DONALD C. RANDOLPH, ESQ., California State Bar Number: 62468 RANDOLPH & LEVANAS A Professional Corporation 1717 Fourth Street, Third Floor Santa Monica, California 90401-3319 Telephone: 310/395-7900 Attorneys for Defendant KEVIN DAVID MITNICK UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA UNITED STATES OF AMERICA, CASE NO. CR 96-881-MRP Plaintiff, MOTION TO BIFURCATE THE HEARING ON RESTITUTION v. DATE: May 10, 1999 TIME: 1:30 p.m. KEVIN DAVID MITNICK, et. al, COURT: 12 Defendants. TO ALEJANDRO MAYORKAS, UNITED STATES ATTORNEY, AND TO HIS ASSISTANTS, DAVID SCHINDLER AND CHRISTOPHER PAINTER: PLEASE TAKE NOTICE that on May 10, 1999, at 1:30 p.m., or at a date and time convenient to the Court and counsel, defendant, KEVIN DAVID MITNICK, by and through his attorney of record, Donald C. Randolph, will move this Court to bifurcate the hearing on Restitution into, first, a hearing on the Defendant's Ability to Pay, and second, if necessary, a hearing on the Amount of Restitution. This motion is based upon the following Memoranda of Points and Authorities, the attached Exhibits, and any oral and documentary evidence which may be presented at hearing on this matter. DATED: April 26, 1999 Respectfully submitted, RANDOLPH & LEVANAS By: ______________________________ Donald C. Randolph Attorneys for Defendant KEVIN DAVID MITNICK MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION By this motion, the defendant requests that the Court bifurcate the hearing on Restitution into, first, a hearing on the Defendant's Ability to Pay, and second, if necessary, a hearing on the Amount of Restitution. This motion is based on the previous findings of this Court, 18 U.S.C. §3664, and the 1995 U.S. Sentencing Guidelines §5E1.1(b). The defense presents this issue before the Court at this time because of the potential expenditure of time and expense in litigating the issue of loss, as discussed below. As set forth in the pending defense Motion for Discovery1 relating to restitution, the government has provided the defense with discovery asserting losses suffered by the victim companies totaling hundreds of millions of dollars. (See Exhibit A) While the government has the burden of proving loss, and thus, the amount of restitution, the defense must rebut this evidence. To do so, the defense will be required to retain an expert in the fields of economics and intellectual property. This expert would be expected to analyze the government's evidence, including what steps were taken to put the company back to its position before the breach in security, what losses were "sunk costs" (costs the company had already spent),consequential costs, and "out-of-pocket" costs. In addition, expert assistance is needed in evaluating purported losses associated with merely copying source code without disclosure, an issue of first impression for this Court. A motion requesting the appointment of an expert economist is being filed contemporaneously with this Motion. The defense believes in good faith that for an economist to review documentation and discovery relating to loss as will be necessary for the litigation of this issue, the costs would far exceed any amount that Mr. Mitnick may be able to pay in restitution, if indeed, he had the ability to pay. Given the costs associated with litigating the issue of restitution, the defense proposes that, first, this Court consider the economic circumstances of Mr. Mitnick. If the Court finds Mr. Mitnick has no ability to pay restitution, presently, or in the future, then the issue of loss need not be litigated, and substantial time and expense may be avoided. II. STATEMENT OF FACTS In the Presentence Report dictated on April 14, 1989, in Docket Number 88-01031(B), the Probation Officer, Frank Gulla, stated that "At the present time, it does not appear that the defendant could pay a fine." (See 1989 Presentence Report, Exhibit B, at page 18). On June 27, 1997, in Docket Number CR-95-603-MRP, this Court found that the defendant had no ability to pay, stating "Restitution has not been ordered in view of the defendant's lack of resources and limited future earning ability." (See Judgment and Probation/Commitment Order at Exhibit C, page 21). The defense does not believe that the issues relating to Mr. Mitnick's present and future ability to pay have materially changed since the Court's finding two years ago. As the Court is aware, Mr. Mitnick has continued to remain in custody since that time. III. ARGUMENT A. The Controlling Statute, the 1995 Version of 18 U.S.C. §3664 Requires Consideration of the Defendant's Ability to Pay When Ordering Restitution. 18 U.S.C. §3664 requires that the Court, when determining whether to order restitution, "shall consider the . . . financial resources of the defendant, the financial needs and earning ability of the defendant and the defendant's dependents, and such other factors as the court deems appropriate." 18 U.S.C. §3664(a) In addition, in numerous cases, Courts have found that "Under the Victim and Witness Protection Act, the court must consider the financial resources of the defendant and his earning ability when ordering restitution." U.S. v. Jackson, 983 F.3d 1279, 1284 (9th Cir. 1992) See also U.S. v. Newman, 6 F.3d 623, 631 (9th Cir. 1993); and U.S. v. Ramilo, 986 F.2d 333,336 (9th Cir. 1993). To the extent that the government suggests Mr. Mitnick may be susceptible to a windfall in the near future, this is not relevant to the determination of restitution. According to the Court in U.S. v. Baggett (125 F.3d 1319, 9th Cir. 1997), "restitution orders 'must be based on some evidence that [the defendant] may be able to pay the amount fixed when required to do so - the possibility of an unforeseeable windfall is not enough.'" Baggett at 1323, quoting U.S. v. Ramilo, 986 F.2d 333, 335 (9th Cir. 1993). Additionally, to the extent that funds are earned by Mr. Mitnick because of the notoriety of the case, this scenario is specifically covered by the Assignment Agreement presented to the Court at the change of plea hearing on March 26, 1999. The apportionment of any funds that the government receives through this Agreement can easily be accomplished by the preparation of a list of victim companies2, listed in the order of priority to receive compensation. The determination of how funds obtained through the Assignment Agreement are distributed has nothing to do with the Court's determination of the defendant's ability to pay. B. The Complication and Prolongation of the Sentencing Process Resulting from the Fashioning of a Restitution Requirement Outweighs the Need to Provide Restitution. Per the applicable Sentencing Guidelines, at §5E1.1(b)(2)(b), if the Court finds that the process of ordering restitution becomes too cumbersome and costly, the Court may decline to order restitution. This guideline is codified in 18 U.S.C. 3663(d), stating that, The court shall impose an order of restitution to the extent that such order is as fair as possible to the victim and the imposition of such order will not unduly complicate or prolong the sentencing process. Here, as outlined above, the issue of restitution is complicated by the number of victim companies and the issue of first impression regarding loss associated with merely copying source code. This case is one in which the costs of litigating the issue of restitution may be higher than the amount set, if any, by the Court as restitution. As such, this case is certainly a case in which the complication of the issues, as well as the expense may preclude the Court from ordering restitution. IV. CONCLUSION For all the foregoing reasons, the defendant respectfully requests that this Court bifurcate the Restitution hearing, holding an initial hearing to determine the Defendant's Ability to Pay, as the Court's decision on this issue will be pivotal to the remaining proceedings. DATED: April 26, 1999 Respectfully submitted, RANDOLPH & LEVANAS By: __________________________ Donald C. Randolph Attorneys for Defendant KEVIN DAVID MITNICK 1 This Motion has been scheduled for hearing on May 10, 1999 at 1:30 p.m. 2 Neither the Court, nor the defense are required to participate in this process. 7