United States v. Michel Thyfault ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 07-2769
U NITED S TATES OF A MERICA,
Plaintiff-Appellant,
v.
M ICHEL T HYFAULT,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 CR 779—James B. Moran, Judge.
A RGUED O CTOBER 20, 2008—D ECIDED A UGUST 26, 2009
Before B AUER, K ANNE and W ILLIAMS, Circuit Judges.
B AUER, Circuit Judge. On November 4, 2004, a multi-
count superceding indictment charged Michael Thyfault
and other individuals with multiple mail fraud and tax
evasion offenses. The indictment accused the defendants
of being the prime movers in a major scheme to
defraud Intercounty Title Company of Illinois (“Inter-
county”) and related entities. The scheme involved theft
and mismanagement of Intercounty’s escrow funds over
2 No. 07-2769
a ten-year period, during which time Intercounty’s
deficits were covered by thefts from its escrow account.
Thyfault was charged with one count of conspiracy to
commit mail fraud and four counts of mail fraud. The
jury acquitted Thyfault on the conspiracy count, but was
unable to reach a verdict on the mail fraud counts. The
government then sought to retry Thyfault on the mail
fraud counts; Thyfault moved to dismiss the charges on
the basis of issue preclusion, arguing that his conspiracy
acquittal precluded the government from attempting
to prove his intent to defraud, an element of the mail
fraud charges. The district court agreed and granted the
motion. The government brings this appeal, contending
that the district court erred in granting Thyfault’s
motion because a rational jury could well have found
that Thyfault intended to violate the law, but not in
agreement with others as charged in the conspiracy. We
reverse.
I. BACKGROUND
Jack Hargrove and Laurence Capriotti were co-owners
of Intercounty, a Chicago-based title insurance and
escrow agent. The company sold title insurance policies
issued by Stewart Title Guaranty Company. Thyfault, a
certified public accountant, was hired as Intercounty‘s
chief financial officer in 1989, a capacity in which he
served until 1995.
By the late 1980s, Intercounty was running an annual
deficit in the millions as the result of a price war in the
title insurance market. To cover its losses, Intercounty
No. 07-2769 3
invested in junk bonds in the hopes that the bond
yield would outperform their real estate obligations. The
plan backfired, and Intercounty got itself into a hole
from which it never recovered.
From about 1990 onward, Intercounty’s deficits were
offset by thefts from the escrow account. During that
time, company management engineered numerous fraud-
ulent schemes that ultimately robbed the company of
more than $60 million. Under one such scheme,
Capriotti and Hargrove purchased certificate of deposits
(“CDs”) with escrow funds which were then used to
secure loans. When the loans came due, Capriotti and
Hargrove cashed out the escrow-funded CDs and paid
off the loans. Thyfault directed the transfer of escrow
funds to purchase at least two CDs. According to
Thyfault, he was skeptical of the practice of buying CDs
with escrow money and did not understand how it bene-
fitted the company.
The misuse of the escrow funds did not stop there.
Another large overdraft related to an escrow file
associated with a golf course community that Capriotti
and Hargrove built known as Ruffled Feathers. In 1992,
Capriotti, Hargrove and Thyfault were among those
who met to discuss the negative balance in the Ruffled
Feathers escrow file. During that meeting, Thyfault
had with him a printout showing the negative balance,
which was approximately $5 million at the time. Capriotti
discussed a plan to falsify records of the deficit in a
report that would be circulated to other mangers at
Intercounty. According to Thyfault, he did not contribute
4 No. 07-2769
to the conversation about what was to be done or partici-
pate in the alteration of the records.
Intercounty’s escrow account was also depleted by
the direct transfer of escrow money into the operating
account. James Wallin, Intercounty’s treasurer, carried
out the transfers at Capriotti’s direction. At a civil deposi-
tion, Thyfault acknowledged knowing that transfers
had been made from the escrow account to the operating
account.
One reason Capriotti and Hargrove’s thefts escaped
detection was a large float in the escrow account that
could be as high as $20 or $30 million on any given
day. Another reason was a bogus escrow agreement
Capriotti and Hargrove cooked up with Independent
Trust Corporation (“Intrust”), a company specializing in
land trusts and self-directed IRAs. Under the deal,
Intrust transferred trust holders’ cash investments to
Intercounty’s escrow account. Intercounty was to invest
the Intrust money in government obligations and then
pay out the resulting interest to Intrust for the benefit of
its trust holders. Intrust was, not coincidentally, owned
by Hargrove. Thyfault’s responsibility was to play the
role of scorekeeper, monitoring the transfer of funds
back and forth between Intrust and Intercounty and
calculating the interest and fees. These scores were kept
on a spreadsheet, a copy of which Thyfault provided to
Intrust each month. However, the spreadsheets reflected
false information. Although the accounting showed
interest payments being made to the escrow file set up
for Intrust’s deposits, no such deposits were made after
No. 07-2769 5
January 1994 because Intercounty lacked the funds to
honor them. According to Thyfault, he had reservations
about this practice, but did not believe it was illegal
since it had been authorized by the appropriate parties;
he did not raise his concerns with Capriotti.
In November 1996, Capriotti fired Thyfault. Thyfault
was provided with a severance package that paid him
his full salary for six months and a percentage of his
salary for an additional eighteen months. According to
Intercounty’s comptroller, George Stimac, Capriotti gave
Thyfault the severance package to “keep him quiet”
because he was the “weak link” in the Intercounty hierar-
chy. After Thyfault’s firing, the fraud continued for
several more years. During that time, Capriotti and
Hargrove continued to transfer funds from Intrust to
Intercounty and from Intercounty’s escrow account to
its operating account. By the late 1990s, however, the
various schemes unraveled and both Intercounty and
Intrust collapsed.
Thyfault was charged with four counts of scheming
to defraud through the U.S. mail, in violation of 18
U.S.C. § 1341, and one count of conspiring to participate
in the fraud scheme, in violation of 18 U.S.C. § 371.
Thyfault and Hargrove were jointly tried before a jury,
while the other defendants involved in the fraudulent
scheme entered into plea agreements with the government.
Thyfault did not dispute that the charged scheme
existed or that large amounts of money were stolen, but
argued that the scheme was perpetrated by Capriotti
and others without his knowing participation. Thyfault’s
6 No. 07-2769
counsel acknowledged that Thyfault may have been
negligent, but claimed that his client did not act with
an intent to defraud.
When the jury returned its verdicts, Hargrove was
found guilty of conspiracy to commit mail fraud and
mail fraud but the jury acquitted Thyfault on the con-
spiracy count and was unable to reach a verdict on the
scheme-to-defraud charges. The jury did not indicate
which mail fraud element or elements it was unable
to unanimously agree upon.
The government obtained a second superceding indict-
ment charging Tyfault with four counts of scheming
to defraud using the U.S. mail. Thyfault moved to
dismiss the charges on the grounds of collateral estoppel,
arguing that the acquittal on the conspiracy count pre-
cluded his retrial on the fraud scheme charges. The
district court granted the motion, holding that Thyfault
met his burden of showing that, by acquitting him of
the conspiracy charge, the jury necessarily found no
intent to defraud. The government filed a timely appeal.
II. DISCUSSION
On appeal, the government contends that the district
court erred in determining that issue preclusion applied
when it granted Thyfault’s motion to dismiss the second
superceding indictment. We review de novo determina-
tions of issue preclusion. United States v. Bailin, 977 F.2d
270, 281 (7th Cir. 1992).
In a criminal context, issue preclusion, or collateral
estoppel, means that when an issue of ultimate fact has
No. 07-2769 7
been determined by a valid and final judgment, the
same parties cannot re-litigate that issue in any future
lawsuit. United States v. Salerno, 108 F. 3d 730, 741 (7th
Cir. 1997). This court has identified three rules governing
the application of issue preclusion in criminal cases:
(1) the court should not apply the rules of issue
preclusion in a hypertechnical manner, but rather,
should examine the pleadings, evidence, charges and other
relevant material to determine whether a rational jury
could have based its verdict on another issue; (2) issue
preclusion only applies when a relevant issue in a sub-
sequent prosecution is an “ultimate issue,” meaning an
issue that must be proven beyond a reasonable doubt;
and (3) the defendant bears the burden of proving that
the prior jury necessarily determined the “ultimate
issue.” Id.A conspiracy is an agreement between two or more
persons to accomplish an unlawful purpose. To obtain a
conviction, the government must prove: (1) that the
conspiracy existed; (2) that the defendant knowingly
became a member of the conspiracy with the intent to
further it; and (3) that an overt act was committed by at
least one conspirator in furtherance of the conspiracy.
18 U.S.C. § 371. To convict a defendant of mail fraud,
the government must prove: (1) that the defendant know-
ingly devised or participated in a scheme to defraud
or obtain money or property by means of materially
false pretenses, representations, promises, or omissions
as described in that count of the indictment; (2) that the
defendant did so knowingly and with the intent to de-
fraud; and (3) that the defendant used the United States
mail as a carrier. 18 U.S.C. § 1341.
8 No. 07-2769
The question is thus whether the jury’s acquittal on
the conspiracy count precludes the government from
attempting to prove Thyfault’s intent to defraud, an
element of the mail fraud charges. 1 The district court
found that the only explanation for the jury’s acquittal on
the conspiracy count was that it had concluded Thyfault
in fact lacked the intent to defraud. The government
now argues that that interpretation is too narrow; it
contends that the jury could have based the acquittal
merely on a reasonable doubt that Thyfault joined the
agreement to defraud.
Because Hargrove was convicted of the conspiracy
charge, it is settled that the jury found the existence of an
agreement between two or more of the defendants to
commit mail fraud, and that an overt act was taken by
at least one individual in furtherance of that agreement.
Additionally, we can safely say that, in its acquittal of
Thyfault on the same charge, the jury determined that
the government had failed to meet its burden concerning
at least one of the three requisite elements.
Reviewing the jury’s verdict and the evidence at trial,
one possibility is that the jury concluded that although a
conspiracy to commit mail fraud existed, the govern-
1
The fact that the jury was unable to reach a verdict on the
mail fraud charge after acquitting Thyfault of the conspiracy
charge does not factor into our analysis. The Supreme Court
recently considered this question in Yeager v. United States, 2009
WL 1685935 (June 18, 2009), holding that, “consideration of
hung counts has no place in issue preclusion analysis.”
No. 07-2769 9
ment failed to prove that Thyfault acted with intent to
further the conspiracy to defraud. This is the determina-
tion that the district court reached and the one that
Thyfault urges us to affirm.
We agree with the government that other plausible
possibilities exist. For instance, it is certainly possible that
the jury concluded that the government failed to prove
Thyfault had joined the agreement, and as such, did not
reach the issue of whether he acted with intent to
further its underlying purpose, the scheme to defraud
Intercounty.
Thyfault bears the burden of demonstrating that the
acquittals in the first trial necessarily decided in his
favor an issue that would ultimately be required to
convict him in the second. Salerno, 108 F. 3d at 741. We
believe he has failed to do so. To obtain a conviction
for mail fraud, the government would have to prove
beyond a reasonable doubt Thyfault’s intent to defraud;
but, we are unpersuaded that this element was decided
against the government when Thyfault was acquitted of
conspiracy.
Thyfault argues that the issue of whether he
knowingly became a member of the conspiracy is inex-
tricably linked with that of whether he acted with intent
to advance its ends because of the manner in which
the government presented its evidence at trial. It is true,
as Thyfault claims, that the government argued at trial
that the same evidence would prove Thyfault’s guilt
concerning both the conspiracy and mail fraud counts
because that evidence would prove that Thyfault know-
10 No. 07-2769
ingly joined the scheme to defraud and did so with the
intent to accomplish its objectives. However, the central
inquiry here is not whether the government’s theory of
the case as presented at trial continues to hold water,
but whether a rational jury could have based its
acquittal on an issue other than the one Thyfault seeks
to foreclose from consideration. We believe it could have.
Given the distinction between the crime of conspiracy,
which requires an agreement to commit an illegal act, and
the crime of engaging in a fraudulent scheme, which
does not, the jury could have acquitted Thyfault of the
conspiracy for reasons other than a determination in his
favor on the element shared in common with the mail
fraud charge: an intent to defraud.
Thus, because nothing about Thyfault’s conspiracy
acquittal leads to the conclusion that the jury necessarily
determined that he did not act with an intent to
defraud, issue preclusion does not bar the government
from trying Thyfault on the mail fraud charge.
III. CONCLUSION
Therefore, we R EVERSE the district court’s judgment
dismissing the mail fraud counts.
8-26-09