United States v. Terzakis

• Decision Date: 27 April 2017
• Docket Number: No. 16-3340,16-3340
• Citation: 854 F.3d 951
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. John D. TERZAKIS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

854 F.3d 951

UNITED STATES of America, Plaintiff-Appellee,

v.John D. TERZAKIS, Defendant-Appellant.

No. 16-3340

United States Court of Appeals, Seventh Circuit.

Argued April 5, 2017

Decided April 27, 2017

Debra Riggs Bonamici, Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Chicago, IL, Margaret Jean Schneider, Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Rockford, IL, for Plaintiff-Appellee.

Ray M. Shepard, Attorney, SHEPARD LAW FIRM, LLC, Glen Burnie, MD, Beau B. Brindley, Attorney, LAW OFFICES OF BEAU B. BRINDLEY, Chicago, IL, for Defendant-Appellant.

Before Wood, Chief Judge, and Flaum and Hamilton, Circuit Judges.

Flaum, Circuit Judge.

John D. Terzakis was indicted for transporting stolen goods. After the government conceded that its key witness would be unavailable to testify at trial, it moved to dismiss the case. Terzakis then filed a motion under the Hyde Amendment seeking attorney's fees, which the district court denied. For the following reasons, we affirm.

I. Background

In the early 1990s, Terzakis met Berenice Ventrella, the trustee for a family trust with extensive real-estate holdings. Terzakis ran a company that managed and developed real estate and eventually managed some of Berenice's property. In March 2007, Berenice and Terzakis created an LLC to hold one of Berenice's properties in Buffalo Grove, Illinois. The LLC purchased the property from Berenice using a $15 million loan.

Shortly before her death in January 2008, Berenice appointed her son Nick, who had Asperger syndrome

, to be the successor trustee of the Ventrella trust. Soon after Berenice passed away, Terzakis opened an account in the name of the "Estate of Berenice Ventrella." Terzakis allegedly took Nick to various banks and had him transfer funds from accounts that had belonged to Berenice into this new estate account. Subsequently, between March and September 2008, Terzakis transferred about $4.2 million from the estate account to the account for the LLC he had opened with Berenice and which he now controlled. Terzakis then transferred at least $3.9 million from the LLC account to different personal accounts of his that were unrelated to the Ventrella family. He later proffered that this money was a loan from Berenice's estate for "working capital"; however, the Buffalo Grove property held by the LLC was never developed, and there are no documents memorializing a loan from Berenice's estate to Terzakis.

Thereafter, the government investigated these transfers. Law enforcement officers reviewed Terzakis's ledgers detailing some of the above transactions and other records from various banks and members of the Ventrella family. However, Nick was the only witness with personal knowledge of Terzakis's allegedly fraudulent statements about the purpose of the transfers.

During the investigation, Nick's relatives disclosed to the government an August 2009 psychological report authored by Dr. Karen F. Levin regarding Nick. It noted that Nick "had a very poor grasp of time," that he "had difficulty with simple questions about the present," and that he showed "a lack of organized thought." The report also remarked on Nick's "excellent recall of very old events with fine details of numbers," and that "[h]e was very good with calculations." Dr. Levin ultimately opined that Nick "clearly has a longstanding cognitive disability that would likely fall upon the autism

spectrum," and needed assistance managing his finances and other aspects of life. Between 2010 and 2013, the government held several interviews with Nick and questioned him about the bank transfers. Nick told the government that Terzakis had expressed to Nick that the transfers were for developing the Buffalo Grove property held by Terzakis's LLC.

In April 2013, the government brought the case before a grand jury. Nick did not testify at the proceeding; however, the indictment indicates that the government informed the grand jury that Nick had cognitive problems. On April 25, 2013, several days before the limitations period was to lapse for four of the underlying transfers, the grand jury returned a five-count indictment for transmitting stolen money, in violation of 18 U.S.C. § 2314. The case proceeded without resolution for two years. Then, in October 2015, the government learned that Nick had been diagnosed with brain cancer

, with a prognosis of six months. The government informed Terzakis of the diagnosis, and the parties resumed plea negotiations. On December 23, 2015, Terzakis rejected the government's plea offer and demanded a speedy trial. On January 8, 2016, the government moved to dismiss the case, citing Nick's unavailability, and the court entered a dismissal order later that day. Nick passed away several months later.

On February 5, 2016, Terzakis moved to recover attorney fees under the Hyde Amendment, Pub. L. No. 105-119, § 617, 111 Stat. 2440, 2519 (1997) (reprinted in 18 U.S.C. § 3006A, historical and statutory notes). On August 19, the district court denied Terzakis' motion. This appeal followed.

II. Discussion

This Court has not explicitly stated the standard of review for appeals of Hyde Amendment cases. All other circuits to address the question have reviewed the district courts' decisions for abuses of discretion. See United States v. Manzo , 712 F.3d 805, 809 (3d Cir. 2013) (collecting cases). We agree and review the district court's decision on Terzakis's motion for attorney's fees for abuse of discretion. A district court abuses its discretion by applying an incorrect legal standard, or by reaching an outcome that is unsupported by the record or based on a clearly erroneous finding of fact. United States v. Warner , 498 F.3d 666, 680 (7th Cir. 2007).

The Hyde Amendment "authorizes the court in a criminal case to award a reasonable attorney's fee to ‘a prevailing party, other than the United States,’ if the court finds that the government's position was ‘vexatious, frivolous, or in bad faith.’ " United States v. Sriram , 482 F.3d 956, 958–59 (7th Cir. 2007) (quoting 18 U.S.C. § 3006A ), vacated on other grounds , 552 U.S. 1163, 128 S.Ct. 1134, 169 L.Ed.2d 946 (2008). The defendant in the underlying criminal case bears the burden of demonstrating these requirements by a preponderance of the evidence. See United States v. Manchester Farming P'ship , 315 F.3d 1176, 1182 (9th Cir.), opinion amended on denial of reh'g , 326 F.3d 1028 (9th Cir. 2003) ; United States v. Truesdale , 211 F.3d 898, 908 (5th Cir. 2000).

A. Prevailing Party

The district court determined that Terzakis was a "prevailing party" because the government had dismissed the indictment after the limitations period had lapsed. The government argues that the district court erred in making this ruling. We may review the government's arguments as alternate grounds for affirmance, because concluding that Terzakis was not a prevailing party would produce the same outcome as the district court's order. See Jennings v. Stephens , ––– U.S. ––––, 135 S.Ct. 793, 798, 190 L.Ed.2d 662 (2015) ("An appellee who does not take a cross-appeal may ‘urge in support of a decree any matter appearing before the record, although his argument may involve an attack upon the reasoning of the lower court.’ " (quoting United States v. Am. Ry. Exp. Co. , 265 U.S. 425, 435, 44 S.Ct. 560, 68 L.Ed. 1087 (1924) )).

The Hyde Amendment does not define the term "prevailing party." In civil fee-shifting contexts, however, "a plaintiff ‘prevails' when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Farrar v. Hobby , 506 U.S. 103, 111–12, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992) ; see also Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of Health & Human Res. , 532 U.S. 598, 603, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001) ("A ‘prevailing party’ is one who has been awarded some relief by a court.") (citation omitted). This principle does not map neatly onto the criminal context, where the Hyde Amendment limits the reach of the term "prevailing party" to defendants. The principle is clear enough as applied to some dispositions: A conviction is sufficient to disqualify a defendant as a prevailing party—even when the sentence was lighter than what the government sought, see Sriram , 482 F.3d at 959 —while an acquittal following a trial would clearly make a defendant a prevailing party. However, the prevailing-party analysis is not as clear-cut for dispositions either that do not afford full relief on the merits or that result in a conviction.

In this case, the government moved to voluntarily dismiss the indictment against Terzakis well after the statute of limitations had run. The government does not dispute that it was precluded from pursuing these charges in the future under the applicable statute of limitations, but argues that Terzakis did not prevail because the dismissal was not "relevant to [his] guilt or innocence." United States v. Chapman , 524 F.3d 1073, 1089 (9th Cir. 2008). This may be true, but, like a dismissal with prejudice—which satisfies the prevailing-party requirement because it "materially alters the legal relationship of the parties, as it precludes the government from bringing a prosecution that it otherwise would be entitled to bring," id. —the dismissal here materially altered the relationship between the government and Terzakis:

The government could no longer prosecute Terzakis for the allegedly fraudulent transfers. Thus, the district court did not err in determining that Terzakis was the prevailing party in this case.¹

B. Vexatious, Frivolous, and Bad Faith

The district court concluded that Terzakis had not met his burden of showing that the government's case was vexatious, frivolous, or taken in bad faith, as required for fee-shifting under the Hyde Amendment. Terzakis first argues that the district court abused its discretion by applying incorrect legal standards. Specifically, he argues...