Restitution — Damages — Causation — Lost Profits

State v. Mark R. Johnson, 2005 WI App 201
For Johnson: Jefren Olsen , SPD, Madison Appellate

Issue/Holding¹: Lost profits are “special damages,” and therefore subject to a restitution order, because the underlying causal criminal conduct could give rise to a civil action based on the torts of conversion and interference with prospective contractual relationships, ¶¶16-17.

Issue/Holding²: Because at least a minimal amount of speculation inheres to such a claim, “when the claim for restitution for loss of profits is based on a prospective contractual relationship, the victim must prove with reasonable certainty that the prospective contractual relationship would have accrued absent the defendant’s wrongful conduct. … However, in determining whether the proof of lost profits meets the requirement of reasonable certainty, we may give due weight to the fact that it was the defendant’s own wrongful conduct that created the speculation or uncertainty in the first instance,” ¶20. That showing was made here, where the items stolen from a computer business aborted a software demonstration to a prospective buyer that would have occurred five days and would have been the 4^th step in a 5-step process, ¶21. (String-cited authorities, largely involving claims which failed to identify specific potential customers, distinguished, ¶¶22-23.)

Issue/Holding³: The amount of restitution for lost profits “should be addressed on a case-by-case basis and they are recoverable where a claimant can present credible comparable evidence or business history and business experience sufficient to allow a fact finder to reasonably ascertain the amount of future lost profits,” ¶26. A sufficient showing was made here, where the company owner testified to the business’s past experiences and methods of estimating expected profit, ¶¶27-29.

The restitution statute, § 973.20, was originally based on a federal counterpart, and at one time we took instruction from federal cases. Not so much now, if at all, as our run-away restitution train keeps barreling down the tracks. With that in mind, here’s a nonetheless interesting 7^th Circuit analysis (dealing with restitution for audit expenses following business fraud), U.S. v. Scott, 405 F.3d 615 (7th Cir 2005) (emph. supplied):

This measure of relief is less generous than common law damages, since it does not extend to consequences beyond the diminution of the value of the property stolen or damaged … —consequences that could easily exceed that diminution. (Suppose the damage to the property foreseeably precipitated the owner into bankruptcy.) This distinction is consistent with the historic distinction between restitution and damages, the former originally referring to the restoration of something that the defendant had taken from the plaintiff, … including a profit. … The audit expense, though a loss to Scott’s employers, was not a gain to him. But it was a form of damage to the employers’ property. Suppose money was stolen from a bank and eventually returned, but the bank incurred a bookkeeping cost in determining whether the entire amount stolen had been returned. That cost would be a diminution in the value of the bank’s property, caused by the theft, and would therefore be a proper item for restitution. … This case is no different.Focusing on the difference between the loss to the victim and the damage to the victim’s property creates a more precise line between criminal restitution and common law damages than the more common distinction suggested in the cases between “direct” and “consequential” damages. …. The line between criminal restitution and common law damages is important to maintain. Not only is the language of the Mandatory Victims Restitution Act dissimilar to that of the Uniform Commercial Code, and “restitution” itself no synonym for common law damages. In addition, to blur the line would create a potential issue under the Seventh Amendment because the amount of criminal restitution is determined by the judge, whereas a suit for damages is a suit at law within the amendment’s meaning. … And it would complicate criminal sentencing unduly—and unnecessarily; the rare crime victim who has a real shot at collecting common law damages (rare because few convicted criminal defendants are affluent) can bring a tort suit. ….

Even under that analysis, the federal scheme supports restitution for lost profits. But at least there is an analysis. (Doesn’t hurt, by any means, that the author is Judge Posner.) Although the 7^th amendment doesn’t apply to the states, the language of Art. I § 5 is similarly absolutist: “The right of trial by jury shall remain inviolate, and shall extend to all cases at law without regard to the amount in controversy[.]” This provision was explicated most recently in Dane County v. Kenneth R. McGrew, 2005 WI 130.

What about an Apprendi-type argument with respect to restitution? See US v. Mueffelman, No. 01-CR-10387-NG (D. Mass. Nov. 14, 2005) (“restitution is punitive, and subject to the Sixth Amendment’s protections”). However, this is very much the minority view, see, e.g., U.S. v. Leahy, 3rd Cir No. 03-4490, 2/15/06 (though restitution is criminal penalty but because there is no “statutory maximum” Booker-Apprendi isn’t violated; strong dissent); U.S. v. Williams, 11th Cir No. 04-15117, 4/13/06 (same: “the MVRA does not set an upper limit on the amount of restitution. … Therefore, a restitution order cannot be said to exceed the maximum provided by the penalty statutes, and it cannot violate the rule announced in Booker”).