Opinion ID: 612563
Heading Depth: 2
Heading Rank: 2

Heading: Restitution for the Loss of the Home

Text: Moving to Frazier's other challenge, he contends the district court erred in awarding $86,317.59 in restitution to AMERIND. The parties do not dispute the district court's determination as to SWA being a victim of Frazier's arson, see 18 U.S.C. § 3663A(a)(2), or the district court's assignment of the payment of SWA's restitution to AMERIND given AMERIND had already fully compensated SWA for the loss of the home, see 18 U.S.C. § 3664(j)(1). Frazier's only challenge to this portion of the restitution order is the district court's finding as to the amount of SWA's loss, which ultimately determined the amount of restitution awarded to AMERIND. According to Frazier, the district court improperly relied upon the replacement value of the home in determining the amount of SWA's loss, and also failed to properly account for his and Erna's equity payments in the MEPA retained by SWA following the fire.
The district court awarded AMERIND $86,317.59 in restitution, which was AMERIND's calculated replacement value for the burned-down property under SWA's insurance contract. This valuation by AMERIND of the home's replacement value was the main evidence offered by the government as to SWA's amount of loss. The only other evidence the government offered was the testimony of an asset manager for SWA, who opined the replacement value calculated by AMERIND was too generous toward Frazier because upon further research he determined the actual cost to rebuild was considerably more, likely exceeding $100,000, as a result of the increased overhead in getting materials to the reservation's remote location. Sentencing Transcript at 14. The district court concluded the insurance payment from AMERIND to SWA was reflective of a payment for a loss  an actual loss that occurred, and the cause of the actual loss was Mr. Frazier ... igniting the house on fire. Sentencing Transcript at 82. The district court explained, [t]he home was largely destroyed  basically destroyed by the fire. And in situations like this, the Court ... has awarded AMERIND the amount that it had to pay to SWA. Id. Based on these statements by the district court, it appears the court awarded restitution in the amount of $86,317.59, the estimated replacement value of the home, because AMERIND had to pay that amount to SWA under the insurance contract. We do not find this to be a proper basis for determining SWA's loss. As a preliminary matter, restitution is based on compensating for a victim's losses. 18 U.S.C. § 3664(f)(1)(A). AMERIND is not a victim. Thus it is not appropriate to determine the amount of restitution based on AMERIND's out-of-pocket cost. See 18 U.S.C. § 3664(f)(1)(B) (In no case shall the fact that a victim has received or is entitled to receive compensation with respect to a loss from insurance or any other source be considered in determining the amount of restitution.). Instead, the focus is on the victim's  SWA's  actual loss. Although it could be argued the amount of compensation a victim receives from a third party is reflective of actual loss, the value of such information to the district court depends on how the compensation amount was calculated. Here, the payment SWA received from AMERIND was based on an estimated replacement value, which is an apt method of valuing a victim's loss under certain circumstances, such as when the actual cash value of the damaged, lost, or destroyed property is difficult to ascertain-because an item is unique, or because there is not a broad and active market for it. Boccagna, 450 F.3d at 116 (internal quotation marks and citation omitted). The Eighth Circuit has not yet defined the circumstances under which replacement value becomes an appropriate valuation method for determining a victim's amount of loss, but we glean insight from other circuits which have addressed this issue to conclude replacement value was not appropriate in the present case. In United States v. Shugart , the Eleventh Circuit determined replacement value was the appropriate measure of the victims' actual losses resulting from the complete destruction of a church. 176 F.3d at 1375. The court affirmed the district court's decision to use replacement value because [a] church is not a fungible commodity. A congregation rarely sells its church.... A church is unique, and is valued by its members, precisely because of its location, its design, and the memories it evokes. Id. The court determined the actual cash value of the church would not have been an appropriate measure of value in this case because the intangible characteristics of the lost church cannot be recreated by purchasing an alternate structure in another city or neighborhood, even if such structure were available. Id. Similarly, in United States v. Simmonds, the Third Circuit affirmed the use of replacement value in awarding restitution for the loss of furniture. 235 F.3d 826, 828-29 (3d Cir.2000). The defendant, along with five others, damaged a person's residence causing, in part, a loss of furniture. Id. When determining the victim's actual loss, the district court used the replacement value instead of the market value for determining the amount of the victim's loss attributable to the destruction of the furniture. Id. at 830. In affirming this decision, the Third Circuit noted, furniture often has a personal value to its owners that cannot be captured or accurately estimated by simply determining the market value of the furniture. Id. at 832. These cases instruct that replacement value is intended to capture the amount of a victim's loss when the lost or damaged property lacks a viable market for determining fair market value or is unique and carries with it intangible value that cannot easily be measured. Thus, we agree that in certain situations replacement value is the best measure of a victim's actual loss, particularly where the lost property is difficult to value. Conversely, in situations where the lost or damaged property is a fungible commodity with a viable market, we conclude replacement value is likely not appropriate because fair market value will ... provide[] the most reliable measure of ... the full loss sustained by a victim. Boccagna, 450 F.3d at 115. In choosing to rely on the replacement value in this case, the district court made no findings as to whether the destroyed home was a unique asset with intangible value or whether it lacked a viable market from which the court could have determined the fair market value. The record itself is sparse on this question, lacking any evidence from which we can determine whether the value of SWA's lost property would in fact be `difficult to ascertain-because [it was] unique, or because there [was] not a broad and active market for it.' Id. at 116 (internal quotation marks omitted). It was the government's burden to prove the amount of SWA's loss. Yet, in asking the court to rely on AMERIND's calculated replacement value for the destroyed home, the government provided no evidence to indicate the house was unique to SWA, nor did it demonstrate the home lacked a viable market. It is not clear on the record as to why the district court concluded this replacement value was, in the circumstances of this case, the best valuation method to achieve Congress's intent of making SWA whole. To be sure, SWA was the victim, not AMERIND, and the amount of restitution is to be based on SWA's actual, provable loss. Even though AMERIND agreed to pay SWA the replacement value of the home, it may not be the most accurate method for calculating SWA's actual losses. Accordingly, because we conclude replacement value is appropriate in only certain, limited circumstances and because the record fails to establish those circumstances are present in this case, we hold the district clearly erred in valuing SWA's actual loss based on the replacement value of the home. Moreover, we are not persuaded by Frazier's proposed valuation method. Frazier suggests the better measure of SWA's actual loss is the amount of benefit SWA lost under the rent-to-own contract, treating it as if the contract had been completed. SWA's actual loss would have been only $28,727.14, the estimated payoff amount it would have received if Frazier completed the contract. According to Frazier, had the contract been completed, SWA would have the money and no property. Thus, if the district court ordered $28,727.14 in restitution and gave the now-worthless home to Frazier, SWA would be no worse off than if Frazier had completed the contract the day of the fire. We have said the purpose of the MVRA is to make victims of crime whole, to fully compensate these victims for their losses and to restore these victims to their original state of well-being. Statman, 604 F.3d at 538 (internal quotation marks and citations omitted). In so concluding, we also noted [t]he intended beneficiaries ... are the victims, not the victimizers. Id. (internal quotation marks and citation omitted). Accordingly, the benefit, if any, of the MVRA should fall to the victim, not the defendant. To do as Frazier requests would not return SWA to its original state of well-being, but would instead put SWA in the hypothetical position it would have been in if Frazier had been able to provide a full payoff amount at the time of the fire. To base the value of SWA's loss on the contract payoff amount would not only result in SWA receiving less than its actual loss  which was the loss of the home  but would also be based on a speculative and hypothetical scenario, which is not a proper basis for valuing loss. Cf. Chalupnik, 514 F.3d at 754-55 (holding restitution is to be based on actual loss, not hypothetical loss, and may not be `based entirely upon speculation') (quoting United States v. Young, 272 F.3d 1052, 1056 (8th Cir.2001)); United States v. Patterson, 595 F.3d 1324, 1327 (11th Cir.2010) ([S]peculation has no place in [restitution] calculations.). Thus, on these facts, we reject Frazier's proposed contract-value determination of actual loss. Instead of replacement value or contract value, we suggest the most appropriate measure of SWA's loss is likely the market value of the destroyed property as it tends to be the measure most apt to serve Congress's intent for the MVRA because it accounts for the value of the property's greatest economic use. Boccagna, 450 F.3d at 115. SWA has not demonstrated any unique attachment to the destroyed property and further has not suggested it suffered any intangible loss in addition to the property loss. Accordingly, before the arson, SWA owned the home on the Rosebud Reservation. Once the property was destroyed, SWA was without the property. Based on SWA's original state before the arson, and its current state following the arson, the loss it suffered was the loss of the value of its ownership in the home. And as a house to which SWA had no unique attachment, the property can likely be valued based on an active market for similar assets. Thus, to make SWA whole again, it should receive the market value of the property. We observe, however, the record is devoid of evidence establishing the market value at the time of the arson or on the date of sentencing. The SWA asset manager suggested the property was worth more than the $54,354.27 listed in the Fraziers' rent-to-own contract, but there is no other evidence in the record to guide us or the district court in valuing the destroyed home. Consequently, we conclude a remand is necessary on this issue for the government to either prove the market value by a preponderance of the evidence or provide sufficient facts to support the use of an alternative valuation method.
Aside from the issue of how to value SWA's loss, there is also the matter of the $9,963 in the MEPA owned by the Fraziers and retained by SWA following the fire. As the district court found, the ownership in the lost property consisted of two pieces: the ownership stake ... of the Fraziers [of] $9,963 at the time of the fire in the MEPA and the remaining ownership [of the property] ... with SWA Corp. Sentencing Transcript at 82. In ordering restitution, the district court required Frazier to pay Erna $4,982.00 for her half of the MEPA retained by SWA following the fire. Frazier contends the restitution order is duplicative in that it requires him to pay on the full amount of SWA's loss without regard to the fact SWA retained the $9,963.00 MEPA while it also requires him to pay Erna for her half of the account. We, too, have some concern over the treatment of the MEPA in the restitution order. SWA claims it is entitled to keep the MEPA either as a result of Frazier's breach of the contract or because the Fraziers had $9,533.58 in delinquent payments under the contract. The record, again, is so sparse we cannot determine the purpose for which SWA retained the MEPA. [2] However, to the extent SWA was entitled to retain the money in the account under the contract as a form of compensation for damage to the property in the event of a breach, the amount retained should offset the amount SWA may claim because it reduces the amount of actual loss SWA suffered. This interpretation accords with the intent of Congress in enacting the MVRA  to compensate a victim in order to restore the victim to his original state, but not to overcompensate so as to provide a windfall. See Petruk, 484 F.3d at 1038. Therefore, on remand the district court will need to address the proper treatment of SWA's retaining the MEPA. In so concluding, we note the government raises several arguments as to why SWA is entitled to certain sums of money under the rent-to-own contract. But the criminal restitution process is not intended to compensate a victim for damages it may otherwise be entitled to in a civil proceeding. Chalupnik, 514 F.3d at 754. By retaining the $9,963 in equity the Fraziers owned in the MEPA, it is likely SWA was in part compensated for the loss of the property. Accordingly, the property loss incurred by SWA should be reduced by that compensation. If SWA is entitled to additional damages based on Frazier's breach of contract  e.g., delinquent rent payments  SWA may seek those funds in a civil suit.