United States v. Valueland Auto Sales , 687 F. App'x 503 ( 2017 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 17a0243n.06
No. 16-3984
UNITED STATES COURT OF APPEALS FILED
FOR THE SIXTH CIRCUIT Apr 28, 2017
DEBORAH S. HUNT, Clerk
UNITED STATES OF AMERICA, )
)
Plaintiff-Appellee, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE SOUTHERN
) DISTRICT OF OHIO
VALUELAND AUTO SALES, INC., )
)
OPINION
Defendant-Appellant. )
)
Before: BOGGS, MOORE, and McKEAGUE, Circuit Judges.
KAREN NELSON MOORE, Circuit Judge. Defendant Valueland Auto Sales, Inc.
(“Valueland”) appeals the district court’s denial of its motion for attorney fees under the Hyde
Amendment. The United States charged Valueland and two of its officers with structuring cash
deposits to cause financial institutions to fail to file required Currency Transaction Reports
(“CTRs”), and with filing false IRS forms. After multiple negotiations, the government
voluntarily dismissed several of the counts and entered into a deferred-prosecution agreement
with Valueland. The agreement was set to expire on August 2, 2015, and on that date, in
accordance with the agreement, the government voluntarily dismissed all remaining claims
against Valueland. Valueland subsequently moved for attorney fees and expenses under the
Hyde Amendment. The district court denied the motion, and this appeal followed.
For the following reasons, we AFFIRM the district court’s denial of defendant’s motion
for attorney fees under the Hyde Amendment.
No. 16-3984, United States v. Valueland Auto Sales, Inc.
I. BACKGROUND
Valueland is a used-automobile dealer operating in Columbus, Ohio. According to
Valueland, it operates a “buy-here,” “pay-here” car lot that generally sells to customers with poor
credit. R. 153–1 (Benit Aff. at 1) (Page ID #1000). According to Valueland, it is located in a
“high crime area” of Columbus. Id. at 1 (Page ID #1000). Because most of the customers pay
their weekly or biweekly payments in cash, Valueland asserts that it had a companywide policy
of taking large cash payments to the bank as soon as possible, typically at the beginning and end
of each day, to avoid keeping large sums of cash at the dealership. Id. at 2 (Page ID #1001).
Prior to 2009, when “Valueland’s customer base was much smaller, the cumulative sum of
Valueland’s deposits [on a given day] rarely exceeded $10,000.” Id. at 2 (Page ID #1001).
These deposits eventually caught the attention of the Internal Revenue Service (“IRS”).
Specifically, the IRS suspected Valueland of purposefully structuring cash deposits at banks to
avoid the filing of CTRs. Financial institutions are required to file CTRs with the Department of
the Treasury each time they engage in a currency transaction in excess of $10,000. 31 U.S.C.
§ 5313. The IRS launched an investigation in 2010, and obtained a warrant in July 2011 to
search Valueland and the content of its computers. In June 2013, a grand jury charged Valueland
with twenty-two counts of structuring cash deposits to cause financial institutions to fail to file
required CTRs. R. 1 (Indictment at 2–3) (Page ID #2–3). The indictment also charged co-owner
Ron Benit with four counts of structuring. Id. at 5–6 (Page ID #5–6). In October 2014, a
superseding indictment added two new counts against Valueland and co-owner Jerry S. Browner
for filing false IRS Forms 8300 (Report of Cash Payments Over $10,000 Received in Trade or
2
No. 16-3984, United States v. Valueland Auto Sales, Inc.
Business) regarding automobiles sold at Valueland. R. 54 (Superseding Indictment at 7–8) (Page
ID #355–56).
On January 28, 2015, upon request from the government, the district court dismissed
fourteen counts of the superseding indictment. R. 113 (Dist. Ct. Order at 1) (Page ID #679). By
the following week, a deal was struck. All charges against Benit were dropped, and the
government issued a superseding misdemeanor information against Browner, who pleaded
guilty. R. 158 (Dist. Ct. Order at 2–3) (Page ID #1285–86). Finally, the parties entered into a
deferred-prosecution agreement. Id. at 3 (Page ID #1286). Under this agreement, Valueland
“acknowledge[d] that the United States gathered evidence that the government believed
demonstrated” that Valueland had, at various times, filed false Forms 8300 and structured cash
deposits to cause financial institutions not to file CTRs. R. 121 (Deferred Prosecution
Agreement at 1) (Page ID #693). However, Valueland “denie[d] that it engaged in the charged
conduct and denie[d] that it violated Title 31.” R. 121–1 (Deferred Prosecution Agreement
Statement of Facts at 1) (Page ID #698). Valueland also agreed not to commit any crimes and
“to cooperate fully and actively with the [government]” by disclosing certain information,
attending meetings with the government, securing accurate testimony from former and current
officers and employees, and responding to document requests or related inquiries. R. 121
(Deferred Prosecution Agreement at 2) (Page ID #694). The deferred-prosecution agreement
was to remain in effect until August 2, 2015. Id. At that time, in accordance with the agreement,
the government requested that the remaining counts against Valueland be dismissed with
prejudice. R. 152 (Dist. Ct. Order at 1) (Page ID #990); R. 121 (Deferred Prosecution
3
No. 16-3984, United States v. Valueland Auto Sales, Inc.
Agreement at 3) (Page ID #695). The district court entered an order of dismissal on August 5,
2015. R. 152 (Dist. Ct. Order at 1) (Page ID #990).
On September 4, 2015, Valueland moved for an award of attorney fees pursuant to the
Hyde Amendment. R. 153 (Mot. for Atty Fees at 1) (Page ID #992). The district court denied
Valueland’s motion and held that Valueland was not a prevailing party for the purposes of the
Hyde Amendment. R. 158 (Dist. Ct. Order at 8) (Page ID #1291). This appeal followed.
II. ANALYSIS
A. Standard of Review
The Hyde Amendment permits courts to award attorney fees and expenses to federal
criminal defendants if two requirements are met. First, the defendant must be a “prevailing
party.” Pub. L. No. 105–119, § 617, 111 Stat. 2440 (1997). Second, the court must find “that
the position of the United States was vexatious, frivolous, or in bad faith.” Id. The defendant
bears the burden of establishing that he is entitled to fees under the Hyde Amendment, which
“places a daunting obstacle before defendants who seek to obtain attorney fees and costs from
the government following a successful defense of criminal charges.” United States v. Isaiah, 434
F.3d 513, 519 (6th Cir. 2006) (quoting United States v. True, 250 F.3d 410, 423 (6th Cir. 2001)).
“This court reviews factual aspects of determinations under the Hyde Amendment for clear error,
legal aspects de novo, and discretionary aspects for abuse of discretion.” Id. Ordinarily, “we
will only overturn a district court’s denial of a request for fees under the Hyde Amendment for
an abuse of discretion.” United States v. Skeddle, 45 F. App’x 443, 446 (6th Cir. 2002).
4
No. 16-3984, United States v. Valueland Auto Sales, Inc.
B. “Prevailing party” status
Valueland argues that the district court abused its discretion by holding that Valueland
was not the prevailing party and therefore was not entitled to attorney fees under the Hyde
Amendment. Although Valueland was not acquitted, it argues that the district court’s dismissal
of the superseding indictment with prejudice “undoubtedly materially altered the position of the
parties,” and that it is therefore entitled to relief. Appellant’s Br. at 18.
Whether a defendant who, subsequent to its execution of a deferred-prosecution
agreement, obtains a voluntary dismissal with prejudice is a “prevailing party” for the purposes
of the Hyde Amendment remains an open question in this circuit. See United States v. Alpha
Medical, 102 F. App’x 8, 10 (6th Cir. 2004) (“There is no clear precedent, particularly in this
circuit, as to whether a plaintiff’s voluntary dismissal with prejudice, motivated by pure
practicality rather than by any merit in the defendant’s position, makes the defendant a
‘prevailing party’ for purposes of an award of costs”); see also Bridgeport Music, Inc. v. London
Music, U.K., 226 F. App’x 491, 494–95 (6th Cir. 2007) (declining to decide whether voluntary
dismissal with prejudice confers “prevailing party” status under the Copyright Act, 17 U.S.C.
§ 505). We need not decide the issue in this case because, regardless of its status, Valueland
cannot establish that the government’s position in this case was vexatious, frivolous, or in bad
faith.
C. Conduct of prosecution
To qualify for attorney fees under the Hyde Amendment, it is not enough to show that the
prosecution was unsuccessful. Skeddle, 45 F. App’x at 445. A defendant must establish that the
5
No. 16-3984, United States v. Valueland Auto Sales, Inc.
prosecution was “vexatious, frivolous, or in bad faith.” Id. (citation omitted). “The
government’s position is vexatious if it is brought without reasonable or probable cause or
excuse, for the purpose of irritating, annoying, or tormenting the opposing party.” Isaiah, 434
F.3d at 519 (internal quotation marks and citations omitted). A position is frivolous if it lacks “a
reasonable legal basis or where the government lacks a reasonable expectation of [obtaining]
sufficient material evidence by the time of trial.” Id. at 520 (internal quotation marks omitted)
(alteration in original). Finally, “bad faith” requires more than mere negligence, but rather “a
state of mind affirmatively operating with furtive design or ill will,” or “the conscious doing of a
wrong because of dishonest purpose or moral obliquity.” Id. at 522 (internal quotation marks
omitted). As we have previously stated, the Hyde Amendment is not aimed generally at cases
that the government loses, “but instead at instances of ‘prosecutorial misconduct,’ where the
government had undertaken obviously groundless positions . . . or positions intended solely to
harass defendants rather than to vindicate the rule of law.” Skeddle, 45 F. App’x at 446 (quoting
United States v. Gilbert, 198 F.3d 1293, 1304 (11th Cir. 1999)).
Valueland cannot establish that the government’s prosecution satisfies any of these
elements. Its primary contention is that because the government knew of the nature of its “buy-
here,” “pay-here” dealership that engaged primarily in cash transactions, the government should
have known that Valueland lacked the intent to commit any of the charged offenses. R. 153
(Mot. for Fees at 3–4) (Page ID #994–95). Valueland does not assert, and points to no evidence
that suggests, that the government in fact knew it could not prevail on these charges. In fact, in
the deferred-prosecution agreement, Valueland explicitly “acknowledge[d] that the United States
6
No. 16-3984, United States v. Valueland Auto Sales, Inc.
gathered evidence that the government believed” would support its claims. R. 121 (Deferred
Prosecution Agreement at 1) (Page ID #693) (emphasis added). Moreover, Benit’s counsel
stated in an affidavit that he believed that the government believed that the theory of the
prosecution involved selling cars to criminals for cash and laundering money through Valueland,
and that “Mr. Browner’s past and his alleged connection to criminals were unquestionably at the
center of, and the sole motivation for the Government’s entire investigation.” R. 153–4
(Peterson Aff. at 3) (Page ID #1151) (emphasis added). Absent some allegation of nefarious
purpose or intent, Valueland cannot establish that the prosecution was carried out in bad faith, or
that the government’s position was vexatious and carried out “for the purpose” of harassing or
annoying Valueland. Isaiah, 434 F.3d at 519 (emphasis added).
Nor can Valueland establish that this action was frivolous. The government had a
reasonable basis for pursuing this prosecution and properly withdrew its claims as it obtained
additional discovery. Valueland does not dispute that it made numerous deposits of less than
$10,000 at various financial institutions. See R. 153–1 (Benit Aff. at 7–14) (Page ID #1006–13).
Whether intentional or not, these deposits could support a reasonable inference that the payments
were structured in a manner that would cause financial institutions not to file CTRs. Moreover,
these payments could support a reasonable expectation that the circumstantial evidence in this
case was sufficient to establish not just that structuring occurred but also that Valueland carried
out these payments with knowledge and intent. See United States v. Sutton, 387 F. App’x 595,
599 (6th Cir. 2010) (stating the elements of structuring).
7
No. 16-3984, United States v. Valueland Auto Sales, Inc.
None of Valueland’s arguments are sufficient to establish that the government’s position
was frivolous. Valueland states that the government identified a witness who it earlier claimed
would not be called, and argues that this was a “prime example” of the government’s improper
behavior. Reply Br. at 21. This is unpersuasive. The government properly identified this
witness prior to trial, putting all defendants on notice that she could be called. Valueland has
failed to explain why this witness, who was known to defense counsel to be potentially linked to
this case, demonstrates that the government’s position was vexatious, frivolous, or in bad faith.
Although Valueland presented an affidavit from its officers to rebut the claim that it
intended to violate the law, the government was not required to take Valueland at its word, or to
expect that a jury would accept Valueland’s theory of the case. See Isaiah, 434 F.3d at 521
(holding that the government’s position was supported where “the import of the government’s
circumstantial evidence was debatable, and a reasonable juror would not be compelled to accept
[defendant’s] interpretation of the evidence”). On appeal, Valueland argues that it was clear,
from the nature of its business and from Benit’s relationship with banking institutions, that
Valueland lacked the intent to violate the law. Reply Br. at 15–17. It also states that additional
information would have revealed the lack of intent, including Valueland’s accounting-software
records that balanced with bank deposit slips, prior deposit activity that corroborated Valueland’s
explanation for the various deposits, consistent testimony from employees that neither Benit nor
Browner ever sought to avoid the filing of CTRs, and the lack of motive for either Valueland or
its employees or officers to take part in this crime. Id. at 19–21. While this evidence may
8
No. 16-3984, United States v. Valueland Auto Sales, Inc.
bolster the case that Valueland was innocent, it does not demonstrate that the government’s
position was vexatious, frivolous, or in bad faith.
A defendant seeking Hyde Amendment fees must do more than present evidence of its
innocence. “[T]he Hyde Amendment does not shift to the government the risk of not prevailing
always associated with litigating matters of law and fact on which reasonable people can
disagree before courts and juries.” Skeddle, 45 F. App’x at 446. Where, as here, a defendant
presents nothing more than evidence undermining the prosecution’s case, he has failed to
demonstrate that the position was “vexatious, frivolous, or in bad faith,” and therefore is not
entitled to fees under the Hyde Amendment.
Valueland argues that we should remand this question to the district court, which
declined to address the substantive merits of Valueland’s claim that the government’s position
was “vexatious, frivolous, or in bad faith.” It points to numerous cases where we have
“repeatedly and universally recognized that where . . . the District Court failed to address the
merits of a fee request because it mistakenly determined that the claimant was not a prevailing
party, remand to the District Court for an initial determination of the substantive merits is the
proper relief.” Reply Br. at 12. As a general matter, Valueland is correct. We have previously
recognized that “[t]he 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.” Skeddle, 45 F. App’x at 446. In United States v.
Heavrin, 330 F.3d 723, 731 (6th Cir. 2003), we held that where the district court had determined
that some, but not all, of the counts against defendant were frivolous, it was necessary to assess
9
No. 16-3984, United States v. Valueland Auto Sales, Inc.
whether the case as a whole could also be judged as such. Because the defendant had raised a
claim that the conduct met the standards set by the Hyde Amendment, we remanded the case to
allow the district court to determine whether the case as a whole was frivolous. Id. As a general
rule, therefore, where determination of the propriety of the government’s position requires an
inquiry into the facts surrounding the conduct of the case, a district court should review that
question in the first instance. See id.
But where, as here, the defendant fails to state a claim that, if proven true, would be
sufficient to establish that the government position was vexatious, frivolous, or in bad faith, a
factual determination as to the veracity of those claims is unnecessary, and we may decide the
question as a matter of law.1 Because Valueland’s assertions do nothing more than bolster its
claim of innocence, we hold that it is not entitled to attorney fees under the Hyde Amendment.
III. CONCLUSION
Based on the foregoing, we AFFIRM the district court’s denial of Valueland’s motion
for attorney fees under the Hyde Amendment.
1
Several of the cases cited by Valueland involve requests for attorney fees under different
statutes, and are therefore inapposite. McQueary v. Conway, 614 F.3d 591, 597 (6th Cir. 2010)
(regarding fees under 42 U.S.C. § 1988); Bronco’s Entm’t, Ltd. v. Charter Twp. of Van Buren,
214 F. App’x 572, 575 (6th Cir. 2007) (same); Thoroughbred Software Int’l v. Dice Corp., 488
F.3d 352, 361 (6th Cir. 2007) (regarding fees under the Copyright Act). Unlike the Hyde
Amendment, these statutes commit the decision to award fees to the discretion of the district
court, so long as the requesting party is the “prevailing party.” See 42 U.S.C. § 1988(b) (“In any
action or proceeding to enforce [42 U.S.C. § 1983], the court, in its discretion, may allow the
prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs
. . . .”); 17 U.S.C. § 505 (“In any civil action under [the Copyright Act], the court in its discretion
may . . . award a reasonable attorney’s fee to the prevailing party . . . .”).
10