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).

²143 Cong. Rec. H7786-04, *H7792 (Sept. 24, 1997).

³The 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.

⁴Equal 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) .

⁶See 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 SeeTexas 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.

⁹28 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 ).

¹⁸28 U.S.C. § 2412(d)(2)(A)(ii).

¹⁹See 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.

²⁰See INS v. Jean, 496 U.S. 154, 110 S. Ct. 2316 (1990).

²¹28 U.S.C. § 2412(d)(2)(A).

²²28 U.S.C. § 1346(b).

²³28 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).

²⁴General Dynamics Corp. v. United States, 1996 WL 200255 (C.D. Cal.).

²⁵See General Dynamics v. United States, 139 F.3d 1280 (9th Cir. 1998).

²⁶Id. 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).

²⁷See Wis. Const., Art. IV § 27; see also 57 Am. Jur. Mun. Torts § 181.

²⁸Ford v. Kenosha County, 160 Wis. 2d 485, 504, 466 N.W.2d 646, 653 (1991).

²⁹Yarney v. State of Wisconsin, DHSS, 1998 WL 345030 at *3 (Ct. App. 1998)(slip op.).

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