Opinion
Case Nos. 03-40142-01-JAR, 03-40142-01/02-JAR, 03-40142-JAR.
August 13, 2004
ORDER DENYING MOTION TO SUPPRESS GRAND JURY TESTIMONY
On August 10, 2004, the Court heard Defendant Wittig's motion (Doc. 92) to suppress his testimony to the grand jury and the fruits of that testimony. After hearing argument, the Court directed Richard Hathaway, Assistant United States Attorney, to submit a transcript of defendant Wittig's grand jury testimony, under seal, for the Court's in camera review. Defendant Wittig argues that suppression of his testimony is a reasonable sanction, for what he characterizes as two violations by Mr. Hathaway: 1) failure to advise him of his status as a target; and 2) misrepresenting to him that he would be examined only about the Capital City Bank loan. Based on the Court's review of the transcript, and on the submissions and oral arguments of the parties, the Court does not find that Mr. Hathaway misled Mr. Wittig about the scope of the examination; and the Court finds no evidence suggesting that Mr. Wittig was a target of the grand jury investigation at the time he testified. The Court denies the motion.
Discussion
Defendant Wittig contends that the government procured his testimony under false pretenses. During a voluntary interview of Mr. Wittig before his appearance before the grand jury, Mr. Hathaway represented to Mr. Wittig and his attorney that Mr. Hathaway would examine him about matters pertaining to a Capital City Bank loan. But Mr. Hathaway also examined Mr. Wittig about Westar airplanes, executive compensation, shareholder voting records, and other issues that were unrelated to the Capital City Bank loan but are now covered by the allegations in the instant indictment. Defendant Wittig further complains that Mr. Hathaway never advised him or his attorney that he was a target of any grand jury investigation.
In fact, the grand jury subsequently returned an indictment, charging Defendant Wittig and Odell Weidner, president of Capital City Bank, with bank fraud and related charges in United States v. Clinton O'Dell Weidner II and David C. Wittig, Docket No. 5:02 CR40140-01-JAR. Both defendants were convicted after a jury trial.
Defendant Wittig points out that it is the policy of the Department of Justice to give notice to someone that they are a target, citing to Section 9-11.151 of the United States Attorney's Manual, which states: "it is the policy of the Department that an `Advice of Rights' form be appended to all grand jury subpoenas to be served on any `target' or `subject' of an investigation." No such "Advice of Rights" form was attached to the subpoenas that Mr. Hathaway served on Mr. Wittig.
The government responds that Mr. Wittig was not a target of a grand jury investigation into such matters at Westar at the time he testified before the grand jury. Indeed, on July 16, 2002, July 31, 2002 and August 13, 2002, the grand jury issued subpoenas to Mr. Wittig in the Capital City Bank loan matter. Mr. Wittig testified before the grand jury on September 12, 2002, approximately two months before the grand jury returned an indictment on the bank fraud, and about 14 months before the grand jury returned an indictment in this case on December 3, 2003. Given this timing, there is no suggestion that in July, August and September of 2002, Mr. Wittig was a target of a grand jury investigation into the matters that are the subject of the charges in the present case.
Moreover, although Mr. Wittig was indicted two months later for bank fraud and related charges concerning the Capital City Bank loan, nothing in the examination evidences that he was the target at that time. The Court takes judicial notice that the charges in the bank fraud case concerned a nominee loan from Capital City Bank to Odell Weidner, the president of that bank, through the nominee, Mr. Wittig, who was a customer of the bank.
Defendant Wittig further argues that the tone and tenor of Mr. Hathaway's examination of him evidences that Mr. Hathaway considered him a target back in September 2002. However, the grand jury transcript reads more like a discovery deposition than an examination designed to memorialize a target's testimony for purposes of indictment. The transcript includes a series of questions about Mr. Wittig's bank relationship with Capital City, the purpose of his line of credit loan, and his use of the line of credit for renovations on the Landon mansion. From the Court's review of the transcript, it is not apparent that Mr. Wittig was considered a target.
Even if Mr. Wittig was a target of such an investigation, the announced policy of the Department of Justice does not confer any right to a target letter or notice. In fact, courts have consistently held that this internal policy does not create legal rights. As long as a defendant was advised of his Fifth Amendment rights, he need not be advised that he is a target of the grand jury's investigation. Thus, a defendant's grand jury testimony is not subject to suppression despite a failure to warn him of his target status. Mr. Wittig's constitutional rights were duly protected, no matter his status, by the Fifth Amendment warning he was given on the record, prior to his testimony before the grand jury. The transcript evidences that Mr. Hathaway advised Mr. Wittig, who in turn acknowledged that he understood: that he had a right not to be compelled to be a witness against himself; that he did not have to appear and provide any information that might tend to incriminate him later in any proceedings; that if he chooses to answer questions, he does so voluntarily; and that any statements could be used against him in future proceedings or in any trial. Mr. Hathaway duly advised Mr. Wittig of his Fifth Amendment rights.
Even if Mr. Hathaway considered Mr. Wittig a target, Mr. Wittig had no legal right to be advised of his status as a target. For this reason, Defendant Wittig has failed to show a "particularized need" justifying his request for discovery of grand jury minutes of Mr. Hathaway's statements to the grand jury about Mr. Wittig before calling him into the examination. See In re Special Grand Jury 89-2, 143 F.3d 565, 569-70 (10th Cir. 1988) (district court may release grand jury materials after a party demonstrates necessity).
United States v. Washington, 431 U.S. 181, 185-89 (1977).
See, e.g., United States v. Pacheco-Ortiz, 889 F.2d 301, 306-310 (1st Cir. 1989); United States v. Valentine, 820 F.2d 565, 572 (2d Cir. 1987); United States v. Crocker, 568 F.2d 1049, 1053-56 (3rd Cir. 1977); United States v. Bollin, 264 F.3d 391, 415 (4th Cir. 2001); United States v. Myers, 123 F.3d 350, 355-58 (6th Cir.), cert. denied, 522 U.S. 1020 (1997); United States v. Gillespie, 974 F.2d 796, 800-05 (7th Cir. 1992); United States v. Long, 977 F.2d 1264, 1276 (8th Cir. 1992); United States v. Estacio, 64 F.3d 477, 481-82 (9th Cir. 1995), cert. denied, 517 U.S. 1121 (1996).
Defendant Wittig also complains that Mr. Hathaway misled him and his attorney about the scope of the examination before the grand jury and, contrary to Mr. Hathaway's representations, he examined him about subjects other than the Capital City Bank loan. The grand jury transcript reveals, however, that before the examination commenced, Mr. Hathaway advised Mr. Wittig that the grand jury was "primarily looking into a $1.5 million dollar increase in your line of credit that took place on or about April 30th of 2001." Moreover, before the examination commenced, Mr. Hathaway advised Mr. Wittig that "before you answer any question, you're entitled to step out and speak with your counsel before you respond to any question we put to you." During the testimony, Mr. Wittig's counsel waited for him outside of the grand jury room. The transcript reveals that Mr. Wittig asked for and was granted a recess to confer with his counsel in the middle of testimony about his use of corporate aircraft — testimony which he now claims Mr. Hathaway procured by ambush. Yet, after taking the recess, Mr. Wittig resumed testifying about the corporate aircraft, with no indication that he was concerned about the scope of the examination.
During the first part of Mr. Wittig's testimony, he related his employment history, including a lengthy discussion of his initial contacts with Western Resources, now Westar Energy, how he came to work for that company, and his "evolution up through the ranks" to his position as CEO. Much of this testimony was a narrative description of his work at Western Resources, including his work in acquisitions and diversification of Western Resources' business. Notably, much of this testimony was related not in response to any specific or probing question posited by Mr. Hathaway, but as part of Mr. Wittig's apparently voluntary narrative of his experiences at Western Resources and of the relationship of Western Resources, Westar Energy and related companies.
Clearly, as Mr. Wittig volunteered certain information, Mr. Hathaway took the opportunity to explore with further questions. One such example is at pages 23-26 of the transcript. After Mr. Wittig described buying the Landon mansion and seeking financing for renovation, Mr. Hathaway asked Mr. Wittig whether his employment contract addressed reimbursement for renovations on the house. Mr. Wittig then described the "change of control agreement" that he and other officers entered into with the company. Mr. Hathaway acknowledged having seen the agreement, but shortly returned the questioning to the renovations to the house, which was material to the line of credit involved in the Capital City bank matter. Mr. Hathaway asked Mr. Wittig about a previous statement that he was cash poor at the time he was seeking financing for renovations. Mr. Wittig responded by lengthy narrative-type testimony about the nature and state of executive compensation packages at Western Resources at that time. Mr. Hathaway took the opportunity to then inquire about Western Resources' governance and oversight of executive compensation.
One of the areas of examination that defendant Wittig now complains about is the use of corporate aircraft. The transcript reveals that Mr. Hathaway initiated this examination with a question about Odell Weidner being flown on a corporate jet to a college football game. This question was posited in the context of questions about the nature and length of the relationship between Odell Weidner and Mr. Wittig. Mr. Hathaway then went on to examine Mr. Wittig for approximately 30 pages of the transcript, regarding the use of corporate aircraft by Mr. Wittig and others associated with Western Resources. In the midst of this questioning, Mr. Wittig asked for a five minute recess, which was granted. Immediately after the recess, questioning about the corporate aircraft resumed. Shortly thereafter, the questioning turned back to questions related to the Capital City Bank loan, and the bulk of the transcript concerns examination related to the loan.
The tone and tenor of this grand jury transcript is not of ambush, but of voluntary, narrative testimony into areas that defendant Wittig now claims were outside the scope of the anticipated examination. Sometimes this testimony was responsive to questions initiated by Mr. Hathaway; but often this testimony was initiated by Mr. Wittig and followed with questions by Mr. Hathaway. The transcript does not evidence that Mr. Hathaway intended and used the grand jury examination as a means of ambushing Mr. Wittig with questions designed to incriminate him on matters included in the current charges. For these reasons, neither of the so-called violations complained about are supported by the evidence. Thus, there is no legal basis to suppress defendant Wittig's testimony. Further, the Court has no reason to exercise its supervisory powers to accord such relief, for there is no evidence of prosecutorial misconduct.
IT IS THEREFORE ORDERED BY THE COURT that defendant Wittig's Motion to Suppress Grand Jury Testimony (Doc. 92) is DENIED.
IT IS SO ORDERED.
ORDER MEMORIALIZING AUGUST 10, 2004 RULINGS
This matter is before the Court on numerous pretrial motions filed by defendants David Wittig and Douglas Lake. A hearing was held on August 10, 2004. Defendant Wittig appeared in person and through counsel, Adam Hoffinger, Paula Junghans and Rob Rogers. Defendant Lake appeared in person and through counsel, Edward Little, Christopher Wilson and Gaye Tibbets. The government appeared by Assistant United States Attorney Richard Hathaway. After hearing arguments and statements of counsel, the court made rulings from the bench on several of the motions. For the reasons stated on the record,IT IS THEREFORE ORDERED BY THE COURT that:
1. Defendants' Motions to Join in All Motions (Doc. 86 and 105) are GRANTED;
2. Defendant Lake's Motion to Strike Surplusage from the Indictment (Doc. 82) is DENIED;
3. Defendant Lake's Motion to Sever (Doc. 84) is DENIED;
4. Defendant Lake's Motion for Witness List (Doc. 88) is GRANTED IN PART; the government shall provide defendants its Witness and Exhibit List ten (10) days before trial; defendants shall provide the government their respective Witness and Exhibit Lists five (5) days before trial;
5. Defendant Wittig's Motion for Production of Exculpatory and Impeachment Evidence (Doc. 94) is DENIED AS MOOT;
6. Defendant Wittig's Motion for Discovery and Production of Evidence (Doc. 96) is DENIED AS MOOT;
7. Defendant Wittig's Motion to Permit Attorney Voir Dire (Doc. 98) is GRANTED;
8. Defendants' Motions to Dismiss the Indictment (Docs. 90, 99, 101, 103 and 106) are DENIED AS MOOT as to Counts 2, 4, 7, and 9 through 12; the Court defers ruling on the motions to dismiss the remaining Counts of the Superseding Indictment, including Count 40, until the pretrial motions hearing scheduled for September 13, 2004;
Although the Court initially intended to rule at this time on the motions to dismiss Count 40 relative to forfeiture, it has deferred ruling on these issues in light of its separate ruling on defendant Lake's renewed motion to modify the restraining order.
9. Defendants' Motions for Bill of Particulars (Docs. 88 and 97) are GRANTED IN PART with respect to Count I, paragraph 23, subsections (A) through (T) of the Superseding Indictment; by August 20, 2004, the government shall identify the alleged concealment or misrepresentation, who it was communicated to or not communicated to and if such communication was required; or alternatively, that it is an overt act that does not constitute a concealment or misrepresentation; defendants shall have until September 3, 2004 to respond.
IT IS SO ORDERED.
MEMORANDUM AND ORDER GRANTING DEFENDANT LAKE'S MOTION TO MODIFY RESTRAINING ORDER
This matter is before the Court on defendant Douglas Lake's Supplemental Jones Submission (Doc. 144), and renewed request to modify the April 5, 2004 restraining order. A hearing was held on August 10, 2004, and the Court took the matter under advisement. After considering the arguments and statements of counsel and reviewing the parties' submissions, the Court is now prepared to rule. For the reasons stated below, the April 5, 2004 restraining order, as modified on June 30, 2004, is modified to exclude advance payment of legal fees from Westar for the defense of this criminal case.
Background
On June 30, 2004, the Court entered an order modifying the April 5, 2004 restraining order to remove restrictions on Westar's payments to defendants, instead enjoining defendants from transferring any such payments, including payments in the form of advanced legal fees (Doc. 110). Any payments by Westar were ordered to be placed by defendants in an escrow account. The Court further denied defendant Wittig's motion to vacate (Doc. 55) and defendant Lake's motion to modify (Doc. 56) without prejudice. The Court held that, in the context of an attack on a pre-trial restraining order issued pursuant to § 853(e), the Tenth Circuit Jones decision held that due process does not require the court to grant a pretrial hearing on a challenge to the validity of the indictment and the underlying forfeitability of the restrained assets, without a threshold showing that a defendant has no funds from which to retain counsel or support himself or his family, leaving open the opportunity for defendants to make a showing of need. The Court also noted that the legal issue of forfeitability had been raised in the context of defendants' motions to dismiss the indictment.
United States v. Jones, 160 F.3d 641 (10th Cir. 1998).
On July 14, 2004, the government filed its first superseding indictment (Doc. 126), which made numerous changes to Count 40, the forfeiture count, and Count 1, the conspiracy count. On July 27, 2004, the Court held a telephone status conference, at which time counsel for defendant Lake indicated that in light of the Superseding Indictment, he would be supplementing Lake's showing of need and requesting a Jones hearing. Defendant Lake filed a supplemental Jones submission on August 3, 2004 (Doc. 144), which renewed his motion to modify the April 5, 2004 restraining order (Doc. 55).
In Jones, the Tenth Circuit established the following preliminary showing before a post-restraint, pretrial adversarial hearing on probable cause could be ordered: 1) defendant has no other assets, other than those restrained, with which to retain private counsel and provide for himself and his family; and 2) a prima facie showing of a bona fide reason to believe the grand jury erred in determining that the restrained assets are proceeds, or traceable proceeds, of the charged offenses. After hearing arguments of counsel, the Court ruled at the August 10, 2004 hearing that defendant had satisfied the requisite showing.
Id. at 647.
First, the Court found, albeit reluctantly, that defendant Lake had demonstrated that he had no available unrestrained assets to pay defense counsel. To satisfy the first requirement, defendant Lake submitted a supplemental affidavit demonstrating his financial need. Highly summarized, Lake stated that although he initially had significant unrestrained assets from which to pay defense counsel, he has run out of assets to continue to fund his defense in this criminal trial, with the bulk of the proceedings, including trial, yet to occur. Defendant Lake's wife has already contributed her assets to help pay for legal fees, and he has no other source of income or support from which to pay counsel to proceed with this case. Although defendant Lake has paid his attorneys over $1.8 million for the criminal case as well as the civil arbitration and pending civil actions against him, he still owes counsel over $1.2 million.
Second, the Court found at the hearing that defendant Lake had made a prima facie showing of a bona fide reason to believe the grand jury erred in determining that the restrained assets are traceable proceeds of the charged offenses. Defendant Lake raises both factual and legal challenges to the issue of whether his right to advancement of legal fees is a forfeitable asset.
Because defendant Lake made the requisite preliminary showing, the Court granted his request for a Jones hearing, at which time the government must establish probable cause to believe that the restrained assets are in fact traceable to or derived from the underlying offense. The government offered argument, but no evidence at this hearing, and the Court took the matter under advisement.
In establishing the parameters of the Jones hearing, the Court noted that the Jones court stressed that the rules of evidence do not strictly apply, similar to TRO or preliminary injunction hearings, that the government is not required to reestablish probable cause of guilt as to the underlying offense, and that the court must take the allegations of the indictment as true for purposes of the underlying offense. Jones, 160 F.3d at 647.
Discussion
As a threshold matter, the Court notes that neither due process, nor the Sixth Amendment right to counsel, requires that assets needed to pay an attorney be exempted from restraining orders or, ultimately, from forfeiture. Rather, the constitutional requirement is simply a requirement that the district court in certain circumstances hold a hearing on the restraining order and make a determination that the assets are properly subject to forfeiture. The Court determined that due process required a hearing in this case and thus the issue now becomes whether the government made a showing of probable cause to believe that the assets in question are subject to forfeiture.
Caplin Drysdale, Chartered v. United States, 491 U.S. 617, 623-35 (1989); United States v. Monsanto, 491 U.S. 600, 616 (1989); Jones, 160 F.3d at 645-48.
Id.
In Count 40 of the Superseding Indictment, the government seeks forfeiture of an extensive list of property. At issue in these proceedings is the defendant's right to advanced payment of legal fees in this criminal proceeding by his former employer, Westar, as mandated by the company's Articles of Incorporation.
The government seeks forfeiture of the above property under the theory that the subject property is involved in or derived from a "specified unlawful activity," namely a scheme and conspiracy to commit money laundering and wire fraud. Specifically, the civil forfeiture provision found at 18 U.S.C. § 981(a)(1)(C) provides for forfeiture of property "which constitutes or is derived from proceeds traceable to" a violation of "specified unlawful activity" or a "conspiracy to commit such offense." "Specified unlawful activity" includes both money laundering under 18 U.S.C. § 1957 and wire fraud under 18 U.S.C. § 1343. Section 981(a)(1)(C) authorizes criminal forfeiture through the application of 28 U.S.C. § 2641(c), which allows for the criminal forfeiture of property based on conviction of a violation of a statute where "no specific statutory provision is made for criminal forfeiture upon conviction" of a violation of that statute.
18 U.S.C. § 982 is the criminal forfeiture provision. Although the original indictment sought forfeiture under this provision, the Superseding Indictment deletes reference to it, and proceeds solely under § 981.
The government is entitled to forfeiture of property if a nexus is established between the property being restrained and the criminal activity alleged. Defendant Lake contends that his right to the advancement of attorney's fees is not remotely "traceable to" or "derived from" the alleged money laundering transactions, from the alleged wire fraud transactions or any scheme or conspiracies to commit such violations. Instead, Lake argues that his right to the advancement of attorney's fees in the criminal case is derived from Westar's Articles of Incorporation, which obligates Westar to pay "the expenses incurred in defending any such [criminal] proceeding in advance of its final disposition . . ." This right extended to every officer and director of Westar, by virtue of Westar's Articles of Incorporation.
See United States v. Bornfield, 145 F.3d 1123, 1137-38 (10th Cir. 1998), cert. denied, 528 U.S. 1139 (2000) (forfeiture verdict vacated because jury ordered forfeiture of defendant's business bank account where money laundering charge involved only the use of defendant's personal bank account).
The standard for judging the government's showing is probable cause, which is defined as "a reasonable ground for belief . . . supported by less than prima facie proof but more than mere suspicion." The probable cause determination in forfeiture cases looks to all of the circumstances and "must be judged . . . with a common sense view to the realities of normal life."
United States v. Melrose East Subdivision, 357 F.3d 493, 505 (5th Cir. 2004) (quoting United States v. 1988 Oldsmobile Cutlass Supreme, 983 F.2d 670, 674 (5th Cir. 1993)).
Id. (quoting United States v. One Gates Learjet, 861 F.2d 868, 870 (5th Cir. 1988).
In this case, the government argues that the alleged scheme to deprive Westar of its assets began the day defendant Wittig joined Westar in 1995 and morphed into a conspiracy the day Lake joined Westar in 1998. The government argues that defendants could not vest in the right to advancement of attorneys fees until they "came on board with the proper intent," and the inferences to be drawn from the facts in the indictment are that it was defendants' intent to loot Westar from the time of their employment. According to the government, this constitutes fraud ab initio, and because defendants Wittig and Lake fraudulently assumed their employment with Westar, they should forfeit every benefit obtained from the operation of the alleged scheme and conspiracy to loot Westar of its assets. The government did not present any evidence in support of its theory that defendant Lake's right to advancement of legal fees is derived from the scheme or conspiracy to commit the underlying charges.
Examining all of the circumstances as a whole, the Court concludes that the government has not satisfied its burden, under the probable cause standard, of establishing that defendant Lake's right to advancement of legal fees in the criminal proceedings is derived from the alleged scheme or conspiracy to commit the underlying charges. Even assuming, as it must, that the underlying charges as alleged in the Superseding Indictment are true and the scheme and conspiracy date back to defendants' respective employment dates, the government has failed to provide any factual basis or evidentiary support that the right to advancement of fees was derived from the underlying charges.
Westar is authorized by Kansas law and mandated by its Articles of Incorporation to advance both defendants' legal fees for their defense in the criminal case and indemnify defendants under appropriate circumstances. Specifically, the Kansas enabling statute authorizes Westar to pay "[e]xpenses incurred by a director or officer in defending a civil or criminal action, suit or proceeding . . . in advance of the final disposition of such action, suit or proceeding . . ." Pursuant to this enabling statute, Westar's Articles of Incorporation provide:
Id.
Each person who was or is made a party . . . to . . . any action, suit or proceeding, whether civil, criminal, administrative or investigative . . . by reason of the fact that he or she . . . is or was a director or officer, of the Corporation . . . shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Kansas General Corporation Law . . . against all expense, liability and loss (including attorney's fees . . .) . . . . The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition. . . .
Article XVIII(2)(a) of Westar's Articles of Incorporation.
While Westar is contractually obligated to advance defendants' legal fees, regardless of the charges against them or the merits of their respective defenses, it is only required to indemnify defendants if they are acquitted of the charges; both defendants have signed agreements to repay Westar for fees advanced for their defense if they are not entitled to indemnification.
As defendant Lake points out, there are substantial differences between the right to advancement of legal fees for this criminal case and those for the separate civil arbitration proceedings with Westar, which are also subject to the Court's restraining order. In contrast, defendant Lake's right to advancement of legal fees for the arbitration proceedings is based on his employment agreement, which Lake concedes is potentially subject to forfeiture as alleged in the Superseding Indictment. Lake's employment contract, benefits and compensation were negotiated by Lake and Westar and are potentially subject to forfeiture because these assets would arguably be derived from the alleged scheme and conspiracy to deprive Westar of its assets.
The government has not made such a showing with respect to the right to advancement of fees in the criminal case based on Westar's Articles of Incorporation. Significantly, this contractual right to advancement of fees to defend a criminal action is mandatory and applies to all officers and directors of Westar by virtue of the Articles of Incorporation. While it is clearly tied to defendants' status as officers of Westar, there is no evidence that it is part of defendants' employment contracts, compensation or benefits, nor is there evidence that defendant fraudulently assumed or obtained this contractual right. Nor is there any evidence that this right is subject to divestment if the person became an officer or director with fraudulent intent or design. Thus, this right cannot be derived from the alleged scheme or conspiracy to commit the underlying charges.
The Court declines to hold that the right to advancement of legal fees for the criminal case predates their employment with Westar; such right clearly did not vest in defendants until their respective employment dates with the company.
Accordingly, the Court will modify the April 5, 2004 restraining order to exclude Westar's advance payment of legal fees in the criminal case. This ruling is limited to the defendants' right to advancement of attorney fees in the criminal proceedings only — the Court makes no finding as to any other asset the government seeks to forfeit in Count 40. Although this motion was brought by defendant Lake upon the requisite showing of need, the ruling necessarily shall also extend to defendant Wittig, for the Court is ruling that there is no showing that the advance payment of attorney fees for the defense of criminal charges is derived from the alleged conspiracy or scheme to defraud.
In so ruling, the Court acknowledges that the practice of corporate advancement of fees is often perceived as unjust — as in this case, criminal allegations against corporate officers often involve acts that defrauded the company by depriving it of defendant's honest services. But in a criminal proceeding, a defendant is always presumed innocent. If defendants are acquitted of the charges against them, it is difficult to conceive of an argument that would deprive them of their legal fees and expenses resulting from proceedings focusing on their conduct as officers of Westar. The defendants' contractual right to advancement and indemnification is subject to an implied reasonableness term. By accepting payments expressly deemed an "advancement," defendants necessarily acknowledge that their ultimate right to keep those payments depends on whether their respective underlying conduct is indemnifiable. If defendants' underlying conduct is not the proper subject of indemnification by Westar, defendants must repay the funds advanced to them by Westar.
Reddy v. Electronic Data Systems Corp., 2002 WL 1358761, *5 (Del.Ch. 2002) (citation omitted).
Id. Kansas law authorizes indemnification in a criminal action if the defendant had no reasonable cause to believe that his conduct was unlawful and mandates indemnification where a director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding. K.S.A. § 17-6305(a)-(c).
Reddy, 2002 WL 1358761 at *5.
Finally, defendant Lake also raises legal issues regarding the government's ability to seek forfeiture of the advanced legal fees in the criminal case pursuant to § 981(a)(1)(C) in Count 40 of the Superseding Indictment. Specifically, defendant raises issues of: 1) whether §§ 981(a)(1)(C) and 2461(c) operate to authorize a criminal forfeiture of the fruits of conspiracy to commit wire fraud not alleged to have affected a financial institution or money laundering; and 2) whether ex post facto concerns are implicated for assets acquired prior to the 2000 CAFRA enactment date. Because the Court has determined that the government has not met its probable cause burden with respect to Westar's advance payment of attorneys fees in the criminal case, it need not reach these issues with respect to that particular asset. The Court will defer ruling on these issues to the extent they relate to the remaining assets in Count 40 until such time as defendant Wittig has filed his pretrial motions with respect to the Superseding Indictment and the government has had an opportunity to respond. As previously ruled, the defendants have until August 20, 2004, to file supplemental pretrial motions relative to the Superseding Indictment; the government has until September 3, 2004 to respond. A hearing is scheduled for September 13, 2004.
The Civil Asset Forfeiture Reform Act of 2000.
IT IS THEREFORE ORDERED BY THE COURT that defendant Lake's Motion to Modify (Doc. 55) is GRANTED and the April 5, 2004 restraining order, as modified June 30, 2004, is modified to exclude the advancement of legal fees by Westar to defendants Wittig and Lake in the criminal case, including any such payments held in escrow as established by previous order of the Court. The defendants are not enjoined from transferring any payments of advance legal fees for the criminal case. The remaining provisions of the restraining order shall remain in force and effect until further order of the Court.
IT IS SO ORDERED.