Federal Corner: A Lawyer Should Read the Entire Opinion Before Beginning to Celebrate – By F. R. Buck Files Jr.

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In the Democratic primary election of 1970, an East Texas county judge was unsuccessful in his bid for re-election—and, after hearing the results, he went to bed. A lawyer, who had represented many defendants in that judge’s court, was overjoyed when he learned of the judge’s defeat and began to celebrate. After consuming far too much of whatever it was that he was drinking, he called the judge—who was asleep—and said, “YOU AIN’T JUDGE NO MORE!” The judge responded, “I am until January 1, 1971.” At that moment, the lawyer learned of the heartbreak of premature celebration.

I was reminded of that incident when I read the opinion of the United States Court of Appeals for the Third Circuit in United States v. Bagdy, ___F.3d___, 2014 WL 4100586 (3rd Cir. 2014) [Panel of the Circuit: Smith, Vanaskie (authored the opinion) and Shwartz], in which the Court held that Bagdy did not violate a specific condition of his supervised release in relation to a restitution hearing, vacated the order revoking his supervised release and remanded the case to the District Court for further proceedings.

Judge Vanaskie’s opinion contains the following:

[An Overview of the Case]

At issue on this appeal is whether supervised release may be revoked and an offender sent to prison based upon a District Court’s finding that the offender acted in bad faith in relation to his obligation to make restitution to the victims of his criminal conduct. In this case, although Appellant David Bagdy complied with the letter of the District Court’s restitution order by ultimately paying more than one-third of a $435,000 inheritance he had received while on supervised release, he engaged in a lavish spending spree that dissipated the balance of the inheritance while delaying the proceedings intended to modify the restitution order. Like the District Court, we find Bagdy’s conduct reprehensible. We conclude, however, that the District Court could not revoke supervised release for such bad faith conduct because Bagdy did not violate a specific condition of supervised release in relation to the restitution obligation. Accordingly, we will vacate the judgment and remand for further proceedings. [Note: At this point in the opinion, Bagdy and his lawyer probably thought they had won—but wait.]

[Bagdy’s Plea and Sentence]

Bagdy pled guilty to a charge of wire fraud arising from a scheme to embezzle hundreds of thousands of dollars from a small family-owned lumber business for which he served as a consultant. The District Court sentenced him to 36 months’ imprisonment and three years of supervised release. The District Court also ordered that Bagdy make restitution in the amount of $566,115.57. As a condition of supervised release, the District Court ordered that Bagdy “make periodic payments of at least ten percent of his gross monthly income toward any outstanding balance of restitution. Payments shall be made in such amounts and at such times as directed by his probation officer and approved by the Court.” Furthermore, Bagdy was required to “provide his probation officer with access to any requested financial information” to enable the probation office to determine an appropriate payment schedule.

[Bagdy Begins Supervised Release, Inherits Money, and Pays His Ten Percent]

Bagdy completed his prison term and commenced supervised release in July of 2011. In March of 2012, Bagdy reported to his probation officer that he had received $409,799.13 in inheritance from his aunt. Bagdy consulted with his probation officer regarding his restitution obligation in regards to the inheritance and paid $41,000 of the total toward restitution. Bagdy maintains that this contribution reflected the ten percent of his gross monthly income that he believed the District Court’s judgment obligated him to put toward restitution.

[The Government Seeks an Order of Restitution and Bagdy Pays $60,000]

On April 9, 2012, the government filed a motion to modify the order of restitution under 18 U.S.C. § 3664(k).2 Shortly after filing the motion, the government met with Bagdy and his counsel in an attempt to reach a settlement as to the amount of his inheritance Bagdy would put toward restitution. Although no formal agreement was reached at the meeting, Bagdy contributed an additional $60,000 of his inheritance toward restitution and remained in communication with the government regarding a possible settlement.

[Negotiations Continue and Bagdy Delays]

While negotiations between the government and Bagdy continued, Bagdy requested several extensions of time to file a response to the government’s §3664(k) motion, representing to the District Court that he was engaged in “good faith negotiations to resolve all restitution issues by agreement” with the government. For months, the government did not oppose Bagdy’s extension motions and the District Court granted five of them. When no settlement had been reached as of early November 2012, the government emailed Bagdy’s counsel to express its concern that Bagdy may be stalling the hearing while depleting his inheritance [emphasis added]. [Note: See “My Thoughts.”]

[The §3664(k) Hearing]

The District Court finally held the § 3664(k) hearing on December 3, 2012. At the hearing, the government informed the District Court that Bagdy had inherited from his aunt an additional $25,000 that it had previously been unaware of, bringing his total inheritance to $434,799.13. The government also told the court that it had just learned that Bagdy had spent all but about $52,000 of the inheritance. The government requested to have Bagdy’s conditions of supervised release modified to order payment of the $52,000 balance of his inheritance. Bagdy’s counsel did not object and the District Court granted the motion.

        The government candidly acknowledged that it did not know if Bagdy had violated any condition of supervised release by depleting his inheritance. The District Court instructed the government to “[c]onsult with the probation department and do your research and look for precedent and see if potentially if the bad faith on the part of the Defendant under all of these circumstances somehow constitutes a constructive breach of the conditions [of supervised release].”

[The Government Seeks Revocation of Bagdy’s Supervised Release]

On February 6, 2013, the government filed a motion requesting that the District Court hold a hearing regarding Bagdy’s alleged violation of his supervised release. The motion noted that “since receiving a total of $434,000 last year from an inheritance, the defendant has paid $152,048.48 toward restitution, and has spent the remaining $281,952.” The government’s motion detailed Bagdy’s expenditures during this period, as reported to the probation office, but also alleged that copies of Bagdy’s bank records reflected additional expenditures that had not been reported to the probation office. Unreported expenditures included $41,000 in ATM withdrawals, $21,800 in Western Union transfers, and $5,800 in purchases from a business named Fragile Paradise Florist. The government argued that Bagdy’s failure to put a greater amount of his inheritance toward restitution while making extravagant personal expenditures constituted a willful violation of the conditions of supervised release.

[The Hearing on the Motion to Revoke Bagdy’s Supervised Release]

At the June 4, 2013, hearing on the motion, the government maintained that Bagdy’s conditions of supervised release required him to pay the full amount of restitution and that “[t] he requirement that he pay not less than 10 percent is merely setting a floor during the term of his supervised release that he has to satisfy.” Bagdy’s counsel responded by contending that “a specific violation of a condition of this Court’s judgment has not been adequately alleged” because nothing in the restitution order had indicated that Bagdy could be found in violation for not making payments in good faith.

[The District Court’s Decision]

The District Court concluded:

Mr. Bagdy, I have to agree with the Government, I think that your conduct in this case, you knew you owed this money, and to have inherited this large sum and to spend it the way you did was not acting in good faith and it does constitute a violation of my restitution order. So I do find that you violated the condition and I am going to sentence you to six months incarceration.

***

[Revocation of Supervised Release Hearings]

A District Court may revoke a defendant’s supervised release and impose a term of imprisonment “if the court, pursuant to the Federal Rules of Criminal Procedure applicable to revocation of . . . supervised release, finds by a preponderance of the evidence that the defendant violated a condition of supervised release. . . .” 18 U.S.C. § 3583(e)(3). The issue presented here is whether Bagdy violated a specific condition of supervised release by remitting only $152,048.84 from his inheritance.

        We have repeatedly expressed concern that conditions of supervised release be sufficiently clear to enable individuals on supervised release to freely choose between compliance and violation. In this regard, our precedents require that conditions of supervised release provide a defendant with “adequate notice of what he may and may not do….”

***

[The District Court Erred in Revoking Bagdy’s Supervised Release]

At the revocation hearing, the District Court did not identify an explicit condition of supervised release that Bagdy had violated. The District Court took issue with Bagdy’s depletion of his inheritance on personal ex­penses, finding that the dissipation of assets constituted bad faith in light of Bagdy’s obligation to make com­plete restitution to his victims. Bagdy, however, had in­formed his probation officer and consulted the officer before making his initial payment of $41,000. Regarding payment, the judgment setting forth the conditions of supervised release provided that “[t]he defendant shall make periodic payments of at least ten (10%) percent of his gross monthly income toward the outstanding balance of restitution. Payments shall be made in such amounts and at such times as directed by his probation officer and approved by the court.” There is nothing to suggest that Bagdy failed to make payment as directed by his probation officer. Bagdy’s failure to preserve a greater portion of his inheritance for satisfaction of the restitution order was not, on its own, a violation of the conditions of supervised release.

        The District Court found Bagdy in violation of supervised release for behavior that was not prohibited by an express condition of the judgment setting forth his conditions of supervised release. The question then is whether supervised release may be revoked where a defendant’s conduct supports a finding that he did not act in good faith in discharging his obligation to make resti­tu­tion in full.

        [Note: Bagdy and his lawyer are probably even more certain that they have won—but wait.]

[The Government’s “Good Faith” Argument]

The government argues that, although no good faith term appeared in Bagdy’s conditions of supervised release, the Supreme Court’s decision in Bearden v. Georgia, 461 U.S. 660, 103 S.Ct. 2064, 76 L.Ed.2d 221 (1983), authorizes a District Court to revoke supervised release when an offender fails to act in good faith with respect to paying restitution.

***

Unlike Bearden, Bagdy’s failure to pay more than $152,000 of his inheritance towards restitution did not violate an explicit condition of supervision. And the conditions of Bagdy’s supervised release did not require that he make good faith efforts to pay his restitution.

[The Government’s “Breach of Agreement” Argument]

The government . . . directs our attention to the informal agreement that it reached with Bagdy in early 2012, which provided that Bagdy would not deplete his inheritance prior to reaching a settlement with the government. Even if Bagdy’s conduct breached such an agreement, honoring that agreement was not a condition of supervised release.

[The Third Circuit’s Advice to the District Courts of the Circuit]

To avoid the occurrence of a similar situation in the future, District Courts may wish to consider adding a term to conditions of supervised release that would provide for contingencies where a defendant with a restitution ob­li­ga­tion comes upon an unforeseen inheritance or wind­fall. Such a term might prohibit defendants from spending a certain percentage of contested funds during the pendency of a § 3664(k) motion. In the absence of any such term in this case, we cannot affirm the District Court’s decision to revoke Bagdy’s supervised release for actions that were not in violation of his conditions of supervised release.

***

[In Two Footnotes to the Opinion, Judge Vanaskie Explains to the District Court How to Revoke Bagdy’s Term of Supervised Release]

Footnote 1: Bagdy may have violated other conditions of supervised release. For example, he may have violated a condition that required him to make certain reports to his probation officer on financial matters. On remand, the District Court is free to consider whether Bagdy violated a specific condition of supervision, and, if so, what the appropriate sanction for that violation should be [emphasis added].

        Footnote 6: The government argues that, by not disclosing numerous personal expenditures he made that exceeded $500, Bagdy violated a condition of supervised release that required him to “report to the probation officer as directed by the court or probation officer and . . . submit a truthful and complete written report within the first five days of each month.” Although the record appears to support the government’s claim that Bagdy was not forthcoming with probation regarding his expenditures, the District Court did not find him in violation of this condition at his revocation hearing. The District Court should consider on remand whether Bagdy can be found in violation of this condition of supervised release [emphasis added]. [Note: Bagdy and his now lawyer knew that they had nothing to celebrate.]

My Thoughts

  • If I were Bagdy’s lawyer, I would be deeply concerned. The opinion is crystal clear that he filed five requests for extensions of time to file a response to the Government’s §3664(k) motion. The Government did not oppose these requests. In each of these requests, he represented to the District Court that he was engaged in “good faith negotiations to resolve all restitution issues by agreement” with the Government. I know judges and prosecutors who would probably believe that he was less than candid in his representations that he was engaged in “good faith negotiations.” It would appear that he was at least negligent in his choice of words. The Government might not be so accommodating to him in the future.
  • We would never have a restitution issue such as Bagdy’s in the Eastern District of Texas. Here, the standard order of restitution requires that 100% of any inheritance be applied to the outstanding balance of a restitution order.
  • Bagdy probably shouldn’t ask for a refund of the $60,000.
  • Bagdy’s restitution issue is unique. I could not find another fact situation such as his in WestLaw’s federal database.
TCDLA
TCDLA
F. R. Buck Files, Jr.
F. R. Buck Files, Jr.
Buck Files is a charter member and former director of the Texas Criminal Defense Lawyers Association. He is a member of TDCLA’s Hall of Fame and a former President of the State Bar of Texas. In May, 2016, TDCLA’s Board of Directors named Buck as the author transcendent of the Texas Criminal Defense Lawyers Association. He practices in Tyler with the law firm of Files Harrison, P.C., and can be reached at or (903) 595-3573.

Buck Files is a charter member and former director of the Texas Criminal Defense Lawyers Association. He is a member of TDCLA’s Hall of Fame and a former President of the State Bar of Texas. In May, 2016, TDCLA’s Board of Directors named Buck as the author transcendent of the Texas Criminal Defense Lawyers Association. He practices in Tyler with the law firm of Files Harrison, P.C., and can be reached at or (903) 595-3573.

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