United States v. Whipple

• Decision Date: 21 December 2015
• Docket Number: 1:15-CR-00103 EAW
• Citation: 155 F.Supp.3d 321
• Parties: United States of America, v. Michael Whipple, Defendant.
• Court: U.S. District Court — Western District of New York

155 F.Supp.3d 321

United States of America,

v.Michael Whipple, Defendant.

1:15-CR-00103 EAW

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

Signed December 21, 2015

Trini E. Ross, U.S. Attorney's Office, Buffalo, NY, for United States of America.

Rodney O. Personius, Personius Melber LLP, Buffalo, NY, for Defendant.

DECISION AND ORDER

ELIZABETH A. WOLFORD, United States District Judge.

I. INTRODUCTION

On July 7, 2015, Defendant Michael Whipple (“Defendant”), a former employee of M & T Bank, pled guilty to a one-count felony information charging financial institution fraud in violation of 18 U.S.C. § 1344. (Dkt.2). Sentencing was originally scheduled for October 7, 2015 (Dkt.5), but subsequently adjourned at the request of defense counsel to November 12, 2015, in order to allow time for Defendant to be deposed in a civil matter pending in New York State Supreme Court, Erie County, entitled M & T Bank v. Client Server Direct, Inc., et al. v. Whipple, et al. (Index No. 812932/2014) (“Erie County Civil Matter”) (Dkt.7).

On November 6, 2015, the Court received materials submitted by Client Server Direct, Inc., ACN Properties, LLC, Leap Analytix, LLC, and Jeffrey and Holly Drilling¹ (collectively, the “CSD Parties”), consisting of affidavits submitted in connection with the sentencing of Defendant and attached exhibits, alleging that they were financially injured by the conduct of Defendant and are therefore victims of Defendant's crime, as defined by the Crime Victims' Rights Act, 18 U.S.C. § 3771. The CSD Parties represented that the material submitted had been generated, at least in part, from the Erie County Civil Matter. The CSD Parties requested that the aforementioned materials be filed under seal. The Court directed the Government and Defendant to file by November 10, 2015, papers setting forth their positions with respect to the CSD Parties' allegations that they were victims of Defendant's crime. (Dkt.11).

On November 6, 2015, the Court granted the Government's request to extend the time to file a response to the CSD Parties' submissions to November 17, 2015. (Dkt.12). Sentencing was adjourned to December 9, 2015. (Id. ). The Court received the Government's response on November 16, 2015, and Defendant submitted his response the following day. Both the Government and Defendant argued that the CSD Parties do not qualify as victims of Defendant's crime. The Government and Defendant agreed with the CSD Parties' contention that their responses should be filed under seal.

On December 2, 2015, the Court received a motion from the CSD Parties requesting that the Court order the Government and Defendant to produce to them “copies of all court papers filed in this matter, particularly its submissions on the sentencing of [Defendant]” in advance of the sentencing hearing scheduled for December 9, 2015, and to provide the CSD Parties with a reasonable opportunity to respond to those submissions.

On December 4, 2015, the Court issued an Order (1) directing the Clerk of Court to file under seal the materials relating to the CSD Parties' status as victims; (2) directing the Government and Defendant to provide to the CSD Parties copies of their submissions relating to the CSD Parties' status as victims, and permitting the CSD Parties to respond to those submissions; and (3) permitting the Government and Defendant to submit any additional materials relevant to the issue of the CSD Parties' status as victims. (Dkt.14). To accommodate the submission of this additional information, the Court adjourned sentencing to December 30, 2015. (Dkt.15).

The Court received the CSD Parties' additional submissions dated December 11, 2015. Defendant submitted reply submissions on December 18, 2015, and the Government submitted reply submissions on December 21, 2015.²

For the following reasons, the Court declines to recognize the CSD Parties as victims of Defendant's crime in connection with this proceeding.

II. THE CSD PARTIES' STATUS AS VICTIMS

A. The CSD Parties' Argument

The CSD Parties move to be recognized as victims of Defendant's crime, such that they would be entitled to all of the privileges afforded to crime victims under federal law, including “the right to receive copies of submissions and be heard with regard to Mr. Whipple's sentencing, and to dispute the Government's position that M & T was the only victim of Mr. Whipple's crimes.” (Dec. 11, 2015 Memo of Law, p. 2; see also Nov. 24, 2015 Memo of Law, p. 2). The CSD Parties also clarify that they are not seeking an award of restitution, and concede that the Erie County Civil Matter “is the appropriate forum for them, after full discovery, to prove both the extent of the crimes committed against them and the extent of the damages to which they are entitled—both against Mr. Whipple and against M & T and its officers.” (Dec. 11, 2015 Memo of Law, p. 1–2).

The CSD Parties contend that they are victims of Defendant's crime because their identities were stolen by Defendant, and this identity theft was “the method by which the single crime that is the subject of Mr. Whipple's plea bargain was committed.” (Id. at 1). Specifically, the CSD Parties contend that Defendant forged the signatures of Jeffrey and Holly Drilling, and issued and funded fraudulent loans “to the beneficiaries of Mr. Whipple's largesse,” secured by the Drillings' assets. (Id. ; see also Nov. 24, 2015 Memo of Law, p. 4–5). Specifically, the CSD Parties maintain that Defendant advanced almost $32 million in a revolving line of credit secured by the Drillings' companies' assets, and ultimately left the CSD Parties burdened by over $10 million, which resulted in financial difficulties to the CSD Parties. (Nov. 24, 2015 Memo of Law, p. 5). These difficulties included suspension and termination of their credit, the sale of real estate and cashing out life insurance so that the Drillings' businesses could survive, the destruction of their credit, and the shut-down of their businesses. (Id. ; see also Victim Declaration of Jeffrey Drilling, dated Dec. 11, 2015, p. 2). The CSD Parties argue that these injuries have a sufficient nexus with the crime to which Defendant pled guilty. (Nov. 24, 2015 Memo of Law, p. 3; Dec. 11, 2015 Memo of Law, p. 3).

There is no claim by the CSD Parties that they were required to repay any of the fraudulent loans obtained by Defendant. Rather, it appears undisputed that M & T Bank closed out all of the fraudulent loans once Defendant's conduct was discovered (thus the reason that M & T Bank is identified as the victim in Defendant's plea agreement, as it advanced funds that were never recovered). Nonetheless, the CSD Parties contend that Defendant's conduct irrevocably damaged their credit worthiness, and ultimately led to the destruction of their businesses.

The CSD Parties also contend that Defendant should have been charged with identity theft, and the Government's failure to pursue that charge resulted in denial of relief to the CSD Parties, as well as to other customers of M & T who were victimized by Defendant, but never informed of identity theft. (December 11, 2015 Memo of Law, p. 9; see also Nov. 24, 2015 Memo of Law, p. 5).

B. Designation of Victims

The CVRA affords certain rights to victims of a crime. The statute defines a victim as “a person directly and proximately harmed as a result of the commission of a Federal offense....” 18 U.S.C. § 3771(e)(2)(A). “Under the CVRA, certain specific rights are acknowledged [for crime victims], including the ‘right to be reasonably protected from the accused;’ the ‘right to be reasonably heard at any public proceeding in the district court involving release, plea, sentencing, or any parole proceeding;’ and the ‘reasonable right to confer with the attorney for the Government in the case.’ ” United States v. Tonawanda Coke Corp., 5 F.Supp.3d 343, 348 (W.D.N.Y.2014) (quoting 18 U.S.C. § 3771(a) ). It is these privileges with which the CSD Parties wish to avail themselves.

A victim must show direct and proximate harm, which “encompasses the traditional ‘but for’ and proximate cause analyses.” In re Rendon Galvis, 564 F.3d 170, 175 (2d Cir.2009). “The necessary inquiry is a fact-specific one.” Id. Generally, the district court is in the best position to determine whether relief may be afforded pursuant to the CVRA, and to develop reasonable procedures for affecting the rights afforded to victims under the CVRA. See United States v. Rigas, 409 F.3d 555, 562 (2d Cir.2005). The fact that the Government has not sought restitution on behalf of a particular party is not determinative of that party's status as a victim; rather, a district court must “consider[ ] whether there are potential victims and whether the court should exercise its discretion to order restitution....” United States v. Atl. States Cast Iron Pipe Co., 612 F.Supp.2d 453, 533 (D.N.J.2009).

In addition to the rights listed above, a victim is also entitled to “[t]he right to full and timely restitution as provided in law.” 18 U.S.C. § 3771(a)(6). Other federal statutes set out the procedures for courts awarding restitution to crime victims. The Victim and Witness Protection Act, 18 U.S.C. § 3663 (“VWPA”), allows a court to order that a defendant pay restitution to crime victims. The Mandatory Victim Restitution Act, 18 U.S.C. § 3663A (the “MVRA”), makes restitution mandatory for victims of certain types of crimes. The MVRA would apply in this case because Defendant pled guilty to a crime involving an offense against property. See 18 U.S.C. § 3663A(c)(1)(A)(ii) (MVRA applies to “an offense against property ... including any offense committed by fraud or deceit”). Accordingly, if the Court were to recognize the CSD Parties as victims of Defendant's crime, it would generally be required to order restitution in their favor as part of sentencing in this case.³

Both the Government and Defendant argue that the CSD Parties are not entitled to victim status because the CSD Parties have not established that...