The Second Circuit issued two opinions this week on third parties’ claims for restitution and shares of criminally forfeited property from defendants. See Federal Insurance Co. v. United States & United States v. Mazer (related cases), Nos. 16-2967 & 16-3402 (2d Cir. 2017) (Parker, Lynch, Carney) (appeal from Daniels, J., SDNY), opinion available here; United States v. Ohle, No. 16-601 (2d Cir. 2017) (Leval, Calabresi, Cabranes) (appeal from Rakoff, J., SDNY), opinion available here.
The lengthier of these opinions, in Federal Insurance, brings welcome news (or at least a sigh of relief) to the sort of low-level employees to whom corporate defendants are incentivized to shift blame in white collar prosecutions. Federal Insurance concerns a corporation’s entitlement to restitution and forfeiture payments from employees who were convicted for participating in a fraud for which the corporation is criminally culpable. In part, the opinion affirms the denial of restitution from those employees to the corporation’s insurance company (as a the corporation’s subrogee) under the Crime Victims’ Rights Act (CVRA), 18 U.S.C. § 3771. As explained below, the logic of this holding suggests that corporations should never be entitled to restitution from employees who committed criminal acts within the scope of their employment.
The facts of Federal Insurance are lengthy, and concern a kickback scheme involving Science Applications International Corporation (SAIC), which had a contract with New York City to improve its timekeeping and payroll system. SAIC employees took bribes from a subcontractor in exchange for granting it bids at inflated prices. SAIC profited from these bids because it could shift cost overruns to the City under a “cost-plus” contract. It was therefore incentivized to overlook the kickback scheme. The company entered into a deferred prosecution agreement under which it accepted responsibility for the fraud and acknowledged both that it ignored an internal whistleblower complaint and failed to adequately supervise its employees. Four employees were convicted on fraud and bribery charges. One of those employees, Carl Bell, cooperated against the others and was the last to be sentenced. Before his sentencing, SAIC filed a $15 million claim under an insurance policy with Federal Insurance (“Federal”) that covered employee theft. Federal paid the claim in full, and was subrogated to all of SAIC’s rights of recovery for the theft.
Federal intervened in Mr. Bell’s criminal case–the other employees had been sentenced–and requested $15 million in restitution. The district court denied the request. Federal then petitioned for reimbursement from proceeds that Bell relinquished under a criminal forfeiture settlement, asserting a superior right to the government’s in the money. The district court denied this petition as well, granting summary judgment to the government. The Second Circuit affirmed the denial of Federal’s restitution request, and vacated and remanded for further proceedings concerning the forfeiture order.*
As a practical matter, the more meaningful of these holdings concerns Federal’s restitution request under the CVRA. The district court denied this request for reasons including that SAIC was a co-conspirator in Mr. Bell’s fraudulent conduct. The Second Circuit held that it was not an abuse of discretion to deny SAIC’s restitution request on this ground. The panel left open whether it was in fact appropriate to characterize SAIC as a “co-conspirator,” because under the “intracorporate conspiracy doctrine” an employer and its employees are regarded as a single actor rather than multiple conspirators. (This doctrine applies in some civil contexts, and its applicability in the criminal context remains an open question in this Circuit.). See Slip op. at 47-48. Regardless, federal law imposes criminal liability on a corporation for criminal acts that its agents commit within the scope of their employment. See id. at 48. Moreover, SAIC’s deferred prosecution agreement acknowledged responsibility for Mr. Bell’s misconduct. See id. at 46-47. The company’s admissions also confirmed that Mr. Bell was acting within the scope of his employment when he participated in a fraud that benefited the company. See id. at 49.
Federal Insurance leaves open the possibility that the insurance company has an interest in the employees’ criminally forfeited property, and remands for further findings on that issue. From an employee-defendant’s perspective, this aspect of the opinion would not impose an additional burden. The opinion is meaningful, however, in cases where an employee’s restitution liability exceeds the value of the money or property the employee has criminally forfeited. Its reasoning extends, at the very least, to any white collar prosecution in which a company admits responsibility under a deferred prosecution agreement. Its logic, moreover, suggests that a company could never get restitution for criminal acts that its employees commit within the scope of their employment.
*(In addition to its merits holdings, Federal Insurance contains an interesting analysis of several procedural and jurisdictional questions concerning mandamus petitions under the CVRA. The statute confers on victims a right to file mandamus petitions challenging certain district court decisions, but requires that at least some claims be petitioned within 14 days of the district court’s decision. See 18 U.S.C. §3771(d)(5). After a nuanced statutory interpretation analysis, the panel concluded that this 14-day deadline did not apply to mandamus petitions challenging restitution orders. The panel was thus able to sidestep the thornier question of whether §3771(d)(5)’s deadline is jurisdictional in nature.)
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The short opinion in Ohle holds that proceedings under 21 U.S.C. § 853 (n), governing third parties’ claims of interest in criminally forfeited property, are civil in nature. They are therefore subject to the jurisdictional time limit for filing a civil appeal set forth in Federal Rule of Appellate Procedure 4(a). (That is, the timing of the appeal is not governed by the non-jurisdictional, 14-day time limit for criminal appeals set forth in Federal Rule of Appellate Procedure 4(b).) The opinion also holds that the clock for filing an appeal starts when the district court first denies the third party’s motion to vacate an order governing interests in criminally forfeited property; it does not re-start if the district court issues a subsequent order reaffirming its decision and explaining its reasoning.
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