Judge Edward Chen, Northern District of California
Judge Edward Chen, Northern District of California (Hillary Jones-Mixon)

SAN FRANCISCO — U.S. District Judge Edward Chen won’t let fallen executive recruiter David Nosal off the hook for paying his ex-employer’s legal bills.

Although Chen did not order a specific amount in restitution, he said at a hearing on Wednesday that the U.S. Court of Appeals for the Ninth Circuit has made clear that corporations may recover attorney fees incurred in connection with criminal investigations. Federal prosecutors want Nosal to pay $948,703 to cover his former employer Korn/Ferry’s legal bill to O’Melveny & Myers, on top of other expenses for a total of $1.35 million in restitution.

Ninth Circuit case law “establishes that attorney fees can also be incurred in that ambit,” Chen said. “And then it becomes a question of what’s reasonable.”

The judge noted that some of the expenses prosecutors are trying to pin on Nosal—such as legal fees for the government’s interlocutory appeal—seem like a stretch.

“Those things that are directly and proximately related to the prosecution and the investigation, that’s what I intend to include,” Chen said. “As you get further out, the icing on the cake stuff, you wouldn’t think that a victim’s participation would be needed.”

Nosal’s computer hacking case made law in the Ninth Circuit, limiting the conduct eligible for criminal prosecution under the Computer Fraud and Abuse Act. The controversial case is undoubtedly headed up to the appeals court for more review.

Though Chen sentenced Nosal earlier this year to one year and one day in prison, the San Francisco federal judge ruled Wednesday that Nosal will remain on release pending appeal of his conviction. A San Francisco jury last year found Nosal guilty of computer crimes and trade secret theft for infiltrating Korn/Ferry’s internal network to steal lists of executive candidates.

Nosal’s lead lawyer, Dennis Riordan of Riordan & Horgan, had argued in court papers that the government’s request for attorney fees twisted the Mandatory Victim Restitution Act, which was meant to protect individuals rather than corporations. But Chen was not swayed.

“Whatever you think of the legislative history, I think the Ninth Circuit has made the law very clear,” he said.

“From the government’s perspective, that’s what we wanted to hear,” Assistant US. Attorney Kyle Waldinger chimed in.

Chen noted that time sheets submitted by Korn/Ferry to document its participation in the investigation and prosecution appear to be in order on the whole. To help him prepare his restitution order, Chen suggested that the prosecution submit categories of expenses Nosal must cover, along with the defense’s objections to particular items.

“I expect this is all going to be heard by another court anyway, but at least we’ll get the record down,” Chen said.

In an interview after the hearing, Nosal said that Chen’s order allowing him to remain on release left him optimistic about the prospects for his appeal.

“It’s absolutely the right outcome, and it sends a strong message that he sees some significant holes in the government’s case,” Nosal said.

Contact the reporter at jlove@alm.com.