Crime Victims Right Petition in the Eleventh Circuit

Yesterday Ifiled a mandamus petition in the Eleventh Circuit, asking that borrowers who were overcharged on loans be recognized as "crime victims" under the federal Crime Victims' Rights Act. The petition seeks restitution and other rights in the criminal justice process. The petition challenges a ruling by U.S. District Judge Elizabeth A. Kovachevich of the Middle District of Florida on November 21, 2008, that borrowers on loans from Coast Bank were not "crime victims" of Phillip Coon's criminal conspiracy because they were not specifically listed in the criminal charges against him. The petition contends that, because the borrowers suffered financial losses from the fraud, they are "victims" entitled to the protections of the federal Crime Victim's Rights Act. The petition could produce the first appellate court decision deciding who is a "victim" under the law. The petition has important implications for the protection of victims' rights in the prosecution of federal financial crimes.

The borrowers' petition arises out of a plan by Coon to "skim points" off of residential mortgage loans in Florida from 2004--07. On November 5, 2008, Coon pled guilty to the scheme in U.S. District Court in Tampa. A group of 112 borrowers of these loans then filed a motion with Judge Kovachevich to be recognized as "victims" of his crime of conspiracy because they had to pay extra on their mortgages because of the crime. Judge Kovachevich denied the motion because the government's charges only specifically listed Coast Bank, Coon's employer, as the victim of the crime.

In the petition filed yesterday, I explain that the borrowers suffered financial harms because they became legally obligated to pay the point that Coon skimmed off the loan and had to pay interest on the point. The petition cites documents showing that Coon received more than $1.1 million from his crime, which he used to buy overseas vacations, fine wine, expensive jewelry, a $20,000 piano, and other luxury items. The petition states that "while Coon was enjoying the high life on his ill-gotten gains, the borrowers were all paying interest on the money financing it." The petition seeks restitution for the borrowers.

This could be a nationally significant case that will set the precedent for whether people who harmed by financial crimes have rights in the process. In my view, the borrowers here lost real money as a result of Coon's crime -- they should have their rights as crime victims respected.

The borrowers' other attorney, Alan Tannenbaum of the Sarasota, Florida, law firm of Levin Tannenbaum, explained in a statement released yesterday that "These borrowers lost tremendous amounts of money because of Coon's scheme. They deserve restitution for the high-life Coon was enjoying." Also quoted in the statement was Shane Smith, an attorney for the borrowers with Levin Tannenbaum, who noted that the borrowers rights stem from the Crime Victim's Rights Act, a law passed by Congress in 2004 to protect crime victims in federal cases.

The National Crime Victims Law Institute, based at the Lewis and Clark Law School in Portland, Oregon, has taken an interest in the case. NCVLI is expected to file shortly a "friend of the court" brief in support of the victims. The brief will argue that crime victims should be able to receive the same access to the appellate court as criminal defendants and other litigants. NCVLI Executive Director Meg Garvin, Esq stated: "NCVLI hope to establish in this case the same rights for crime victims in the appellate process that all other Americans receive in appellate courts." 
 The petition asks for a decision from the Eleventh Circuit by December 16, 2008. A copy of the petition can be found here.

Prosecutorial Indiscretion:
They certainly seem to fall within the definition of victim articulated in the CVRA. They were directly and proximately harmed as a result of the commission of the offense. There's nothing in 18 U.S.C. 3771 about the victim having to be named in the indictment, and I don't see any reasonable reading of the statute that would support the District Court's determination (assuming the Court's decision was based solely on the lack of names in the indictment).

I do foresee contentious litigation about the extent of appellate rights respecting restitution, though. If I read you right, the idea here is that victims will be able to litigate their entitlement to restitution as part of a prosecution, and if they don't like the order of restitution they can take the issue to the Court of Appeals.

Restitution is great, but if victims are going to aggressively seek compensation for harms they suffered as a result of the conduct of defendants, it seems like pursuing the claim through a civil action is much more reasonable than profoundly altering the venerable structural dynamics of the criminal justice system. Maybe that's something that was inadvertently mandated by the CVRA - but that's not my reading of the statute. If I were a judge on the Court of Appeals, I'd be reluctant to give victims robust third party rights to litigate their financial interests ancillary to a criminal action in light of the existence of civil remedies, which have been around awhile and are traditionally recognized as the best way the law offers to resolve that sort of harm.
12.3.2008 10:51am
Inkmiser (mail):
Although I know nothing about this statute, this sounds like a combination of poor statutory drafting and a prosecution which was not understanding the nature of the crime. If Coast Bank did not intend to charge the extra points, then it is not the target of the scam. It sounds like the object of Coons's crime is the borrower.

Similarly, in pursuing predatory lending cases for consumers abused by mortgage brokers, it was sometimes difficult to persuade judges, opposing counsel, etc. that my clients were the real victims. In reality, the originating lenders were the targets and my clients were collateral damage. In those cases, in which they weren't getting paid, the bank took the loss. In this case, however, If the loans are repaid, it is the consumer who takes the loss.

The argument that Coast Bank is the victim, because it was deprived of an honest employee, is almost laughable. If it was not charging the extras point, it did not intend to get it, and was not entitled to it. The Bank lost nothing. The Bank may now be defunct, but that is probably more a function of dealing with a bad builder than Mr. Coons's actions.
12.3.2008 11:02am
PatHMV (mail) (www):
How exactly did the points-skimming work? If Coon's scheme involved specifically inflating the particular mortgages in question (say, by routinely adding a fraudulent point into the closing documents), then I would agree that they should be considered victims.

On the other hand, if they paid higher costs merely because, in the absence of Coon's defrauding of the company, the company could have afforded to charge them fewer points, then I would think that's getting a bit too tangential. Under that kind of a theory, every customer of a store would be a "victim" of all the shoplifting from that store, because such shoplifting raises the prices they must pay.

I'm pretty sure from your description that it's the former, but it's not 100% clear.
12.3.2008 11:09am
David Welker (www):
Prosecutorial Indiscretion,

Can you be more specific? I understand that you think that cases for restitution should be done through civil proceedings. But what is the harm to criminal proceedings you are trying to avoid? What is the concrete harm to the "structural dynamics" of the criminal justice you see arising here?
12.3.2008 11:13am
Yes, I too would like to know more of the facts.

If the borrower signed up to pay, say, three points (3%), and Coon took one point and gave Coast two points, how has that hurt the borrower?

On the other hand, if the borrower signed up to pay two points and Coon slipped an extra point into the escrow instructions to pay himself, then the borrower would be the primary victim and could easily go after Coast for its employee's mischief.

There are plenty of loans that are sufficiently complicated to justify some degree of sympathy for borrowers who did not fully appreciate the consequences (option arms, for instance), but origination points are straightforward and something that borrowers and lenders should be able to agree on without ambiguity.
12.3.2008 11:48am
The harm to criminal proceedings is obvious: it injects "parties" into the case who should not be. The interests of the victims are adverse to those of the prosecution. For example, the prosecution is asking for Mr. Coon to forfeit his ill-gotten gains to the United States, which will get in the way of him giving restitution to his victims. These two forms of relief are essentially incompatible. Moreover, the victims have an emotional stake in the case, and an interest in someone being found guilty (and thus forced to pay restitution) independently of actual guilt or innocence.

The worst problem of all is the semantic one: until Mr. Coon is convicted of the crime, it is difficult to say that a crime has been committed, let alone that there have been victims. Until it is established that an offense has in fact been perpetrated, how can it be said that htese people were "directly and proximately harmed as a result of the commission of the offense"? When the prosecution says "Mr. Coon committed the offense" it's clear to the jury that this is an argument. But when the Court says "we will now hear from lawyer representing the victims" the Court is implicitly stating that an offence has in fact taken place, that these people were the victims, and that Mr. Coon is in fact the person who committed the offense (otherwise how could these people be his victims?).

PatHMV: from the indictment it seems that the scheme was to have inflate the mortgage fees by 1%, which was then skimmed by the conspirators.
12.3.2008 12:04pm
Stevie Utah:
This is the retributive Paul Cassell on another one of his victim right's crusades.

The facts of the case are very simple, as were the facts in Cassell's recent loss in Tenth Circuit on similar arguments. Coon pled guilty to defrauding his employer, Coast Bank of Florida, where he was an Executive Vice President.

These people, the "victims", didn't get defrauded. They didn't sign up for one thing and receive another. They got exactly what they expected. They received a loan at X APR and were charged Y points for the loan.

The crime Coon pled guilty to was splitting a point charged for the loan, when that point clearly was profit for Coon's bank. i.e. Cassell's "victims" paid 2 points for a loan when they would have only paid 1 if Coon hadn't been skimming.

Yet where Cassell's theory falls short is that if Coon had given the money to his employer (as he should have) then no crime would have been committed at all but his "victims" would have paid the same amount of money. Cassell would have no victims, in the conventional meaning of the word or his bastardized interpretation.

Paul Cassell is far from a libertarian intellect. His crusade to expand the definition of victim harms us all.
12.3.2008 12:20pm
Prosecutorial Indiscretion:
My immediate concern is that victims would be in a position to appeal, and potentially reverse, plea agreements. While the government should take a victim's interests into account, at the end of the day, criminal justice litigation pits the state's interests against the defendant's interests. A victim may object to an agreement that vindicates the state's interests in a case, but I don't believe the victim's objection is or should be sufficient to undo an agreement that the two primary parties in the case have reached. The victim may overvalue his own pecuniary interest, or desire a longer sentence out of a sense of vengeance, or discount potential problems with the government's case.

The government also typically has access to information that it cannot share with the victim, such as 6(e) information. The government may also have information that it does not want to share, things such as the potential squishiness of witnesses or potential appellate issues that, if made known, would weaken the government's negotiating position. Giving an ill-informed third party the right to jump into the litigation and muck up a plea agreement between the two primary parties strikes me as ill-advised, though I admit to a strong bias here based on my current employment.

Even in a non-plea context, victims appealing sentences they consider too low could lead to added burdens on the court system and on government resources arising from the extra litigation. Deciding not to appeal certain issues plays an important role in the current allocation of government resources, and giving the victims robust litigation rights in criminals cases could upset that allocation and divert resources that would otherwise be put to more efficient use.

I take the CVRA very seriously and have litigated several CVRA issues on behalf of victims in the course of past prosecutions, so I'm not raising these points in opposition to victims' rights in general. I'm sympathetic to the victims in this case and think that they should get reimbursed for their losses, whether through restitution or through a civil action. But I do worry - perhaps excessively so - that giving a victim standing to litigate as a party in his own right in criminal cases could have a serious and potentially deleterious effect on the criminal justice system, and I think we should be very careful about altering the traditional binary state vs. defendant dynamic of criminal justice cases.
12.3.2008 12:24pm
Prosecutorial Indiscretion:
To be clear, the above was in response to David Welker's question.

Also, Lior raises the good point that giving victims any rights prior to conviction includes an explicit recognition that a crime was committed. While there are already a lot of prosecutorial resources dedicated to pretrial support of victims that does make that recognition (as well as prosecutorial adherence to the CVRA - according victims various rights to notice and hearing at every stage post-indictment), there does seem to be a significant distinction between the government, which is asserting that a crime happened, recognizing the victims as such and the court, which is supposed to make that ultimate determination only after the traditional forms have been observed, doing the same. I'm interested in Judge Cassell's take, based on his experiences, of what a Court can do to recognize victim's rights in practice during the pre-verdict period without compromising or appearing to compromise its role as the neutral arbiter.
12.3.2008 12:31pm
Sean M.:
It's also important to note that the CVRA does not serve as a complete restitution statute. That is, victims cannot recover by CVRA restitution the same damages they would get in a civil case.

For instance, the CVRA has been uniformly interpreted as only allowing restitution for "direct" damages, not "consequential" damages. As an uncontroversial example, victims are not entitled to attorney's fees they incurred trying to get their property back from the defendant in a civil suit as part of CVRA restitution (except for some very rare and factually unusual cases).

Here, it appears that the points skimmed were, at most, consequential damages to the victims. Remember, the CVRA requires the loss be to "property" belonging to the victim. The point lost by the fraud is not "property" belonging to the victim. The higher rate they paid is a prime example of a consequential damage as a result of the fraud on the bank.

Even if Prof. Cassel's clients are victims, I doubt they are entitled to recovery under the Act.
12.3.2008 3:32pm
Opposed to Government and Grantee Waste:
I'm disappointed to see credit given to NCVLI. NCVLI is one of the largest receipients -- and squanderers -- of federal funding from the DOJ's Office for Victims of Crime. Despite receiving millions to represent crime victims (or to sub-grant to local organizations providing legal representation to crime victims), NCVLI and its subgrantees have represented few victims at all with that money. Almost none of the millions reaches victims. I'm not aware of a single case in which NCVLI (or its local organizations) did anything other than monitor the U.S. government's representation of the victims' interest. (This monitoring costs next to nothing.) Moreover, NCVLI only did this in a few cases.

Much of the taxpayers' money is squandered on "administering" the subgrants, on conferences hosted by NCVLI for the subgrantees, and on charging the subgrantees for NCVLI's assistance--assistance which is free to non-grantees. Afraid of losing their subgrants, the local organizations have been afraid to criticize the NCVLI.

In fact, evidence shows that NCVLI has actively inhibited pro bono representation of victims. For example, one of the subgrantees had begun working with local law firms to establish a referral system for pro bono representation of victims. NCVLI told the subgrantee to kill the system. My understanding is that NCVLI believed it would receive less funding if law firms began representing individuals for free. My recollection is that, for that reason, NCVLI told the subgrantee that it should instead pay NCVLI to do the legal work for any victims or should hire a full-time attorney as a staff member. (These subgrantees are often made up of members of the victims rights movement; these organizations are not generally made up attorneys.)

In addition, my understanding is that NCVLI opposed direct federal funding to the subgrants because NCVLI wants the money for financial reasons; to ensure that NCVLI is the "leader" of the victims rights legal movement; and so that other legal groups are forced to seek funding from NCVLI.

Despite this, NCVLI has not lost its funding because of the incestuous relationship between Jon Kyl (who views himself as the king of OVC), John Gillis (the director of OVC who views himself as answering to Kyl rather than the DOJ), and NCVLI. (Note that Jon Kyl is a founding member of NCVLI's largest subgrantee, an Arizona victims organization. Kyl's relationship should preclude him from involving himself in grants to NCVLI (because NCVLI funds Kyl's organization every year), but Kyl doesn't seem to care.)

NCVLI hurts, not helps, the victim movement.
12.3.2008 4:11pm
PatHMV (mail) (www):
As always, Prof. Cassell's post has brought about discussion about the fundamental nature of prosecution. Some believe it to be entirely a governmental function, and that the state should take almost extreme measures to remove the emotion-laden victim from the proceedings.

This view is, in my opinion, exceedingly incorrect. As part of the social compact, we have given over our natural right to seek revenge or to punish those who wrong us to the government. We have done so for good reasons, in the main, because societies which leave those functions to the private individuals involved have over time tended not to prosper. Bet we will remain willing to give up that retributive right only so long as the government's system meets a sufficient number of our needs.

One need we have is indeed retribution. It is very human to want the one who has wronged you to suffer for that wrong. If we believe that the wrong-doer is being rewarded, or not punished at all, then we begin to wonder why we didn't just take matters into our own hands to begin with.

So the government's role in prosecuting crime is not merely to protect us from future crimes via the deterrent factor, it is also to enact some level of punishment for the benefit of victims. If, on the whole, victims come to believe that the justice system provides no justice for them, then they will abandon the system in favor of finding one which does meet their needs, or of taking matters into their own hands.
12.4.2008 1:17am
Alan Tannenbaum (mail):
I am co-counsel with Paul Cassell on the case in question. My firm has represented over 200 Coast Bank borrowers victimized by the scheme in question for the last two years in various venues (state court, bankruptcy court and now the federal district court).

Coon was the Executive Vice-President of Coast Bank in charge of the bank's residential lending programs. Miller was the principal of American Mortgage Link, a mortgage brokerage firm "AML." Coon and Miller concocted a scheme under which they recruited builders with access to platted lots to sell lot/home packages in S.W. Florida to investors country wide.

Coon and Miller, with the involvement of various real estate companies, marketed to and lured the investors in. What the investors were told is that they would be provided with a home built by a builder qualified and approved by Coast Bank and AML and financed by Coast Bank. The investors were told that the home would be "flipped" before completion for a profit to the investor. Some of the purchasers were purchasing the homes as their primary residence or second homes.

The closings were "mailaways." The investor received a bulk of closing documents to execute. One of the documents was a closing statement. The closing statements typically reflected a two point or two and a quarter point loan origination fee to be paid to the mortgage broker AML. In their plea agreements, both Coon and Miller admitted that the standard loan origination fee in the Tampa Bay market was one point. Coon and Miller admitted to splitting the loan origination fee overcharge between themselves.

The loan origination fee, as well as the other closing costs, were funded out of the mortgages. CCI, the primary builder partner of the scheme, defaulted on 482 home contracts under the program and declared bankruptcy. On those 482 contracts, Coast disbursed loan funds well in excess of the value of the construction in place.

What is most significant is that Coast and its successor First Bank have pursued the borrowers for collection of the full amount of the disbursed loan funds, including the points skimmed by Coon and Miller and interest thereon. These banks have accepted payoffs including the skimmed points, have secured foreclosure judgments including the skimmed points and are seeking deficiency judgments including the skimmed points.

Why in the face of this did the government charge Coon and Miller with an offense against Coast Bank rather than the borrowers and why are both Coon and the government resisting the borrowers' petition to be recognized as victims of the crime charged? Simply because Coon wants to avoid the potential accentuation of his sentence resulting from his having victimized multiple parties.
12.6.2008 9:56am