16-31 59-cr

Unite d Sta tes o f Ame rica v. An thony Cuti



### U N I T E D S TAT E S C OURT O F AP PEA L S FOR T HE S E C O

ND C I R CU I T



## S UM M ARY O RD E R

R UL I NG S BY S U

M M A R Y OR D E R D O NO T H

A V E PR E CE D ENT I A

L E F FE C T

. C I T

A T I O N TO A S U

M M A R Y OR D E R F I LED ON OR AFTE R J

A N U A R Y 1, 2007, I S PE R M I T TE D A

N D I S GO

V E R NE D BY FE D E R

A L R ULE O F AP PE L L

A TE P R OCE D UR E 32. 1 AND TH IS CO UR T ’ S L OC

A L R ULE 32.1.1. WHEN C I T I NG A S U M M A R Y OR D E R I N A D OCU M ENT F I LE D W I T H T H I S COUR T , A P

A R T Y M U S T C I TE E I T HE R T HE FE D E R A L AP PEN

D I X OR A

N E LE C TR O N I C DA T A B AS E ( W I T H T HE NO T

A T I O N “ S U M M A R Y OR D E R ”). A P

A R T Y C I T I NG A S U

M M A R Y OR D E R M U S T S E R V E A CO PY O F I T O

N A NY P A R T Y NO T R

E PR E S ENTE D BY COU

N S E L

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At a state d term of the U nited Stat es Co urt o f App eals for the Se cond Circu it, h eld a t the Thur good Marsh all U nited State s Cou rthou se, 4 0 Fol ey Square, in the Ci ty of New York, on th e 21 day of Se ptemb er, two th ousan d seventee n.

s t

PRESE NT: D E NN I S J AC O B S , JO S É A. CAB R

A N E S , R I C HARD C. WE S L E Y ,

Circu it Ju dges.

- - - - - - - - - - - - - - - - - - - -X Unite d Sta tes o f Ame rica,

Appel lee,

-v.- 16-31 59-cr

Antho ny Cu ti,

Defen dant- Appel lant.

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FOR A PPELLANT: G R E G O R Y M. L I P P E R (Bria n C. Brook on th e bri ef), Clint on Br ook & Peed, Wash ingto n, DC

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FOR A PPELL EE: E L I S H A J. K O B R E (Anna M. S kotko on the b rief) , Ass istan t Uni ted State s Att orney s for Joon H. Kim, Actin g U.S . Att orney for

1the S outhe rn Di stric t of New York.

Appea l fro m a j udgme nt of the Unite d Sta tes D istri ct Court for the S outhe rn Di stric t of New Y ork ( Batts , J.)

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UPON DUE C ONSID ERATI ON, I T IS HEREB Y ORD ERED, ADJUDGED AND D ECREE D that the judgm ent o f the dist rict court be AFFIR MED in pa rt and VACAT ED AND REM ANDED in p art

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Antho ny Cu ti ap peals fromthe judgm ent o f the Unit ed State s Dis trict Cour t for the South ern D istri ct of New York (Batt s, J. ), or derin g a f inal resti tutio n pay ment in th e
amoun t of $6,25 3,547 .52 t o com pensa te th e vic tims of th e fraudCuti perp etrat ed as Chie f Exe cutiv e Off icer of Du ane Reade . We assu me th e par ties’ fami liari ty wi th th e under lying fact s, th e pro cedur al hi story , andthe issue s prese nted for r eview

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The V ictimand Witne ss Pr otect ion A ct (“ VWPA” ) autho rizes the resti tutio n of “nece ssary
... expen ses relat ed to part icipa tion in th e inv estig ation or p rosec ution of th e off ense. ” 18 U.S. C. § 3663( b)(4) . Ou r cir cuit gener ally takes a “b road view of wh at ex pense s are ‘nece ssary ’” in the resti tutio n con text. Uni ted S tates v. Mayna rd, 7 43 F. 3d 37 4, 38 1 (2dCir. 2014 ); se e Uni ted S tates v. Am ato, 540 F .3d 1 53, 1 59-60 (2d Cir. 2008) . We recog nizedin M aynar d tha t res titut ion u nder the VWPA m ay inclu de at torne ys’ f ees a nd ac count ing c osts that “the victi m was requ ired to in cur t o adv ance the i nvest igati on or prose cutio n of the o ffens e.” 743 F .3d a t 381

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We re view a res titut ion o rder for a buse of di scret ion. Unite d Sta tes v . Boc cagna , 450 F.3d107, 113 (2d C ir. 2 006). The d istri ct co urt h as “b road discr etion ” to make a “reas onabl e est imate ” of actua l los s “ba sed o n the evid ence befor e it, ” Uni ted S tates v. M ilste in, 4 81 F. 3d 13 2, 13 7 (2d Cir. 2007) , andwe r eview thos e est imate s “de feren tiall y.” Bocca gna, 450 F .3d a t 113 . At the same time, fede ral c ourts lack the i nhere nt po wer t o ord er re stitu tion, and the gover nment bear s the burd en to show nece ssity by a prepo ndera nce o f the evid ence. 18 U.S.C . § 3 664(e ).

On th e app eal f rom C uti’s 2013 rest ituti on aw ard o f $7,61 5,217 ,90, we ex press ed co ncern that comp lexit ies stemm ing f rom t he ov erlap ping civil and crimi nal c ases and billi ng re cords impl icate d May nard’ s lim iting prin ciple that

2work must have been requi red t o adv ance the i nvest igati on or

prose cutio n of Cuti’ s off enses . Se e Uni ted S tates v. C uti, 778 F .3d 8 3, 94 -95 ( 2d Ci r. 20 14) ( Cuti I). Speci fical ly, we ad visedthat the inves tigat ive w ork p erfor med b y law firms in f urthe rance of t he ci vil a rbitr ation woul d not be compe nsabl e, as oppo sed t o “an inte rnal inves tigat ion t o root out a ccoun ting or se curit ies f raud. ” Id . at 95. We also raise d the poss ibili ty of “red undan t or dupli cativ e” expen ses b etwee n the work perf ormedby t he tw o law firm s retai ned b y Dua ne Re ade, which “can not b oth h ave b een ‘nece ssary ’ to advan ce th e gov ernme nt’s inves tigat ion.” Id. We ac cepte d tha t “[u ]ltim ately , it may b e tha t the lack of clari ty in the recor d res ults in so me of Duan e Rea de’s claim ed ex pendi tures not being subj ect t o res titut ion.” Id. at 96

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On r emandthe distr ict c ourt solic ited furth er brief ing a nd ev idenc e fro m the part ies. Amon g the mate rials submi tted were decla ratio ns fr om Da niel Belle r andJona than Freed man, attor neys at Pa ul, W eiss, Rifk ind, Whart on & Garri son L LP (“ Paul, Weis s”) w ho re viewe d bil ling recor ds in detai l to remov e any char ges f or re dunda nt ex pense s or work perfo rmed solel y on behal f of Duane Read e’s p rivat e equ ity

owner and the a rbitr ation . Th is an alysi s res ultedin t he victi m-cla imant s wit hdraw ing n early $1 m illio n in reque sted fees.

The d istri ct co urt, apply ing t he “n ecess ity” stand ard artic ulate d in Cuti I andMayn ard, furth er ex cisedfromthe awardroug hly t wo-th irds of Pa ul, W eiss’ fees incu rred prior to th e commence ment of th e gov ernme nt’s inves tigat ion o n the basis that they were dire cted at le ast i n par t tow ards the arbit ratio n. I t mad e oth er do wnwar ds ad justm ents for w ork that was u nnece ssary or p oorly docu mente d. U ltima tely, the distr ict c ourt foundthat the major ity o f the subm itted expen ses w ere s uppor ted w ith s uffic ient detai l to warra nt an awardof r estit ution

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Cuti conte nds o n thi s app eal t hat g iven the l ack o f clari ty in the law f irm b illin gs, t he go vernm ent imper missi bly s hifte d to him t he bu rden to se parat e the

neces sary charg es fr om th e non -comp ensab le on es. Cf. C uti I, 77 8 F.3 d at 95. But o n the reco rd be fore us, t he gover nment and Duane Read e met thei r bur den w ith r espec t to nearl y all expe nses by su bmitt ing s ubsta ntial evid ence of the l egal and f inanc ial s ervic es fe es so ught for resti tutio n. T hese recor ds ar e sup porte d by decla ratio ns

3from senio r law yers who s uperv ised the i nvest igati ons. See

Unite d Sta tes v . Gup ta, 9 25 F. Supp . 2d 581, 587 ( S.D.N .Y. 2013) . On ce th e gov ernme nt su pplie d its evid ence, Cuti had ample oppo rtuni ty to chal lenge thes e exp enses . Th e dis trict court then exer cisedits broaddisc retio n to make a
reaso nable acco untin g fro m a t horou gh re cord, and we do not distu rb th is fi nding ligh tly. See Unite d Sta tes v . Gus hlak, 728 F .3d 1 84, 1 94-96 (2d Cir. 2013)

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Cuti point s to certa in er rors in th e dec larat ions and ambig uitie s tha t aro se ou t of block -bill ing p racti ces. If Duane Read e’s c ounse l hadanti cipat ed re stitu tion, they couldhave kept bett er tr ack o f the ir ho urs b y imp lemen ting separ ate b illin g cod es or stri cter time card narra tives . In part to re ctify any confu sion, Dani el Be ller’ s dec larat ion pains takin gly d escri bes a nd di ssect s the bill ings recor ds for P aul, Weiss over many year s. T he di stric t cou rt ma y reach its findi ngs o n the basi s of these effo rts: “abso lute preci sion is no t req uired .” U nitedStat es v. Agel off, 809 F. Su pp. 2 d 89, 104 (E.D. N.Y. 2011) , aff ’d su b. no m. Un ited State s v. Catog gio, 698 F .3d 6 4 (2dCir. 2012 ). T o und o the entir e awa rd, g iven our l imite d per spect ive, wouldrun afoul of th e dis trict cour t’s w ell-r ecogn ized role to “m ake a

reaso nable appr oxima tion of re cover able losse s” af ter perfo rming a di ligen t ana lysis of a thor ough recor d. S ee Unite d Sta tes v . Hat field , No. 06-C R-055 0 (JS )(AKT ), 20 15 WL 13385 926, at *1 3 (E. D.N.Y . Mar . 27, 2015 ); Un ited State s v. Milst ein, 481 F .3d a t 137 . We decl ine t o do so.

Attor neys’ Fees for the C rimin al Pr oceed ings

At th e sam e tim e, we reco gnize that not every cate gory of at torne y wor k pro duct meets the essen tial burde n in our circu it th at th e gov ernme nt sh ow al l cha rges were “requ ired to in cur t o adv ance the i nvest igati on or pros ecuti on of the offen se.” Mayn ard, 743 F .3d a t 381 ; see Hatf ield, 2015 WL 13385 926, at *1 3. Adist rict court abus es it s dis creti on when it ex ceeds its statu tory autho rity to aw ard r estit ution for n ecess ary e xpens es un der 1 8 U.S .C. § 3663 (b). See Unite d Sta tes v . Rei fler, 446 F.3d 65, 1 27 (2 d Cir . 200 6).

Cuti chall enges the discr ete c atego ry of time bill ed for P aul, Weiss atto rneys to m onito r the crim inal trial of Cuti and h is co -defe ndant . Th e tas ks bi lled invol ved atten dance at p rocee dings , rev iewin g tri al tr anscr ipts, gener ating memo randu ms an d summarie s of motio n pra ctice , and draft ing p ress relea ses. The distr ict c ourt impos ed

4resti tutio n for thes e amo unts, but neith er th e cou rt no r the

gover nment addu ced p roof that those char ges w ere n ecess ary to ad vance the prose cutio n und er 18 U.S. C. § 3663( b)(4)

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The d istri ct co urt o ffere d a s ingle just ifica tion for inclu ding these amou nts i n the rest ituti on aw ard: “It is entir ely r eason able for D uane Reade ’s co unsel to s pend a modes t amo unt o f tim e to track the statu s of crimi nal proce eding s rel ated to it s for mer C EO an d to disse minat e infor matio n to its a udito rs an d the publ ic.” Unit ed St ates v. Cu ti, 2 016 W L 454 4062, at * 10 (S .D.N. Y. Au g. 30 , 201 6). In a singl e sen tence , the gove rnmen t add ed th at th e “mi nimal expen ses” were “nece ssary to e nable Clai mants to r espon d quick ly an d eff icien tly t o the Gove rnmen t’s r eques ts fo r infor matio n anddocu ments .” A ppell ee’s Br. 3 8. H oweve r, the g overn ment couldnot ident ify a ny as sista nce r ender ed to the p rosec ution by D uane Reade that reli ed up on th ese monit oring effo rts, or a singl e ins tance in w hich those effor ts we re ne cessa ry to resp ond t o any “req uests for infor matio n anddocu ments .”

It ma y be, as J udge Batts sugg ests, “ent irely

reaso nable ” for Duan e Rea de to desi re to rema in “a breas t” of the e vents of t he tr ial o f its form er CE O. I d. B ut ou r stand ard f or re stitu tion does not c oncer n its elf w ith t he priva te in centi ves o f the vict im. See C uti I , 778 F.3dat 95 (“ A cor porat e cli ent s uch a s Dua ne Re ade i s ent itledto expen d as much as it deem s pru dent.

... Howev er, u nder Mayna rd, n ot al l suc h exp enses are ‘nece ssary ’ for resti tutio n pur poses .”); see a lso H atfie ld, 2 015 W L 13385 926, at *1 3 (Th e Cla imant is “ entit led t o the lega l fees that it in curre d in coope ratin g with the Gover nment ’s prose cutio n of Defen dants and launc hing its o wn in terna l inves tigat ion.” (emp hasis adde d)). Furt her, the g overn ment
canno t jus tify charg es fo r pla inly unnec essar y act iviti es simpl y bec ause they are “ minim al.” Mode st as thes e sum s may be re lativ e to the f ull r estit ution awar d, th ey ar e dis crete and, witho ut st ronge r jus tific ation , “gr atuit ous.” See Mayna rd, 7 43 F. 3d at 381- 82 (r emovi ng in divid ual a mount s from the d istri ct co urt’s rest ituti on or der f or a bank’ s wante d pos ters)

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We ha ve no ted t he cr ucial dist incti on be tween acti ons that merel y “he lped” to t he pr osecu tion and a ction s dee med truly nece ssary . Cu ti I, 778 F.3d at 95 . Th e lat ter a re compe nsabl e, an d the form er ar e not . Al l par ties now a gree that Duane Read e is not e ntitl ed to rest ituti on fo r leg al

5fees expen ded i n rel ated cases such as t he ar bitra tion. Id.

By th e sam e tok en, i t was an a buse of di scret ion u nder Cuti I andMayn ard t o acc ept t hat t he go vernm ent s ustai ned i ts burde n to prove the neces sity of ti me bi lled for m onito ring the c rimin al pr oceed ings, whic h was neve r sho wn to contr ibute to t he in vesti gatio n or to th e gov ernme nt’s case. See, e.g., Unit ed St ates v. No sal, 844 F .3d 1 024, 1048 (9th Cir. 2016) (agr eeing with the distr ict c ourt that resti tutio n sho uld n ot be awar ded f or en tries rela ted t o attor ney r eview of f iling s, or ders, and press cove rage, but vacat ing a nd re mandi ng fo r fur ther poten tial reduc tions in the a ward) ; Uni ted S tates v. W ong, 2014 WL 27 00925 , at *3 (N.D. Cal. Jun. 13, 2014) (con cludi ng th at “r eview ing t he plead ings, indi ctmen ts, a nd or ders” in t he cr imina l cas e was “not reaso nably nece ssary for purpo ses o f the MVRA ”).

The f inal resti tutio n awa rd sh ould not i nclud e attor neys’ fees bill ed by Paul , Wei ss or Cool ey fo r monit oring the crimi nal t rial of Cu ti an d his code fenda nt, such as, a mong other rela ted a ctivi ties, atte nding proce eding s, re viewi ng tr ial t ransc ripts , gen erati ng
summa ries of tr ial e vents , anddraf ting press rele ases.

For t he fo regoi ng re asons , we hereb y AFFIR M in part and VACAT E AND REMA

ND in pa rt for t he di stric t jud ge to revi se the f inal resti tutio n awa rd co nsist ent w ith t his s ummar y order

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FOR T HE CO URT: CATHE RINE O’HAG AN WO LFE, CLERK

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