Friday, February 06, 2009

Cashed and Burned

United States v. Varrone, No. 07-4533-cr (2d Cir. January 30, 2009) (Calabresi, Sotomayor, Parker, CJJ)

Joseph A. Castello ran a check cashing business. He cashed more than $200 million in checks that exceeded $10,000 - charging a four percent check-cashing fee - for which he was obligated to file currency transaction reports (CTR’s). He did not, however, and was convicted by a jury of violating 31 U.S.C. §§ 5313 and 5322(a). On appeal, he challenged a restitution order, and claimed that the forfeiture order violated the Excessive Fines Clause of the Eighth Amendment. The circuit vacated.

The Restitution Order

The restitution order involved a fraud victim, who was induced to send a $300,00 check to a bogus financial firm. This had nothing at all to do with Castello, except that the firm cashed the check at his establishment. When the victim contacted Castello, he falsely represented that he was an “honest man,” who always paid his taxes. The district court ordered, as a condition of Castello’s supervised release, that he repay the $300,000.

Addressing a question of first impression in this circuit, the court reversed. Under 18 U.S.C. §§ 3583(d) and 3653(b)(2), a district court can order a defendant to “make restitution to a victim of the offense” as a condition of supervised release. However, it has long been clear that, under the restitution statutes, restitution can be ordered only for the “losses caused by the specific conduct that is the basis for the offense of conviction.” Here, the court agreed that this is also true for the restitution provisions of the supervised release statute. “[R]estitution can be ordered as a condition of supervised release ... only to compensate for losses caused by the specific conduct that is the basis for the offense of conviction.” Since the loss here was caused by an unrelated fraud scheme, and not Castello’s failure to file CTR’s, the restitution order was not authorized.

The Forfeiture

In the district court, the government sought, and obtained, a forfeiture order that included: a money judgment of more than $9 million, which represented four percent of the value of the checks exceeding $10,000 that Castello cashed without filing CRT’s; Castello’s interest in real property that he purchased with tainted funds; and about $2.7 million in funds that went through a Citibank account that Castello used to conduct his check cashing business.

On appeal, he challenged the forfeiture under the Excessive Fines Clause of the Eighth Amendment. A forfeiture is excessive if it is “grossly disproportional to the gravity of a defendant’s offense.” In United States v. Bajakajian, 524 U.S. 321, 337-39 (1998), the Court identified four considerations for determining whether a forfeiture is excessive: the “essence of the [defendant’s] crime” and its relation to other criminal activity; whether the defendant “fit into the class of persons for whom the statute was principally designed; the maximum authorized sentence and fine; and the nature of the harm caused by the offense.

Here, the district court neither evaluated the Bajakajian factors nor made factual findings regarding them. The circuit noted that the forfeiture order against Castello was more than forty times the maximum permissible fine, thus it was not presumptively permissible under the Eighth Amendment. It also noted that this - the third Bajakajian factor - was the only one conclusively established by the record, and it weighed against the constitutionality of the forfeiture. The other three factors were “not clearly established by the record.” In the absence of “factual development by the district court regarding” the three other Bajakajian factors, the court concluded that the record was insufficient to evaluate the Eighth Amendment claim, and remanded the case for further proceedings.

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