Forfeitures and Restitution – Can They Help in Tough Economic Times?

In difficult financial times, like those experienced by Oregon cities over the last few years with  general funds  strained and stretched, city managers and city councils are on the hunt for additional sources of revenue to ease the financial pinch.  So the question may arise:   “Can we charge somebody for that?” A likely candidate for this type of inquiry is in the law enforcement arena, which for many municipalities comprises the largest portion of the general fund budget.  The question is whether cities could seek to recover the “costs” the city police department incurs in performing enforcement or investigative functions relative to a particular crime or criminal.  So what’s the answer?

The Decision

In a case decided in early February, 2013 by the 9th Circuit Court of appeals, that court analyzed this question for the federal government.  The case, U.S.  vs. Samuel  Davis, involved  criminal forfeiture and restitution, where the defendant challenged the government’s ability to get  $95,000 in restitution costs for FBI expenditures in a sting operation involving defendant  as well as forfeiture of approximately $1.29 million the defendant had laundered for the undercover FBI agents.

The case is made somewhat more interesting not only by the juxtaposition of Las Vegas and Sam (my) Davis but also by the fact that this Mr. Davis (no relation) was at the time a well-known and popular leader of the “Sovereign Citizen” movement.

The story starts in 2008, when undercover FBI agents first asked Davis to assist them by laundering money that they told him had been stolen from Wachovia Bank.   Davis agreed, and he (along with an accomplice) then over the course of a year received the “stolen” money from the agents, taking a percentage of the funds given him as his compensation.  By the time of his indictment a year later, Davis had taken $73,782.00 for his work and had transferred approximately $1.2 million in “laundered” funds back to the agents.

Davis, who was indicted in 2009 and in 2011, pled guilty to multiple counts of money laundering and conspiracy to commit money laundering.  He was sentenced to about five years in prison in addition to the forfeiture and restitution payments.

In  Davis’ appeal, his argument was simple:  since there was only one government department - in this case the U.S. Department of Justice of which the FBI is a part - getting both restitution and forfeiture payments was a “double recovery windfall’ and as such, the forfeiture amount should be offset by the amount paid in restitution.

The Court of Appeals rejected this argument, holding that even if the same governmental entity received both the forfeiture and the restitution monies, there is no double recovery (and thus no windfall) inasmuch as each amount is aimed at and reflects a different remedy:   the $95,000 was to compensate the FBI for its expenditure of investigative resources while the $1.29 million was a punitive sanction against Davis for the criminal activity he engaged in.   The two payments represent different types of funds: punitive and compensatory.  They are, in the court’s words, “... different in nature, kind and purpose.  Money levied as a punitive fine does not ‘double’ the money intended to compensate a loss any more than the addition of apples to one’s stores doubles the orange stock.”

The Impact in Oregon

Unfortunately, this case does not answer our question.  Oregon’s criminal code contains provisions for criminal forfeiture (ORS 131.550 to 131.600), civil forfeiture (ORS Chapter `131A) and restitution (ORS 137.103 to ORS 137.109).  Cities have the clear ability to seek both civil and criminal forfeiture.  It also appears that cities have the right to seek restitution in criminal matters as victims, i.e., if their property is stolen or is damaged as a result of criminal conduct.  However, the larger (and more expensive and interesting) issue seems to have been answered in the negative in Oregon.

In a case decided in 2004 by the Oregon Court of Appeals Court – State v. Wilson – and in a more recent one in 2012 – State v. Kuehner – the courts have made clear that state law - specifically ORS 161.665 - prohibits law enforcement agencies (or any governmental agency for that matter) from using the restitution statute as a basis to recover expenditures that are normally part and parcel of the costs associated with their law enforcement function.  As a result, the salaries of police officers and other staff (even overtime costs that may be unexpected) is not recoverable under the restitution statute.

However, that might not be the end of the issue:  could there be a way for cities to recover those types of expenses by claiming some type of damages under a civil claim?  If a city can find an independent legal basis for making such a claim, there might be a second shot at recovering additional funds.  City officials and their city attorneys will need to continue to contemplate whether “We make they pay for that?”