Fоllowing a jury trial, Anthony Cutí was convicted on June 8, 2010 of one count of conspiracy to make false statements and four counts of securities fraud and was sentenced on August 22, 2011 to concurrent terms of thirty-six months of imprisonment, to be followed by concurrent terms of three years of supervised release. In this appeal, Cutí challenges: (1) whether the district court’s decision to award restitution, directly following its- denial of Cuti’s motion for a new trial and after initially declining to award restitution, evinced judicial vindictiveness in violation of his due process rights; and (2) whether the district court’s award of restitution constituted an abuse of discretion.
As set forth below, we clarify whеther particular expenses incurred are “necessary” under the VWPA and extend the reasoning of our recent decision in United States v. Maynatd, a case construing the Mandatory Victims Restitution Act (“MVRA”), to cases under the VWPA. In short, we conclude that the restitution order improperly includes legal expenses incurred in connection with a civil arbitration that, while connected to the offense of conviction, was not undertaken or pursued in aid of the prosecution. We also clarify that non-victims are eligible for restitution only to the extent such payments were made on behalf of the victim. We therefore vacate the district court’s order of restitutiоn for this limited purpose, and
BACKGROUND
I. Underlying Criminal Proceedings
Anthony Cuti was the Chief Executive Officer (“CEO”), and board chairman of Duane Reade until 2005. The evidence introduced at Cuti’s criminal trial showed that from 2000 to 2004, Cuti and his co-defendant William Tennant, Duane Reade’s former Chief Financial Officer (“CFO”) and senior vice-president, executed two different fraudulent accounting schemes in order to inflate the company’s reported earnings.
Following trial, the jury returned a verdict finding Cuti guilty on all counts: conspiracy under 18 U.S.C. § 371 (Count 1); and securities fraud in violation of 15 U.S.C. §§ 78j(b) & 78ff, 17 C.F.R. § 240.10b-5 and 18 U.S.C. § 2 (Count 2); making false statements in two SEC filings in violation of 15 U.S.C. §§ 78m(a) & 78ff, 17 C.F.R. § 240.13a-l and 18 U.S.C. § 2 (Counts 3 and 4); and making false stаtements in another SEC filing in violation of 15 U.S.C. §§ 78o(d) & 78ff, 17 C.F.R. §§ 240.15d-l & d-13, and 18 U.S.C. § 2 (Count 5). Tennant was acquitted on Count 1 and convicted on Count 2. The district court denied both defendants’ motions for a new trial and sentenced Cuti and Tennant principally to imprisonment for three years and time served, respectively, and imposed fines of $5 million on Cuti and $10,000 on Tennant. Cuti and Tennant’s convictions were upheld in June 2013. See generally United States v. Cuti
II. Duane Reade’s Internal Investigations
Oak Hill, a private equity firm, acquired Duane Read in 2004, and in 2005 terminated Cuti’s employment without cause. Duane Reade and Cuti were unable to resolve certain disagreements regarding post-termination benefits for Cuti, and he filed an arbitration demand against Duane Reade on September 1, 2006. Thе law firm Paul, Weiss, Rifkind, Wharton & Garrison, LLP (“Paul, Weiss”),, which has represented Oak Hill since 1978, was retained to represent Duane Reade in the arbitration.
In late August 2006, one week before Cuti initiated the arbitration, Duane Reade’s general counsel Michelle Bergman was notified by Duane Reade’s former Director of Construction about several suspicious “credit and rebilling” transactions made at Cuti’s instruction that improperly classified several million dollars as capital expenditures. Bergman notified Paul, Weiss; and the Audit Committee of Duane Reade’s board of directors retained Cooley Godward Kronish LLP (“Cooley”) as independent counsel, along with forensic accounting firm Alix-Partners LLP, to conduct an internal investigation. On November 22, 2006, Paul, Weiss filed counterclaims in the arbitration based on this credit rebilling fraud. Cuti refused to be interviewed by Cooley unless Duane Reade withdrew certain of these arbitration-related counterclaims. No interview with Cuti was conducted, and on December 13, 2006, Cooley issued a report to Duane Reade’s Audit Committee on this credit rebilling scheme.
In February 2007, Paul, Weiss uncovered evidence of a real estate income concession transaction (identified as the “Blue Trophy” transaction) involving Cuti that looked suspicious. Once again, Cooley and AlixPartners were rеtained by the Audit Committee to investigate. In a report to the Audit Committee dated May 18, 2007,
The impetus for the investigation was information learned by attorneys at [Paul, Weiss], Duane Reade’s outside counsel, in the course of their preparation for the arbitration commenced against Duane Reade by its former CEO, Anthony Cuti. The information was communicated by Paul[,] Weiss attorneys ... and related to a specific income item recognized by Duane Reade in the Second Quarter of 2001. Paul[,] Weiss attorneys shared that information with members of the Audit Committee, and the Audit Committee determined that further investigation into items classified as real estate concession income during the period 2000-2006 was warranted.
App’x at 312.
The results of these internal investigations led to the filing' of amended counterclaims and affirmative defenses in the arbitration proceedings in April 2007, which the Arbitrator accepted on May 17, 2007. A few days later, on May 22, 2007, Duane Reade’s counsel met with representatives of the U.S. Attorney’s Office (“USAO”) for the Southern District of New York and with the regional office of the SEC to disclose the internal ' investigations and their findings.
The government commenced its own investigation into Duane Reade’s finances. Duane Reade cooperated in the USAO investigation, attending meetings with the prosecutors, participating in telephone calls, and responding to numerous requests for documents and information. In July 2007, the arbitration proceeding was stayed at the request of the government. Many Duane Reade employees, both former and current, were interviewed as part of the government’s investigation.' Duane Reade provided independent counsel for each, pursuant to еach employee’s individual contract, Duane Reade’s bylaws, or its certificate of incorporation.
Throughout this time, Oak Hill and Duane Reade agreed to share the costs of legal representation by Paul, Weiss, with Oak Hill paying 65% percent and Duane Reade paying 35% of the fees from January 2007 through September 2008. Ultimately, the government investigation led to an indictment being returned against Cuti on October 9, 2008, charging Cuti in five counts. The SEC also filed a parallel civil action against Cuti arising out of the same conduct.
III. Post-Verdict Proceedings in the District Court
Cuti was found guilty on all counts on June 8, 2010. In October 2010, Oak Hill and Duane Reade submitted a joint impact statement seeking an order of restitutiоn of approximately $53 million — with the majority of the amount requested to compensate for the amount that Oak Hill claimed that it overpaid for its acquisition of Duane Reade as a result of Cuti’s fraud. So that the government could present its theory of loss and restitution, the district court held a Fatico hearing over seven days from November 2010 to June 2011.
On July 28, 2011, Cuti moved for a new trial, premised on newly acquired evidence that one of the government witnesses had given perjured testimony at trial. The following day, the district court issued an order and memorandum addressing Oak Hill and Duane Reade’s requests for restitution. United States v. Cuti, No. 08 C.R. 972(DAB),
On August 12, 2011, Duane Reade and' Oak Hill asked the court to reconsider its position regarding restitution, a request which the court summarily denied on August 16, 2011. However, on August 19, the court issued a subsequent order vacating its declination of Oak Hill and Duane Reade’s request for reconsideration. It also vacated its Initial Restitution Order. The court’s order indicated that it would “impose restitution аnd retain jurisdiction for the purpose of determining the appropriate amount” at Defendant Cuti’s sentencing. App’x at 21. The court also directed Cutí to respond to Oak Hill’s August 12, 2011 letter. That same day, the court also denied Cuti’s motion for a new trial. Cutí was sentenced as scheduled on August 22, 2011.
A partial restitution order, issued October 14, 2011, ruled “that expenses attributable to the non-criminal proceedings are not appropriate for restitution,” and that “Oak Hill, separate and apart from issues relating to Duane Reade, is not a victim to whom restitution is owed based on the Court’s finding that the Government failed to establish a loss.” Special App’x at 2. The court also concluded that “Oak Hill in its capacity as successor to Duane Reade is compensable.” Special App’x at 2. The ■court determined that certain fees and expenses for Cooley and AlixPartners were subject to restitution, as were certain fees and expenses of Duane Reade’s accountants and auditors, as well as costs of the “Kroll Ontrack database.” Special App’x at 2. The court then referred the remaining fees and expenses for an inquest before Magistrate Judge Pitman. Special App’x at 2-3.
Following the magistrate judge’s December 21, 2012 Report and Recommendation (“R & R”), the court conducted a de novo review and adopted the R & R with some modifications. United States v. Cuti, No. 08 C.R. 972(DAB),
DISCUSSION
Cuti makes two challenges to the Cuti Restitution .Order. He asserts that the district court’s August 19, 2011 reversal of its July 29, 2011 order (declining to award restitution) and the timing of that reversal “immediately after denying Cuti’s motion for a new trial” created the appearance of a “vindictive sentencing increase” under North Carolina v. Pearce,
I. Applicable Legal Standards
A. Vindictiveness
In Pearce, the Supreme Court held that “[d]ue process of law ... requires that vindictiveness against a defendant for having successfully attacked his first conviction must play no part in the sentence he receives after a new trial.”
The Pearce presumption “do[es] not apply in every case where a convicted defendant receives a higher sentence on retrial” or' at resentencing. Texas v. McCullough,
B. Restitution under the VWPA
The VWPA provides that “[t]he court, when sentencing a defendant convicted of an offense under this title ..., may order ... that the defendant make restitution to any victim of such offense.”
We review a district court’s restitution order “deferentially, reversing only if in our view the trial court abused its discretion.” United States v. Amato,
II. Analysis
A. Vindictiveness
We first address Cuti’s vindictiveness argument. Cutí can point only to timing of the district court’s pivot regarding the feasibility of separating out the money spent in contemplation of arbitration from the funds spent on the investigation for his criminal case. As an initial matter, this is not the customary procedural posture for a claim of judicial vindictiveness, which usually involves a sentencing following an appeal from or collateral attack on a defendant’s conviction. With the particular procedural posture here, the district court had little reason or motivation to be vindictive. See, e.g., McCullough,
Moreover, the district court’s decision to award restitution was clearly within the court’s . discretion under Section 3663(a)(l)(B)(n).
B. Restitution
Cuti’s first two restitution arguments— that Oak Hill should not have been deemed eligible for restitution because it was not a victim of Cuti’s fraud, and that Oak Hill should not have been reimbursed for paying its employee’s legal fees — lack merit and do not warrant vacatur. We find, however, that in awarding Oak Hill restitution the district court failed to properly clarify whether the restitution award to Oak Hill included work by Paul, Weiss that only addressed Oak Hill’s legal interests. As to Cuti’s remaining argument, which challenges whether Duane Reade’s payment of legal fees were “necessary” as contemplated under Section 3663(b)(4), we find this too requires vacatur and remand.
1. Oak Hill as Non-Victim Entitled to Restitution
First, there was no abuse of discretion in the court’s decision to award Oak Hill restitution under § 3664(j)(l) on the theory that Oak Hill paid expenses оn Duane Reade’s behalf. We permit restitution in situations where a third party has directly paid an expense incurred by the victim, rather than having the victim pay and having the third party reimburse the victim afterward. See, e.g., United States v. Douglas, 525 F.3d 225, 254 (2d Cir.2008) (“The fact that [third party] Brink’s paid for the headstone directly rather than having [victim] Moran Sr. pay for it and reimbursing him does not; relieve Douglas of the obligation to make restitution for the cost incurred.”); United States v. Malpeso,
The district court found that Oak Hill was not a victim and appropriately excluded fees paid to Paul, Weiss that reflected trial and post-trial work that advanced Oak Hill’s own legal interests. However, the district court did not discuss whether any of Oak Hill’s pre-trial payments to Paul, Weiss reflected work performed solely on behalf of Oak Hill. As Cutí points out, the record suggests that some of Paul, Weiss’s pre-trial work may have been performed on behalf of Oak Hill. Therefore, we vacate this aspect of the district court’s restitution award. On remand, the district court should exclude any payments made by Oak Hill to Paul, Weiss that reflected legal wоrk performed solely on Oak Hill’s behalf, whether incurred before, during or after trial.
2. Legal Fees for Duane Reade’s employees as “Necessary” Expenses
Next, Cutí asserts that Duane Reade did not “incur” legal fees on behalf of its employees because it was not required to reimburse these legal fees. This assertion is belied by the district court’s conclusion and factual finding that “Duane Reade’s expenses for its employees’ counsel were necessary and related to its participation in the Government investigation and prosecution of ... Cutí.” Cuti Restitution Order,
3. Other Legal Expenses Incurred by Duane Reade
Cuti’s final argument requires us to consider whether expenses incurred by Paul, Weiss on Duane Reade’s behalf in the course of its work on the arbitration that also contributed to discovering Cuti’s fraud, in addition to the expenses incurred by Cooley’s internal investigations into both frauds, properly constitute “necessary ... other expenses related to participation in the investigation or prosecution ... related to the offense” under 18 U.S.C. § 3663(b)(4). To engage with this question we must further clarify the types of expenses that are “necessary” and “related to the offense” within the meaning of Section 3663(b)(4).
i. United States v. Maynard and “Necessary” Expenses
Recently, in United States v. Maynard, we considered what constitutes “necessary” expenses under the Mandatory Victims Restitution Act, 18 U.S.C. § 3663A(b)(4), reasoning that “[t]he victim expenses that are recoverable as restitution' under 18 U.S.C. § 3663A(b)(4) are expenses the victim was required to incur to advance the investigation or prosecution of the offense.”
In so concluding, we surveyed our prior case law, acknowledging that our Circuit takes “a broad view of what expenses are ‘necessary’ ” in the restitution context. See id. (citing United States v. Papagno,
In Amato, we affirmed a restitution award of attorney’s fees and accounting costs incurred as a result of an internal investigation that uncovered fraud “notwithstanding that not all of the effort and expense was requested by the government,” Maynard,
In both [Amato and Bahel ], the internal investigations paid for by the victims unmasked fraud and led to investigations conducted by the authorities. The expense of the internal investigations was necessary because the entity had*94 interests to protect (the integrity of its ongoing operations and reputation, at the least) as well as a duty to protect those interests when faced with evidence, indicia, or a grounded suspicion of internal misconduct, and the investigation was a means calculated to achieve the protection of those interests.
Maynard,
Though Maynard involved an award of mandatory restitution under the MVRA, we have noted that “the provisions of the VWPA and the MVRA are nearly idеntical in authorizing an award of restitution.” Battista,
With this in mind, we now extend Maynard’s reasoning to the VWPA. Thus, “necessary ... expenses related to participation in the investigation” as described in the' VWPA, 18 U.S.C. § 3663(b)(4), are “expenses the victim was required to incur to advance the investigation or prosecution of the offense,” Maynard,
ii. Duane Reade’s Expenses
This-extension of Maynard to restitution under the VWPA does not end our inquiry. This is the case for two reasons. First, the internal investigation here was initially motivated by Duane Reade’s need to defend itself in Cuti’s arbitration proceeding. Second, Duane Reade retained two separate law firms over the course of the arbitration, one to handle its own internal investigation, the other to assist with the government’s investigation. As such, this case does not involve a straightforward “internal investigation paid for by the victim” that unmasks fraud as described in Maynard. Id.
In its final restitution order, the district court concluded that the government had proved Paul, Weiss’s work was necessary under the VWPA by relying on the government’s representations that Paul, Weiss’s work “gave rise to the whole investigation of the real estate concession transactions,” and “figured out there was a problem [with the credit and rebilling scheme].” Cuti Restitution Order,
If the purpose of an internal investigation is to uncover or investigate fraud “when faced with evidence, indicia, or a grounded suspicion of internal misconduct,” Maynard,
Moreover, the entirety of the expenses incurred by Duane Reade for both the Cooley and the Paul, Weiss internal investigations, premised on the same underlying findings and conduct, cannot both have been “necessary” to advance the government’s investigation under the VWPA. To the extent that Paul, Weiss’s initial work on the real estate concession scheme, prior to turning over its information to Cooley, was the work that “unmasked [the] fraud,” Maynard,
This is not to say that fees paid to two outside law firms working side-by-side on an internal investigation may not, in theory, be treated as necessary expenses under the VWPA. However, to be “necessary” for restitution, it is not enough that the expenses incurred “helped the investigation,” which is what the government represented below. App’x at 403 (emphasis added). On remand, the question for the district court is whether the government has proved by a preponderance of evidence that some, or any, of Paul, Weiss’s and Cooley’s expenses were “necessary to the investigation or prosecution” of Cuti’s criminal case. See Maynard,
Ultimately, it may be that the lack of clarity in the record results in some of Duane Reade’s claimed expenditures not being subject to restitution.
CONCLUSION
Por the reasons discussed above, we affirm the district court’s restitution order in part and vacate and remand in part. Specifically, we affirm the district court’s determination that Oak Hill could be awarded restitution as a “non-victim.” However, we vacate and remand for an explicit distinction between fees for work performed solely on behalf of Oak Hill which are not the basis for restitution and fees Oak Hill paid on behalf of Duane Reade which are properly included in the restitution award. In addition, we affirm the district court’s conclusion that Duаne Reade’s employees’ attorneys fees were properly subject to restitution. As to whether Duane Reade’s payment of fees and costs to Paul, Weiss and Cooley constitute “necessary” expenses under the VWPA, we vacate and remand for further proceedings consistent with this opinion. On remand, the district court is free to exercise its discretion as to whether “determining complex issues of fact related to the cause or amount of the victim’s losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentеncing process.” 18 U.S.C. § 3663A(c)(3)(B).
Notes
. Section 3663(a)(l)(B)(ii) provides that "[t]o the extent that the court determines that the complication and prolongation of the sentencing process resulting from the fashioning of an order of restitution under this section outweighs the need to provide restitution to any victims, the court may decline to make such an order.” (emphasis added).
. Because we hold that the record cannot support any presumption of vindictiveness under Pearce, we need not and do not analyze the government’s argument that neither the Supreme Court nor our Circuit has ever permitted the Pearce vindictiveness rule to apply outside of the context of a court having to re-sentence a defendant, either fоllowing remand or a grant of a new trial. (Red 20-21)
. For example, while it appears undisputed that Paul, Weiss is responsible for discovering the real estate concession fraud, and that it turned over its documents and findings to the government on May 22, 2007, it is unclear to what extent, if any, Cooley's report, dated May 18, 2007 — and which was apparently turned over to the government at a later date — was redundant in view of Paul, Weiss’s own investigative documents, and vice versa. See, e.g., App'x at 350-51; 402-03; 456-57.
. Neither Cuti nor the government has provided us with the actual fee requests, which remain filed in hard copy with the district court. (As Cuti explained in his brief to this Court: "Should this Court decide to undertake the daunting task of аttempting to examine these volumes itself, it should be aware that the volumes were not filed electronically, although multiple hardcopies were filed with the district court.’’).
.Cuti's final argument is that the VWPA imposes a temporal limitation that denies resti-tuion for victim expenses incurred prior to the beginning of the government’s investigation. Cuti relies on wording in the MVRA, which permits reimbursement of expenses “incurred during” a victim’s participation in the criminal investigation. While we ordinarily read the MVRA and VWPA in pari materia, see Battista,