdy paid more than 10% of his inheritance toward
restitution.
9
$41,000. Regarding payment, the judgment setting forth the
conditions of supervised release provided that “[t]he
defendant shall make periodic payments of at least ten (10%)
percent of his gross monthly income toward the outstanding
balance of restitution. Payments shall be made in such
amounts and at such times as directed by his probation officer
and approved by the court.” App. 40. There is nothing to
suggest that Bagdy failed to make payment as directed by his
probation officer. Bagdy’s failure to preserve a greater
portion of his inheritance for satisfaction of the restitution
order was not, on its own, a violation of the conditions of
supervised release.6
The District Court found Bagdy in violation of
supervised release for behavior that was not prohibited by an
express condition of the judgment setting forth his conditions
of supervised release. The question then is whether
supervised release may be revoked where a defendant’s
conduct supports a finding that he did not act in good faith in
discharging his obligation to make restitution in full.
6
The government argues that, by not disclosing numerous
personal expenditures he made that exceeded $500, Bagdy
violated a condition of supervised release that required him to
“report to the probation officer as directed by the court or
probation officer and . . . submit a truthful and complete
written report within the first five days of each month.” App.
41. Although the record appears to support the government’s
claim that Bagdy was not forthcoming with probation
regarding his expenditures, the District Court did not find him
in violation of this condition at his revocation hearing. The
District Court should consider on remand whether Bagdy can
be found in violation of this condition of supervised release.
10
B.
The government argues that, although no good faith
term appeared in Bagdy’s conditions of supervised release,
the Supreme Court’s decision in Bearden v. Georgia, 461
U.S. 660 (1983), authorizes a District Court to revoke
supervised release when an offender fails to act in good faith
with respect to paying restitution. Bearden addressed a
situation in which an indigent defendant had failed to make
the minimum payments required by the express terms of the
conditions of his probation. The trial court had ordered the
defendant “to pay $100 that day, $100 the next day, and the
$550 balance within four months.” Id. at 662. When the
defendant was incapable of obtaining work that would allow
him to pay restitution on that schedule, the trial court revoked
his probation and sentenced him “to serve the remaining
portion of the probationary period in prison.” Id. at 663.
The Supreme Court held that the trial court was
required to conduct an inquiry into the indigent defendant’s
ability to pay before revoking his probation and could not
“automatically turn[] a fine into a prison sentence” for an
indigent defendant who had failed to adhere to his payment
schedule. Id. at 674. While holding that a trial court may not
revoke probation “[i]f the probationer could not pay despite
sufficient bona fide efforts to acquire the resources to do so,”
the Court also observed that the trial court could revoke
probation “[i]f the probationer willfully refused to pay or
failed to make sufficient bona fide efforts legally to acquire
the resources to pay.” Id. at 672. The government seizes
upon the Court’s reference to the offender’s “bona fide
efforts” to make restitution as imposing an implied duty of
good faith. What the government’s argument ignores,
however, is that there was a violation of the terms of
11
supervision in Bearden: the offender had not made payments
according to the court-imposed payment schedule. The
offender’s bona fide efforts were relevant to whether the
offender could be sent to prison for having failed to make the
requisite payments. Thus, the good faith inquiry mandated by
Bearden comes into play when nonpayment of a monetary
sanction is in fact a violation of the conditions of probation or
supervised release. Unlike Bearden, Bagdy’s failure to pay
more than $152,000 of his inheritance towards restitution did
not violate an explicit condition of supervision. And the
conditions of Bagdy’s supervised release did not require that
he make good faith efforts to pay his restitution.
C.
The government also directs our attention to the
informal agreement that it reached with Bagdy in early 2012,
which provided that Bagdy would not deplete his inheritance
prior to reaching a settlement with the government. Even if
Bagdy’s conduct breached such an agreement, honoring that
agreement was not a condition of supervised release.
To avoid the occurrence of a similar situation in the
future, District Courts may wish to consider adding a term to
conditions of supervised release that would provide for
contingencies where a defendant with a restitution obligation
comes upon an unforeseen inheritance or windfall. Such a
term might prohibit defendants from spending a certain
percentage of contested funds during the pendency of a §
3664(k) motion. In the absence of any such term in this case,
we cannot affirm the District Court’s decision to revoke
Bagdy’s supervised release for actions that were not in
violation of his conditions of supervised release.
12
III.
For the foregoing reasons, we will vacate the District
Court’s judgment, and remand for additional proceedings.
Although the record suggests that Bagdy’s conduct may have
violated other conditions of supervised release, we will leave
that determination for the District Court on remand.
13