Opinion
03 Cr. 308 (LAK) (AJP).
May 17, 2007
REPORT AND RECOMMENDATION
On January 29, 2007, Judge Kaplan adopted my Report and Recommendation to decline to order restitution from defendants Arnold Bengis, Jeffrey Noll and David Bengis under the Mandatory Victims Restitution Act ("MVRA"). See United States v. Bengis, 03 Cr. 0308, 2007 WL 241370 (S.D.N.Y. Jan. 29, 2007) (Kaplan, D.J.),adopting 2006 WL 3735654 (S.D.N.Y. Dec. 19, 2006) (Peck, M.J.), familiarity with which is assumed. The Government now requests that the Court order defendants to pay over $41 million in restitution under the Victim and Witness Protection Act ("VWPA"), 18 U.S.C. § 3663. (Gov't VWPA Br. at 25.)
The problem with the Government's application is that it essentially re-argues that restitution is proper because the lobsters belong to South Africa, i.e., are South Africa's property, a claim which this Court rejected under the MVRA. While the VWPA is not limited to offenses against property, the VWPA does require direct harm to the "victim," and the Government's direct harm argument is premised on its claim that the lobsters belonged to South Africa — a claim this Court already has rejected.
For the reasons set forth below, the Court should reject the Government's request for restitution under the Victim and Witness Protection Act.
ANALYSIS
The factual background to this motion is set forth in this Court's prior opinion, familiarity with which is assumed.
THE VICTIM AND WITNESS PROTECTION ACT
A. General Requirements for Sentencing Under the VWPA
In their brief opposing the Government's request for an order of restitution under the VWPA, defendants renew their argument that the federal restitution scheme is unconstitutional as applied to defendants under Blakely v. Washington and its progeny. (See Dkt. No. 130: Defs. VWPA Opp. Br. at 19-24.) Because the Court previously addressed and rejected this argument, see United States v. Bengis, 03 Crim. 0308, 2006 WL 3735654 at *2 n. 7 (S.D.N.Y. Dec. 19, 2006) (Peck, M.J.), report rec. adopted, 2007 WL 241370 (S.D.N.Y. Jan. 29, 2007) (Kaplan, D.J.), and because defendants concede that this Court remains bound by the Second Circuit's decision in United States v.Reifler, 446 F.3d 65 (2d Cir. 2006) (Defs. VWPA Opp. Br. at 22.), the Court will not further address this issue.
The VWPA states that "[t]he court, when sentencing a defendant convicted of an offense under this title . . . other than an offense described in section 3663A(c) [i.e., the Mandatory Victims Restitution Act], may order, in addition to or, in the case of a misdemeanor, in lieu of any other penalty authorized by law, that the defendant make restitution to any victim of such offense . . ." 18 U.S.C. § 3663(a)(1)(A). Under the VWPA, "[t]he court, in determining whether to order restitution under this section, shall consider — (I) the amount of the loss sustained by each victim as a result of the offense; and (II) the financial resources of the defendant, the financial needs and earning ability of the defendant and the defendant's dependents, and such other factors as the court deems appropriate." 18 U.S.C. § 3663(a)(1)(B)(i).
The VWPA provides that, "[t]o the extent that the court determines that the complication and prolongation of the sentencing process resulting from the fashioning of an order of restitution under this section outweighs the need to provide restitution to any victims, the court may decline to make such an order." 18 U.S.C. § 3663(a)(1)(B)(ii).
The length of time that it took the parties to brief the restitution issue in this case, the theoretical nature of the Government's loss calculations, the Government's modifications of its damage theories, and defendants' factual and Daubert challenges to the Government's damage calculations, all suggest that the Court could decline to order restitution under this "complexity" section of the VWPA. However, because restitution under the VWPA should be denied on other grounds, the Court does not reach the "complexity" issue.
Most importantly for deciding the Government's request for restitution, under the VWPA, "the term `victim' means a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern." 18 U.S.C. § 3663(a)(2).
The VWPA also provides guidelines for what a court should consider when fashioning a restitution award thereunder:
(b) The [restitution] order may require that such defendant —
(1) in the case of an offense resulting in damage to or loss or destruction of property of a victim of the offense —
(A) return the property to the owner of the property or someone designated by the owner; or
(B) if return of the property under subparagraph (A) is impossible, impractical, or inadequate, pay an amount equal to 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.18 U.S.C. § 3663(b)(1).
B. A Restitution Order Under the VWPA May Only Consider Losses Directly Caused By A Defendant's Offense Conduct
The Tenth Circuit has noted that:
Section 3663 of title 18 specifically requires a court ordering restitution to consider "the amount of the loss sustained by a victim as a result of the offense." Thus, unlike the sentencing guidelines, which allow a court to consider actual or intended loss for the purposes of sentencing, section 3663 implicitly requires that an award of restitution be based on the amount of loss actually caused by the defendant's offense.United States v. Messner, 107 F.3d 1448, 1455 (10th Cir. 1997) (citations footnotes omitted, emphasis in original); see also,e.g., United States v. Germosen, 139 F.3d 120, 130, 131 (2d Cir. 1998) ("[T]he Sentencing Guidelines allow for a loss calculation based on `intended loss,' whereas [the VWPA] requires a showing of actual loss for purposes of restitution." "Absent a stipulation in a plea agreement, a sentencing court may award restitution only for losses directly resulting from the `conduct forming the basis for the offense of conviction.'"), cert. denied, 525 U.S. 1083, 119 S. Ct. 829 (1999); United States v. Blake, 81 F.3d 498, 506 n. 5 (4th Cir. 1996) ("The definition of victim provided in [the VWPA] is much narrower than the one in the [sentencing] guidelines, and it is § 3663 — not the guidelines — that governs the authority of a sentencing court to require restitution."); United States v. Silkowski, 32 F.3d 682, 688 (2d Cir. 1994) ("Where the issue is the amount of loss to be repaid by a defendant under a restitution order, . . . the scope of conduct that a district court may consider in determining the amount of loss is governed by different considerations than those set forth in the relevant conduct provision of the Guidelines. Rather, the Guidelines authorize a district court to `enter a restitution order if such order is authorized under 18 U.S.C. §§ 3663- 3664.' Thus, 18 U.S.C. §§ 3663- 3664, the [VWPA], not the Guidelines themselves, ultimately governs a sentencing court's authority to determine and impose a restitution penalty on a criminal defendant.") (citations emphasis omitted).
In Hughey v. United States, the Supreme Court clarified that the VWPA "authorize[s] an award of restitution only for the loss caused by the specific conduct that is the basis of the offense of conviction." Hughey v. United States, 495 U.S. 411, 413, 110 S. Ct. 1979, 1981 (1990). In response to the Hughey decision, Congress amended the VWPA to include its current language, which incorporates "two significant changes: 1) With respect to offenses involving a scheme, conspiracy, or pattern of criminal activity, they broadened the class of `victims' to include any person directly harmed by the defendant's criminal conduct; and 2) They allowed courts to order restitution `to the extent agreed to by the parties in a plea agreement.'"United States v. Broughton-Jones, 71 F.3d 1143, 1147 (4th Cir. 1995) (citations omitted); see also 18 U.S.C. § 3663(a). Therefore, when ordering restitution under the VWPA, district courts now must consider the matter in two stages: "First, we determine whether the parties agreed to an amount of restitution in a plea agreement; such agreements may authorize restitution in an amount greater than the loss attributable to the offense of conviction. If the plea agreement does not provide for a larger amount, the court still may order restitution to any `victim' to the extent of the loss caused by an offense of conviction."United States v. Broughton-Jones, 71 F.3d at 1148 (citations omitted).
"Although this amendment superseded Hughey's holding in part, [the Fourth Circuit] has recognized that Hughey still applies when, in the absence of an appropriate plea agreement that provides for restitution, a restitution award clearly encompasses an offense for which the defendant was not convicted." United States v. Blake, 81 F.3d at 506 n. 6 (quotations omitted).
Section 3663(a) as amended contains this additional sentence:
The court may also order, if agreed to by the parties in a plea agreement, restitution to persons other than the victim of the offense.18 U.S.C. § 3663(a).
Here, defendants' plea agreements stated that "the Court must order restitution in accordance with Sections 3663, 3663A and 3664 of Title 18, United States Code. This amount shall be paid according to a plan established by the Court." (Defs. Binder Ex. 8: Gov't Opp. Br. Exs. D, E, F at 2.) Because defendants' plea agreements include only general language regarding restitution, the Court is not bound to order restitution in any particular amount to any particular victim or to order restitution at all if it is not permitted by the MVRA or VWPA. See, e.g., United States v. Reynolds, 432 F.3d 821, 823 (8th Cir. 2005) ("Although [defendant] acknowledged in the plea agreement the possibility that restitution might be awarded, that acknowledgment fell well short of agreement.");United States v. Broughton-Jones, 71 F.3d 1143, 1148 (4th Cir. 1995) (Defendant's "acknowledgment at the Rule 11 [plea] colloquy that she might be ordered to pay restitution does not independently invoke the district court's power to order restitution under 18 U.S.C. § 3663(a)(3)."); United States v.Silkowski, 32 F.3d 682, 689 (2d Cir. 1994) ("The plea agreement's general requirement that [defendant] make full restitution for the loss suffered . . . fails to alter our conclusion that the defendant in this case did not agree to pay for any losses that exceeded those caused by the offense of conviction."); United States v. Patty, 992 F.2d 1045, 1051 (10th Cir. 1993) (Although defendant agreed in her plea agreement "that she would pay restitution in an amount not to exceed $25,000,000 . . . she could not be ordered to pay restitution in excess of those losses which the government proved were the result of her fraudulent acts."); United States v. Ramilo, 986 F.2d 333, 333 (9th Cir. 1993) (Although defendant stated in plea agreement that he "`understands that the court may order restitution . . . to the following individuals in the amounts listed,'" the Ninth Circuit found that this statement was not an agreement to pay restitution and did not authorize restitution.). As this Court noted in its prior Opinion:
While all their plea agreements state that restitution "must" be ordered under §§ 3663, 3663A, defendants contend that restitution "must" be ordered "in accordance with law . . . [and] that the law does not permit the Court in these circumstances to enter an order of restitution based upon this record." (Gov't Binder Ex. H: 5/20/05 Conf. Tr. at 12.)United States v. Bengis, 2006 WL 3735654 at *1 n. 4. Indeed, the Government's briefs here do not argue that restitution must (or even should) be ordered because of the plea agreements. Therefore, the Court must consider whether South Africa is a "victim" of defendants' crimes of conviction, and if so, what was the extent of South Africa's loss.
The 1990 amendment to the VWPA "does not authorize a district court to order restitution to all individuals harmed by a defendant's criminal conduct." United States v. Blake, 81 F.3d at 506. "For a person to be considered a victim under § 3663, the act that harms the individual must be either conduct underlying an element of the offense of conviction, or an act taken in furtherance of a scheme, conspiracy, or pattern of criminal activity that is specifically included as an element of the offense of conviction." United States v. Blake, 81 F.3d at 506; see, e.g., United States v. Broughton-Jones, 71 F.3d at 1148-49;United States v. Obasohan, 73 F.3d 309, 311 (11th Cir. 1996). Therefore, "a defendant convicted of conspiracy can be required to pay restitution for all losses resulting from acts in furtherance of the conspiracy." United States v. Obasohan, 73 F.3d at 311; see also, e.g., United States v. Plumley, 993 F.2d 1140, 1142 (4th Cir.), cert. denied, 510 U.S. 903, 114 S. Ct. 279 (1993). "But, if the harm to the person does not result from conduct underlying an element of the offense of conviction, or conduct that is part of a pattern of criminal activity that is an element of the offense of conviction, the district court may not order the defendant to pay restitution to that individual."United States v. Blake, 81 F.3d at 506; see also, e.g., United States v. Henoud, 81 F.3d 484, 488 (4th Cir. 1996.) ("[t]he harm must be a direct result of the defendant's criminal conduct . . . or `closely related to the scheme.'"); United States v. Kones, 77 F.3d 66, 70 (3d Cir.) ("Section 3663(a)(2) is not so broad that it permits a district court to order restitution to anyone harmed by any activity of the defendant related to the scheme, conspiracy, or pattern. Rather, in order for restitution to be permissible, the harm must `directly' result from the `criminal conduct' of the defendant. In this context, we interpret `direct' to require that the harm to the victim be closely related to the scheme, rather than tangentially linked. Further, we interpret `defendant's criminal conduct in the course of the scheme, conspiracy or pattern' to mean conduct that is both engaged in the furtherance of the scheme, conspiracy or pattern, and proscribed by the criminal statute the defendant was convicted of violating.") (fns. omitted), cert. denied, 519 U.S. 864, 117 S. Ct. 172 (1996); United States v. Ledesma, 60 F.3d 750, 751 (11th Cir. 1995) (restitution not appropriate where defendant convicted of attempting to export stolen cars; "the injury to the Mercedes' owner here was caused by the theft of the vehicle, not by [defendant's] subsequent attempt to export the stolen Mercedes. Because [defendant] was not convicted of stealing the Mercedes, he cannot be ordered to pay restitution for injury which resulted from the car's theft.").
C. South Africa Did Not Suffer Any Losses Directly Caused by Defendants' Offense Conduct
Defendants Arnold Bengis and Jeffrey Noll plead guilty to violating the Lacey Act, 16 U.S.C. § 3372(a)(2)(A), conspiracy to violate the Lacey Act, 18 U.S.C. § 371, and conspiracy to smuggle, 18 U.S.C. § 545. See United States v. Bengis, 03 Crim. 0308, 2006 WL 3735654 at *1 (S.D.N.Y. Dec. 19, 2006) (Peck, M.J.), report rec. adopted, 2007 WL 241370 (S.D.N.Y. Jan. 29, 2007) (Kaplan, D.J.). Defendant David Bengis plead guilty to a misdemeanor charge of conspiracy to violate the Lacey Act, 18 U.S.C. § 371. See United States v. Bengis, 2006 WL 3735654 at *1.
The VWPA provides that in the case of a misdemeanor, a court may order restitution "in lieu of any other penalty authorized by law." 18 U.S.C. § 3663(a)(1)(A) (quoted at page 2 above). As a result of his misdemeanor guilty plea, David Bengis was sentenced to twelve months imprisonment and forfeiture of $1.5 million to the United States. See United States v. Bengis, 2006 WL 3735654 at *2. This appears to mean that David Bengis is ineligible for restitution under the VWPA. However, because defendants have not raised this issue, and because the Court recommends denial of restitution for all defendants under the VWPA for other reasons, the Court does not reach this issue.
As the Court already ruled in connection with the MVRA, seeUnited States v. Bengis, 2006 WL 3735654 at *3, while defendants' Lacey Act violations cannot independently form the basis for restitution under the VWPA because they are not crimes under Title 18 of the United States Code, the Court is authorized to order restitution under the VWPA based on defendants' related conspiracy pleas under 18 U.S.C. § 371. See, e.g., United States v. Cummings, 189 F. Supp. 2d 67, 73 (S.D.N.Y. 2002) ("Although the objects of the conspiracy to which [defendant] pleaded guilty do not independently authorize restitution, since `conspiracy is a crime distinct from its underlying predicate acts and purposes, and involves additional harms,' restitution may be awarded for a violation of the conspiracy statute even when it could not be awarded for the underlying predicates.") (quoting United States v. Helmsley, 941 F.2d 71, 101 (2d Cir. 1991), cert. denied, 502 U.S. 1091, 112 S. Ct. 1162 (1992)) (modifications omitted); see also United States v. Bengis, 2006 WL 3735654 at *3 (citing cases). Thus, defendants satisfy the VWPA requirement that they were convicted of an offense under Title 18. 18 U.S.C. § 3663(a)(1)(A).
The next question is whether South Africa is a "victim" under the VWPA. This Court has already held that "South Africa's status as a foreign sovereign does not preclude it from being a victim and thus qualifying for a restitution award." United States v.Bengis, 2006 WL 3735654 at *2 (citing Pasquantino v. United States, 544 U.S. 349, 365, 125 S. Ct. 1766, 1777 (2005)). The issue, however, is whether South Africa satisfies the VWPA's remaining definition of "victim," that is, that it was "directly and proximately harmed as a result of the commission of [the] offense." 18 U.S.C. § 3663(a)(2).
The Government suggests two ways that the Court could find that South Africa was directly and proximately harmed by defendants' conduct: (1) South Africa suffered a loss to its natural resources as a result of defendants' over-fishing of lobster in its waters (Gov't VWPA Br. at 8-10); and (2) South Africa suffered a loss because it was denied the right to seize and sell the lobster that was over-fished (Gov't VWPA Br. at 10-11). Both of the Government's loss theories thus are based upon the overfishing of lobster in South African waters.
The conspiracy statute to which defendants plead guilty states that:
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.
If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.18 U.S.C. § 371. The underlying Lacey Act violation to which Arnold Bengis and Jeffrey Noll plead guilty states that: "It is unlawful for any person — . . . to import, export, transport, sell, receive, acquire, or purchase in interstate or foreign commerce — . . . any fish or wildlife taken, possessed, transported, or sold in violation of any law or regulation of any State or in violation of any foreign law." 16 U.S.C. § 3372(a)(2)(A). The smuggling statute to which Arnold Bengis and Jeffrey Noll plead guilty states in part that:
Whoever knowingly and willfully, with intent to defraud the United States, smuggles, or clandestinely introduces or attempts to smuggle or clandestinely introduce into the United States any merchandise which should have been invoiced, or makes out or passes, or attempts to pass, through the customhouse any false, forged, or fraudulent invoice, or other document or paper; or
Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law —
Shall be fined under this title or imprisoned not more than 20 years, or both.18 U.S.C. § 545.
The overfishing of lobster in South African waters is not "directly related" to defendants' criminal conduct under any of these statutes. First, under the conspiracy statute, the proscribed underlying conduct includes offenses against or defrauding the United States, which certainly cannot be meant to include the overfishing of lobster in South African waters. Similarly, under the Lacey Act, overfishing is not an element of the offense. Indeed, it is "irrelevant" to their Lacey Act convictions whether defendants could be liable under South Africa's regulations. See United States v. Lee, 937 F.2d 1388, 1393 (9th Cir. 1991) ("The [Lacey] Act's criminal penalty provision does not require that the fishermen violated the regulation, but only that they took part in importing the [fish] when they knew, or should have known, that the [fish] had been taken in violation of the regulation."), cert. denied, 502 U.S. 1076, 112 S. Ct. 977 (1992). Lastly, while the smuggling statute forbids receiving, concealing, buying, selling, and transporting merchandise that has "been imported or brought into the United States contrary to law," to be convicted under that statute, defendants need not also have breached the underlying importation or invoicing law.See 18 U.S.C. § 545.
Because the overfishing of lobster cannot be said to be "directly related" to any of the required criminal conduct under the statutes to which defendants plead guilty, restitution is inappropriate in this case. See, e.g., United States v. Reynolds, 432 F.3d 821, 823 (8th Cir. 2005) (Defendant plead guilty to making a willful threat of harm by telephone, and around the same time of defendant's threatening call, the call recipient's residence and 250 bales of hay were destroyed by fire. Restitution denied under VWPA because "restitution may be awarded only for the amount of loss caused by the threatening phone call . . . which was zero."); United States v. Blake, 81 F.3d 498, 506-07 (4th Cir. 1996) (Defendant plead guilty to using stolen credit cards, and government sought restitution to be paid to the robbery victims based on the replacement costs for wallets and pocketbooks. The Fourth Circuit denied restitution under the VWPA, holding that "[t]he specific conduct underlying these elements, and thus forming the basis for [defendant's] offense of conviction, does not include the theft of the credit cards. Nor does the offense include as an element a scheme, conspiracy, or pattern of criminal activity that encompasses such conduct. As a result, the loss to the robbery victims was not caused by [defendant's] offense of conviction.");United States v. Broughton-Jones, 71 F.3d 1143, 1148-49 (4th Cir. 1995) (Where defendant was involved in illegal financing scheme that defrauded a victim of $25,000, but where defendant plead guilty only to perjury charge, $25,000 restitution order was unauthorized because defendant's offense conduct included only perjury, which does not have a victim. The court noted that "[a]lthough there is a factual connection between [defendant's] perjury and her alleged financing scheme, that connection is legally irrelevant. We conclude that Hughey and the text of the VWPA do not allow us to stretch the `offense' involved in a perjury conviction to include any other conduct, whether or not the subject of separate conviction, to which the defendant's perjurious statement may have borne some relationship."); United States v. Ledesma, 60 F.3d 750, 751 (11th Cir. 1995) (Defendant pled guilty to attempting to export stolen cars. Restitution under VWPA reversed because "the injury to the Mercedes' owner here was caused by the theft of the vehicle, not by [defendant's] subsequent attempt to export the stolen Mercedes. Because [defendant] was not convicted of stealing the Mercedes, he cannot be ordered to pay restitution for injury which resulted from the car's theft.").
Here, as in Ledesma, defendants were convicted of conspiracy to import lobster into the United States contrary to United States law. (See page 9 above.) The illegal importation of the fish into the United States did not directly harm South Africa; the over-fishing in South Africa may have harmed South Africa (more on that below), but like the theft of the Mercedes in Ledesma, that was not the crime to which defendants pled guilty. See also United States v. Bengis, 2006 WL 3735654 at *8-9 (discussing "Arab boycott" hypothetical). South Africa was not "directly and proximately harmed" as a result of the crimes to which defendants pled guilty.
D. The Government's Loss Calculation Methods Confirm That South Africa Is Not A Direct Victim of Defendants' Crimes
The Government's loss calculation methods underscore the conclusion that South Africa was not a direct "victim" in this case as defined by the VWPA.
Indeed, even if restitution could be ordered for defendants' conduct, the deficiencies in the Government's restitution theories alone would cause the Court to recommend denial of restitution. The burden of proving the amount of restitution is on the Government. 18 U.S.C. § 3664(e) ("The burden of demonstrating the amount of the loss sustained by a victim as a result of the offense shall be on the attorney for the Government."); see, e.g., United States v. Reifler, 446 F.3d 65, 122 (2d Cir. 2006); United States v. Balint, 133 Fed. Appx. 802, 806 (2d Cir. 2005); United States v. Lynn, 85 Fed. Appx. 267, 269 (2d Cir. 2004); United States v. Gelb, 944 F.2d 52, 56 (2d Cir. 1991). The Government's proffered damage theories do not satisfy that burden.
The Government submits two possible methods for calculation of restitution amounts in this case, prepared by one of the Government's experts, Ocean and Land Resource Assessment Consultants ("OLRAC"): OLRAC Method I and OLRAC Method II. (See Defs. Binder Ex. 11: Gov't Rec. Concerning Restitution at 5-18 Ex. A thereto: OLRAC Revised Report, 12/22/04.) OLRAC Method I "effectively focuses on the cost of remediation, asking . . . what it would cost South Africa to restore the rock lobster fishery to the level it would have been had the defendants not engaged in overharvesting." (Gov't Rec. Concerning Restitution at 6.) OLRAC Method II "focuses on the market value of the overharvested fish. It calculates the quantity of fish overharvested for each year, and multiplies that quantity by the prevailing market price." (Gov't Rec. Concerning Restitution at 7-8.)
There are several flaws with using either of these calculation methods here. First, both methods clearly rely on the notion that the overharvested lobster was property that belonged to South Africa, which is directly contrary to the Court's previous ruling in this case, as well as the opinion of the Government's own experts. See United States v. Bengis, 03 Cr. 0308, 2006 WL 3735654 at *6-9 (S.D.N.Y. Dec. 19, 2006) (Peck, M.J.), report rec. adopted, 2007 WL 241370 (S.D.N.Y. Jan. 29, 2007) (Kaplan, D.J.). Additionally, OLRAC Method II specifically relies on the idea that South Africa had a property interest in the lobster based on its right to seize and sell the overharvested lobster on the open market, which also was specifically rejected by this Court in its prior ruling. United States v. Bengis, 2006 WL 3735654 at *7. Because South Africa had no property interest in the lobster that defendants conspired to illegally import, these methods cannot show that South Africa was directly or proximately harmed by defendants' conduct, much less the appropriate dollar amount of restitution that should be ordered.
Second, OLRAC Method I does not rely on any loss that South Africa actually sustained; instead, the losses are hypothetical, based on costs South Africa could incur to restore lobster populations to their original level. United States v. Quarrell, 310 F.3d 664, 680 (10th Cir. 2002) ("A restitution order must be based on actual loss. . . . [T]he government is entitled to restitution based on its actual loss, not on the cost of a hypothetical excavation."). Indeed, it appears from the record that despite the passage of time, South Africa has not taken any action to replenish the lobster resources, and indeed has increased, rather than decreased, the total allowable catch of lobster for the industry. (See Defs. Binder Ex. 12: 1/31/05 Defs. Supp. Expert Reports Br. at 3.) Moreover, because South Africa has the power to regulate the amount of lobster taken by the fishing industry, it could restrict fishing in order to replenish the natural resource, without any cost to the South African government. During a conference with Judge Kaplan, the Government stated that the proper goal of the restitution would be to "get South Africa back to the position it would be in had there not been this massive overharvesting," and suggested that a proper way of doing so would be for South Africa to "pay the various competitors not to fish for a series of years" so that lobster population could "bounce back." (Gov't Binder Ex. H: Dkt. No. 103: 5/20/05 Conf. Tr. at 32; see also Gov't Rec. Concerning Restitution at 6, discussing Method I as "the cost that South Africa theoretically would incur if it forced members of the fishing industry to cease fishing (for example, by paying them not to fish).") In response, Judge Kaplan suggested that South Africa could replenish the lobster population by simply forbidding any fishing of lobster for a certain amount of time. (5/20/05 Conf. Tr. at 32.) The Government responded: "I think under those circumstances, under the OLRAC method, which is contrary to the OLRAC method, I think if there was no cost, absolutely no cost regardless of how you value it, I think the answer there would be that restitution would be zero." (5/20/05 Conf. Tr. at 33-34.) Judge Kaplan responded: "So do I." (5/20/05 Tr. 34.) Additionally, the Government's suggestion that South Africa might have to pay Hout Bay's competitors not to fish leads the Court to conclude that it is really the competitors who sustained a direct loss, not South Africa, again demonstrating that South Africa was not a direct victim of defendants' crimes. (See Gov't Rec. Concerning Restitution Ex. A: 12/22/04 OLRAC Rev. Report at 4: "Method I estimates damage as the amount of catch that the[fishing] industry has to now forfeit in order to restore the resource to the size that it would otherwise be . . ." (emphasis added).)
Cf. Paul Greenberg, Ocean Blues, N.Y. Times, May 13, 2007, at 613 ("[S]cientists are finding that one of the best ways to manage fish is simply to leave them alone. Even when a population has been trawled for years, in most cases if you exempt it from fishing for a while, it will recover.").
The Government asserts that "South Africa also has the power tosell fishing rights." (Gov't VWPA Reply Br. at 14.) If the South African Government did sell fishing rights, its loss could be measured appropriately by lost revenue if it did not sell fishing rights for one or more years, in order to allow replenishment of the lobster population. But South Africa does not sell fishing rights, but rather establishes fishing quotas (Gov't VWPA Reply Br. at 14), and there is no information in the extensive record to indicate that it charges any fees for fishing rights. The Government's hypothetical (and its similar example of South Africa selling fishing rights to a single company, Gov't VWPA Reply Br. at 13-14) suffers from being a hypothetical contrary to fact, and thus cannot support a restitution award to South Africa.
Accordingly, through the use of OLRAC Methods I and II, the Government has not shown that South Africa has suffered any direct or proximate harm as a result of defendants' conduct. The Government has not met its burden of proving the amount of loss for restitution purposes. Therefore, even if defendants' breach of South Africa's regulatory laws could be considered part of defendants' criminal conduct, the Government has not shown that South Africa has incurred any loss that would make it a true and direct "victim."
CONCLUSION
For the reasons discussed above, the Court should deny the Government's request for restitution under the Victim and Witness Protection Act.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1), the parties shall have ten (10) business days from service of this Report to file written objections. Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Lewis A. Kaplan, 500 Pearl Street, Room 1310, and to my chambers, 500 Pearl Street, Room 1370. Any requests for an extension of time for filing objections must be directed to Judge Kaplan (with a courtesy copy to my chambers). Failure to file objections will result in a waiver of those objections for purposes of appeal. Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466 (1985); IUE AFL-CIO Pension Fund v.Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993), cert. denied, 513 U.S. 822, 115 S. Ct. 86 (1994); Roldan v. Racette, 984 F.2d 85, 89 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir.),cert, denied, 506 U.S. 1038, 113 S. Ct. 825 (1992); Small v.Secretary of Health Human Servs., 892 F.2d 15, 16 (2d Cir. 1989); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72, 6(a), 6(e).