First Circuit Holds District Court Lacked Jurisdiction to Amend Restitution Order
In United States v. Harvey, No. 20-1869 (1st Cir. Dec. 9, 2021), the First Circuit held that the district court lacked jurisdiction to modify a restitution order once it was entered as part of a final criminal judgment. Harvey will create challenges for the government when a victim corporation ceases business operations.
Stephen Harvey embezzled over $600,000 from Sleep HealthCenters while serving as that company’s CFO. In 2011 Harvey pled guilty to an information charging him with mail fraud and interstate transportation of stolen property. The district court sentenced him to 24 months’ imprisonment, 3 years of supervised release, and ordered him to pay restitution to SHC’s then-President and CEO in the amount of $635,060.70.
SHC ceased business operations in early 2013. KCP Advisory Group was appointed as receiver to oversee the sale of SHC’s assets. KCP was discharged from its obligations in 2016 after SHC was officially dissolved as a corporate entity.
Although the district court had imposed a below-guidelines sentence to facilitate prompt payment of restitution to his victim, Harvey ultimately paid less than $9,000. The government sought a writ of garnishment in 2019 to collect the rest of the restitution obligation. Harvey moved to quash because his corporate victim was no longer in business and had no successor-in-interest. The district court denied the motion to quash and allowed the government’s motion for an order of continuing garnishment. The district court found that it had authority under Federal Rule of Criminal Procedure 36 to amend the judgment as to the payee of the restitution order. Thus, the court directed the government to confer with KCP to seek reinstatement as receiver. After KCP was reinstated the trial court ordered that Harvey’s outstanding restitution payments were to be directed to KCP. The court ultimately entered an amended judgment under Rule 36 substituting KCP as the restitution payee.
On appeal Harvey argued for the first time that the district court lacked jurisdiction to enter the amended judgment. The First Circuit agreed. Criminal convictions and sentences are subject to a general rule of finality under 18 U.S.C. § 3582. A parallel rule of finality applies to restitution orders under 18 U.S.C. § 3664(o). A district court therefore lacks the authority amend a final criminal judgment subject to narrow exceptions provided by statute.
The district court retains the power to correct certain errors in a previously imposed sentence under Federal Rules of Criminal Procedure 35 and 36. Those rules are strictly construed, however, and neither provided a basis to correct the judgment against Harvey. Rule 35 authorizes certain corrections of clear errors in a sentence, but only within 14 days after sentencing. The amended judgment here was entered years after Harvey’s sentencing. And the court found that substituting KCP was not a mechanical or technical correction of a “clerical error” under Rule 36.
Nor did any statute authorize the district court to substitute KCP as the restitution payee in this case. The government argued that 18 U.S.C. § 3663A(a)(2) authorized KCP to assume the restitution rights of SHC. Under that provision a victim’s estate, family member, “or any other person appointed as suitable by the court” may assume a deceased, incompetent, or incapacitated victim’s restitution rights. See id. As a matter of first impression, the First Circuit held that Section 3663A(a)(2) permits assumption of a victim’s restitution rights only where the victim was a natural person. That provision does not authorize assumption of a corporation’s restitution rights.
Judge Selya wrote a separate concurrence to clarify that Harvey need not be released from his restitution obligations. KCP as SHC’s receiver could file a separate civil suit in which Harvey would be unable to contest his liability. Judge Selya also noted that there may be cases when it would be appropriate for restitution payments to be collected by an entity that is deemed by operation of law to be the same corporation as the corporate victim. Finally, the concurrence notes that the problem here could be avoided if district courts specify that a restitution order runs to the benefit of a corporation as well as its successors and assigns.
The government often has broad authority to enforce restitution, forfeiture, and other financial penalties imposed as part of a criminal sentence. Harvey shows that there may be avenues to challenge that authority where the government lacks express authorization under an applicable statute or rule.