Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 1 of 47
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`Criminal Notice of Appeal - Form A
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`NOTICE OF APPEAL
`
`United States District Court
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`-~~-UT_~§~-~--- District of -~§~~O~~---
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`Caption:
`UNITED STATES OF AMERICA
`___________ v .
`
`ANDREW DAVENPORT
`
`Docket No. _!_Z_~!.:_Q_61 _ _l~~!:'_) _____ _
`Hon. Loretta A. Preska
`(District Court Judge)
`
`Notice is hereby given that ______ A~dr~~-_!?-~~~~po~------- appeals to the United States Court of
`Restitution Order
`- - --
`(specify)
`
`Appeals for the Second Circuit from the judgment __ J. other 1 . /
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`entered in this action on Janua.!Yl_Q!._ 201_§!_
`(date)
`
`c_
`
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`This appeal concerns : Conviction only L___ Sentence only L_J Conviction & Sentence I ./. Other L__
`
`(/) .
`!:J
`0
`""'l
`
`z . :-<
`
`Defendant found guilty by plea I
`
`I trial I ./ I N/A I
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`Offense occurred after November 1, 1987? Yes I ./ I No [
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`N/A [
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`Date of sentence: __ O_c_to_b_e_r_3_0_, 2_0_1 _8 __ N/A L_J
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`Bail/Jail Disposition: Committed L___ Not committed 1./ I N/A I
`
`On January 28, 2019, the U.S. Court of Appeals for the Second Circuit
`granted Mr. Davenport's motion for bail pending appeal.
`
`Appellant is represented by counsel? Yes . / ] No I
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`I If yes, provide the following information:
`
`0
`Q
`c..n
`0
`(f)
`-i7t
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`Defendant's Counsel:
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`Alexandra A.E. Shapiro
`
`Counsel's Address :
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`Shapiro Arato Bach LLP
`
`500 Fifth Avenue, Floor 40, New York, New York 10110
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`Counsel's Phone:
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`(212) 257-4881
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`Assistant U.S. Attorney:
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`Richard A. Cooper I Amanda K. Kramer
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`AUSA's Address:
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`U.S. Attorney's Office, SONY
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`One St. Andrew's Plaza, New York, NY 10007
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`AUSA's Phone:
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`(212) 637-1027 I (212) 637-2478
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`

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`Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 2 of 47
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`Court Na e: District Cou~t
`Division: 1
`Receipt Humt•er: 1:54012""""%1
`Cas le" ID: Jl<raier
`Tr nsd~t1on Date: ulljl/2019
`Payer Name: SHHPIRO k?.ATO LLP
`NOTICE OF APPEALIDOL.fCTihu FFE
`For: ANDREW DAVENPORT
`Ampunt:
`t505.G0
`CliECK
`Check/Money Ord r Nui: 389
`Ait T~nd red: $ &5.
`'
`Total Due:
`$505.00
`Total Tende~ea: $535.00
`Change A t:
`i0.e1
`17-CR-000061-2 (LAP>
`
`

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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 2 of 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 4 of 47
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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
`
`Pharmaceuticals Inc. ) (herein, "Valeant" or the "company") , be
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`awarded restitution in the amount of $15,466,364.46.
`
`(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
`
`For the reasons stated herein, the Government's request for
`
`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
`
`severally, to pay Valeant a total of $11,855,683.35 in
`
`restitution.
`
`I.
`
`BACKGROUND
`
`In support of the restitution sought, the Government
`
`submitted a victim impact statement from Valeant as Exhibit A to
`
`the Government's Sentencing Memorandum on October 23, 2018.
`
`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 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 5 of 47
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`(Non-Party Bausch Health Companies Inc.'s Victim Impact
`
`Statement in Support of its Request for Restitution ("Oct. 23
`
`VIS"), dated Oct. 23, 2018 [dkt. no. 201-1] .) Valeant filed
`
`three volumes of exhibits containing support for the restitution
`
`amount sought; legal billing records submitted by Valeant were
`
`filed under seal.
`
`On November 20, 2018, Defendants filed their first letter
`
`opposing the restitution sought by the Government on behalf of
`
`Valeant.
`
`(Defendants' First Restitution Letter ("Nov. 20 Def.
`
`Ltr."), dated Nov. 20, 2018 [dkt. no. 220].) Defendants filed
`
`three exhibits with their letter, one of which was filed under
`
`seal.
`
`(See Exhibit C to Nov. 20 Def. Ltr., dated Nov. 20, 2018
`
`[dkt. no. 220-3] .)
`
`On December 11, 2018, the Government filed a letter
`
`responding to Defendants' First Restitution Letter.
`
`(Dec. 11
`
`Govt. Ltr.)
`
`In its public filing, the Government enclosed a
`
`redacted version of a letter dated December 10, 2018 from
`
`counsel for Valeant also responding to Defendants' First
`
`Restitution Letter, which the Government adopted in its entirety
`
`and which was also filed under seal.
`
`(Dec. 10 Victim Ltr.) The
`
`Government also filed four exhibits, one of which was filed
`
`under seal.
`
`(See Exhibit 4 to Dec. 11 Govt. Ltr, dated Dec. 11,
`
`2018 [dkt. no. 229-5] ,) On December 21, 2018, Defendants wrote
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`3
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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 4 of 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 6 of 47
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`in further opposition to the Government's request.
`
`(Dec. 21
`
`Def. Ltr.)
`
`II. LEGAL STANDARD
`
`Federal courts "have no inherent power to order
`
`restitution," and, therefore, "[a] sentencing court's power to
`
`order restitution ... depends upon, and is necessarily
`
`circumscribed by, statute." United States v. Zangari, 677 F.3d
`
`86, 91 (2d Cir. 2012). The statute at issue here, the Mandatory
`
`Victims Restitution Act ("MVRA"), mandates restitution where "an
`
`identifiable victim or victims has suffered a . . . pecuniary
`
`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,
`
`transportation, and other expenses incurred during participation
`
`in the investigation or prosecution of the offense or attendance
`
`at proceedings related to the offense."
`
`Id. § 3663A(b) (4).
`
`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
`
`criminal case and not even all losses "directly and proximately
`
`caused by a defendant's offense" may be recovered; rather, "the
`
`harm must ... come within one of the categories enumerated in"
`
`the MVRA. United States v. Maynard, 743 F.3d 374, 379 (2d Cir.
`
`2014); see also United States v. Cuti, 708 F. App'x 21, 25 (2d
`
`Cir. 2017) ("Cuti II")
`
`("We have noted the crucial distinction
`
`4
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`

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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 5 of 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 7 of 47
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`between actions that merely 'helped' the prosecution and actions
`
`deemed truly necessary. The latter are compensable, and the
`
`former are not." (quoting United States v. Cuti, 778 F.3d 83, 95
`
`(2d Cir. 2015)
`
`("Cuti I"))). The Government bears the burden of
`
`establishing the loss amount under the MVRA, and "[a]ny dispute
`
`as to the proper amount ... of restitution shall be resolved by
`
`the court by the preponderance of the evidence." 18 U.S.C. §
`
`3664(e). However, "the MVRA requires only a reasonable
`
`approximation of losses supported by a sound methodology."
`
`United States v. Gushlak, 728 F.3d 184, 196 (2d Cir. 2013).
`
`In Lagos v. United States, 138 S. Ct. 1684 (2018), the
`
`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
`
`to the offense" in§ 3663A(b) (4) of the MVRA.
`
`The Court held
`
`that the MVRA provides restitution only for investigation
`
`expenses incurred during a victim's participation in "government
`
`investigations and criminal proceedings" and "does not cover the
`
`costs of a private investigation that the victim chooses on its
`
`own to conduct." Lagos, 138 S. Ct. at 1688, 1690; ~
`
`also id. at 1689 ("Some [restitution] statutes specifically
`
`require restitution for the 'full amount of the victim's
`
`losses,' defined to include 'any ... losses suffered by the
`
`victim as a proximate result of the offense.' The Mandatory
`
`5
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`Victims Restitution Act, however, contains no such language; it
`
`specifically lists the kinds of losses and expenses that it
`
`covers." (quoting 18 U.S.C. §§ 2248(b), 2259(b),
`
`2264(b), 2327(b))). This "narrow interpretation" is meant to
`
`alleviate district courts of the "significant administrative
`
`burdens" of resolving "these potentially time-consuming
`
`controversies as part of criminal sentencing," particularly "in
`
`cases involving multimillion[-)dollar investigation expenses for
`
`teams of lawyers and accountants." Lagos, 138 S. Ct. at 1689.
`
`III. DISCUSSION
`
`A. Valeant Qualifies as a Victim Under the MVRA_
`
`A district court's "statutory authority to award
`
`restitution under the MVRA is limited to awards to victims of
`
`the offense of conviction." United States v. Skowron, 839 F.
`
`Supp. 2d 740, 744 (S.D.N.Y. 2012) (quoting United States v.
`
`Archer, 671 F.3d 149, 170 (2d Cir. 2011)), aff'd, 529 F. App'x
`
`71 (2d Cir. 2013). Under the MVRA, a defendant convicted of "an
`
`offense against property ... including any offense committed by
`
`fraud or deceit" must make restitution to the victim.
`
`18 U.S.C.
`
`§ 3663A(c} (1) (A) (ii}.
`
`The MVRA defines a "victim" as a "person directly and
`
`proximately harmed as a result of" the offense.
`
`Id.
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`§ 3663A(a} (2). A defendant convicted of committing honest
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`6
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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.
`
`See United States v. Bahel, 662 F.3d 610, 647-
`
`48 (2d Cir. 2011) (affirming that the defendant convicted of
`
`honest services wire fraud owed restitution to his employer);
`
`Skowron, 839 F. Supp. 2d at 749-52 (ordering the defendant,
`
`convicted of wire fraud, to pay restitution to his former
`
`employer, the victim of defendant's crimes) . 2
`
`The Court finds that Valeant qualifies as a victim under
`
`the MVRA because it suffered losses as a direct result of the
`
`offenses for which Defendants were convicted.
`
`18 U.S.C.
`
`§ 3663A(a) (2).
`
`In finding Defendants guilty of the crimes
`
`charged, the jury found that Defendants defrauded Valeant.
`
`(See
`
`Judgment in a Criminal Case as to Gary Tanner ("Tanner
`
`Judgment"), dated Nov. 27, 2018 [dkt. no. 222], 1-2; Judgment in
`
`a Criminal Case as to Andrew Davenport ("Davenport Judgment"),
`
`dated Nov. 27, 2018 [dkt. no. 224], 1-2; Superseding Indictment,
`
`dated Aug. 30, 2017 [dkt. no. 66], i i 5, 7-11, 13-14, 16, 18.)
`
`Moreover, in opposing the Government's restitution request on
`
`behalfofValeant, (see Nov. 20 Def. Ltr.; Dec. 21 Def. Ltr.),
`
`as well as in seeking additional time to respond to "the
`
`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).
`
`7
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`

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`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 8 of 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 10 of 47
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`voluminous materials recently provided to [Defendants] by
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`counsel for Valeant," (see Defendants' Restitution Briefing
`
`Letter, dated Oct. 26, 2018 [dkt. no. 203], 1), and requesting
`
`an extension of time to submit their objections to Valeant's
`
`restitution claims, (see Defendants' Restitution Letter Motion,
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`dated Nov. 8, 2018 [dkt. no. 217], 1), Defendants never disputed
`
`that Valeant was the identifiable victim of Defendants'
`
`offenses.
`
`B. Valeant's Restitution Requests
`
`i.
`
`$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
`
`personally by Davenport from Valeant's option to purchase
`
`Philidor Rx Services ("Philidor"), or, alternatively, the
`
`$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.)
`
`Specifically, Valeant argues that the Government "proved that
`
`Defendants caused [Valeant] to incur many types of losses,"
`
`including the "purchase of an option that turned out to be
`
`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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`8
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`million, and diverting [$9,703,995.33] of the purchase price
`
`from Davenport to Tanner."
`
`(Oct. 23 VIS at 9.)
`
`The Court of Appeals has held that "a sentencing court
`
`ordering restitution under the MVRA may not substitute a
`
`defendant's ill-gotten gains for the victim's actual loss"
`
`unless "there is a direct correlation between gain and loss,
`
`such that the defendant's gain can act as a measure of-as
`
`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,
`
`607-10 (2d Cir. 1997) (finding a direct correlation between
`
`income defendant gained from fraudulent telemarketing sales and
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`victims' losses because every dollar gained by defendant was
`
`necessarily lost by victims who paid for the fraudulent
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`products).
`
`Defendants argue that "Valeant paid a fair price for the
`
`option to purchase Philidor," and as such, the company "cannot
`
`prove any 'loss' or 'overpayment' as a result of the deal it
`
`entered into with Philidor."
`
`(Nov. 20 Def. Ltr. at 2.)
`
`Indeed,
`
`it is Defendants' position that "Philidor agreed to be sold to
`
`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.
`
`(Id. at 2-3.)
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`9
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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.
`
`"There is no
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`per se right to a Fatica hearing, and trial courts enjoy broad
`
`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
`
`defendant has no right to a full-blown evidentiary hearing at
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`sentencing[.]").
`
`"The district court is not required, by either
`
`the Due Process Clause or the federal Sentencing Guidelines, to
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`hold a full-blown evidentiary hearing in resolving sentencing
`
`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
`
`hearing on the defendant's role because "that determination did
`
`not involve a new issue on which [the defendant] had ·not been
`
`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
`
`'direct correlation' between"
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`the $9,703,995.33 Davenport paid Tanner "and the loss suffered
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`10
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`by [Valeant] in connection with the Philidor purchase option
`
`transaction. The [$9,703,995.33] of option proceeds that
`
`Davenport immediately and secretly transferred to Tanner was not
`
`just a kickback - it represented an inflated purchase price for
`
`which Valeant received no additional value."
`
`(Oct. 23 VIS at
`
`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
`
`[$9,703,995.33] kickback to Tanner evinced a willingness on
`
`Davenport's part to accept an option purchase price of
`
`[$9,703,995.33] less than what he negotiated. Absent the
`
`kickback, Valeant would have been able to pay [$9,703,995.33]
`
`less for the Philidor option."
`
`(Dec. 11 Govt. Ltr. at 1-2.)
`
`These speculative, ipse dixit arguments are weak, at best.
`
`Neither the Government nor Valeant has sufficiently shown that
`
`Defendant's "gain can act as a measure of [Valeant's]
`
`loss," Zangari, 677 F.3d at 93, because they have failed to show
`
`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
`
`necessary consequence of ... the kickback[)." United States v.
`
`Napout, No. 15-CR-252 (PKC), 2018 WL 6106702, at *10 (E.D.N.Y.
`
`Nov. 20, 2018) (quoting United States v. Finazzo, 850 F.3d 94,
`
`118 (2d Cir. 2017)). Consequently, "(n]o such measure is
`
`available here." Napout, 2018 WL 6106702, at *10; see also
`
`Finazzo, 850 F.3d at 118-19 ("Given that we require a
`
`'direct
`
`11
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`

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`correlation' between a defendant's gain and a victim's loss in
`
`order for restitution to be measured according to that gain, it
`
`is not a sufficiently sound methodology for the district court
`
`to merely assume that the kickbacks were solely justified by
`
`inflated prices.").
`
`Instead, given the broad discretion this Court has to
`
`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
`
`to clear error review), the Court agrees with Defendants that
`
`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)
`
`(GX 101-47); id. at Ex. 1 (h)
`
`(GX 100-101);
`
`id. at Ex. 1 (f)
`
`(GX 100-105); id. at Ex. 1 (i)
`
`(GX 100-119); id.
`
`at Ex. 1 (j)
`
`(GX 100-114); id. at Ex. 1 (k)
`
`(GX 100-125); id. at
`
`Ex. 1 (1)
`
`(GX 100-130); id. at Ex. 1 (m)
`
`(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,
`
`569:6-10, 569:13-16, 571:13-18, 573:19-23, 576:9-577:7, 1423:22-
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`12
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`1437:15, 578:6-16)), is the best way to account for the
`
`financial harm Valeant suffered at Defendants' hands.
`
`Accordingly, the Court finds that Valeant is entitled to receive
`
`$8,000,000.00 for the additional amount it paid Philidor for the
`
`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
`
`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
`
`Tanner discussing the DSA, where he writes: "the fully inclusive
`
`13
`
`

`

`
`
`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 14 of 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 16 of 47
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`rate will be 4% from WAC" (quoting Oct. 23 VIS Docs. at Ex. l(a)
`
`(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 -
`
`and did - get a 4 percent discount. The trial evidence shows
`
`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)).)
`
`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
`
`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
`
`more money?" to which Kornwasser replied, "Valeant would make
`
`14
`
`

`

`
`
`Case 1:17-cr-00061-LAP Document 236 Filed 01/30/19 Page 15 of 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 17 of 47
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`more money under 3-and-a-half percent." (quoting May 14, 2018
`
`Tr. at 950:1-4)).)
`
`Defendants contend that "[a] review of Valeant's contracts
`
`with other entities, including wholesalers and other retail
`
`channels, indicates payment terms equal to or better than
`
`Valeant's terms with Philidor."
`
`(Nov. 20 Def. Ltr. at 3.) The
`
`Court finds this fact wholly irrelevant to this issue,
`
`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 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 18 of 47
`
`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 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 19 of 47
`
`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 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 20 of 47
`
`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 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 21 of 47
`
`$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 45Case 1:17-cr-00061-LAP Document 238 Filed 01/31/19 Page 22 of 47
`
`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

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