STATE of Iowa, Appellant, v. Marc A. HAGEN, Appellee.
No. 12-1542.
Supreme Court of Iowa.
Nov. 22, 2013.
840 N.W.2d 140
John W. Holmes of Holmes & Holmes, Waterloo, for appellee.
ZAGER, Justice.
Marc Hagen pled guilty to four counts of fraudulent practices, willful failure to file or pay taxes, in violation of
I. Background Facts and Proceedings.
Marc Hagen was charged with four сounts of fraudulent practices for willfully failing to file his Iowa income tax returns and pay taxes for years 2006 through 2009. The State alleged violations of
In February 2012, the State offered to dismiss the four counts of tax evasion in exchange for Hagen’s guilty pleas to the four counts of fraudulent practices for failing to file tax returns and pay the taxes. Under the terms of the pleа agreement, Hagen was required to pay restitution to the Treasurer of the State of Iowa.
The following month, Hagen entered written guilty pleas to the four counts of fraudulent practices. In April 2012, the district court engaged Hagen in a plea colloquy during which Hagen acknowledged that, for each of the years from 2006 through 2009, he willfully failed to file Iowa individual income tax returns and failed to pay the taxes. The district court accepted Hagen’s guilty pleas.
On April 27, 2012, the State filed a statement of restitution seeking restitution of $20,385.19. Accompanying the statement of restitution was a summary prepared by the Iowa Department of Revenue (department) explaining the amounts sought as restitution. For each of the years from 2006 through 2009, the State sought unpaid taxes, penalties, and interest. In total, thе State sought $10,355 in unpaid taxes, $8237.40 in penalties representing a seventy-five percent civil fraud penalty and a “2210 penalty,”2 and $1792.79 in interest,
On May 29, 2012, the district court sentenced Hagen to five years in prison for the three felony counts of fraudulent practices and two years in prison for the aggravated misdemeanor count of fraudulent practices. The sentences were to run concurrently. The district court suspended the sentences and fines and placed Hagen on supervised probation. The court also ordered that Hagen pay restitution. The court reserved its determination of the amount of restitution for a later hearing.
At the restitution hearing conducted on July 23, 2012, the State submitted the summary prepared by the department. The State also provided the testimony of the department auditor who prepared the summary. The auditor explained the summary and how she calculated the amount of unpaid taxes, penalties, and interest sought by the State. The State reiterated its request that the court order Hagen to pay $20,385.19 in restitution. Hagen objected to the imposition of interest and the fraud penalty as parts of the order for restitution. Hagen also asserted the department was not a “victim” for purposes of restitution.
After the hearing, the court entered its restitution order. It ordered Hagen to pay as restitution $10,355, which represented unpaid taxes due for the years 2006 through 2009. The court concluded, however, that it could not require Hagen, as part of a criminal restitution order, to pay either the penalties or interest sought by the State. The court thus denied the State’s request for $8237.40 in penalties and $1792.79 in interest. The State sought discretionary review of the district court’s ruling denying the State’s request for penalties and interest in the restitution order. We granted discretionary review.
II. Issues on Appeal.
There are three issues on appeal. First, we must decide whether the State is a victim for purposes of the restitution statute. Second, we must determine whether the district court erred by failing to order penalties as part of the restitution order. Finally, we must decide whether the court erred by failing to impose interest on the unpaid taxes as part of the restitution order.
III. Standard of Review.
We review restitution orders for correction of errors at law. State v. Jenkins, 788 N.W.2d 640, 642 (Iowa 2010). In reviewing а restitution order “we determine whether the court’s findings lack substantial evidentiary support, or whether the court has not properly applied the law.” State v. Bonstetter, 637 N.W.2d 161, 165 (Iowa 2001). Questions of statutory interpretation also are reviewed for correction of errors at law. State v. Romer, 832 N.W.2d 169, 174 (Iowa 2013).
IV. Discussion.
A. Other Arguments of the Defendant.
Before discussing the issues preserved in this appeal, we will address two additional arguments raised by Hagen for the first time in this appeal.
1. Lack of sufficient information.
Hagen does not dispute the underlying amount of unpaid Iowa taxes assessed against him as part of the restitution order.3 Rather, Hagen first insists that he
At the restitution hearing on July 23, the court accepted into evidence the same exhibit the State had attached to the initial statement of restitution. The auditor who prepared the exhibit testified at the restitution hearing, and Hagen’s attorney cross-examined her. We conclude that Hagen had both sufficient information and sufficient opportunity to determine whether the restitution amounts sought by the State were correct.
2. Lack of sufficient proof.
Hagen argues the State did not prove he had the requisite intent to support imposition of the seventy-five percent civil fraud penalty. See
The State must prove fraud by clear and convincing evidence. Clark v. Iowa Dep’t of Revenue & Fin., 644 N.W.2d 310, 318 (Iowa 2002). Hagen, a dentist, explains his failures to file or pay his Iowa income taxes as bad accounting and business practices, combined with a misunderstanding of the tax laws. But Hagen did understand the law; he just chose to disregard it. During the plea colloquy conducted in April 2012, the result of which was Hagen’s conviction on four counts of fraudulent practices, Hagen admitted understanding that he had to file tax returns. In spite of appreciating his obligation, he also admitted that he decided not to file his returns. Further, the minutes of testimony filed with the State’s trial information, which Hagen consented to as further
B. State as Victim.
Hagen asserts that the State is not a victim under
All three issues on appeal turn on statutory interpretation. To resolve the issues, we must begin with the statutes in question. See McGill v. Fish, 790 N.W.2d 113, 118 (Iowa 2010) (explaining that when resolving issues of statutory interpretation, “the statute in dispute is our starting point“). “When we interpret a criminal statute, our goal ‘is to ascertain legislative intent in order, if possible, to give it effect.’ ” State v. Finders, 743 N.W.2d 546, 548 (Iowa 2008) (quoting State v. Conley, 222 N.W.2d 501, 502 (Iowa 1974)). We will look no further than a statute’s express terms when its language is clear. Id. We adhere to the rule of lenity, which guides us to resolve ambiguous criminal statutes in favor of the accusеd. See Romer, 832 N.W.2d at 176 (noting that we resolve ambiguities in criminal statutes in favor of the accused); State v. Hearn, 797 N.W.2d 577, 585 (Iowa 2011) (explaining the rule of lenity). Although we resolve ambiguities in favor of the accused, criminal statutes nevertheless “must be construed reasonably and in such a way as to not defeat their plain purpose.” State v. Peck, 539 N.W.2d 170, 173 (Iowa 1995). “Finally ‘the legislature may define the terms it uses, and when it does, those definitions are the foundation of our analysis.’ ” Zimmer v. Vander Waal, 780 N.W.2d 730, 733 (Iowa 2010) (quoting State v. Kamber, 737 N.W.2d 297, 299 (Iowa 2007)).
One purpose of restitution is to compensate victims of crime. See Bonstetter, 637 N.W.2d at 166 (explaining that restitution “serves multiple purposes” including compensation); Teggatz v. Ringleb, 610 N.W.2d 527, 529 (Iowa 2000) (explaining that “the purpose of the restitution statute is to protect the public by compensating victims of criminal activities“). Generally, when ordering restitution, a court must first identify the victim entitled to restitution. Bonstetter, 637 N.W.2d at 165. A “victim,” for purposes of
This court has not had the opportunity to explore specifically whether the State may be a victim under the definition set forth in
In Stewart, the court of appeals did not cite State v. Stessman, 460 N.W.2d 461 (Iowa 1990) for its conclusion that to be a victim the state must have suffered a direct economic loss. We did, however, allude to that principle in Stessman, though in that case the putative victim was a business entity, not the state. Stessman, 460 N.W.2d at 463-64. In that case, due to Stessman’s criminal deception, Dick Witham Chevrolet performed repairs on Stessman’s car, and General Motors ultimately reimbursed Dick Witham for the cost of those repаirs. Id. at 464. The court ordered Stessman to pay restitution. Id. at 463. Stessman challenged the restitution order, arguing that General Motors was not a victim under the restitution statute. See id. at 464. Without analyzing the statutory language, we concluded that General Motors was a victim because the “defendant’s actions caused direct financial harm to General Motors.” Id.
In this case, we need not decide whether the State must have suffered direct financial harm to be entitled to restitution. The State fits within the definition of “victim” for purposes of
Moreover, as the State pointed out in its brief, our previous restitution cases have not interpreted the word “person” in
Hagen’s argument that the State cannot be a victim because it is also a party must fail. The State will inevitably be a party to a criminal prosecution, whether the victim of the crime is a state agency or an individual. See
The State contends that by failing to order payment of the fraud penalty and the 2210 penalty as part of its restitution order, the district court failed to apply the clear language of the restitution statute. Hagen, for his part, offers no direct response to this point.
Restitution is “a creature of statute.” State v. Akers, 435 N.W.2d 332, 335 (Iowa 1989); see Earnest, 508 N.W.2d at 633 (stating that restitution is “purely” statutory). “The district court is confined to the statute in determining what damages to include in the restitution order.” Bonstetter, 637 N.W.2d at 166. When ordering criminal restitution, a court applies
” ‘Restitution’ means payment of pecuniary damages to a victim in an amount and in the manner provided by the offender’s plan of restitution.”
If the State is to receive the civil tax penalties in this case, then those penalties must fall within a different statutory term, and we believe they do. As noted, “pecuniary damages” are “all damages . . . a victim could recover . . . in a civil action arising out of the same facts or event, except punitive damages and damages for pain, suffering, mental anguish, and loss of consortium.”
Civil tax penalties are not among the specific exclusions from the definition of pecuniary damages. The only possible exception which could arguably prevent the collectiоn of these tax penalties is the “punitive damages” exception. See
D. Interest.
The State also contends the district court erred by failing to order Hagen to pay interest on his unpaid taxes. Although Hagen disputes the State’s contention, there is no controversy among the State, Hagen, or the district court about the major cases and statutes that inform the outcome of the dispute. The district court concluded that, based on
In Akers, the defendant pled guilty to second-degree theft after stealing and damaging a pickup truck. Akers, 435 N.W.2d at 333. At sentencing, the district court ordered the defendant to pay restitution of $3436 plus ten percent annual interest. Id. Akers appealed the imposition of interest on the restitution order. Id. After concluding that interest was not a component of restitution under Iowa Code chapter 910, we considered “whether restitution orders can be considered ‘judgments’ or ‘decrees’ within
A specific prior holding, the language of
We held in Haines that our restitution statute did not violate the equal protection rights of criminal defendants because Iowa did not treat restitution as a judgment. Id. Iowa’s restitution statute, moreover, gave criminal defendants certain protections not available to civil judgment debtors, such as allowing the defendant to perform community service instead of submitting cash recoupment and considering the defendant’s ability to pay. Id. Based on our examination of Haines, we explained in Akers that the legislature “did not intend restitution orders to be treated like civil judgments.” Akers, 435 N.W.2d at 335.
We also considered an implication of the specific language of
Later, we considered whether a court could impose prejudgment interest as part of a restitution order, аlbeit under a different statute from the one at issue in Akers. In State ex rel. Miller v. Santa Rosa Sales & Mktg. Inc., 475 N.W.2d 210 (Iowa 1991), a case brought under Iowa’s consumer fraud statute, we declined to infer that a restitution order was a judgment or decree under
In 1992, the legislature amended
- An order requiring an offender to pay restitution constitutes a judgment and lien against all property of a liable defendant for the amount the defendant is obligated to pay under the order and may be recorded in any office for the filing of liens against real or personal property.
- A judgment of restitution may be enforced by the state, a victim entitled under the order to receive restitution, a deceased victim’s estate, or any other beneficiary of the judgment in the same manner as a civil judgment.
1992 Iowa Acts ch. 1242, § 37 (codified at
The State’s contention that interest should be imposed on a restitution order revolves around this 1992 amendment. According to the State, the legislature by the addition of
Hagen counters that the amendment, by itself, is not sufficiently clear to permit us to infer that the legislature intended for courts to impose interest on restitution orders. If the legislature had intended interest to be imposed on restitution orders, Hagen argues, then the legislature could have provided express direction as to when that interest begins to accrue. Accordingly, Hagen contends that the legislature did not intend to alter the result in Akers.
In both Akers and Santa Rosa, we resisted inferring that restitution was a judgment. Akers, 435 N.W.2d at 335; Santa Rosa, 475 N.W.2d at 220. The unambiguous 1992 amendment, codified in
In light of our conclusion, two questions remain. First, there is still the question whether the State is entitled to prejudgment interest, or whether the State is limited to interest from the date of the restitution order. Second, we must decide at what rate the restitution amount draws interest. Hagen observes that
In Akers, we cited three statutes as potential sources for an award of prejudgment interest, none of which contained an “explicit provision for the imposition of interest on restitution amounts.” Akers, 435 N.W.2d at 333-34. After examining the statutes, we reversed the sentencing court’s award of interest as part of a restitution order, concluding that interest “is simply not one of the components of ‘restitution’ under the statutory definition.” Id. at 334. We viewed the enumeration of specific components in the definition of restitution as indicative of a legislative intent to exclude interest from restitution orders. Id. The search for an explicit reference to “interest” or “prejudgment interest” in the definition of restitution yielded then, as it yields today, no success. We failed though to analyze in Akers a term that was then, and is now, explicitly included in the definition of restitution, “pecuniary damages.” See
We examine the State’s potential civil recovery to determine whether the inclusion of prejudgment interest is appropriate. See id. at 109 (analyzing the “victim’s potential civil recovery” to determine whether a reduction in restitution was appropriate); Bonstetter, 637 N.W.2d at 169-70 (concluding that the cost of an audit paid by a victim was recoverable as part of a restitution order but denying it because the prosecutor did not present sufficient evidence of the audit’s cost); Taylor, 506 N.W.2d at 768-69 (concluding that the cost of an audit was properly included in a restitution order); cf. People v. Law, 459 Mich. 419, 591 N.W.2d 20, 24-25 (1999) (concluding that interest was an element of restitution on the basis of a statute that directed courts to consider the amount of loss sustained by victims); State v. Brewer, 296 Mont. 453, 989 P.2d 407, 412 (1999) (reviewing statute that provided for restitution for victims who had sustained pecuniary loss to determine whether a victim would recover interest in a civil action). The department would recover the interest
In this case, there is a clear statutory source for the award of prejudgment interest to the State. The department is entitled to interest “at the rate in effect under
Moreover, the consonance between the purposes of restitution and the purposes of prejudgment interest convince us that the inclusion of prejudgment interest in the restitution order is appropriate here. See, e.g., United States v. Patty, 992 F.2d 1045, 1050 (10th Cir.1993) (comparing the purpоse of restitution under the Federal Victim Witness Protection Act to the purpose of prejudgment interest and holding that prejudgment interest was properly included in a restitution order); United States v. Smith, 944 F.2d 618, 626 (9th Cir.1991) (“Foregone interest is one aspect of the victim’s actual loss, and thus may be part of the victim’s compensation.“); United States v. Rochester, 898 F.2d 971, 983 (5th Cir.1990) (concluding that the purpose of restitution was to make victims whole and therefore upholding award of prejudgment interest). As restitution compensates victims of criminal activities, Teggatz, 610 N.W.2d at 529, awarding interest compensates them for the delay of not receiving money when due. See 47 C.J.S. Interest & Usury § 65, at 75 (2005) (“The purpose of a statute providing for interest on a money judgment in a civil action is to compensate the prevailing party for any delay in the payment of money damages.“). Prejudgment interest аlso is a form of compensation, the “essential rationale” for which “is to ensure that the injured party is fully compensated for its losses.” Id. § 106, at 127; see also Ashland Oil, 452 N.W.2d at 164 (reasoning that requiring taxpayers to pay interest on unpaid taxes compensates the State for not having money that should have been in its possession). Therefore, an order to pay prejudgment interest is not punitive, “but rather it reflects the lost value of the use of the money awarded.” In re Marriage of Baculis, 430 N.W.2d 399, 401-05 (Iowa 1988) (stating the purposes of prejudgment interest and holding that prejudgment interest should not be awarded in all dissolution actions).
Finally, we must determine the rate of the postjudgment interest on the restitution order. As
We conclude that the district court erred by not including in the restitution order, prejudgment and postjudgment interest at the statutory rate under
IV. Disposition.
We reverse the district court’s denial of penalties and interest as part of the restitution order. We remand the case to the district court for purposes of including the penalties in the restitution order and to determine the amount of prejudgment interest and to provide for postjudgment interest consistent with this opinion.
REVERSED AND REMANDED WITH INSTRUCTIONS.