Those Devilish Details: Forfeiture and Restitution

At sentencing proceedings, the parties usually focus on the amount of time the defendant will spend in prison. In certain cases—like fraud cases—the focus of the proceedings shifts to the amount of money to be forfeited or paid in restitution. Sometimes these calculations are complicated. Very often, the money is never collected. But that does not mean there aren’t things to fight about on appeal!

Daniel Sexton and others managed to convince multiple banks to lend them more than $8.1 million. Once these banks and the government got wind of this scheme, charges and pleas followed. The sentencing judge imposed a sentence of 109 months’ incarceration and ordered Sexton to pay over $2.6 million in restitution and to forfeit property, including a money judgment of over $2.5 million. Although Sexton did not challenge the restitution or forfeiture orders in the district court, he did so on appeal. (He also challenged the calculation of his guidelines and the substantive reasonableness of the sentence, but those holdings are not the subject of this appeal.)

The Sixth Circuit’s published opinion is interesting for two reasons. First, the Sixth Circuit split with the Third and Eleventh Circuits. Second, the judges divided over the question about how to apply plain-error review.

On the first issue, the court grappled with the applicability of the Supreme Court’s interpretation of 21 U.S.C. § 853 issued in Honeycutt v. United States, 137 S. Ct. 1626 (2017). Section 853 provides: “[a]ny person convicted of a violation of this subchapter . . . shall forfeit to the United States . . . (1) any property constituting, or derived from, any proceeds the person obtained directly or indirectly as the result of such violation.” The Supreme Court clarified that the defendant must have actually obtained the property and the property must be tainted, i.e., the product of criminal activity. The italicized phrase was the reason the government must prove the defendant actually obtained the property. It also becomes important later.

18 U.S.C. § 981(a)(1)(C) differs slightly from § 853. It provides, “[a]ny property, real or personal, which constitutes or is derived from proceeds traceable to a violation of section . . . 1334 of this title . . . or a conspiracy to commit such offense” is “subject to forfeiture to the United States.” Missing from this text is the phrase “the person obtained,” which the Sixth Circuit reasoned, means defendants can be liable to forfeit property they did not personally acquire. In other words, as long as the property is connected to the crime, the defendant is liable, even if the property is in the possession of co-defendants. Note that, in this instance, the court addressed whether the district court committed error even though it could have said that any error that may have occurred was not plain.

When the Sixth Circuit turned to the restitution issue, another recent Supreme Court case came into play: Lagos v. United States, 138 S. Ct. 1684 (2018). The Sixth Circuit made clear that Lagos abrogated the holding of United States v. Elson, 577 F.3d 713, 726 (6th Cir. 2009) (remember to Shepardize!). But, in this case, the court rested its decision to affirm the restitution order on the first prong of plain-error analysis. You see, the government never clarified whether money paid by one of the banks was connected to its participation in the investigation or prosecution of the crime. Because of this lack of certainty, the majority said that the district court’s error was not clear or obvious.

Judge Moore disagreed with the majority’s approach to pain-error analysis. She would have vacated the restitution order because courts of appeals must apply the law in effect at the time of the appeal, and the government always has the burden of proof to establish victims are entitled to restitution. In Judge Moore’s view, the fact that the defendant did not object to the restitution amount in the district court did not matter when the record made plain that the government had not satisfied its burden in the first instance.

In the end, the dispute is about $12,554.14 the bank will likely never receive. But Sexton provides an example of how some judges approach plain-error review. It also serves as a reminder to trial counsel: object to those devilish details!