A Million Dollar Promise: United States v. Feldman Highlights the Important Process of Restoration to Offset Restitution with Forfeited Assets
In a decision handed down last week, the Second Circuit in United States v. Feldman explored an issue that, while not arising often, can be critical for cases involving asset forfeiture and restitution: the process of “restoration” to offset restitution with forfeited assets. The decision is also helpful authority for holding the government to its promises in plea negotiations, even if they are not memorialized in a plea agreement.
As many know, forfeiture and restitution are related but separate concepts. In many white-collar cases, the court will order forfeiture of illicit gains and payment of restitution to victims. Often, the forfeiture and restitution amounts are exactly the same—the defendant’s gain is the victim’s loss. But they are separate obligations. Some may assume that forfeited assets automatically go to the victims. But that is not necessarily true.
As laid out in Chapter 14 of the DOJ’s Asset Forfeiture Policy Manual, “restoration” is a process by which DOJ (and specifically, the Chief of the Money Laundering and Asset Recovery Section (MLARS)) authorizes transfer of forfeited assets back to the sentencing court for satisfaction of a restitution order. Importantly, to get approval, the relevant U.S. Attorney’s Office must make a written request to MLARS representing that the victims have no other recourse reasonably available to get compensation, i.e., the defendant does not have other non-forfeited property. If a defendant has assets remaining after forfeiture, he or she often must pay both forfeiture and restitution (yes, double). When such restoration requests are made, however, they are typically granted.
In Feldman, the defendant agreed in his plea agreement to forfeit approximately $1 million dollars from three specified accounts and pay $1.46 million in restitution. The forfeiture order did not cover approximately $1.1 million in Feldman’s retirement account, which the government allegedly knew about at the time of the plea negotiations. Despite this knowledge, the Assistant U.S. Attorney in charge of the prosecution nevertheless told defense counsel that he would recommend restoration to reduce Feldman’s restitution obligation by the $1 million forfeited. The AUSA explained that, while DOJ had discretion to reject the recommendation, he was optimistic that it would be approved.
The plea agreement, however, merely said that “the government may, in its discretion, recommend…that any of the forfeited proceeds be remitted or restored to eligible victims of the offense…and that the final decision of whether to grant relief rests with the Department of Justice.” The plea agreement also included the typical merger clause stating that no other promises other than what is in the plea agreement had been made to the defendant.
Shortly after sentencing, however, a second AUSA in charge of forfeiture (not the AUSA who negotiated the plea) followed through and requested restoration. Five months later, however, the same forfeiture AUSA, after discovering the retirement account, sent an “addendum” to DOJ, stating “we have become aware of additional assets” that may provide means of satisfying the restitution obligation. This effectively derailed the original request. Moreover, before DOJ had even ruled on the restoration request (which was eventually denied), a third AUSA—this one in charge of restitution—moved for a writ of execution on the retirement account, unaware of the restoration request. The writ was granted.
Feldman moved to stay execution and asked for discovery, reciting the chain of events set forth above. In response, the government did not deny Feldman’s factual assertions, explaining that the three different attorneys working on the prosecution, forfeiture, and restitution, respectively, were unaware of information known by the others. The district court denied the motion to stay, relying largely on the merger clause and concluding that the government had, in its view, requested restoration.
On appeal, the Second Circuit did not see things so simply, ultimately vacating the order and directing the district court to hold an evidentiary hearing. Judge Leval, writing for the panel, characterized the district court’s conclusion that the government had fulfilled its promise to request restoration as “overly formalistic,” given the addendum that ultimately doomed the request. The court of appeals also explained that a court’s review of a plea agreement “is not limited to its four corners,” even with a merger clause, and that “prosecutors are held to meticulous standards of performance” in plea negotiations. Finally, the court held the three AUSAs to account, emphasizing that “[t]he prosecutor’s office is an entity,” “[a] promise made by one attorney must be attributed…to the Government,” and that the U.S. Attorney’s Office must ensure “communication of all relevant information on each case to every lawyer who deals with it.”
In sum, the Feldman decision is a good primer on the processes and rules governing restoration, where it is unavailable, and where it can go wrong. And although it is difficult to predict what the district court will decide on remand, it is a reminder that the government sometimes can be held to its promises, even if they are not spelled out clearly in the plea agreement.
September 24, 2019