Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 1 of 45
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`UNITED STATES OF AMERICA,
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`Plaintiff,
`
`-against-
`
`GARY TANNER and
`ANDREW DAVENPORT,
`
`Defendants.
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`17 Cr. 61 (LAP)
`
`RESTITUTION ORDER
`
`LORETTA A. PRESKA, Senior United States District Judge:
`
`On May 22, 2018, a jury convicted Gary Tanner ("Tanner")
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`and Andrew Davenport ("Davenport") (collectively, "Defendants")
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`of honest services wire fraud conspiracy, honest services wire
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`fraud, Travel Act conspiracy, and money laundering conspiracy.
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`Defendants were sentenced on October 30, 2018. The Court
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`deferred its determination of restitution for up to 90 days
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`after sentencing, as permitted by 18 u.s.c. § 3664(d) (5), and
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`gave the parties two days beyond the 90 days to inform the Court
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`of their desired redactions to the publicly filed version of the
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`Restitution Order.
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`"Such an extension beyond the ninety-day
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`statutory period is permitted where, as here, the extension
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`causes no actual prejudice to the defendant." United States v.
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`Gupta, 925 F. Supp. 2d 581, 584 (S.D.N.Y. 2013) (citing United
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`States v. Douglas, 525 F.3d 225, 252-53 (2d Cir. 2008)), aff'd,
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`747 F.3d 111 (2d Cir. 2014).
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 2 of 45
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`Before the Court is the Government's request, pursuant to
`
`the Mandatory Victims Restitution Act ("MVRA"), 18 U.S.C.
`
`§ 3663A, that Bausch Health Companies, Inc. (f/k/a Valeant
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`Pharmaceuticals Inc. ) (herein, "Valeant" or the "company") , be
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`awarded restitution in the amount of $15,466,364.46.
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`(Government's Restitution Letter ("Dec. 11 Govt. Ltr."), dated
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`Dec. 11, 2018 [dkt. no. 229), 1; Valeant's Victim Letter ("Dec.
`
`10 Victim Ltr."), dated Dec. 10, 2018 [dkt. no. 229-1), 1.) 1
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`For the reasons stated herein, the Government's request for
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`restitution on behalf of Valeant is granted in part and denied
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`in part [dkt. no. 201). Defendants are ordered, jointly and
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`severally, to pay Valeant a total of $11,855,683.35 in
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`restitution.
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`I.
`
`BACKGROUND
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`In support of the restitution sought, the Government
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`submitted a victim impact statement from Valeant as Exhibit A to
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`the Government's Sentencing Memorandum on October 23, 2018.
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`1 The Government initially requested that Defendants make
`restitution in the amount of $15,489,706.19.
`(Government's
`Sentencing Memorandum, dated Oct. 23, 2018 [dkt. no. 201), 14.)
`Valeant later changed the requested restitution amount to the
`$15 1 466,364.46 figure the Court considers in this Restitution
`Order.
`(Dec. 10 Victim Ltr. at 1.) The Government then adopted
`this revised restitution amount,
`(Dec. 11 Govt. Ltr. at 1), and
`Defendants objected to it in Defendants' Second Restitution
`Letter ("Dec. 21 Def. Ltr."), dated Dec. 21, 2018 [dkt. no.
`231), 1.)
`
`2
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 3 of 45
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`(Non-Party Bausch Health Companies Inc.'s Victim Impact
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`Statement in Support of its Request for Restitution ("Oct. 23
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`VIS"), dated Oct. 23, 2018 [dkt. no. 201-1] .) Valeant filed
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`three volumes of exhibits containing support for the restitution
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`amount sought; legal billing records submitted by Valeant were
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`filed under seal.
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`On November 20, 2018, Defendants filed their first letter
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`opposing the restitution sought by the Government on behalf of
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`Valeant.
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`(Defendants' First Restitution Letter ("Nov. 20 Def.
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`Ltr."), dated Nov. 20, 2018 [dkt. no. 220].) Defendants filed
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`three exhibits with their letter, one of which was filed under
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`seal.
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`(See Exhibit C to Nov. 20 Def. Ltr., dated Nov. 20, 2018
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`[dkt. no. 220-3] .)
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`On December 11, 2018, the Government filed a letter
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`responding to Defendants' First Restitution Letter.
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`(Dec. 11
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`Govt. Ltr.)
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`In its public filing, the Government enclosed a
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`redacted version of a letter dated December 10, 2018 from
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`counsel for Valeant also responding to Defendants' First
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`Restitution Letter, which the Government adopted in its entirety
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`and which was also filed under seal.
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`(Dec. 10 Victim Ltr.) The
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`Government also filed four exhibits, one of which was filed
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`under seal.
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`(See Exhibit 4 to Dec. 11 Govt. Ltr, dated Dec. 11,
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`2018 [dkt. no. 229-5] ,) On December 21, 2018, Defendants wrote
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 4 of 45
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`in further opposition to the Government's request.
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`(Dec. 21
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`Def. Ltr.)
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`II. LEGAL STANDARD
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`Federal courts "have no inherent power to order
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`restitution," and, therefore, "[a] sentencing court's power to
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`order restitution ... depends upon, and is necessarily
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`circumscribed by, statute." United States v. Zangari, 677 F.3d
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`86, 91 (2d Cir. 2012). The statute at issue here, the Mandatory
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`Victims Restitution Act ("MVRA"), mandates restitution where "an
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`identifiable victim or victims has suffered a . . . pecuniary
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`loss." 18 U.S.C. § 3663A(c) (1) (B). A defendant must "reimburse
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`the victim for lost income and necessary child care,
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`transportation, and other expenses incurred during participation
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`in the investigation or prosecution of the offense or attendance
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`at proceedings related to the offense."
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`Id. § 3663A(b) (4).
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`The Court of Appeals has explained that not all losses
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`suffered by a victim may be compensable as restitution in a
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`criminal case and not even all losses "directly and proximately
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`caused by a defendant's offense" may be recovered; rather, "the
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`harm must ... come within one of the categories enumerated in"
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`the MVRA. United States v. Maynard, 743 F.3d 374, 379 (2d Cir.
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`2014); see also United States v. Cuti, 708 F. App'x 21, 25 (2d
`
`Cir. 2017) ("Cuti II")
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`("We have noted the crucial distinction
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 5 of 45
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`between actions that merely 'helped' the prosecution and actions
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`deemed truly necessary. The latter are compensable, and the
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`former are not." (quoting United States v. Cuti, 778 F.3d 83, 95
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`(2d Cir. 2015)
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`("Cuti I"))). The Government bears the burden of
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`establishing the loss amount under the MVRA, and "[a]ny dispute
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`as to the proper amount ... of restitution shall be resolved by
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`the court by the preponderance of the evidence." 18 U.S.C. §
`
`3664(e). However, "the MVRA requires only a reasonable
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`approximation of losses supported by a sound methodology."
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`United States v. Gushlak, 728 F.3d 184, 196 (2d Cir. 2013).
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`In Lagos v. United States, 138 S. Ct. 1684 (2018), the
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`Supreme Court recently clarified the meaning of the phrase
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`"incurred during participation in the investigation or
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`prosecution of the offense or attendance at proceedings related
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`to the offense" in§ 3663A(b) (4) of the MVRA.
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`The Court held
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`that the MVRA provides restitution only for investigation
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`expenses incurred during a victim's participation in "government
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`investigations and criminal proceedings" and "does not cover the
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`costs of a private investigation that the victim chooses on its
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`own to conduct." Lagos, 138 S. Ct. at 1688, 1690; ~
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`also id. at 1689 ("Some [restitution] statutes specifically
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`require restitution for the 'full amount of the victim's
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`losses,' defined to include 'any ... losses suffered by the
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`victim as a proximate result of the offense.' The Mandatory
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 6 of 45
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`Victims Restitution Act, however, contains no such language; it
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`specifically lists the kinds of losses and expenses that it
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`covers." (quoting 18 U.S.C. §§ 2248(b), 2259(b),
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`2264(b), 2327(b))). This "narrow interpretation" is meant to
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`alleviate district courts of the "significant administrative
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`burdens" of resolving "these potentially time-consuming
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`controversies as part of criminal sentencing," particularly "in
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`cases involving multimillion[-)dollar investigation expenses for
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`teams of lawyers and accountants." Lagos, 138 S. Ct. at 1689.
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`III. DISCUSSION
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`A. Valeant Qualifies as a Victim Under the MVRA_
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`A district court's "statutory authority to award
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`restitution under the MVRA is limited to awards to victims of
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`the offense of conviction." United States v. Skowron, 839 F.
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`Supp. 2d 740, 744 (S.D.N.Y. 2012) (quoting United States v.
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`Archer, 671 F.3d 149, 170 (2d Cir. 2011)), aff'd, 529 F. App'x
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`71 (2d Cir. 2013). Under the MVRA, a defendant convicted of "an
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`offense against property ... including any offense committed by
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`fraud or deceit" must make restitution to the victim.
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`18 U.S.C.
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`§ 3663A(c} (1) (A) (ii}.
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`The MVRA defines a "victim" as a "person directly and
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`proximately harmed as a result of" the offense.
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`Id.
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`§ 3663A(a} (2). A defendant convicted of committing honest
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 7 of 45
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`services fraud and conspiracy to commit honest services wire
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`fraud is obligated to make restitution to the corporate victim
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`under the MVRA.
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`See United States v. Bahel, 662 F.3d 610, 647-
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`48 (2d Cir. 2011) (affirming that the defendant convicted of
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`honest services wire fraud owed restitution to his employer);
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`Skowron, 839 F. Supp. 2d at 749-52 (ordering the defendant,
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`convicted of wire fraud, to pay restitution to his former
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`employer, the victim of defendant's crimes) . 2
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`The Court finds that Valeant qualifies as a victim under
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`the MVRA because it suffered losses as a direct result of the
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`offenses for which Defendants were convicted.
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`18 U.S.C.
`
`§ 3663A(a) (2).
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`In finding Defendants guilty of the crimes
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`charged, the jury found that Defendants defrauded Valeant.
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`(See
`
`Judgment in a Criminal Case as to Gary Tanner ("Tanner
`
`Judgment"), dated Nov. 27, 2018 [dkt. no. 222], 1-2; Judgment in
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`a Criminal Case as to Andrew Davenport ("Davenport Judgment"),
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`dated Nov. 27, 2018 [dkt. no. 224], 1-2; Superseding Indictment,
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`dated Aug. 30, 2017 [dkt. no. 66], i i 5, 7-11, 13-14, 16, 18.)
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`Moreover, in opposing the Government's restitution request on
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`behalfofValeant, (see Nov. 20 Def. Ltr.; Dec. 21 Def. Ltr.),
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`as well as in seeking additional time to respond to "the
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`2 The MVRA also applies to the other charges for which Defendants
`were convicted. See Zangari, 677 F.3d at 91 (applying MVRA to
`Travel Act conspiracy); Gushlak, 728 F.3d at 190-91 (applying
`MVRA to money laundering conspiracy).
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 8 of 45
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`voluminous materials recently provided to [Defendants] by
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`counsel for Valeant," (see Defendants' Restitution Briefing
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`Letter, dated Oct. 26, 2018 [dkt. no. 203], 1), and requesting
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`an extension of time to submit their objections to Valeant's
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`restitution claims, (see Defendants' Restitution Letter Motion,
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`dated Nov. 8, 2018 [dkt. no. 217], 1), Defendants never disputed
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`that Valeant was the identifiable victim of Defendants'
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`offenses.
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`B. Valeant's Restitution Requests
`
`i.
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`$9,703,995.33 Payment from Davenport to Tanner,
`or Valeant's $8,000,000.00 Overpayment for the
`Option to Purchase Philidor Rx Services
`
`First, Valeant seeks reimbursement for the $9,703,995.33
`
`payment from Davenport to Tanner out of the funds received
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`personally by Davenport from Valeant's option to purchase
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`Philidor Rx Services ("Philidor"), or, alternatively, the
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`$8,000,000.00 that Valeant claims it over-paid for the option to
`
`purchase Philidor due to the Defendants' "backchannel
`
`scheming."
`
`(Oct. 23 VIS at 12, 14; Dec. 10 Victim Ltr. at 1-2.)
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`Specifically, Valeant argues that the Government "proved that
`
`Defendants caused [Valeant] to incur many types of losses,"
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`including the "purchase of an option that turned out to be
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`worthless for $133 million cash plus additional consideration,
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`increasing the initial purchase price of that option by $8
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 9 of 45
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`million, and diverting [$9,703,995.33] of the purchase price
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`from Davenport to Tanner."
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`(Oct. 23 VIS at 9.)
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`The Court of Appeals has held that "a sentencing court
`
`ordering restitution under the MVRA may not substitute a
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`defendant's ill-gotten gains for the victim's actual loss"
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`unless "there is a direct correlation between gain and loss,
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`such that the defendant's gain can act as a measure of-as
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`opposed to a substitute for-the victim's loss." Zangari, 677
`
`F.3d at 93; see, e.g., United States v. Berardini, 112 F.3d 606,
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`607-10 (2d Cir. 1997) (finding a direct correlation between
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`income defendant gained from fraudulent telemarketing sales and
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`victims' losses because every dollar gained by defendant was
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`necessarily lost by victims who paid for the fraudulent
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`products).
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`Defendants argue that "Valeant paid a fair price for the
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`option to purchase Philidor," and as such, the company "cannot
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`prove any 'loss' or 'overpayment' as a result of the deal it
`
`entered into with Philidor."
`
`(Nov. 20 Def. Ltr. at 2.)
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`Indeed,
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`it is Defendants' position that "Philidor agreed to be sold to
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`Valeant for a price that was far less than it was worth" and
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`suggested that the Court hold a Fatico hearing on the issue of
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`the value of the option.
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`(Id. at 2-3.)
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 10 of 45
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`As a threshold matter, the Court finds that given the ample
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`trial record, there is no need for such a hearing.
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`"There is no
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`per se right to a Fatica hearing, and trial courts enjoy broad
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`discretion in determining what procedures to employ at
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`sentencing." United States v. Rutigliano, 614 F. App'x 542, 547
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`(2d Cir. 2015); United States v. Romano, 825 F.2d 725, 728 (2d
`
`Cir. 1987) ("It is well established, for instance, that a
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`defendant has no right to a full-blown evidentiary hearing at
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`sentencing[.]").
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`"The district court is not required, by either
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`the Due Process Clause or the federal Sentencing Guidelines, to
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`hold a full-blown evidentiary hearing in resolving sentencing
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`disputes. All that is required is that the court ... 'afford
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`the defendant some opportunity to rebut the Government's
`
`allegations.'" United States v. Slevin, 106 F.3d 1086, 1091 (2d
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`Cir. 1996) (citations omitted).
`
`Indeed, in United States v.
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`Babilonia, 687 F. App'x 63, 67 (2d Cir. 2017), the Court of
`
`Appeals affirmed the district court's refusal to hold a Fatica
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`hearing on the defendant's role because "that determination did
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`not involve a new issue on which [the defendant] had ·not been
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`heard." Given the facts established at the trial in this case
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`and Defendants' opportunity to be heard on this issue, there is
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`no need for a hearing.
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`Valeant argues "there is a
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`'direct correlation' between"
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`the $9,703,995.33 Davenport paid Tanner "and the loss suffered
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 11 of 45
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`by [Valeant] in connection with the Philidor purchase option
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`transaction. The [$9,703,995.33] of option proceeds that
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`Davenport immediately and secretly transferred to Tanner was not
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`just a kickback - it represented an inflated purchase price for
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`which Valeant received no additional value."
`
`(Oct. 23 VIS at
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`13.)
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`In support of this argument, the Government added: "[i]t
`
`is simple common sense that Davenport's payment of the
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`[$9,703,995.33] kickback to Tanner evinced a willingness on
`
`Davenport's part to accept an option purchase price of
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`[$9,703,995.33] less than what he negotiated. Absent the
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`kickback, Valeant would have been able to pay [$9,703,995.33]
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`less for the Philidor option."
`
`(Dec. 11 Govt. Ltr. at 1-2.)
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`These speculative, ipse dixit arguments are weak, at best.
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`Neither the Government nor Valeant has sufficiently shown that
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`Defendant's "gain can act as a measure of [Valeant's]
`
`loss," Zangari, 677 F.3d at 93, because they have failed to show
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`that the $9,703,995.33 "loss" - or, as Valeant contends, the
`
`$9,703,995.33 it "was deprived of," {Oct. 23 VIS at 13) - was "a
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`necessary consequence of ... the kickback[)." United States v.
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`Napout, No. 15-CR-252 (PKC), 2018 WL 6106702, at *10 (E.D.N.Y.
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`Nov. 20, 2018) (quoting United States v. Finazzo, 850 F.3d 94,
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`118 (2d Cir. 2017)). Consequently, "(n]o such measure is
`
`available here." Napout, 2018 WL 6106702, at *10; see also
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`Finazzo, 850 F.3d at 118-19 ("Given that we require a
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`'direct
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 12 of 45
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`correlation' between a defendant's gain and a victim's loss in
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`order for restitution to be measured according to that gain, it
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`is not a sufficiently sound methodology for the district court
`
`to merely assume that the kickbacks were solely justified by
`
`inflated prices.").
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`Instead, given the broad discretion this Court has to
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`fashion a restitution reward, see Gushlak, 728 F.3d at 190
`
`(noting restitution orders under the MVRA are reviewed for abuse
`
`of discretion and the trial court's findings of fact are subject
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`to clear error review), the Court agrees with Defendants that
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`they should not be required to pay Valeant $1,703,995.33 more
`
`than its claimed actual harm of $8,000,000.00.
`
`(Dec. 21 Def.
`
`Ltr. at 2.) This actual claimed loss, which is clearly
`
`established by the trial evidence, (see Oct. 23 VIS at 3, 11-12
`
`(citing Supporting Documents for Non-Party Bausch Health
`
`Companies Inc.'s Victim Impact Statement ("Oct. 23 VIS Docs."),
`
`dated Oct. 23, 2018, Ex. 1 (c)
`
`(Government Exhibit ("GX") 100-
`
`97); id. at Ex. 1 (g)
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`(GX 101-47); id. at Ex. 1 (h)
`
`(GX 100-101);
`
`id. at Ex. 1 (f)
`
`(GX 100-105); id. at Ex. 1 (i)
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`(GX 100-119); id.
`
`at Ex. 1 (j)
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`(GX 100-114); id. at Ex. 1 (k)
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`(GX 100-125); id. at
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`Ex. 1 (1)
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`(GX 100-130); id. at Ex. 1 (m)
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`(GX 707); May 9, 2018
`
`Trial Transcript ("May 9, 2018 Tr."), dated June 13, 2018 [dkt.
`
`no. 149], 540:2-541:13, 553:19-559:8, 568:11-17, 560:25-561:15,
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`569:6-10, 569:13-16, 571:13-18, 573:19-23, 576:9-577:7, 1423:22-
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 13 of 45
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`1437:15, 578:6-16)), is the best way to account for the
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`financial harm Valeant suffered at Defendants' hands.
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`Accordingly, the Court finds that Valeant is entitled to receive
`
`$8,000,000.00 for the additional amount it paid Philidor for the
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`option but that it is not entitled to receive $9,703,995.33,
`
`reflecting the option proceeds Davenport passed along to Tanner.
`
`ii. Vaieant's $912,910.84 Overpayment to Philidor
`Under the July 2013 Distribution Services
`Agreement
`
`Next, Valeant argues that it is entitled to $912,910.84,
`
`the amount it claims it overpaid Philidor as a result of the
`
`Defendants' securing a larger discount on the Valeant products
`
`sold by Philidor under the July 2013 Distribution Services
`
`Agreement ("DSA").
`
`(Oct. 23 VIS at 14; Dec. 10 Victim Ltr. at
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`2.) Specifically, Valeant argues that Tanner revised the DSA to
`
`increase Philidor's discount on Valeant products from 3.5
`
`percent to 4 percent off of the Wholesale Acquisition Cost
`
`("WAC") under the DSA, despite Davenport's willingness, as
`
`indicated by the trial evidence, to agree to a 3.5 percent
`
`discount.
`
`(See Oct. 23 VIS at 14-15 (July 17, 2013 email chain
`
`between Tanner and Davenport where Davenport says he is willing
`
`to agree to only a 3.5 percent discount from WAC, and Tanner
`
`replies "I think we can get to 41" (quoting Oct. 23 VIS Docs. at
`
`Ex. 1 (b)
`
`(GX 100-9))); id. at 15 (July 17, 2013 email from
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`Tanner discussing the DSA, where he writes: "the fully inclusive
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 14 of 45
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`rate will be 4% from WAC" (quoting Oct. 23 VIS Docs. at Ex. l(a)
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`(GX 100-160))).)
`
`The clear import of these emails is that Davenport would
`
`accept a 3.5 percent discount and Tanner said he would try to -
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`and did - get a 4 percent discount. The trial evidence shows
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`that Tanner never disclosed to Valeant that Davenport would
`
`accept a 3.5 percent discount.
`
`(See Dec. 10 Victim Ltr. at 2
`
`n.2 (during the direct examination of Laizer Kornwasser
`
`("Kornwasser") the Government asked, "I want to refer now to the
`
`part of the email we just looked at where Mr. Tanner wrote:
`
`'A
`
`fully inclusive rate will be 4 percent from WAC.' Do you see
`
`that?" to which Kornwasser replied, "Yes, I do." The Government
`
`then asked, "Did Mr. Tanner ever disclose to you whether
`
`Philidor was willing to pay more and accept a 3.5 percent rather
`
`than a 4 percent discount?" to which Kornwasser replied, "No, he
`
`did not." (quoting May 14, 2018 Trial Transcript ("May 14, 2018
`
`Tr."), dated June 13, 2018 [dkt. no. 153], 920:16-24)).)
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`Furthermore, the evidence shows that, as a result, Valeant was
`
`harmed because the extra 0.5 percent discount decreased the
`
`amount Philidor paid Valeant for its products.
`
`(Oct. 23 VIS at
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`15 (during the direct examination of Kornwasser the Government
`
`asked, "Now, can you remind the jury, in which of the two
`
`scenarios, 3-and-a-half percent or 4 percent, did Valeant make
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`more money?" to which Kornwasser replied, "Valeant would make
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 15 of 45
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`more money under 3-and-a-half percent." (quoting May 14, 2018
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`Tr. at 950:1-4)).)
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`Defendants contend that "[a] review of Valeant's contracts
`
`with other entities, including wholesalers and other retail
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`channels, indicates payment terms equal to or better than
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`Valeant's terms with Philidor."
`
`(Nov. 20 Def. Ltr. at 3.) The
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`Court finds this fact wholly irrelevant to this issue,
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`particularly considering the substantial and relevant trial
`
`evidence cited above. Accordingly, the Court finds Valeant is
`
`entitled to the $912,910.84 it overpaid Philidor under the DSA.
`
`iii. 20 Percent, or $150,177.80, of Tanner's
`Compensation
`
`Valeant also argues that it is entitled to restitution for
`
`20 percent of the more than $750,000.00 Tanner was paid in
`
`salary and bonuses by Valeant while he was engaged in the
`
`scheme, or, specifically, $150,177.80.
`
`(Oct. 23 VIS at 16, 18.)
`
`"The MVRA requires restitution of the value of a victim's
`
`property." Skowron, 839 F. Supp. 2d at 749 (citing 18 U.S.C.
`
`§ 3663A(b) (1)). According to the Court of Appeals, under the
`
`MVRA, an employer should be reimbursed for compensation it paid
`
`an employee when the "employer pays for honest services but
`
`receive[d] something less." Skowron, 839 F. Supp. 2d at 750
`
`(quoting Bahel, 662 F.3d at 649). Under the MVRA,
`
`the
`
`"property" lost by an employer consists of "the difference in
`
`15
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 16 of 45
`
`the value of the services that [the defendant] rendered ... and
`
`the value of the services that an honest [employee] would have
`
`rendered." Bahel, 662 F.3d at 649.
`
`Often, the percentage of an employee's salary subject to
`
`restitution is an approximation and a "conservative estimate of
`
`the cost of the fraud."
`
`Id. at 650; see also Skowron, 839 F.
`
`Supp. 2d at 752 ("[Al court may order restitution approximating
`
`the value of the deprived honest services where, as here,
`
`attempting to calculate the employer's precise loss would force
`
`the court into unduly burdensome calculations.").
`
`In those
`
`circumstances, where the specific amount of compensation
`
`attributable to the fraud cannot readily be determined, the
`
`Court of Appeals has upheld restitution awards of 20 percent of
`
`the defendant's compensation during the scheme. See, e.g.,
`
`Skowron, 529 F. App'x at 73 (affirming the district court's
`
`order which included 20 percent of the defendant's salary during
`
`his period of the offense); Napout, 2018 WL 6106702, at *3
`
`(holding defendants had to repay 20 percent of the salaries and
`
`benefits they received from the victim upon finding the 20
`
`percent "approach is appropriate ... because it would be 'unduly
`
`complex to try to delineate' the amount that [the victim] paid
`
`to, or on behalf of, Defendants that was strictly related to
`
`Defendants'
`
`'dishonest services'" (quoting Bahel, 662 F.3d at
`
`650)); United States v. Ebrahim, No. 12-CR-471 (JPO), 2013 WL
`
`16
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 17 of 45
`
`2216580, at *3 (S.D.N.Y. May 21, 2013) (ordering 20 percent of
`
`the defendant's salary in restitution, following Skowron).
`
`Defendants' argument that, in seeking 20 percent of Tanner's
`
`compensation, Valeant "picked an arbitrary number" simply
`
`ignores this established precedent.
`
`(Nov. 20 Def. Ltr. at 5.)
`
`As discussed in Section III(A), supra, Valeant is the victim of
`
`Defendants' scheme under the MVRA.
`
`As such, "in the case of an offense resulting in damage to
`
`or loss or destruction of [Valeant's] property," it is entitled
`
`to the "return [of its] property .... " Bahel, 662 F.3d at 649
`
`(citation omitted). Valeant paid Tanner with the expectation
`
`that it would receive his honest services. Part of that
`
`expectation was that Tanner would not act contrary to Valeant's
`
`interests. However, as the jury determined at trial, Tanner did
`
`just that. Under these circumstances, some portion of Tanner's
`
`compensation is recoverable under the MVRA. Accordingly, in
`
`keeping with this Court's precedent and finding it "would be
`
`'unduly complex to try to delineate' which part of the funds
`
`received by [Tanner] were 'paid for honest services and which
`
`part was paid for dishonest services,'" Napout, 2018 WL 6106702,
`
`at *3 (quoting Bahel, 662 F.3d at 650)), the Court finds that
`
`Valeant may recover $150,177.80, or 20 percent of the
`
`compensation paid to Tanner during Defendants' scheme.
`
`17
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 18 of 45
`
`iv. $3,553,933.37 for the Legal Fees of Covington &
`Burling LLP ("Covington"), Valeant's Attorneys
`
`Next, Valeant seeks $3,553,933.37 for the legal fees of
`
`Covington & Burling LLP ("Covington"), Valeant's attorneys.
`
`(Oct. 23 VIS at 20.) Specifically, Valeant requests:
`
`( 1)
`
`$1,579,140.10 for the fees incurred in responding to Defendants'
`
`subpoena,
`
`(Dec. 10 Victim Ltr. at 3-4); (2) $148,851.50 for the
`
`fees incurred in connection with Covington's attendance at pre(cid:173)
`
`trial proceedings and pre-trial review of filings, (id. at 4-5);
`
`(3) $55,000.00 for the fees incurred in attending pre-trial
`
`meetings with the Government, (id. at 5-6); (4) $130,000.00 3 for
`
`the fees incurred in preparing for and attending and monitoring
`
`Defendants' trial, (id. at 6-7); and (5) $1,640,941.77 4 for other
`
`fees incurred.
`
`(Id. at 7.) As set forth below, the Court
`
`denies Valeant's first two restitution requests in their
`
`entirety, grants Valeant's third and fourth requests in their
`
`entirety, and reduces the restitution amount in Valeant's fifth
`
`request by 10 percent. Adding together the $55,000.00 in
`
`connection with Valeant's third restitution request, $130,000.00
`
`in connection with its fourth restitution request, and the
`
`3 Valeant seeks "approximately $55,000," (id. at 6), and
`"approximately $130,000."
`(Id.) For the sake of computing the
`final restitution amount, the Court treated these as exact,
`rather than approximate, numbers.
`4 This figure was calculated by subtracting $1,579,140.10,
`$148,851.50, $55,000.00, and $130,000.00 from the total fees
`requested, $3,553,933.37.
`
`18
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 19 of 45
`
`$1,476,847.59 in connection with its fifth restitution request,
`
`Defendants are liable to Valeant for $1,661,847.59 in total in
`
`restitution for the fees related to Covington's representation
`
`of Valeant.
`
`1. Covington-Related Restitution Request 1:
`$1,579,140.10 for the Fees Incurred in
`Responding to Defendants' Subpoena
`
`The Court acknowledges first and foremost that the Court of
`
`Appeals has held that "[a]ttorneys' fees are 'other expenses'
`
`that are properly included within a restitution award." Bahel,
`
`662 F.3d at 647.
`
`In support of its argument that it is entitled
`
`to $1,579,140.10 for the attorneys' fees incurred in responding
`
`to Defendants' subpoena, Valeant cites United States v. Gupta,
`
`925 F. Supp. 2d 581, 587-88 (S.D.N.Y. 2013), aff'd, 747 F.3d 111
`
`(2d Cir. 2014), noting that "[t]he [Gupta] court approved 90% of
`
`the total restitution request, including for time spent
`
`responding to the defendant's subpoena."
`
`(Dec. 10 Victim Ltr.
`
`at 4.) However, Gupta predates Lagos, which has imposed a "more
`
`limited reading of the statute" than existed at the time Gupta
`
`was decided by the district court and subsequently affirmed by
`
`the Court of Appeals. Lagos, 138 S. Ct. at 1686.
`
`In fact, on the heels of the Lagos decision, several courts
`
`have already started to question the validity of previously
`
`imposed restitution orders. See, e.g., United States v.
`
`19
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 20 of 45
`
`Walters, 910 F.3d 11, 16 (2d Cir. 2018) (vacating the order of
`
`restitution and remanding the case "for the district court to
`
`reconsider restitution in light of the Supreme Court's decision
`
`in Lagos"); United States v. Cornelsen, 893 F.3d 1086, 1091 (8th
`
`Cir. 2018) (vacating a portion of the restitution order "[i]n
`
`light of Lagos" upon acknowledging "Lagos appears to run
`
`contrary to our precedent"); United States v. Razzouk, No. 11-
`
`CR-430 (ARR), 2018 WL 3574868, at *2 (E.D.N.Y. July 25, 2018)
`
`("Because I agree with the parties that Lagos may affect the
`
`award of restitution to [the victim] for its investigative
`
`costs, I grant defendant's motion to stay this portion-and only
`
`this portion-of the restitution order.")
`
`Accordingly, the Court must give little, if any, weight to
`
`Defendants' reliance on Gupta in considering Valeant's
`
`restitution request.
`
`Instead, in following our sister court's
`
`interpretation of Lagos "as limiting restitution to expenses
`
`incurred for investigatory activities that the government
`
`expressly and specifically 'invited or requested,'" Napout, 2018
`
`WL 6106702, at *4, the answer is quite simple:
`
`reimbursement
`
`for the $1,579,140.10 in fees incurred in responding to
`
`Defendants' subpoena is denied in its entirety because
`
`Defendants, not the Government, served Valeant with a subpoena.
`
`20
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 21 of 45
`
`2. Covington-Related Restitution Request 2:
`$148,851.50 for the Fees Incurred in Connection
`with Covington's Attendance at Pre-Trial
`Proceedings and Pre-Trial Review of Filings
`
`In support of its second request for $148,851.50 in fees
`
`incurred in connection with Covington's attendance at pre-trial
`
`proceedings and pre-trial review of filings, Valeant cites to
`
`United States v. Sazonov, No. 17-CR-657 (SDA), a case before
`
`Magistrate Judge Stewart D. Aaron of this Court, in which
`
`"Tanner's counsel Brendan McGuire of WilmerHale sought and
`
`received a restitution award for his corporate client" for
`
`similar types of pre-trial expenses and, despite the defendant's
`
`request that Magistrate Judge Aaron set aside his previously(cid:173)
`
`imposed restitution order in light of the later-filed Lagos
`
`decision, he affirmed it.
`
`(Dec. 10 Victim Ltr. at 5 (citing
`
`Endorsed Letter, United States v. Sazonov, No. 17-CR-657 (SDA),
`
`dated Feb. 16, 2018 [dkt. no. 36]; Endorsed Letter, United
`
`States v. Sazonov, No. 17-CR-657 (SDA), dated June 6, 2018 [dkt.
`
`no. 47]; Order, United States v. Sazonov, No. 17-CR-657 (SDA),
`
`dated June 6, 2018 [dkt. no. 48]) .) The Court finds little
`
`support for Valeant's argument in Sazonov because the underlying
`
`facts of that case relevant to this issue are inapposite.
`
`In Sazonov, in response to the defendant's request, (see
`
`Letter Motion, United States v. Sazonov, No. 17-CR-657 (SDA),
`
`dated May 29, 2018 [dkt. no. 44]), the Government filed a letter
`
`21
`
`

`

`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 22 of 45
`
`detailing the expenses that the victim "incurred in connection
`
`with the presentation to the Government of the facts at issue
`
`and cooperation with the law enforcement investigation of the
`
`defendant's criminal conduct."
`
`(Letter, United States v.
`
`Sazonov ("Sazonov Govt. Ltr. 11
`
`) 1 No. 17-CR-657 (SDA), dated June
`
`5 1 2018 [dkt. no. 46], 2.) The Government argued:
`
`[I]n anticipation of a more thorough presentation to
`the Government, which took place on February 27, 2017,
`[the victim] retained the firm K2, which conducted a
`forensic analysis of the defendant's attempts to steal
`[the victim's] proprietary information .... After that
`presentation, between the end of February 2017 and
`October 2017, [th

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