Company That Compensated Victims Of Employee’s Bid Rigging Scheme Has No Standing To Appeal Criminal Restitution Order

By: James W. Kraus

On August 28, 2012, a panel of the Third Circuit Court of Appeals dismissed the appeal by Sevenson Environmental Services regarding the sentencing of its former employee, Norman Stoerr. United States v. Stoerr, No. 11-2787 (3rd Cir. August 28, 2012). The Court ruled that Sevenson, as a non-party, lacked standing to appeal Stoerr’s sentence.

On July 23, 2008, Stoerr entered a plea of guilty to bid rigging (15 U.S.C. §1); conspiracy to provide kick-backs and to defraud the United States (18 U.S.C. §371); and assisting in the preparation of false tax returns (26 U.S.C. §7206(2)). The convictions stemmed from kick-backs that Stoerr solicited and accepted from subcontractors in connection with projects managed by Sevenson, his employer.

Sevenson is an environment services company that had contracts with the United States to serve as a contractor at the Federal Creosote Superfund Site in Manville, New Jersey, and also had a contract with Tierra Solutions, Inc. to service the general contractor at the Diamond Alkali Superfund Site in Newark, New Jersey. The Environmental Protection Agency (EPA) paid Sevenson for its services at Federal Creosote, and Tierra was responsible for paying Sevenson for its services at Diamond Alkali. Sevenson hired contractors at both sites, and would ultimately seek reimbursement from the payer (EPA or Tierra) for the subcontractor charges.

Stoerr, as part of his employment with Sevenson was responsible for soliciting vendors at Diamond Alkali and soliciting bids for subcontracts at Federal Creosote. In that capacity, he solicited and accepted kickbacks valued at $77,132 from several subcontracting companies in exchange for favorable treatment in awarding subcontracts for Federal Creosote and Diamond Alkali projects. Stoerr and his project manager, Gordon McDonald, passed the cost of the kickbacks onto Tierra and to the EPA by including the amounts of the kickbacks in the subcontractor’s invoice that they had submitted for reimbursement. The District Court determined that Tierra’s losses as a result of the scheme totaled $257,129.22.

Once Sevenson learned of the kick-back scheme, it paid Tierra separate payments of $202,759.04 and $38,158.11, respectively, to compensate Tierra for its losses relating to the scheme. It also commenced a civil action against Stoerr in state court to recover its losses, but also sought restitution in connection with Stoerr’s sentencing under the Mandatory Victim’s Restitution Act (“MVRA”), 18 U.S.C. §3663(A) et seq. The MVRA provides that, “[i]n each order of restitution, the Court shall order restitution to each victim in the full amount of each victim’s losses as determined by the Court and without consideration of the economic circumstances of the defendant.” 18 U.S.C. §3664(f)(1)(A). The MVRA also provides that if, “[i]f a victim has received compensation from insurance or any other source with respect to a loss, the Court shall order the restitution be paid to the person who provided or is obligated to provide the compensation.” §3664(j)(1). Sevenson claimed that it was entitled to restitution because it reimbursed Tierra for its losses.

At Stoerr’s sentencing, the district Court declined to grant restitution to Sevenson, determining that Tierra, rather than Sevenson was Stoerr’s victim. The district Court also noted that Sevenson had the opportunity to pursue a civil remedy against Stoerr. While the district Court initially ordered Stoerr to pay $250 per month in restitution, it later ordered Stoerr’s obligations to pay Tierra (which were initially $232,192.22) reduced to $29,370.18 based on the fact that Sevenson had paid Tierra $202,759.04 toward Stoerr’s restitution.

The government moved to dismiss Sevenson’s appeal, arguing that Sevenson, as a non-party, was unable to appeal Stoerr’s sentence. The panel of the Third Circuit considered the motion and the appeal on the merits simultaneously.

The Court noted that in order to have standing, “an appellant, must be aggrieved by the order of the district Court from which it seeks to appeal,” citing Ipsco Steel (Ala.), Inc., v. Blaine Constr. Corp., 371 F.3d 150, 154 (3rd Cir. 2004). Acknowledging that it was not a party to Stoerr’s criminal proceeding, Sevenson argued entitlement to restitution, not as a victim, but as one who has reimbursed losses incurred by a victim of its former employee. The Court addressed this argument by first noting that crime victims are not even considered to be parties to criminal proceedings, citing U.S. v. Aguirre-Gonzalez, 597 F.3d 46, 53 (1st Cir. 2010). It went on to conclude that if victims are non-parties to such proceedings, then Sevenson, who is a degree removed from the victim’s status was likewise a non-party.

The Court also rejected Sevenson’s argument that the MVRA scheme contains an implicit right of appeal by non-parties. The Court indicated that while it appreciated that conferring non-party payers with appellate rights may encourage third-parties to compensate victims voluntarily, it could not conclude that the MVRA includes a right of appeal by non-parties. It noted first that the MVRA gives no indication that it disturbs the default rule that only the government and the defendant can appeal a defendant’s sentence. The Court further expressed hesitance to find an implied right of appeal by non-party payers under the MVRA, because Congress explicitly granted victims the right to petition the Court of Appeals for a Writ of Mandamus under the Federal Crime Victims’ Rights Act, 18 U.S.C. §3771 (“CVRA”), but did not grant such explicit rights in the MVRA.

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