Blog

United States v. Zangari  2012 WL 1323189

Decided April 18, 2012

Issue: a matter of first impression in the Second Circuit, the propriety of substituting a defendant’s gain for his victims’ losses in calculating restitution under the Mandatory Victim’s Restitution Act.

Holding: The Second Circuit joined several sister circuits in concluding that such a substitution is error, they declined to exercise 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 did not satisfy his burden of persuading the court that the erroneous restitution order both “affected [his] substantial rights” and “seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.”

Facts: Zangari worked as a securities broker in the securities-lending departments of, first, Morgan Stanley and, subsequently, Bank of America.  Zangari’s responsibilities included borrowing and loaning securities on behalf of his employers and their clients.

Zangari and a co-worker, Peter Sherlock, agreed to cause Morgan Stanley to enter into stock-loan transactions with two other financial institutions. As a result of those transactions, sham finder’s fees were paid to a straw stock-loan finder operated by Anthony Lupo, an acquaintance of Sherlock’s. Lupo, in turn, paid cash kickbacks to Sherlock and Sherlock paid a portion of these kickbacks to Zangari. The arrangement continued when Zangari moved to Bank of America.

Neither Morgan Stanley nor Bank of America approved the stock-loan transactions that 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.

Zangari was eventually arrested, waived indictment and pleaded guilty.  In the PSR report it stated that the loss to Morgan Stanley and Bank of America is the difference between the selling price of the securities and the lower price that was negotiated by the defendants without Morgan Stanley and Bank of America’s authorization.  The PSR went on to state, without explanation, that “it was this difference in price that the defendants gained in kickbacks and bribes.”

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).”  It did not include any explanation for this conclusion, except that it was “[p]pursuant to the guidance found in United States v. Liu.  

Prior to sentencing, Zangari’s attorney submitted a list of objections. The list did not contain any objection to the PSR’s restitution calculation.  Zangari failed on multiple occasions to alert the District Court to any potential error in the restitution calculation.

The District Court entered judgment and restitution in the amount of $65,600. Zangari filed a notice of appeal. He argued for the first time on appeal that restitution was improper because the victims of his fraud suffered no loss.

Legal Analysis:

The District Court Erred in Ordering Restitution in the Amount of the Defendant’s Gain Rather than the Amount of the Victims’ Loss

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),

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).

A Restitution Order under the MVRA May Not Substitute the Defendants’ Gain for the Victims’ Losses

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.” Boccagna, 450 F.3d at 119 (“Criminal restitution … is not concerned with a victim’s disappointed expectations but only with his actual loss.” The Government bears the burden of proving a victim’s actual loss by a preponderance of the evidence. 18 U.S.C. § 3664(e).

In this case, 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).8 We now join these courts and hold that a sentencing court ordering restitution under the MVRA may not substitute a defendant’s ill-gotten gains for the victim’s actual loss.

The MVRA, unlike Guideline § 2B1.1, does not allow a sentencing court to substitute gain for loss. 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)

There Was No Direct Correlation between the Victims’ Losses and the Defendant’s Gain

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. But this is not such a case, given the nature of the transactions at issue. Any loss to the identified victims in this case could only have come in the form of opportunity cost.

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 coconspirators.9 Therefore, this is not a case in which a direct correlation exists between the victims’ losses and the defendant’s gain such that the latter can be used as a measure of the former.

Accordingly, we hold that it was error for the District Court to order restitution in the amount of Zangari’sgain rather than the victims’ actual losses.

Though the District Court’s Error was “Plain,” We Decline to Exercise Our Discretion to “Correct” the Error

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 States v. Olano, 507 U.S. 725, 731, 113 S.Ct. 1770, 123 L.Ed.2d 508 (1993)

People v. Khan  2012 NY Slip Op 00855

Decided February 9, 2012 New York Court of Appeals.  

Issue: Whether there was legally sufficient evidence to convict under the new health care fraud statute Penal Law article 177 et seq.

Held: The Court of Appeals concluded that defendant’s convictions were supported by legally sufficient evidence.

Facts:  The New York City Police Department conducted a joint undercover investigation of NYC Pharmacy, Inc., based on information that prescription drugs were being sold at that location without prescriptions.  An NYPD undercover police officer made seven visits to the pharmacy where he posed as a customer and received pills from defendant or another pharmacy employee. Defendant was arrested and charged with health care fraud in the fourth degree, grand larceny in the third degree and four counts of criminal diversion of prescription medications in the fourth degree.

Gomez visited the pharmacy four times. For each of these visits, he used a manufactured Medicaid benefits card.  Gomez was also supplied with prescriptions for Arroyo which were purportedly signed by a doctor. Prescriptions were generated by the Medicaid Fraud unit for this investigation. During each visit, Gomez handed defendant the Medicaid card and prescription(s) and defendant checked the Medicaid database where he found Arroyo’s name; Gomez then asked to be given Amitriptyline and Clonidine, in varying amounts, instead of the drugs listed in the prescriptions; defendant gave Gomez pills that were not consistent with the prescription, but billed Medicaid in accordance with the prescriptions.

Gomez never identified himself or provided identification to defendant during any of the transactions. Although Gomez counted and vouchered the pills he received after each of the seven visits to NYC Pharmacy, none of them were ever subjected to laboratory analysis.

At the conclusion of the prosecution’s case and again at the close of all proof, defendant, pursuant to CPL 290.10, moved for a trial order of dismissal on the grounds that: the evidence adduced at trial was legally insufficient.

Legal Analysis: In a legal sufficiency inquiry, the Court of Appeals’ role is limited to determining whether, “after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt”.

Where the evidence adduced at trial establishes “‘any valid line of reasoning and permissible inferences [that] could lead a rational person’ to convict, then the conviction survives a sufficiency review”. “A sufficiency inquiry requires a court to marshal competent facts most favorable to the People and determine whether, as a matter of law, a jury could logically conclude that the People sustained its burden of proof”

To establish health care fraud in the fourth degree, the People must prove that the defendant, ”with intent to defraud a health care plan . . . knowingly and willfully provide[d] materially false information . . . for the purpose of requesting payment from a health plan for a health care item or service and, as a result of such information, the [defendant] or another person receive[d] payment in an amount [to which the defendant or another] [was] not entitled,” and “the payment wrongfully received . . . from a single health plan in a period of not more than a year exceed[ed] [$3,000] in the aggregate”

Further, grand larceny in the third degree is made out when the People prove that the defendant stole property and that the value of the property exceeds $3,000.

The People presented sufficient evidence for a jury to rationally conclude that the pink and orange pills dispensed to Gomez were different from the drugs listed on the prescriptions presented to defendant and that defendant knowingly and willfully provided materially false information to Medicaid.

Defendant consistently gave Gomez what Gomez asked for, rather than what was prescribed—in the light most favorable to the people, a jury could reasonably infer that the pills were not Sustiva and that Ivonne Arroyo would not be the recipient of the medication, and therefore that defendant knowingly and willfully provided materially false information to Medicaid.

People v. Extale  

New York Court of Appeals 2012 NY Slip Op 02247

Decided March 27, 2012.  

Issue: Whether the prosecution can dismiss a count in an indictment over the defendant’s objection.

Held:  A prosecutor does not have the unilateral power to dismiss a count of a grand jury indictment over a defendant’s objection. Whether such a count should be dismissed at the prosecutor’s request is an issue to be decided by the court in its discretion.

Facts: In 2004, defendant drove his pickup truck into a police officer. A grand jury indicted him for several crimes, including first degree assault. Defendant was convicted but the Appellate Division ordered a new trial on the first degree assault and first degree vehicular assault counts, holding that they required inconsistent mental states and should have been submitted to the jury in the alternative.

At the second trial, before jury selection, the prosecutor announced to the judge: “The People do intend to withdraw the second count of the indictment and proceed solely on the Assault in the First Degree count.” Defense counsel objected, and the prosecutor replied tersely: “I believe the People can choose what charges to go forward on, and we’re doing so.” The court agreed. Defendant was convicted of second degree assault as a lesser included offense of first degree assault. The appellate Division affirmed, we now reverse and order a new trial.

Legal Analysis: Usually, of course, a defendant is happy to have a charge against him dismissed, and it is the People who oppose dismissal. But a role reversal can occur when a defendant, not optimistic about the likelihood of acquittal, wants the jury to have a chance to compromise or exercise mercy by convicting him of a lesser crime (see People v Leon, 7 NY3d 109, 113-114 [2006]). This line of thinking often leads defendants to request submission of a lesser included offense, in addition to the offense charged in the indictment, and the defendant is entitled to have such an offense submitted “if there is a reasonable view of the evidence which would support a finding that the defendant committed such lesser offense but did not commit the greater”

Here, the crime that defendant wanted the jury to consider, and the People did not, was not a lesser included offense, but one of the offenses for which defendant was indicted. The People argue that they have discretion to withdraw such a count. We disagree: the discretion is the trial courts, not the People’s.

CPL 210.40 (3), which says:

“An order dismissing an indictment in the interest of justice may be issued upon motion of the people or of the court itself as well as upon that of the defendant. Upon issuing such an order, the court must set forth its reasons therefor upon the record.”

The People could have moved for dismissal in the interest of justice under CPL 210.40 (3), or the court could have exercised its discretion under CPL 300.40 (6) (a) to withdraw a count from the jury when “[t]he people consent that it not be submitted”.

Setting Bail: Must Be More Than One Form  Of Bail In New York Courts 

People v. Martin F. Horn,

Decided March 22, 2012 by New York Court of Appeals

Issue: whether CPL 520.10 (2) (b) prohibits a court from designating only one form of bail.

Holding:  the Court of Appeals held that Criminal Procedure Law § 520.10(2)(b) prohibits a court from fixing only one form of bail.

Facts: McManus was on parole in January 2009 when he was arrested for arson. Bail was set at $5,000, cash or bond, which McManus posted. McManus subsequently violated the order of protection by verbally abusing the victim and twice threatening him with weapons (a screwdriver and what appeared to be a handgun). At his arraignment on the new charges, bail was set at $1,500 for each incident, cash or bond. Because the Division of Parole filed a violation warrant with the Department of Corrections, McManus was not released on bail after arraignment.

McManus was later indicted for two counts of arson in the third degree, four counts of aggravated harassment in the second degree, two counts of criminal mischief in the fourth degree and one count of assault in the third degree. Supreme Court ordered that bail be set at $20,000, “cash only.”

When the Division of Parole lifted its hold on McManus, he tried to secure a bail bond but was unable to do so because the court had designated bail as cash only. This prompted McManus to seek alteration of the bail ruling, arguing that setting one form of bail — such as cash-only bail — is prohibited under CPL 520.10 (2) (b), which he claimed requires a court to set a second permissible form of bail. Supreme Court disagreed and adhered to the $20,000 cash bail order.

McManus then commenced this CPLR article 70 proceeding for a writ of habeas corpus. A different Justice dismissed the petition, concluding that CPL 520.10 (2) does not preclude a judge from setting a single form of bail (The Appellate Division affirmed for the same reason.

Legal Analysis:  Section 520.10 of the Criminal Procedure Law delineates the authorized forms of bail and the methods by which bail may be set by a court. Nine categories of bail are permitted under subdivision (1) of the statute: (1) cash; (2) an insurance company bail bond; (3) a secured surety bond; (4) a secured appearance bond; (5) a partially-secured surety bond; (6) a partially-secured appearance bond; (7) an unsecured surety bond; (8) an unsecured appearance bond; and (9) by posting bail with a credit card or similar device

Subdivision (2) of the statute specifies two distinct “methods of fixing bail.” The first option permits a court to “designate the amount of the bail without designating the form or forms in which it may be posted” — in such instance, the court merely declares a monetary sum. If this occurs, the accused can post either an unsecured surety bond or an unsecured appearance bond .  The second option states that a “court may direct that the bail be posted in any one of two or more of the forms specified in subdivision one, designated in the alternative, and may designate different amounts varying with the forms”.

Inclusion of the word “may” in both subdivisions was the simplest way for the Legislature to codify the two permissible methods for fixing bail: under subdivision (2) (a), a court may order a specific amount of bail without stating any particular bail form (in which case the accused may choose either an unsecured surety bond or an unsecured appearance bond); or, under subdivision (2) (b), a court may specify the forms of bail but the defendant is entitled to at least two alternative choices. The Legislature could not have used the word “must” in either provision because that would have defeated the court’s discretion to choose between the two options for fixing bail.

Providing flexible bail alternatives to pretrial detainees — who are presumptively innocent until proven guilty beyond a reasonable doubt — is consistent with the underlying purpose of article 520. The legislation was intended to reform the restrictive bail scheme that existed in the former Code of Criminal Procedure in order to improve the availability of pretrial release (see e.g. Bellamy v Judges in N.Y. City Crim. Ct., 41 AD2d 196, 202 [1st Dept 1973], affd 32 NY2d 886 [1973]; Mem of Commission on Revision of the Penal Law and Criminal Code, Bill Jacket, L 1970, ch 996, at 10). Subsequent amendments further loosened those strictures (see Preiser, Practice Commentary, McKinney’s Cons Laws of NY, Book 11A, CPL 520.10, at 51).

CPL 520.10 (2) (b) imposes no undue restriction on a court that believes a substantial personal undertaking “is necessary to secure [the defendant's] court attendance” in future proceedings (CPL 510.30 [2] [a]). Here, the bail court evidently decided that $20,000 cash bail was warranted because McManus had flouted a judicial directive by repeatedly engaging in criminal conduct toward the subject of the temporary order of protection.

A judge could reasonably conclude that a person who has already violated a judicial edict is more likely to ignore another command — such as an instruction to appear in court — and therefore impose stricter bail to encourage compliance with the court’s mandates. If a court believes that $20,000 cash bail is an effective method to achieve this objective, CPL 510.20 (2) (b) allows it to be ordered along with a second type of bail that, in effect, may be virtually indistinguishable from the cash option. For instance, the judge could order as an alternative a $200,000 partially-secured appearance bond requiring a monetary deposit of 10% (see CPL 500.10 [18]), or a $20,000 secured appearance bond that could be satisfied with (among other things) $20,000 in cash (see CPL 500.10 [17] [a]). Hence, there does not appear to have been a compelling need for the Legislature to authorize a single form of bail in CPL 510.20 (2) (b).

FEDERAL CRIMINAL APPEALS:

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

United States vs. Brown, Jan. 5, 2011. 629 F.3d 290

Issue: Whether the district court erred by failing to treat two prior drug convictions as a single Armed Career Criminal Act (“ACCA”) predicate offense under the ACCA, see 18 U.S.C. § 924(e)(2)(A). And whether the District Court erred when it treated the assault charge as a violent felony for sentencing purposes under the ACCA.

Holding: The Second Circuit Court of Appeals held that the district court committed no error when it held that Defendant’s two prior Connecticut drug offenses were separate offenses under Armed Career Criminal Act, and defendant’s prior Connecticut assault offense was a “violent felony” under Armed Career Criminal Act.

Facts: Brown was arrested after he sold a confidential informant a handgun and a half-ounce of cocaine base. Brown pleaded guilty pursuant to a plea agreement to the first count of that indictment, which charged him with being a felon in possession of a firearm in violation of 18 U.S.C. § 922(g)(1). Brown and the government disagreed about whether Brown’s prior convictions subjected him to the ACCA’s mandatory minimum sentence, and this issue remained contested at sentencing.

First, Brown pleaded guilty to two counts of “assault on a peace officer” Brown admitted to “assault[ing] the guards,” id. at 70, and the court accepted his plea. Brown was sentenced to two on current terms of seven years’ imprisonment.

Second, Brown pleaded guilty to “sale of hallucinogen/narcotic” he had twenty-nine rocks of crack cocaine concealed in his pants.

Third, Brown pleaded guilty to another drug violation as well as to a charge of criminal possession of a pistol.

These offenses took place while Brown was awaiting sentencing for the prior violation. Brown was sentenced on the charges arising from both the May and November 2000 arrests to concurrent terms of ten years’ imprisonment, with execution suspended with three years left to serve, and three years’ probation.

Legal Analysis: The district court found that Brown’s criminal history subjected him to an enhanced sentence under the Armed Career Criminal Act (“ACCA”), 18

U.S.C. § 924(e), and sentenced him principally to 180 months’ imprisonment, the minimum sentence provided by that statute.

Brown claimed that the district court improperly counted two of his prior drug convictions as separate ACCA predicate offenses. And he contends that the district court erred by treating his prior conviction for assaulting two corrections officers as a “violent felony” within the meaning of the ACCA.

The Court addressed the defendant’s challenges to the district court’s finding that these prior convictions justified an enhanced sentence pursuant to the Armed Career Criminal Act, which requires that persons who are convicted of violating 18 U.S.C.§ 922(g) and who “ha[ve] three previous convictions … for a violent felony or a serious drug offense, or both, committed on occasions different from one another” be sentenced to at least fifteen years’ imprisonment. 18 U.S.C.§ 924(e)(1).

The Circuit Court reviewed de novo questions of law relating to a district court’s application of the ACCA, but applied clear error review to a district court’s factual findings regarding the nature of a prior offense. See United States. Rosa, 507 F.3d 142, 151 & n. 8 (2d Cir.2007); United States v. Houman, 234 F.3d 825, 827 (2d Cir.2000).

This argument is addressed to the ACCA’s requirement that two offenses must be “committed on occasions different from one another” in order to be counted as separate ACCA predicate convictions. Id. § 924(e)(1).

Prior cases have held that “two convictions arise from conduct committed on different occasions if they do not stem [ ] from the same criminal episode.” United States v. Daye, 571 F.3d 225, 237 (2d Cir.2009) (alteration in original) (quoting United States v. Rideout,3 F.3d 32, 34 (2d Cir.1993)) “Considerations relevant to this determination include whether the victims of the two crimes were different, whether the crimes were committed at different locations, and whether the crimes were separated by the passage of time.”   The Court concluded that two breaking-and-entering convictions were properly treated as separate for purposes of the ACCA when these convictions were “for offenses committed against different victims separated by at least twenty to thirty minutes and twelve to thirteen miles.”

Here, while Brown was sentenced for the two drug offenses on the same day, the conduct underlying these offenses was separated by several months, involved distinct arrests, and took place at different locations. The Court affirmed the district court’s conclusion that these two offenses were “committed on occasions different from one another” and therefore were properly counted as two separate ACCA-qualifying convictions.

Brown also challenges his conviction for assaulting corrections officers as a “violent felony” under the ACCA. “We review de novo the District Court’s conclusion that a prior offense is a violent felony.”

The ACCA defines the term “violent felony” to mean: any crime punishable by imprisonment for a term exceeding one year … that—

(i) has as an element the use, attempted use, or threatened use of physical force against the person of another; or

(ii) is burglary, arson, or extortion, involves use of explosives, or otherwise involves conduct that presents a serious potential risk of physical injury to another.

In considering whether a particular offense qualifies as a violent felony under the ACCA’s residual clause The inquiry is framed “in terms of how the law defines the offense and not in terms of how an individual offender might have committed it on a particular occasion,” Not every conceivable factual offense covered by a statute must necessarily present a serious potential risk of injury before the offense can be deemed a violent felony,”  

The Second Circuit held that whether an offense qualifies as a conviction for a violent felony under the ACCA’s residual clause has two separate aspects.

First, ask whether the offense is similar “in kind” to the enumerated offenses that precede the residual clause—i.e., burglary, arson, extortion, and the use of explosives—in that the offense in question “typically involve[s] purposeful, violent, and aggressive conduct.”

Second, ask whether the offense is similar ‘in degree of risk posed’ to those enumerated offenses.” Compare the degree of risk posed by the offense of conviction to that presented by the enumerated felonies. The Supreme Court has framed this inquiry as “whether the conduct encompassed by the elements of the offense, in the ordinary case, presents a serious potential risk of injury to another.” Here, a conviction for assaulting an employee of the department of correction requires that the victim suffer physical injury. Because this offense involves the certainty of “injury to another,” it follows that this second prong of the “violent felony” analysis was satisfied.

For the foregoing reasons, the Second Circuit concluded that Brown’s conviction for assault of corrections officers qualifies as a violent felony under the ACCA and that his two drug convictions qualify as separate “serious drug offense[s]” thereunder. The district court therefore did not err in imposing an enhanced sentence pursuant to the ACCA.