Opinion ID: 173168
Heading Depth: 2
Heading Rank: 1

Heading: Restitution Order to Merrill Lynch

Text: Mr. Speakman first objects to the district court's order that he pay Merrill Lynch $1,225,000 in restitution arising from the arbitration panel's award. We review the factual findings of the district court for clear error and its application of the MVRA de novo. United States v. Gallant, 537 F.3d 1202, 1247 (10th Cir.2008).
The MVRA provides that, for certain crimes, the court shall order ... that the defendant make restitution to the victim of the offense. 18 U.S.C. § 3663A(a)(1). Mr. Speakman concedes that the MVRA applies to the count of wire fraud to which he pleaded guilty, see id. § 3663A(c)(1)(A)(ii) (applying MVRA to an offense against property ... committed by fraud or deceit), but contends that Merrill Lynch is not a victim within the meaning of the Act. For purposes of the MVRA, a victim is a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern. Id. § 3663A(a)(2) (emphasis added). This definition of victim thus sets forth two separate ways an individual can be a victim under the MVRA: first, if the person is directly and proximately harmed as a result of the commission of an offense covered by the MVRA; second, if the defendant's crime includes an element that the defendant engaged in a scheme, conspiracy or pattern of criminal activity, then the person will be a victim if he is directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern of criminal activity. Id.; see also Gallant, 537 F.3d at 1248 (A `victim' under the MVRA is someone who is `directly harmed by the defendant's criminal conduct in the course of the scheme.') (quoting 18 U.S.C. § 3663A(a)(2)). The first of these definitions is in some ways broader because it requires only that the individual be harmed as a result of the defendant's offense, and not in the course of the offense. The first clause also includ[es] the second, which applies only to those crimes that involve, as an element, a scheme, conspiracy, or pattern of criminal activity, and even then applies only when the individual is harmed in the course of the scheme, conspiracy, or pattern. It thus follows that an individual could be deemed a victim by meeting the first criteria only, and not the second. Following our decision in United States v. Gallant , the district court in this case concluded that Merrill Lynch was a victim under the second criterion. In Gallant, we held that wire fraud, Mr. Speakman's crime of conviction, includes as an element a scheme to defraud. Gallant, 537 F.3d at 1248 (A guilty verdict for wire fraud ... necessarily establishes the existence of a scheme to defraud [under the MVRA].) Accordingly, we concluded that when the defendant commits wire fraud, an individual will be deemed a victim so long as he was directly harmed in the course of the scheme. Id. at 1248; see also United States v. Gordon, 480 F.3d 1205, 1211 (10th Cir.2007) (recognizing that MVRA applies not only to those harmed by the offense of conviction, but also to those directly harmed by the defendant's criminal conduct in the course of a scheme, conspiracy, or pattern of criminal activity). On this basis, the district court concluded that Merrill Lynch was directly harmed by the defendant's criminal conduct in the course of the scheme, and was therefore a victim under the MVRA entitled to restitution. (R. Vol. 2 at 14-15.) The district court applied the wrong standard, however. The standard employed by the district court applies only when the alleged victim is directly harmed by the defendant's criminal conduct in the course of the scheme.  18 U.S.C. § 3663A(a)(2) (emphasis added). In Gallant, for example, the defendants committed acts of wire fraud in order to sell a credit card portfolio by misrepresenting its delinquency risk. Gallant, 537 F.3d at 1249. The individual that they hired to market their portfolio was directly harmed in the course of their scheme because his participation was essential to their scheme, and if the defendants had not committed wire fraud, the victim likely would not have incurred the expenses to market the account. Id. Here, by contrast, the harm that the government claims Merrill Lynch endured occurred when Merrill Lynch was found liable to Mrs. Speakman, well after the conclusion of Mr. Speakman's scheme. Unlike the scheme in Gallant, which required the victim's participation to be successful, Mr. Speakman's scheme did not contemplate that Mrs. Speakman would file an NASD arbitration. In fact, if Mrs. Speakman had never brought the NASD arbitrationwhich took place after Mr. Speakman's fraudulent scheme had run its courseMerrill Lynch would not have been harmed by Mr. Speakman's conduct at all. Therefore, Merrill Lynch's harm cannot be said to have arisen in the course of the scheme.
As noted above, Merrill Lynch may still be a victim of Mr. Speakman's fraud if it meets the first criterion of § 3663A(a)(2): that is, Merrill Lynch may be a victim under the MVRA if it was directly and proximately harmed as a result of  Mr. Speakman's fraud. Id. (emphasis added). Although this was not the basis of the district court's determination that Merrill Lynch was a victim, the parties have briefed the issue to this court and we can consider whether to affirm the district court's determination on this alternate ground. See United States v. Sandia, 188 F.3d 1215, 1217 (10th Cir.1999) ([W]e are free to affirm a district court decision on any grounds for which there is a record sufficient to permit conclusions of law, even grounds not relied upon by the district court. (quotation omitted)). We first note that phrase directly and proximately uses the conjunctive and, which indicates that direct harm and proximate harm have separate meanings. Cf. Qwest Commc'ns Int'l, Inc. v. F.C.C., 398 F.3d 1222, 1236 (10th Cir.2005) (noting that use of the word and in setting out F.C.C.'s duties clearly indicates that the Commission cannot satisfy the statutory mandate by simply doing one or the other). Other circuits that have considered the phrase directly and proximately harmed in the MVRA and other federal restitution statutes have required more than but for causation. The Second Circuit, for example, has held that the requirement that the victim be `directly and proximately harmed' encompasses the traditional `but for' and proximate cause analyses. In re Rendon Galvis, 564 F.3d 170, 175 (2d Cir.2009). [3] This interpretation makes a good deal of sense, as it essentially requires a showing of but-for causation to show that a victim was directly harmed, and a showing of proximate causation to show that a victim was proximately harmed. See also In re Antrobus, 519 F.3d 1123, 1126 (10th Cir.2008) (Tymkovich, J., concurring) ([a]pplying traditional rules of `but-for' and `proximate' causation in the CVRA context, and noting that direct [ ] harm encompasses a `but-for' causation notion that is different from proximate harm). Similarly, the First Circuit has held that a two-pronged approach is appropriate when defining the causation standard required to show that someone is a victim under the MVRA. [T]he government must show not only that a particular loss would not have occurred but for the conduct underlying the offense of conviction, but also that the causal connection between the conduct and the loss is not too attenuated (either factually or temporally). United States v. Cutter, 313 F.3d 1, 7 (1st Cir.2002); see also United States v. Robertson, 493 F.3d 1322, 1334 (11th Cir. 2007) (quoting Cutter, 313 F.3d at 7). We agree with these courts that to show that one is a victim under the MVRA, the government must show both that the defendant's conduct is the but-for cause of the individual's harm and that the defendant proximately caused the harm. In Mr. Speakman's case, the parties do not dispute that Mr. Speakman was a but-for cause of Merrill Lynch's loss, as Merrill Lynch never would have had to pay Mrs. Speakman any money under the arbitration award if not for Mr. Speakman's fraud. The district court stopped here in its analysis, concluding that Merrill Lynch was directly harmed by the defendant's criminal conduct in the course of the scheme and was therefore a victim within the meaning of the MVRA. (R. Vol. 2 at 14-15.) As noted above, however, because Merrill Lynch was not harmed in the course of Mr. Speakman's fraud, the district court also needed to consider whether Merrill Lynch was proximately harmed by Mr. Speakman's fraud. The court could thus only order restitution if Mr. Speakman's fraud against his wife proximately caused the loss to Merrill Lynch.
While we have not articulated a precise standard of proximate cause in the MVRA context, we have recognized that the main inquiry for causation in restitution cases [is] whether there was an intervening cause and, if so, whether this intervening cause was directly related to the offense conduct. United States v. Wilfong, 551 F.3d 1182, 1187 (10th Cir.2008) (quoting United States v. De La Fuente, 353 F.3d 766, 772 (9th Cir.2003)); see also United States v. Gamma Tech Indus., Inc., 265 F.3d 917, 928 (9th Cir.2001) (Defendant's conduct need not be the sole cause of the loss, but any subsequent action that contributes to the loss, such as an intervening cause, must be directly related to the defendant's conduct.). Other courts have also focused on the need for the harm suffered by the alleged victim to be not too attenuated from the defendant's wrongful act. See Robertson, 493 F.3d at 1334 ([T]he government must show not only that a particular loss would not have occurred but for the conduct underlying the offense of conviction, but also that the causal connection between the conduct and the loss is not too attenuated (either factually or temporally). (quoting Cutter, 313 F.3d at 7)). We thus hold that, for the purposes of determining if an individual is a victim under the MVRA, an individual will be proximately harmed as a result of the defendant's crime if either there are no intervening causes, or, if there are any such causes, if those causes are directly related to the defendant's offense. There are potentially two intervening causes between Mr. Speakman's wire fraud and the loss Merrill Lynch suffered. First, Mrs. Speakman's initiation of arbitration against Merrill Lynch is an intervening cause of Merrill Lynch's harm, because Merrill Lynch presumably would not have had to pay $1,225,000 if Mrs. Speakman had not brought the arbitration. We have little difficulty in concluding that the arbitration was directly related to the offense conduct, because Mrs. Speakman initiated the arbitration directly in response to Mr. Speakman's fraud in an attempt to recover the money he stole from her. This is a direct relationship that is not too attenuated from Mr. Speakman's fraud so that it would be unjust to hold him responsible. The second intervening cause between Mr. Speakman's fraud and Merrill Lynch's harm is whatever caused the arbitrator to rule that Merrill Lynch was liable to Mrs. Speakman in the NASD arbitration. However, the record does not reflect the basis for Merrill Lynch's liability in the arbitration, so we cannot be sure if Merrill Lynch's liability was based on respondeat superior principles, negligence in supervising Mr. Speakman, or some other basis entirely. [4] And because, as explained below, whether Merrill Lynch was proximately harmed by Mr. Speakman's fraud depends on the basis of Merrill Lynch's liability to Mrs. Speakman in the NASD arbitration, the government has not met its burden of establishing that Merrill Lynch was a victim of Mr. Speakman's fraud. [5] Because the district court did not require a showing of proximate cause in its determination of whether Merrill Lynch was a victim, the government never attempted to establish that element. Mindful of the MVRA's interest in providing compensation to victims of crime, we conclude that a remand is appropriate to allow the government to present evidence of the proximate cause of Merrill Lynch's loss to the district court in the first instance. In order to provide the district court with guidance as to what constitutes proximate cause in this instance, we next consider whether proximate cause would be established if the government is able to establish that Merrill Lynch's liability in the arbitration arose from either respondeat superior or negligence.
If Merrill Lynch's liability was premised on a respondeat superior theory, then there really is no second intervening cause, as employers are generally held liable on that theory not because of any act or omission on their part, but rather because the employee was acting within the scope of his duty. See generally Restatement (Third) Agency § 7.07 (2006). If the government could establish that Merrill Lynch was liable to Mrs. Speakman under a respondeat superior theory, we would thus have little trouble concluding that Merrill Lynch was directly and proximately harmed by Mr. Speakman's fraud.
Although a closer question, we also think that Merrill Lynch's harm would still be directly related to Mr. Speakman's fraud even if Merril Lynch was held liable in the arbitration because of its own negligence in supervising Mr. Speakman. Mr. Speakman must have anticipated that Merrill Lynch would not diligently supervise his actions, or else he would not have been able to commit the fraud in the first place. In addition, the negligent supervision only gave rise to Merrill Lynch's liability because of the fraud that Mr. Speakman was committing. Thus, unlike a volitional act, negligent supervision would not be a cause by itself. It thus cannot be an intervening cause. This satisfies us that Merrill Lynch's harm would be directly related to Mr. Speakman's fraud if Merrill Lynch's liability arose from its own negligence in supervising Mr. Speakman.
Unfortunately, based on the record before us, we cannot even determine whether either respondeat superior or negligent supervision provided the basis for Merrill Lynch's liability to Mrs. Speakman. It is possible that the NASD arbitration found Merrill Lynch liable for other reasons, possibly for an intentional harm that Merrill Lynch itself committed. The only reference to Merrill Lynch's liability contained in the record is a statement by the probation officer in the PSR, based on a statement from Merrill Lynch itself, that Merrill Lynch and the defendant were found jointly and severally liable for losses to Mrs. Speakman in the amount of $1,225,000. (PSR at A-3.) With no further information concerning Merrill Lynch's liability in the arbitration, it remains possible that Merrill Lynch was liable to Mrs. Speakman because of its own volitional acts. In such a case, Merrill Lynch would not have been proximately harmed by Mr. Speakman because it was its own actions that gave rise to its liability, and thus Merrill Lynch's harm would not be directly related to Mr. Speakman's fraud. Just as a third party's intentional tort will generally be held as a superseding cause of a harm, thereby relieving another party of liability for negligence, we are satisfied that any intentional act that Merrill Lynch may have taken would be a superseding cause of its liability that would break the causal chain between Mr. Speakman's actions and Merrill Lynch's loss sustained in the arbitration. See Gaines-Tabb v. ICI Explosives, USA, Inc., 160 F.3d 613, 620 (10th Cir.1998) (When the intervening act is intentionally tortious or criminal, it is more likely to be considered independent. (quotation omitted)); see also Restatement (Second) of Torts § 448 (The act of a third person in committing an intentional tort or crime is a superseding cause of harm to another resulting therefrom....). Indeed, it would be odd to consider Merrill Lynch a victim of Mr. Speakman's fraud if the reason it suffered harm was because of its own intentional conduct. [6] We therefore vacate this portion of defendant's sentence and remand for the district court to perform further fact-finding as to whether Mr. Speakman proximately caused Merrill Lynch's harm.