September 20, 2012

By: Third Circuit Denies Defendant Interest On Award Of Excess Restitution

The U.S. Court of Appeals for the Third Circuit recently affirmed the denial of a criminal defendant’s claim for interest on an excess payment of restitution under the Civil Asset Forfeiture Reform Act (CAFRA), 28 U.S.C. §2465.  U.S. v. Craig, No. 11-1697, slip op. (3^rd Cir., September 17, 2012).

Ryan James Craig was convicted on charges of wire fraud and failure to appear at trial in the U.S. District Court for the Middle District of Pennsylvania.  His sentence included an order to pay $12,411 in restitution and a $300.00 special assessment, which the government sought to satisfy from funds ($16,342) seized in the case.

While Craig acknowledged that the previously seized funds could be used for that purpose, he filed a motion for the return of the remaining $3,631.  He ultimately prevailed on the request when an earlier appeal the Third Circuit reversed the district’s order that the remaining fund be applied to an unsatisfied restitution order in the District of Rhode Island.  When the matter was then returned to the Middle District, Craig filed a motion requesting that he receive interest on the amount to be returned.

On appeal of the district court’s denial of his motion, Craig argued that the United States should be liable for interest under CAFRA because he prevailed in his challenge to the government’s attempt to divert the funds to satisfy the Rhode Island restitution order.  The Third Circuit rejected Craig’s argument reasoning that Craig had obtained neither a judgment on the merits, nor any relief specific to the forfeiture action.

The court noted that in order to prevail on his claim, Craig must have established that he substantially prevailed in a civil proceeding to forfeit property.  28 U.S.C. §2465(b)(1).  It found that the criminal restitution order issued by the district court at the government’s request did not qualify as a civil proceeding to forfeit property, reasoning that Craig’s argument could not be reconciled with the fact that an order of restitution is a component of a criminal sentence, citing U.S. v. Perez, 514 F.3d 296, 299 (3^rd Cir. 2007).

The court also rejected Craig’s argument that equity requires the government to disgorge the interest, finding no authority to support that argument.  It noted that neither fairness considerations nor rules applicable to private disputes can alone provide grounds for abrogating sovereign immunity, citing Larson v. United States, 274 F.3d 643, 647 (1^st Cir. 2001).

While finding that there appeared to be a split among the circuits regarding this issue, the panel found itself in the majority of its sister circuits, including the First, Tenth, Eighth and Second Circuits.  At the same time, it recognized that the Sixth, Ninth and Eleventh Circuits have approved of contrary approaches, finding that in such circumstances, the government must disgorge its earnings along with the property at the time the property is returned.  See, e.g. United States v. 1461 W 42^nd St., 251 F.3d 1329, 1338 (11^th Cir. 2001).  The court concluded, however, that the minority view articulated by those circuits was at odds with the exhortation by the United States Supreme Court in Library of Congress v. Shaw, 478 U.S. 310 (1986), that “courts lack the power to award interest against the United States on the basis of what they think is or is not sound policy.”  Id. 478 U.S. at 321.