A briefing order that reads like a law review article can only emanate from the chambers of EDNY judge Jack Weinstein.  In United States v. Brennan, 05 CR 747 (JBW), 2007 WL 4443989 (E.D.N.Y. December 19, 2007), he has set the stage for what is likely to be a significant ruling on the interaction between restitution orders, forfeiture orders, and payments victims receive from other sources, including the payment at issue in Brennan - a compensation fund established as part of a non-prosecution agreement.

Brennan involved a prosecution of long-term employees of Newsday and Hoy, two Tribune Company newspapers, in a $100 million scheme to defraud advertisers.  The newspapers and their parent company avoided prosecution, but entered into a separate agreement with the government, whereby they took responsibility for certain "unlawful circulation-reporting practices . . . used in connection with setting advertising rates" and agreed to forfeit $15 million to the government.  Separate to the forfeiture, the papers were also attempting to repay advertisers for inflated advertising rates, and to date had repaid $90 million. 

Since the government's settlement agreement with the newspapers meant that any victims not previously identified and repaid could seek restitution from the forfeited amount of $15 million, and in light of "the difficulty in determining whether additional restitution is owed to any victims who have yet to come forward," the government maintained that restitution should not be ordered against the nine defendants under 18 U.S.C. 3663A(c)(3) (the safety valve provision of the Mandatory Crime Victim Restitution Act - MVRA -, which excuses restitution where the number of victims is too large to make restitution practicable, or determining the amount of restitution would undly burden the sentencing process). 

Disagreeing that on the current record, the MVRA's safety valve provision applied, the court's December 19 order directed the government to respond to a series of questions, and in the process, did a useful and extensive review of the applicable statutory framework and cases interpreting it. 

Of particular interest is the court's focus on the potential for the MVRA to award "double recovery" to victims.  The MVRA provides that the fact that a victim received or is entitled to receive compensation "from insurance or any other source" must not be considered in determining the amount of restitution to be ordered.  On its face, then, the MVRA could allow a victim to recover twice - once through a restitution payment and once through some other form of compensation. As outlined in Brennan, several cases have addressed this issue of an unjustified windfall to the victim, including cases that have ruled a victim may not obtain double recovery through restitution and forfeiture, and cases that have precluded double recovery by virtue of some other court-ordered restitution award.  None of these cases addressed the unique circumstance here - the situation where an unindicted party makes a voluntary payment to the government or an injured party.  In fact, as the Brennan court ominously noted, citing a 6th Circuit case, "the purposes of criminal restitution include punishment. It would be improper to permit private parties to release criminal wrongdoers from punishment." 

Thus, the court ordered the government to address the issue of whether application of the MVRA was excused by the fact that the repayment scheme established by the newspapers and their parent may result in a "windfall" to those defrauded.  The case has since been assigned to a magistrate for hearings and a decision.  Stay tuned for what will no doubt be an important decision in this technical and under-appreciated area that can have a significant impact on defendants' lives.

Finally, it is worth noting the court's concern at what it perceived as disproportionate treatment of offenders - something that occurs so often, because the higher-ups in a corporate or drug hierarchy have an uncanny ability to insulate themselves from liability.  It appears to be one of the court's reasons for considering monetary as opposed to custodial punishment in this case.  In a previous order, quoted in this decision, Judge Weinstein stated: "The Court is troubled by the lack of clarity respecting relative culpability, if it exists, of those prosecuted compared to those of higher authority and the institutions themselves." 

The collateral consequences of criminal convictions can sometimes be worse and have more lasting impact than the actual sentence imposed.  Deportation is an obvious example.  Another is a criminal forfeiture order, as underlined in a recent SDNY ruling, United States v. Awad, 2007 WL 3120907 (S.D.NY. October 24, 2007). 

In Awad, the court faced an issue of first impression in this circuit: whether a criminal forfeiture order under 21 U.S.C § 853 (which covers drug cases, but is incorporated by reference into numerous other statutes involving non-drug offenses) is a money judgment against the defendant personally, or simply a judgment against specific property.  If against the defendant personally, of course, it can be satisfied by the defendant's substitute and future assets, even those obtained legitimately.  For Awad and his co-defendant, convicted after trial of conspiracy to import cathinone, the orders were not insignificant: $10 million and $4.6 million, respectively.

The defendants argued variously that § 853, unlike the RICO forfeiture provision, was not intended to permit forfeiture orders in the form of money judgments, and in any event, the language of the statute precludes the imposition of a money judgment on the defendant.  In particular, they argued that "one cannot forfeit something [one] does not possess."

Noting that these arguments had already been rejected by the 1st, 3rd, 7th and 9th Circuit Courts of Appeals, the district judge held that the imposition of a personal money judgment was consistent with both the purpose and language of § 853.  As the court noted, "Congress has made plain that criminal forfeiture is meant to constitute part of a defendant's sentence in drug crimes, and that the criminal forfeiture statute should be 'liberally construed' to effectuate its remedial purposes."  She went on to reject the defendants' "narrow" reading of the language of the statute.  "Neither the definition of 'property' as provided by the statute, nor the dictionary and common-sense definitions of 'forfeit' limit the entry of money judgments to assets held by the defendant at the time of sentencing."  Although this issue has not yet been addressed directly by the Second Circuit, the Awad court noted that the Second Circuit has at least held that "assets subject to forfeiture orders need not be in the possession of the defendant at the time of sentencing."  See United States v. Lizza Indus., Inc., 775 F.2d 492, 499 (2d Cir. 1985). 

This is a decision with far-reaching implications, and this issue will no doubt be addressed directly at some point by the Second Circuit.  In the meantime, practitioners should advise clients of the holding in Awad and factor the possibility that forfeiture orders attach future assets into any negotiations or litigation strategy regarding the amount of any forfeiture order, restitution or fine that may be imposed. 

It is rare for the government to seek bail forfeiture for an event other than the defendant's failure to appear, but as an EDNY Magistrate Judge points out in United States v. Stathakis, 2007 WL 3124703 (E.D.N.Y. October 24, 2007), the majority of courts that have addressed the issue "have concluded that forfeiture of the bail bond under Rule 46(f) is an appropriate sanction for the violation of any condition of release, whether that condition relates to the defendant's appearing in court or not" (emphasis added).

Forfeiture is not a foregone conclusion, however.  As the Stathakis court notes, a court may apply several factors in deciding whether a forfeiture should be set aside "in whole or in part," including whether the defendant's breach of the bond was willful; the cost, inconvenience and prejudice suffered by the government as a result of the breach; any explanation or mitigating factors submitted by the defendant; whether the surety has assisted in the apprehension of the defendant; whether the surety is a professional, friend or member of the defendant's family; and, where the party moving for relief from forfeiture is the surety, the appropriateness of the amount of the bond.  In addition, where, as here, "the government materially increased the surety's risk without notice to and consent of the surety," the surety can be relieved of its obligations under the bond.

In Stathakis, the government moved for forfeiture of the defendant's $5 million bond, co-signed and secured by $3.5 million in property posted by a business friend.  The defendant's bail had been revoked because he had violated an express condition not to speak to any witnesses or potential witnesses.  The contact condition had been added at a court hearing subsequent to the bail hearing.  The defendant had always appeared in court as required. The friend, who had co-signed the bond and whose favor was now turning into a very costly one, argued pro se that the government's motion should be denied, primarily because he (the friend) never had notice of the condition prohibiting any contact with witnesses.

Agreeing with the surety, the judge denied the government's motion and granted the surety's motion to set aside the forfeiture under Rule 46(f)(2)(B).  Applying the factors outlined above, the court found most persuasive the fact that the surety, a friend and not a professional bondsman, was not familiar with the conditions set forth on the back of the bond form (which expressly included a directive not to intimidate or tamper with a witness), nor was he aware that contacting witnesses would be considered a violation sufficient to result in forfeiture of the bond.  "Mere contact with witnesses, unless explicitly made a condition at the time of the bail hearing, is not a crime in itself and therefore, contrary to the government's posture, cannot be inferred from the standard language of the Bond." Moreover, although the defendant was expressly advised at a subsequent hearing that contact with any witnesses was prohibited, the surety had not received notice of, nor been apprised of, that court hearing, where this new condition was added.  As such, he did not consent to it, and therefore relief from the obligations on the bond was appropriate.

Although all ended happily for the surety in this case, it is a reminder of just what an immense act of faith and loyalty is encompassed in a surety's signature on the bond.  Moreover, it is an act fewer and fewer will be willing to perform if the government seeks bail forfeiture for reasons other than a defendant's failure to appear.