UNITED STATES OF AMERICA, Appellee-Cross-Appellant, v. DAVID H. BROOKS, Defendant-Appellant-Cross-Appellee, DAWN SCHLEGEL, PATRICIA LENNEX, Defendants, TERRY BROOKS, VICTORIA BROOKS, ANDREW BROOKS, ELIZABETH BROOKS, Appellants.
No. 13-3213-cr (L), 13-4288-cr(CON), 14-2577-cr(CON), 14-2682-cr(CON), 15-1156-cr(CON), 15-2058-cr(CON), 13-3672-cr(XAP)
United States Court of Appeals For the Second Circuit
Argued: May 19, 2017 Decided: September 20, 2017
August Term, 2016
* The Clerk of Court is directed to amend the caption as set forth above.
Appeal from a judgment of the United States District Court for the Eastern District of New York (Seybert, J.) entered following a jury verdict finding defendant David Brooks guilty of offenses related to fraud and securities laws violations, and Brooks‘s guilty plea to tax evasion. After Brooks filed his appeal, he died while incarcerated and his estate and members of his family moved to abate his convictions. We conclude that Brooks‘s counts of conviction resulting from the verdict abated with his death, but not the counts resulting from his guilty plea; the bail bond subscribed by Brooks and his family remains forfeited; and the order of restitution related to the fraud and securities laws counts is abated but not the order of restitution related to the tax counts. Accordingly, the estate-appellant‘s motion for abatement is GRANTED in part and DENIED in part, Brooks‘s judgment of conviction for the non-tax counts is VACATED, the motion by Brooks‘s family members for abatement of the bail bond forfeiture is DENIED, the order denying the motion to set aside bond forfeiture is AFFIRMED, the Government‘s cross-appeal is DISMISSED, and the case is REMANDED for the dismissal of the non-tax counts of the indictment.
RICHARD C. KLUGH, Law Offices of Richard C. Klugh, (Joseph A. DiRuzzo, III, Fuerst Ittleman David & Joseph, PL, on the brief) Miami, FL, for Defendant-Appellant-Cross-Appellee.
JUSTINE A. HARRIS, Sher Tremont LLP, (Lisa H. Bebchick, Fried, Frank, Harris, Shriver & Jacobson LLP, on the brief), New York, NY, for Appellant Terry Brooks.
JUDD BURSTEIN, Judd Burstein, P.C., New York, NY, for Appellants Andrew, Victoria, & Elizabeth Brooks.
DAVID K. KESSLER & LAURA D. MANTELL, Assistant United States Attorneys (David C. James, Amy Busa, Christopher A. Ott, Christopher C. Caffarone, Assistant United States Attorneys on the brief) for Robert L. Capers, United States Attorney for the Eastern District of New York, Brooklyn, NY, for Appellee-Cross-Appellant.
DRONEY, Circuit Judge:
On September 14, 2010, David H. Brooks was convicted in the United States District Court for the Eastern District of New York (Seybert, J.) after a jury trial on multiple counts of offenses relating to securities fraud, mail and wire fraud, and obstruction of justice. He was also convicted of related tax offenses based on his guilty pleas, which occurred after the jury‘s verdict. Shortly before trial, the district court found that Brooks had violated the terms of his release conditions and ordered the forfeiture of a substantial cash security on the bond executed by Brooks and members of his family as sureties.
Following his convictions, Brooks was sentenced to 204 months’ imprisonment, ordered to pay restitution and a fine, and ordered to forfeit assets. He appealed his convictions based on the jury verdict but not the tax counts.
As a result of Brooks‘s death, his estate has now moved for abatement of his convictions, the order of forfeiture, the orders of restitution, the fine, and the special assessment that accompanied the judgment of conviction.2 His estate, as well as his ex-wife and their children, have also moved for abatement of the bail bond forfeiture.3 The Government does not oppose the abatement of Brooks‘s convictions on the non-tax counts and accompanying order of forfeiture, fine,
We conclude that the counts of conviction based on the jury verdict must abate as well as the orders of forfeiture, fine, special assessment, and restitution for the offenses Brooks contested at trial. We also hold, though, that the forfeiture of the bail bond does not abate, nor do the convictions and order of restitution imposed on the tax counts. Accordingly, Brooks‘s motion for abatement is GRANTED in part and DENIED in part, Brooks‘s judgment of conviction is VACATED in part, the motion for abatement by the other appellants is DENIED, the order denying the motion to set aside the bond forfeiture is AFFIRMED, the Government‘s cross-appeal is DISMISSED,4 and the case is REMANDED for the dismissal of the indictment as to counts I-XI, XV-XVII.
I. Brooks‘s Offense Conduct
David Brooks was the founder, Chair of the Board of Directors, and CEO of DHB Industries, Inc., a publicly traded company that manufactured and sold body armor to law enforcement agencies and the U.S. military.5
In October 2007, Brooks was indicted in a superseding indictment on charges of participating in several schemes to defraud shareholders, including overvaluing inventory of DHB and its subsidiaries, reclassifying costs to inflate DHB‘s profitability, falsely adding non-existent inventory to the company‘s books, and obstructing a Securities and Exchange Commission (“SEC“) investigation.
In addition to the allegations concerning manipulation of the DHB books and false SEC disclosures, the indictment alleged that Brooks also defrauded DHB shareholders by diverting DHB assets for the benefit of Brooks, the Brooks family, and other DHB executives. Brooks routinely used DHB funds to pay expenses for his personal horse-racing business, and gave company credit cards
A second superseding indictment (the “indictment“) was returned in July 2009, with the same charges directed at Brooks.6
The district court entered a pre-trial restraining order on fourteen bank and investment accounts held by Brooks and his family that the court found would be subject to forfeiture in the event of a conviction.
Brooks pled not guilty to all of the charges. The court later granted Brooks‘s motion to sever the tax counts. Brooks proceeded to trial on the non-tax counts in January 2010.7
After Brooks‘s arrest in October 2007, the Government sought to have Brooks detained or his release be subject to a substantial bond and the full disclosure of his financial holdings, and on Brooks returning all of his assets from overseas back to the United States. The district court held a hearing and determined that Brooks was a flight risk on the basis of his considerable wealth and the potential for access to foreign accounts if he fled the country. The district court was also concerned that undisclosed and unmonitored accounts could be used to facilitate witness tampering. The district court issued a Bail Release Order (the “Order“) on January 3, 2008, granting Brooks‘s motion for pre-trial release. The Order included such restrictions as home detention monitored by a private security firm, monitored conversations, independent auditing of bank accounts and assets, and a prohibition on liquid assets being held overseas without the approval of the U.S. Attorney‘s office.
The district court reviewed the terms of the Order with Brooks and the family sureties prior to its approval at a December 21, 2007, hearing. In particular, the district court asked at the hearing about “failure to disclose assets” and Brooks‘s counsel confirmed that any such failure “subjects him to immediate remand, and it subjects him to the loss of the . . . [security].” J.A. 481.10 The district court canvassed Terry Brooks (Brooks‘s wife), Jeffrey Brooks (Brooks‘s
In January 2010, shortly before trial, the Government moved to revoke Brooks‘s bail on the basis that Brooks and his family had hidden substantial assets in violation of the terms of the Order. The Government sought forfeiture of the entire $400 million bond. The district court revoked Brooks‘s bail and ordered his detention, but ordered forfeiture of only the cash security of $48 million.
The district court did not hold an evidentiary hearing for the forfeiture, over the objections of defense counsel, and proceeded by Government proffer.11
According to the affidavit, prior to the entry of the bail bond Order, a confidential source had met with David and Jeffrey Brooks as well as other family members to create various corporations and bank accounts around the world to conceal millions of dollars in assets. The source set up a scheme called “Czerny Kot” (Polish for “black cat“) using the passports of Jeffrey Brooks, Elizabeth Brooks, Andrew Brooks, and Victoria Brooks to open nominee accounts. Special Agent Jett also pointed to Grand Jury testimony of Brooks‘s personal pilot to show that Brooks, Jeffrey, and other family members (including Terry Brooks and the children) flew to Switzerland in a private plane to deposit assets in Swiss safe deposit boxes.
Concluding that these actions constituted a violation of the Order, the district court ordered the forfeiture of the cash security. The amount of cash remaining as security on that bond (after the prior withdrawals, as permitted by the court) totaled approximately $22.5 million, of which Terry Brooks and the children claimed ownership of $17.7 million and Brooks claimed $1.8 million (the remaining $3 million went to legal fees, as permitted by the court). Brooks filed an emergency motion with this Court to reverse the district court‘s revocation of bond, which this Court denied.
On September 14, 2010, after an eight-month trial, a jury returned a guilty verdict against Brooks on all counts. Brooks subsequently pled guilty to one count of conspiracy to defraud the IRS and two counts of tax evasion in August 2011. Brooks also agreed, in his plea agreement regarding the tax counts, to pay $2.8 million in restitution to the IRS and waived his appeal rights as to the tax convictions and the sentence for them.
On August 22, 2013, judgment was entered against Brooks, and he was sentenced to 204 months’ imprisonment for all his counts of conviction. The August 2013 judgment also reflected the imposition of a special assessment of $1,700, a fine of $8.7 million, restitution of $2.8 million on the tax counts, and also made final a preliminary order of forfeiture. Restitution on the fraud and securities laws counts of conviction was to be subsequently determined by the district court.
a. Restitution Order on Fraud and Securities Laws Violations
In March 2015, the district court issued an extensive opinion and accompanying final order of restitution, pursuant to the Mandatory Victim‘s Restitution Act (“MVRA“), for the non-tax counts. The amended judgment that
Brooks filed a timely appeal of the fraud and securities laws convictions and the restitution order based on those counts. He also appealed the revocation and forfeiture of his bail bond.
On May 16, 2015, Brooks moved in the district court to stay disbursement of the assets that had been previously deposited with the clerk of court. The district court granted the stay, and noted that it was restraining approximately $160 million in assets. App. 2783–84. The court reasoned that if these assets were disbursed to victims prior to the resolution of the appeal, it would be difficult to recover that money from the victims if Brooks was ultimately successful on appeal.14 App. 2783–84.
In April 2015, Terry Brooks and the children filed a motion with the district court under
On October 27, 2016, David Brooks died while serving his term of imprisonment, and while this appeal was pending.
DISCUSSION
In this appeal Brooks‘s estate has moved for an abatement of his convictions, restitution and forfeiture orders, fines, forfeited bail bond security, and special assessments. Terry Brooks and the Brooks children appeal the denial of their motion by the district court for the return of the forfeited cash security under
“[W]hen a convicted defendant dies while his direct appeal as of right is pending, his death abates not only the appeal but also all proceedings had in the prosecution from its inception.” United States v. Libous, 858 F.3d 64, 66 (2d Cir. 2017) (quoting United States v. Wright, 160 F.3d 905, 908 (2d Cir. 1998)); see also Durham v. United States, 401 U.S. 481, 483 (1971) (per curiam), overruled on other grounds by Dove v. United States, 423 U.S. 325 (1976) (per curiam). This general rule, almost unanimously followed by the federal Courts of Appeals, has its roots
We must consider the application of the abatement ab initio doctrine to three specific parts of this appeal: the convictions, the orders of restitution, and the forfeiture of the bail bond.
I. Abatement of Convictions
Brooks‘s convictions based on the jury verdict must abate because he died while his direct appeal was pending. See Libous, 858 F.3d at 66. As this Court has recently recognized, a defendant‘s conviction must be abated upon his death during appeal for two reasons: the interests of finality and just punishment. Id. Finality requires that “a defendant not stand convicted without resolution of the merits of an appeal,” and recognition of the purposes of just punishment leads to the conclusion that “to the extent that the judgment of conviction orders incarceration or other sanctions that are designed to punish the defendant, that purpose can no longer be served.” Id. (quoting Wright, 160 F.3d at 908).
We recognize that courts have often considered abatement to be justified by the finality and just punishment principles stated above, and that by not abating all of the convictions, some of the resulting punishments may continue even though the purpose of those punishments can no longer be served. In weighing the two principles, we conclude that finality is the paramount consideration. “[A]batement ab initio is premised at least as much, if not more, on the fairness of allowing a conviction and penalties to stand when a defendant dies pending an appeal as of right as it is on the futility of punishing the deceased.” Libous, 858 F.3d at 67. Otherwise, we would abate all convictions, even if such convictions were final and unappealed, upon the death of a convicted defendant who had
Brooks‘s convictions on the counts that were decided by the jury and the associated forfeiture order, fine, and special assessment are abated upon his death. As Brooks pled guilty to the tax evasion counts, waived his right to appeal as to those counts, and did not appeal them, his convictions on those counts do not abate. The case shall be remanded to the district court for dismissal of the indictment on the non-tax counts and those related sanctions. See Krantz v. United States, 224 F.3d 125, 126 (2d Cir. 2000) (per curiam).
We now turn to whether abatement applies to the restitution orders and the bail bond forfeiture.
II. Abatement of Restitution
We have not yet decided whether restitution abates upon the death of a criminal defendant while his direct appeal is pending. See United States v. Wright, 160 F.3d 905, 909 (2d Cir. 1998) (“[W]e conclude that in the circumstances of the present case, we need not
Brooks‘s restitution was imposed both for his offenses for which he was convicted by a jury (and appealed) and for the tax-related offenses to which he pled guilty (but did not appeal). We address these orders of restitution separately.
“Federal courts have no inherent power to order restitution, which is traditionally a civil remedy.” United States v. Zangari, 677 F.3d 86, 91 (2d Cir. 2012). “A sentencing court‘s power to order restitution, therefore, depends upon, and is necessarily circumscribed by, statute.” Id. Brooks‘s order of restitution was imposed pursuant to the
Notwithstanding any other provision of law, when sentencing a defendant convicted of an offense described in subsection (c), the court shall order, in addition to, or in the case of a misdemeanor, in addition to or in lieu of, any other penalty authorized by law, that the defendant make restitution to the victim of the offense or, if the victim is deceased, to the victim‘s estate.
Following the recent guidance of the U.S. Supreme Court, we hold that when a criminal conviction abates upon the death of a defendant, any restitution ordered as a result of that conviction must also abate. “When a criminal conviction is invalidated by a reviewing court and no retrial will occur,” the state must “refund fees, court costs, and restitution exacted from the defendant upon, and as a consequence of, the conviction.” Nelson v. Colorado, 137 S. Ct. 1249, 1252 (2017) (emphasis added).
Nelson was resolved on the basis of due process violations rather than the application of the abatement ab initio doctrine. Nevertheless, the reasoning of Nelson also compels abating monetary penalties where a defendant dies during his direct appeal, as “there is no longer a valid conviction to support the
We recognize that this result may work to frustrate the purpose of Congress to compensate victims through restitution. See Christopher, 273 F.3d at 299 (reasoning that restitution was an “equitable remedy . . . intended to reimburse a person wronged by the actions of another” and “[t]o absolve the estate from refunding the fruits of the wrongdoing would grant an undeserved windfall“); see also United States v. Johnson, 937 F.2d 609 (6th Cir. 1991) (unpublished opinion); United States v. Dudley, 739 F.2d 175, 177-78 (4th Cir. 1984). Such “consequences of abatement can be unsettling” and “can surely be devastating to those affected by the defendant‘s conduct.” Libous, 858 F.3d at 68. Congress‘s purpose may seem especially frustrated by the abatement ab initio doctrine for restitution ordered under the MVRA, which requires restitution to be ordered for victims of certain crimes who have suffered as a result of a defendant‘s conduct.
In so concluding, we join a number of our sister circuits. See Volpendesto, 755 F.3d at 453 (concluding that “[r]estitution ordered under [the MVRA], we believe, cannot be disentangled from the criminal conviction that underlies the sentence” because the statute states “in addition to . . . any other penalty authorized by law” (quoting
We need not decide that issue here. The district court stayed the payment of Brooks‘s restitution while this case was on appeal. The disbursement of the restitution by the district court in this case was dependent on a final conviction, not on an earlier availability of funds as the Government suggests.17
Brooks pled guilty to three counts of certain tax offenses following a plea agreement and plea proceeding in August 2011. In that plea agreement, he waived his right to appeal the convictions or sentence imposed by the district court if the term of imprisonment for the three counts was below 63 months and ran concurrently to any other sentence. The court imposed a 60-month sentence on one of the counts and concurrent 36-month sentences for the other two counts. The court also imposed restitution of $2.8 million, to be paid to the IRS. Brooks did not appeal this sentence or convictions.
Because these counts of conviction were resolved by a guilty plea and he did not appeal them, those convictions became final prior to Brooks‘s death. Any restitution imposed as a result of the convictions on those counts, therefore, does not abate because those convictions do not abate.
III. Abatement and Forfeiture of Bail Bond
Federal criminal defendants facing trial may be released on their own recognizance.
As noted above, following Brooks‘s sentencing (and before his death) the family sureties moved to return the forfeited cash security under
The district court must evaluate the following factors in deciding a remission of bond motion:
- whether the defendant‘s breach of the bond conditions was willful;
- the cost, inconvenience and prejudice suffered by the government as a result of the breach; . . .
- any explanation or mitigating factors presented by the defendant; . . .
- whether the surety has assisted in the apprehension of the defendant; and
whether the surety is a professional or a friend or member of the defendant‘s family.
United States v. Gambino, 17 F.3d 572, 574 (2d Cir. 1994) (quoting United States v. Carvajal, 674 F. Supp. 973, 974 (E.D.N.Y. 1987)). We review a district court‘s denial of remission of forfeited bail security for abuse of discretion. See id.
In Gambino, two sureties appealed a district court‘s granting of a motion for forfeiture of bail bond posted for the defendant who had been charged with narcotics and racketeering violations. Id. at 573-74. Before trial, Gambino fled in violation of his bail conditions, and was found after an extensive search at a hotel in Florida. Id. The Government obtained forfeiture of the bail bond, but the sureties later moved for remission of the bond under
In this appeal, Terry Brooks and the Brooks children contest the district court‘s denial of their motion to set aside the forfeited bail bond, and also contend that Brooks‘s death abates the forfeiture of the cash security. Brooks‘s
a. The Claim for Abatement of the Forfeited Bond Security
First, we must decide whether the death of a criminal defendant while his case is pending on appeal abates the previous forfeiture of a bond security where the defendant violated pre-trial release orders and conditions. The Brooks family and estate argue that because “death abates not only the appeal but also all proceedings had in the prosecution from its inception,” Libous, 858 F.3d at 66 (quoting Wright, 160 F.3d at 908), the doctrine of abatement must also apply to the forfeiture of the bail bond. We disagree. Although the district court‘s finding of Brooks‘s violation of the terms of his bail bond order was a “proceeding,” that
At Brooks‘s bond hearing, the district court was primarily concerned with Brooks having access to financial resources to flee the country, following its conclusion that he was a serious flight risk. In order to satisfy the district court that Brooks would not flee, the conditions of Brooks‘s release included surrendering his passport, returning all foreign assets to the United States, subjecting his financial dealings to court oversight, disclosing all assets, and posting a considerable cash security and an even higher bond. After the district court approved the bond and its conditions, the Government subsequently demonstrated that Brooks was violating these terms of the Order.
The Government did not argue that these actions were evidence of independent criminal conduct or related to conduct for which Brooks was on trial. Rather, the Government‘s extensive proffer showed violations of the terms of the Order that were put in place to assure the district court that Brooks would
We have also long held that a bail bond is interpreted “within the general framework of suretyship and contract law.” United States v. Martinez, 151 F.3d 68, 73 (2d Cir. 1998) (quoting United States v. Martinez, 613 F.2d 473, 476 (3d Cir. 1980)). In other words, “[a] bail bond is a civil contractual agreement between the government and the surety on behalf of the criminal defendant, and, if a forfeiture is ordered the surety becomes the debtor of the government.” United States v. Santiago, 826 F.2d 499, 502 (7th Cir. 1987). Even though the contract is formed in relation to an adjunct criminal proceeding, “[w]hat a court can do to a defendant and what it can do to a bail bond are quite different matters.” United States v. Beard, 960 F.2d 153 (9th Cir. 1992) (unpublished opinion). The forfeiture of a bail bond functions as damages for breach of the civil contract, not as a punishment for the commission of a criminal offense. See, e.g., United States v. Barger, 458 F.2d 396, 396 (9th Cir. 1972) (per curiam) (“This penalty [forfeiture of bail bond] is one for damages and is deemed civil, not criminal, in nature.“);
Further, bond forfeiture also does not implicate the two principles underlying the doctrine of abatement ab initio (finality and punishment). Brooks previously filed a interlocutory appeal of the revocation of his bail to this Court, and we affirmed the revocation. We address the family‘s later motion for return of the forfeited bail security pursuant to
It is also noteworthy that the Gambino factors do not specifically include determining whether the defendant‘s conviction remained valid. See Gambino, 17 F.3d at 574. As a result, if a defendant is later acquitted or his conviction is vacated, a district court is not required to return a forfeited bail bond. See, e.g., Cervantes, 672 F.2d at 461 n.2 (rejecting argument that acquittal is a basis for
While it is true that “but-for” the prosecution of the case against him, Brooks would not have been subject to the bail bond and the resulting forfeiture, this argument fails. When the district court in this case imposed the terms of pre-trial release on Brooks, it did so for reasons independent of the determination of his guilt or innocence. These terms and conditions were not determined by the outcome of the offenses prosecuted, and therefore the principles of abatement do not apply.
b. The Denial of the Motion to Set Aside under Fed. R. Crim. P. 46
Having concluded that the bail forfeiture does not abate with Brooks‘s death, we now turn to whether the district court erred in its conclusion that, in applying the Gambino factors, the interests of justice did not require the return of the security. Brooks‘s family members particularly dispute the district court‘s finding that Terry Brooks and the children were involved in the Czerny Kot scheme.
In denying the motion, the district court considered the willfulness of Brooks‘s breaches “heavily against” him, J.A. 1443, and noted that “[m]ovants do not offer any explanation for the violations or mitigating circumstances,” J.A. 1444. The district court noted that the Government presented evidence that other family members than David and Jeffrey had taken a plane to Switzerland to bring assets to a bank and that the passports of David‘s children were used to set up the Czerny Kot scheme. The court cited other district court rulings for the rule that the costs and efforts made to apprehend a defendant who had fled were not the only considerations in revoking bail, but that forfeiture can be a sanction for any violation of the terms of a bail order. The district court termed movants’
The Appellants’ arguments to the contrary fail for two reasons. First,
Upon review, the district court‘s application of the Gambino factors here did not constitute an abuse of discretion. See Gambino, 17 F.3d at 574. First, the district court correctly found that Brooks‘s breach of the bond conditions was
These appellants also challenge the limited expenses and efforts incurred by the Government as a result of this breach. Because Brooks did not flee, they assert that the forfeiture was not necessary to deter future violations of the Order for lack of disclosure, and also assert that the forfeited amount was excessive in comparison to other cases. These arguments also fail after applying the Gambino factors. Further, they do not diminish the valid concerns of the district court in
The amount of the entire bond was $400 million, apparently the largest ever imposed on an individual defendant, and the cash security posted was originally $48 million, also an extraordinary cash security. These amounts were required by the district court because of the nature of the crime, the amounts allegedly involved in the crimes, and Brooks‘s wealth. They arose out of a concern that Brooks would be able to flee and access those accounts to aid his flight.22
The fact that Brooks did not actually flee does not outweigh the other factors that favored forfeiture of the security under the specific terms of this Order. The district court did not order the entire bail bond forfeited—only the cash security—because the Order‘s terms “did not include attempts to conceal assets within the category of violations that would result in [the] forfeiture of the entire personal recognizance bond” under the two-tier arrangement. J.A. 1260. See footnote 9, supra. Also, as the Government demonstrated, it expended
For these reasons, the district court did not abuse its discretion in denying the motion to set aside their forfeited security.
CONCLUSION
The death of David Brooks abates all of his convictions that were pending appeal at the time of his death and any corresponding restitution. His death does not abate the other convictions or restitution nor the order of bail bond forfeiture for the cash security imposed as a result of his violations of the terms of his release on bond. For the foregoing reasons, the motion to abate by Brooks is GRANTED in part and DENIED in part, Brooks‘s judgment of conviction is VACATED in part, the motion for abatement by the other appellants is DENIED, the order denying the motion to set aside the bail forfeiture is AFFIRMED, the Government‘s cross-appeal is DISMISSED, and the case is REMANDED for the dismissal of the indictment as to counts I-XI, XV-XVII.