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United States v. Powers

United States District Court, Eighth Circuit

November 6, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
JIMMY L. POWERS, Defendant.

MEMORANDUM AND ORDER ON RESTITUTION

JOHN M. GERRARD, District Judge.

This matter is before the Court to determine the proper amount of restitution owed by defendant Jimmy L. Powers. Powers pleaded guilty to one count of bank fraud, in violation of 18 U.S.C. § 1344. The parties agree that Town and Country Bank was the victim of this fraud, and that Powers is obligated to pay restitution under the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. §§ 3663A-3664. But they agree on little else-including who should receive any restitution payment.

A sentencing hearing was held October 21, 2013, at which the Court received additional evidence and heard arguments from both parties. At that time, the Court informed the parties that restitution would be imposed, in an amount to be determined following sentencing, and gave the parties an opportunity to present supplemental briefs. See, § 3664(d)(5); Dolan v. United States, 130 S.Ct. 2533, 2544 (2010). The remainder of Powers' sentence was imposed on October 21, 2013, and his judgment of conviction was formally filed on October 24, 2013. See filings 30, 31, and 39.

The Court now has before it the presentence investigation report ("PSR"), the parties' briefs, Powers' objection to the Court's tentative sentencing findings, and the evidence offered before and at the sentencing hearing, and the matter is fully submitted. Powers will be ordered to pay $138, 500.60 in restitution to the Bank. This amount comprises the outstanding principal and accrued interest on Powers' loans as of June 29, 2009, and excludes several other amounts, discussed below. Powers' objections to the Court's tentative findings (see filings 27 and 28) are, with one exception, overruled.

BACKGROUND

Powers operated a hay business in Gibbon, Nebraska. PSR ¶ 17. Beginning in 2003, the Bank extended loans to Powers for various purposes, including the purchase of farm equipment and to cover operational expenses. PSR ¶ 19. Powers, in turn, signed security agreements pledging as collateral various farm assets, including hay and hay products, and granting the Bank a first security interest in this collateral. PSR ¶ 18. Under the agreements, Powers was required to deposit proceeds from hay sales with the Bank in order to pay down the operating loan balances. PSR ¶ 18.

However, between approximately November 2006 and December 2007, Powers failed to pay over proceeds from the sale of secured hay. PSR ¶ 21. In total, he failed to pay over approximately $264, 023.03 in hay proceeds. PSR ¶ 22. Powers instead deposited these funds in new accounts with two other banks. PSR ¶ 22. The majority of those proceeds have been neither accounted for nor recovered.

Powers explained that in 2007, he invested in equipment to produce dairy-quality hay. PSR ¶ 32. Due to bad weather, he was forced to sell his hay at a significant loss. PSR ¶ 32. Powers claims that he then began diverting proceeds from selling secured hay in order to keep his business afloat. He used the money to pay operating expenses and the landowners on whose farms he was growing hay. But he also used the proceeds for his own living expenses. Filing 23 at 4-5. Powers has not provided any further details on how these funds were spent, nor what percentage of the funds went to pay operating expenses and landlords versus his personal expenses.

In late November 2007, Powers filed for bankruptcy. PSR ¶ 25. In August 2008, the Bank obtained an order from the bankruptcy court authorizing the Bank to repossess hay, equipment, and other collateral. PSR ¶ 27. The Bank applied the proceeds from the sale of this collateral to Powers' outstanding debt. PSR ¶ 27. The results of the Bank's recoupment efforts will be discussed below.

The parties have agreed that the total amount of funds improperly diverted by Powers was $264, 023.03. Filing 7 at 3-4; filing 23 at 4. And under the parties' plea agreement, Powers acknowledged that restitution would be ordered in "the amount of $264, 023.03 less any amount paid prior to sentencing."[1] Filing 7 at 4. The parties dispute the proper method for calculating restitution, what types of loss may be included in the restitution award, and who should receive the restitution. The government and the Bank seek restitution in the amount of $207, 967, which represents the sum of the unpaid principal balance on Powers' loan, the accrued interest, and various costs, including attorney fees, incurred by the Bank. The government argues that had Powers not diverted $264, 023.03 in proceeds, much of that money would have been available to pay these costs.

The Court begins with the principal. When Powers began diverting proceeds in November 2006, the outstanding principal balance on his loans was $302, 103. Filing 19-2 at 1. While Powers was diverting proceeds, he continued to receive advances on these loans, and by the time he filed for bankruptcy, the unpaid principal balance was $439, 550.66. Filing 19-2 at 1-13.

From January to August of 2008, Powers made payments at the direction of the bankruptcy court, bringing the principal balance down to $329, 498.96. Filing 19-2 at 14. Beginning in August 2008 and continuing until June 29, 2009, the Bank repossessed and sold various collateral, including hay and farm equipment. PSR ¶¶ 27, 36; filing 19-1 at 1. James Friesen, an executive vice president with the Bank, submitted an itemization of the costs incurred by the Bank in collecting and selling the collateral. Filing 19-3. And he testified in further detail at the sentencing hearing as to the nature and necessity of these expenses. The costs included baling and transporting the hay, paying the landlords' shares of the proceeds, and hay quality testing-expenses and tasks that Powers would normally have undertaken. Filing 19-3. The Bank applied the net proceeds of these efforts, $247, 903.62, to the remaining unpaid balance. PSR ¶¶ 27, 36, & pp. 17-18; filing 19-1 at 1; filing 19-2 at 14-15. As of June 29, 2009, this left an unpaid principal balance of $81, 595.[2] Filing 19-1 at 1, filing 19-2 at 15.

As noted above, the government and the Bank are also seeking an award of restitution for the accrued interest on Powers' loans and for certain unpaid "collection costs." Specifically, the Bank seeks the interest on Powers' loans (at the contractual rate) that had accrued as of June 29, 2009, the date the Bank finalized its collection efforts. Filing 19-1 at 1; filing 19-4 at 3; filing 38 at 3; filing 31 at 18:00-20:50, 41:30-44:00. This amounts to an additional $87, 661.46. Filing 19-1 at 1. The Bank also requests $43, 710.20 in unspecified "unpaid collection costs, " which consists primarily of attorney fees the Bank incurred in securing access to its collateral in the bankruptcy proceedings. Filing 19-1 at 1; filing 31 at 19:00-20:30. The Court will simply refer to these costs as the Bank's attorney fees, in order to distinguish them from the costs incurred by the Bank in disposing of Powers' collateral (e.g., selling and transporting the hay). Those costs were itemized and offset against the gross proceeds obtained from the sales.[3] Filing 19-3; filing 38. In contrast, there has been no detail provided regarding the Bank's attorney fees. Added together, the principal, interest, and attorney fees come to $212, 967. Filing 19-1 at 1.

The Bank's request was subject to one final adjustment. Powers' debt was based on 11 promissory notes held by the Bank. Filing 31 at 44:30-45:45. By June 2009, the Bank had consolidated the outstanding principal into one note (number 10117). Friesen explained that this was simply an accounting decision; the Bank had the discretion to apply payments to any of the notes. Filing 19-2 at 15; filing 31 at 46:00-47:15, 49:00-50:00. In May 2010, the Bank sold six of the notes (including number 10117) for $5, 000 to Trotter Inc., another creditor of Powers. Trotter had approached the Bank because the Bank held a trust deed to Powers' residence that had priority over Trotter's interest in the residence. Trotter offered to purchase the Bank's deed as well as all notes referencing the deed. At the hearing, Friesen explained that he had forgotten this when preparing his previous submissions and agreed that Powers should be given credit for the $5, 000. Filing 31 at 42:00-44:00, 47:15-50:00, 59:00-1:00:15; filing 41-1. So, the final amount of restitution requested by the Bank is $207, 967. Filing 31 at 18:00-20:50, 41:30-44:00.

ANALYSIS

As noted above, Powers raises a number of objections to the restitution requested by the Bank. He disputes the method used by the Bank and government to calculate the Bank's loss, the amount of restitution that should be paid even using that method, and who should receive any restitution payment. Powers' arguments and the corresponding objections to ...


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