U.S. v. Brekke, s. 96-1089

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Citation97 F.3d 1043
Docket NumberNos. 96-1089,96-1117,s. 96-1089
PartiesUNITED STATES of America, Appellant/Cross-Appellee, v. Lauree Flaa BREKKE; James Stanley Brekke, Appellees/Cross-Appellants.
Decision Date18 November 1996

Lizabeth A. McKibben, Minneapolis, MN, argued (David L. Lillehaug, on the brief), for Appellant/Cross-Appellee.

Johnathan T. Garaas, Fargo, ND, argued, for Appellees/Cross-Appellants.

Before BOWMAN, LAY, and LOKEN, Circuit Judges.

BOWMAN, Circuit Judge.

Defendants Lauree Flaa Brekke and James Stanley Brekke were indicted in federal district court in Minnesota on charges of bank fraud, making false statements to a financial institution, mail fraud, and conspiracy to commit mail fraud and bank fraud. The District Court, adopting the report and recommendation of a magistrate judge, dismissed the indictment, ruling that an earlier settlement in a civil action in federal district court in North Dakota precluded criminal prosecution. At the same time, the District Court held that the prior settlement did not collaterally estop the government from relitigating the issues involved in the earlier action. The United States appeals the District Court's dismissal of the indictment, and the Brekkes cross-appeal the denial of their collateral estoppel motion. We reverse the dismissal of the indictment, affirm the denial of the collateral estoppel motion, and remand this case for reinstatement of the indictment. 1

I.

In 1990, Brekke Construction, Inc., a North Dakota corporation owned and controlled by the Brekkes, 2 obtained a $350,000 loan from Twin Valley State Bank of Twin Valley, Minnesota (Twin Valley). The Brekkes executed personal guaranties of the loan and granted Twin Valley a mortgage on certain real estate to secure the guaranties. The Brekkes and Twin Valley also applied for a guaranty from the federal Small Business Administration (SBA). As part of the SBA application process, the Brekkes certified that they had pledged particular mortgage positions on particular properties as security for the loan. When Brekke Construction defaulted on the loan and Twin Valley attempted to collect on the SBA's guaranty, the SBA discovered that the mortgage positions represented in the Brekkes' application were incorrect and that Twin Valley's security was subject to a number of undisclosed prior liens. The SBA settled with Twin Valley, reserving the right to pursue Brekke Construction and the Brekkes for reimbursement.

In 1994, the SBA brought a civil suit against the construction company and the Brekkes in federal court in North Dakota. United States v. Brekke Construction, Inc., Civil No. A3-94-80 (D.N.D. filed June 29, 1994). In its amended complaint, the SBA alleged that the Brekkes made false and fraudulent representations to the SBA and conspired to defraud the United States. The SBA sought to recover from Brekke Construction and the Brekkes the SBA's actual losses and treble damages under the False Claims Act, 31 U.S.C. § 3729 (1994).

In November 1994, Brekke Construction, the Brekkes, and the SBA entered into a settlement agreement. In exchange for a payment of $130,000, the SBA agreed to dismiss the civil action with prejudice and to release all other claims against the Brekkes and their company. The settlement agreement stated in relevant part as follows:

D. SBA, BREKKE CONSTRUCTION, JAMES and LAUREE further agree that this Settlement Statement and Mutual Release represents a compromise of disputed claims and that the payment provided for herein is not to be construed as an admission of liability as liability is expressly denied.

....

G. ... BREKKE CONSTRUCTION, INC., JAMES S. BREKKE, LAUREE A. BREKKE, and the UNITED STATES SMALL BUSINESS ADMINISTRATION, their employees, agents and assigns release and discharge each other from any and all claims, whether known or unknown, liquidated or contingent, that each presently has or which each may have against the other. The term "claims" includes, but not exclusively so, claims or causes of action for:

....

(11) Any other claim or cause of action of any kind, including any and all statutory or common law causes of action.

....

L. SBA reserves the right of the United States to initiate legal action against other individuals not parties to this Settlement Statement and Mutual Release for recovery of the balance of the BREKKE CONSTRUCTION debt retained by SBA and not assigned under this agreement.

Settlement Statement and Mutual Release, Appellant's Appendix at 33, 37-39.

In August 1995, a federal grand jury in Minnesota began investigating the Twin Valley loan transaction for possible violations of federal law. The following month, the grand jury returned an indictment against the Brekkes and Rudell Oppegard, the president of Twin Valley. 3 The indictment charged the Brekkes with bank fraud in violation of 18 U.S.C. § 1344 (1994), making false statements to a financial institution in violation of 18 U.S.C. § 1014 (1994), mail fraud affecting a financial institution in violation of 18 U.S.C. § 1341 (1994), and conspiracy to commit bank fraud and mail fraud in violation of 18 U.S.C. § 371 (1994). Specifically, the grand jury charged that the Brekkes misrepresented Twin Valley's lien positions on their collateral; misrepresented that the loan proceeds would be used for working capital; and misrepresented that Twin Valley would not receive any benefit in connection with the loan, when in fact the Brekkes used $50,000 of the loan proceeds to purchase a certificate of deposit from Twin Valley in the name of "Edith Flaa."

The Brekkes moved to dismiss the indictment on several grounds. In December 1995, the District Court denied the Brekkes' motion to dismiss on collateral estoppel grounds but granted their motion to dismiss on res judicata grounds. These appeals followed.

We review de novo the District Court's decision on questions of law, including the application of res judicata, collateral estoppel, and the Double Jeopardy Clause. John Morrell & Co. v. Local Union 304A, 913 F.2d 544, 559 (8th Cir.1990), cert. denied, 500 U.S. 905, 111 S.Ct. 1683, 114 L.Ed.2d 78 (1991); United States v. McMasters, 90 F.3d 1394, 1401 (8th Cir.1996).

II.

We must first consider whether we have jurisdiction over these appeals. Defendants argue that we lack jurisdiction, relying on the following language of 18 U.S.C. § 3731 (1994):

In a criminal case an appeal by the United States shall lie to a court of appeals from a decision, judgment, or order of a district court dismissing an indictment or information ... except that no appeal shall lie where the double jeopardy clause of the United States Constitution prohibits further prosecution.

Section 3731 is designed to permit the government to appeal unfavorable orders in any situation in which the Double Jeopardy Clause does not prohibit an appeal. United States v. Wilson, 420 U.S. 332, 337-39, 95 S.Ct. 1013, 1018-20, 43 L.Ed.2d 232 (1975); United States v. Brown, 481 F.2d 1035, 1040 (8th Cir.1973). As a result, the government's authority to appeal and our jurisdiction to entertain the appeal are intertwined with the merits of defendants' double-jeopardy claim. We therefore agree with those courts which have held that we must consider the merits of the case to determine whether we have jurisdiction. See United States v. Martinez, 667 F.2d 886, 889 (10th Cir.1981) (Lay, F. Gibson, and Bright, JJ., sitting by special designation), cert. denied, 456 U.S. 1008, 102 S.Ct. 2301, 73 L.Ed.2d 1304 (1982); United States v. Castellanos, 478 F.2d 749, 751 (2d Cir.1973). Because we conclude below that a trial in this case would not violate the Double Jeopardy Clause, see Part IV of this opinion, infra, we have jurisdiction over the government's appeal. Cf. United States v. Frazier, 880 F.2d 878, 882 (6th Cir.1989) (holding that government may appeal where district court dismisses indictment on collateral estoppel grounds), cert. denied, 493 U.S. 1083, 110 S.Ct. 1142, 107 L.Ed.2d 1046 (1990).

III.

Having established our jurisdiction, we turn to the res judicata issue. The doctrine of res judicata, also known as claim preclusion, is designed to promote judicial economy by preventing litigants from bringing repetitive lawsuits based on the same cause of action. See Baptiste v. Commissioner, 29 F.3d 433, 435 (8th Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1251, 131 L.Ed.2d 133 (1995). Res judicata bars a party from asserting a claim in court if three requirements are met: (1) the prior judgment was rendered by a court of competent jurisdiction; (2) the decision was a final judgment on the merits; and (3) the same cause of action and the same parties or their privies were involved in both cases. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979); Headley v. Bacon, 828 F.2d 1272, 1274 (8th Cir.1987). We have stated that a civil action may preclude a later criminal prosecution, but only if both actions are based on the same facts and both have punishment as their object. Dranow v. United States, 307 F.2d 545, 556 (8th Cir.1962).

The government has raised a number of objections to the District Court's decision that the dismissal of the North Dakota civil suit bars the prosecution of this criminal action in Minnesota. We need not determine to what extent the two cases are based upon the same facts, nor must we decide whether the SBA, which was represented in the civil suit in North Dakota by a special assistant United States attorney, is in privity with the United States, represented here by the United States Attorney for the District of Minnesota. For two separate reasons, we find that the District Court erred in dismissing the indictment on res judicata grounds.

First, the civil action in North Dakota and this criminal proceeding in Minnesota do not involve the same cause of...

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