United States v. Coats

487 B.R. 648

UNITED STATES of America,

v.Gary Kevin COATS, Defendant.

No. 5:11–CR–00373–FL.

United States District Court,

E.D. North Carolina,

Western Division.

March 8, 2013.

S. Katherine Burnette, U.S. Attorney's Office, Raleigh, NC, for United States of America.

Halerie F. Mahan, Federal Public Defender's Office, Raleigh, NC, Lawrence H. Brenner, Brenner & Brenner, P.A., Oriental, NC, for Gary Kevin Coats.

ORDER

LOUISE W. FLANAGAN, District Judge.

This matter is before the court on the government's request for restitution in an amount in excess of $40,000.00, for fees and expenses awarded in judgment of the bankruptcy court to a bankruptcy trustee, and loss of income associated with the trustee's testimony at defendant's sentencing hearing at New Bern. For reasons stated, the request for restitution is allowed in the amount of $3,000.00.

BACKGROUND

On February 10, 2009, defendant filed for Chapter 7 relief under Title 11 of the United States Code, in the United States Bankruptcy Court for the Eastern District of North Carolina. A trustee duly was appointed. During pendency of the bankruptcy proceeding, defendant, a self-employed real estate agent, sought to advance sale of property he owned, being a residential condominium unit, in fraudulent dealings with the trustee involving a scheme personally to maintain around $17,400.00 in commission from the sale, in avoidance of his creditors.

Defendant impersonated in his dealings with the trustee a friend, and represented this friend's employment as a licensed realtor on behalf of the proposed buyers. Posing as defendant's friend, defendant also represented association with a real estate agency. The individual agent actually retained by the purchasers was an owner of that agency. It appears the purchasers were sympathetic to the defendant, and unwittingly furthered his scheme for the brief period during which the defendant engaged directly the trustee. As his scheme unwound, defendant also assumed the identity of a lawyer to discourage recourse by the purchasers' agent.

In June 2009, as described in the PSR, the trustee discovered a contractor's lien on the real property. The trustee sought to negotiate a reduction in commission or an increased purchase price upon learning about the lien. Defendant persisted in his charade in negotiations with the trustee. However, the trustee was informed by the purchasers' attorney of side agreement they had entered into with defendant, to promote defendant's receipt personally of the commission sum. Sale of the condominium successfully was concluded June 12, 2009, about six weeks after defendant first contacted the trustee, as set forth in the PSR. No commission was paid to defendant.

Thereafter, the trustee objected to the discharge of defendant. A lengthy period of litigation in the bankruptcy court ensued. Defendant admitted his deceit in deposition occurring in March 2010. On July 7, 2010, the bankruptcy court denied defendant's discharge and assessed costs of the action and punitive damages against defendant. The bankruptcy court awarded the trustee $39,088.92 in damages for his fees and costs, as well as $10,000.00 in punitive damages.

Thus far, it appears that the sum of $4,500.00 has been collected under the terms of a consent order entered in defendant's underlying bankruptcy proceeding. Defendant's claim of exemption under N.C. Gen.Stat. § 1C–1601(a)(2) for money from the sale of his property was disallowed. This money was applied to the judgment.¹

In memorandum opinion issued July 7, 2010, the bankruptcy court commented upon the trustee's request for compensation “at a higher ‘special’ rate,” and agreed under the circumstances presented that a more specialized effort was required of his office. The trustee's presentation to the bankruptcy court included a statement of services largely related to successful maintenance of his objection to discharge, for which he sought compensation for 13.20 hours of work at $415.00 an hour, and 26.80 hours of work at the rate of $395.00. Work of an associate also was billed out for 56.40 hours at $265.00 an hour and for 1.50 hours at $240.00. Request for payment for services of two paralegals was included. One was billed out for 18.90 hours at $175.00 an hour and 3.60 hours at $165.00 an hour, and another paralegal for .70 hours at the rate of $155.00 an hour.

The bankruptcy court adopted the entirety of the request for greater than usual compensation in the case. The bankruptcy court awarded all amounts requested for services performed in addition to punitive damages. The criminal case before this court followed. No order of restitution was recommended by the probation officer.

Defendant was charged in information with bankruptcy fraud beginning March 2009, when the germ of the scheme was planted, with conduct concluding in June 2009, when the property was sold. Defendant pleaded guilty pursuant to a written plea agreement, on February 14, 2012, to one count of bankruptcy fraud, as charged in information, in violation of 18 U.S.C. § 157(3). He was sentenced by this court on November 5, 2012, to imprisonment for a year and a day, three years of supervised release, and ordered to pay a special assessment of $100.00. At sentencing hearing, the court heard argument from the government and defendant regarding the issue of restitution. It took this aspect of the case under advisement, and directed the parties to submit briefs in furtherance of their respective positions, which now have been received and reviewed.²

Except as stated, the findings of the PSR were deemed credible and relied on by this court at sentencing November 5, 2012, without objection. Defendant, with no known criminal history, was held responsible for a loss of $17,400.00, the amount of the sought-after commission. Many civil money judgments appear on his record. With reference to his financial condition, the PSR inadvertently omitted the money judgment against defendant in the bankruptcy court. A negative net worth of $91,815.25 was presented, enhanced by the judgment of the bankruptcy court.

Monthly income of $1,200.00 was projected in the PSR based on current employment. While a modest positive monthly cash flow was suggested, the recitation of necessary monthly living expenses was devoid of expense items pertaining to food and shelter based on defendant's current living arrangements, where a parent was providing for him.

As noted, the probation officer concluded that there were no actual losses associated with the offense and that restitution is not an issue in this case. No money loss was shown to have been suffered by defendant's friend, whose identity he assumed, the real estate agency that defendant falsely represented his friend worked for, the individual agent actually retained by the purchasers who was an owner of that agency, or the lawyer whose identity defendant assumed in order to discourage recourse by the purchasers' agent through fraudulent representations. No regard was given to any loss sustained by the trustee.

The fraud related to the count of conviction quickly was unraveled by the trustee. After the trustee's shock of learning he had been negotiating the sale of a significant asset of the estate with the debtor, and not through a qualified realtor acting on behalf of the purchasers, the sale went through for the acceptable price, without defendant receiving any commission.

Four days prior to sentencing in this case, the government notified defendant and the probation officer of its intent to seek restitution on behalf of the trustee in the amount of $39,088.82, plus time in attendance at hearing. ³ At hearing the court received testimony of the trustee, and exhibits pertaining to the bankruptcy case. Also having considered the arguments of the parties, for reasons discussed below, the request for restitution is allowed in part.

COURT'S DISCUSSION

The government contends restitution, largely tied to the trustee's services in successfully maintaining objection to discharge in bankruptcy after June 2009, is appropriate. The issue presented is a novel one in this circuit, it appears, concerning whether a trustee may be considered a victim for purposes of restitution.

A. Standard of Review

Disputes regarding restitution “shall be resolved by the court by the preponderance of the evidence.” 18 U.S.C. § 3664(e). The government has the burden of showing a person is a victim for purposes of restitution. Id. Restitution is a criminal penalty and part of a sentence, not a civil matter. United States v. Cohen, 459 F.3d 490, 496 (4th Cir.2006).

B. Analysis

The government argues that restitution is required under the Mandatory Victim Restitution Act, 18 U.S.C. § 3663A (the “MVRA”). The MVRA provides that the court is required to order restitution in the full amount of each victim's losses where a defendant is convicted of specified offenses “without consideration of the economic circumstances of the defendant.” 18 U.S.C. § 3664(f)(1)(A). Included among those specified offenses are offenses against property under Title 18 “including any offense committed by fraud or deceit.” § 3663A(c)(1)(A)(ii).

In Hughey v. United States, the Supreme Court held that in the absence of clear statutory authority to the contrary, restitution is limited to the count of conviction unless specifically agreed upon by both parties in the plea agreement. 495 U.S. 411, 412, 110 S.Ct. 1979, 109 L.Ed.2d 408 (1990). Under the MVRA, however, when an offense “involves as an element a scheme, conspiracy, or pattern of criminal activity,” a victim is defined as “any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern.” § 3663A(a)(2). This language is “widely viewed as partially overruling Hughey 's restrictive [view of restitution] and expanding district courts' authority to grant restitution.” United States v. Henoud, 81 F.3d 484, 488 (4th Cir.1996).⁴

Thus, the...