Restitution May Include Victim’s Investigation Costs and Unwithheld Employee Benefit Premiums as “Direct Result” Losses Under N.D.C.C. § 12.1-32-08(4)

1. Introduction

In State v. Engelking, 2026 ND 152, the North Dakota Supreme Court considered the scope of “reasonable damages” recoverable as criminal restitution under N.D.C.C. § 12.1-32-08(4) and the victim’s constitutional right to “full and timely restitution” under N.D. Const. art. I, § 25(1)(n).

The defendant, Alexis Ann Engelking, served as controller for two related businesses (Salon Professional Education Company and The Salon Professional Academy). After she pled guilty to theft, the district court ordered restitution not only for the unauthorized $12,000 payment, but also for: (i) internal and external investigation costs incurred to uncover and quantify the theft, and (ii) the employee portion of insurance premiums that were not withheld from Engelking’s paychecks during her employment.

The appeal presented two practical questions that frequently arise in employee-theft cases: (1) whether a victim’s investigative efforts can be treated as a directly caused, compensable “loss” under the restitution statute, and (2) whether payroll/benefits manipulation that shifts costs to the employer qualifies as a directly related theft loss.

2. Summary of the Opinion

The Supreme Court affirmed the amended criminal judgment and the $29,032.13 restitution award. It held that, on these facts:

  • Investigative expenses (payments to a CPA and additional employee time, plus the CEO’s time devoted to investigating/mitigating the theft) were “reasonable damages” and “expenses actually sustained as a direct result” of Engelking’s theft.
  • Unwithheld employee insurance premiums were directly related to the theft because the employer was entitled to withhold the premiums, and Engelking, while controlling payroll, knowingly bypassed that withholding—causing an employer loss.

Critically, the Court noted it had not previously decided whether N.D.C.C. § 12.1-32-08(4) authorizes inclusion of investigative expenses in restitution awards—and it resolved that question in the affirmative in the context presented.

3. Analysis

3.1 Precedents Cited

Standards of review and restitution framework

  • State v. Gendron, 2008 ND 70, ¶ 8, 747 N.W.2d 125: cited for the principle that district courts have a “wide degree of discretion” in setting restitution.
    Influence: Provided the baseline deference to the district court’s discretionary determination of amounts and reasonableness.
  • State v. Bruce, 2018 ND 45, ¶ 4, 907 N.W.2d 773: used for multiple propositions—(i) restitution review asks whether the court acted within statutory limits (abuse-of-discretion-like), (ii) the State’s burden is preponderance of the evidence, and (iii) “directly related” requires “an immediate and intimate causal connection.”
    Influence: Supplied the key causation test that Engelking invoked, and the Court applied to both disputed categories of loss.
  • State v. Walker, 2019 ND 292, ¶ 5, 936 N.W.2d 45: cited for the proposition that misapplication/misinterpretation of law is reviewed de novo.
    Influence: Framed Engelking’s argument as a legal-scope challenge (whether certain costs are statutorily permissible), not merely an amount dispute.
  • State v. Keplin, 2026 ND 84, ¶ 10, 34 N.W.3d 148: cited for two points: (i) whether damages are directly related is a fact question, and (ii) the clearly erroneous standard for findings at a restitution hearing.
    Influence: Enabled the Court to uphold the district court’s “directly related” findings so long as supported by evidence and not induced by legal error.

“Direct result” losses without a paid invoice

  • State v. Yellow Hammer, 2022 ND 106, ¶ 10, 974 N.W.2d 635: “as long as a victim suffers damages which are a direct result of the defendant's criminal action, the victim may be awarded restitution before actually incurring any expense.”
    Influence: Supported awarding restitution for Brown’s (CEO’s) time/opportunity cost even though it was not framed as an out-of-pocket payment to herself in the same way as a third-party invoice.
  • State v. Pagenkopf, 2020 ND 33, ¶ 9, 939 N.W.2d 2: “A victim may sustain damages without having incurred any expense.”
    Influence: Reinforced that “loss” is not limited to new checks written; it can include measurable harm such as value lost due to diverted labor/time.

Limits of restitution: distinguishing downstream governmental costs from offense-related costs

  • State v. Miller, 2024 ND 167, ¶ 2, 10 N.W.3d 795: extradition costs were reversed because they were not directly related to the criminal conduct underlying the theft/deceptive writings convictions (and there was no charge tied to leaving the state).
    Influence: Provided Engelking’s principal analogy: investigatory costs are a “downstream response.” The Court rejected the analogy by treating the investigation here as part of identifying and accounting for the theft itself.
  • State v. Rogers, 2018 ND 244, 919 N.W.2d 193: extradition costs were affirmed because they were directly related to the bail-jumping charge; the “criminal action” (fleeing) directly resulted in the costs.
    Influence: The Court used Rogers to illustrate the proper “charge-to-cost” linkage: here, investigation costs were linked to the theft conviction because they were undertaken to discover and quantify that theft.

3.2 Legal Reasoning

(A) Investigative expenses as “direct result” restitution

The controlling statutory text limits restitution to losses “directly related to the criminal offense” and “expenses actually sustained as a direct result of the defendant’s criminal action.” The Court applied Bruce’s “immediate and intimate causal connection” test, but treated the investigation in this case as part of the theft’s direct fallout rather than a remote reaction.

Several factual features did the causal work:

  • Engelking occupied a high-trust financial role (controller) with payroll/accounting control, making concealment and uncertainty about the theft’s scope foreseeable.
  • The investigation was aimed at “discover[ing], identify[ing], and account[ing] for” the theft, including multiple suspected methods (unauthorized transactions, payroll manipulation, credit card payments).
  • The victim proved amounts and purpose through testimony and documentation: CPA invoice/time, employee overtime/weekend work, and separately tracked hours for theft-related spreadsheet revision.
  • The district court found the services “reasonably necessary,” non-duplicative, and reasonable in amount—findings upheld as not clearly erroneous under Keplin.

The Court also addressed a common employer-theft defense: that internal employees would be paid anyway. It distinguished between (i) extra paid hours (Link, Maag, Novotny) and (ii) salaried executive time (Brown). For Brown, the Court relied on Yellow Hammer and Pagenkopf to accept that compensable “damages” can exist without a new out-of-pocket payment—i.e., the measurable value of time and lost opportunities diverted to theft remediation.

Doctrinally, the opinion is best read as recognizing that, where the theft’s manner creates uncertainty about scope and forces the victim to spend reasonable resources to identify and quantify losses, those investigative costs can satisfy the “direct result” requirement because they are not merely collateral to prosecution—they are part of restoring and safeguarding the victim’s financial integrity.

(B) Unwithheld employee insurance premiums

Engelking framed the premium amounts as a payroll accounting issue affecting her own earned wages, not “taking” employer money. The district court (affirmed) reframed the harm: the companies were entitled to withhold the employee-paid premium portion from wages, and Engelking—controlling payroll—“knowingly prevented or bypassed” the withholding.

The causation chain the Court accepted is straightforward:

  • Employer incurred premium obligations to insurers/benefit providers.
  • Employer had a right to recoup the employee portion through payroll withholding.
  • Engelking’s manipulation prevented the recoupment.
  • The employer therefore suffered a direct financial loss equal to the unwithheld amount ($1,362.46), supported by CPA calculations from invoices and paystubs.

In effect, the opinion treats intentional bypass of authorized payroll deductions as an “unauthorized control” mechanism causing an employer loss, fitting within the same “directly related” framework as more traditional misappropriation.

3.3 Impact

1) Express recognition of investigation-cost restitution (in appropriate cases). The Court stated it had not previously decided whether N.D.C.C. § 12.1-32-08(4) authorizes investigative expenses, and it affirmed such an award here. Future restitution litigation will likely focus less on categorical admissibility and more on proof and limits: necessity, reasonableness, non-duplication, and tight linkage to identifying/quantifying the offense loss.

2) Strong incentive for detailed evidentiary showings. The opinion underscores what makes these awards durable on appeal: tracked hours, separation of “regular duties” from theft-specific work, invoices, and testimony tying the work to uncovering and remedying the theft.

3) Expanded practical reach in employee-theft and financial-control cases. Where an employee’s position enables concealment or manipulation, victims can argue that forensic accounting and internal remediation are foreseeable and “direct” consequences of the theft itself.

4) Payroll/benefits manipulation treated as directly compensable loss. Employers and prosecutors may rely on the “entitled to withhold” rationale to seek restitution for other withheld-or-not-withheld items (e.g., garnishments, retirement contributions, premium shares), provided they can show intentional bypass and a concrete employer loss.

Potential limiting principles (implied by the reasoning). Although the Court affirmed broadly, it emphasized necessity and non-duplication. Defendants in future cases may distinguish Engelking by showing: (i) the “investigation” was ordinary auditing unrelated to the offense, (ii) the work was primarily for civil litigation strategy rather than loss identification, (iii) claimed internal time was untracked/speculative, or (iv) claimed costs are remote from the offense conduct (more like State v. Miller).

4. Complex Concepts Simplified

  • Restitution: Money the criminal court orders the offender to pay the victim to compensate for losses caused by the crime (not a civil “damages” award, but compensatory in function).
  • “Directly related” / “direct result” (the Bruce test): The loss must have an “immediate and intimate causal connection” to the criminal conduct—i.e., it must be closely caused by the crime, not merely a later or tangential consequence.
  • Preponderance of the evidence: The State must show the restitution amount is more likely true than not (a lower standard than “beyond a reasonable doubt”).
  • Clearly erroneous (fact review under Keplin): Appellate courts generally defer to the trial court’s factual findings unless they lack evidentiary support, stem from legal error, or are plainly mistaken on the whole record.
  • Opportunity cost as loss (from Yellow Hammer and Pagenkopf): A victim can suffer compensable harm even without writing a new check—e.g., losing valuable time or business opportunities because resources were diverted to address the crime.

5. Conclusion

State v. Engelking strengthens North Dakota restitution law by affirming—on a developed evidentiary record—that reasonable, non-duplicative investigative expenses incurred to uncover and quantify a theft can be restitutionary losses under N.D.C.C. § 12.1-32-08(4). It also confirms that payroll/benefits manipulation causing an employer to pay amounts it was entitled to withhold may qualify as a directly related theft loss.

The decision’s lasting significance lies in its practical causation analysis: where the nature of the theft (especially by a financial officer) creates uncertainty requiring targeted investigation, those costs are not treated as merely “downstream responses,” but as directly caused remediation necessary to identify and protect against the offender’s wrongdoing.