Court Opinion

ID: 3042193
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:08:09.352725+00
Date Added: 2024-06-11T12:23:58.409878
License: Public Domain

United States Court of Appeals
                              FOR THE EIGHTH CIRCUIT
            ___________

            No. 06-2665
            ___________

United States of America,                *
                                         *
      Plaintiff - Appellee,              *
                                         *
      v.                                 *
                                         *
Paula Rae Petruk,                        *
                                         *
      Defendant - Appellant.             *
           ___________                       Appeals from the United States
                                             District Court from the
            No. 06-2666                      District of Minnesota.
            ___________

United States of America,                *
                                         *
      Plaintiff - Appellee,              *
                                         *
      v.                                 *
                                         *
Ernest Anthony Stevenson,                *
                                         *
      Defendant - Appellant.             *
                                    ___________

                               Submitted: December 14, 2006
                                  Filed: April 25, 2007
                                   ___________

Before LOKEN, Chief Judge, MURPHY and SHEPHERD, Circuit Judges.
                             ___________
LOKEN, Chief Judge.

      Paula Petruk and Ernest Stevenson pleaded guilty to conspiring to fraudulently
obtain federal housing subsidies in violation of 18 U.S.C. §§ 371 and 641. Under the
Mandatory Victim Restitution Act (MVRA), the district court at sentencing “shall
order” restitution to a victim of this offense. 18 U.S.C. § 3663A(a)(1), (c)(1)(a)(ii).
The government can be a “victim” entitled to restitution, United States v.
Senty-Haugen, 449 F.3d 862, 865 (8th Cir. 2006), but the award must be based on
“the amount of loss actually caused by the defendant’s offense.” United States v.
Rhodes, 330 F.3d 949, 953 (7th Cir. 2003) (emphasis in original).

       The plea agreement recited that the parties did not agree on the proper amount
of restitution. Petruk and Stevenson now appeal the district court’s1 determination
that they are jointly and severally liable for restitution to the U.S. Department of
Housing and Urban Development (HUD) in the amount of $45,441, the aggregate
subsidies paid during the conspiracy period, December 1987 to August 2001. We
conclude that the government’s actual loss in this type of case is the amount of
subsidies paid minus the amount HUD would have paid had Petruk and Stevenson
timely and truthfully disclosed the relevant circumstances. Because the documentary
record confirms that no subsidies would have been paid, we affirm.

                                          I.

       In December 1987, Stevenson began receiving “Section 8” federal housing
subsidies for renting a single family home in Duluth, Minnesota, to Petruk, a mildly
retarded tenant who qualified for Social Security disability as well as Section 8
benefits. A local public housing agency, the Duluth Housing and Redevelopment
Authority (HRA), administers the Section 8 tenant assistance program for HUD. See

      1
        The HONORABLE MICHAEL J. DAVIS, United States District Judge for the
District of Minnesota.

                                         -2-
42 U.S.C. § 1437a(b)(6).2 When Stevenson sold the Duluth home and bought a home
in Floodwood, Minnesota, Petruk moved to the Floodwood property, and the subsidies
continued. To qualify for the subsidies, Petruk certified annually that her household
comprised only herself and her two children when they were living with her.
Stevenson signed and submitted lease agreements on standard HUD forms providing
that only the tenant’s family as approved by HRA would reside in the rented property.
In fact, Stevenson claimed both homes as his Minnesota homestead each year;
represented that he resided in the homes in loan applications, purchase agreements,
and insurance policies; and at times lived in the homes with Petruk. HRA terminated
Petruk’s Section 8 assistance in November 2001 when an investigation revealed that
“Ernest Stevenson has been residing in your household since December 1, 1987.”
This indictment followed. In pleading guilty, Petruk and Stevenson admitted the
lengthy conspiracy to defraud.

       At the change-of-plea hearing, defendants admitted only that Stevenson “at
times” lived with Petruk while she was receiving Section 8 subsidies. The parties then
submitted the restitution issue to the district court on a documentary record.
Defendants submitted numerous documents tending to show that (i) Petruk was
eligible for Section 8 subsidies throughout the conspiracy period; (ii) Stevenson, an
over-the-road truck driver employed by out-of-state trucking companies, lived in his
truck during most years, except for brief visits to his girlfriend, Petruk; and (iii) for
two additional years, Stevenson lived with other members of Petruk’s family in
Duluth. Defendants’ Sentencing Memorandum argued that restitution was proper only
for those portions of the conspiracy when Stevenson in fact lived in Petruk’s home.
Defendants urged the court to order restitution in the amount of $10,146.

      2
       Under the Section 8 tenant assistance program, a landlord is paid the difference
between a percentage of an eligible tenant’s household income and 90-110% of the
fair market rent in the area. See 42 U.S.C. § 1437f(o)(1)(B), (2).
                                          -3-
       The government responded with a Position With Respect to Sentencing. The
government first argued that its loss equals the aggregate amount of subsidies
unlawfully obtained during the course of the conspiracy. Alternatively, the
government submitted a lengthy affidavit by HUD’s criminal investigator together
with extensive documentary evidence tending to show that Stevenson and Petruk
treated the rented properties as Stevenson’s residence for all legal purposes except his
dealings with HUD and HRA. Indeed, Stevenson spent the night before a warrant
search with Petruk in the Floodwood home. Therefore, the government argued,
whether he slept in his truck while working was irrelevant.

       The presentence investigation reports recommended restitution in an amount
equal to the total subsidies paid. Defendants objected. Based on the documentary
evidence, the district court found that “Stevenson continuously resided with Petruk
at the Duluth property and then at the Floodwood property.” Based on this finding,
the court concluded that HUD is entitled to restitution of the full amount of the
subsidies paid because “all of the Duluth HRA’s payments to Stevenson on Petruk’s
behalf . . . were fraudulently obtained as part of [the] conspiracy.” Stevenson and
Petruk appeal, arguing that the finding they continuously resided together was clearly
erroneous. We review a restitution order for abuse of discretion and the finding of the
amount of loss for clear error. United States v. Liner, 435 F.3d 920, 926 (8th Cir.
2006); United States v. Miller, 419 F.3d 791, 792 (8th Cir. 2005); United States v.
Carruth, 418 F.3d 900, 904 (8th Cir. 2005). The government must prove the amount
of restitution owed by a preponderance of the evidence. United States v. Oslund, 453
F.3d 1048, 1062 (8th Cir. 2006).

                                          II.

       We begin our analysis with a question not addressed by the parties -- why does
Stevenson’s residence matter? If the government was correct in arguing to the district
court that the proper restitution is always disgorgement of all subsidies fraudulently

                                          -4-
obtained, then the court did not need to find where Stevenson resided while he
engaged in the conspiracy to defraud. But the government does not urge this broad
theory on appeal. Implicit in the government’s approach on appeal is the concession
it made in United States v. Futrell, 209 F.3d 1286, 1290 (11th Cir. 2000) -- when a
government agency is a victim of fraud because it paid subsidies or benefits as a result
of the fraud, the agency’s actual loss for MVRA purposes is the amount paid minus
the amount that would have been paid in the absence of fraud.

       This is the principle that applies in determining actual loss for purposes of the
defendant’s offense level under the guidelines. See U.S.S.G. § 2B1.1, comment.
(n.3(F)(ii)). Although the few cases addressing this issue are inconsistent,3 the
principle seems equally appropriate in determining restitution under the MVRA. The
modern trend in private civil litigation endorses use of the common law remedy of
restitution to punish intentional wrongdoers by compelling the disgorgement of all ill-
gotten gain. See Restatement (Third) of Restitution and Unjust Enrichment § 51
(Tentative Draft No. 5, Mar. 12, 2007). Automatic disgorgement of government
benefits or subsidies obtained by fraud would likewise be punitive in nature. As such,
it would be an appropriate criminal forfeiture remedy. See United States v. Hamaker,
455 F.3d 1316, 1337 (11th Cir. 2006).4 However, while restitution under the MVRA
may be a form of punishment for Ex Post Facto Clause purposes, see United States v.
Schulte, 264 F.3d 656, 661-62 (6th Cir. 2001) (collecting cases), it is clear that
Congress intended that restitution be a compensatory remedy from the victim’s

      3
        See United States v. Harms, 442 F.3d 367, 380-81 (5th Cir. 2006); United
States v. Dawkins, 202 F.3d 711, 715 (4th Cir. 2000); United States v. Sapoznik, 161
F.3d 1117, 1121-22 (7th Cir. 1998). Some state courts have applied this principle in
determining the amount of restitution due to agency victims of welfare fraud. See
People v. Akins, 128 Cal. App. 4th 1376, 1384 & n.6 (Cal. App. 2005); State v.
Harvey, 547 N.W.2d 706, 709 (Minn. App. 1996).
      4
       In this case, the indictment included a forfeiture claim to all proceeds of the
fraud conspiracy, but the government either abandoned or dismissed that claim.
                                          -5-
perspective. Therefore, government agencies, like private MVRA victims, should be
limited to compensation for their actual losses.

       Thus, the relevant question is whether HUD acting through HRA would have
paid Section 8 subsidies during the conspiracy period if the agency knew that
Stevenson was “residing” with Petruk. Petruk and her children were clearly eligible
for Section 8 assistance, so the contention that defendants were eligible for a portion
of the total subsidies cannot be rejected out of hand. See 42 U.S.C. § 1437f(o)(4).

       The district court did not clearly err in finding that the rented homes were
Stevenson’s legal residence during the entire fourteen-year conspiracy. Stevenson’s
declaration that the homes were his Minnesota homestead throughout the period is
doubtless sufficient to support this finding. See Minn. Stat. § 273.124(a) (“residential
homestead” is residential real estate “occupied and used for the purposes of a
homestead by its owner, who must be a Minnesota resident”). Moreover, Stevenson
identified the rented properties as his home addresses in connection with numerous
financial transactions, often misrepresenting that he and Petruk were husband and
wife. He also received mail at the homes from everyone except HRA and HUD.
Likewise, the court’s finding that Stevenson lived with Petruk rather than other family
members when in Duluth was not clearly erroneous. The owner of the home where
Stevenson claimed to reside averred that he in fact lived with Petruk.

       On the other hand, defendants presented unrefuted evidence that Stevenson
lived in his truck for months on end, only visiting Petruk for brief periods that might,
they argue, qualify him for the “guest” exclusion in the Section 8 Lease Agreement.5
This prompts the question whether the term “reside” or “residence” in the HRA/HUD
documents encompassed Stevenson’s legal residence, or was limited to whether he

      5
      The HUD lease form defines guest as, “A person in the contract unit with the
consent of a tenant family member for no more than 14 consecutive days and not to
exceed 30 days in a year.”
                                          -6-
actually lived in Petruk’s rented home. Section 8 subsidies are based on the total
income of the “tenant family” living in the subsidized premises. See 42 U.S.C.
§ 1437f(o)(2)(A). Stevenson’s income would doubtless have disqualified the Petruk
household any months he was actually living with Petruk. But if tenant income is the
relevant factor, “reside” may mean “living with,” not legal residence.

       The government’s brief asserts that “Stevenson’s residence at the properties
with Petruk while receiving Section 8 subsidies on her behalf was specifically
precluded by Section 8 regulations.” If true, that would confirm that the district
court’s finding as to legal residence adequately supports the restitution award. The
government’s documentary evidence included a lengthy affidavit by the HUD Special
Agent who conducted this investigation. She asserted, but without citation to
authority, that Petruk received the subsidies “despite the exclusion of owner-occupied
housing from the receipt of Section 8 benefits.” However, a criminal investigator is
not the proper witness to establish such an exclusion. Moreover, the assertion of a
total “owner-occupied housing” exclusion is inconsistent with an explicit
homeownership provision in the statute. See 42 U.S.C. § 1437f(y).

      Though our review of this complex statute and Title 24 of the Code of Federal
Regulations uncovered no provision automatically precluding Section 8 rental
subsidies if the rental unit’s owner resides with the subsidized tenant, HUD documents
signed by Stevenson confirm the government’s position. The annual Lease
Agreements with Petruk required each member of the “tenant’s family” to be
disclosed on the lease and approved by the HRA. The Housing Voucher Contracts
signed in connection with each Lease Agreement provided:

      The Owner agrees that the endorsement on the [monthly rental payment]
      check . . . shall be a certification by the Owner that . . . The Family . . .
      do not own, or have any interest in the Contract unit.

                                          -7-
Thus, had Petruk and Stevenson timely disclosed Stevenson, the owner of the
“Contract unit,” as a member of the tenant family, that disclosure would have
automatically disqualified the application, and no subsidies would have been paid,
regardless whether Stevenson planned to live in his truck for substantial portions of
the lease term. For this reason, the district court’s finding that Stevenson
“continuously resided with Petruk,” even if limited to a finding of legal residence,
meant that HUD’s actual loss was equal to the full amount of the subsidies paid.

      The judgments of the district court are affirmed.
                     ______________________________

                                         -8-