JOSÉ A. CABRANES, Circuit Judge:
In this appeal, we consider, as a matter of first impression in this Circuit, the propriety of substituting a defendant's gain for his victims' losses in calculating restitution under the Mandatory Victim's Restitution Act ("MVRA"), 18 U.S.C. §§ 3663A-3664. Although we join several of our sister circuits in concluding that such a substitution is error, we decline to exercise our discretion under Federal Rule of Criminal Procedure 52(b) to notice the error in this case because the defendant failed to object to the restitution calculation before the District Court and has not satisfied his burden of persuading us that the erroneous restitution order both "affected [his] substantial rights" and "seriously
From about August 1998 through October 2006, defendant-appellant Salvatore Zangari worked as a securities broker in the securities-lending departments of, first, Morgan Stanley and, subsequently, Bank of America. As a broker, Zangari's responsibilities included borrowing and loaning securities on behalf of his employers and their clients in the securities-lending market.
As described by a leading commentator: Securities lending is an important and significant business that describes the market practice whereby securities are temporarily transferred by one party (the lender) to another (the borrower). The borrower is obliged to return the securities to the lender, either on demand, or at the end of any agreed term. For the period of the loan the lender is secured by acceptable assets delivered by the borrower to the lender as collateral.
Mark C. Faulkner, "An Introduction to Securities Lending," in Securities Lending & Repurchase Agreements 3-4 (Frank J. Fabozzi & Steven V. Mann eds., 2005). Typically, the collateral—which, in the United States, often takes the form of cash
The borrower of securities may be motivated by any number of factors, including the desire to cover a short position, to sell the borrowed securities in hopes of buying them back at a lower price before returning them to the lender, or to gain tax advantages associated with the temporary transfer of ownership of the securities. See Faulkner, supra, at 21-25. The lender, meanwhile, is principally motivated by the ability to earn a return on the collateral during the course of the loan, either through fees paid by the borrower (in the case of noncash collateral) or (in the case of cash collateral) by reinvesting it or making short-term loans to other borrowers at a higher interest rate than that paid to the borrower. See id. at 6-9.
In addition to the lender and borrower, stock-loan transactions often involve a third party, known as a "stock-loan finder." According to the Information filed in this case,
Information ¶ 3, United States v. Zangari, No. 10-cr-255 (E.D.N.Y. Apr. 15, 2010), ECF No. 3. See generally Morgan, Olmstead, Kennedy & Gardner, Inc. v. Fed. Ins. Co., 637 F.Supp. 973, 975 n. 2 (S.D.N.Y.1986).
According to the Government, as a result of the fraudulent scheme, Bank of America and Morgan Stanley suffered losses in the form of unrealized profit. As summarized in its brief on appeal:
Government's Brief at 13.
On April 15, 2010, Zangari waived indictment and pleaded guilty to the Information, which charged him with one count of conspiracy to violate the Travel Act, in violation of 18 U.S.C. §§ 371 & 1952. By the terms of his plea agreement, Zangari conceded that his conduct involved a bribe greater than $70,000, but agreed to forfeit the smaller sum of $65,600, which represented the amount that he had actually deposited into his bank account. The plea agreement also stipulated that restitution was "[a]pplicable, in an amount to be determined by the [District] Court." Plea Agreement, United States v. Zangari, No. 10-cr-255 (E.D.N.Y. Apr. 15, 2010).
Following Zangari's plea, the United States Probation Office prepared a Presentence Investigation Report ("PSR"), which laid out the facts underlying Zangari's plea and calculated the applicable sentencing range pursuant to the United States Sentencing Guidelines ("Guidelines" or "USSG"). In calculating Zangari's adjusted offense level, the PSR included a six-level enhancement under USSG § 2B4.1, reflecting that the amount of loss to the victims of Zangari's crime was more than $30,000 and less than $70,000.
The PSR also reported that restitution was required under the MVRA, and concluded that Zangari was "liable for restitution in the amount of $65,600 ($38,800 owed to Morgan Stanley and $26,800 owed to Bank of America)." Id. ¶ 78. It did not include any explanation for this conclusion, except that it was "[p]ursuant to the guidance found in United States v. Liu, 200 [Fed.Appx.] 39, [2006 WL 2853027] (2d Cir.2006)." Id. The amount and apportionment of loss identified for purposes of restitution was, of course, identical to that justifying the six-level enhancement, which itself was expressly based on Zangari's gain from the fraud.
Prior to sentencing, Zangari's attorney submitted a list of "objections, clarifications and additions" to the PSR. The list did not contain any objection to the PSR's restitution calculation. At the sentencing hearing, the District Judge asked if there were any other objections or corrections to the PSR and Zangari, through counsel, confirmed that there were none.
We agree that the restitution order was entered in error, but not because Zangari's victims suffered no loss. Rather, we hold that it was error to base the restitution order on Zangari's gain rather than the victims' actual losses. However, because Zangari failed to object to the restitution order in the District Court, and because even now he has failed to show that he was unfairly prejudiced by the order, we decline to exercise our discretion to notice the District Court's error.
Ordinarily, we review a district court's order of restitution under the MVRA for abuse of discretion. See United States v. Boccagna, 450 F.3d 107, 113 (2d Cir. 2006); cf. Sims v. Blot, 534 F.3d 117, 132 (2d Cir.2008) ("A district court has abused its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence, or rendered a decision that cannot be located within the range of permissible decisions." (internal citation and quotation marks omitted)). However, where, as here, a defendant fails to object to the restitution order at the time of sentencing, our review is for plain error. See United States v. Pescatore, 637 F.3d 128, 141 (2d Cir.2011).
Federal courts have no inherent power to order restitution, which is traditionally a civil remedy. See United States v. Reifler, 446 F.3d 65, 127, 137 (2d Cir. 2006). A sentencing court's power to order restitution, therefore, depends upon, and is necessarily circumscribed by, statute. See United States v. Elkin, 731 F.2d 1005, 1010-11 (2d Cir.1984), overruled on other grounds by United States v. Ali, 68 F.3d 1468, 1474-75 (2d Cir.1995). In this case, the relevant statute is the MVRA.
As relevant here, the MVRA applies to "an offense against property under this title, ... including any offense committed by fraud or deceit," 18 U.S.C. § 3663A(c)(1)(A)(ii), "in which an identifiable victim or victims has suffered a ... pecuniary loss," id. § 3663A(c)(1)(B). In such a case, a sentencing court "shall order, in addition to ... any other penalty authorized by law, that the defendant make restitution to the victim of the offense." Id. § 3663A(a)(1).
Because "the purpose of restitution is essentially compensatory," Boccagna, 450 F.3d at 115, and because the MVRA itself limits restitution to "the full amount of each victim's loss," 18 U.S.C. § 3664(f)(1)(A), a restitution order must be tied to the victim's actual, provable, loss. See United States v. Marino, 654 F.3d 310, 319-20 (2d Cir.2011) ("[R]estitution is authorized only for losses that [were] ... directly caused by the conduct composing the offense of conviction and only for the victim's actual loss." (internal citation and
In this case, it appears that the restitution order was not based on the victims' actual losses, but rather on Zangari's ill-gotten gains. In ordering restitution, the District Court relied on the PSR prepared by the probation officer, which stated that the loss to the victims had not been calculated because it was "amorphous." The PSR therefore substituted Zangari's gain from unlawful kickbacks in the place of the victims' losses. Assuming that the victims' actual losses "reasonably [could] not be determined," this substitution was permissible for purposes of calculating Zangari's adjusted offense level under § 2B1.1 of the Guidelines. See USSG § 2B1.1, application n. 3(B) ("The court shall use the gain that resulted from the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be determined."). However, the PSR proceeded to employ the same substitution for purposes of calculating restitution. There is no provision in the Guidelines or in the MVRA itself that allows the defendant's gain to be substituted for the victim's loss for purposes of calculating restitution.
We have not yet had occasion to address the precise question of whether a defendant's gain may stand in as a proxy for his victim's loss for restitution purposes. Several of our sister circuits have addressed the issue, however, and all have agreed that "a defendant's gain cannot be used as a proxy for actual loss." United States v. Harvey, 532 F.3d 326, 340 (4th Cir.2008).
We recognize that there may be cases where calculating the victims' actual losses is difficult, particularly where there are multiple victims or complex issues of fact attending the offense conduct. But the MVRA, unlike Guideline § 2B1.1, does not allow a sentencing court to substitute gain for loss in such a case. Rather, it prescribes, in 18 U.S.C. § 3664(d), several measures that the court may take to determine restitution in hard cases. The court may, for example: "require additional documentation or hear testimony," 18 U.S.C. § 3664(d)(4); allow additional time "for the final determination of the victim's losses, not to exceed 90 days after the sentencing," id. § 3664(d)(5); and "refer any issue arising in connection with a proposed order of restitution to a magistrate judge or special master for proposed findings of fact and recommendation as to disposition," id. § 3664(d)(6). Ultimately, if the court finds that "complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process," then the court may, in the exercise of its sound discretion, decide not to order restitution at all. 18 U.S.C. § 3663A(c)(3)(B) (emphasis added); see also USSG § 5E1.1(b)(2) (same).
The Government argues that the PSR did not simply substitute Zangari's gain for the victims' losses; rather, the Government contends, the PSR "drew a direct correlation between the kickbacks and the loss suffered by Morgan Stanley and Bank of America." Government's Brief at 15. To be sure, there may be cases where there is a direct correlation between gain and loss, such that the defendant's gain can act as a measure of—as opposed to a substitute for—the victim's loss. See, e.g., United States v. Berardini, 112 F.3d 606, 609-10 (2d Cir.1997) (defendant's gain appropriately used as measure of victim's actual loss where loss took the form of fraudulently induced sales directly to defendant). But this is not such a case, given the nature of the transactions at issue. The transactions described in the Information and PSR were stock-loan transactions, in which the securities and collateral exchanged by the parties were necessarily returned to their previous respective owners at the end of the loan terms. Therefore, any loss to the identified victims in this case could only have come in the form of opportunity cost.
A concrete example may be of assistance. Suppose "Security X" is valued at $100. Paloma wishes to borrow Security X and pays Clinton Management $5 to arrange a loan, whereby Morgan Stanley loans Security X to Paloma in exchange for
Similarly, suppose SASI wishes to loan Security X for cash and paid a $5 finder's fee to Clinton Management to arrange a loan, whereby Bank of America exchanges $100 cash for Security X. On these facts, it could be said that Bank of America paid $5 more in collateral than would have been necessary in a direct loan. (Because SASI paid $5 in finder's fees, it effectively received only $95 to secure the loan; therefore, Bank of America could conceivably have paid only $95 to borrow Security X directly from SASI.) However, because the collateral (whether $100 or $95) would have been returned to Bank of America at the end of the loan term, Bank of America's loss is really only the foregone return it could have earned on that $5 difference over the duration of the loan.
In short, based on the information provided in the PSR, whether the identified victims, Morgan Stanley and Bank of America, were borrowers or lenders in the subject transactions, their losses are not equivalent to the sham finder's fees paid by Paloma and SASI to Clinton Management—let alone the kickbacks that Clinton Management in turn paid to Zangari and his co-conspirators.
Accordingly, we hold that it was error for the District Court to order restitution in the amount of Zangari's gain rather than the victims' actual losses. However, because Zangari did not raise an objection to the restitution order before the District Court, the question remains whether this error was "plain error," as defined by cases construing Rule 52(b), such that we may notice it and exercise our discretion to correct it.
Federal Rule of Criminal Procedure 52(b) provides appellate courts with a "limited power to correct errors that were forfeited because [they were] not timely raised in [the] district court." United
United States v. Marcus, ___ U.S. ___, 130 S.Ct. 2159, 2164, 176 L.Ed.2d 1012 (2010) (quoting Puckett v. United States, 556 U.S. 129, 135, 129 S.Ct. 1423, 173 L.Ed.2d 266 (2009)). "[T]he burden of establishing entitlement to relief for plain error is on the defendant claiming it. . . ." United States v. Dominguez Benitez, 542 U.S. 74, 82, 124 S.Ct. 2333, 159 L.Ed.2d 157 (2004). This assignment of the burden "enforce[s] the policies that underpin Rule 52(b) generally, to encourage timely objections and reduce wasteful reversals by demanding strenuous exertion to get relief for unpreserved error." Id.
As a prefatory matter, we acknowledge that we have previously suggested, without elaboration, that a defendant's failure to object to a restitution order in the district court "is no bar to appellate review because improperly ordered restitution constitutes an illegal sentence amounting to plain error." United States v. Thompson, 113 F.3d 13, 15 (2d Cir.1997); see also United States v. Mortimer, 52 F.3d 429, 436 (2d Cir.1995). The rationale for this language, however, ultimately finds its root in the dicta of a since abrogated decision of the Tenth Circuit Court of Appeals, which predated Olano, the leading Supreme Court decision on plain error. See United States v. Vance, 868 F.2d 1167, 1169 (10th Cir.1989), abrogated on other grounds by Hughey v. United States, 495 U.S. 411, 110 S.Ct. 1979, 109 L.Ed.2d 408 (1990). The Supreme Court has since made clear that an appellate court may only notice an unpreserved error if all four prongs of the Olano test are satisfied. See, e.g., Marcus, 130 S.Ct. at 2164; Puckett, 556 U.S. at 135, 129 S.Ct. 1423.
Therefore, while it may be true that an improper restitution order is always "error" that is "plain"—which is to say error that is "clear or obvious"—it does not follow that such an error is always "plain error" as the Supreme Court has explained that term of art. Rather, before an appellate court may exercise its discretion to correct unpreserved error, the defendant-appellant must satisfy the remaining prongs of the Olano test—namely, that the error "affected his substantial rights" and "seriously affect[s] the fairness, integrity or public reputation of judicial proceedings." Marcus, 130 S.Ct. at 2164. Here, although we find, in light of the plain meaning of the MVRA and the authorities cited above, that the District Court's error was "clear or obvious," we are not satisfied that Zangari has borne his burden on the last two prongs of the Olano test.
It has long been understood that, for an error to affect an appellant's "substantial rights," it is not enough that it affect the outcome of the district court's
To be sure, Zangari has maintained that the victims in this case suffered no loss, as evidenced by the fact that neither Morgan Stanley nor Bank of America actually claimed a loss pursuant to 18 U.S.C. § 3664(d)(2)(A)(vi). But the fact that the victims did not claim a loss does not mean that they did not sustain a loss, and where, as here, restitution is governed by the MVRA, a victim's decision not to participate in the sentencing process does not relieve the defendant from having to pay restitution. See United States v. Johnson, 378 F.3d 230, 245 (2d Cir.2004) (holding that the MVRA "requires restitution regardless of the consent of victims").
As explained above, it is most likely that the victims in this case did sustain a loss (in the form of opportunity cost), albeit one that cannot be accurately measured by reference to Zangari's gains. Because Zangari has never proposed an alternative measure of loss, it is impossible for us to know whether the restitution the District Court ordered in fact exceeded the actual losses suffered by the victim banks. Cf. United States v. Pescatore, 637 F.3d 128, 143-45 (2d Cir.2011) (declining to notice unpreserved error in calculation of restitution under MVRA where defendant failed to make payments pending appeal, which may have allowed sufficient monetary penalties and interest on the award to accrue such that the erroneous restitution amount did not, in the end, exceed the victims' losses).
Indeed, this may in the end be a case of salutary error, where the restitution award in fact understated the victims' actual losses. Cf. United States v. Hicks, 980 F.2d 963, 974 (5th Cir.1992) (finding that plain-error standard was not met where "if anything [the error] was salutary error, which likely benefitted [the defendant]"). In this regard, we recall that Zangari pleaded guilty to being a member of a multi-defendant, "industry-wide" conspiracy. The MVRA provides that "[i]f the court finds that more than 1 defendant has contributed to the loss of a victim, the court may make each defendant liable for payment of the full amount of restitution." 18 U.S.C. § 3664(h); see also United States v. Nucci, 364 F.3d 419, 423 (2d Cir.2004). We have construed this language to "provide for restitution payable by all convicted co-conspirators in respect to damage suffered by all victims of a conspiracy, regardless of the facts underlying counts of conviction in individual prosecutions." United States v. Boyd, 222 F.3d 47, 50-51 (2d Cir.2000). Thus, Zangari could have been held liable, jointly and severally, for all the losses suffered by the victims during the course
Moreover, under section 3663A(b)(4), a sentencing court is obliged to "reimburse the victim for ... expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense," 18 U.S.C. § 3663A(b)(4)—meaning that, had Morgan Stanley and Bank of America undertaken to determine their actual losses, Zangari would have been liable for the cost of their investigations, including attorney fees and accounting costs. See United States v. Amato, 540 F.3d 153, 159 (2d Cir.2008). It is therefore not difficult to imagine that, were we to vacate the restitution order and remand for a determination of the victims' actual losses, Zangari would be faced with a larger restitution order than the one he is challenging.
We do not mean to suggest that a defendant appealing an unpreserved error in a restitution order must prove to a certainty that the ordered restitution in fact exceeded the victims' actual losses. But in this case there has been literally no effort—at oral argument or anywhere in Zangari's ten-page brief on appeal—to address any of the Olano prongs. Rather, Zangari (while acknowledging at oral argument that the standard of review in this case is plain error) appears to believe that, if he succeeds in persuading us that there was error below, we must automatically vacate the restitution order. This is not the law.
It was Zangari's burden to persuade us to notice the error in the District Court's order of restitution. Under the circumstances here, we conclude that he has not carried this burden because he has failed to show that the order prejudiced him or undermined the fairness, integrity, or public reputation of judicial proceedings. Accordingly, we decline to exercise our discretion to notice the error and therefore affirm the judgment of the District Court.
For the reasons stated above, we hold that (1) it was error for the District Court to substitute Zangari's gains for the victims' losses in calculating restitution, but (2) we decline to exercise our discretion to notice the error, because Zangari has not shown that the error affected his substantial rights or undermined the fairness, integrity, or public reputation of judicial proceedings.
The judgment of the District Court is therefore
Neither the Information, the Plea Agreement, nor the PSR permit an inference that the losses to Morgan Stanley and Bank of America were in the form of sham finder's fees. To the extent there was in fact a direct correlation between the victims' losses and Zangari's gain, this correlation is not reflected in the PSR. We would therefore still find that the restitution order was in error, because it was not based upon a presentence report containing "information sufficient for the court to exercise its discretion in fashioning a restitution order." 18 U.S.C. § 3664(a).
