Tyler, who managed the law firm's financial and accounting functions, including its trust and operating accounts, started embezzling funds from the Charlottesville, Virginia, firm around 2012, according to the appeals court majority's opinion. The firm didn't discover the theft until January 2020, when Tyler had allegedly drained most of the firm's accounts to the point where they had a negative balance or between $1,000 and $5,000. She also stole a $300,000 check intended for a real estate client.

A forensic accountant determined the firm was missing approximately $648,729.79, the opinion said.

At Tyler's sentencing hearing, she objected to the additional costs. But Charlottesville Circuit Court Judge Humes J. Franklin sentenced Tyler to eight years' active incarceration and ordered her to pay the amount she embezzled, plus the $125,808.25 in additional expenses. Franklin later denied Tyler's motion to reconsider, according to the majority's opinion.

On appeal, Tyler argued that the circuit court abused its discretion in awarding $104,390 in restitution for offenses expenses, insurance costs, legal fees, forensic accounting fees, VSB fees and anticipated future costs, because they were not directly related to Tyler's crime, the opinion said.

While the Virginia Court of Appeals agreed that Tyler should pay approximately $76,224.45 for fees relating to office, legal, insurance and forensic accounting costs, the panel reversed the trial court's award of $49,583.80, because the Commonwealth failed to prove by a preponderance of the evidence that some of the additional fees were directly caused by Tyler's embezzlement, the opinion said.

The court held that the entirety of the $11,216.30 in VSB fees, as well as other costs such as anticipated future audits, were up to the firm to pay.

"As to the VSB fees, Tyler's crime was not the 'but for' cause of the fees because the firm had independent duties to maintain and reconcile various financial records and supervise nonlawyer employees," Judge Daniel E. Ortiz wrote on behalf of 2-1 majority. "The VSB fees include monetary sanctions imposed directly against one of the firm's partners, which the firm helped pay, and the cost of one audit which the VSB required as a sanction. The VSB agreed disposition details the nature of the firm's misconduct which included violating the Virginia Rule of Professional Conduct Rule 1.15 Safekeeping Property and Rule 5.3 Responsibilities Regarding Nonlawyer Assistants."

One of the firm's partners, Leah Hernandez, had admitted that nobody at the firm reviewed its bills or bank statements, which led to its failure to identify the embezzlement for over eight years, the opinion said.

The appellate court concluded that the firm failed to "perform the accountings, audits, reconciliations, or other responsibilities of client trust accounts," keep proper records, oversee accounts, or supervise Tyler—a nonlawyer employee. Even before Tyler was employed, the firm had a duty to comply with the rules. But its failure to comply led to the VSB fees, the opinion said.

"Unlike the other expenses, the VSB fees were directly caused by the firm failing to comport with the Rules of Professional Conduct," Ortiz wrote. "The Rules created independent obligations for the firm. Thus, the firm engaged in misconduct by violating its own mandatory professional ethics rules for many years. As a result, the firm's acts or failures to act alone would have subjected it to sanction without Tyler's crime, even though the VSB would have had much more difficulty detecting the firm's misconduct.

"[T]he firm could have incurred the anticipated future audit costs sans Tyler's involvement because of its independent acts of failing to perform certain accountings, reconcile various accounts, and supervise nonlawyer employees," Ortiz continued. "Consequently, Tyler's embezzlement was not the 'but for' cause of the audit expenses."

While Judge Stuart A. Raphael agreed in the judgment with regard to the dispositions of the various elements at issue, he wrote separately because he disagreed with the majority's finding that "the contours of the proximate-cause doctrine are narrower for criminal restitution than in tort law," he wrote.

"Although I agree with the majority that the trial court erred in awarding restitution for the firm's cost of defending the VSB proceedings and for two years of auditing costs, I disagree with the majority's rationale," Raphael wrote. "Tyler's embezzlement was the but-for cause of those damages. But it was not the legal cause. Because the law firm's violation of the Virginia Rules of Professional Conduct was the legal cause of that injury, the ex turpi causa doctrine precludes restitution for those costs."

Messages seeking comment were not immediately returned from Tyler's attorney, Bryan Jones, of the Bryan J. Jones firm, nor from the Virginia Attorney General's Office.

Editor's Note: This could highlight a trend of companies being held increasingly liable for the actions of their employees. Tune in to ICLC next week to read more about how a Texas jury found against Spectrum to the tune of $7.37 billion, after one of the company's employees murdered an 80-year-old Spectrum customer.