U.S. v. Thompson, 99-40019-01-DES.

• Decision Date: 09 June 2000
• Docket Number: No. 99-40019-01-DES.,No. 99-40019-02-DES.,99-40019-01-DES.,99-40019-02-DES.
• Citation: 104 F.Supp.2d 1303
• Parties: UNITED STATES of America, Plaintiff, v. Douglas G. THOMPSON and Roger D. Thompson, Defendants.
• Court: U.S. District Court — District of Kansas

104 F.Supp.2d 1303

UNITED STATES of America, Plaintiff, v. Douglas G. THOMPSON and Roger D. Thompson, Defendants.

No. 99-40019-01-DES.

No. 99-40019-02-DES.

United States District Court, D. Kansas.

June 9, 2000.

Gregory G. Hough, Assistant United States Attorney, for plaintiffs.

Melody Evans, Assistant Federal Public Defender, and Debra Egli James of Hampton & Royce L.C., Salina, KS, for defendants.

MEMORANDUM AND ORDER

SAFFELS, District Judge.

On May 22, 2000, the court held a hearing on nine motions and took all the motions under advisement.¹ The court has considered the briefs and oral arguments of all parties. The defendants' Motion to Dismiss for Post-Indictment Delay (Docs. 43 and 53) is granted. Because the action is dismissed, the court does not need to rule on the remaining motions.

I. BACKGROUND

Defendants have moved to dismiss a nine count indictment. The indictment charges that Douglas ("Doug") Thompson and Roger Thompson and others knowingly and unlawfully combined, conspired, confederated, and agreed to execute a scheme to defraud the Small Business Administration ("SBA"), an agency of the United States, use of the mail in furtherance of the scheme, and engaging in monetary transactions in criminally derived property, in violation of Title 18, U.S.C., §§ 2, 371, 1341, and 1957. Because the first alleged criminal act occurred on March 1, 1994, the five year statute of limitations expired on March 1, 1999. See 18 U.S.C. § 3282. The indictment was returned by the grand jury on February 10, 1999, one month before the statute of limitations was about to expire. Without any discussion on the record, Judge Sam A. Crow ordered the indictment sealed. The indictment was unsealed eleven months later on January 18, 2000.

The charges in this case stem from transactions which occurred between the SBA and Plaza Speedway, a business owned by brothers Doug and Roger Thompson. Defendants owned fifty percent of the corporation, and Bob More owned the other fifty percent. Plaza Speedway was formed in 1985 for the purpose of operating and leasing a dirt track racing facility near Junction City, Kansas. During June 1993, the Plaza Speedway property was significantly damaged by flooding. On January 18, 1994, defendants applied for a re-building loan from the SBA's Disaster Loan Program. Defendants made statements regarding the cost of necessary repairs. The SBA approved and issued a loan for approximately $75,000 to pay for repairs to the Plaza Speedway property.

In 1993, one of Plaza Speedway's tenants contacted the state health department and requested a groundwater assessment. The tests revealed that the water was contaminated. The contamination was allegedly caused by multiple chemical fire extinguishing practice sessions conducted over a period of years by the Army at Fort Riley. On October 13, 1995, Plaza Speedway filed an administrative claim with the Army for diminished property value, loss of revenue, and costs in developing an alternative water supply caused by the water contamination. The dispute was not resolved, and defendants filed a civil action for damages on behalf of Plaza Speedway on August 15, 1997.

During discovery, the depositions of Doug and Roger Thompson were taken on March 18, 1998, and April 22, 1998, respectively. The government claims it became apparent during these depositions to the United States Attorney defending the civil action that there was evidence of criminal activity on the part of Doug and Roger Thompson in connection with the SBA loan to Plaza Speedway. According to the government, the SBA loan proceeds were to be used "soley to rehabilitate or replace" Plaza Speedway property. The loan agreement prohibited Plaza Speedway from using the loan proceeds to pay officers of the company for performing work. The SBA refused to make defendants' proposed modifications to the agreement, including that Plaza Speedway perform all the work and use the loan proceeds to pay off an outstanding loan it owed to First State Bank. The evidence suggested that defendants used the loan money to buy out fifty percent shareholder, Bob More, and refinance the loan to First State Bank. The evidence also suggested defendants initiated a sham transaction in which Bret Young signed a statement, drafted by Doug Thompson, that his company, "Young Construction," would repair the Plaza Speedway property for $77,500. This statement was provided to the SBA in order to receive the loan.

Although the United States Attorney in the civil action knew the matters required further investigation in March 1998, a criminal file was not officially opened until February 2, 1999. A sealed indictment was returned on February 10, 1999, one month before the statute of limitations expired. The indictment was unsealed eleven months later on January 18, 2000. During this time, Plaza Speedway continued to operate. The defendants continued their daily life in the Junction City, Kansas, area, unaware of the indictment. In June 1999, Doug Thompson moved his law practice from Abilene, Kansas, to Chapman, Kansas. During the move, Doug Thompson destroyed files and documents that were more than five years old, including correspondence, phone logs, notes about conversations, tax records, and expenditures regarding the SBA loan. Doug Thompson testified that he would not have destroyed these records if he had known of the pending criminal charges.

The civil action was scheduled to begin March 21, 2000. When the indictment was unsealed on January 18, 2000, the civil trial was continued. At the May 2000 hearing ("hearing"), Plaza Speedway's counsel in the civil action testified that he would attempt to continue the civil trial until the conclusion of the criminal trial.

II. ANALYSIS

Defendants present five arguments in support of their motion to dismiss the indictment: (1) Statute of Limitations, (2) Speedy Trial Act, (3) Speedy Trial Clause of the Sixth Amendment, (4) Due Process Clause of the Fifth Amendment, and (5) Federal Rule of Criminal Procedure 48. The delay in this case results from sealing the indictment beyond the statute of limitations. Courts addressing delay caused by the sealing of an indictment past the statute of limitations have rejected arguments to dismiss an indictment based on the Speedy Trial Act² and Rule 48.³ Because the court finds that the action should be dismissed under the statute of limitations, the court does not need to address defendants' sixth amendment and due process arguments.

The filing of a sealed indictment within the statutory period may serve to toll the statute of limitations even if the indictment is not unsealed until after the period has expired, provided the indictment was sealed for a legitimate prosecutorial purpose. United States v. Watson, 599 F.2d 1149, 1154 (2nd Cir.1979) (citing United States v. Michael, 180 F.2d 55, 56-57 (3rd Cir.1949)). Defendants argue that the indictment was not sealed for a proper purpose and they suffered prejudice. When the sealing of an indictment is challenged, the government must "explain and support the legitimacy of its reasons for sealing the indictment." United States v. Srulowitz, 819 F.2d 37, 41 (2nd Cir.1987).

The court must engage in a three-part inquiry to determine whether the sealed indictment tolled the statute of limitations: (1) Was the original decision to seal the indictment proper?; (2) If properly sealed, was the length of time the indictment was sealed reasonable?; and (3) Was the defendant prejudiced by the sealing of the indictment? See United States v. Shell, 961 F.2d 138, 141-143 (9th Cir.1992); Srulowitz, 819 F.2d at 40-41. The parties presented substantial evidence concerning this inquiry at the hearing.

A. Was the Indictment Properly Sealed?

To toll the statute of limitations, the initial sealing must be proper. United States v. Lakin, 875 F.2d 168, 170 (8th Cir.1989); United States v. Southland Corp. 760 F.2d 1366, 1379-80 (2nd Cir. 1985). The authority to place an indictment under seal is found in Federal Rule of Criminal Procedure 6(e)(4), which provides that an indictment may be sealed until the defendant is in custody or has been released pending trial. A few courts have held that obtaining custody over a defendant or co-defendants is the only valid reason for sealing an indictment. See United States v. Slochowsky, 575 F.Supp. 1562, 1568 (E.D.N.Y.1983) ("this court is of the opinion that Rule 6(e)(4) circumscribes the Government's power to seal an indictment"); United States v. Sherwood, 38 F.R.D. 14, 20 (D.Conn.1964) (concluding that the sealing of an indictment must be "exercised only to accomplish the limited purposes authorized by the criminal rule for which it was designed"). The more predominate view is that an indictment may be sealed for any legitimate prosecutorial purpose. United States v. Bracy, 67 F.3d 1421, 1426 (9th Cir.1995); Lakin, 875 F.2d at 171; United States v. Ramey, 791 F.2d 317, 321 (4th Cir.1986); United States v. Edwards, 777 F.2d 644, 647-48 (11th Cir.1985); Michael, 180 F.2d at 56-57.

The government claims that its proper purpose is twofold: (1) to conduct necessary "follow-up" investigation and (2) to avoid influencing the on-going civil suit and the appearance that the prosecution was brought in retaliation against defendants for filing the civil litigation against the government.

The need for investigation is recognized as a legitimate prosecutorial purpose for sealing an indictment. See Bracy, 67 F.3d at 1426; Lakin, 875 F.2d at 171. However, the government must demonstrate to the court that the need for investigation actually existed. See Sharpe, 995 F.2d at 52. Defendants claim the government completed discovery prior to obtaining the indictment, through its discovery in the civil case. At the hearing, FBI Special Agent Rick Rindt testified concerning the government's investigation. Agent Rindt stated that he was informed of the need to open a criminal matter in January...