The case of United
States v. Berger, No. 08-50415 (9th Cir., Jul. 31, 2009), reminds us of the
misfortune an innocent spouse might incur due to the criminal conduct of his or
her spouse. In that case, the Ninth
Circuit Court of Appeals determined that the community property, including that
portion which otherwise would be awarded upon dissolution of marriage to an
innocent spouse, may utilized under the Mandatory Victim Restitution Act (MVRA)
(18 U.S.C. § 3663(a)) to satisfy a restitution judgment obtained against a
criminally liable spouse. This was even the case where the proceeds of the fraud were not used to purchase the property that was owned by an innocent spouse.
FACTUAL AND
PROCEDURAL BACKGROUND
In 1986, while Richard Berger (Richard) and Cornella Berger
(Cornella) were
married, Richard joined a partnership (Partnership) which he and others formed
for the purpose of purchasing a 290-unit apartment complex (Property).
During the relevant period, Richard served as President and
CEO of Craig Electronics (Craig), an electronics wholesaler. A federal grand
jury returned an indictment, charging Richard with 36 counts of conspiracy,
loan fraud, falsifying corporate books, and other securities fraud violations
committed at Craig. After a jury trial, Richard was found guilty on 12 of those
counts. Cornella
was not involved in any wrongdoing associated with the illegal scheme. No proceeds from the fraud scheme were
invested in the Property.
As part of his sentence, Richard was ordered, pursuant to
the MVRA, to pay restitution of just over $3.14 million to the victims of his
fraud. Thereafter, Richard consented to
the Partnership’s entering into a contract to sell the Property. The district
court ordered that Richard’s approximately $1.5 million share of the proceeds
from the sale of the Property (the Proceeds) be deposited with the court.
The government filed an application to disburse the Proceeds
to the victims of Richard’s fraud who were entitled to receive restitution. Cornella opposed the
application, arguing that she was entitled to one-half of the Proceeds as her community
property share.
Over Cornella’s
objection, the district court granted the government’s application to disburse
the entire sum of the Proceeds to the victims. Cornella appealed. Cornella
claims that the district court erred by failing to award her a one-half
interest in the Proceeds.
LEGAL ANALYSIS
Cornella argued that the asset distribution should have been
analyzed under case law governing criminal forfeiture, citing United States v. Lester, 85 F.3d 1409
(9th Cir. 1996) (holding that wife’s one-half interest in portion of community
property was not liable to criminal forfeiture imposed on her husband). The appellate court noted that restitution
and forfeiture are distinct asset collection regimes, governed by different
rules. Whereas criminal forfeiture is a judgment against a person convicted of
a crime (id., at 1413), a restitution
order under the MVRA is “a lien in favor of the United States on all
property and rights to property of the person fined.” 18 U.S.C. § 3613(c)
(emphasis added). Thus, the Ninth
Circuit analyzed the allocation of restitution funds using the law governing
MVRA restitution.
Under the MVRA, the government may enforce a judgment
imposing a fine in accordance with the practices and procedures for the
enforcement of a civil judgment under Federal law or State law. 18 U.S.C. § 3613(a). Thus, the appellate court looked to California law to
determine Richard's property rights in the Proceeds.
Cornella
and the government agreed that the Proceeds were community property. In the
ordinary case, “the community estate is liable for a debt incurred by either
spouse before or during marriage, regardless of which spouse has the management
and control of the property and regardless of whether one or both spouses are
parties to the debt or to a judgment for the debt.” Cal. Fam. Code § 910(a). Thus, even though Richard was the only spouse
who was a party to the restitution judgment, under the MVRA and California law the Proceeds’ community property status made
Cornella liable
for that debt, even though she was entirely innocent with respect to Richard's
misdeeds.
PLANNING AHEAD
In handling a white collar criminal case, it is critical to look at restitution early on. This can affect strategy in the case and planning for future assets and family law issues. The restitution amounts in some criminal cases can influence family decisions, financial planning, and so on. Moreover, payment of restitution early in the case can make a huge difference in the sentence. This legal issue is just one factor
Any questions or comments should
be directed to: tgreen@greenassoc.com.
Tracy Green is a principal at Green and Associates in Los Angeles,
California. The firm focuses its practice on the representation of
professionals and businesses in civil, business, administrative and criminal
proceedings. Their website is: http://www.greenassoc.com/
800 West 6th Street, Suite 450
Los Angeles, California 90017
213-233-2260
