United States v. Dharia

• Decision Date: 09 January 2018
• Docket Number: 14–CR–390,15–CR–367
• Citation: 284 F.Supp.3d 262
• Parties: UNITED STATES of America, v. Falgun DHARIA
• Court: U.S. District Court — Eastern District of New York

284 F.Supp.3d 262

UNITED STATES of America,

v.Falgun DHARIA

14–CR–390

15–CR–367

United States District Court, E.D. New York.

Signed January 9, 2018

Filed January 10, 2018

Robert S. Wolf, Robert Barnes McFarlane, Moses & Singer, 405 Lexington A venue, New York, NY 10174, 212–554–7800, Fax: 212–554–7700, Email: rwolf@mosessinger.com, for Falgun Dharia.

Jacquelyn M. Kasulis, United States Attorneys Office, 271 Cadman Plaza East, Brooklyn, NY 11201, 718–254–6103, Fax: 718–254–6076, Email: jacquelyn.kasulis@usdoj.gov, for United States of America.

Soma Sultana Syed, Soma Syed & Associates, 118–21 Queens Boulevard, Suite 606, Forest Hills, NY 11375, 718–261–2003, Fax: 347–923–3210, Email: soma.syedesq@gmail.com, for PRP Neptune Beach LLC, PRP Brooklyn Eatery LLC.

Lauren Mary Paxton, OlenderFeldrnan LLP, 422 Morris Avenue, Summit, NJ 07901, 908–964–2485, Fax: 908–810–6631, Email: lpaxton@olenderfeldman.com, for Shailendra Bhawnani, Vision One Hospitality, LLC.

MEMORANDUM AND ORDER

Jack B. Weinstein, Senior United States District Judge

Contents

I. Introduction...264

II. Facts...264

A. Background...264

B. Relevant Portion of Information ...265

III. Law...267

A. Statutory Framework...267

B. Burden on Sentencing and Complexity...268

C. Double Recovery...270

D. Remission or Mitigation...270

IV. Application of Law to the Facts...271

A. Victims Under the MVRA...271

B. Complexity and Burden...273

C. Prudential Considerations...274

V. Conclusion...275

I. Introduction

Providing restitution to victims of crimes is one of the goals of the criminal justice system. See, e.g., 18 U.S.C. § 3663A (providing restitution to victims). But, where restitutionary interests frustrate important sentencing principles or due process, restitution must give way. See, e.g., American Law Institute, Model Penal Code: Sentencing (Proposed Final Draft), App. B at 613 (2017) ("When core interests of public safety and recidivism reduction do not conflict with an award of victim restitution ....").

Congress passed the Mandatory Victim Restitution Act of 1996 to provide relief to victims "directly and proximately harmed" by a defendant's conduct, not to all persons affected by a defendant's conduct. See id. § 3663A(a)(2).

The court was about to sentence the defendant based on a plea agreement (providing for extensive restitution) when individuals and entities sought intervention claiming to be additional victims of the defendant's crimes. After discovery, they did not show entitlement to restitution. Their claims for restitution are dismissed. The court will sentence the defendant and provide restitution only as agreed to by the defendant and the government in the defendant's cooperation agreement.

Additional claims by the proposed interveners for remuneration may be decided under the Remission or Mitigation procedure, allowing the government to share with other claimants, in its discretion, funds it received in forfeiture from the defendant. See infra Part III(D).

II. Facts

A. Background

On October 12, 2017 Defendant Dharia was about to be sentenced by the court. See Oct. 12, 2017 Hr'g Tr. Several individuals, and attorneys representing entities appeared, claiming restitution as victims. Id.

The case was referred to the magistrate judge for discovery. An evidentiary hearing was set for December 19, 2017. See Oct. 13, 2017 Order, ECF No. 46. During the course of discovery, several of the individuals who had attended the sentencing hearing withdrew their claims. Letter of Peter Hurwitz, ECF No. 49, Nov. 7, 2017. This left PRP Brooklyn Eatery, LLC and PRP Neptune Beach, LLC (together, the "PRP Entities"), as new restitution claimants. On November 27, 2017, Shailendra Bhawnani and Vision One Hospitality sought to intervene as restitution claimants. See Nov. 27, 2017 Order, ECF Nos. 57–58.

Discovery, supervised by the magistrate judge, was contentious. Many factual issues were disputed. After a protective order was signed by Kesav Dama, as "Guardian" of Venkaiah Dama, for the PRP Entities, the defendant challenged the authority of Kesav Dama to act on behalf of the PRP Entities. Letter of Robert Wolf, ECF No. 56, Nov. 22, 2017; Letter of Robert Wolf, ECF No. 59, Nov. 29, 2017.

Two of the three counts that require the defendant to pay restitution are based upon the bank fraud statute, 18 U.S.C. § 1344. The other count requiring restitution is for a false statement in a tax return, 26 U.S.C. § 7206.

The conduct to which the defendant pled guilty involved two schemes related to the Small Business Administration (SBA) and bank loans. See Information, ECF No. 2, Aug. 14, 2014. In the first scheme, the defendant submitted SBA guaranteed loan applications to PNC Bank for financing in connection with Houlihan's restaurant franchises. Id. ¶ 7. The defendant hid and distorted his ownership interest in specified companies, allowing him to gain access to loans for which he was not eligible. Id. ¶ 8. Once he obtained these loans from PNC Bank, he misused them for projects and investments not contemplated by the banks and the SBA. Id. ¶ 10. He defaulted on the loans. Id.

The second scheme involved Fidelity Bank of Florida and hotel financing. Id. ¶ 12. The defendant submitted loan applications to the bank in which he made misrepresentations. Id. ¶¶ 13–14. The loans were made. The defendant defaulted. Id.

The defendant has agreed to pay restitution to both PNC Bank and Fidelity Bank of Florida. Cooperation Agreement at 1–2. The government has submitted loss calculations for the banks. Id.; see also Oct. 12, 2017 Hr'g Tr. The total amount of restitution to these two banks agreed to in the cooperation agreement is over $11 million. Id.

Shailendra Bhawnani and Vision One Hospitality base their claim on the assertion that Mr. Bhawnani was an investor in one of the hotels that was part of the fraudulent scheme. See Letter of Lauren Paxton at 2, ECF No. 70, Dec. 8, 2017. They also claim that the defendant made a false statement to procure their investment in the hotel. Id. They already have prevailed on their claim in arbitration and have an unpaid judgement for approximately $1.2 million against the defendant. See Nov. 27, 2017 Order, ECF Nos. 57–58, Ex. A.

The PRP Entities claim that they are entitled to restitution because they provided funds that the defendant used for a down payment on a defaulted bank loan. See Oct. 12, 2017 Hr'g Tr. 10:23–11:4.

B. Relevant Portion of Information

Relevant portions of the criminal information are set out below. They demonstrate that the crimes charged were based on bank fraud with restitution claimed by, and provided for in the cooperation agreement, the banks defrauded.

II. Bank Fraud Schemes

A. PNC Bank

6. In approximately 2003, the defendant FALGUN DHARIA, together with others, obtained the development rights to various Houlihan's Restaurants, Inc. ("Houlihan's") franchises.

7. To obtain funding to develop three of the Houlihan's franchises, including a Houlihan's restaurant in Brooklyn, New York, the defendant FALGUN DHARIA, together with others, submitted applications to PNC Bank for loans, which were partially guaranteed by the SBA.

8. The SBA partnered with approved lending institutions to provide loans with favorable terms to borrowers for starting, acquiring and expanding small businesses. The SBA had personal financial disclosure and guarantee requirements to obtain an SBA-guaranteed loan. For example, at the time that the defendant FALGUN DHARIA, together with others, submitted the loan applications to PNC Bank, the SBA limited a borrower to $2 million in total SBA-guaranteed loans. The SBA also required personal financial statements and guarantees from individuals applying for a loan who had a 20% or more ownership interest in the small business.

9. In or about and between January 2003 and December 2009, the defendant FALGUN DHARIA, together with others, made material misrepresentations in the loan applications submitted to PNC Bank regarding the ownership structure of the three Houlihan's franchises. Specifically, in order to circumvent the SBA's lending requirements, in documentation submitted to the bank, DHARIA minimized his ownership interest in each of the three Houlihan's restaurants and inflated the ownership interests of the other investors. In reality, DHARIA's ownership interest in each of the three Houlihan's restaurants was greater than 20%, thus requiring him to provide personal financial statements and guarantees to the bank for each loan. DHARIA did not comply with these requirements.

10. Once he and his business partners unlawfully obtained the loans from PNC Bank, contrary to the terms of the loans, the defendant FALGUN DHARIA used portions of those loans for other projects and investments. DHARIA did not report his improper use of portions of those loans to PNC Bank or the SBA.

11. The defendant FALGUN DHARIA and his business partners eventually defaulted on the loans obtained from PNC Bank, resulting in millions of dollars of loss to PNC Bank and the SBA.

B. Fidelity Bank of Florida

12. Beginning in approximately January 2006, the defendant FALGUN DHARIA, together with others, purchased approximately five hotels throughout the United States in need of renovation.

13. To obtain financing for these hotels, the defendant FALGUN DHARIA, together with others, submitted applications for approximately five loans to Fidelity Bank of Florida.

14. Each of the five loan applications contained material misrepresentations about the ownership structure of the hotels. Specifically, the defendant FALGUN DHARIA minimized his ownership interest in the hotels and inflated the ownership interests of the other investors to avoid having to provide personal guarantees for the loans.

15. In or about and between January 2006 and December 2010, the defendant FALGUN DHARIA, together with others, obtained five loans from the Fidelity Bank of Florida. DHARIA and his business partners defaulted on those loans, resulting in millions of dollars of loss to Fidelity Bank of Florida.

III. Law

A....