In June 2007, we reported on a recent Ninth Circuit decision, United States v. Novak, 476 F.3d 1041 (9th Cir. 2007), which held that restitution awards to crime victims, authorized by the Mandatory Victims Restitution Act (MVRA), may be enforced against criminals' retirement funds. The decision in Novak essentially ruled that MVRA trumped ERISA, the federal statutory system that governs retirement benefits and protects them from assignment or alienation.

Now, the First Circuit has followed suit, emphasizing that MVRA's provisions apply "[n]otwithstanding any other federal law." This time, the federal Bankruptcy Code was the casualty. In United States v. Hyde, 1st Cir., No. 05-2897 (August 7, 2007), the First Circuit ruled that the proceeds of a sale of homestead property could be subject to an MVRA restitution order, even though the Bankruptcy Code allows states to declare homestead property off-limits to creditors.

Novak changes the settlement calculus for a white collar criminal defendant (who likely has accrued sizable capital appreciation from years of contributions to IRAs and 401(k)s). Hyde further shows that restitution orders may be powerful tools that empower crime victims to recover assets that have traditionally been out of reach. It remains to be seen whether Congress will choose to overturn these Court of Appeals decisions by amending the MVRA to clarify whether the asset protection provisions of ERISA, the Bankruptcy Code or other statutory schemes take precedence over the MVRA's restitution provisions.