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Decided: March 11, 2014

The Fourth Circuit held that the United States District Court for the Western District of Virginia properly concluded that the attorney’s fees expended by Jordan Oil in defense of its interests against fraud committed by Youssef Hafez Abdelbary (Abdelbary) in his bankruptcy proceedings were recoverable under the Mandatory Victim Restitution Act (MVRA), 18 U.S.C. § 3663A.  The Fourth Circuit therefore affirmed the judgment of the district court.

Abdelbary, the owner and operator of a gas station and convenience store, bought gas from Jordan Oil.  In February 2008, Jordan Oil stopped sending gas to Abdelbary after Abdelbary failed to pay for a gas delivery.  Jordan Oil then sued Abdelbary to recover the money owed.  In May 2008, Jordan Oil obtained a final judgment in its favor.  Abdelbary filed for bankruptcy after consulting with an attorney in July 2008.  On his bankruptcy filing, Abdelbary “denied having made any gifts within one year or having transferred any property within two years of the filing.”  Also, at the creditors’ meeting, Abdelbary said he had not transferred assets to a member of his family.  However, Abdelbary had in fact sent $76,000 to his brother during the two years prior to filing.

Abdelbary was eventually charged with, inter alia, bankruptcy fraud under 18 U.S.C. § 152(3).  Abdelbary was convicted on all counts.  At sentencing, the district court ordered Abdelbary to, inter alia, pay Jordan Oil restitution for the attorney’s fees it expended during Abdelbary’s bankruptcy proceeding.  While the district court cited both the MVRA and the Victim and Witness Protection Act (VWPA), 18 U.S.C. § 3663, it did not clarify which provision it was relying on.  On appeal, the Fourth Circuit vacated the award of restitution and remanded the case with regard to this award, as the district court did not clarify whether it relied on the MVRA or the VWPA and “had overlooked making the factual findings required by the appropriate act.”  On remand, Abdelbary and the government agreed that the MVRA governed the issue.  However, Abdelbary argued that, inter alia, the attorney’s fees expended by Jordan Oil constituted a consequential loss rather than a direct one—and therefore could not be compensable under the MVRA.  The district court rejected this position, ordering Abdelbary to pay restitution to Jordan Oil under the MVRA.  Abdelbary appealed, arguing that, inter alia, attorney’s fees are not compensable under the MVRA per the Fourth Circuit’s decision in United States v. Mullins, 971 F.2d 1138.  Abdelbary argued that Mullins—in which the Fourth Circuit held that VWPA restitution cannot include consequential damages such as attorney’s fees incurred to recover the property at issue—was consistent with the “American Rule” for attorney’s fees.

The Fourth Circuit found the American Rule inapplicable, as Abdelbary’s appeal involved the types of losses includable as criminal restitution rather than entitlement to fee shifting.  The Fourth Circuit then enumerated the rule applicable to the case at hand, quoting United States v. Elson, 577 F.3d 713: “[W]here a victim’s attorney fees are incurred in a civil suit, and the defendant’s overt acts forming the basis for the offense of conviction involved illegal acts during the civil trial . . . such fees are directly related to the offense of conviction” and can be recovered under the MVRA.  The Fourth Circuit then distinguished the instant case from Mullins, noting that Abdelbary’s bankruptcy fraud was the direct and proximate cause of Jordan Oil’s fee expenditures—and Abdelbary’s bankruptcy fraud therefore “result[ed] in damage to or loss or destruction of property of a victim of the offense,” 18 U.S.C. § 3663A(b)(1).

Full Opinion

– Stephen Sutherland