4th Cir.: U.S. v. Abdelbary- Restitution for Attorney’s Fees Resulting from Bankruptcy Fraud Conviction

Summary: Abdelbary was convicted of wire fraud, money laundering, currency structuring, bankruptcy fraud, and perjury and was sentence to 24 months in prison, entered a criminal forfeiture judgment against Abdelbary for $112,229.31 and also ordered Abdelbary to pay restitution to Jordan Oil of $84,079.35 for attorney’s fees incurred during the bankruptcy proceeding. Following Abdelbery’s first appeal, the 4th Circuit affirmed the conviction for currency structuring, reversed the judgment of acquittal for wire fraud and money laundering and vacated the restitution award, pending remand to the district court for determination of whether such award was pursuant to the Victim and Witness Protection Act (“VWPA”), see 18 U.S.C. § 3663, or the Mandatory Victim Restitution Act (“MVRA”), see 18 U.S.C. § 3663A. On remand, Abdelbery was sentenced to 27 months in prison, but, although the parties then agreed that the MVRA applied, Abdelbery argued that attorneys’ fees could never be included as compensable costs as part of restitution under the MVRA. Additionally, Abdelbery argued that since he failed to discharge any debt to Jordan Oil, it was not a victim of his bankruptcy fraud. The government countered that Jordan Oil’s fees resulted directly and proximately from the bankruptcy fraud because the fees were incurred defending its rights. The district court agreed with the government and ordered Abdelbery to pay more than $84,000 in legal fees to Jordan Oil. The MVRA defines “victim” at 18 U.S.C. § 3663A(a)(2) as “a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered.” The MVRA specifically identifies the types of losses that may be included in a restitution award, with 18 U.S.C. § 3663A(b)(1) being the pertinent section in this case: (b) The order of restitution shall require that such defendant- (1) in the case of an offense resulting in damage to or loss or destruction of property of a victim of the offense- (A) return the property to the owner of the property or someone designated by the owner; or (B) if return of the property under subparagraph (A) is impossible, impracticable, or inadequate, pay an amount equal to- (i) the greater of- (I) the value of the property on the date of the damage, loss, or destruction; or (II) the value of the property on the date of sentencing, less (ii) the value (as of the date the property is returned) of any part of the property that is returned.... Abdelbery primarily relied on United States v. Mullins, 971 F.2d 1138 (4th Cir. 1992), which, in interpreting the largely parallel and identical VWPA, the 4th Circuit held that “[i]n cases involving the damage, loss, or destruction of property, restitution must be limited to that which the statute authorizes: return of the property, or payment of the property’s value, either on the date of damage or loss or on the date of sentencing, less the value of any part of the property that is returned.” Id. at 1147. Attorney’s fees and other “consequential damages” were not allowed. Here the Court of Appeals distinguished Mullins by noting there that the only property directly and proximately lost was $45,000 in restaurant equipment, with the attorneys fees incurred as a consequential cost. Abdelbery’s bankruptcy fraud, however, directly and proximately cause Jordan Oil to incur legal fees protecting its rights in the bankruptcy proceeding. To reach this conclusion, the court relied on United States v. Elson, 577 F.3d 713 (6th Cir. 2009). The dissent, however, argued that “restitution as authorized by [the MVRA] is intended to compensate victims only for losses caused by the conduct underlying the offense of conviction.” Hughey v. United States, 495 U.S. 411, 416 (1990) (emphasis added by the dissent) and that it was improper to “stretch” the offense to include further related conduct. The dissent believe that Abdelbery was required to pay restitution for pursuing a bankruptcy discharge, which Jordan Oil contest and likely would have contested even if Abdelbery had not committed bankruptcy fraud, and not for the offense of bankruptcy fraud itself. Commentary: After bemoaning the lack of prosecutions for bankruptcy fraud in the last few post, it is good to see that some bad actors are pursued. Now if only a U.S. Attorney would investigate and prosecute some creditors.... Of interesting note, the Chairman of the House Judiciary Committee, which has oversight over bankruptcy, is married to one of the principals at the law firm which defended Abdelbery. Thanks to Chuck Ivey for pointing out this case. For a copy of the opinion, please see: U.S. v. Abdelbary- Restitution for Attorney’s Fees Resulting from Bankruptcy Fraud Conviction