Divided appeals court says lawyer can't sue Indiana prosecutors over embezzlement charges, statements

By Dan Churney | Dec 15, 2016

A Chicago federal appeals panel, in a partial 2-1 decision, cited tort immunity in upholding the dismissal of a Michigan lawyer’s suit against county and state officials in Indiana, for an allegedly malicious prosecution of her in an embezzlement case. 

The Dec. 8 decision was penned by Circuit Judge Diane Sykes in the U.S. Seventh Circuit Court of Appeals, with concurrence from Senior Circuit Judge Kenneth Ripple. Circuit Judge Richard Posner partly dissented. The Chicago-based Seventh Circuit takes in Illinois, Indiana and Wisconsin. 

Sherry Katz-Crank is a lawyer with expertise in cemetery management. Katz-Crank had a client, Robert Nelms, who was charged with stealing $22 million from cemetery trust funds in Marion County, Ind., while Katz-Crank was representing him. Nelms was charged with embezzling, and Katz-Crank, with aiding and abetting the embezzlement. The case was investigated by the Indiana Secretary of State’s Office, with charges instituted by the Marion County Prosecutor’s Office. Indianapolis is the Marion County seat. 

Nelms ended up pleading guilty and agreeing to testify against Katz-Crank. After a jury trial in late 2010, Katz-Crank was acquitted. In 2012, Katz-Crank sued Marion County, as well as state and county prosecutors and investigators, in U.S. District Court for Southern Indiana, alleging they conspired to maliciously prosecute her, abused court process and violated her constitutional rights. 

Katz-Crank also leveled the claim state and county officials made "false and inflammatory" public statements about her. These statements were allegedly uttered by a state investigator – before Katz-Crank was charged – who told some of her clients of the investigation and recommended they not do business with her. Other statements were through press releases disseminated by the prosecutor and secretary of state after charges were filed. 

Katz-Crank contended the officials ruined her professionally, leaving her impoverished. At one point in the case, she asked, and was permitted to proceed as a pauper. 

The suit was dismissed on grounds Katz-Crank failed to show how her allegations squared with constitutional doctrines, and because she did not overcome the wall of tort immunity that protected prosecutors. Katz-Crank then appealed. 

The Seventh Circuit backed up the lower court's conclusions, saying Katz-Crank didn't specify how she was singled out for unwarranted prosecution. As an example, Circuit Judge Sykes said Katz-Crank made no effort to show how the Indiana Secretary of State or his investigators caused the allegedly underhanded prosecution to be instituted.

“Katz-Crank hasn’t bothered to identify the basis of her federal claims other than pointing very generally to the Fourth and Fourteenth Amendments,” Sykes observed. 

In Sykes’ view, the only “close call” when it came to possibly upsetting the lower court’s ruling, was Katz-Crank’s allegations she was defamed. Sykes noted such claims, if true, are not blocked by immunity. However, Sykes decided the claims still failed, because Katz-Crank did not point to any specific false statements. Rather, Katz-Crank tied the statements to the alleged conspiracy to violate her rights, but the conspiracy allegation sank for lack of a stated claim, taking the defamation allegations with it. 

Sykes went on to say the alleged harm to Katz-Crank’s reputation is not enough for Katz-Crank to argue her right to due process was breached. 

For Circuit Judge Posner, the defamation question was more than a close call; it was reason to overturn the dismissal and reinstate the lawsuit. 

Posner explained that Sykes looked at defamation from the vantage of its possible impact on due process and Katz-Crank's trial, which is moot in that Katz-Crank was found not guilty. Instead, Posner said the issue should revolve around possible injury to her professional reputation. Posner noted prosecutors may enjoy immunity, but investigators – such as the one who allegedly tarnished Katz-Crank – do not. 

Posner said the suit should go ahead on the sole allegation the investigator damaged Katz-Crank’s name. 

Katz-Crank has been represented by the firm of Blanco Wilczynski PLLC, of Troy, Michigan.

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