FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 06-30534
Plaintiff-Appellant,
v. D.C. No.
CR-98-00011-DWM
SCOTT F. SHERBURNE,
OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the District of Montana
Donald W. Molloy, District Judge, Presiding
Argued and Submitted
October 16, 2007—Seattle, Washington
Filed November 6, 2007
Before: Betty B. Fletcher, Arlen C. Beam,* and
Pamela Ann Rymer, Circuit Judges.
Opinion by Judge B. Fletcher
*The Honorable Arlen C. Beam, Senior United States Circuit Judge for
the Eighth Circuit, sitting by designation.
14657
UNITED STATES v. SHERBURNE 14659
COUNSEL
Eric B. Wolff, Assistant United States Attorney, Billings,
Montana, for the plaintiff-appellant.
Patrick F. Flaherty, Attorney at Law, Great Falls, Montana,
for the defendant-appellee.
OPINION
B. FLETCHER, Circuit Judge:
This appeal by the government is from the district court’s
grant of attorney’s fees to Scott Sherburne under the Hyde
Amendment, Pub. L. 105-119, Title VII § 617, 111 Stat. 2519
(codified at 18 U.S.C. § 3006A Note). We reverse.
Blaze Construction (“Blaze”) submitted an application for
federal grant funds under a Department of Housing and Urban
Development (“HUD”) program designed to fund the con-
struction of private homes for low income Native Americans.
Blaze’s project to build homes on the Blackfeet Indian Reser-
vation of Montana (“the Blaze project”) was plagued with dif-
ficulty and controversy from beginning to end. As part of an
investigation into the Blaze project, Federal Bureau of Inves-
tigation agents in February 1998 interviewed Scott Sherburne,
manager of Lodge Builder Management, a company associ-
ated with Blaze. During the interview, Sherburne made an
incriminating statement while represented by counsel.
The United States brought criminal charges against thirteen
defendants including Sherburne. The charges against Sher-
14660 UNITED STATES v. SHERBURNE
burne were for conspiracy and wire fraud, based on alleged
abuses in the funding and construction of the Blaze project.
At trial, the district court excluded Sherburne’s incriminating
statement upon which the United States had relied in deciding
to bring charges against him in the first place. Without the
excluded evidence, the United States could not prove its wire
fraud allegations and therefore recommended that the court
acquit all defendants on the wire fraud charge after the defen-
dants had moved for an acquittal under Federal Rule of Crimi-
nal Procedure 29 at the close of government’s case.
Ultimately, Sherburne was acquitted on all charges and dis-
missed from the case.
Following the trial, Blaze, Sherburne, and others moved for
attorney 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. The district court adopted the standard
set forth by a Virginia district court in United States v. Hol-
land, which framed the proper inquiry under the “vexatious-
ness” prong of the Hyde Amendment as “whether a
reasonable prosecutor should have concluded that the applica-
ble law and the available evidence were insufficient to prove
the defendants’ guilt beyond a reasonable doubt and, if so,
was the continuation of the prosecution vexatious.” 34 F.
Supp. 2d 346, 364 (E.D. Va. 1999). Applying this standard,
the court awarded fees to Sherburne, holding that a reasonable
prosecutor should have concluded that the applicable law and
the available evidence were insufficient to establish Sher-
burne’s specific guilt beyond a reasonable doubt.
[1] In United States v. Sherburne, 249 F.3d 1121 (9th Cir.
2001) (“Sherburne I”), we reviewed the district court’s award
of fees under the “vexatious” element of the Hyde Amend-
ment for abuse of discretion and remanded, holding that the
standard employed by the district court in the fees award “dif-
fers markedly from our interpretation of the statute.” Id. at
1127. We concluded that fees should not be awarded when-
UNITED STATES v. SHERBURNE 14661
ever a “reasonable prosecutor” should have concluded that the
government would lose the case but rather “when the prosecu-
tion was unwarranted because it was intended to harass and
without sufficient foundation.” Id. We found the pure reason-
ableness standard to be prone to judicial second-guessing and
also noted that it would permit fees to be awarded even more
often, under an even more relaxed standard, than the “sub-
stantially justified” standard employed in the Equal Access to
Justice Act, 28 U.S.C. § 2412(d)(1), which had been rejected
in Hyde Amendment jurisprudence as being too permissive.
Id. at 1128 (citing United States v. Lindberg, 220 F.3d 1120,
1124 (9th Cir. 2000)). We therefore concluded that the pure
reasonableness standard was incorrect as a matter of law, and
thus that the district court had abused its discretion by
employing it. Sherburne I, 249 F.3d at 1128. We vacated the
award of fees to Sherburne and Blaze, and remanded to the
district court with the instruction to apply the following “vex-
atiousness” standard: a defendant is entitled to attorney fees
under the Hyde Amendment only when the prosecution was
(1) unwarranted because it was intended to harass (the subjec-
tive element) and (2) without sufficient foundation (the objec-
tive element). Id.
On remand, the district court substituted Sherburne’s estate
for Sherburne because he had died, concluded that both the
subjective and objective elements of “vexatiousness” were
present, and reinstated fees. Regarding the subjective element,
the district court concluded that the prosecution was subjec-
tively “malicious and based upon an intent to harass.” The
court found that the United States “did not understand the
complexities of the investigated financing arrangements,”
“distorted the record,” failed “to properly consider or portray
exculpatory or mitigating information,” and unfairly charac-
terized Sherburne’s statement as a confession rather than
speculation. The court also held a subjective intent to harass
could be fairly inferred from the facts that the United States
had only charged Sherburne late in the investigation, had not
14662 UNITED STATES v. SHERBURNE
challenged his Rule 29 motion, and had not objectively
assessed its proof against Sherburne.
The United States appeals the district court’s second order
granting Sherburne’s motion for attorney fees under the Hyde
Amendment. The United States argues that its position during
prosecution exhibited neither the subjective intent to harass
nor objective deficiency. This court has jurisdiction to hear
the instant appeal under 28 U.S.C. § 1291. An award of attor-
ney fees pursuant to the Hyde Amendment is reviewed for an
abuse of discretion. See United States v. Danielson, 325 F.3d
1054, 1076 (9th Cir. 2003).
The district court rested its conclusion with respect to the
subjective element on two principal findings. First, it con-
cluded that Sherburne’s February 1998 statement to law
enforcement should not have been treated as incriminating
and that the prosecution’s attempt to characterize it as such
was based on an intent to harass. Sherburne argues the district
court was correct because the United States unfairly and mali-
ciously depicted his speculation in an investigative interview
as a confession. The United States argues that it is entitled to
characterize evidence in the light most favorable to the gov-
ernment and that it did not unfairly depict Sherburne’s state-
ment to the point of “vexatiousness.” We agree with the
United States.
[2] Upon review of the record, we reject the district court’s
interpretation of Sherburne’s statement as non-incriminating.
It is clear, unambiguous and incriminating. Indeed, the district
court and the parties treated Sherburne’s statement as incrimi-
nating (specifically as an admission that Sherburne drafted
fraudulent “gift letters” in order to procure a loan for Don
Wilson, tribal official Lee Wilson’s son). The court excluded
that statement under Bruton v. United States, 391 U.S. 123
(1968), which “precludes the admission of a defendant’s con-
fession implicating a co-defendant during a joint trial,” if the
defendant-confessor is not going to testify. United States v.
UNITED STATES v. SHERBURNE 14663
Allen, 425 F.3d 1231, 1235 & n.5 (9th Cir. 2005).1 In Sher-
burne I, we described Sherburne’s statement as an “admission
that he wrote the false letters” for which he was charged. 249
F.3d at 1128. Upon review in this second appeal we conclude
that the United States fairly characterized Sherburne’s state-
ment in the light most favorable to the government and rea-
sonably felt that both the letter and the statement would be
admissible. We now hold that an intent to harass cannot be
inferred in such circumstances.
[3] Second, the district court concluded that the United
States failed to understand its case. Here the record indicates
the United States did understand its case. The United States’
theory, resulting from its investigation, was that the fact that
defendants obtained a grant from the government to build
seventy-two houses but built only fifty-one was evidence of
fraud. The government understood the “leveraging” defense
but attacked it as hollow, since defendants never explained
that leveraging was part of their financing plan in the original
HUD grant. Indeed, the district court itself previously consid-
ered the government’s theory reasonable when it denied fees
to other defendants in the same case. Even though the govern-
ment lost the suppression motion and thus the bulk of its evi-
dence against Sherburne, it articulated a viable basis for
admissibility; we conclude that its decision to prosecute was
not vexatious. In any case, subjective intent to harass does not
arise from merely factual mistakes or mistakes concerning the
legal merit of the government’s position. See, e.g., United
States v. Schneider, 395 F.3d 78, 89-90 (2d Cir. 2005) (hold-
ing that an AUSA mistakenly reporting the holding of two
cases was bad judgment, but not bad faith); United States v.
Knott, 256 F.3d 20, 31 (1st Cir. 2001) (two EPA civil inspec-
tors exceeding permission was not “vexatious,” where conclu-
sion could have easily been that an honest mistake had been
1
The government had been led to believe that Sherburne would testify
so that the government’s plan to use the statement about the letter was rea-
sonable in any event.
14664 UNITED STATES v. SHERBURNE
made about scope of authority). The district court’s reliance
on its finding that the United States did not understand its
case with respect to Sherburne, right or wrong, is not a basis
for an award of fees under the Hyde Amendment.
[4] We do not reach the question whether its prosecution
was objectively without foundation. Because the district court
clearly erred in finding that the government subjectively
intended to harass Sherburne, the court abused its discretion
in ruling that “vexatiousness” existed in Sherburne’s prosecu-
tion. A grant of fees under the Hyde Amendment is not appro-
priate.
REVERSED.