US v. Rich, 08-30153.

• Decision Date: 03 May 2010
• Docket Number: No. 08-30153.,08-30153.
• Citation: 603 F.3d 722
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Michael Marks RICH, aka Richard Forbes Williams, aka Richard Morgan Forbes, aka Michael Richard Brown, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

603 F.3d 722

UNITED STATES of America, Plaintiff-Appellee,
v.
Michael Marks RICH, aka Richard Forbes Williams, aka Richard Morgan Forbes, aka Michael Richard Brown, Defendant-Appellant.

No. 08-30153.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 5, 2009.

Filed May 3, 2010.

603 F.3d 723

Kevin W. Bons, Beckley Law Firm, P.C., Eugene, OR, argued the cause for the defendant-appellant. Kelly R. Beckley filed the briefs.

Kelly A. Zusman, Assistant United States Attorney, argued the cause for the plaintiff-appellee and was on the briefs. Sean B. Hoar, Assistant United States Attorney, filed the briefs. Karin J. Immergut, United States Attorney, Kent S. Robinson, Acting United States Attorney, and Robert Nesler, Assistant United States Attorney, also were on the briefs.

Before: DIARMUID F. O'SCANNLAIN and N. RANDY SMITH, Circuit Judges, and CHARLES WOLLE,^* Senior District Judge.

O'SCANNLAIN, Circuit Judge:

We consider whether the estate of a criminal defendant who dies pending appeal of his fraud conviction must continue to pay restitution to victims.

I

Michael Rich operated Pac Equities, a real estate investment firm. As president of the firm, he solicited investors with promises of high annual returns and low loan-to-value ratios, touting his prior successes. Unfortunately, Pac Equities was a Ponzi scheme. Over the course of several years, Rich and Pac Equities defrauded over 300 individuals of approximately $16 million. A grand jury charged Rich and co-defendant Pac Equities in a twenty-seven count superseding indictment with securities fraud, bank fraud, wire fraud, mail fraud, money laundering, obstruction of justice, and filing a false tax return.

After indictment, Rich violated his pre-trial release conditions by spending over $600,000, part of it in a Las Vegas casino. He subsequently agreed to the appointment of a temporary receiver both to preserve the assets held by or seized from the defendants and to distribute them to victims of his scheme. The magistrate judge, the government prosecutor, and the defense counsel all signed the temporary receivership stipulated order, dated March 14, 2006, over 18 months prior to the trial.

A few months later, the temporary receivership was converted to a permanent receivership through a permanent receivership stipulated order dated October 24, 2006 ("Receivership Order") signed by counsel for both parties and the magistrate judge. Subsequent to his permanent appointment, the receiver began recovering and disposing of property. By April 2, 2007, approximately seven months before Rich's trial, the receiver had returned nearly $3 million of seized assets to victims.

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After a ten-day trial, a jury found Rich guilty of twenty-six of the twenty-seven counts of the superseding indictment.¹ It also returned special forfeiture verdicts finding that all the property described in the superseding indictment derived from the fraudulent scheme, and thus was forfeitable. Three months later, after the trial but before sentencing, the permanent receiver returned an additional $3 million to victims from the seized assets for a total of $5,818,009.55.

On May 7, 2008, the district judge sentenced Rich to a 236-month term of imprisonment.² It also ordered Rich to pay a special fee assessment of $2,400, or $100 for each count on which he was convicted. Most importantly for our purposes, the court ordered Rich and Pac Equities, jointly and severally, to pay restitution of over $10 million dollars ("Restitution Order"), the amount of the loss to investors remaining after deducting funds already returned to victims or held by the Receiver.

Rich timely appealed on May 9, 2008. But on June 2, 2008, before his appeal could be heard, Rich passed away. His counsel subsequently moved to abate and to dismiss the appeal and all criminal proceedings, which the government opposed. A motions panel of this court denied the motions "without prejudice to renewing the arguments in the merits briefs."

II

A

Rich now challenges the denial of his motions to abate the conviction and all criminal proceedings. There is no doubt that "death pending appeal of a criminal conviction abates not only the appeal but all proceedings in the prosecution from its inception." United States v. Oberlin, 718 F.2d 894, 895 (9th Cir.1983) (citing Durham v. United States, 401 U.S. 481, 91 S.Ct. 858, 28 L.Ed.2d 200 (1971) (per curiam)). This principle, called the rule of abatement ab initio, prevents, among other things, recovery against the estate of a fine imposed as part of the conviction and sentence and use of an abated conviction against the estate in related civil litigation. The rationale for abatement ab initio is that "the interests of justice ordinarily require that the deceased not stand convicted without resolution of the merits of his appeal." Oberlin, 718 F.2d at 896 (quoting United States v. Moehlenkamp, 557 F.2d 126, 128 (7th Cir.1977)). Thus, in our case, there is no doubt that Rich's conviction and any outstanding fines must be abated, and that his indictment must be dismissed.³

B

But, Rich also argues that the Restitution Order for $10 million should also be abated.⁴ In Rich's view, abatement of the

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Order will not only eliminate requirements of future payments, but also will result in the return of all the property titled in his name that is currently in the possession of the receiver and of amounts previously returned to victims pursuant to the Restitution Order. The government strenuously objects, responding that the Restitution Order should not abate and that, even if it does, moneys the receiver currently possesses or has already disbursed should not be refunded.

As the foregoing suggests, the parties' contentions are muddied by the coexistence of a pre-conviction Receivership Order and a post-conviction Restitution Order. For example, Rich refers to moneys that already have been paid pursuant to the Restitution Order. But there are no such moneys. The only moneys that already have been paid to victims were those disbursed by the receivership, but those distributions occurred prior to the sentencing when there was no Restitution Order. Rich could not have paid moneys to victims pursuant to a Restitution Order that did not exist.

Because of this confusion, we must examine the nature of the interaction of the Receivership Order and the Restitution Order and then address the consequences of Rich's death upon each.

III

A

We focus on the Receivership Order, and not the temporary receivership stipulated order, because the permanent order remains operative. It does not differ in relevant part from the temporary order and both orders predate the conviction and Restitution Order.

The Receivership Order provided for appointment of a receiver to take from Rich the property he fraudulently obtained from investors and to restore it to them. The court found that "good cause exists to believe that Rich engaged in securities fraud and other crimes, and that pursuant to various laws, the real and personal property referenced in this Order is forfeitable and should be restored to all persons who have suffered pecuniary harm as the result of such violations." Consequently, the court ordered that, as of May 30, 2006:

Receiver shall hereafter be allowed to take possession and control of all assets that appear to be the proceeds of Defendant's fraudulent activity, subject to the claims by Defendant and/or Phyllis Rich that such assets are not proceeds of fraud, and to manage or dispose of such assets in order to restore such property to persons who have suffered pecuniary harm as a result of unlawful business practices associated with Defendant.

Under that power, the receiver was authorized to "implement a claims handling and equitable distribution process to investors and creditors" and empowered "to sell or otherwise dispose of any real or personal property without further order of this Court."

The court also "retained jurisdiction over the action for the purposes of implementing and carrying out the terms of all orders and decrees which may be entered herein." In particular, the Receivership Order empowered the receiver "to seek further instructions from this Court as to any matter pertaining to administration of the Receivership." The court also retained

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the power to adjudicate any claim by Rich that assets "discovered and/or seized" by the receivership "are not the proceeds of fraud." "If the claim cannot be resolved," the court ordered, "the Receiver shall bring the matter to the attention of the Court and the Court shall have jurisdiction to determine the Defendant's claim."

B

By contrast, the Restitution Order was created approximately two years later and accompanied the judgment of conviction, the sentence of imprisonment, and a special fee assessment. Specifically, the court ordered that Rich "shall pay full restitution, payable immediately in full, to the victims identified in the clerk's office." It specified that he "is to receive credit for the April 2, 2007 distribution from the Receiver to the victims in the amount of $2,818,009.55, as well as the March 6, 2008 distribution from the Receiver to the victims in the amount of $3,000,000." Consequently, it required that Rich "pay the remaining restitution, $10, 362,689.81, joint and several with Phyllis Richand Pac Equities." The court waived interest on the amount because of the defendants' inability to pay such interest.

The Restitution Order did not limit the source of payment to proceeds from Rich's crimes. This makes sense, as orders of restitution are generally not so restricted. Such practice explains why, when considering whether to order restitution under the Victim and Witness Protection Act ("VWPA"), 18 U.S.C. § 3663, courts consider the convicted defendant's "financial needs and earning ability." 18 U.S.C. § 3663(a)(1)(B)(i)(II). It also explains why a...