United States v. Sherburne

• Decision Date: 21 May 2001
• Docket Number: DEFENDANTS-APPELLEES,99-30218,PLAINTIFF-APPELLANT,99-30214,PLAINTIFF-APPELLEE,DEFENDANT-APPELLANT,No. 99-30213,99-30213
• Citation: 249 F.3d 1121
• Parties: (9th Cir. 2001) UNITED STATES OF AMERICA,, v. SCOTT F. SHERBURNE; JOSEPH J. MCKAY; BLAZE CONSTRUCTION, UNITED STATES OF AMERICA,, v. SCOTT F. SHERBURNE, UNITED STATES OF AMERICA,, v. WILLIAM HARVEY AUBREY, Argued &
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1121

249 F.3d 1121 (9th Cir. 2001)

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT, v. SCOTT F. SHERBURNE; JOSEPH J. MCKAY; BLAZE CONSTRUCTION, DEFENDANTS-APPELLEES.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, v. SCOTT F. SHERBURNE, DEFENDANT-APPELLANT.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, v. WILLIAM HARVEY AUBREY, DEFENDANT-APPELLANT.

No. 99-30213, 99-30214, 99-30218

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued & Submitted January 8, 2001

Filed May 21, 2001

Karin B. Hoppmann, Criminal Division-Appellate Section, Department of Justice,

Washington, D.C., for plaintiff- appellant/plaintiff-appellee United States.

Patrick F. Flaherty, Great Falls, Montana, for defendant- appellee/defendant-appellant Scott F. Sherburne.

John E. Smith, Smith & Thiel Law Offices, Missoula, Montana, for defendant-appellee Blaze Construction.

Ward E. Taleff, Alexander, Baucus, Taleff & Paul, P.C., Great Falls, Montana, for defendant-appellant William Harvey Aubrey.

Appeal from the United States District Court for the District of Montana Donald W. Molloy, District Judge, Presiding. D.C. No. CR-98-00011-DWM.

Before: M. Margaret McKeown, William A. Fletcher, and Johnnie B. Rawlinson, Circuit Judges.

McKEOWN, Circuit Judge

This appeal arises out of the award of attorney's fees to certain criminal defendants--and the denial of fees to others-- under the Hyde Amendment, which authorizes fees in limited circumstances in criminal cases. In the underlying case that led to the fee award, the United States prosecuted thirteen defendants for alleged abuses in the funding and construction of a housing development on the Blackfeet Indian Reservation in Montana. Among the thirteen defendants there were sixteen counts and over fifty charged offenses, but no convictions.

Following the unsuccessful prosecution, the defendants sought attorney's fees under the Hyde Amendment. The district court awarded fees to Blaze Construction, Inc. ("Blaze") and Scott Sherburne,¹ concluding that their prosecution had been "vexatious," and denied fees to various other claimants, including Appellant William Harvey Aubrey. The United States now appeals the award of fees to Blaze and Sherburne. Aubrey separately appeals the denial of his fee request. Sherburne cross-appeals the district court's decision to limit his fees to seventy-five dollars per hour, the ceiling for fees under the Criminal Justice Act. We conclude that the district court applied the wrong legal test for awarding fees under the Hyde Amendment, and therefore we vacate and remand. We further conclude that attorney's fees awarded under the Hyde Amendment should not be capped at seventy-five dollars per hour.

FACTUAL AND PROCEDURAL BACKGROUND

In the early 1990s, Blaze offered to prepare an application for federal grant funds for the Blackfeet Tribe of Montana ("the Tribe"), under the HOME program. The HOME program, operated through the Department of Housing and Urban Development ("HUD"), was designed to fund the construction of private homes for low income Native Americans. The Tribe accepted Blaze's offer, and Blaze--through its president, William Harvey Aubrey--prepared and submitted a grant application to HUD. In the application, the Tribe sought $14,877,000 in federal funds to build seventy-one homes. That federal money was to be supplemented by land donations from the Tribe, federal home loans through the Blackfeet Bank, lease payments from the tenants, and tenant subsidy vouchers. As the contractor, Blaze would receive $5,516,538.

The application was eventually approved, in the exact amount earmarked for Blaze: $5,516,538. Blaze then submitted a bid to the Tribe to perform the required construction work. Blaze proposed to build seventy-two homes, at a cost of $87,000 each. It requested $5,990,000 to fund the project.² The grant would fund the construction of sixty-three units, and Blaze would "[p]rovide, obtain and manage all other (non-government) monies or contributions required for additional units beyond the 63 homes funded by this HUD home grant." Trial testimony suggested that this would be accomplished by mortgaging some of the original homes, and using the resulting funds to build the remainder of the proposed units. Other evidence presented at trial suggested that the funds would have come from the Tribe itself. In the end, only about fifty homes were built, but all of the HUD money was spent.

From beginning to end, from initial application to eventual construction, the process was plagued with difficulty and controversy. To give a flavor of the allegations, we set forth only a few of the issues that arose. According to various HUD employees, Blaze's application was deficient, and was successful only because it was muscled through by a HUD supervisor, Defendant Gloria Dale Lewis--who, according to the United States, was in cahoots with Blaze. Lewis ostensibly sought to bypass the bidding process and to award the contract directly to Blaze. Following an internal investigation, Lewis was removed from supervision of the program, and the situation was reported to the Office of the Inspector General.

Other difficulties arose out of the financial management of the grant. The Tribe requested a "drawdown" of grant money (i.e., an advance), although the money on these projects was typically distributed only as reimbursement. Moreover, according to another HUD employee, the Tribe sought money to pay for land that it had promised to donate.

The housing lottery used to distribute the homes was attacked as "fixed." Many of the homes were awarded to individuals with personal connections to tribal insiders, and there was a pretrial admission by a Blaze employee--later recanted at trial--that Aubrey had manipulated the lottery.

The United States initiated its criminal investigation in 1994. The grand jury issued a first, sealed indictment in August 1997, and a second sealed indictment in December 1997.³ In early 1998, the grand jury returned a third and final indictment, this time including Sherburne as a defendant.

Trial began in September 1998, and ended without any convictions. Some of the charges were dismissed pursuant to judgments of acquittal, see Fed. R. Crim. P. 29; other charges led to a hung jury, a mistrial, and eventual dismissal of the charges; and the jury acquitted on the remaining charges. In the defendants' view, this result was no surprise, as the government never really understood the intricacies of the transactions, the roles of HUD and the Tribe, or the details of the construction funding and the selection of tenants. They believe that the government jumped to conclusions based on superficial evidence, and ignored the complexities of the mortgage financing.

Following the trial, Defendants Blaze, Aubrey, Lodge- builder, Sherburne, McKay, and the Wilsons moved for attorney's fees under the Hyde Amendment, which permits a criminal defendant to recover fees when the government's "position" was "vexatious, frivolous, or in bad faith." 18 U.S.C. §§ 3006A Note. In awarding fees to Blaze and Sherburne, the court expressed misgivings about the prosecution's tactics. For instance, the court stated that the government's decision to dismiss the remaining charges following the mistrial, rather than to pursue a retrial, "raised issues about the government's motivation in this prosecution." Indeed, the court found that the government's insistence that it could prove the mistried charges, if it chose to proceed, was nothing more than "an effort to defeat applications for attorney's fees under the Hyde Amendment."

The court then analyzed the fee applications under the "vexatious" prong of the Hyde Amendment. Citing a district court case from Virginia, United States v. Holland, the court stated that the proper inquiry is whether "a reasonable prosecutor should have concluded that the applicable law and the available evidence were insufficient to prove the defendants' guilt beyond a reasonable doubt." United States v. Aubrey, No. CR 98-11-GF-DWM, slip op. at 11-12, 20 (D. Mt. filed May 12, 1999) (order granting attorney's fees) (quoting 34 F. Supp. 2d 346, 364 (E.D. Va.), vacated in part on other grounds, 48 F. Supp. 2d 571 (E.D. Va. 1999), aff'd, 214 F.3d 523 (4th Cir. 2000)).

The court first awarded fees to Sherburne, finding that "[t]he government's agents distorted the truth as to Sherburne's involvement, specifically regarding" certain letters attributed to Sherburne by the government, as "[t]he letters were written by another person." Moreover, in the court's view, "[t]he government refused to allow Sherburne to explain himself fully, and therefore, it ignored evidence." Finally, regarding the allegations of wire fraud, the court determined that the government had "not presented any facts establishing any false representation made by Sherburne." In awarding fees, the court held that the rate is limited to seventy-five dollars per hour, as specified in the Criminal Justice Act.

The court also awarded fees to Blaze, concluding that "the government proceeded blindly without a sufficient understanding of the facts and the law on which it proceeded. The government misapprehended the issue of the mortgage financing and the reason why it was not accomplished."

Finally, the court denied fees to Aubrey and Lodgebuilder. It noted the "suspicious nature of Aubrey and Lodgebuilder's involvement in securing the grant funds"; suggested that "the circumstances surrounding Aubrey and Lodgebuilder's draw on the grant funds was questionable"; and further pointed to their acquisition of HUD insider information, and the possibility that the housing lottery had been rigged.

ANALYSIS

I. STANDARD OF REVIEW

We review for abuse of discretion a district court's ruling under the Hyde Amendment. United States v. Lindberg, 220 F.3d 1120, 1124 (9th Cir. 2000). Thus, reversal is appropriate only if the reviewing court has "a firm conviction that the district court...