Page 8 - White-Collar Crime

S8 | Monday, July 7, 2014 | White-Collar Crime
| nylj.com

Failure to

Mitigate

Damages

As a Defense In Mortgage Fraud Cases

market value of the homes on the dates the ed that the defendant should not be liable for may not recover losses caused by their own
By MarGery B. feinziG, banks took title. The Supreme Court rejected the portion of losses caused by the victim’s independent decisions sounds much like the
that argument unanimously, holding that a independent decisions. The concurrence tort law concept of mitigation. mitigation of
Melissa fernandez
and Joseph W. Martini
“sentencing court must reduce the restitu- can be read to suggest that victims should damages, also referred to as the doctrine of
Ttion amount by the amount of money the have some obligation to mitigate losses by “avoidable consequences,” is not a defense
his article explores the basis for defend- victim received in selling the collateral, not affirmatively acting to preserve the value of to liability, but instead applies “only to the
ing against a restitution claim or guide- the value of the collateral when the victim and diligently dispose of collateral. indeed, diminution of damages.” Fed. Ins. Co. v.
lines loss calculation when victims fail received it.” 134 S. Ct. at 1856.
the concept of mitigation is consistent with Sabine Towing & Transp., 783 f.2d 347, 350
to mitigate losses based on a recent concur- The Supreme Court’s approach to loss the causation requirements that underlie (2d Cir. 1986) (internal quotation marks and
rence in a U.S. Supreme Court decision. in under the mvrA is consistent with the U.S. both the rules for determining loss under citation omitted). According to the restate-
Robers v. United States, 134 S. Ct. 1854 (2014), Sentencing guidelines’ (the guidelines) the mvrA as well as the guidelines.
ment (Second) of Torts §918 (1979), under

the Supreme Court resolved a circuit split approach to calculating “loss” in mortgage Justice Sonia Sotomayor filed the concur- the doctrine of avoidable consequences,
concerning the calculation of restitution fraud cases. it provides an offset for the ring opinion, joined by Justice ruth Bader “one injured by the tort of another is not
in mortgage fraud cases, pursuant to the “amount the victim has recovered at the ginsburg, to “clarify” that the majority analy- entitled to recover damages for any harm
mandatory victim restitution Act of 1996 time of sentencing from disposition of the sis applies only “where a victim intends to that he could have avoided by the use of
(mvrA), 18 U.S.C. §3663A. robers was con- collateral, or if the collateral has not been sell collateral but encounters a reasonable reasonable effort or expenditure after the
victed of conspiracy to commit wire fraud disposed of by that time, the fair market delay in doing so.” 134 S. Ct. at 1859-60. Soto- commission of the tort.” id. The implication
for submitting fraudulent loan applications value of the collateral at the time of sen- mayor explained that “[i]f a victim chooses of the concurrence’s reasoning in Robers is in
to purchase two residences. when he failed tencing.” U.S.S.g. §2B1.1, App. Note 3(e)(ii).
to hold collateral rather than to reduce it line with the restatement’s rationale that the
to repay, the banks foreclosed and sold the one consequence of this holding and to cash within a reasonable time, then the victim of mortgage fraud, who could have

homes for less than their purchase prices. approach is that a defendant could be victim must bear the risk of any subsequent avoided further losses by making a reason-
robers argued that the district court erred by liable for higher restitution amounts and decline in the value of the collateral, because able effort to dispose of the collateral, is not
ordering him to pay restitution in the amount longer prison sentences because the victim the defendant is not the proximate cause of entitled to restitution for that loss. in light of
of the difference between the loan amount fails to diligently dispose of the foreclosed that decline.” id. at 1860. in support of this the concurrence in Robers, defense counsel
and the sale proceeds as opposed to the fair
collateral or takes some other action that conclusion, Sotomayor reasoned that “[i] should take note that a mitigation argument
devalues the collateral prior to its sale. This f the collateral loses value after the victim could be a potential defense to a restitution
is particularly likely when victims take their chooses to hold it, then that ‘part of the claim or even a guidelines loss calculation.
is a partner at Wiggin and Dana time to sell properties in a declining market victim’s net los[s]’ is ‘attributable to’ the vic- The idea of transplanting a tort law con-
MarGery feinziG and/or fail to maintain properties in good tim’s ‘independent decisions. The defendant cept like mitigation into criminal law is not
in New York and Stamford. Melissa fernandez
is an associate in the Stamford office and Joseph condition prior to a sale.
cannot be regarded as the ‘proximate cause’ without precedent. indeed, although the con-
Martini is a partner in the New York and Stam- The propriety of holding a defendant of that part of the loss, [ ], and so cannot cept of restitution, itself, is a traditional civil
ford offices. The authors practice in the white-collar accountable for such losses was addressed be made to bear it.” id. (citations omitted).
remedy, “tort doctrine informs our thinking”
defense and investigations group.
by the concurrence in Robers, which suggest-
Sotomayor’s conclusion that victims
with respect to criminal restitution. United