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United States v. Keough

United States District Court, D. Vermont

April 15, 2019

UNITED STATES OF AMERICA
v.
KATHRYN KEOUGH

          OPINION AND ORDER

          William K. Sessions III, District Court Judge.

         The case centers on restitution payments ordered by this Court during the 2006 sentencing of defendant Kathryn Keough. Subsequent to her sentencing, Keough, whose father was a hostage during the Iran hostage crisis, was awarded funds under the Justice for United States Victims of State Sponsored Terrorism Act (“Terrorism Act”). The government contends that those funds are subject to offset under the Treasury Offset Program (“TOP”), and must be used to satisfy Keough's restitution obligation.

         Two victims of Keough's crimes, Robert and Tona White, have informed the government that they do not wish to receive restitution payments. Accordingly, the government filed a motion to substitute the restitution payee, and the Whites subsequently expressed their desire for the funds to be paid to the Crime Victims Fund and three designated charities. Keough opposes the motion, arguing that Terrorism Act funds should not be transferred to the TOP, and that the attorneys who advocated for compensation on behalf of the hostage group and their families should receive 25% of the Terrorism Act funds. At the Court's request, the parties have briefed the following questions: (1) whether the attorneys are entitled to 25% of any Terrorism Act fund (“Fund”) award prior to any offset or payment to Keough; (2) whether the Whites have the right to designate alternate restitution payees, and if they do not, whether the funds go to the Crime Victims Fund by default, and (3) whether the government has the power to negotiate the terms of restitution with a defendant. In a related question, the Court inquired whether the Whites' designation was based on full knowledge of the relevant facts.

         For the reasons set forth below, the Court finds that the Terrorism Act funds are subject to offset, that those funds must be used to satisfy the restitution obligation, and that the Whites may designate the recipients of those restitution payments. The restitution payments can be altered by the Court only in limited circumstances, none of which apply here, and the government cannot negotiate the amount of restitution owed. Accordingly, Keough's payments from the Terrorism Act shall be offset through the TOP to the extent that restitution is owed, and restitution shall be paid according to the instructions provided by the Whites as the victims of Keough's crimes.

         Background

         In 2004, Keough was charged with defrauding numerous clients of her home interior design business. The largest losses were sustained by Robert and Tona White. Pursuant to a plea agreement, Keough pled guilty to one count of mail fraud and, together with her co-defendant and husband Peter Liska, was ordered to pay restitution to the Whites in the amount of $292, 643.00. The payment was due in a lump sum, and interest continues to accrue.

         The co-defendants initially made small payments to the U.S. District Court Clerk to be applied to their restitution debt, and the Clerk's Office sent corresponding checks to the Whites. Those checks were not cashed, and the funds are currently being held in the Court's registry as unclaimed. The Whites indicated at first that they did not want to receive restitution money.

         In 2015, Keough became eligible to receive up to $600, 000 under the Terrorism Act, as her father, William Keough, was a hostage during the Iran hostage crisis of 1979-81. The Terrorism Act was established by Congress in 2015 to provide a fund to compensate certain victims of state sponsored terrorism, as well as spouses and children who were named in a specific class action law suit. See 34 U.S.C. § 20144(c)(2)(C) (“For each child of a former hostage identified as a member of the proposed class described in this subparagraph, a $600, 000 lump sum.”). The authorized funds are not guaranteed, and are instead subject to availability through the ten-year life span of the Fund.

         In 2016, with assistance of lawyers from the firm of Lankford & Reed, Keough filed a claim for recovery under the Terrorism Act. Lankford & Reed had been working to obtain a recovery for the Iran hostages and their families since 1999. In 2000, the firm brought a class action lawsuit against the Islamic Republic of Iran in the United States District Court for the District of Columbia. Although Iran defaulted, the Justice Department intervened and opposed relief for the class, arguing that such relief would violate the Algiers Accords. The litigation continued for over ten years, and Keough was a member of the plaintiff class.

         In addition to engaging in the class action litigation, Lankford & Reed attorneys reportedly helped draft legislation and met with members of Congress. Ultimately, Congress passed the Terrorism Act, which enabled a group of Americans to obtain compensation without having to secure a court judgment. The Terrorism Act also placed a cap on attorneys' fees at 25% of claimant distributions. 34 U.S.C. § 20144(f)(1). The Terrorism Act does not expressly provide for payment of fees directly from the Fund to those attorneys.

         In 2017, the Fund found Keough eligible for payment. Because of the limited amount of money available for distribution, the Fund, which is administered by the Department of Justice, has distributed $81, 921.60 of the allowed $600, 000 to date. The government, pursuant to its power to enforce restitution orders through a TOP offset, see 18 U.S.C. § 3613, sent the funds to this Court's Clerk of Court. The funds remain in the Court's deposit fund account.

         The government has been collecting restitution payments, unrelated to the Fund payment, from Keough and Liska since 2007. In light of the Whites' apparent refusal to accept the funds, the government filed a motion on July 21, 2017 to substitute the Crime Victims Fund as the restitution payee. Keough opposed the motion, arguing that the Court should (1) vacate the restitution order given the Whites' unwillingness to accept the money, (2) adjust the payment schedule under 18 U.S.C. § 3664, which allows for adjustment upon “notification of a material change in the defendant's economic circumstances, ” or (3) direct the funds to Keough's daughter, as she reportedly suffered harm as a result of her father's time in prison (Keough was sentenced to home confinement) and may therefore be considered a victim. Keough also argued that 25% of the money from the Fund should be paid to Lankford & Reed for their legal advocacy. ECF No. 113.

         The government has responded to each point, arguing (1) that the restitution order cannot be vacated, (2) that there is no basis for modification when the defendant's financial situation has improved, and (3) that Keough's daughter is not a victim of her mother's offense. ECF No. 114. With respect to attorneys' fees, the government argues that any such fees must be paid by Keough directly, and not from money offset to pay her restitution obligation. In a sur-reply memorandum, Keough has contested the validity of the TOP offset, claiming that it was done without proper notice or court approval. Keough has also offered significant detail about the efforts by Lankford & Reed to secure payments for the Iran hostages and their families.

         On October 24, 2017, the government notified the Court that the Whites intended to donate the restitution money to several charities. Both the government and the Whites were reportedly unaware of Keough's entitlement to money from the Fund until Keough filed her opposition to the government's motion to substitute the restitution payee. With the knowledge that full restitution was ...


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