On May 29, 2018, the U.S. Supreme Court decided Lagos v. United States [1] and held that legal fees and other costs associated with a victim company’s independent investigation of misconduct ultimately resulting in criminal convictions are not recoverable expenses under the Mandatory Victims Restitution Act of 1996 (the “MVRA”), and thus should not be reimbursed. In doing so, the Court made clear that the MVRA reimburses costs incurred for participating in government investigations and prosecutions, not internal investigations or civil proceedings. The Lagos decision resolves a circuit split, in which the First, Second, Fifth, Sixth, Seventh, Eighth, and Ninth Circuits generally adopted a broader interpretation of the MVRA [2], while the D.C. Circuit maintained a minority and more narrow interpretation. [3] The crux of the Lagos decision centers on MVRA § 3663A(b)(4), which requires restitution for “expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” [4] The Court held that the terms “investigation” and “proceedings” only apply to government investigations. Therefore, a victim’s legal fees are recoverable under the MVRA only where they are tied directly to the government investigation or prosecution.
The MVRA
The MVRA requires a sentencing judge to award full restitution to victims of crimes against property falling under Title 18 of the United States Code, including wire fraud, mail fraud, and most financial crimes. [5] Further, courts may not consider whether “a victim has received or is entitled to receive compensation with respect to a loss from insurance or any other source . . . in determining the amount of restitution.” [6] Instead, the MVRA applies provided the individual or company suffering the loss simply qualifies as a “victim,” i.e., they were “directly and proximately harmed as a result of the commission of [the] offense” [7] and did not take part in it (e.g., as a coconspirator). [8] Once this threshold criterion is met, the government bears the burden of proving the amount of restitution owed to the victim with specificity, but only by a preponderance of the evidence. [9]
Lower Courts’ Rulings
The U.S. District Court for the Southern District of Texas sentenced Sergio Fernando Lagos to 97 months’ imprisonment and ordered that he pay restitution pursuant to the MVRA — an amount of almost $5 million. [10] This amount included forensic expert fees, legal fees, and consulting fees, [11] all of which were incurred during an internal investigation General Electric Capital Corporation (“GE”) conducted into Lagos’ crimes, independent of the government’s investigation. [12] Lagos entered a guilty plea for conspiracy to commit wire fraud, as well as five substantive counts of wire fraud. [13] For two years, Lagos falsified accounts receivable for GE, in order to “provide him and his co-defendants with uncollateralized funds.” [14] After learning this, GE launched an internal investigation to determine the full extent of Lagos’ — and perhaps others’ — misconduct. [15] Lagos appealed to the Fifth Circuit, arguing that the MVRA only applies to necessary expenses incurred by a party participating in an official government investigation. [16] The Fifth Circuit disagreed with Lagos and affirmed the lower court’s restitution award. [17]
The Supreme Court’s Opinion
In a unanimous...
