Opinion
No. 00-40094-01-SAC.
April 23, 2002
MEMORANDUM AND ORDER
The defendant Bill C. Johnson, Jr. pleaded guilty to a single count information charging a misdemeanor violation of 18 U.S.C. § 1361, the depredation against property of a United States agency. In exchange for his plea, the government agreed to dismiss count one of the indictment, to recommend a two-level adjustment for acceptance of responsibility, and to lodge no objection to a sentence of probation. On January 24, 2002, after ruling on most of the defendant's objections to the presentence report ("PSR"), the court downwardly departed and sentenced the defendant to a two-year term probation. The court also took under advisement the defendant's objection to the issue and amount of restitution and announced it would decide these matters at a later date after learning the status of the pending civil litigation.
ARGUMENTS
The defendant argues the court should not order restitution as there is pending civil litigation between him and Frontier Farm Credit f/k/a Farm Credit Services of Southeast Kansas ("Farm Credit") which will resolve the amount of restitution he owes. The defendant asserts that all money he received from any sales of cattle subject to a security interest went back into the dairy to cover general operating expenses and to maintain the value of all other collateral which in turn benefitted Farm Credit when it disposed of the collateral. The defendant complains that any determination of restitution here will require a full evidentiary hearing and, without one, a party would receive an unfair advantage in the pending civil litigation.
At the sentencing hearing, the defendant's attorney indicated that his client and Farm Credit had reached a full and complete settlement regarding the disposition of collateral and debt involved in these criminal charges and that this settlement precluded an award of restitution. The government responded that it did not consider the settlement negotiations to be final or binding on this court's authority or decision to award restitution.
The defendant recently filed an addendum to his sentencing memorandum advising the issues concerning restitution were still not ripe for the court's decision. Specifically, the defendant said that after the sentencing in January the government decided to hold off signing the written settlement agreement. The defendant contends the government is wanting "the best of both worlds, that is negotiating an agreement with Mr. Johnson for full and complete settlement of all matters regarding restitution" and thereby obtaining all of his interests in Kansas and most of his interests in Florida and also securing an award of restitution that means monies beyond the terms of the settlement. (Dk. 52, p 2).
The defendant attached as an exhibit a copy of the mediated settlement agreement that he has signed and that Farm Credit representatives now refuse to sign. The recitals of that agreement plainly show that the parties intended by their settlement to address the loan which was secured in part by the dairy cattle in Kansas which are the subject of these criminal charges.
The government also filed recently a supplemental memorandum on restitution laying out recent developments in the civil litigation and asking for further instructions from the court. According to the government, James Neely, the vice-president of Farm Credit, considers the settlement negotiations to have broken down as it was his intent that the Florida settlement would have no effect on restitution to be awarded in this criminal case and that Mr. Johnson refuses to add any terms to this settlement agreement so as to preclude it from impacting the restitution award here.
The day before filing this order, the court received a second supplemental memorandum from the plaintiff. Appended to it is a sixteen-page letter from the defendant Johnson's counsel in Florida and other legal documents executed by Johnson as part of the settlement. The court does not believe this recent filing affects the substance of this order and will not await the government's response to it.
GOVERNING LAW
In 1996, Congress passed the Mandatory Victims Restitution Act ("MVRA") which requires the sentencing court to order restitution against defendants convicted of specific crimes. 18 U.S.C. § 3663A(a)(1); United States v. Smith, 156 F.3d 1046, 1057 (10th Cir. 1998), cert. denied, 525 U.S. 1090 (1999). The MVRA makes restitution a mandatory part of the sentence for a defendant convicted of an offense against property under title 18. 18 U.S.C. § 3663A(a)(1), (c)(1)(A)(ii); see United States v. McIntosh, 198 F.3d 995, 1003 (7th Cir. 2000). There is no question that the defendant's conviction here under 18 U.S.C. § 1361 is for an offense against property.
With respect to the amount of mandatory restitution to be ordered, the MVRA requires restitution "in the full amount of each victim's losses as determined by the court and without consideration of the economic circumstances of the defendant." 18 U.S.C. § 3664(f)(1)(A). The sentencing court, however, may not order restitution in an amount greater than the total loss caused, but the order should "ensure that victims, to the greatest extent possible, are made whole for their losses." United States v. Arutunoff, 1 F.3d 1112, 1121 (10th Cir.), cert. denied, 510 U.S. 1017 (1993). "When there is a loss of `property,' §§ 3663 and 3663A dictate that restitution is to be made through return of the property or payment of its value." United States v. Cummings, ___ F. Supp.2d ___, 2002 WL 334902, at p. 7 (S.D.N.Y. Mar. 1, 2002). As the Supreme Court has held, a court may award 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 (1990); United States v. Wainwright, 938 F.2d 1096, 1098 (10th Cir. 1991).
Restitution does not permit a victim to recover twice for the same loss. See United States v. Parsons, 141 F.3d 386, 393 (1st Cir. 1998) ("Restitution is not generally appropriate when it would represent double recovery by the victim. United States v. Manzer, 69 F.3d 222, 230 (8th Cir. 1995)."). The MVRA provides that "[a]ny amount paid to a victim under an order of restitution shall be reduced by any amount later recovered as compensatory damages for the same loss by the victim in — (A) any Federal civil proceeding; and (B) any State civil proceeding, to the extent provided by the law of the State." 18 U.S.C. § 3664(j)(2). The Sentencing Guidelines also provide that restitution shall not be imposed when full restitution has already been made. U.S.S.G. § 5E1.1(b)(1).
Those circuits addressing the issue have agreed that a settlement or release executed by a victim does not necessarily preclude an award of restitution:
The other circuits, however, have generally held that "a release by the victim does not preclude or cap restitution of losses as part of criminal sentencing in a case where there is no double recovery." United States v. Parsons, 141 F.3d 386, 393 (1st Cir. 1998) (citing United States v. Savoie, 985 F.2d 612, 619 (1st Cir. 1993)); see also United States v. Sheinbaum, 136 F.3d 443, 448 (5th Cir. 1998) (concluding "that district courts possess the discretion to impose restitution orders in spite of civil settlements" because of "the rehabilitative and retributive functions" of restitution), cert. denied, 526 U.S. 1133 (1999); United States v. Vetter, 895 F.2d 456, 459 (8th Cir. 1990) (holding that a district court may order restitution despite a settlement agreement); United States v. Hairston, 888 F.2d 1349, 1355 (11th Cir. 1989) (holding that the dismissal of a civil action in state court does not preclude a restitution order on the same claim); United States v. Cloud, 872 F.2d 846, 854 (9th Cir.) ("[D]espite the existence of settlement agreements among the parties, the district court was authorized . . . to order Cloud to pay restitution to the insurance company in this case."), cert. denied, 493 U.S. 1002 (1989).
The courts that have reached this conclusion cite Kelly v. Robinson, 479 U.S. 36 (1986), for the general proposition that restitution ordered as part of a criminal sentence is punitive rather than compensatory in nature. "Although restitution does resemble a judgment `for the benefit of' the victim, the context in which it is imposed undermines that conclusion. The victim has no control over the amount of restitution awarded or over the decision to award restitution." Id. at 52. See also, e.g., Sheinbaum, 136 F.3d at 448. Thus, private individuals should not be allowed to thwart the penal goals of the criminal justice system by entering into releases or settlements with wrongdoers. "Private parties cannot simply agree to waive the application of a criminal statute. . . . [T]he law will not tolerate privately negotiated end runs around the criminal justice system." Savoie, 985 F.2d at 619 (citations omitted).United States v. Bearden, 274 F.3d 1031, 1041 (6th Cir. 2001); see also United States v. Karam, 201 F.3d 320, 328 (4th Cir. 2000) ("A civil settlement does not preclude an award of restitution under the VWPA because restitution under the VWPA is primarily penal in nature." (citations omitted)).
"The burden is on the government to prove by a preponderance of the evidence the amount of the loss sustained `as a result of the offense.'" United States v. Polichemi, 219 F.3d 698, 714 (7th Cir.), cert. denied, 531 U.S. 993 (2000); see United States v. Smith, 156 F.3d at 1058; United States v. Messner, 107 F.3d 1448, 1455 (10th Cir. 1997); see 18 U.S.C. § 3664(e). Should the defendant's financial resources and needs be pertinent to other issues, such as the rate of payment, the defendant shall have the burden to show those facts. See 18 U.S.C. § 3664(e); see also United States v. Walton, 217 F.3d 443, 451-52 (7th Cir. 2000). "The burden of demonstrating such other matters as the court deems appropriate shall be upon the party designated by the court as justice requires." 18 U.S.C. § 3664(e).
Several circuit courts have held that it is the defendant's burden to prove that restitution should be offset by a civil settlement to prevent a double recovery:
It might appear to the casual observer that § 3664(e) places the burden of proof on the government on all issues relating to loss to the victim. Yet the burden section of the statute only requires the government to establish "the amount of loss sustained by [the] victim," United States v. Razo-Leora, 961 F.2d 1140, 1146 (5th Cir. 1992); it does not speak to any compensation later received by the victim for that loss. Logically, the burden of proving an offset should lie with the defendant. The statute allocates the various burdens of proof among the parties who are best able to satisfy those burdens and who have the strongest incentive to litigate the particular issues involved. Having investigated the crime and wishing to provide as strong a deterrent as possible, the government is best suited to persuade the court as to the amount of loss caused by the offense. On the other hand, the defendant is better positioned to proffer evidence about his own financial resources and needs, and his desire to lower his restitution order gives him the incentive to litigate such mitigating circumstances. In a similar vein, the defendant should know the value of any compensation he has already provided to the victim in civil proceedings, so the burden should fall on him to argue for a reduction in his restitution order by that amount. Cf. United States v. Flanagan, 80 F.3d 143, 146 (5th Cir. 1996) ("[A]s a general rule, the party seeking the adjustment in the sentence is the party that has the burden of proving the facts to support the adjustment.").
Therefore, we conclude that "justice requires" that the burden of establishing any offset to a restitution order should fall on the defendant. See 18 U.S.C. § 3664(e) (Supp. 1997) ("The burden of demonstrating such other matters as the court deems appropriate shall be upon the party designated by the court as justice requires.").United States v. Sheinbaum, 136 F.3d 443, 449 (5th Cir. 1998), cert. denied, 526 U.S. 1133 (1999); see also United States v. Karam, 201 F.3d at 327; United States v. Parsons, 141 F.3d at 393. The court agrees with these circuits that the burden should rest with the defendant to prove an offset to restitution as a result of compensation or settlement paid in a civil proceeding.
Under the MVRA, after determining the full amount of restitution owed to each victim, the district court is required to set the manner in which, and the schedule according to which, the defendant is to pay the amount of restitution ordered. See § 3664(f)(2). In so doing, the district court is required to consider: (1) the financial resources and other assets of the defendant, including whether any of the assets are jointly controlled; (2) projected earnings and other income of the defendant; and (3) any financial obligations of the defendant, including obligations to dependents. See id.
DISCUSSION
The parties have briefed their respective positions on the intended scope of their settlement negotiations without presenting any legal research or arguments concerning the effect of any settlement upon the restitution at issue here. The court believes its summary of the governing law should assist the parties in understanding what effect, if any, their settlement of the civil proceedings would have on an award of restitution and who would have the burden of proof on this issue. In short, if the defendant is able to prove that he has already compensated the Farm Credit for the same harms covered by the restitution award here, then the court will offset this compensation against the restitution to be imposed.
The government, however, bears the initial burden of proving what loss, if any, was "directly related to and proximately caused by the criminal act of the defendant" that is the basis of the offense of conviction. United States v. Sundstrom, 221 F.3d 1354, 2000 WL 1005267, at *2 (10th Cir. Jul. 20, 2000) (Table) (citations omitted). The offense of conviction here is the defendant's sale of cattle in which the Farm Credit had a security interest without forwarding the proceeds to Farm Credit. "In determining the amount of restitution to which a victim is entitled, the court must account for any benefit received by the victim and subtract that amount from any restitution award because the VWPA authorizes only restitution for actual losses sustained by the victim." United States v. Sundstrom, 221 F.3d 1354, 2000 WL 1005267, at *2 (citing 18 U.S.C. § 3664(a); United States v. Guthrie, 64 F.3d 1510, 1516 (10th Cir. 1995)). The government must show that it sustained a loss as a direct result of the defendant's conduct.
To expedite the parties' presentation at the hearing on restitution, the court requests the government to file a detailed written proffer of its evidence and proof that Farm Credit sustained a loss in a specific amount as a direct result of the defendant's conduct for which he was convicted. The government shall file it proffer no later than twenty days from the filing date of this order. The court shall notify the parties promptly of a hearing date concerning the issue of restitution.
IT IS SO ORDERED.