United States v. Corey

Not for Publication in West's Federal Reporter
Citation Limited Pursuant to 1st Cir. Loc. R. 32.3
United States Court of Appeals
For the First Circuit
No. 02-1062
UNITED STATES OF AMERICA,
Appellee,
v.
TODD COREY,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
Before
Torruella, Circuit Judge,
Greenberg,* Senior Circuit Judge,
and Howard Circuit Judge.
J. Hilary Billings, with whom Billings & Silverstein was on
brief, for appellant.
F. Mark Terison, Senior Litigation Counsel, with whom Paula D.
Silsby, United States Attorney, was on brief, for appellee.
October 7, 2003
* Of the Third Circuit, sitting by designation.
HOWARD, Circuit Judge. This appeal concerns the scope of
restitution that may be awarded under the Mandatory Victim Witness
Restitution Act, 18 U.S.C. § 3663A ("MVRA"). Defendant William E.
Corey ("Corey") appeals the district court's order directing him to
pay more than $42,000 in restitution to Farm Credit of Maine ("Farm
Credit"), a lending institution he stands guilty of defrauding. We
affirm.
I.
The case arises from a fraudulent loan application. On
July 26, 1997, Corey submitted an application to Farm Credit for a
credit line loan supported by documents containing material
misrepresentations about his credit status, including, inter alia,
a sham social security number, falsified letters of credit, and
federal income tax returns with substantial inaccuracies. On
September 5, 1997, Farm Credit granted Corey a line of credit in
the amount of $54,997. Corey borrowed the full amount authorized
under the loan.
From the outset, Corey failed to make loan repayments to
Farm Credit. In August 1998, Farm Credit foreclosed on the loan
and obtained $22,500 in gross proceeds from the auction of real
property that collateralized the credit line. Eventually, on
October 6, 1998, Farm Credit moved the account into non-accrual
status.
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In due course, the government charged Corey with bank
fraud, see 18 U.S.C. § 1344, in a one-count information.1 On July
18, 2001, Corey pleaded guilty to the information. Prior to
sentencing, the probation department filed with the district court
a presentence report proposing a restitution award of $44,152.43.
The proposed award had four components: (1) a net loss on the loan
of $28,925; (2) legal expenses of $8,910.01; (3) prejudgment
interest in the amount of $4,292.42; and (4) real estate sale costs
of $2,025. The government concurred in the probation department's
proposal, but Corey objected to it to the extent that it proposed
compensating Farm Credit for losses other than its net loss on the
loan. In Corey's view, the other damages were "consequential" and
thus beyond the reach of the MVRA.
In pressing his objection, Corey relied on several
decisions from other circuits holding that the MVRA bars collateral
consequential damages in a restitution award. At issue in those
1
18 U.S.C. § 1344 provides:
Whoever knowingly executes, or attempts to execute, a
scheme or artifice--
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets,
securities, or other property owned by, or under the
custody or control of, a financial institution, by
means of false or fraudulent pretenses,
representations, or promises; shall be fined not
more than $1,000,000 or imprisoned not more than 30
years, or both.
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cases was the scope of 18 U.S.C. § 3663A(b)(1), which pertains to
offenses "resulting in damage to or loss or destruction of property
. . ." In pertinent part, the statute states that a restitution
award should be the greater of "(I) the value of the property on
the date of the damage, loss, or destruction; or (II) the value of
the property on the date of sentencing, less [ ] the value (as of
the date the property is returned) of any part of the property that
is returned." As Corey correctly observed, courts have read this
language as limiting restitution awards to "direct" losses and
precluding the inclusion of "consequential" damages. See e.g.,
United States v. Seward, 272 F.3d 831, 839 (7th Cir. 2001); United
States v. Mikolajczyk, 137 F.3d 237, 245-46 (5th Cir. 1998).
The government responded that the losses in question were
directly related to the loan and, as such, recoverable. To
establish this link, the government presented the testimony of a
bank official familiar with the Corey transaction. A Farm Credit
senior vice president testified about the nature of Farm Credit's
losses. He stated that the bank suffered (1) foreclosure expenses;
(2) $2,000 in expenses for a "disclosure hearing" to gather
information about Corey's financial position; and (3) legal
expenses associated with Corey's bankruptcy, including a petition
to release the collateral Corey used to secure the loan from the
bankruptcy estate. He also testified that the bank's costs from
its sale of the secured collateral included auctioneer's fees and
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publication expenses. Finally, he stated that with respect to lost
interest, Farm Credit determined (on August 6, 1998) that the Corey
loan was non-earning and, two months later the bank transferred the
loan to non-accrual status. The district court rejected Corey's
argument that the MVRA permitted it only to award restitution for
the loan principal. The court found the cases Corey cited to be
inapposite because Corey had not caused a loss or destruction of
property within the meaning of § 3663A(b)(1). The court then
looked to the statutory definition of "victim" -- "person directly
and proximately harmed as a result of the commission of an
offense," 18 U.S.C. § 3663A(2) -- and concluded that a compensable
loss includes all losses "proximately caused" by the subject
criminal conduct. Applying this rationale and relying on the
testimony summarized in the preceding paragraph, the court
concluded that Farm Credit's legal expenses and prejudgment
interest were within the zone of foreseeability and thus
recoverable under the statute. But the court was not persuaded
that Farm Credit's sales costs were proximately caused by Corey's
offense and thus declined to award $2,025 in auctioneer's fees. In
the end, the court imposed a $42,127.43 restitution obligation.
This appeal followed.
II.
Although he presses it from a number of angles, Corey
bases this appeal on an argument that the district court exceeded
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its statutory authority when it compensated Farm Credit for its
attorneys' fees and for the prejudgment interest it lost on Corey's
account. Corey's thesis is straightforward: attorney's fees and
interest are not proper bases for a restitution award because they
constitute consequential damages -- i.e., "such damage, loss, or
injury as does not flow directly and immediately from the act of
the party, but only from some of the consequences or results of
such act." Black's Law Dictionary 390 96th ed. 1990). As he did
below, he points to precedent from other circuits holding that
attorney's fees and interest constitute impermissible consequential
damages. See, e.g., Seward, 272 F.3d at 839.
While we have no quarrel with the abstract proposition
that unforeseeable consequential damages are beyond the scope of
the MVRA, Corey's one-size-fits-all categorical approach is not
well suited to carrying out the statute's purposes. In the end,
the question is really whether the damages for which the district
court awarded restitution were "reasonably foreseeable" to Corey.
See United States v. Collins, 209 F.3d 1, 3-4 (1st Cir. 1999). And
in our view, the court permissibly concluded that they were.
As the district court concluded, Corey's restitution
order fell within the compass of § 3663A, which requires a
defendant to "make restitution to the victim of the offense." 18
U.S.C. § 3663A. Under the statutory framework, sentencing courts
wield considerable discretion "to reach an expeditious, reasonable
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determination of appropriate restitution by resolving uncertainties
with a view toward achieving fairness to the victim." S. Rep. No.
97-532, reprinted in 1982 U.S.C.C.A.N. 2515, 2537; United States v.
Benjamin, 30 F.3d 196, 198 (1st Cir. 1994). This broad discretion
enables courts to resolve the complicated issues that may arise
during loss determinations. United States v. Minneman, 143 F.3d
274, 284 (7th Cir. 1998).
As we have previously observed, Congress did not
contemplate a purely formalistic approach when it widened the scope
of restitutionary remedies by enacting the MVRA. See United States
v. Vaknin, 112 F.3d 579, 588 (1st Cir. 1997) (interpreting the
VWPA). Rather, the focus of the district court's inquiry should be
on the relationship between the victim's loss and the defendant's
crime. Under the VWPA, we have adopted a "but for" standard of
causation for restitution that requires the government to show not
only that a particular loss would not have occurred but for the
conduct underlying the offense of conviction, but also that the
causal nexus between the conduct and the loss is not too attenuated
(either factually or temporally). The watchword is reasonableness.
"A sentencing court should undertake an individualized inquiry;
what constitutes sufficient causation can only be determined case
by case, in a fact-specific probe." Id. (emphasis added).2
2
In United States v. Cutter, 313 F.3d 1, 7 (1st Cir. 2002),
we held that because the VWPA and the MVRA contain the identical
causation provision, the statutes should be interpreted in tandem.
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Fraud is distinct from other traditional offenses against
physical property. Fraud constitutes "[a]n intentional perversion
of the truth." Black's Law Dictionary 660 (6th Ed. 1990). The
subject criminal conduct is thus the misrepresentation itself
rather than the theft of some tangible good. Where there is fraud,
then, the concept of loss comprehends all reasonably foreseeable
injuries "sustained by [the] victim as a result of the underlying
offense." 18 U.S.C. § 3664; see, also, e.g., United States v.
Solares, 236 F.3d 24, 26 (1st Cir. 2000)(holding the defendant
responsible for the totality of banks' losses from conspiracy to
cash counterfeit checks because such losses were reasonably
foreseeable). Thus, the task before us is to determine whether the
losses for which the court ordered restitution can be so
categorized.
We begin with the question of attorney's fees. As Corey
argued, in the context of § 3663A(b)(1) and its predecessor, §
3663(b)(1)3, the clear weight of authority has held that
restitution does not encompass attorney's fees.4 But these cases
3
See note 2, above; see also United States v. Simmonds, 235
F.3d 826, 832 n.2 (3d Cir. 2000) (comparing § 3663(b)(1) and §
3663A(b)(1)). Although Congress broadened the scope of restitution
when it enacted § 3663A, it did not change the requirement that the
victim's damages be limited to its actual loss.
4
Seward, 272 F.3d. at 839 (holding that restitution does not
comprehend attorney's and executor's fees "incurred in fighting a
fraudulent scheme" in probate court because they are consequential
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do not address situations, as here, where the attorney's fees were
part of the intrinsic worth of the subject property.
As the district court observed, the statute contains no
language limiting a court's authority to determine the appropriate
amount of loss where the underlying crime does not involve damage
to property. In analogous cases, several circuits have not
confined restitution under the MVRA to the strict replacement value
of the property.5 Implicit in these decisions is that the concept
rather than direct damages); United States v. Simmonds, 235 F.3d
826, 834 (3d Cir. 2000) (determining that the VWPA unambiguously
limited restitution to "'the value of property' lost, damaged or
destroyed as a result of the [defendant's] crimes."); Mikolajczyk,
137 F.3d at 245-46 (including the victim's attorney's fees in
restitution where they were a direct result of the defendant's
fraud rather than a voluntary act taken by the victim to recover
property or damages); Government of Virgin Islands v. Davis, 43
F.3d 41, 45-46 (3rd Cir. 1994), cert. denied, 515 U.S. 1123 (1995)
(concluding that an award of restitution pursuant to VWPA cannot
include litigation costs to recover balance of funds in bank
accounts because such expense are too far removed from the
underlying criminal conduct); United States v. Mullins, 971 F.2d
1138, 1147-48 (4th Cir. 1992) (declining, under the VWPA, to award
attorney's and investigator's fees expended to recover equipment
obtained through a false credit application); United States v.
Barany, 884 F.2d 1255 (9th Cir. 1989), cert. denied, 493 U.S. 1034(1990) (holding that insurance company's legal expenses from a
"wholly separate" civil suit were not recoverable under the VWPA).
5
Cummings, 281 F.3d at 1053 (9th Cir. 2002) (upholding
restitution award that included the victim's attorney's fees and
expenses for separate state and international civil proceedings
because they were not "wholly separate" from the government's
prosecution of the defendant); United States v. Akbani, 151 F.3d
774, 779-780 (8th Cir. 1998)(holding that attorney’s fees are
permissible where the underlying offense does not involve loss or
destruction to physical property); United States v. Blackburn, 9
F.3d 353, 359 (5th Cir. 1993) (holding that attorney's fees
incurred in defending civil suit were recoverable because they
directly resulted from the underlying offense); see also United
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of "replacement value" is different where physical property is not
involved, and an attendant acknowledgment that attorney’s fees in
those limited cases may be within the compass of foreseeable
losses. Corey's argument presumes a per se rule that all legal
expenses are impermissible under the MVRA. We see no statutory
basis for such a rule. Frequently, attorney's fees will not be
recoverable. But the determination whether a loss is recoverable
entails a fact-intensive inquiry that is best conceptualized in
terms of foreseeability.
Here, there was evidence that led the court to conclude
that Farm Credit's legal expenses arose directly from Corey's
fraud. Corey's misrepresentations divested Farm Credit of its
ability to bargain with the real facts when it granted him a line
of credit. The loan was premised upon a sham and, as a matter of
course, Farm Credit's response to that fraud entailed routine legal
expenses that are necessarily incurred when a heavily regulated
secured lender mitigates its losses by foreclosing on collateral.
The fees at issue here are thus entirely different in kind from
those incurred where a crime victim initiates a civil lawsuit on
the basis of the underlying offense. Barany, 884 F.2d at 1261.
The same reasoning defeats Corey's argument that the
district court erred by including prejudgment interest in its
States v. Patty, 992 F.2d 1045, 1049 (10th Cir. 1993) (concluding
that attorney’s fees may be recoverable under the VWPA if they are
directly related to the defendant’s criminal conduct).
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restitution award. Because the MVRA is silent on the issue of
prejudgment interest, we turn to "an appraisal of the congressional
purpose." Rodgers v. United States, 332 U.S. 371, 373 (1947). The
MVRA aims to provide victims with full and fair compensation,
rendering the return of the principal loan amount inadequate
because "[f]oregone interest is one aspect of the victim's actual
loss." United States v. Smith, 944 F.2d 618, 626 (9th Cir. 1991)
(interpreting the VWPA). Indeed, a majority of the circuits
addressing the issue have held that restitution under the MVRA, or
alternatively the VWPA, may include prejudgment interest. Id.(construing VWPA); Shepard, 269 F.3d at 886 (construing MVRA);
Davis, 43 F.3d 47 (construing VWPA); United States v. Hoyle, 33
F.3d 415 (5th Cir. 1994)(construing VWPA); Patty, 992 F.2d at 1050(construing VWPA); United States v. Rochester, 898 F.2d 971, 983
(5th Cir. 1990) (construing VWPA).
In our view, placing prejudgment interest within the
category of potentially recoverable losses in a restitution award
is consistent with the MVRA. As with attorney's fees, there are no
predetermined wooden rules that govern whether prejudgment interest
on a loan falls within the ambit of a restitution award. Rather,
it is within the sound discretion of the district court to make
that determination.
Interest is the bread and butter of the business of any
lending institution. "Lost interest translates into lost
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opportunities, as it reflects the victim's inability to use his or
her money for productive purposes." Davis, 43 F.3d at 47. When
Farm Credit, relying upon Corey's falsified application, loaned
money to Corey, it presumably made a considered judgment about the
optimal allocation of its resources, thereby passing up other
revenue-generating enterprises. Accordingly there was sufficient
evidence for the district court to find that Farm Credit's lost
interest was directly related to Corey's fraud.
III.
Based upon the foregoing, we affirm the district court's
award of restitution.
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