Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cr-00416/USCOURTS-caed-2_06-cr-00416-5/pdf.json

Parties Involved:
Alberto Fernando Manfredi
Defendant
USA
Plaintiff

Document Text:

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1 Because oral argument will not be of material

assistance, the court orders these matters submitted on the

briefs. E.D. Cal. L.R. 78-230(h).

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

UNITED STATES OF AMERICA,

NO. CIV. S 06-416 FCD

Plaintiff,

v. MEMORANDUM AND ORDER

ALBERTO FERNANDO MANFREDI,

Defendant.

----oo0oo----

This matter is before the court on defendant Alberto

Manfredi’s (“Manfredi”) motion for attorney’s fees, pursuant to

the Hyde Amendment, Pub. L. No. 105-109, § 617, 111 Stat. 2519

(1997) (codified at Historical and Statutory Notes to 15 U.S.C. §

3006A), arising out of a criminal prosecution for making false

statements in bankruptcy petitions and a loan application.1 For

the reasons set forth below, defendant’s motion is DENIED.

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2 Under a Chapter 13 bankruptcy, debtors must propose a

payment plan to make installments to creditors over a period of

three to five years. 11 U.S.C. §§ 1321-1322. Creditors meetings

provide an opportunity for the creditors and bankruptcy trustee

to examine the debtor. 11 U.S.C. §§ 341, 343.

2

BACKGROUND

A. Bankruptcy Petitions

On November 30, 2004, Manfredi contacted bankruptcy attorney

Peter Macaluso (“Macaluso”). (Decl. of Peter Macaluso (“Macaluso

Decl.”), filed Dec. 13, 2007, ¶ 3.) Facing a writ of attachment,

Manfredi and Macaluso prepared a Chapter 13 bankruptcy petition. 

(Macaluso Decl. ¶¶ 3-5.) The petition was filed the following

day on December 1, 2004. (Macaluso Decl. ¶ 5.)

On December 22, 2004, the Chapter 13 trustee assigned to

Manfredi’s case, Lawrence Loheit (“Loheit”), conducted a

“business examination” with Manfredi and Macaluso. (Macaluso

Decl. ¶ 6.) At this meeting, Manfredi provided Loheit with bank

records for Manfredi’s company, Sempter Fi, Inc., for June, July,

August, and October of 2004. (Macaluso Decl. ¶ 6.) A copy of

Manfredi’s personal bank account statement for November 2004 was

also provided. (Macaluso Decl. ¶ 6.) 

On December 30, 2004, Manfredi and Macaluso attended a

meeting of creditors2 with Loheit’s attorney, Neil Enmark

(“Enmark”). (Tr. Meeting of Creditors, Ex. 2 to Decl. of Philip

H. Stillman (“Stillman Decl.”), filed Dec. 13, 2007, (“Tr. Dec.

30 Creditor’s Meeting”).) The meeting was continued to and

concluded on January 27, 2005. (Tr. Meeting of Creditors, Ex. 3

to Stillman Decl., filed Dec. 13, 2007 (“Tr. Jan. 27 Creditor’s

Meeting”).)

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3

On February 8, 2005, Loheit filed objections to Manfredi’s

proposed Chapter 13 plan. (Macaluso Decl. ¶ 13.) Manfredi

subsequently filed an amended plan on March 13, 2005. (Macaluso

Decl. ¶ 13.) On April 18, 2005, Loheit objected to the amended

proposed plan, asking the bankruptcy court to either dismiss the

case or convert the proceedings to a Chapter 7 bankruptcy. 

(Macaluso Decl. ¶ 14.) 

The bankruptcy court sustained Loheit’s objections and

denied confirmation of Manfredi’s plan on May 3, 2005. (Macaluso

Decl. ¶ 15.) Manfredi moved to dismiss the case on May 10, 2005. 

(Macaluso Decl. ¶ 15.) The court granted the motion that same

day. (Macaluso Decl. ¶ 15.) 

On May 23, 2005, Macaluso prepared a new Chapter 13 petition

for Manfredi based on information gathered since the filing of

the first petition. (Macaluso Decl. ¶ 16.) A meeting of

creditors was held on June 30, 2005. (Tr. Meeting of Creditors,

Ex. 4 to Stillman Decl., filed Dec. 13, 2007 (“Tr. June 30

Creditor’s Meeting”).) The bankruptcy court approved Manfredi’s

new proposed Chapter 13 plan on January 23, 2006. (Macaluso

Decl. ¶ 17.)

B. Indictment

On October 12, 2006, the government indicted Manfredi on two

counts of making false statements in a bankruptcy case and one

count of making a false statement on a loan application. 

Manfredi alleges he voluntarily disclosed/corrected these alleged

false statements during his meetings with creditors. (Macaluso

Decl. ¶¶ 6-11.)

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4

1. Count 1: 2004 Bankruptcy Petition

The first count of the indictment alleged several false

statements in Manfredi’s 2004 bankruptcy petition. (Indictment

(“Ind.”), filed Oct. 12, 2006, at 3:26-5:10.) First, the

government alleged Manfredi misrepresented his monthly income as

$6,000. (Ind. at 3:26-28.) The government based its allegations

on the following facts:

• Manfredi stated in his November 1, 2004, application for a

home refinance loan that his monthly income was $8,000. 

(Residential Loan App., Ex. A to Kurt A. Didier Decl.

(“Dedier Decl.”), filed Feb. 19, 2008, at 2.)

• Manfredi stated in his 2004 bankruptcy petition that the

gross income from his business for the previous year was

$20,000, or $1,667 per month. (2004 Bankr. Pet., Ex. A to

Didier Decl., filed Feb. 19, 2008, (“2004 Bankr. Pet.”) at

17.) Manfredi also stated in the petition he had no other

income apart from business income. (2004 Bankr. Pet. at

18.)

• Manfredi stated in his 2004 bankruptcy petition that the

combined balance of his bank accounts was $150. (2004

Bankr. Pet. at 5.)

• Manfredi’s amended 2004 bankruptcy petition disclosed

personal loans totaling $133,000 from family members. (2004

Am. Bankr. Pet., Ex. A to Didier Decl, filed Feb. 19, 2008,

at 2-3.) In his 2005 bankruptcy petition, Manfredi

increased this disclosure to $173,000. (2005 Bankr. Pet.,

Ex. A to Didier Decl, filed Feb. 19, 2008, (“2005 Bankr.

Pet.”) at 11-13.) Manfredi stated at the June 30, 2005,

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3 An Amada Punch Press is used in sheet metal operations

to stamp, punch, bend, and shear sheet metal, for example.

5

creditor’s meeting that these loans were for personal living

expenses. (Tr. June 30 Creditor’s Meeting at 16:21-17:5.)

Second, the government alleged Manfredi incorrectly reported

his only source of income as his business. (Ind. at 4:1-8.) In

his 2005 bankruptcy petition, however, Manfredi reported monthly

income of $1,750 from employment and $3,350 from family

assistance. (2005 Bankr. Pet. at 17.) The petition did not

clarify whether the assistance was a loan. (2005 Bankr. Pet. at

17.) 

Third, the government alleged Manfredi failed to disclose a

$25,000 transfer to his father. (Ind. at 4:9-16.) Manfredi

stated in the 2004 bankruptcy petition that he paid his father

$5,000 in the previous year. (2004 Bankr. Pet. at 18.)

Fourth, the government contended Manfredi falsely reported

he had not made any transfers outside the ordinary course of

business on his 2004 bankruptcy petition. (Ind. at 4:17-26.) 

Manfredi disclosed during the December 30, 2004, creditor’s

meeting that he sold an Amada Press3 for about $20,000. (Tr.

Dec. 30 Creditor’s Meeting at 7: 5-7.) Manfredi produced a bill

of sale for the machine that reflects a sale price of $39,000. 

(Invoice, Ex. A to Didier Decl., filed Feb. 19, 2008

(“Invoice”).)

Fifth, the government alleged Manfredi failed to disclose

his interest in other business entities. (4:27-5:10.) The

petition disclosed interests in Semper Fi, Inc. and EGA

Engineering. (2004 Bankr. Pet. at 7.) Manfredi briefly owned an

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interest in Latitude Technologies from 1998 to 1999. (Dec. 30

Creditor’s Meeting at 23:4-7.)

2. Count 2: 2005 Bankruptcy Petition

The second count of the indictment alleged two false

statements in Manfredi’s 2005 bankruptcy petition. (Ind. at

5:26-6:18.) First, the government alleged Manfredi failed to

report the repossession of his vehicle in the interim between

filing the 2004 bankruptcy petition and filing the 2005

bankruptcy petition. (Ind. at 5:26-6:4.) Travis Credit Union

repossessed Manfredi’s vehicle after the dismissal of the 2004

bankruptcy petition, but returned the vehicle once Manfredi filed

the 2005 bankruptcy petition. (Trial Tr. for Nov. 6, 2007, filed

Nov. 13, 2007, (“Nov. 6 Trial Tr.”) at 71:14-24.)

Second, the government contended Manfredi falsely reported

the value of the Amada Press as $20,000 on his 2005 bankruptcy

petition. (Ind. at 6:6-18.) The bill of sale Manfredi produced

for the machine reflected a sale price of $39,000. (Invoice.)

3. Count 3: Car Loan Application

The third count of the indictment was based upon Manfredi’s

alleged misrepresentation to Travis Credit Union on his vehicle

loan application of monthly income totaling $8,000. (Ind. at

7:1-6.) Manfredi reported monthly income of $6,000 on his 2004

bankruptcy petition. (2004 Bankr. Pet. at 14.)

C. Alleged Incidents of Harassement

Assistant United States Attorney (“AUSA”), Ellen Endrizzi

(“Endrizzi”), was assigned to prosecute the Manfredi case. 

Endrizzi allegedly made four attempts to contact Macaluso before

trial. (Macaluso Decl. ¶ 31.) The first attempt was a telephone

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4 SF-86 forms are sworn statements required to obtain

security clearance. (Endrizzi Decl. ¶ 77.)

7

call. (Macaluso Decl. ¶ 31.) Macaluso answered the call and

told Endrizzi she was mistaken about her claims. (Macaluso Decl.

¶ 31.) Endrizzi attempted a second call, which Macaluso refused

to answer. (Macaluso Decl. ¶ 32.) Endrizzi called once more,

leaving the following voice message:

This is regarding the Manfredi trial, but it also has

to do with whether Mr. Macaluso consulted an attorney

before he chose--he’s choosing to testify. A) I’m

concerned he’s opening himself up to possible criminal

charges, but B) on the other vein, opening himself up

to a major civil lawsuit either by Mr. Manfredi himself

or as additional proof under oath for the issues he’s

got with Mr. Healy. So, those are some things I’d like

to talk to him about.

(Macaluso Decl. ¶ 35.) Macaluso did not return Endrizzi’s phone

call. (Macaluso Decl. ¶ 37.) 

Accompanied by an FBI agent, Endrizzi subsequently appeared

at an unrelated meeting of creditors Macaluso was attending with

clients. (Macaluso Decl. ¶ 37.) Endrizzi attempted to interview

Macaluso, but he refused to say anything except that Manfredi was

innocent. (Macaluso Decl. ¶ 37.) 

Endrizzi also subpoened copies of Manfredi’s Standard Form

86: Questionnaire for National Security Positions (“SF-86") to

compare against his bankruptcy statements.4 (Decl. of Ellen V.

Endrizzi, Ex. D to Didier Decl., filed Feb. 19, 2008, (“Endrizzi

Decl.”) ¶ 76.) Endrizzi contacted several government agencies to

obtain copies of these forms. (Endrizzi Decl. ¶ 76.) Manfredi’s

security clearance was thereafter revoked. (Decl. of Alberto

Fernando Manfredi, filed Dec. 13, 2007, ¶ 4.)

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8

D. Dismissal of Indictment

Jury trial began in this matter on November 5, 2007. During

its case in chief, the government determined, based on newly

discovered evidence, that a dismissal would best serve the

interests of justice. (Trial Tr. for Nov. 13, 2007, filed Jan.

8, 2008, (“November 13 Trial Tr.”) at 1:16-18.) The court

granted the government’s motion to dismiss on November 13, 2007. 

(Nov. 13 Trial Tr. at 2:18-19.) Manfredi now moves for

attorney’s fees under the Hyde Amendment.

STANDARD

Congress enacted the Hyde Amendment to sanction the

government for prosecutorial misconduct. United States v.

Manchester Farming P’ship, 315 F.3d 1176, 1182 (9th Cir. 2003)

(citations ommitted). It provides in relevant part:

[T]he court, in any criminal case . . . may award to a

prevailing party, other than the United States, a

reasonable attorney’s fee and other litigation

expenses, where the court finds that the position of

the United States was vexatious, frivolous, or in bad

faith, unless pursuant to procedures and limitations

(but not the burden of proof) provided for an award

under section 2412 of title 28, United States Code.

Pub. L. No. 105-109, § 617, 111 Stat. 2519 (1997) (codified at

Historical and Statutory Notes to 18 U.S.C. § 3006A). 

Although modeled after the Equal Access to Justice Act

(“EAJA’), the Hyde Amendment requires a more demanding burden of

proof. Manchester Farming P’ship, 315 F.3d at 1182 (citations

ommitted). Under the EAJA, a defendant will prevail unless the

government can prove substantial justification for its case. Id. 

Under the Hyde Amendment, however, the burden is on the defendant

to show the government’s case was vexatious, frivolous, or in bad

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9

faith. Id.

The Hyde Amendment does not define “frivolous,” “vexatious,”

or “bad faith”; however, the Ninth Circuit has developed

definitions for each of these terms. A case is frivolous when

“foreclosed by binding precedent or so obviously wrong as to be

frivolous.” Id. at 1183. “Vexatious” refers to (1) a subjective

malice or intent to harass on the part of the government and (2)

an objectively deficient or meritless case. Id. at 1182. 

Finally, “bad faith” is defined as “not simply bad judgement or

negligence, but rather . . . conscious doing of a wrong because

of dishonest purpose or moral obliquity.” Id. at 1185.

ANALYSIS

A. Frivolous

In order to convict a defendant of bankruptcy fraud, the

government must prove (1) the existence of bankruptcy

proceedings; (2) that a statement under penalty of perjury was

made therein; (3) that the statement was made as to a material

fact; (4) that the statement was false; and (5) that the

statement was knowingly and fraudulently made. United States v.

Lindholm, 24 F.3d 1078, 1082-83 (9th Cir. 1994). Manfredi argues

the government’s case was frivolous because none of the alleged

statements were material, false, or fraudulent. Each of these

arguments will be addressed in turn.

1. Material

A statement is considered material if it relates to (1) the

extent and nature of the bankrupt’s assets; (2) the bankrupt’s

business transactions or estate; (3) the discovery of assets; (4)

the history of a bankrupt’s financial transactions; or (5)

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statements designed to secure adjudication by a particular

bankruptcy court. Lindholm, 24 F.3d at 1083. Manfredi argues

the government failed to present any evidence that any of the

allegedly false statements were material. However, the

materiality of a false statement is a question of law, not fact. 

Id. Thus, the government was not required to present evidence on

the issue of materiality.

Moreover, the allegedly false statements were material as a

matter of law. Incorrect statements regarding a bankrupt’s

income, assets, and debts impedes investigation into the debtor’s

financial affairs. See id. at 1084 (“[F]ailure to disclose prior

bankruptcies could impede an investigation into a debtor’s

financial affairs . . . .”); United States v. Phillips, 606 F.2d

884, 887 (9th Cir. 1979) (holding that understatement of assets,

fabrication of social security number and address, and omission

of past names could impede investigation into debtor’s financial

history and mislead creditors as to debtor’s identity). Such

statements also cause the debtor to appear financially stronger

than he is and impact the effectiveness of the Chapter 13

repayment plan. Cf. United States v. Strauch, 1995 WL 377192, at

*7 (9th Cir. June 23, 1995). The court thus concludes the

allegedly false statements in the 2004 and 2005 bankruptcy

petitions, as well as the vehicle loan application, were

material. The court therefore rejects Manfredi’s argument that

the government’s case was frivolous because the alleged

statements were immaterial.

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5 While these courts may have made such statements in

dicta, the issue was not before the courts. Moreover, such dicta

is contrary to the plain reading of the statute at issue.

11

2. False

Manfredi next argues that none of the alleged statements

were false. First, Manfredi argues his voluntary

disclosure/correction of the false statements during his

creditor’s meetings absolve any falsity in the bankruptcy

petitions. However, none of the cases cited by Manfredi hold

that disclosure of false statements negates their falsity. In re

Adeeb, 787 F.2d 1339, 1345 (9th Cir. 1986); In re Waddle, 29 B.R.

100, 103 (W.D. Ky. 1983).5 The court also rejects Manfredi’s

suggestion that the crime of making false statements in a

bankruptcy petition occurs upon failure to disclose these

statements at the first creditor’s meeting. The crime of false

statement in a bankruptcy proceeding is complete upon the filing

of the petition or other document in a proceeding under Title 11.

18 U.S.C. section 152(3) provides that “[a] person who . . .

knowingly and fraudulently makes a false declaration,

certificate, verification, or statement under penalty of perjury

. . . in or in relation to any case under title 11 . . . shall be

fined under this title, imprisoned nor more than 5 years, or

both.” The court therefore is not persuaded the statements in

Manfredi’s bankruptcy petitions were not false because they were

later disclosed/corrected.

Manfredi next argues the government failed to produce any

evidence showing Manfredi’s statements were false. This

assertion is contradicted by the evidence forming the basis of

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the indictment and the representations made by Manfredi himself. 

The government noted numerous discrepancies between statements

made in Manfredi’s bankruptcy petitions, loan applications, and

meetings with creditors. For example, Manfredi’s 2004 home

refinance loan application listed a monthly income of $8,000,

whereas his 2004 bankruptcy petition listed a $6,000 monthly

income; Manfredi listed a transfer to his father as $5,000 on his

2004 bankruptcy petition, when the transfer totaled $25,000; and

the price of the Amada Press listed on Manfredi’s 2005 bankruptcy

petition was $20,000, while the bill of sale for the machine

reflected a sale price of $39,000. Indeed, in his trial brief,

Manfredi represented to the court that “[t]he only real issue [in

this case] is whether the alleged false statements were

fraudulently made or merely incorrect [sic].” (Def.’s Trial

Brief, filed Oct. 23, 2007, at 2:2-3.) The court therefore

concludes Manfredi has not met his burden of showing the

government’s case was frivolous due to insufficient evidence.

Finally, Manfredi contends that count three of the

indictment was groundless because Travis Credit Union wrongfully

repossessed his vehicle. The testimony of Janet Prosser

(“Prosser”), a Travis Credit Union employee, refutes Manfredi’s

assertion. Prosser testified at trial that payments on the

vehicle were overdue, Manfredi received notice of the credit

union’s intent to repossess, and the credit union repossessed the

vehicle. (Nov. 6 Trial Tr. at 49:6-51:7.) Although Prosser

testified the vehicle was subsequently returned, she indicated

this resulted from the filing of the 2005 bankruptcy petition,

which afforded Manfredi protection against repossession. (Nov. 6

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Trial Tr. at 71:5-22.) The evidence presented at trial thus

demonstrated that the vehicle was lawfully repossessed during the

two week period between the dismissal of the 2004 bankruptcy

petition and the filing of the 2005 bankruptcy petition. 

Accordingly, Manfredi cannot establish that count three was

frivolous.

3. Fraudulent Intent

Manfredi contends the government failed to produce any

evidence he made the false statements with fraudulent intent. 

However, the government did have evidence from which a reasonable

inference of such intent could be drawn. There is no requirement

that fraudulent intent be proved through direct evidence. United

States v. Lindberg, 220 F.3d 1120, 1125 (9th Cir. 2000). The

inconsistencies in Manfredi’s monthly income, sale of the Amada

Press, and vehicle repossession, among others, could lead a jury

to conclude Manfredi was intentionally hiding assets. 

Manfredi argues that it was impossible for the government to

prove he acted with intent because he voluntarily

disclosed/corrected many, if not all, of the inconsistencies in

his petitions and loan applications. Manfredi appears to rely on

In re Adeeb and In re Waddle for support. These cases, however,

do not support Manfredi’s position. The court in In re Adeeb

considered whether a debtor who transfers property within a year

of bankruptcy with the intent to defraud a creditor may be denied

a discharge in bankruptcy even if he reveals the transfers to his

creditors and recovers all the property before he files his

bankruptcy petition. 787 F.2d at 1343-44. Interpreting the word

“transferred” in section 727 of the bankruptcy code to mean the

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property is not in the possession of the debtor at the time of

filing a bankruptcy petition, the court held a debtor is entitled

to a discharge in bankruptcy despite a fraudulent transfer within

the preceding year if he reveals the transaction to his creditors

and recovers substantially all the property prior to filing for

bankruptcy. Id. at 1345. In re Adeeb therefore did not address

whether a debtor that makes false statements in a bankruptcy

petition can still be held liable if he corrects those statements

after the petition is filed, at the first meeting of creditors.

Similarly, In re Waddle considered whether a debtor who

transfers property within a year of bankruptcy to the benefit of

secured creditors may be discharged in bankruptcy. 29 B.R. at

104. The court held that a debtor who makes a preferential

transfer to secured creditors is entitled to a discharge,

although the bankruptcy trustee may bring an action challenging

the preferential transfer on behalf of the unsecured creditors. 

Id. No such preferential transfer was made in this case. Thus,

neither In re Adeeb nor In re Waddle preclude a jury from finding

Manfredi acted fraudulently where he voluntary disclosed or

corrected false statements in the bankruptcy petitions.

Moreover, Manfredi’s allegedly voluntary disclosures place

in dispute whether Manfredi acted innocently. A jury could

disregard these voluntary admissions as realizations that

exposure of the truth was inevitable and as an attempt to avoid

subsequent criminal prosecution. Thus, Manfredi cannot establish

the government’s case for fraud was utterly groundless.

Similarly, Manfredi argues that each of the alleged false

statements can be explained/refutted, precluding a finding of

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fraudulent intent. For example, Manfredi claims the listing of a

$5,000 payment to his father instead of a $25,000 payment was a

typographical error, the failure to list monetary assistance from

his family was because they were loans, and failure to list the

Amada Press resulted from a mistaken belief the machine was sold

more than a year prior to the filing of the bankruptcy petition. 

While Manfredi may have plausible explanations for each

individual statement, these statements taken as a whole could

sustain a finding of fraudulent intent. A jury may be willing to

accept one or even a few mistakes, but numerous inconsistencies

among and within documents could lead a jury to conclude Manfredi

was being deceitful. Thus, Manfredi cannot show the government’s

case was frivolous by providing explanations for each individual

statement.

Manfredi also alleges that an intent to defraud cannot be

shown because his creditors were eventually paid in full. 

However, the crime of false statement in a bankruptcy proceeding

does not require the successful defrauding of creditors. See

Lindholm, 24 F.3d at 1082-83 (listing elements); cf. United

States v. DeSantis, 237 F.3d 607, 613 (6th Cir. 2001) (“Success

of the scheme is not an element of the crime.”). Therefore, the

fact Manfredi did not defraud his creditor’s does not negate any

potential intent to defraud at the time the statements were made.

Finally, Manfredi contends that counts one and two,

specifically, were frivolous because he relied on the advice of

counsel in filling out the bankruptcy petitions. Although a

bankrupt’s reliance upon the advice of counsel generally rebuts

an inference of fraud, counsel must be fully aware of all the

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relevant facts in order for reliance to be justified. See In re

Retz, 364 B.R. 742, 758 (D. Mont. 2007) (“[I]f items were

ommitted by mistake or upon honest advice of counsel, to whom the

debtor had disclosed all the relevant facts, the declaration will

not be deemed willfully false[.]”) (emphasis added). Manfredi

has not established Macaluso advised him to make the false

statements in his bankruptcy petition or that he provided

Macaluso all relevant facts upon which to base such advise. At

least with respect to the 2004 bankruptcy petition, Manfredi and

Macaluso represent to the court that the statements were made in

haste to avoid a writ of attachment and that Manfredi did not

have much documentation with him the day they completed the

petition. (Macaluso Decl. ¶¶ 3-4.) Absent evidence establishing

the disclosures Manfredi made to Macaluso and the advice Macaluso

rendered with respect to filing the petitions, the court cannot

conclude Manfredi was entitled to the defense of reliance on

counsel.

The court re-emphasizes that Manfredi has the heavy burden

of establishing the government’s case was foreclosed by binding

precedent or so obviously groundless as to be frivolous. 

Manchester Farming P’ship, 315 F.3d at 1183. Although the

strength of the government’s case may have been assessed

differently if a seasoned prosecutor had been the lead attorney,

the evidence in the record was sufficient to initially sustain

prosecution. See id. at 1183-84 (holding government’s

prosecution for unlawful receipt of farming subsidies was not

frivolous even though no regulatory violation occurred and

government continued to make payments during prosecution). At

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their core, Manfredi’s arguments appear premised on the dismissal

of the indictment. However, “[t]o say in hindsight that a case

could not be proved beyond a reasonable doubt is hardly the same

as showing that the case was unfounded and intended to harass.” 

United States v. Sherburne, 249 F.3d 1121, 1127 (9th Cir. 2001). 

The court therefore declines to award attorney’s fees on the

basis that the case was frivolous.

B. Vexatious

Manfredi also alleges the government’s case was vexatious. 

First, Manfredi argues the case is entirely meritless as set

forth in his argument the case was frivolous. For the reasons

set forth above, however, the case was not objectively without

merit.

Second, Manfredi argues there is strong evidence of an

intent to harass on the part of the government. Specifically,

Manfredi argues the government’s claims were not factually or

legally tenable. Manfredi also contends the government’s

subjective intent to harass is shown by the voice message

Macaluso received from Endrizzi, Endrizzi’s unexpected appearance

with a FBI agent at an unrelated creditor’s meeting to interview

Macaluso, and Endrizzi’s alleged attempts to remove Manfredi’s

security clearance. 

“[S]ubjective intent to harass does not arise from merely

factual mistakes or mistakes concerning the legal merit of the

government’s position. United States v. Sherburne, 506 F.3d

1187, 1190 (9th Cir. 2007) (citing United States v. Schneider,

395 F.3d 78, 89-90 (2d Cir. 2005); United States v. Knott, 256

F.3d 20, 31 (1st Cir. 2001)). Rather, intent to harass must be

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shown with respect to the prosecution of the criminal case. In

United States v. Knott, the government initiated criminal

proceedings against a corporation and its principal owner for

violations of the Clean Water Act. 256 F.3d at 22. After the

government’s dismissal of the charges, the defendants moved for

attorney’s fees under the Hyde Amendment for vexatious

prosecution. Id. As evidence of the government’s intent to

harass, the defendants alleged, inter alia, (1) the government

obtained water samples in violation of the Fourth Amendment; (2)

some of the recorded entries for the water samples had been

altered while in the government’s possession; (3) the government

failed to automatically produce exculpatory evidence; and (4) the

government brought a “virtual SWAT team” to execute a search

warrant at the defendants’ plant. Id. at 31-33. The court noted

the evidence “either lack[ed] sufficient record support or

fail[ed] to rise to the level of conduct required to find

vexatiousness.” Id. at 31. The court concluded, however, that

even crediting all of the defendants’ allegations, “[t]he record

simply [did] not reflect the sort of malice or prosecutorial

misconduct toward which the Hyde Amendment was directed.” Id. at

33. The court reasoned:

While the government might have handled itself better

in some of these instances, that does not render its

conduct “vexatious.” Rather, an award of fees for

“vexatious” prosecution under the Hyde Amendment

requires some evidence upon which a reasonable observer

can conclude that the prosecution was based in malice

or an intent to harass or annoy.” 

Id. at 33-34 (emphasis added).

In this case, the court concludes the prosecution’s conduct

does not exhibit the kind of malice or misconduct giving rise to

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vexatious prosecution. First, there is evidence in the record to

refute an intent to harass on the part of the government. As to

Endrizzi’s voice message, Endrizzi claims to have made the call

to verify Macaluso was aware of the potential consequences of his

testimony. (Endrizzi Decl. ¶ 63.) At the time, Macaluso was

being sued by a former client, Kevin Healy, for malpractice. 

(Endrizzi Decl. ¶ 63.) Testimony that Macaluso was responsible

for the false statements in Manfredi’s bankruptcy petitions could

have subjected Macaluso to suit by Manfredi, and such conduct

could be admissible in the pending malpractice suit. (Endrizzi

Decl. ¶ 63.) Endrizzi claims the reference to criminal liability

in the voice message was to warn of potential liability if

Macaluso helped Manfredi commit bankruptcy fraud. (Endrizzi

Decl. ¶ 63.) This message may exhibit questionable judgment,

but, in light of the above, it does not appear to be a threat by

the government to prosecute.

A less nefarious explanation also exists for Endrizzi’s

unannounced appearance at the creditor’s meeting. Endrizzi

claims that appearance occurred the same day as the voice

message. (Endrizzi Decl. ¶¶ 65-67 .) Endrizzi alleges she

decided to meet with Macaluso in person to pursue the matter and

that during that meeting she expressly told Macaluso she did not

intend her voice message to be threatening. (Endrizzi Decl. ¶

67.) Cast in this light, Endrizzi’s mere appearance at the

creditor’s meeting does not evince an ill intent of the

government.

Finally, Endrizzi contacted agencies about Manfredi’s

security clearance to collect evidence. Specifically, Endrizzi

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sought to obtain copies of Manfredi’s SF-86 forms. (Endrizzi

Decl. ¶ 76.) Endrizzi subpoened these forms to compare against

his sworn bankruptcy statements and verify the self-reported

three bankruptcy petitions. (Endrizzi Decl. ¶ 77.) Although

Endrizzi’s contact with various government agencies possibly

contributed to the revocation of Manfredi’s security clearance,

her motive for contacting these agencies was to obtain relevant

information. 

Manfredi argues that Endrizzi “gloated” about having his

security clearance revoked. Endrizzi claims she commented that

Manfredi would probably lose his security clearance, not as a

result of her contacts with these agencies but because of

Manfredi’s poor financial situation. (Endrizzi Decl. ¶¶ 84-85.) 

According to Endrizzi, individuals with financial difficulties

are not suitable for security clearance because of the potential

for bribery or undue influence. (Endrizzi Decl. ¶ 85.) Whether

Endrizzi’s comment can be considered gloating or not, this fact

does not establish a malicious intent on the part of the

government.

However, assuming Manfredi’s allegations are true, and

Endrizzi’s conduct was motivated by an intent to harass, the

conduct independently and collectively does not demonstrate an

intent to harass in bringing or pursuing the prosecution itself. 

See Knott, 256 F.3d at 31-33 (holding that water samples obtained

in violation of Fourth Amendment, alteration of evidence while in

government’s possession, failure to automatically produce

exculpatory evidence, and execution of search warrant by “virtual

swat team” did not rise to level of vexatiousness). Endrizzi met

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6 Based on the testimony produced at trial, the court is

particularly troubled by the quality of the investigation

performed by AUST Darling prior to the referral for prosecution. 

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with Assistant United States Trustee, Antonia Darling

(“Darling”), on two occasions prior to filing the indictment to

discuss the necessary elements of a bankruptcy fraud prosecution. 

(Endrizzi Decl. ¶ 3.) As part of the pre-indictment protocol,

Endrizzi also drafted a prosecution memorandum and draft

indictment for evaluation by Darling, AUSA Laura Ferris

(“Ferris”), and AUSA John Vincent (“Vincent”). (Endrizzi Decl. ¶

5.) There is no evidence that Darling, Ferris, or Vincent had or

demonstrated an intent to harass Manfredi through this

prosecution. As such, the undisputed evidence regarding the

preliminary investigation demonstrates that the initiation of the

criminal prosecution was premised not upon an intent to harass,

but upon the merits of the case and under the advice of Darling,

Ferris, and Vincent.6

Moreover, Endrizzi’s subsequent conduct, while disturbing,

does not evince an intent to harass Manfredi in continuing the

prosecution. If anything, Endrizzi’s conduct reflects an intent

to harass Macaluso, not Manfredi. If the government had filed

criminal charges against Macaluso, a persuasive case for

vexatious prosecution might exist, given Endrizzi’s voice message

and unexplained appearance at an unrelated client’s creditor’s

meeting. Here, however, the only conduct directed at Manfredi

was the alleged attempts to revoke his security clearance. This

isolated conduct cannot establish the entire prosecution was

pursued with an intent to harass. 

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In sum, defendant has not presented sufficient evidence to

establish the government prosecuted him vexatiously. Although

the court recognizes the government’s performance in pursuing the

case fell below desirable standards, the court cannot say the

government’s conduct rose to the level of vexatiousness. See

Manchester Farming P’ship, 315 F.3d at 1183 (holding government’s

deliberate indifference in pursuing criminal charges insufficient

to establish vexatious prosecution); Knott, 256 F.3d at 33-34

(holding government’s poor conduct did not render its case

vexatious). The court therefore declines to awards attorney’s

fees on this basis.

C. Bad Faith

Manfredi argues the government acted in bad faith because

Endrizzi failed to conform her conduct to that of a reasonable

prosecutor. However, the Ninth Circuit test for bad faith does

not involve an inquiry into the objective reasonableness of the

government’s conduct. See Manchester Farming P’ship, 315 F.3d at

1185; see also Sherburne, 249 F.3d at 1127 (rejecting a

“reasonable prosecutor” test for vexatious prosecution). Rather,

the test for bad faith is whether the government had a subjective

dishonest purpose or moral obliquity. Manchester Framing P’ship,

315 F.3d at 1185. Mere bad judgment or negligence is not enough

to prove bad faith. Id. 

Manfredi argues the government prosecuted him in bad faith

because it knowingly presented false testimony of FBI agent Lee

Witkowski (“Witkowski”). Witkowski testified that Manfredi was

making substantially less than the $6,000 a month indicated on

the 2004 bankruptcy petition. (Tr. of Grand Jury Proceedings,

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7 The government objects to the declaration of Donald

Vilfer, stating an analysis of Manfredi’s bank records in the

government’s possession indicated an average monthly income of

$8,000. The government argues Vilfer’s analysis is based on

insufficient facts or data and undisclosed methodology, among

other things. Therefore, the government moves to strike Vilfer’s

declaration. The court declines to rule on the government’s

motion to strike because even considering this evidence, it fails

to prove the government’s case was frivolous, vexatious, or in

bad faith. Indeed, if the bank statements indicate Manfredi had

a monthly income of $8,000 per month, it at least serves to

establish Manfredi’s statement in the 2004 bankruptcy petition of

a $6,000 monthly income was false. 

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Ex. 2 to Stillman Decl., filed Dec. 14, 2007, at 6:15-25.) 

Manfredi urges that if Witkowski had reviewed his 2004 tax

return, along with his accounts receivable, he would have

discovered Manfredi’s income was over $8,000 per month.7

However, the government denies receiving a copy of Manfredi’s

2004 tax return during discovery. (Endrizzi Decl. at 13:11-13.) 

Moreover, the 2004 tax return has not been audited to verify its

veracity.

Assuming the tax return accurately reflects Manfredi’s

monthly income, it highlights the inaccuracies in Manfredi’s

statements in other documents. For example, the 2004 bankruptcy

petition listed his monthly income as $6,000. (2004 Bankr. Pet.

at 14.) That same petition listed Manfredi’s gross income for

the year as $20,000, or $1,667 per month. (2004 Bankr. Pet. at

17.) In his 2005 bankruptcy petition, Manfredi reported monthly

income of $1,750 from employment and $3,350 from family

assistance. (2005 Bankr. Pet. at 17.) Each of these statements

is clearly inconsistent with the 2004 tax return indicating

Manfredi earned $8,000 per month. Absent persuasive evidence

indicating the government prosecuted the case for reasons other

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than the above inconsistencies and those discussed in relation to

defendant’s argument that the government’s case was frivolous,

Manfredi cannot meet his burden of showing bad faith.

The court once again notes that the government’s handling of

this case was unorthodox, particularly the continued discovery

after the commencement of trial (apparently pursuant to an

agreement between the parties) and prosecutor Endrizzi’s

interactions with Macaluso. However, such conduct simply does

not rise to the level of a conscious pursuit of the case based on

dishonest purposes or moral obliquity. See Schneider, 395 F.3d

at 88 (concluding government’s threat during proffer session to

prosecute defendant if he invoked his Fifth Amendment rights was

“merely evidence of vigorous negotiating by the government,

rather than personal animus or dishonesty”). Thus, the court

does not award attorney’s fees on this basis.

CONCLUSION

For the foregoing reasons, defendant’s motion for attorney’s

fees is DENIED.

IT IS SO ORDERED

DATED: March 11, 2008. 

 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

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