Opinion ID: 808490
Heading Depth: 4
Heading Rank: 3

Heading: The Second Circuit

Text: Finally, the Second Circuit addressed the issue of offset value in United States v. Boccagna, 450 F.3d 107 (2d Cir. 2006). In Boccagna, the defendants were charged in a mortgage fraud scheme involving the United States Department of Housing and Urban Development (“HUD”). Id. at 109-110. HUD foreclosed on the collateral and then resold the real estate at a fraction of their fair market value to the New York City Department of Housing Preservation and Development in order to further its mission to develop low-cost housing. Id. at 110. When considering the appropriate amount by which to offset the victim’s loss, the Boccagna court initially noted that the government did not argue that “the property that is returned” language of the MVRA only applies to actual No. 10-3794 31 cash and not to “any property that HUD obtained after default.” Id. at 112 n.2. The court then said that “[s]uch an argument would not be convincing,” but based its holding on precedent from the Fifth and Ninth Circuits.1 1 Id. Boccagna explained: As two of our sister circuits, construing identical offset language in the Victim and Witness Protection Act, codified at 18 U.S.C. § 3663, have concluded, when a lender victim acquires title to property securing a loan, “the value of such property should constitute a partial return of the cash loan proceeds.” United States v. Holley, 23 F.3d 902, 915 (5th Cir. 1994) (internal quotation marks omitted); see United States v. Smith, 944 F.2d 618, 625 (9th Cir. 1991) (holding that defendant “should receive credit against the restitution amount for the value of the collateral property as of the date title to the property was transferred” to lender victim). Boccagna, 450 F.3d at 112 n.2. The Second Circuit in Boccagna then went on to hold that the offset value should generally be based on the fair market value of the real estate at the time of foreclosure. Id. at 109. Boccagna, thus, adds nothing to the analysis, having merely relied on Holley and Smith—which were incorrect for the reasons noted above. 11 The court in Boccagna also cited this court’s decision in Shepard. But as discussed above, see supra at 17-18 n.8, Shepard is distinguishable. 32 No. 10-3794 In sum, as our detailed discussion of the Ninth, Fifth and Second Circuits’ decisions explains, those decisions all relied on the keystone decision in Smith. And the Ninth Circuit’s reasoning in Smith is flawed for several reasons: Smith purported to rely upon the statutory language but ignored the distinction between the property stolen (cash) and the property returned (real estate). Compounding this error was Smith’s reliance on Tyler which was factually distinct. In Tyler, the defendant was charged with stealing timber and the property recovered—on the same day as the theft—was timber. Thus, Tyler does not answer the question of the appropriate offset value where the property stolen and returned differ. The Ninth Circuit in Smith also treated real estate as a liquid asset. But it was not liquid because the collateral could not be turned into cash the same day title transferred. The court misconstrued the market forces by assuming that the only reason collateral would not be immediately turned into cash would be a deliberate decision by the victim to hold on to the property. Beyond Smith’s faulty reasoning, the only additional rationale for using the value of real estate at the time the victim obtained title to the collateral was the Fifth Circuit’s view in Reese that, conceptually, obtaining title to real estate is the same as receiving cash. But it is not: real estate is not liquid; it is not what was stolen; it is not what the victim wants; and it does not benefit the victim in any way until it is turned back into cash upon resale. Accordingly, it is only when the real estate is converted into cash through a future sale that the offset value should be determined. The plain language of the No. 10-3794 33 MVRA dictates this conclusion because “the value (as of the date the property is returned),” 18 U.S.C. § 3663(b) (emphasis added), in the context of the statute must mean the property taken from the victim. But even if there were any ambiguity in the meaning of “the property,” we would interpret that language to best achieve the statutory goal of the MVRA—to make the victim whole—and this goal is best achieved by calculating restitution based on the actual cash proceeds recouped following the resale of any collateral real estate. 5. Circuits holding that the offset value is determined based on the cash proceeds recouped following resale of the collateral real estate. This brings us now to the decisions from the Third, Eighth and Tenth Circuits, which have all held that their respective district courts correctly used, as the offset value for calculating restitution, the eventual proceeds recouped following a foreclosure sale.1 2 a. The Third Circuit The Third Circuit addressed this issue in United States v. Himler, 355 F.3d 735 (3d Cir. 2004). In Himler, the defen- 12 As discussed earlier, see supra at 23, Judge O’Scannlain dissented in the pivotal Ninth Circuit opinion (United States v. Smith), preferring the same approach to the offset valuation later approved by the Third, Eighth, and Tenth Circuits. 34 No. 10-3794 dant had fraudulently purchased a condominium by tendering false checks to a settlement company that in turn paid the seller $193,833. Id. at 737. The district court ordered Himler “to pay restitution in the amount of $193,833—to be reduced by the ultimate net proceeds from the sale of the condominium.” Id. at 744. The Third Circuit upheld that award, noting first that the victim in this case “was not a seller of the condominium who was returned to his or her pre-crime position upon reobtaining title to the condominium. Rather, [the victim] was the settlement company that facilitated the purchase and sale between [the seller] and [the defendant].” Id. And deeding the collateral real estate back to the settlement company did not adequately compensate the victim for its loss.1 3 Id. at 744-45. The Third Circuit then noted that the government had conceded that the statute requires a district court to “value” the property “as of the date the property is returned” to the victim. Id. at 745. But the court agreed with the government that the district court did not abuse its discretion in entering a restitution order that would be reduced by the future proceeds from the real estate’s sale. Id. In reaching this conclusion, the court noted that, had the offset amount been determined prior to its sale, the defendant would have been left with a high bill because market forces 13 In Himler, the court also noted that the defendant had purchased the condominium at an inflated price ($193,833) while other similar condominiums were selling between $150,000 and $160,000. Himler, 355 F.3d at 744. No. 10-3794 35 allowed the condominium to sell for $181,000, whereas at the time title transferred to the settlement company, similar condominiums were selling for $150,000 to $160,000. Id. In Himler, the Third Circuit seemed to rely on the fact that the defendant was in a better position under the district court’s approach because the real estate values had increased between the time title transferred and the resale. Id. at 745. Obviously, we have the converse here, but what Himler’s reasoning illustrates is that with fluctuating real estate values, the only way to measure the true loss to the victim is by looking to the actual resale price of the collateral real estate. Under the MVRA, the actual loss is the appropriate measure of restitution. b. The Tenth Circuit In United States v. James, 564 F.3d 1237 (10th Cir. 2009), the Tenth Circuit also upheld a restitution award that calculated the total loss by subtracting the eventual resale price of the collateral real estate from the initial loan proceeds. Id. at 1246-47. In James, the Tenth Circuit reasoned that “[b]ecause, in this case, the foreclosure price method more closely reflects the actual loss [the victim] experienced, we cannot say the district court’s method of using that value was unreasonable or that it otherwise erred in using that valuation method in determining the amount of restitution under the MVRA.” Id. 36 No. 10-3794 c. The Eighth Circuit Similarly, in United States v. Statman, 604 F.3d 529 (8th Cir. 2010), the Eighth Circuit upheld the district court’s use of the eventual proceeds from a foreclosure sale as the offset value. Id. at 538. In that case, the defendants had been charged with wire fraud in relation to a scheme to purchase a business. Id. at 532. Among other things, in purchasing the business they assumed a bond secured by real estate. Id. at 536. Following their conviction for fraud, at sentencing defendant Rund objected to the government’s methodology for calculating restitution. Id. at 537. Then on appeal Rund argued that “the district court erred because the loss to [the victim] should not have been calculated based on the alleged foreclosure sale price but [, instead, on] the assessed value of the properties.” Id. The court rejected Rund’s approach, which, as the Eighth Circuit explained, “would have this court use the appraised value of the foreclosed property to calculate the loss amount, which would result in a lower restitution payment to [the victim].” Id. In rejecting Rund’s approach, the Eighth Circuit stressed the overarching goal of the MVRA— making crime victims whole—and then concluded that “[u]nder the circumstances of this case, the district court’s use of the foreclosure sale price provided a fair and adequate representation of [the victim’s] loss and satisfied the overarching goal of the MVRA, to make [the victim] whole.” Id. The Himler, 355 F.3d 735, Statman, 604 F.3d 529, and James, 564 F.3d 1237, decisions all support our conclusion No. 10-3794 37 today that the offset value is best determined by the money eventually recouped upon the resale of the collateral real estate. This conclusion is consistent with the plain meaning of the MVRA and also furthers the statutory goal of making the victims whole again. Accordingly, today we join the view of the Third, Eighth, and Tenth Circuits and hold that the offset value is the eventual proceeds recouped following a foreclosure sale.