Opinion
G056069
12-13-2019
THE PEOPLE, Plaintiff and Respondent, v. ANDREW ROBERT HARNEN et al., Defendants and Appellants.
Susan S. Bauguess, under appointment by the Court of Appeal, for Defendant and Appellant Robert Harnen. Rex Adam Williams, under appointment by the Court of Appeal, for Defendant and Appellant Dee Francis. Xavier Becerra, Attorney General, Gerald A. Engler, Chief Assistant Attorney General, Julie L. Garland, Senior Assistant Attorney General, Arlene A. Sevidal and Collette C. Cavalier, Deputy Attorneys General, for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 08ZF0025) OPINION Appeal from a postjudgment order of the Superior Court of Orange County, Thomas M. Goethals, Judge. Affirmed. Susan S. Bauguess, under appointment by the Court of Appeal, for Defendant and Appellant Robert Harnen. Rex Adam Williams, under appointment by the Court of Appeal, for Defendant and Appellant Dee Francis. Xavier Becerra, Attorney General, Gerald A. Engler, Chief Assistant Attorney General, Julie L. Garland, Senior Assistant Attorney General, Arlene A. Sevidal and Collette C. Cavalier, Deputy Attorneys General, for Plaintiff and Respondent.
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The sole issue we must decide in this appeal is whether a trial court can order criminal defendants to pay investigative costs to the Franchise Tax Board (FTB). A jury convicted Andrew Robert Harnen and Dee Francis (collectively referred to as Defendants unless the context requires otherwise) of multiple felony tax offenses related to an insurance fraud scheme. (Rev. & Tax. Code, §§ 19705, 19706.) In addition to prison terms and victim restitution orders, the court determined Harnen must pay $39,684, and Francis must pay $62,166, to the FTB for its costs of investigation. Defendants maintain the investigative costs were not recoverable because there was no evidence supporting the conclusion the FTB was a direct victim of the criminal tax offenses. We affirm the order.
All further statutory references are to the Revenue and Taxation Code, unless otherwise indicated.
FACTS
In 2015, this court affirmed Defendants' convictions (with corrections to their abstract of judgments). (People v. Francis et al. (Aug. 26, 2015, G047819) [nonpub. opn.] (Francis).) In 2018, this court affirmed the trial court's restitution order requiring Defendants repay $16 million to the insurance companies they defrauded and modified the order to add 10 percent interest from the date the order was entered. (People v. Dickson et al. (Mar. 29, 2018, G051679) [nonpub. opn.].)
We incorporate by reference our prior factual discussions in these two opinions of the felony tax offenses and underlying insurance fraud scheme. We will repeat only the facts relevant to the limited issue in this appeal.
"[T]he jury convicted Francis and Harnen of filing false personal income tax returns (§ 19705 . . .), failing to file personal income tax returns (§ 19706), and failing to file corporate income tax returns (ibid). The jury also convicted Harnen of filing a false corporate return (§ 19705) . . . ." (Francis, supra, G047819.)
Soon after trial, the probation department filed supplemental reports stating it received "[v]ictim information" from the FTB. The probation department recommended Francis pay a restitution fine ($2,800) plus $905,506 restitution to the FTB. It recommended Harnen pay a restitution fine ($3,600) and $904,480 to the FTB.
"The trial court sentenced Francis to an aggregate prison term of six years [and] Harnen to five years and four months . . . ." (Francis, supra, G047819.) It tentatively ordered Defendants to pay the FTB restitution in the amounts recommended by the probation department. The court stated Defendants could request a hearing on the issue. It does not appear from our record that the tentative order was ever finalized.
Approximately five years later, the district attorney filed a motion titled, "People's further brief on motion for order requiring Defendants to pay costs of investigation to State of California" (capitalization omitted) pursuant to Penal Code section 1202.4, and sections 19705 and 19706. The district attorney asserted the court did not order Defendants to pay interest on the prior tentative restitution orders or pay "the costs of investigation incurred by the [FTB]." To support the motion, the district attorney submitted evidence of the FTB's investigation costs. It concluded Harnen owed $49,929 and Francis owed $79,338.
In February 2018, the trial court orally ordered payment of investigative costs but reduced the requested amounts. It stated Harnen must pay $39,684 and Francis must pay $62,166 to the FTB, but that Defendants must pay "the victim restitution first." The court directed the district attorney to prepare an order "consistent with what I have just said and to submit it to the court." The court indicated it would consider any objection to the order before signing it.
The record on appeal shows that in February 2018 the district attorney prepared "orders for victim restitution." We have a copy of its "notice of lodging orders" (capitalization omitted) but not a signed order.
On our own motion, we augmented the record on appeal to include orders for victim restitution. We received a supplemental clerk's transcript, which contained the district attorney's prepared but unsigned "order for victim restitution." (Capitalization omitted.)
We invited the parties to file informal letter briefs discussing if there was a valid restitution order in the case, or whether the appeal should be dismissed. In their briefing, the parties agreed the reporter's transcript properly reflected the trial court's ruling. They offered different solutions to address the lack of a signed final order.
This court invited the parties to obtain a signed order accurately reflecting the trial court's oral pronouncement of its ruling. The following month, the Attorney General provided this court with a signed order that awarded the FTB investigation costs and asked this court to augment the record to include the order.
We granted this request and invited the parties to submit supplemental letter briefs regarding what impact, if any, the order had on the issues raised on appeal. The parties did not raise any additional substantive issues in the supplemental briefing.
DISCUSSION
A. Restitution Pursuant to Penal Code Section 1202 .4
Penal Code section 1202.4, subdivision (a)(3)(B), authorizes the court to order Defendants to pay restitution to victims in accordance with subdivision (f). That subdivision, states, in relevant part the following: "[I]n every case in which a victim has suffered economic loss as a result of the defendant's conduct, the court shall require that the defendant make restitution to the victim or victims in an amount established by court order, based on the amount of loss claimed by the victim or victims or any other showing to the court." (Pen. Code, § 1202.4, subd. (f).) The FTB, as a governmental subdivision or agency, can qualify for a restitution award as a "direct victim" when it has been defrauded by criminal activity. (Pen. Code, § 1202.4, subd. (k)(2); People v. Sy (2014) 223 Cal.App.4th 44, 62 (Sy).) "A direct victim is a victim against whom a defendant has committed a crime. [Citation.]" (Sy, supra, 223 Cal.App.4th at pp. 62-63.)
For purposes of section 1202.4, the term "victim" is defined as "A corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision, agency, or instrumentality, or any other legal or commercial entity when that entity is a direct victim of a crime." (§ 1202.4, subd. (k)(2);
The parties dispute whether FTB was a direct victim of the criminal conduct, and therefore, entitled to restitution. We find the following three cases instructive on this issue.
In People v. Ozkan (2004) 124 Cal.App.4th 1072 (Ozkan), defendant illegally schemed to sell regular grade gasoline as higher priced midgrade and premium gasoline. The trial court determined the Board of Equalization owed taxes on the gasoline and was a direct victim of this fraud. The court ordered defendant to pay restitution to the Board of Equalization for unpaid taxes, penalties, and interest. It reduced the restitution order to exclude the agencies' investigative costs. (Id. at p. 1075.) The appellate court considered if investigative costs were recoverable under the general restitution statute (Pen. Code, § 1202.5), or under a more limited statute (Bus. & Prof. Code, § 12015.5).
The Ozkan court determined "public agencies are not directly 'victimized' for purposes of restitution under Penal Code section 1202.4 merely because they spend money to investigate crimes or apprehend criminals." (Ozkan, supra, 124 Cal.App.4th at p. 1077.) Investigative costs are recoverable only if there are other statutes that provide for such recovery. (Id. at pp. 1078-1081; see also People v. Torres (1997) 59 Cal.App.4th 1, 4-5 [agency investigating illegal drug sales not direct victim entitled to restitution of amount spent on undercover purchases of illegal drugs].) It concluded that although investigative costs were not recoverable under Penal Code section 1202.4, those costs were permitted under the Business and Professions Code. (Id. at p. 1077.)
In People v. Martinez (2005) 36 Cal.4th 384, 393, footnote 1 (Martinez), the Supreme Court approved and adopted the legal reasoning set forth in the Ozkan opinion. In Martinez, defendant was convicted of attempting to manufacture a controlled substance. (Martinez, supra, 36 Cal.4th at p. 386.) The restitution order included the cost to the Department of Toxic Substances Control to cleanup defendant's laboratory. (Id. at p. 387.) The Supreme Court reversed the order. It reasoned Penal Code section 1202.4, subdivision (k), provides for restitution to a "direct victim" of the crime and a governmental entity may recover as a direct victim when the entity's property is stolen or damaged. (Martinez, supra, 36 Cal.4th at p. 393, fn. 1.)
In that case, because defendant's crime was not committed against the Department of Toxic Substances Control, the department was not a direct victim entitled to recover its clean-up costs as restitution under Penal Code section 1202.4, subdivision (k). (Martinez, supra, 36 Cal.4th at pp. 393-394.) The court noted this holding was not a new concept, stating, "[b]efore 1994, when the Legislature first inserted the direct victim language into [Penal Code] section 1202.4, case law had recognized that restitution to the government was proper when it was a victim of a crime, but also that restitution was not proper when a governmental loss resulted from prosecuting a crime. [Citations.]" (Id. at p. 393, italics added.)
More recently the Supreme Court in Luis M. v. Superior Court (2014) 59 Cal.4th 300, 305 (Luis M.), confirmed Penal Code section 1202.4 does not permit a public law enforcement agency to recover its investigative costs because "'public agencies are not directly "victimized" for purposes of restitution under Penal Code section 1202.4 merely because they spend money to investigate crimes or apprehend criminals.' [Citation.]" (Luis M., supra, 59 Cal.4th at p. 305, quoting Ozkan 124 Cal.App.4th at p. 1077.)
The above case authority recognizes there is a difference between the costs of investigating or prosecuting crimes from the loss suffered as the result of a crime. Only in the latter case can it be said the agency was directly victimized.
Here, the FTB argues it can be awarded restitution if it incurs "'"actual loss due to the crime, as in the instance of tax evasion or theft of government property . . . ." [Citations.]' [Citation.]" (People v. Beck (1993) 17 Cal.App.4th 219, 222, italics added.) The case is inapt. In Beck, the restitution order related to the payment of unpaid taxes for a count of tax evasion. The court considered the application of a Government Code section 13967, not Penal Code section 1202.4. Moreover, the court in Beck ordered Defendants to pay for the direct loss of unpaid taxes to the State of California.
In contrast, in the case before us, Defendants' tax offenses were not offenses committed against the FTB and the agency was not "the immediate object" of Defendants' crimes. (Martinez, supra, 36 Cal.4th at p. 393.) The FTB's economic losses incurred during an investigation should be viewed as costs associated with the apprehension of a criminal, not a direct loss, i.e., normal operating costs. In other words, the direct victim for the felony tax offenses was entitled to restitution for what was owed for lost taxes, which does not include investigation and prosecution. B. Restitution Pursuant to Sections 19705 and 19706
As mentioned above, the court in Ozkan recognized a governmental agency's costs of investigation may be recovered when mandated by a statute other than section 1202.4. (Ozkan, supra, 124 Cal.App.4th at p. 1077.) In that case, the court held costs were recoverable (absent exceptions not relevant in that case) under Business and Professions Code section 12015.5, which required that a person convicted of violating any provision relating to weights and measures "shall be liable for reasonable costs incurred in investigating the action." (Italics added.)
Relevant to the case before us, the Revenue and Taxation Code mandates a person convicted of certain felony tax offenses must pay fines or be imprisoned "or both, together with the costs of investigation and prosecution." (§§ 19705, subd. (a) [maximum $50,000 fine]; 19706, subd. (a) [maximum $20,000 fine], italics added.) Francis asserts this provision is inapplicable because it does not mention "restitution." Harnen agrees and joins in Francis's argument.
In light of the augmented record, this argument is no longer applicable. While the original record contained an unsigned and non-appealable order referring to restitution, the court's signed appealable order only mentions an award for the "costs of investigation." This order distinguished investigative costs from a prior order awarding the victims' restitution.
Indeed, the newly signed order states the following: "Harnen to pay costs of investigation to the [FTB] in the amount of $39,684.00 and . . . Francis to pay the costs of investigation to the [FTB] in the amount of $62,166.00. The investigative costs shall be recovered by [the FTB] only after the previously ordered restitution has been collected by the victims." (Italics added.) The court's order clearly awards costs of investigation only.
We conclude the trial court did not designate the FTB as a victim in need of restitution. As mentioned, we provided the parties with an opportunity to submit supplemental briefing on the impact, if any, created by the wording of the court's order. Harnen and Frances did not offer additional legal analysis on the applicability of sections 19705 and 19706 to an "order for cost of investigation." (Capitalization omitted.)
We recognize Defendants offered a few thoughts about section 19705 in their briefing. They asserted the statute allowed the FTB to recover costs of investigation as a fine and "'[n]othing suggests this component of the fine is intended to provide the prosecution team restitution for a loss, and is payable to the prosecution.'" Neither defendant provided case authority or statutory analysis to support this interpretation of section 19705.
We are unclear why Defendants referred to only section 19705. They were convicted under section 19706, providing similar punishment "by imprisonment . . . or by fine of not more than twenty thousand dollars ($20,000), or by both the fine and imprisonment, at the discretion of the court, together with the costs of investigation and prosecution." (Italics added.)
Section 19705 provides, in pertinent part, a person convicted of certain offenses "shall be guilty of a felony and, upon conviction, shall be fined not more than fifty thousand dollars ($50,000), or imprisoned pursuant to subdivision (h) of [s]ection 1170 of the Penal Code, or both, together with the costs of investigation and prosecution . . . ." (Italics added.) The statute plainly provides for the alternative penalties of a fine or imprisonment but also that one of those consequences will be imposed "together with the costs of investigation." (§ 19705.)
We find nothing ambiguous about this statutory language. Section 19705 does not permit a felon to pay a fine in lieu of additional costs of investigation. The phrase "together with" is commonly understood to mean "in addition to" or "in association with." (https://www.merriam-webster.com/dictionary/together%20with.) "We give the words of the statute 'a plain and commonsense meaning' unless the statute specifically defines the words to give them a special meaning. [Citations.] If the statutory language is clear and unambiguous, our task is at an end, for there is no need for judicial construction. [Citation.] In such a case, there is nothing for the court to interpret or construe. [Citation.]" (MacIsaac v. Waste Management Collection & Recycling, Inc. (2005) 134 Cal.App.4th 1076, 1083.) The order for investigative costs was appropriate under sections 19705 and 19706.
Based on this ruling, we need not address the alternative argument regarding whether the order was also permitted pursuant to Government Code section 11010.
DISPOSITION
The order is affirmed.
O'LEARY, P. J. WE CONCUR: ARONSON, J. IKOLA, J.