Court Opinion

ID: 4204984
Source: CourtListenerOpinion
Date Created: 2017-09-21 14:00:40.903452+00
Date Added: 2024-06-11T14:14:40.849210
License: Public Domain

16-3159-cr
United States of America v. Anthony Cuti

                     UNITED STATES COURT OF APPEALS
                         FOR THE SECOND CIRCUIT

                                SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

         At a stated term of the United States Court of Appeals
    for the Second Circuit, held at the Thurgood Marshall United
    States Courthouse, 40 Foley Square, in the City of New York,
    on the 21st day of September, two thousand seventeen.

    PRESENT: DENNIS JACOBS,
             JOSÉ A. CABRANES,
             RICHARD C. WESLEY,
                             Circuit Judges.

    - - - - - - - - - - - - - - - - - - - -X
    United States of America,
             Appellee,

                 -v.-                                               16-3159-cr

    Anthony Cuti,
             Defendant-Appellant.
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    FOR APPELLANT:                         GREGORY M. LIPPER (Brian C. Brook
                                           on the brief), Clinton Brook &
                                           Peed, Washington, DC.

    FOR APPELLEE:                          ELISHA J. KOBRE (Anna M. Skotko on
                                           the brief), Assistant United
                                           States Attorneys for Joon H.
                                           Kim, Acting U.S. Attorney for

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                           the Southern District of New
                           York.

     Appeal from a judgment of the United States District
Court for the Southern District of New York (Batts, J.).

     UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
AND DECREED that the judgment of the district court be
AFFIRMED in part and VACATED AND REMANDED in part.

     Anthony Cuti appeals from the judgment of the United
States District Court for the Southern District of New York
(Batts, J.), ordering a final restitution payment in the
amount of $6,253,547.52 to compensate the victims of the
fraud Cuti perpetrated as Chief Executive Officer of Duane
Reade. We assume the parties’ familiarity with the
underlying facts, the procedural history, and the issues
presented for review.

     The Victim and Witness Protection Act (“VWPA”)
authorizes the restitution of “necessary ... expenses
related to participation in the investigation or prosecution
of the offense.” 18 U.S.C. § 3663(b)(4). Our circuit
generally takes a “broad view of what expenses are
‘necessary’” in the restitution context. United States v.
Maynard, 743 F.3d 374, 381 (2d Cir. 2014); see United States
v. Amato, 540 F.3d 153, 159-60 (2d Cir. 2008). We
recognized in Maynard that restitution under the VWPA may
include attorneys’ fees and accounting costs that “the
victim was required to incur to advance the investigation or
prosecution of the offense.” 743 F.3d at 381.

     We review a restitution order for abuse of discretion.
United States v. Boccagna, 450 F.3d 107, 113 (2d Cir. 2006).
The district court has “broad discretion” to make a
“reasonable estimate” of actual loss “based on the evidence
before it,” United States v. Milstein, 481 F.3d 132, 137 (2d
Cir. 2007), and we review those estimates “deferentially.”
Boccagna, 450 F.3d at 113. At the same time, federal courts
lack the inherent power to order restitution, and the
government bears the burden to show necessity by a
preponderance of the evidence. 18 U.S.C. § 3664(e).

     On the appeal from Cuti’s 2013 restitution award of
$7,615,217,90, we expressed concern that complexities
stemming from the overlapping civil and criminal cases and
billing records implicated Maynard’s limiting principle that

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work must have been required to advance the investigation or
prosecution of Cuti’s offenses. See United States v. Cuti,
778 F.3d 83, 94-95 (2d Cir. 2014) (Cuti I). Specifically,
we advised that the investigative work performed by law
firms in furtherance of the civil arbitration would not be
compensable, as opposed to “an internal investigation to
root out accounting or securities fraud.” Id. at 95. We
also raised the possibility of “redundant or duplicative”
expenses between the work performed by the two law firms
retained by Duane Reade, which “cannot both have been
‘necessary’ to advance the government’s investigation.” Id.
We accepted that “[u]ltimately, it may be that the lack of
clarity in the record results in some of Duane Reade’s
claimed expenditures not being subject to restitution.” Id.
at 96.

      On remand the district court solicited further
briefing and evidence from the parties. Among the materials
submitted were declarations from Daniel Beller and Jonathan
Freedman, attorneys at Paul, Weiss, Rifkind, Wharton &
Garrison LLP (“Paul, Weiss”) who reviewed billing records in
detail to remove any charges for redundant expenses or work
performed solely on behalf of Duane Reade’s private equity
owner and the arbitration. This analysis resulted in the
victim-claimants withdrawing nearly $1 million in requested
fees.

     The district court, applying the “necessity” standard
articulated in Cuti I and Maynard, further excised from the
award roughly two-thirds of Paul, Weiss’ fees incurred prior
to the commencement of the government’s investigation on the
basis that they were directed at least in part towards the
arbitration. It made other downwards adjustments for work
that was unnecessary or poorly documented. Ultimately, the
district court found that the majority of the submitted
expenses were supported with sufficient detail to warrant an
award of restitution.

     Cuti contends on this appeal that given the lack of
clarity in the law firm billings, the government
impermissibly shifted to him the burden to separate the
necessary charges from the non-compensable ones. Cf. Cuti
I, 778 F.3d at 95. But on the record before us, the
government and Duane Reade met their burden with respect to
nearly all expenses by submitting substantial evidence of
the legal and financial services fees sought for
restitution. These records are supported by declarations

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from senior lawyers who supervised the investigations. See
United States v. Gupta, 925 F. Supp. 2d 581, 587 (S.D.N.Y.
2013). Once the government supplied its evidence, Cuti had
ample opportunity to challenge these expenses. The district
court then exercised its broad discretion to make a
reasonable accounting from a thorough record, and we do not
disturb this finding lightly. See United States v. Gushlak,
728 F.3d 184, 194-96 (2d Cir. 2013).

     Cuti points to certain errors in the declarations and
ambiguities that arose out of block-billing practices. If
Duane Reade’s counsel had anticipated restitution, they
could have kept better track of their hours by implementing
separate billing codes or stricter time card narratives. In
part to rectify any confusion, Daniel Beller’s declaration
painstakingly describes and dissects the billings records
for Paul, Weiss over many years. The district court may
reach its findings on the basis of these efforts: “absolute
precision is not required.” United States v. Ageloff, 809
F. Supp. 2d 89, 104 (E.D.N.Y. 2011), aff’d sub. nom. United
States v. Catoggio, 698 F.3d 64 (2d Cir. 2012). To undo the
entire award, given our limited perspective, would run afoul
of the district court’s well-recognized role to “make a
reasonable approximation of recoverable losses” after
performing a diligent analysis of a thorough record. See
United States v. Hatfield, No. 06-CR-0550 (JS)(AKT), 2015 WL
13385926, at *13 (E.D.N.Y. Mar. 27, 2015); United States v.
Milstein, 481 F.3d at 137. We decline to do so.

Attorneys’ Fees for the Criminal Proceedings

     At the same time, we recognize that not every category
of attorney work product meets the essential burden in our
circuit that the government show all charges were “required
to incur to advance the investigation or prosecution of the
offense.” Maynard, 743 F.3d at 381; see Hatfield, 2015 WL
13385926, at *13. A district court abuses its discretion
when it exceeds its statutory authority to award restitution
for necessary expenses under 18 U.S.C. § 3663(b). See
United States v. Reifler, 446 F.3d 65, 127 (2d Cir. 2006).

     Cuti challenges the discrete category of time billed
for Paul, Weiss attorneys to monitor the criminal trial of
Cuti and his co-defendant. The tasks billed involved
attendance at proceedings, reviewing trial transcripts,
generating memorandums and summaries of motion practice, and
drafting press releases. The district court imposed

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restitution for these amounts, but neither the court nor the
government adduced proof that those charges were necessary
to advance the prosecution under 18 U.S.C. § 3663(b)(4).

     The district court offered a single justification for
including these amounts in the restitution award: “It is
entirely reasonable for Duane Reade’s counsel to spend a
modest amount of time to track the status of criminal
proceedings related to its former CEO and to disseminate
information to its auditors and the public.” United States
v. Cuti, 2016 WL 4544062, at *10 (S.D.N.Y. Aug. 30, 2016).
In a single sentence, the government added that the “minimal
expenses” were “necessary to enable Claimants to respond
quickly and efficiently to the Government’s requests for
information and documents.” Appellee’s Br. 38. However,
the government could not identify any assistance rendered to
the prosecution by Duane Reade that relied upon these
monitoring efforts, or a single instance in which those
efforts were necessary to respond to any “requests for
information and documents.”

     It may be, as Judge Batts suggests, “entirely
reasonable” for Duane Reade to desire to remain “abreast” of
the events of the trial of its former CEO. Id. But our
standard for restitution does not concern itself with the
private incentives of the victim. See Cuti I, 778 F.3d at
95 (“A corporate client such as Duane Reade is entitled to
expend as much as it deems prudent. ... However, under
Maynard, not all such expenses are ‘necessary’ for
restitution purposes.”); see also Hatfield, 2015 WL
13385926, at *13 (The Claimant is “entitled to the legal
fees that it incurred in cooperating with the Government’s
prosecution of Defendants and launching its own internal
investigation.” (emphasis added)). Further, the government
cannot justify charges for plainly unnecessary activities
simply because they are “minimal.” Modest as these sums may
be relative to the full restitution award, they are discrete
and, without stronger justification, “gratuitous.” See
Maynard, 743 F.3d at 381-82 (removing individual amounts
from the district court’s restitution order for a bank’s
wanted posters).

     We have noted the crucial distinction between actions
that merely “helped” to the prosecution and actions deemed
truly necessary. Cuti I, 778 F.3d at 95. The latter are
compensable, and the former are not. All parties now agree
that Duane Reade is not entitled to restitution for legal

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fees expended in related cases such as the arbitration. Id.
By the same token, it was an abuse of discretion under Cuti
I and Maynard to accept that the government sustained its
burden to prove the necessity of time billed for monitoring
the criminal proceedings, which was never shown to
contribute to the investigation or to the government’s case.
See, e.g., United States v. Nosal, 844 F.3d 1024, 1048 (9th
Cir. 2016) (agreeing with the district court that
restitution should not be awarded for entries related to
attorney review of filings, orders, and press coverage, but
vacating and remanding for further potential reductions in
the award); United States v. Wong, 2014 WL 2700925, at *3
(N.D. Cal. Jun. 13, 2014) (concluding that “reviewing the
pleadings, indictments, and orders” in the criminal case was
“not reasonably necessary for purposes of the MVRA”).

     The final restitution award should not include
attorneys’ fees billed by Paul, Weiss or Cooley for
monitoring the criminal trial of Cuti and his codefendant,
such as, among other related activities, attending
proceedings, reviewing trial transcripts, generating
summaries of trial events, and drafting press releases.

     For the foregoing reasons, we hereby AFFIRM in part and
VACATE AND REMAND in part for the district judge to revise
the final restitution award consistent with this summary
order.

                           FOR THE COURT:
                           CATHERINE O’HAGAN WOLFE, CLERK

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