Background
Alexis Ann Engelking worked as a controller for two related companies, Salon Professional Education Company (SPEC) and The Salon Professional Academy (TSPA). During her employment, she was authorized to issue herself one $12,000 personal loan from company funds but later gave herself a second, unauthorized $12,000 payment. After her termination, the companies launched an internal investigation to determine the full scope of her misconduct.
The investigation, conducted by the company president, a newly hired controller, an external CPA, and other employees, uncovered that Engelking had also failed to withhold her share of health and Aflac insurance premiums from her own paychecks throughout her employment. Engelking subsequently pled guilty to theft, and the matter proceeded to a hearing to determine the amount of restitution owed.
The companies sought restitution for the $12,000 unauthorized loan, the costs of the investigation (totaling over $15,000), and the unpaid insurance premiums ($1,362.46). While Engelking conceded she owed the $12,000, she contested the other amounts, arguing they were not directly caused by her criminal act as required by North Dakota’s restitution statute. The district court disagreed, ordering her to pay $29,032.13 in total restitution. Engelking appealed the inclusion of the investigative costs and insurance premiums.
The Court’s Holding
The North Dakota Supreme Court affirmed the district court’s restitution order, concluding that all the awarded amounts were permissible under state law. The central issue was whether the investigative costs and unpaid premiums were “directly related to the criminal offense,” a requirement for restitution under N.D.C.C. § 12.1-32-08(4). The court’s decision on including investigative costs was a matter of first impression in North Dakota.
The court held that the investigative expenses were a “direct and foreseeable consequence” of Engelking’s theft. Because she served as the company’s controller and concealed her actions, a detailed investigation was necessary to discover the existence and extent of the loss. These were not considered ordinary business expenses but rather costs directly tied to the crime itself. The court also found that the victim had “actually sustained” the damages, even for the time spent by salaried employees who were diverted from their normal duties, because the company lost the opportunity and value of their work.
Regarding the insurance premiums, the court rejected Engelking’s argument that this was a private failure to pay and not a theft from her employer. It reasoned that by using her position as controller to knowingly bypass the payroll withholding, Engelking “exercised unauthorized control over funds to which TSPA/SPEC was entitled.” This act directly deprived the company of money, as it was forced to cover her share of the premiums. Therefore, the resulting loss was a direct result of her criminal conduct and was properly included in the restitution award.
Key Takeaways
- In North Dakota, costs incurred by a business to investigate a financial crime, including fees for outside professionals and the value of internal employee time, can be recovered from the defendant as part of a criminal restitution order.
- When an employee with payroll authority manipulates the system to avoid paying their share of expenses like insurance premiums, the resulting loss to the employer is considered a direct result of theft and is subject to restitution.
- A victim company can be awarded restitution for the time its salaried employees spend investigating a crime, as the diversion of their labor from regular duties constitutes an actual loss of opportunity and productivity for the business.
Why It Matters
This decision clarifies and expands the scope of criminal restitution available to business victims of “white-collar” crime in North Dakota. By explicitly allowing for the recovery of internal and external investigative costs, the court provides a more robust financial remedy for employers harmed by employee theft. The ruling acknowledges that the financial impact of such crimes often extends beyond the stolen funds to include the significant resources required to uncover the misconduct. It reinforces the principle, grounded in the state constitution, that restitution should aim to make victims whole for all losses directly resulting from an offender’s criminal actions.