Filed: Aug. 21, 2009
Latest Update: Mar. 02, 2020
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 09a0300p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ X Plaintiff-Appellee, - UNITED STATES OF AMERICA, - - - No. 07-3778 v. , > - Defendant-Appellant. - MARTIN W. ELSON, - N Appeal from the United States District Court for the Southern District of Ohio at Columbus. No. 01-00164—Algenon L. Marbley, District Judge. Argued: June 18, 2009 Decided and Filed: August 21, 2009 Before: KEITH, CLAY, and GIBBO
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 09a0300p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ X Plaintiff-Appellee, - UNITED STATES OF AMERICA, - - - No. 07-3778 v. , > - Defendant-Appellant. - MARTIN W. ELSON, - N Appeal from the United States District Court for the Southern District of Ohio at Columbus. No. 01-00164—Algenon L. Marbley, District Judge. Argued: June 18, 2009 Decided and Filed: August 21, 2009 Before: KEITH, CLAY, and GIBBON..
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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 09a0300p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Plaintiff-Appellee, -
UNITED STATES OF AMERICA,
-
-
-
No. 07-3778
v.
,
>
-
Defendant-Appellant. -
MARTIN W. ELSON,
-
N
Appeal from the United States District Court
for the Southern District of Ohio at Columbus.
No. 01-00164—Algenon L. Marbley, District Judge.
Argued: June 18, 2009
Decided and Filed: August 21, 2009
Before: KEITH, CLAY, and GIBBONS, Circuit Judges.
_________________
COUNSEL
ARGUED: Roger L. Kleinman, McDONALD HOPKINS LLC, Cleveland, Ohio, for
Appellant. Brenda S. Shoemaker, ASSISTANT UNITED STATES ATTORNEY,
Columbus, Ohio, for Appellee. ON BRIEF: Roger L. Kleinman, McDONALD HOPKINS
LLC, Cleveland, Ohio, for Appellant. Brenda S. Shoemaker, ASSISTANT UNITED
STATES ATTORNEY, Columbus, Ohio, for Appellee.
_________________
OPINION
_________________
CLAY, Circuit Judge. Defendant Martin W. Elson appeals the restitution portion
of his sentence entered following his plea of guilty to conspiracy to obstruct a grand jury
investigation in violation of 18 U.S.C. §§ 371 and 2. After a hearing on the issue of
restitution, pursuant to 18 U.S.C. § 3663A, the district court ordered Elson to pay
$2,492,424.66 in restitution, jointly and severally with three other individuals convicted of
1
No. 07-3778 United States v. Elson Page 2
crimes stemming from involvement in the same conspiracy giving rise to Elson’s conviction.
For the reasons set forth below, we AFFIRM Elson’s sentence.
BACKGROUND
I. FACTUAL BACKGROUND
This case arises from the efforts of Richard Schultz to conceal his assets from
creditors, the United States Government, and his ex-wife.
A. The Conspiracy
As set forth in the third superseding indictment, in the mid-1980s, Schultz filed a
lawsuit related to an investment in thoroughbred racehorses. After he was unsuccessful, a
California federal court entered judgments in favor of three of Schultz’s creditors, totaling
$5 million. In response to the judgments, Schultz conspired with numerous individuals to
avoid payment to the creditors. The conspiracy sought to defraud Schultz’s creditors by
using third parties or “nominees” to purchase judgments against Schultz at a discount. To
purchase the judgments, the individuals involved in the conspiracy used various incorporated
entities, including Judgment Acquisition Corporation (“JAC”), Judgment Procurement
Corporation (“JPC”), Judgment Resolution Corporation (“JRC”), and Cedarwood
Acquisition Corporation (“Cedarwood”). Elson was among the individuals who controlled
these entities at the direction of Schultz. The third-party entities purchased the judgments
with Schultz’s funds that previously were concealed in offshore accounts. Although Schultz
was the true purchaser of the judgments, the nominees did not disclose to the creditors the
nature of Schultz’s interest. In addition to defrauding judgment holders, the conspiracy
sought to defraud Schultz’s ex-wife through harassing litigation designed to affect her legal
claims against Schultz in various pending court proceedings.
B. Elson’s Participation
As a lawyer, Elson’s participation in the conspiracy primarily consisted of arranging
for the purchase of judgments entered against Schultz, generally at a substantial discount,
by third parties who were controlled by Schultz.
No. 07-3778 United States v. Elson Page 3
In 1995, St. Paul Insurance Company (“St. Paul”) hired Elson’s law firm to collect
a 1994 judgment against Schultz valued at approximately $2.7 million. Elson became
involved in the matter, and pursued collection of the judgment on behalf of St. Paul,
eventually obtaining the garnishment of Schultz’s Individual Retirement Account (“IRA”),
which was worth approximately $1.3 million. In November 1995, as counsel for St. Paul,
Elson represented St. Paul in the sale of its interest in its $2.7 million judgment to Frances
McPeak, a co-conspirator, for $450,000.
Also in November 1995, Elson agreed to represent McPeak’s entity, JAC. The
purpose of JAC was to purchase judgments against Schultz with Schultz’s assets. Through
his involvement with JAC, Elson assisted Domenic L. Massari, III, another co-conspirator
and Schultz’s attorney, in arranging for JAC to obtain a garnishment of Schultz’s IRA.
Elson also negotiated the purchase of a $1.7 million judgment against Schultz in favor of
Everan Securities for $611,000. In addition, Elson was involved in the purchase of the
“Bryant judgment”—a judgment obtained by Thomas Bourke on behalf of his client, Frank
L. Bryant—valued at approximately $2.162 million, for $2 million.
In 1998, after learning that a grand jury was investigating Schultz’s fraudulent
activities, Elson “prepared documents that purported to reflect an intent for” the purchasers
of the judgments against Schultz “to collect on the civil judgments against . . . Schultz.”
(J.A. 329.) For example, Elson filed briefs on behalf of JAC in the Ninth Circuit “purporting
to be adverse to Schultz.” (Id.) Although Elson represented to the courts and to the grand
jury that the nominees’ purchases of the judgments against Schultz were legitimate
transactions, Elson “knew that the nominees were acting in part to obstruct the grand jury
1
investigation.” (J.A. 330.)
II. PROCEDURAL HISTORY
On January 30, 2003, a grand jury returned a thirty-two-count second
superseding indictment charging Elson, along with numerous other individuals, with
conspiracy to defraud the United States, money laundering, wire fraud, mail fraud, tax
1
Elson also was involved in a “controlled deposition” in Florida in 1996, where he “purport[ed]
to be a lawyer adverse to . . . Schultz” despite the fact that he arranged and prepared Schultz for the
deposition. (J.A. 327.)
No. 07-3778 United States v. Elson Page 4
fraud, and criminal forfeiture. With respect to Elson, the grand jury returned a third
superseding indictment. Count one charged Elson with conspiracy to commit mail fraud
in violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343, in
addition to other fraud charges. As in the second superseding indictment, the grand jury
charged that the object of the conspiracy was to defraud or attempt to defraud Schultz’s
creditors. Count two charged Elson with money laundering in violation of 18 U.S.C.
§§ 1956(a)(1)(B)(i) and 2. Finally, count three charged Elson with conspiracy to
obstruct justice in violation of 18 U.S.C. §§ 371 and 2.
On April 9, 2004, Elson pled guilty to count three of the third superseding
indictment— conspiracy to obstruct justice—in exchange for the government dismissing
the remaining counts in the indictment. In the plea agreement, Elson agreed to “pay
restitution to victims of the conspiracy to defraud orchestrated by Richard Schultz”
pursuant to 18 U.S.C. § 3663(a)(1)(A). (J.A. 209.) The plea agreement also provided
that Elson, “recognizing that in limited circumstances he could have the right to appeal
the sentence imposed, hereby knowingly, voluntarily and expressly waives the right to
appeal his sentence on any ground.” (J.A. 208.) At the plea hearing, the government
clarified that Elson had “reserved the right . . . to contest at a sentencing hearing who a
victim may be and whether they were harmed; and, if so, how much.” (J.A. 322-23.)
On April 21, 2006, the district court sentenced Elson to a term of imprisonment
of two months, and an additional eight months of home detention. The district court
found that Elson did not have the ability to pay a fine, but would be “required to pay
restitution to the victims of the fraud.” (J.A. 351.) At the restitution hearing held later
that day, the government presented several witnesses to establish the losses incurred by
each victim as a result of the conspiracy. John Patrick Mazza, an attorney for St. Paul,
testified that St. Paul incurred approximately $1.7 million in losses. In support of its
restitution claim, St. Paul submitted a victim statement prepared by Kenneth Spence, the
vice-president and general counsel for St. Paul at the time the sale of the judgment
occurred.
No. 07-3778 United States v. Elson Page 5
Thomas Bourke also testified regarding the losses he sustained. According to
Bourke, he represented Frank L. Bryant in an action against Schultz, and obtained a
substantial judgment on behalf of his client. When Bryant became unable to pay his
legal fees, the law firm agreed to collect the attorney fees out of his judgment against
Schultz, and Bourke therefore acquired an interest in Bryant’s judgment. Bourke
testified that Schultz’s use of “shill corporations and nominees” forced him to litigate
in several states to locate Schultz’s assets, requiring Bourke to pay substantial amounts
in legal fees and travel costs. At the hearing, Bourke acknowledged that in 1998 he had
agreed to sell his $2,052,000 judgment for $2 million, and to release civil claims against
Schultz, Massari, Elson, and McPeak. According to Bourke, the 1998 settlement
agreement did not address restitution payments. On cross-examination, Bourke testified
that he also sold an attorney-fee claim he had pending in California court for $962,000
to Elson as part of the settlement, and acknowledged that he was requesting those same
fees in his restitution petition. In addition, Bourke agreed that he was aware of most
aspects of the fraud as alleged in the indictment at the time he entered into the
settlement.
Following the hearing, in an extensive written order addressing the parties’ post-
hearing objections, the district court found Elson and three other convicted co-
conspirators jointly and severally liable for $2,492,424.66 in restitution. The district
court concluded that St. Paul was entitled to $1,748,000, and that Bourke should receive
$744,424.66. Elson timely appealed, challenging only the restitution portion of his
sentence.2 On appeal, Elson argues that the district court applied the wrong statute in
ordering restitution. Elson also contends that restitution was improper as to St. Paul
because St. Paul was not a victim of the conspiracy to obstruct the grand jury
investigation. With respect to the amount of restitution ordered, Elson argues that the
government failed to prove the victims’ losses by a preponderance of the evidence, and
2
In its appellate brief filed six months prior to oral argument, the government addressed the merits
of Elson’s appeal. However, on June 10, 2009, eight days before oral argument, the government filed a
motion to dismiss Elson’s appeal. The government argued for the first time that Elson stipulated in his plea
agreement that he waived the right to appeal his sentence except in limited circumstances that were
inapplicable to Elson’s appeal. However, given the government’s delay in filing the motion, we decline
to rule on the motion to dismiss and instead address the merits of Elson’s appeal.
No. 07-3778 United States v. Elson Page 6
that the district court improperly awarded restitution for the attorney fees incurred by
Bourke.
DISCUSSION
I. APPLICABLE RESTITUTION STATUTE
A. Standard of Review
Whether a restitution order is permitted under the law is subject to de novo
review. United States v. Johnson, 440 F.3d 832, 849 (6th Cir. 2006).
B. Analysis
Elson argues that the district court erred in applying the Mandatory Victims
Restitution Act, 18 U.S.C. § 3663A (“MVRA”). Elson first contends that the district
court’s use of the MVRA to determine the amount of restitution violated the Ex Post
Facto Clause of the United States Constitution. Second, Elson maintains that application
of the MVRA to determine the amount of restitution he owes is contrary to the terms of
his plea agreement.
1. Ex Post Facto Clause
The MVRA, passed as part of the Antiterrorism and Effective Death Penalty Act
of 1996, amended the Victim Witness Protection Act, 18 U.S.C. § 3663(a)(1)(A)
(“VWPA”), and made restitution mandatory for offenses against property under Title 18,
“including any offense committed by fraud or deceit.” 18 U.S.C. § 3663A(c)(1)(A)(ii).
The MVRA applies to convictions on or after April 24, 1996—the effective date of the
statute—subject to constitutional limitations. See Pub. L. No. 104-132, § 211, 110 Stat.
1214, 1241 (1996); see also United States v. Schulte, 264 F.3d 656, 661 (6th Cir. 2001)
(“The statutory notes under 18 U.S.C. § 2248 provide that the MVRA, including
§ 3663A, are to be effective to the extent constitutionally possible for . . . cases in which
the defendant is convicted on or after April 24, 1996.”).
No. 07-3778 United States v. Elson Page 7
Applying the MVRA to determine restitution for a crime committed prior to the
effective date of the statute—even where a defendant’s conviction occurs after the
effective date of the MVRA—implicates the Ex Post Facto Clause. See id. at 662.
Although some circuits have held that restitution is not punishment for purposes of the
Ex Post Facto Clause, see, e.g., United States v. Newman,
144 F.3d 531, 537-38 (7th Cir.
1998), this Circuit has concluded that restitution imposed under the MVRA constitutes
punishment, and that “where an act was committed prior to the effective date of the
MVRA, the retroactive application of the MVRA to that act violates the Ex Post Facto
Clause.”
Schulte, 264 F.3d at 662.
Elson argues that determining restitution pursuant to the MVRA violates the Ex
Post Facto Clause because his relevant criminal activity—selling St. Paul’s judgment to
McPeak in 1995—occurred prior to the effective date of the statute. However, in
addition to engaging in criminal activities in 1995, Elson admitted, pursuant to his plea
agreement, to conspiring to obstruct a grand jury investigation beginning in 1998, after
the MVRA’s effective date. Specifically, count three of the third superseding
indictment, to which Elson pled guilty, charged that “[b]eginning in or about May 1998
and up through the date of this indictment, . . . [Elson] did unlawfully and knowingly
conspire . . . to corruptly endeavor to obstruct and impede the due administration of
justice .” (J.A. 143.) Moreover, Elson’s conduct in advising St. Paul to sell its judgment
to a Schultz nominee at a substantial discount was part of the larger conspiracy to
commit mail and wire fraud to conceal Schultz’s assets from creditors that continued
through 2000. “[T]he ex post facto clause is not violated when a district court orders
restitution under the MVRA for related but uncharged conduct that is part of a . . .
scheme occurring prior to and continuing past the MVRA’s effective date.” United
States v. Grice, 319 F.3d 1174, 1177 (9th Cir. 2003). Accordingly, the district court’s
application of the MVRA to determine Elson’s restitution obligation did not violate the
Ex Post Facto Clause.
No. 07-3778 United States v. Elson Page 8
2. Plea Agreement
Elson also argues that the restitution order must be vacated because his plea
agreement states that restitution will be determined pursuant to 18 U.S.C.
§ 3663(a)(1)(A), the provision applicable to Elson’s offenses prior to the enactment of
the MVRA. Based on his plea agreement, Elson contends that the district court “was
precluded as a matter of law from . . . sentencing Elson pursuant to the [MVRA].”
(Def.’s Reply Br. 2.) Thus, Elson argues that the district court did not comply with the
terms of the plea agreement, and that it therefore exceeded its authority.
Rule 11 of the Federal Rules of Criminal Procedure sets forth three types of plea
agreements: (1) a plea agreement in which the government agrees to dismiss other
charges; (2) a plea agreement where the government recommends that a particular
sentencing range is appropriate; and (3) a plea agreement in which the government and
defendant agree that a specific sentence or sentencing range is the appropriate
disposition of the case. Fed. R. Crim. P. 11(c)(1).
Where the parties agree that a particular sentence is appropriate, the court is
bound by that agreed-upon disposition. See United States v. Fleming, 239 F.3d 761, 764
(6th Cir. 2001) (noting that, under certain circumstances, once a court accepts a plea
agreement, it is “bound by the bargain” the parties reached). However, Rule 11(c)
specifically provides that a “recommendation or request” that the court apply a particular
sentence or sentencing range “does not bind the court.” Fed. R. Crim. P. 11(c)(1)(B).
In this case, the parties did not agree on an appropriate sentence. Instead, the plea
agreement provides that the “the Court is not a party to and is not bound by this Plea
Agreement or any recommendations or stipulations contained herein, including any
stipulations to which the parties may agree.” (J.A. 203.) The government and Elson
further agreed that the “sentence will be imposed in accordance with the United States
Sentencing Guidelines” and that “the Court has jurisdiction and authority to impose any
sentence . . . . and that the final determination concerning sentencing rests within the sole
discretion of the Court.” (J.A. 202.) Accordingly, the district court was not bound by
the plea agreement, and the plea agreement did not prohibit the district court from
No. 07-3778 United States v. Elson Page 9
determining restitution pursuant to the MVRA. We therefore conclude that the district
court properly applied the MVRA in sentencing Elson.
II. OFFENSE OF CONVICTION
Elson next argues that, because he pled guilty only to conspiracy to obstruct
justice, he cannot be ordered to pay restitution for the losses of St. Paul and Bourke
resulting from the broader conspiracy to commit mail and wire fraud. In Hughey v.
United States, 495 U.S. 411 (1990), the Supreme Court held that the VWPA authorized
restitution to compensate victims “only for losses caused by the conduct underlying the
offense of conviction.”
Id. at 416. Examining the statutory language of the VWPA, the
Court determined that “Congress intended restitution to be tied to the loss caused by the
offense of conviction” rather than “all conduct attributable to the defendant, including
conduct unrelated to the offense of conviction.”
Id. at 418. In response, Congress
amended the VWPA to expand the definition of “victim” to include a person harmed “as
a result of the commission of an offense . . . including, in the case of an offense that
involves as an element a scheme, conspiracy, or pattern of criminal activity, any person
directly harmed by the defendant’s criminal conduct in the course of the scheme,
conspiracy, or pattern.” 18 U.S.C. § 3663(a)(2); see United States v. Davis,
170 F.3d
617, 627 (6th Cir. 1999).
Congress included an identical definition of “victim” when it enacted the MVRA.
See 18 U.S.C. § 3663A(a)(2). Therefore, under the MVRA, “‘if someone is convicted
of a conspiracy, the court can order restitution for damage resulting from any conduct
that was part of the conspiracy and not just from specific conduct that met the overt act
requirement of the conspiracy conviction.’” United States v. Bussell, 504 F.3d 956, 966
(9th Cir. 2007) (quoting United States v. Reed,
80 F.3d 1419, 1423 (9th Cir. 1996)).
However, Hughey continues to “require[] the court to exclude injuries caused by
offenses that are not part of the [conspiracy] of which [the defendant] has been
convicted.” United States v. George,
403 F.3d 470, 474 (7th Cir. 2005).
No. 07-3778 United States v. Elson Page 10
Because Elson was convicted pursuant to a guilty plea rather than by a jury, the
court should look to the plea agreement, the plea colloquy, and other statements made
by the parties to determine the scope of the “offense of conviction” for purposes of
restitution. United States v. Akande, 200 F.3d 136, 142 (3d Cir. 1999); United States v.
Adams,
363 F.3d 363, 366 (5th Cir. 2004); see also S. Rep. No. 104-179, reprinted in
1996 U.S.C.C.A.N. 924, 932 (discussing the purpose of the 1996 amendments to the
VWPA and distinguishing “conviction[s] . . . obtained by a plea bargain” for purposes
of determining the offense of conviction); cf. United States v. Ramirez,
196 F.3d 895,
900 (8th Cir. 1999) (noting that the indictment defines the scope of the criminal scheme
for restitution purposes when a defendant is convicted by a jury). Thus, where a
defendant is convicted after pleading guilty, a court may “consider[] a plea agreement
when defining the scope of a fraudulent scheme and amount of restitution.” United
States v. Cothran,
302 F.3d 279, 290 (5th Cir. 2002).
For example, in Adams, the Fifth Circuit reviewed its prior case law emphasizing
that, where a defendant is convicted based on a guilty plea, “the scope of the underlying
scheme is defined by the parties themselves” through the plea negotiations and plea
agreement. 363 F.3d at 367. In concluding that the district court erred in focusing on
the strict letter of the indictment in defining the offense of conviction, the court in Adams
noted that it previously had examined “the ‘context’ of [a defendant]’s guilty plea” to
determine “the parties’ mutual understanding” regarding the offense of conviction.
Id.
at 366 (quoting United States v. Arnold,
947 F.2d 1236, 1238 (5th Cir. 1991)). Similarly,
in Cothran, the court examined the defendant’s plea agreement and determined that the
plea agreement’s references to “victims” and “other computer and delivery companies”
demonstrated that the “plea agreement contemplated a scheme that went beyond the June
1998 fraud on [one specific company] to the other frauds alleged in the
indictment.” 302
F.3d at 290. Based on these references, the court “interpret[ed] the conviction as part
of this broader scheme,” and upheld the district court’s award of restitution to all of the
victims of the broader scheme.
Id.
No. 07-3778 United States v. Elson Page 11
The plea colloquy in Elson’s case reveals that the parties intended to include a
broader range of acts in the offense of conviction than those related solely to the
conspiracy to obstruct the grand jury investigation. Although Elson’s plea agreement
did not set forth any factual basis for the plea, at the plea hearing, the factual basis for
Elson’s conviction included the entire course of Elson’s fraudulent activity, including
his representation of St. Paul in the sale of its judgment to a Schultz nominee. Elson did
not object to the government’s recitation of the facts supporting his conviction; instead,
he acknowledged that they were correct:
The Court: Mr. Elson, did you hear the statement of facts as
set forth by Special Agent Hanzel?
The Defendant: Yes, your Honor, I did.
The Court: Were those facts true and correct in all respects?
The Defendant: They are correct, Your Honor.
The Court: Are you offering to plead guilty here today
because you are in fact guilty of the allegations
set forth in Count 3 of the third superseding
indictment?
The Defendant: Yes.
(J.A. 330.) Consequently, the parties’ statements at the plea colloquy indicate that they
understood the conspiracy to obstruct a grand jury investigation as part of the broader
conspiracy to defraud Schultz’s creditors, including St. Paul and Bourke. The overt acts
pertaining to Elson’s offense of conviction included “further[ing] Richard Schultz’s
interests” by “conspir[ing] . . . to purport to represent Schultz’s nominee . . . . to make
it appear to the grand jury and others that the acquisition of the judgments and other false
transactions were legitimate.” (J.A. 329.) Elson’s false representation that the
nominees—which had purchased the judgments against Schultz—were adverse to
Schultz furthered the conspiracy to defraud Schultz’s creditors. Thus, the plea colloquy
demonstrates that the parties “contemplated a [conspiracy] that went beyond” the
specific overt acts associated with conspiring to obstruct the grand jury investigation.
See Cothran, 302 F.3d at 290. The district court therefore was not limited to the overt
acts supporting Elson’s conviction for conspiracy to obstruct justice, and had authority
No. 07-3778 United States v. Elson Page 12
to order restitution for losses resulting from any conduct that was part of the conspiracy.
See
Bussell, 504 F.3d at 966.
Moreover, Elson explicitly agreed to pay restitution to victims of the broader
conspiracy in his plea agreement. Under the MVRA, a court must “order, if agreed to
by the parties in a plea agreement, restitution to persons other than the victim of the
offense.” 18 U.S.C. § 3663A(a)(3). However, vague references to “victims” are
insufficient to bind a defendant to pay restitution beyond that authorized under the
MVRA. For example, in United States v. Randle, 324 F.3d 550 (7th Cir. 2003), the court
found that the defendant did not agree in his plea agreement to pay restitution to victims
other than those of the offense of conviction. The defendant pled guilty to defrauding
one particular victim, but the plea agreement made references to “victims” and noted the
aggregate amount of loss suffered by all three victims.
Id. at 557. The government
argued that such “references indicate an intention to pay restitution in the full amount
of the loss,” rather than just to the one victim affected by the offense of conviction.
Id.
In rejecting that argument, the court noted that the references “are just as easily seen as
a necessary factor for the calculation of Randle’s base offense level under the federal
sentencing guidelines.”
Id.
In contrast to the plea agreement in Randle, Elson’s plea agreement explicitly
provides that Elson will “pay restitution to victims of the conspiracy to defraud
orchestrated by Richard D. Schultz” (J.A. 209), which is an offense different from his
offense of conviction—conspiracy to obstruct a grand jury investigation. The only
possible meaning of the restitution provision in Elson’s plea agreement is that he agreed
to pay restitution to victims of the broader conspiracy described in count one of the third
superseding indictment. Significantly, the plea agreement states that he will pay
restitution to victims of the “conspiracy to defraud”—the same label used to identify
count one of the third superseding indictment—rather than merely “the conspiracy” or
“the offense.” Thus, under the explicit language in the plea agreement, Elson agreed to
pay restitution to victims of the entire conspiracy to defraud Schultz’s creditors.
Compare United States v. Johnson,
132 F.3d 1279, 1286 n.4 (9th Cir. 1997) (finding that
No. 07-3778 United States v. Elson Page 13
the plea agreement did not contain a provision specifying that the defendant will pay
restitution for offenses other than his offense of conviction because the “plea agreement
included no provision preserving [the defendant]’s responsibility to pay restitution for
the charges dismissed under the agreement”), and United States v. Butler,
297 F.3d 505,
519-20 (6th Cir. 2002) (noting that, because “Butler’s plea agreement does not contain
any provision specifically discussing restitution,” the district court on remand could
order Butler to make restitution only for the loss related to his specific offense of
conviction).
Accordingly, the district court properly ordered Elson to pay restitution to the
victims of the conspiracy to defraud Schultz’s creditors.
III. BOURKE’S ATTORNEY FEES AS LOSSES3
The district court concluded that Bourke was entitled to $744,424.66 in
restitution representing expenses incurred in assisting the government in investigating
the conspiracy and “the costs and fees resulting from efforts to collect from, or defend
himself against, Schultz and Defendants.” (J.A. 154.) Elson challenges the district
court’s inclusion of Bourke’s attorney fees in the restitution award, arguing that the
MVRA prohibits the award of consequential damages such as attorney fees and that the
government failed to prove the reasonableness of Bourke’s fees.4
3
In his issues presented for review, Elson lists several reasons as to why the district court’s
inclusion of Bourke’s attorney fees in the restitution amount was improper. Among those reasons, Elson
includes the assertion that “Bourke recovered $30,000 from co-conspirator Larry Carnahan (“Carnahan”).”
(Def.’s Br. 2.) However, he makes no other mention of this amount or Carnahan in his brief. Because
Elson has failed to develop the argument, he has waived it on appeal. See Johnson, 440 F.3d at 846.
4
In a two-sentence section at the end of his brief, Elson argues that Bourke is not a victim for
purposes of restitution because Bourke, when he settled with McPeak, knew that McPeak was involved
in the conspiracy. In addition to waiving the argument by failing to develop it on appeal, see Johnson, 440
F.3d at 846, Elson’s assertion that Bourke was “a participant in the offense” and therefore not a victim is
without basis. While Bourke knew that McPeak was involved in a fraudulent scheme, Bourke’s actions
did not further the conspiracy or in any way defraud Schultz’s creditors. Instead, Bourke was a Schultz
creditor whom McPeak sought to defraud. Accordingly, Bourke was not a participant in the conspiracy,
and his knowledge of the fraudulent actions of McPeak and the other members of the conspiracy does not
preclude him from being a victim for purposes of the MVRA. Cf. United States v. Mousseau,
517 F.3d
1044, 1048 (8th Cir. 2008) (concluding that the minor to which the defendant provided methamphetamine
was a victim for purposes of restitution because, although the minor engaged in an illegal act, the minor
was not a “participant in an offense” because the minor did not commit the same offense—providing a
controlled substance to a minor—as the defendant).
No. 07-3778 United States v. Elson Page 14
A. Standard of Review
“We review de novo the question of whether restitution is permitted under the
law, and review the amount of a restitution award for abuse of discretion.” United States
v. Boring, 557 F.3d 707, 713 (6th Cir. 2009).
B. Attorney Fees as Recoverable Losses
Where an offense involves damage to or loss of property, the MVRA restricts
restitution to the replacement value of the property. 18 U.S.C. § 3663A(b)(1); see
United States v. Akbani, 151 F.3d 774, 779-80 (8th Cir. 1998) (construing identical
language in the VWPA). In cases involving such offenses, several circuits have held that
a district court lacks authority under the VWPA to order restitution for attorney fees and
similar “consequential damages involved in determining the amount of the loss or in
recovering those funds.” United States v. Schinnell,
80 F.3d 1064, 1071 (5th Cir. 1996).
In Schinnell, the Fifth Circuit found that the district court erred in including a victim’s
“accounting fees and cost[s] to reconstruct the bank statements for the time period that
the defendant perpetuated []his scheme.”
Id. at 1070. Similarly, the Third Circuit has
stated that, “[i]n defining the substantive boundaries of compensation in cases where
restitution is ordered for offenses resulting in the loss of property,” restitution is
restricted to an amount “‘pegged to the actual losses suffered by the victims’” and does
not include consequential damages such as attorney fees. Gov’t of Virgin Islands v.
Davis,
43 F.3d 41, 44-45 (3d Cir. 1994) (quoting United States v. Barany,
884 F.2d
1255, 1260 (9th Cir. 1989)). Where, as in Elson’s case, the offense does not involve
damage to or loss or destruction of property, however, the MVRA “requires only that the
restitution ordered by the district court be based on losses ‘caused by the specific
conduct that is the basis for the offense of conviction.’”
Akbani, 151 F.3d at 780
(quoting United States v. Marsh,
932 F.2d 710, 712 (8th Cir. 1991)). Accordingly,
“there is no blanket prohibition . . . against inclusion of attorneys’ fees in the calculation
of a restitution amount for offenses that do not result in damage to or loss or destruction
of property.”
Id.
No. 07-3778 United States v. Elson Page 15
In addition, attorney fees also may be recoverable pursuant to § 3663A(b)(4),
which requires a district court, “in any case,” to order restitution to “reimburse the victim
for . . . other expenses incurred during participation in the investigation or prosecution
of the offense.” 18 U.S.C. § 3663A(b)(4). While this Circuit has yet to interpret the
meaning of “other expenses” in the context of § 3663A(b)(4), several other circuits have
addressed the issue. In United States v. Waknine, 543 F.3d 546 (9th Cir. 2008), the
defendant argued that the attorney fees incurred by the victims were “too indirectly
related to the offense conduct to be reimbursed” under § 3663A.
Id. at 558. Although
the court remanded the case to the district court for more detailed evidence as to the type
of attorney fees incurred, the court directed the district court to “award restitution of . . .
attorneys’ fees [only] if the government provides sufficiently detailed evidence to
demonstrate by a preponderance of the evidence that these costs were incurred by [the
victims] in aid of Waknine’s investigation or prosecution, and that such expenses and
costs were reasonably necessary.”
Id. at 559. In United States v. Amato,
540 F.3d 153
(2d Cir. 2008), the defendants also challenged the inclusion of attorney fees in the
restitution amount. In rejecting the defendants’ argument, the court held “that ‘other
expenses’ incurred during the victim’s participation in the investigation or prosecution
of the offense or attendance at proceedings related to the offense may include attorney
fees and accounting costs.”
Id. at 159.
C. Bourke’s Fees
As the district court recognized, the government sought two categories of
attorney fees on behalf of Bourke. First, the government requested the attorney fees
Bourke incurred in defending himself against the fraudulent lawsuits filed against him
as part of the scheme devised to frustrate Bourke’s and other creditors’ attempts to
recover judgments against Schultz. Because these fees were not incurred during
Bourke’s “participation in the investigation or prosecution of the offense,” see 18 U.S.C.
§ 3663A(b)(4), in order to be recoverable, the attorney fees must have been “‘caused by
the specific conduct that is the basis for the offense of conviction.’” Akbani, 151 F.3d
at 780 (quoting
Marsh, 932 F.2d at 712); see
Hughey, 495 U.S. at 416.
No. 07-3778 United States v. Elson Page 16
We agree with the district court’s conclusion that the attorney fees Bourke
sustained defending himself against the fraudulent lawsuits are recoverable. It is
undisputed that a central part of the conspiracy was “to engage in sham lawsuits” (J.A.
132), including deceptive litigation techniques such as controlled depositions and
collusive filings in civil court. The time and resources Bourke spent defending the
lawsuits directly resulted from the filing of collusive lawsuits by Elson and his co-
conspirators in furtherance of the scheme to conceal assets from and to frustrate the
collection efforts of Schultz creditors such as Bourke. Accordingly, the portion of
Bourke’s fees related to defending himself against fraudulent lawsuits is recoverable.
See United States v. Havens, 424 F.3d 535, 539 (7th Cir. 2005) (upholding inclusion of
attorney fees “paid [by an identity fraud victim] to counsel or other experts for dealing
with the banks and credit agencies in the effort to correct her credit history and repair
the damage to her credit rating” in the restitution order).
The government also sought the attorney fees Bourke incurred in attempting to
collect a civil judgment against Schultz. As noted above, Bourke secured a judgment
on behalf of his client, Bryant, against Schultz in California state court, which Bryant
later assigned to Bourke. At the restitution hearing, Bourke testified that the co-
conspirators’ use of nominees to hide Schultz’s assets made it more difficult for him to
locate available assets for purposes of collecting the California judgment. Bourke stated
that his attorney fees resulted from “chasing Mr. Schultz’s assets around the world” in
an attempt to collect on the court’s judgment. (J.A. 376.) More specifically:
Instead [of receiving the value of the judgment by return mail], we had
to discover from piercing a stone wall, after months and months of
discovery . . . , we had to . . . find out from the[ documents] where the
assets had gone, figure out the lies and deception that were going in [sic]
to block us and then figure out what to do about that and what courts to
go to and what courts to present the evidence to. And that took hundreds
of thousands of hours of time and we had to hire lawyers in New York,
Florida, Illinois, Ohio, and we ourselves did the California work.
(J.A. 379.) Bourke further estimated that “there were between 11 and 36 layers of phony
corporations and shills that [Schultz] was using that we had to . . . prove to some court
somewhere that he was using these.” (J.A. 380.) Bourke therefore incurred significant
No. 07-3778 United States v. Elson Page 17
attorney fees and other costs in researching and uncovering the numerous layers of
nominees created by the Schultz conspiracy in an attempt to hide Schultz’s assets.
We conclude that the costs Bourke expended to locate Schultz’s assets are
recoverable under § 3663A(b)(4). On this issue, the Eighth Circuit’s recent decision in
United States v. Stennis-Williams, 557 F.3d 927 (8th Cir. 2009), is instructive. In
Stennis-Williams, the defendant was an attorney appointed as the personal representative
of an estate.
Id. at 928. The defendant subsequently defrauded the estate of over
$200,000.
Id. In the course of discovering and investigating the fraud, the estate paid
approximately $70,000 in attorney and accountant fees, which the district court included
in its restitution order.
Id. at 928, 930. On appeal, the Eighth Circuit concluded that “the
district court did not clearly err by including the estate’s investigative costs in its
restitution calculation” because the fees were recoverable pursuant to § 3663A(b)(4).
Id. at 930. The court reasoned that “privately incurred investigative costs constitute
foreseeable losses that are directly caused by a defendant’s fraudulent conduct.”
Id.
Based on the reasoning set forth in Stennis-Williams, Bourke’s attorney fees are
recoverable under § 3663A(b)(4). Like the estate in Stennis-Williams, Bourke sustained
significant costs and fees in discovering and investigating the numerous layers of shill
corporations and nominees related to Schultz’s fraud. While Bourke did not investigate
the fraud as part of the government’s prosecution of Elson and his co-conspirators,
Bourke’s costs and fees “constitute foreseeable losses that [we]re directly caused” by the
conspiracy’s act of concealing Schultz’s assets from creditors such as Bourke. See
id.
We therefore follow the reasoning of the Eighth Circuit in Stennis-Williams and
conclude that Bourke’s attorney fees incurred in pursuing the Bryant judgment are
recoverable under § 3663A(b)(4).
Alternatively, the attorney fees and costs Bourke expended in attempting to
collect the judgment against Schultz constitute losses that were “caused by the specific
conduct that is the basis of the offense of conviction.” Hughey, 495 U.S. at 413; see
Akbani, 151 F.3d at 780. Generally, attorney fees incurred in civil litigation against the
defendant for the same acts at issue in the criminal proceedings are consequential
No. 07-3778 United States v. Elson Page 18
damages that are not recoverable. E.g., United States v. Seward,
272 F.3d 831, 839 (7th
Cir. 2001) (“In calculating . . . the actual loss amount for restitution, the district court
should include in the calculation all direct damages, but not include consequential or
incidental damages [such as attorney fees].”). However, where a victim’s attorney fees
are incurred in a civil suit, and the defendant’s overt acts forming the basis for the
offense of conviction involved illegal acts during the civil trial, such as perjury, such
fees are directly related to the offense of conviction and therefore are recoverable as
restitution under the MVRA. See United States v. DeGeorge,
380 F.3d 1203, 1221-22
(9th Cir. 2004).
In DeGeorge, the defendant “participated in a scheme to defraud by purchasing
a yacht, inflating its value through a series of sham transactions, [and] obtaining
insurance [from Cigna Property and Casualty Company (“Cigna”)] on the yacht at the
inflated value.” Id. at 1207. After obtaining insurance, the defendant furthered his
scheme by “scuttling [the yacht] off the coast of Italy, and attempting to collect the
insurance proceeds, in part by lying about the cause of the sinking during civil litigation
with the yacht’s insurer.”
Id. at 1207-08. When payment was sought under the terms
of the insurance policy, “Cigna refused to pay . . . . [and] filed a civil lawsuit against the
defendant [and his co-conspirators] seeking rescission of the insurance contract.”
Id. at
1210. At trial, Cigna prevailed and was awarded attorney fees.
Id.
One year after the judgment was affirmed, the defendant was indicted for mail
fraud, wire fraud, and perjury.
Id. At sentencing following his conviction on all counts,
the district court ordered restitution of almost $3 million, “which was the amount of
attorney’s fees incurred by Cigna in defending the civil case.”
Id. at 1221. On appeal,
the court of appeals affirmed the district court’s inclusion of attorney fees in the
restitution award. The court reasoned that the defendant’s offense “included his perjury
and other conduct during the civil trial” and therefore “the insurance company’s
expenses in the civil trial were directly, not tangentially, related to [the defendant]’s
offenses.”
Id.
No. 07-3778 United States v. Elson Page 19
Similarly, Bourke’s attorney fees incurred in pursuing the Bryant judgment were
a direct result of the acts forming the basis of the Schultz conspiracy. As alleged in the
indictments:
It was part of the conspiracy that . . . Defendants . . . orchestrated a series
of false and fraudulent transactions that were designed to make it appear
that Richard Schultz had spent or lost millions of dollars through
business deals . . . when, in fact, the Defendants and others assisted
Schultz in concealing, shielding and transferring Schultz’s assets . . . both
within and outside the United States to hide the existence, location,
source, ownership, nature, and control of such assets.
(J.A. 79.) Bourke testified at the restitution hearing that the use of nominees to conceal
the existence and true ownership of Schultz’s assets required Bourke to “chas[e] Mr.
Schultz’s assets around the world” in an attempt to collect on the judgment. (J.A. 376.)
Bourke’s testimony evinces that the time he spent pursuing Schultz’s assets and
attempting to unravel the numerous layers of nominees “reflect the losses [Bourke]
suffered as a direct result” of the actions of Elson and his co-conspirators in concealing
Schultz’s assets. See Havens, 424 F.3d at 539. Thus, the district court did not err in
concluding that Bourke’s attorney fees could be included in the restitution award.
D. Proof of Bourke’s Loss
Elson next argues that the government failed to show that the fees sought on
behalf of Bourke were reasonable and further argues that, because Bourke actually seeks
compensation for his own time, the government failed to show that Bourke suffered any
loss.
Under 18 U.S.C. § 3664(e), the “burden of demonstrating the amount of loss
sustained by a victim as a result of the offense shall be on the attorney for the
Government.” At the restitution hearing, the government presented the testimony and
billing records of Bourke. Bourke testified that he incurred excessive legal fees and
costs, including the expenditure of his own time, because of the actions of the Schultz
conspirators. As the government summarized in its post-hearing brief:
No. 07-3778 United States v. Elson Page 20
The conspirators operated . . . to “frustrate” Bourke and his clients
through unlawful means at virtually every juncture between mid-1994
and early 1998, causing him to incur fees and expenses for which he was
not compensated. Kennedy and Bogart hid assets in and through Canada
based on false transactions that were virtually impossible to penetrate and
they concealed funds in offshore accounts that were beyond the reach of
the civil litigants. In fact, when Bourke attempted to expose those and
other transactions, the defendants sought to impede his progress through
false statements and sham litigation perpetrated by Elson and Massari.
Bourke testified that he incurred excessive litigation costs and fees
. . . , including the costs and fees associated with the sham litigation.
(J.A. 261.)
Had Bourke hired a different attorney to pursue the collection efforts on behalf
of himself and Bryant, Bourke would have incurred attorney fees as a result of the
conspiracy’s efforts to conceal assets. That Bourke performed the legal services himself
should not preclude recovery of the amounts he expended as a direct result of the actions
of Elson and others. See Havens, 424 F.3d at 539 (“To the extent that [the victim of
identity fraud] spent time that otherwise would have been compensated, perhaps because
she had to miss work and forego hourly compensation, or because she had to turn down
professional clients to whom she could have provided services if she was not occupied
with her credit restoration activities, her time may be compensated. Time spent for
which the opportunity cost was zero, however, cannot be the subject of compensation
. . . .”). Bourke testified at the restitution hearing that he spent “hundreds of thousands
of hours” pursuing the judgment against Schultz, time that could have been spent
performing work for other clients. Accordingly, through Bourke’s testimony, the
government proved the amount of losses Bourke incurred by a preponderance of the
evidence.
With respect to the reasonableness of Bourke’s fees, Bourke provided numerous
pages of time sheets to the district court and explained how he allocated his work on the
Schultz case between collection efforts and other matters. Further, during the restitution
hearing, Bourke was subject to cross-examination by several of the defendants with
respect to certain entries in his time sheets. Without any evidence to suggest that Bourke
falsified his time sheets or otherwise did not spend the time claimed on collection
No. 07-3778 United States v. Elson Page 21
activities, Elson has failed to show that the district court clearly erred in concluding that
the government “establish[ed] that the damages [Bourke] sustained amounted to
$744,424.66.” (J.A. 159.) Aside from alleging that the government failed to prove that
the fees were reasonable, Elson offers no argument that the fees were unreasonable, or
that Bourke’s hours were excessive. Accordingly, we see no reason to overturn the
district court’s determination that the government established Bourke’s loss by a
preponderance of the evidence.
IV. ST. PAUL’S LOSSES
A. Standard of Review
As noted above, an appellate court reviews whether restitution is permitted under
the applicable statute de novo, and reviews the amount of restitution awarded for abuse
of discretion. Boring, 557 F.3d at 713.
B. St. Paul as a Victim
Under the MVRA, a victim is any person harmed “as a result of the commission
of an offense . . . including, in the case of an offense that involves as an element a
scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the
defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern.”
18 U.S.C. § 3663A(a)(2). Having previously determined that the district court properly
ordered Elson to pay restitution to the victims of the broader conspiracy to defraud,
rather than only to persons who suffered harm as a result of the conspiracy to obstruct
justice, we conclude that St. Paul qualifies as a victim for purposes of the MVRA.
In addition, contrary to Elson’s argument that St. Paul’s losses on the sale of its
judgment resulted from business reasons, St. Paul’s losses were caused by the overt acts
underlying the conspiracy. As Mazza detailed at the restitution hearing, St. Paul retained
a law firm to assist it in defending itself against Schultz in California state court
litigation. After Schultz as the plaintiff was unsuccessful, in 1995, the court awarded the
law firm attorney fees and costs. The law firm then assigned its interest in the judgment
for attorney fees to St. Paul. To assist in collecting the attorney-fee judgment against
No. 07-3778 United States v. Elson Page 22
Schultz, valued at approximately $2 million, St. Paul hired Elson, then working for the
law firm Ulmer & Berne. Mazza testified that, based on his discussions with the St. Paul
agents responsible for entering into the 1995 settlement with McPeak, St. Paul would not
have sold its judgment “if they had known they were selling it to a nominee of Richard
Schultz.” (J.A. 357-58.) Further, Mazza testified that St. Paul relied solely on the
advice of Elson in selling the judgment at such a substantial discount.
Elson nonetheless maintains that there is no direct evidence that “but for” his
advice, St. Paul would not have sold the judgment, emphasizing the inherent risk of
pursuing a judgment and the possibility that Schultz would become insolvent as factors
that prompted St. Paul to settle. In addition, Elson contends that the letters between
Massari, on behalf of McPeak, and Elson, on behalf of St. Paul, regarding the details of
the sale of St. Paul’s judgment demonstrate that St. Paul was aware that McPeak was a
nominee of Schultz.
The district court, in making findings of fact in its restitution order, rejected
Elson’s assertions:
[T]he Court specifically found credible evidence that the actions of the
Defendants, as part of the Schultz conspiracy, directly caused the losses
to St. Paul . . . . Specifically, the Government presented reliable
evidence that proved, by a preponderance of the evidence, that: (1) Elson
failed to disclose to St. Paul all material facts in connection with its
decision to sell its judgment to McPeak; [and] (2) Elson did not disclose
that McPeak essentially worked for Schultz. . . . The actions of Elson and
his co-conspirators lead [sic] St. Paul to sell its judgment at a loss. Their
fraud negates any potential business reason St. Paul may have had for
selling its judgment at this dramatic of a discount.
(J.A. 177-78.) These findings are not clearly erroneous. Mazza, based on conversations
with the relevant decision-makers at St. Paul, testified that had St. Paul known that
McPeak was a nominee for Schultz, it would not have entered into the agreement to sell
its judgment against Schultz for less than one-fourth of its value. Cf. United States v.
Gallant, 537 F.3d 1202, 1249 (10th Cir. 2008) (concluding that a victim’s expenses in
marketing a credit portfolio were recoverable because the expenses “were incurred
because of [the defendants’] misrepresentations”—had the victim “known that the
No. 07-3778 United States v. Elson Page 23
portfolio was only worth about thirty per cent of its $200 million face value, he would
have known that it was unlikely he would be able to find a buyer, and likely would not
have incurred the expenses to market the account”). While cross-examination by the
defendants raised the possibility that business reasons—such as the uncertainty of
recovery and the expectation that settlements sometimes involve discounted
value—might have influenced St. Paul’s decision, neither Elson nor any of his co-
defendants offered any evidence that Mazza’s testimony was false, misleading, or
otherwise unreliable. See United States v. Brika,
487 F.3d 450, 457 (6th Cir. 2007)
(noting that to challenge the district court’s reliance on hearsay evidence at sentencing,
a defendant “must establish that the challenged evidence is materially false or
unreliable”).
Further, as the district court found, the letters sent by Massari on behalf of
McPeak to Elson as a representative of St. Paul do not reveal the true relationship
between Schultz and McPeak. While the letters contemplate that Schultz would agree
to release $450,000 from his IRA account in the event that McPeak failed to pay that
same amount as the purchase price for the judgment, the letter does not discuss any
relationship between McPeak and Schultz, or reveal that Schultz was supplying McPeak
with Schultz’s own funds to buy the judgment from St. Paul. Beyond asserting that St.
Paul received “full disclosure of all material facts,” Elson does not point to any evidence
that would have put St. Paul on notice that Schultz rather than McPeak was purchasing
the judgment. Consequently, the district court properly determined that St. Paul was a
victim for purposes of the MVRA.
No. 07-3778 United States v. Elson Page 24
C. Reliability of Mazza’s Testimony in Proving St. Paul’s Loss
Elson also challenges the district court’s reliance on Mazza’s testimony to
determine St. Paul’s losses, arguing that because Mazza’s testimony was unreliable
hearsay,5 it was inadmissible and, because the government produced no other evidence
of St. Paul’s losses, the government failed to meet its burden of proving St. Paul’s loss
by a preponderance of the evidence. See 18 U.S.C. § 3664(e).
Elson contends that the district court erred in relying on Mazza’s testimony
because “there was no indicia of reliability.” (Def.’s Br. 17.) In United States v.
Silverman, 976 F.2d 1502 (6th Cir. 1992) (en banc), this Court reiterated its previous
position that a “district court may consider hearsay evidence in determining sentence,
but the accused must be given an opportunity to refute it, and the evidence must bear
some minimal indicia of reliability in respect of defendant’s right to due process.”
Id.
at 1512 (emphasis removed). Accordingly, Mazza’s testimony must “bear[] some
indicia of reliability” to serve as a basis for determining the restitution portion of Elson’s
sentence. See
id.
At the restitution hearing, Mazza testified that St. Paul calculated its loss
resulting from the Schultz conspiracy’s fraud by subtracting the amount it received in
settlement—$450,000—from the value of the judgment, including interest, at the time
the settlement was made. The value of the judgment was based on a previously issued
California court order granting attorney fees to St. Paul’s predecessor in interest. The
California court order also provided for interest to accrue on the amount of the judgment
as of 1990. Thus, Mazza’s testimony as to the amount of loss was based on documentary
evidence submitted by St. Paul, and by a court order establishing a basis for calculating
the value of the judgment at the time of settlement. Mazza’s testimony as to the amount
of loss was more than a “mere allegation,” and thus bore some indicia of reliability. See
United States v. Lowenstein,
108 F.3d 80, 83-84 (6th Cir. 1997) (finding that, for
purposes of sentencing, a probation officer’s petition which “merely asserts, without
5
In his opening brief, Elson challenged the admissibility of Mazza’s testimony on the grounds
that it was hearsay. However, in his reply brief, he acknowledged that hearsay testimony is admissible at
sentencing. See Fed. R. Evid. 1101(d)(3); Davis, 170 F.3d at 622.
No. 07-3778 United States v. Elson Page 25
further detail or explanation, that defendant left the judicial district without permission
. . . . , standing alone, lacks the indicia of reliability” necessary under Silverman).
Consequently, the district court’s reliance on Mazza’s testimony did not violate Elson’s
rights. See United States v. Hadley,
431 F.3d 484, 511 (6th Cir. 2005) (describing the
“indicia of reliability” requirement as a “modest standard”). The district court therefore
properly found that the government established St. Paul’s loss by a preponderance of the
evidence.
V. OFFSET OF THE RESTITUTION OBLIGATION
A. Standard of Review
“We review de novo the question of whether restitution is permitted under the
law, and review the amount of a restitution award for abuse of discretion.” Boring, 557
F.3d at 713.
B. Analysis
Elson’s final argument on appeal is that he was entitled to an offset—in part or
in whole—of his restitution obligation. First, he argues that Bourke released his claim
for attorney fees in a settlement with Schultz, precluding the district court from including
those fees in its restitution order. Second, Elson contends that McPeak’s return of
certain judgments relieves Elson of his responsibility to pay restitution because the value
of those judgments exceeds his restitution obligation.
The MVRA contains several provisions that address the relationship between a
district court’s restitution order and other sources of compensation for victims’ losses.
See United States v. Bright, 353 F.3d 1114, 1122 (9th Cir. 2004). In addition to making
restitution mandatory for certain crimes, the MVRA amended § 3663, allowing a district
court to order restitution “for a loss for which the victim has received or is entitled to
receive compensation.”
Id. at 1121. Section 3664 reinforces this principle, directing
district courts to order restitution in “the full amount of a victim’s loss . . . without regard
to other sources of compensation for the victims.”
Id. (emphasis removed); see 18
U.S.C. § 3664(f)(1)(B) (“In no case shall the fact that a victim has received or is entitled
No. 07-3778 United States v. Elson Page 26
to receive compensation with respect to a loss from insurance or any other source be
considered in determining the amount of restitution.”). As the court in Bright explained,
any offsets stemming from a victim’s compensation from other sources are “to be
handled separately as potential credits against the defendant’s restitution obligation—not
as reductions in the amount of that obligation in the first instance.”
Bright, 353 F.3d at
1121; see § 3664(f)(2) (“Any amount paid to a victim under an order of restitution shall
be reduced by any amount later recovered as compensatory damages for the same loss
by the victim . . . .”).
1. Settlement Offset
Elson first argues that the district court erred in including Bourke’s attorney fees
in the restitution amount because Bourke released his claim for such attorney fees
pursuant to a 1998 settlement with Schultz. As discussed above, in 1998, Bourke sold
an attorney-fee claim of $962,000 then pending in California court to Elson, and also
released his civil claims against Elson and several other co-defendants. During the
restitution hearing, Bourke testified that the $962,000 in fees he sought in California
court in connection with the Schultz litigation—the fees included in the claim he sold
to Elson—comprised the same fees he listed in his victim statement of loss.
In United States v. Bearden, 274 F.3d 1031 (6th Cir. 2001), this Court held “that
a private settlement between a criminal wrongdoer and his victim releasing the
wrongdoer from further liability does not preclude a district court from imposing a
restitution order for the same underlying wrong.”
Id. at 1041. Other circuits have
reached similar conclusions. For example, in Gallant, the defendants settled with the
banking institution victim for $60,000 in exchange for the victim’s agreement to release
the defendants “from further
liability.” 537 F.3d at 1249. The court found that the
“settlement does not bar restitution” under the MVRA, noting that “[a] private settlement
cannot abrogate [the mandatory] language” of the statute.
Id. at 1250; see also United
States v. Sheinbaum,
136 F.3d 443, 448 (5th Cir. 1998) (concluding that, because
restitution is a penal rather than compensatory measure, a district court “possess[es] the
discretion to impose restitution orders in spite of civil settlements”). Therefore, under
No. 07-3778 United States v. Elson Page 27
Bearden and similar cases, the fact that Bourke settled his pending claims—including
his fee petition—did not preclude the district court from awarding restitution.
However, courts also have recognized that a defendant should not have to pay
a victim for the same loss twice. In Bearden, although the court rejected the defendant’s
argument that his $47,000 settlement with the victim prevented the sentencing court
from ordering restitution, the court reduced the defendant’s restitution obligation by the
amount the defendant paid in the settlement:
In this case, Bearden would have his payment of $47,000 erase the rest
of the $161,590 restitution imposed. As the Supreme Court [has]
indicated . . . , the purposes of criminal restitution include punishment.
It would be improper to permit private parties to release criminal
wrongdoers from punishment. Thus, under our holding today Bearden
still owes [the victim] $114,590 in restitution.
Bearden, 274 F.3d at 1041; see also United States v. McDaniel,
398 F.3d 540, 555 (6th
Cir. 2005) (noting that “the restitution statutes do not permit victims to obtain multiple
recoveries for the same loss”). Thus, “when determining the amount of a restitution
award under the MVRA, the court must ‘reduce restitution by any amount the victim
received as part of a civil settlement’ . . . . to avoid[] the undesirable result of restitution
effectuating a double recovery.”
Gallant, 537 F.3d at 1250 (citation omitted).
“[T]he burden of proving an offset should lie with the defendant.” Sheinbaum,
136 F.3d at 449. The restitution statute “allocates the various burdens of proof among
the parties who are best able to satisfy those burdens.”
Id. Because “the defendant
should know the value of any compensation he has already provided to the victim in civil
proceedings, . . . the burden should fall on him to argue for a reduction in his restitution
order.”
Id. Here, beyond proffering evidence of the settlement itself, Elson has not
shown that Bourke received compensation for the attorney fees he now seeks. The
record demonstrates that, although Bourke released his fee claim as part of the
settlement, he never received compensation for the attorney fees. While Bourke received
$2 million from Schultz in the settlement in exchange for the judgment worth
approximately $2,052,000, his pending attorney-fee claim of $962,000 remained
uncompensated. The district court therefore properly concluded that the settlement did
No. 07-3778 United States v. Elson Page 28
not bar restitution for attorney fees and, thus, contrary to Elson’s argument, there was
no double recovery.
2. Offset for McPeak’s return of judgments
Elson also argues that co-defendant McPeak’s agreement to return the judgments
“in question to the government” satisfied Elson’s restitution obligation. (Def.’s Br. 11-
12; Def.’s Reply Br. 3-4). More specifically, Elson asserts that because the “property”
taken from the victims was judgments, the victims have been made whole by McPeak’s
return of the judgments. The government interprets Elson’s argument as asserting that
the restitution order permits “double recovery,” and responds by noting that “there has
been no recovery by the victims resulting from McPeak’s agreement to transfer the civil
judgments to the government.” (Gov’t Br. 46-47.)
Neither the record nor the parties’ briefs disclose which judgments McPeak
returned. Elson cites only to the district court’s restitution opinion which notes that the
court approved McPeak’s agreement with the government pursuant to which McPeak
would satisfy his restitution obligation by turning over to the government “[c]ertain
judgments against Schultz which the [g]overnment estimates to be worth between $6
[million] and $10 [million].” (J.A. 150 n.4.) Significantly, Elson does not argue that the
judgments McPeak delivered to the government include the judgments previously held
by the victims at issue here—Bourke and St. Paul.
As with the attorney-fee claim, if St. Paul and Bourke have received
compensation for their losses, the district court should offset the restitution obligation
by the amount received, assuming that the compensation is for the same loss that is the
subject of the restitution obligation. E.g., United States v. Crawford, 169 F.3d 590, 593
(9th Cir. 1999). Here, even though McPeak has returned the judgments, the victims who
sold the judgments remain uncompensated for the loss—the difference between the
judgment’s value and the amount that they received in exchange for the
judgment—caused by the Schultz conspiracy. Under the applicable statutory provisions,
a victim must have “received compensation” for a court to consider the offset allowance
provided in § 3664(j)(1). Further, Elson has not met his burden of showing that the
No. 07-3778 United States v. Elson Page 29
government has collected on the returned judgments and distributed the proceeds to the
victims. Accordingly, § 3664(j)(2), which provides that the restitution amount “shall be
reduced by any amount later recovered as compensatory damages for the same loss” does
not apply. Because “funds the victims have not received cannot reduce or offset the
amount of losses the defendant is required to repay,”
Bright, 353 F.3d at 1123, the
district court lacked authority to reduce Elson’s restitution obligation by the value of the
judgments returned.
Elson further argues that, because McPeak’s restitution obligation was deemed
satisfied by McPeak’s return of certain judgments, his obligation also should be
discharged “since Elson and McPeak functioned together in the conspiracy.” (Def.’s Br.
11.) However, McPeak entered into a specific agreement with the government regarding
restitution prior to the district court’s entry of the restitution order. Thus, as the district
court noted in its restitution order, “the findings in th[e] order [relating to Elson’s
restitution] do not pertain to [McPeak],” and McPeak was not ordered to pay restitution
jointly and severally with Elson and the other co-defendants. (J.A. 150 n.6.) Moreover,
Elson has not provided any details regarding the agreement between McPeak and the
government, nor has he offered any reason to believe that McPeak’s payment of his
restitution obligation through the return of judgments should discharge Elson’s
obligation to pay restitution to the victims of the conspiracy. Accordingly, we conclude
that Elson is not entitled to an offset of his restitution obligation.
CONCLUSION
For the reasons set forth above, we AFFIRM the district court’s judgment
ordering Elson to pay restitution.
