16-3159-cr

United States of America v. Anthony Cuti

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN

ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST

SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals

for the Second Circuit, held at the Thurgood Marshall United

States Courthouse, 40 Foley Square, in the City of New York,

on the 21 day of September, two thousand seventeen. st

PRESENT: DENNIS JACOBS,

JOSÉ A. CABRANES,

RICHARD C. WESLEY,

Circuit Judges.

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United States of America,

Appellee,

-v.- 16-3159-cr

Anthony Cuti, 

Defendant-Appellant.

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FOR APPELLANT: GREGORY M. LIPPER (Brian C. Brook

on the brief), Clinton Brook &

Peed, Washington, DC.

FOR APPELLEE: ELISHA J. KOBRE (Anna M. Skotko on

the brief), Assistant United

States Attorneys for Joon H.

Kim, Acting U.S. Attorney for

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the Southern District of New

York.

Appeal from a judgment of the United States District

Court for the Southern District of New York (Batts, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

AND DECREED that the judgment of the district court be

AFFIRMED in part and VACATED AND REMANDED in part.

Anthony Cuti appeals from the judgment of the United

States District Court for the Southern District of New York

(Batts, J.), ordering a final restitution payment in the

amount of $6,253,547.52 to compensate the victims of the

fraud Cuti perpetrated as Chief Executive Officer of Duane

Reade. We assume the parties’ familiarity with the

underlying facts, the procedural history, and the issues

presented for review. 

The Victim and Witness Protection Act (“VWPA”)

authorizes the restitution of “necessary ... expenses

related to participation in the investigation or prosecution

of the offense.” 18 U.S.C. § 3663(b)(4). Our circuit

generally takes a “broad view of what expenses are

‘necessary’” in the restitution context. United States v.

Maynard, 743 F.3d 374, 381 (2d Cir. 2014); see United States

v. Amato, 540 F.3d 153, 159-60 (2d Cir. 2008). We

recognized in Maynard that restitution under the VWPA may

include attorneys’ fees and accounting costs that “the

victim was required to incur to advance the investigation or

prosecution of the offense.” 743 F.3d at 381.

We review a restitution order for abuse of discretion. 

United States v. Boccagna, 450 F.3d 107, 113 (2d Cir. 2006).

The district court has “broad discretion” to make a

“reasonable estimate” of actual loss “based on the evidence

before it,” United States v. Milstein, 481 F.3d 132, 137 (2d

Cir. 2007), and we review those estimates “deferentially.” 

Boccagna, 450 F.3d at 113. At the same time, federal courts

lack the inherent power to order restitution, and the

government bears the burden to show necessity by a

preponderance of the evidence. 18 U.S.C. § 3664(e). 

 

On the appeal from Cuti’s 2013 restitution award of

$7,615,217,90, we expressed concern that complexities

stemming from the overlapping civil and criminal cases and

billing records implicated Maynard’s limiting principle that

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work must have been required to advance the investigation or

prosecution of Cuti’s offenses. See United States v. Cuti,

778 F.3d 83, 94-95 (2d Cir. 2014) (Cuti I). Specifically,

we advised that the investigative work performed by law

firms in furtherance of the civil arbitration would not be

compensable, as opposed to “an internal investigation to

root out accounting or securities fraud.” Id. at 95. We

also raised the possibility of “redundant or duplicative”

expenses between the work performed by the two law firms

retained by Duane Reade, which “cannot both have been

‘necessary’ to advance the government’s investigation.” Id.

We accepted that “[u]ltimately, it may be that the lack of

clarity in the record results in some of Duane Reade’s

claimed expenditures not being subject to restitution.” Id.

at 96. 

 On remand the district court solicited further

briefing and evidence from the parties. Among the materials

submitted were declarations from Daniel Beller and Jonathan

Freedman, attorneys at Paul, Weiss, Rifkind, Wharton &

Garrison LLP (“Paul, Weiss”) who reviewed billing records in

detail to remove any charges for redundant expenses or work

performed solely on behalf of Duane Reade’s private equity

owner and the arbitration. This analysis resulted in the

victim-claimants withdrawing nearly $1 million in requested

fees. 

The district court, applying the “necessity” standard

articulated in Cuti I and Maynard, further excised from the

award roughly two-thirds of Paul, Weiss’ fees incurred prior

to the commencement of the government’s investigation on the

basis that they were directed at least in part towards the

arbitration. It made other downwards adjustments for work

that was unnecessary or poorly documented. Ultimately, the

district court found that the majority of the submitted

expenses were supported with sufficient detail to warrant an

award of restitution. 

 

Cuti contends on this appeal that given the lack of

clarity in the law firm billings, the government

impermissibly shifted to him the burden to separate the

necessary charges from the non-compensable ones. Cf. Cuti

I, 778 F.3d at 95. But on the record before us, the

government and Duane Reade met their burden with respect to

nearly all expenses by submitting substantial evidence of

the legal and financial services fees sought for

restitution. These records are supported by declarations

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from senior lawyers who supervised the investigations. See

United States v. Gupta, 925 F. Supp. 2d 581, 587 (S.D.N.Y.

2013). Once the government supplied its evidence, Cuti had

ample opportunity to challenge these expenses. The district

court then exercised its broad discretion to make a

reasonable accounting from a thorough record, and we do not

disturb this finding lightly. See United States v. Gushlak,

728 F.3d 184, 194-96 (2d Cir. 2013).

Cuti points to certain errors in the declarations and

ambiguities that arose out of block-billing practices. If

Duane Reade’s counsel had anticipated restitution, they

could have kept better track of their hours by implementing

separate billing codes or stricter time card narratives. In

part to rectify any confusion, Daniel Beller’s declaration

painstakingly describes and dissects the billings records

for Paul, Weiss over many years. The district court may

reach its findings on the basis of these efforts: “absolute

precision is not required.” United States v. Ageloff, 809

F. Supp. 2d 89, 104 (E.D.N.Y. 2011), aff’d sub. nom. United

States v. Catoggio, 698 F.3d 64 (2d Cir. 2012). To undo the

entire award, given our limited perspective, would run afoul

of the district court’s well-recognized role to “make a

reasonable approximation of recoverable losses” after

performing a diligent analysis of a thorough record. See

United States v. Hatfield, No. 06-CR-0550 (JS)(AKT), 2015 WL

13385926, at *13 (E.D.N.Y. Mar. 27, 2015); United States v.

Milstein, 481 F.3d at 137. We decline to do so.

 

Attorneys’ Fees for the Criminal Proceedings

At the same time, we recognize that not every category

of attorney work product meets the essential burden in our

circuit that the government show all charges were “required

to incur to advance the investigation or prosecution of the

offense.” Maynard, 743 F.3d at 381; see Hatfield, 2015 WL

13385926, at *13. A district court abuses its discretion

when it exceeds its statutory authority to award restitution

for necessary expenses under 18 U.S.C. § 3663(b). See

United States v. Reifler, 446 F.3d 65, 127 (2d Cir. 2006).

 

Cuti challenges the discrete category of time billed

for Paul, Weiss attorneys to monitor the criminal trial of

Cuti and his co-defendant. The tasks billed involved

attendance at proceedings, reviewing trial transcripts,

generating memorandums and summaries of motion practice, and

drafting press releases. The district court imposed

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restitution for these amounts, but neither the court nor the

government adduced proof that those charges were necessary

to advance the prosecution under 18 U.S.C. § 3663(b)(4).

 

The district court offered a single justification for

including these amounts in the restitution award: “It is

entirely reasonable for Duane Reade’s counsel to spend a

modest amount of time to track the status of criminal

proceedings related to its former CEO and to disseminate

information to its auditors and the public.” United States

v. Cuti, 2016 WL 4544062, at *10 (S.D.N.Y. Aug. 30, 2016). 

In a single sentence, the government added that the “minimal

expenses” were “necessary to enable Claimants to respond

quickly and efficiently to the Government’s requests for

information and documents.” Appellee’s Br. 38. However,

the government could not identify any assistance rendered to

the prosecution by Duane Reade that relied upon these

monitoring efforts, or a single instance in which those

efforts were necessary to respond to any “requests for

information and documents.” 

It may be, as Judge Batts suggests, “entirely

reasonable” for Duane Reade to desire to remain “abreast” of

the events of the trial of its former CEO. Id. But our

standard for restitution does not concern itself with the

private incentives of the victim. See Cuti I, 778 F.3d at

95 (“A corporate client such as Duane Reade is entitled to

expend as much as it deems prudent. ... However, under

Maynard, not all such expenses are ‘necessary’ for

restitution purposes.”); see also Hatfield, 2015 WL

13385926, at *13 (The Claimant is “entitled to the legal

fees that it incurred in cooperating with the Government’s

prosecution of Defendants and launching its own internal

investigation.” (emphasis added)). Further, the government

cannot justify charges for plainly unnecessary activities

simply because they are “minimal.” Modest as these sums may

be relative to the full restitution award, they are discrete

and, without stronger justification, “gratuitous.” See

Maynard, 743 F.3d at 381-82 (removing individual amounts

from the district court’s restitution order for a bank’s

wanted posters).

We have noted the crucial distinction between actions

that merely “helped” to the prosecution and actions deemed

truly necessary. Cuti I, 778 F.3d at 95. The latter are

compensable, and the former are not. All parties now agree

that Duane Reade is not entitled to restitution for legal

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fees expended in related cases such as the arbitration. Id.

By the same token, it was an abuse of discretion under Cuti

I and Maynard to accept that the government sustained its

burden to prove the necessity of time billed for monitoring

the criminal proceedings, which was never shown to

contribute to the investigation or to the government’s case.

See, e.g., United States v. Nosal, 844 F.3d 1024, 1048 (9th

Cir. 2016) (agreeing with the district court that

restitution should not be awarded for entries related to

attorney review of filings, orders, and press coverage, but

vacating and remanding for further potential reductions in

the award); United States v. Wong, 2014 WL 2700925, at *3

(N.D. Cal. Jun. 13, 2014) (concluding that “reviewing the

pleadings, indictments, and orders” in the criminal case was

“not reasonably necessary for purposes of the MVRA”). 

The final restitution award should not include

attorneys’ fees billed by Paul, Weiss or Cooley for

monitoring the criminal trial of Cuti and his codefendant,

such as, among other related activities, attending

proceedings, reviewing trial transcripts, generating

summaries of trial events, and drafting press releases.

 For the foregoing reasons, we hereby AFFIRM in part and

VACATE AND REMAND in part for the district judge to revise

the final restitution award consistent with this summary

order. 

FOR THE COURT:

CATHERINE O’HAGAN WOLFE, CLERK

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