State v. Bird , 845 Utah Adv. Rep. 34 ( 2017 )

2017 UT App 147THE UTAH COURT OF APPEALS
STATE OF UTAH,
Appellee,
v.
LANE D. BIRD,
Appellant.
Opinion
No. 20140434-CA
Filed August 10, 2017
Second District Court, Farmington Department
The Honorable Michael G. Allphin
No. 111700523
Derek G. Williams, Attorney for Appellant
Sean D. Reyes and William M. Hains, Attorneys
for Appellee
JUDGE JILL M. POHLMAN authored this Opinion, in which JUDGES
GREGORY K. ORME and STEPHEN L. ROTH concurred.1
POHLMAN, Judge:
¶1 Lane D. Bird appeals a restitution order, arguing that the
trial court erred when calculating the restitution amount. We
affirm.
1. Judge Stephen L. Roth participated in this case as a member of
the Utah Court of Appeals. He retired from the court before this
decision issued.
State v. Bird
BACKGROUND
¶2 After creating a skin care product and establishing a
company to manufacture it, Omar Bonada arranged for Bird to
help distribute the product. Eventually, Bonada and Bird
together decided to dissolve Bonada’s company and incorporate
two companies in its place: Clarcon Labs Inc. and Clarcon
Distribution Inc. (collectively, Clarcon).
¶3 In early 2007, Bird approached his neighbor (Neighbor)
and his wife (collectively, Victims) about an investment
opportunity in Clarcon. By March 2007, Bird had convinced
Victims to invest a total of $247,000. In exchange for this capital
investment, Victims would acquire stock in Clarcon and thereby
receive a share of future profits.
¶4 In convincing Victims to invest in Clarcon, Bird omitted
many material facts and made numerous untrue statements. For
example, Bird did not tell Victims about any of Clarcon’s debts,
and he did not disclose that he had prior tax liens and civil
judgment liens against him, or that he had received two prior
discharges in bankruptcy. Bird also falsely claimed that he had
invested $500,000 of his own money in Clarcon so that Victims
would feel like Bird had “skin in the game.”
¶5 Bird also led Victims to believe that their capital
investment would be used to update production equipment to
support the company’s growth. Instead, a large portion of
Victims’ $247,000 investment was used to pay debts and salaries
while another portion was transferred to Powerslide, another of
Bird’s business ventures, purportedly to repay a loan from
Powerslide. On June 1, 2007, shortly after Neighbor and Bonada
discovered the funds transfer to Powerslide, Clarcon terminated
Bird’s involvement in the company.
¶6 After Bird left, Clarcon was dissolved and Neighbor and
Bonada formed a new company, Clarcon Biological Chemistry
20140434-CA 2 2017 UT App 147State v. Bird
Laboratory Inc. (CBCL), to produce and market the same
product. When CBCL gained access to Clarcon’s financial
records, Neighbor discovered that Clarcon was mired in debt. It
had high overhead expenses and “[v]irtually nothing in sales.”2
Over the next two years, Victims tried to make CBCL succeed
and invested another $193,000 into the venture. Notwithstanding
those efforts, CBCL never made a profit. And eventually, the
Food and Drug Administration (the FDA) found CBCL’s
product to be contaminated with bacteria, which led to federal
authorities recalling and seizing the product inventory in the
summer of 2009. Neighbor and Bonada dissolved CBCL shortly
thereafter.
¶7 In 2011, Bird was charged with securities fraud and theft.
After a bench trial, the trial court acquitted Bird of theft but
found him guilty of securities fraud, a second degree felony. The
trial court fined Bird $10,000 and ordered him to serve one to
fifteen years in prison, but it suspended both the fine and the
prison term. The court then sentenced Bird to 180 days in jail and
placed him on probation.
¶8 As a condition of probation, the trial court ordered Bird to
pay restitution to Victims. The State requested complete and
court-ordered restitution3 in the amount of $247,000, which
2. Victims had expected to receive a share of Clarcon’s future
profits, but they received only one check for $1,100.
3. Under the Crime Victims Restitution Act, there is a distinction
between complete and court-ordered restitution. Complete
restitution is the amount of “restitution necessary to compensate
a victim for all losses caused by the defendant,” Utah Code Ann.
§ 77-38a-302(2)(a) (LexisNexis Supp. 2016), whereas court-
ordered restitution is “the restitution the court having criminal
jurisdiction orders the defendant to pay,” id. § 77-38a-302(2)(b).
20140434-CA 3 2017 UT App 147State v. Bird
represented Victims’ original investment in Clarcon. Bird
objected, arguing that “no restitution [should] be ordered as
[Victims] have not suffered an actual loss” resulting from Bird’s
criminal activities. Victims suffered no pecuniary damages, Bird
argued, because Neighbor retained Clarcon’s product inventory
and fixed assets that together exceeded the value of Victims’
principal investment. In his objection, Bird urged the court to
rely on his supporting documents and the testimony at trial in
considering his objection. He did not request a hearing on the
matter.
¶9 Without further proceedings, the trial court issued a
written ruling and order on the State’s request for restitution. In
its ruling, the court found that Victims had “relied on [Bird’s]
representations and invested a principal sum of $247,000” in
Clarcon, on which they “did not receive a return.” The court
concluded that they would not have suffered pecuniary
damages but for Bird’s criminal conduct and that their damages
“have a sufficient causal nexus in fact and in time with [Bird’s]
securities fraud.” The court further found, however, that Bird
had presented undisputed evidence that Neighbor “absorbed all
of the assets of Clarcon . . . when forming” CBCL and that those
assets had a total estimated value of $82,276.83.4 Because the
State had not presented any contrary evidence, the court
credited the value of the assets against the amount of Victims’
principal investment.
¶10 The court next addressed Bird’s attempt to seek further
credit against the amount of Victims’ principal investment based
on the value of the product inventory. Bird estimated the
product inventory “as having a value into the millions of
4. These assets included items such as labelers, drill presses, a
greenhouse, machinery, raw ingredients, desks, computers, and
office/lab equipment.
20140434-CA 4 2017 UT App 147State v. Bird
dollars.” Although Neighbor testified at trial, based on what he
was told by Bird, that the estimated retail value of the product
inventory was $1.5 million to $2 million in the spring of 2007,
other witnesses testified that the product inventory had a retail
value of $500,000 at that time. But because federal authorities
seized the product inventory in 2009 due to safety concerns, the
court found that the product inventory was “valueless.” As a
result, the court declined to credit the product inventory against
the principal investment.
¶11 The court ordered Bird to pay $164,723.17 as complete
and court-ordered restitution. This amount represented Victims’
pecuniary damages resulting from Bird’s criminal activities. The
court reached this amount by subtracting the value of the fixed
assets ($82,276.83) from the value of Victims’ principal
investment ($247,000).
¶12 After engaging new counsel, Bird filed a motion to amend
the court’s restitution order. With regard to his request for a
credit related to the product inventory, Bird argued that the
seizure of the inventory, two years after he left Clarcon, was
“based on intervening actions or omissions attributable to
[Neighbor and] should not be utilized to support denial of such
credit.” According to Bird, there was “a clear break in the ‘causal
nexus’ since [Neighbor] was capable of liquidating the assets of
the Company upon dissolution and termination of Bird.” He
argued that because Neighbor’s “determination to continue
operating and eventually having the products seized does not
support liability for Bird,” Neighbor’s retention of the product
inventory fully “offsets the $164,723.17 ordered for restitution.”
Bird requested that the court either amend the restitution order
to direct no restitution be paid to Victims or reopen the matter
with an evidentiary hearing.
¶13 The court declined to reassess its prior ruling and denied
Bird’s motion to amend. Bird now appeals.
20140434-CA 5 2017 UT App 147State v. Bird
ISSUES AND STANDARDS OF REVIEW
¶14 Bird challenges the restitution order, contending that the
trial court “failed to take into consideration the product
inventory of the Company as an off-set to the restitution.” “Trial
courts are vested with wide latitude and discretion in
sentencing.” State v. Fedorowicz, 2002 UT 67, ¶ 63, 52 P.3d 1194(citation and internal quotation marks omitted). This court “will
not disturb a trial court’s restitution order unless it exceeds that
prescribed by law or [the trial court] otherwise abused its
discretion.” State v. Corbitt, 2003 UT App 417, ¶ 6, 82 P.3d 211(citation and internal quotation marks omitted). A trial court will
be deemed to have exceeded its discretion “only if it can be said
that no reasonable [person] would take the view adopted by the
trial court.” Id. (alteration in original) (citation and internal
quotation marks omitted).
¶15 Again referring to the product inventory, Bird also argues
that the evidence was insufficient to support the restitution
order. To successfully challenge the sufficiency of the evidence,
Bird “must demonstrate that the clear weight of [the] evidence
contradicts the trial court’s [ruling].” See State v. McBride, 940
P.2d 539, 541 (Utah Ct. App. 1997) (first alteration in original)
(citation and internal quotation marks omitted).
ANALYSIS
¶16 Bird contends that, in calculating the amount of
restitution he owed Victims, the trial court erred by failing to
credit the value of the product inventory that Neighbor retained
after Bird left the Clarcon venture. Specifically, Bird argues that
the product inventory was valued somewhere between $1
million and $1.5 million at the time it was given to Victim, and
that Victims have been fully compensated for their lost
investment as a result. Bird also challenges the trial court’s
decision not to offset Victims’ damages by the value of the
20140434-CA 6 2017 UT App 147State v. Bird
product inventory based on the trial court’s finding that the
inventory was valueless when it was seized by the FDA. Bird
contends that the loss in the inventory’s value was not
attributable to him. Finally, Bird argues that the evidence was
insufficient to support the restitution order, claiming that the
court’s finding that the inventory was valueless was against the
clear weight of the evidence.5
¶17 Before we reach the merits of these arguments, we
observe that Bird did not request a hearing on his objection to
the State’s request for restitution. The applicable statute provides
that, “[i]f the defendant objects to the imposition, amount, or
distribution of the restitution, the court shall allow the defendant
a full hearing on the issue.” Utah Code Ann. § 77-38a-302(4)
(LexisNexis Supp. 2016). Nevertheless, in his objection to
restitution, Bird encouraged the trial court to rule on the
restitution issue by relying solely on his supporting documents
and the testimony at trial. And the court did just that. Because
the focus of Bird’s trial was on the question of his guilt or
innocence, the record leaves some questions unanswered
regarding the product inventory and other aspects of Clarcon’s
business.6 We note that this lack of detail has made it more
5. The trial court here determined that both complete and court-
ordered restitution amounted to $164,723.17. See State v. Laycock,
2009 UT 53, ¶ 30, 214 P.3d 104 (“Court-ordered restitution may
be identical in amount to complete restitution, but it need not be
so.”). Because Bird makes no argument that the difference
between these types of restitution is material to the issues on
appeal, we do not address this distinction further.
6. Bird eventually asked the trial court for a hearing. Specifically,
Bird asked the court to reopen that matter with an evidentiary
hearing in the event it refused to amend the restitution order as
requested in his motion to amend. The trial court denied the
(continued…)
20140434-CA 7 2017 UT App 147State v. Bird
difficult for Bird to meet his burden to demonstrate error on
appeal, a difficulty that might have been ameliorated had he
requested a hearing on restitution in the first instance. Cf. State v.
Hummel, 2017 UT 19, ¶ 82, 393 P.3d 314 (“Uncertainty counts
against the appellant, who bears the burden of proof on
appeal . . . . Thus, a lack of certainty in the record does not lead
to a reversal and new trial; it leads to an affirmance on the
ground that the appellant cannot carry his burden of proof.”
(footnote omitted)). We now address his claims of error.
I. Offset
¶18 The Crime Victims Restitution Act states, “When a
defendant is convicted of criminal activity that has resulted in
pecuniary damages, . . . the court shall order that the defendant
make restitution to victims of crime . . . .” Utah Code Ann. § 77-
38a-302(1) (LexisNexis Supp. 2016). “‘Pecuniary damages’” are
“all demonstrable economic injury, . . . including those which a
person could recover in a civil action arising out of the facts or
events constituting the defendant’s criminal activities and
includes the fair market value of property taken, destroyed,
broken, or otherwise harmed.” Id. § 77-38a-102(6). A defendant’s
“‘[c]riminal activities’” include “any offense of which the
defendant is convicted.” Id. § 77-38a-102(2)(a). In determining
the monetary sum and other conditions related to restitution,
courts are to consider all relevant facts, including “the cost of the
damage or loss if the offense resulted in damage to or loss or
destruction of property of a victim of the offense.” Id. § 77-38a-
302(5)(b)(i).
(…continued)
motion to amend and the alternative request to reopen the
matter for an evidentiary hearing. On appeal, Bird does not
challenge the court’s decision not to reopen the matter.
20140434-CA 8 2017 UT App 147State v. Bird
¶19 “[T]o include an amount in a restitution order, the State
must prove that the victim has suffered economic injury and that
the injury arose out of the defendant’s criminal activities.” State
v. Brown, 2009 UT App 285, ¶ 10, 221 P.3d 273. “Utah has
adopted a modified ‘but for’ test to determine whether
pecuniary damages actually arise out of criminal activities.” Id.
¶ 11. This test “requires that (1) the damages would not have
occurred but for the conduct underlying the . . . [defendant’s]
conviction and (2) the causal nexus between the [criminal]
conduct and the loss . . . is not too attenuated (either factually or
temporally).” Id. (alterations and omissions in original) (citation
and internal quotation marks omitted).
¶20 The trial court determined that both elements of the
modified but for test were satisfied in this case. The court
explained that it found Bird guilty of securities fraud at trial
based on evidence demonstrating that Bird had “made
numerous untrue statements of material facts, omitted to state
numerous material facts, and engaged in an act, practice, or
course of business which operated as a fraud or deceit” upon
Victims.7 The court further found that Victims relied on Bird in
7. Bird asserts that the crime for which he was convicted was
selling a security without a broker-dealer license under Utah
Code section 61-1-3. See Utah Code Ann. § 61-1-3 (LexisNexis
Supp. 2016) (providing that it is unlawful for “a person to
transact business in this state as a broker-dealer or agent unless
the person is licensed”). This claim is not supported by the
record and was expressly rejected by the trial court in denying
Bird’s motion to amend. We likewise reject this argument. Bird
was charged and convicted under Utah Code subsections 61-1-
1(2) and 61-1-1(3). See id. § 61-1-1(2), (3) (2011) (making it
unlawful for “any person, in connection with the offer, sale, or
purchase of any security, directly or indirectly” to “make any
untrue statement of a material fact or to omit to state a material
(continued…)
20140434-CA 9 2017 UT App 147State v. Bird
making their $247,000 investment in Clarcon and that Victims
did not receive a return. The court determined (1) that but for
Bird’s criminal activities, Victims “would not have suffered
pecuniary damages from their investment,” and (2) that Victims’
damages—the amount of their investment in Clarcon
($247,000)—“have a sufficient causal nexus in fact and time with
[Bird’s] securities fraud.”
¶21 Had Victims’ involvement with Bird ended with the
dissolution of Clarcon, determining the proper amount of
restitution would have been simple. Because pecuniary damages
include all demonstrable economic injury “a person could
recover in a civil action arising out of the facts or events
constituting the defendant’s criminal activities,” Utah Code Ann.
§ 77-38a-102(6) (LexisNexis Supp. 2016), the parties direct us to
the remedies provision of the Utah Uniform Securities Act as
“[t]he relevant civil-action analog to securities fraud.” Here,
consistent with the civil damages available to a victim under that
provision, Victims would be entitled to recover the entirety of
their $247,000 investment in Clarcon, an investment they would
not have made but for Bird’s securities fraud. Damages for a
victim who no longer owns a security are calculated by starting
with the consideration paid for the security and subtracting the
value of the security when the victim disposed of it. Id. § 61-1-
22(1)(b), (c).8 The security in this case is the ownership interest in
(…continued)
fact necessary in order to make the statements made, in the light
of the circumstances under which they are made, not
misleading,” or to “engage in any act, practice, or course of
business which operates or would operate as a fraud or deceit
upon any person”).
8. The parties agree that the 2012 version of the securities fraud
statute applies here. We follow their lead.
20140434-CA 10 2017 UT App 147State v. Bird
Clarcon, which the parties agree was disposed of when Clarcon
dissolved in 2007. Victims paid Bird $247,000 for that security,
and no one argues that the security had any value when Clarcon
was dissolved. This case is complicated by the fact that following
the dissolution of Clarcon in 2007, Bird transferred to Neighbor
product and other inventory that Bird claims should be offset
against the amount he obtained from Victims by fraud.
¶22 Bird contends that in calculating the amount of restitution
he owed Victims, the trial court erred in failing to credit the
value of the product inventory that Bird gave Neighbor after
Bird left the Clarcon venture.9 According to Bird, the product
inventory was “not valueless” when he gave it to Neighbor, and
the trial court should have reduced the product inventory’s
value from the remaining restitution amount of $164,723.17.
Relying on testimony that he claims supports a finding that the
inventory was worth $1 million to $1.5 million, Bird believes no
restitution was warranted.
¶23 This court has indicated that, when determining the
amount of restitution, it may be appropriate to credit against the
victim’s losses sums received by a victim after the defendant’s
fraud. See State v. Johnson, 2009 UT App 382, ¶¶ 48–49, 224 P.3d
720 (remanding for the trial court to determine whether certain
payments received by the victims should offset the amount of
restitution). Generally, in the civil context, a defendant bears the
burden of proof when he requests an offset. See J. Henry Jones Co.
v. Smith, 494 P.2d 526, 527 (Utah 1972) (“The plaintiff having
delivered the equipment, the defendant’s claims of offset against
the stated price are affirmative defenses upon which he has the
9. On appeal, neither side challenges the trial court’s decision to
credit $82,276.83 for the value of the other assets against the
amount of Victims’ principal investment in calculating
restitution.
20140434-CA 11 2017 UT App 147State v. Bird
burden of proof.”). Bird has not identified any provision in the
Crime Victims Restitution Act that would alter this general rule
in the restitution context, and he concedes that, once the State
established that Victims had suffered a loss of $247,000 due to
Bird’s crime, “[t]he burden then shifted to [him] to present any
offsets.” Accordingly, we accept that Bird bore the burden to
prove the value of the product inventory.
¶24 Based on the evidence presented, we are not persuaded
that the trial court abused its discretion in rejecting Bird’s
position that the product inventory should be offset against
Victims’ lost investment based on Bird’s claim that the inventory
was worth between $1 million and $1.5 million in 2007. Bird’s
valuation is based on Neighbor’s trial testimony that Bird
showed him the inventory and Neighbor estimated its retail
value to be $1.5 million. Neighbor testified that he arrived at this
“[b]all park figure . . . based upon [Bird’s] price that he told
[Neighbor] it was per bottle.” This estimate was, at best, a guess
at retail value based entirely on representations Bird made to
Neighbor to induce him to invest in Clarcon.
¶25 More importantly, there was no evidence offered during
trial or in support of Bird’s post-trial restitution objection to
support Bird’s claim that the product inventory had a
discernable value against which Victims’ losses should be offset.
The testimony on which Bird relies says nothing about the
wholesale value of the inventory in 2007, and the evidence the
court received demonstrated that the inventory was not readily
marketable. Neighbor testified that while there had been some
“interest” in the product, “[t]hat does not necessarily mean they
had volume sales.” And a salesperson who had been employed
by Clarcon testified that in 2007, the venture “was as start-up as
it gets,” and that while there were “some initial sales, . . . it was
the very beginning stages of that.” He testified that while he
might have sold a couple cases of the product, his efforts were
“preliminary” and the operation was “in its infancy.”
20140434-CA 12 2017 UT App 147State v. Bird
¶26 Thus, while the testimony Bird relies on suggests that the
inventory had potential value, Bird cannot demonstrate that the
trial court erred in not valuing the product somewhere between
$1 million and $1.5 million where Bird provided no evidence to
support his claim that the inventory had a marketable value at the
time it was given to Neighbor—that he could have converted it
to cash to recover the lost investment. In fact, Bird’s own
testimony suggested that the inventory had no value without the
investment of considerable effort to sell the product. Bird
testified that he told Neighbor that he was “going to throw [the
product] away” if Neighbor did not take it. This strongly
indicates that the inventory did not have the value Bird now
suggests.
¶27 Instead, the evidence presented to the trial court
demonstrated that the product inventory only had value to the
extent it could be sold. And as the trial court ultimately
concluded, the inventory was valueless because it was seized by
the FDA before any economic benefit could be derived from it.
Bird contends that the trial court erred in reaching such a
conclusion, asserting that “CBCL was not shut down based on
the crime for which Bird was convicted,” and that CBCL’s “own
failure to follow FDA requirements” was “outside Bird’s
control.” Bird’s argument is misguided. The relevant question
here is not whether CBCL was shut down as a result of Bird’s
fraud. The relevant question is whether the product inventory
had value sufficient to compensate Victims for at least some
portion of their investment. We conclude that the trial court did
not err in finding that it did not. The evidence demonstrated that
Victims worked for two years to extract a return from the
inventory, including investing additional funds into the venture.
The fact that they were ultimately unable to succeed before a
profit could be made is a risk the trial court appropriately
required Bird to bear under these circumstances.
20140434-CA 13 2017 UT App 147State v. Bird
¶28 In reaching this conclusion, we note that had Bird
demonstrated to the trial court that the product inventory could
have been liquidated in 2007 with minimal effort, and that
Neighbor acted unreasonably in holding onto the inventory, the
result might well have been different. But Bird bore the burden
of proving the value of the offset.10 Supra ¶ 23. Simply pointing
to evidence of a theoretical value does not undermine the trial
court’s conclusion that, even though Neighbor made a
considerable effort to recover from Bird’s fraud, he was unable
to realize any value from the inventory.
II. Sufficiency of the Evidence
¶29 Bird briefly contends that the evidence was insufficient to
support the restitution order. “To successfully challenge the
sufficiency of the evidence, appellant must demonstrate that the
clear weight of [the] evidence contradicts the trial court’s
[ruling].” See State v. McBride, 940 P.2d 539, 541 (Utah Ct. App.
1997) (first alteration in original) (citation and internal quotation
marks omitted).
¶30 Bird has not met his burden on appeal. First, Bird
concedes that “[t]he State herein established by evidence that
10. Bird asserts that, after he pointed to Neighbor’s testimony
that Neighbor received $1.5 million in assets, “[t]he burden then
shifted to the State to provide rebuttal evidence to the requested
offsets.” But this assertion presumes that Bird satisfied his initial
burden to prove the value of the offset, and as we have
concluded, the trial court did not exceed its discretion in
rejecting Bird’s proposed valuation of the product inventory. Cf.
Anderson v. State Farm Fire & Cas. Co., 583 P.2d 101, 104 (Utah
1978) (noting that a witness’s testimony regarding the value of
lost property is “to be given such weight and credibility as the
trier of fact finds reasonable under the circumstances”).
20140434-CA 14 2017 UT App 147State v. Bird
[Victims] had entered into a securities agreement with Bird for
$247,000, which was found to be the loss and/or injury incurred”
by Victims stemming from Bird’s crime. Thus, there is sufficient
evidence in the record to support a causal nexus between Bird’s
fraud and Victims’ loss.
¶31 Second, Bird argues that the trial court’s findings that the
product inventory “was valueless due to the FDA shutting down
CBCL two years later was against the clear weight of the
evidence.” Bird contends that the trial court was forced to infer
that the inventory transferred to Neighbor was the inventory
recalled by the FDA two years later, and that it was “more
appropriate” to infer that the inventory given to Neighbor in
2007 had already been sold. While there may be evidence in the
record to support Bird’s inferences, he has failed to demonstrate
that the trial court’s contrary conclusions were against the clear
weight of the evidence on the limited record before it. There was
sufficient evidence that Neighbor had not sold the product
inventory he received from Bird and that it was that inventory
that was recalled by the FDA. Thus, Bird has not met his burden
of showing that the clear weight of the evidence contradicts the
trial court’s determinations.
CONCLUSION
¶32 For the foregoing reasons, we affirm the trial court’s
restitution order.
20140434-CA 15 2017 UT App 147