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United States v. Lagos

United States Court of Appeals, Fifth Circuit

March 23, 2017

SERGIO FERNANDO LAGOS, Defendant-Appellant.

         Appeal from the United States District Court for the Southern District of Texas

          Before PRADO and HIGGINSON, Circuit Judges. [*]

          EDWARD C. PRADO, Circuit Judge

         Sergio Fernando Lagos challenges the district court's order of restitution imposed following his guilty plea to one count of conspiracy to commit wire fraud and to five counts of wire fraud. See 18 U.S.C. §§ 2, 1343, 1349. He contends that the Mandatory Victims Restitution Act ("MVRA") does not authorize restitution for the legal, expert, and consulting fees incurred by the victim-lender, General Electric Capital Corporation ("GECC"), in investigating the fraud or its legal fees from the bankruptcy proceedings caused by the fraud.

         Because the restitution ordered in this case is consistent with payments upheld in our past cases, we affirm.



         The legality of a restitution award is reviewed de novo. United States v. Espinoza, 677 F.3d 730, 732 (5th Cir. 2012). The MVRA instructs a sentencing court to order restitution for a victim's "actual loss directly and proximately caused by the defendant's offense of conviction." United States v. Sharma, 703 F.3d 318, 323 (5th Cir. 2012); 18 U.S.C. § 3663A(a)(2). This includes "lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense." 18 U.S.C. § 3663A(b)(4).

         According to Lagos, the forensic expert fees, legal fees, and consulting fees incurred by GECC should not have been included because they are "consequential damages." His reliance on United States v. Schinnell, 80 F.3d 1064, 1070 (5th Cir. 1996), however, is misplaced because the basis for the restitution award in that case was the Victim and Witness Protection Act ("VWPA"), 18 U.S.C. § 3663(b)(1), not § 3663A(b)(4) and the MVRA.

         In our Circuit, the scope of restitution under subsection 3663A(b)(4) is controlled by United States v. Phillips, 477 F.3d 215 (5th Cir. 2007). In upholding an award of restitution to the University of Texas imposed on a computer hacker, this Court in Phillips cited § 3663A(b)(4), which authorizes restitution of expenses incurred while participating in the investigation or prosecution of the offense. 477 F.3d at 224. It concluded that the University of Texas "was a victim, and it collaborated with the investigation and incurred costs to notify other victims of [the hacker's] data theft in order to determine whether they had suffered further damage." Id. As the Court explained, while "consequential damages" are not properly recoverable under Schinnell, that case did not involve the application of § 3663A(b)(4). Id. In distinguishing Schinnell, this Court gave a broad reading to § 3663A(b)(4), allowing not only the cost of the investigation but also the cost of contacting those whose information was compromised to be included in the restitution award.[1]

         In unpublished decisions following Phillips, this Court has upheld restitution awards that encompassed attorneys' fees and other expenses stemming from the investigation and prosecution of the offense. United States v. Herrera, 606 F.App'x 748, 752-53 (5th Cir. 2015) (per curiam) (affirming investigative audit costs as part of restitution where investigative audit was a fundamental component of investigation of defendant's theft of federal funds); United States v. Dwyer, 275 F.App'x 269, 271-72 (5th Cir. 2008) (affirming in the restitution award costs of margin calls, attorneys' fees, and accounting fees arising from defendant's bank fraud under plain error standard of review).

         Lagos admitted that for two years, he and his co-conspirators misled GECC about the value of their accounts receivable to induce GECC to increase the amount of the revolving loan and to provide him and his co-defendants with uncollateralized funds. Their wire fraud scheme caused GECC to employ forensic experts to secure and preserve electronic data as well as lawyers and consultants to investigate the full extent and magnitude of the fraud and to provide legal advice relating to the fraud. Fees incurred by GECC during the investigation of the fraud were necessary and compensable in the restitution award. See 18 U.S.C. § 3663A(b)(4).

         Likewise, the district court correctly included GECC's legal fees incurred in the related bankruptcy proceedings in the restitution award under subsections 3663A(a)(2) and (b)(4). In its victim impact statements, GECC described how the defendants' fraudulent scheme directly caused the defendants' companies (the GECC borrowers) to file for bankruptcy. The bankruptcy court ordered GECC to continue to make advances to the defendants' companies during the bankruptcy proceedings. Thus, the district court correctly determined that the legal fees incurred by GECC during the related bankruptcy proceedings were directly caused by the defendants' fraud for purposes of restitution. See 18 U.S.C. § 3663A(a)(2), (b)(4); Sharma, 703 F.3d at 323 (authorizing restitution for losses "directly and proximately caused by the defendant's offense[s] of conviction").

         We note that the D.C. Circuit takes a narrower view of restitution under subsection 3663A(b)(4). United States v. Papagno, 639 F.3d 1093 (D.C. Cir. 2011).[2] Whatever the merits of the contrary reasoning in Papagno, this panel is bound by ...

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