State v. Hall (Court of Appeals)

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IN THE SUPREME COURT OF THE STATE OF KANSAS

Nos. 102,297
102,663

STATE OF KANSAS,
Appellee,

v.

PAMELA SUE HALL,
Appellant.


SYLLABUS BY THE COURT

1.
In determining restitution for stolen inventory, there is no bright-line rule favoring
either retail or wholesale cost. The sentencing judge must evaluate the evidence, weigh
all factors, and consider the facts and circumstances of each case to determine a value
that will compensate the victim for the actual loss caused by the defendant's crime.

2.
Judicial discretion is abused if judicial action (1) is arbitrary, fanciful, or
unreasonable, i.e., if no reasonable person would have taken the view adopted by the trial
court; (2) is based on an error of law, i.e., if the discretion is guided by an erroneous legal
conclusion; or (3) is based on an error of fact, i.e., if substantial competent evidence does
not support a factual finding on which a prerequisite conclusion of law or the exercise of
discretion is based.

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3.
On the facts of this case, the sentencing judge's adoption of retail value rather than
wholesale value as an appropriate measure of loss to victim animal clinic for defendant's
theft of inventory was arbitrary and without substantial evidentiary support.

Review of the judgment of the Court of Appeals in 45 Kan. App. 2d 290, 247 P.3d 1050 (2011).
Appeal from Johnson District Court; JAMES FRANKLIN DAVIS, judge. Opinion filed June 28, 2013.
Judgment of the Court of Appeals affirming in part, reversing in part, vacating in part, and remanding to
the district court is affirmed. Judgment of the district court is vacated and remanded with directions.

Heather R. Cessna, of Kansas Appellate Defender Office, argued the cause, and Ryan Eddinger,
of the same office, was with her on the brief for appellant.

Steven J. Obermeier, assistant district attorney, argued the cause, and Stephen M. Howe, district
attorney, and Steve Six, attorney general, were with him on the brief for appellee.

The opinion of the court was delivered by

BEIER, J.: This appeal, before us on petition for review, asks whether retail cost or
wholesale cost is the appropriate measure of loss for determining restitution for stolen
inventory. Our answer is: "It depends." We reject a bright-line rule favoring either retail
or wholesale cost. The sentencing judge must evaluate the evidence, weigh all factors,
and consider the facts and circumstances of each case to determine a value that will
compensate the victim for the actual loss caused by the defendant's crime.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant Pamela Sue Hall was employed for 2 months at an animal clinic owned
by Dr. Marc Hardin and his wife, Beverly. During this time, defendant altered computer
records to, among other things, erase medical histories and outstanding bills for services
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performed on her own pets. She also stole inventory from the clinic. The total value of
the clinic's missing inventory and defendant's unpaid bills was well in excess of $1,000,
but less than $25,000. See K.S.A. 21-3701. A jury convicted defendant of computer
crime and theft. The district court granted probation and, later, held a hearing to
determine restitution.

Testimony at the hearing from Beverly Hardin established that the total retail
value of verifiably missing inventory was $9,645.82. On cross-examination, defense
counsel established that the wholesale cost of the inventory—the amount the clinic paid
for items verified to be missing—totaled $4,523.50. Defense counsel also established that
there were three specific occasions when, after defendant left her employment, a
customer attempted to purchase something but was unable to do so because it was
missing. The profit on these three items, had the clinic been able to sell them, would have
totaled $70.

The sentencing judge imposed restitution payable to the clinic in the total amount
of $14,293.11. The portion of this figure attributable to the stolen inventory was based on
the retail rather than wholesale price for the stolen inventory. The judge stated that he
was "accept[ing] the retail value" of stolen inventory "because otherwise it would deny
the Hardins, as any business, their chance to make a profit on items that they sell."

Applying a de novo standard and relying on the United States Supreme Court's
1930 decision in Illinois Cent. R. Co. v. Crail, 281 U.S. 57, 50 S. Ct. 180, 74 L. Ed. 699
(1930), the Court of Appeals held that, as a matter of law, retail value was not a proper
measure of restitution because the loss suffered was the wholesale price the clinic had
paid for the items. State v. Hall, 45 Kan. App. 2d 290, 303-04, 247 P.3d 1050 (2011).

Illinois Cent., distinct in several respects from the instant case, was a civil
damages case involving a coal dealer whose carload of coal, purchased at wholesale, was
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short on delivery. The United States Supreme Court held that the appropriate measure of
damage in that case was the wholesale rather than retail value of the coal. It was
undisputed that recovery of the wholesale price would fully compensate G.I. Crail, and
recovery of the retail price would result in a windfall. Noting the goal was to compensate
for injury actually suffered, the Court held that wholesale price was preferred over retail
"when, in circumstances like the present, it is clearly the more accurate measure." Illinois
Cent., 281 U.S. at 65.

We granted the State's petition for review, which argues that the Court of Appeals'
decision effectively stripped sentencing courts of broad statutory discretion to fashion
appropriate restitution amounts.

DISCUSSION

The restitution statute at issue, K.S.A. 21-4610(d) states:

"(d) In addition to any other conditions of probation, suspension of sentence or
assignment to a community correctional services program, the court shall order the
defendant to comply with each of the following conditions:

(1) Make reparation or restitution to the aggrieved party for the damage or loss caused by
the defendant's crime, in an amount and manner determined by the court and to the
person specified by the court . . . ."

The parties both characterize the question before us as one of law over which this
court has unlimited review. The Court of Appeals agreed. Hall, 45 Kan. App. 2d at 301-
02.

We have previously noted that there are at least three standards potentially
applicable in reviewing challenges to a restitution order. See State v. Dexter, 276 Kan.
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909, 912-13, 80 P.3d 1125 (2003). Issues regarding the amount of restitution and the
manner in which it is made to the aggrieved party are normally subject to review under an
abuse of discretion standard. State v. Hunziker, 274 Kan. 655, 659-60, 56 P.3d 202
(2002); see also State v. Ward, 292 Kan. 541, 550, 256 P.3d 801 (2011), cert. denied 132
S. Ct. 1594 (2012) (defining abuse of discretion). A district judge's factual finding of
causation between the crime and the victim's loss is subject to a substantial competent
evidence standard of review. State v. Goeller, 276 Kan. 578, Syl. ¶ 1, 77 P.3d 1272
(2003); see also State v. May, 293 Kan. 858, 862, 269 P.3d 1260 (2012) (defining
substantial competent evidence). And this court has unlimited review over interpretation
of statutes. State v. Maass, 275 Kan. 328, 330, 64 P.3d 382 (2003).

Because the most forgiving of the three standards, abuse of discretion, necessarily
ensures that legal error and unsupported factual findings are considered on appeal, the
various formulations of the standard of review set forth in our earlier restitution cases do
not trouble us.

"'"Judicial discretion is abused if judicial action (1) is arbitrary, fanciful, or
unreasonable, i.e., if no reasonable person would have taken the view adopted by the trial
court; (2) is based on an error of law, i.e., if the discretion is guided by an erroneous legal
conclusion; or (3) is based on an error of fact, i.e., if substantial competent evidence does
not support a factual finding on which a prerequisite conclusion of law or the exercise of
discretion is based."'" State v. Rodriguez, 295 Kan. 1146, 1156, 289 P.3d 85 (2012)
(quoting State v. Robinson, 293 Kan. 1002, 1027-28, 270 P.3d 1183 [2012], State v.
Ward, 292 Kan. 541, 550, 256 P.3d 801 [2011]).

On its face, the restitution statute does not require a sentencing judge to rely on
wholesale cost rather than retail value in fashioning a restitution award in a theft case
such as this. To the extent the Court of Appeals' opinion holds otherwise, it grafts
requirements onto the statute that are unsupported by its language, and it impermissibly
curtails the discretion liberally granted by our legislature. We hereby reject any notion
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that the statute provides a hard and fast measure for setting the value of the loss. The
question at the heart of this appeal cannot be resolved as a matter of law. Determining the
value of an aggrieved party's loss raises an issue of fact.

The measure of restitution to be ordered is the amount that reimburses the victim
for the actual loss suffered. Hunziker, 274 Kan. at 662-63; State v. Applegate, 266 Kan.
1072, 1079, 976 P.2d 936 (1999); State v. Chambers, 36 Kan. App. 2d 228, 241, 138 P.3d
405, rev. denied 282 Kan. 792 (2006); State v. Rhodes, 31 Kan. App. 2d 1040, 1041-42,
77 P.3d 502 (2003) (quoting Applegate, 266 Kan. at 1079); State v. Cox, 30 Kan. App. 2d
407, 42 P.3d 182 (2002). This is loss "caused by defendant's crime." K.S.A. 21-
4610(d)(1).

In property crime cases, Kansas courts have consistently held "fair market value"
to be the usual standard for calculating "loss or damage" for purposes of restitution.
Chambers, 36 Kan. App. 2d at 242; State v. Baxter, 34 Kan. App. 2d 364, Syl. ¶ 2, 118
P.3d 1291 (2005). The fair market value of inventory is the price that a willing seller and
a willing buyer would agree upon in an arm's length-transaction. Baxter, 34 Kan. App. 2d
364, Syl. ¶ 2, 366. But the concept of fair market value is a sticky wicket, unpredictable
in practice because it is entirely relative, depending on who is doing the buying and who
is doing the selling. See State v. Behrendt, 47 Kan. App. 2d 396, 402, 274 P.3d 704
(2012), petition for rev. filed May 10, 2012 (exemplifying potential for confusion as to
party appropriately identified as buyer and seller for purposes of determining fair market
value). The rigid adherence to "fair market value" oversimplifies. While the phrase may
capture the best measure of loss in some cases, it may not in all. See State v. Chambers,
36 Kan. App. 2d 228, 138 P.3d 405, rev. denied 282 Kan. 792 (2006) (no discernible
market value for used personal lingerie stolen from victim's home); see also State v.
Maloney, 36 Kan. App. 2d 711, 714-15, 143 P.3d 417, rev. denied 282 Kan. 794 (2006)
(if property lacks calculable fair market value, restitution amount may be based on other
factors); State v. Rhodes, 31 Kan. App. 2d 1040, 77 P.3d 502 (2003) (same).
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As we explain in State v. Hand, No. 103,677, this day filed, the restitution statute's
language does not restrict a sentencing judge to awarding only the fair market value as
restitution in property crime cases. K.S.A. 21-4610(d). Nor does the statute require the
judge to consider the fair market value of the property lost before considering other
factors. K.S.A. 21-4610(d). Restitution can include costs in addition to and other than fair
market value. State v. Allen, 260 Kan. 107, 115-16, 917 P.2d 848 (1996). The appropriate
amount is that which compensates the victim for the actual damage or loss caused by the
defendant's crime. And the most accurate measure of this loss depends on the evidence
before the district court. As long as the requisite causal connection exists, and "'the
[district] court's determination of restitution [is] based on reliable evidence'" that "'yields
a defensible restitution figure,'" Hunziker, 274 Kan. at 660 (quoting State v. Casto, 22
Kan. App. 2d 152, 154, 912 P.2d 772 [1996]), we will uphold the district judge's
discretionary decision. See Dickens v. State, 556 So. 2d 782 (Fla. Dist. App. 1990) (trial
court best able to determine award that serves goals of restitution; discretion exists to
reject fair market value, pursue any other measure of loss that compensates victim).

The restitution amount will inevitably depend on a number of factors. In the
context of inventory, for example, these factors might be the retail price, which includes a
reasonable profit; the wholesale cost charged to the victim; the setting from which the
property was taken; the nature and intended use of the property; whether a market existed
for the product and how robust the market was; costs associated with an interruption to
this market, which might include costs to maintain stock, electricity, labor, taxes, and
shipping; the speed and ease of obtaining replacement items for sale; and any actual lost
sales and any associated loss of goodwill. This list of factors is exemplary only and not
exclusive. In a different type of case, there may be entirely different factors at play.

Our focus, then, must be on whether the district court judge abused his discretion
on the facts before him. We conclude that he did. While the Court of Appeals would have
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adopted the wholesale amount, the district judge went to the opposite extreme and merely
adopted the retail amount. Both approaches suffer from a basic failure to do as the statute
directs. Neither fashioned an award in the amount of the actual damage or loss caused by
the defendant's crime.

The restitution amount must be vacated and the case remanded for the district
court judge to exercise the full measure of his discretion under the law, and all of the
evidence before him. His goal is to set an amount that will fully compensate the victim
"for the damage or loss caused by" Hall's crime. This will involve not only weighing the
retail price and wholesale cost about which Beverly Hardin testified but her other
testimony as well. Indeed, at a new hearing on restitution, the district court must weigh
and consider any and all evidence presented in regard to the appropriate measure of
restitution. For instance, Beverly Hardin testified about various ways that defendant had
manipulated the clinic's inventory system and the cost and lost retail value resulting from
this sabotage. She also testified that, even in her retail figure, several of the missing items
were priced at cost. These included inventory items not intended for resale but for use in
the clinic, such as suture materials. Some items qualified as both inventory and supplies;
a box of 1,000 syringes, costing the clinic $528.96, could be sold to a client for insulin or
allergy injections for approximately $2,000 retail, but the clinic routinely used such
syringes for vaccines and injections without accounting for them individually or
inventorying them and the cost was built in to the clinic's service charge. Beverly Hardin
also testified that there were some items of inventory that the clinic did not track or could
not verify, and these were not included in her figures. For example, the company that
supplied the clinic with a particular microchip and kit replaced those at no cost as the
clinic used them. And a drug company provided a product for the clinic to give away to
clients. Whether such products were missing was hard to verify and their cost hard to
quantify. All of this evidence and any additional evidence the district judge permits to be
introduced should factor into the fashioning of an appropriate award. The burden will
remain on the State to marshal the evidence necessary to justify the amount it seeks.
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CONCLUSION

Under the restitution calculus outlined in this opinion, we affirm, as right for the
wrong reason, the Court of Appeals decision vacating the restitution order and remanding
that issue to the district court. The district court shall take further action on restitution
consistent with this opinion.