United States v. Lauree Brekke ( 1996 )

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Nos. 96-1089/1117
___________
United States of America, *
*
Appellant/Cross-Appellee, *
* Appeals from the United
v. * States District Court for
* the District of Minnesota.
Lauree Flaa Brekke; James *
Stanley Brekke, *
*
Appellees/Cross-Appellants. *
___________
Submitted: June 11, 1996
Filed: October 4, 1996
___________
Before BOWMAN, LAY, and LOKEN, Circuit Judges.
___________
BOWMAN, Circuit Judge.
Defendants Lauree Flaa Brekke and James Stanley Brekke were indicted
in federal district court in Minnesota on charges of bank fraud, making
false statements to a financial institution, mail fraud, and conspiracy to
commit mail fraud and bank fraud. The District Court, adopting the report
and recommendation of a magistrate judge, dismissed the indictment, ruling
that an earlier settlement in a civil action in federal district court in
North Dakota precluded criminal prosecution. At the same time, the
District Court held that the prior settlement did not collaterally estop
the government from relitigating the issues involved in the earlier action.
The United States appeals the District Court's dismissal of the indictment,
and the Brekkes cross-appeal the denial of their collateral estoppel
motion. We reverse the dismissal of the indictment, affirm the denial of
the collateral
estoppel motion, and remand this case for reinstatement of the indictment.1
I.
In 1990, Brekke Construction, Inc., a North Dakota corporation owned
and controlled by the Brekkes,2 obtained a $350,000 loan from Twin Valley
State Bank of Twin Valley, Minnesota (Twin Valley). The Brekkes executed
personal guaranties of the loan and granted Twin Valley a mortgage on
certain real estate to secure the guaranties. The Brekkes and Twin Valley
also applied for a guaranty from the federal Small Business Administration
(SBA). As part of the SBA application process, the Brekkes certified that
they had pledged particular mortgage positions on particular properties as
security for the loan. When Brekke Construction defaulted on the loan and
Twin Valley attempted to collect on the SBA's guaranty, the SBA discovered
that the mortgage positions represented in the Brekkes' application were
incorrect and that Twin Valley's security was subject to a number of
undisclosed prior liens. The SBA settled with Twin Valley, reserving the
right to pursue Brekke Construction and the Brekkes for reimbursement.
In 1994, the SBA brought a civil suit against the construction
company and the Brekkes in federal court in North Dakota. United States
v. Brekke Construction, Inc., Civil No. A3-94-80 (D.N.D. filed June 29,
1994). In its amended complaint, the SBA alleged that the Brekkes made
false and fraudulent representations to the
1
The government's motion to strike portions of the Brekkes'
reply brief is denied.
2
The Brekkes have not provided us with their version of the
facts underlying this case. Accordingly, we have drawn our summary
of the facts from the government's briefs and from the pleadings in
the North Dakota and Minnesota cases. Because these appeals turn
on questions of law rather than questions of fact, the government's
factual allegations are sufficient to set the scene.
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SBA and conspired to defraud the United States. The SBA sought to recover
from Brekke Construction and the Brekkes the SBA's actual losses and treble
damages under the False Claims Act, 31 U.S.C. § 3729 (1994).
In November 1994, Brekke Construction, the Brekkes, and the SBA
entered into a settlement agreement. In exchange for a payment of
$130,000, the SBA agreed to dismiss the civil action with prejudice and to
release all other claims against the Brekkes and their company. The
settlement agreement stated in relevant part as follows:
D. SBA, BREKKE CONSTRUCTION, JAMES and LAUREE further agree
that this Settlement Statement and Mutual Release represents a
compromise of disputed claims and that the payment provided for
herein is not to be construed as an admission of liability as
liability is expressly denied.
. . . .
G. . . . BREKKE CONSTRUCTION, INC., JAMES S. BREKKE, LAUREE A.
BREKKE, and the UNITED STATES SMALL BUSINESS ADMINISTRATION,
their employees, agents and assigns release and discharge each
other from any and all claims, whether known or unknown,
liquidated or contingent, that each presently has or which each
may have against the other. The term "claims" includes, but
not exclusively so, claims or causes of action for:
. . . .
(11) Any other claim or cause of action of any kind,
including any and all statutory or common law causes of
action.
. . . .
L. SBA reserves the right of the United States to initiate
legal action against other individuals not parties to this
Settlement Statement and Mutual Release for recovery of the
balance of the BREKKE CONSTRUCTION debt retained by SBA and not
assigned under this agreement.
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Settlement Statement and Mutual Release, Appellant's Appendix at 33, 37-39.
In August 1995, a federal grand jury in Minnesota began investigating
the Twin Valley loan transaction for possible violations of federal law.
The following month, the grand jury returned an indictment against the
Brekkes and Rudell Oppegard, the president of Twin Valley.3 The indictment
charged the Brekkes with bank fraud in violation of 18 U.S.C. § 1344
(1994), making false statements to a financial institution in violation of
18 U.S.C. § 1014 (1994), mail fraud affecting a financial institution in
violation of 18 U.S.C. § 1341 (1994), and conspiracy to commit bank fraud
and mail fraud in violation of 18 U.S.C. § 371 (1994). Specifically, the
grand jury charged that the Brekkes misrepresented Twin Valley's lien
positions on their collateral; misrepresented that the loan proceeds would
be used for working capital; and misrepresented that Twin Valley would not
receive any benefit in connection with the loan, when in fact the Brekkes
used $50,000 of the loan proceeds to purchase a certificate of deposit from
Twin Valley in the name of "Edith Flaa."
The Brekkes moved to dismiss the indictment on several grounds. In
December 1995, the District Court denied the Brekkes' motion to dismiss on
collateral estoppel grounds but granted their motion to dismiss on res
judicata grounds. These appeals followed.
We review de novo the District Court's decision on questions of law,
including the application of res judicata, collateral estoppel, and the
Double Jeopardy Clause. John Morrell & Co. v. Local Union 304A, 913 F.2d
544, 559 (8th Cir. 1990), cert. denied, 500 U.S. 905 (1991); United States
v. McMasters, 90 F.3d 1394, 1401 (8th Cir. 1996).
3
Mr. Oppegard pleaded guilty to conspiracy to commit bank
fraud and mail fraud and is not a party to these appeals.
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II.
We must first consider whether we have jurisdiction over these
appeals. Defendants argue that we lack jurisdiction, relying on the
following language of 18 U.S.C. § 3731 (1994):
In a criminal case an appeal by the United States shall lie to
a court of appeals from a decision, judgment, or order of a
district court dismissing an indictment or information . . .
except that no appeal shall lie where the double jeopardy
clause of the United States Constitution prohibits further
prosecution.
Section 3731 is designed to permit the government to appeal unfavorable
orders in any situation in which the Double Jeopardy Clause does not
prohibit an appeal. United States v. Wilson, 420 U.S. 332, 337-39 (1975);
United States v. Brown, 481 F.2d 1035, 1040 (8th Cir. 1973). As a result,
the government's authority to appeal and our jurisdiction to entertain the
appeal are intertwined with the merits of defendants' double-jeopardy
claim. We therefore agree with those courts which have held that we must
consider the merits of the case to determine whether we have jurisdiction.
See United States v. Martinez, 667 F.2d 886, 889 (10th Cir. 1981) (Lay, F.
Gibson, and Bright, JJ., sitting by special designation), cert. denied, 456
U.S. 1008 (1982); United States v. Castellanos, 478 F.2d 749, 751 (2d Cir.
1973). Because we conclude below that a trial in this case would not
violate the Double Jeopardy Clause, see Part IV of this opinion, infra, we
have jurisdiction over the government's appeal. Cf. United States v.
Frazier, 880 F.2d 878, 882 (6th Cir. 1989) (holding that government may
appeal where district court dismisses indictment on collateral estoppel
grounds), cert. denied, 493 U.S. 1083 (1990).
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III.
Having established our jurisdiction, we turn to the res judicata
issue. The doctrine of res judicata, also known as claim preclusion, is
designed to promote judicial economy by preventing litigants from bringing
repetitive lawsuits based on the same cause of action. See Baptiste v.
Commissioner, 29 F.3d 433, 435 (8th Cir. 1994), cert. denied, 115 S. Ct.
1251 (1995). Res judicata bars a party from asserting a claim in court if
three requirements are met: (1) the prior judgment was rendered by a court
of competent jurisdiction; (2) the decision was a final judgment on the
merits; and (3) the same cause of action and the same parties or their
privies were involved in both cases. Montana v. United States, 440 U.S.
147, 153 (1979); Headley v. Bacon, 828 F.2d 1272, 1274 (8th Cir. 1987).
We have stated that a civil action may preclude a later criminal
prosecution, but only if both actions are based on the same facts and both
have punishment as their object. Dranow v. United States, 307 F.2d 545,
556 (8th Cir. 1962).
The government has raised a number of objections to the District
Court's decision that the dismissal of the North Dakota civil suit bars the
prosecution of this criminal action in Minnesota. We need not determine
to what extent the two cases are based upon the same facts, nor must we
decide whether the SBA, which was represented in the civil suit in North
Dakota by a special assistant United States attorney, is in privity with
the United States, represented here by the United States Attorney for the
District of Minnesota. For two separate reasons, we find that the District
Court erred in dismissing the indictment on res judicata grounds.
First, the civil action in North Dakota and this criminal proceeding
in Minnesota do not involve the same cause of action. It is well
established that the government may have both a civil and a criminal cause
of action as a result of a single factual
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situation. See, e.g., United States v. Ursery, 116 S. Ct. 2135, 2140
(1996) (civil forfeiture actions and criminal prosecutions arising out of
same conduct); United States v. National Ass'n of Real Estate Bds., 339
U.S. 485, 493 (1950) (civil and criminal actions for violation of Sherman
Act); Helvering v. Mitchell, 303 U.S. 391, 397 (1938) (civil assessment for
tax fraud and crime of tax evasion); Stone v. United States, 167 U.S. 178,
188-89 (1897) (civil conversion action and crime of unlawful removal of
timber from government property). In the North Dakota civil action, the
SBA sought to recover its losses arising from the Twin Valley loan
transaction; in the present criminal proceeding, the government seeks to
punish defendants for their conduct. These two cases serve different
societal interests and could not have been joined in the same lawsuit, and
we conclude that they involve different causes of action.4
Even if we were to assume that the two cases involved the same cause
of action, we would reverse the District Court because the earlier civil
case was not punitive within the meaning of Dranow. Although the False
Claims Act, 31 U.S.C. § 3729 (1994), authorizes treble damages, the Supreme
Court has determined that "the Government is entitled to rough remedial
justice, that is, it may demand compensation according to somewhat
imprecise formulas, such as reasonable liquidated damages or a fixed sum
plus double damages . . . ." United States v. Halper, 490 U.S. 435, 446
(1989). See also United States ex rel. Marcus v. Hess, 317 U.S. 537, 551-
52 (1943) (recognizing that purpose of False Claims Act is to make
government completely whole). A multiple recovery of this
4
Two cases from the Fourth Circuit involving facts similar to
those in this case support our conclusion. See United States v.
Tatum, 943 F.2d 370, 381 (4th Cir. 1991) (holding that bankruptcy
proceeding and prosecution for bankruptcy fraud are different
causes of action); United States v. Mumford, 630 F.2d 1023, 1027
(4th Cir. 1980) (holding that action by SEC for prospective
injunctive relief is distinct from prosecution for violation of
securities laws), cert. denied, 450 U.S. 1041 (1981).
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type is compensatory rather than punitive, even though it contains a
penalty element, unless the amount sought by the government "bears no
rational relation to the goal of compensating the Government for its
loss . . . ." Halper, 490 U.S. at 449. In Halper, the Court recognized
that "in the ordinary case fixed-penalty-plus-double-damages provisions can
be said to do no more than make the Government whole." Id. We do not see
how the treble-damages provision of the False Claims Act is different from
the "ordinary case" discussed in Halper, and we hold that the North Dakota
civil case was compensatory rather than punitive. See United States v.
Field, 62 F.3d 246, 248 (8th Cir. 1995) (compromise for less than amount
claimed is not punitive); United States v. Barnette, 10 F.3d 1553, 1559-60
(11th Cir.) (3.2-to-1 ratio of recovery to actual damages is not punitive),
cert. denied, 115 S. Ct. 74 (1994).5 As a result, the North Dakota civil
case does not create a bar to the present action. Dranow, 307 F.2d at 556.
IV.
Although the District Court did not rely on the Double Jeopardy
Clause in dismissing the indictment, both parties have addressed the
applicability of that clause to the present action. We hold that a
criminal trial of defendants on remand would not constitute double
jeopardy. The Double Jeopardy Clause protects an accused from three
abuses: "a second prosecution for the same offense after acquittal, a
second prosecution for the same offense after conviction, and multiple
punishments for the same offense." Halper, 490 U.S. at 440. Because
defendants have not previously been acquitted or convicted of any crime in
connection with the Twin Valley transaction, they must rely on the
multiple-punishment
5
In contrast, the Court in Halper found that another provision
of the False Claims Act authorizing a recovery more than 220 times
greater than the government's actual loss was punitive as applied.
Halper, 490 U.S. at 439.
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element of double jeopardy. We have already determined above that the
North Dakota civil action was not punitive in nature. Therefore, any
punishment defendants may suffer as a result of this criminal proceeding
would be their first punishment, not their second. In other words, since
defendants have not yet been in jeopardy, a criminal trial in this case
cannot constitute double jeopardy. See Serfass v. United States, 420 U.S.
377, 393 (1975) (explaining that accused must suffer jeopardy before he can
suffer double jeopardy). Cf. Ursery, 116 S. Ct. at 2147 (recognizing that
because civil forfeiture is not punitive, it cannot be ground for double
jeopardy).
V.
Next we consider defendants' contention that collateral estoppel
precludes the government from pursuing this prosecution. The doctrine of
collateral estoppel, or issue preclusion, provides that when an issue of
ultimate fact has been determined by a valid and final judgment, that issue
cannot again be litigated between the same parties in another lawsuit.
Ashe v. Swenson, 397 U.S. 436, 443 (1970); United States v. Bailey, 34 F.3d
683, 688 (8th Cir. 1994). A criminal defendant may assert the issue-
preclusive effect of a prior civil action. Yates v. United States, 354
U.S. 298, 335 (1957), overruled in part on other grounds by Burks v. United
States, 437 U.S. 1 (1978). In their appeal, however, defendants have not
identified which factual issues they believe have been established in the
North Dakota civil case. The SBA made no factual concessions in its
settlement agreement with defendants, and the only fact contained in the
judgment of dismissal is that the parties stipulated to the dismissal of
the civil action. United States v. Brekke Construction, Inc., Civil No.
A3-94-80, Judgment (D.N.D. Nov. 8, 1994). Because many settlements involve
a similar pattern, the general rule is that a consent judgment has no
issue-preclusive effect unless it is clearly shown that the parties
intended to foreclose a particular issue in future
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litigation. See 18 Charles A. Wright et al., Federal Practice and
Procedure § 4443, at 382-83 (1981); Restatement (Second) of Judgments § 27
cmt. e (1982). Since no issues have been foreclosed in this case, the
District Court properly denied defendants' motion to dismiss on collateral
estoppel grounds.
VI.
Finally, defendants argue that in the settlement agreement, the SBA
not only released them from civil liability for the Twin Valley transaction
but also agreed, on behalf of the United States, not to prosecute them
criminally. The Magistrate Judge, in his report adopted by the District
Court, agreed with defendants. First, the Magistrate Judge found that a
review of the complaint and settlement in the civil action created an
ambiguity as to which government agencies were bound by the settlement.
Report and Recommendation at 13.6 Under the impression that he was
required to interpret the ambiguity against the government, the Magistrate
Judge concluded that the United States was bound. Id. As to the nature
of the claims released, the Magistrate Judge found that "it is clear from
the settlement agreement that the parties intended a global settlement of
all claims," including criminal prosecution. Id.
The interpretation of a contract, including determining whether it
is ambiguous as written, is a question of law which we review de novo.
International Union of Operating Eng'rs Local 571 v. Hawkins Constr. Co.,
929 F.2d 1346, 1348 (8th Cir. 1991); John Morrell & Co., 913 F.2d at 550.
6
The Magistrate Judge discussed the SBA's intent to release
claims in his analysis of the res judicata issue. We have
determined above that res judicata is inapplicable here, but we
believe that whether the SBA agreed not to prosecute defendants is
a separate issue of contract interpretation.
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We assume for the purpose of these appeals that the United States and
all its agencies and instrumentalities are bound by the settlement
7
agreement. Nevertheless, we conclude that the settlement agreement did
not relieve defendants of criminal responsibility for their actions.
Nowhere in the agreement did the parties mention crimes, criminal actions,
prosecution, or similar concepts. Indeed, the only language in the
agreement on which defendants can possibly hope to rely is the catch-all
release of "any or all statutory or common law causes of action." Yet this
general language is necessarily qualified by the specific language which
precedes it, unless there is evidence of what the parties actually intended
by the general language. See United States v. Mexico Feed & Seed Co., 980
F.2d 478, 485 n.6 (8th Cir. 1992). Each of the claims specifically
released by the parties is a civil claim, including contract, tort,
warranty, defamation, contribution, and similar claims. Nothing in the
record is to the contrary; defendants did not even allege in their motions
before the District Court that they subjectively believed that they were
negotiating for a non-prosecution agreement. Because the contractual
language is not reasonably susceptible of the meaning proposed by
defendants, we conclude that the settlement agreement is unambiguous. See
John Morrell & Co., 913 F.2d at 551. The settlement agreement poses no
obstacle to the present prosecution.
7
We do, however, reject the Magistrate Judge's conclusion that
Margalli-Olvera v. INS, 43 F.3d 345 (8th Cir. 1994), required him
to interpret ambiguities against the government. Margalli-Olvera
involved a plea agreement in a criminal case, and we noted that the
application of ordinary contract principles in that case was
"tempered by the constitutional implications of a plea agreement."
Id. at 351. No such constitutional significance is present in the
civil action involved here, and we conclude that ordinary
principles of contract interpretation apply. In particular,
because the record reflects that the settlement agreement was
jointly drafted, neither party should receive the benefit of any
ambiguity. The point is moot in this case; as discussed in the
text of this opinion, we hold that the settlement agreement is
unambiguous.
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VII.
The judgment of the District Court is reversed, and the case is
remanded to the District Court for reinstatement of the indictment.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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