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