TIMOTHY P. GREELEY, Magistrate Judge.
Defendant Karl F.W. Monkemeyer is charged with theft of government property in violation of 18 U.S.C. § 641. The matter before the undersigned is Defendant's "Motion to Dismiss on Statute of Limitations Grounds." (ECF No. 40). The Government responded (ECF No. 47), and Defendant replied (ECF No. 51). For the reasons stated below, the undersigned recommends that Defendant's motion to dismiss be granted in part and denied in part.
The parties agree that the facts in this case are "largely undisputed." In the 1970s, Defendant served in the United States Army. On May 28, 2009, Defendant filed an initial claim for disability with the Department of Veteran Affairs ("VA"). The initial claim paperwork submitted by Defendant included an official DD — 214 form, which indicated that Defendant received an honorable discharge in 1972. Defendant was subsequently granted an 80% disability rating and received an initial retroactive payment of $16,430.00 on April 6, 2010. After this initial payment, Plaintiff began receiving disability payments on a monthly basis that were directly deposited into his bank account.
On October 26, 2011, during an administrative review of Defendant's file, the VA noticed an apparent "pen-and-ink alteration" on Defendant's DD — 214 form. Shortly thereafter, the VA obtained a "clean" copy of Defendant's DD — 214 form, which revealed that Defendant was discharged "under conditions other than honorable." Following a short investigation, the VA sent Defendant a letter on February 8, 2012 notifying him of the proposed termination of his benefit payments effective June 1, 2009. The letter also informed Defendant of his right to request a hearing to present evidence against the proposed termination, as well as his ability to suspend disability payments pending any final decision. Defendant requested a hearing, and a hearing was held on October 30, 2012. On June 12, 2013, the VA determined that Defendant's discharge was under other than honorable conditions and Defendant's benefits were terminated. Defendant has appealed the VA's decision and the appeal is still pending.
On March 15, 2017, a grand jury returned an indictment charging Defendant with one count of theft of government property in violation of 18 U.S.C. § 641. The indictment alleged that "[b]eginning in or about July 2009 and continuing until in or about June 2012" Defendant "did willfully and knowingly steal, purloin, and convert to his own use money of the United States Department of Veterans Affairs, a Department of the United States, of a value exceeding $1,000, namely, disability benefits of approximately $142,284.00." (ECF No. 1).
Defendant has moved to dismiss the indictment as barred by the statute of limitations. He is charged under the first paragraph of 18 U.S.C. § 641, which in pertinent part provides: "Whoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any . . . money, or thing of value of the United States or of any department or agency thereof . . . [s]hall be fined under this title or imprisoned not more than ten years, or both." The applicable statute of limitations for an offense charged under § 641 is five years. See 18 U.S.C. § 3282 ("Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed.").
Generally, "[t]he statute of limitations begins to run when a crime is complete, that is, when each element of the crime charged has occurred." United States v. Grenier, 513 F.3d 632, 636 (6th Cir. 2008). However, an exception exists when the crime is a "continuing offense." Toussie v. United States, 397 U.S. 112, 114 (1970). A continuing offense "is not complete for statute of limitation purposes until the proscribed course of conduct is completed or discontinued." United States v. Reese, 254 F.Supp.3d 1045, 1048 (D. Neb. 2017) (citing United States v. Jacob, 781 F.2d 643, 648 (8th Cir. 1986)). "The hallmark of the continuing offense is that it perdures beyond the initial illegal act, and that `each day brings a renewed threat of the evil Congress sought to prevent' even after the elements necessary to establish the crime have occurred." United States v. Yashar, 166 F.3d 873, 875 (7th Cir. 1999) (quoting Toussie, 397 U.S. at 122). Common examples of continuing offenses include conspiracy, kidnaping, and escape. Id.
The issue in this is case is whether Defendant is charged with a continuing offense.
The Sixth Circuit has not addressed whether an offense under § 641 can constitute a continuing offense. United States v. Tackett, 2011 WL 4005347, at *4 (E.D. Ky. Sept. 8, 2011). The starting point for the undersigned's analysis is Toussie v. United States, 397 U.S. 112 (1970). In that case, the Supreme Court established a two-part test to determine whether a crime constitutes a continuing offense. Id. at 115. A crime qualifies as a continuing offense if "[1] the explicit language of the substantive criminal statute compels such a conclusion, or [2] the nature of the crime involved is such that Congress must assuredly have intended that it be treated as a continuing one." Id. The Court began its opinion by discussing the purpose of the statute of limitations:
Id. at 114-15. Based on these principles, the Court determined that the "doctrine of continuing offenses should be applied in only limited circumstances." id. at 115, and that "continuing offenses are not to be too readily found," id. at 116. The Court then applied the two-part test to the offense of failing to register for the draft and determined that it did not constitute a continuing offense. Id. at 120-23. The Court reasoned that "there is no language in [the registration] Act that clearly contemplates a prolonged course of conduct," id. at 120, and "there is also nothing inherent in the act of registration itself which makes failure to do a continuing crime," id. at 122.
Although the Sixth Circuit has not yet addressed whether an offense under § 641 constitutes a continuing offense, several other federal courts have weighed in and are divided on the result. United States v. Reese, 254 F.Supp.3d 1045, 1048 (D. Neb. 2017) (collecting cases). Defendant asks the Court to adopt the Seventh Circuit's approach in United States v. Yashar, 166 F.3d 873 (7th Cir. 1999), in which the court determined that embezzlement can never constitute a continuing offense. Even though Yashar involved a different embezzlement statute, courts have applied its reasoning when determining that § 641 cannot constitute a continuing offense. See, e.g., Reese, 254 F. Supp. 3d at 1050; United States v. Henrikson, 191 F.Supp.3d 999, 1004 (D.S.D. 2016); United States v. Bundy, 2009 WL 902064, at *9 (D.Me. Mar. 31, 2009). In Yashar, the defendant allegedly received $9,223 from the City of Chicago for work that he did not perform between September 1, 1991 and September 1, 1992. 166 F.3d at 875. The government charged the defendant with violating 18 U.S.C. § 666, "which makes it a federal crime for an agent of a local government or agency to embezzle, steal, obtain by fraud, or otherwise misapply property of that government or agency that is valued at more than $5000, during any one-year period in which the local government or agency receives federal benefits in excess of $10,000." Id.
Id. The Seventh Circuit also determined that the government's approach would "transform the limitations period from a check on governmental delay in prosecution to a function of prosecutorial discretion." Id. at 879.
The Government requests that the Court adopt the Fourth Circuit's approach in United States v. Smith, 373 F.3d 561 (4th Cir. 2004). Under this approach, a passive embezzlement scheme under § 641 could be considered a continuing offense depending on the facts of the specific case. Id. at 568. In Smith, the defendant's mother received monthly social security benefits, which were directly deposited into a joint checking account. Id. at 563. After she passed away, the defendant failed to report her death and continued to collect her benefits from March 1994 to February 1998. Id. In January 2003, the defendant was indicted on one count of embezzlement in violation of § 641. Id. To determine whether the defendant was charged with a continuing offense, the Fourth Circuit focused on the definition of embezzlement, explaining that "[e]mbezzlement is the type of crime that, to avoid detection, often occurs over some time and in relatively small, but recurring, amounts." Id. at 567 (citations omitted). The Fourth Circuit then determined that § 641 was a continuing offense,
Id. at 567-68. Applying this rule, the Fourth Circuit determined "that the specific conduct at issue [in the case was] more properly characterized as a continuing offense rather than a series of separate acts." Id. at 568. However, the Fourth Circuit further narrowed its holding by stating that not all embezzlement should be treated as a continuing offense and that in some instances the offense may be properly characterized as a series of acts that occurred over time. Id.
In the opinion of the undersigned, the Court should adopt the Seventh Circuit's approach and hold that that an offense under § 641 can never constitute a continuing offense. This approach is consistent with the Supreme Court's statements that the continuing offense doctrine should be applied narrowly and that continuing offense are not to be readily found. Applying the two-part Toussie test, (1) the text of the first paragraph of § 641 does not indicate that it is a continuing offense, and (2) the nature of the offense does not suggest that Congress must have intended it to be a continuing offense. If Congress intended for some offenses under § 641 to be considered a continuing offense, "it should have spoken in language that is clear and definite." Toussie, 397 U.S. at 122 (citation omitted).
In addition, the Fourth Circuit's approach is inconsistent with two-part Toussie test. As stated above, the Supreme Court instructs lower courts to apply a two-part test when determining whether an offense is a continuing offense. The court must look at the language of the statute and the nature of the substantive offense. But, in the opinion of the undersigned, the test does not permit a court to delve into a case-by-case analysis, looking at the defendant's specific conduct in each situation. "[W]hether an offense is continuing in nature does not change depending on the manner in which the offense is committed." United States v. Smith, 373 F.3d 561, 569 (4th Cir. 2004) (Michael, J., dissenting). If the Court adopted the Fourth Circuit's approach, the date the statute of limitations began to run would change depending on whether the defendant physically deposits a check at a bank or whether the defendant has the money directly deposited into his bank account. The Fourth Circuit's approach would also allow the Government's charging decision to alter the statute of limitations. The Seventh Circuit demonstrated this problem in the following hypothetical:
United States v. Yashar, 166 F.3d 873, 879 (7th Cir. 1999) (footnote omitted).
The Smith decision is not faithful to the Supreme Court's decision in Toussie:
United States v. Powell, 99 F.Supp.3d 262, 266 (D.R.I. 2015). One commentator has aptly identified the problem with the Court's analysis in Smith. See Jeffrey R. Boles, Easing the Tension Between Statutes of Limitations and the Continuing Offense Doctrine, 7 Nw. J.L. & Soc. Pol'y 219, 235-46 (2012); see also Andrew P. O'Shea, Note, Criminal Law—An Embezzlement Intermezzo: Scheming to Side-Step Toussie v. United States's Continuing Offense Test, 35 W. New Eng. L. Rev. 249, 260-69 (2013).
It should also be noted that finding that the offense is not a continuing offense does not place an unreasonable burden on the Government—especially in this case. The VA learned of Defendant's alleged criminal conduct in 2011 and began the process to terminate Defendant's benefits in February 2012. Defendant's benefits were officially terminated in June 2013. It is unclear why the Government waited until March 2017 to secure an indictment.
In addition, the reasoning in Smith does not necessarily apply to this case because Defendant is not charged with "embezzlement" under § 641. In Smith, the Fourth Circuit focused on the definition of embezzlement and relied on the fact that embezzlement often occurs over a period of time. 373 F.3d at 567-68. But in this case the indictment charges Defendant with stealing, purloining, and converting to his own use. The Government contends that "embezzlement is simply the fraudulent conversion of the property of another by one who already possesses it." (ECF No. 47, PageID.86). This is correct, but conversion is broader than embezzlement and encompasses other acts. See Morissette v. United States, 342 U.S. 246, 272 (1952) ("It is not difficult to think of intentional and knowing abuses and unauthorized uses of government property that might be knowing conversions but which could not be reached as embezzlement, stealing or purloining."). And, unlike embezzlement, conversion does not generally occur over a period of time. In the opinion of the undersigned, there is nothing inherent in the nature of conversion which would indicate that Congress intended it to be a continuing offense.
Finally, although the undersigned finds that Defendant is not charged with a continuing offense, the indictment cannot be dismissed in its entirety. The indictment in this case alleges conduct that occurred between July 2009 and June 2012. The grand jury returned the indictment on March 15, 2017. Thus, the alleged conduct occurring after March 15, 2012 is still within the five-year statute of limitations. In its brief, the Government states that Defendant received payments on March 30, 2012, May 1, 2012, and June 1, 2012. In the opinion of the undersigned, these three payments cannot be dismissed based on the statute of limitations.
Accordingly, the undersigned recommends that Defendant's motion to dismiss be granted as the criminal activity that occurred before March 15, 2012 and denied as to the criminal activity that occurred after March 15, 2012.
NOTICE TO PARTIES: Objections to this Report and Recommendation must be served on opposing parties and filed with the Clerk of the Court within 14 days of receipt of this Report and Recommendation. 28 U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b); W.D. Mich. LCivR 72.3. Failure to file timely objections constitutes a waiver of any further right to appeal. United States v. Walters, 638 F.2d 947 (6th Cir.1981); see also Thomas v. Arn, 474 U.S. 140 (1985).
