Court Opinion

ID: 200676
Source: CourtListenerOpinion
Date Created: 2011-02-07 04:57:41+00
Date Added: 2024-06-11T17:27:10.556740
License: Public Domain

Not for Publication in West's Federal Reporter
               Citation Limited Pursuant to 1st Cir. Loc. R. 32.3

           United States Court of Appeals
                        For the First Circuit

No. 02-1062

                      UNITED STATES OF AMERICA,

                                 Appellee,

                                      v.

                                TODD COREY,

                         Defendant, Appellant.

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                      FOR THE DISTRICT OF MAINE

              [Hon. Gene Carter, U.S. District Judge]

                                   Before

                      Torruella, Circuit Judge,

                 Greenberg,* Senior Circuit Judge,

                     and Howard Circuit Judge.

     J. Hilary Billings, with whom Billings & Silverstein was on
brief, for appellant.
     F. Mark Terison, Senior Litigation Counsel, with whom Paula D.
Silsby, United States Attorney, was on brief, for appellee.

                             October 7, 2003

*   Of the Third Circuit, sitting by designation.
            HOWARD, Circuit Judge. This appeal concerns the scope of

restitution that may be awarded under the Mandatory Victim Witness

Restitution Act, 18 U.S.C. § 3663A ("MVRA").          Defendant William E.

Corey ("Corey") appeals the district court's order directing him to

pay more than $42,000 in restitution to Farm Credit of Maine ("Farm

Credit"), a lending institution he stands guilty of defrauding. We

affirm.

                                     I.

            The case arises from a fraudulent loan application.         On

July 26, 1997, Corey submitted an application to Farm Credit for a

credit    line   loan   supported   by    documents   containing   material

misrepresentations about his credit status, including, inter alia,

a sham social security number, falsified letters of credit, and

federal income tax returns with substantial inaccuracies.               On

September 5, 1997, Farm Credit granted Corey a line of credit in

the amount of $54,997.      Corey borrowed the full amount authorized

under the loan.

            From the outset, Corey failed to make loan repayments to

Farm Credit.     In August 1998, Farm Credit foreclosed on the loan

and obtained $22,500 in gross proceeds from the auction of real

property that collateralized the credit line.              Eventually, on

October 6, 1998, Farm Credit moved the account into non-accrual

status.

                                    -2-
             In due course, the government charged Corey with bank

fraud, see 18 U.S.C. § 1344, in a one-count information.1              On July

18, 2001, Corey pleaded guilty to the information.                    Prior to

sentencing, the probation department filed with the district court

a presentence report proposing a restitution award of $44,152.43.

The proposed award had four components: (1) a net loss on the loan

of $28,925; (2) legal expenses of $8,910.01; (3) prejudgment

interest in the amount of $4,292.42; and (4) real estate sale costs

of $2,025.      The government concurred in the probation department's

proposal, but Corey objected to it to the extent that it proposed

compensating Farm Credit for losses other than its net loss on the

loan.    In Corey's view, the other damages were "consequential" and

thus beyond the reach of the MVRA.

             In   pressing   his   objection,   Corey   relied   on    several

decisions from other circuits holding that the MVRA bars collateral

consequential damages in a restitution award.            At issue in those

     1
         18 U.S.C. § 1344 provides:

          Whoever knowingly executes, or attempts to execute, a
          scheme or artifice--

          (1)     to defraud a financial institution; or
          (2)     to obtain any of the moneys, funds, credits, assets,
                  securities, or other property owned by, or under the
                  custody or control of, a financial institution, by
                  means    of   false    or   fraudulent    pretenses,
                  representations, or promises;    shall be fined not
                  more than $1,000,000 or imprisoned not more than 30
                  years, or both.

                                     -3-
cases was the scope of 18 U.S.C. § 3663A(b)(1), which pertains to

offenses "resulting in damage to or loss or destruction of property

. . ."   In pertinent part, the statute states that a restitution

award should be the greater of "(I) the value of the property on

the date of the damage, loss, or destruction; or (II) the value of

the property on the date of sentencing, less [ ] the value (as of

the date the property is returned) of any part of the property that

is returned."      As Corey correctly observed, courts have read this

language as limiting restitution awards to "direct" losses and

precluding the inclusion of "consequential" damages.             See e.g.,

United States v. Seward, 272 F.3d 831, 839 (7th Cir. 2001); United

States v. Mikolajczyk, 137 F.3d 237, 245-46 (5th Cir. 1998).

          The government responded that the losses in question were

directly related to the loan and, as such, recoverable.                   To

establish this link, the government presented the testimony of a

bank official familiar with the Corey transaction.          A Farm Credit

senior vice president testified about the nature of Farm Credit's

losses. He stated that the bank suffered (1) foreclosure expenses;

(2) $2,000    in   expenses   for   a   "disclosure   hearing"   to    gather

information   about    Corey's   financial    position;   and    (3)    legal

expenses associated with Corey's bankruptcy, including a petition

to release the collateral Corey used to secure the loan from the

bankruptcy estate.      He also testified that the bank's costs from

its sale of the secured collateral included auctioneer's fees and

                                    -4-
publication expenses. Finally, he stated that with respect to lost

interest, Farm Credit determined (on August 6, 1998) that the Corey

loan was non-earning and, two months later the bank transferred the

loan to non-accrual status.            The district court rejected Corey's

argument that the MVRA permitted it only to award restitution for

the loan    principal.     The court found the cases Corey cited to be

inapposite because Corey had not caused a loss or destruction of

property within the meaning of § 3663A(b)(1).                      The court then

looked to the statutory definition of "victim" -- "person directly

and   proximately    harmed       as   a   result     of   the   commission    of   an

offense," 18 U.S.C. § 3663A(2) -- and concluded that a compensable

loss includes all losses "proximately caused" by the subject

criminal conduct.        Applying this rationale and relying on the

testimony    summarized      in    the      preceding      paragraph,   the    court

concluded   that    Farm     Credit's       legal     expenses    and   prejudgment

interest    were    within    the      zone      of   foreseeability     and    thus

recoverable under the statute.               But the court was not persuaded

that Farm Credit's sales costs were proximately caused by Corey's

offense and thus declined to award $2,025 in auctioneer's fees. In

the end, the court imposed a $42,127.43 restitution obligation.

This appeal followed.

                                           II.

            Although he presses it from a number of angles, Corey

bases this appeal on an argument that the district court exceeded

                                           -5-
its statutory authority when it compensated Farm Credit for its

attorneys' fees and for the prejudgment interest it lost on Corey's

account.     Corey's thesis is straightforward: attorney's fees and

interest are not proper bases for a restitution award because they

constitute consequential damages -- i.e., "such damage, loss, or

injury as does not flow directly and immediately from the act of

the party, but only from some of the consequences or results of

such act."     Black's Law Dictionary 390 96th ed. 1990).           As he did

below, he points to precedent from other circuits holding that

attorney's fees and interest constitute impermissible consequential

damages.     See, e.g., Seward, 272 F.3d at 839.

             While we have no quarrel with the abstract proposition

that unforeseeable consequential damages are beyond the scope of

the MVRA, Corey's one-size-fits-all categorical approach is not

well suited to carrying out the statute's purposes.               In the end,

the question is really whether the damages for which the district

court awarded restitution were "reasonably foreseeable" to Corey.

See United States v. Collins, 209 F.3d 1, 3-4 (1st Cir. 1999).            And

in our view, the court permissibly concluded that they were.

           As the district court concluded, Corey's restitution

order   fell   within   the   compass   of   §   3663A,   which   requires   a

defendant to "make restitution to the victim of the offense." 18

U.S.C. § 3663A.     Under the statutory framework, sentencing courts

wield considerable discretion "to reach an expeditious, reasonable

                                    -6-
determination of appropriate restitution by resolving uncertainties

with a view toward achieving fairness to the victim."      S. Rep. No.

97-532, reprinted in 1982 U.S.C.C.A.N. 2515, 2537; United States v.

Benjamin, 30 F.3d 196, 198 (1st Cir. 1994).     This broad discretion

enables courts to resolve the complicated issues that may arise

during loss determinations.     United States v. Minneman, 143 F.3d

274, 284 (7th Cir. 1998).

          As   we   have   previously   observed,   Congress   did   not

contemplate a purely formalistic approach when it widened the scope

of restitutionary remedies by enacting the MVRA. See United States

v. Vaknin, 112 F.3d 579, 588 (1st Cir. 1997) (interpreting the

VWPA). Rather, the focus of the district court's inquiry should be

on the relationship between the victim's loss and the defendant's

crime.   Under the VWPA, we have adopted a "but for" standard of

causation for restitution that requires the government to 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 nexus between the conduct and the loss is not too attenuated

(either factually or temporally). The watchword is reasonableness.

"A sentencing court should undertake an individualized inquiry;

what constitutes sufficient causation can only be determined case

by case, in a fact-specific probe."      Id. (emphasis added).2

     2
        In United States v. Cutter, 313 F.3d 1, 7 (1st Cir. 2002),
we held that because the VWPA and the MVRA contain the identical
causation provision, the statutes should be interpreted in tandem.

                                  -7-
               Fraud is distinct from other traditional offenses against

physical property.          Fraud constitutes "[a]n intentional perversion

of the truth."         Black's Law Dictionary 660 (6th Ed. 1990).                      The

subject criminal conduct is thus the misrepresentation itself

rather than the theft of some tangible good.                  Where there is fraud,

then, the concept of loss comprehends all reasonably foreseeable

injuries "sustained by [the] victim as a result of the underlying

offense."          18 U.S.C. § 3664; see, also, e.g., United States v.

Solares, 236 F.3d 24, 26 (1st Cir. 2000)(holding the defendant

responsible for the totality of banks' losses from conspiracy to

cash       counterfeit      checks    because       such   losses   were   reasonably

foreseeable). Thus, the task before us is to determine whether the

losses       for    which    the     court    ordered      restitution     can    be    so

categorized.

               We begin with the question of attorney's fees.                    As Corey

argued, in the context of § 3663A(b)(1) and its predecessor, §

3663(b)(1)3,         the    clear     weight       of   authority   has    held        that

restitution does not encompass attorney's fees.4                    But these cases

       3
       See note 2, above; see also United States v. Simmonds, 235
F.3d 826, 832 n.2 (3d Cir. 2000) (comparing § 3663(b)(1) and §
3663A(b)(1)). Although Congress broadened the scope of restitution
when it enacted § 3663A, it did not change the requirement that the
victim's damages be limited to its actual loss.
       4
       Seward, 272 F.3d. at 839 (holding that restitution does not
comprehend attorney's and executor's fees "incurred in fighting a
fraudulent scheme" in probate court because they are consequential

                                             -8-
do not address situations, as here, where the attorney's fees were

part of the intrinsic worth of the subject property.

           As the district court observed, the statute contains no

language limiting a court's authority to determine the appropriate

amount of loss where the underlying crime does not involve damage

to   property.   In    analogous   cases,   several   circuits   have   not

confined restitution under the MVRA to the strict replacement value

of the property.5     Implicit in these decisions is that the concept

rather than direct damages); United States v. Simmonds, 235 F.3d
826, 834 (3d Cir. 2000) (determining that the VWPA unambiguously
limited restitution to "'the value of property' lost, damaged or
destroyed as a result of the [defendant's] crimes."); Mikolajczyk,
137 F.3d at 245-46 (including the victim's attorney's fees in
restitution where they were a direct result of the defendant's
fraud rather than a voluntary act taken by the victim to recover
property or damages); Government of Virgin Islands v. Davis, 43
F.3d 41, 45-46 (3rd Cir. 1994), cert. denied, 515 U.S. 1123 (1995)
(concluding that an award of restitution pursuant to VWPA cannot
include litigation costs to recover balance of funds in bank
accounts because such expense are too far removed from the
underlying criminal conduct); United States v. Mullins, 971 F.2d
1138, 1147-48 (4th Cir. 1992) (declining, under the VWPA, to award
attorney's and investigator's fees expended to recover equipment
obtained through a false credit application); United States v.
Barany, 884 F.2d 1255 (9th Cir. 1989), cert. denied, 493 U.S. 1034
(1990) (holding that insurance company's legal expenses from a
"wholly separate" civil suit were not recoverable under the VWPA).
      5
       Cummings, 281 F.3d at 1053 (9th Cir. 2002) (upholding
restitution award that included the victim's attorney's fees and
expenses for separate state and international civil proceedings
because they were not "wholly separate" from the government's
prosecution of the defendant); United States v. Akbani, 151 F.3d
774, 779-780 (8th Cir. 1998)(holding that attorney’s fees are
permissible where the underlying offense does not involve loss or
destruction to physical property); United States v. Blackburn, 9
F.3d 353, 359 (5th Cir. 1993) (holding that attorney's fees
incurred in defending civil suit were recoverable because they
directly resulted from the underlying offense); see also United

                                   -9-
of "replacement value" is different where physical property is not

involved, and an attendant acknowledgment that attorney’s fees in

those limited cases may be within the compass of foreseeable

losses.    Corey's argument presumes a per se rule that all legal

expenses are impermissible under the MVRA.      We see no statutory

basis for such a rule.      Frequently, attorney's fees will not be

recoverable.    But the determination whether a loss is recoverable

entails a fact-intensive inquiry that is best conceptualized in

terms of foreseeability.

           Here, there was evidence that led the court to conclude

that Farm Credit's legal expenses arose directly from Corey's

fraud.    Corey's misrepresentations divested Farm Credit of its

ability to bargain with the real facts when it granted him a line

of credit.     The loan was premised upon a sham and, as a matter of

course, Farm Credit's response to that fraud entailed routine legal

expenses that are necessarily incurred when a heavily regulated

secured lender mitigates its losses by foreclosing on collateral.

The fees at issue here are thus entirely different in kind from

those incurred where a crime victim initiates a civil lawsuit on

the basis of the underlying offense.     Barany, 884 F.2d at 1261.

             The same reasoning defeats Corey's argument that the

district court erred by including prejudgment interest in its

States v. Patty, 992 F.2d 1045, 1049 (10th Cir. 1993) (concluding
that attorney’s fees may be recoverable under the VWPA if they are
directly related to the defendant’s criminal conduct).

                                 -10-
restitution award.     Because the MVRA is silent on the issue of

prejudgment interest, we turn to "an appraisal of the congressional

purpose."    Rodgers v. United States, 332 U.S. 371, 373 (1947).     The

MVRA aims to provide victims with full and fair compensation,

rendering the return of the principal loan amount inadequate

because "[f]oregone interest is one aspect of the victim's actual

loss." United States v. Smith, 944 F.2d 618, 626 (9th Cir. 1991)

(interpreting the VWPA).       Indeed, a majority of the circuits

addressing the issue have held that restitution under the MVRA, or

alternatively the VWPA, may include prejudgment interest. Id.

(construing VWPA); Shepard, 269 F.3d at 886 (construing MVRA);

Davis, 43 F.3d 47 (construing VWPA); United States v. Hoyle, 33

F.3d 415 (5th Cir. 1994)(construing VWPA); Patty, 992 F.2d at 1050

(construing VWPA); United States v. Rochester, 898 F.2d 971, 983

(5th Cir. 1990) (construing VWPA).

            In our view, placing prejudgment interest within the

category of potentially recoverable losses in a restitution award

is consistent with the MVRA.   As with attorney's fees, there are no

predetermined wooden rules that govern whether prejudgment interest

on a loan falls within the ambit of a restitution award.         Rather,

it is within the sound discretion of the district court to make

that determination.

            Interest is the bread and butter of the business of any

lending     institution.    "Lost     interest   translates   into   lost

                                    -11-
opportunities, as it reflects the victim's inability to use his or

her money for productive purposes."   Davis, 43 F.3d at 47.   When

Farm Credit, relying upon Corey's falsified application, loaned

money to Corey, it presumably made a considered judgment about the

optimal allocation of its resources, thereby passing up other

revenue-generating enterprises.   Accordingly there was sufficient

evidence for the district court to find that Farm Credit's lost

interest was directly related to Corey's fraud.

                              III.

          Based upon the foregoing, we affirm the district court's

award of restitution.

                              -12-