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Case 3:14-cr-00293-M-BK Document 388 Filed 01/03/17

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IN THE UNITED STATES DISTRICT COURT


FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA
v.
JOHN WILEY PRICE (01)
KATHY LOUISE NEALY (02)
DAPHENY ELAINE FAIN (03)

NO. 3:14-CR-0293-M

ORDER OF SEVERANCE
Defendant Kathy Louise Nealy has filed four motions, including two motions to dismiss
the charges filed against her and two motions to suppress evidence, in which she contends that
she previously cooperated with the government in its investigation of elected Dallas city
officials pursuant to an alleged non-prosecution agreement. See Mot. [ECF #326, 328, 329, &
330]. Having reviewed the motions, which have been fully briefed and are ripe for
determination, the Court, sua sponte, severs the trial of the charges against Nealy from the
charges against Defendants John Wiley Price and Dapheny Elaine Fain.
As grounds for her motions, Nealy contends that, during the governments investigation
and prosecution of former Dallas City Councilman Donald Hill and others, Nealy cooperated
with the governments investigation and provided the government with information and
evidence, including her testimony, pursuant to an agreement with the government that she
would not be prosecuted. According to Nealy, the government broadly agreed that it would not
prosecute her for her testimony or conduct, and it would not charge her with any crime. It is
undisputed that the government stated it would not prosecute Nealy, but the government never
memorialized any non-prosecution agreement in writing, despite having a policy that

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prosecutors should create a written record setting forth the terms of any non-prosecution
agreement. See United States Attorneys Manual, 9-27.650. A key issue raised by the briefing
is the scope of the undocumented non-prosecution agreement.
As evidence of a broad non-prosecution agreement, Nealy points to an exchange
between the Court and trial counsel, on August 7, 2009, when the government called Nealy as a
witness in United States v. Donald W. Hill, Case No. 3:07-CR-289-M: 1
THE COURT: Does this witness have immunity?
AUSA #1: She has not been charged with anything.
THE COURT: I think the answer to my question is she does not
have immunity.
AUSA #1: Why [sic] type of immunity are you asking about?
THE COURT: Whatever type you have given her. Has the
government given the witness an agreement of immunity from
prosecution?
AUSA #1: I have told the witness myself she is not going to be
charged with any offense related to her testimony or conduct.2
THE COURT: Is that in writing?
AUSA #1: What I said to her is not in writing. I dont know what
was told to her before, and I have never visited with Mr. Ravkind
about this.
THE COURT: Mr. who?
AUSA #1: Ravkind initially represented her years ago.
THE COURT: What Im asking is if I have to give the witness
Fifth Amendment warnings during her testimony?
1

This Court presided over the Hill trial.

The Court uses bold italics to emphasize those portions of the record that lend support to its
determination regarding the breadth of the non-prosecution agreement.

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AUSA #1: No, your Honor. Shes not going to be charged. Im


going to bring that out in her testimony.
THE COURT: Does she have counsel here in the room?
AUSA #1: Not that Im aware of.
THE COURT: So youre telling the Court that she is not going to
be prosecuted so that the Court does not have to concern itself
with giving any Fifth Amendment warnings to the witness?
AUSA #1: Thats correct.
THE COURT: Except for perjury.
AUSA #1: Absolutely. I dont know if the defense is going to
inquire into some unknown line of conduct with her, but
THE COURT: Well, since I dont have an immunity agreement,
its difficult for me to know the extent of what you have agreed is
not prosecutable, which is going to make it difficult for me to know
when I have to give her a Fifth Amendment warning, because I
wont know if anything that the defense asks her about that might
be subject to prosecution is covered by an agreement of immunity.
AUSA #1: I dont know if they have anything.
DEFENSE COUNSEL: I wonder perhaps if outside the jurys
presence we can examine her about the extent of the
communications shes had concerning
THE COURT: No.
AUSA #2: Judge, just one point. All of that, the extent and scope
of the verbal agreement is going to be a matter of record.
THE COURT: Thats why Im not going to allow it to be done
outside the presence of the jury. It may be that later there is a
reason to do it, and once its developed, if any of the defense
attorneys are going to ask questions that you feel might expose
the witness to criminal liability that you do not know is
encompassed by the agreement, then I need to be alerted to it,
because I would have no way of knowing that in advance. I may
not understand the relationship between something that you are
developing, and what they have given her immunity on. So youre
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going to have to alert me to that, and Ill make a judgment as to


whether I need to give her any warnings.
Trial Tr., Case No. 3:07-CR-289-M, vol. 21, 106-09.
The government points to other testimony in the record that the scope of the immunity
granted to Nealy was much narrower, and covered only Nealys conduct related to her
involvement in an alleged scheme by former Councilman James Fantroy to engage in bribery
with housing developer Bill Fisher. During her testimony about that alleged scheme, the
government questioned Nealy about her potential criminal liability and the governments
statement that it would not prosecute her:
AUSA #1: What Im trying to get at, Ms. Nealy, is your exposure
to criminal charges based upon everything that you knew after all
this happened. Okay. And you continued to move forward and
meet with council members and get the project approved anyway.
*

Have you been told by me, if not other members of the United
States Attorneys Office that there were -- let me ask this.
What concerns were you told by me or others about the
possibility of you being charged in a criminal case?
NEALY: That I would not be charged in a criminal case.
AUSA #1: But there was some?
NEALY: There was -- going through this process I realized that
by Mr. Fantroy continuing to talk to us and to make
recommendations going forward, that that was illegal.
AUSA #1: In some of your meetings early with the United States
Attorneys Office who represented you on the matter?
NEALY: My attorney?
AUSA #1: You had an attorney, correct?
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NEALY: Yes.
AUSA #1: Who was that?
NEALY: Billy Ravkind.
AUSA #1: But you know now that youre not going to be
charged with anything?
NEALY: Yes.
AUSA #1: You know that nobody in that room, Bill Fisher is not
going to get charged. You know that?
NEALY: (No response.)
AUSA #1: Mr. Fantroy did not get charged for that?
NEALY: Right.
AUSA #1: But you are just aware there was that issue out there,
that exposure?
NEALY: Yes.
Trial Tr., vol. 21, 150-51.
The government also points to Nealys testimony on cross-examination to support its
argument that the alleged non-prosecution agreement was much narrower than Nealy maintains:
DEFENSE COUNSEL #1: Now, in your direct examination you
talked about -- and I think that Mr. Meacham termed it your
exposure to criminal charges. Its your understanding that youre
not going to be charged?
NEALY: Right.
DEFENSE COUNSEL #1: With any kind of crime?
NEALY: Yes.
DEFENSE COUNSEL #1: I want to explore that a little bit. There
are -- do you know what kind of immunity you have been given in
this case?
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NEALY: (Witness shakes head back and forth.)


DEFENSE COUNSEL #1: There are two kinds of immunity and I
want to describe each of them and ask you which one you have
been promised by the government.
NEALY: I havent been promised anything.
*

DEFENSE COUNSEL #1: Did the government tell you that


regardless of what you say in the courtroom, other than if you lie,
perjury, theyre not going to prosecute you for any acts that you
have committed, or that they say you have committed?
NEALY: I dont understand what you are talking about the way
you phrase it. Can I elaborate a little?
DEFENSE COUNSEL #1: Sure. Im trying to find out exactly
what they promised you.
NEALY: I mean, I get confused when you talk about promises.
Let me just put it like this. Regarding Mr. Fantroy and what
happened with Mr. Fantroy as far as from that meeting that we had,
when we were talking and he recused himself, I didnt know until
after we were having a conversation with the FBI that that could be
perceived as illegal. Okay? Thats number one.
Then the U.S. Attorneys Office said to me were not going to
prosecute you, youre not going to be prosecuted.
DEFENSE COUNSEL #1: Okay.
NEALY: That was it.
DEFENSE COUNSEL #1: All right. And is testifying in this trial
today part of the agreement you made not to be prosecuted?
NEALY: I agreed to tell the truth.
DEFENSE COUNSEL #1: But you also agreed to testify?
NEALY: Yes.
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DEFENSE COUNSEL #1: To tell the jury


NEALY: The truth.
DEFENSE COUNSEL #1: -- your version of what happened?
NEALY: Yes.
Trial Tr., vol. 21, 261-63. Counsel for another defendant elicited additional testimony
regarding the extent and scope of the alleged verbal non-prosecution agreement:
DEFENSE COUNSEL #2: You didnt get charged with a crime
in this case? I think thats what you told this jury. Is that right?
NEALY: I was never being charged for a crime.
DEFENSE COUNSEL #2: Thats exactly right, because Mr.
Meacham told you verbally that you didnt have to worry about
that. Is that fair? Is that what he told you?
NEALY: (No response.)
DEFENSE COUNSEL #2: This -- Mr. Meacham, did he tell you
that?
NEALY: The other day he did.
DEFENSE COUNSEL #2: But he didnt put that in writing? Is
that in writing somewhere?
NEALY: No, I was never being charged with anything, sir.
Trial Tr., vol. 21, 202.
The government further relies on a statement by a different government attorney
during a telephone conference with the Court months earlier. On May 7, 2009, counsel for
the government told the Court that the government intended to call Nealy as a witness, and
stated we have not extended her immunity as it relates to the conduct of the Potashniks or
Don Hill. Def. App. at 21. The government further explained that:
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[W]e have told Ms. Nealy that she will not be prosecuted for her
conduct involving James Fantroy, former council member
James L. Fantroy. Its not a subject of this indictment. It was a
part of [a] larger investigation. He was not charged in this
particular case. So we have informed her that her conduct as it
relates to council member Fantroy, who is now deceased, will
not be prosecuted.
Id. Nealy was not a party in the Hill case, and thus neither Nealy, nor any attorney
representing her, participated in the May 7, 2009, telephone conference.
The Court finds that it is, at least, uncertain as to whether the government agreed to
give Nealy broad, general immunity before August 7, 2009, the date of her testimony in the
Hill case. However, it is clear, given what the government said in response to the Courts
questioning, that the government entered into a verbal non-prosecution agreement with Nealy,
pursuant to which she testified, and that the scope and extent of that agreement is broader than
the government now contends, and, in fact, is as stated on the record on August 7, 2009, at the
Hill trial. Throughout the course of Nealys testimony, which was by no means limited to her
conduct involving Councilman Fantroy, the government never advised the Court that any
subject had arisen as to which Nealy did not have immunity. Had the government not
answered the Courts questions the way it did, the Court would have advised Nealy of her
Fifth Amendment rights as to subjects as to which Nealy was not given immunity.
The Court stated at a hearing on December 22, 2016 (for which a transcript is now
available and docketed as ECF # 386) that the government granted Nealy broad immunity.
As a result of that finding, the Court must determine what the government knew on August 7,
2009, about facts related to the prosecution of Nealy in this case. That can only be done if the
government produces documents and testimony which relate to the governments knowledge,
as of August 7, 2009, of facts underlying this prosecution. That would necessitate review by
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the government of its full investigative file and attorney file, and production of materials to
Nealys counsel and/or the Court for reviewa process that would inevitably be time
consuming and would likely result in the filing of many motions regarding the scope of the
necessary production. Because the outcome of that review could determine the scope of a
broad agreement not to prosecute Nealy, that determination would have to be made before
trial. This case is set for trial in less than two months, on February 21, 2017, and the Court
and all the parties have been diligently proceeding to trial.
The Court believes that a severance will preserve Nealys rights to argue that the
non-prosecution agreement covers some or all of the counts asserted against her in this case,
and will inconvenience the government only to the extent that certain counts are determined
not to have been immunized. Some of those may require that the government duplicate effort
to pursue those counts against Nealy and the other two defendants in separate proceedings.
The Court has weighed the inconvenience to the government flowing from the potential
duplication of effort against the due process rights of Nealy not to be prosecuted for matters
as to which the government has agreed not to prosecute her. On balance, Nealys due process
rights outweigh the governments interests in trying Nealy with the other defendants. Thus,
the Court determines that the trial of Nealy should be severed from that of Defendants Price
and Fain. Fed. R. Crim. P. 14(a). 3
The Court defers the governments obligation to produce discovery to Nealy
regarding what it knew on August 7, 2009 about facts related to the prosecution of Nealy for

Rule 14(a) supports the Courts discretion to order a severance. Fed. R. Crim. P. 14(a) (If the joinder of
offenses or defendants in an indictment, an information, or a consolidation for trial appears to prejudice a
defendant or the government, the court may order separate trials of counts, sever the defendants trials, or
provide any other relief that justice requires.)

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the matters alleged in this case, until after the trial of Defendants Price and Fain. Based on
the relief granted herein, the Court denies as premature the four motions filed by Nealy based
on a non-prosecution agreement with the government. See Mot. [ECF #326, 328, 329, &
330]. Those motions may be reasserted in connection with the hearing to be scheduled on the
governments knowledge, as of August 7, 2009, as it relates to the scope of the non-prosecution
agreement.
The government has filed a motion asking the Court to reconsider the decision it
announced on December 22, 2016, that the governments non-prosecution agreement with
Nealy is broad, and for an evidentiary hearing. See Mot. [ECF #384]. The Court notes that it
considered the evidence put before the Court by the government when it found that the
governments agreement with Nealy is broad, and further notes that the government did not
seek an evidentiary hearing when the issue was briefed, until its motion for reconsideration.
If the Court decides to reconsider its determination that the non-prosecution agreement is
broad and that an evidentiary hearing on that subject is appropriate, that hearing will occur
after the trial of Defendants Price and Fain, at the same time as any hearing regarding what
the government knew on August 7, 2009, about facts related to the prosecution of Nealy in
this case. The filings related to this subject, consisting of Nealys motions based on the nonprosecution agreement, the governments response thereto, and its supporting appendix,
Nealys reply, the transcript of the December 22, 2016 conference, and the governments
motion to reconsider, are hereby unsealed. The combined appendix to Nealys motions will
be unsealed on January 6, 2017.

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SO ORDERED.
Dated: January 3, 2017.
______________________________
BARBARA M. G. LYNN
CHIEF JUDGE

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