United States v. Cuti, 08 Cr. 972 (DAB)
| Decision Date | 13 May 2013 |
| Docket Number | 08 Cr. 972 (DAB) |
| Parties | UNITED STATES OF AMERICA, v. ANTHONY CUTI, Defendant. |
| Court | U.S. District Court — Southern District of New York |
On October 14, 2011, the Court referred this matter to the Honorable Henry B. Pitman for a recommendation as to which attorney's fees and expenses, of those paid to Paul, Weiss, Rifkind, Wharton & Garrison LLP ("Paul, Weiss") and to counsel for current and former Duane Reade employees, were subject to restitution by Defendant Anthony Cuti. Magistrate Judge Pitman issued his Report and Recommendation ("Report") on December 21, 2012.
On de novo review of the issue referred to Judge Pitman, the Court holds that $3,102,672.14 of the fees and expenses paid to Paul, Weiss are subject to restitution, and $1,585,125.00 of the fees and expenses paid to counsel for current and former Duane Reade employees are also subject to restitution. After combining these sums with the restitution ordered previously by the Court, the Court orders Defendant Cuti to pay Duane Reade, Inc. ("Duane Reade") $6,145,961.40 in restitution, and subsequently to pay Oak Hill1 $1,469,256.50 in restitution. Payment shall be made at the rate of fifteen percent of Defendant Cuti's gross monthly income, beginning with the second month of supervised release.
The Court assumes familiarity with the facts discussed in the Court's vacated Order and Memorandum of July 29, 2011 and Magistrate Judge Pitman's Report and Recommendation of December 21, 2012, and will discuss only the post-verdict proceedings concerning restitution. On October 18, 2010, Duane Reade and Oak Hill submitted a Victim Impact Statement and Request for Restitution Award, seeking $52,354,707.81 in restitution, broken down as $43,14 9,663.00 for Oak Hill's alleged overpayment for Duane Reade, $1,512,817.25 for legal fees and expenses paid to independent counsel Cooley Godward Kronish LLP, $342,289.62 in fees and expenses paid to AlixPartners LLP for forensic accounting services, $493,000.00 for accounting/auditor fees and expenses paid to KPMG LLP and PricewaterhouseCoopers LLP, $1,711,573.84 for fees and expenses of counsel for current and former Duane Reade employees, $4,566,050.21 for certain fees and expensesof Duane Reade and Oak Hill's counsel, Paul, Weiss,2 and $579,313.89 for the cost of creating and maintaining the Kroll Ontrack Inc. database. (ECF No. 114, Victim Impact Statement and Request for Restitution Award on Behalf of Duane Reade Inc. and the Oak Hill Entities ("Victim Impact Statement") 3; ECF No. 115, Decl. of Daniel J. Beller in Support of Victim Impact Statement ¶¶ 17-41.) The Government also advocated for restitution for Duane Reade and Oak Hill. (ECF No. 121, Government's Sentencing Mem. 21-29.) The Court subsequently held a Fatico hearing on the issues of loss calculation and restitution, and on July 29, 2011 issued an Order and Memorandum declining to award restitution pursuant to 18 U.S.C. §§ 3663(a)(1)(B)(ii), 3663A(c)(3)(B). (ECF No. 162, July 29, 2011 Order and Mem. 15-20.) The Court vacated the July 29, 2011 Order on August 19, 2011. (ECF No. 181, Aug. 19, 2011 Order.) On October 14, 2011, the Court held that the Government had failed to establish that Oak Hill was entitled to restitution for its alleged overpayment for Duane Reade, but awarded full restitution for the costs of the Kroll Ontrack Inc. database and the fees and expenses it paid to Cooley Godward Kronish LLP, AlixPartners LLP, KPMG LLP, and PricewaterhouseCoopers LLP. (ECF No. 200, Oct. 14, 2011 Order.) It referred to MagistrateJudge Pitman the issue of which of the requested attorney's fees paid to company counsel Paul, Weiss and to counsel for current and former Duane Reade employees were directly related to the assistance provided to the Government in its criminal investigation and prosecution of Mr. Cuti. (ECF No. 200, October 14, 2011 Order 2.)
On or about December 13, 2011, Duane Reade and Oak Hill submitted to Judge Pitman a revised restitution request which excised certain charges for work related to the SEC civil action against Mr. Cuti or the arbitration action between Mr. Cuti, Duane Reade, and Oak Hill. (ECF No. 222, Supp. Decl. of Daniel J. Beller in Support of Rev. Req. for Restitution Award ¶¶ 11-15, 23.) The revised request reduced the restitution sought for the Paul, Weiss fees by $901,997.89 and for fees paid to counsel for Duane Reade employees by $125,573.84. (Id.) After Mr. Cuti pointed out additional time entries that did not relate to the criminal case, Duane Reade and Oak Hill submitted another revised request that reduced the restitution sought by a further $487,355.76, to $4,762,696.56. (ECF No. 207, Cuti Mem. in Opp. to Duane Reade and Oak Hill's Rev. Req. for Restitution; ECF No. 208, Decl. of Bruce C. Bishop Exs. H-Q; ECF No. 218, Submissions Made by Duane Reade and Oak Hill at Jan. 13, 2012 Oral Argument; Report 19-21.)
On December 21, 2012, Magistrate Judge Pitman issued a Report and Recommendation recommending that this Court order Defendant Cuti to pay restitution to Duane Reade in the amount of $4,544,634.60.(Report 44.) The total included $1,667,499.67 for fees Duane Reade paid to Paul, Weiss, $1,584,475.00 for fees Duane Reade paid to counsel for current and former Duane Reade employees, and $1,292,659.93 in prejudgment interest at a nine percent rate. (Report 44.) Judge Pitman found that Oak Hill was not a victim and did not award Oak Hill restitution for the fees it paid to Paul, Weiss. (Report 32-37.) Defendant Cuti and Oak Hill/Duane Reade submitted Objections to the Report on February 7, 2013. Responses to these Objections were submitted by Defendant Cuti, Oak Hill/Duane Reade, and the Government on February 28, 2013.
Pursuant to 18 U.S.C. § 3664(d)(6), the Court makes a de novo determination of the issues it referred to Magistrate Judge Pitman on October 14, 2011. 18 U.S.C. § 3664(d)(6) ().
The Victim and Witness Protection Act ("VWPA") authorizes courts to order criminal defendants to compensate the victims of their criminal offenses. See 18 U.S.C. §§ 3663, 3664. Courts may orderrestitution for, inter alia, "necessary . . . expenses related to participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense . . . ." 18 U.S.C. § 3663(b)(4). Such expenses may include attorney's fees and accounting costs. United States v. Battista, 575 F.3d 226, 233 (2d Cir. 2009). The Government bears the burden of demonstrating, by a preponderance of the evidence, the amount of a victim's loss. 18 U.S.C. § 3664(e).
The Mandatory Victims Restitution Act ("MVRA") "makes restitution mandatory for the crimes it covers, and the VWPA enables discretionary restitution for non-MVRA crimes." Battista, 575 F.3d at 231 n.3. As relevant here, the MVRA applies in sentencing proceedings for convictions of "an offense against property under [Title 18 of the U.S. Code] . . . , including any offense committed by fraud or deceit. . . . in which an identifiable victim or victims has suffered a . . . pecuniary loss." 18 U.S.C. §§ 3663A(c)(1)(A)(ii), (B). The Second Circuit Court of Appeals has noted that "[t]he MVRA makes full restitution mandatory for . . . securities fraud." United States v. Dupes, 513 F.3d 338, 345 (2d Cir. 2008). However, to the Court's knowledge, the Court of Appeals has not yet applied the MVRA to the Title 18 offense of which Mr. Cuti was convicted: conspiracyto make false statements in annual and quarterly SEC reports, false statements to auditors, and false entries in books and records, in violation of 18 U.S.C. § 371.
The Second Circuit Court of Appeals recently rejected case law "suggesting that 'offenses against property' are limited to offenses against 'tangible property,' including money." United States v. Bengis, 631 F.3d 33, 40 n.3 (2d Cir. 2011). In doing so, it noted that Second Circuit "precedents dictate that the definition of property is broader than those cases suggest," and cited to United States v. Milstein, 481 F.3d 132, 137 (2d Cir. 2007). Bengis, 631 F.3d at 40 n.3. In Milstein, the Court of Appeals noted that "trademarks are a form of property" and that "intellectual or intangible property falls within the purview of criminal statutes designed to protect property." Milstein, 481 F.3d at 137. The Court of Appeals specifically highlighted, as a basis for its definition of property, the Supreme Court's holding in Carpenter v. United States that "intangible property fell squarely within th[e] protection" of mail and wire fraud statutes. Milstein, 481 F.3d at 137. However, in Carpenter, the Supreme Court noted that while the Wall Street Journal had "a property right in keeping confidential and making exclusive use, prior to publication, of the schedule and contents of [an investment advice] column," an entity does not have a property right in an employee's "honest and faithful service," because such aninterest is "too ethereal in itself to fall within the protection of the mail fraud statute." Carpenter v. United States, 484 U.S. 19, 25-26 (1987).
Pursuant to this case law, the Court holds that Mr. Cuti's Title 18 offense is not an offense against property. Essentially, the conspiracy to make false statements and entries violated Duane Reade's interest in maintaining accurate records and having an honest and faithful employee. These interests fall into the Supreme Court's category of "ethereal" interests. Mr. Cuti was not convicted of breaching confidentiality or of violating Duane Reade's intellectual property rights. Moreover, although the Government...
To continue reading
Request your trial