In Re: Madison Guaranty Savings & Loan

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Filed February 27, 2004

Division No. 94-1

IN RE: MADISON GUARANTY SAVINGS & LOAN

(LARRY FEE APPLICATION)

Division for the Purpose of

Appointing Independent Counsels

Ethics in Government Act of 1978, As Amended

–————

Before: SENTELLE, Presiding, FAY and REAVLEY, Senior

Circuit Judges.

ORDER

This matter coming to be heard and being heard before the

Special Division of the Court upon the application of Richard

M. Larry for reimbursement of attorneys’ fees and costs

pursuant to section 593(f) of the Ethics in Government Act of

1978, as amended, 28 U.S.C. § 591 et seq. (2000), and it

appearing to the court for the reasons set forth more fully in

the opinion filed contemporaneously herewith that the peti-

tion is not well taken, it is hereby

2

ORDERED, ADJUDGED, and DECREED that the peti-

tion of Richard M. Larry for attorneys’ fees that he incurred

during the investigation by Independent Counsel be denied.

PER CURIAM

For the Court:

Mark J. Langer, Clerk

By:

Marilyn R. Sargent

Chief Deputy Clerk

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Filed February 27, 2004

Division No. 94-1

IN RE: MADISON GUARANTY SAVINGS & LOAN

(LARRY FEE APPLICATION)

Division for the Purpose of

Appointing Independent Counsels

Ethics in Government Act of 1978, As Amended

–————

Before: SENTELLE, Presiding, FAY and REAVLEY, Senior

Circuit Judges.

ON APPLICATION FOR ATTORNEYS’ FEES

Opinion for the Special Court filed PER CURIAM.

PER CURIAM: Richard M. Larry petitions this court under

Section 593(f) of the Ethics in Government Act of 1978, as

amended, 28 U.S.C. § 591 et seq. (2000) (the ‘‘Act’’), for

reimbursement of attorneys’ fees in the amount of $44,930.69

that he incurred during, and as a result of, the investigation

conducted by Independent Counsel. Because we conclude

that Larry has not carried his burden of showing that he was

a ‘‘subject’’ of the investigation or that the fees would not

have been incurred ‘‘but for’’ the requirements of the Act, we

deny the petition in its entirety.

2

Background1

In the mid–1980’s, Jim and Susan McDougal, along with

former President William Jefferson Clinton and Hillary Rod-

ham Clinton, were members of a Little Rock, Arkansas,

partnership known as the Whitewater Development Compa-

ny. At this time, Jim McDougal was also the owner of a

Little Rock savings and loan, Madison Guaranty, and David

Hale was the owner of Capital Management Services, Inc.

(‘‘CMS’’), a Little Rock company regulated, and in large part

funded, by the Small Business Administration. Hale, the

McDougals, and former Arkansas Governor Jim Guy Tucker

apparently became involved in a fraudulent scheme involving

Madison Guaranty and CMS. The investigation was initially

conducted by the U.S. Attorney in Little Rock, but later

transferred to the DOJ’s criminal division. Robert B. Fiske,

Jr., after his appointment by the Attorney General (‘‘AG’’) in

January 1994 as regulatory independent counsel, took over

the investigation. In August 1994 this Court appointed Ken-

neth W. Starr as statutory independent counsel (hereinafter

‘‘IC’’ or ‘‘OIC’’) to investigate the Whitewater matter, and his

office assumed the investigation of the fraudulent Madison

Guaranty/CMS scheme. During the time period of these

various investigations, indictments and convictions were se-

cured with Hale’s cooperation against the McDougals and

Tucker for conspiracy and fraud involving Madison Guaranty

and CMS. Indictments and convictions were also secured

against Tucker for tax conspiracy and fraud involving CMS.

Thereafter, allegations arose that things of value had been

given to Hale to influence his testimony in these matters.

Specifically, it was alleged that a friend of Hale’s, Parker

Dozhier, had provided the things of value, and that FBI

1 We have had recent occasion to review the facts of this matter

in In re Madison Guaranty Savings & Loan (Scaife Fee Applica-

tion), 354 F.3d 900 (D.C. Cir., Spec. Div., 2004) (per curiam).

Rather than re-plow recently tilled ground, we have adopted from

that opinion much of the language in the background portion of this

opinion, and, where applicable, a portion of the analysis from that

decision as well.

3

agents guarding Hale had witnessed these transactions. Fur-

ther, it was alleged that Dozhier had received the funds to

acquire these things of value from Stephen Boynton, an

attorney who worked for American Spectator magazine,

which was investigating possible misconduct by the Clintons

in Arkansas. American Spectator, in turn, had received

funds from one or more of the foundations controlled by

Richard Mellon Scaife. This situation led to public state-

ments and allegations of improprieties on the part of Scaife

by at least one member of Congress, John Conyers, Jr., who

at the same time questioned an alleged financial relationship

between Scaife and IC Starr. Conyers requested an investi-

gation of the matter by the Attorney General. Conyers also

sent a letter concerning the matter to Scaife.

Upon conferral between the AG and the IC, the IC estab-

lished an Office of Special Review (‘‘OSR’’) to investigate.

During the investigation, Richard M. Larry, the fee petitioner

here, was subpoenaed to appear before the grand jury in his

capacity as president of the Scaife foundations involved in the

matter. Ultimately, the OSR concluded that many of the

allegations regarding the tendering and receipt of things of

value were unsubstantiated or untrue, and recommended that

no prosecutions be brought.2 The findings and conclusions of

the OSR were accepted by the IC, and the matter was closed.

Pursuant to section 593(f)(1) of the Act, Larry now peti-

tions this court for reimbursement of the attorneys’ fees that

he incurred during the OSR investigation. He seeks reim-

bursement in the amount of $44,930.69. As directed by

section 593(f)(2) of the Act, we forwarded copies of Larry’s

fee petition to the Attorney General and the IC and request-

ed written evaluations of the petition. The court expresses

its appreciation to the IC and the Attorney General for

submitting these evaluations, which we have given due consid-

eration in arriving at the decision announced herein.

2The report of the OSR remains under seal. The factual infor-

mation contained in this opinion has previously been publicly re-

ported elsewhere.

4

Discussion

The Ethics in Government Act provides for reimbursement

of attorneys’ fees expended in defense against an investiga-

tion under the Act by subjects who qualify under 28 U.S.C.

§ 593(f)(1). That section provides:

Upon the request of an individual who is the subject of

an investigation conducted by an independent counsel

pursuant to this chapter, the division of the court may, if

no indictment is brought against such individual pursuant

to that investigation, award reimbursement for those

reasonable attorneys’ fees incurred by that individual

during that investigation which would not have been

incurred but for the requirements of this chapter.

Because the Act ‘‘constitutes a waiver of sovereign immuni-

ty it is to be strictly construed.’’ In re Nofziger, 925 F.2d

428, 438 (D.C. Cir., Spec. Div., 1991) (per curiam). Under the

Act, therefore, we can only order reimbursement for attor-

neys’ fees when we determine, inter alia, that the fee peti-

tioner was a ‘‘subject’’ of the independent counsel’s investiga-

tion and would not have incurred the attorneys’ fees ‘‘but for’’

the requirements of the Act. See, e.g., In re Pierce (Kisner

Fee Application), 178 F.3d 1356, 1358 (D.C. Cir., Spec. Div.,

1999) (per curiam). The petitioner ‘‘bears the burden of

establishing all elements of his entitlement.’’ In re North

(Reagan Fee Application), 94 F.3d 685, 690 (D.C. Cir., Spec.

Div., 1996) (per curiam). For the reasons stated below, we

find that Larry has failed to establish the ‘‘subject’’ and ‘‘but

for’’ elements and is therefore not entitled to an attorneys’

fees award.

1. ‘‘Subject’’ Status

The statute by its terms provides reimbursement of fees

only to ‘‘an individual who is the subject of an investigation

conducted by an independent counsel.’’ 28 U.S.C. § 593(f)(1)

(emphasis added). Though the statute does not define ‘‘sub-

ject,’’ we have previously held that status as a ‘‘mere witness’’

is not sufficient to meet the elemental requirement of ‘‘sub-

ject’’ designation for purposes of the Act. In re North

5

(Dutton Fee Application), 11 F.3d 1075, 1078 (D.C. Cir., Spec.

Div., 1993) (per curiam). A fee applicant must establish that

he is a person whose conduct was within the scope of the

independent counsel’s investigation in the sense that ‘‘the

Independent Counsel might reasonably be expected to point

the finger of accusation’’ at him. Id. Otherwise put, he must

not merely have been a witness to the matters under investi-

gation, but a potential defendant of indictments that might

arise from that investigation. Although Larry argues that he

‘‘easily meets’’ the Act’s requirement for being a subject of

the OIC/OSR investigation, we are not persuaded that the

OSR, or at any other time the OIC, was focused on any

possible criminal culpability by Larry or Scaife.

Larry claims that the letter Scaife received from Congress-

man Conyers ‘‘suggest[ed] that [Scaife] had directed money

to a witness to encourage or reward testimony adverse to

President Clinton and his allies.’’ Larry asserts that ‘‘[t]his

money presumably passed through Mr. Larry’s hands, be-

cause it reportedly came from the two foundations that he

administered.’’ He goes on to argue that from the time

Scaife received the letter from Congressman Conyers until

the time that he (Larry) received notification from the OSR

that no prosecution would be initiated against him, he ‘‘under-

stood that he was accused of directing foundation donations

into the pocket of a government witness in exchange for or as

a reward for the witness’s favorable testimony.’’ Larry sums

up his claim to being a subject by stating that ‘‘[a]ny person

in his position would have reasonably believed that there was

a realistic possibility of his being charged with bribery or

offering an illegal gratuity TTT’’

In disputing Larry’s claim of being a subject of the OSR/

OIC investigation, the IC’s evaluation contends that Larry

was merely a fact witness. According to the IC, Larry’s

‘‘involvement in the investigation was solely as custodian of

the records of the foundations and as a person with knowl-

edge of the foundations’ activities.’’ The DOJ’s evaluation

leaves it to the IC to respond to Larry’s subject claim, but

briefly notes that Larry’s assertion that he was a subject of

the IC’s investigation because he was issued one or more

6

subpoenas in this matter is ‘‘not TTT sufficient to demonstrate

that Mr. Larry was a subject of the investigation.’’

We agree with the IC and the DOJ that Larry has not

carried his burden of establishing that he was in fact a

subject of the OIC/OSR investigation. The documents Larry

relied upon show that he was only a witness. Statements

from his petition, as well as documents attached thereto,

establish that he received a subpoena, superseded shortly

thereafter by another, to testify before the grand jury. The

subpoenas were addressed not to Larry personally, but to the

‘‘Carthage Foundation c/o Richard Larry’’ and the ‘‘Sarah

Scaife Foundation c/o Richard Larry.’’ This buttresses the

IC’s claim that Larry was merely a custodian of records

rather than a subject of the investigation. Furthermore, the

cover letter for the original subpoena was from the OIC/OSR

‘‘Witness Coordinator’’ and states that the Witness Coordina-

tor should be contacted for Larry’s entitlement to a ‘‘witness

fee’’ and that a ‘‘Fact Witness Voucher’’ should be executed.

Letter from the OIC/OSR, August 14, 1998. Cf. In re North

(Gardner Fee Application), 30 F.3d 143, 146 (D.C. Cir., Spec.

Div., 1994) (per curiam) (‘‘the Independent Counsel issued a

grand jury subpoena designating [petitioner] as a subject’’).

Additionally, the cover letter for the superseding subpoena

states that an interview of Larry will be necessary before his

grand jury appearance. Letter from the OIC/OSR to William

L. Gardner and H. Yale Gutnick, August 26, 1998. Other

than this interview and his grand jury appearance, there is no

evidence of any other contact between Larry and the OIC/

OSR. See In re Pierce (Sanders Fee Application), 198 F.3d

899, 902 (D.C. Cir., Spec. Div., 1999) (per curiam) (petitioner’s

involvement with IC’s investigation considered ‘‘minimal’’ in

that he was served one subpoena for documents and inter-

viewed once three years later). There is also no evidence

that Larry was ever informed that he was a subject of the

OIC/OSR investigation, either in writing, see, e.g., In re North

(Cave Fee Application), 57 F.3d 1117, 1120 (D.C. Cir., Spec.

Div., 1995) (per curiam) (petitioner received letter from OIC

specifically advising him that his status was that of subject),

or otherwise, see, e.g., In re Segal (Sagawa Fee Application),

7

151 F.3d 1085, 1088 (D.C. Cir., Spec. Div., 1998) (per curiam)

(IC did not contest petitioner’s claim that she was ‘‘expressly

informed’’ by his office that she was a subject); In re North

(Dwyer Fee Application), 120 F.3d 293, 296 (D.C. Cir., Spec.

Div., 1997) (per curiam) (IC in his evaluation stated that

petitioner could have reasonably believed that he was a

subject). In sum, it is apparent that Larry’s status was that

of witness, and ‘‘status as a ‘mere witness’ is not sufficient to

meet the elemental requirement of ‘subject’ designation for

purposes of the Act.’’ In re Pierce (Abrams Fee Applica-

tion), 190 F.3d 586, 590 (D.C. Cir., Spec. Div., 1999) (per

curiam).

2. Fees Not Incurred ‘‘But For’’ the Requirements of the

Act

We have in the past held that ‘‘[a]ll requests for attorneys’

fees under the Act must satisfy the ‘but for’ requirement of’’

the Act. In re Sealed Case, 890 F.2d 451, 452 (D.C. Cir.,

Spec. Div., 1989) (per curiam). On numerous occasions we

have also held that ‘‘the contemplation of the legislation is not

that subjects of independent counsel investigations will be

reimbursed for all legal fees, but only TTT for those legal fees

that would not have been incurred by a similarly-situated

subject investigated in the absence of the Act.’’ See In re

Madison Guaranty Savings & Loan (Clinton Fee Applica-

tion), 334 F.3d 1119, 1123 (D.C. Cir., Spec. Div., 2003).

Larry claims that he satisfies the ‘‘but for’’ element of the

Act under two theories previously identified by this court: (1)

when the petitioning subject has been prejudiced by the

Department of Justice’s failure to comply with the substantial

protective features of the Act, see In re Meese, 907 F.2d 1192

(D.C. Cir., Spec. Div., 1990) (per curiam); and (2) when high

public officials or derivative subjects were investigated under

the Act in circumstances where private citizens would not

have been investigated, see In re Nofziger, 925 F.2d 428, 442

(D.C. Cir., Spec. Div., 1991) (per curiam).

Under theory (1), Larry argues that Congressman Conyers

accused IC Starr of a lack of independence because of IC

Starr’s alleged financial ties to Scaife. Thus, when the AG

8

requested that IC Starr investigate the matter, ‘‘Mr. Starr

could not, in good conscience, decline to investigate Mr.

Larry, because the Starr/Scaife ‘relationship’ was the fulcrum

of the Attorney General’s referral.’’ According to Larry, IC

Starr was thus deprived of his prosecutorial discretion to

dismiss matters granted to him by Section 594(g), which

Larry describes as ‘‘the most important feature of the Act.’’

Larry was thus ‘‘robbed of the ability to have the independent

counsel exercise its discretion and dismiss the matter without

formal investigation.’’

In furtherance of this argument, Larry compares his situa-

tion favorably to that of the fee petitioner in In re Meese, 907

F.2d 1192 (D.C. Cir., Spec. Div., 1990) (per curiam). In that

case, the AG made a referral to the independent counsel

concerning Meese. According to Larry, that referral ‘‘was

based upon speculation and conjecture’’ with ‘‘the Court

conclud[ing] that the referral should never have been

brought.’’ Larry claims that his ‘‘situation is no different

than Meese’s’’ because ‘‘[t]here was never, at any time, any

evidence linking him to any payoffs of David Hale.’’ Quoting

from Meese, he states that his referral arose only from a

‘‘ ‘generalized suspicion based on associations of a personal

and personal business nature.’ ’’ Id. at 1200.

Under theory (2), Larry states that he ‘‘clearly and undeni-

ably has been subjected to a more rigorous application and

different standards of criminal law than are applied to per-

sons not covered by the Act.’’ He claims that at the time of

the ‘‘referral,’’ there was no evidence to establish a level of

guilt between him and Hale, see U.S. v. Sun–Diamond Grow-

ers, 526 U.S. 398 (1999), and he further states that ‘‘even the

most highly skilled prosecutor would have viewed as fruitless

an attempt to attribute Mr. Boynton’s conduct to Mr. Larry,

and then to attribute to Mr. Larry a culpable state of mind.’’

In this light, Larry argues that Scaife was investigated on a

‘‘frivolous allegation’’ because of his conservative views; that

he (Larry) was caught in the crossfire; that ‘‘[i]n any other

climate, there would have been no investigation’’; and that

therefore he would not have been investigated but for the

requirements of the Act.

9

The IC in her evaluation does not directly address Larry’s

‘‘but for’’ arguments; instead, she refers the Court to her

discussion of the Scaife fee petition and states that ‘‘[f]or the

same reasons, Larry’s arguments are without merit.’’ In her

discussion of Scaife’s petition, the IC argued that, even in the

absence of the Act, this matter would have been investigated:

The Department of Justice had received information

indicating that a government witness in a successful

criminal prosecution had committed perjury, obstruction

of justice, or other serious crimes. Even without the

requirements of the Act, given the Department’s interest

in these allegations, some federal prosecutor would have

investigated. The Department of Justice routinely inves-

tigates allegations of witness tampering or other obstruc-

tive behavior.

Independent Counsel’s Evaluation of Scaife Fee Petition, at

9–10.

The IC also noted there that the DOJ’s interest in investi-

gating this matter would have been particularly high because

of the allegations that FBI agents were involved in, or at

least had knowledge of, the acts. The IC further pointed out

that the allegations directly related to FBI agents who had

been assigned to regulatory independent counsel Fiske and

one of his cooperating witnesses. Therefore, even in the

absence of the Act, if Fiske had continued the investigation,

he ‘‘would [ ] also have conducted some investigation into

whether anyone had tampered with Hale.’’ Like the IC, the

DOJ notes that ‘‘[a]llegations that a witness in a prior stage

of an ongoing criminal investigation may have testified false-

ly, and may have been paid to make false statements, would

be taken seriously by any prosecutor, with or without an

Independent Counsel law.’’

We are not persuaded that Larry would not have incurred

his attorneys’ fees in the absence of the Act. In a companion

case, we noted that the IC’s investigation of the matter

known generally as Whitewater would have been undertaken

even in the absence of the IC statute. In re Madison

Guaranty Savings & Loan (Clinton Fee Application), 334

10

F.3d at 1127. In making this conclusion, we noted that the

Whitewater allegations looked into by IC Starr were, prior to

his appointment, investigated by various prosecutors, includ-

ing regulatory independent counsel Fiske. In this light, we

stated that ‘‘we harbor no doubt that in the absence of the

independent counsel statute the allegations surrounding the

Clintons, Madison Guaranty, and Whitewater would have

been similarly investigated and prosecuted by the Depart-

ment of Justice.’’ Id. So too here. As the IC points out, the

allegations surrounding Hale, Tucker, and the McDougals

concerning Madison Guaranty and CMS were already investi-

gated by the U.S. Attorney’s office and regulatory indepen-

dent counsel Fiske before being assumed by IC Starr. There

appears to us no reason why, in the absence of the statute

under which we appointed IC Starr, the investigation of this

particular matter would not have continued in the same

manner as it did under IC Starr. Consequently, the particu-

lar allegations surrounding Hale that were investigated by

the OIC/OSR concerning witness tampering are, as the DOJ

points out, serious matters ordinarily handled by the case’s

prosecutors, and which we are certain would have been

handled in a similar fashion by regulatory independent coun-

sel Fiske’s prosecutors in the absence of the Act.

CONCLUSION

The petition of Richard M. Larry for reimbursement of

attorneys’ fees is denied for failure to comply with the

‘‘subject’’ and ‘‘but for’’ requirements of 28 U.S.C. § 593(f)(1).