United States v. Terzakis, No. 16-3340 (7th Cir. 2017)

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Justia Opinion Summary

In the 1990s, Terzakis met Berenice Ventrella, the trustee for a family trust with extensive real‐estate holdings. Terzakis managed and developed real estate and eventually managed some of Berenice’s property. In 2007, they created an LLC to hold one of Berenice’s properties. Berenice appointed her son Nick, who had Asperger syndrome, as the Ventrella Trust’s successor trustee. After Berenice's 2008 death, Terzakis opened an account for the “Estate of Berenice Ventrella,” took Nick to banks and had him transfer funds from Berenice’s accounts into this new account, transferred $4.2 million from the estate account to the LLC account, which he controlled, then transferred $3.9 million from the LLC account to his personal accounts. Nick was the only witness with personal knowledge of Terzakis’s statements about the transfers. Prosecutors interviewed Nick. The government informed the grand jury that Nick had cognitive problems; Nick did not testify. Days before the limitations period expired, the grand jury returned a five‐count indictment for transmitting stolen money, 18 U.S.C. 2314. Before trial, the government learned that Nick had been diagnosed with brain cancer, with a prognosis of six months. The government informed Terzakis of the diagnosis. The parties resumed plea negotiations. Terzakis rejected the government’s plea offer. The government dismissed the case, citing Nick’s unavailability. The Seventh Circuit affirmed denial of Terzakis’s motion to recover attorney fees under 18 U.S.C. 3006A.

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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 16 3340 UNITED STATES OF AMERICA, Plaintiff Appellee, v. JOHN D. TERZAKIS, Defendant Appellant. ____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 CR 339 — Rebecca R. Pallmeyer, Judge. ____________________ ARGUED APRIL 5, 2017 — DECIDED APRIL 27, 2017 ____________________ Before WOOD, Chief Judge, and FLAUM and HAMILTON, Cir cuit Judges. FLAUM, Circuit Judge. John D. Terzakis was indicted for transporting stolen goods. After the government conceded that its key witness would be unavailable to testify at trial, it moved to dismiss the case. Terzakis then led a motion under the Hyde Amendment seeking attorney’s fees, which the dis trict court denied. For the following reasons, we a rm. 2 No. 16 3340 I. Background In the early 1990s, Terzakis met Berenice Ventrella, the trustee for a family trust with extensive real estate holdings. Terzakis ran a company that managed and developed real es tate and eventually managed some of Berenice’s property. In March 2007, Berenice and Terzakis created an LLC to hold one of Berenice’s properties in Bu alo Grove, Illinois. The LLC purchased the property from Berenice using a $15 million loan. Shortly before her death in January 2008, Berenice ap pointed her son Nick, who had Asperger syndrome, to be the successor trustee of the Ventrella trust. Soon after Berenice passed away, Terzakis opened an account in the name of the “Estate of Berenice Ventrella.” Terzakis allegedly took Nick to various banks and had him transfer funds from accounts that had belonged to Berenice into this new estate account. Subse quently, between March and September 2008, Terzakis trans ferred about $4.2 million from the estate account to the ac count for the LLC he had opened with Berenice and which he now controlled. Terzakis then transferred at least $3.9 million from the LLC account to di erent personal accounts of his that were unrelated to the Ventrella family. He later pro ered that this money was a loan from Berenice’s estate for “work ing capital”; however, the Bu alo Grove property held by the LLC was never developed, and there are no documents me morializing a loan from Berenice’s estate to Terzakis. Thereafter, the government investigated these transfers. Law enforcement o cers reviewed Terzakis’s ledgers detail ing some of the above transactions and other records from various banks and members of the Ventrella family. However, No. 16 3340 3 Nick was the only witness with personal knowledge of Ter zakis’s allegedly fraudulent statements about the purpose of the transfers. During the investigation, Nick’s relatives disclosed to the government an August 2009 psychological report authored by Dr. Karen F. Levin regarding Nick. It noted that Nick “had a very poor grasp of time,” that he “had di culty with simple questions about the present,” and that he showed “a lack of organized thought.” The report also remarked on Nick’s “ex cellent recall of very old events with ne details of numbers,” and that “[h]e was very good with calculations.” Dr. Levin ul timately opined that Nick “clearly has a longstanding cogni tive disability that would likely fall upon the autism spec trum,” and needed assistance managing his nances and other aspects of life. Between 2010 and 2013, the government held several interviews with Nick and questioned him about the bank transfers. Nick told the government that Terzakis had expressed to Nick that the transfers were for developing the Bu alo Grove property held by Terzakis’s LLC. In April 2013, the government brought the case before a grand jury. Nick did not testify at the proceeding; however, the indictment indicates that the government informed the grand jury that Nick had cognitive problems. On April 25, 2013, several days before the limitations period was to lapse for four of the underlying transfers, the grand jury returned a ve count indictment for transmitting stolen money, in viola tion of 18 U.S.C. § 2314. The case proceeded without resolu tion for two years. Then, in October 2015, the government learned that Nick had been diagnosed with brain cancer, with a prognosis of six months. The government informed Terzakis of the diagnosis, and the parties resumed plea negotiations. 4 No. 16 3340 On December 23, 2015, Terzakis rejected the government’s plea o er and demanded a speedy trial. On January 8, 2016, the government moved to dismiss the case, citing Nick’s una vailability, and the court entered a dismissal order later that day. Nick passed away several months later. On February 5, 2016, Terzakis moved to recover attorney fees under the Hyde Amendment, Pub. L. No. 105 119, § 617, 111 Stat. 2440, 2519 (1997) (reprinted in 18 U.S.C. § 3006A, his torical and statutory notes). On August 19, the district court denied Terzakis’ motion. This appeal followed. II. Discussion This Court has not explicitly stated the standard of review for appeals of Hyde Amendment cases. All other circuits to address the question have reviewed the district courts’ deci sions for abuses of discretion. See United States v. Manzo, 712 F.3d 805, 809 (3d Cir. 2013) (collecting cases). We agree and review the district court’s decision on Terzakis’s motion for attorney’s fees for abuse of discretion. A district court abuses its discretion by applying an incorrect legal standard, or by reaching an outcome that is unsupported by the record or based on a clearly erroneous nding of fact. United States v. Warner, 498 F.3d 666, 680 (7th Cir. 2007). The Hyde Amendment “authorizes the court in a criminal case to award a reasonable attorney’s fee to ‘a prevailing party, other than the United States,’ if the court nds that the government’s position was ‘vexatious, frivolous, or in bad faith.’” United States v. Sriram, 482 F.3d 956, 958–59 (7th Cir. 2007) (quoting 18 U.S.C. § 3006A), vacated on other grounds, 552 U.S. 1163 (2008). The defendant in the underlying criminal case bears the burden of demonstrating these requirements by No. 16 3340 5 a preponderance of the evidence. See United States v. Manches ter Farming P’ship, 315 F.3d 1176, 1182 (9th Cir.), opinion amended on denial of reh’g, 326 F.3d 1028 (9th Cir. 2003); United States v. Truesdale, 211 F.3d 898, 908 (5th Cir. 2000). A. Prevailing Party The district court determined that Terzakis was a “prevail ing party” because the government had dismissed the indict ment after the limitations period had lapsed. The government argues that the district court erred in making this ruling. We may review the government’s arguments as alternate grounds for a rmance, because concluding that Terzakis was not a prevailing party would produce the same outcome as the district court’s order. See Jennings v. Stephens, — U.S. —, 135 S. Ct. 793, 798 (2015) (“An appellee who does not take a cross appeal may ‘urge in support of a decree any matter ap pearing before the record, although his argument may in volve an attack upon the reasoning of the lower court.’” (quot ing United States v. Am. Ry. Exp. Co., 265 U.S. 425, 435 (1924))). The Hyde Amendment does not de ne the term “prevail ing party.” In civil fee shifting contexts, however, “a plainti ‘prevails’ when actual relief on the merits of his claim materi ally alters the legal relationship between the parties by modi fying the defendant s behavior in a way that directly bene ts the plainti .” Farrar v. Hobby, 506 U.S. 103, 111–12 (1992); see also Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598, 603 (2001) (“A ‘prevailing party’ is one who has been awarded some relief by a court.”) (cita tion omitted). This principle does not map neatly onto the criminal context, where the Hyde Amendment limits the reach of the term “prevailing party” to defendants. The prin 6 No. 16 3340 ciple is clear enough as applied to some dispositions: A con viction is su cient to disqualify a defendant as a prevailing party—even when the sentence was lighter than what the government sought, see Sriram, 482 F.3d at 959—while an ac quittal following a trial would clearly make a defendant a pre vailing party. However, the prevailing party analysis is not as clear cut for dispositions either that do not a ord full relief on the merits or that result in a conviction. In this case, the government moved to voluntarily dismiss the indictment against Terzakis well after the statute of limi tations had run. The government does not dispute that it was precluded from pursuing these charges in the future under the applicable statute of limitations, but argues that Terzakis did not prevail because the dismissal was not “relevant to [his] guilt or innocence.” United States v. Chapman, 524 F.3d 1073, 1089 (9th Cir. 2008). This may be true, but, like a dismis sal with prejudice—which satis es the prevailing party re quirement because it “materially alters the legal relationship of the parties, as it precludes the government from bringing a prosecution that it otherwise would be entitled to bring,” id.— the dismissal here materially altered the relationship between the government and Terzakis: The government could no longer prosecute Terzakis for the allegedly fraudulent trans fers. Thus, the district court did not err in determining that Terzakis was the prevailing party in this case.1 1 The district court addressed the prevailing party issue first, reason ing that “[w]hether a party is ‘prevailing’ for purposes of the Hyde Amendment is a threshold question.” United States v. Terzakis, No. 13 CR 339, 2016 WL 4417022, at *4 (N.D. Ill. Aug. 19, 2016) (citing Sriram, 482 F.3d at 959 (“[E]ven if the government’s position is vexatious, etc., the defend ant cannot be awarded fees unless he is the prevailing party.”)). However, No. 16 3340 7 B. Vexatious, Frivolous, and Bad Faith The district court concluded that Terzakis had not met his burden of showing that the government’s case was vexatious, frivolous, or taken in bad faith, as required for fee shifting un der the Hyde Amendment. Terzakis rst argues that the dis trict court abused its discretion by applying incorrect legal standards. Speci cally, he argues that the district court con ated the terms “vexatious” and “frivolous” when it reasoned that Terzakis’s claim failed “under any de nition of these terms [because] Terzakis must at least show that the govern ment’s actions were baseless.” However, the district court cor rectly noted that: (1) this Court has not yet de ned the opera tive terms; (2) there is clear tension among and overlap in the de nitions employed by other circuits; and (3) vexatiousness and frivolousness both seem to require some level of objective de ciency in the government’s position.2 Indeed, other cir we do not read Sriram as requiring analysis of the prevailing party ques tion as a threshold matter. Rather, we understand the Hyde Amendment requirements as two independent and necessary elements, akin to the two prongs of the Strickland test for ineffective assistance of counsel. See Strick land v. Washington, 466 U.S. 668, 687, 697 (1984). We thus leave the order in which the district courts choose to address the elements to their discre tion. Cf. McDaniel v. Polley, 847 F.3d 887, 893 (7th Cir. 2017) (“there is no reason for a court … to approach the inquiry in the same order or even to address both components of the inquiry if the defendant makes an insuf ficient showing on one” (quoting Strickland, 466 U.S. at 697)) (internal quo tation marks omitted). 2 Terzakis argues that the district court’s reasoning was incorrect be cause, according to him, “a position may be objectively deficient and vex atious without also being entirely baseless.” However, the district court did not require Terzakis to show that the government’s position was en tirely baseless; rather, it held that Terzakis was unable to demonstrate that 8 No. 16 3340 cuits’ de nitions of frivolousness and vexatiousness incorpo rate such an objective element. See United States v. Knott, 256 F.3d 20, 29 (1st Cir. 2001) (vexatiousness requires that “the criminal case was objectively de cient, in that it lacked either legal merit or factual foundation, and … that the govern ment’s conduct, when viewed objectively, manifests mali ciousness or an intent to harass or annoy”); United States v. Sherburne, 249 F.3d 1121, 1126–27 (9th Cir. 2001) (vexatious ness requires a showing of both objective de ciency and a subjective intent to harass); Manzo, 712 F.3d at 811 (“[a] frivo lous position is one lacking a reasonable legal basis or where the government lacks a reasonable expectation of attaining su cient material evidence by the time of trial”) (citation omitted); United States v. Gilbert, 198 F.3d 1293, 1299 (11th Cir. 1999) (“A ‘frivolous action’ is one that is ‘[g]roundless … with little prospect of success; often brought to embarrass or annoy the defendant.’” (quoting BLACK’S LAW DICTIONARY 668 (6th ed. 1990))). We conclude that, for purposes of the Hyde Amendment, the terms “vexatious” and “frivolous” both re quire a prevailing party to demonstrate that the government’s position was objectively de cient—in other words, that the government lacked a su cient factual or legal basis on which to initiate or proceed with the case.3 the government’s position was sufficiently objectively deficient to be ei ther vexatious or frivolous. 3 Terzakis argues that requiring a showing of objective deficiency for both terms would violate the principle of statutory construction directing courts “to give effect, if possible, to every clause and word of a statute,” Duncan v. Walker, 533 U.S. 167, 174 (2001) (citations omitted), because it would render the term “vexatious” mere surplusage, see Babbitt v. Sweet Home Chapter of Cmtys. for a Great Or., 515 U.S. 687, 698 (1995) (noting No. 16 3340 9 courts’ “reluctance to treat statutory terms as surplusage”) (citation omit ted). Specifically, Terzakis says that if frivolousness requires a showing of objective deficiency only, and vexatiousness requires a showing of objec tive deficiency plus an intent to harass, then it is hard, if not impossible, to imagine a scenario where the government’s position is vexatious but not frivolous. The Third and Sixth Circuits’ suggested distinction does not fully re solve this surplusage issue. Those courts reasoned that “[a] ‘frivolous’ po sition can be distinguished from a ‘vexatious’ one in that ‘the term “vexa tious” embraces the distinct concept of being brought for the purpose of irritating, annoying, or tormenting the opposing party.’” Manzo, 712 F.3d at 811 (quoting United States v. Heavrin, 330 F.3d 723, 729 (6th Cir. 2003)). Such a distinction simply adds an additional requirement—showing a subjective intent to harass—to the objective deficiency requirement for showing frivolousness. This formulation would make all vexatious posi tions frivolous ones. Alternatively, interpreting these cases to suggest that vexatiousness requires showing only the government’s subjective intent to harass, regardless of the objective strength of the government’s posi tion, would potentially render the definition of vexatious redundant with the term “bad faith,” replicating the surplusage problem in a different part of the same clause of the Hyde Amendment. See Gilbert, 198 F.3d at 1299 (bad faith “implies the conscious doing of a wrong because of dishonest purpose or moral obliquity; … it contemplates a state of mind affirmatively operating with furtive design or ill will” (quoting BLACK’S LAW DICTIONARY 139 (6th ed. 1990))). The principle of attempting to give effect to each statutory term has limits, however. Duncan notes that statutes should be construed this way “if possible,” 533 U.S. at 174; and Babbitt speaks of “reluctance,” rather than an absolute bar, 515 U.S. at 698. In the Hyde Amendment, the terms vexatious, frivolous, and bad faith are all closely related and require some combination of objective deficiency and subjective bad intent. It may not be possible to create three distinct terms with independent meanings from the combination of only these two elements. However, we need not re solve such issues today, because Terzakis has not shown that the govern ment’s case was objectively deficient, or that it was brought to harass Ter zakis. 10 No. 16 3340 The essence of Terzakis’s argument is that the govern ment’s case was impermissibly weak because it depended on the testimony of Nick Ventrella, who the government knew to have Asperger syndrome and who was later diagnosed with terminal brain cancer. First, Terzakis notes that the govern ment did not call Nick to testify before the grand jury. He ar gues that this is evidence that the government knew it would not call Nick to testify at trial, and that therefore the govern ment’s case was de cient. On the contrary, this suggests that the government had a su ciently strong case without Nick’s testimony to convince a grand jury that there was probable cause to indict Terzakis, based on the documentary evidence of the allegedly fraudulent transactions that the government could have presented before the grand jury or at trial. Next, Terzakis cites to Dr. Levin’s 2009 medical report sug gesting that Nick had cognition issues before and throughout the government’s investigation. He speculates that Nick’s mental health “very likely” deteriorated between the time the report was issued and the 2013 indictment. Terzakis con cludes that as a result of Nick’s mental condition, Nick was e ectively unavailable to testify at trial. However, as the dis trict court correctly noted, simply having Asperger syndrome does not disqualify a witness from testifying. See Fed. R. Evid. 601 (“Every person is competent to be a witness unless these rules provide otherwise.”). As with any other witness, Ter zakis would have had the opportunity to cross examine Nick regarding his cognitive abilities and recollection of the rele vant events. Susceptibility to cross examination is not a basis on which to conclude that such a witness must be incredible, much less e ectively unavailable. No. 16 3340 11 Finally, Terzakis argues that, even if Nick would have been available to testify prior to his October 2015 brain cancer diagnosis, he must have been unavailable at least from that point until the December 2015 dismissal. Terzakis claims that such unavailability supports a bad faith prosecution argu ment. There are several problems with this line of argument: First, Terzakis did not make this narrower argument until his reply brief, so it is waived. Darif v. Holder, 739 F.3d 329, 336– 37 (7th Cir. 2014) (citations omitted). Second, the main docu ment Terzakis uses to support this argument, a report written by Dr. Norman V. Kohn, was not presented to the district court prior to Terzakis’ reply brief in support of his motion for attorney’s fees, and so the court was not required to address it. See Narducci v. Moore, 572 F.3d 313, 324 (7th Cir. 2009) (“the district court is entitled to nd that an argument raised for the rst time in a reply brief is forfeited”). In any event, Dr. Kohn never met Nick, and so was unable to assert based on personal or direct knowledge that Nick was unable to testify at any par ticular point in time; rather the report extrapolates from the e ects of brain cancer on cognition generally.4 Third, the gov ernment informed Terzakis of Nick’s cancer diagnosis imme diately after learning of it, so Terzakis was apprised of this relevant information before resuming plea negotiations. Fourth, as with his other arguments above, Terzakis does not provide any authority that a witness with brain cancer must 4 The report states, “Mr. Ventrella died of brain cancer in 2016. Well before causing death, malignant brain cancer destroys portions of the brain and causes increased pressure on the entire brain, almost always causing progressive loss of cognitive (mental) function.” Dr. Kohn opined that as a result of Nick’s Asperger syndrome and brain cancer, Nick “was continuously impaired, and unable to testify, from the time of Dr. Levin’s [August 2009] examination … until the time of his death in 2016.” 12 No. 16 3340 be considered unavailable as of the date of the diagnosis or any particular time thereafter. In short, Terzakis has not shown that the government’s decision to drop the charges against Terzakis was anything but an exercise of prosecutorial discretion in the face of challenges to securing a conviction at trial. III. Conclusion For the foregoing reasons, we AFFIRM the judgment of the district court.