U.S. v. Patty

• Decision Date: 27 April 1993
• Docket Number: No. 92-5078,92-5078
• Citation: 992 F.2d 1045
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Jo Lynn PATTY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1045

992 F.2d 1045

UNITED STATES of America, Plaintiff-Appellee, v. Jo Lynn PATTY, Defendant-Appellant.

No. 92-5078.

United States Court of Appeals Tenth Circuit.

April 27, 1993.

Frank M. Hagedorn, James J. Poszek, and Claire V. Eagan, of Hall, Estill, Hardwick, Gable, Golden & Nelson, Tulsa, OK, for defendant-appellant.

Tony M. Graham, U.S. Atty., Susan W. Pennington, Asst. U.S. Atty., Tulsa, OK, for plaintiff-appellee.

Before TACHA, BALDOCK and KELLY, Circuit Judges.

BALDOCK, Circuit Judge.

Defendant Jo Lynn Patty appeals the restitution portion of her sentence, claiming that the district court improperly included attorney fees and prejudgment interest in its restitution order as to certain victims, that the government failed to show that Defendant's fraudulent acts caused some of the victims' losses, and that the sentencing court abused its discretion in determining that Defendant had the ability to pay the restitution award. We have jurisdiction under 18 U.S.C. § 3742(a).

From the time she was twenty until the businesses declared bankruptcy seventeen years later, Defendant was responsible for the day-to-day operations of two businesses owned by her father--Patty Precision Products Company ("Patty Precision") and Vogue Coach Company ("Vogue"). Defendant served as officer and director of Patty Precision, a manufacturing company which contracted with the United States Department of Defense. Defendant also served as officer and director of Vogue, which constructed and sold luxury motor homes. Patty Precision and Vogue filed bankruptcy in October and November 1990.

The record on appeal reflects that Defendant, who had sole responsibility for the negotiation of government contracts and bank loans, began to defraud the Department of Defense and various financial institutions when Patty Precision and Vogue began experiencing financial difficulties. On January 10, 1991, the grand jury indicted Defendant on three counts of fraud. Counts one and two alleged that from August 1986 to May 1990, Defendant knowingly and willfully made false or fraudulent claims upon and against the United States Department of Defense in violation of 18 U.S.C. § 287. Count three charged that from June 1990 to August 1990, Defendant knowingly and willfully executed a scheme to defraud WestStar Bank ("WestStar"), a federally insured financial institution, by means of false and fraudulent representations in violation of 18 U.S.C. § 1344.

Defendant pleaded guilty to all three counts. In exchange for Defendant's guilty plea, the government agreed not to charge her with defrauding two other federally insured financial institutions. Defendant further agreed that by pleading guilty, she was admitting that she had committed fraudulent acts involving the victims named in the indictment--i.e., the Department of Defense and WestStar--and also that she had committed fraudulent acts against two other federally insured financial institutions, First National Bank of Pryor ¹ ("First Pryor") and Fourth National Bank ("Fourth National"), as well as two other financial entities, General Electric Capital Corporation ("General Electric") and Transamerica Finance Company ("Transamerica"). Defendant additionally agreed that she would pay restitution to all of the entities that she admitted to defrauding, including those not named in the indictment, and that total restitution would not exceed $25,000,000.

On March 30, 1992, Defendant was sentenced to 33 months imprisonment, three years supervised release, and payment of restitution in the amount of $7,644,498.04, payable during the period of incarceration and supervised release. Defendant's assets at the time of sentencing included $240 cash, a 1983 Cadillac valued at $2,800, real estate with a market value of $70,000, and life insurance policies with a cash value of $28,950, for a total of $101,990. Defendant had liabilities totaling more than $3,261,000. Based on these figures, Defendant had a deficit net worth of approximately $3,159,000. She had been forced into Chapter 7 bankruptcy proceedings by her creditors in December 1990. Defendant is a high school graduate with 100 college hours, and her only employment has been as manager and director of her father's companies. She earned $73,000 in 1988 as manager of these companies, and $40,000 in 1990. Since Patty Precision and Vogue declared bankruptcy in October and November 1990, Defendant has been unemployed with no source of income other than unemployment benefits. The district court, after recognizing that Defendant presently did not have sufficient assets to pay the restitution in full, found that "her employment history, her talent, [and] her ability would indicate that she has above average income potential," and therefore, indicated that she had the ability to pay the entire amount of restitution.

Defendant does not contest the amount of restitution owed to the Department of Defense, except with regard to her ability to pay the award. She does, however, contest the amounts owed to WestStar, First Pryor, Fourth National, and General Electric because they included attorney fees and prejudgment interest. Additionally, she contests the amounts owed to WestStar, First Pryor, Transamerica, Fourth National, and General Electric because she claims the government failed to prove by a preponderance that her fraudulent acts caused the calculated losses.

I.

We first address Defendant's assertion that the sentencing court improperly included attorney fees and prejudgment interest in her restitution obligations to some of the victims. In Defendant's presentence report, the probation officer listed the net losses incurred as a result of the fraudulent loans by WestStar, First Pryor, Transamerica, Fourth National, and General Electric. At the conclusion of the presentence report, the probation officer made restitution recommendations based on forms submitted by these five victims. The restitution recommendations were higher for each victim, with the exception of Transamerica, than the calculated net losses listed earlier in the presentence report. ² Defendant objected to this discrepancy, and the government responded that the recommended restitution amount added attorney fees and prejudgment interest to the net losses listed earlier in the presentence report. Defendant made no further arguments to the sentencing court regarding the discrepancy but now argues on appeal that the restitution award improperly included attorney fees and prejudgment interest.

Although Defendant failed to specifically object to the inclusion of attorney fees and prejudgment interest, we address these issues because the imposition of an illegal restitution order constitutes plain error. United States v. Herndon, 982 F.2d 1411, 1420 (10th Cir.1992) (citing United States v. Wainwright, 938 F.2d 1096, 1098 (10th Cir.1991)). Under the plain error standard, we will not review a district court's factual findings relating to sentencing, United States v. Saucedo, 950 F.2d 1508, 1518 (10th Cir.1991), cert. denied, --- U.S. ----, 113 S.Ct. 1343, 122 L.Ed.2d 725 (1993), but will review for "particularly egregious" or "obvious" and "substantial" legal error, which our failure to consider would result in a "miscarriage of justice." Id. at 1511, 1516-17. See also United States v. Young, 470 U.S. 1, 15, 105 S.Ct. 1038, 1046, 84 L.Ed.2d 1 (1985).

A.

There must be "specific statutory authority for an award of attorney[ ] fees and expenses." United States v. Diamond, 969 F.2d 961, 968 (10th Cir.1992). Under the Victim Witness Protection Act ("VWPA"), 18 U.S.C. §§ 3663-3664, a victim can recover only those losses "sustained by any victim as a result of the offense," 18 U.S.C. § 3664; see also Hughey v. United States, 495 U.S. 411, 418, 110 S.Ct. 1979, 1983, 109 L.Ed.2d 408 (1990), or as we defined in Diamond, 969 F.2d at 968, those expenditures that are "directly related" to the defendant's criminal conduct. Diamond states:

In the absence of specific statutory authority for an award of attorney's fees and expenses, we believe Hughey is decisive as it limits the substantive boundaries of restitution under the VWPA to the specific conduct underlying the offense of conviction. 495 U.S. at 413, 110 S.Ct. at 1981. Expenses generated in recovering a victim's losses, therefore, generally are too far removed from the underlying criminal conduct to form the basis of a restitution order. Accordingly, we hold the fees and expenses accrued in liquidating [defendant's company] are not recoverable in restitution, particularly where the government concedes the expenses were not directly related to the criminal conduct for which [defendant] was convicted.

Diamond, 969 F.2d at 968. We construe Diamond as holding that attorney fees incurred by the victim to recover his property are not directly related to the defendant's criminal conduct and thus are not recoverable in restitution under the VWPA. See id. at 968. See also United States v. Mullins, 971 F.2d 1138, 1147 (4th Cir.1992); United States v. Arvanitis, 902 F.2d 489, 497 (7th Cir.1990); United States v. Walker, 896 F.2d 295, 307 n. 26 (8th Cir.1990); United States v. Barany, 884 F.2d 1255, 1261 (9th Cir.1989), cert. denied, 493 U.S. 1034, 110 S.Ct. 755, 107 L.Ed.2d 771 (1990); United States v. Mitchell, 876 F.2d 1178, 1184 (5th Cir.1989). There may be a situation, however, where attorney fees under the VWPA are directly related to a defendant's criminal conduct because they were "sustained by [the] victim as a result of the offense." 18 U.S.C. § 3664. See also Diamond, 969 F.2d at 968. These attorney fees would be recoverable in a VWPA restitution order. Because we cannot discern from the record the nature of the attorney fees in this case, we remand with instructions to the district court to subtract from the restitution obligation any attorney fees not directly related to Defendant's criminal conduct.

B.

Defendant also contends that the...