SANCTIONS DROPPED ON APPEAL
COURT REVERSES DISTRICT JUDGE'S ORDER AGAINST FEDERAL PROSECUTORS

By Steve Miletich P-I Reporter

Friday, November 12, 1993

Section: News, Page: D8

Two federal prosecutors in Seattle shouldn't have been sanctioned by a federal judge in a case involving a Kirkland attorney convicted of tax and fraud charges, a federal appeals court has ruled.

A three-judge panel of the 9th U.S. Circuit Court of Appeals reversed a decision by U.S. District Judge Thomas Zilly, who last year sharply admonished federal prosecutors John Carver and Carl Blackstone after ruling they had failed to provide in a timely fashion evidence favorable to the defendant.

Zilly, in an action unprecedented in recent memory, ordered the government to pay costs incurred by the defense to independently locate the evidence.

The attorney, John M. Woodley, was convicted last year of defrauding the Internal Revenue Service, Medicare and Medicaid of $560,000 in a scheme that involved the $20 million fortune of a dead client.

Woodley was sentenced to 30 months in prison for tax and mail fraud, and ordered to pay about $330,000 in fines, taxes and restitution.

The charges stemmed from Woodley's role as a trustee of the estate left by Elizabeth A. Lynn of Medina in 1984. He was convicted of stealing stock from Lynn's estate, donating it to her charitable trust and taking an illegal $90,000 tax deduction.

He also was found guilty of illegally inflating rents at a Nevada nursing home controlled by Lynn's trust, costing the government $470,000.

In addition to reversing the sanctions order, the appeals court upheld Woodley's conviction.

The court said there was no legal basis for the monetary sanctions because federal prosecutors have immunity from economic penalties.

The U.S. Attorney's Office said the court noted that Zilly had found no pervasive pattern by the prosecutors of withholding evidence. The court also found that Woodley had not been prejudiced.

Zilly said their conduct fell ``below the standards" expected of prosecutors in his court.

Woodley's attorney, Peter Byrnes, said the appeals court concluded the prosecutors engaged in misconduct but that it was powerless to do anything because of the immunity rule.

``The message by the 9th Circuit is that government lawyers can't be sanctioned but that private attorneys can," Byrnes said, calling it a ``double standard."

He said no decision had been made on whether to ask the court to reconsider the decisions on the sanctions and conviction.

Zilly's sanction order prompted an unusually pointed reply from then-U.S. Attorney Mike McKay. He said last year that the decision was ``erroneous and inappropriate" and that Zilly was wrong on the facts and his understanding of criminal discovery in the federal system.

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