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Date: 01-10-2018

Case Style:


United States Court of Appeals for the Second Circuit

Case Number: 16-2394

Judge: Amalya Lyle Kearse


Plaintiff's Attorney: ANDREW THOMAS
Assistant United States Attorney
Joon H. Kim
Acting United States Attorney for the Southern District of New York
Michael Ferrara
Assistant United States Attorney

Defendant's Attorney: SUSAN C. WOLFE

Description: The record of Smathers's prosecution, United States v. Smathers, S.D.N.Y. No.2
04CR1273, shows the following. In 2005, Smathers, represented by counsel, pleaded guilty to3
conspiring from about April 2003 through about April 2004, in violation of 18 U.S.C. 371, to affect4
interstate commerce by relaying and retransmitting deceptive emails in violation of the CAN-SPAM5
Act, 18 U.S.C. 1037, and to transmit in interstate commerce a stolen list of AOL customer names,6
having a value of $5,000 or more, in violation of 18 U.S.C. 2314. In furtherance of the conspiracy,7
Smathers, an employee of AOL, misappropriated an AOL customer list containing approximately 928
million screen names. Smathers sold that list ("the Smathers List") to Sean Dunaway for $28,000;9
Dunaway sold that list to Braden Bournival; Bournival used it to send to AOL customers between10
three and seven billion unsolicited email advertisements (or "spam," see The American Heritage11
Dictionary of the English Language at 1678 (5th ed. 2011) (defining "spam" as, inter alia,12
"[u]nsolicited email, often of a commercial nature, sent indiscriminately to multiple mailing lists,13
individuals, or newsgroups")). AOL estimated that the cost of processing those spam emails was14
about 10 cents per 1,000 emails, amounting to $300,000-$700,000.15
Smathers was sentenced principally to 15 months' imprisonment, to be followed by16
three years of supervised release, and was ordered to pay restitution to AOL. In determining the17
amount of Smathers's restitution obligation under the Mandatory Victims Restitution Act ("MVRA"),18
see 18 U.S.C. 3663A and 3664, the district court noted that Smathers's plea agreement stated that19
the loss to AOL was $300,000; but the court declined to order Smathers to pay restitution in that20
amount because, inter alia, some portion was overhead rather than out-of-pocket expense, and it21
thought that ordering him to pay $300,000 would give AOL a windfall. Instead, trebling the $28,0001
that Smathers had received for selling the AOL list, the court ordered Smathers to pay restitution in2
the amount of $84,000. The judgment so ordered but stated that the "Total Loss" was "$300,000." 3
Judgment, August 17, 2005.4
A. Smathers's First Attempt To Reduce His Restitution Obligation5
In March 2007, Smathers's attorney sent a letter to the district court stating, inter alia,6
that AOL had commenced a civil suit, America Online, Inc. v. Hawke, 04-259-A (E.D. Va.) ("Hawke7
Litigation"), against Davis Wolfgang Hawke, Bournival (who had purchased the Smathers List from8
Dunaway), and others. (See Letter from Susan C. Wolfe to Honorable Alvin K. Hellerstein dated9
March 26, 2007 ("2007 Wolfe Letter"), at 3.) The letter stated that the Hawke Litigation docket10
indicated that AOL had reached an undisclosed settlement with Bournival and had obtained a11
$12,834,553.82 default judgment against Hawke and two others; and that "various internet news12
sources" stated that AOL had collected some $95,000 and a Hummer vehicle in that litigation. (Id.) 13
Smathers contended that the $95,000 alone exceeded his entire restitution obligation (see 2007 Wolfe14
Letter at 3) and asked the court to determine the full amount of AOL's recoveries and to determine15
whether or to what extent his restitution obligation should be modified pursuant to 18 U.S.C.16
In response, the court gave Smathers "permission to file a motion for appropriate relief18
based on affidavits and competent proof." Order dated March 26, 2007 ("2007 Order"). No such19
motion was forthcoming.20
B. Smathers's Subsequent Requests for Reduction1
Eight years later, Smathers sent a pro se letter to the district court "request[ing] a status2
conference regarding the restitution ordered in []his case." (Letter from Jason Smathers to Honorable3
Alvin K. Hellerstein dated March 2, 2015 ("Smathers 2015 Letter"), at 1.) He stated that restitution4
payments had been made by Dunaway in Dunaway's criminal case and that payments had been made5
by Bournival in AOL's civil litigation--referred to in the 2007 Wolfe Letter. He stated that those6
payments were for the same loss that he had caused (see Smathers 2015 Letter at 1 n.1) and that he7
believed that "the restitution ordered in []his case" had therefore been "collected in full already8
through third party payments" (id. at 1).9
The district court responded that a status conference was not appropriate because there10
were no ongoing proceedings before the court. It stated that any request for relief should be made by11
motion, showing the court's jurisdiction and the reasons supporting the relief requested.12
Nearly a year later, Smathers brought his present pro se Motion To Compel Proper13
Enforcement of Restitution Order and Injunction, filed February 24, 2016 ("2016 Restitution14
Reduction Motion"), repeating his contention that the restitution payments made by Dunaway and the15
payment by Bournival in settlement of AOL's civil suit were for the same loss caused by Smathers16
and were sufficient in amount to extinguish Smathers's restitution obligation. No details were cited,17
and no affidavits or other evidentiary materials were submitted. Instead, Smathers argued that the18
government "should . . . have access" to the sealed documents in the AOL civil litigation, "should be19
in the position to determine all payments made for the same action and reduce the restitution amount20
by these third party payments," and should be ordered to "reduce [Smathers's] restitution amount" by21
the amounts paid by Dunaway and Bournival. (Id. at 2; see id. at 3.)22
The district court ordered the government to respond to the motion and to "make timely1
appl[icatio]n . . . to unseal any relevant case files or orders." Order dated February 29, 2016.2
The government did not seek the unsealing of any documents in AOL's civil litigation. 3
Rather, it responded to Smathers's 2016 contention that the payments to AOL by Dunaway and4
Bournival reduced or eliminated Smathers's restitution obligation by noting, in part, that5
Smathers made the same argument in a March 26, 2007 letter to the Court. At6 that time, the Court ordered the defendant "to file a motion for appropriate7 relief, based on Affidavits and competent proof . . . ." (Dkt. No. 40). Smathers8 never did so. Rather, Smathers's most recent application simply posits he is9 entitled to relief unless the Government proves otherwise. He is not.10
Unless and until Smathers comes forward with proof, the Court should11 deny Smathers's motion.12
(Letter from Assistant United States Attorney Andrew Thomas to Honorable Alvin K. Hellerstein13
dated April 11, 2016, at 1 (emphases ours).)14
The government argued, inter alia, that while Smathers "declare[d]" that the moneys15
received by AOL were for the same loss that Smathers caused, he had not presented any evidence to16
support either that proposition (id. at 2) or the proposition that the amounts received by AOL totaled17
the $300,000 listed in the Judgment against Smathers as AOL's total loss (see id. at 1).18
Smathers filed a reply memorandum arguing, inter alia, that $300,000 should not be19
considered the amount of AOL's loss, that the district court "determined this amount was not20
sufficiently proven and instead used $84,000," and that AOL "should be considered fully recovered21
when" it has recovered "$84,000 from any source." (Smathers's Reply to Government's Opposition22
to Defendant's Motion To Compel Proper Enforcement of Restitution Order and Injunction at 1.) He23
reiterated assertions made in the 2007 Wolfe Letter that news reports said AOL had collected more24
than $84,000, plus a Hummer. (See id. at 4.)1
Smathers argued that the government is "in a position to verify the facts alleged in [his]2
motion" and should do so instead of continuing to "pursue collection of restitution without taking any3
steps to verify if any or all of the restitution has been recovered." (Id. at 2.) And Smathers argued4
that if $300,000 is the correct loss number, the government should be required to "provide an5
accounting of the victim's recovery from all sources to see if this amount has been paid." (Id. at 3.) 6
He also asked the court to appoint counsel for him and provide instruction as to how to proceed. (See7
id. at 5.)8
C. The District Court's Decision9
In an order dated June 22, 2016 ("June 2016 Order"), the district court denied10
Smathers's motion. While noting that at Smathers's sentencing it had expressed "discomfort with11
[$300,000] as the loss amount," id. at 2, the court in ruling on Smathers's motion for restitution credit12
pointed out, inter alia, that "AOL [had] placed a value of $300,000 on the lists of customers that13
defendant and others stole," id., and that Smathers had "signed a plea agreement by which he had14
agreed that the intended loss to . . . []AOL[] was $300,000," id. at 1. In addition, the court stated that15
a customer list is16
[a]n asset of [a] sort [that] cannot readily be measured, for the theft of personal17 information has significant consequences beyond the names on the list. The18 value of the loss to AOL is much beyond the profits gained by the criminals19 who stole the names and sold them into the black market for assets of this type. 20 In sentencing Smathers, I considered values relevant to sentencing, including21 that it would be impossible for defendant to pay. See U.S.S.G. 5E1.1. I22 defined the loss he intended as approximately equivalent to the profit Smathers23 gained, trebled--$84,000. I considered it fair not to place values on intangibles24 for purposes of mandatory restitution, even if those values might be considered25 reasonable in the commercial market.26
June 2016 Order at 2 (emphases added).1
Rejecting the request that Smathers be given credit for restitution payments made by2
Dunaway, the court noted that Dunaway and Smathers had paid AOL only $6,219.92 and $5,894,3
respectively, towards their restitution obligations, see id. at 2, and thus, "jointly and severally, ha[d]4
not come anywhere close to compensating AOL for its loss caused by their criminal scheme," id. at 3. 5
And after noting the contentions as to AOL's settlements and default judgments in civil litigation, see6
id. at 2-3, the court rejected Smathers's claim for restitution credit on that basis, finding that7
the recoveries by AOL in those cases were not necessarily, and do not appear8 to be for the same loss caused by Dunaway and Smathers--nothing in the9 complaints in those cases suggests a connection between Dunaway and10 Smathers and the other individuals. . . . The fact that AOL has recovered from11 other spammers does not reduce Smathers' obligation, and his motion is12 denied.13
The clerk shall mark the motion (Doc. No. 44) terminated.14
Id. at 3 (emphasis added).15
On appeal, Smathers, represented by counsel once again, contends principally that the17
district court (a) erred in imposing on him "the full burden of pro[ving]" that AOL's civil litigation18
recoveries were for the same loss that he caused (Smathers brief on appeal at 26), and (b) clearly erred19
in finding that the losses were not the same. For the reasons that follow, we find no basis for reversal.20
The general goal of the MVRA, which is codified largely at 18 U.S.C. 3663A and21
3664, is to provide full compensation to victims of certain types of crimes. It provides, inter alia, that22
a defendant who is convicted of specified categories of felonies, including crimes against property23
in which an identifiable victim has suffered a pecuniary loss, shall, in addition to receiving any other1
penalty, be ordered to make restitution to the victim of the offense. See 18 U.S.C. 3663A(a)(1),2
3663A(c)(1). However, the MVRA is interpreted as not authorizing a victim's recovery of more than3
the amount of its loss. See, e.g., United States v. Nucci, 364 F.3d 419, 423-24 (2d Cir. 2004); United4
States v. Elson, 577 F.3d 713, 734-35 (6th Cir. 2009) ("Elson"); United States v. Stanley, 309 F.3d5
611, 613 (9th Cir. 2002); United States v. Dawson, 250 F.3d 1048, 1050-51 (7th Cir. 2001).6
The conclusion that the MVRA does not authorize a victim to recover more than its7
total loss is based in part on 3664(j), which states that8
[a]ny amount paid to a victim under an order of restitution shall be reduced by9 any amount later recovered as compensatory damages for the same loss by the10 victim in--11
(A) any Federal civil proceeding; and 12
(B) any State civil proceeding, to the extent provided by the13 law of the State,14
18 U.S.C. 3664(j)(2) (emphasis added). It is on this provision that Smathers principally relies.15
"In general, we review an MVRA order of restitution deferentially, and we will reverse16
only for abuse of discretion." United States v. Boccagna, 450 F.3d 107, 113 (2d Cir. 2006) (internal17
quotation marks omitted). An abuse of discretion exists if the "challenged ruling rests on an error of18
law, a clearly erroneous finding of fact, or otherwise cannot be located within the range of permissible19
decisions." Id. (internal quotation marks omitted). "Where there are challenges to the court's findings20
of fact, we review for clear error; insofar as the order rests on interpretations of law, we review those21
interpretations de novo." United States v. Reifler, 446 F.3d 65, 120 (2d Cir. 2006).22
A. Appealability of the Denial of a Motion for Reduction1
Before reaching the merits of Smathers's MVRA contentions, however, we consider2
the matter of appellate jurisdiction. With exceptions not pertinent here, federal courts of appeals have3
jurisdiction to entertain appeals only from "final decisions." 28 U.S.C. 1291; see generally Cohen4
v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949). An order in a postjudgment proceeding is5
not necessarily a final decision "simply because it follows the entry of judgment." United States v.6
Yalincak, 853 F.3d 629, 636 (2d Cir. 2017) ("Yalincak"). "Generally, a final decision is one that ends7
the litigation on the merits and leaves nothing for the court to do but execute the judgment." Id.8
(internal quotation marks omitted).9
In Yalincak, we analyzed the finality of a district court order that, in 2007, had--10
erroneously, see id. at 635--granted the defendant's postjudgment motions under 3664(j)(2) to11
reduce his remaining restitution obligation by crediting him with certain funds recovered by a trustee12
in bankruptcy proceedings. Whether that 2007 grant of restitution credit was a "final" decision13
became an issue when the district court vacated it in 2015, invoking the court's inherent "power to14
grant relief from erroneous interlocutory orders," 853 F.3d at 632 (internal quotation marks omitted);15
the defendant appealed from the 2015 order, contending that the prior order was a final decision that16
the district court had no power to alter. We agreed that the court lacked the authority to vacate its17
2007 order because "an order granting a motion for credit under 18 U.S.C. 3664(j)(2) is final and18
thus appealable" when it "conclusively determines a defendant's entitlement to credit under19
3664(j)(2) for particular funds," 853 F.3d at 632-33; and the court had "conclusively," and20
"unconditionally grant[ed] Yalincak's motions for credit," id. at 633, 640.21
In the present case, the district court's June 2016 Order was a final decision on22
Smathers's 2016 Restitution Reduction Motion. The court's dismissal of Smathers's claim for credit,1
as presented in 2016, was based on Smathers's failure to present proof either that AOL's civil litigation2
recoveries were for the same loss caused by Smathers or that AOL had recovered sums compensating3
it for the total amount of loss caused by Smathers. This decision stands in clear contrast to the court's4
reaction to Smathers's 2007 quest for restitution credit for those AOL recoveries, as set out in the 20075
Wolfe Letter. In 2007, the district court did not decide whether or not Smathers was entitled to credit;6
rather, it gave him leave to pursue such credit by presenting competent supporting evidence. The June7
2016 Order--entered after Smathers formally requested restitution credit (again without evidentiary8
support) and replied to the government's opposition--denied Smathers's motion because of lack of9
proof, and "terminated" the motion. June 2016 Order at 3. That unconditional dismissal of Smathers's10
claim for credit as unsubstantiated was a final decision, appealable pursuant to 1291.11
B. Allocations of the Burden of Proof Under the MVRA12
Smathers contends principally that the district court erred in placing on him the burden13
of proving that AOL's recoveries in civil litigation were "for the same loss" he caused, 18 U.S.C.14
3664(j)(2), and that those recoveries equaled or exceeded the loss he caused. We disagree.15
The MVRA states that "[a]ny dispute as to the proper amount or type of restitution16
shall be resolved by the court by the preponderance of the evidence," 18 U.S.C. 3664(e), and17
provides for various allocations of the burden of proof:18
The burden of demonstrating the amount of the loss sustained by a victim as19 a result of the offense shall be on the attorney for the Government. The burden20 of demonstrating the financial resources of the defendant and the financial21 needs of the defendant's dependents, shall be on the defendant. The burden of22
demonstrating such other matters as the court deems appropriate shall be1 upon the party designated by the court as justice requires.2
Id. (emphasis added). Thus, as to issues other than the amount of the victim's loss and the finances3
of the defendant and his dependents, the MVRA entrusts allocation of the burden of proof to the4
district court's discretion.5
As a general matter, the burden of proof as to a given issue is normally placed on the6
party that has an affirmative goal and presumptive access to proof. See, e.g., United States v.7
Technodyne LLC, 753 F.3d 368, 380 (2d Cir. 2014); 9 J. Wigmore, Evidence 2486 (Chadbourne rev.8
1981). With respect to requests by defendants for credits against their restitution obligations, this9
principle has been applied to place the burden of proof on the defendant, whether the payments to the10
victim were made by the defendant himself, see, e.g., United States v. Sheinbaum, 136 F.3d 443, 44911
(5th Cir. 1998) ("the burden of proving an offset should lie with the defendant" because "the12
defendant should know the value of any compensation he has already provided to the victim"), cert.13
denied, 526 U.S. 1133 (1999); United States v. Malone, 747 F.3d 481, 486 (7th Cir. 2014) ("the14
defendant is in the best position to know what he has returned to the victim and has the strongest15
incentive to litigate the issue"), or were made by other persons, see Elson, 577 F.3d at 734.16
In Elson, the defendant--in a direct appeal from the restitution portion of his sentence17
for conspiracy to obstruct a grand jury investigation by concealing assets from creditors, his ex-wife,18
and the government--challenged the denial of restitution credit for a civil lawsuit settlement payment19
to a victim by one of Elson's coconspirators, and for the transfer of property to the government by20
another coconspirator. The court of appeals, noting that the MVRA allocates the burdens of proof as21
to various issues to "the parties who are best able to satisfy those burdens," stated that "[t]he burden22
of proving an offset should lie with the defendant." 577 F.3d at 734 (internal quotation marks23
omitted). The court concluded that Elson had not carried that burden.1
As to the settlement payment received by one victim from a coconspirator, Elson was2
held not entitled to restitution credit for the entire loss because he "ha[d] not shown that," the victim3
had actually "received compensation" for that entire loss. Id. at 734; see also id. at 735 ("funds the4
victims have not received cannot reduce or offset the amount of losses the defendant is required to5
repay" (emphasis in original) (internal quotation marks omitted)); Yalincak, 853 F.3d at 635 (credit6
inappropriate until the offsetting funds are actually received by the victim); United States v. McGinn,7
787 F.3d 116, 130-31 (2d Cir. 2015) (same). As to the property that Elson's coconspirator turned over8
to the government, the court noted, inter alia, that Elson had not shown that that was the same9
property of which the victims had been defrauded, see Elson, 577 F.3d at 734-35, and that Elson10
"ha[d] not met his burden of showing that the government . . . collected on the returned [property] and11
distributed the proceeds to the victims," id. at 735.12
In the present case, Smathers unquestionably has the strongest incentive to establish13
that he is entitled to a reduction of his remaining restitution obligation. And as the government was14
not a party to the civil litigation on which Smathers relies, the government has no greater access than15
Smathers to the records in that litigation. We see no abuse of discretion in the district court's16
determination that justice required that Smathers--who caused injury to AOL and seeks credit for17
payments to AOL by other persons--have the burden of proving that recoveries by AOL in civil18
litigation were for the same loss that he caused and that AOL has been compensated in full for the loss19
he caused.20
C. Other Contentions1
Smathers also contends, inter alia, that the district court's refusal to find that the AOL2
recoveries were for the same loss caused by Smathers was clearly erroneous, and that the court3
improperly denied his motion without a hearing. His contentions are meritless.4
Smathers's argument that AOL's Hawke Litigation complaint itself showed that any5
recovery in that case compensated the same loss that was caused by Smathers is far wide of the mark. 6
In so arguing, he quotes an allegation in that complaint that the defendants "conspired [. . .] with one7
another and third parties to intentionally exceed authorized access to AOL's Protected Computer8
Facilities by harvesting and collecting AOL Member e-mail addresses." (Smathers brief on appeal9
at 16 (internal quotation marks omitted).) But the individual defendants in that case were Hawke,10
Bournival, and 50 John-Doe defendants whose names were not then known to AOL (see Hawke11
Litigation complaint 1, 12); and Smathers cannot point to anything in the complaint that mentions12
his name. Further, given the quoted allegation's reference to plural "third parties," nothing implies13
that the defendants obtained stolen AOL customer lists only from Smathers.14
Nor do we see any error in the district court's conclusion that Smathers's remaining15
restitution obligation should not be reduced by restitution payments made by Dunaway. The court16
found that the restitution payments made by Smathers and those made by Dunaway do not total as17
much as $84,000, a finding that is not challenged. And the Judgment against Smathers stated that18
AOL's total loss was $300,000--the amount of loss that Smathers's plea agreement stated was19
To the extent that Smathers contends he has been denied a fair hearing, his contention21
is meritless. As described in Part I above, despite being informed by the district court's 2007 Order22
that any motion for restitution credit should be accompanied by affidavits or other competent proof,1
Smathers has repeatedly argued only that the burden should be on the government to disprove2
assertions as to which he has presented no competent evidence. The court heard those arguments; no3
further hearing was required

Outcome: We have considered all of Smathers's contentions on this appeal and have found them to be without merit. The June 2016 Order of the district court is affirmed.

Plaintiff's Experts:

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