Restituion and Civil Settlements

In June 1982, (1982 Proposition 8) the people of California made recovery of victim restitution a Constitutional right.  Ever since then, defendants have been arguing that a civil settlement and payment to a victim (typically paid by an insurance company) means that the defendant cannot be ordered to pay restitution to that victim.  This argument is often made to try to avoid restitution by riding on the coat tails of an insurance company payment. However, one of the oldest laws on the California books (from 1872) instructs: “When the violation of a right admits of both a civil and criminal remedy the right to prosecute the one is not merged in the other.” Code of Civil Procedure §32, entitled “Civil and Criminal Remedies not Merged.”  In other words, a civil settlement with a victim should not foreclose victim restitution.

Not surprisingly, every California appellate court that has heard a defendant argue that his civil settlement with the victim means he cannot be forced to pay restitution has rejected that argument. The latest case is from December 2010. “[T]he settlement of a civil action and release of the defendant by the crime victim does not discharge the defendant's responsibility to satisfy the restitution order.” People v. Vasquez (2010)190 Cal. App. 4th 1126, 1133.  

What to Award: Cost of Repair or Cost of Replacement, when Repair is More than Replacement?

One interesting question in victim restitution decisions is whether these  decisions should be guided by tort law principles when determining losses.  One line of cases has held that tort law principles should apply. For example, People v. Chappelone (2010) 183 Cal. App. 4th 1159 established principles for valuation of stolen property: (a) restitution is limited to market value; (b) a court must consider the cost of the property to the victim; and (c) if property is returned to a victim, the victim is only entitled to the value of the loss of use    during the time he or she did not have the property. These cases reason that the main approach in determining the amount of restitution should be an economic analysis which considers only the most efficient expense with regard to lost or damaged property. For example, if a car is worth $5,000 and the crime causes damage to the car which will cost $6,000 to repair, the victim should only get $5,000.

The argument against this position is that the purposes of restitution are much broader and include rehabilitation of the defendant and minimizing additional disruption to a victim whose life has already been disrupted.  Under these cases, the victim can receive the $6,000 cost of repair for a $5,000 car.  The most recent of these is In re Alexander A. (2011) ___CA 4th_____.  That case reasoned:

We, too, reject the imposition of strict tort law on restitution orders. The California Supreme Court recently reiterated the long-standing principle "[t]here is no requirement the restitution order be limited to the exact amount of the loss in which the defendant is actually found culpable, nor is there any requirement the order reflect the amount of damages that might be recoverable in a civil action."

Thus in the broader sense of providing relief to the victim from injury, the trial court may consider the impact of alternative restitution orders on the victim as long as the restitution order itself is consistent with juvenile justice goals of compensation for economic loss, rehabilitation and deterrence.

In some cases in which the costs of repair exceed the value of a replacement vehicle, it may be more convenient for the victim to visit a dealer and purchase another car. In other cases, as here, the victim may prefer to repair his or her damaged car, despite its age.

Focusing on the rehabilitation and convenience for the victim are important policy considerations, which give this line of cases the upper hand. 

But the convenience of the victim does not need to be divorced from economic harm to the victim. Victims should advise the court of the other costs involved in an alternative award.  For example, if a court were inclined to limit restitution to the cost of replacement, the victim could tell the court of the time and costs associated with finding a new car and seek to get those as well. It is easy for courts to assume that a victim's time is worth little or nothing if the court is not specifically told of the costs the victim will incur. A victim is not required to spend his holidays and weekends trying to fix the harm caused by the defendant.  A victim could advise the court that it will take several days of time to find a new car and value that time at his current compensation.  If this were done the court should award that amount as well.

Delays in Restitution Hearings May Violate the Victim’s Constitutional Right

One of the rights on the list in Marsy's Law is the right of a victim to a speedy outcome.
Article I §28(b)(9)  of the California Constitution gives victims the right to "a speedy trial and a prompt and final conclusion of the case and any related post-judgment proceedings."  To determine how these rights work it is helpful to consider due process jurisprudence as applied to defendants based on the California Constitution. Because "[t]he test of a state constitutional speedy trial violation and a state constitutional due process violation converge." People v. Contreras (2009) 177 Cal. App. 4th 1296, 1305.  Speedy trial cases are helpful, particularly since victims have a speedy trial right.

The due process right and the right to a speedy trial are the rights to avoid harm caused by inappropriate delay. The cases have identified three specific kinds of harm: (a) prolonged imprisonment; (b) the anxiety of prolonged legal proceedings;  and (c) the loss of evidence caused by the delay. People v. Lowe (2007) 40 Cal. 4th 937, 943 - 944. The second category applies to victims - the right to be free of the anxiety of prolonged legal proceedings.   

To analyze a due process claim, a court balances harm against the reason for delay. "[R]egardless of whether defendant's claim is based on a due process analysis or a right to a speedy trial not defined by statute, the test is the same, i.e., any prejudice to the defendant resulting from the delay must be weighed against justification for the delay. Contreras, 177 Cal. App. 4th at 1305. How much harm is required for a due process violation is closely linked to the reason for the delay. "Purposeful delay to gain an advantage is totally unjustified, and a relatively weak showing of prejudice would suffice to tip the scales towards finding a due process violation. If the delay was merely negligent, a greater showing of prejudice would be required to establish a due process violation.” People v. Nelson (2008) 43 Cal. 4th 1242, 1255-1256.  This same analysis should apply to delays in restitution hearings which hurt victims. Some defendants purposely delay restitution hearings, a strategy which victims and the Court should address with the victim’s constitutional right to a prompt restitution hearing.

KB Homes - All Parties Misunderstand Restitution

In early November 2010, federal Judge Otis Wright gave former KB Home chief Bruce Karatz detention in his 24 room Beverly Hills mansion after Mr. Karatz pled guilty to stock backdating. The Judge followed the Probation Department recommendation.  Along the way,  the Judge blistered the U.S. attorney for disagreeing with the lenient Probation Department position.  Judge Wright specifically mentioned that he agreed with the Probation Department analysis that there was no economic loss to KB Home or its investors associated with Mr. Karatz’s crimes.

But the Judge, the Probation Department and the U.S. Attorney overlooked significant economic losses for which there should have been restitution.

In 2007, KB was forced to restate its earnings to reflect more than $36 million in compensation expenses due to options that were backdated from 1999 to 2005, according to the indictment. That meant significant and large accounting fees for a publicly held company.

Then there were the legal fees: those incurred by Mr. Karatz for which KB paid in the criminal case.  The immense fees in the civil backdating case.  The fees to respond to the
formal investigation by the U.S. Securities and Exchange Commission.  Certainly tens of millions of dollars of attorneys’ fees.

KB was out all those accounting and legal fees as a result of Mr. Karatz backdating.  It is likely that shareholders would care.  Those who held stock in 2007 (when the backdating first came to light) have seen their stock plummet from about $48 to about $12 to share.  This is not to suggest that Mr. Karatz is in any way responsible for the stock market decline.  But it is to suggest that stockholders who have taken such a beating are probably not cool with leaving millions of dollars on the table.

Perhaps one answer is that there was insurance.  But that does not mean there was no victim, it just means a different victim. Title 18 U.S.C. §3664 (j) (1) provides: “[i]f a victim has received compensation from insurance or any other source with respect to a loss, the court shall order that restitution be paid to the person who provided or is obligated to provide the compensation . . .“ The insurers, if they paid for much of the huge legal expenses, were also eligible for restitution. 

The problem is that no one carefully thought of losses and victims.