Opinion ID: 2978318
Heading Depth: 2
Heading Rank: 3

Heading: bourke’s attorney fees as losses3

Text: The district court concluded that Bourke was entitled to $744,424.66 in restitution representing expenses incurred in assisting the government in investigating the conspiracy and “the costs and fees resulting from efforts to collect from, or defend himself against, Schultz and Defendants.” (J.A. 154.) Elson challenges the district court’s inclusion of Bourke’s attorney fees in the restitution award, arguing that the MVRA prohibits the award of consequential damages such as attorney fees and that the government failed to prove the reasonableness of Bourke’s fees.4 3 In his issues presented for review, Elson lists several reasons as to why the district court’s inclusion of Bourke’s attorney fees in the restitution amount was improper. Among those reasons, Elson includes the assertion that “Bourke recovered $30,000 from co-conspirator Larry Carnahan (“Carnahan”).” (Def.’s Br. 2.) However, he makes no other mention of this amount or Carnahan in his brief. Because Elson has failed to develop the argument, he has waived it on appeal. See Johnson, 440 F.3d at 846. 4 In a two-sentence section at the end of his brief, Elson argues that Bourke is not a victim for purposes of restitution because Bourke, when he settled with McPeak, knew that McPeak was involved in the conspiracy. In addition to waiving the argument by failing to develop it on appeal, see Johnson, 440 F.3d at 846, Elson’s assertion that Bourke was “a participant in the offense” and therefore not a victim is without basis. While Bourke knew that McPeak was involved in a fraudulent scheme, Bourke’s actions did not further the conspiracy or in any way defraud Schultz’s creditors. Instead, Bourke was a Schultz creditor whom McPeak sought to defraud. Accordingly, Bourke was not a participant in the conspiracy, and his knowledge of the fraudulent actions of McPeak and the other members of the conspiracy does not preclude him from being a victim for purposes of the MVRA. Cf. United States v. Mousseau, 517 F.3d 1044, 1048 (8th Cir. 2008) (concluding that the minor to which the defendant provided methamphetamine was a victim for purposes of restitution because, although the minor engaged in an illegal act, the minor was not a “participant in an offense” because the minor did not commit the same offense—providing a controlled substance to a minor—as the defendant). No. 07-3778 United States v. Elson Page 14
“We review de novo the question of whether restitution is permitted under the law, and review the amount of a restitution award for abuse of discretion.” United States v. Boring, 557 F.3d 707, 713 (6th Cir. 2009).
Where an offense involves damage to or loss of property, the MVRA restricts restitution to the replacement value of the property. 18 U.S.C. § 3663A(b)(1); see United States v. Akbani, 151 F.3d 774, 779-80 (8th Cir. 1998) (construing identical language in the VWPA). In cases involving such offenses, several circuits have held that a district court lacks authority under the VWPA to order restitution for attorney fees and similar “consequential damages involved in determining the amount of the loss or in recovering those funds.” United States v. Schinnell, 80 F.3d 1064, 1071 (5th Cir. 1996). In Schinnell, the Fifth Circuit found that the district court erred in including a victim’s “accounting fees and cost[s] to reconstruct the bank statements for the time period that the defendant perpetuated []his scheme.” Id. at 1070. Similarly, the Third Circuit has stated that, “[i]n defining the substantive boundaries of compensation in cases where restitution is ordered for offenses resulting in the loss of property,” restitution is restricted to an amount “‘pegged to the actual losses suffered by the victims’” and does not include consequential damages such as attorney fees. Gov’t of Virgin Islands v. Davis, 43 F.3d 41, 44-45 (3d Cir. 1994) (quoting United States v. Barany, 884 F.2d 1255, 1260 (9th Cir. 1989)). Where, as in Elson’s case, the offense does not involve damage to or loss or destruction of property, however, the MVRA “requires only that the restitution ordered by the district court be based on losses ‘caused by the specific conduct that is the basis for the offense of conviction.’” Akbani, 151 F.3d at 780 (quoting United States v. Marsh, 932 F.2d 710, 712 (8th Cir. 1991)). Accordingly, “there is no blanket prohibition . . . against inclusion of attorneys’ fees in the calculation of a restitution amount for offenses that do not result in damage to or loss or destruction of property.” Id. No. 07-3778 United States v. Elson Page 15 In addition, attorney fees also may be recoverable pursuant to § 3663A(b)(4), which requires a district court, “in any case,” to order restitution to “reimburse the victim for . . . other expenses incurred during participation in the investigation or prosecution of the offense.” 18 U.S.C. § 3663A(b)(4). While this Circuit has yet to interpret the meaning of “other expenses” in the context of § 3663A(b)(4), several other circuits have addressed the issue. In United States v. Waknine, 543 F.3d 546 (9th Cir. 2008), the defendant argued that the attorney fees incurred by the victims were “too indirectly related to the offense conduct to be reimbursed” under § 3663A. Id. at 558. Although the court remanded the case to the district court for more detailed evidence as to the type of attorney fees incurred, the court directed the district court to “award restitution of . . . attorneys’ fees [only] if the government provides sufficiently detailed evidence to demonstrate by a preponderance of the evidence that these costs were incurred by [the victims] in aid of Waknine’s investigation or prosecution, and that such expenses and costs were reasonably necessary.” Id. at 559. In United States v. Amato, 540 F.3d 153 (2d Cir. 2008), the defendants also challenged the inclusion of attorney fees in the restitution amount. In rejecting the defendants’ argument, the court held “that ‘other expenses’ incurred during the victim’s participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense may include attorney fees and accounting costs.” Id. at 159.
As the district court recognized, the government sought two categories of attorney fees on behalf of Bourke. First, the government requested the attorney fees Bourke incurred in defending himself against the fraudulent lawsuits filed against him as part of the scheme devised to frustrate Bourke’s and other creditors’ attempts to recover judgments against Schultz. Because these fees were not incurred during Bourke’s “participation in the investigation or prosecution of the offense,” see 18 U.S.C. § 3663A(b)(4), in order to be recoverable, the attorney fees must have been “‘caused by the specific conduct that is the basis for the offense of conviction.’” Akbani, 151 F.3d at 780 (quoting Marsh, 932 F.2d at 712); see Hughey, 495 U.S. at 416. No. 07-3778 United States v. Elson Page 16 We agree with the district court’s conclusion that the attorney fees Bourke sustained defending himself against the fraudulent lawsuits are recoverable. It is undisputed that a central part of the conspiracy was “to engage in sham lawsuits” (J.A. 132), including deceptive litigation techniques such as controlled depositions and collusive filings in civil court. The time and resources Bourke spent defending the lawsuits directly resulted from the filing of collusive lawsuits by Elson and his coconspirators in furtherance of the scheme to conceal assets from and to frustrate the collection efforts of Schultz creditors such as Bourke. Accordingly, the portion of Bourke’s fees related to defending himself against fraudulent lawsuits is recoverable. See United States v. Havens, 424 F.3d 535, 539 (7th Cir. 2005) (upholding inclusion of attorney fees “paid [by an identity fraud victim] to counsel or other experts for dealing with the banks and credit agencies in the effort to correct her credit history and repair the damage to her credit rating” in the restitution order). The government also sought the attorney fees Bourke incurred in attempting to collect a civil judgment against Schultz. As noted above, Bourke secured a judgment on behalf of his client, Bryant, against Schultz in California state court, which Bryant later assigned to Bourke. At the restitution hearing, Bourke testified that the coconspirators’ use of nominees to hide Schultz’s assets made it more difficult for him to locate available assets for purposes of collecting the California judgment. Bourke stated that his attorney fees resulted from “chasing Mr. Schultz’s assets around the world” in an attempt to collect on the court’s judgment. (J.A. 376.) More specifically: Instead [of receiving the value of the judgment by return mail], we had to discover from piercing a stone wall, after months and months of discovery . . . , we had to . . . find out from the[ documents] where the assets had gone, figure out the lies and deception that were going in [sic] to block us and then figure out what to do about that and what courts to go to and what courts to present the evidence to. And that took hundreds of thousands of hours of time and we had to hire lawyers in New York, Florida, Illinois, Ohio, and we ourselves did the California work. (J.A. 379.) Bourke further estimated that “there were between 11 and 36 layers of phony corporations and shills that [Schultz] was using that we had to . . . prove to some court somewhere that he was using these.” (J.A. 380.) Bourke therefore incurred significant No. 07-3778 United States v. Elson Page 17 attorney fees and other costs in researching and uncovering the numerous layers of nominees created by the Schultz conspiracy in an attempt to hide Schultz’s assets. We conclude that the costs Bourke expended to locate Schultz’s assets are recoverable under § 3663A(b)(4). On this issue, the Eighth Circuit’s recent decision in United States v. Stennis-Williams, 557 F.3d 927 (8th Cir. 2009), is instructive. In Stennis-Williams, the defendant was an attorney appointed as the personal representative of an estate. Id. at 928. The defendant subsequently defrauded the estate of over $200,000. Id. In the course of discovering and investigating the fraud, the estate paid approximately $70,000 in attorney and accountant fees, which the district court included in its restitution order. Id. at 928, 930. On appeal, the Eighth Circuit concluded that “the district court did not clearly err by including the estate’s investigative costs in its restitution calculation” because the fees were recoverable pursuant to § 3663A(b)(4). Id. at 930. The court reasoned that “privately incurred investigative costs constitute foreseeable losses that are directly caused by a defendant’s fraudulent conduct.” Id. Based on the reasoning set forth in Stennis-Williams, Bourke’s attorney fees are recoverable under § 3663A(b)(4). Like the estate in Stennis-Williams, Bourke sustained significant costs and fees in discovering and investigating the numerous layers of shill corporations and nominees related to Schultz’s fraud. While Bourke did not investigate the fraud as part of the government’s prosecution of Elson and his co-conspirators, Bourke’s costs and fees “constitute foreseeable losses that [we]re directly caused” by the conspiracy’s act of concealing Schultz’s assets from creditors such as Bourke. See id. We therefore follow the reasoning of the Eighth Circuit in Stennis-Williams and conclude that Bourke’s attorney fees incurred in pursuing the Bryant judgment are recoverable under § 3663A(b)(4). Alternatively, the attorney fees and costs Bourke expended in attempting to collect the judgment against Schultz constitute losses that were “caused by the specific conduct that is the basis of the offense of conviction.” Hughey, 495 U.S. at 413; see Akbani, 151 F.3d at 780. Generally, attorney fees incurred in civil litigation against the defendant for the same acts at issue in the criminal proceedings are consequential No. 07-3778 United States v. Elson Page 18 damages that are not recoverable. E.g., United States v. Seward, 272 F.3d 831, 839 (7th Cir. 2001) (“In calculating . . . the actual loss amount for restitution, the district court should include in the calculation all direct damages, but not include consequential or incidental damages [such as attorney fees].”). However, where a victim’s attorney fees are incurred in a civil suit, and the defendant’s overt acts forming the basis for the offense of conviction involved illegal acts during the civil trial, such as perjury, such fees are directly related to the offense of conviction and therefore are recoverable as restitution under the MVRA. See United States v. DeGeorge, 380 F.3d 1203, 1221-22 (9th Cir. 2004). In DeGeorge, the defendant “participated in a scheme to defraud by purchasing a yacht, inflating its value through a series of sham transactions, [and] obtaining insurance [from Cigna Property and Casualty Company (“Cigna”)] on the yacht at the inflated value.” Id. at 1207. After obtaining insurance, the defendant furthered his scheme by “scuttling [the yacht] off the coast of Italy, and attempting to collect the insurance proceeds, in part by lying about the cause of the sinking during civil litigation with the yacht’s insurer.” Id. at 1207-08. When payment was sought under the terms of the insurance policy, “Cigna refused to pay . . . . [and] filed a civil lawsuit against the defendant [and his co-conspirators] seeking rescission of the insurance contract.” Id. at 1210. At trial, Cigna prevailed and was awarded attorney fees. Id. One year after the judgment was affirmed, the defendant was indicted for mail fraud, wire fraud, and perjury. Id. At sentencing following his conviction on all counts, the district court ordered restitution of almost $3 million, “which was the amount of attorney’s fees incurred by Cigna in defending the civil case.” Id. at 1221. On appeal, the court of appeals affirmed the district court’s inclusion of attorney fees in the restitution award. The court reasoned that the defendant’s offense “included his perjury and other conduct during the civil trial” and therefore “the insurance company’s expenses in the civil trial were directly, not tangentially, related to [the defendant]’s offenses.” Id. No. 07-3778 United States v. Elson Page 19 Similarly, Bourke’s attorney fees incurred in pursuing the Bryant judgment were a direct result of the acts forming the basis of the Schultz conspiracy. As alleged in the indictments: It was part of the conspiracy that . . . Defendants . . . orchestrated a series of false and fraudulent transactions that were designed to make it appear that Richard Schultz had spent or lost millions of dollars through business deals . . . when, in fact, the Defendants and others assisted Schultz in concealing, shielding and transferring Schultz’s assets . . . both within and outside the United States to hide the existence, location, source, ownership, nature, and control of such assets. (J.A. 79.) Bourke testified at the restitution hearing that the use of nominees to conceal the existence and true ownership of Schultz’s assets required Bourke to “chas[e] Mr. Schultz’s assets around the world” in an attempt to collect on the judgment. (J.A. 376.) Bourke’s testimony evinces that the time he spent pursuing Schultz’s assets and attempting to unravel the numerous layers of nominees “reflect the losses [Bourke] suffered as a direct result” of the actions of Elson and his co-conspirators in concealing Schultz’s assets. See Havens, 424 F.3d at 539. Thus, the district court did not err in concluding that Bourke’s attorney fees could be included in the restitution award.
Elson next argues that the government failed to show that the fees sought on behalf of Bourke were reasonable and further argues that, because Bourke actually seeks compensation for his own time, the government failed to show that Bourke suffered any loss. Under 18 U.S.C. § 3664(e), the “burden of demonstrating the amount of loss sustained by a victim as a result of the offense shall be on the attorney for the Government.” At the restitution hearing, the government presented the testimony and billing records of Bourke. Bourke testified that he incurred excessive legal fees and costs, including the expenditure of his own time, because of the actions of the Schultz conspirators. As the government summarized in its post-hearing brief: No. 07-3778 United States v. Elson Page 20 The conspirators operated . . . to “frustrate” Bourke and his clients through unlawful means at virtually every juncture between mid-1994 and early 1998, causing him to incur fees and expenses for which he was not compensated. Kennedy and Bogart hid assets in and through Canada based on false transactions that were virtually impossible to penetrate and they concealed funds in offshore accounts that were beyond the reach of the civil litigants. In fact, when Bourke attempted to expose those and other transactions, the defendants sought to impede his progress through false statements and sham litigation perpetrated by Elson and Massari. Bourke testified that he incurred excessive litigation costs and fees . . . , including the costs and fees associated with the sham litigation. (J.A. 261.) Had Bourke hired a different attorney to pursue the collection efforts on behalf of himself and Bryant, Bourke would have incurred attorney fees as a result of the conspiracy’s efforts to conceal assets. That Bourke performed the legal services himself should not preclude recovery of the amounts he expended as a direct result of the actions of Elson and others. See Havens, 424 F.3d at 539 (“To the extent that [the victim of identity fraud] spent time that otherwise would have been compensated, perhaps because she had to miss work and forego hourly compensation, or because she had to turn down professional clients to whom she could have provided services if she was not occupied with her credit restoration activities, her time may be compensated. Time spent for which the opportunity cost was zero, however, cannot be the subject of compensation . . . .”). Bourke testified at the restitution hearing that he spent “hundreds of thousands of hours” pursuing the judgment against Schultz, time that could have been spent performing work for other clients. Accordingly, through Bourke’s testimony, the government proved the amount of losses Bourke incurred by a preponderance of the evidence. With respect to the reasonableness of Bourke’s fees, Bourke provided numerous pages of time sheets to the district court and explained how he allocated his work on the Schultz case between collection efforts and other matters. Further, during the restitution hearing, Bourke was subject to cross-examination by several of the defendants with respect to certain entries in his time sheets. Without any evidence to suggest that Bourke falsified his time sheets or otherwise did not spend the time claimed on collection No. 07-3778 United States v. Elson Page 21 activities, Elson has failed to show that the district court clearly erred in concluding that the government “establish[ed] that the damages [Bourke] sustained amounted to $744,424.66.” (J.A. 159.) Aside from alleging that the government failed to prove that the fees were reasonable, Elson offers no argument that the fees were unreasonable, or that Bourke’s hours were excessive. Accordingly, we see no reason to overturn the district court’s determination that the government established Bourke’s loss by a preponderance of the evidence.