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The rules of restitution valuation
By Malcolm V. Venolia

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The California Constitution mandates restitution for victims of crimes who suffered losses absent compelling and extraordinary reasons to the contrary. Cal. Constitution, Art. 1, sec. 28. The amount of restitution to be awarded must be "sufficient to fully reimburse the victim or victims for every determined economic loss incurred as the result of the defendant's criminal conduct." Penal Code Section 1202.4(f)(3) (emphasis added). This restitution statute includes a nonexclusive list of several types of economic loss for which restitution is to be ordered.

In juvenile criminal cases, courts are required to order restitution "sufficient to fully reimburse the victim or victims for all determined economic losses as the result of the minor's conduct." Welfare & Institutions Code Section 730.6(h) (emphasis added). Though the language of the two sections is slightly different, both require sentencing courts to order restitution for economic losses caused by crime without any exceptions.

This article and self-study test review the rules for calculating restitution found in statutes and caselaw specific to different types of losses caused by crimes.

Thefts

Regarding stolen or damaged property, the Penal Code allows for compensation of the victim with either the replacement cost of like property or the actual cost of repair where repair is possible. Penal Code Section 1202.4(f)(3)(A). The replacement cost is specifically for "like property," which means not the retail price for a new item, but the cost of replacing the stolen item with another in the same age and condition. People v. Thygesen, 69 Cal. App. 4th 988 (1999). So the actual cost incurred by the victim in replacing the stolen item, whether new or used, is only a guide to the court in valuing the stolen item. If the victim chooses to have a damaged item repaired, the cost of repair awarded as restitution can exceed the replacement cost. People v. Stanley, 54 Cal. 4th 734 (2012).

Theft of cash or any assets which could be invested requires an additional calculation. Interest is to be charged at the rate of 10 percent per annum from the date of sentence or loss as determined by the court. Penal Code Section 1202.4(f)(3)(G). The 10 percent rate is fixed and is not to be adjusted to reflect actual interest rates. Ibid. Where the value of stolen assets rises after the offense, courts should order restitution using the increased value. People v. Tucker, 37 Cal. App. 4th 1 (1995). In Tucker, the defendant had embezzled mutual fund shares from a trust fund. By the time the defendant was sentenced, the mutual fund shares had appreciated in value by 99.75 percent, and restitution was based on the value at time of sentence.

When the theft victim is a retail business, the replacement cost for stolen inventory will ordinarily be based on the wholesale price. People v. Chappelone, 183 Cal. App. 4th 1159 (2010). Restitution based on lost sales at the retail price would be justified if the stolen items were unique or if the victim could show sales to the public were lost because of the theft. If stolen goods are recovered, restitution must be based on any loss in value in those items resulting from the theft.

Theft of cattle involves different restitution considerations than inanimate property. Though restitution will not ordinarily be awarded for any cows which are recovered, courts will calculate restitution for loss of calves born while the cows were out of the owner's possession. People v. Baker, 126 Cal. App. 4th 463 (2005). In Baker, the court had no evidence how many calves were actually borne to the stolen cows. But the court accepted the assumption that all the stolen cows would have had calves every year they were in the defendant's possession because the owners would not have retained any cows which were not productive. To estimate the dollar lost per calf, the court used an average of sales prices for calves obtained by the defendant for the prior year. The loss amount for the calves was quadrupled pursuant to Food & Agriculture Code Section 21855.

Other Crimes

Restitution is to be awarded for wages or profits lost due to any injury caused by crime. Penal Code Section 1202.4(f)(3)(D). Specifically, a victim's lost commission income is to be based on an average of the commissions received during the 12 month period prior to the date of the crime, unless good cause for a shorter time is shown. Ibid. Using average wages or profits from the year prior to the offense are also to be used to estimate losses for parents of crime victims who are minors who lose work in caring for their child's crime-related injuries. Penal Code Section 1202.4(f)(3)(E).

The value of time spent by salaried employees repairing or responding to criminal damage is to be included in restitution awards even though this is not an out-of-pocket expense. In re Johnny M., 100 Cal. App. 4th 1128 (2002) upheld the lower court award of restitution for the time of salaried employees, including the cost of their benefits, in repairing criminal damage at a public school.

In instances where crime victims are found to have contributed to their injuries, courts can reduce the amount of restitution awarded using the contributory negligence doctrine. For example, in People v. Millard, 175 Cal. App. 4th 7 (2009), the victim in a driving under the influence-related collision was found to be 25 percent responsible for the collision and the restitution award for his medical damages was reduced by that percentage. The Court of Appeal recently held that reduction of restitution using comparative fault principles is never mandatory, even when a criminal conviction is based on a defendant's criminal negligence or recklessness. People v. Watson, 220 Cal. App. 4th 313 (2013).

Restitution for crimes can include any economic losses suffered by family members of the victim. The Penal Code defines victims entitled to restitution as including "the immediate surviving family of the actual victim." Penal Code Section 1202.4(k)(1). The extended family including grandparents, parents, grandchildren and siblings are entitled to restitution as well provided they were living in the same household as the victim at the time of the offense. Penal Code Section 1202.4(k)(3). People not related to the victim, but who lived in the same household for at least two years, can also be included if they had a relationship to the victim similar to that of the listed types of relations.

In adjudicating crimes resulting in death, this broad definition of victim will often require courts to estimate how much the decedent would have earned had the offense not happened. Such an award for the surviving spouse in a vehicular manslaughter case was upheld by the California Supreme Court in People v. Giordano, 42 Cal. 4th 644 (2007). The lower court had awarded $167,711.65 in restitution calculated using a three year average of the victim's earnings, multiplied over an estimated five years the victim would have been able to work had he lived.

Restitution awards for loss of future income are now to be reduced to account for the time value of money. In a recent appeal from a driving under the influence conviction, the injured victim asked to be compensated for a reduction in the amount of his pension by $246.50 per month which had been caused by his inability to continue working after his injuries. People v. Pangan, 213 Cal. App. 4th 574 (2013). The sentencing judge awarded restitution for the full monthly amount multiplied over 24 years which came to approximately $70,000. The Court of Appeal reversed, pointing out that the current value of an income stream is significantly less than the eventual total amount. Ibid. at 581-82. The methods to use in discounting restitution awards for loss of future income were not set forth in the decision.

Relocation expenses are specifically listed in the Penal Code's restitution statute, but law enforcement is required to verify that the expenses were incurred as a result of the offense. Penal Code Section 1202.4(f)(3)(I). In People v. Mearns, 97 Cal. App. 4th 493 (2002), the victim was awarded the difference in price between the sale of her original motor home ($13,000) and purchase of a new home ($26,575) even though the victim admitted the sale price she received was lower than what she could have received had she not been rushing to get out. The appellate court did not require any reduction of the award to what a "like property" would have cost.

Restitution for possession or manufacture of counterfeit recordings or audiovisual works is now governed by Penal Code Section 1202.4(r) amended effective Jan. 1, 2013. Prior to this amendment, courts attempted to determine the value of legitimate sales lost by sellers of copyright-protected items, based on an estimate of actual sales of counterfeit goods by the defendant. People v. Garcia, 194 Cal. App. 4th 612 (2011). Under Garcia, any counterfeit merchandise seized from defendants was not considered a basis for a restitution award. Now, under Penal Code Section 1202.4(r), courts are to base restitution on the number of counterfeit items "involved in the offense" valued at the wholesale cost of lawfully made versions of the same items. So the total number of counterfeit discs or other types of recordings or audiovisual works as defined in Penal Code Section 653w, whether seized or not, is now to be used in calculating restitution.

Calculation Issues

In cases where the dollar amount of the losses caused by a criminal offense is uncertain, the general rule is that courts can "use any rational method of fixing the amount of restitution which is reasonably calculated to make the victim whole." See People v. Ortiz, 53 Cal. App. 4th 791 (1997). This standard has been relied on in upholding restitution awards based on extrapolation from a sample in utility theft cases. In People v. Goulart, 224 Cal. App. 3d 71 (1990), total loss was estimated using the amount stolen in one month when a line meter was placed on defendant's property and multiplying that amount by the estimated number of months of the theft. That this calculation was performed without taking account of seasonal variations in energy usage or any principles of extrapolation was found to be consistent with the "any rational method" standard. In People v. Phu, 179 Cal. App. 4th 280 (2009), the estimated loss amount was calculated for the entire duration of the utility contract. This was found to be rational under the standard even though there was no evidence specifically showing when the theft began.

There is one exception to the rule that restitution is only for economic losses. The restitution statute specifies that victims of felony violations of Penal Code Section 288 (child molestation) can be awarded restitution for noneconomic losses including psychological harm. Penal Code Section 1202.4(f)(3)(F). This statute was found not to violate state or federal equal protection provisions in People v. Smith, 198 Cal. App. 4th 415 (2011). The court in Smith, upheld an award of $750,000 for mental distress suffered by a child molestation victim calculated at $50,000 per year for 15 years of abuse.

Criminal defendants have the right to contest any proposed restitution amount in a court hearing. Penal Code Section 1202.4(f)(1). The standard of proof to be used at restitution hearings is preponderance of the evidence. People v. Holmburg, 195 Cal. App. 4th 1310 (2011). Any statement by a property owner as to the dollar amount lost is considered prima facie evidence and shifts the burden to the defendant to disprove the claimed losses. People v. Gemelli, 161 Cal. App. 4th 1539 (2008). When setting restitution amounts, courts are required to make a clear statement of the calculation method they used and how that method justified the amount ordered. People v. Giordano, 42 Cal. 4th 644 (2007).

Malcolm V. Venolia, deputy California attorney general.

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