U.S. v. Heavrin

• Decision Date: 03 June 2003
• Docket Number: No. 01-6565.,01-6565.
• Citation: 330 F.3d 723
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Donald HEAVRIN, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

330 F.3d 723

UNITED STATES of America, Plaintiff-Appellant, v. Donald HEAVRIN, Defendant-Appellee.

No. 01-6565.

United States Court of Appeals, Sixth Circuit.

Argued: May 9, 2003.

Decided and Filed: June 3, 2003. Pursuant to Sixth Circuit Rule 206

COPYRIGHT MATERIAL OMITTED

Candace G. Hill (briefed), Assistant United States Attorneys, Louisville, KY, Terry M. Cushing (argued and briefed), Assistant United States Attorney, Louisville, KY, for Plaintiff-Appellant.

Harley N. Blankenship (argued and briefed), Louisville, KY, for Defendant-Appellee.

Donald M. Heavrin, Heavrin & Associates, Louisville, KY, for pro se.

Before: KENNEDY, SILER, and GILMAN, Circuit Judges.

OPINION

GILMAN, Circuit Judge.

After participating in a number of financial transactions involving a now-bankrupt corporation, Donald Heavrin was indicted on 14 counts of bankruptcy fraud. The trial commenced in October of 2000. At the end of the trial, but before the case was submitted to the jury, Heavrin moved for a judgment of acquittal on all of the charges pursuant to Rule 29 of the Federal Rules of Criminal Procedure. The district court granted Heavrin's motion.

Heavrin subsequently filed a motion to have the government pay his attorney fees and costs pursuant to the Hyde Amendment, 18 U.S.C. § 3006A. Finding that three of the substantive counts, along with their respective money-laundering counts, were frivolous, the district court granted in part and denied in part Heavrin's motion. The government then filed this timely appeal, contending that (1) the district court applied the wrong legal standards to Heavrin's motion, (2) the counts in question were not frivolous, and (3) Heavrin did not prove that he was an eligible "party" entitled to seek reimbursement under the Hyde Amendment. For all of the reasons set forth below, we AFFIRM the finding of the district court that Heavrin qualified as a "party" under the Hyde Amendment, but VACATE the judgment and REMAND the action to determine whether Heavrin is entitled to attorney fees and costs under the proper legal standards.

I. BACKGROUND

A. Factual background

Robert Harrod and Michael Macatee were the principal shareholders of Triple S Restaurants, Inc. Heavrin was Harrod's stepson and Triple S's outside counsel. Triple S periodically obtained loans for its business operations from McDonnell Douglas Finance Corporation (MDFC). In the early 1990s, MDFC required Harrod and Macatee to obtain key-man life insurance policies as collateral for MDFC's loans to Triple S. Harrod and Macatee obtained such policies, which designated Triple S as the beneficiary. The key-man life insurance policy on Harrod, issued by Jackson National Life Insurance Company, was in the amount of two million dollars. MDFC was the assignee for the full face value of the policy.

In March of 1994, Harrod was diagnosed with terminal cancer. Heavrin began negotiating with MDFC to secure a portion of the Harrod insurance proceeds for Harrod's heirs in April or May of that year. The basis for Heavrin's negotiations was the threat of a lender-liability lawsuit against MDFC. Shortly thereafter, Heavrin recommended to Harrod and Macatee that they transfer their respective key-man life insurance policies to irrevocable trusts. Harrod accordingly transferred his policy to the Robert Harrod Trust, of which Harrod was the trustee and sole beneficiary, on June 17, 1994. Harrod died on September 2, 1994.

Triple S began having financial difficulties in the early 1990s. On September 30, 1994, Triple S filed a petition for bankruptcy under Chapter 11. The Chapter 11 proceeding was converted to a Chapter 7 bankruptcy three months later. Because nobody told David Chinn, the attorney who handled Triple S's bankruptcy filing, about the transfer of Harrod's key-man life insurance policy, Chinn did not list the transfer in the bankruptcy petition.

In November of 1994, Jackson National Life disbursed $1.75 million, plus interest, from the proceeds of the Harrod insurance policy to MDFC pursuant to the negotiations between Heavrin and MDFC. It paid to the Harrod Trust the remaining $250,000, plus interest. Of the $250,000, Heavrin paid his stepsister $75,000 and kept $175,000 for himself. Harrod's probate records and death tax returns, however, which Heavrin submitted as the executor of Harrod's estate, failed to disclose the $250,000 insurance payment to Herrod's heirs.

Heavrin later entered into an agreement pursuant to which he sold his shares of stock in Total Vend, Inc., a vending company, for $1,105.000. There was no connection between Triple S and Total Vend, but Heavrin's interest in Total Vend became relevant during his deposition taken in connection with Triple S's bankruptcy proceeding. In the course of the deposition, which occurred prior to the sale of the Total Vend shares, Heavrin claimed to have no ownership interest in Total Vend. The government discovered during Heavrin's criminal trial that he did not mention the shares of Total Vend in his deposition because they were in a revocable trust at the time that he was deposed.

B. Procedural background

Both the bankruptcy judge handling the Triple S bankruptcy action and the United States Trustee's Office reported Heavrin's conduct to the United States Attorney's Office. After the government presented a case against Heavrin to a federal grand jury, the grand jury returned an indictment in September of 1999, charging Heavrin with fraudulently transferring or concealing Triple S's key-man life insurance policy on Harrod, in violation of 18 U.S.C. § 152(7) (Count 1); fraudulently concealing the $250,000 in proceeds from Harrod's policy that were paid to the Harrod Trust, in violation of 18 U.S.C. § 152(1) (Count 2); and laundering the $250,000 that he had fraudulently diverted from Triple S, in violation of 18 U.S.C. § 1957 (Counts 3-5).

The government discovered Heavrin's sale of his Total Vend shares and his disclaimer of ownership interest during his bankruptcy deposition, which was taken after the grand jury returned its original indictment. As a result, the grand jury returned a number of superseding indictments, culminating in a third superseding indictment dated October 18, 2000. In the third superseding indictment, the grand jury added counts for criminal contempt of the bankruptcy court's orders, in violation of 18 U.S.C. §§ 401(3), 402 (Count 7), fraudulently concealing from the bankruptcy court the proceeds that Heavrin received from the Total Vend sale, in violation of 18 U.S.C. § 152(1) (Count 8); fraudulently making a material false statement in his bankruptcy deposition, in violation of 18 U.S.C. § 152(2) (Count 9); and additional money-laundering counts, in violation of 18 U.S.C. § 1957 (Count 5) (original Count 5 was renumbered Count 6) and 18 U.S.C. § 1956(a)(1)(B)(i) (Counts 10-14).

An eight-day trial was held in district court, commencing on October 23, 2000. Heavrin testified in his own defense. During Heavrin's testimony, his counsel produced a document showing that Heavrin did not directly own stock in Total Vend at the time of his bankruptcy deposition because it was part of a revocable trust that was transferred back to him sometime after he was deposed. The government thereupon agreed to dismiss Count 9, even though this document had not been provided to the government before trial.

At the end of all the proof, but before the case was submitted to the jury, Heavrin moved for a judgment of acquittal on all charges pursuant to Rule 29 of the Federal Rules of Criminal Procedure. The district court granted Heavrin's motion. United States v. Heavrin, 144 F.Supp.2d 769 (W.D.Ky.2001).

Heavrin subsequently moved for an award of attorney fees and costs pursuant to the Hyde Amendment, Pub.L. No. 105-119, § 617, 111 Stat. 2519 (1997), reprinted in 18 U.S.C. § 3006A, Historical & Statutory Notes. The district court held that Heavrin was entitled to an award, and requested additional briefing regarding the proper amount. United States v. Heavrin, 187 F.Supp.2d 738 (W.D.Ky.2001). After considering the parties' supplemental memoranda, in which Heavrin sought $72,421.30, the court awarded him $17,486.60. It is from this partial grant of Heavrin's motion that the government appeals.

II. ANALYSIS

A. Standard of review

"[D]istrict court decisions on Hyde Amendment applications are reviewed for an abuse of discretion." United States v. True, 250 F.3d 410, 422 (6th Cir.2001). "An abuse of discretion occurs when the lower court relies on clearly erroneous findings of fact, or when it improperly applies the law or uses an erroneous legal standard." Id. at 422 n. 9 (internal quotation marks omitted). A district court likewise abuses its discretion when we are "firmly convinced that a mistake has been made, i.e., when we are left with a definite and firm conviction that the trial court committed a clear error of judgment." Id. (internal quotation marks omitted).

B. Award of attorney fees and costs under the Hyde Amendment where only some of the counts are found to be vexatious, frivolous, or in bad faith

The government first contends that the award of attorney fees and costs was unjustified because the district court found that only some of the counts were vexatious, frivolous, or in bad faith, as opposed to a finding that the government's prosecution of the case was generally vexatious, frivolous, or in bad faith. In partially granting Heavrin's motion, the district court held that Counts 2, 7, and 9 were frivolous, but that Count 1 was not frivolous. (Counts 3, 4, 5, 6, and 10 through 14 were money-laundering charges, and were derivative of the substantive counts. If certain substantive counts were frivolous, presumably so were their corresponding derivative counts.)

1. Interpretation of the Hyde Amendment

The award of attorney fees and costs pursuant to the Hyde Amendment where some of the counts are found to be frivolous and others are not is apparently a...