United States v. Racing Services, Inc. ( 2009 )


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  •                      United States Court of Appeals
    FOR THE EIGHTH CIRCUIT
    ___________
    No. 08-3287
    ___________
    United States of America,               *
    *
    Plaintiff - Appellee,              *
    * Appeal from the United States
    v.                                 * District Court for the
    * District of North Dakota.
    Racing Services, Inc.; Susan Bala,      *
    *
    Defendants - Appellants.           *
    ___________
    Submitted: June 11, 2009
    Filed: September 4, 2009
    ___________
    Before LOKEN, Chief Judge, JOHN R. GIBSON and GRUENDER, Circuit Judges.
    ___________
    LOKEN, Chief Judge.
    In United States v. Bala, 
    489 F.3d 334
     (8th Cir. 2007), we reversed federal
    gambling and money laundering convictions arising out of a parimutuel account
    wagering operation in Fargo, North Dakota. The criminal defendants, Racing
    Services, Inc. (RSI), and its president and sole shareholder, Susan Bala, petitioned the
    district court for a certificate of innocence, the statutory prerequisite to an action
    against the government in the Court of Claims seeking damages for wrongful
    imprisonment. 28 U.S.C. §§ 1495, 2513. The district court1 denied the petition on
    1
    The HONORABLE RALPH R. ERICKSON, United States District Judge for
    the District of North Dakota
    two grounds. RSI and Bala appeal. Reviewing the denial of a certificate of innocence
    for abuse of discretion, we affirm, agreeing with the court that RSI and Bala were not
    truly innocent of state criminal gaming law violations. See Betts v. United States, 
    10 F.3d 1278
    , 1283 (7th Cir. 1993) (standard of review).
    To recover damages for wrongful imprisonment under 28 U.S.C. § 1495, Bala
    must obtain a certificate of innocence from the district court in which she was
    convicted. See 28 U.S.C. § 2513(b). As relevant here, to obtain the certificate, Bala
    must allege and prove that her conviction (1) “has been reversed or set aside on the
    ground that [s]he is not guilty of the offense of which [s]he was convicted . . . and (2)
    . . . [her] acts, deeds, or omissions in connection with such charge constituted no
    offense against the United States, or any State . . . and [s]he did not by misconduct or
    neglect cause or bring about [her] own prosecution.” 28 U.S.C. § 2513(a). This
    statute, first enacted in 1938, compensates only the truly innocent, making it
    “necessary to separate from the group of persons whose convictions have been
    reversed, those few who are in fact innocent of any offense whatever.” Betts, 10 F.3d
    at 1284, quoting S. Rep. No. 75-202 (1937). A reversal of the criminal conviction
    based on insufficiency of the prosecution’s evidence does not entitle the defendant to
    a certificate of innocence. See Osborn v. United States, 
    322 F.2d 835
    , 840 (5th Cir.
    1963).
    Under North Dakota law, only charities and other “public-spirited
    organizations” may be licensed as off-track betting operators (“OTBs”) to conduct
    parimutuel wagering on simultaneously broadcasted horse races. See N.D. Cent. Code
    § 53-06.2-06.2 RSI was the sole entity licensed to provide simulcast services to the
    2
    Citations to the North Dakota Century Code are to the provisions in effect at
    the time of Bala’s and RSI’s alleged offenses, October 2002 to April 2003.
    -2-
    OTBs.3 RSI as simulcast service provider was required to pay specified percentages
    of the parimutuel pools to the Racing Commission and the state treasurer. N.D. Cent.
    Code § 53-06.2-11.1 and .2. After paying these fees and “qualifying expenses,” the
    remainder of the amount withheld from the pool must be used “for eligible uses
    allowed to charitable gambling organizations.” § 53-06.2-11.5. Any violation of
    these statutes was a class A misdemeanor. § 53-06.1-16.1.
    In 2001, the Legislature amended this regime to permit parimutuel “account
    wagering,” wagers that are paid electronically from player accounts rather than in
    person. The statute provided that account wagers “may only be made through the
    licensed simulcast service provider,” RSI. § 53-06.2-10.1. After enactment, RSI
    equipped an account wagering call center at 1318 23rd Avenue South in Fargo (“the
    1318 site”). Between October 1, 2002, and April 28, 2003, RSI processed over $99
    million of account wagers at the 1318 site. RSI and Bala distributed none of the
    wagering proceeds to the Racing Commission, to the state treasurer, or to any charity
    licensed to conduct OTB operations. The account wagers were not reported, and RSI
    used a bookkeeping system that disguised the gambling activities at the 1318 site.
    The North Dakota Racing Commission learned of the undisclosed operation and
    shut it down. An FBI investigation and federal criminal prosecution followed. The
    jury convicted RSI and Bala of conducting an illegal gambling business in violation
    of 18 U.S.C. § 1955; illegal transmission of wagering information in violation of 18
    U.S.C. § 1084(a); and eight counts of money laundering and conspiracy to commit
    money laundering in violation of 18 U.S.C. §§ 1956(a)(1)(A)(i), (a)(1)(B)(i), and (h).
    The district court sentenced Bala to twenty seven months in prison. She had served
    seventeen months in prison when we reversed the convictions because of insufficient
    3
    RSI’s simulcast services included providing satellite broadcasts of live races,
    establishing and maintaining combined parimutuel pools of North Dakota wagers, and
    many record-keeping functions. For additional background facts, see Bala, 489 F.3d
    at 336-37.
    -3-
    evidence to support the federal charges. Bala, 489 F.3d at 336. Bala was immediately
    released from custody. This application for a certificate of innocence followed.
    After reviewing the entire case file, including the trial transcript and our
    decision in Bala, the district court concluded that Bala and RSI likely violated
    “numerous sections of the North Dakota Century Code.” Applying 28 U.S.C.
    § 2513(a)(2), the court denied a certificate of innocence because petitioners failed to
    prove that “no offense” was committed, and also because Bala’s negligence
    “contributed to her prosecution.” On appeal, RSI and Bala challenge this ruling,
    arguing (i) it is contrary to our decision in Bala that the failure to obtain a license for
    the 1318 site and the failure to disburse proceeds to charity OTBs did not violate state
    law, and (ii) the court erred in concluding that the actions of Bala or RSI caused the
    baseless prosecution. We need consider only the first issue.
    The decision to deny a certificate of innocence is committed to the sound
    discretion of the district court. Betts, 10 F.3d at 1283. Here, the decision was based
    on the court’s belief that the conduct at issue in the federal prosecution involved the
    violation of one or more state criminal laws. Unlike a criminal case, the court’s belief
    need not be based upon proof beyond a reasonable doubt. Rather, Bala and RSI must
    persuade the district judge who presided over their criminal prosecution that they were
    truly innocent of all crimes to qualify for civil damage relief. See United States v.
    Brunner, 
    200 F.2d 276
    , 280 (6th Cir. 1952) (“Innocence of the petitioner must be
    affirmatively established”).
    When a certificate is denied because the federal court concludes that the
    conduct in question violated state law, our review for abuse of discretion is especially
    deferential. As the D.C. Circuit explained in Rigsbee v. United States, 
    204 F.2d 70
    ,
    72 (D.C. Cir. 1953):
    -4-
    Where, as here, [the trial judge] has exercised that discretion, we cannot
    require him to stultify himself by certifying an opinion contrary to his
    real conviction -- no matter what our own view might be -- except,
    perhaps, in a case in which the refusal to certify innocence was
    completely capricious and without rational basis.
    The point is well-illustrated by the oft-cited opinion in United States v. Keegan, 
    71 F. Supp. 623
    , 639 (S.D.N.Y. 1947), where the trial judge explained:
    [I]f the above quoted dictum of the [United States] Supreme Court is
    binding upon me as an adjudication that the testimony was insufficient
    to prove defendant guilty of [another offense], the testimony is certainly
    sufficient to create so strong a belief in my mind that petitioner was
    guilty of [that offense], that I would not feel justified in certifying that
    he was not guilty of this crime.
    Here, in the federal prosecution, proof of a violation of state law was an element
    of the primary charge, that RSI and Bala violated 18 U.S.C. § 1955 by conducting an
    “illegal gambling business.” In reversing, we held that the government failed to prove
    a state law violation that turned lawful parimutuel account wagering into an illegal
    gambling business. 489 F.3d at 340-41. But we noted that “the government could
    have avoided this evidentiary insufficiency by proving that RSI entered the account
    wagering business never intending to distribute its net proceeds to charity.” Id. at 341.
    We expressed doubt that the government proved any state law violation during the
    seven months in question because the Racing Commission had inexplicably failed to
    promulgate clarifying regulations. Id. at 339-40. But this was an issue we did not
    need to decide, like the Supreme Court dictum referred to in Keegan. In no way was
    our decision premised on Bala’s or RSI’s actual innocence of either state or federal
    charges. Our decision was based on the insufficiency of the evidence to support the
    federal charges.
    -5-
    RSI and Bala secretly collected and distributed $99,000,000 of parimutuel
    account wagers without paying one penny to charities, to the Racing Commission, or
    to the state treasurer, as North Dakota’s gambling laws required. Focusing on the
    overall conduct in question, the trial judge with the greatest knowledge of the case, on
    whom Congress conferred the certification authority, concluded that RSI and Bala are
    not truly innocent of all state law offenses and denied a certificate of innocence.
    Under the deferential standard of review applicable to this issue, we may not overturn
    that decision as an abuse of discretion. Indeed, we agree with the court’s assessment.
    Given this conclusion, we need not address the court’s alternate ground for denying
    a certificate, that Bala’s “negligence contributed to her prosecution such that a
    certificate of innocence is unwarranted” under 28 U.S.C. § 2513(a)(2).
    The district court’s Order dated September 19, 2008, is affirmed. RSI’s motion
    to supplement the record on appeal is denied.
    ______________________________
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