May 29, 2018

Supreme Court Decides Lagos v. United States

On May 29, 2018, the Supreme Court of the United States decided Lagos v. United States, No. 16-1519, holding that the federal law making restitution to victims of certain federal crimes mandatory does not apply to victims’ internal investigation costs when incurred independent of a government investigation.

Petitioner Sergio Fernando Lagos defrauded his lender, General Electric Capital Corporation, of tens of millions of dollars through a company he controlled. The company went bankrupt, and Lagos pled guilty to wire fraud. The lender spent nearly $5 million in professional fees for attorneys, accountants, and consultants investigating the fraud and participating as a party in the bankruptcy proceedings.

After pleading guilty, the district court ordered Lagos to pay the lender its investigative fees under the 1996 Mandatory Victims Restitution Act. The Act requires defendants convicted of certain federal crimes, including wire fraud, to reimburse “the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” The district court found that the lender’s nearly $5 million in investigative fees were “necessary . . . other expenses incurred” while participating in the investigation of the offense or attending proceedings related to that offense.

The Supreme Court held otherwise, resting largely on the statute’s text. The Court determined that the words “investigation” and “proceedings” in the law are limited to government investigations and criminal proceedings and do not include private investigations and civil or bankruptcy proceedings. The term “investigation” was linked to “prosecution” by an “or” and the article “the” before “investigation,” suggested the two terms were linked. Because only a government can prosecute, the term “investigation” had to involve a government’s criminal investigation, and the term “proceedings” was therefore also limited to criminal proceedings.

The Court also found that the statute’s use of the term “participation” suggested a government investigation rather than a private investigation that a victim might be said to “provide for” or “conduct.” Similarly, “attendance” at a proceeding would not refer to a party’s act of participating in bankruptcy or civil litigation. Furthermore, the enumerated expenses—lost income, childcare expenses, and transportation expenses—indicated the nature of expenses anticipated, which would be the kind incurred during a victim’s participation in a government investigation, not a private investigation.

The Court further noted that reading the statute broadly would require district courts to determine whether private investigations or attendance at a broad array of “proceedings” were in fact “necessary.” Given that more than 90% of restitution dollars ordered in criminal cases are never collected, such controversies would be useless but time-consuming. Victims such as the lender in this case have other remedies such as civil lawsuits.

The Court also rejected the Government’s argument that the victim’s act of sharing its investigative findings in this case made those costs part of the criminal investigation. The statute refers to expenses “incurred during participation in the investigation or prosecution of the offense,” not expenses incurred before the victim began participating in a government investigation. The Court declined to address whether the law covers a victim’s expenses incurred at a government’s invitation or request.

Justice Breyer delivered the unanimous opinion of the Court.

Download Opinion of the Court.

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