Fighting Back: Remedies for the wrongfully prosecuted?
By David W. Simon
You represent Marsha Jones and her company, Home Healthcare
Inc. After working in various home health-care agencies for several
years, Jones and a friend started their own home health-care business
servicing primarily poor, inner-city neighborhoods. In 1996 the
government commenced an investigation into the Medicare billing
practices of Home Healthcare. Apparently, the company had violated
several Medicare regulations, including one that prohibited licensed,
government-certified nurses from being reimbursed for services provided
unless government-licensed home health-care agencies would not service a
particular area or patient group. You viewed the government's theory as
absurd - your client started her business because the existing home
health-care agencies would not service inner-city neighborhoods.
Assuming that the investigation (and the government's threats of
criminal prosecution) were based simply on a misunderstanding of your
client's business and of the industry, you responded to the government
audit by providing a detailed explanation of her operation and billing
practices.
The prosecutor was undeterred and, under pressure from Washington to
"crack down" on Medicare fraud, prosecuted Home Healthcare, Marsha, and
her partner. Fortunately, the jury - after deliberating for fewer than
30 minutes - returned a "not guilty" verdict. Although Marsha avoided
prison, the business was destroyed because it could not perform any
government-reimbursed services during the investigation and prosecution.
Moreover, the well-publicized indictment and trial severely damaged
Marsha's reputation in the industry, and she has been unable to find
work in her field.
A rather Pyrrhic victory for your client: While you kept her out of
jail, Marsha's business was ruined as a result of the government
investigation and prosecution. When she turned to you, her lawyer,
seeking relief, there wasn't much you could offer. Vindicated criminal
targets or defendants generally are without a remedy in our system. The
immunity doctrines and the very high bar for any civil remedy
historically have made recovery for even the most abusive prosecution
virtually impossible. Until recently, the answer to the question posed
by Secretary of Transportation Ray Donovan following vindication after a
baseless prosecution - "Where do I go to get my reputation back?" -
basically was: "Consider yourself fortunate that you're not in
prison."
A recent development in federal law, however, may permit some victims
of investigatory or prosecutorial abuse to recover, if not their
reputations, at least the costs they incurred in fighting the
government's investigation and prosecution. This development may provide
a remedy for most individuals and small- and medium-sized corporations
prosecuted under federal law. Large corporations and targets of state
court prosecutions still remain without a remedy.
Fee Shifting in Criminal Cases
As an exception to the "American Rule," the Hyde Amendment to 18 U.S.C. section
3006A permits a defendant that prevails in criminal prosecution to
recover its attorney fees and costs if it can show that the prosecution
was "vexatious, frivolous, or in bad faith." Specifically, the Hyde
Amendment provides:
"[T]he court, in any criminal case, ... 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."
1
Rep. Henry Hyde, the sponsor of this amendment, defended his bill
against attacks that it would unreasonably burden federal prosecutors,
saying:
"I would hope this would take some time and resources from the
Justice Department. They might think twice about bringing cases for
which there is no substantial justification. If someone is a prosecutor
and they are going to wrench somebody out of their job and their home
and put them on trial as a criminal, there ought to be enough in the
case that it is substantially justified.
"To say one does not want them to waste their resources on cases that
are not substantially justified, what about the citizen who has been put
through the hoops? What is the remedy, if not this, for someone who has
been unjustly, maliciously, improperly, abusively tried by the
Government, by faceless bureaucrats who hire a law firm or get a U.S.
Attorney looking for a notch on his gun?"2
Because the Hyde Amendment is of such recent vintage, it has yet to
be interpreted by the courts.3 The Hyde
Amendment specifically incorporates the procedural provisions of the Equal Access to
Justice Act (EAJA),4 which permits
prevailing civil litigants to recover attorney fees and costs from the
United States where the position of the government was not
"substantially justified." The case law interpreting the fee-shifting
provisions of the EAJA will help guide litigants and courts interpreting
the Hyde Amendment's criminal fee-shifting provision.
To recover costs and attorney fees under the Hyde Amendment, a
criminal defendant must file a petition for fees and costs - including
an itemized list of expenses and an allegation that the government's
position was "vexatious, frivolous or in bad faith" - within 30 days of
the judgment upon which the applicant seeks recovery.5 To successfully recover its costs and fees, the
applicant must clear several hurdles:
Client eligibility for fee shifting. First, the
defendant must win the case - only "prevailing parties" may recover;
however, it is unclear how broadly courts will interpret "prevailing
party." Certainly, criminal defendants who are acquitted by a jury or
who successfully move the court for a judgment of acquittal will be
eligible. But what about less clear-cut victories? What if the
prosecutor sees the error in her ways and voluntarily dismisses the case
midway through trial? What about a lengthy and intrusive grand jury
investigation that ultimately is dropped? What if the defendant is
charged in a multicount indictment, acquitted on the majority of the
serious charges, but convicted on a minor tag-along charge?
It appears clear that an indicted criminal defendant who convinces
the prosecutor that the government cannot win and thus should drop the
case has "prevailed" in a criminal case and is eligible to recover its
fees and costs. The unconsummated grand jury investigation hypothetical
is less clear. While the statute's language appears to preclude recovery
for the grand jury target (the provision applies only in a "criminal
case"), the U.S. Supreme Court has concluded that, for purposes of the
Fifth Amendment privilege against self-incrimination, a grand jury
proceeding is a criminal case.6 Moreover,
the purpose of the Hyde Amendment suggests a broad interpretation; an
abusive grand jury investigation can cause nearly as much pain to a
target as a criminal prosecution. Thus, although the scope of the
statute is unclear in this respect, a grand jury target certainly may
argue that the Hyde Amendment applies even if no indictment follows.
As to the mixed-verdict hypothetical, in light of the provision's
purpose - to deter government overreaching - there is no reason that
such a defendant should not be eligible to recover under the Hyde
Amendment. A court may well conclude that an indictment that includes
several baseless but serious charges along with a well-founded but minor
charge is abusive. Moreover, the test for whether a civil litigant has
prevailed under the EAJA strongly suggests a broad reading of the term
in the criminal context as well. Under the EAJA a party has prevailed if
it has succeeded on any significant issue in litigation that achieved
some of the benefit sought in bringing suit.7
Congress has limited eligibility for fee shifting to individuals and
small- to medium-sized businesses by expressly incorporating the EAJA
eligibility provisions into the Hyde Amendment.8Only individuals with a net worth of less than $2
million or corporations or other organizations with a net worth of less
than $7 million and 500 or fewer employees are eligible to recover fees
and costs.9 The fee applicant bears the
burden of proving its eligibility for a fee award, although it may
satisfy its initial burden by simply filing an affidavit asserting that
it meets the statute's eligibility requirements.10
Vexatious, frivolous or bad faith
prosecution. The vindicated criminal defendant must show that
the government's position was "vexatious, frivolous, or in bad faith."
The original bill proposed by Rep. Hyde incorporated the standard of the
EAJA, which requires the government to show its position was
"substantially justified."11 Fierce
opposition from the Department of Justice prompted Congress to
substitute the "frivolous, vexatious or in bad faith" standard to make
recovery more difficult. This standard imposes a substantially higher
burden on a criminal defendant seeking to recover attorney fees and
costs; it requires a fee applicant to show either that the government's
factual or legal theory was so baseless as to be "frivolous" -
interpreted in the context of Rule 11 of the Federal Rules of Civil
Procedure to mean a claim or defense having no reasonable basis in law
or fact12 - or that the prosecution or
investigation was improperly motivated.
This subset of criminal prosecutions undoubtedly will be relatively
small; however, it will not be a null set. The House-Senate Conference
Committee made it clear that "a grand jury finding of probable cause to
support an indictment does not preclude a judge from finding that the
government's position was vexatious, frivolous or in bad faith."13
Special circumstances that make an award unjust.
Even where an award of attorney fees otherwise would be appropriate, a
district court nevertheless may decline to make an award if it finds
special circumstances that would make the award of fees and costs
unjust. As under the similar EAJA provision, the government should bear
the burden of proving the existence of such special
circumstances.14Although the term defies
bright-line rules, courts interpreting this provision of the EAJA
generally consider factors such as whether the government urged a
departure from existing law (especially if the interpretation is later
adopted), and the conduct of the private litigant applying for
fees.15
The structure and language of the Hyde Amendment, however, suggest
that courts evaluating applications for fees thereunder should be more
reluctant to find "special circumstances" than in EAJA applications. The
EAJA (which imposes the burden on the government to demonstrate that its
position was substantially justified) includes the special circumstances
provision as a "safety valve" to ensure that the government is not
deterred from advancing novel but good-faith arguments for extending
existing law.16 Because the Hyde Amendment
provision requires the fee applicant to demonstrate that the
government's position was vexatious, frivolous, or in bad faith, it is
likely the "special circumstances" escape hatch will be invoked rarely
and only where truly special circumstances apply.
Monetary limits on recovery. A district court will
have substantial discretion to fashion an appropriate fee award under
the Hyde Amendment.17The EAJA provisions
expressly incorporated into the Hyde Amendment provide limits and
guideposts for the district courts. Under the statute, attorney fees are
capped at $125 per hour, unless cost of living increases or special
circumstances justify a higher award.18(Congress recently increased the allowable hourly
rate to $125 from $75 to reflect cost of living increases; thus, it is
unlikely that a court will deviate from the fixed rate based on cost of
living increases in the near future.) However, special circumstances may
justify an increased hourly rate. Relevant special circumstances may
include the qualifications and skills of the attorneys, the market rate
for attorney fees, whether the attorney practices in a specialized
substantive area of the law such as environmental, governmental
contracts, or patent law, and the social value of the decision in the
case.19 Any fees incurred in making the fee
application also are recoverable under this provision.20 Besides attorney fees, a prevailing defendant
also may recover its costs, including expenses of expert witnesses and
the cost of reports, studies, or analyses necessary to prepare the
party's case.21
Thus, in our hypothetical scenario, the Hyde Amendment may allow you
to recover fees and costs on behalf of Marsha Jones and Home Healthcare.
The defendants clearly prevailed in a criminal case, having been
acquitted at trial. They also meet the other eligibility requirements:
Home Healthcare only has two employees and a net worth of less than
$100,000; Jones is an individual with a very modest net worth. Moreover,
no special circumstances are present that would make fee shifting
unjust.
As likely will be the case in most Hyde Amendment applications, the
main issue likely will be whether the defendant can show that the
government's position was vexatious, frivolous, or in bad faith. Perhaps
the prosecution was frivolous because it had no basis in fact; the
defense may be able to persuade the judge that the government did not
sufficiently investigate the home health-care industry. Or maybe the
defense can establish the prosecution was in bad faith because it was
motivated by political pressure to "crack down" on Medicare fraud. In
our scenario, it would be worthwhile to make the application.
Large corporations and state targets remain without a remedy
The relatively generous eligibility requirements of the Hyde
Amendment will make criminal fee shifting an option for many vindicated
targets of federal prosecutions: Most individuals and small- to
medium-sized businesses will be eligible for recovery if they can
satisfy the elements of the statute. But what about larger corporations
or those prosecuted in state court? Such vindicated targets are without
a remedy as our system currently is constituted.
General Dynamics Corp. recently found itself in a position
not conceptually different from Marsha Jones. In 1978 General Dynamics
entered into a contract with the U.S. Army to build a prototype of an
anti-aircraft weapon system. Shortly after the agreement was
consummated, the Defense Contract Audit Agency (DCAA) commenced a series
of audits of General Dynamics' charging under the contract. These audits
culminated in a DCAA audit report concluding that General Dynamics
mischarged approximately $8.4 million to the government. The DCAA
conclusions were wrong; in fact, the entire audit was based upon a
fundamental misunderstanding of the contract terms. Nevertheless, the
DCAA audit report was referred to the Department of Justice in 1984. An
extensive criminal investigation ensued, resulting in a 1985 indictment
charging General Dynamics and several of its officers with conspiracy
and with making false statements to the United States. Eighteen months
later, the Department of Justice realized that its criminal case was
founded on a seriously flawed DCAA audit. The prosecutors voluntarily
dismissed the indictment.
Clearly, General Dynamics is too big a corporation to be eligible for
fee shifting under the Hyde Amendment. Civil remedies against the United
States government also generally are foreclosed. One may sue the United
States for damages in tort only pursuant to the procedures and
limitations of the Federal Tort Claims Act (FTCA) 22 , which includes several important exceptions to
the United States' waiver of sovereign immunity. The FTCA explicitly
prohibits recovery against the United States for claims arising out of
false arrest, malicious prosecution, and abuse of process, as well as
claims arising out of the exercise or performance of a discretionary
function or duty by a government employee. 23
General Dynamics attempted to avoid the FTCA's various limitations
and exceptions by suing for professional malpractice the DCAA auditors
who initiated and pursued the investigation. 24A federal district court concluded that General
Dynamics had proved its malpractice claim and awarded the company $25
million in damages. However, the Ninth Circuit Court of Appeals
reversed, holding that the United States was immune from suit under the
FTCA under the discretionary function exception.25 A divided panel rejected General Dynamics'
attempt to posture its case as an attack on the government auditors
rather than on the prosecutors, holding that "[w]here, as here, the harm
actually flows from the prosecutor's exercise of discretion, an attempt
to recharacterize the action as something else must fail."26
The Ninth Circuit's rejection of General Dynamics' creative attempt
to bypass the FTCA restrictions and obtain a civil remedy for damages
sustained as a result of a misguided investigation and prosecution
appears to foreclose federal civil remedies for large corporations.
Finally, consider targets of Wisconsin state court prosecutions. Like
large corporations, such targets have no recourse for unsuccessful
criminal investigations and prosecutions. There is nothing in the
Wisconsin criminal code analogous to the Hyde Amendment that would
permit fee shifting. Civil remedies also are limited: Sovereign immunity
protects the state from suit, and any waiver of sovereign immunity
includes an exception for discretionary functions of state
agents.27 And under Wisconsin law,
"prosecutors possess absolute immunity with respect to the initiation
and pursuit of prosecution." 28 State
investigators or auditors also likely will be protected by absolute or
qualified immunity. 29
Conclusion
The Hyde Amendment fee shifting provision will apply only in those
rare cases where a prosecution goes truly and fundamentally awry.
However, the statute is a powerful tool for successful criminal
defendants who have been victimized by federal government overreaching.
Lawyers representing criminal defendants like Marsha Jones now have at
least one possible answer when their acquitted client asks, "What next?"
Those representing large corporations or targets of state prosecutions,
however, remain without a remedy.
David W. Simon,
U.C.-Berkeley 1994, is an associate with the Milwaukee office of Foley
& Lardner. He formerly was a law clerk to the Hon. Robert W. Warren,
U.S. District Court for the Eastern District of Wisconsin.
Endnotes
1 111 Stat. 2440, 2518, PL 105-119
(1997).
2 143 Cong. Rec. H7786-04, *H7792
(Sept. 24, 1997).
3 The only reported fee application
to date was rejected because the criminal defendant was acquitted before
the Hyde Amendment went into effect.See Cleared of Army Fraud, Woman
Loses Effort to Recover Legal Fees, Wall St. J. (March 26, 1998) at
B13; see also Ann Davis,Life in a Federal Prosecutor's
Cross Hairs, Wall St. J. (March 17, 1998) at B1.
4 Equal Access to Justice Act, 28 U.S.C. §
2412. The Hyde Amendment provides that its 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."
5 28 U.S.C. §
2412(d)(1)(B) .
6 See In the Matter of Grand
Jury Empanelled February 14, 1978, 597 F.2d 851, 857 n.12 (3d Cir.
1979) (quoting Counselman v. Hitchcock, 142 U.S. 547
(1892)).
7 See Texas State Teachers
Ass'n v. Garland Ind. School Dist., 489 U.S. 782, 790-92
(1989);Lundin v. Meacham, 980 F.2d 1450, 1457-59 (D.C. Cir.
1992).
8 The Hyde Amendment incorporates
the "procedures and limitations" of 28 U.S.C. §
2412.
9 28 U.S.C. §
2412(d)(2)(B)(i).
10 See D'Amico on behalf NLRB
v. Industrial Union of Marine & Shipbuilding Workers, 630 F.
Supp. 919, 922 (D. Md. 1986);see also Cabo Dist. Co. Inc. v.
Brady, 1993 WL 313112 (N.D. Cal.).
11See 143 Cong. Rec.
H7786-04, *H7792 (Sept. 24, 1997).
12 See, e.g., Eastway Const.
Corp. v. City of New York, 637 F. Supp. 558, 564-65 (E.D.N.Y. 1986)
(Weinstein, J.).
13 House Conference Report No.
105-405 (Nov. 13, 1997).
14See Love v. Reilly,
924 F.2d 1492, 1495 (9th Cir. 1991);The Taylor Group Inc. v.
Johnson, 919 F. Supp. 1545, 1548 (M.D. Ala. 1996).
15 See generally Ralph
V. Seep,Annotation: What Constitutes "Special Circumstances"
Precluding an Award of Attorneys' Fees Under Equal Access to Justice
Act, 106 A.L.R. Fed. 191 (collecting cases).
16 H.R. Rep. 1418 [1980] U.S.
Code Cong. & Admin. News 4984, 4990.
17See, e.g., Hensley v.
Eckerhart, 461 U.S. 424, 436-37 (1983) (fee shifting under 42 U.S.C. §
1988 ).
18 28 U.S.C. §
2412(d)(2)(A)(ii).
19 See Gary Knapp,
Annotation, The Award of Attorneys' Fees in Excess of $75 per Hour
Under Equal Access to Justice Act, 119 A.L.R. Fed. 1.
20 See INS v. Jean, 496
U.S. 154, 110 S. Ct. 2316 (1990).
21 28 U.S.C. §
2412(d)(2)(A).
22 28 U.S.C. §
1346(b).
23 28 U.S.C. §
2680. For the "discretionary exception" to apply, government acts at
issue must involve an element of judgment or choice and must be grounded
in policy. Berkovitz v. United States, 486 U.S. 531 (1988).
24 General Dynamics Corp. v.
United States, 1996 WL 200255 (C.D. Cal.).
25 See General
Dynamics v. United States, 139 F.3d 1280 (9th Cir. 1998).
26 Id. at 1286. In
dissent, Judge O'Scannlain disagreed with the majority's application of
the discretionary function exception. Under O'Scannlain's reading of
Ninth Circuit precedent, a court must evaluate each separate action on a
case-by-case basis to determine whether the specific actor had the type
of discretion Congress intended to shield via the discretionary function
exception. O'Scannlain concluded that the professional negligence of the
government auditors was not of the sort Congress intended to protect.
Id. at 1287-88 (O'Scannlain, J., dissenting).
27 See Wis. Const., Art.
IV § 27; see also 57 Am. Jur. Mun. Torts § 181.
28 Ford v. Kenosha
County, 160 Wis. 2d 485, 504, 466 N.W.2d 646, 653 (1991).
29 Yarney v. State of Wisconsin,
DHSS, 1998 WL 345030 at *3 (Ct. App. 1998)(slip op.).
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