Argument analysis: Justices look for middle ground on criminal restitution
on Apr 19, 2018 at 12:06 pm
The issue before the Supreme Court in Lagos v. United States is the interpretation of a restitution statute applied in tens of thousands of criminal sentencing hearings each year. The Mandatory Victim Restitution Act requires courts to impose restitution for victims of a large swath of enumerated federal crimes. Under the MVRA, found at 18 U.S.C. § 3553A, the court must order a criminal defendant to “reimburse the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” The court spent part of yesterday morning grappling with how to construe that language. The petitioners argued for a narrow reading of the statute, while the federal government took an expansive approach. In the absence of any specific legislative history giving guidance as to how to interpret these words, the justices appeared to lean somewhere between the two extremes.
The petitioner, Sergio Fernando Lagos, was the owner and operator of a holding company, which in turn owned a cross-border trucking company, USA Dry Van Logistics. On behalf of Dry Van, Lagos entered into a financing agreement with a lending company, General Electric Capital Corporation. Over the course of two years, Lagos and his business partners committed numerous fraudulent acts. Eventually, Lagos and his partners disclosed the fraud to GE Capital, and shortly thereafter, Dry Van filed for bankruptcy. After Lagos informed the company of the fraud, GE Capital began an internal investigation. As part of that investigation, GE Capital hired forensic experts, financial consultants, and several law firms, including two high-powered firms that provided GE Capital with legal advice related to the fraud and represented the company in Dry Van’s bankruptcy proceedings. The costs of GE’s internal investigation and the legal representation totaled almost $5 million. At sentencing, the court ordered Lagos to reimburse the company for those costs as part of a restitution order. The question before the court is whether the MVRA requires Lagos to repay the costs of the internal investigation and legal representation in the collateral bankruptcy proceedings.
Daniel Geyser, representing Lagos, began the argument advocating for a surprisingly constrained reading of the statute. Geyser’s argument was essentially two-fold: The MVRA only applies to the investigation or prosecution of a federal criminal offense, and only to reimbursement of incidental, out-of-pocket expenses during that federal criminal investigation and prosecution. According to Geyser, the statute does not require reimbursement of costs pursuant to any investigation – a state government investigation, an SEC investigation, an internal corporate investigation – that precedes the federal criminal investigation. Geyser also balked at the suggestion that a defendant should have to reimburse a company’s internal investigation expenses if that investigation was conducted at federal law enforcement’s request or direction. Thus, even if the federal government asked or compelled the company to investigate, and then used the results of that investigation in its prosecution, the statute still would not authorize the reimbursement of those investigation expenses or related attorney’s fees, according to Geyser, because the statute only covers incidental, out-of-pocket expenses associated with making oneself available to the prosecution. As he put it, “Attorney’s fees and private investigation expenses don’t look like child care and transportation.”
Geyser was peppered with questions suggesting that most justices believed this interpretation of the statute was too constricted. As Justice Samuel Alito remarked, “You’re reading a lot into [this statute].” Sensing the resistance, a few minutes into the argument, Geyser pulled back from his initial strategy and proffered an “alternative theory” that the statute might cover investigative expenses or attorney’s fees so long as they are incurred “during the participation of the government’s [criminal] investigation.” Several justices appeared to find the alternative theory more compelling. However, they seemed less convinced by Geyser’s argument that the MVRA precludes reimbursement of any costs related to GE Capital’s participation in the bankruptcy proceedings. “Attendance at proceedings related to the offense” refers to physical attendance, not trying to figure out how to litigate and recover financially in the bankruptcy case, he argued.
Representing the federal government, Assistant to the Solicitor General Michael Huston contended that the statute does not limit a victim’s recovery to costs incurred during participation in the government’s investigation of the offense. Rather, according to Huston, participation in any necessary investigation during which the victim accrues expenses requires reimbursement under the MVRA. The only cap on such recovery is the statutory requirement that those expenses be “necessary,” which, Huston argued, means “ordinary, reasonable, expected.” This broad interpretation is in line with Congressional intent, Huston maintained: “Congress wanted to make sure that even the stuff that wouldn’t readily come to your mind is covered.” And as Huston repeatedly pointed out, Congress was explicit about making the restitution imposed under this statute mandatory, regardless of a defendant’s ability to pay.
The justices seemed less than convinced by the government’s argument. As Justice Stephen Breyer remarked early on, “You have a big problem, I think, with the language of the statute.” Highlighting other federal restitution statutes enacted around the same time, each with different language, Justice Sonia Sotomayor told Huston, “I think I have to give meaning to different statutory terms that were passed at the identical time.” Some justices also appeared to have concerns about tying up the trial courts with extended hearings on what expenses were “necessary” and what proceedings would be “related to” the offense. As Justice Neil Gorsuch inquired, “your reading invites district judges to engage in long protracted collateral proceedings… Where is the stopping point here?” Because the statute was clearly written with an individual defendant in mind, Justice Elena Kagan noted, its application is particularly difficult in cases involving a corporate defendant.
The court appeared to be particularly bothered by the lack of limits on the amount of restitution that could be imposed under the government’s expansive theory. Several justices posed questions about various aspects of the statute’s parameters. Gorsuch even suggested that perhaps “the government’s effort here is really to externalize the costs of its own investigations in corporate … situations.” Several justices noted their frustration with the amount of uncollectable criminal debt, which is not dischargeable in bankruptcy proceedings, remains unpaid to the victim, and weighs down the defendant in perpetuity. This discomfort may result in the court’s appealing to Congress to return to a discretionary restitution system. In the meantime, a majority of justices seemed to lean toward a version of the “alternate theory” put forth by Geyser, which would allow restitution for costs incurred by the victim while participating in the government’s investigation of the offense.
Sotomayor alerted the court to one potential alternate method of reimbursement that might encourage justices to adopt this middle ground. Through her questioning, Sotomayor highlighted a provision in the MVRA that allows a criminal conviction to establish liability in a civil case. As a result, she pointed out, the corporation can sue for reimbursement of corporate losses in a civil suit, with only the amount of restitution up for debate in that proceeding. In other words, the MVRA as it stands already contains a provision that allows corporations to be reimbursed for corporate internal investigations and attorney’s fees; it just requires corporate victims to utilize the statute’s civil remedy instead of relying on the criminal sentencing process. To the extent that a majority of the court is concerned that a narrow interpretation of the statute might go against Congress’ overall goal in passing the MVRA, the existence of this civil remedy within the MVRA might be what convinces a majority to go with Geyser’s alternative reading of the statute.