Email to David Leibowitz,
Mr. Leibowitz:
Thank you for writing me back.
If you have so little experience in criminal restitution under the
Mandatory Victim Restitution Act, why did you offer the following
"expert" opinion to John Welbes of the Pioneer Press, quoted in his
12/16/2010 article "Ritchie Capital goes to high court"? (See http://www.twincities.com/jobs/ci_16860341?nclick_check=1)
Ritchie's "chances are slim," said David Leibowitz, a
Chicago attorney and bankruptcy expert who hasn't worked on the Petters
case. He said there isn't a "big split" in rulings from various courts
of appeals around the country on restitution cases and that Ritchie
could appear to be asking for an unequal distribution of assets,
favoring itself over other creditors. "I don't think this (Supreme
Court case) is going to get them anywhere," he said.
In case you don't remember, the story is about Ritchie's petition for
certiorari from denial of criminal restitution against Thomas Petters
and his co-conspirators under the Mandatory Victim Restitution Act.
The MVRA mandates that, when sentencing a criminal defendant convicted
of fraud in which there was a loss of property by identified victims,
the sentencing judge must award a restitution judgment in favor of each
victim for the full amount of the victim's losses, notwithstanding
other laws, and notwithstanding the economic circumstances of the
defendant. Such a judgment is enforceable against the defendant for 20
years. A criminal restitution judgment cannot be discharged in
bankruptcy, as you may remember from your case Leibowitz
v.
Saleh (In re Discount Merchandise), 1994 Bankr. LEXIS 29 (Bankr.
N.D. Ill. Jan. 19, 1994) -- although your case involved a
criminal restitution order under a discretionary restitution statute.
The
Mandatory Victim Restitution Act, which made restitution mandatory for
criminals convicted of federal fraud, took effect in 1996.
Since your expertise appears to be in bankruptcy court, and restitution
under the MVRA is determined in criminal court, you may not know the
very limited grounds on which the sentencing judge may deny criminal
restitution under the MVRA. The so-called "complexity exception" upon
which Judge Kyle relied in declining to order any restitution, 18
U.S.C. § 3663A(c)(3)(b), requires the court to find "from facts on the
record" that "determining complex issues of fact related to the cause
or amount of the victim's losses would complicate or prolong the
sentencing process to a degree that the need to provide restitution to
any victim is outweighed by the burden on the sentencing process." In
other words, it's a balancing process that requires the court to
balance the burden on the sentencing process of determining restitution
against the harm victims would suffer if restitution were denied.
Here, Ritchie's losses exceed $165 million - without interest. The
other dozen or so direct and proximate victims who were eligible for
MVRA restitution in Petters' case also had losses in the millions. It
would take a pretty whopping burden on the sentencing process to
outweigh the harm to these victims of denying restitution.
Had you read our certiorari petition you would have seen that the
circuit split we cited involved the question of whether the sentencing
judge could deny
restitution because of the "availability of other remedies" when that
factor is not listed among the criteria of § 3663A(c)(3)(b). So please
explain what you mean when you said "there isn't a big split" "on
restitution cases."
And exactly what did you mean when you suggested "that Ritchie could
appear to be asking for an unequal distribution of assets, favoring
itself over other creditors"? Since you appear to be a bankruptcy
specialist, I am assuming that you think that Ritchie somehow intended
to use the criminal restitution judgment to get some kind of priority
over other creditors (who are not victims of Petters' fraud) in the
Petters corporate
bankruptcy cases. I'm not a bankruptcy specialist, but I looked at
the bankruptcy code and did not find any such bankruptcy provision. It
appears to me that Petters' fraud victims are merely unsecured
creditors of the bankrupt Petters company they obtained their
promissory notes from, unless they have a lien against property of the
bankruptcy estate.
I don't know if Mr. Welbes told you, but this case involved a number of
bankruptcy cases, all against separate corporations or companies, and
each with its own set of creditors. None of the individual criminal
defendants have declared personal bankruptcy, and they cannot be forced
into bankruptcy because two years ago the government obtained a
litigation stay in the civil fraud injunction/receivership action,
preventing victims from suing Petters and his codefendants. Because of
the settlement agreement which the receivership judge and
bankruptcy judge approved, the bankruptcy cases will be resolved
separately - apart from the money in the receivership estate. The $10
to $50 million (or more) in personal assets currently held by Receiver
Kelley were supposed to be distributed to the defendant's direct
victims through criminal restitution. Now this money will go to the
federal government rather than being doled out pro rata to victims who
netted losses, in partial satisfaction of the (now non-existent)
restitution judgments.
Had the sentencing judge taken the time to order restitution, the
direct victims would each have had a restitution judgment for the full
amount of their losses, enforceable against the defendants for 20 years
after the defendant is released from prison, and enforceable against
future wages and
any property that comes into the defendant's hands in the future.
As it stands, Deanna Coleman (after 14 years of fraud) and Harold Katz,
each of whom were sentenced to 1 year and a day, will be eligible for
release from prison after 10 months, completely debt free, not
bankrupt, not
subject to suit by victims, and without any restitution judgment they
have to pay back. Likewise defendants White, Bell, Catain and Reynolds
(with sentences ranging from 5 to 11 years) will be eligible for
release before retirement age with no financial obligations to pay back
their victims.
As you can see from the above, the denial of the criminal restitution
judgments denied victims their statutory rights to restitution in the
criminal cases -- completely outside the jurisdiction
of the bankruptcy court. Even if the bankruptcy court performs its
function flawlessly and strives to the highest of its ability to give
Petters' fraud victims a fair shake under bankruptcy law, in the
bankruptcy cases against Petters' companies, it cannot
substitute for the rights victims were denied by the sentencing
court.
So, your expertise in bankruptcy is really not relevant to
this issue, is it?
Brenda Grantland
Lead attorney on Ritchie's petition for certiorari
(my expertise is in criminal law, asset forfeiture and restitution)
(415) 380-9108