U.S. v. Hosking

• Decision Date: 04 June 2009
• Docket Number: No. 08-1826.,08-1826.
• Citation: 567 F.3d 329
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Jean M. HOSKING, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

567 F.3d 329

UNITED STATES of America, Plaintiff-Appellee, v. Jean M. HOSKING, Defendant-Appellant.

No. 08-1826.

United States Court of Appeals, Seventh Circuit.

Argued September 16, 2008.

Decided June 4, 2009.

Grant C. Johnson, Attorney (argued), Office of the United States Attorney, Madison, WI, for Plaintiff-Appellee.

Jordan C. Loeb, Attorney (argued), Cullen, Weston, Pines & Bach, Madison, WI, for Defendant-Appellant.

Before CUDAHY, FLAUM and ROVNER, Circuit Judges.

CUDAHY, Circuit Judge.

Jean M. Hosking pleaded guilty to one count of embezzlement and was sentenced to 34 months in prison and ordered to pay restitution. Hosking appeals, arguing that her victim's costs to investigate her fraud should not have been included in the restitution award. She also challenges the district court's failure to provide a complete accounting of the loss caused by her fraud, and the order to make a lump-sum payment of $100,000 from her retirement account.

We affirm the principle of including a private victim's investigative costs in the restitution award but vacate and remand for the district court to make findings regarding the amount of those costs. Without such findings it is impossible to review the award's propriety. We also affirm the aspect of the order requiring Hosking to make a lumpsum restitutionary payment from her retirement account.

I.

Hosking worked for the Cross Plains Bank in Cross Plains, Wisconsin, for almost twenty years. When her fraud was discovered in 2007, she was an assistant vice president, responsible for among other things loans granted under the Wisconsin Petroleum Environmental Cleanup Fund Award (PECFA) program. The bank provides intermediary financing for the PECFA program, which pays for environmental cleanup costs incurred by owners of property contaminated by petroleum storage tanks. After a cleanup site is deemed eligible for a PECFA grant, the property owner takes out a line of credit with the bank, and then submits invoices for cleanup costs to the bank. The bank pays the invoices by allowing advances on the line of credit, and then submits claims for reimbursement to PECFA.

In 1994, Hosking began embezzling money from the bank's PECFA loan program. Her scheme involved taking unauthorized cash advances funded by PECFA loan accounts and covering her tracks by reimbursing those loan accounts with money taken from other PECFA loan accounts, thereby "lapping" the loan accounts. Hosking's lapping scheme went on for twelve years, and she embezzled funds from twenty-three PECFA accounts. Ultimately, bank officials started asking questions about discrepancies in PECFA loan files, and Hosking confessed. She thought she had taken about $135,000. The bank's internal investigation revealed that she had actually embezzled more than $500,000.

At sentencing, the bank requested restitution of $1,144,889.92. The probation office recommended a reduced restitution award of $712,776.52, which included the $502,246.52 in embezzled funds, $206,280 for the bank's in-house staff costs and $4,250 for miscellaneous paper and copying expenses. Hosking objected, arguing that there was insufficient documentation to support the bank's claim for in-house costs. In response, the government submitted minutes from the bank's meetings relating to the investigation; a declaration of losses from the bank; a description of the PECFA loan process and Hosking's lapping scheme; and a description of each expense the bank incurred in the investigation, with attached invoices and a listing of in-house staff members and the hours they spent on the project.

The district court ordered restitution of $627,895.52. This figure included the $502,246.52 Hosking embezzled from the bank, plus $125,649 for the bank's investigation costs. To reach this new amount for investigation costs, the court added $6,733.90 in legal fees; $11,655.00 in accounting consultant fees; $4,250.00 in miscellaneous paper and copying expenses; and $103,140.00 for in-house staff costs, or half the amount recommended by the probation office to reimburse the bank for the time its employees spent on the investigation. The district court failed to explain why it cut the in-house staff costs in half, stating only that the reduced amount was "clearly legitimate."¹ The district court also ordered Hosking to make an immediate lump-sum payment of $100,000.00 from her retirement account.

II.

The district court's authority to order restitution is reviewed de novo, United States v. Wells, 177 F.3d 603, 608 (7th Cir.1999), while the amount of restitution is reviewed for an abuse of discretion, United States v. Sensmeier, 361 F.3d 982, 988 (7th Cir.2004) (citing United States v. Newman, 144 F.3d 531, 542 (7th Cir. 1998)). Hosking argues that the district court abused its discretion by including the bank's investigation costs in the restitution award because the only "actual loss" caused by her embezzlement was the $502,246.52 that she took. She labels the additional amount the bank spent on the investigation and professional fees as "consequential damages" not caused by her fraud and therefore not properly included in the award. We disagree in principle but question the amounts claimed.

The Mandatory Victims Restitution Act (MVRA) requires a defendant convicted of certain crimes, "including any offense committed by fraud or deceit," to make restitution to the victims of the offense in an amount equal to the value of the property damaged or lost. 18 U.S.C. §§ 3663A(a)(1), (b)(1), (c)(1)(A)(ii).² The MVRA also expressly contemplates inclusion of the cost of "lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense." 18 U.S.C. § 3663A(b)(4) (emphasis added). The bank's investigation was clearly an important part of "the investigation ... of the offense" in this case. It led to the determination of the actual amount embezzled, and therefore the costs of that investigation may be included in the restitution award under § 3663A(b)(4). See United States v. Adcock, 534 F.3d 635, 643 (7th Cir.2008) (applying § 3663A(b)(4) to include the cost of an external audit in a restitution award because it qualified as "other expenses incurred during participation in the investigation or prosecution of the offense...."); United States v. Amato, 540 F.3d 153, 161 (2d Cir.2008) (including attorney fees and accounting costs in a restitution award "because these expenses are so obviously associated with investigation and prosecution, particularly in the case of fraud offenses").

In response to Hosking's argument that allowing the bank to recover these costs improperly reimburses the bank for "consequential damages," we have repeatedly explained that it does no such thing. In fact,

"[t]his measure of relief is less generous than common law damages, since it does not extend to consequences beyond the diminution of the value of the property stolen or damaged." This is because criminal restitution refers only "to the restoration of something that the defendant had taken from the plaintiff, including a profit."

Adcock, 534 F.3d at 642 (quoting United States v. Havens, 424 F.3d 535, 537 (7th Cir.2005), further quoting United States v. Scott, 405 F.3d 615, 618, 619 (7th Cir.2005)) (other citations omitted). See also Scott, 405 F.3d at 619 (allowing restitution under § 3663A(b)(1) for a victim's external audit costs because such costs represented a diminution in value of the victim's property).

The time and effort spent by the bank's employees and outside professionals in unraveling the twelve-year embezzlement scheme was a direct and foreseeable result of the defendant's conduct that contributed to the diminution of the value of the bank's property. See § 3663A(b)(1); Scott, 405 F.3d at 619. See also United States v. Donaby, 349 F.3d 1046, 1054-55 (7th Cir. 2003). The bank's activities were also an important part of "the investigation ... of the offense." § 3663A(b)(4); Adcock, 534 F.3d at 643. The sentencing judge was selective. She included only those costs related to uncovering Hosking's fraud. This was not an abuse of discretion.

Hosking argues that even if it was proper to include this category of costs in the restitution award, the sentencing judge nevertheless erred by failing to provide a complete accounting of those costs. Instead, she cut the amount recommended by the probation office for in-house investigation costs in half, and announced without elaboration that the reduced amount was "clearly legitimate." We agree with Hosking that more is needed, both from the government and the district court.

As stated above, supra n. 2, restitution under the VWPA and the MVRA is awarded and enforced according to 18 U.S.C. § 3664. The district court is required to base its restitution order, to the extent practicable, on "a complete accounting" of the loss. Id. § 3664(a). If the presentence report or other report of the loss is insufficient for this purpose, the court may require additional documentation or hear testimony. Id. § 3664(d)(4). The court may refer any issue, including the amount of loss, "to a magistrate judge or special master for proposed findings of fact." Id. § 3664(d)(6). The court is required to resolve any dispute over the amount of loss by a preponderance of the evidence, and the government has the burden of proving the loss. Id. § 3664(e). The court is required to order restitution in the full amount of the victim's losses, "without consideration of the economic circumstances of the defendant." Id. § 3664(f)(1)(A).

Based on the foregoing statutory provisions, we have held that "the VWPA recognizes that specific findings of fact reflected in the record still are necessary at times and contemplates that district courts provide an explanation of their reasoning, supported by articulated findings of fact." United...