White-Collar to Blue-Collar in One Day

Last week, the U.S. Supreme Court issued two notable decisions on the same day.

One was a civil white-collar case, the other a criminal drug-trafficking case, and in both cases, the Court reversed the lower-court ruling on appeal.

In the civil case, the Court imposed a five-year statute of limitations on SEC cases that seek to disgorge profits. That’s the same period that applies in cases to enforce a fine, penalty, or forfeiture. Although disgorgement of profits is traditionally a form of restitution that’s measured by a defendant’s wrongful gain, the Court ruled that it’s a penalty in SEC cases for a couple reasons. First, the agency uses it to deter and punish defendants as much as to compensate victims. Sometimes, the money goes to Uncle Sam, and sometimes, the only victim is the public at large. Second, the agency often disgorges more than defendants have gained, leaving them worse off than before they broke the law. That may be the point, but that makes it a penalty.

In a footnote, the Court even seemed to call into question whether courts could order disgorgement at all. That’s something they’ve been doing since the 1970s, so it’s a big deal. For more in-depth analysis of this decision, see here.

In the criminal case, the Court reined in the government’s forfeiture power. Forfeiture allows the government to seize money or property that’s derived from a crime. But the law limits this to what someone actually and personally receives or obtains. That means you can’t be responsible for amounts obtained by someone else. So the hypothetical college student who gets $500 per month to drop off a few packages isn’t on the hook for the whole multimillion-dollar drug enterprise.

Here, two brothers worked in a hardware store together. One of them owned the store, and the other was a salaried employee. The two were charged with selling large amounts of a product they knew or had reason to know was being used to make meth. In three years, the store grossed about $400,000 from selling the stuff and netted $270,000.

The government wanted the $270,000 in profits. The owner agreed to forfeit $200,000 of it when he pleaded guilty, but the employee went to trial. He was acquitted of three counts, convicted of eleven, and sentenced to sixty months in prison. Then the government went after him for the remaining $70,000.

Although the government agreed that the employee had no ownership interest in the store and didn’t personally benefit from the illicit sales, it argued that, in a conspiracy, everyone is responsible for the full proceeds of the conspiracy. And it won that argument on appeal.

But the Supreme Court rejected that and reversed.

 

Back to Basics, Again.

Speaking of the U.S. Supreme Court, we shouldn’t have to rely on the country’s highest court to decide some questions correctly. But we do.

This week, the Court issued a friendly reminder about the presumption of innocence.

If you’re convicted of a crime, but your conviction is overturned on appeal, and there won’t be a retrial, the government has to return any money that you paid toward fines, fees, or restitution because you’re presumed innocent again. You’re presumed innocent until you’re proven guilty beyond a reasonable doubt in a fair trial where the verdict holds up. Until then, the government can’t make you prove your innocence to get your money back.

Here’s what happened. In two separate cases, a man and woman were convicted at trial, and they were ordered to pay fines, fees, and restitution as a result. Then both had their convictions reversed on appeal. One was retried but acquitted. The other wasn’t retried because the state dropped the case.

With the charges dismissed, the defendants asked for their money back, but they lost in the state courts because a new state law required them to sue for their money and prove their innocence by clear and convincing evidence.

But that can’t be right, and it wasn’t. Without a conviction, the state had no right to their money, and under the Due Process Clause of the U.S. Constitution, it couldn’t shift the burden of proof to them to prove their innocence.

Good for them that the court of last resort got it right.

But that court hears fewer than two percent of all potential cases each year. And it wouldn’t have heard these cases, either, if it weren’t for a pro bono clinic at the UCLA School of Law.

When It Rains, It Pours

Here’s another case that blurs the line between civil and criminal laws.

It started as a civil dispute between a homeowner and contractor. The homeowner hired the contractor to paint her house and install ten windows. Six months later, he had painted her house and installed eight-and-a-half windows, but no one was happy. He wanted $8,000 more to finish the work, but she’d already paid him $61,000 and refused to pay more.

The contractor sued for the $8,000 balance, but he had a problem: apparently, he didn’t actually have a contractor’s license. Or he couldn’t produce a valid one, anyway.

He may not have realized that, in California, an unlicensed contractor can’t sue for a breach of contract no matter how good a job he may have done. Not only that but he can be sued for every penny that he was paid even if he did great work. Which is what happened here. The homeowner lawyered up and countersued for the $61,000 that she had paid him.

Then his luck got worse.

Because he couldn’t produce a contractor’s license, he was charged criminally with six misdemeanor counts of contracting without a license. Yes, it’s a crime, too. He pleaded no contest to one count, and the other six were dismissed. He was put on probation and ordered to pay restitution as part of it.

At the restitution hearing, the government demanded that he pay back the entire $61,000 that the homeowner had paid him plus her attorneys’ fees. He testified that he did the work right and that she owed him $8,000. She testified that he didn’t do it right because some of the paint had faded, chipped, bubbled, and peeled in the three years since. He argued that any damage was due to natural weathering because the house was so close to the ocean, and he called an expert who testified to that.

The trial court sided with the contractor, but on appeal, he was ordered to pay back everything, including her attorneys’ fees.

Why?  The law was clear that he didn’t have a right to the money no matter how well he performed, so legally, she never should’ve had to pay for his work in the first place.

Wasn’t this a criminal case, not a civil one? Yes, but the civil rule applied to criminal restitution.

Wasn’t this an unfair windfall for the homeowner? Perhaps.

But that’s the way the cookie crumbled.

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