We consider whether the estate of a criminal defendant who dies pending appeal of his fraud conviction must continue to pay restitution to victims.
I
Michael Rich operated Pac Equities, a real estate investment firm. As president of the firm, he solicited investors with promises of high annual returns and low loan-to-value ratios, touting his prior successes. Unfortunately, Pac Equities was a Ponzi scheme. Over the course of several years, Rich and Pac Equities defrauded over 300 individuals of approximately $16 million. A grand jury charged Rich and co-defendant Pac Equities in a twenty-seven count superseding indictment with securities fraud, bank fraud, wire fraud, mail fraud, money laundering, obstruction of justice, and filing a false tax return.
After indictment, Rich violated his pretrial release conditions by spending over $600,000, part of it in a Las Vegas casino. He subsequently agreed to the appointment of a temporary receiver both to preserve the assets held by or seized from the defendants and to distribute them to victims of his scheme. The magistrate judge, the government prosecutor, and the defense counsel all signed the temporary receivership stipulated order, dated March 14, 2006, over 18 months prior to the trial.
A few months later, the temporary receivership was converted to a permanent receivership through a permanent receivership stipulated order dated October 24, 2006 (“Receivership Order”) signed by counsel for both parties and the magistrate judge. Subsequent to his permanent appointment, the receiver began recovering and disposing of property. By April 2, 2007, approximately seven months before Rich’s trial, the receiver had returned nearly $3 million of seized assets to victims.
On May 7, 2008, the district judge sentenced Rich to a 236-month term of imprisonment. 2 It also ordered Rich to pay a special fee assessment of $2,400, or $100 for each count on which he was convicted. Most importantly for our purposes, the court ordered Rich and Pac Equities, jointly and severally, to pay restitution of over $10 million dollars (“Restitution Order”), the amount of the loss to investors remaining after deducting funds already returned to victims or held by the Receiver.
Rich timely appealed on May 9, 2008. But on June 2, 2008, before his appeal could be heard, Rich passed away. His counsel subsequently moved to abate and to dismiss the appeal and all criminal proceedings, which the government opposed. A motions panel of this court denied the motions “without prejudice to renewing the arguments in the merits briefs.”
II
A
Rich now challenges the denial of his motions to abate the conviction and all criminal proceedings. There is no doubt that “death pending appeal of a criminal conviction abates not only the appeal but all proceedings in the prosecution from its inception.”
United States v. Oberlin,
B
But, Rich also argues that the
Restitution Order
for $10 million should also be abated.
4
In Rich’s view, abatement of the
As the foregoing suggests, the parties’ contentions are muddied by the coexistence of a pre-conviction Receivership Order and a post-conviction Restitution Order. For example, Rich refers to moneys that already have been paid pursuant to the Restitution Order. But there are no such moneys. The only moneys that already have been paid to victims were those disbursed by the receivership, but those distributions occurred prior to the sentencing when there was no Restitution Order. Rich could not have paid moneys to victims pursuant to a Restitution Order that did not exist.
Because of this confusion, we must examine the nature of the interaction of the Receivership Order and the Restitution Order and then address the consequences of Rich’s death upon each.
Ill
A
We focus on the Receivership Order, and not the temporary receivership stipulated order, because the permanent order remains operative. It does not differ in relevant part from the temporary order and both orders predate the conviction and Restitution Order.
The Receivership Order provided for appointment of a receiver to take from Rich the property he fraudulently obtained from investors and to restore it to them. The court found that “[g]ood cause exists to believe that [Rich] engaged in securities fraud [and other crimes], and that pursuant to [various laws], the real and personal property referenced in this Order is forfeitable and should be restored to all persons who have suffered pecuniary harm as the result of such violations.” Consequently, the court ordered that, as of May 30, 2006:
Receiver shall hereafter be allowed to take possession and control of all assets that appear to be the proceeds of Defendant’s fraudulent activity, subject to the claims by Defendant and/or Phyllis Rich that such assets are not proceeds of fraud, and to manage or dispose of such assets in order to restore such property to persons who have suffered pecuniary harm as a result of unlawful business practices associated with Defendant.
Under that power, the receiver was authorized to “implement a claims handling and equitable distribution process to investors and creditors” and empowered “to sell or otherwise dispose of any real or personal property without further order of this Court.”
The court also “retained] jurisdiction over th[e] action for the purposes of implementing and carrying out the terms of all orders and decrees which may be entered herein.” In particular, the Receivership Order empowered the receiver “to seek further instructions from this Court as to any matter pertaining to administration of the Receivership.” The court also re
B
By contrast, the Restitution Order was created approximately two years later and accompanied the judgment of conviction, the sentence of imprisonment, and a special fee assessment. Specifically, the court ordered that Rich “shall pay full restitution, payable immediately in full, to the victims identified in the clerk’s office.” It specified that he “is to receive credit for the April 2, 2007 distribution from the Receiver to the victims in the amount of $2,818,009.55, as well as the March 6, 2008 distribution from the Receiver to the victims in the amount of $3,000,000.” Consequently, it required that Rich “pay the remaining restitution, $10, 362,689.81, joint and several with Phyllis Rich[and] Pac Equities.” The court waived interest on the amount because of the defendants’ inability to pay such interest.
The Restitution Order did not limit the source of payment to proceeds from Rich’s crimes. This makes sense, as orders of restitution are generally not so restricted. Such practice explains why, when considering whether to order restitution under the Victim and Witness Protection Act (“VWPA”), 18 U.S.C. § 3663, courts consider the convicted defendant’s “financial needs and earning ability.” 18 U.S.C. § 3663(a)(1)(B)(i)(II). It also explains why a defendant is required to “notify the court and the Attorney General of any material change in the defendant’s economic circumstances that might affect the defendant’s ability to pay.” Id. § 3664(k). Such changes may prompt the court to “require immediate payment in full,” id., in contrast to the original schedule, which depends in part on the defendant’s “projected earnings and other income” at the time. Id. § 3664(f)(1)(B)(2)(B). If convicted defendants were not to pay restitution out of earnings, both provisions make little sense.
Indeed, all of a convicted defendant’s income and assets may be subject to restitution. For example, section 3664 provides that a “[i]f a person obligated to provide restitution, or pay a fine, receives substantial resources from any source, including inheritance, settlement, or other judgment, during a period of incarceration, such person shall be required to apply the value of such resources to any restitution or fine still owed.” Id. § 3664(n). Thus, the Restitution Order differs from the Receivership Order in an important respect: the Restitution Order reaches assets that are not proceeds of fraud.
C
Thus, there is a fundamental distinction between funds at issue in this appeal. First, there are those funds that the receiver may reach, which, as stated in the Receivership Order, are “the proceeds of Defendant’s fraudulent activity.” Nearly $9 million of such proceeds have already been obtained, of which $5.8 million have been distributed by the receiver; $3 million are still in the receiver’s possession, waiting to be disbursed.
5
And then there are the funds of this type that the receiver
Second, there are those funds that the receiver may not reach, which, as stated in the Receivership Order, “are not the proceeds of fraud.” But such funds are not necessarily Rich’s free and clear, for they are subject to the Restitution Order, which, of course, extends to all of Rich’s assets and income, regardless of whether they arose from fraud. Examples of such funds would include inheritances, civil judgments, earnings, and, most importantly, other assets the receiver may discover which are “not the proceeds of fraud.” 6
IV
Which brings us to the question of what happens to the receivership, and the funds it reaches, upon the abatement of Rich’s conviction because of his death pending appeal. The answer is simple: nothing. The receivership continues regardless of abatement of the conviction because the receivership was not dependent in any way on Rich’s conviction. Nothing in the Receivership Order suggests it is extinguished by the Restitution Order, which, in turn, is silent on the point.
Nowhere in the document are the receiver’s powers conditioned upon a criminal conviction or made reversible upon the failure of the prosecution to obtain a criminal conviction. 7 The separability of the requirement of repayment to victims and the conviction itself is confirmed by the fact that the receivership took possession of Rich’s property, disposed of such property, and disbursed such property prior to Rich’s conviction, and prior to his sentencing, without Rich’s objection.
The omission of a provision conditioning repayment to victims upon conviction starkly contrasts with arrangements described in other cases. In
United States v. Parsons, Estate of,
In short, because of his stipulation to a permanent receivership, Rich cannot now, after death has abated his conviction, challenge the receiver’s power to repay victims. On the contrary, Rich essentially has waived such objections by stipulating to the pre-trial appointment of the receiver. This means that Rich’s death pending appeal has no effect on the receivership. The $5.8 million already disbursed, the $3 million waiting to. be disbursed, and the as
V
But what about the funds which the receivership may not reach, but that are nonetheless covered by the Restitution Order?
Whether a
restitution order
abates is a question that has divided the circuits.
Compare United States v. Christopher,
A
Since restitution ordered in sentencing is a statutory remedy based on the VWPA and the Mandatory Victim Restitution Act (“MVRA”), 18 U.S.C. § 3663A, we begin, as usual, with the text of those statutes. The VWPA provides:
The court, when sentencing a defendant convicted of an offense under this title ... may order, in addition to or, in the case of a misdemeanor, in lieu of any other penalty authorized by law, that the defendant make restitution to any victim of such offense, or if the victim is deceased, to the victim’s estate. The court may also order, if agreed to by the parties in a plea agreement, restitution to persons other than the victim of the offense.
18 U.S.C. § 3663(a)(1)(A) (emphasis added).
The MVRA provides similarly:
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.
Id. § 3663A(a)(1) (emphasis added).
In providing that a court “may” or “shall” impose restitution “when sentencing a defendant convicted of an offense under this title, [etc.],”
id.
§ 3663(a)(1), §. 3663A(a)(1), the statutes require that the defendant first must be “convicted of an offense” so enumerated to support an order of restitution. In this case, such offenses are listed in section 3663A(c) because restitution was imposed pursuant to the MVRA. Abatement of the convictions for those offenses, thus, nullifies the accompanying restitution order.
See Parsons,
1
The government contends that the passages also could be read narrowly that a
But such interpretation leads to an absurd result because of the statutory construction canon that words should be construed consistently throughout an entire statute.
Ratzlaf v. United States,
2
The common law doctrine of abatement
ab initio
confirms our interpretation of the statute. We interpret statutes to be consistent with established common law absent a clear indication to the contrary.
See, e.g., Midlantic Nat’l Bank v. New Jersey Dep’t of Envtl. Protection,
The Restitution Order must be abated because “the defendant is no longer a wrongdoer” once his conviction has abated.
Parsons,
B
The government raises two structural arguments despite such textual analysis.
1
The government first argues that the VWPA and MVRA foreclose the applicability of the abatement
ab initio
principle to a restitution order. The government observes that the
ab initio
principle traditionally has applied only to penal, not compensatory, remedies. It argues that a restitution order under the VWPA or MVRA is the equivalent of a civil judgment, such that it is heritable, assignable, and transformable into a lien.
See Parsons,
There are several problems with this argument. First, we have held repeatedly that “restitution payments have both compensatory and penal purposes.”
Cloud II,
Second, and more importantly, the government’s argument improperly assumes that the distinction between the compensatory and the penal is the sole rationale for the abatement
ab initio
doctrine. But that doctrine rests on the principle “that a criminal conviction is not final until resolution of the defendant’s appeal as a matter of right.”
Logal,
Furthermore, we have had occasion to rely on the distinction between the compensatory and the penal in the abatement context. But, in those cases we typically drew broad distinctions between remedies in criminal proceedings and remedies in civil proceedings. Thus, in
Oberlin
we relied on the distinction between compensatory and penal remedies in a criminal forfeiture case, regarding which we were able to hold that “there is no doubt that it [the forfeiture] was essentially penal.”
Restitution is not so obviously penal or compensatory. Rather, as we have recognized, it is both compensatory to the victim and penal to the defendant and the state.
Cloud,
In the end, the government’s argument contains two false premises. But even if it did not, at most it undermines our view that the
ab initio
principle informs the provisions of the VWPA and MVRA. But left remaining is the specific statutory text, which, of course, prevails over broad structural considerations.
See Green v. Bock Laundry Mach. Co.,
2
The government also argues that abating the Restitution Order frustrates the purposes of the VWPA and MVRA. In the government’s view, those statutes are aimed at compensating the victims of crime. To abate restitution orders, consequently, gives the defendant’s heirs a “windfall” at the expense of suffering victims.
Parsons,
V
For the foregoing reasons, 9 we REMAND to the district court with direction to VACATE the indictment, the judgment of conviction, the sentence, the special fee assessment, and the Restitution Order, but to RETAIN JURISDICTION over all matters relating to the Receivership Order.
Notes
. The jury did not find Rich guilty of one. of the obstruction of justice counts. The court later acquitted him of the other obstruction of justice count.
. It sentenced co-defendant Ms. Rich to 51 months.
. But fines already paid need not be refunded because they are the equivalent of time-served.
United States v. Zizzo,
. The government implies that Rich's attorneys cannot raise this argument without substitution of the estate, but substitution is not required.
Oberlin,
. We know that these funds survived defendant’s claims because any defendant claims on these funds are time-barred pursuant to the Permanent Receivership Stipulated Order, which requires objection within 30 days of its filing or notice of the discovery of such assets.
. There is a live dispute over these unknown funds because a restitution order is a judgment against the estate for such funds, which constitutes an injury for the purposes of Article III standing.
E.g., United States v. Christopher,
. The only reference to a subsequent criminal trial — at all — is a provision preventing the government from using the Receivership Order in its case-in-chief.
. It does not matter that in
Parsons
the agreement was described as a preliminary judgment of forfeiture.
. Rich also challenges his conviction on several other grounds, including the district court's grant of the motion for joinder of his trial with Pac Equities’ trial one week before trial began, the district court’s decision to allow the prosecution’s hypothetical questions to investors about their reliance on Rich's misrepresentations, the district court’s decision to admit the evidence regarding Rich's prior problematic real estate practice in Colorado, and the district court’s failure to consider as a mitigating factor the disparity of sentences between his and Ms. Rich’s sentences. Since Rich’s conviction and Restitution Order are abated by his death, such issues are moot.