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# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

N o. 07

- 2769 U NI T ED S TATE SOF A MERI CA, P laint if f-A ppell ant, v. M ICHEL T HYFAULT, D efend a nt-A pp ellee.

A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 03 C R 779

—Jam es B. M oran, Judg e.

A RGUED O CT OB ER 20, 2008

— D ECI DE D A UGUS T 26, 2009

Befo re B AUER, K ANNE a nd W I L L I A MS, C ircu it Judges . B AUER, Cir cu i tJudg e . O n N ov em b er 4, 20 0 4 , a m u ltic ou n t s u p er c ed in g in d ict m en t c h ar ge d M ich ae l T h yfa u lt and otheri nd i vi du al s with m u lti ple m ai l fra ud and tax evas i on o ffenses . The i nd i ctm ent a ccused the d efe n dants ofbeing the prim e m ov er s in a m aj orsche m e t o d efraud I nt ercou nt y Title Com p an y of Illinois ( “Intercou nt y”) and rel ated entities. Th e sch em e in v olved theft and m i sm anage m ent o fI nter county’ s e scr ow funds ove r2 N o. 07

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a ten -year period , du ring w hi c h tim e I nt ercou nt y’s defi ci ts w er e co ver ed by thefts f ro m i ts escr ow accou nt. Thyfa ultwas char ged w ith o ne co unt ofco nspir acy to co mmi t ma i l f r a u d a n d f o u r c o u n t s o f ma i l f r a ud. The j ury acqui tte d Th yf aul t o n the conspi ra cy count, but w as unabl e to r ea ch a v er di cto n the mai l fr au d c o unt s. The go ve rn m en t t h en s o u g h t t o re tr y T h yfa u lt on th e m ail f ra ud co un ts; Thyf aul t m ove d to dism i ss the c harg es on the b asi s o fi ssue precl usi on, ar gui ng tha t hi s co nspir acy ac qui tt al pr ec l ude d th e g o ve r nm en t f r o m a tt empti ng to p ro ve h is in te n t t o d e fra u d , an ele m en t o f th e m ail f r a u d c h a r g e s . T h e d i s t r i c tc o u r ta g r e e d a n d g r a n t e d t he m o ti o n. The g o ve r nm en t br i ng s th i s appea l, c o nt en di ng th at th e d istri ct cou rt erred in gra n t in g Th yfault’s m o ti o n b ecau se a r at i o na l j ur y c o ul d wel l ha ve f o und th at Thyfa ult i ntended t o vi ol ate the l aw , but not in a g r e e me n tw i th o th e r s a s c h a r g e d i n t he co ns p i r a c y . We re ver se.

I . B AC KGR OUND Ja c k H argrove an d La ure nc e C ap riottiw ere co-ow ne rs o fI nt er co unty, a Chi ca g o -bas ed ti tl e i ns ur an ce a nd escr ow a gent. The com pany sol d t i tl e i nsurance p olic i es iss u ed by Ste w a r t T itle G u ar an ty C om p an y. T h yfa u lt, a certifi ed pu bli c acc ou nt an t, w a s hired as I nt ercou nt y‘s ch i e f fi n a n c i a l o ffi c e r i n 1 9 8 9 , a c a p a c i t y i n whi ch he ser ved unti l 19 95. By the l ate 198 0s , Inter county w as runni ng an annual defi ci t i n the mil l i o ns a s th e r es ul t o fa pri ce wari n the titl e insurance m ar ket

. To c ove r i ts l oss es, I nter countyN o. 07

- 2769 3 i nv es te d i n j unkb o nds i n the ho pes tha t th e bo nd y i el d woul d o ut per f o r m the i r r ea l e st at e o bl i g at i o ns . The p lan ba c kfir e d , an d Int er c ou n ty got its elf in to a h ole f r o m whi c h i tn e v e r r e c o v e r e d. From abou t 1990 on w ard , Int erc o u n ty’s de fi cits w ere off setby thefts f ro m the escro w a c count. Duri ng tha t t i me, c o mpa nyma na g e men te ng i ne e r e d n ume r o us fr a ud

ule nt sc h em es that ult i m ate l y r obbe d the co m pany of m or e than $60 m i l l i on. U nd er one suc h sche m e, Cap ri ott i and H ar gr ove purchase d cer ti fi cate o fdeposi ts ( “C D s”) w i th es cro w fund s which were then use d to se cur e l o an s. W he n the l o an s ca m e du e, Ca pr i o tt i a nd H ar gr ov e c as h ed ou t t h e e sc ro w -fu n d ed C D s a n d p aid offthe l oans. Thyf aul t di re cted the tr ansfero fes cro w fund s t o pu rchas e a t l eas t tw o CD s. A ccor ding to Th y f a ul t, h e wa s s k e pt i c a l o fthe p r a c t i c e o fb uy i ngCD s w i th es cro w m oney a n d d i d not underst and how i t be nefi tte d the co m pany. T h e m i suse ofthe escr ow funds did notst op ther e. A n ot h er larg e o ve rd ra ft re lat ed to an e sc ro w file ass oci ate d w i th a gol fco urse co m m unity that Capri ott i and H ar gr ove bui l t know n as R u ffl ed Fea ther s. I n 199 2, Cap ri ott i, H ar gr ove and Thyf aul t w er e a m ong thos e w ho m et to disc u ss t he neg ati ve bal ance in the Ruffl ed Fe at h er s e sc ro w file. D u rin g t h at m ee tin g, T h yfa u lt had w i th hi m a pri ntout showing the ne gat i ve bal ance, w hi ch w as approxi m ate l y $5 m i l l i on at the ti m e. Capri ott i di sc us se d a pl ant o f al si fy r ec o r ds of th e de fi ci t i n a re portthatwo u ld be c i rcul ate d to othe r m anger s a t I nter coun ty. A ccor ding to Thyfa ult, he di d not co ntribute4 N o. 07

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to th e c on ve rs at ion ab ou t w h at w as to be d o n e o r p ar tic ipate in the al ter ati on o fthe re cor ds. In te rco unty’ s e scr ow account was al so deplet ed by th e di r ec t tr an sfero fe sc r o w m one y i nt o the o per at i ng acco unt. J am es W al l i n, I nter county’ s t re asur er, car ri ed ou t t h e tr an sfe rs a t C ap riot ti’s d ire c tio n . A t a c ivil d ep os ition , Th yfault ackn ow ledge d know ing tha t trans fers ha d b een m ade fr o m the e sc r o w ac co untt o the o per at i ng acco unt. One re aso n Capri ott i and H ar gr ove ’ s thefts esca ped detect i on w as a l ar ge fl oati n the escr ow account that coul d be a s hi gh as $2 0 o r $30 m i l l i on o n any gi ven day

. Another reas o n was a b o g us e sc r o w ag r ee m en t Capr i o t t i a n d Ha r g r o v e c o o k e d u p wi th I n d e p e n d e nt T ru st C or p or at ion (“In tr u st ”), a c om p a n y s p ec ializ in g in lan d tru st s a n d se lf -d ire c te d IRA s. U n d er th e d ea l, I ntrusttr ansfer re d trusthol ders’ cas h i nvest m ents to I nter county’s es cro w acc ount. I nter county w as to i nvest th e Intrustm oneyi n go ver nm ent obl i gat i ons and then pay o ut the re sul ti ng i nter estto I ntrustf orthe be n efit of i ts tr ust ho l ders. I ntrustwas, notco i nci de n tal l y, o w ned byHar g r o ve . Thy f au l t’ s r esp onsibi l i tywas t o pl aythe r o l e o f s c o r e k e e pe r, mon i t o r i ng the t r a ns fe r offun ds ba c k a n d f o r th b e t we e n I n t r u s t a n d I n t e r c o u n t y a nd c a l c ul a t i ngthe i nt e r e s ta nd fe e s . T he s e s c o r e s w er e k e pt on a spre adsheet, a copy o fwh i ch Thyf aul t pr ovi ded to I ntrustea ch m onth. H owever, the sprea dsheets re fl ecte d f al se i nfo rm ati on. A l though the acco unti n g s how ed i nt er es t payment s be i ngmade to the e sc r o w fi l e se t up f orI ntrust ’s deposi ts, no such deposi ts w er e m ade afterN o. 07

- 2769 5 J anuary19 94 because I n terco unty l acke d the fund s t o ho no r the m . Acco r di ngt o Thy f au l t, he ha d r es er va ti o ns about thi s p ra c ti ce, but did notbel i eve i t was i l l ega l si nce i t had be en autho ri zed by t h e app ro pri ate part i es; h e d id n otrais e h is c on c er n s w ith C ap riot ti. InN ov em b er 19 96 , C ap riot ti fire d T h yfa u lt . Th yfa u lt w as p ro vid ed w ith a se ve ra n c e p ac k a g e th at p aid h im h is fu l l s a lar y for six m on th s a n d a p er c en ta ge of h is sal ar y foran a dd i ti onaleightee n m onths. A ccor ding to I nter county’ s c om ptro l l er, Geor ge St i m ac, Capri ott i ga ve Thyfa ultthe seve ran c e pack age to “k eep hi m qui et” bec au se he w as th e “w eak l ink” in th e I nt ercou nt y hierarchy. A fterThyf aul t’ s fi ri ng, th e fr aud conti nued f or se ve r almor e y ea r s. Dur i ngtha t ti m e, Ca pr i o tt i a nd H ar gr ove co nti nued to tr ansferfund s fro m I ntrustto I nter county and fr om I nter county’ s e scr ow account t o i ts o per at i nga cc o unt
. By the l ate 19 90 s, ho wev er, the va r i o us s ch emes unr av el ed an d b o thI nt er co unty a nd I nt r us tc o l l a ps e d. Thy f au l t was ch ar g ed wi th f o ur co unt s of sche m i ng to defr aud thro ugh the U

. S. m ai l, i n vi ol ati on o f18 U .S. C. § 1 341, and one count o fco nspir i ng to part i ci pate i n the f ra ud schem e, i n vi ol ati on of 18 U

. S. C. § 3 71. Thyfa ultand H argr ov e were j oi ntl y t ri ed bef or e a j ury, whi l e th e o th erde fen dan ts i nv o l ve d i n the fr au dul en t s chem e e nter ed i nto ple a a gr eem ents w i th the go ver nm ent. T h y f a u l td i d n o td i s p u t e th a tth e c h a r g e d s c h e me ex i st ed o r tha t l ar g e amoun ts o fmone y wer e st o l en, b ut ar gued that the s chem e was per petra ted byCapri ott i an d ot h ers w ithou t his know ing p articipation

. Th yfault’s6 N o. 07

- 2769 counsel ackno w l edged that Thyfa ult m ay have b een negl i gent, but cl ai m ed that hi s cl i ent di d not ac t w i th a n i nt e ntt o de f r a ud

. W hen the j ury re turned i ts ver d icts , H ar gr ove was f o und gui l tyo fc o ns pi r ac y t o c om m i t m ai l fr au d a nd m ai l fr au d b utthe j ur y a cqui tt ed Thy f au l t o n the c o nspi r ac y c o unta nd was unabl e to r ea cha ve rd i cto n the schem e- to- defr aud charg es. The j ury did n ot i nd i cate w h ich m ail fra u d ele m en t o r ele m en ts it w as u n ab le to una ni m o us l y a g r ee upo n. The go vern m ent obtained a se cond superce ding i nd i ctm en t ch ar g i ngTy f au l t wi thf o urc o unt s o fs ch emi ng to defr aud usingthe U

. S. m ai l

. Thyf aul t m ove d to d ism iss th e c h ar ge s o n th e g ro u n d s o f co llat er al e st op p el, ar gui ng tha t th e a cquit talo n the conspi ra cy count pr ecl ude d hi s r et r i alon th e f r au d s ch eme c ha r g es . The d ist ric t c ou rtg r an te d th e m ot ion , ho ld in g t h atT h yfa u lt m et hi s bur den ofsho w i ng tha t, b y acqui tti ng hi m o f th e c o ns pi r ac y c ha r g e, the j ur y ne ce ss ar i l y f o und n o in te n t t o d efr au d . Th e g ov er n m en t filed a tim ely ap p ea l.

I I . DI S C US S I ON On appeal, the gov er nm ent conte nd s that the d ist ri ct cour t e rr ed i n deter m i ni ng tha t i ssue precl usi on a pp l i ed when i t g r an te d Thy faul t’ s m o ti o n t o di smi ss the s ec o nd superce ding i n d i ctm ent. W e r evi ew de nov o deter m i nati ons ofi ssue precl usi on. U nite d State s v. B aili n , 97 7 F

. 2d 270, 281 (7th C ir. 1992). I n a c ri m i nal co ntext, i ssue precl usi on, o r col l ateral est oppel, m eans that w hen an i ssue oful ti m ate f act hasN o. 07

- 2769 7 be ende te r m i ne d b y a v al i d a nd final j udg m en t, the sam e pa rties cann ot re-l iti gate th at issue in an y futu re law su it. U ni t e d St at e s v. Sa l e r no , 10 8 F

. 3d 73 0, 74 1 ( 7th Ci r . 1 99 7)

. Thi s co ur t ha s i den ti fi ed th r ee r ul es g o ve r ni ng the ap pli cati on o fi ssue precl usi on i n cr i m i nal cas es: ( 1) t h e c o u r ts h o u l d n o ta p p l y th e r u l e s o fi ss ue p reclu sion in a hyp ertech nical m an ne r, bu t rathe r, shoul d exam i ne the pl eadi ngs, ev i dence, char ges and other relevan t m aterial to d eterm ine w h e t he r a rati ona l j ury co ul d ha ve b as ed i ts verd icto n a no th eri ss ue ; ( 2) i ss ue precl usi on o nl y a pp l i es w hen a re l evanti ssue i n a s ubsequent pr ose cuti on i s a n “ul ti m ate i ssue, ” m ea ni ng an i ssue that m u st b e proven beyo nd a re aso nabl e doubt; and (3 ) the defe nd ant be ar s th e b u rden o fpro vi ng tha t th e p r i o r j ur y n e c e s s a r i l y de t e r mi ne d the “ ul t i m ate i ssue. ” Id

. A c o ns p iracy i s an agre em en t betw een tw o or m ore per son s to a cc o m pl i sha n un l awfulpur po se . To o bt ain a co nvict i o n, the g o ve r nm en t m us t pr o ve : ( 1) tha t th e c on sp ira c y e x ist ed ; (2) th at th e d efe n d an t k n ow in gly becam e a m em bero fthe conspi ra cy w i th the i ntent to furtheri t; an d (3) that an o ver t a ct was co m m i tte d by a t l eas t o n e conspi ra tori n further ance o fthe conspi ra cy. 1 8 U. S

. C. § 3 7 1

. T o c onv i c ta de fe nd a nto fma i l fr a ud , th e g o v e r n me n t mu s t p r o v e : ( 1 ) th a tth e d e fe n d a n tkn o wi ng l y de vi se d o r pa r ti ci pated i n a s ch eme t o de f r au d or ob ta in m on ey or p ro p er ty b y m ea n s o fm a te ria lly f al se pr et en se s, r epr es en ta ti o ns , pr o m i se s, or omi ss i o ns as de scribe d i n tha t co unto fthe i ndi ct m en t; ( 2) tha t th e de fen d ant di d so knowingl y a nd with the i ntent to def ra ud ; and ( 3) thatthe defe nd ant use d th e U n ited S tat es m ai l as a car ri er . 18 U

. S. C. § 1 341.8 N o. 07

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The f ac ttha tthe j ur y was una bl e t o r ea c h a ve rdi c tonthe 1 m ail fraud charge afteracquit ti ng T hyfault ofthe cons piracy charge doe s n o t f act or i nto our analys is

. The Sup rem e Court re c en t l y con s i der ed th i s que s t i on i n Y eager v. U n i te d S tat es , 2009 W L 16 85 93 5 (J une 18 , 20 09 ) , ho l di ng that, “c ons i der at i on of h u n g co u n ts h a s n o p la ce in issu e p re cl u sio n an a ly sis .” The questi on i s thus w h ether the j ury’ s a cquit talo n the c onsp ira cy count pr ecl ud es the g ove rnm ent fro m att em pti ng to pro ve Thyfa ult ’ s intent to defr aud, an elem en t of th e m ailfrau d cha rges. T h e district cou rt 1 f ound that the onl y explanat i on fo r the j ury’ s a cquit talo n th e c on sp ira c y c o u n t w as th at it h ad co n c lu d ed T h yfa u lt i n f act l acke d the i nt e ntt o de f r au d. The g o ve r nm en t n ow arg u es th at th at int er p r e t at ion is to o n ar ro w ; i t con t e nd s tha tthe j ur y c o ul d h a v e b a s e d the a c qu i tta l m er el y o n a r eas onabl e d oubt that Thyfa ult j oi ne d the agre e m e ntt o de f r a ud

. Because Hargr ove was convi cted o fthe conspi ra cy ch a r g e , i t i s s e t t l e d tha t the j ur y f o un d the e xi s t ence ofan agr eem ent b etw een tw o orm or e o fthe defe nd ants to com m i t m ai l fra ud , and that an o ver t a ct was t ake n by at l eas t o ne i nd i vi du ali n further ance of th at agr eem ent. A ddi t i o na l l y, we c a n s a fe l y s a y tha t, i n i t s a c qu i t t a l o f Thyfa ulto n the sam e cha rg e, the j ury deter m i n ed that th e g o ve r nm en t ha d f ai l ed to meeti ts b ur d en c o nc erni ng at l eas t o ne o fthe thre e r equi si te el em ents. R ev iew in g t h e jur y’s v e rd ict an d th e e vid en c e a t t ria l, o ne po ss ibi l i tyi s th atthe jur y c o nc l ude d tha t al th o ug h a co ns p i r ac y t o c o m m i t m ai l fr au d e xi st ed, the g o ve r n-N o. 07

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m ent f ai l ed to pro ve that Thy fau lt acte d w i th i ntent to furtherthe conspi ra cy to defr aud. This i s the dete rm i nati on that the dist ric t cour t r eached and the one that T h yfa u lt u rg es u s t o a ffirm

. W e a gr ee w ith t h e gov er n m en t t h at ot h er p lau sib le possibi l i ti es exi st. For i nstance , i t i s ce rt ai nl y pos sibl e that the j ury conclud ed that the g ove rnm ent fa il ed to pro ve Thyfa ulthad j oi ned the a gr eem ent, and as such, d i d not re ach the issue o fwh etherhe a cted with i ntent to fur th eri ts underl y i ngpur po se , the s ch eme t o de f r au d I nter county. Thy f au l t be ar s t he b ur deno fde m o ns tr at i ngtha t th e ac q u itt als in t h e firs t t ria l ne c es sa rily d ec id ed in h is f avo r an i ssue th at w ou l d ult i m ate l y b e r equi re d to c on vic t h im in t h e s ec on d

. Sal e r no , 1 0 8 F. 3 d a t74 1

. We bel i eve he h as fa il ed to do s o. To obtain a c onvi cti on f or m ai l f ra ud , the gov er nm ent w oul d hav e to p rove b e y o nd a r e a s on a b l e do ub tT hy f a ul t ’ s i nt e ntt o de f r a ud ; but, we a re u n persuaded thatthi s e l em ent was deci ded aga i nst the go ver nm ent when Th yfau lt was ac quit ted o f conspi ra cy. Thy f au l t a rg ue s th atthe i ss ue o fwhethe r he k no wi ng l y b ec ame a mem be r o fthe c o ns pi r ac y i s i ne xtr i cabl y l i nk ed wi ththa t of w he the r he a ct ed wi thi nt en t to advance i ts ends beca use of th e m anner i n w hi ch the g ove rnm ent pr esen te d i ts evi dence attr i al

. I t i s t rue, as Thyfa ultcl aim s, thatthe gov er nm ent a rgued at t ri al th at th e s am e e vid en c e w ou ld p ro ve T h yf a u lt’s gu ilt concerni ng bo th the co nspir acy and m ai l frau d counts b e c a u s e th a t e v i d e n c e w o u l d p r o v e th a t T h y f a u l t k n o w-10 N o. 07

- 2769 i ng l y j o i ne d the s ch eme to d efr au d a nd di d s o wi ththe in te n t t o acco m pli sh i ts obj ecti ves. H owever, the centr al i nquir y her e is notwh etherthe gov er nm ent’ s theor y o f th e case as pres en ted at tri al continu es to hold w ater, but wh ethera ra ti onalj ury could have bas ed i ts acqui tta l o n an is sue o therthan the o ne Thyf aul t s eek s to f or ecl ose fro m co nsi derat i on. W e be l i eve i t co uld have

. Give n the di sti ncti on be tw een the cr i m e o fco nspir acy, whi chr equi r es a n a g r ee m en t to c o m m i t ani l l eg alact, a nd the c ri m e o f e ngaging i n a fra ud ule nt sc hem e, wh i ch do es no t, th e j ur y co ul d ha ve ac qui tt ed Thy f au l t of the c on sp ira c y for rea so n s o th er th an a d et er m in at io n in h is fav or on th e elem en t sh ar ed in c om m on w ith t h e m ail f r a ud c ha r g e : a n i nt e ntt o de f r a ud

. Thu s, bec ause nothi ng ab out Thyfa ult ’ s co nspir acy ac q u itt al lea d s t o t h e c on c lu sio n t h a t th e jur y n ec es sa rily de t e r mi ne d tha th e di d n o ta c twi th a n i nt e ntto defr au d, i ss ue pr ec l us i o n do es no t barthe g o ve r nm en t f ro m tr yi ng Thyf aul t o n the m ai l fra ud char ge.

I I I . C ONC L US I ON Theref or e, we R EV ERSE the d is tr i ctc o ur t’ s j udg m en t dism i ssi ng the m ai l fra ud co unts.

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