U.S. v. Varrone

• Decision Date: 30 January 2009
• Docket Number: Docket No. 07-4533-cr.
• Citation: 554 F.3d 327
• Parties: UNITED STATES of America, Appellee v. Michael VARRONE, Ramon Calvo, Rolf Anderson, Dana Schwartz Castello, Defendants, Joseph A. Castello, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

554 F.3d 327

UNITED STATES of America, Appellee v. Michael VARRONE, Ramon Calvo, Rolf Anderson, Dana Schwartz Castello, Defendants, Joseph A. Castello, Defendant-Appellant.

Docket No. 07-4533-cr.

United States Court of Appeals, Second Circuit.

Argued: August 28, 2008.

Decided: January 30, 2009.

Burton T. Ryan, Jr., Assistant United States Attorney (David C. James, Diane Leonardo-Beckmann, on the brief), for Benton J. Campbell, United States Attorney for the Eastern District of New York, Brooklyn, NY, for appellee.

Murray E. Singer, Great Neck, NY, for defendant-appellant.

Before: CALABRESI, SOTOMAYOR, and B.D. PARKER, Circuit Judges.

SOTOMAYOR, Circuit Judge:

Defendant-appellant Joseph A. Castello appeals from the September 26, 2007 judgment of the United States District Court for the Eastern District of New York (Wexler, J.), following his conviction, after a jury trial, of failure to file Currency Transaction Reports ("CTRs") in violation of 31 U.S.C. §§ 5313, 5322(a). The district court sentenced Castello principally to 60 months' incarceration, a $250,000 fine, $300,000 in restitution, and forfeiture of $12,012,924 and any interest in real property located at 47 Alpine Road, Greenwich, Connecticut ("47 Alpine Road"). The district court discussed forfeiture in both its judgment and in a separate forfeiture order.¹ Castello challenges the forfeiture and restitution ordered by the district court. We conclude that we lack an adequate factual record to determine whether the forfeiture ordered by the district court constitutes an excessive fine, and we therefore vacate the district court's order of forfeiture in the judgment and in its separate forfeiture order and remand to the district court to make factual findings regarding the four factors set forth in United States v. Bajakajian, 524 U.S. 321, 337-39, 118 S.Ct. 2028, 141 L.Ed.2d 314 (1998). We also vacate the judgment's order of restitution, holding that the district court lacked authority under Hughey v. United States, 495 U.S. 411, 110 S.Ct. 1979, 109 L.Ed.2d 408 (1990) and United States v. Gill, 523 F.3d 107 (2d Cir.2008) (per curiam) to impose as a condition of supervised release restitution to a victim of a fraud who wrote a check cashed by Castello because the victim's losses were not directly caused by Castello's failure to file CTRs. In a companion summary order issued today, we affirm Castello's judgment of conviction.

BACKGROUND

Castello was convicted, following a jury trial, of failing to file CTRs for checks he cashed as part of his check-cashing business, in violation of 31 U.S.C. §§ 5313, 5322(a).² Under those statutes and an accompanying regulation, a financial institution must file a CTR with the United States Secretary of Treasury whenever it is involved in a transaction for the payment of currency that exceeds $10,000. See §§ 5313, 5322(a); 31 C.F.R. § 103.22. The government submitted evidence that Castello cashed over $200 million in checks for which he should have filed CTRs.

By judgment dated September 26, 2007, the district court sentenced Castello to 60 months' imprisonment, to be followed by three years' supervised release. The court also ordered Castello to pay a $250,000 fine, $300,000 in restitution to Mr. Leo Bruss, a $100 special assessment, and forfeiture of $12,012,924 and any interest in real property located at 47 Alpine Road. The $250,000 fine was the maximum authorized under the applicable statute and sentencing guideline.

The parties had agreed to have the district court decide the amount of any forfeiture. The government sought a money judgment of $9,341,051.81, which it argued represented four percent of the checks exceeding $10,000 that Castello cashed without filing CTRs. The government also sought asset forfeiture of (1) any interest in real property located at 47 Alpine Road, and (2) funds in or transferred through or to a named Citibank account, up to and including the sum of $2,671,872.50. United States v. Castello, No. Cr. 04-336, 2007 WL 2778686, at *1 (E.D.N.Y. Sept. 17, 2007).

The district court agreed that the forfeiture sought by the government was warranted, and signed a preliminary order of forfeiture on September 17, 2007, and a final order of forfeiture on September 25, 2007. The district court found that the money judgment sought by the government was "properly representative of the fees earned by Castello for cashing checks in excess of $10,000 for which no CTRs were filed. ... [and therefore] represent[ed] a proper amount subject to forfeiture." Id. at *2. The court also found that "the assets identified [were] properly traceable to the crime," because "[t]he Citibank account was used by Castello to conduct his check cashing business," and "the Government has submitted more than sufficient evidence demonstrating that the funds in that account were used in construction of 47 Alpine Road." Id. The district court concluded that "the Government has proved, by the required preponderance of the evidence, that the money judgment sought and assets sought to be forfeited were involved in the offense for which Castello was convicted and traceable thereto." Id.

The district court also concluded that the forfeiture order did not violate the Excessive Fines Clause of the Eighth Amendment, distinguishing United States v. Bajakajian, 524 U.S. 321, 118 S.Ct. 2028, 141 L.Ed.2d 314, in which the Supreme Court held that forfeiture of $357,144 in currency that a defendant failed to report when exiting the United States constituted an excessive fine. Castello, 2007 WL 2778686, at *3. The district court argued that while the Bajakajian defendant was convicted of a single failure to report, Castello's crime involved thousands of separate transactions over nearly a decade. Furthermore, while Bajakajian involved the forfeiture of the entire amount involved in the crime, Castello's forfeiture was based only on the fee he charged for cashing the checks.³ The district court concluded that the amount sought by the government was "fair, reasonable and well-supported by the evidence of record." Id.

With respect to the court's order that Castello pay restitution to Bruss, the government submitted evidence at trial that Bruss was the victim of a fraudulent scheme by a company called New Way Capital, and that Castello's business had cashed a $300,000 check that Bruss had sent to New Way Capital. Castello later spoke to Bruss, described himself as an honest man, and falsely stated that he paid all of his taxes. At sentencing, the district court judge stated that this evidence of Castello's misrepresentation to Bruss, a "poor retiree," "st[ood] out in [his] mind," and ordered Castello to pay restitution for the money Bruss had lost through the fraud.

Castello argues on appeal that the forfeiture imposed by the district court was unauthorized by statute and violates the Excessive Fines Clause. He also argues that the court lacked authority to order restitution to Bruss as part of his sentence.

DISCUSSION

A. Forfeiture

As an initial matter, Castello argues that the forfeiture was not authorized under 31 U.S.C. § 5317(c) because the money and assets subject to forfeiture were not "instrumentalities" of Castello's crime, citing Bajakajian, 524 U.S. at 333-34, 118 S.Ct. 2028. We reject this argument because Castello misconstrues Bajakajian's analysis. The Supreme Court never stated that only instrumentalities of an offense—property that was the actual means by which an offense was committed—could be subject to criminal forfeiture. Rather, it held that it is "irrelevant whether [the forfeited] currency is an instrumentality" for purposes of determining whether a criminal forfeiture constitutes an excessive fine. Id. at 333, 118 S.Ct. 2028 (emphasis added). Furthermore, § 5317(c)(1)(A) is not limited to forfeiture of instrumentalities of an offense; rather, it mandates forfeiture of "all property, real or personal, involved in the offense and any property traceable thereto." 31 U.S.C. § 5317(c)(1)(A) (emphasis added); see also United States v. Schlesinger, 396 F.Supp.2d 267, 271 (E.D.N.Y.2005) (interpreting nearly identical language in 18 U.S.C. § 982 and stating that the "term `involved in' has consistently been interpreted broadly by courts to include any property involved in, used to commit, or used to facilitate" the offense), aff'd 514 F.3d 277 (2d Cir.2008). Castello never argues that the property the district court ordered forfeited fails to meet this broader definition.

Castello also argues, as he did before the district court, that the forfeiture order violates the Excessive Fines Clause of the Eighth Amendment. We consider this argument de novo, and we are bound by the district court's factual findings unless they are clearly erroneous. Bajakajian, 524 U.S. at 336-37 & n. 10, 118 S.Ct. 2028.

A criminal forfeiture is unconstitutionally excessive if "it is grossly disproportional to the gravity of a defendant's offense." Id. at 334, 118 S.Ct. 2028. In Bajakajian, a defendant pleaded guilty to failing to report exported currency, and the government sought forfeiture of $357,144, the entire currency amount that the defendant failed to declare. Id. at 324-25, 118 S.Ct. 2028. The Supreme Court held that full forfeiture in those circumstances would violate the Excessive Fines Clause. Id. at 324, 118 S.Ct. 2028. In applying Bajakajian, we have noted that

[a]mong the factors the [Bajakajian] Court considered [in determining whether the forfeiture was excessive] were [1] "the essence of the crime" of the [defendant] and its relation to other criminal activity, [2] whether the [defendant] fit into the class of persons for whom the statute was principally designed, [3] the maximum sentence and fine that could have been imposed, and [4] the nature of the harm caused by the [defendant's] conduct.

United States v. Collado, 348 F.3d 323, 328 (2d Cir.2003) (per curiam) (citing Bajakajian, 524 U.S. at 337-39, 118 S.Ct. 2028...