United States v. Joseph Konrad

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 12-1393

___________

UNITED STATES OF AMERICA

v.

JOSEPH KONRAD,

Appellant

_______________________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

D.C. Criminal No. 2-11-cr-00015-001

(Honorable Michael M. Baylson)

______________

Argued: April 2, 2013

Before: SCIRICA, AMBRO, and FUENTES, Circuit Judges.

(Filed : September 5, 2013)

Brett G. Sweitzer, Esq. [ARGUED]

Federal Community Defender Office for the Eastern District

of Pennsylvania

601 Walnut Street

The Curtis Center, Suite 540 West

Philadelphia, PA 19106

Counsel for Appellant

Mary Kay Costello, Esq. [ARGUED]

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

Counsel for Appellee

_________________

OPINION OF THE COURT

_________________

SCIRICA, Circuit Judge.

The Criminal Justice Act requires courts to furnish

legal counsel to criminal defendants “financially unable to

obtain adequate representation.” 18 U.S.C. § 3006A(a).

Joseph Konrad was appointed a federal defender under the

Criminal Justice Act (CJA), based on information he provided

in a financial disclosure affidavit. At sentencing, the District

Court found several discrepancies between Konrad’s pre-

sentencing report and his financial disclosure. The court

ordered Konrad to show cause that he was financially eligible

2

for appointed counsel. After a hearing, the court found

Konrad had significant funds in two individual retirement

accounts so he was not financially unable to pay the cost of

legal representation. After appointing a Master to determine

the cost of private legal representation, the court ordered

Konrad to repay $6,000 because he was not financially

eligible to be represented by the federal defender.

We hold individual retirement funds and jointly-held

bank accounts can be available funds within the meaning of

the Criminal Justice Act. We also hold the District Court did

not abuse its discretion in ordering Konrad to repay the

market value of his legal representation rather than the hourly

rate paid to an attorney appointed under the Criminal Justice

Act.

I.

The Federal Community Defender Office for the

Eastern District of Pennsylvania was appointed by a

Magistrate Judge to defend Joseph Konrad against charges of

making fraudulent statements to the Federal Aviation

Administration. Konrad pleaded guilty. As noted, upon

sentencing the District Court noted disparities between the

assets Konrad reported in the CJA Form 23 Financial

Affidavit of November 15, 2010 and those in the

presentencing report. The court ordered Konrad to show

cause he was financially eligible for court-appointed counsel.

The court found Konrad failed to disclose the $258,000 value

of his home, and only reported $50,000 in retirement accounts

3

worth $70,463.1 Konrad underreported his household

monthly income by $4,300, stating his monthly household

income was $2,500 in the Financial Disclosure Affidavit

when it was actually $8,600.

The District Court found the $70,463 in the individual

retirement accounts was available to pay for Konrad’s legal

representation. The court did not reach the question whether

a bank account worth $34,893 Konrad held jointly with his

wife was also available because the retirement savings

accounts had several times the amount needed to pay for legal

counsel.

The District Court found Konrad had financial

resources to pay for his own defense while meeting the cost

of the necessities of life. The District Court ordered Konrad

to pay for his legal representation and appointed a Master to

determine the cost of private criminal defense counsel in this

case. The Master surveyed hourly rates in the relevant

geographic area, and selected the lowest estimate, $400 an

hour. The Master determined the cost of Konrad’s defense

was $6,000, based on the hourly rate and number of hours.

Konrad appeals from that order.

1

Konrad included the cost of the mortgage and other joint

household expenses in his affidavit, but not the value of the

home. The District Court found Konrad’s home was

encumbered by a $230,000 mortgage. Accordingly, the home

was not an available asset.

4

II.2

A.

The Criminal Justice Act requires district courts to

provide legal counsel for criminal defendants charged with a

felony when they are unable to pay for an attorney. 18 U.S.C.

§ 3006A(a)(1)(A). A defendant bears the burden to prove he

is unable to pay for the cost of representation. United States

v. Evans, 155 F.3d 245, 252 n.8 (3d Cir. 1998) (citing United

States v. Lefkowitz, 125 F.3d 608, 621 (8th Cir. 1997)).

“Whenever the United States magistrate judge or the court

finds that funds are available for payment from or on behalf

of a person furnished representation, it may authorize or

direct that such funds be paid to the appointed attorney, to the

bar association or legal aid agency or community defender

organization which provided the appointed attorney . . . .” 18

U.S.C. § 3006A(f). The Guide to Judiciary Policy Guidelines

for Administering the CJA and Related Statutes explicitly

recommends an evaluation of financial eligibility after the

presentencing report becomes available “in order to make a

final determination concerning whether the person then has

funds available to pay for some or all of the costs of

representation.” 7A Guide to Judiciary Policy § 210.40.30

2

The District Court had jurisdiction under 18 U.S.C.A. §

3231. This court has jurisdiction under 28 U.S.C. § 1291.

Reimbursement ordered under 18 U.S.C. § 3006A(f) is

reviewed for abuse of discretion. United States v. Parker,

439 F.3d 81, 99 (2d Cir. 2006). We exercise plenary review

over a district court’s interpretation of the statute. United

States v. Williams, 675 F.3d 274, 277 (3d Cir. 2012).

5

(“[E]rroneous determinations of eligibility may be corrected

at a later time.”).

“A person is ‘financially unable to obtain counsel’ . . .

if the person’s net financial resources and income are

insufficient to obtain qualified counsel” considering “the cost

of . . . the necessities of life.” Id. at § 210.40.30(a) (quoting

18 U.S.C. § 3006A(6)). The Guide instructs courts to

“consider pertinent information contained in the presentence

report, the court’s intention with respect to fines and

restitution, and all other available data bearing on the

person’s financial condition, in order to make a final

determination concerning whether the person then has funds

available to pay for some or all of the costs of

representation.” Id. at § 210.40.30(d) (“At the time of

sentencing, in appropriate circumstances, [the court] should

order the person to reimburse the CJA appropriation for such

costs.”).3 “In the absence of a serious abuse of discretion, a

district judge’s findings as to ‘availability’ of funds, if

supported by an ‘adequate inquiry’, will not be disturbed on

appeal.” United States v. Bracewell, 569 F.2d 1194, 1200 (2d

Cir. 1978). The District Court properly ordered Konrad to

pay the cost of court-appointed counsel, because Konrad’s net

3

Contrary to Konrad’s assertion, no court has interpreted the

CJA to require a finding that a defendant provided false

information, or that a defendant’s financial condition

materially improved or that new information became

available to order reimbursement, nor do we. Even so, here

the defendant failed to disclose significant assets in his initial

affidavit, and new information regarding the value of his

home and retirement savings accounts did become available

in the presentencing report.

6

financial resources exceed the amount needed for the

necessities of life.

B.

We consider “the defendant’s personal and family

needs and the liquidity of his finances.” Evans, 155 F.3d at

252 n.8 (citing Museitef v. United States, 131 F.3d 714, 716

(8th Cir. 1997); Bracewell, 569 F.2d at 1199). Assets are

available when a defendant has control over or discretionary

use of them. Fullan v. Comm’r of Corr., 891 F.2d 1007, 1011

(2d Cir. 1989). The test for determining a defendant’s ability

to pay “is whether repayment would cause such financial

hardship as to make it impractical or unjust.” Museitef, 131

F.3d at 716 (citing Bracewell, 569 F.2d at 1199).

1.

The District Court found Konrad was able to pay

because he had $70,463 in individual retirement savings

accounts—more than ten times the amount he was ordered to

pay. Konrad contends the IRAs are not liquid because of the

early-withdrawal penalty,4 and cites to United States v. Lexin

for the proposition IRAs are future income. 434 F. Supp. 2d

836, 844 (S.D. Cal. 2006). We do not agree that IRAs are

future income because they are an accumulation of past

earnings paid into the account and accrued investment

income. Only taxation on those earnings is deferred. 26

4

Early withdrawal of funds from an IRA encumbers a 10%

penalty, in addition to normal income taxes. 26 U.S.C.

§ 72(q).

7

U.S.C. § 72(b).5 Accordingly, we agree with the District

Court’s finding that IRAs are not future income. United

States v. Konrad, No. 11-15, 2011 WL 6739464, at *5 (E.D.

Pa. Dec. 21, 2011) (noting that other courts rejected the Lexin

view that IRAs are future income for CJA purposes (citing

United States v. Pani, No. 08-40034, 2011 WL 4344336, at

*2 (D. Mass. Aug. 3, 2011); In re Extradition of Patel, No.

08-430, 2008 WL 896069, at *2 (D. Or. Mar. 28, 2008))).

We consider the liquidity of assets in determining a

defendant’s ability to pay. Evans, 155 F.3d at 252 n.8. Assets

may not be available “[i]f by their nature [those] assets cannot

be timely reduced to cash and cash is required . . . .” Barry v.

Brower, 864 F.2d 294, 300 (3d Cir. 1988) (finding the

defendant was unable to leverage his home equity to obtain

legal counsel). “Before a finding of ‘availability’ can

properly be made, the district judge should be satisfied that,

in ordering reimbursement in any specified amount, the

defendant will not suffer extreme hardship as a consequence

of being deprived of his funds.” Bracewell, 569 F.2d at 1199.

“In some cases, liquidation of assets may be required.”

Barry, 864 F.2d at 299 (citation omitted). In Barry, we found

the defendant’s home valued at $80,000 did not disqualify

him from public counsel because evidence showed six private

attorneys recommended by the public defender’s office

declined to take a security interest in his house in lieu of legal

fees. Id. at 300. Moreover, the defendant could not sell his

5

Moreover, the Second Circuit considered future investment

income the defendant anticipated in United States v. O’Neil,

118 F.3d 65, 74 (2d Cir. 1997), finding the defendant

ineligible for court-appointed counsel.

8

home because it was held jointly with his wife who refused to

sell or encumber the home. Id. at 297. Finally, the

defendant’s debts exceeded his assets, as he owed an $85,000

fine to the state. Id. Accordingly, the defendant did not have

funds available to meet his legal costs. Id. at 300.

In contrast, the defendant in United States v. Fincher

was required to sell his property, despite his wife’s dower

interest, because the value of the property encumbered by the

dower interest was still sufficient to cover the defendant’s

legal costs. 593 F.3d 702, 707 (8th Cir. 2010). Other courts

have found defendants able to afford legal counsel because

they held substantial equity in their property. See, e.g.,

United States v. Simmers, 911 F. Supp. 483, 486-87 (D. Kan.

1995) (“While the defendant’s primary asset is not liquid, the

equity in his home is substantial . . . . The defendant has not

established extreme hardship in the event of the liquidation or

mortgage of the asset.”); United States v. Bedoya, No. 89 CR.

803, 1990 WL 194934, at *3 (S.D.N.Y. Nov. 28, 1990)

(finding the “defendant has equity value in the six unit

apartment building”).

Konrad has not demonstrated he is unable to liquidate

or leverage the value of his IRAs, or that doing so would

work an extreme hardship. Furthermore, an IRA is more

liquid than real property, and is easily converted to cash, like

any other investment portfolio. IRA funds may be withdrawn

at will, subject to an early withdrawal penalty.

We recognize that early withdrawal of funds from an

IRA incurs a 10% penalty, in addition to normal income

9

taxes,6 which is a significant transaction cost. 26 U.S.C.

§ 72(q). But even with the 10% penalty, Konrad would retain

$63,863 in his retirement savings account. Konrad has not

demonstrated that a $6,0007 reduction in his retirement

savings account would work an extreme hardship. Since

Konrad may easily reduce his IRA assets to cash and has not

shown liquidation would work an extreme hardship, the

District Court did not abuse its discretion in finding these

funds were available to Konrad for his legal defense.

2.

Konrad has $6,007 in an individually held checking

account and a CD, and $34,893 in a money market account

jointly held with his wife. Funds may be available for CJA

purposes when a defendant is in control of the funds. See,

e.g., Fullan, 891 F.2d at 1011 (finding if the defendant “had

discretionary use of the funds raised by his family and friends

or had control of them,” under the CJA he would be “‘in no

different a position than the defendant who has $10,000 of his

own money to spend on appeal’”); Bracewell, 569 F.2d at

1200 (“If monies paid on a defendant’s behalf actually belong

to a third party, then they are not ‘available for payment.’”);

Lexin, 434 F. Supp. 2d at 843 (“[T]he Court concludes that to

the extent any asset is jointly held and individually disposable

6

As noted, at the time of retirement, IRA withdrawals are

taxed as income. Early withdrawals are also subject to the

same income taxes as the withdrawals intended under the

program. 26 U.S.C. § 72(q).

7

We recognize that, with the early withdrawal penalty,

Konrad might have a $6,600 reduction in his retirement

savings account.

10

by either spouse without advance consent, then that spouse

has sufficient supervision or control over that asset so that it

is appropriately considered during the [CJA] evaluation

process.”).

The Guide directs that “eligibility should be made

without regard to the financial ability of the person’s family

unless the family indicates willingness and financial ability to

retain counsel promptly.” 7A Guide to Judiciary Policy

§ 210.40.50. The CJA prescribes an “appropriate inquiry”

which often necessitates a holistic review of a person’s

financial position. Id. at § 210.40.30(d) (counseling courts to

consider “all . . . available data bearing on the person’s

financial condition”); cf. United States v. Parker, 439 F.3d

81, 96 (2d Cir. 2006) (“Courts have utilized a broad range of

considerations in conducting an ‘appropriate inquiry’ into

financial eligibility under 18 U.S.C. § 3006A.”); United

States v. O’Neil, 118 F.3d 65, 74 (2d Cir. 1997) (considering

anticipated income from a business venture). The CJA Form

23 Financial Affidavit requires information about the

defendant’s spouse’s earnings and their dependents, in

addition to information about their assets, debts and expenses.

Although the Guide says spouses are not required to

contribute to counsel fees unless they offer to do so,8 7A

8

Several courts have considered a spouse’s income in

determining defendant’s ability to pay. See, e.g., United States

v. Barcelon, 833 F.2d 894, 897 n.5 (10th Cir. 1987) (“Other

factors which courts have considered include. . . the

availability of income to the defendant from other sources such

as a spouse.”); United States v. Caudle, 758 F.2d 994, 996 (4th

Cir. 1985) (“Talbert’s affidavit revealed that he earned $1000

per month as a truck driver and that his wife earned $450 per

11

Guide to Judiciary Policy § 210.40.50, jointly held property

has been considered when determining a defendant’s ability

to pay. See, e.g., Fincher, 593 F.3d at 707 (considering the

property of the defendant and his wife), United States v.

Brockman, 183 F.3d 891, 898 (8th Cir. 1999) (considering

funds under a joint venture agreement as available assets);

United States v. Liebler, No. 10CR313S, 2012 WL 6087791,

at *1 (W.D.N.Y. Dec. 6, 2012) (finding the defendant could

pay for legal costs from a bank account jointly held with his

father); Lexin, 434 F. Supp. 2d at 843 (finding the defendant’s

bank account jointly held with his wife available to pay for

his legal counsel).

Funds are available when the defendant has control

over their disposal. Fullan, 891 F.2d at 1011. The court in

Fullan distinguished between “assets belonging to [the

defendant’s] family and friends” and “assets owned or

controlled by the defendant.” Id. Fullan’s application for

leave to appeal in forma pauperis was initially denied because

Fullan’s family and friends raised $10,000 to pay for an

appellate attorney. Id. at 1008. The Second Circuit reversed

because Fullan did not have “discretionary use of the funds

raised by his family and friends or [] control of them.” Id. at

1011. “Indeed, if Fullan . . . had discretionary use . . . or . . .

control . . . , we would agree with the district court that he

was ‘in no different a position than the defendant who has

$10,000 of his own money to spend on appeal.’” Id.; see also

month.”); United States v. Salemme, 985 F. Supp. 197, 201-02

(D. Mass. 1997) (“In determining whether a defendant is

financially unable to retain counsel, the court may consider

whether he has income or assets available to him from other

sources, including his spouse.”).

12

United States v. Zelenka, 112 F. Supp. 2d 708, 715 (M.D.

Tenn. 1999) (“This is not a case where Defendant has

received assets or income from the third party payers in the

form of a gift so that Defendant is free to control how and

whether the assets will be spent on his defense. Rather, the

assets are solely in the control of a third party who may

withdraw the funds or alter the way in which they are spent at

any time.”).

The District Court here found Konrad “does own and

control, at least partly, the assets in the joint bank accounts.”

Konrad, 2011 WL 6739464, at *4. This reasoning is sound

since a purpose of a joint account is to permit the co-signer to

freely withdraw funds without additional consent. At oral

argument, Konrad’s counsel conceded that Konrad has the

“right to . . . write a check from the account . . . and take

money out for himself.” Oral Argument at 15:17, Apr. 2,

2013. Access to jointly held assets for CJA purposes should

be distinguished from the debtor/creditor context where third

parties seek to seize the debtor’s funds. The CJA analysis is

designed to determine ability to pay future legal costs, rather

than payment of an accrued debt.

Konrad has authority to dispense funds from the joint

checking account at his discretion. These funds are not held

in a spouse’s individual bank account, and Konrad can freely

withdraw from the joint account. As the Second Circuit

explained, this discretionary use and control places Konrad in

the same position as a defendant who has his own money to

spend on counsel. Fullan, 891 F.2d at 1011. Accordingly,

the funds in the joint account can be available to pay the cost

of Konrad’s legal counsel.

13

Konrad has access to a sizable joint checking account,

as well as a more modest individual account. The checking

accounts have several times the amount of money Konrad is

ordered to pay. Konrad also owns IRAs worth more than ten

times the amount Konrad was ordered to pay, and these

accounts may be liquidated for cash at any time. Konrad has

no minor children in his household, and the presentencing

report shows Konrad’s household income exceeds his

household expenses. Accordingly, Konrad has sufficient

funds available to pay for legal counsel and still meet the cost

of the necessities of life. The District Court did not abuse its

discretion in ordering reimbursement.

C.

The District Court ordered Konrad to pay the cost of a

private defense attorney, and appointed a Master to determine

that cost. The CJA provides for reimbursement

[w]henever . . . the court finds that funds are

available for payment from or on behalf of a

person furnished representation, [in which case]

it may authorize or direct that such funds be

paid . . . to the court for deposit in the Treasury

as a reimbursement to the appropriation, current

at the time of payment, to carry out the

provisions of this section.

18 U.S.C. § 3006A(f). “Reimburse” means to pay back. It is

ambiguous whether the statute means to pay back the value

received in legal services or to pay back the cost expended on

the legal defense. “Appropriation” has many meanings. One

meaning is the fund or sub-fund appropriated by Congress for

14

court-appointed attorneys representing those who cannot

afford legal counsel.9 We read “reimbursement to the

appropriation” to mean repayment to the institution that

expended funds for representation in the amount of the

benefit to the ineligible defendant.

Konrad contends he should only have to pay the $125

hourly rate paid to court-appointed counsel, not the hourly

rate of a private attorney.10 But Konrad does not contend that

the $125 hourly rate for court-appointed private attorneys has

any relation to the cost to the government for representation

by the Federal Public Defenders. Although the CJA rate is the

amount private court-appointed attorneys are compensated,

the CJA figure is universally recognized as a below-market

rate for criminal defense lawyers. The CJA rate does not

reflect the costs to private criminal defense attorneys, nor the

9

The Guide provides:

When the court determines that a person who

received representation under the CJA was

financially ineligible for those services at the

time they were rendered, and directs that person

reimburse the government, the payment should

be made by check or money order to the clerk

of court for deposit in the Treasury. Such funds

will be credited to the Defender Services

Appropriation.

7A Guide to Judiciary Policy § 230.40.

10

Private court-appointed attorneys are compensated at $125

per hour, with some exceptions. Id. § 3006A(d); 7A Guide to

Judiciary Policy § 230.16. In contrast, Federal Public

Defenders are paid a salary independent of the CJA rate paid

to court-appointed counsel. 18 U.S.C. § 3006A(g)(2)(A).

15

cost to the government for providing a legal defense through

the Federal Public Defenders. Even if we read “reimburse” to

mean pay back the costs expended for Konrad’s legal defense,

there is no indication that the CJA rate has any relationship to

the cost to the Federal Public Defenders.11 Reimbursement

more properly refers to the money that Konrad would have

paid to a private attorney had he accurately completed the

financial disclosure affidavit, rather than falsifying his

financial information. Konrad was not entitled to a Federal

Public Defender, so he should not be limited to the CJA

reimbursement rate.

When a defendant is able to pay for the costs of a

private attorney, he is not entitled to gratuitous or subsidized

legal counsel under the CJA. Wilson, 597 F.3d at 357 (“What

the Act gives with one hand to a criminal defendant

‘financially unable’ to pay for legal services it takes away with

the other if the defendant turns out to be ‘financially able’ to

obtain counsel.”); United States v. Coniam, 574 F. Supp. 615,

618 (D. Conn. 1983) (finding defendant would benefit from

“gratuitous or subsidized counsel … if his reimbursement

were limited to a level below the cost of his representation”).

Ordering reimbursement at a lower rate than the cost of

private representation would be contrary to the statute by

subsidizing the cost of counsel to a defendant who is able to

pay. Coniam, 574 F. Supp. at 618 (“Nothing in the act

provides nor manifests a congressional intention to subsidize a

defendant who is clearly able to pay out of earned income.”).

11

Even if one could measure the proper cost to a public

defender, it would appear that this would vary from office to

office depending on the number of public defenders, fixed

costs of the facility, etc.

16

Moreover, Konrad should not benefit from his incomplete,

undervalued or untruthful financial disclosures by receiving

legal services at a fraction of the cost.

Other courts have not limited reimbursement to the

court-appointed counsel CJA rates. See, e.g., United States v.

Anderson, 400 F. Supp. 2d 32, 37 (D.D.C. 2005) (ordering

reimbursement for “the time expended in this case at a

reasonable hourly rate (not limited to $90 per hour)”); United

States v. Nunez-Garcia, 879 F. Supp. 63, 67 (W.D. Tex. 1995)

(finding the court “is not limited by the hourly rates stated in §

3006A(d)(1)”); Coniam, 574 F. Supp. at 618 (“There is no

explicit limit on the amount of such funds to the panel

attorney rates . . . .”); cf. Lefkowitz, 125 F.3d at 621 (ordering

defendant to reimburse $316,693.70, greatly exceeding the

maximum under 18 U.S.C. § 3006A(d)(2)).

When civil defendants pay attorney’s fees under fee-

shifting statutes, they do not pay the hourly rate earned by a

plaintiff’s public interest attorney, but instead pay a

reasonable market rate for a private attorney in the area.

Blum v. Stenson, 465 U.S. 886, 895 (1984). This is how the

Master here calculated the cost of Konrad’s legal defense.

The Master selected the lowest estimate submitted by private

attorneys.12 Accordingly, the District Court did not err in

ordering Konrad to pay the $6,000 cost of private legal

representation.

12

Defendant’s contention the Master had a conflict of interest

because she was compensated from the recommended

reimbursement is unfounded. The Master was paid the

standard hourly rate, and not a percentage of the sum she

calculated.

17

III.

We will affirm the District Court’s order that Konrad

pay $6,000 for the cost of his legal representation.

18