United States District Court, Southern District of New York
United States v. Bengis
United States of America
2006 WL 3735654 (S.D. N.Y. 2006)
Defendants were caught illegally over-fishing off the coast of South Africa and selling the fish in the United States, in violation of the Lacey Act. The United States Government could not seek compensation for South Africa under the Mandatory Victims Restitution Act because the fish were not property belonging to South Africa. However, the United States Government may be able to seek restitution for the South African Government under the discretionary Victim and Witness Protection Act. Opinion Vacated and Remanded by: U.S. v. Bengis, 631 F.3d 33 (2nd Cir., 2011).
Andrew J. Peck
delivered the opinion of the court.
Opinion of the Court:
To the Honorable Lewis A. Kaplan, United States District Judge:
In 2004, defendants Arnold Bengis, Jeffrey Noll, and David Bengis pleaded guilty and were convicted of conspiracy and violations of the Lacey Act, resulting from a combined United States and South African investigation and prosecution of defendants' involvement in illegal fishing activities in waters off the coast of South Africa. Defendants admitted that they and others affiliated with them caught large quantities of South African rock lobster in excess of their allowed quota, bribed South African officials to keep quiet regarding defendants' violations, and exported the majority of the fish to the United States, while making improper customs declarations upon entry into this country. Defendants were sentenced in 2004, but because of the complexity of the restitution issue, the Court deferred that issue with the parties' consent. (See fn.5 below.) On June 2, 2006, Judge Kaplan referred the restitution issues to me for a Report and Recommendation. United States v. Bengis, 03 Crim. 0308, 2006 WL 1524496 at *1-2 (S.D.N.Y. June 2, 2006).
For the reasons set forth below, the Court should reject the Government's request for restitution under the Mandatory Victims Restitution Act ("MVRA"). [FN1]
FN1. Should the Government then wish to pursue restitution against defendants under the discretionary Victim and Witness Protection Act ("VWPA"), the Government shall brief the issues with respect to the VWPA within twenty days of service of Judge Kaplan's decision. (See also pages 22-23 below.)
The South African Investigation
In June 2001, South Africa "seized a container loaded with fish that was directed to come into the United States." (Defs. Binder Ex. 8: Gov't 10/18/04 Opp. Br. Ex. J: 5/28/04 Sentencing Tr. ["S."] 8.) [FN2] The seizure was part of South Africa's investigation into actions by Arnold Bengis' fishing company, Hout Bay Fishing Industries (PTY) Ltd., and distribution company, Icebrand Seafoods, Inc., from the early 1980s onward. (S.8-9.) The investigation ultimately resulted in a settlement approved by South Africa's Marine and Coastal Management division of the Department of Environmental Affairs. (S.9.) Pursuant to the settlement, Arnold Bengis' company paid approximately $5.77 million in fines and forfeitures of vessels and loss of fishing rights (reportedly the highest fine ever in South Africa's fishing industry), and the fishing business was shut down, in exchange for the promise that South Africa would not further prosecute Arnold Bengis, Jeffrey Noll or David Bengis. (See S. 9-10, 13-15.) The United States and South African governments reportedly had an agreement relating to this investigation under which South Africa prosecuted only the South African fishing company, and the United States prosecuted only its individual owners. (S.17-18, 45.)
FN2. The Government and the defendants each provided me with a thick exhibit binder with material relevant to restitution issues that was previously submitted to Judge Kaplan--some of which is docketed, others of which, such as letters, is not--and for convenience, this Report and Recommendation cites to the material as found in those binders.
Defendants' Guilty Pleas
On March 2, 2004, defendants Arnold Bengis and Jeffrey Noll plead guilty to Counts One, Eight, Nineteen and Twenty-One of the Superseding Indictment. (See Defs. Binder Ex. 8: 10/18/04 Gov't Opp. Br. Ex. G: A. Bengis Plea Tr. at 2, 12- 14; id. Ex. H: Noll Plea Tr. at 3, 11-13.) [FN3] Count One charged a conspiracy to violate the Lacey Act, 16 U.S.C. § 3372(a)(2)(A), and to commit smuggling, 18 U.S.C. § 545. (Gov't Binder Ex. A: Superseding Indictment at 21.) Counts Eight, Nineteen and Twenty-One charged substantive Lacey Act violations. (Superseding Indictment at 33, 38, 39.) On April 2, 2004, David Bengis plead guilty to a misdemeanor conspiracy charge under Count One of the Superseding Indictment. (See Defs. Binder Ex. 8: Gov't Opp. Br. Ex. I: D. Bengis Plea Tr.) [FN4]
FN3. Arnold Bengis' allocution stated:
THE COURT: Did you commit the offenses with which you have been charged?
THE DEFENDANT: I did.
THE COURT: Tell me in your own words what you did.
THE DEFENDANT: Your Honor, from about April 2000 to in or about June 2001, in violation of the Lac[e]y Act, I participated in a scheme to import South African Rock lobster into the United States which I knew had been harvested and exported in violation of South African law. These rock lobsters entered in shipments which arrived in the United States in approximately July 10th, 2000; April 23rd, 2001; and June 5th 2001.
(A. Bengis Plea Tr. at 14.) Similarly, Noll's allocution stated:
THE DEFENDANT: From in about April 2000 to in or about June 2, 2001, in violation of the Lacey Act, I participated in a scheme to import South African rock lobster into the United States. Which I knew had been harvested and exported in violation of South African law.
This rock lobster entered in shipments which arrived in the United States on approximately July 10, 2000, April 23, 2001 and June 5, 2001.
(Noll Plea Tr. at 13.)
FN4. While all their plea agreements state that restitution "must" be ordered under §§ 3663, 3663A, defendants contend that restitution "must" be ordered "in accordance with law ... [and] that the law does not permit the Court in these circumstances to enter an order of restitution based upon this record." (Gov't Binder Ex. H: 5/20/05 Conf. Tr. at 12.)
Defendants were sentenced by Judge Kaplan on May 28, 2004. Arnold Bengis and Jeffrey Noll each were sentenced to, inter alia, concurrent terms of forty-six months imprisonment for each of the four counts, forfeiture of $5.9 million to the United States, and restitution in an amount to be later determined. (Defs. Binder Ex. 8: Gov't 10/18/04 Opp. Br. Ex. J: S. 59-61.) [FN5] David Bengis was sentenced to, inter alia, twelve months imprisonment, forfeiture of $1.5 million to the United States, and restitution in an amount to be later determined. (S.58, 60.)
FN5. Under 18 U.S.C. § 3664(d)(5), the Court is required to determine a restitution amount within ninety days of sentencing. However, because of the complicated nature of the restitution issue, the parties agreed to waive the ninety-day period in the interest of having more time to prepare their arguments on this issue. (See Defs. Binder Ex. 2: 7/20/04 A.U.S.A. Asner Ltr. at 1; Defs. Binder Ex. 4: 7/26/04 Defense Counsel Rocco Ltr. at 2: "The defendants each agree, therefore, to waive the 90- day period which 18 U.S.C. § 3664(d)(5) generally prescribes for determining restitution.") The Second Circuit considers a restitution determination made more than ninety days after sentencing to be harmless error unless a defendant can show actual prejudice from the delay, see, e.g., United States v. Zakhary, 357 F.3d 186, 193 (2d Cir.), cert. denied, 541 U.S. 1092, 124 S.Ct. 2833, 159 L.Ed.2d 259 (2004); United States v. Catoggio, 326 F.3d 323, 329-30 (2d Cir.), cert. denied, 540 U.S. 939, 124 S.Ct. 264, 157 L.Ed.2d 252 (2003); United States v. Stevens, 211 F.3d 1, 5 (2d Cir.2000), cert. denied, 531 U.S. 1101, 121 S.Ct. 836, 148 L.Ed.2d 717 (2001). In addition, the ninety-day period can be equitably tolled. See, e.g., United States v. Dando, 287 F.3d 1007, 1011 (10th Cir.), cert. denied, 537 U.S. 917, 123 S.Ct. 301, 154 L.Ed.2d 202 (2002); United States v. Stevens, 211 F.3d at 4-5. The Court notes that long periods of delay occurred in this case while the parties attempted to reach a settlement as to the amount of restitution. (See, e.g., Gov't Binder Ex. H: 5/20/05 Conf. Tr. at 58-59; Gov't Binder Ex. I: 4/7/06 Conf. Tr. at 7-11; Gov't Binder Ex. J: 5/19/06 Conf. Tr. at 2-3.) Because the parties here jointly requested the delay in determining restitution, and because defendants are "unaware of any prejudice that will accrue to the defense as a result of delay in a determination of the restitution issue in this case" (7/26/04 Rocco Ltr. at 2 n. 1), any delay in determining restitution in this case is, at most, harmless error.
The Government's most recent position is that defendants should be required to pay $39.7 million in restitution, to be paid to the Government of South Africa as the "victim" of defendants' crimes. (See Defs. Binder Ex. 11: Gov't 12/22/04 Restitution Br. at 1-2.) [FN6]
FN6. The Government originally sought restitution of over $90 million. (See, e.g., Gov't Binder Ex. C: 8/25/04 Kaplan Order at 1.)
I. THE MANDATORY VICTIMS RESTITUTION ACT
The government seeks restitution primarily under the Mandatory Victims Restitution Act ("MVRA"), which makes restitution a mandatory part of sentencing for a specific set of crimes. [FN7] See 18 U.S.C. § 3663A. The MVRA states that "when sentencing a defendant convicted of an offense described in subsection (c), the court shall order, in addition to, or in the case of a misdemeanor, in addition to or in lieu of, any other penalty authorized by law, that the defendant make restitution to the victim of the offense or, if the victim is deceased, to the victim's estate." 18 U.S.C. § 3663A(a)(1). Section 3663A(c) states that:
FN7. Defendants originally contended that "the federal restitution scheme is unconstitutional" under Blakely v. Washington, 542 U.S. 296, 124 S.Ct. 2531, 159 L.Ed.2d 403 (2004). (Defs. Binder Ex. 7: 9/15/04 Defs. Br. at 29-34.) However, subsequent to the parties' briefing on the issue, the Second Circuit rejected such a challenge:
Although [the MVRA] makes the imposition of restitution mandatory for a defendant convicted of a felony covered by the MVRA, ... the MVRA fixes no range of permissible restitutionary amounts and sets no maximum amount of restitution that the court may order. Thus, we conclude that the Booker-- Blakely principle that jury findings, or admissions by the defendant, establish the 'maximum' authorized punishment has no application to MVRA orders of restitution. ....
We thus reject the contentions of [defendants] that the orders requiring them to make restitution for loss amounts not admitted in their plea allocutions violated their rights under the Sixth Amendment as enunciated in Booker. We see no Booker error.
United States v. Reifler, 446 F.3d 65, 118-120 (2d Cir.2006); accord, e.g., United States v. Oladimeji, 463 F.3d 152, 157 (2d Cir.2006) ("We have now ruled in Reifler that, under the precedents set by Apprendi, Blakely, and Booker, the Sixth Amendment does not bar a district court from imposing a restitution order that is based on findings it has made by a preponderance of the evidence."); United States v. Chen, No. 04-6013-CR, 2006 WL 1766566 at *1 (2d Cir. June 27, 2006); United States v. Kirk, 180 Fed. Appx. 207, 209 (2d Cir.), cert. denied, --- U.S. ----, 127 S.Ct. 545, --- L.Ed.2d ---- (2006); United States v. Castillo, 186 Fed. Appx. 25, 27 (2d Cir.2006).
(1) This section shall apply in all sentencing proceedings for convictions of, or plea agreements relating to charges for, any offense--
(A) that is--
(i) a crime of violence, as defined in section 16;
(ii) an offense against property under this title, or under section 416(a) of the Controlled Substances Act (21 U.S.C. 856(a)), including any offense committed by fraud or deceit; or
(iii) an offense described in section 1365 (relating to tampering with consumer products); and
(B) in which an identifiable victim or victims has suffered a physical injury or pecuniary loss.
18 U.S.C. § 3663A(c)(1).
A. The "Victim" of Defendants' Crimes
Under the MVRA, "the term 'victim' means a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern." 18 U.S.C. § 3663A(a)(2).
In its most recent submission to the Court, the Government clarified that "South Africa" is the sole victim for which it is seeking restitution. (6/30/06 A.U.S.A. Asner Ltr. at 2; see also Gov't Binder Ex. F: 7/24/04 Conf. Tr. at 4.) [FN8] South Africa's status as a foreign sovereign does not preclude it from being a victim and thus qualifying for a restitution award. See Pasquantino v. United States, 544 U.S. 349, 365, 125 S.Ct. 1766, 1777, 161 L.Ed.2d 619 (2005) (Canada qualified as a victim that could receive restitution under the MVRA; discussed further at pages 10-11 below).
FN8. Defendants assert that at various prior times, the Government had contended that the "victim" was the people of South Africa, or both the people and Government of South Africa. Compare, e.g., Defs. Binder Ex. 8: Gov't 10/18/04 Opp. Br. at 3 ("[T]he government of South Africa is entitled to claim restitution on behalf of its people, who suffered devastating losses to their natural resources directly attributable to defendants' poaching scheme."); id. at 11 ("both the people and the government of South Africa were" directly harmed by defendants' offense); id. at 13 ("Accordingly, the Government of South Africa is an appropriate entity to claim restitution on behalf of the people of South Africa."); with, e.g., Defs. Binder Ex. 9: Defs. 10/28/04 Reply Br. at 2-3 ("The Government's inexplicable transformation of the victim from the Republic of South Africa to the people of South Africa as represented by the Government, is not mere semantics. To the contrary, it reflects an acknowledgment that the victim identified to the Court and the defendants [at the 7/27/04 conf., Tr. at 4]--the Republic of South Africa--did not suffer any independent pecunary loss and therefore was not entitled to restitution."); & with Defs. Binder Ex. 11: Gov't 12/22/04 Restitution Amount Br. at 3, 23-24 ("[W]hile the defendants would have the Court believe that there is a meaningful distinction for the purposes of restitution between (i) the Republic, (ii) the government and (iii) the people of South Africa, any such a philosophical distinction has no bearing on the [restitution] issue before the Court."). Judge Kaplan remarked: "Whether you call the people of South Africa the Government of South Africa, the Republic of South Africa, I have not from the beginning had the slightest doubt about what the [U.S.] government's position is. And my tentative impression that what the defendants are doing on that issue is seizing on every trivial variation in verbal formulation to say it's a whole new case. I don't see it is. Maybe I'm wrong. That's my impression." (Gov't Binder Ex. G: 1/13/05 Conf. Tr. at 3.)
B. The Meaning of "Offense Against Property" under Title 18
The Government argues that restitution is appropriate under the MVRA because the Government contends that defendants were convicted of offenses against property under Title 18 of the United States Code. (See, e.g., Defs. Binder Ex. 8: Gov't 10/18/04 Opp. Br. at 9-10, 23-26.) Arnold Bengis and Jeffrey Noll pleaded guilty to one charge of conspiracy, 18 U.S.C. § 371, to violate the Lacey Act, 16 U.S.C. § 3372(a)(2)(A), and to commit smuggling, 18 U.S.C. § 545. (See pages 3-4 above.) In addition, Arnold Bengis and Jeffrey Noll pleaded guilty to three counts of substantive Lacey Act violations, 16 U.S.C. § 3372(a)(2)(A). (See pages 3-4 above.) David Bengis pleaded guilty to a misdemeanor conspiracy charge, 18 U.S.C. § 371, to violate the Lacey Act, 16 U.S.C. § 3372(a)(2)(A). (See page 4 above.)
Although violations of the Lacey Act do not independently trigger the MVRA restitution statute because they are not Title 18 violations, the conspiracy charge under 18 U.S.C. § 371 can trigger the MVRA if the underlying act qualifies as an "offense against property." See, e.g., United States v. Cummings, 189 F.Supp.2d 67, 73 (S.D.N.Y.2002) ("Although the objects of the conspiracy to which [defendant] pleaded guilty do not independently authorize restitution, since 'conspiracy is a crime distinct from its underlying predicate acts and purposes, and involves additional harms,' restitution may be awarded for a violation of the conspiracy statute even when it could not be awarded for the underlying predicates.") (quoting United States v. Helmsley, 941 F.2d 71, 101 (2d Cir.1991)) (modifications omitted); see also, e.g., United States v. Quarrell, 310 F.3d 664, 678 (10th Cir.2002) ("Even though the statute does not explicitly refer to conspiracy, the MVRA applies to conspiracies when, as with fraud or deceit, their underlying purpose was an offense against property."). [FN9]
FN9. Compare United States v. Day, 418 F.3d 746, 748, 753 n. 5, 757 n. 7 (7th Cir.2005) (where defendant pleaded guilty to making false statements with respect to the actual mileage of a motor vehicle under Title 49, violation was an "offense against property," but not an offense against property under Title 18, and therefore restitution was not mandatory under the MVRA).
1. Case Law Regarding "Offenses Against Property"
It is an issue of first impression whether Lacey Act violations or smuggling violations are "offenses against property" such as to trigger the MVRA where they were the underlying offenses to a Title 18 conspiracy conviction. Two Supreme Court cases, however, are informative as to the types of violations that can be considered "offenses against property" under the restitution statutes.
In Pasquantino v. United States, 544 U.S. 349, 353-54, 125 S.Ct. 1766, 1770-71, 161 L.Ed.2d 619 (2005), defendants were convicted of wire fraud in connection with their scheme to smuggle liquor into Canada to evade Canadian liquor taxes. Defendants challenged their convictions, arguing, among other things, that the government did not meet its burden to prove that the object of the wire fraud was "money or property." Id., 544 U.S. at 355-57, 125 S.Ct. at 1771-72. The Supreme Court held that:
Canada's right to uncollected excise taxes on the liquor petitioners imported into Canada is "property" in its hands. This right is an entitlement to collect money from petitioners, the possession of which is "something of value" to the Government of Canada. Valuable entitlements like these are "property" as that term ordinarily is employed. Had petitioners complied with this legal obligation, they would have paid money to Canada. Petitioners' tax evasion deprived Canada of that money, inflicting an economic injury no less than had they embezzled funds from the Canadian treasury. The object of petitioners' scheme was to deprive Canada of money legally due, and their scheme thereby had as its object the deprivation of Canada's "property." ... The fact that the victim of the fraud happens to be the government, rather than a private party, does not lessen the injury.
Pasquantino v. United States, 544 U.S. at 355-56, 125 S.Ct. at 1771- 72 (citations omitted). The Supreme Court in Pasquantino found that restitution was required under the MVRA, since the wire fraud was an offense against property. Pasquantino v. United States, 544 U.S. at 365, 125 S.Ct. at 1777 (citations omitted).
The Supreme Court in Pasquantino contrasted its decision with its earlier decision in Cleveland v. United States, 531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000), as follows:
Our conclusion that the right to tax revenue is property in Canada's hands, contrary to petitioners' contentions, is consistent with Cleveland, supra. In that case, the defendant, Cleveland, had obtained a video poker license by making false statements on his license application. We held that a State's interest in an unissued video poker license was not "property," because the interest in choosing particular licensees was " 'purely regulatory' " and "[could not] be economic." We also noted that "the Government nowhere allege[d] that Cleveland defrauded the State of any money to which the State was entitled by law."
Cleveland is different from this case. Unlike a State's interest in allocating a video poker license to particular applicants, Canada's entitlement to tax revenue is a straightforward "economic" interest. There was no suggestion in Cleveland that the defendant aimed at depriving the State of any money due under the license; quite the opposite, there was "no dispute that [the defendant's partnership] paid the State of Louisiana its proper share of revenue" due. Here, by contrast, the Government alleged and proved that petitioners' scheme aimed at depriving Canada of money to which it was entitled by law. Canada could hardly have a more "economic" interest than in the receipt of tax revenue. Cleveland is therefore consistent with our conclusion that Canada's entitlement is "property" as that word is used in the wire fraud statute.
Pasquantino v. United States, 544 U.S. at 356-57, 125 S.Ct. at 1772 (citations omitted).
In the Second Circuit and in this District, the vast majority of cases where restitution has been ordered under the MVRA subsection relating to "offenses against property" involved financial crimes. [FN10] Indeed, in United States v. Cummings, 189 F.Supp.2d 67, 73-75 (S.D.N.Y.2002), Judge Cote engaged in a lengthy discussion of what offenses can be considered "offenses against property" under the MVRA, many of which included financial crimes. Judge Cote analyzed the holdings of several Second Circuit MVRA cases and concluded that an "offense against property" means an offense against "tangible property," including money. United States v. Cummings, 189 F.Supp.2d at 74. Judge Cote concluded:
FN10. See, e.g., United States v. Boccagna, 450 F.3d 107, 112 (2d Cir.2006) (where defendant was convicted of making false statement to federally insured lending institution, 18 U.S.C. § 1014, thereby obtaining millions of dollars in government-insured mortgage loans, violation was "offense against property" under Title 18 that mandated restitution under the MVRA; defendant did "not dispute that his fraud crime of conviction falls within the MVRA mandate"); United States v. Reifler, 446 F.3d 65, 121, 139 (2d Cir.2006) (where defendants were convicted of conspiracy to commit RICO fraud-related offenses in connection with investment of pension funds and manipulation of securities prices, each violation was an "offense against property" under Title 18 such that restitution under MVRA was mandatory, but remand ordered re complexity exception); In re W.R. Huff Asset Mgmt. Co. (U.S.v.Rigas), 409 F.3d 555, 563-64 (2d Cir.2005) (where defendants were convicted of securities fraud, conspiracy to commit securities fraud, false statements in SEC filings, and bank fraud, each violation was an "offense against property" under Title 18 sufficient to trigger MVRA restitution, but complexity exception applied); United States v. Ekanem, 383 F.3d 40, 42 (2d Cir.2004) (where defendant was convicted of embezzlement of federal funds and intentional misapplication of those funds, violations were "offenses against property" under Title 18 sufficient to trigger the MVRA); United States v. Catoggio, 326 F.3d 323, 326 (2d Cir.2003) (where defendant plead guilty to one count of racketeering in relation to a complex securities fraud scheme, restitution mandatory under the MVRA); United States v. Maurer, 226 F.3d 150, 151-52 (2d Cir.2000) (upholding mandatory restitution order under MVRA where defendant was convicted of wire and bank fraud); United States v. Boyd, 222 F.3d 47, 49-50 (2d Cir.2000) (upholding mandatory restitution order under MVRA where defendant was convicted of mail fraud and wire fraud from the sale of gems at inflated prices); United States v. Ismail, 219 F.3d 76, 77 (2d Cir.2000) (where defendant plead guilty to bank embezzlement, restitution was mandatory under MVRA); United States v. Jaffe, 314 F.Supp.2d 216, 223 (S.D.N.Y.2004) (where defendant plead guilty to violating 18 U.S.C. § 1014 for making false statements to influence the lending determinations of a federally insured bank and thereby obtaining $20 million, restitution was mandatory under MVRA), aff'd, 417 F.3d 259 (2d Cir.2005); United States v. Nachamie, 121 F.Supp.2d 285, 297 (S.D.N.Y.2000) (where defendants were convicted of, inter alia, conspiracy to defraud Medicare, violations were "offenses against property" sufficient to trigger restitution under the MVRA), aff'd, 5 Fed. Appx. 95 (2d Cir.2001); United States v. Harris, 60 F.Supp.2d 169, 176 (S.D.N.Y.1999) (where defendant was convicted of wire and bank fraud, money laundering, and conducting a continuing financial crimes enterprise, each violation was an "offense against property" under the MVRA).
In sum, consistent with the presumption that an "offense against property" is an offense against tangible property, all of the restitution awards under Section 3663A that have been affirmed by the Second Circuit have involved the theft of money, a form of tangible property.
It would appear, therefore, that Section 3663A would also apply to counts one and ten to the extent they relate to the efforts to defraud Chase [Bank] and to the making of false statements to Chase in connection with Aurora's credit application. The remaining objects of Count One's conspiracy charge--securities fraud, filing false documents with the SEC, falsifying Aurora's books and records, and making misleading statements to Aurora's auditors--do not relate sufficiently to wrongdoing in connection with tangible property to trigger coverage by Section 3663A [i.e., the MVRA].
United States v. Cummings, 189 F.Supp.2d at 74-75.
The Government relies on United States v. Quarrell, 310 F.3d 664, 677-78 (10th Cir.2002), in which the Tenth Circuit dealt with another example of tangible property. In Quarrell, defendants were convicted of violating the Archaeological Resources Protection Act ("ARPA"), 16 U.S.C. §§ 470ee(a), and conspiring to violate ARPA pursuant to 18 U.S.C. § 371. United States v. Quarrell, 310 F.3d at 668. ARPA's primary purpose is to protect "archaeological resources and sites which are on public lands and Indian lands." 16 U.S.C. § 470aa(b). The specific ARPA violation of which defendants were convicted states that:
"No person may excavate, remove, damage, or otherwise alter or deface, or attempt to excavate, remove, damage, or otherwise alter or deface any archaeological resource located on public lands or Indian lands unless such activity is pursuant to a permit ..."
United States v. Quarrell, 310 F.3d at 670 (quoting 16 U.S.C. § 470ee(a)). The district court ordered the defendants to pay restitution to the government pursuant to the MVRA. United States v. Quarrell, 310 F.3d at 676. On appeal, defendants argued, among other things, that their conspiracy to violate ARPA was not an "offense against property." United States v. Quarrell, 310 F.3d at 677-78. The Tenth Circuit held that conspiracy to violate ARPA was an offense against property, stating that the defendants "conspired to illegally excavate public land, they knew the objective of driving and hiking to the East Fork site was to excavate the land, and they knowingly and voluntarily excavated and damaged the land. The underlying predicate acts and purposes that constituted the conspiracy were an offense against property." United States v. Quarrell, 310 F.3d at 678.
2. Defendants' Underlying Acts
The specific underlying Lacey Act violation to which Arnold Bengis and Jeffrey Noll plead guilty states that: "It is unlawful for any person--... to import, export, transport, sell, receive, acquire, or purchase in interstate or foreign commerce--... any fish or wildlife taken, possessed, transported, or sold in violation of any law or regulation of any State or in violation of any foreign law." 16 U.S.C. § 3372(a)(2)(A). The South African laws that Arnold Bengis and Jeffrey Noll violated which provided the basis for the Lacey Act violations were described in the Superseding Indictment as follows:
a. The Customs and Excise Act (Act No. 91 of 1964), Ch. X, § 84(1) (which makes it an offense knowingly to provide false statements to the South African customs authorities);
b. The Marine Living Resources Act (Act No. 18 of 1998), §§ 13(1), 58(1)(a)(i) (which together make it an offense to harvest, process, or possess fish without a permit);
c. The following regulations under the Marine Living Resources Act (Act No. 18, 1998): Ch. 5, Part 1, § 27(1)(c) (which makes it an offense to transship or transfer at sea any fish without a permit); § 27(f) (which makes it an offense to export fish from South Africa without a permit); Ch. 5, Part 8, § 44(1) (which makes it an offense to fish, collect, keep, control, store, transport or possess any rock lobster, except on authority of a permit); Ch. 5, Part 11, § 54 (which makes it an offense to fish, collect, land, sell or possess certain prohibited species (including Patagonia toothfish) without a permit); and Ch. 9, § 85(2) (which makes it an offense to transship or transfer at sea any fish or fish products without the supervision of a fishery control officer or other authorized person); and
d. The Catch Documentation Scheme for Dissostichus spp. of the Commission for the Conservation of Antarctic Marine Living Resources.
(Gov't Binder Ex. A: Superseding Indictment at 22-23.)
The specific underlying smuggling violation to which Arnold Bengis and Jeffrey Noll plead guilty reads in part:
Whoever knowingly and willfully, with intent to defraud the United States, smuggles, or clandestinely introduces or attempts to smuggle or clandestinely introduce into the United States any merchandise which should have been invoiced, or makes out or passes, or attempts to pass, through the customhouse any false, forged, or fraudulent invoice, or other document or paper; or Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law--
Shall be fined under this title or imprisoned not more than five years, or both.
18 U.S.C. § 545.
3. Analysis of Defendants' Underlying Acts
a. South Africa Did Not Have A Property Interest In The Fish Defendants Took From Its Waters
Defendants' actual taking of the fish from South African waters was not an offense against property against the Government's designated victim, South Africa, because under South African law, South Africa does not own the wildlife in its waters and therefore had none of its "property" taken by defendants. The opinion of Marius Diemont of South Africa's Department of Marine and Coastal Management states that South Africa's Marine Living Resources Act ("MLRA"), 1996 (No. 18 of 1996), provides that: "control of all marine living resources vests exclusively in the South African Government." (Defs. Binder Ex. 3: Diemont Expert Opinion ¶¶ 7, 14.) The purpose of that control is regulatory: to "promote conservation by slowing down the reduction or depletion of the fishery due to overcatching." (Id. ¶ 5.) Mr. Diemont's opinion continues, stating: "It is to be noted that neither the [South African] Constitution nor the MLRA vests ownership of marine resources in the State. The reason for this is that South African common law (Roman-Dutch law) regards fish as res nullius (things belonging to no one) but once they are caught and appropriated, they become the property of the person who caught them." (Id. ¶ 15; accord, Defs. Binder Ex. 3 Ex. A: Marcus-Chaskalson Expert Opinion ¶¶ 5, 7, 11, 13.) The Government's experts admit that South Africa does not own the fish but is "custodian" for the country's benefit. (Defs. Binder Ex. 8 Ex. A: Glazewski Expert Opinion ¶ 9 ("I am of the view that while the South African government is not the owner of the illegally captured fish, it is the custodian of the nation's fish resources under the doctrine of the Public Trust ..."); Defs. Binder Ex. 8 Ex. B: Goldblatt-Stein Expert Opinion ¶¶ 3.11, 3.12 ("We do not contend that ownership of ambient fish rests in the State. We do argue that the State has acquired and enjoys residual rights and duties in respect of such fish.... The fact that the State does not claim ownership rights over fish in South African waters ... does not mean that the State surrenders or abrogates its rights, claims and duties to control fishing activity in its waters.").) [FN11] Clearly, even the Government's experts are referring to South Africa's regulatory powers. Therefore, unlike the situation in United States v. Quarrell, 310 F.3d 664, 677-78 (10th Cir.2002), in which defendants stole or damaged tangible property actually owned by the U.S. government, the South African government had no property interest in the fish that defendants took from South African waters; it merely had a regulatory interest, similar to that involved in Cleveland v. United States, 531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000). [FN12]
FN11. Judge Kaplan stated: "Now, if the South African law experts established one thing before me, it is that South Africa did not own these fish in that sense," to which the AUSA responded, "I agree that South Africa did not own the fish in fee simple absolute." (Gov't Binder Ex. H: 5/20/05 Conf. Tr. at 36-37.)
FN12. Judge Kaplan recognized this distinction in a prior conference in this case, stating: "[O]nce you get past the proposition that the South African government owns these creatures, what you're left with is an argument that South Africa was harmed because its interest in regulating the exploitation of the resource was undermined." (Gov't Binder Ex. H: 5/20/05 Conf. Tr. at 31; see also id. at 32-33.)
An appropriate analogy is to compare South Africa's MLRA to regulation of air emissions from smokestacks. While a government has regulatory power over the amount of noxious emissions that smokestacks can emit, a government clearly has no ownership or property interest in the air in the atmosphere or the emissions from a smokestack. Similarly, while South Africa clearly has regulatory power over how fishing companies operate in South African waters, under its own laws it has no ownership or property interest in the wildlife that lives in those waters.
The Supreme Court has discussed the issue of ownership of wild animals: In any event, "(t)o put the claim of the State upon title is," in Mr. Justice Holmes' words, "to lean upon a slender reed." ... A State does not stand in the same position as the owner of a private game preserve and it is pure fantasy to talk of "owning" wild fish, birds, or animals. Neither the States nor the Federal Government, any more than a hopeful fisherman or hunter, has title to these creatures until they are reduced to possession by skillful capture.... The "ownership" language of cases such as those cited by appellant must be understood as no more than a 19th-century legal fiction expressing "the importance to its people that a State have power to preserve and regulate the exploitation of an important resource." ... Under modern analysis, the question is simply whether the State has exercised its police power in conformity with the federal laws and Constitution.
Douglas v. Seacoast Prods., Inc., 431 U.S. 265, 284-85, 97 S.Ct. 1740, 1751-52, 52 L.Ed.2d 304 (1977) (citations omitted & emphasis added). The Supreme Court thus recognized that a government does not have a property right in wild fish, but that government can regulate wildlife through its regulatory police power. That is the situation here. Thus, the defendants' offenses do not constitute an "offense against property," but involve South Africa's regulatory power, as in Cleveland v. United States.
Diemont's opinion goes on to advance the further theory that South Africa ultimately had ownership rights to the illegally caught fish because South Africa had the right to receive a forfeiture of the fish from defendants. (Diemont Opinion ¶¶ 18-21; see also Defs. Binder Ex. 8: Gov't 12/18/04 Opp. Br. at 23, 26-27.) The fact that South Africa could have forfeited all the fish that defendants caught illegally does not transform defendants' acts of over- fishing into offenses against South Africa's property. It is commonplace for criminal defendants to be required to forfeit the proceeds or instrumentality of their crime to the government. It is illogical to say, however, that the government has a property interest in every object that may be the proceeds or instrumentality of a crime prior to that object being forfeited. And here, the fish imported into the United States had never been ordered forfeited by the South African government in South African criminal (or other) proceedings. Cf. Cleveland v. United States, 531 U.S. at 15, 121 S.Ct. at 368 ("It does not suffice, we clarify, that the object of the fraud may become property in the recipient's hands; for purposes of the mail fraud statute, the thing obtained must be property in the hands of the victim."). Defendants' acts of taking fish from South African waters that the South African government did not own, but could have (but in fact did not) forfeit does not provide the basis for any offenses against South African property that would trigger restitution under the MVRA.
b. South Africa Did Not Have A Property Interest In Any Tax Or Other Form Of Revenue As A Result Of Its Conservation Regulatory Laws
Defendants' violations of various regulations under South Africa's Customs and Excise Act, MLRA, and Catch Documentation Scheme do not provide the basis for any underlying offenses against South African property. The bulk of defendants' violations were regulatory permit violations, with additional violations of false statements to officials under the Customs and Excise Act. (See page 15 above.) None of these violations rise to the level of "offenses against property" against South Africa because they are pure regulatory violations and do not involve any sort of property interest belonging to South Africa.
As in Cleveland v. United States, 531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000), where the state's interest was in the allocation of video poker licenses, here, defendants' violations amount to breaches of a licensing scheme in which South Africa's interest was in the allocation of fishing permits. See Cleveland v. United States, 531 U.S. at 20, 121 S.Ct. at 371 ("To begin with, we think it beyond genuine dispute that whatever interests Louisiana might be said to have in its video poker licenses, the State's core concern is regulatory." ). Unlike the Canadian tax laws in Pasquantino v. United States, 544 U.S. 349, 355-57, 125 S.Ct. 1766, 1771-72, 161 L.Ed.2d 619 (2005), where the Supreme Court found that the Canadian government held a property interest in the substantial liquor tax revenue that defendants avoided paying as a result of their smuggling scheme, the South African laws that provide the basis for defendants' underlying violations here involve no type of taxes or significant revenue for South Africa. [FN13] Therefore, defendants' violations of these South African regulations also do not constitute "offenses against property" that would trigger restitution under the MVRA.
FN13. As defendants stated in their brief opposing restitution:
If South Africa is entitled to anything in restitution, it might be permitted to recover the losses in revenue from such things as taxes and duties. But the government does not address restitution on that basis....
(Defs. Binder Ex. 7: 9/15/04 Defs. Br. at 2; see also id. at 12 & n. 4: South Africa "charged nothing more than nominal fees for those [fishing] permit[s].")
Similarly, defendants' Lacey Act and smuggling violations do not create any property interest for South Africa that could be the basis of an offense against property. The Lacey Act and the smuggling statute under which defendants were prosecuted in the United States also are regulatory in nature. (See pages 14-16 above.) "The purpose of the Lacey Act is to protect 'those species of fish and wildlife whose continued existence is presently threatened' by 'gradually drying up the international market for endangered species,' thus 'reducing the poaching of any such species in the country where it is found.' " United States v. Bernal, 90 F.3d 465, 467 (11th Cir.1996). The Lacey Act was enacted for regulatory purposes, not to create a source of tax or licensing revenue for the U.S. or foreign governments. Defendants' violations of the Lacey Act and the smuggling statute do not provide the basis for any South African property interest which would trigger restitution under the MVRA.
The Government suggests that this case involved offenses against South African property because defendants' actions of overfishing in South African waters "had a devastating impact on South Africa's rock lobster population." (E.g., Defs. Binder Ex. 8: Gov't 10/18/04 Opp. Br. at 1.) However, as discussed above, the violations that served as underlying violations to defendants' conspiracy, Lacey Act, and smuggling violations were purely regulatory violations. The South African statutes that served as the basis of defendants' convictions did not address any actual theft of property or destruction of property; they were simply regulatory permit violations. The Government is essentially arguing that because the regulatory violation resulted in destruction of property, the regulatory violation is transformed into an offense against property.
*9 The following analogy demonstrates why the Government's position is incorrect: Assume that the Arab states' former ban on trade with Israel was still in place and, because the United States is Israel's ally, was extended to also ban trade with the United States. If a person legally caught fish or wildlife in an Arab state, and then illegally imported that fish or wildlife to the United States in violation of the Arab trade ban, that person would be in violation of the Lacey Act, because that person would have imported fish or wildlife sold in violation of foreign law. The underlying violation is clearly a purely regulatory violation that is not an offense against property; rather, it is an offense against the foreign state's foreign policy. Even if the original, legal taking of the fish or wildlife in the Arab state resulted in a depletion of that type of fish or wildlife in that Arab State, the underlying offense to the Lacey Act would not be an offense against property because the offense is against the Arab state's foreign policy of no trade with Israel and the United States, not an offense against the Arab state's property.
Such is the situation with defendants' violations here: the underlying violations that triggered the Lacey Act, violation of South African permit rules, were purely regulatory and not property offenses. While defendants' regulatory offenses may have resulted in the depletion of lobster in South African coastal waters, that similarly does not transform the underlying South African permit violations into offenses against property in which South Africa was the victim. As discussed above, South Africa had no property interest in the fish that defendants took from South African waters and South Africa had no property interest in any tax or other form of revenue as a result of defendants' breach of South Africa's conservation regulatory laws.
Defendants' offenses therefore are not offenses against property under Title 18 and therefore do not trigger restitution under the MVRA. Accordingly, the Court should reject the Government's request for restitution under the MVRA.
II. THE VICTIM AND WITNESS PROTECTION ACT
It is possible that, even though restitution is not appropriate under the MVRA, restitution may be appropriate under the Victim and Witness Protection Act ("VWPA"), the federal discretionary restitution statute. 18 U.S.C. § 3663. However, because the parties have primarily focused on the MVRA, and because the VWPA requires the Court to take into account slightly different considerations than the MVRA, this Court will not reach the argument regarding whether restitution is appropriate under the VWPA at this time. If Judge Kaplan were to reject this Report and Recommendation and find that the MVRA does apply, it will be unnecessary to reach the VWPA. [FN14] On the other hand, should Judge Kaplan adopt this Report and Recommendation, the Government, if it wishes to, may submit to me further briefing regarding restitution under the VWPA within twenty days of service of Judge Kaplan's opinion (and defendants shall have two weeks to respond).
FN14. It will, however, be necessary to address defendants' other arguments as to why restitution is not appropriate here under the MVRA. The parties are to re-brief these issues within twenty days of Judge Kaplan's decision.
For the reasons discussed above, the Court should deny the Government's request for restitution under the MVRA. Should the Government then wish to pursue restitution under the discretionary Victim and Witness Protection Act, the Government shall brief the issues with respect to the VWPA within twenty days of service of Judge Kaplan's decision (and defendants shall respond within two weeks)
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Lewis A. Kaplan, 500 Pearl Street, Room 1310, and to my chambers, 500 Pearl Street, Room 1370. Any requests for an extension of time for filing objections must be directed to Judge Kaplan (with a courtesy copy to my chambers). Failure to file objections will result in a waiver of those objections for purposes of appeal. Thomas v. Am, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir.1993), cert. denied, 513 U.S. 822, 115 S.Ct. 86, 130 L.Ed.2d 38 (1994); Roldan v. Racette, 984 F.2d 85, 89 (2d Cir.1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir.), cert. denied, 506 U.S. 1038, 113 S.Ct. 825, 121 L.Ed.2d 696 (1992); Small v. Secretary of Health & Human Servs., 892 F.2d 15, 16 (2d Cir.1989); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir.1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir.1983); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72, 6(a), 6(e).