CIVIL LITIGATORS SHOULD CONSIDER ACTION FOR CRIMINAL RESTITUTION
Jan. 3, 1999
The legislature and the courts in California act to strengthen the rights of victims. In the last few years, the California legislature and the state appellate courts have significantly expanded the right of victims of crime to recover restitution. The changes began with a series of revisions to the California Penal Code, which were then followed by several court of appeal decisions reinforcing the breadth and strength of the new statutory framework. Victim restitution is now such a powerful remedy that both civil litigators and criminal defense counsel must alter their case strategies to protect their clients. The civil litigator who is not familiar with victim restitution could not only initiate unnecessary civil litigation but also forego the right to recover attorney's fees. Criminal defense lawyers unfamiliar with victims' rights could find the plea bargains that they negotiated on behalf of their clients overturned, with clients ordered to pay substantial victim restitution awards not contemplated in the original plea agreements.
The first instinct of a civil litigator whose client is a victim of a crime involving substantial losses may be to file suit against the defendant even before a criminal conviction has been obtained, with the anticipation that the defendant will invoke the Fifth Amendment in the course of discovery as well as move to obtain a stay of the entire civil case pending the outcome of the criminal case. In fact, civil litigators should first consider whether the goals of civil litigation can be achieved through the court's power to order restitution in the criminal case.
This decision requires appropriate caution, particularly in light of the fact that California's current restitution scheme has not been in place for very long. Also, litigators must balance the gains provided by the new laws against the elements of a civil action that will not be available under the restitution option, such as discovery and most forms of injunctive relief. In addition, punitive damages and certain types of statutory damages, such as those awarded for copyright infringement, are not recoverable because the foundation for those damages lies in policies outside the realm of economic loss. Nevertheless, the scope of recovery available under the criminal restitution system is undeniably, and breathtakingly, broad. A victim may recover for "every determined economic loss, which means that almost all damages provable in a civil action may also be recovered in a criminal restitution award, including:
The value of stolen or damaged property
Lost wages or profits, including those of a parent or guardian if the victim is a minor
Attorney's fees and other costs incurred by a victim as a consequence of the criminal conduct
The legislature has redefined "losses" to include interest accruing at the rate of 10 percent from the date of loss. Additional statutory language expressly victims to enforce a restitution order as a civil judgment. Victims also now have access to "all resources under the law" for enforcement of orders until restitution is fully satisfied, without regard to whether the defendant's parole or probation has been terminated. The trial court must enter an order for income deduction once restitution has been determined. Moreover, the district attorney may aid the victim in the collection of restitution by requesting an order of examination and by examining the defendant about his or her assets in the same manner as a judgment debtor examination.
Criminal restitution may also serve a victim better than civil injunctive relief because of one basic fact: a criminal sentence. If the defendant is incarcerated, a temporary restraining order against the defendant's conduct usually is unnecessary the defendant is prevented from continuing the objectionable activity. If the defendant remains incarcerated for a number of years, a preliminary injunction would also not be necessary. The mere fact of beingwith a crime often puts an end to a criminal simply by the exposure of the criminal conduct. In addition, law enforcement authorities likely will have many of the instruments of the criminal enterprise and thus effectively shut it down.
Even when a criminal sentence does not involve some period of incarceration, many criminal cases result in a defendant's being placed on probation for a period of up to five years—and it is invariably a condition of probation that all laws must be obeyed. This condition has much greater teeth than even the strongest civil injunction. For example, in a recent case the victim was a trademark owner. The criminal defendant was convicted of counterfeiting in violation of Penal Code Section 350 and sentenced to state prison, but imposition of sentence was suspended, and he was placed on probation. While on probation the defendant continued his counterfeiting business in violation of Section 350, was arrested a second time, and charged again with criminal counterfeiting. defendant's probation was immediately revoked, and he was sent directly to state prison for several years. Thus the penalty for violating a condition of probation is far greater than the punishment imposed for violating a civil injunction.
The crime victim seeking restitution can use tools surprisingly similar to an attachment or a temporary restraining order in a civil action to prevent sequestration of assets. If the criminal complaint alleges that the defendant committed two or more felonies involving fraud or embezzlement with a pattern of related felony conduct involving the taking of more than $100,000, the prosecution may seek an aggravated white collar enhancement by making a motion for a temporary restraining order, a preliminary injunction, and even appointment of a receiver to preserveassets. The temporary restraining order may be sought ex parte. If the assets are real property, a lis pendens may be recorded. If there is a bank account, the financial institution may be compelled to close the account numbers of the defendant so that the accounts may be included in the temporary restraining order or preliminary injunction. Upon the defendant's conviction of two felonies with an aggravated white collar enhancement, a levy for the payment of restitution will be placed on the property covered by court order.
Once a criminal complaint has been filed, the prosecuting agency and law enforcement authorities will focus principally on the evidence that relates to the charged criminal conduct. Chronically overburdened investigative resources generally are not available to routinely monitor a defendant's post complaint financial transactions or property transfers not implicated in the criminal charges. If a defendant awaiting sentencing after entering a plea or being judged guilty undertakes to transfer or otherwise sequester assets to lessen or impair his or her ability to pay court-ordered restitution or to avoid forfeiture -- and this unlawful activity is brought to the attention of law enforcement -- the defendant may face new criminal charges with consequences more severe than those that any restraining order or civil injunction could possibly impose.
The broad sweep of the language in the Penal Code ensures that some items and expenses normally not recoverable in a civil action can be recovered in a restitution hearing, such as investigative and storage expenses. More important, a victim is entitled to recover his or her attorney's fees expended in establishing the victim's right to restitution as well as securing the property of the defendant so that it is available to satisfy a restitution order.
People v Lyon dramatically illustrates the reach of the victim's right to recover attorney fees. In Lyon, the victim filed a separate civil action against the criminal defendant and recorded a lis pendens against the defendant's home to prevent the dissipation of this valuable asset. In the criminal case, the victim sought restitution for the attorney's fees incurred in the separate civil action that culminated in the lis pendens. The trial court awarded fees to the victim for the separate civil action, and the appellate court affirmed the award.
Lyon establishes several principles. First, the right to recover attorney's fees in a criminal restitution action is very broad. Second, a victim may recover fees incurred in a separate civil action undertaken to preserve assets covered by a restitution award. Litigators who jump into a civil suit against a criminal defendant without considering restitution proceedings may miss the opportunity to recover attorney's fees incurred in the civil action for their clients.
People v. Pinedot represents a noteworthy extension of the principles established by Lyon. The criminal defendant in Pinedo was convicted of driving under the influence. The car he was driving struck the car driven by the victim. After the victim experienced some difficulty negotiating with his insurer over the amount the insurer would pay for repair of the car, he hired an attorney on contingency. The attorney was successful in obtaining payment by the insurance company and received $7,000 as a contingency fee. In the criminal case, the victim sought to recover the contingency fee as part of a restitution order. The trial court granted this request, and the court of appeal affirmed.
Criminal restitution awards, unlike civil judgments, are not dischargeable in bankruptcy. In one recent case, the victim owed money on a stolen necklace. Even though the victim's debt was discharged in bankruptcy, the defendant was ordered to make restitution to the victim for the full value of the necklace. In a second case, the victim filed a civil action against the criminal defendant and was awarded damages. The defendant then filed bankruptcy and obtained a discharge of the civil damages award. Nevertheless, the defendant was ordered to make restitution to the victim for the same damages as a condition of probation, despite the bankruptcy discharge.
A major advantage to pursuing criminal restitution instead of a civil action is the nature of the restitution proceeding. The setting for proving the amounts of a criminal restitution award is more informal than that of a civil trial, and the trial court is not required to determine damages that might recoverable in a civil trial. A criminal restitution hearing essentially is a minitrial and, while counsel should prepare as thoroughly as they would for any serious hearing, the requirements are far less exacting than those that must be met during the process leading to a civil trial.
Apart from sentencing memoranda, which may be filed by both the prosecution and the defense, there are no pleadings and no discovery motions. Presentation of evidence at a restitution hearing is straightforward and does not require the same procedural safeguards as a trial, but the proceedings must satisfy due process by preserving fundamental fairness. Thus evidence that is vague or inaccurate may not withstand a due process challenge. The hearing is conducted before the criminal trial judge who presided over the criminal trial or approved a plea agreement. The judge is vested with broad discretion in determining the amount of restitution and may use "any rational method. .. which is reasonably calculated to make the victim whole." Once the evidence of a victim's losses has been presented, the defendant bears the burden of die proving the amount of loss.
The victim can and should testify at the hearing. Documentary evidence, such as bills, business records, and even ledgers or calculations showing losses, are admissible when offered in support of the amount of the losses. However, the relative expediency of a criminal restitution proceeding highlights the fact that one of the major weapons in a civil litigator's arsenal—discovery—is not allowed. There are a number of ways to compensate for the absence of discovery, such as cultivating a good relationship with the prosecuting authorities. The chances are very good that, in the course of their enforcement activities, the police will have seized books and records and other evidence essential to establishing proof of the victim's case. Supervised inspection of these materials in a district attorney's office or at a police station can arranged, and the prosecuting authorities can cooperate in ensuring that the records are present at the time of the restitution hearing.
Also, victims routinely have access to other documents containing key information. A victim may obtain copies of police reports. Probation reports are filed with the court and thus become a part of the record. Furthermore, victims are supposed to receive the recommendations of the probation report through the district attorney's office. Defendants often disclose information about their assets when attempting to reduce the amount of their bail.
Even though discovery is not available to the attorney for the victim in a criminal restitution action, often much of the needed information can be obtained. Further, though only defense counsel and the prosecuting attorney have subpoena power in a criminal action without a court order, a victim may request subpoena power from the court for the limited purpose of obtaining records in possession of third parties or other evidence for the restitution hearing.
Despite the advantages of criminal restitution, the prudent and cautious civil litigator may still wonder whether it is worth trying such a novel approach. One problem with novel approaches is that practitioners who have not used them before are more prone to making mistakes. Practitioners will certainly wonder what will happen if their clients seek criminal restitution and are unable to obtain a sufficient award—or even any award at all. Does the pursuit of criminal restitution foreclose victims from normal civil remedies? Although no California case has addressed this precise question, it seems clear that the answer is no. A criminal restitution proceeding is not res judicata as to a subsequent civil action. Similarly, the only federal court to rule on this issue held that the of res judicata did not apply. California has a number of statutes that indicate that civil remedies and criminal restitution coexist. In addition, one appellate case has even approved a criminal restitution award after a prior civil action between the same parties based on the same nucleus of facts.
Criminal defense attorneys should carefully note that victim restitution can have a dramatic impact on the validity of a criminal sentence, as illustrated by People v. Rowland. In Rowland, the defendant accepted a plea bargain that included a prison sentence and a $400 restitution fine, but no victim restitution was ordered. Upon their discovery of this fact, the victims for a modification of the sentence to include victim restitution, and the motion was joined by the prosecution. At the hearing on the motion for modification, the defendant argued that he would be prejudiced by an award of victim restitution and that he should at least have the option of withdrawing his guilty plea. The court rejected this argument and awarded restitution of more than to the two victims.
Not surprisingly, the defendant appealed. In affirming the restitution award, the court of appeal held that the defendant had negotiated such an advantageous plea that the dramatic increase in his restitution responsibility, from $400 to $143,400 was not sufficient to allow withdrawal of the plea. Highlighting the critical role that victim restitution now plays in the administration of justice, the court of appeal stated that if a trial court fails altogether to issue a restitution award, the sentence is invalid. Thus, defense counsel who negotiate a plea bargain that does not provide for payment of victim restitution may find that sentence modified adversely for the defendant or overturned entirely—not by the prosecution but by the actions of a victim who seeks to challenge it.
A statutory right exists in addition to the Rowland decision granting standing to victims for certain actions in a criminal case. As a practical matter, Rowland and Penal Code Section 1191.1 together deter defense counsel from limiting their attention solely to the actions of the prosecution without regard to the rights of the victim.