People v. Lee
886 N.W.2d 185
Mich. Ct. App.
2016
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PEOPLE v LEE

Docket No. 322154

Court of Appeals of Michigan

February 2, 2016

314 MICH APP 266

Edward D. Lee pleaded nolo contendere in the Oakland Circuit Court to a charge of false pretenses involving $20,000 or more, MCL 750.218(5)(a). The charge arose out of the sale of real property. Defendant and three others engaged in a scheme to secure mortgage loans from First Mariner Bank. Defendant was the loan officer involved. One of his codefendants, Jack Kahn, secured loans of $1,125,000 and $375,000 for the purchase of the property. An FBI special agent testified that defendant received more than $600,000 from the sale of the property. The bank sold the loans to investors but subsequently repurchased the loans for $1,176,226.13 and $411,000 because of nonpayment. Thereafter, the bank foreclosed on the property, taking ownership of the premises following a sheriff‘s sale after making a full-credit bid, which is a bid equal to the unpaid principal and interest on the mortgage plus the costs of foreclosure that satisfies the mortgage debt and extinguishes the mortgage. The bank later resold the property for $333,000. Before charges were brought against defendant, Kahn, and another codefendant, Katherine Kudla, the bank had initiated a civil suit involving the same subject matter. The trial court in the civil suit granted their motions for summary disposition, holding that the bank‘s claims were barred because they arose out of a debt that had been extinguished as a matter of law by the bank‘s full-credit bid, so that the bank was not entitled to any damages. Following defendant‘s nolo contendere plea in the instant case, the court, Leo Bowman, J., sentenced him to a 60-day jail term that was held in abeyance pending successful completion of 5 years’ probation. At the restitution hearing, the prosecution requested that restitution be ordered in the amount of $1,092,343 and that defendant, Khan, and Kudla be held jointly and severally liable for the total amount of restitution. The court agreed and entered an order to that effect. Defendant appealed, contending that the court erred by finding that the bank had suffered a loss and, therefore, erred by ordering restitution because the bank was deemed to have received full payment of the $1,125,000 loan through the full-credit bid.

The Court of Appeals held:

1. Article 1, § 24 of the Michigan Constitution provides that crime victims have the right to restitution. MCL 780.766(2), part of Article 1 of the Crime Victim‘s Rights Act (CVRA), MCL 780.751 et seq., provides that when sentencing a defendant convicted of a felony, the court must order the defendant to make full restitution to any victim of the defendant‘s course of conduct that gave rise to the conviction. Under MCL 780.766(8), the only exception to this mandatory action applies when the victim or victim‘s estate has received or is to receive compensation for that loss. The statute does not contain any mitigating language predicated on the preclusion of recovery, or a finding of no damages, in a separate suit. Accordingly, the court was required by MCL 780.767(1) to consider the victim‘s loss and by MCL 780.766(2) to order the defendant to make full restitution.

2. Defendant asserted that for restitution purposes, the bank had been paid back the full amount of the loan by virtue of its full-credit bid, just as if the property had been sold for that amount to a third party, and therefore the bank had not suffered any loss in connection with the loan. Defendant, however, provided no authority for the proposition that restitution should be precluded or reduced on the basis of a full-credit bid. To the contrary, the fact that civil damages are not available because of a full-credit bid does not necessarily mean that restitution is also unavailable. The statutory restitution scheme is separate from and independent of any damages that may be sought in a civil proceeding. Restitution is not a substitute for civil damages, and a civil judgment alone provides no basis for reducing the restitution award. Although the victim will have the benefit of both a civil judgment and a restitution order to obtain monetary relief from the defendant, the availability of two methods does not mean that the victim will have a double recovery, but merely increases the probability that the perpetrator of a crime will be forced to pay for the wrongdoing committed. Accordingly, the mere fact that the bank was not entitled to civil damages on the basis of its full-credit bid did not render the trial court‘s restitution order erroneous or excessive or establish that the bank did not incur any loss due to defendant‘s conduct. Moreover, the bank did, in fact, incur actual economic loss from the criminal activities of defendant and his codefendants because it lost the capital that it disbursed when it provided the loan. Although the bank ultimately recouped a small portion of that capital when it sold the real property that served as the collateral for the loan, it was not until this point that the bank actually recovered a portion of the funds that were lost. Likewise, the bank‘s inability to pursue a deficiency against the borrower or a fraud claim against a nonborrower third party following the full-credit bid did not by itself indicate that the bank experienced no loss from the fraudulent scheme and, therefore, was not entitled to restitution or that the bank was fully compensated for the loss.

3. Defendant also argued that the bank was collaterally estopped from seeking restitution. The doctrine of collateral estoppel requires that (1) a question of fact essential to the judgment was actually litigated and determined by a valid and final judgment, (2) the same parties had a full and fair opportunity to litigate the issue, and (3) there was mutuality of estoppel. Once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case. Courts have recognized cross-over estoppel, which occurs when the application of collateral estoppel crosses over the line between a criminal and civil proceeding. The issue decided in the civil case was whether the bank was entitled to damages in light of its full-credit bid. That was not the same as the issue in the instant case, which was whether the bank was entitled under the CVRA to restitution as a victim that suffered a loss because of defendant‘s criminal conduct. Additionally, mutuality of estoppel requires that for a party to estop an adversary from relitigating an issue, that party must have been a party or in privity with a party in the previous action. In other words, the estoppel is mutual if the party taking advantage of the earlier adjudication would have been bound by it had it gone against the party. There was no indication in the civil case transcript that defendant was, in fact, a party or was in privity with a party to the previous suit. Furthermore, even if an exception to the mutuality requirement applied, the bank was not a party to the criminal case despite its status as a victim, and the prosecution was neither a party to the civil suit nor in privity with the bank. Therefore, mutuality of estoppel was not present, and the same parties did not have a full and fair opportunity to litigate the issue.

4. Defendant contended that the trial court erred by holding him and his codefendants jointly and severally liable for the victim‘s loss, arguing that he would face an excessive burden if the codefendants did not make a diligent effort to pay down the restitution. The CVRA provides for restitution to any victim of the defendant‘s course of conduct that gave rise to the conviction. The crime of conspiracy involves a defendant‘s course of conduct and is based on an unlawful agreement between coconspirators. A conspirator need not participate in all the objects of the conspiracy. In general, each conspirator is held criminally responsible for the acts of his or her associates committed in furtherance of the common design, and the acts of one or more are the acts of all the conspirators. While defendant was not convicted of conspiracy, the same principles apply to this case. The evidence established that defendant acted in concert with three others in a scheme that caused a financial loss to the bank. Defendant was responsible for his acts and the acts of those with whom he acted in concert to cause the bank‘s losses.

Affirmed.

  1. CRIME VICTIMS - RESTITUTION - MANDATORY NATURE - AVAILABILITY OF CIVIL DAMAGES.
    MCL 780.766(2), part of Article 1 of the Crime Victim‘s Rights Act, MCL 780.751 et seq., provides that when sentencing a defendant convicted of a felony, the court must order the defendant to make full restitution to any victim of the defendant‘s course of conduct that gave rise to the conviction; under MCL 780.766(8), the only exception to this mandatory action applies when the victim or victim‘s estate has received or is to receive compensation for that loss; accordingly, there is no exception to mandatory restitution predicated on the preclusion of recovery, or a finding of no damages, in a separate civil suit; moreover, the statutory restitution scheme is separate from and independent of any damages that may be sought in a civil proceeding, so restitution is also not a substitute for civil damages, and a civil judgment alone provides no basis for reducing the restitution award; the availability of two methods of recovery of losses merely increases the probability that the perpetrator of a crime will be forced to pay for the wrongdoing committed and does not mean that the victim will have a double recovery.
  2. CRIMINAL LAW - CONSPIRACY - CRIME VICTIMS - RESTITUTION - JOINT AND SEVERAL LIABILITY.
    The Crime Victim‘s Rights Act, MCL 780.751 et seq., provides for restitution to any victim of a defendant‘s course of criminal conduct that gave rise to the conviction; the crime of conspiracy is based on an unlawful agreement between coconspirators, but a conspirator need not participate in all the objects of the conspiracy; in general, each conspirator is held criminally responsible for the acts of his or her associates committed in furtherance of the common design, and the acts of one or more are the acts of all the conspirators; accordingly, a sentencing court may hold all codefendants jointly and severally liable for any restitution it orders for a victim‘s loss.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Jessica R. Cooper, Prosecuting Attorney, Thomas R. Grden, Appellate Division Chief, and Joshua J. Miller, Assistant Prosecuting Attorney, for the people.

State Appellate Defender (by Marilena David-Martin) for defendant.

Before: WILDER, P.J., and SHAPIRO and RONAYNE KRAUSE, JJ.

WILDER, P.J. Defendant appeals by delayed leave granted the trial court‘s order of restitution following his plea of nolo contendere to a charge of false pretenses of $20,000 or more, MCL 750.218(5)(a).1 For the reasons set forth below, we affirm.

This prosecution arose out of the sale of real property located at 5100 Deer Run, Orchard Lake, Michigan. Defendant and three others engaged in a scheme to secure mortgage loans from First Mariner Bank (the Bank). Defendant was the loan officer involved in the transactions. Through the scheme, codefendant Jack Kahn secured loans of $1,125,000 and $375,000 for the purchase of the property. An FBI special agent testified that defendant received “over $600,000 from the sale of the property.” The Bank sold the loans to investors, but it subsequently repurchased the loans for $1,176,226.13 and $411,000 due to nonpayment. Thereafter, the Bank foreclosed on the property, taking ownership of the premises following a sheriff‘s sale, at which it made a full-credit bid. The Bank later resold the property for $333,000.

Before charges were brought against defendant and his codefendants (Kahn and Katherine Kudla), the Bank initiated a civil suit involving the same subject matter.2 The trial court granted codefendants’ motions for summary disposition under MCR 2.116(C)(10), holding that the Bank‘s claims were barred because they arose out of a debt that had been extinguished as a matter of law by the Bank‘s full-credit bid, such that the Bank was not entitled to any damages.3

Defendant pleaded nolo contendere to a charge of false pretenses of $20,000 or more, MCL 750.218(5)(a),4 and was sentenced to a 60-day jail term that was held in abeyance pending successful completion of 5 years’ probation. At the restitution hearing, the prosecutor requested that restitution be ordered in the amount of $1,092,343 and that defendant and his codefendants be held jointly and severally liable for the total amount of restitution. The trial court issued a restitution order requiring defendant, jointly and severally with Khan and Kudla, to reimburse $1,092,343 to the Bank.5

On appeal, defendant contends that the trial court erred by finding that the Bank had suffered a loss and, therefore, erred by ordering restitution as a matter of law because the Bank is deemed to have received full payment of the $1,125,000 loan through the full-credit bid. We disagree.

A trial court‘s decision to order restitution is reviewed for an abuse of discretion, , which “occurs when the trial court chooses an outcome that falls outside the range of principled outcomes,” . “However, ‘[w]hen the question of restitution involves a matter of statutory interpretation, review de novo applies.‘” (citation omitted) (alteration in original). A trial court‘s factual findings underlying a restitution order are reviewed for clear error. , citing MCR 2.613(C). “A finding is clearly erroneous if this Court is left with the definite and firm conviction that a mistake has been made.” .

Crime victims are entitled to restitution under the Michigan Constitution, Const 1963, art 1, § 24, and the Crime Victim‘s Rights Act (CVRA), MCL 780.751 et seq. . Article 1, § 24(1) of the Michigan Constitution provides that crime victims have “[t]he right to restitution.” MCL 780.766 provides, in part:

(2) Except as provided in subsection (8), when sentencing a defendant convicted of a crime, the court shall order, in addition to or in lieu of any other penalty authorized by law or in addition to any other penalty required by law, that the defendant make full restitution to any victim of the defendant‘s course of conduct that gives rise to the conviction....

* * *

(8) The court shall order restitution to the crime victim services commission or to any individuals, partnerships, corporations, associations, governmental entities, or other legal entities that have compensated the victim or the victim‘s estate for a loss incurred by the victim to the extent of the compensation paid for that loss. The court shall also order restitution for the costs of services provided to persons or entities that have provided services to the victim as a result of the crime. Services that are subject to restitution under this subsection include, but are not limited to, shelter, food, clothing, and transportation. However, an order of restitution shall require that all restitution to a victim or victim‘s estate under the order be made before any restitution to any other person or entity under that order is made. The court shall not order restitution to be paid to a victim or victim‘s estate if the victim or victim‘s estate has received or is to receive compensation for that loss, and the court shall state on the record with specificity the reasons for its action. [Emphasis added.]6

The only exception to this mandatory action is when “the victim or victim‘s estate has received or is to receive compensation for that loss....” MCL 780.766(8); see also . Thus, under the clear statutory language indicating that the trial court shall order restitution to the victim, “restitution is mandatory, unless the exception applies.” (“The use of the word ‘shall’ indicates that the directive to order restitution is mandatory, unless the exception applies.“). Notably, the statutory language does not include any mitigating language predicated on the preclusion of recovery, or a finding of no damages, in a separate suit. Accordingly, the court is required to consider the amount of the victim‘s “loss,” MCL 780.767(1), and order the defendant to “make full restitution,” MCL 780.766(2).

In support of his position that the Bank is not entitled to restitution because of its full-credit bid on the property, defendant cites , in which this Court stated:

When a lender bids at a foreclosure sale, it is not required to pay cash, but rather is permitted to make a credit bid because any cash tendered would be returned to it. If this credit bid is equal to the unpaid principal and interest on the mortgage plus the costs of foreclosure, this is known as a “full credit bid.” When a mortgagee makes a full credit bid, the mortgage debt is satisfied, and the mortgage is extinguished. [Citations omitted.]

As such, “the full credit bid rule dictates that there are no damages,” even in actions involving fraudulent inducement allegations against a nonborrower third party. See . In light of this rule, defendant asserts that “for restitution purposes, by virtue of its full credit bid, the Bank has been paid back the full amount of the ... Loan, just as if the property had been sold for that amount to a third party, and therefore, has not suffered any loss in connection with the ... Loan.” (Emphasis omitted.)

Defendant has failed to identify any authority holding that restitution should be precluded or reduced on the basis of a full-credit bid, and we find no basis for this conclusion given the mandatory nature of restitution. Instead, this Court has rejected the argument that an award of restitution may be precluded by the result of civil proceedings, which indicates that the fact that civil damages are not available due to a full-credit bid does not necessarily mean that restitution is also unavailable. “[T]he statutory scheme for restitution is separate and independent of any damages that may be sought in a civil proceeding. ... [R]estitution is not a substitute for civil damages.” ; see also (“The existence of the civil settlement between [the parties] does not relieve the sentencing court of its statutorily mandated duty to order restitution.“). Likewise, in , this Court stated that a “civil judgment alone provides no basis for reduction in the restitution award.” (Quotation marks and citation omitted.)

Although the victim will have the benefit of both a civil judgment and a restitution order to obtain monetary relief from the defendant, the availability of two methods does not mean that the victim will have a double recovery, but merely increases the probability that the perpetrator of a crime will be forced to pay for the wrongdoing committed. [.]

Accordingly, the mere fact that the Bank may not be entitled to civil damages on the basis of its full-credit bid does not render the trial court‘s restitution order erroneous or excessive or establish that the Bank did not incur any loss due to defendant‘s conduct.

Moreover, as the prosecution observes on appeal, the Bank did, in fact, incur actual economic loss from the criminal activities of defendant and his codefendants, as it lost the capital that it disbursed when it provided the loan. Although the Bank ultimately recouped a small portion of the original capital that it lost when it sold the real property that served as the collateral for the loan, it was not until this point that the Bank actually recovered a portion of the funds that were previously lost. Likewise, the Bank‘s inability to pursue a deficiency against the borrower, or a fraud claim against a nonborrower third party, following the full-credit bid does not by itself indicate that the Bank experienced no loss from the fraudulent scheme and, therefore, was not entitled to restitution, see MCL 780.767(1), or that the Bank was fully compensated for the loss, see MCL 780.766(2).

Finally, as noted by this Court in , with regard to MCL 780.766(8):

In ,7 this Court explained the two purposes of the provision as follows:

Two purposes behind the Legislature‘s inclusion of [MCL 780.766(10)] may be fairly readily discerned. One apparent legislative intent behind subsection (10) is to avoid ordering restitution which would doubly compensate a victim. The abhorrence of double compensation is well established in our jurisprudence. The Legislature wanted to place the financial burden of crime on the criminal, while fully, but not overly, compensating the victim and reimbursing any third party, such as an insurer, who compensated the victim on an interim basis....

* * *

The second principal effect of subsection (10) would seem to be to prevent application of the “collateral source doctrine” to crime victims’ restitution situations. Without such a statutory directive, the victim could recoup damages from the criminal without regard to previous payment from insurance companies or other ancillary sources. By enacting subsection (10), the Legislature limits restitution to those who have losses which are, as of the time restitution is paid, still out of pocket. [Alteration in original.]

Thus, it is clear that the trial court‘s restitution order as properly applied would not represent a double recovery on the part of the Bank.

Defendant also argues that the Bank was collaterally estopped from seeking restitution. We disagree.

“This Court reviews de novo the application of a legal doctrine, including collateral estoppel.” . The doctrine of collateral estoppel requires “that (1) a question of fact essential to the judgment was actually litigated and determined by a valid and final judgment, (2) the same parties had a full and fair opportunity to litigate the issue, and (3) there was mutuality of estoppel.” (quotation marks and citation omitted). Stated differently, “[i]n essence, collateral estoppel requires that ‘once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case.‘” , quoting . In some circumstances, courts have recognized the feasibility of “cross-over estoppel,” which occurs “[w]hen the application of collateral estoppel ‘crosses over’ the line between a criminal and civil proceeding....” . However, the Michigan Supreme Court has previously stated:

We believe it is important at the outset to recognize that in the body of case law applying this principle the vast majority of cases involve the applicability of collateral estoppel where there are two civil proceedings. Cases involving “cross-over estoppel,” where an issue adjudicated in a civil proceeding is claimed to be precluded in a subsequent criminal proceeding, or vice versa, are relatively recent and rare. [.]

The issue that was decided in the civil case was whether the Bank was entitled to damages in light of its full-credit bid. That is not the same as the issue in the instant case, i.e., whether the Bank is entitled under the CVRA to restitution as a victim that suffered a loss due to defendant‘s criminal conduct. As explained above, the amount of civil damages to which one is entitled is not necessarily equivalent to the amount of loss that one has experienced for purposes of the CVRA, and “the statutory scheme for restitution is separate and independent of any damages that may be sought in a civil proceeding.” . Additionally,

“[m]utuality of estoppel requires that in order for a party to estop an adversary from relitigating an issue that party must have been a party, or in privy to a party, in the previous action. In other words, ‘[t]he estoppel is mutual if the one taking advantage of the earlier adjudication would have been bound by it, had it gone against him.‘” [ (quotation marks and citation omitted; second alteration in original).]

There is no indication in the transcript from the civil case that defendant was, in fact, a party or was in privity with a party to the previous suit. Furthermore, even if an exception to the mutuality requirement applied here, see , it is clear that the Bank is not a party to the instant case, despite its status as a victim, and the prosecution was neither a party to the civil suit nor in privity with the Bank.8 As such, mutuality of estoppel is not present, and the same parties did not have a full and fair opportunity to litigate the issue.

Lastly, defendant contends that the trial court erred by holding all codefendants jointly and severally liable for the victim‘s loss, arguing that he will face an “excessive burden” if the codefendants do not make a diligent effort to pay down the restitution. We disagree.

With regard to coconspirators, the Michigan Supreme Court has stated:

The Crime Victim‘s Rights Act provides restitution “to any victim of the defendant‘s course of conduct that gives rise to the conviction....” The crime of conspiracy involves a defendant‘s course of conduct and is based upon an unlawful agreement between coconspirators. A conspirator need not participate in all the objects of the conspiracy. In general, each conspirator is held criminally responsible for the acts of his associates committed in furtherance of the common design, and, in the eyes of the law, the acts of one or more are the acts of all the conspirators. The defendant pleaded guilty of conspiracy and accepted restitution set by the court, which he received in exchange for limiting his sentence exposure from life (habitual offender, fourth) to a five-year minimum. The defendant cannot now assert that he is responsible for his acts alone because he is also responsible for the acts of his coconspirators made in furtherance of the conspiracy. [ (citations omitted).]

While defendant was not convicted of conspiracy, the same principles apply under the instant facts. The evidence established that defendant acted in concert with three others in a scheme that caused a financial loss to the Bank. As such, defendant is responsible for his acts and for the acts of those with whom he acted in concert to cause the Bank‘s losses, and we reject defendant‘s claim.

Affirmed.

SHAPIRO and RONAYNE KRAUSE, JJ., concurred with WILDER, P.J.

Notes

1
.
2
It is not clear whether defendant was named as a defendant in this suit.
3
As the prosecution suggests on appeal, it does not appear that the transcript from the civil case was presented in the lower court. Although we usually will not consider evidence that was not presented at the lower court, and the appropriate means for an appellee to amend the record is by motion, , we will consider the transcript of the proceeding provided by defendant on appeal under the authority conferred on us by MCR 7.216(A)(4), , because the issue of collateral estoppel was raised in the lower court and the parties do not dispute the authenticity of the transcript.
4
A charge of conspiracy to commit false pretenses, MCL 750.157a, was dismissed under the plea agreement.
5
Kudla and Kahn applied for and were denied leave to appeal the trial court‘s restitution order. ; . The Michigan Supreme Court remanded the Kudla case for consideration as on leave granted, , but the parties thereafter stipulated to dismiss the appeal.
6
MCL 780.766 is part of Article 1 of the CVRA, which concerns victims of felonies. Other articles of the CVRA concern victims of misdemeanors or offenses by juveniles. “Crime” is defined for purposes of Article 1 as a violation of a Michigan penal law for which the punishment may be “imprisonment for more than 1 year or an offense expressly designated by law as a felony.” MCL 780.752(1)(b). In relevant part, for purposes of Article 1, a “victim” is “[a]n individual who suffers direct or threatened physical, financial, or emotional harm as a result of the commission of a crime....” MCL 780.752(1)(m)(i). “For the purposes of MCL 780.766(2), the term ‘victim’ includes ‘a sole proprietorship, partnership, corporation, association, governmental entity, or any other legal entity that suffers direct physical or financial harm as a result of a crime.‘” , quoting MCL 780.766(1).
7
At the time was decided, the predecessor provision of MCL 780.766(8) was in effect and was located at MCL 780.766(10). . The version before the Court in provided:

The court shall not order restitution with respect to a loss for which the victim or victim‘s estate has received or is to receive compensation, including insurance, except that the court may, in the interest of justice, order restitution to the crime victims compensation board or to any person who has compensated the victim or victim‘s estate for such a loss to the extent that the crime victims compensation board or the person paid the compensation. An order of restitution shall require that all restitution to a victim or victim‘s estate under the order be made before any restitution to any other person under that order is made. [MCL 780.766(8), as enacted by 1985 PA 87.]

8
“Privity between a party and a non-party requires both a substantial identity of interests and a working or functional relationship ... in which the interests of the non-party are presented and protected by the party in the litigation.” (quotation marks and citations omitted). The Bank‘s interests are not congruous with the prosecution‘s interests, and the prosecution‘s interests were not protected in the previous litigation, as the prosecution‘s duty is to represent the public interest, not to represent the interests of an individual party. See , overruled in part on other grounds by .
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