State v. May

Annotate this Case

State v. May (95-435); 166 Vt. 41; 689 A.2d 1075

[Filed 6-Dec-1996]

NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.

No. 95-435

State of Vermont Supreme Court

On Appeal from
v. District Court of Vermont,
Unit No. 2, Chittenden Circuit

Norman F. May September Term, 1996

Dean B. Pineles, J.

Pamela Hall Johnson, Chittenden County Deputy State's Attorney, and
Frank D. Molander, Legal Intern, Burlington, for plaintiff-appellee

Robert W. Katims of Hoff, Curtis, Pacht, Cassidy & Frame, P.C.,
Burlington, for defendant-appellant

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

JOHNSON, J. Defendant, who was convicted of possession of stolen
property, appeals the district court's restitution award for the victim's
lost profits. Apart from the insurance deductible, we strike the award on
the ground that it was not proved with reasonable certainty.

In July 1994, computer equipment valued at approximately $17,000 was
stolen from a printing business. In May 1995, defendant pled no contest to
possession of stolen property based on his possession of the equipment from
September to November 1994. He was sentenced to a one-to-three-year
suspended sentence, with special probation conditions requiring him to pay
a fine of $1000 and setting a restitution hearing.

At the restitution hearing, the printing business's general manager
testified as follows: (1) the business had to pay its graphic artist $10
per hour for 343.5 hours spent reentering information into the computer
purchased to replace the stolen one; (2) the graphic artist was not
available to work on other projects during those hours, resulting in lost
profits of $3435, $10 for

each of the 343.5 hours; (3) the business's insurance company reimbursed
the business $10 per hour for the graphic artist's time, but not $10 per
hour for the projected lost profits; (4) the business lost $10 per hour in
profits for each of the 120 hours that the printing presses stood idle
because project information had not yet been entered into the new
computers; (5) the insurance company reimbursed the business $10 per hour
for the press downtime, but not $10 per hour for the projected lost
profits; (6) the business lost profits on three projects worth $5406 when
the customers had the work done with other printers because of delays due
to the theft; (7) the business had to discount one large project $3200
because of delays due to the theft; (8) the business spent $388 for a new
security system; (9) the general manager spent twenty hours of his time,
valued at $20 per hour, working with police gathering evidence and
following up on leads; (10) the insurance company reimbursed the business
approximately $24,000 for its losses, leaving outstanding losses of just
over $13,000, mostly for lost profits; (11) the insurance deductible was
$250.

The district court awarded the business (1) $3435 in lost profits
associated with the graphic artist's time; (2) $1200 for lost profits
associated with press downtime; (3) $2027 in lost profits associated with
the three customers who took their projects to other printers; (4) $1200 in
lost profits associated with the discounted project; and (5) $250 for the
insurance deductible. The court refused to award restitution for the
security system or for the time the general manager spent investigating the
theft. On appeal, defendant argues that (1) the court exceeded its
authority under the restitution statute by awarding unliquidated sums not
easily ascertainable, and (2) the restitution order does not relate to the
offense for which defendant was convicted.

"Restitution shall be considered in every case in which a victim of a
crime has suffered a material loss or has incurred medical expenses." 13
V.S.A. § 7043(a). Restitution may include, among other things, cash
compensation for damages to the victim's property. Id. § 7043(b)(2). In
State v. Jarvis, 146 Vt. 636, 638-39, 509 A.2d 1005, 1006 (1986), where we
held that restitution damages could not include compensation for pain and
suffering, we construed §

7043 as follows:

[O]nly liquidated amounts which are easily ascertained and
measured are recoverable under the legislative scheme. These
amounts include, but are not necessarily limited to, hospital bills,
property value, and lost employment income. . . . Damages that
are not readily ascertainable, such as pain and suffering, emotional
trauma, loss of earning capacity, and wrongful death awards are not
proper subjects of restitution.

(Emphasis added.)

Aware of this holding, the State strives to fit the instant award
within the term "lost employment income," and defendant argues with equal
vigor that the award should be considered "loss of earning capacity."
Neither party is correct. The district court did not reimburse the
printing business either for its lost earnings or for its diminished
capacity to obtain future earnings; rather, the award, as recognized by all
concerned at the restitution hearing, was for lost profits and
opportunities, a category of damages that does not fit neatly within either
of the terms used in Jarvis.

Lost earnings or lost employment income, which usually refers to loss
of wages due to an inability to perform a specific job, is generally easily
ascertainable, while loss of earning capacity, which refers to diminished
future capacity to earn a livelihood, is not. See Border Apparel-East,
Inc. v. Guadian, 868 S.W.2d 894, 897 (Tex. Ct. App. 1993). Lost profits,
on the other hand, may or may not be easily ascertainable, and thus proof
of actual loss is crucial. See D.L. Development, Inc. v. Nance, 894 S.W.2d 258, 261 (Mo. Ct. App. 1995) (anticipated profits of established business
are recoverable only when they are made reasonably certain by proof of
actual facts, with present data for rational estimate of amount); Starnes
v. First American Nat'l Bank, 723 S.W.2d 113, 119 (Tenn. Ct. App. 1986)
(loss of profits is recognized as item of damages depending on nature and
extent of proof involved).

Accordingly, lost profits may be awarded as restitution damages. The
key inquiry in the recovery of lost profits remains whether the damages can
be easily ascertained and measured; mathematical certainty is not required,
but there must be a reasonable basis for estimating the

loss. State v. Kisor, 916 P.2d 978, 981 (Wash. Ct. App. 1996) (restitution
damages are easily ascertainable if evidence affords reasonable basis for
estimating loss and does not subject trier of fact to mere speculation and
conjecture); see State v. Ihde, 532 N.W.2d 827, 830 (Iowa Ct. App. 1995)
(as in tort actions, courts should deny lost profits as restitution in
criminal actions only when loss is speculative, contingent, conjectural, or
uncertain); People v. Knowles, 414 N.E.2d 1322, 1324-25 (Ill. App. Ct.
1980) (as in civil actions, lost profits may be awarded as restitution in
criminal actions if shown by clear evidence rather than speculation); State
v. Jurado, 905 P.2d 274, 275 (Or. Ct. App. 1995) (as in civil action, lost
profits may be awarded as restitution in criminal action if proved with
reasonable certainty).

The State argues that each component of the instant award is readily
ascertainable because we need only multiply (1) 343.5 hours of graphic
artist time by $10 per hour in lost profits, (2) 120 hours of press
downtime by $10 per hour in lost profits, and (3) $8606 of lost or
discounted projects by .375 -- the profit fraction expected from each
project. This reasoning falls apart when one considers the uncertainty of
the numbers supplied and calculated. At the restitution hearing, no
accounting data was admitted as an exhibit to demonstrate the basis for the
general manager's estimate of the business's lost profits. Regarding the
graphic artist's time, the manager did not indicate how many of the 343.5
hours would have been dedicated to other projects that the business had
turned away because of the theft. Indeed, on cross-examination, the
manager conceded that he had no idea how many potential customers the
business had lost as a result of the theft and no idea of the value of the
projects that might have been lost. Cf. Jurado, 905 P.2d at 275 (although
restitution award for lost profits was excessive because of failure to
mitigate, damages were proven with reasonable certainty by video store,
which presented evidence showing daily rental value of unreturned rental
equipment and percentage of days equipment would have been rented).

Further, not only did the court award the business lost profits for
all of the 343.5 hours without a sufficient showing of the loss, but it
awarded the business a full $10 of profit for each

hour of graphic artist time and press downtime even though the manager
testified that the estimated $10 in "profit" did not take into account
overhead and other costs, see Knowles, 414 N.E.2d at 1325 (when lost
profits are proved with sufficient certainty, amount recoverable is for net
loss only), and even though the assistant state's attorney conceded at the
hearing that the $10 in profit stemming from the loss of graphic artist
time and press downtime should be reduced by one quarter. Moreover, the
manager conceded that his estimate of a 37.5% profit margin on the
business's lost projects was "very rough." Indeed, it appears that the
manager first considered the profit percentage at the restitution hearing
in response to the court's questioning; as noted, he presented no evidence
in the way of accounting records to back up his "very rough" estimate.
Compare State v. Young, 842 P.2d 1300, 1302 (Ariz. Ct. App. 1992) (where
defendant employee stole proceeds of merchandise sales from retail store,
"lost profits" component of proceeds was part of "economic loss"
recoverable as restitution; however, adding profit margin to cost of
missing inventory would have been too speculative) with State v. Barrett,
864 P.2d 1078, 1080-81 (Ariz. Ct. App. 1993) (evidence was insufficient to
support restitution award compensating used car dealer who claimed that
temporary loss of vehicle prevented him from selling vehicle at higher
price because of lowered blue book value at time of vehicle's recovery;
without evidence of potential buyers, dealer's conclusory statement as to
amount of lost profit could not support award).

We recognize that the district court has discretion in determining the
proper amount of restitution, see Barrett, 864 P.2d at 1079, and that only
a reasonable certainty of the estimated loss is required, but here the
estimate of lost profits was based on speculation and conjecture;
therefore, the award cannot stand. We have not, as the dissent declares,
adopted a more stringent evidentiary standard for establishing a
restitution award of lost profits than the law has traditionally demanded
in the civil context. Indeed, the standard quoted by the dissent, which
requires "sufficient data" for the factfinder to estimate the proper amount
of damages with "reasonable certainty," post, at 2, is precisely the
standard we have applied here. We disagree

with the dissent that the general manager's "very rough" estimate of his
profit margin, made off the top of his head without any accounting data to
support it, is reasonably certain. The laudatory goals of the restitution
statute do not require that we abandon the rules of evidence.

Finally, because the $250 insurance deductible remains, we must
address defendant's second argument. Defendant contends that because the
business, according to its manager's own testimony, had already incurred
all of its losses by the time he obtained possession of the stolen
equipment, the restitution award does not relate to the offense for which
he was convicted. We do not agree. The manager testified that the
business's new computer was up and running by November 1994. Further,
defendant raised this argument only at the end of the restitution hearing
after the testimony had been received, and he made no claim at that time
that was contrary to the manager's testimony. Figuring forty-hour weeks,
the 343.5 hours of graphic artist time spent in setting up the new computer
would have run into September, by which time defendant was in possession of
the stolen equipment. Under these circumstances, we find no error in
awarding the business the $250 insurance deductible.

Except for the $250 insurance deductible, the restitution award is
stricken.

FOR THE COURT:

_______________________________________
Associate Justice

----------------------------------------------------------------------------
Concurring

No. 95-435

State of Vermont Supreme Court

On Appeal from
v. District Court of Vermont,
Unit No. 2, Chittenden Circuit

Norman F. May September Term, 1996

Dean B. Pineles, J.

Pamela Hall Johnson, Chittenden County Deputy State's Attorney, and
Frank D. Molander, Legal Intern, Burlington, for plaintiff-appellee

Robert W. Katims of Hoff, Curtis, Pacht, Cassidy & Frame, P.C.,
Burlington, for defendant-appellant

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

DOOLEY, J., concurring. I concur that we can not affirm the
restitution award for most of the reasons stated in the opinion for the
Court. I agree with Justice Morse, in part, that if we were to apply the
standard applicable to civil damage awards, we would affirm at least part
of the restitution award. Without further action from the Legislature,
which I agree with Justice Morse would be desirable, I do not believe that
lost profits are appropriate for restitution awards.

Both the majority and the dissent conclude that lost profits are
appropriate for restitution awards, but differ on whether they could be
awarded on this factual record. They both rely on cases from other states
that have authorized lost-profit awards. In looking at decisions from
other states, we must look carefully at the statutes on which they are
based because the authorization of restitution is wholly statutory.

A good example is State v. Ihde, 532 N.W.2d 827, 830 (Iowa Ct. App.
1995), which

upholds a restitution order that includes lost profits. The Iowa statute
involved authorizes the sentencing court to order restitution for
"pecuniary damages," defined to include "`all damages to the extent not
paid by an insurer, which a victim could recover against the offender in a
civil action arising out of the same facts or event.'" Id. at 828 (quoting
Iowa Code § 910.1(2) (1991)). If the Iowa statute were in effect here, I
would agree with Justice Morse that some of the profits would be
recoverable in a civil action and would uphold at least a portion of the
restitution order. The Vermont statute is, however, unlike the Iowa
statute.

Our statute requires the court to consider restitution whenever a
victim suffers a material loss. 13 V.S.A. § 7043(a). The award can
include a payment "to compensate for damages to the victim's property or
person." Id. § 7043(b). Because of this sparse and narrow language, we
held in State v. Jarvis, 146 Vt. 636, 638, 509 A.2d 1005, 1006 (1986) that
"only liquidated amounts which are easily ascertained and measured are
recoverable under the legislative scheme." Whatever may be included in
Iowa, this authorization is too narrow for the kind of lost profits
included here.

The state with criminal restitution law most similar to Vermont's is
Arizona. The Arizona statute allows a restitution order to include an
amount for "economic loss," to include "losses which would not have been
incurred but for the offense," but not "consequential damages." Ariz. Rev.
Stat. Ann. § 13-105(14) (Supp. 1996). The Arizona courts have held that a
restitution order may include lost profits, only when the defendant has
actually taken the profits -- for example, where a store clerk embezzles
sales proceeds. See State v. Barrett, 864 P.2d 1078, 1080 (Ariz. Ct. App.
1993) (lost-profit component of restitution award not proper where
defendant stole inventory rather cash from sales proceeds; evidence did not
show causal relationship between defendant's action and victim's purported
lost profits); State v. Young, 842 P.2d 1300, 1302 (Ariz. Ct. App. 1992)
(lost-profit component of restitution award appropriate where defendant
sold merchandise to customers, did not record sales, and kept proceeds;
presumably defendant made sales at retail price, depriving victim of profit
on each sale); cf.

State v. Pearce, 751 P.2d 603, 605 (Ariz. Ct. App. 1988) (victim's breach
of contract and lost profits were consequential damages resulting from
defendant's theft, and not proper subject of restitution). I would follow
the rule of the Arizona courts as long as we have the current statute.

_______________________________________
Associate Justice

-------------------------------------------------------------------------------
Dissenting

No. 95-435

State of Vermont Supreme Court

On Appeal from
v. District Court of Vermont,
Unit No. 2, Chittenden Circuit

Norman F. May September Term, 1996

Dean B. Pineles, J.

Pamela Hall Johnson, Chittenden County Deputy State's Attorney, and
Frank D. Molander, Legal Intern, Burlington, for plaintiff-appellee

Robert W. Katims of Hoff, Curtis, Pacht, Cassidy & Frame, P.C.,
Burlington, for defendant-appellant

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

MORSE, J., dissenting. In a period of otherwise increasing judicial
sensitivity to the victims of crime, I believe today's decision is a
setback.

In most cases, a victim's only realistic chance to recover damages is
the restitution process. Hence, as the statutory scheme makes clear,
restitution is a favored remedy under the law. The statute mandates that
"[r]estitution shall be considered in every case in which a victim of a
crime has suffered a material loss or has incurred medical expenses." 13
V.S.A. § 7043(a) (emphasis added). It further provides that "[w]hen
restitution is not ordered, the court shall set forth on the record its
reasons for not ordering restitution." Id. § 7043(f). The statute thus
creates a strong presumption in favor of restitution where the victim has
suffered a material loss, and demands an explanation on the record from the
trial court when it is not ordered.

Nowhere does the restitution statute define the burden of proof, nor
does it specifically delineate the kinds of "material loss" for which
compensation may be ordered. It refers simply to "damages to the victim's
property or person." Id. § 7043(b)(2). In State v. Jarvis, 146 Vt.

636, 638, 509 A.2d 1005, 1006 (1986), however, we construed the statute to
exclude restitution for a victim's pain and suffering, emotional trauma, or
loss of potential earning capacity, holding that only amounts "which are
easily ascertained and measured are recoverable under the legislative
scheme." Id. Our holding, we explained, "avoid[ed] the possible
constitutional problem of lack of trial by jury in assessing unliquidated
damages." Id. at 639, 509 A.2d 1006. Yet nothing in Jarvis suggests an
intent to further limit the effectiveness of restitution as the Court has
today.

Here we are confronted with the relatively simple question whether
lost profits are compensable under § 7043. The Court correctly concludes
that lost profits may be awarded as restitution damages. Implicit in this
conclusion is the recognition that, as a category of damages, lost profits
satisfy the criteria set forth in Jarvis, that is, they are generally the
type of damages that may be easily ascertained and measured. Id. at
638-39, 509 A.2d at 1006. As the Court notes, this conclusion is
consistent with recent case law across the country. See, e.g., State v.
Ihde, 532 N.W.2d 827, 830 (Iowa Ct. App. 1995); State v. Jurado, 905 P.2d 274, 275 (Or. Ct. App. 1995); State v. Kisor, 916 P.2d 978, 981 (Wash. Ct.
App. 1996).

The only question logically remaining, therefore, is whether the
evidence in this case was sufficient to support the restitution award.
Traditionally, to support a damage award, "all that is required is that the
plaintiff furnish sufficient data that the jury may estimate the proper
amount with reasonable certainty." Green v. Stockwell, 87 Vt. 459, 462, 89 A. 870, 871 (1914); accord Retrovest Assocs. v. Bryant, 153 Vt. 493,
496-97, 573 A.2d 281, 283 (1990); Lemnah v. American Breeders Serv., Inc.,
144 Vt. 568, 580, 482 A.2d 700, 707 (1984). In reviewing damage awards, we
do not "substitute our judgment for that of the jury, nor will we
substitute our discretion for the discretion of the trial court." In re
Boisvert, 135 Vt. 69, 74, 370 A.2d 209, 212 (1977).

Assessed in light of these standards, the evidence below -- while not
overwhelming -- was nevertheless adequate to support the judgment. The
general manager of the printing company victimized by defendant testified
that its graphic artist was unavailable to work on other projects

for the 343.5 hours he had to spend re-entering information into the
computers purchased to replace the stolen one, thereby resulting in lost
profits of $3,435 (based upon the manager's estimate of a $10 profit per
hour); that the business lost $10 per hour in profits for each of the 120
hours that the printing presses stood idle because project information had
not yet been entered into the new computers; and that, based on a profit
margin of .375 %, the business lost $2,027 in profits associated with three
projects that were lost to other printers.

If this had been a civil trial, I have no doubt that under the
traditional standards of review this Court would routinely uphold the award
of damages. The record contains sufficient evidence to permit a reasonable
estimation of the business's lost profits. Nevertheless, the Court
concludes the evidence was inadequate, apparently because the State adduced
no corroborating evidence of the business's profit margin. Yet, the
manager's testimony was subject to cross-examination and rebuttal, and was
largely undisputed. The Court also faults the State for failing to prove
precisely "how many potential customers the business had lost as the result
of the theft." Ante, at 4. Where much of the business comes from a
walk-in trade, however, it is neither fair nor reasonable to demand such
precise accounting. As the general manager explained, it was simply
impossible to "stand out front with the graphic artist and the other
employees . . . turning those customers away." An award based on the
amount of employee time unavailable for other projects as a result of the
theft represented a reasonable basis to estimate lost profits. See Bryant,
153 Vt. at 496-97, 573 A.2d at 283 ("`[D]ifficulty in computing damages
does not preclude the jury from making an assessment if there is evidence
from which an estimation may be made with reasonable certainty.'") (quoting
Lemnah v. American Breeders Serv., 144 Vt. at 580, 482 A.2d at 707). I
perceive no reason, and the Court supplies none, to hold the State to a
more stringent evidentiary standard in establishing a restitution award for
lost profits than the law has traditionally demanded in the civil context.
Nor do I perceive any reason to depart from the fundamental rule that this
Court does not "substitute [its] discretion for the discretion of the trial
court." Boisvert, 135 Vt. at 69, 370 A.2d at 212.

The inequity is compounded when we recall that the purpose of the
restitution statute is to provide some measure of relief to innocent crime
victims, not to punish them doubly by imposing artificially high standards
of proof necessitating time-consuming and costly efforts to obtain basic
compensation. Denying restitution in this case does not square with the
legislative mandate to consider restitution in every case where the victim
has suffered a material loss. 13 V.S.A. § 7043(a). Indeed, the
Legislature may now represent the last best hope for relief from this and
other unduly narrow readings of the restitution statute. See, e.g., State
v. Webb, 151 Vt. 200, 559 A.2d 658 (1989) (restitution under the statute
may not include payments to insurers of direct victims).

_______________________________________
Associate Justice

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