May 29

U.S. Supreme Court Unanimously Agrees Mandatory Victims Restitution Act Does Not Reach Expenses From Civil Proceedings and Private Investigations

This guest post was authored by Joseph Samuel, a summer associate with Montgomery McCracken.

In a 9-0 decision handed down earlier today in Lagos v. United States, 584 U.S. __ (May 29, 2018), the Supreme Court held that the terms “investigation” and “proceedings” found in the Mandatory Victims Restitution Act, 18 U.S.C. § 3663A(b)(4), refer only to government investigations and criminal proceedings, not to private investigations and civil or bankruptcy proceedings. The ruling limits the extent to which a defendant must compensate a victim when convicted of certain offenses, including crimes of violence and crimes against property.

The Mandatory Victims Restitution Act requires certain criminal defendants to:

Reimburse the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.

18 U.S.C. § 3663A(b)(4).

After being convicted of wire fraud, Sergio Fernando Lagos was ordered by the District Court for the Southern District of Texas to reimburse his victim, the General Electric Capital Corporation, for nearly $5 million in legal, accounting, and consulting fees related to Lagos’s scheme. The fees stemmed from a private investigation conducted by General Electric, and from General Electric’s participation in Lagos’s bankruptcy proceedings. That order was upheld by the Court of Appeals for the Fifth Circuit, which reasoned that the expenses incurred by Lagos’s victim fit within the provisions of Section 3663A(b)(4), because they were “necessary . . . other expenses incurred during participation in the investigation . . . of the offense or attendance at proceedings related to the offense.” United States v. Lagos, 864 F.3d 320, 323 (5th Cir. 2017).

Lagos appealed, and the Supreme Court granted certiorari to resolve a circuit split. Five other circuits—the Second, Sixth, Seventh, Eighth, and Ninth—had previously followed a similar rationale to the Fifth Circuit, ruling that Section 3663A(b)(4) reached expenses incurred by private investigations and civil or bankruptcy proceedings. Only the D.C. Circuit had held that subsection (b)(4) does not reach private investigation expenses.

Writing for the Court, Associate Justice Steven Breyer interpreted the terms “investigation” and “proceedings” as used in subsection (b)(4). First, the Court noted that the term “investigation” appears alongside the term “prosecution.” This, the Court reasoned, indicates that the term was intended to refer to investigations conducted by the government, since the word “prosecution” refers to a criminal prosecution. The Court further reasoned that the following phrase, referring to “proceedings,” also refers to criminal matters because of the inclusion of the word “prosecution.”

Next, the Court pointed out the “awkwardness” in how the statute might apply if it were given the meaning used by the Fifth Circuit. Since the statute allows for reimbursement of expenses relating to “attendance at proceedings related to the offense,” it would be odd to speak in terms of a victim “attend[ing]” its own investigation.

The Court went on to apply the canon of construction known as noscitur a sociis, which instructs that an ambiguous term be given meaning by the words with which it appears in context. Because the term “other expenses” appears next to the phrases “lost income, child care, and transportation,” it follows that the statute should only reach expenses that relate to those three enumerated items, which are likely to result when a victim is required to attend a governmental proceeding. According to the Court, this rule of construction suggests that the statute does not reach the expenses at issue here, including fees paid to attorneys, accountants, and consultants.

The practical implications of this interpretation were important to the Court. If the alternative rule were adopted, Justice Breyer worried that federal courts would be required to spend far too much time dealing with whether certain items constituted “necessary . . . other expenses.”

The Court pointed to other federal restitution statutes as an indication that Section 3663A(b)(4) was not intended to reach private investigations. For example, other sections of the United States Code allow for restitution covering the “full amount of the victim’s losses.” See 18 U.S.C. § 2248(b) (relating to sexual abuse); § 2259(b) (sexual exploitation of children); § 2264(b) (domestic violence); and § 2327(b) (telemarketing and email marketing fraud). Since the statute at issue in Lagos did not speak in terms of the “full amount of the victim’s losses,” the Court reasoned that this indicates a limitation in the statute’s scope.

Also rejected was an argument that General Electric’s private investigation should still qualify under subsection (b)(4) because it shared that investigation’s results with the government. The Court clarified that the terms “incurred during participation” precluded any argument that a private investigation could fall under subsection (b)(4) if the results are shared after the fact.

The decision in Lagos limits the extent to which a criminal defendant must reimburse a victim after being convicted of certain crimes, including crimes of violence or crimes against property. Going forward, victims of the crimes covered by Section 3663A will no longer be able to obtain restitution for expenses stemming from private investigations or civil proceedings.

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