UNITED STATES OF AMERICA, Plaintiff-Appellant, v. DONALD HEAVRIN, Defendant-Appellee.
No. 01-6565
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Argued: May 9, 2003
Decided and Filed: June 3, 2003
2003 FED App. 0169P (6th Cir.) | File Name: 03a0169p.06
Before: KENNEDY, SILER, and GILMAN, Circuit Judges.
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206
Appeal from the United States District Court for the Western District of Kentucky at Louisville. No. 99-00113—John G. Heyburn II, Chief District Judge.
COUNSEL
OPINION
RONALD LEE GILMAN, Circuit Judge. After participating in a number of financial transactions involving a now-bankrupt corpоration, Donald Heavrin was indicted on 14 counts of bankruptcy fraud. The trial commenced in October of 2000. At the end of the trial, but before the case was submitted to the jury, Heavrin moved for a judgment of acquittal on all of the charges pursuant to
Heavrin subsequently filed a motion to have the government pay his attorney fees and costs pursuant to the
I. BACKGROUND
A. Factual background
Robert Harrod and Michael Macatee were the principal shareholders of Triple S
In March of 1994, Harrod was diagnosed with terminal cancer. Heavrin began negotiating with MDFC to secure a portion of the Harrod insurance proceeds for Harrod‘s heirs in April or May of that year. The basis for Heavrin‘s negotiations was the threat of a lender-liability lawsuit against MDFC. Shortly thereafter, Heavrin recommended to Harrod and Macatee that they transfer their respective key-man life insurance policies to irrevocable trusts. Harrod accordingly transferred his policy to the Robert Harrod Trust, of which Harrod was the trustee and sole beneficiary, on June 17, 1994. Harrod died on September 2, 1994.
Triple S began having financial difficulties in the early 1990s. On September 30, 1994, Triple S filed a petition for bankruptcy under Chapter 11. The Chapter 11 proceeding was converted to a Chapter 7 bankruptcy three months later. Because nobody told David Chinn, the attorney who handled Triple S‘s bankruptcy filing, about the transfer of Harrod‘s key-man life insurance policy, Chinn did not list the transfer in the bankruptcy petition.
In November of 1994, Jackson National Life disbursed $1.75 million, plus interest, from the procеeds of the Harrod insurance policy to MDFC pursuant to the negotiations between Heavrin and MDFC. It paid to the Harrod Trust the remaining $250,000, plus interest. Of the $250,000, Heavrin paid his stepsister $75,000 and kept $175,000 for himself. Harrod‘s probate records and death tax returns, however, which Heavrin submitted as the executor of Harrod‘s estate, failed to disclose the $250,000 insurance payment to Harrod‘s heirs.
Heavrin later entered into an agreement pursuant to which he sold his shares of stoсk in Total Vend, Inc., a vending company, for $1,105,000. There was no connection between Triple S and Total Vend, but Heavrin‘s interest in Total Vend became relevant during his deposition taken in connection with Triple S‘s bankruptcy proceeding. In the course of the deposition, which occurred prior to the sale of the Total Vend shares, Heavrin claimed to have no ownership interest in Total Vend. The government discovered during Heavrin‘s criminal trial that he did nоt mention the shares of Total Vend in his deposition because they were in a revocable trust at the time that he was deposed.
B. Procedural background
Both the bankruptcy judge handling the Triple S bankruptcy action and the United States Trustee‘s Office reported Heavrin‘s conduct to the United States Attorney‘s Office. After the government presented a case against Heavrin to a federal grand jury, the grand jury returned an indictment in September of 1999, charging Heavrin with fraudulently transferring or cоncealing Triple S‘s key-man life insurance policy on Harrod, in violation of
The government discovered Heavrin‘s sale of his Total Vend shares and his disclaimer of ownership interest during his bankruptcy deposition, which was taken after the grand jury returned its original indictment. As a result, the grand jury returned a number of superseding indictments, culminating in a third superseding indictment dated October 18, 2000. In the third superseding indictment, the grand jury added counts for criminal contempt of the bankruptcy court‘s orders, in violation of
An eight-day trial was held in district court, commencing on October 23, 2000. Heavrin testified in his own defense. During Heavrin‘s testimony, his counsel produced a document showing that Heavrin did not directly own stock in Total Vend at the time of his bankruptcy deposition because it was part of a revocable trust that was transferred back to him sometime after he was deposed. The government thereupon agreed to dismiss Count 9, even though this document had not been provided to the government before trial.
At the end of all the proof, but before the case was submitted to the jury, Heavrin moved for a judgment of acquittal on all charges pursuant to
Heavrin subsequently moved for an award of attorney fees and costs pursuant to the
II. ANALYSIS
A. Standard of review
“[D]istrict court decisions on Hyde Amendment applications are reviewed for an abuse of discretion.” United States v. True, 250 F.3d 410, 422 (6th Cir. 2001). “An abuse of discretion occurs when the lower court relies on clearly erroneous findings of fact, or when it improperly applies the law or uses an erroneous legal standard.” Id. at 422 n.9 (internal quotation marks omitted). A district court likewise abuses its discrеtion when we are “firmly convinced that a mistake has been made, i.e., when we are left with a definite and firm conviction that the trial court committed a clear error of judgment.” Id. (internal quotation marks omitted).
B. Award of attorney fees and costs under the Hyde Amendment where only some of the counts are found to be vexatious, frivolous, or in bad faith
The government first contends that the award of attorney fees and costs was unjustified
1. Interpretation of the Hyde Amendment
The award of attorney fees and costs pursuant to the
During fiscаl year 1998 and in any fiscal year thereafter, the court, in any criminal case (other than a case in which the defendant is represented by assigned counsel paid for by the public) . . . may award to a prevailing party, other than the United States, a reasonable attorney‘s fee and other litigation expenses, where the court finds that the position of the United States was vexatious, frivolous, or in bad faith, unless the court finds that special circumstances make such an award unjust. Such awards shall be granted pursuant to the procedures and limitations (but not the burden of proof) provided for an award under
section 2412 of title 28, United States Code .
This court, in interpreting the meanings of “vexatious” and “bad faith” for purposes of the
Id. at 423 (citations omitted) (alteration in original).
We are left to interpret the terms “position” and “frivolous” as used in the
The district court below, after citing Gilbert and quoting its definition of “frivolous,” provided a more comprehensive definition of the word:
[A] frivolous charge is either one without some legal precedent for the government‘s position or, if legally sound, a charge brought without a reasonable expectation of evidence at trial to support this position. The government need not have actual evidence before bringing charges, only a reasonable expectation of attaining it at trial.
We believe that the portion of the district court‘s definition of “frivolous” encompassing the phrase “without some legal precedent” is tоo restrictive. The government should be allowed to base a prosecution on a novel argument, so long as it is a reasonable one, without fear that it might be setting itself up for liability under the
At this juncture, we feel compelled to more precisely explicate the difference between the words “frivolous” and “vexatious” because Gilbert‘s definition of “frivolous” is similar to this court‘s dеfinition (albeit in dicta) of “vexatious.” Compare True, 250 F.3d at 423 (defining “vexatious” as “without reasonable or probable cause or excuse“), with Gilbert, 198 F.3d at 1299 (defining “frivolous” as “[g]roundless[,] . . . with little prospect of success“). Although there is undoubtedly an overlap in the meaning of the two words, the term “vexatious” embraces the distinct concept of being brought for the purpose of irritating, annoying, or tormenting the opposing party. See Webster‘s Third New International Dictionary Unabridged 2548 (1986); see also United States v. Knott, 256 F.3d 20, 29-30 (1st Cir. 2001) (“Without a finding of bad faith or improper motive, . . . if the government pursues a prosecution without any foundation or basis for belief that it might prevail, such a prosecution would more appropriately be deemed ‘frivolous’ than ‘vexatious.’ Reading ‘vexatious’ to encompass such a case would render it synonymous with ‘frivolous’ . . . .“), cert. denied, 534 U.S. 1127 (2002); United States v. Sherburne, 249 F.3d 1121, 1126 (9th Cir. 2001) (noting that “vexatious” “includes an element of maliciousness, or an intent to harass“).
The government and Heavrin further disagree over the definition of the word “position.” See
In interрreting the term “position” in the context of the EAJA, the Supreme Court declared: “The fact that the [word] ‘position’ is again denominated in the singular . . . buttresses the conclusion that only one threshold determination for the entire civil action is to be made.” Comm‘r, INS v. Jean, 496 U.S. 154, 159 (1990). It concluded that “the EAJA . . . favors treating a case as an inclusive whole, rather than as atomized line-items.” Id. at 161-62; see also Roanoke River Basin Ass‘n v. Hudson, 991 F.2d 132, 139 (4th Cir. 1993) (stating in an EAJA case that “when determining whether the government‘s position in a case is substantially justified, we look beyond the issue on which the petitioner prevailed to determine, from the totality of the circumstances, whether the government acted reasonably . . . .“).
Because the
Evaluating a case as an inclusive whole is not susceptible to a precise litmus test. The fact that only one count among many is frivolous or not frivolous is not determinative as to whether a movant should receive an award under the
2. Application of the Hyde Amendment to the criminal prosecution of Heavrin
The government mаintains that the district court erred by awarding attorney fees and costs under the
Whether the prosecution‘s position as a whole is deemed frivolous requires the court to inquire into the merits of the entire сase. The district court below, however, did not conduct such an analysis. Instead, it determined that three of the substantive counts were frivolous, and awarded attorney fees and costs accordingly. What the district court should have done was assess the case as an inclusive whole. It therefore abused its discretion by applying an erroneous legal standard in awarding attorney fees and costs to Heavrin.
Because the district court did not apply the cоrrect legal standard to this complex factual situation, we remand the action so that the district court can assess whether the prosecution‘s position was, as a whole, frivolous. Cf. United States v. Skeddle, No. 00-3195, 2002 WL 2026537, at *3 (6th Cir. Aug. 29, 2002) (per curiam) (“The district court, having conducted the entire trial and witnessed the government‘s case, is in a far superior position to evaluate whether the government‘s position was vexatious, frivolous, or in bad faith. The court has a fresh recollection of thе government‘s conduct that this court‘s review of the cold record simply cannot provide.“). In addition, the district court should reconsider the government‘s position in light of the proper definition of the term “frivolous” as set forth above. Only if the district court concludes that the government‘s position as a whole was frivolous (as properly defined) would an award of attorney fees and costs be appropriate under the
C. Heavrin‘s net worth
As an alternative ground for reversal, the government contends that Heavrin should not have qualified for an award of attorney fees and costs because he was not a “party” under the
No definition is found in the Amendment as to the meaning of the term. Instead, the Amendment adopts the definition set forth in the EAJA. Under the EAJA, an individual “party,” as opposed to a corporate “party,” is “an individual whose net worth did not exceed $2,000,000 at the time the . . . action was filed.”
The district court did not explain its analysis with respect to Heavrin‘s net worth. Rather, it summarily stated that “[Heavrin] has given the Court sufficient reason to conclude that his net worth is much less than $2 million.” This conclusion was presumably based upon an affidavit that Heavrin submitted to the court, stating that his net worth did not exceed two million dollars at the time the criminal action was filed. In addition, his affidavit sets forth the following calculations:
If I could gradually liquidate my assets, some of which are owned in joint survivorship with my wife, after all bills are paid, I estimate that I would end up with approximately $900,000 less capital gains tax and less any money that is
recovered by the trustee in bankruptcy in the two adversary proceedings that are pending. The dollar amount in those two proceedings is over $400,000.00 plus accumulated interest. If I quickly sells [sic] my assets, I estimate that I would have about $200,000.00 left after all bills were paid less taxes and less any amounts the trustee is able to recover pursuant to the two adversary proceedings that are pending.
The heart of the government‘s contention regarding Heavrin‘s net worth is that he failed to provide any “indication about how he arrived at his estimate.” It argues that, “[a]t a minimum, a defendant should file the statement of an accountant consistent with generally accepted aсcounting principles before he is entitled to attorney‘s fees.”
Because the case law contains no in-depth analysis of the term “party” under the
A movant‘s bare assertion that his or her net worth falls short of two million dollars will generally be insufficient to satisfy this burden. Id. Rather, the movant should at least proffer an affidavit showing that the statutory criteria has been met. Id. (holding that a movant‘s unsworn and unverifiеd letter, by itself, does not satisfy the movant‘s net-worth burden). But see D‘Amico v. Indus. Union of Marine & Shipbuilding Workers of Am., 630 F. Supp. 919, 923 (D. Md. 1986) (noting that movants need not prove in an affidavit that they are “parties” under the EAJA “until some objection to their eligibility is raised by the government“).
We have been unable to find any authority holding that either a
Heavrin‘s affidavit not only states that his net worth “did not exceed two million dollars at the time the criminal action was filed,” but also provides the summary calculations on which he based his conclusion. This, in our opinion, is sufficient to constitute prima facie proof of Heavrin‘s status as a “party.” We reach this сonclusion because we believe that it would be unnecessarily burdensome to require every
III. CONCLUSION
For all of the reasons set forth above, we AFFIRM the finding of the district court that Heavrin qualified as a “party” under the