Appendix — Cloud v. United States

TABLE OF CONTENTS

Appendix to Petition

Page

Opinion

United States Court of Appeals

for the Fifth Circuit

Cloud v. US, 281 F.3d 158 (5t Cir. 2001)

entered December 18, 2001 ..............csssssscseseees App. A-1

Opinion of

The Honorable Vanessa D. Gilmore

Cloud v. U.S., 126 F. Supp.2d 1012

(S.D. Tex. 2000)

entered December 22, 200 .........c.c.ssssscsssssesceosee App. B-1

Order of Dismissal of

The Honorable Kenneth Hoyt,

U.S. v. Ramming, 915 F.Supp. 854

(S.D. Tex. 1996)

entered Jamuary 12, 1996 .........c0ssssscssosssecssassens App. C-1

Order of

The Honorable Vanessa Gilmore

Rammuing v. U.S. (H-99-CV-4359)

Re: Granting Defendant's Motion to Dismiss

Orbea’ Fahy 27, DOO csesscnssnerannonasnssrniresabianiiniun App. D-1

Order

United States Court of Appeals

for the Fourth Circuit

Re: Denying Petition for Rehearing

entered February 18, 2002............sc0sscscsrsssscesere App. E-1

App. i

Revised January 29, 2002

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 01-20079

LAWRENCE H. RAMMING,

Plaintiff,

versus

UNITED STATES OF AMERICA,

Defendant.

JOHN THOMAS CLOUD,

Plaintiff-Appellant,

versus

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeals from the United States District Court

for the Southern District of Texas

December 19, 2001

Before SMITH and EMILIO M. GARZA, Circuit Judges, and

CUMMINGS, District Judge.

! District Judge of the Northern District of Texas, sitting by

designation.

App. A-1

PER CURIAM:

John Thomas Cloud ("Appellant") appeals the

district court's dismissal of Appellant's action against the

United States ("Appellee") for malicious prosecution and

other prosecutorial misconduct as time-barred. We

AFFIRM.

I. BACKGROUND

In 1994, a federal jury indicted Appellant and several

co-defendants on a 27-count indictment for bank fraud, wire

fraud, and other offenses. The case was tried in a non-jury

proceeding from November 1995 through January 1996. On

January 12, 1996, the United States District Court for the

Southern District of Texas, Kenneth M. Hoyt, J., granted

Appellant's and co-defendants' motion for acquittal and

dismissal on the basis of prosecutorial misconduct citing,

inter alia, the following litany of misconduct in support

thereof:

° the government failed in its duty to be

forthright in the disclosure of Brady

materials;

° the government failed to produce...

questionable materials so that the...

rights of the defendants could be

protected;

° the government intentionally failed or

refused to comply with the law;

° the failing of the government, in its

duty under the federal Constitution to

not violate the Sixth Amendment

rights of the defendants to a fair and

open trial;

App. A-2

~ the government made

misrepresentations of facts to the

Court. . . . At the very least, this

conduct was reckless. At most, it was

intended as a fraud on the Court;

° transcripts of the Grand Jury

testimony . . . was [sic] wrought with

statements that both supported the

defendants' theory of the case and

foiled that of the government; ¢the

3 testimony . . . supports the

: defendants' claim of innocence;

, the government's contentions of equal

access, neutral evidence, that the

defendants were aware of _ the

information possessed by the Grand

Jury, that the testimony was merely

impeachment, and that they acted in

good faith, is incredible. Only a

person blinded by ambition or

ignorance of the law and ethics would

have proceeded down this dangerous

path.

a United States v. Ramming, 915 F. Supp. 854, 867-68 (S.D. Tex.

| 1996).

On November 26, 1997, Appellant filed a voluntary

Chapter 11 bankruptcy petition, and on September 9, 1999,

Appellant's plan of reorganization was confirmed by the

bankruptcy court. On March 18, 1999, Appellant presented

his administrative claim of malicious prosecution against

Appellee and also presented a supplemental claim on

November 1, 1999. On October 20, 1999, Appellant's

administrative claim was denied.

App. A-3

On December 30, 1999, Appellant filed his

prosecutorial misconduct action against Appellee in federal

court. The District Court for the Southern District of Texas,

Vanessa D. Gilmore, J., dismissed Appellant's claim under

Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil

Procedure. Judge Gilmore held that Appellant's claim was

time-barred under the Federal Tort Claims Act ("FTCA"), 28

U.S.C. § 2401(b).

Judge Gilmore's order of December 30, 1999, also

rejected Appellant's argument that Appellant was entitled to

a two-year extension of the FTCA limitations period as of

the date of his November 26, 1997, bankruptcy filing

- pursuant to 11 U.S.C. § 108(a) of the Bankruptcy Code. In

rejecting Appellant's argument, Judge Gilmore held that

Appellant was entitled to the sixty-day extension of the

limitations period available under 11 U.S.C. § 108(b), but, in

any event, the sixty-day period had also expired prior to the

time Appellant filed his malicious prosecution suit.

{I. STANDARD OF REVIEW

This Court evaluates de novo the district court's grant

of Appellee's Rules 12(b)(1) and 12(b)(6) motion for

dismissal applying the same standard used by the district

court. Hebert v. United States, 53 F.3d 720, 722 (5th Cir. 1995).

Motions filed under Rule 12(b)(1) of the Federal

Rules of Civil Procedure allow a party to challenge the

subject matter jurisdiction of the district court to hear a case.

Fed. R. Civ. P. 12(b)(1). Lack of subject matter jurisdiction

may be found in any one of three instances: (1) the

complaint alone; (2) the complaint supplemented by

undisputed facts evidenced in the record; or (3) the

complaint supplemented by undisputed facts plus the

court's resolution of disputed facts. Barrera-Montenegro v.

United States, 7 F.3d 657, 659 (5th Cir. 1996).

App. A-4

The burden of proof for a Rule 12(b)(1) motion to

dismiss is on the party asserting jurisdiction. McDaniel v.

United States, 899 F. Supp. 305, 307 (E.D. Tex. 1995).

Accordingly, the plaintiff constantly bears the burden of

proof that jurisdiction does in fact exist. Menchaca v. Chrysler

Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980).

When a Rule 12(b)(1) motion is filed in conjunction

with other Rule 12 motions, the court should consider the

Rule 12(b)(1) jurisdictional attack before addressing any

attack on the merits. Hitt v. City of Pasadena, 561 F.2d 606,

608 (5th Cir. 1977) (per curiam). This requirement prevents a

court without jurisdiction from prematurely dismissing a

case with prejudice. Id. The court's dismissal of a plaintiff's

case because the plaintiff lacks subject matter jurisdiction is

not a determination on the merits and does not prevent the

plaintiff from pursuing a claim in a court that does have

proper jurisdiction. Id.

In examining a Rule 12(b)(1) motion, the district

court is empowered to consider matters of fact which may

be in dispute. Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.

1981). Ultimately, a motion to dismiss for lack of subject

matter jurisdiction should be granted only if it appears

certain that the plaintiff cannot prove any set of facts in

support of his claim that would entitle plaintiff to relief.

Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143

F.3d 1006, 1010 (5th Cir. 1998).

Motions to dismiss for failure to state a claim are

appropriate when a defendant attacks the complaint

because it fails to state a legally cognizable claim. Fed. R.

Civ. P. 12(b)(6). The test for determining the sufficiency of a

complaint under Rule 12(b)(6) was set out by the United

States Supreme Court as follows: "[A] complaint should not

be dismissed for failure to state a claim unless it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief."

App. A-5

Conley v. Gibson, 355 U.S. 41, 45-46 (1957). See also Grisham v.

United States, 103 F.3d 24, 25-26 (5th Cir. 1997).

Subsumed within the rigorous standard of the Conley

test is the requirement that the plaintiff's complaint be

stated with enough clarity to enable a court or an opposing

party to determine whether a claim is sufficiently alleged.

Elliott v. Foufas, 867 F.2d 877, 880 (5th Cir. 1989). Further,

"[t]he plaintiff's complaint is to be construed in a light most

favorable to the plaintiff, and the allegations contained

therein are to be taken as true." Oppenheimer v. Prudential

Sec. Inc., 94 F.3d 189, 194 (5th Cir. 1996). This is consistent

with the well-established policy that the plaintiff be given

every opportunity to state a claim. Hitt, 561 F.2d at 608. In

other words, a motion to dismiss an action for failure to

state a claim "admits the facts alleged in the complaint, but

challenges plaintiff's rights to relief based upon those facts."

Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1137

(Sth Cir. 1992). Finally, when considering a Rule 12(b)(6) -

motion to dismiss for failure to state a claim, the district

court must examine the complaint to determine whether the

allegations provide relief on any possible theory. Cinel v.

Connick, 15 F.3d 1338, 1341 (5th Cir. 1994).

III. DISCUSSION

e Accrual of Appellant's Malicious Prosecution

Cause of Action

The FTCA mandates that

[a] tort claim against the United States shall

be forever barred unless it is presented in

writing to the appropriate Federal agency

within two years after such claim accrues or

unless action is begun within six months after

the date of mailing . . . of notice of final denial

of the claim by the agency to which it was

presented.

App. A-6

28 U.S.C. § 2401(b) (1994). Although phrased in the

disjunctive, "this statute requires a claimant to file an

administrative claim within two years [of accrual] and file

suit within six months of its denial." Houston v. United States

Postal Serv., 823 F.2d 896, 902 (5th Cir. 1987) (emphasis in

original). See also Willis v. United States, 719 F.2d 608, 612 (2d

Cir. 1983); Schuler v. United States, 628 F.2d 199, 201 (D.C.

Cir. 1980).

Here, the threshold issue is determining when

Appellant's claim accrued. Appellant contends that his

claim did not accrue at the time of his acquittal in

January 1996 but only accrued in December 1998 when

one of his acquitted co-defendants discovered the contents

of the grand jury transcripts which had led to Appellant's

and his co-defendants' original indictment. Appellee

contends, however, that Appellant's claim accrued, and the

limitations period began to run, when Appellant was

acquitted.

Before a malicious prosecution claim can accrue, the

underlying criminal proceeding must terminate in the

plaintiff's favor. Heck v. Humphrey, 512 U.S. 477, 489 (1994).

Based on the repeated instances of prosecutorial misconduct

enumerated by Judge Hoyt, Appellant and his co-

defendants were acquitted of all charges on January 12,

1996. Thus, the proceeding was terminated in Appellant's

favor.

A cause of action under federal law accrues within

the meaning of § 2401(b) "when the plaintiff knows or has

reason to know of the injury which is the basis of the

action." Brown v. Nationsbank Corp., 188 F.3d 579, 589-90 (5th

Cir. 1999) (internal quotes and citations omitted), cert. denied,

530 U.S. 1274 (2000). In FTCA cases,

App. A-7

[a] plaintiff .. . armed with the facts about the

harm done to him, can protect himself by

seeking advice in the medical and legal

community. To excuse him from promptly

doing so by postponing the accrual of his

claim would undermine the purpose of the

limitations statute, which is to require the

reasonably diligent presentation of tort

claims against the Government.

United States v. Kubrick, 444 U.S. 111, 123 (1979).

Ascertaining Appellant's awareness of the existence

of a possible cause of action has two elements: "(1) [t]he

existence of the injury; and (2) causation, that is, the

connection between the injury and the defendants actions."

Piotrowski v. City of Houston, 51 F.3d 512, 516 (5th Cir. 1995).

As to causation, Appellant

need not have knowledge of fault in the legal

sense for the statute to begin to run, but

[Appellant] must have knowledge of facts

that would lead a reasonable person (a) to

conclude that there was a causal connection .

. . or (b) to seek professional advice, and then,

with that advice, to conclude that there was a

causal connection between [Appellee's acts]

and [Appellant's] injury.

Id. (internal quotes and citations omitted).

Certainly, Judge Hoyt's unequivocal iteration of

examples of prosecutorial misconduct leaves little doubt

that, at the time of Appellant's acquittal, Appellant had

ample evidence of essential facts which would support the

possible existence of a claim for malicious prosecution. At

the very least, Appellant was in a position "to seek

professional advice" from a lawyer or other expert, and

"then, with that advice, to conclude that there was a causal

App. A-8

connection between [Appellee's acts] and [Appellant's]

injury." Id. See also Brown v. United States, 653 F.2d 196, 199

(Sth Cir. 1981) (holding that, in a malicious prosecution

action under Texas law, malice may be inferred from the

lack of probable cause or the conclusion that the

government acted in reckless disregard of an individual's

rights). Further, the "requirement of diligent inquiry

imposes an affirmative duty on the potential plaintiff to

proceed with a reasonable investigation in response to an

adverse event." Pacheco v. Rice, 966 F.2d 904, 907 (5th Cir.

1992).

The difficulty here is that Appellant did not conduct

an inquiry, diligent or otherwise, even though Appellant

knew or had reason to know of the injury forming the basis

of a possible malicious prosecution claim as of January 12,

1996. We are not free to construe § 2401(b) so as to defeat its

obvious purpose of encouraging the prompt presentation of

claims, Kubrick, 444 U.S. at 118, and we discern no sound

reason for visiting the consequences of Appellant's

investigative omission upon Appellee by delaying the

accrual of Appellant's claim. Id. at 124. Therefore, because

Appellant knew or should have known of his injury and the

causal connection between his injury and Appellee's

conduct as of the date of Appellant's acquittal, this Court

finds that Judge Gilmore did not err in holding that

Appellant's claim for malicious prosecution accrued on

January 12, 1996.

e Tolling of Limitations Period

Having determined that the accrual date of Appellant's

claim was January 12, 1996, we now turn to Appellant's

argument that the FTCA limitations period was tolled for

two years as of the filing of his Chapter 11 bankruptcy

petition on November 26, 1997. Appellant bases his

contention on § 108(a) of the Bankruptcy Code which

provides:

App. A-9

(a) If applicable nonbankruptcy law,

an order entered in a _nonbankruptcy

proceeding, or an agreement fixes a period

within which the debtor may commence an

action, and such period has not expired

before the date of the filing of the petition,

the trustee may commence such action only

before the later of-

(1) the end of such period,

including any suspension of such

period occurring on or after the

commencement of the case; or

(2) two years after the order

for relief.

11 U.S.C. § 108(a) (1993).

Appellant argues that his March 18, 1999, FTCA

claim presentment was timely because § 108(a) extends

the limitations period to "commence an action" for two

years after the order for relief, ie., November 26, 1997,

to November 26, 1999. Alternatively, Appellant argues

that tolling is appropriate because the bankruptcy court

ordered on September 9, 1999, that "all limitations periods

for any other claims under applicable law are tolled and

extended until this case is closed or a final decree is

entered."

Appellee argues, however, that presentment of an

administrative claim does not constitute an "action" within

the meaning of § 108(a) and, therefore, Appellant's

limitations period is controlled by the sixty-day extension

contained in § 108(b). Section 108(b) provides: Sons

App. A-10

(b) Except as provided in subsection

(a) of this section, if applicable

nonbankruptcy law, an order entered in a

nonbankruptcy proceeding, or an agreement

fixes a period within which the debtor or an

individual protected under section 1201 or

1301 of this title may file any pleading,

demand, notice, or proof of claim or loss, cure

a default, or perform any other similar act,

and such period has not expired before the

date of the filing of the petition, the trustee

may only file, cure, or perform, as the case

may be, before the later of-

(1) the end of such period,

including any suspension of such

period occurring on or after the

commencement of the case; or

(2) 60 days after the order for

relief.

11 U.S.C. § 108(b) (1993). Appellee contends that Appellant's

March 1999 administrative claim qualifies as "any pleading,

demand, notice or proof of claim or loss, . . . or [] any other

similar act" as required by § 108(b). Thus, Appellee argues

that under § 108(b) Appellant had until on or about January

26, 1998, sixty days after his Chapter 11 filing, to present his

administrative claim.

The resolution of this issue is controlled by this

Court's binding precedent set forth in TLI, Inc. v. United

States, 100 F.3d 424 (5th Cir. 1996). In TLI, this Court held

that the filing of an administrative claim does not constitute

the commencement of an "action" under § 108(a). Id. at 427

(citing In re Carter, 125 Bankr. 832, 836 (D. Kan. 1991); In re

Howard Indus., Inc., 170 Bankr. 358, 361-62 (S.D. Ohio 1994)).

The term "commencement of an action" in § 108(a) applies

only to "the bringing of suit in court" and not to

App. A-11

administrative proceedings that may precede such a suit. Id.

This Court reasoned that "an action in its usual legal sense

means a lawsuit brought in a court; a formal complaint

brought within the jurisdiction of a court of law." Id.

(quoting Black's Law Dictionary 28 (6th ed. 1990)). See also

Fed. R. Civ. P. 3 (defining "Commencement of Action" as

follows: "A civil action is commenced by filing a complaint

with the court").

Although Appellant's March 1999 administrative

"claim" was an essential legal prerequisite to his malicious

prosecution action filed in federal court, Appellant's "action"

was not commenced until December 30, 1999, when

Appellant filed suit in federal court. At that time, not only

had the two-year FTCA claim presentment limitations

period expired, i.e., January 12, 1996, to January 12, 1998;

but, even if § 108(a) applied as argued by Appellant, the

two-year "commencement of the case" limitations period

after the order for relief under § 108(a) had also expired, i.e.,

November 26, 1997, to November 26, 1999.

Appellant suffers a similar fate under application of

§ 108(b), which allows only a sixty-day extension after the

order for relief. Under § 108(b), Appellant was required to

present his FTCA administrative claim sixty days after

November 26, 1997, i.e., by January 25, 1998. Consequently,

Appellant's March 18, 1999, presentment of claim was also

time-barred.

Similarly inconsequential is Appellant's argument

urging us to give effect to the bankruptcy court's September

9, 1999, order tolling "all limitations periods for all other

claims under applicable law" until the bankruptcy case was

closed or a final decree was entered. We agree with

Appellee that the bankruptcy court had no jurisdiction on

September 9, 1999, to order the tolling of a limitations

period which had expired approximately twenty months

earlier, i.e., January 13, 1998.

App. A-12

Limitations periods in statutes waiving sovereign

immunity are jurisdictional, and a court exercising its

equitable authority may not expand its jurisdiction beyond

the limits established by Congress. Houston, 823 F.2d at 898,

902. The FTCA also acts to waive the immunity of the

United States; and this Court, in construing the statute of

limitations which is a condition of that waiver, "should not

take it upon [itself] to extend the waiver beyond that which

Congress intended." Kubrick, 444 U.S. at 118. We find that

the bankruptcy court's order of September 9, 1999, did not

resurrect its jurisdiction and that said order is of no force or

effect in tolling any limitations periods applicable to this

matter.

IV. CONCLUSION

For the reasons set forth above, the lower court's

dismissal of Appellant's action for malicious prosecution

and other prosecutorial misconduct as time-barred under

the FTCA is AFFIRMED.

App. A-13

United States District Court,

S.D. Texas, Houston Division.

John Thomas CLOUD,

Plaintiff,

Vv.

UNITED STATES of America,

Defendant.

No. CIV. A. H-99-4359.

[Entered: Dec. 22, 2000]

Richard R Stone, Sr, U S Dept of Justice, Washington, DC,

for United States of America, defendants.

ORDER

GILMORE, District Judge.

Pending before the Court is Defendant United States

of America’s motion to dismiss Plaintiff John Thomas

Cloud’s complaint under Federal Rule of Civil Procedure

12(b)(1) and 12(b)(6). (Instrument No. 34). Having

considered the submissions of the parties and the applicable

law, the Court finds that the motion should be GRANTED.

I.

Plaintiff John Thomas Cloud (“Cloud”) brings this

action under the Federal Torts Claims Act (“FTCA”) against

Defendant United States of America (“United States”)

alleging malicious prosecution, wrongful interference,

continued harassment, and damages arising out of a grand

jury indictment of Cloud, his subsequent trial, and ultimate

acquittal.

App. B-1

In 1994, pursuant to an investigation by the United

States, a grand jury indicted Cloud and several co-

defendants in a 27-count indictment for conspiracy to

defraud banks, bank fraud, wire fraud, bank larceny, bank

bribery, misapplication of bank funds, false entries in bank

records, and money laundering. A trial was conducted

from November 1995 through January 1996. In January

1996, the defendants moved for dismissal of the indictment

and acquittal pursuant to Federal Rule of Criminal

Procedure 29 on the basis of prosecutorial misconduct.

Judge Kenneth M. Hoyt of the United States District Court

for the Southern District of Texas granted the motions to

dismiss and acquit and found that, inter alia, the United

States engaged in prosecutorial misconduct by failing to

disclose Brady materials, and that the Federal Bureau of

Investigation agent’s testimony was inconsistent with his

grand jury testimony. United States v. Ramming, 915 F.Supp.

854, 868 (S.D.Tex. 1996).

Paul Licata (“Licata”) and Lawrence Ramming

(“Ramming”) were two of Cloud’s co-defendants. Licata

filed suit for malicious prosecution in the Southern District

of Texas on January 13, 1997. Licata v. United States, Civ. A.

No. H-97-0093. Similarly, Ramming filed suit for malicious

prosecution in the Southern District of Texas on December

14, 1999. Ramming v. United States, Civ. A. No. 99-4359. In

the Licata litigation, Judge Lynn N. Hughes ordered the

United States to release the transcripts of the grand jury

proceedings that led to the original indictment in 1994. In

December 1998, Licata offered the transcripts into the record

to bolster his claim of malicious prosecution. Judge Hughes

held a bench trial from December 8, 1998, through

December 10, 1998. Before a judgment was entered,

however, the parties settled.

Cloud presented his administrative claim of

malicious prosecution to the United States Department of

Justice (“DOJ”) on March 18, 1999, and presented a

App. B-2

supplemental claim on November 1, 1999. (Instrument No.

37, at 2). Cloud had earlier filed a voluntary bankruptcy

petition on November 26, 1997. (Instrument No. 37, at 2).

On October 20, 1999, the DOI denied Cloud’s administrative

claim. Subsequently, on December 30, 1999, Cloud hied his

action against the United States in the Southern District of

Texas before Judge David Hittner. On April 11, 2000,

Ramming and Cloud’s suits were consolidated in this Court

under Civil Action Number 99-4359. (Instniment No. 12).

Accordingly, Cloud’s second amended original complaint

was re-docketed in this Court on May 19, 2000. (Instrument

No. 37). In his second amended complaint, Cloud contends

that he did not discover the facts underlying his cause of

action for malicious prosecution until December 1998. In

any event, Cloud maintains, the two-year FTCA statute of

limitations was tolled for two years upon the filing of his

voluntary bankruptcy petition. (Id. at 2).

On March 21, 2000, prior to the consolidation of

Ramming and Cloud’s suits, the United States filed a

motion to dismiss Ramming’s complaint for lack of

jurisdiction and for failure to state a claim, arguing that

Ramming failed to timely file his suit within the FTCA’s

two-year statute of limitations. On the same day, the

United States filed a similar motion to dismiss Cloud’s

complaint before Judge Hiltner. In an Order dated July 26,

2000, the Court granted the United States’ motion to dismiss

Ramming’s complaint. (Instrument No. 431)

On May 19, 2000, following the consolidation of

Ramming and Cloud’s suits, the United States’ motion to

dismiss Cloud’s complaint and memorandum of law were

re-docketed in this Court. (Instrument Nos. 34 and 35). In

its motion, which it alternatively termed a motion for

summary judgment, the United States argues that Cloud's

claim was time-barred under the FTCA because it was not

presented to the DOJ within two years of its accrual. It

maintains that Cloud knew or had reason to know of the

App. B-3

injury forming the basis of his malicious prosecution claim

when Judge Hoyt issued his opinion acquitting Cloud on

January 12, 1996. Under this rationale, the United States

argues that Cloud had until approximately January 13, 1998,

to file his administrative claim. With respect to Cloud’s

assertion that he is protected by a two-year tolling period

because he filed a bankruptcy petition in November 1997,

the United States contends that, under section 108) of the

Bankruptcy Code, the bankruptcy filing only tolled the

FTCA statute of limitations for sixty days. Because the

bankruptcy filing would only toll the FTCA statute of

limitations until approximately January 26, 1998, according

to the United States, Cloud’s March 1999 administrative

claim presentment was time-barred.

Cloud filed his response to the United States’ motion

on April 10, 2000. The response was re-docketed in this i

Court on May 19, 2000. (Instrument No. 38). In his response,

Cloud initially argues that the United States may only seek 2

a “partial dismissal” because I I U.S.C.A. § 106(c) (2000)

provides for the abrogation of sovereign immunity :

independent of the FTCA’s limited waiver of sovereign |

immunity. The crux of Cloud’s argument, however, is that ;

the FTCA statute of limitations did not begin accruing on

January 12, 1996, because he did not know “what the

[United States] had said and done behind the closed doors

of the Grand Jury” until he obtained the grand jury

proceedings transcripts in December 1998. Alternatively,

even assuming the limitations period began to run on

January 12, 1996, Cloud maintains that 11 U.S.C.A. § 108(a)

tolled the limitations for two years upon the filing of his

voluntary bankruptcy petition. According to Cloud, the

two-year tolling protection applies because the presentment

of an administrative claim to me DOJ qualifies as a

“commence[ment of] an action” as required by section

108(a). Finally, Cloud maintains that, in any event the FTCA

limitations period was tolled because in September 1999 the

United States Bankruptcy Court for the Western District of

App. B-4

I

Texas (“bankruptcy court”) ordered “1017 all limitations

periods for all other claims under applicable law [ ] tolled

and extended until [Cloud’s bankruptcy] case is closed or a

final decree is entered.” (Instrument No. 38, Ex. 5 at 3).

The United States’ reply was filed on April 27, 2000.1

(Instrument No. 17). Initially, it asserts that its motion is not

a “partial dismissal” because, in any event, Cloud has failed

to abide by the FTCA’s statute of limitations. The United

States also reiterates that the FTCA statute of limitations

began accruing on January 12, 1996, because Cloud was

aware of enough facts to support a claim of malicious

prosecution. In addition, the United States argues that the

case law does not consider an administrative claim an

“action” within the meaning of 11 U.S.C.A. § 108(a) so as to

warrant the application of a two-year tolling period. Lastly,

the United States contends that the bankruptcy court's order

tolling “all limitations periods for all other claims under

applicable law,” (Instrument No. 38, Ex. 5, at 3), lacked

jurisdiction because the FTCA’s limitations period is only a

limited waiver of sovereign immunity.

On August 31, 2000, as a consequence of this Court's

Order dismissing Ramming’s complaint, (Instrument No.

43), Cloud filed a supplemental response to the United

States’ motion to dismiss. (Instrument No. 45). Cloud

argues that, even if he had conducted an investigation and

sought the grand jury transcripts, his “efforts would not

have lead (sic ) to receipt of the grand jury transcripts before

June, 1997.” (Id. at 3). That is, because former co-defendant

Licata’s efforts did not result in the release of the transcripts

until June 1997, Cloud could not be expected, as a matter of ©

law, to obtain them any earlier. Because June 1997 was the

earliest date he could have received the transcripts, the two-

year limitations period would expire in June 1999.

The United States’ reply, unlike its motion to dismiss and

Cloud’s subsequent response, was not re-docketed because it was filed

originally in this Court.

App. B-5

Consequently, according to Cloud, his March 1999

administrative claim presentment fell within this statutory

time period.

Il.

A.

“A case is properly dismissed for lack of subject

matter jurisdiction when the court lacks the statutory or

constitutional power to adjudicate the case.” See Home

Builders Assn of Miss., Inc. v. City of Madison, 143 F3d 1006,

1010 (Sth Cir. 1998). A district court may dismiss an action

for lack of subject matter jurisdiction under Federal Rule of

Civil Procedure 12(b)(1) on any one of three separate bases:

(1) the complaint alone; (2) the complaint supplemented by

undisputed facts evidenced in the record; or (3) the

complaint supplemented by undisputed facts pius the

Court's resolution of disputed facts. Barrera-Montenegro v.

United States, 74 F.3d 657, 659 (5th Cir. 1996); Voluntary

Purchasing Groups, Inc. v. Reilly, 889 F.2d 1380, 1384 (5th Cir.

1989). In examining a Rule 12(b)(1) motion, the Court is

empowered to consider matters of fact which are in dispute.

See Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981).

The party asserting jurisdiction bears the burden of

establishing it when the Court’s subject matter jurisdiction

is challenged. See Boudreau v. United States, 53 F.3d 819 82

(Sth Cir. 1995). However, any uncontroverted facts in the

complaint must be accepted as true. Gaubert v. United States,

885 F.2d 1284, 1285 (5th Cir. 1989), rev’d on other grounds, 499

US. 315, 111 S.Ct. 1267, 113 L.Ed 335 (1991). Moreover,

the Court must construe the complaint broadly and

liberally. Id.

When a Rule 12(b)(1) motion is‘filed in conjunction

with other Rule 12 motions, the Court should usually

consider the Rule 12(b)(1) jurisdictional attack before

addressing any attack on the merits. Hitt v. Pasadena, 561

F.2d 606, 608 (Sth Cir. 1977); *1018Kunihiko Iwata v. Stryker

Corp., 59 F.Supp.2d 600, 602 (N.D. Tex. 1999). This

App. B-6

requirement prevents a court without jurisdiction from

prematurely dismissing a case with prejudice. Id. The

Court's dismissal of a plaintiffs case because the Court lacks

subject matter jurisdiction is not an adjudication of the

merits and does not prevent the plaintiff from pursuing a

claim in a court that does have proper jurisdiction. Id.

A motion to dismiss challenging the Court's subject

matter jurisdiction under Rule 12(b)(1) should only be

granted “if it appears that the plaintiff cannot prove any set

of facts in support of his claim that would entitle him to

relief.” Home Builders Assn, 143 F.3d at 1010 (citing Benton v.

United States, 960 F.2d 19, 21 (5th Cir. 1992)); Santerre v. Agip

Petroleum Co., 45 F. Supp.2d 558, 565 (S.D. Tex. 1999).

B.

Rule 12(b)(6) allows for dismissal if a plaintiff fails

“to state a claim upon which relief may be granted.” Such

dismissals, however, are rare, Clark v. Amoco Production Co.,

794 F.2d 967, 970 (Sth Cir. 1986), and only granted where “it

appears beyond doubt that the plaintiff can prove no set of

facts in support of his claim which would entitle him to

relief “ Conley v. Gibson, 355 U.S. 41, 45-6, 78 S.Ct. 99, 2

L.Ed.2d 80 (1957). Dismissal can be based either on a lack of

a cognizable legal theory or the absence of sufficient facts

alleged under a cognizable legal theory. Balistreri v. Pacifica

Police Dept., 901 F.2d 696, 699 (9th Cir. 1988); Vines v. City of

Dallas, Texas, 851 F.Supp. 254, 259 (N.D. Tex. 1994), aff'd, 52

F.3d. 1067 (5th Cir. 1995).

In determining whether a dismissal is warranted

pursuant to Rule 12(b)(6) the Court accepts as true all

allegations contained in the plaintiff s complaint. Gargiul v.

Tompkins, 704 F.2d 661, 663 (2d Cir. 1983), vacated on other

grounds, 465 U.S. 1016, 104 S.Ct. 1263, 79 L.Ed.2d 670 (1984);

Kaiser Aluminum & Chem. Sales, Inc.v. Avondale Shipyards,

Inc., 677 F.2d 1045, 1050 (5th Cir.1982), cert. denied, 459 U.S.

1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983). In addition, all

App. B-7

ee

reasonable inferences are to be drawn in favor of the

plaintiffs claims. Id. “To qualify for dismissal under Rule

12(b)(6), a complaint must on its face show a bar to relief.”

Clark, 794 F.2d at 970.

III.

A.

The United States argues that Cloud’s complaint

should be dismissed because he failed to present an

administrative claim with the appropriate federal agency

prior to the expiration of the statute of limitations in the

FTCA. The FTCA provides a limited waiver cf the United

States’ sovereign immunity from suit. The FTCA is also a

grant of jurisdiction to federal court in those cases where the

United States has waived immunity and has consented to be

sued. Cloud filed this action for malicious prosecution and

damages pursuant to the law enforcement exception to

sovereign immunity in 28 U.S.C.A. § 2671 (2000).

A prerequisite to the commencement of an action

against the United States in federal court is the presentment

of an administrative claim. Brown v. Nationsbank Corp., 188

F.3d 579, 589-90 (5th Cir. 1999), cert. denied, - U.S. -, 120

S.Ct. 27409 147 L.Ed.2d 1004 (2000). The FTCA provides that

a plaintiff must present an administrative claim to the

appropriate federal agency within two years of the claim's

accrual:

A tort claim against the United States

shall be forever barred unless it is presented

in writing to the appropriate Federal agency

within two years after such claim accrues or

unless action is begun within six months

after the date of mailing, by certified or

registered mail, of notice of final denial of the

claim by the agency to which it was

presented.

28 U.S.C.A. § 2401(b) (2000).

App. B-8

eae cn emer

Here, the crux of the dispute is ascertaining when

Cloud’s cause of action accrued. Cloud and several other co-

defendants were acquitted on January 12, 1996. United

States v. Ramming, 915 F.Supp. 854 (S.D. Tex. 1996). His

administrative claim was presented to the DOJ on March 18,

1999. ‘Instrument No. 37, at 2). On October 20, 1999, the

DOJ denied Cloud’s claim. (Id.). Cloud maintains that his

claims accrued, and the limitations period began, only when

he learned of the contents of grand jury transcripts released

during former co-defendant Licata’s trial in December

1998.2 (Instrument No. 38, at 9). In contrast, the United

States contends that the claims accrued, and the limitations

period began, when Cloud was acquitted in January 1996.

(Instrument Nv. °5, at 4).

| A cause of action under federal law accrues within

the meaning of section 2401(b) “ ‘when the plaintiff knows

or has reason to know of the injury which is the basis of the

action.” Brown, 188 F.3d at 589-90 (quoting Moore v.

McDonald, 30 F.3d 616, 620-21 (5th Cir. 1994)). In Brown, the

Fifth Circuit ruled that the plaintiff's knowledge of his

injury depends upon two elements: “(1) the existence of the

injury; and (2) the connection between the injury and the

defendant's actions.” 188 F.3d at 590 (citing Piotrowski v.

City of Houston, 51 F.3d 512, 516 (5th Cir.1995)). “Moreover,

a plaintiff need not have actual knowledge” of the injury “if

the circumstances would lead a reasonable person to

investigate further.” Piotrowski, 51 F.3d at 516 (citations

omitted).

Before a malicious prosecution claim can accrue, an

underlying criminal proceeding must terminate in the

plaintiffs favor. See Heck v. Humphrey, 512 U5. 477, 114 S.Ct.

: Although not determinative, it is worth noting that Cloud’s

attorney on November 9, 1999, mailed a letter to a DOJ representative

stating, among other things, that Cloud’s claim “accrued when the

underlying criminal case against Mr. Cloud was finally disposed [on

January 12, 1996].” (Instrument No. 35, Ex. 1, at 1).

App. B-9 ~

2364, 2374, 129 L.Ed.2d 383 (1994); see also Tex. Civ. Prac. &

Rem. Code § 16.002(a) (Vernon 1999) (“For purposes of

malicious prosecution actions, prosecution ends, and cause

of action accrues, when formal criminal proceedings are

terminated”). Judge Hoyt’s opinion granting acquittal was

issued on January 12, 1996, thereby terminating the

proceeding in Cloud’s favor. See Ramming, 915 F.Supp. at

857.

Cloud’s injury originates from the same set of facts

underlying the malicious prosecution lawsuit initiated by

Byaner co-defendant Ramming. In an Order dated July 26,

2000, (Instrument No. 43), this Court ruled that Ramming’s

suit was time-barred. Like Cloud, Ramming was acquitted

on January 12, 1996. Ramming presented his administrative

claim to the DOJ on February 5, 1999, and it was denied,

along with Cloud’s claim, on October 20, 1999. Cloud

maintains, in fact, that “his cause of action for malicious

prosecution, like the similar claim of Ramming, did not

accrue prior to December, 1998.” (Instrument No. 30, at 2).

For purposes of determining whether the statute of

limitations period expired, there is no evidence that Cloud

was in a position at all dissimilar to Ramming.

In the Order dismissing Ramming’s claim

(Instrument No. 43), this Court determined that Ramming

knew of his injury when he was indicted and tried. As to

the second prong of the accrual test, Ramming argued that

he was not put on notice of the connectiou between his

injury and the United States’ actions until he obtained

access to the grand jury transcripts in December 1998. Only

when he read the transcripts, Ramming asserted, could he

_ have known of the United States’ allegedly wrongful

actions. The United States contended that Ramming should

have teamed of the connection between his injury and the

United States’ actions upon his acquittal on January 12,

1996. According to the United States, Ramming’s claim

App. B-10

would have been timely presented had he. diligently

investigated and sought legal advice as former co-

defendant Licata did in asking for the grand jury

transcripts. Ultimately, this Court found the United States’

reasoning persuasive and ruled that Ramming should have

known of the connection at the time of his acquittal. Even

were the Court to disregard the United States’ actions at

trial for purposes of determining when Ramming was put

on notice, as Ramming urged, Judge Hoyt’s opinion on

January 12, 1996, discussed the fact that the United States’

behavior at the grand jury proceeding was suspect:

[A] comparison of the 302 statements

of witnesses to the same witnesses’ Grand

Jury testimony is revealing. The FBI agent

took extensive liberties, choosing conclusory

-words that caused that statements to fit

within the government's theory of the case.

Assuming that this conduct was merely

overzealousness, the error was exposed

during the Grand Jury testimony of the same

witnesses. Without a doubt, this disparity

came to the United States Attorney’s

attention because, the tone and tenor of the

questioning of the witnesses before the

Grand Jury is also revealing, to say the least.

Ramming, 915 F.Supp. at 868.

Furthermore, this Court held that, even if Ramming -

did not know for a fact that the United States had engaged

in misconduct, he apparently made no effort to ascertain the

truth as to what did occur at the grand jury proceedings.

The Court noted that on certain occasions plaintiffs have

successfully petitioned Texas courts for release of grand jury

transcripts in cases where, “in the judgment of the court, it

became material to the administration of justice that

disclosure be allowed.” Stern v. State ex rel. Ansel, 869

S.W.2d 614 (Tex.App.-Houston [14th Dist.] 1994, writ

App. B-11

denied). Because Ramming was put on notice upon his

acquittal in January 1996, his claims became time-barred

after January 13, 1998. See 28 U.S.C.A. § 2401(b) (2000).

Here, like Ramming, Cloud knew he was injured

when he was indicted and tried. Under the Brown accrual

framework, the question then arises whether Cloud was put

on notice of “the connection between the injury and the

defendant's actions.” 188 F.3d at 590 (holding that the

plaintiff s knowledge of his injury depends upon two

elements: “(I) the existence of the injury; and (2) the

connection between the injury and the defendant's

actions”).

Cloud argues that “his cause of action for malicious

prosecution, like the similar claim of Ramming, did not

accrue prior to December, 1998.” (Instrument No. 30, at 2).

Although he acknowledges that he “possessed some facts in

support of a claim for malicious prosecution,” (Instrument

No. 38, at 9), on January 12, 1996, he “did not and could not

know what the Government has said and done behind the

closed doors of the Grand Jury” until the grand jury

transcripts were released at Licata’s December 1998 trial.

(Id.). The United States argues that Cloud should have

known of the connection between his injury and the United

States’ actions upon his acquittal on January 12, 1996.

According to the United States, Cloud had two years to

investigate and present an administrative claim, yet failed

to do so.

A claim under the FTCA accrues when the plaintiff

learns of the connection between his injury and the

defendant's actions, not when the plaintiff learns of the

legal or proximate cause of his injury. See United States v.

Kubrick, 444 US. 111, 100 S.Ct. 352, 360, 62 L.Ed.2d 259

(1979) (holding that accrual of a cause of action does not

await plaintiff's awareness that the injury was negligently

inflicted, but, rather, plaintiff armed with facts is not

App. B-12

excused from failure to seek advice as to whether his legal

rights have been invaded). Although he knew of his injury

by January 1996, Cloud maintains that he did not know of

the connection between his injury and the United States’

actions until the contents of the grand jury transcripts were

revealed in December 1998. This position, however,

conflicts with Cloud’s argument that he “possessed some

facts in support of a claim for malicious prosecution” in

January 1996. (Instrument No. 38, at 9). If, as Cloud

contends, he was aware of facts to support a malicious

prosecution claim in January 1996, then he most certainly

knew of the connection between his injury and the United

States’ actions. Cloud’s position is further belied by his

assertion that he “was not aware of the facts underlying a

viable claim for malicious prosecution until December,

1998.” (Instrument No. 38, at 13) (emphasis added). A

plaintiff need not realize that a legal cause of action exists; a

plaintiff need only be aware of the facts that would support

a claim. Piotrowski, 51 F.3d at 516 (citing Harrison v. United

States, 708 F.2d 1023, 1027 (5th Cir. 1983)). Cloud's

statement that he “possessed some facts in support of a

claim for malicious prosecution,” (Instrument No. 38, at 9),

demonstrates that the FTCA statute of limitations began

accruing in January 1996.

Even if Cloud did not know for a certainty of the

connection between his injury and the United States’

actions, he did not make any effort to ascertain the truth as

to what happened at the grand jury proceedings. See

Piotrowski, 51 F.3d at 516 (holding that a plaintiff need not

have actual knowledge of his injury “if the circumstances

would lead a reasonable person to investigate further”).

After witnessing the United States’ actions at trial, and

subsequently learning of the United States’ actions in the

grand jury proceedings through Judge Hoyt’s opinion,

Cloud has not alleged any facts indicating that he tried to

obtain the grand jury transcripts. In fact, Cloud justifies his

failure to investigate further by arguing that his “efforts

App. B-13

would not have lead (sic ) to receipt of the grand jury

transcripts before June, 1997.” (Instrument No. 45, at 3).

Cloud pins this justification on his belief that, because

former co-defendant-Licata did not obtain the release of the

grand jury transcripts until June 1997, Cloud’s investigation

would have resulted in the same outcome. Consequently,

Cloud argues that the statute of limitations began to accrue

in June 1997, not January 1996, thereby placing his

administrative claim to the DOJ within the FTCA statute of

limitations.

Although the principles of equitable tolling apply to

the statute of limitations under the FTCA, Perez v. United

States, 167 F.3d 913, 917 (5th Cir. 1999), Cloud’s

circumstances do not justify its use.? See id at 919 (holding

that equitable tolling “is not [a doctrine] that trial courts

have discretion to use whenever they please ... [because]

[s]tatutes of limitations serve a vital role in blocking stale

claims”). In Irwin v. Department Of Veterans Affairs, 498 U.S.

89, 111 S.Ct. 453, 458, 112 L.Ed.2d 435 (1990), the Supreme

Court held that equitable tolling is permissible “where the

claimant has actively pursued his judicial remedies by filing

a defective pleading during the statutory period, or where

the complainant has been induced or tricked by his

adversary’s misconduct into allowing the filing deadline to

pass. We have generally been much less forgiving in

receiving late filings where the claimant failed to exercise

due diligence in preserving his legal rights.” Here, Cloud

acknowledges that he did not investigate what happened in

the grand jury proceedings. (Instrument No. 45, at 3).

$ Equitable tolling principles may not apply in Cloud’s case, in

any event. In his second amended original complaint, Cloud did not

allege equitable tolling of the FTCA statute of limitations. See Richard v.

Ross, No. Civ.A. 98-1676, 1998 WL 915865, at *4 (E.D.La. Jan.4, 1998)

(holding that if the equitable tolling theory applies [in the context of a

civil rights lawsuit], it should be alleged in the complaint”). His only

assertion of tolling relates to the tolling provisions in 11 U.S.C.A. § 108

(2000). (Instrurnent No. 37, at 2). The Court will independently address

Cloud’s section 108 tolling arguments. See infra Part B.

App. B-14

Further, there is no allegation that the United States

“induced or tricked” Cloud into allowing the statute of

limitations to pass.

Equitable tolling should nevertheless apply,

according to Cloud. He cites Piotrowski, 51 F.3d 512 (5th Cir.

1995), as support for his argument. In Piotrowski, the victim

of a murder attempt brought suit against the City of

Houston Police Department in 1993 claiming that it

prevented an informant from warning her about the

pending murder attempt in 1980. Although it affirmed the

dismissal of the victim’s claim as time-barred, the Fifth

Circuit held that the limitations period did not begin

accruing in 1980 because “[w]hen a defendant controls the

facts surrounding causation such that a reasonable person

could not obtain the information even with a diligent

investigation, a cause of action accrues, but the statute of

limitations is tolled.” Id. at 517. Unlike Piotrowski, however,

there is no indication that the United States “took active

steps to suppress any information,” Id., given that Cloud

and his former co-defendants knew the grand jury

proceedings occurred. Moreover, whereas the Piotrowski

plaintiff claimed that she was completely unaware for 13

years that me police had any knowledge of the murder

attempt, Id. at 514, Cloud knew that he had a claim of

malicious prosecution in January 1996. (Instrument No. 38,

at 9) (stating that “Cloud and the other co-defendants

possessed some facts in support of a claim for malicious

prosecution”).

In this regard, Cloud alternatively argues that tolling

is appropriate because the bankruptcy court ordered on

September 9, 1999, that “all limitations periods for any other

claims under applicable law are tolled and extended until

this case is closed or a final decree is entered.” (Instrument

No. 38, Ex. 5, at 3). The bankruptcy court’s order is not

binding, however, because the FTCA’s two-year statute of

limitations had already expired on approximately January

App. B-15

13, 1998. Even tolling the FTCA statute of limitations period

pursuant to 11 U.S.C.A. § 108 (2000), as Cloud urges, still

renders the bankruptcy court's order untimely. That is,

because the Court finds under section 108(b) that Cloud’s

FTCA limitations period could only be tolled for a

maximum of 60 days, see infra Part B, Cloud had, at most,

until approximately January 26, 1998 to file his claim with

the DOJ. Because the Court finds that the FTCA limitations

period already lapsed on the date of the bankruptcy court's

order, it need not address whether the bankruptcy court's

order that “all limitations periods for any other claims

under applicable law are tolled and extended until this case

is closed or a final decree is entered” is binding upon this

Court.‘ (Instrument No. 38, Ex. 5, at 3).

The Court is not unsympathetic to Cloud!s

allegations. However, the FTCA only constitutes a limited

waiver of the United States’ sovereign immunity. The

limitations provisions are “the balance struck by Congress

in the context of tort claims against the Government; and

[the Court is] not free to construe it so as to defeat its

obvious purpose, which is to encourage the prompt

presentation of claims.” Kubrick, 100 S.Ct. at 357.

: The Court notes, without deciding, that there is a question

whether the bankruptcy court possessed the authority to “toll[ ] and

extend [ ]” the statutes-of limitations for “any other claims under

applicable law.” (Instrument No. 38, Ex. 5, at 3). Although the

bankruptcy courts “may issue any order, process, Or judgment that is

necessary or appropriate to carry out the provisions,” 11 U.S.C.A. §

105(a) (2000), of the Bankruptcy Code, the Supreme Court has held that

“whatever equitable powers remain in the bankruptcy courts must and

can only be exercised within the confines of the Bankruptcy Code.”

Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d

169 (1988). Here, it is not clear that the bankruptcy court's blanket order

that all statutes of limitations are tolled for “any other claims under

applicable law,” (Instrument No. 38, Ex. 5, at 3) (emphasis added), was

exercised within the confines of the Bankruptcy Code.

App. B-16

B.

Cloud contends that, even if the Court determines

that his FTCA claim began accruing on January 12, 1996,

the statute of limitations was toiied when he subsequently

filed for bankruptcy on November 26, 1997. (Instrument No.

37, at 2). Cloud argues that under 11 U.S.C.A. § 108(a)

(2000) his FTCA claim did not expire until November 1999.

(Instrument No. 38, at 13). Section 108(a) of the Bankruptcy

Code provides, in relevant part:

(a) If applicable nonbankruptcy law

... fixes a period within which the debtor may

commence an action, and such period has not

expired before the date of the filing of the

petition, the trustee may commence such

action only before the later of —

(1) the end of such period,

including any suspension of such

period occurring on or after the

commencement of the case; or

(2) two vears after the order

for relief.

11 U.S.C.A. § 108(a) (2000) (emphasis added).

According to Cloud, section 108(a) is the appropriate

Bankruptcy Code provision for tolling his FTCA claim

because “commence an action,” Id., is not limited to filing

an action in court. Indeed, Cloud maintains that “[t]he

legislative history of § 108 reveals that subsection (a)

encompasses tolling for acts beyond the simple filing of a

lawsuit.” (Instrument No. 38, at 17). Consequently, Cloud

urges the Court to rule that section 108(a)’s “commence an

action” language contemplates the presentment of an

administrative claim.

App. B-17

The United States, in contrast, argues that Cloud

seeks tolling protection under the wrong Bankruptcy Code

provision. Rather, the United States contends that Cloud's

claim was only tolled for 60 days under 11 U.S.C.A. § 108(b)

(2000). In pertinent part, section 108(b) reads:

(b) (I]f applicable nonbankruptcy

law ... fixes a period within which the debtor

or an individual ... may file any pleading,

demand, notice, or proof of claim or loss, ... or

perform any other similar act, and such period

has not expired before the date of the filing of

the petition, the trustee may only file, cure, or

perform, as the case may be, before the later

of —

(1) the end of such period,

including any suspension of such

period occurring on or after the

commencement of the case; or

(2) 60 days after the order for

relief.

11 U.S.C.A. § 108(b) (2000) (emphasis added).

The United States maintains that section 108(b), and

not section 108(a), is the applicable tolling provision

because Cloud’s administrative claim to the DOJ qualifies as

“any pleading, demand, notice, or proof of claim or loss, ...

or [ | any other similar act.” Id. The United States argues

that Cloud’s presentment of an administrative claim does

not mean that he has “commence[d] an action” under

section 108(a). In contrast, Cloud contends that section

108(b) is merely a residual provision generally reserved for

claims “outside the context of litigation.” (Instrument No.

38, at 17). He asserts that “[ilt does not make sense to give a

trustee a two-year extension to file suit under the Federal

Tort Claims Act [under section 108(a)] but a sixty- day

extension to file an administrative claim [under section

108(b)].11 (Id. at 18).

App. B-18

The challenge over which Bankruptcy Code tolling

provision applies is crucial because it determines whether

Cloud’s FTCA claim is tolled for two years or merely sixty

days. There is no question that one of these provisions

apply because Cloud’s bankruptcy petition of November 26,

1997, qualifies as an “order for relief’ under the Bankruptcy

Code. 11 US.C.A. § 301 (2000) (stating that “[t]he

commencement of a voluntary case under [the Bankruptcy

Code] constitutes an order for relief’). If section 108(a)

applies, thus tolling the FTCA claim for two years, Cloud

would have been allowed to present his administrative

claim to the DOJ until November 1999. On the other hand,

applying section 108(b) would have only allowed Cloud to

present his administrative claim to the DOJ until January

1998, thereby time-barring his FTCA claim.

The FTCA’s intersection with the tolling

provisions in sections 108(a) and (b) is an issue of first

impression in the Fifth Circuit. However, the District of

Columbia Circuit’s reasoning in Eagle-Picher Indus., Inc. v.

United States, 937 F.2d 625 (D.C. Cir. 1991), is persuasive. In

Eagle-Picher; an asbestos products manufacturer to

shipyards sued the United States to recover substantial

expenses incurred ftom asbestos-related litigation and

settlements. Because the plaintiff presented its

administrative claims to the relevant federal agencies on

February 15, 1984, only claims after February 15, 1982, could

be included in its FTCA suit. However, more than 90% of

the plaintiffs underlying claims occurred before February

15, 1982. Consequently, the plaintiff argued that its filing of

a bankrupicy petition on July 29, 1982, tolled the FTCA

statute of limitations for two years. As a result of the

tolling, the plaintiff maintained that its February 15, 1984,

claims presentment fell within the statute of limitations. In

affirming the district court's partial dismissal of the claims

as time-barred, the D.C. Circuit held that “the FTCA

presentment requirement should be considered a ‘notice or

proof of claiin’ under § 108(b), rather than an ‘action’ under

App. B-19

§ 108/a).” Id. at 640. The court noted that the FTCA

considers the presentment of an administrative claim a

“logical and a temporal antecedent to the prosecution of any

tort’ action.”’ Id. at 640.

The Eagle-Picher decision nearly mirrors the

circumstances here. Like the Eagle-Picher plaintiff, Cloud

filed for bankruptcy and claimed the two-year tolling

protection of section 108(a). However, as the D.C. Circuit

artfully explained, only an “action,” as defined by section

108(a), justifies the two-year tolling because it “is a more

substantial and involved undertaking than the filing of a

‘claim.”” Id. at 640. Cloud contends, on the other hand, that

“compilation of an administrative claim for presentment

under the FTCA is actually more onerous than filing suit.”

(Instrument No. 38, at 18). Indeed, he argues that the

purpose of section 108(a) is “completely frustrated” by

limiting the presentment of administrative claims to the 60-

day tolling period under section 108(b). (Id.). Cloud’s

arguments, however, have no support in the law. In

enacting the presentment requirement to the FTCA, the

Congress sought “to avoid unnecessary litigation and to

expedite fair settlement of tort claims asserted against the

United States.” Eagle- Picher, 937 F.2d at 640. Moreover,

“Congress understood these claims presentation statutes as

requiring only minimal notice.” Id. Accordingly, section

108(b)’s reference to the “fil[ing of] any pleading .... or proof

of claim or loss, ... or [the] perform[ance of] any other

similar act” encompasses the minimal notice implicated by

an administrative claim presentment. Id. Although Cloud

asserts that “[ilt does not make sense to give a trustee a two-

year extension to file suit under the Federal Torts Claims

Act but a sixty-day extension to file an administrative

claim,” (Instrument No 3t at 18Y le law squarely indicates

otherwise:

App. B-20

Because presentment requires only

‘minimal notice,’ the initiation of a tort claim

against the government is far less costly and

far easier than the initiation of an action

against a nongovernmental tortfeasor. Given

this lesser burden on FTCA claimants it is

neither unfair nor inappropriate for § 108(b)’s

shorter tolling period to apply to FTCA tort

claims while § 108(a)’ s two-year period

applies to all nongovernmental tort actions.

Eagle-Picher, 937 F.2d at 640.

Analogously, a decision by the Fifth Circuit in TLI,

Inc. v. United States, 100 F.3d 424 (5th Cir. 1996), reflects the

reasoning of Eagle-Picher. In TLI, the taxpayer sought a

refund in 1989 for incorrectly assessed and collected taxes in

1984. The taxpayer argued that section 108(a) extended the

time for it make its administrative refuaid claim by two

years. Specifically, it maintained that 108(a)’s

“commence[ment of] an action” language includes the filing

its administrative claim. In affirming the district court's

grant of the United States’ motion for summary judgment,

the Fifth Circuit held that “[w]hile an administrative refund

application must precede a tax action, it does not commence

it.” TLI, 100 F.3d at 427. The court explained that, taken in

its ordinary context, “action” refers to a lawsuit brought in

court. Id. (quoting Black’s Law Dictionary 28 (6th ed.

1990)). Similarly, within the framework of the Federal Rules

of Civil Procedure, the court noted that Rule 3, aptly

entitled “Commencement of Action,” defines it in this way:

“A civil action is commenced by filing a complaint with the

court.” id. (quoting Fed.R.Civ.P. 3).

Like TLI, Cloud argues that his administrative claim

is encompassed by section 108(a)’s “action.” Just as a

administrative tax refund claim does not commence

litigation, Id., however, Cloud’s administrative claim under

App. B-21

the FTCA does not, either. Rather, an administrative claim

under the FTCA, like an administrative tax refund claim, is

a jurisdictional requirement that necessarily precedes any

litigation. See GAF Corp. v. United States, 818 F.2d 901, 918

(D.C.Cir.1987) (holding that the Congress instituted the

presentment requirement “as a precondition to filing suit”

in order to reduce the “filing of large numbers of suits

which might be settled out of court’). Thus, although

Cloud believes that the filing of an administrative claim

warrants section 108(a)’s two-year tolling because “[t]he

process for submitting a claim under the FTCA is far more

complex than filing a lawsuit,” (Instrument No. 38, at 19),

the law plainly indicates that section 108(b)’s sixty-day

tolling applies to the filing of administrative claims. TU,

100 F.3d at 427; Eagle-Picher, 937 F.2d at 640.

Because Cloud’s bankruptcy petition only tolled the

FTCA statute of limitations for sixty days under section

108(b), Cloud was required to present his administrative

claim to the DOJ by approximately January 26, 1998.

Clouds presentment of his claim in March 1999,

consequently, was time-barred.

a

Although the United States has moved for a

complete dismissal of Cloud’s complaint, Cloud argues ina

footnote that, based on 11 U.S.C.A. § 106(c) (2000), the

United States is only eligible for a “partial dismissal.” Cloud

asserts that, even if this Court finds that the United States’

sovereign immunity from suit has not been abrogated under

the FTCA, there is an independent basis for the immunity’s

waiver. Under section 106(c), “[nJotwithstanding any

assertion of sovereign immunity by a governmental unit,

-~ there shall be offset against a claim or interest of a

governmental unit any claim against such governmental

unit that is property of the estate.”

App. B-22

According to Cloud, the United States has “made a

claim in Cloud’s bankruptcy .. [in the amount of]

$1,574,029.00.” (Instrument No. 38, n. 1, at 1). Under his

reasoning, the FTCA lawsuit constitutes “any claim against

such governmental unit that is property of the estate” as

defined in section 106(c). Because the United States’ alleged

claim in Cloud’s bankruptcy must be “offset,” 11 U.S.C.A. §

106(c), against his FTCA claim, Cloud urges the Court to

find that the United States’ sovereign immunity is

abrogated.

The Court finds Cloud’s reasoning unpersuasive.

Section 106(c)’s abrogation of sovereign immunity was

designed to prevent a party from losing its opportunity to

file a compulsory, as opposed to a merely permissive,

counterclaim against the “governmental unit.” See In re

Rebel Coal Co., Inc., 944 F.2d 320, 321 (6th Cir. 1991).

According to Federal Rule of Civil Procedure 13(a), a

compulsory counterclaim exists “if it arises out of the

transaction or occurrence that is the subject matter of

the opposing party’s claim,” Here, there is no allegation

that Cloud’s malicious prosecution lawsuit “arises out of

the transaction or occurrence that is the subject matter” of

the United States’ alleged claim in Cloud’s bankruptcy.

Furthermore, even assuming Cloud’s FTCA action against

the DOJ qualifies as a compulsory counterclaim, there is

no evidence that the DOJ is the “governmental “rut”

asserting a stake in Cloud’s bankruptcy. The text of section

106(c) specifically provides that a party’s compulsory

counterclaim must be directed against the same

“governmental unit” responsible for filing a claim against

the party. 11 U.S.C.A. § 106(c) (“there shall be offset against

a claim or interest of a governmental unit any claim against

such governmental unit that is property of the estate”

(emphasis added)).

App. B-23

Finally, assuming arguendo that section 106(c)

appropriately abrogates sovereign immunity in the

circumstances here, Cloud is not somehow immune from

the FTCA’s statute of limitations. To the extent that Cloud’s

FTCA suii constitutes the compulsory counterclaim that will

“offset” the United States’ claim in his bankruptcy, he was

still required to abide by the time period strictures set forth

in the FTCA.

IV.

Based on the foregoing, the Court finds that the

United States’ motion to dismiss should be GRANTED.

The Clerk shall enter this Order and provide a copy

to all parties.

ENDOF DOCUMENT

App. B-24

United States District Court,

S.D. Texas, Houston Division.

UNITED STATES of America,

Plaintiff,

v.

Lawrence E. RAMMING, John Thomas Cloud,

Fred E. Wiggins, Jr., Robert A. Briggs, Scott H. Phillips,

John A. Herrin, James L. Emerson, Thomas A. Fry, UII,

Thomas J. Lykos and Paul Licata,

Defendants. —*

Criminal A. No. H-94-181.

[Entered: January 12, 1996]

United States ¢.tiorney’s Office, Washington, DC, for US.

Dan L. Cogdell, Houston, TX, for Lawrence E. Ramming.

Michael W. Ramsey, Houston, TX, for John Thomas Cloud.

Terry Collins, Harrisburg, PA, for Fred E. Wiggins. Robert

Shults, Stephen Lemmon, Houston, TX, for Robert A. Briggs.

Jack Zimmennan, for Scott H. Phillips. Wendell Odom,

Houston, TX, for John A. Herrin. William Burge, Baltimore,

NM, for James L. Emerson. Chris Bacon, for Thomas A. Fry,

Ill. Theo Pinson, Houston, TX, for Thomas J. Lykos. Robert

Moen, Vancouver, BC, Canada, for Paul Licata.

ORDER OF DISMISSAL

HOYT, District Judge.

This criminal case arises out of various financial

transactions that occurred between Memorial and Wilcrest

National Banks, Oxford Funding Corporation and various

third party corporations. The defendants have moved for

an judgment of acquittal, pursuant to Rule 29 of the Federal

Rules of Criminal Procedure, and dismissal based on

App. C-1

prosecutorial misconduct. As well, there is a pending

motion to suppress the evidence seized pursuant to a search

warrant because there was no probable cause for its

issuance.

Having heard the evidence, reviewed the

appropriate documents and exhibits and taken into

consideration the previous arguments from all sides, the

Court is of the opinion that both the motion for acquittal

and the motion to dismiss based on prosecutorial

misconduct shall be granted. ne motion to suppress shall

be denied.

The Indictment:

In the first of a 27 count indictment, the government

charges the defendants with conspiracy to defraud federally

insured financial institutions by: (a) use of interstate wire

facilities; (b) misapplication of funds; (c) making false

entries in the records of the subject institutions; (d) offering

something of value to a bank officer to influence that officer;

(e) agreeing to accept something of value by a bank officer

for the purpose of being influenced in connection with the

banks’ business; (f) taking and carrying away bank property

with the intent to steal; and, (g) conducting a financial

transaction with proceeds of an specified unlawful activity

knowing that the transaction was designed to conceal the

~ nature, location, source, ownership, or control of the

proceeds.

Twenty-five (25) counts of the indictment charge the

defendants in various combination with the substantive

charges of bank fraud, wire fraud, misapplication of bank

funds, false entries in bank records, bank bribery, bank

larceny, and money laundering.

App. C-2

The final count seeks criminal forfeiture of all

property to which the alleged proceeds of the unlawful

activity may be traced. And, in the event that the actual

property subject to forfeiture cannot be obtained, substitute

assets are sought in place or instead of the forfeited

property.

Government Contentions:

The government contends, as it relates to the

conspiracy and bank fraud charges, that the defendants,

knowing that Memorial Bank, N.A. and Village Green

National Bank were troubled institutions, “put into

operation a scheme to artificially enhance the financial

positions of Memorial and Village Green for the purpose-of

preventing or delaying a takeover of the banks by the

regulators.” The government asserts that this scheme was

accomplished by “creating sham transactions involving the

‘sales’ to be returned clandestinely to the banks as newly

injected capital from an independent source.” To this end, it

argues that “straw buyers” such as Amalgamated Oil and

Gas Company (“AOG”), First City Realty Corporation

(FCRU), and Credit Recovery Corporation (“CRC”) were

created simply to make specific purchases of charged- off

loans, personal property and real property in possession of

the banks as a result of prior foreclosures and write-offs,

with proceeds derived from the sale of various loan

packages to the banks.

As facts supporting its charge of conspiracy and

bank fraud, the government points to the fact that: (a)

Robert J. Creighton, a contract employee of Memorial and

later Oxford, became the president of CRC; (b) Mary Jane

Haines, the wife of John Thomas Cloud and a principal of

Oxford, was named president of AOG; and, (c) James

Harold Carpenter, contract employee of Oxford, served as

president of FCRC. The government asserts that by creating

App. C-3

these “sham” corporations, the defendants intended to

conceal the fact that the sale and purchase transactions were

related, thereby denying the Office of the Controller of

Currency (“OCC”) and the Federal Deposit Insurance

Corporation (“FDIC”) the appropriate oversight functions

that they usually and customarily exercise.

It is charged by the government that the defendants

accomplished the conspiracy and bank fraud by proposing

to the directors of the bank, in related transactions, that

Oxford would sell to the banks packaged real estate loans at

inflated prices and funnel proceeds from the sale of those

packages to corporations such as AOG, FCRC, and CRC for

the purposes of purchasing selected troubled assets from me

banks. The purpose of this procedure, according to the

government, was to conceal from the OCC and the FDIC

that the transactions were related and that the entities were

using the banks’ own funds to purchase trouble assets from

the banks.

The effectuation of this alleged conspiracy and bank

fraud scheme gives rise to the substantive offenses charged

in counts three (3) through twenty-six (26) and the forfeiture

count is charged in count twenty-seven (27).

Conspiracy and Bank Fraud Defined:

A “conspiracy” is an agreement between two or

more persons to join together to accomplish some unlawful

purpose. Title 18 U.S.C. § 371. For a jury to find any

defendant guilty of conspiracy, it must be convinced that

the government has proved beyond a reasonable doubt that:

(a) two or more persons made an agreement to commit the

offenses as charged in the indictment; (b) the defendant

knew the unlawful purpose of the agreement and joined in

it willfully, that is, with the intent to further the uriJawful

purpose; and, (c) one of the conspirators, during the

App. C-4

existence of the conspiracy, knowingly committed at least

one of the overt acts described in the indictment in order to

accomplish some object or purpose of the conspiracy. Id. at

§ 37L The conspiracy as alleged, in the case at bar, asserts a

scheme to defraud federally insured financial institutions as

provided in Title 18 U.S.C. §§ 1343, 1344, 656, 1005, 215,

2113(b) and 1956(a)(1)(B)(i), by selling packaged notes to the

banks and, in turn, through subsidiaries or third parties,

purchasing troubled assets from the same banks. At all

times during the alleged conspiracy, mid-1989 to on or

about May of 1991, the banks were operating under a

“Cease and Desist Order”, which order prevented the banks

from making any substantial loans. Simultaneously, the

banks were under regulatory supervision and were charged

with the duty to enhance their capital positions.

The Defendants’ Position:

The defendants assert that the sale of packaged notes

to the banks and the purchase back of troubled assets from

the same banks were mutually beneficial. They argue that

the “Yield Program”! offered to the banks by Oxford

permitted the banks to legitimately enhance their capital

accounts by acquiring an income stream superior to the ones

that could be generated by new loans, while simultaneously

disposing of troubled assets. They further argue that the

transactions were not “trash for cash schemes,” the notes

were not sold at inflated prices, the troubled assets

purchased from the banks were not worthless, and the

transactions were appropriately documented in the records

of the banks.

1 The details of the yield program are not important to this

discussion. However, the program was designed by Oxford for the

purpose of enhancing a capital poor bank’s position by selling to the bank

high yield loan packages and purchasing troubled assets from the same

bank.

App. C-5

Discussion:

Conspiracy and Bank Fraud.

The bank fraud charge is joined for the purpose of

this discussion, with the conspiracy count because the proof

required of the government is essentially the same. To

prove bank fraud, the government must establish, beyond a

reasonable doubt, that the defendants engaged in a scheme

to obtain money from the banks under false pretenses,

knowing that the false pretenses would both influence the

bankers and deceive the regulators. Title 18 U.S.C. § 1344.

In order for the government to avoid a Rule 29

motion on the conspiracy count, there must be some

evidence on each of the necessary elements sufficient for the

Court to determine that a jury could find that the crime of

conspiracy occurred, beyond a reasonable doubt. United

States v. Malatesta, 590 F.2d 1379 (5th Cir.1979). See also

United States v. Salazar, 958 F.2d 1285 (5th Cir.1992).

If the transactions between Oxford and the banks

had “economic substance” then several of the offenses that

make up the conspiracy and bank fraud charges fail. The

government suggests that these transactions were without

economic substance because the real estate loan packages

were sold to the banks at inflated prices, essentially

“cooking” the banks’ books. On this point, the Court

determines that United States v. Beuttenmuller, 29 F.3d 973

(5th Cir. 1994), is instructive.

In Beuttenmuller, the government charged the

defendant, among others, with conspiracy to commit bank

fraud and aiding and abetting the making of false entries in

credit institution reports. The government argued that the

transaction was illegal because it was a “cash for trash”

transaction. A “cash for trash” scheme is an illegal scheme

App. C-6

where an institution sells real estate owned, (“REO”) that

has been wholly financed by the institution that owns it, in

violation of banking regulations that require at least a 20

percent down-payment. Id. at 979. In these type transactions

the parties may pretend that the down-payment was made

by the purchaser, when in truth it was not. 2

In the case at bar, the transactions were “value-for-

value” transactions. Specifically, the banks were willing

purchasers and willing sellers. Oxford was a willing seller

and the third-party entities were willing purchasers of the

REO. In all instances, the parties received what they had

purchased, and there was adequate consideration on both

sides of the transactions negating any claim of actual fraud

The fact that the banks purchased the loan packages on a

dollar-for-dollar basis is of no moment. This type

transaction is nothing more than value-for-value

transaction. The fact that Oxford and the banks, as a part of

the agreement between the parties, agreed to spend at least

20 percent of either the gross sale or net profit for the REO,

is not illegal. Because the banks needed to increase their

capital accounts, it logically follows that they would want to

“unload” REO because its presence on the books diminished

the banks’ capital positions, thereby diminishing funds

available for loans. Moreover, the evidence fails to establish

that the REO had greater values than the values attributed

to them, or that the loan packages had lesser values than the

values attributed to them.

The government argues that because Oxford and the

third-party entities were related in some respect, the

transactions were not properly recorded on the books and

records of the banks. Thus, it argues that the conspiracy and

2 The government is of the opinion that the Louetta property was

not booked correctly in accordance with FASB 66. Yet, they are aware

that the bankers relied upon the opinion of Sam Pierce, an outside CPA,

in choosing the accrual method of booking.

App. C-7

bank fraud charges have as their “central core” the

concealment of material information from bank examiners

and the financial institutions.3

This argument too, fails. The argument presupposes

that there were recording requirements that were not

accomplished. Alternatively, it presupposes that the entries

made were false or inaccurately recorded, or that Oxford

and the banks’ directors and officers had a duty to explain

the transactions to OCC and FDIC officials. Neither of these

suppositions is founded in the law and neither is it

supported by the evidence. On the contrary, the

transactions were properly documented and the records

were at all times available to the banks’ regulators.

The evidence also shows that Robert J. Creighton

performed the due diligence on the note packages. He

testified that the notes were income producing, had good

collateral, and would increase the banks’ capital accounts.

The evidence shows that the regulators reviewed documents

associated with the purchased assets, and passed upon

them. Even considering the issue of the credibility of

Creighton, it is undisputed that the board of directors of the

banks discussed and approved the purchases and sales. For

the regulators to look to the loan committee minutes for

evidence of the transactions was not only foolish, it missed

the point. Moreover, the fact that the OCC regulators

looked at the transaction as though they were loan

transactions is not controlling. These transactions were bulk

sales transactions, capital acquisitions, made pursuant to

Uniform Commercial Code. 4 Therefore, no record should

exist in the minutes of the loan committee concerning capital

acquisitions.

3 Government's memorandum of law regarding admission of

evidence, filed December 4, 1995.

‘ See Vernon Tex. Code Ann., Bus. & Comm. §§ 6.1.01 et. seq. and

9.101 et. seg. (Vernons 1991).

App. C-8

The government next argues that changes were

made in the documents that deceived the banks and the

regulators concerning the true nature of the transactions. In

this regard, the evidence shows that in several instances

changes were made in the “interest due” column. Gumm,

the OCC regulator claims that he relied upon this summary

in reviewing and comment’ z on the acceptability of the

transactions.

The fact is, these changes dealt with closing the

transaction with a current “interest paid” status and never

altered the “pay history” of the individual loans. To the

extent that these modifications could arguably represent

altered documents, the alterations did not result in any false

entries being made on the books and records of the banks.

As well, the modifications did not constitute bank fraud

because the basis for the bargain did not change and there is

no evidence that the changes in the “interest paid”

summaries were material to the permanent records of the

banks. The amount of the loan due, the collateral, and the

pay history, did not change. The bank got what it paid for.

Also, these transactions did not violate the Tying

Act.5 The Tying Act contemplates a circumstance where a

bank official coerces a customer to engage in a unrequested

transaction in exchange for the requested transaction. Here,

the transactions were arms-length between parties who had

negotiated the desired terms.

The government's assertion that the sellers’ closing

statements were not in the banks is also without legal

foundation. The evidence fails to establish that the sellers’

closing statements were required documents for the banks,

or that the Oxford defendants had a duty to provide or

disclose them. See Lubin v. United States, 313 F.2d 419, 422

5 See 12 U.S.C. § 1971 et. seq. stating, “A bank shall not ... extend

credit ... on the condition ... that a customer ... obtain additional credit...

App. C-9

(9th Cir. 1963). It is logical that the banks would be in

possession of their own closing statements. In fact,

Creighton testified that he personally delivered the bank's

closing documents to the bank after each closing. This

testimony is supported by an FDIC official’s testimony

identifying the records in the FDIC’s files.

The government's suspicions surrounding Oxford's

closing statements is nothing more than suspicions. It is not

the province of the banks to know what Oxford did with the

proceeds that it earned from the sale of the note packages.

In fact, how the funds were used was the personal business

of Oxford. The banks had no right to know and Oxford had

no duty to disclose how it was spending its own money.

The government next argues that had the regulators

‘known that Oxford and the third-party entities were related

they would have collapsed the transactions. In other words,

had they known that the sale of the loan packages were

related or conditioned upon Oxford or a third-party entity

purchasing REO, the regulators would have collapsed the

transactions. The fact that the regulators may have chosen

to collapse the transactions is immaterial to a criminal

prosecution. The question proper is whether a crime was

committed by the bankers, Oxford and the third party

entities. The object of the Yield Program was not

concealment, on the contrary, it was disclosure.

The issue from the banks’ perspective was how may

the transactions be documented such that the banks’ capital

position could be improved. It was the parties’ intent to

improve the banks’ capital accounts. The creation of third-

party entities by Oxford was done for the purpose of

legitimizing the transactions. Both Oxford and the bankers

knew that the regulators would not favor a purchase and

App. C-10

sale between the same entities.6 The evidence fails to

establish that the transactions were related in an illegal way,

without regard for whether the transactions could or would

have been collapsed.” The fact is the regulators never

collapsed the transactions even though they learned about

the relationship between the parties before the banks were

declared insolvent. Moreover, the transactions were not

fraudulent simply because the regulators were unaware of

Oxford or the third party entities. Oxford’s profits were

Oxford's to do with as it saw fit.

Finally, there is no evidence that any relevant

documents were forged, backdated, or destroyed. The

government argues that the evidence that documents were

removed from the banks, or are otherwise missing, is

evidence of “consciousness of guilt.” This theory, it argues,

finds supports in the case law citing United States v. Gleason,

766 F.2d 1239 (8th Cir. 1985). However, there is no evidence,

and no proffer has been made, showing that any records

that were removed from the banks, or that were destroyed,

were relevant to the crimes charged. Thus, testimony that

records were removed or destroyed is not probative of a

consciousness of guilt where relevance is not first

established.

The government also charges that something of

value was offered to bank officials for the purpose of

influencing their decision concerning whether to engage in

6 Such a transaction would not be illegal, however. The effect of

the transaction on the books of the banks may have been different where

the two transactions are between the same parties.

’ An agency official testified that the booking of the transactions

were governed by FASB 2, 5 and 66 and particularly, Opinion 21

paragraph 12. To the extent that these accounting principles represent the

structure for how real estate transactions ought to be recorded, so be it.

To vary from these principles is not to commit a crime but, when a crime

has been committed, the variance may explain one’s intent.

App. C-11

the transactions. First, the government argues that the

banks would not have purchaseu the loan packages without

the reciprocal agreement from Oxford or the third-party

entities, that REO or other written-off loans would be

purchased. This influencing argument overlooks the fact

that this term was a basis of the bargain. The banks sought

to improve their position by purchasing the loan packages

and selling charged-off loans. It is apparent that this was

nothing more than a negotiated position. It was the bankers

who insisted upon this term--and for good cause. They

sought to protect the integrity of the transactions and to

comply with the regulators’ demand that the cage

accounts be improved.

Second, the government argues that the Oxford

defendants sought to purchase the stock note obligations

that supplied part of the original capital for the banks. To

discuss with the Oxford defendants the possibility that the

Oxford defendants may be interested in purchasing the

positions of the directors of the banks, is a violation of § 215,

according to the government, particularly, where the banks

are being encouraged to purchase more loan packages as a

bargaining chip. The evidence does not support this charge.

It was known by the bankers and within the Oxford

circle that Oxford was interested in purchasing a bank.

However, the purchase was sought only to “shore-up”

Oxford's position in the market. Oxford wanted a free hand

in the banks “till” to ensure a steady stream of business.

The evidence failed to establish that any banker was offered

or received anything of value that influenced this decision.

On the contrary, it was the heat from the regulators and the

desire to save the banks that “spurred” the bankers into

these transactions.

App. C-12

BE SARS NG CRED OM eee OS ors i aa al a

MRA ae te

AREAL RATE GN a ITT

The Court concludes that no rational jury could find,

beyond a reasonable doubt, that the defendants engaged in

a conspiracy or bank fraud of the sort stated in the

indictment. Salazar, 958 F.2d 1285. The Court turns next to

the evidence as it relates to the remaining substanti:-2 counts

in the indictment. United States v. Burns, 597 F.2a 939 (5th

Cir. 1979)

FALSE ENTRIES IN THE BOOK:

In ten (10) counts the government charges that the

defendants engaged in, or aided and abetted engagement in,

the misapplication of bank funds and in making false entries

in the books and records of the banks. Title 18 U.S.C. §§ 656

and 1005. A violation of § 1005 is usually involved when

there is a violation of § 656, because a false entry is often

used to cover-up the misapplication. However, a violation

of internal operating procedures and failure to disclose

conflicts of interest do not, in themselves, constitute federal

criminal violations. United States v. McCright, 821 F.2d 226

(Sth Cir. 1987), cert. denied, 484 U.S. 1005, 108 S.Ct. 697, 98

L.Ed.2d 649 (1988). Likewise, a bank officer cannot be found

guilty of misapplication based solely on a violation of a

bank regulation. United States v. Christo, 614 F.2d 486 (5th

Cir. 1980). z

In order for the government to prevail on a § 1005

charge of false entries, the government must establish the

following elements, beyond a reasonable doubt. The

government must prove that the defendant was an officer,

director or employee of an institution covered by the statute,

that the defendant made or aided another in making entries

in the books and records of the institution, which the

defendant knew to be false, and that the defendant acted

with the intent to injure or defraud the institution.

App. C-13

In the case at bar, the government asserts that the

bankers failed to disclose in the banks’ books that funds

received by the banks, in the purchase of REO or troubled

assets from the third-party entities, were derived from the

funds paid to Oxford during the purchase by the banks of

loan packages from Oxford. The government refers to the

purchase of the troubled assets as “sham” purchases. It

refers to the corporations that made the purchases as

“sham” corporations.’ The sole basis in argument for this

characterization is the fact that Oxford supplied or loaned

the funds to these third-party entities in order that the

entities could make the described purchases from the banks.

These transactions had nothing to do with me bank’s

records.

The purpose of a bank’s records is to insure that

regulators or inspectors may see an accurate picture of a

bank’s condition. United States v. Baker, 61 F.3d 317 (Sth Cir.

1995). It is not the province of the inspector to know the

details of every transaction that makes up the picture. To be

a false entry, the entry must be an omission of material

information that impairs or prevents the function of the

government agency. See Beuttenmuller, 29 F.3d at 982.

The government argues that the defendants omitted

telling the regulators that Oxford and the third-party entities

were related entities and that this failing was deliberate,

designed to deceive. This argument overlooks the fact that

Oxford acted as a broker in these transactions. Oxford

found a willing seller and a willing purchaser and kept the

two apart in order that it could later act as the seller of the

loan packages by conducting a double closing. By handling

’ “Sham” corporation is a misnomer. It is undisputed that the

corporations in this case were legally created under the laws of the state

of Texas. Whether they functioned in accordance with the law or were

used to defraud are questions of fact requiring proof. The fa:®: that they

were single purpose corporations is not dispositive of the issue.

App. C-14

EERIE POLLAN DEEDES MONS ONY AR

the transactions in this manner, the right hand did not know

what the left hand was doing and Oxford was able to

increase the commission that it had been able to earn froma

distressed seller. Even if it were argued that Oxford was the

seller, it could be so only for a fleeting moment. The most

accurate description of Oxford’s role, however, is that of a

broker.

As these facts apply to this case one can readily see

that two of the elements of the offense of false entries are not

supported by the evidence, beyond a reasonable doubt.

First, the entries made on the books of the banks were not

false. In fact, the entries were correct. The dispute then

moves to how the entries should have been treated on the

books from an accounting perspective. The debate was over

whether the “legal effect” of the transaction should prevail

or not over the “economic substance” of the transaction.9

Even assuming that the economic substance theory prevails

accounting for the transaction based on the legal effect of the

transaction does not make the entries false. It simply

focuses the discussion on the value of the transaction from

the seller's and buyer's perspectives. A false entry is not

made where the transaction entered actually took place, and

are entered exactly as they occurred. See Coffin v. United

States, 156 U.S. 432, 463, 15 S.Ct. 394, 406, 39 L.Ed. 481

(1895).

Here, the transactions were recorded exactly as they

occurred. The fact that regulations or accounting principals

would dictate an accounting treatment different than the

treatment given, even if the parties intended to defraud the

bank, is not a false entry. United States v. Manderson, 511

F.2d 179, 181 (5th Cir. 1975). The record and the evidence

shows, additionally, that the defendants’ actions were

designed to help, as opposed to injure, the banks. Even if

See footnote number 6, supra.

App. C-15

the entries could be labeled as false, and the Court is not

concluding that to be the case, the fact that they were

properly recorded negates the offense of false entry. Coffin,

156 US. at 463, 15 S.Ct. at 406.

MISAPPLICATION OF BANK FUNDS:

Likewise, the charges of misapplication must fail. To

prove misapplication of funds the government must prove

that an officer, director or employee of the bank insured by

the FDIC, knowingly and willfully misapplied monies of the

bank with intent to injure or defraud the bank. United States

v. Mann, 517 F.2d 259, 267 (5th Cir. 1975), cert. denied, 423

U.S. 1087, 96 S.Ct. 878, 47 L.Ed.2d 97 (1976). Intent to

defraud means to act with intent to cheat or deceive either to

cause a financial loss to someone.or a financial gain to one’s

self. See United States Fifth Circuit, Pattern Jury Instructions,

Criminal Cases (1983). A showing that entries were

correctly recorded, resulting in funds being disbursed

pursuant to an agreement and the transaction, is not a

misapplication of funds.

The misapplication referred to in the relevant

indictment charges that, at the time of the transactions

between the banks and Oxford, both sides knew that a

portion of the sale proceeds would be returned to the banks

in exchange for troubled assets. See Title 18 U.S.C. § 656. At

most, this argument shows a linkage between the two

transactions, in which event, the transactions may be

collapsed. The fact that the transactions may be collapsed

under an “economic substance” theory does not mean that

the transactions were irregular and should be reversed.

Moreover, it does not make the transaction illegal.

Violations of banking regulations as it pertains to how a

transaction is booked is no evidence of a crime. See United

States v. Cleary, 565 F.2d 43, 47 (2nd Cir. 1977) cert. denied,

435 U.S. 915, 98 S.Ct. 1469, 55 L.Ed.2d 506 (1978). Therefore,

App. C-16

the Court must look to determine what evidence exists

suggesting that the bankers intended, by their conduct, to

injure or defraud the bank. See United States v. Adamson, 700

F.2d 953 (Sth Cir.), cert. denied, 464 U.S: 833, 104 S.Ct. 116, 78

L.Ed.2d 116 (1983). On this point, it should be noted that

violation of a bank’s policies or procedures intended to

protect the bank’s interest is also relevant to the issue of

intent. United States v. Clark, 765 F.2d 297) 303 (2nd Cir.

1985).

Here, the evidence shows that the banks were under

an order to increase their capital accounts. The bankers

engaged in the transactions stated in the indictment for the

purpose of increasing the capital of the banks, not for the

purpose of injuring or defrauding the banks. The effect of a

particular conduct can be a crime only when the effect was

the bankers’ intent. Here, no inferences of a crime can be

drawn from the bankers’ conduct because their intent is not

in dispute. They intended to save the banks.

- Applying the basic principle of Ejusdem generis, it is

evidence that to constitute misapplication of funds, within

the meaning of the statute, the bank officers’ conduct must

involve some risk of loss to the bank as opposed to a

violation of a regulation, bank policy or accounting

principle designed to account for assets. Clark, 765 F.2d at

303. Moreover, the fact that a bank official makes a

transaction that is legal or appropriate with knowledge that

the recipient of the sale proceed will turn around and lend

part of those proceeds to a third party is not a crime.

Compare United States v..Adamson, 700 F.2d 953, 956 (5th Cir.

1982) cert. denied, 464 U.S. 833, 104 S.Ct. 116, 78 L.Ed.2d 116

(133).

The Court concludes that no reasonable jury could

find the defendants guilty of the offenses of making false

entries in the books of the banks and misapplication of bank

funds, beyond a reasonable doubt. Salazar, 958 F.2d 1285.

The indictment in this case also charges wire fraud,

bank bribery, bank larceny, money laundering and

forfeiture. These charges are derivative, or related to the

crimes of conspiracy to commit bank fraud and bank fraud.

Therefore, these substantive charges will be examined to the

extent necessary to determine whether the evidence

supports a submission to the jury. Jackson v. Virginia, 443

U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979).

Bribery Charges:

A person commits bribery when he offers something

of value to anyone with the intent to corruptly influence or

reward an officer, director, employee, agent or attorney of a

federally insured financial institution in connection with a

transaction. Title 18 U.S.C. § 215. The indictment charges

that Oxford defendants offered to purchase the debts and

obligations of various bank officials.

The evidence shows that the Oxford defendants, at a

point in time, determined that they wanted to purchase a

bank(s). Contact was made with various directors and/or

shareholders regarding their individual interest, if any, in

selling the note obligations associated with the purchase of

~_Memorial and Village Green stock. The Oxford defendants

apparently thought that a straight purchase would require a

different approval process from the OCC, than one where

they purchased the note obligations and simply foreclosed

on the occasion of any default in payments. It is not

disputed that the note obligations were located at banks

other than Memorial and Village Green.

App. C-18

Pursuant to the plan to boost the capital accounts of

Memorial, Creighton solicited letters of commitment from

individuals to the effect that the individuals intended to

invest a substantial sum of money in the banks. Letters

from individuals such as James Carpenter were forwarded

to Memorial. Creighton testified that Carpenter never

intended to purchase the bank’s stock but had provided the

letter because an Oxford official had requested that he do so.

Whether Carpenter intended to make a purchase or not, it is

undisputed that others did.

First, the government argues that this conduct,

providing a false statement of intent, is relevant to show the

Oxford defendants’ predisposition to take control of the

banks without revealing in advance to the OCC who the real

purchasers would be. This conduct does not constitute

bribery and it does not amount to bank fraud or conspiracy,

as contemplated and charged by the indictment. Of equal

significance, is the fact that this conduct did not affect any

entries in the books and records of the bank, such that the

soundness of the bank was implicated.

Secondly, no crime is committed by the bank officials

or Oxford officials in their effort to stall a take-over of the

institution by the FDIC. It was the bank officials’ fiduciary

duty to the stockholders and depositors to do every legal act

to turn the banks around. If turning them around meant

delaying the regulators in their efforts, so be it, so long as no

crime was intended. It is clear that the officials on both

sides of the-transactions were keenly interested. if only for

selfish reasons, to “fix” the capital account probiems at the

banks.

Finally, it is of no moment that the Oxford officials

attempted to take-over the banks through note purchases.

The obvious is that several, if not all, of the stockholders

wanted out because to get out would limit their financial

App. C-19

exposure. Specifically, if the FDIC stepped in and closed the

institution, the stockholders would lose twice, if not three

times. First, they would lose their investment in the banks.

Second, they would remain obligated to pay-off the

underlying stock notes that had been used to purchase the

banks. And third, there is the potential for civil and

criminal exposure concerning the decisions that were made

during their terms as stockholders and directors, and

potentially beyond.

The government's allegation mm me stock purchase

offers were made simply to encourage the banks to engage

in additional transactions with Oxford, is not well founded.

There was more to this engagement than first meets the eye.

No change of control of the banks ever occurred and there is

no evidence that the plan to purchase the notes underlying

the bank stock was ever consummated. In fact, the

evidentiary cupboard is bare of any benefit to the banks or

the banks’ official from Oxford that was not a pas of the

transaction agreements made the basis of this indictment.

No jury could find, beyond a reasonable doubt, that

the acts described herein constituted a bribe of bank officials

because no request was made of a bank official that was in

violation of the officials’ duty. Malatesta, 590 F.2d 1379.

And, because no bribe was offered, no bribe could be

received. This count of the indictment fails as you consider

the reasoning heretofore stated. As well, there is no

evidence that any bank official did any act or failed to do

any act in violation of his official duty. Therefore, no jury

could find, beyond a reasonable doubt, from the acts

described in the indictment as they relate to the evidence,

that a crime was committed. Id.

Mt te ecdmeemieccas

App. C-20

Bank Larceny:

In a single count, the government charges that the

defendants committed the offense of bank larceny in

violation of Title 18 U.S.C. § 2113(b). Bank larceny occurs

when a person deprives the bank of its property under false

pretenses--to take without adequate consideration. Id.

The essential elements of this offense requires the

government to prove, beyond a reasonable doubt, that an

individual, with intent to steal money or property belonging

to a federal bank, willfully or intentionally removed such

property from the care, custody, control, management or

possession of the bank. Ibid

in the case at bar, the government alleges that the

defendants caused diamonds, representing part of the

collateral for a loan, and acquired by the bank through a

foreclosure, to be taken from the bank under false pretenses

in connection with a scheme to defraud the bank. The basis

of this charge is “rooted” in the governments charge of bank

fraud and conspiracy.

It is the Court’s view, and the evidence supports the

conclusion, that each of the transactions were “value-for-

value” transactions, that the diamonds in question left the

bank only after adequate consideration was paid, and that

the consideration paid was agreed to by the bank officials.

While the government argues that the effect of the

transaction placed the diamonds in the hands of Oxford

officials and that the funds used were bank funds, these

arguments are not supported by the evidence and are based

on a preference of economic substance over legal structure.

While a federal agency may ignore legal structure in -

determining how it will “book” a transaction in the records

of a bank, it may not ignore the legal effect of legal

structures that are designed by the state legislatures and

Congress, the law makers.

App. C-21

In summary, the bookkeeping treatment dictated by

general accounting principles or by regulators cannot

“trump” state and federal law that dictate the structure of

business transactions. As matter of law, this count fails.

Wire Fraud Charges:

In three (3) counts, the government charges that the

defendants committed wire fraud. It is alleged that on two

occasions in December 1989, and one occasion in March

1990, that the defendants caused the transmittal of certain

writings, etc., between the states of Texas and Oklahoma

and Texas and Chicago. The allegations are that money was

wired and documents were transmitted by facsimile to these

locations with the intent to defraud the OCC, the FDIC, as

well as the banks. The ultimate purpose being to obtain

money and property by means of false pretenses.

In order to establish these counts the government

must prove, beyond a reasonable doubt, that the defendants

devised a scheme to deprive the banks of the benefit of if s

bargain or the depositors’ money, and acted with intent to

do so utilizing the wire service to carry out the scheme.

Title 18 U.S.C. § 1343.

In the ordinary or usual case of wire fraud, the

government must establish that the use of the wire service

was an important part of the scheme. See Criminal Jury

Instructions, Fifth Circuit, comment following instruction

(1983). Therefore, it is not wire fraud if the use was only

incidental to a crime. In other words, if the object of the

crime cannot be committed except through the use of the

wire service, then the additional crime of wire fraud is

chargeable and provable. As well, if the wire service is used

to effect or further a crime that has been committed, then the

crime of wire fraud is implicated. Id.

App. C-22

OI ma wm ON

Assuming that no crime was committed arising out

of the transactions made the basis of this indictment, and the

Court has found that no conspiracy, bank fraud,

misapplication of bank funds, false entries in bank records,

bank bribery or bank larceny has been proved, the fact that

the wire service was used on December 7 and 9, 1989, and

March 8, 1990, is of no moment. It, therefore, is not an

important part of a scheme to defraud the banks.

The Court holds that, because there was adequate

value on both sides of the transactions at issue, no fraud

‘occurred. Incorporating the Court's previous reasoning

here as well, it is the Court's opinion that the use of the wire

service was not an important part of the alleged conspiracy,

bank fraud, misapplication of funds, false entries, bank

bribery or bank larceny. Under these facts and in this

circumstance, no jury could find, beyond a reasonable

doubt, that the crime of wire fraud was committed.

Malatesta, 590 F.2d 1379.

Money Laundering Counts:

In eight (8) counts, the government charges that the

defendants engaged in money laundering in violation of

Title 18 U.S.C. § 1956(a)(1)(B)(i). The government asserts

that the defendants conducted financial transactions with

proceeds that they knew were derived from unlawful

activities, i.e., misapplication of bank funds and bank fraud,

with knowledge that the purpose of the transactions was, 1n

part, to conceal me ownership of me proceeds.

In order to prevail on these counts, the government

must prove, beyond a reasonable doubt, that the relevant

defendant knowingly received proceeds that resulted from

bank fraud or misapplication of bank funds with the intent

to conceal the source or true ownership to avoid or prevent

the regulators from knowing that the transactional proceeds

were used to either purchase charged- off loans from the

banks or to invest in other ventures. Id.

App. C-23

The operative determination in this analysis, is

whether a crime was committed from which it could be said

that proceeds were laundered. The eight counts deal with

the handling of the proceeds derived from Memorial and

Village Green banks as a result of le sale of loan packages to

them. Therefore, if no crime of bank fraud or misapplication

has been proved, it follows that money laundering cannot

be proved, as a matter of law. It would be simple to say,

that because the Court has found that the stated underlying

crimes were not committed, these charges also fail.

However, there is more to be said here.

There is no statutory requirement that the Oxford

defendants reveal to the bankers or the regulators the source

of their funds. The theory behind the Money Laundering

Act is that the disbursement of any specified unlawful

proceeds impedes the governments efforts to accumulate

information germane to the underlying crime. The Act

seeks to punish obstruction of justice; the hiding of the

evidence of the crime.

Here, the defendants left a clean paper trail so well

defined that the regulators could follow it. No unusual

transactions occurred and no obfuscation of the funds can

be proved. In short, there was no concealment revealed that

is not protected by the Fourth and Fifth Amendments to the

federal Constitution. These counts in the indictment are

without foundation and shall be dismissed.

Criminal Forfeiture:

Finally, the indictment seeks criminal forfeiture of

the proceeds derived from the asserted unlawful

transactions pursuant to Title 18 U.S.C. § 982. This statute

permits criminal forfeiture of property that is derived

from proceed traceable to a violation of banking statutes.

Because no crime has been proved in the 26 count

App. C-24

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indictment, count twenty-seven the forfeiture count, fails for

lack of substance. The Court turns next to the defendants’

motion to suppress.

II.

Previously, the Court denied the defendants’

motion to suppress because the Court determined that, even

if the affiant, FBI Agent Tom Conlon, included false

statements in his affidavit for search warrant, there was

sufficient other evidence to support probable cause for its

issuance. The affiant, through mischief or a lack of

knowledge, was mistaken on the law. That mistake did not

negate the possibility that evidence existed establishing that

the defendants intended to commit the crimes that were

ultimately charged. Therefore, the Court denies the motion

to suppress.

Ill.

Next, the Court turns to the defendants’ third motion

to dismiss based on prosecutorial misconduct. In two

previous hearings, the first and second motion to dismiss,

the Court found that:

" a) the Court ordered the delivery

of Brady material far in advance of trial (see

document numbers 131, 187, 200 and 343);

b) the Brady materials in question

are constituted of FBI 302 reports and Grand

Jury testimony of witnesses whose testimony

or statements support the defendants’ theory

of the case and refutes that of the

government;

c) the government failed in its duty to

be forthright in the disclosure of Brady

materials;

App. C-25

d) the government failed to produce,

within a reasonable time, what it considered

questionable materials so that the case could

be appropriately administered and the rights

of the defendants could be protected;

e) the government intentionally failed

or refused to comply with the law, by

asserting, disingenuously, that impeachment

materials do not constitute Brady but instead

Giglio and, therefore, denied any obligation to

tender the documents in accordance with

Brady; See Brady v. Maryland, 373 US. 83 [83

S.Ct. 1194, 10 L.Ed.2d 215] (1963); see also,

Williams v. Dutton, 400 F.2d 797 (5th Cir.

1968) cert. denied, 393 U.S. 1005 [1105, 89 S.Ct.

908, 21 L.Ed.2d 799] (1969).

f) the failing of the government, in its

duty under the federal Constitution to not

violate the Sixth Amendment rights of the

defendants to a fair and open trial, prevented

the defendants from making an appropriate

opening statement rebutting the

government's theories of prosecution;

g) the government made

misrepresentations of facts to the Court that

Robert Creighton was not “taking any drugs”

in response to charges by the defendants that

Creighton was possibly on psychotic drugs.

The facts show that not only had Creighton

been hospitalized for a psychotic episode but

was currently taking a psychotic drug. At the

very least, this conduct was reckless. At

most, it as intended as a laud on the Court.

(See trial transcript).

h) the government made

misrepresentations of facts, or at least gave

misleading facts, to the Court regarding

App. C-26

instructions given to a witness, Keith Franze.

In this regard, the government stated that no

one ever “instructed him [Franze] not to talk

to [anyone].” Franze testified that “they

suggested that I not [talk] with the

defendants in the case.” “[I]t would be best if

| [Franze] avoid them.” (See trial transcript)

The Court has since determined that:

a) a comparison of the 302

statements of witnesses to the same

witnesses’ Grand Jury testimony is revealing.

The FBI agent took extensive liberties,

choosing conclusionary words that caused

the statements to fit within the government's

theory of the case. Assuming that this

conduct was merely overzealousness, the

error was exposed during the Grand Jury

testimony of the same witnesses. Without

doubt, this disparity came to the United

States Attorney’s attention because, the tone

and tenor of the questioning of the witnesses

before the Grand Jury is also revealing, to say

the least.

b) the Court was required to review at

least eight (8) transcripts of the Grand Jury

testimony, determining in each of the eight,

that the testimony was wrought with

statements that both, supported the

defendants’ theory of the case and foiled that

of the government, with few exceptions.

c) tthe testimony of Jim

Carpenter, Carmen Cooper, Robert

Creighton, Walter Fagan, Anthony Gullo,

Fred Haas, Leland Jones, Mary Ellen

Kallmeyer, David Gumm and several others,

App. C-27

called or not by the government, supports the

defendants’ claim of innocence. (See 3rd

motion to dismiss in response to Brady

violations).

d) the government's contentions of

equal access, neutral evidence, that the

defendants were aware of the information

possessed by the Grand Jury, that the

testimony was merely impeachment, and that

they acted in good faith, is incredible. Only a

person blinded by ambition or ignorance of

the law and ethics would have proceeded

down this dangerous path.

Here, it appears that the duty and obligation of the

government to not prosecute where the evidence at best is

disputed, leaves the defendants’ Sixth Amendment right to

a fair trial snared on the branches of strange and subverted

truth. See Berger v. United States, 295 USS. 78, 55 S.Ct. 6299 79

L.Ed. 1314 (1935). A fundamental principle of reciprocity

dictates that there can be no liberty or justice for any one of

us except, that there is liberty and justice for all. Each of us

has a separate and distinct duty to guard these fundamental

principles.

It is ORDERED that the monetary sanctions entered

earlier in this case are withdrawn for all times, and the

defendants’ Third Motion to Dismiss, because of

prosecutorial misconduct, and Motion to Dismiss pursuant

to FRCP 29 are GRANTED.

END OF DOCUMENT

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

LAWRENCE H. RAMMING, et al.,

Plaintiff,

CIVIL ACTION NO.

versus H-99-4359

UNITED STATES OF AMERICA,

Defendant,

Un Un GI GT GM GW

ORDER

[Entered: July 27, 2000]

Pending before the Court is Defendant's Rule

12(b)(1) and 12(b)(6) Motion to Dismiss Ramming’s First

Amended Complaint (Instrument No. 7). Having

considered the submissions of the parties and the applicable

law, the Court finds that Defendant's motion should be

GRANTED.

I.

Plaintiff Lawrence H. Ramming (“Ramming”) brings

this action against Defendant the United States (“the

Government”), alleging malicious prosecution, wrongful

interference, and damages arising out of a grand jury

indictment of Ramming, his subsequent trial, and acquittal.

In 1994, pursuant to a Government investigation, a

grand jury indicted Ramming and several co-defendants in

a 27-count indictment for conspiracy to defraud banks, bank

fraud, wire fraud, bank larceny, bank bribery,

misapplication of bank funds, false entries in bank records,

and money laundering. Trial was conducted from

November 1995 through January 1996. In January 1996, the

defendants moved for dismissal of the indictment and

App. D-1

acquittal pursuant to Fed. R. Crim. P. 29, based upon

prosecutorial misconduct. Judge Hoyt granted the motions

to dismiss and acquit, finding, inter alia, that the

Government engaged in prosecutorial misconduct by failing

to disclose Brady materials, and that the FBI agent's

testimony was inconsistent with his testimony before the

grand jury. United States v. Ramming, 915 F. Supp. 854, 868

(S.D.Tex. 1996).

Paul Licata (“Licata”) and John Thomas Cloud

(“Cloud”) were two of Ramming’s codefendants. Licata

filed suit for malicious prosecution in the Southern District

of Texas on January 13, 1997. Licata v. USA, No. 97-0093.

Cloud filed suit for malicious prosecution in the Southern

District of Texas on December 30, 1999. Cloud v. USA, No.

99-4550. In the Licata case, Judge Hughes ordered the

Government to release the grand jury transcripts that led to

the original indictment in 1994. In December 1998, Licata

submitted the grand jury transcripts indicting him and his

co-defendants into the record in support of his claim for

malicious prosecution. Judge Hughes held a bench trial

December 8-10, 1998. Before Judge Hughes entered a

judgment, the parties settled. Cloud and Ramming’s civil

suits were consolidated in this Court on April 11, 2000.

(Instrument No. 12).

On February 5, 1999, Ramming presented his

administrative claim for malicious prosecution to the United

States Department of Justice. Ramming supplemented that

claim on May 21, 1999, and the United States Department of

Justice denied Ramming’s administrative claims on October

20, 1999.

On December 14, 1999, Ramming, filed this action

against the United States for malicicvts prosecution,

wrongful interference, and damages pursuant to the law

enforcement exception of the Federal Tort Claims Act

(“FTCA”), 28 U.S.C. § 2674.

App. D-2

On March 21, 2000, the Government filed this

motion to dismiss for lack of jurisdiction and for failure to

state a claim, arguing that Ramming failed to timely file his

suit within the applicable two-year statute of limitations.

II.

A.

“A case is properly dismissed for lack of subject

matter jurisdiction when the court lacks the statutory or

constitutional power to adjudicate the case.” See Home

Buildes Ass’n of Miss. Inc. v. City of Madison, 143 F. 3d 1006,

1010 (5th Cir. 1998). A district court may dismiss an action

for lack of subject matter jurisdiction under Fed. R. Civ. P.

12(b)(1) on any one of three separate bases: (1) the

complaint alone, (2) the complaint supplemented by

undisputed facts evidenced in the record, or (3) the

complaint supplemented by undisputed facts plus the

court’s resolution of disputed facts. Barrera-Montenegro v.

United States, 74 F.3d. 657, 659 (5th Cir. 1996); Voluntary

Purchasing Groups, Inc. v. Reilly, 889 F.2d 1380, 1384 (5th Cir.

1989). In examining a Rule 12(b)(1) motion, the court is

empowered to consider matters of fact which are in dispute.

See Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981).

The party asserting jurisdiction bears the burden of

establishing it, when the court’s subject matter jurisdiction

is challenged. See Boudreau v. United States, 53 F.3d 81, 82

(5th Cir. 1995). However, any uncontroverted facts in the

complaint must be accepted as true. Gaubert v. United States,

885 F.2d 1284, 1285 (5th Cir. 1989), rev’d on other grounds, 111

S.Ct. 1267 (1991). Moreover, the Court must construe the

complaint broadly and liberally. Gaubert, 885 F.2d. at 1285.

When a Rule 12(b)(1) is filed in conjunction with

other Rule 12 motions, the court should usually consider in:

rule 12(b) (1) jurisdictional attack before addressing any

attack on the merits. Hitt v. Pasadena, , 561 F.2d 606, 608 (5th

Cir. 1977); Kunihiko Iwata v. Stryker Corp., 59 F. Supp. 2d 600,

App. D-3

602 (N. D. Tex. 1999). This requirement prevents a court

without jurisdiction from prematurely dismissing a case

with prejudice. Id.. The court's dismissal of a plaintiff's

case because the plaintiff lacks subject matter jurisdiction is

not a determination of the merits and does not prevent the

plaintiff from pursuing a claim in a court that does have

proper jurisdiction. Id. A. lack of subject matter motion to

dismiss under Rule 12(b)(1) should be granted, “only if it

appears that the plaintiff cannot prove any set of facts in

support of his clairn that would entitle him, to relief “ See

Home Builders Assn of Miss., Inc. v. City of Madison, Miss., 143

F. 3 d 1006, 1010 (5th Cir. 1998) (citing Benton v. United

States, 960 F. 2d 19, 21 (Sth Cir. 1992)); Santerre v. AGIP

Petroleum Co., 45 F. Supp. 2d 558, 565 (S.D. Tex. 1999).

Rule 12(b)(6) allows for dismissal if a plaintiff fails

“to state a claim upon which relief may be granted. “ Such

dismissals, however, are rare, Clark v. Amoco Production Co.,

794 F. 2d 967, 970 (5th Cir. 1986), and only, granted where

“it appears beyond doubt that the plaintiff can prove no set

of facts ha support of his claim which would entitle him to

relief.“ Conley v. Gibson, 355 U.S. 41, 45-6 (1957), Dismissal

can be based either on a lack of a cognizable legal theory or

the absence of sufficient facts alleged under a cognizable

legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696,

699 (9th Cir. 1990); Vines v. City of Dallas, Texas, 851 F. Supp.

254, 259 (N.D. Tex. 1994), aff'd, 52 F.3d 1067 (Sth Cir. 1995).

In determining whether a dismissal is warranted

pursuant to Rule 12(b)(6), the Court accepts as true all

allegations contained in the plaintiff's complaint. Gargiul v.

Tompkins, 704 F.2d 661, 663 (2d Cir. 1983), vacated on other

grounds, 465 U.S. 1016 (1984); Kaiser Aluminum & Chem.

Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (Sth

Cir. 1982), cert. denied, 459 U.S. 1105 (1983) In addition, all

reasonable inferences are to be drawn in favor of the

App. D4

plaintiff's claims. Id. “To qualify for dismissal under Rule

12(b)(6), a complaint must on its face show a bar to relief. “

Clark, 794 F.2d at 970.

Il.

The Government contends that Ramming’s claims

must fail because they are barred by the statute of

limitations of the FTCA. The FTCA. provides a limited

waiver of the sovereign immunity of the United States

Government. The FTCA is also a grant of jurisdiction to

federal court in those cases where the Government has

waived immunity and has consented to be sued in certain

ituations. Ramming filed this action for malicious

prosecution, wrongful interference, and damages pursuant

to the law enforcement exception to sovereign immunity, 28

U.S. C. §2671.

A prerequisite to the commencement of an action

against the United States in federal court in an

administrative claim. Brown v. NationsBank Corp., 188 F.3d

579, 589-90 (5th Cir. 1999). The FTCA provides that,

plaintiff must present an administrative claim to the

appropriate federal agency within two years of the claim's

accrual or the claim is barred:

A tort claim against the United States

shall be forever barred unless it is presented

in writing to the appropriate Federal agency

within two years after such claim accrues or

unless action is begun within six months

after the date of mailing, by certified or

registered mail, of notice of final denial of the

claim by the agency to which it was

presented.

28 US.C. § 2401(b).

App. D-5

Ramming was acquitted on January 12, 1996.

Ramming presented his administrative claim to the

Department of Justice on February 5, 1999. The Department

of Justice denied the claim on October 20, 1999.

The crux of the dispute in this case is determining

when Ramming’s causes of action accrued. Ramming

contends that his claims accrued and the. limitations period

began only when he learned of the contents of be grand jury

transcripts released during Licata’s trial in December 1998.

The Government argues that the claims accrued and the

limitations period began when Ramming was acquitted, in

January 1996.

A cause of action under federal law accrues within

the meaning of § 2401(b) “when the plaintiff knows or has

reason to know of the injury which is the basis of the

action” Brown, 188 F. 3d at 589-90 (quoting Moore v.

McDonald, 30 F. 3d 616, 620-21 (5th Cir. 1994)). In Brown, the

Fifth Circuit noted that the plaintiffs knowledge of his injury

depends upon two elements: “1) the existence of the injury;

and (2) the connection between the injury and the

defendant's actions.” 188 F. 3d at 590 (citing Piotrowski v. City

of Houston, 51 F.3d 512, 516 (5th Cir. 1995)). “Moreover, a

plaintiff need not have actual knowledge” of the injury “if the

circumstances would lead a reasonable person to investigate

further.” Piotrowski, 51 F. 3d at 516 (citations omitted).

Before a malicious prosecution can accrue, an

underlying criminal proceeding must terminate in a

plaintiff's favor. See Heck v. Humphrey, 114 S.Ct. 2364, 2374

(1994); see alse TEX. CIv. PRAC. & REM. CODE, § 16.002(a)

(“For purposes of malicious prosecution actions,

prosecution end, and cause of action accrues, when formal

criminal proceedings are terminated”). Judge Hoyt's

opinion granting Ramming’s motion to dismiss and for

acquittal was issued on January 12, 1996, thereby

terminating the proceeding in Ramming’s favor. See

Ramming, 915 F. Supp. at 857.

App. D-6

Ramming’s injury stems from the behavior of AUSA

Hyman and FBI Agent Conlon before the grand jury, which

resulted in an indictment against Ramming which could not

be substantiated by the evidence according to Judge Hoyt.

As Ramming himself states, “there is no question that the

plaintiff knew of his injury when he was wrongfully

indicted, wrongfully tried and rightfully acquitted.”

(Plaintiff's Response, Instrument No. 18, at 4). The

question, then, arises with the second prong of the accrual

test: when Ramming was put on notice of “the connection

between the injury and the defendant's actions.”

Ramming claims “that it was not until December,

1998, when Plaintiff first had access to the transcripts of all

proceedings before the (Grand Jury which indicted him and

the 1998 testimony of the FBI case agent, that he knew (as

opposed to believed) that the actions of lead Assistant

United States Attorney (“A.U.S.A.”) Hyman and FBI Agent

Colon ‘inflicted the injury’ to him.” (Plaintiff's Response,

Instrument No. 18, at 5). Ramming argues that only once he

had read the transcripts could he have known, “in the

exercise of reasonable diligence, of the ‘connection’ between

his injury and the wrongful actions” of AUSA Hyman and

Agent Conlon. (Plaintiffs Response, Instrument No. 18, at 5).

The Government contends that Ramming should

have learned of the connection between his injury and the

Government's actions upon his acquittal on January 12,

1996. “The district court in plaintiff's criminal case

specifically pointed out discrepancies between the FBI's 302

witness statements and the grind jury testimony of the

witnesses, and found that the prosecution did not act in

good faith in failing to make Brady (exculpatory evidence)

material available.” (Defendant's Reply, Instrument No. 24,

at 6). The Government asserts that if Ramming had

“diligently” investigated and sought legal advice as Licata

did in asking for the grand jury transcripts, Ramming’s

claim would have been timely. (Id.).

App. D-7

The Court finds the Government's reasoning,

persuasive. A claim under the FTCA. accrues when the

plaintiff learns he has been injured, not when the plaintiff

learns of the legal or proximate cause of his injury. See

United States v. Kubrick, 100 S.Ct. 352, 360 (1979) (accrual of a

cause of action does not await plaintiff's awareness that the

injury was negligently inflicted, but, rather, plaintiff armed

with fact is not excused from failure to seek advice as to

whether its legal rights have been invaded). Accordingly,

Ramming’s claims accrued when he learned that the

behavior of the AUSA and FBI agent during the grand jury

proceedings resulted in his “wrongful” indictment and

prosecution. See id.

Ramming first learned that the Government had

engaged in suspect behavior before the grand jury when

Judge Hoyt issued his decision on January 12, 1996.

Ramming argues that “bad acts by Defendant, after Plaintiff

was indicted by the Grand Jury, did not furnish Plaintiff

with evidence of a cause of action for malicious prosecution.

Only the Government's conduct prior to the indictment,

which was kept secret by the Gand Jury proceedings,

provided Plaintiff with a claim. ... “ (Plaintiff ‘s Response,

Instrument No. 18, at 11). Ramming cites a Texas Supreme

Court case to support his position that only the

Government's actions prior to his indictment are relevant to

determining accrual of his claim. In Akin v. Dahl, a father,

the trustee of his deceased wife’s estate, sued his daughter

for having him declared incompetent and hospitalized. 661

S.W.2d 917 (Tex. 1983). Subsequent to his hospitalization,

the father was found mentally competent at a competency

hearing. The father then filed suit against the daughter for

malicious prosecution and won. The appeal turned on

whether there was a lack of probable cause for instituting

the guardianship and commitment proceedings, and what

actions were relevant to determining probable cause. The

court found that:

App. D-8

[e]vents subsequent to the action of

confinement and legal proceedings may tend

to show whether the action of the Akins

[daughter and husband] turned out to be

correct or incorrect, but is not material to the

beliefs and motives at the time the

proceedings were instituted. It is the events

prior to the institution of the proceedings

which must be examined, and only those

events, to determine if the defendants bad

probable cause to act.

Akin, 661 S.W.2d at 920 (internal citations omitted). Here,

Ramming argues that the Government's “egregious”

conduct after his indictment is irrelevant. “At that time,

Plaintiff was obviously aware of the bad acts of AUSA

Hyman during the criminal trial. However, at that point,

Plaintiff had already suffered his ‘injury,’ te, AUSA

Hyman’s conduct during the Grand Jury proceeding,

coupled with that of FBI Agent Conlon.” (Plaintiff's

Response, Instrument No. 18, at 12) (emphasis in original).

Even if the Court focuses on the Government's acts

leading up to Ramming’s indictment and deems irrelevant

the Government's actions at his trial, Ramming still had

notice of the wrongful acts of the AUSA and Agent Conlon

during the grand jury proceedings when Judge Hoyt's

opinion was published on January 12, 1996. Ramming

quotes an extensive portion of Judge Hoyt’s decision, in

which Hoyt castigated AUSA Hyman for prosecutorial

misconduct at trial, such as withholding Brady materials

and failing to produce evidence. (Plaintiff's Response,

Instrument No. 18, at 10). However, Judge Hoyt also

discussed the fact that the AUSA and Agent Conlon’s

behavior at the grand jury proceeding was suspect:

App. D-9

a comparison of the 302 statements of

witnesses to the same witnesses’ Grand Jury

testimony is revealing. The FBI agent took

extensive liberties, choosing conclusory words

that caused the statements to fit within the

government's theory of the case. Assuming that

this conduct was merely overzealousness, the

error was exposed during the Grand Jury

testimony of the same witnesses. Without a

doubt, this disparity came to the United States

Attorney's attention because, the tone and tenor

of the questioning of the witnesses before the

Grand Jury is also revealing, to say the least.

Ramming, 915 F.Supp. at 868 (emphasis added). Judge Hoyt

clearly calls attention to the behavior of the AUSA and the

testimony of the FBI agent during the grand jury proceedings.

At this point, Ramming was on notice that the testimony of

the Government's witnesses and the behavior of the AUSA

and FBI before the grand jury bordered on misconduct.

Ramming argues that nevertheless, “even if Plaintiff

believed that Hyman and Conlon crossed the line between

zealous advocacy and legal malice during the Grand Jury

proceedings, he had no way to know that until December,

1998, when for the fast time he had access to the Grand Jury

transcripts. ... “ (Plaintiff's Response, Instrument No. 18, at

13) (emphasis in original). Ramming devotes two pages of

his response to his attempt to distinguish between “belief”

and “knowledge.” (See Plaintiff's Response, Instrument No.

18, at 6-8). Even if the Court assumes, as it must, that in

January 1996 Ramming merely ‘believed” that the

Government had engaged in misconduct during the grand

jury proceedings, and did not “know” for a fact, he

apparently made no effort to ascertain the truth as to what

did occur at the grand jury proceedings. Ramming was

represented by counsel in the criminal prosecution, and

again by the same attorney in this case. That attorney, or

App. D-10

other counsel of Ramming’s choice, could have filed suit

against the United States for malicious prosecution in good

faith upon Ramming’s acquittal. Had Ramming’s attorney

done so, he could have used the discovery process to

determine the extent of the damage or injury to Ramming

and petitioned a court to release the grand jury transcripts

as Licata did.

Ramming has not described any efforts he made to

obtain the grand jury transcripts of his own volition.

Ramming claims that, “[p]rior to the introduction into

evidence of those Grand Jury transcripts and Agent

Conlon’s testimony in the Licata trial, Plaintiff did not know

and could not have learned the cause of his injury.”

(Plaintiff's Response, Instrument No. 18, at 11). However,

on certain occasions plaintiffs have successfully petitioned

Texas courts for release of grand jury transcripts in cases

where, ‘in be judgment of the court, it became material to

the administration of justice that disclosure be allowed. “

Stem v. State ex rel. Ansel, 869 S.W.2d 614 (Tex. App.

Houston [14th Dist] 1994, writ denied); Euresti v. Valdez, 769

S.W.2d 575, 582 (Tex.App.-- Corpus Christi 1989, no writ)

(grand jury testimony may be divulged to prove elements of

malicious prosecution). Likewise, after reading Judge

Hoyt’s decision, Ramming could have either investigated

the matter and petitioned the court to release the grand jury

transcripts. Yet, Ramming took no such action, and waited

until Licata pursued the matter on his own and obtained the

transcripts in December 1998, almost three years after

Ramming’s acquittal.

Judge Hoyt’s decision acquitting Ramming

discussed the fact that the AUSA and FBI agent had

distorted the grand jury testimony of Government witnesses

by ‘caus[ing] the statements to fit within the government's

theory of the case.” Ramming, 915 F.Supp. at 868. Such

language put Ramming on notice that his indictment may

have been improper, and thus his malicious prosecution

App. D-11

and other claims accrued on January 12, 1996, The two-year

statute of limitations thereby expired on January 13, 1998.

See 28 U.S. C. § 2401 (b). Accordingly, Ramming’s claims

are time-barred.

IV.

Defendant's Motion to Dismiss is GRANTED.

The Clerk shall enter this Order and provide a copy

to all parties.

SIGNED this the 26th day of July, 2000, at Houston,

Texas.

\ s\Vanessa D. Gilmore

VANESSA D. GILMORE

UNITED STATES DISTRICT JUDGE

App. D-12

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 01-20079

JOHN THOMAS CLOUD,, _~

Plaintiff-Appellant,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

On Appeal from the United States District Court

for the Southern District of Texas

Houston Division

(H-99-CV-4359)

ON PETITION FOR REHEARING

[Entered: February 18, 2002]

(Opinion 12/19/2001, 5 Cir., 2001, 281 F.3d 158)

Before SMITH and EMILIO M. GARZA, Circuit Judges, and

CUMMINGS, District Judge.

PER CURIAM:

The petition for rehearing is DENIED.

ENTERED FOR THE COURT:

/s/

App. E-1