We're big fans of Judge Berzon, but even Homer nods. In the first circuit decision to address the issue, Berzon writes for the court and holds that retirement funds can be tapped to pay for criminal restitution. See United States v. Novak, __ F.3d __, No. 04-55838, Slip. Op. at 1953 (9th Cir. Feb. 22, 2007) (en banc), decision available here.
Players: Berzon authors en banc decision, W. Fletcher and others dissent.
Facts: Novak and his wife stole and sold phone gear – lots of it. His restitution order topped $3 million. Slip op. at 1959. He apparently had about $152,000 in various retirement plans; the government got a writ of garnishment against these retirement funds to pay restitution. Id. at 1960. Novak moved to quash. Id. A divided panel held that the Mandatory Victims Restitution Act overrides ERISA’s prohibition on using retirement funds for restitution. Id. The case went en banc.
Issue(s): “We are asked to determine whether – and if so, under what circumstances – a criminal defendant’s retirement benefits are available as a source of funds to compensate crime victims. Answering these questions requires reconciling two federal statutory schemes – one, the Mandatory Victims Restitution Act . . . and the other, the Employee Retirement Income Security Act . . . .” Id. at 1958.
Held: “[W]e conclude that criminal restitution orders can be enforced by garnishing retirement funds, but with the funds only payable when the defendant has a current, unilateral right to receive payments under the terms of the retirement plan.” Id. at 1958.
Of Note: Dissenting Judge Will Fletcher was joined by Judges Pregerson, Reinhardt, Thomas and Rawlinson. Id. at 1998 (W. Fletcher, J., dissenting). One would expect to see Berzon and Paez in that list – but instead they side with the majority, and with Judge Berzon writing? (And writing with a pretty sharp tone against the dissenters, to boot).
As last week’s O’Scannlain decision, Blanton, reveals, it is foolish to predict case outcomes solely on political affiliations. Nonetheless, Novak’s vote tally is a surprising, and disappointing, split. (Particularly because Judge Fletcher has the far better argument – read his take on the 1997 amendment to ERISA and the impact on statutory construction).
How to Use: How many indigent defendants could afford private counsel if they drained their retirement plans? After Novak, why not? If defendants ultimately lose their case and the government goes after restitution, they’ll lose their retirement funds anyway. For those involved in indigent defense, restitution orders are often hollow commands – you can’t get blood from a stone, and our clients have usually been bled dry by the time we’re appointed. But retirement funds for restitution have never really come into play before. How Novak will affect many fraud and embezzlement cases is case-specific; that it will affect many such cases seems clear. Consider Novak when advising a client who faces a restitution order down the pike – it might be a factor in considering a deal with a restitution stip, or in deciding whether to go to trial.
For Further Reading: Raymond Novak’s ex-wife, Nicholette Nance, worked for Nestle Food Corp. See FBI press release here. Nance ordered telephone circuit boards to upgrade an old system, hid the new boards by her work station, then gave them to her husband, Raymond, to sell. Id. They split the proceeds 50-50 for two years until they divorced – Nance then took three-quarters of the proceeds. Id. An interesting divorce settlement – the ex-wife gets an extra 1/4 of the proceedings of a criminal conspiracy.
In a plea deal, Raymond got two years custody; his ex-wife got thirty months. Id.
Steven Kalar, Senior Litigator ND Cal FPD. Website available at www.ndcalfpd.org