Restitution Calculation By Comparing New Services Improper . . . Perhaps Unnecessary

Defendant was convicted by a jury in the Northern District of Illinois for defrauding LaSalle Bank and sentenced to 96 months in prison, ordered to forfeit $16,241,202 in money that he obtained from the fraud, and ordered to pay restitution in the same amount.  On appeal, the defendant only challenged the order of restitution.

The defendant argued that, by ordering forfeiture and restitution in the same amount, the government would pocket the proceeds of the forfeiture considering that restitution cannot exceed the victim’s loss.  The Seventh Circuit recognized that, although it might seem that a defendant should never have to pay more than his victim’s loss, case law has held otherwise, recognizing this type of double recovery as a form of punitive damages on top of the other penalties.

In this case, the defendant owned a company that had been hired by LaSalle Bank to install and maintain security devices at the bank’s various locations.  The defendant bribed the Bank’s vice president in charge of security in exchange for LaSalle giving the company additional work.  Eventually, LaSalle caught onto this scheme and stopped doing business with the company.

After severing its relationship with the company, the bank hired a second company to provide these security services.  Comparing the prices of this second company to the defendant’s company, the government came up with a figure of $29.6 million to represent the loss that the fraud had caused the bank.  The judge recognized that the services provided, however, were not identical and that had defendant’s company been charging the same prices, it would have been operating at a loss.

The Seventh Circuit determined that, while the price of the second company’s replacement contract is not determinative of the amount of loss, a comparison of the two contracts cold be the starting point for computing the loss to the bank.  The court recognized that, in an extreme case, where the only effect of the fraud is to transfer business between two sellers whose prices and quality are the same, there is no loss to the purchaser.

The court noted, however, that any sort of loss calculation needs to involve a comparison of the quality and quantity of services rendered under the two contracts and that such information was not available in the record.  The Seventh Circuit ultimately determined that the order of restitution ordered by the district’s court could not stand.

What is interesting, though, is Seventh Circuit’s instruction to the District Court, directing the District Court to 18 U.S.C. § 3663A(c)(3)(B), which allows a sentencing judge to decline to award restitution where he finds from facts on the record that determining 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.  The court then reminded the District Court of the limited need to determine the bank’s loss in this case due to the government’s decision to convey forfeited assets to the victim up to the limit of the victim’s loss anyway, impliedly directing the court to dispense with restitution altogether.