Opinion ID: 1274135
Heading Depth: 2
Heading Rank: 2

Heading: Cost of the Audit

Text: The State requested the district court include the cost of an audit in the restitution order. The State offered an exhibit specifying NEW Cooperative's calculation of damages. The exhibit included the cost of the audit in the total damages calculation. Over a hearsay objection, the court admitted the exhibit and later ordered Bonstetter to pay an additional $19,763 to cover the cost of the audit. Bonstetter argues the district court erred in including the audit in the restitution order. He claims there was no evidence to establish the fee was necessary, fair, or reasonable. The State argues Bonstetter failed to preserve error because he did not lodge the proper objection before the trial court, i.e. Bonstetter did not argue there was no evidence the costs of the audit were reasonable and necessary. In general, matters not raised in the trial court will not be considered for the first time on appeal. State v. Morehouse, 316 N.W.2d 884, 886 (Iowa 1982). However, in a bench trial, a defendant is not required to challenge the sufficiency of the evidence in the district court to preserve error for appeal. See State v. Anspach, 627 N.W.2d 227, 231 (Iowa 2001) (citing State v. Abbas, 561 N.W.2d 72, 74 (Iowa 1997)). Therefore, it was not necessary for Bonstetter to object to the inclusion of the audit in the restitution order or raise the point by way of a post-trial motion. Bonstetter filed a motion for new trial, motion for reconsideration, and motion to correct sentence. In the motion, Bonstetter specifically identified the nature of his challenge to the restitution order. At the time the State filed its resistance to Bonstetter's motion, it had the opportunity to specifically state the evidence supporting the inclusion of the audit. However, the State resisted the motion simply by denying all allegations of errors or improprieties in the sentencing of Defendant and of the amount of restitution ordered. Even though Bonstetter was not required to challenge the sufficiency of the evidence to support the inclusion of the audit, he alerted the court to the issue, and the court had occasion to correct any errors in the sentence. In its order, the court found the restitution amount Ordered fairly reflect [sic] the amounts owing pursuant to Chapter 910. In calculating a restitution order, the district court must find a causal connection between the established criminal act and the injuries to the victim. State v. Holmberg, 449 N.W.2d 376, 377 (Iowa 1989). The damage must have been caused by the offender's criminal act to justify the restitution order. Ihde, 532 N.W.2d at 829. Once the causal connection is established by a preponderance of the evidence, the statute allows recovery of `all damages'... which the state can show by a preponderance of the evidence. Id. (quoting Holmberg, 449 N.W.2d at 377). A restitution order is not excessive if it bears a reasonable relationship to the damage caused. Mayberry, 415 N.W.2d at 647. In the criminal context, failure of the State to satisfy its burden of proof as to damages does not preclude pursuit of civil recovery for the costs of an audit. Under our statute, a restitution order may properly include all damages to the extent not paid by an insurer, which the victim could recover against the offender in a civil action arising out of the same facts or event. Iowa Code § 910.1(2). [1] The present case is similar to State v. Taylor, 506 N.W.2d 767 (Iowa 1993) and State v. Hollinrake, 608 N.W.2d 806 (Iowa Ct.App.2000). In Taylor, the defendant pled guilty to first-degree theft and falsifying public documents. Taylor, 506 N.W.2d at 768. In Hollinrake, the defendant pled guilty to falsifying public documents. Hollinrake, 608 N.W.2d at 808. In both cases, the courts held the offense was the civil equivalent of conversion. Hollinrake, 608 N.W.2d at 808; Taylor, 506 N.W.2d at 768. Conversion is the intentional exercise of control over property `which so seriously interferes with the right of another to control it that the actor may justly be required to pay ... the full value of the chattel.' Hollinrake, 608 N.W.2d at 808 (quoting Restatement (Second) of Torts § 222A(1) (1964)). In the case before us, the State convicted Bonstetter of first-degree fraudulent practice and forgery. The events surrounding Bonstetter's criminal conduct support a civil claim for conversion. Bonstetter took money from his employer. The issue then is whether the costs of the audit, determining the extent of the taking, are a proper element of damage in a conversion suit. Generally, expenses of litigation are not recoverable in a civil suit, unless there is specific statutory authority to the contrary. Taylor, 506 N.W.2d at 768 (citing 89 C.J.S. Trover & Conversion § 175, at 650 (1955)). However, conversion cases present an exception to the general rule. [2] Here, the reasonable and necessary expenses incurred in recovering the misappropriated funds are a proper element of damage. Iowa Code §§ 910.1, 910.2; Taylor, 506 N.W.2d at 768; Hollinrake, 608 N.W.2d at 809; 89 C.J.S. Trover & Conversion § 174, at 650; 18 Am.Jur.2d Conversion § 117, at 231 (1985). Consequently, expenses incurred solely because of the offender's acts are recoverable. Hollinrake, 608 N.W.2d at 809 (costs of audit are recoverable if offender's action directly caused the need for the audit); 89 C.J.S. Trover & Conversion § 174, at 650. Bonstetter, over a long period of time, intentionally converted over $422,000 from NEW Cooperative. NEW Cooperative, in turn, was forced to conduct an independent audit to determine the extent of the damage caused by Bonstetter. See, e.g., Hollinrake, 608 N.W.2d at 809 (citing Taylor, 506 N.W.2d at 769) ([t]he only means to adequately uncover the extent of the damage was through an audit); accord State v. Bausch, 29 P.3d 989, 991 (Kan.Ct.App. 2001) (audit costs are recoverable as part of restitution order because the audit was a reasonable consequence of the defendant's crime); State v. Whitaker, 110 N.M. 486, 495, 797 P.2d 275, 284 (1990) ([a] reasonably foreseeable consequence of defendant's taking money from the county was that the county would need to conduct a thorough audit to be sure it had uncovered all the defendant's defalcations); State v. Holmgren, 229 Wis.2d 358, 372, 599 N.W.2d 876, 883 (Ct.App.1999) (where audit was done to determine extent of defendant's wrongdoing and to attach specific amounts to the criminal acts, the costs of the audit were necessitated by defendant's crime). Given these facts, common sense seems to dictate an audit was certainly necessary. However, we may not simply infer the necessity and reasonableness of this particular audit. The State must offer some proof to support the inclusion of the audit in the restitution order. In this case, the State failed to provide any such evidence. Bonstetter argues the court erred in including the cost of the audit in the restitution order because there was insufficient evidence to prove the audit fees were necessary, fair, or reasonable. The State offered exhibit three which included the $19,763 audit fee in the calculation of total damages. Over Bonstetter's hearsay objection, the court admitted exhibit three into evidence. Mr. Stanley, a certified public accountant with Schnurr & Company, testified the charge was for professional fees for work in this case. He further said he did not know whether the audit fees were necessary, fair, and reasonable. On appeal, Bonstetter seems to argue the audit may not be included in the restitution order because no witness ever uttered the words, the audit fees are necessary, fair, and reasonable. Though the State must provide evidence to support the conclusion the audit is necessary, fair, and reasonable, it is not necessary for the State to elicit from a witness the precise words, the audit fees are necessary, fair, and reasonable. Though such an exact statement is not necessary, if present in the record, the statement is some proof to support inclusion of an audit in a restitution order. Here, the record does not reflect such a statement, and we can find no other evidence to support the court's inclusion of the audit as a damage item in the restitution order. There is no evidence NEW Cooperative paid any money in satisfaction for the cost of the audit. All the State offered was proof that a bill was presented from a third party for payment of the costs of the audit. However, presentation to the court of the bill alone is not enough to prove the costs of the audit are necessary, fair, and reasonable. Some other proof is necessary before we can conclude the audit was a reasonable, fair, and necessary element of damage. See Data Documents, Inc., v. Pottawattamie County, 604 N.W.2d 611, 616 (Iowa 2000) (party seeking damages bears burden of proving them; if the record is uncertain or speculative as to whether a party has sustained damages, the factfinder must deny recovery); B-W Acceptance Corp. v. Saluri, 258 Iowa 489, 497, 139 N.W.2d 399, 404 (1966) (must prove damages with some reasonable certainty). In conclusion, we find the State failed to satisfy its burden of proving a reasonable relationship between Bonstetter's criminal actions and the necessity and reasonableness of this particular audit. See Mayberry, 415 N.W.2d at 647. It is the county attorney's responsibility to account for victim rights under our statutes. Iowa Code § 910.3. As such, the State must satisfy its burden of proof when it seeks to recover damages due the victim. Since the record is devoid of any evidence to prove this audit was reasonable and necessary, the inclusion of the costs of the audit as an item of damage was not supported by substantial evidence. See Mayberry, 415 N.W.2d at 647. Because we find there was not substantial evidence for the court to determine the costs of the audit were part of the damage caused by Bonstetter's crimes, we reverse and remand for the district court to enter an order consistent with this opinion. Costs on appeal are taxed to the appellant. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.