In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16‐3340
UNITED STATES OF AMERICA,
Plaintiff‐Appellee,
v.
JOHN D. TERZAKIS,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13 CR 339 — Rebecca R. Pallmeyer, Judge.
____________________
ARGUED APRIL 5, 2017 — DECIDED APRIL 27, 2017
____________________
Before WOOD, Chief Judge, and FLAUM and HAMILTON, Cir‐
cuit 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 dis‐
trict court denied. For the following reasons, we affirm.
2 No. 16‐3340
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 es‐
tate 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 ap‐
pointed 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. Subse‐
quently, between March and September 2008, Terzakis trans‐
ferred about $4.2 million from the estate account to the ac‐
count 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 “work‐
ing capital”; however, the Buffalo Grove property held by the
LLC was never developed, and there are no documents me‐
morializing a loan from Berenice’s estate to Terzakis.
Thereafter, the government investigated these transfers.
Law enforcement officers reviewed Terzakis’s ledgers detail‐
ing some of the above transactions and other records from
various banks and members of the Ventrella family. However,
No. 16‐3340 3
Nick was the only witness with personal knowledge of Ter‐
zakis’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 “ex‐
cellent recall of very old events with fine details of numbers,”
and that “[h]e was very good with calculations.” Dr. Levin ul‐
timately opined that Nick “clearly has a longstanding cogni‐
tive disability that would likely fall upon the autism spec‐
trum,” 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 viola‐
tion of 18 U.S.C. § 2314. The case proceeded without resolu‐
tion 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.
4 No. 16‐3340
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 una‐
vailability, 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, his‐
torical 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’ deci‐
sions 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 (2008). The defendant in the underlying criminal
case bears the burden of demonstrating these requirements by
No. 16‐3340 5
a preponderance of the evidence. See United States v. Manches‐
ter 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 “prevail‐
ing party” because the government had dismissed the indict‐
ment 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 (2015) (“An appellee who does not take a
cross‐appeal may ‘urge in support of a decree any matter ap‐
pearing before the record, although his argument may in‐
volve an attack upon the reasoning of the lower court.’” (quot‐
ing United States v. Am. Ry. Exp. Co., 265 U.S. 425, 435 (1924))).
The Hyde Amendment does not define the term “prevail‐
ing party.” In civil fee‐shifting contexts, however, “a plaintiff
‘prevails’ when actual relief on the merits of his claim materi‐
ally alters the legal relationship between the parties by modi‐
fying the defendantʹs behavior in a way that directly benefits
the plaintiff.” Farrar v. Hobby, 506 U.S. 103, 111–12 (1992); see
also Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health
& Human Res., 532 U.S. 598, 603 (2001) (“A ‘prevailing party’
is one who has been awarded some relief by a court.”) (cita‐
tion 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 prin‐
6 No. 16‐3340
ciple is clear enough as applied to some dispositions: A con‐
viction 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 ac‐
quittal following a trial would clearly make a defendant a pre‐
vailing 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 limi‐
tations 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 dismis‐
sal with prejudice—which satisfies the prevailing‐party re‐
quirement 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 trans‐
fers. Thus, the district court did not err in determining that
Terzakis was the prevailing party in this case.1
1 The district court addressed the prevailing‐party issue first, reason‐
ing that “[w]hether a party is ‘prevailing’ for purposes of the Hyde
Amendment is a threshold question.” United States v. Terzakis, No. 13 CR
339, 2016 WL 4417022, at *4 (N.D. Ill. Aug. 19, 2016) (citing Sriram, 482 F.3d
at 959 (“[E]ven if the government’s position is vexatious, etc., the defend‐
ant cannot be awarded fees unless he is the prevailing party.”)). However,
No. 16‐3340 7
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 un‐
der the Hyde Amendment. Terzakis first argues that the dis‐
trict court abused its discretion by applying incorrect legal
standards. Specifically, he argues that the district court con‐
flated the terms “vexatious” and “frivolous” when it reasoned
that Terzakis’s claim failed “under any definition of these
terms [because] Terzakis must at least show that the govern‐
ment’s actions were baseless.” However, the district court cor‐
rectly noted that: (1) this Court has not yet defined the opera‐
tive terms; (2) there is clear tension among and overlap in the
definitions employed by other circuits; and (3) vexatiousness
and frivolousness both seem to require some level of objective
deficiency in the government’s position.2 Indeed, other cir‐
we do not read Sriram as requiring analysis of the prevailing‐party ques‐
tion as a threshold matter. Rather, we understand the Hyde Amendment
requirements as two independent and necessary elements, akin to the two
prongs of the Strickland test for ineffective assistance of counsel. See Strick‐
land v. Washington, 466 U.S. 668, 687, 697 (1984). We thus leave the order
in which the district courts choose to address the elements to their discre‐
tion. Cf. McDaniel v. Polley, 847 F.3d 887, 893 (7th Cir. 2017) (“there is no
reason for a court … to approach the inquiry in the same order or even to
address both components of the inquiry if the defendant makes an insuf‐
ficient showing on one” (quoting Strickland, 466 U.S. at 697)) (internal quo‐
tation marks omitted).
2 Terzakis argues that the district court’s reasoning was incorrect be‐
cause, according to him, “a position may be objectively deficient and vex‐
atious without also being entirely baseless.” However, the district court
did not require Terzakis to show that the government’s position was en‐
tirely baseless; rather, it held that Terzakis was unable to demonstrate that
8 No. 16‐3340
cuits’ definitions of frivolousness and vexatiousness incorpo‐
rate such an objective element. See United States v. Knott, 256
F.3d 20, 29 (1st Cir. 2001) (vexatiousness requires that “the
criminal case was objectively deficient, in that it lacked either
legal merit or factual foundation, and … that the govern‐
ment’s conduct, when viewed objectively, manifests mali‐
ciousness or an intent to harass or annoy”); United States v.
Sherburne, 249 F.3d 1121, 1126–27 (9th Cir. 2001) (vexatious‐
ness requires a showing of both objective deficiency and a
subjective intent to harass); Manzo, 712 F.3d at 811 (“[a] frivo‐
lous position is one lacking a reasonable legal basis or where
the government lacks a reasonable expectation of attaining
sufficient material evidence by the time of trial”) (citation
omitted); United States v. Gilbert, 198 F.3d 1293, 1299 (11th Cir.
1999) (“A ‘frivolous action’ is one that is ‘[g]roundless … with
little prospect of success; often brought to embarrass or annoy
the defendant.’” (quoting BLACK’S LAW DICTIONARY 668 (6th
ed. 1990))). We conclude that, for purposes of the Hyde
Amendment, the terms “vexatious” and “frivolous” both re‐
quire a prevailing party to demonstrate that the government’s
position was objectively deficient—in other words, that the
government lacked a sufficient factual or legal basis on which
to initiate or proceed with the case.3
the government’s position was sufficiently objectively deficient to be ei‐
ther vexatious or frivolous.
3 Terzakis argues that requiring a showing of objective deficiency for
both terms would violate the principle of statutory construction directing
courts “to give effect, if possible, to every clause and word of a statute,”
Duncan v. Walker, 533 U.S. 167, 174 (2001) (citations omitted), because it
would render the term “vexatious” mere surplusage, see Babbitt v. Sweet
Home Chapter of Cmtys. for a Great Or., 515 U.S. 687, 698 (1995) (noting
No. 16‐3340 9
courts’ “reluctance to treat statutory terms as surplusage”) (citation omit‐
ted). Specifically, Terzakis says that if frivolousness requires a showing of
objective deficiency only, and vexatiousness requires a showing of objec‐
tive deficiency plus an intent to harass, then it is hard, if not impossible, to
imagine a scenario where the government’s position is vexatious but not
frivolous.
The Third and Sixth Circuits’ suggested distinction does not fully re‐
solve this surplusage issue. Those courts reasoned that “[a] ‘frivolous’ po‐
sition can be distinguished from a ‘vexatious’ one in that ‘the term “vexa‐
tious” embraces the distinct concept of being brought for the purpose of
irritating, annoying, or tormenting the opposing party.’” Manzo, 712 F.3d
at 811 (quoting United States v. Heavrin, 330 F.3d 723, 729 (6th Cir. 2003)).
Such a distinction simply adds an additional requirement—showing a
subjective intent to harass—to the objective deficiency requirement for
showing frivolousness. This formulation would make all vexatious posi‐
tions frivolous ones. Alternatively, interpreting these cases to suggest that
vexatiousness requires showing only the government’s subjective intent
to harass, regardless of the objective strength of the government’s posi‐
tion, would potentially render the definition of vexatious redundant with
the term “bad faith,” replicating the surplusage problem in a different part
of the same clause of the Hyde Amendment. See Gilbert, 198 F.3d at 1299
(bad faith “implies the conscious doing of a wrong because of dishonest
purpose or moral obliquity; … it contemplates a state of mind affirmatively
operating with furtive design or ill will” (quoting BLACK’S LAW
DICTIONARY 139 (6th ed. 1990))).
The principle of attempting to give effect to each statutory term has
limits, however. Duncan notes that statutes should be construed this way
“if possible,” 533 U.S. at 174; and Babbitt speaks of “reluctance,” rather
than an absolute bar, 515 U.S. at 698. In the Hyde Amendment, the terms
vexatious, frivolous, and bad faith are all closely related and require some
combination of objective deficiency and subjective bad intent. It may not
be possible to create three distinct terms with independent meanings from
the combination of only these two elements. However, we need not re‐
solve such issues today, because Terzakis has not shown that the govern‐
ment’s case was objectively deficient, or that it was brought to harass Ter‐
zakis.
10 No. 16‐3340
The essence of Terzakis’s argument is that the govern‐
ment’s case was impermissibly weak because it depended on
the testimony of Nick Ventrella, who the government knew to
have Asperger syndrome and who was later diagnosed with
terminal brain cancer. First, Terzakis notes that the govern‐
ment did not call Nick to testify before the grand jury. He ar‐
gues that this is evidence that the government knew it would
not call Nick to testify at trial, and that therefore the govern‐
ment’s case was deficient. On the contrary, this suggests that
the government had a sufficiently strong case without Nick’s
testimony to convince a grand jury that there was probable
cause to indict Terzakis, based on the documentary evidence
of the allegedly fraudulent transactions that the government
could have presented before the grand jury or at trial.
Next, Terzakis cites to Dr. Levin’s 2009 medical report sug‐
gesting that Nick had cognition issues before and throughout
the government’s investigation. He speculates that Nick’s
mental health “very likely” deteriorated between the time the
report was issued and the 2013 indictment. Terzakis con‐
cludes that as a result of Nick’s mental condition, Nick was
effectively unavailable to testify at trial. However, as the dis‐
trict court correctly noted, simply having Asperger syndrome
does not disqualify a witness from testifying. See Fed. R. Evid.
601 (“Every person is competent to be a witness unless these
rules provide otherwise.”). As with any other witness, Ter‐
zakis would have had the opportunity to cross‐examine Nick
regarding his cognitive abilities and recollection of the rele‐
vant events. Susceptibility to cross‐examination is not a basis
on which to conclude that such a witness must be incredible,
much less effectively unavailable.
No. 16‐3340 11
Finally, Terzakis argues that, even if Nick would have
been available to testify prior to his October 2015 brain‐cancer
diagnosis, he must have been unavailable at least from that
point until the December 2015 dismissal. Terzakis claims that
such unavailability supports a bad‐faith prosecution argu‐
ment. There are several problems with this line of argument:
First, Terzakis did not make this narrower argument until his
reply brief, so it is waived. Darif v. Holder, 739 F.3d 329, 336–
37 (7th Cir. 2014) (citations omitted). Second, the main docu‐
ment Terzakis uses to support this argument, a report written
by Dr. Norman V. Kohn, was not presented to the district
court prior to Terzakis’ reply brief in support of his motion for
attorney’s fees, and so the court was not required to address
it. See Narducci v. Moore, 572 F.3d 313, 324 (7th Cir. 2009) (“the
district court is entitled to find that an argument raised for the
first time in a reply brief is forfeited”). In any event, Dr. Kohn
never met Nick, and so was unable to assert based on personal
or direct knowledge that Nick was unable to testify at any par‐
ticular point in time; rather the report extrapolates from the
effects of brain cancer on cognition generally.4 Third, the gov‐
ernment informed Terzakis of Nick’s cancer diagnosis imme‐
diately after learning of it, so Terzakis was apprised of this
relevant information before resuming plea negotiations.
Fourth, as with his other arguments above, Terzakis does not
provide any authority that a witness with brain cancer must
4 The report states, “Mr. Ventrella died of brain cancer in 2016. Well
before causing death, malignant brain cancer destroys portions of the
brain and causes increased pressure on the entire brain, almost always
causing progressive loss of cognitive (mental) function.” Dr. Kohn opined
that as a result of Nick’s Asperger syndrome and brain cancer, Nick “was
continuously impaired, and unable to testify, from the time of Dr. Levin’s
[August 2009] examination … until the time of his death in 2016.”
12 No. 16‐3340
be considered unavailable as of the date of the diagnosis or
any particular time thereafter. In short, Terzakis has not
shown that the government’s decision to drop the charges
against Terzakis was anything but an exercise of prosecutorial
discretion in the face of challenges to securing a conviction at
trial.
III. Conclusion
For the foregoing reasons, we AFFIRM the judgment of the
district court.