Lagos v. United States

Issues 

Does the Mandatory Victim’s Restitution Act require restitution for costs incurred for private-party investigations not required or requested by the government?

Oral argument: 
April 18, 2018

In this case, the Supreme Court will decide if the Mandatory Victim’s Restitution Act requires or permits an order of restitution against a criminal defendant for a private party’s costs of investigating the underlying crime without a request from the government. Lagos argues that the text of the statute and its legislative context and history preclude such costs from being eligible for restitution. In contrast, the Government argues that the overarching goal of restitution pairs with the text of the statute to permit a broad definition of eligible expenses, including private investigations. Underlying these legal issues is a delicate balance of rights, with the Government supporting restitution in order to help victims recover from crime, and opponents worrying that large restitution awards would prevent defendants from achieving full rehabilitation.

Questions as Framed for the Court by the Parties 

Whether 18 U.S.C. § 3663A(b)(4) covers costs for reimbursement under the Mandatory Victims Restitution Act that were “neither required nor requested” by the government, including costs incurred for the victim's own purposes and unprompted by any official government action.

Facts 

Petitioner Sergio Fernando Lagos (“Lagos”) was owner and CEO of a holding company that owned USA Dry Van Logistics LLC (“Dry Van”). Brief for Respondent, United States, at 2. Dry Van was holder of a revolving-loan finance agreement, secured by their accounts receivable, with General Electric Capital Corporation (“GE Capital”). See id. Lagos and other Dry Van associates fraudulently misled GE Capital by overstating the amount of Dry Van’s accounts receivable in order to induce GE Capital to provide loans for much higher amounts than Dry Van was permitted to borrow under the agreement. See id. at 3. Lagos withdrew proceeds from his fraudulent acts for personal use. See id. at 4. As a result, of the $37.266 million in accounts receivable shown by Dry Van in its books, $26.725 million was fraudulent. Id. On January 25th, 2010, Lagos informed GE Capital of the ongoing fraud that Dry Van had been committing in regards to their agreement. Id. at 5. The scheme forced Dry Van to file for bankruptcy the following week. Id.

Upon discovery of the fraud, GE Capital invested substantial funds to determine the magnitude of the scheme, hiring forensic experts, lawyers, and consultants. Brief For Petitioner, Sergio Fernando Lagos, at 10. GE Capital also incurred legal fees in Dry Van’s bankruptcy proceedings when the bankruptcy court ordered them to make advances to Dry Van to enable the company to continue operating. See id. In 2013, Lagos was indicted on one count of conspiracy to commit fraud and five counts of wire fraud, and pled guilty to all counts. Brief for Respondent, at 6–7. Lagos was sentenced to ninety-seven months of imprisonment and ordered to pay restitution under the Mandatory Victims Restitution Act of 1996 (“MVRA”) to GE Capital in the amount of $15,970,517.37, comprised of $11,074,047.64 owed in un-repaid loans and $4,895,469.73 in other expenses from GE Capital’s investigation and the bankruptcy proceedings. Id. The MVRA governs restitution involving federal crimes with an identifiable victim and applies in all sentencing proceedings for convictions of an offense against property, including those committed by fraud or deceit. See id. at 7.

Lagos objected to the inclusion of GE Capital’s investigative and attorneys’ fees as part of the restitution ordered under the MVRA, but the Government argued that these fees were subject to MRVA restitution because their payment was critical to the investigation of Lagos’ offense, vital to his later prosecution, and “a direct and proximate result” of Lagos’ scheme. See id. at 9. The District Court agreed with the government that MVRA restitution should include damages resulting from discovering and correcting the loss and ordered $15,970,517.37 in restitution. Id. at 9–10.

The Fifth Circuit affirmed, rejecting Lagos’ argument that the MVRA categorically disallows restitution for forensic expert, legal, and consulting fees. Id. at 10. The court explained that the broader scope of restitution under subsection 3663A(b)(4) is supported by precedent set in all circuits, except one D.C. Circuit decision. See Brief for Petitioner, at 11. Although in concurrence, Judge Higginson cautioned that participating in a government investigation that has not been required or requested by government investigators does not embrace an “internal investigation” depicted in the MVRA. Id. at 12–13. Lagos appealed, and the Supreme Court granted certiorari on January 12, 2018. Orders and Proceedings, 16-1519.

Analysis 

DOES THE LANGUAGE OF SECTION 3663A(b)(4) EXPRESSLY PERMIT RESTITUTION FOR INTERNAL INVESTIGATIONS AND OTHER PRIVATE PROFESSIONAL COSTS?

Lagos argues that the text of § 3663A(b)(4) does not permit restitution for costs related to unprompted internal investigations and other private costs. Brief for Petitioner, Sergio F. Lagos at 17. Lagos contends that the statute creates several requirements to qualify for restitution, and that such costs fail to meet these criteria on several counts. Id. Lagos maintains that the statute unambiguously requires that any restitution be related to the investigation, and that the investigation is that which is performed by the government in the context of a criminal case. Id. at 17–18. Lagos supports this assertion by pointing out that the Congress could have used “any investigation” or “an investigation” if it had wished to provide restitution for costs incurred outside of the government’s investigation. Id. at 18. Lagos also argues that the same language limits restitution for costs related to attending criminal proceedings—those that were subject to the investigation and prosecution—not civil proceedings. Id. at 18–19. Lagos further contends that restitution is limited to circumstances in which a party has participated in the investigation, requiring a party to take part an ongoing government investigation. Id. Therefore, a party’s private unsolicited investigationeven if it aids the government in some way—does not qualify. Id. at 19–20. Lagos argues that the enumerated expenses in the statute (lost income, transportation, child care, “other expenses,” etc.) are incidental costs, further clarifying the intent to provide restitution to those private parties participating in the government’s investigation, not recompensing those that conduct their own. Id. at 20. Lagos also asserts that the requirement in § 3363A(b)(4) that expenses be incurred during participation in the investigation expressly prohibits restitution for private investigations that occur before the government investigation has begun, since a party cannot participate in that which has not already started. Id. at 21. Additionally, Lagos contends that the statutory requirement that expenses be “necessary” to the prosecution to be eligible for restitution precludes eligibility for private investigations, because the government is already obligated to conduct an investigation of its own. Id. at 23–24. Lagos argues that private investigations—especially those not requested by the government—can be misguided, duplicitous, and unhelpful, making them unnecessary. Id. Lagos also argues that the enumeration of eligible expenses excludes private investigation costs. Id. 24–25. Lagos asserts that private investigations do not fall under “other expenses” because they differ from the enumerated expenses in several ways; investigations are not incidental, nor are they comparable in cost to childcare or transportation. Id. at 24–26.

The Government argues that the text of § 3663A(b)(4) permits an order of restitution for costs incurred by GE Capital’s private investigation. Brief for Respondent, United States at 23. The Government asserts that the private investigation was both reasonable and ultimately essential to the Government’s own investigation and prosecution. Id. at 24. The Government notes that data and information collected through the private investigation preserved evidence and allowed a more informed indictment. Id. at 25. The Government argues that the private investigation was an expense incurred in the overall prosecution, making it eligible for restitution. Id. The Government asserts that the statutory language does not expressly limit an investigation to actions conducted only by the government, and that the private investigation at issue was instead the first part of the investigation as a whole. Id. at 26–27. The Government provides support for this interpretation by noting that the statute also provides restitution for costs associated with attending proceedings, which can be asserted without the government’s request or approval. Id. at 28. The Government also argues that Lagos’ interpretation of “participation” is incorrect, citing Russello v. United States in support of a broad definition of the term. Id. at 29–30. The Government contends that “participation” means “to take part in,” a definition that includes actions such as preserving evidence or providing information. Id. According to the Government, this definition of “participation” would mean that a private investigation preceding an official government investigation can nonetheless be participation. Id. The Government also counters Lagos’ interpretation of “during” the investigation by arguing that it incorrectly presumes the investigation only begins once the government is involved. Id. at 31. Additionally, the Government asserts that Lago’s interpretation of “necessary” is flawed, noting that a requirement that action be requested by the government in order to be necessary is not consistent with other provisions of the statute—such as allowing restitution for victims’ costs in attending proceedings. Id. at 33. The Government alleges that “necessary” in this context means reasonably required to advance the investigation, precluding unhelpful or frivolous expenses. Id. The Government lastly counters Lagos’ final contention by arguing that his categorization of the enumerated expenses as incidental and minor is misplaced, pointing out that in some circumstances the enumerated costs could be both vital and expensive. Id. at 39–41.

THE EFFECT OF CONTEXT AND LEGISLATIVE INTENT ON THE INTERPRETATION OF SECTION 3663A(b)(4)

Lagos argues that the context and intent surrounding § 3663A’s enactment further supports his interpretation of provision (b)(4). Brief for Petitioner at 26. Lagos contends that other provisions enacted at the same time provide broad restitution rights for costs similar to those at issue in this case, demonstrating the limited scope of (b)(4). Id. at 27. Lagos finds further support with a 2008 amendment to § 3663(A) in which Congress explicitly provided restitution for private investigations for identify theft victims. Id. Lagos asserts that this amendment demonstrates that Congress was aware there was a lack of restitution for such costs under (b)(4). Id. Lagos argues that several other statutes have much broader and explicit restitution eligibility, proving that Congress intended to have a narrow scope under (b)(4). Id. Lagos also asserts that a more expansive reading goes against the traditionally narrow availability of restitution available at common law, an expansion unneeded given the availability of the civil tort regime. Id. at 28. Lagos also attacks the Government’s reliance on the overarching goal of restitution, contending that the text of (b)(4) should not be ignored in blind pursuit of some overarching goal. Id. at 29. Lagos counters the Government’s reliance on § 3663A(a)(2) by noting that it is illogical to ignore (b)(4)’s clear eligibility requirements for expenses in reverting to the broad definition of victim. Id. at 30–31.

The Government argues that the definition of “victim” in provision (a)(2) supports an expanded scope of costs eligible for restitution, asserting that the primary purpose of the statute is to make whole those affected by crimes against their person or property. Brief for Respondent at 16. The Government contends that the MVRA replaced the Victim and Witness Protection Act (“VWPA”), making restitution mandatory when it was discretionary under the VWPA but otherwise replicating its broad eligibility for restitution. Id. at 16–18. The Government argues this context, in addition to the overarching goal of the MVRA—ensuring repayment to victims of crime—support the Government’s broad reading of eligible expenses under (b)(4). Id. at 17–19. The Government asserts that a proper reading of the provision therefore requires restitution of costs proximately caused by the offense, including the costs of private investigation. Id. at 18–19. The Government counters Lagos’ argument that the definition of victim under (a)(2) is unimportant for interpretation (b)(4) by contending that traditional methods of statutory construction view provisions holistically, not in a vacuum. Id. at 22. The Government argues that this more holistic view, combined with the statutory purpose of recompensing victims of crime, supports a broad eligibility for restitution and require payment to GE Capital in this case. Id. at 22–23. The Government concludes by distinguishing (b)(6), permitting broad restitution for identity crime victims, contending that the provision was enacted to ensure that victims of such crimes were compensated for their (often large) amount of lost time in recovering their credit, an issue not relevant in the current case. Id. at 34–35.

Discussion 

POLICY CONCERNS OF INCLUDING VICTIMS’ ATTORNEYS FEES AS RESTITUTION UNDER THE MVRA

In support of Lagos, the National Association of Criminal Defense Lawyers (“NACDL”) argues that the decision to include attorneys’ fees as MVRA restitution under Section 3663A(b)(4) as “other expenses” violates the common-sense principle of the ejusdem generis canon of statutory construction. See Brief of Amicus Curiae of the National Association of Criminal Defense Lawyers, in Support of Petitioner at 5–6. NACDL explains that because § 3663A(B)(4) authorizes restitution for “child care, transportation, and other expenses;” including attorney’s fees as other expenses would violate the common sense principle because attorneys’ fees can be different orders of magnitude greater than fees for child care or transportation.  Id. at 6–8. NACDL cautions that doing so would directly contradict the Congressional intent illustrated by listing the specific examples prior to the words “other expenses,” and would constitute a judicial intrusion on Congressional authority. See id. Additionally, NACDL notes that including attorneys’ fees as MVRA restitution would create confusion, because it would contradict multiple instances in which the Supreme Court has held that Congress’s use of broad terms like “compensation,” “costs,” or “expenses” without specific reference to attorneys’ fees, does not include attorneys’ fees. See id. at 9–11.

In opposition, the Government contends that the common sense principle does not apply here because the statute’s specific terms do not fit into any kind of definable category. Brief for Respondent, United States, at 41. The Government rejects the attempt to group restitution specifically mentioned in § 3663A(b)(4) as “minor” or “incidental” because in addition to child care and transportation, the section specifically mentions “lost income” which could be substantial depending on the scope of the investigation, prosecution, and defense. See id. The Government warns that beyond this case, applying ejusdem generis reasoning to the scope of § 3663A(b)(4) restitution would also have the unwarranted and undesirable policy effect of denying restitution to victims who incur potentially substantial costs in the course of assisting the government with a request. Id. at 42. The Government argues that requiring victims to bear this cost with no restitution would not only be deeply inequitable, but also contradict Congress’ stated objective to obtain the participation of victims in criminal procedures. Id.

PUBLIC POLICY IMPLICATIONS OF MASSIVE UNAFFORDABLE RESTITUTION AWARDS

In support of Lagos, Professor Shon Hopwood (“Hopwood”) of Georgetown University Law Center argues that including internal investigation and attorney’s fees as restitution under the MVRA would greatly increase the likelihood of massive restitution awards, which would in turn impede rehabilitation and make defendants more likely to commit crimes. See Brief of Amicus Curiae of Professor Shon Hopwood, in Support of Petitioner, at 3. Hopwood explains that although restitution orders can benefit rehabilitation of a defendant, they become an obstacle to rehabilitation when an award exceeds the offender’s financial means. Id at 4. Hopwood states that including internal investigation fees is especially likely to lead to larger restitution awards because when left to their own devices, companies are more likely to incur needless costs. Id. at 15. Hopwood refers to the myriad of collateral consequences that an individual suffers when convicted of a felony as “civil death” and warns that adding the effects of a massive restitution order under the MVRA to these consequences would be disastrous: leaving defendants less able to meet other pressing financial needs, potentially disqualifying them from basic government safety-net programs, and significantly increasing the likelihood of their re-incarceration.  See id. at 5–8.

The Government focuses on the harm that victims would suffer if the large amounts constituting attorneys’ and internal investigation fees cannot be included as restitution under the MVRA. See Brief for Respondent, at 15. The Government asserts that these additional expenses were proximately caused by Lagos in the case at hand, and limiting their recovery would impose limitations on the MVRA that appears nowhere in its text: (1) “the requirement that the victims’ expense be required or requested by the government,” and (2) a categorical exclusion on recovery of attorneys’ and professional fees. See id. at 16. The Government claims that this would directly conflict with the substantive purpose of the MVRA, which is to give victims of crime full restitution. Id. at 18. The Government concludes that if the Court were to follow Lagos’ reasoning, they would set a precedent of leaving victims substantially financially liable for harm resulting from the same criminal actions that made them a victim in the first place. See id. at 19–22.

Edited by 

Acknowledgments 

Additional Resources 

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