White Collar Defense & Investigations Alert February 2015
Second Circuit Lays Out New Rules for Restitution
On February 6, 2015, the United States Court of Appeals for the Second Circuit decided an appeal, United States
v. Cuti, which interpreted the restitution provisions of the Victims and Witnesses Protection Act (VWPA).1 The
decision is signicant because it seems to place a notable limitation on the ability of a victim of white-collar
crime to recover expenses incurred in the course of investigating and reporting the defendant’s criminal activity.
Namely, the Court suggests that fees incurred by the company’s counsel and by counsel for a board audit or
special committee cannot, in some cases, both be fully recovered. This ruling does not take into account how
internal investigations are typically conducted when the allegations concern wrongdoing by senior management.
Anthony Cuti was the former Chairman and Chief Executive Ofcer of Duane Reade, the well-known New York
City drugstore chain founded in 1960.2 Oak Hill, a private equity rm, acquired Duane Reade in 2004 and the
following year it terminated Cuti’s employment without cause.3 The dispute over Cuti’s termination led to an
arbitration initiated by Cuti. Oak Hill retained its longtime counsel, the Paul, Weiss law rm, to represent Duane
Reade in the arbitration.4 In the course of defending Duane Reade, Paul, Weiss learned about certain potentially
improper transactions in which Cuti was involved. These allegations led the Audit Committee of Duane Reade
to retain the Cooley law rm as independent counsel to conduct an internal investigation. 5 At various points
over the successive months, Paul, Weiss provided to Cooley evidence of other potentially improper transactions
involving Cuti.6 Paul, Weiss did so as counsel to Duane Reade, and then Cooley incorporated and investigated
these facts as part of its investigation. Ultimately, it appears from the Court’s decision that both rms provided
information to the U.S. Attorney’s Ofce and the Securities Exchange Commission.7
After Cuti’s conviction at trial, there were extensive post-trial proceedings relating to restitution. The district
court ultimately determined that payments for legal fees made by Oak Hill, not only Duane Reade, were
compensable under the VWPA.8 The district court also held that a host of different types of legal fees were
“necessary and related to Duane Reade’s participation in the investigation or prosecution” of Cuti.9 These
included certain legal fees paid both to Paul, Weiss and Cooley, as well as the expenses of forensic accountants
and the cost of counsel for current and former Duane Reade employees. In all, restitution for these matters
exceeded $7.6 million.10
On appeal, the Court of Appeals afrmed certain aspects of the reasoning employed by the district court. First,
the Court agreed that Oak Hill was entitled to restitution even though it was not a direct victim of the offense
because Oak Hill paid for certain expenses on Duane Reade’s behalf. 11 However, the Court remanded the case
1 18 U.S.C. § 3663.
2 United States v. Cuti, No. 13-2042-cr, slip op. at 4 (2d Cir. Feb. 6, 2015).
3 Id. at 5.
4 Id. at 5.
5 Id. at 6.
6 Id. at 6–7.
7 Id. at 7.
8 United States v. Cuti, No. 08 Cr. 972 (DAB), 2013 WL 1953741, at *7 (S.D.N.Y. May 13, 2013).
9 Id.
10 Id. at *7–11.
11 Cuti, slip. op. at 18–19.
