United States v. Petit

541 F.Supp.3d 304

UNITED STATES of America

v.Parker H. PETIT and William Taylor, Defendants.

19-cr-850 (JSR)

United States District Court, S.D. New York.

Signed May 23, 2021

Daniel Marc Tracer, Assistant US Attorney, Edward Arthur Imperatore, Assistant US Attorney, Drew Turner Johnson Skinner, Scott Andrew Hartman, Assistant US Attorney, United States Attorney's Office, New York, NY, for United States of America.

MEMORANDUM ORDER

JED S. RAKOFF, U.S.D.J.

Following a jury trial in November 2020, defendant Parker H. Petit was convicted of one count of substantive securities fraud and defendant William Taylor was convicted of one count of conspiring to commit securities fraud, to make false statements in filings with the Securities and Exchange Commission ("SEC"), and to mislead the conduct of audits. These convictions stemmed from the defendants’ participation in a scheme to fraudulently inflate the reported revenue in 2015 and 2016 for MiMedx, Inc. ("MiMedx"), a publicly traded biomedical company for which Petit served as chief executive officer and Taylor served as chief operating officer.

On February 23, 2021, the Court sentenced Petit to one year imprisonment and imposed a fine of $1 million. The following day, the Court sentenced Taylor to one year imprisonment and imposed a fine of $250,000. On the day of Petit's sentencing, counsel for MiMedx informed the Court that it would be seeking restitution. See Dkt. No. 202-1 (email from D. Rody to the Court). At the sentencing, the Court expressed "skepticism" regarding MiMedx's request for restitution but deferred final resolution of restitution for 90 days, pursuant to 18 U.S.C. § 3664(d)(5). Transcript dated February 23, 2021 ("Petit Tr.") at 28:11-15.¹ MiMedx thereafter submitted a formal request for an order of restitution against Petit and Taylor in the amount of $40,201,223.85, including tens of millions of dollars that the company advanced to the defendants’ counsel to defend them in this case.² For the reasons set forth below, MiMedx's request is denied.

Discussion

I. Whether the Court has Authority to Impose Restitution on Petit.

Federal courts have no inherent power to order a defendant to pay restitution for his crimes. United States v. Reifler, 446 F.3d 65, 127 (2d Cir. 2006). An applicable statute must authorize it. Pursuant to 18 U.S.C. § 3556, "[t]he court, in imposing a sentence on a defendant who has been found guilty of an offense shall order restitution in accordance with [ 18 U.S.C.] section 3663A, and may order restitution in accordance with [ 18 U.S.C.] section 3663." Section 3663A is the Mandatory Victims Restitution Act ("MVRA"), and § 3663 is the Victim and Witness Protection Act ("VWPA"), which is the MVRA's discretionary counterpart.

These restitution statutes are triggered by specified convictions. The MVRA applies only in "sentencing proceedings for convictions of ... an offense against property under this title [i.e., Title 18]" or of certain other specified crimes not relevant here. 18 U.S.C. § 3663A(c)(1) (emphasis added). The VWPA similarly authorizes restitution only "when sentencing a defendant convicted of an offense under this title" (again referring to Title 18) or certain drug and transportation law offenses. 18 U.S.C. § 3663(a)(1)(A) (emphasis added).

Petit was convicted of a Title 15 offense: securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5. Although the Second Circuit has not directly addressed whether these restitution statutes cover securities fraud, it has held that district courts cannot impose restitution under these restitution statutes unless the offense is contemplated by those statutes. See, e.g., United States v. Adams, 955 F.3d 238, 250 (2d Cir. 2020) (holding that neither the MVRA nor the VWPA permits restitution for Title 26 offenses); United States v. Fore, 169 F.3d 104, 110 (2d Cir. 1999) (holding that the MVRA does not permit restitution for Title 42 offenses).

For the same reasons, other courts have held that neither of these statutes permits restitution for Title 15 offenses, such as securities fraud. See United States v. Acord, 790 Fed. App'x 18, 19 (5th Cir. 2020) (per curiam) (holding that "[n]either [the MVRA nor the VWPA] authorizes a restitution award for violations of Title 15"); United States v. Frith, 461 F.3d 914, 919 (7th Cir. 2006) (same). And other district courts in this Circuit have so held. See United States v. Cuti, No. 08-cr-972 (DAB), 2011 WL 3585988, at *6 n.9 (S.D.N.Y. July 29, 2011) ("The [MVRA] and the [VWPA] do not apply to Defendant Tennant because those statutes only provide for restitution after conviction for a Title 18 offense. Defendant Tennant was only convicted of the substantive offense of Securities Fraud, a Title 15 offense."). Because Petit was convicted of securities fraud -- a Title 15 offense -- the MVRA does not mandate and the VWPA does not authorize the Court to impose restitution on Petit.

The Government and MiMedx offer two counterarguments, but neither is persuasive. The first is that the Court can impose restitution on Petit because he was convicted of a Title 18 offense as an aider and abettor of the securities fraud violation, pursuant to 18 U.S.C. § 2. It is true that securities fraud count of which Petit was convicted charged Petit with violating not only "Title 15, United States Code, Sections 78j(b) & 78ff ; Title 17, Code of Federal Regulations, Section 240.10b-5," but also "Title 18, United States Code, Section 2." Indictment, Dkt. No. 1, at 42. Other courts of appeals are divided over the question of whether a conviction for aiding and abetting a non-Title 18 offense permits restitution under these restitution statutes. Compare United States v. West Indies Transport, Inc., 127 F.3d 299, 315 (3d Cir. 1997) (approving restitution request under the VWPA for a defendant convicted of a Title 33 offense because "[e]ach Title 33 offense also charged a violation of 18 U.S.C. § 2" and "[r]estitution is authorized for violation of 18 U.S.C. § 2."), with United States v. Yielding, 657 F.3d 688, 718-19 (8th Cir. 2011) (rejecting restitution request to the extent it was imposed under the MVRA or the VWPA because the defendant's "conviction for aiding and abetting a Title 42 offense is a conviction under Title 42"); United States v. Elias, 269 F.3d 1003, 1021 (9th Cir. 2001) (rejecting restitution imposed under the VWPA because 18 U.S.C. § 2 "does not establish ‘an offense’ of which a defendant may be convicted; it merely determines which offenders may be punished as principals").

The Court agrees with the Eighth and Ninth Circuits and holds that the indictment's citation to 18 U.S.C. § 2 does not serve to authorize restitution under the MVRA or the VWPA. The federal aiding and abetting statute "does not create a separate crime. It simply makes an aider and abettor a principal, and one who aids and abets a violation of a statute has violated that statute." United States v. Singh, 390 F.3d 168, 186 (2d Cir. 2004) ; see also United States v. Mucciante, 21 F.3d 1228, 1234 (2d Cir. 1994) ("The federal aiding and abetting statute, 18 U.S.C. § 2, does not penalize conduct apart from the substantive crime with which it is coupled."). At most, then, the jury convicted Petit of aiding and abetting a violation of Title 15, not of committing a Title 18 offense.³

The second counterargument is that, even if the Court lacks the authority to impose restitution under the MVRA or the VWPA, it can impose restitution as a condition of supervised release under 18 U.S.C. § 3563(b)(2). That section provides that a court may require as a special condition of supervised release that the defendant "make restitution to a victim of the offense under section 3556 (but not subject to the limitation of section 3663(a) or 3663A(c)(1)(A) )." Thus, a federal court may impose restitution as a condition of supervised release on a defendant convicted of a crime, regardless whether the offense is covered by the MVRA or the VWPA. See Adams, 955 F.3d at 250 (approving restitution order as condition of supervised release even where the defendant was convicted of an offense not covered by the MVRA or the VWPA).

The Court, however, declined during sentencing to impose a term of supervised release on Petit. See Petit. Tr. at 27:15-17 ("I don't see any need for supervised release to follow that imprisonment, so no supervised release term will be imposed."). The judgment entered against Petit on February 24, 2021 accordingly reflects that no term of supervised release was imposed. See Dkt. No. 153 ("Petit Judgment").

MiMedx contends that the Court retains the authority to issue an amended judgment to impose a term of supervised release and, with it, restitution under 18 U.S.C. § 3563(b)(2). It argues that the initial judgment specifically anticipates that an amended judgment "will be entered" after a restitution determination is made. See Petit Judgment at 4. This, according to MiMedx, is consistent with the supervised release statute, which instructs that restitution orders in connection with supervised release shall be made "under section 3556." 18 U.S.C. § 3563(b)(2). Section 3556, in turn, provides that restitution shall be governed by the procedures set forth in 18 U.S.C. § 3664 ; one such procedure is the provision, discussed above, that permits a sentencing court to determine restitution at any point "not to exceed 90 days after sentencing." 18 U.S.C. § 3664(d)(5). Thus, according to MiMedx, "for the same reasons the Court can still enter MVRA or VWPA restitution after sentencing, it can also still require restitution as a condition of supervised release at sentencing or within 90 days thereafter."⁴

The Court is skeptical that it has the authority, nearly 90 days following the sentencing, to amend the judgment, not to finalize the amount of restitution, but to impose in the first instance a term of supervised release, especially where, as here, the Court would be...