In the

United States Court of Appeals

For the Seventh Circuit

No. 07-2769

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

v.

MICHEL THYFAULT,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 03 CR 779—James B. Moran, Judge.

ARGUED OCTOBER 20, 2008—DECIDED AUGUST 26, 2009

Before BAUER, KANNE and WILLIAMS, Circuit Judges.

BAUER, Circuit Judge. On November 4, 2004, a multicount superceding indictment charged Michael Thyfault

and other individuals with multiple mail fraud and tax

evasion offenses. The indictment accused the defendants

of being the prime movers in a major scheme to

defraud Intercounty Title Company of Illinois (“Intercounty”) and related entities. The scheme involved theft

and mismanagement of Intercounty’s escrow funds over
2 No. 07-2769

a ten-year period, during which time Intercounty’s

deficits were covered by thefts from its escrow account.

Thyfault was charged with one count of conspiracy to

commit mail fraud and four counts of mail fraud. The

jury acquitted Thyfault on the conspiracy count, but was

unable to reach a verdict on the mail fraud counts. The

government then sought to retry Thyfault on the mail

fraud counts; Thyfault moved to dismiss the charges on

the basis of issue preclusion, arguing that his conspiracy

acquittal precluded the government from attempting

to prove his intent to defraud, an element of the mail

fraud charges. The district court agreed and granted the

motion. The government brings this appeal, contending

that the district court erred in granting Thyfault’s

motion because a rational jury could well have found

that Thyfault intended to violate the law, but not in

agreement with others as charged in the conspiracy. We

reverse.

I. BACKGROUND

Jack Hargrove and Laurence Capriotti were co-owners

of Intercounty, a Chicago-based title insurance and

escrow agent. The company sold title insurance policies

issued by Stewart Title Guaranty Company. Thyfault, a

certified public accountant, was hired as Intercounty‘s

chief financial officer in 1989, a capacity in which he

served until 1995.

By the late 1980s, Intercounty was running an annual

deficit in the millions as the result of a price war in the

title insurance market. To cover its losses, Intercounty
No. 07-2769 3

invested in junk bonds in the hopes that the bond

yield would outperform their real estate obligations. The

plan backfired, and Intercounty got itself into a hole

from which it never recovered.

From about 1990 onward, Intercounty’s deficits were

offset by thefts from the escrow account. During that

time, company management engineered numerous fraudulent schemes that ultimately robbed the company of

more than $60 million. Under one such scheme,

Capriotti and Hargrove purchased certificate of deposits

(“CDs”) with escrow funds which were then used to

secure loans. When the loans came due, Capriotti and

Hargrove cashed out the escrow-funded CDs and paid

off the loans. Thyfault directed the transfer of escrow

funds to purchase at least two CDs. According to

Thyfault, he was skeptical of the practice of buying CDs

with escrow money and did not understand how it benefitted the company.

The misuse of the escrow funds did not stop there.

Another large overdraft related to an escrow file

associated with a golf course community that Capriotti

and Hargrove built known as Ruffled Feathers. In 1992,

Capriotti, Hargrove and Thyfault were among those

who met to discuss the negative balance in the Ruffled

Feathers escrow file. During that meeting, Thyfault

had with him a printout showing the negative balance,

which was approximately $5 million at the time. Capriotti

discussed a plan to falsify records of the deficit in a

report that would be circulated to other mangers at

Intercounty. According to Thyfault, he did not contribute
4 No. 07-2769

to the conversation about what was to be done or participate in the alteration of the records.

Intercounty’s escrow account was also depleted by

the direct transfer of escrow money into the operating

account. James Wallin, Intercounty’s treasurer, carried

out the transfers at Capriotti’s direction. At a civil deposition, Thyfault acknowledged knowing that transfers

had been made from the escrow account to the operating

account.

One reason Capriotti and Hargrove’s thefts escaped

detection was a large float in the escrow account that

could be as high as $20 or $30 million on any given

day. Another reason was a bogus escrow agreement

Capriotti and Hargrove cooked up with Independent

Trust Corporation (“Intrust”), a company specializing in

land trusts and self-directed IRAs. Under the deal,

Intrust transferred trust holders’ cash investments to

Intercounty’s escrow account. Intercounty was to invest

the Intrust money in government obligations and then

pay out the resulting interest to Intrust for the benefit of

its trust holders. Intrust was, not coincidentally, owned

by Hargrove. Thyfault’s responsibility was to play the

role of scorekeeper, monitoring the transfer of funds

back and forth between Intrust and Intercounty and

calculating the interest and fees. These scores were kept

on a spreadsheet, a copy of which Thyfault provided to

Intrust each month. However, the spreadsheets reflected

false information. Although the accounting showed

interest payments being made to the escrow file set up

for Intrust’s deposits, no such deposits were made after
No. 07-2769 5

January 1994 because Intercounty lacked the funds to

honor them. According to Thyfault, he had reservations

about this practice, but did not believe it was illegal

since it had been authorized by the appropriate parties;

he did not raise his concerns with Capriotti.

In November 1996, Capriotti fired Thyfault. Thyfault

was provided with a severance package that paid him

his full salary for six months and a percentage of his

salary for an additional eighteen months. According to

Intercounty’s comptroller, George Stimac, Capriotti gave

Thyfault the severance package to “keep him quiet”

because he was the “weak link” in the Intercounty hierarchy. After Thyfault’s firing, the fraud continued for

several more years. During that time, Capriotti and

Hargrove continued to transfer funds from Intrust to

Intercounty and from Intercounty’s escrow account to

its operating account. By the late 1990s, however, the

various schemes unraveled and both Intercounty and

Intrust collapsed.

Thyfault was charged with four counts of scheming

to defraud through the U.S. mail, in violation of 18

U.S.C. § 1341, and one count of conspiring to participate

in the fraud scheme, in violation of 18 U.S.C. § 371.

Thyfault and Hargrove were jointly tried before a jury,

while the other defendants involved in the fraudulent

scheme entered into plea agreements with the government.

Thyfault did not dispute that the charged scheme

existed or that large amounts of money were stolen, but

argued that the scheme was perpetrated by Capriotti

and others without his knowing participation. Thyfault’s
6 No. 07-2769

counsel acknowledged that Thyfault may have been

negligent, but claimed that his client did not act with

an intent to defraud.

When the jury returned its verdicts, Hargrove was

found guilty of conspiracy to commit mail fraud and

mail fraud but the jury acquitted Thyfault on the conspiracy count and was unable to reach a verdict on the

scheme-to-defraud charges. The jury did not indicate

which mail fraud element or elements it was unable

to unanimously agree upon.

The government obtained a second superceding indictment charging Tyfault with four counts of scheming

to defraud using the U.S. mail. Thyfault moved to

dismiss the charges on the grounds of collateral estoppel,

arguing that the acquittal on the conspiracy count precluded his retrial on the fraud scheme charges. The

district court granted the motion, holding that Thyfault

met his burden of showing that, by acquitting him of

the conspiracy charge, the jury necessarily found no

intent to defraud. The government filed a timely appeal.

II. DISCUSSION

On appeal, the government contends that the district

court erred in determining that issue preclusion applied

when it granted Thyfault’s motion to dismiss the second

superceding indictment. We review de novo determinations of issue preclusion. United States v. Bailin, 977 F.2d

270, 281 (7th Cir. 1992).

In a criminal context, issue preclusion, or collateral

estoppel, means that when an issue of ultimate fact has
No. 07-2769 7

been determined by a valid and final judgment, the

same parties cannot re-litigate that issue in any future

lawsuit. United States v. Salerno, 108 F. 3d 730, 741 (7th

Cir. 1997). This court has identified three rules governing

the application of issue preclusion in criminal cases:

(1) the court should not apply the rules of issue

preclusion in a hypertechnical manner, but rather,

should examine the pleadings, evidence, charges and other

relevant material to determine whether a rational jury

could have based its verdict on another issue; (2) issue

preclusion only applies when a relevant issue in a subsequent prosecution is an “ultimate issue,” meaning an

issue that must be proven beyond a reasonable doubt;

and (3) the defendant bears the burden of proving that

the prior jury necessarily determined the “ultimate

issue.” Id.

A conspiracy is an agreement between two or more

persons to accomplish an unlawful purpose. To obtain a

conviction, the government must prove: (1) that the

conspiracy existed; (2) that the defendant knowingly

became a member of the conspiracy with the intent to

further it; and (3) that an overt act was committed by at

least one conspirator in furtherance of the conspiracy.

18 U.S.C. § 371. To convict a defendant of mail fraud,

the government must prove: (1) that the defendant knowingly devised or participated in a scheme to defraud

or obtain money or property by means of materially

false pretenses, representations, promises, or omissions

as described in that count of the indictment; (2) that the

defendant did so knowingly and with the intent to defraud; and (3) that the defendant used the United States

mail as a carrier. 18 U.S.C. § 1341.
8 No. 07-2769

The fact that the jury was unable to reach a verdict on the 1

mail fraud charge after acquitting Thyfault of the conspiracy

charge does not factor into our analysis. The Supreme Court

recently considered this question in Yeager v. United States, 2009

WL 1685935 (June 18, 2009), holding that, “consideration of

hung counts has no place in issue preclusion analysis.”

The question is thus whether the jury’s acquittal on

the conspiracy count precludes the government from

attempting to prove Thyfault’s intent to defraud, an

element of the mail fraud charges. The district court 1

found that the only explanation for the jury’s acquittal on

the conspiracy count was that it had concluded Thyfault

in fact lacked the intent to defraud. The government

now argues that that interpretation is too narrow; it

contends that the jury could have based the acquittal

merely on a reasonable doubt that Thyfault joined the

agreement to defraud.

Because Hargrove was convicted of the conspiracy

charge, it is settled that the jury found the existence of an

agreement between two or more of the defendants to

commit mail fraud, and that an overt act was taken by

at least one individual in furtherance of that agreement.

Additionally, we can safely say that, in its acquittal of

Thyfault on the same charge, the jury determined that

the government had failed to meet its burden concerning

at least one of the three requisite elements.

Reviewing the jury’s verdict and the evidence at trial,

one possibility is that the jury concluded that although a

conspiracy to commit mail fraud existed, the govern-
No. 07-2769 9

ment failed to prove that Thyfault acted with intent to

further the conspiracy to defraud. This is the determination that the district court reached and the one that

Thyfault urges us to affirm. 

We agree with the government that other plausible

possibilities exist. For instance, it is certainly possible that

the jury concluded that the government failed to prove

Thyfault had joined the agreement, and as such, did not

reach the issue of whether he acted with intent to

further its underlying purpose, the scheme to defraud

Intercounty.

Thyfault bears the burden of demonstrating that the

acquittals in the first trial necessarily decided in his

favor an issue that would ultimately be required to

convict him in the second. Salerno, 108 F. 3d at 741. We

believe he has failed to do so. To obtain a conviction

for mail fraud, the government would have to prove

beyond a reasonable doubt Thyfault’s intent to defraud;

but, we are unpersuaded that this element was decided

against the government when Thyfault was acquitted of

conspiracy.

Thyfault argues that the issue of whether he

knowingly became a member of the conspiracy is inextricably linked with that of whether he acted with intent

to advance its ends because of the manner in which

the government presented its evidence at trial. It is true,

as Thyfault claims, that the government argued at trial

that the same evidence would prove Thyfault’s guilt

concerning both the conspiracy and mail fraud counts

because that evidence would prove that Thyfault know-
10 No. 07-2769

ingly joined the scheme to defraud and did so with the

intent to accomplish its objectives. However, the central

inquiry here is not whether the government’s theory of

the case as presented at trial continues to hold water,

but whether a rational jury could have based its

acquittal on an issue other than the one Thyfault seeks

to foreclose from consideration. We believe it could have.

Given the distinction between the crime of conspiracy,

which requires an agreement to commit an illegal act, and

the crime of engaging in a fraudulent scheme, which

does not, the jury could have acquitted Thyfault of the

conspiracy for reasons other than a determination in his

favor on the element shared in common with the mail

fraud charge: an intent to defraud.

Thus, because nothing about Thyfault’s conspiracy

acquittal leads to the conclusion that the jury necessarily

determined that he did not act with an intent to

defraud, issue preclusion does not bar the government

from trying Thyfault on the mail fraud charge.

III. CONCLUSION

Therefore, we REVERSE the district court’s judgment

dismissing the mail fraud counts.

8-26-09