Federal criminal defense practitioners will be interested in United States v. Barry Cohan, an EDNY decision addressing the priority of overlapping forfeiture and restitution remedies in a health care plea agreement.

In Cohan, the defendant pled guilty to health care fraud and identity theft, and was subject to a $600,000 forfeiture and $607,186 in restitution.  While forfeiture and restitution may be imposed concurrently, EDNY Judge Frederic Block recognized that the two remedies are often competing for the same assets of the defendant.  The Court’s decision was driven by its “view that satisfaction of the restitution judgment should take priority over satisfaction of the forfeiture judgment.”

The Cohan defendant first argued that the government had promised to apply forfeited funds to restitution and should be estopped from recovering both amounts.  His plea agreement, however, included a standard merger clause stating that there were no oral agreements or promises.  EDNY Judge Frederic Block rejected defendant’s argument after a hearing.  In particular, the Court found that to the extent there were any discussions of forfeited funds being used for restitution among the parties and with the Court, they were premised on an erroneous assumption that defendant did not have sufficient assets to satisfy both the forfeiture and restitution judgments.

The Court noted that forfeiture and restitution overlap where the disgorgement represented by forfeiture corresponds to the victim’s loss.  In United States v. Kalish, 626 F.3d 165 (2d Cir. 2010), the Second Circuit observed without deciding that a defendant could argue that when forfeiture represents ill-gotten gains, money returned to a victim should be a credit against restitution.  The Seventh Circuit rejected this argument in United States v. Emerson, 128 F.3d 557 (7th Cir. 1997).  In Cohan, Judge Block found this argument unavailable because defendant had agreed to a $600,000 forfeiture and the plea agreement did not contemplate a set-off for restitution.  The Court concluded that defendant was required to pay both the forfeiture and restitution judgments, and then addressed the priority between forfeiture and restitution.

The Court noted that given the known available assets, there would be a shortfall of more than $350,000, and there is no statutory priority between forfeiture and restitution.  The Court found, however, some statutory “hints” in 18 U.S.C. 3664(i) and 18 U.S.C. 3612(c), which provide that restitution to victims has priority over restitution to the United States and fines, penalties and costs imposed under the sentence.  Judge Block also found support in United States v. Steel, in which EDNY Judge Garaufis stated “it is not apparent why victims of criminal activity should not be compensated for their proven losses before the Government received a defendant’s ill-gotten gains.”  The Court held for those reasons that it had the authority to prioritize restitution over forfeiture.

As to property that had already been forfeited, the Court held that ownership had transferred to the government.  In United States v. Pescatore, 637 F.3d 128 (2d Cir. 2011), the Second Circuit held that the government’s authority to restore forfeited property to victims is discretionary, and DOJ will generally not exercise such discretion if a defendant can pay both restitution and forfeiture.  Thus, the Court did not have authority to order previously forfeited assets to be used for restitution.

With respect to property that had not already been forfeited, however, the Court held it would give priority to restitution, and provided that the forfeiture order could not be executed until the restitution obligation was satisfied in full.  Significantly, Judge Block stated that he would not sign any future forfeiture order without first assessing the possible impact on restitution.

United States v. Cohan highlights the critical importance of clarity in criminal plea agreements, particularly concerning the monetary parts of the plea, and whether forfeited funds will be used to compensate victims entitled to restitution.  Post-plea assertions of an oral agreement or understanding with the government are unlikely to be accepted in the face of the standard plea agreement language and allocution.  In both Steel and Cohan, the Courts refused any set-off between forfeiture and restitution because the plea agreement provided both for a forfeiture money judgment and restitution to be set at sentencing.  Criminal defense practitioners will want plea agreements to specify the relationship and priority between restitution and forfeiture, including whether the prosecutor will recommend to DOJ that forfeited funds be restored to victims.  In addition, Courts may be increasingly reluctant to approve forfeiture orders unless the impact on restitution has not been considered and determined.