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Media Alerts - United States v. David Bagdy - Third Circuit
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August 25, 2014
  United States v. David Bagdy - Third Circuit
Headline: Third Circuit Holds Supervised Release May Not Be Revoked for a Violation of an Implied "Good Faith" Obligation to Discharge Restitution

Area of Law: Criminal Law

Issue Presented: Whether supervised release may be revoked where the offender acted in bad faith in relation to his obligation to make restitution but the District Court found no violation of a specific provision of the restitution order.

Brief Summary: David Bagdy pled guilty to a charge of wire fraud for embezzling hundreds of thousands of dollars while he served as a consultant for a small family-owned business. He was sentenced incarceration, followed by supervised release, and ordered to pay restitution at 10% of his income. During his supervised release, Bagdy received $409,799.13 in inheritance and paid $41,000 toward restitution. The government moved to modify the order of restitution because of this material change in Bagdy's economic circumstances. Bagdy asked for numerous extensions on the motion and met with the government in an attempt to reach a settlement. Although no formal agreement was reached, Bagdy contributed an additional $60,000 of his inheritance toward restitution and remained in communication with the government. He also received an additional $25,000 in inheritance. At the hearing, the government reported that Bagdy had spent all but $52,000 of his inheritance. The court ordered Bagdy to pay the remaining inheritance money toward restitution. The District Court later held a revocation hearing and found that Bagdy had not acted in good faith in repaying his restitution, constituting a violation of the restitution order, and sentenced him to six months incarceration. The Third Circuit vacated and remanded, holding that 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 explicit conditions of supervised release.

Extended Summary: David Bagdy pled guilty to a charge of wire fraud for embezzling hundreds of thousands of dollars while he served as a consultant for a small family-owned business. The District court sentenced Bagdy to 36 months incarceration, three years supervised release, and ordered Bagdy to pay $566,115.57 in restitution. As conditions of his supervised release, he was to pay at least ten percent of his monthly income toward restitution and provide the probation officer access to any requested financial information to determine an appropriate payment schedule. During his supervised release, Bagdy received $409,799.13 in inheritance and reported it to his probation officer in March 2012. Bagdy paid $41,000 toward restitution.

On April 9, 2012, the government filed a § 3664(k) motion to modify the order of restitution because of this material change in Bagdy's economic circumstances. Bagdy asked for numerous occasions to extend the motion hearing and met with the government in an attempt to reach a settlement. Although no formal agreement was reached, Bagdy contributed an additional $60,000 of his inheritance toward restitution and remained in communication with the government. 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. During this time, Bagdy received an addition $25,000 in inheritance.

At the hearing on December 3, 2012, the government reported that Bagdy had spent all but $52,000 of his inheritance. The court ordered Bagdy to pay the remaining $52,000 inheritance money toward restitution. The government filed a motion to hold a revocation hearing to determine whether Bagdy violated the terms of his supervised release. The District Court found that the defendant had not acted in good faith in repaying his restitution, constituting a violation of the restitution order. The District Judge then sentenced Bagdy to six months incarceration.

The Third Circuit vacated and remanded, holding that the District Court did not identify an explicit condition that Bagdy violated. The Third Circuit noted that a District Court may revoke a defendant's supervised release and impose a term of imprisonment if the court finds by a preponderance of the evidence that the defendant violated a specific condition of supervised release. The Third Circuit also cited precedent stating that conditions of supervised release must be sufficiently clear to enable individuals to freely choose between compliance and violation, and conditions of supervised release must provide specific standards which avoid arbitrary and discriminatory enforcement.

The Third Circuit acknowledged that there was nothing in the record that suggested that Bagdy failed to make payments as directed by his probation officer. The Third Circuit stated that 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 explicit conditions of supervised release. Furthermore, the conditions did not require that Bagdy make good faith efforts to pay his restitution.
The government also argued that Bagdy violated an informal agreement with the government reached in early 2012 where Bagdy agreed not to deplete his inheritance prior to reaching a settlement with the government. The Third Circuit decided that, even if Bagdy's conduct breached such an agreement, honoring that agreement however was not a condition of supervised release. Thus, the Third Circuit vacated the District Court's decision and remanded for additional proceedings to determine whether Bagdy's conduct violated other conditions of supervised release.

To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/132975p.pdf

Panel (if known): Smith, Vanaskie, Shwartz, Circuit Judges

Argument Date: May 13, 2014

Date of Issued Opinion: August 21, 2014

Docket Number: No. 13-2975

Decided: Vacated and remanded for further proceedings

Case Alert Author: Katie Cooper

Counsel: Candice Cain, Esq. for the Appellant David Bagdy; and Donovan J. Cocas, Esq., Rebecca R. Haywood, Esq., for Appellee United States of America.

Author of Opinion: Judge Vanaskie

Circuit: Third Circuit

Case Alert Supervisor: Prof. Susan L. DeJarnatt

    Posted By: Susan DeJarnatt @ 08/25/2014 01:50 PM     3rd Circuit  

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