Hyde Amendment Revisited

By Brett A. Purtzer; March 2002

     Previously, Wayne Fricke from our office wrote an article on the Hyde Amendment, which allows a criminal defendant who has been subjected to a frivolous prosecution to recover his attorney fees.  Recently, the Ninth Circuit reversed a district court’s decision denying a Hyde Amendment fee request in U.S.A. v. Braunstein, (00-10505 9^th Cir.)  In a decision filed February 25, 2002, the Ninth Circuit Court of Appeals reversed the Arizona Federal District Court and granted Braunstein his requested fees.

     The case dealt with allegations that Braunstein violated sixteen federal criminal statutes involving wire fraud, interstate transportation of goods obtained by fraud, and money laundering.  Braunstein bought computers from Apple Latin America Company (ALAC) and sold the computers he obtained from ALAC in both Latin America and the United States.  Although Braunstein’s dealings benefited ALAC in the short term, it hurt Apple in the long term by undercutting its ability to generate profitable sales in the United States.  An investigation firm was hired by Apple to investigate ALAC’s business practices.  The investigating report concluded that a “potentially significant gray market problem existed” at ALAC.

     Subsequent to this investigation, the United State’s Attorney’s Office in Arizona began investigating ALAC’s business deals with Braunstein.  Braunstein was alerted that he was a target, and he retained an attorney to represent him.  The AUSA then conducted telephone interviews with several ALAC employees. 

     After interviews, Braunstein’s attorney wrote a letter to the U.S. Attorney’s Office and reported Braunstein’s business dealings with ALAC.  In the letter, the attorney indicated that the evidence supported theories of innocence, but much of the documentation was at Apple, which was only accessible by the U.S. Attorney’s Office.

     Braunstein was later indicted.  However, during the Grand Jury testimony, the U.S. Attorney elicited testimony from one of its primary witnesses that contradicted his answers to the AUSA’s questions that he had given earlier that same day.  Nevertheless, the Grand Jury returned an indictment against Braunstein with the counts set forth above. 

     After the indictment was returned, Braunstein moved to dismiss on the grounds that it did not allege a crime.  During discovery, the court ordered Apple Computer to turn over all information surrounding the defendant’s business dealings with Apple regarding whether Braunstein could only sell computers in Latin America as opposed to the United States.  Eventually, Apple turned over subpoenaed documents to Braunstein which indicated that Apple knew that Braunstein was selling into the gray market.  The government then moved to dismiss the indictment without prejudice which the court granted. 

     Braunstein filed a motion for attorney fees pursuant to the Hyde Amendment.  The district court denied the motion for attorney fees concluding that the government’s case was not contrary to established law on fraud. 

     On appeal, the Ninth Circuit went through the Hyde Amendment history and focused on the fact that the Hyde Amendment was targeted at prosecutorial misconduct and not prosecutorial mistake.  The government’s prosecution suggested Braunstein defrauded Apple.  The Ninth Circuit, however, held that this was a situation where the government’s position was so obviously wrong as to be frivolous.  None of the Grand Jury witnesses testified that Braunstein had made any type of false representations and the U.S. Attorney had knowledge, three months before obtaining an indictment against Braunstein, that he was not engaging in fraudulent activity. 

     Finally, the U.S. Attorney had possession of the letter from Braunstein’s attorney detailing the defenses to the fraud charges and that evidence supportive of Braunstein’s was possessed by Apple and ALAC.  All of this information was in the U.S. Attorney’s possession prior to her decision to seek an indictment against Braunstein.  As a result, the court held that Braunstein's  Hyde Amendment request for attorney fees should have been granted and reversed the district court ruling with instructions to grant his motion for attorney fees and determine the amount. 

     The significance of the Hyde case cannot be understated.  It provides a framework in what needs to be shown to recover attorney fees after a frivolous prosecution.  What is also interesting about the case is that Braunstein was not acquitted.  Rather, his case was dismissed without prejudice.  Significantly, the dismissal was due to prosecutorial misconduct and a lack of evidence that pre-dated the indictment.  Accordingly, everyone should review Braunstein in those cases where prosecutorial misconduct results in an acquittal or charges being dismissed, thus allowing a recovery of attorney’s fees.