Recently in the Jury Instructions category:
Fraud based on the “deprivation of honest services” is a controversial charge likely to elicit some notable rulings from the Supreme Court this term, as noted here. In particular, the cases of Jeffrey Skilling and Conrad Black may produce decisions that reign in the reach of honest services fraud in the context of private businesses, two varieties of which have been identified by the Second Circuit in United States v. Rybicki: cases involving bribes or kickbacks, and cases involving self-dealing. Bribery/kickback cases need no introduction. Self-dealing cases, on the other hand, usually involve the defendant causing his employer to do business with a corporation or enterprise in which the defendant has a secret, undisclosed interest. In Rybicki, the Second Circuit adds that "[i]n the self-dealing context, though not in the bribery context, the defendant's behavior must [.] cause, or at least be capable of causing, some detriment – perhaps some economic or pecuniary detriment – to the employer.”
This distinction is at issue in United States v. Demizo, 2009 WL 2163099 (EDNY July 20, 2009), where the defendant was convicted after trial of securities fraud and making false statements. Because EDNY Judge Gleeson concluded, however, that there was no factual predicate to treat the case as a self-dealing one, he declined to defendant’s requested jury charge on the issue of detriment. The case also includes an interesting discussion on the issue of permitting the defendant to introduce at trial a statement the government made in a brief under the "admission of a party opponent” rule.
Refusal to Charge:
Relying on the Second Circuit’s decision in United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003), the court rejected the argument that the jury should have been instructed that the fraud involved self-dealing as opposed to kickbacks, and the government was therefore required to prove a possible detriment to the employers.
Assuming the validity of the legal argument, the court deemed any such instruction inappropriate because the defense “failed to identify any evidence in the record that could permit the jury to find that this was a self-dealing case.” As the Second Circuit has suggested, self-dealing involves a situation where the defendant causes the employer to do business with a corporation or other enterprise in which the defendant has a “secret interest.” That term has not been defined, but the relevant cases all involve defendants who had undisclosed ownership interests in those entities and Demizio “did not argue that the record showed he had such a cognizable interest in the firms to which he steered his employer’s business.”
The court also rejected the defense’s argument that the case involved self-dealing because the government alleged a conflict of interest because, “every fraud case, including the kickback scheme at issue in Rybicki, involve a conflict of interest in that every individual has a personal interest in pocketing a kickback while every employer has an interest in hiring people who eschew such conduct.”
Refusal to Admit a Statement from a Government Brief
The defense also argued that it should have been permitted to introduce into evidence a government pre-trial brief submitted in opposition to a request for a bill of particulars, reasoning that statements made by an attorney concerning a matter within his employment may be admissible against the represented party.
The court explained that while the Second Circuit has previously considered the admissibility of statements made in a bill of particulars and opening statements made by defense counsel at a previous trial and found that, while not inadmissible per se, policy concerns weigh against allowing such statements to be admitted as admissions by a party-opponent. Against that backdrop, Judge Gleeson reasoned that because the brief was a legal memoranda and not a formal pleading, it was merely an assertion about the charges in the indictment – which is a charge of the grand jury – and could not properly be deemed a statement by the government .
Finally, rejecting the claim that the brief was evidence that the government had changed its theory during the trial, the court found the assertion irrelevant “to any factual issue submitted to the jury” and, in any event, the probative value was substantially outweighed by the risk of confusion.
Attorneys: David Spears, Charlita Mays (Spears & Imes LLP) (defendant); AUSA’s Winston Chan, Kelly T. Currie, Winston Paes
Quoting the Supreme Court’s decision in Flores-Figueroa v. United States, 129 S.Ct. 1886 (2009), the Court explained “[i]n ordinary English, where a transitive verb has an object, listeners in most contexts assume that an adverb (such as knowingly) that modifies the transitive verb tells the listener how the subject performed the entire action, including the object as set forth in the sentence.”
Yes, I didn’t follow that either on first reading. My translation: the word “knowingly” modifies all the elements of a criminal statute. Except when it doesn’t – take note of Justice Alito’s Potter Stewart caveat in Flores-Figueroa, that there may situations where the context of the statute dictates a different result. But let’s leave prosecutors make that argument.
Lawyers: Susan Wolfe, Hoffman & Pollok, LLP (defendant); AUSAs Elie Honig and Andrew Fish
Continuing a streak of notable decisions in this circuit on the evidence necessary to establish knowledge and intent in conspiracy cases (including Murray Law LLC’s reversal in Lorenzo, and also reversals in Kapelioujnyj and Wexler), EDNY Judge Sifton has granted a motion for a judgment of acquittal to a defendant convicted after trial of participation in a drug conspiracy, and aiding and abetting drug distribution. United States v. Heras, 2009 WL 1874373 (E.D.N.Y. June 29, 2009), makes the important (and not always obvious) point that knowledge is not the same thing as intent, and reminds us of that great principle: “If the evidence viewed in the light most favorable to the prosecution gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence, then a reasonable jury must necessarily entertain a reasonable doubt.”
Facts
Nelson Heras had driven Simon Correa, a/k/a Luichi, a known drug dealer, and an acquaintance of Correa’s to a hotel. During the ride, Correa and his companion openly discussed Correa’s plan to pick up drugs at the hotel, something Heras later admitted overhearing. Correa entered the hotel, whereupon he was arrested in a controlled delivery operation. Heras and the companion, who remained in the minivan in the parking lot, were also arrested. Upon being told that “a serious federal crime had been committed involving the importation of narcotics,” Heras stated “Whoa, whoa ... Whatever happened up there, that has to do with Simon. That has nothing to do with me,” and “This is ... Luichi’s deal.”
Holding
Granting Heras’ motion for a judgment of acquittal on both the conspiracy and aiding and abetting convictions, Judge Sifton pointed out that these two specific intent crimes required that “the purpose - not merely the effect - of the defendant’s participation in the crime was to distribute narcotics.” Noting that “the prosecution made little attempt to argue that the evidence established the element of intent, focusing instead on the issue of knowledge,” the Court held that knowledge that Correa was picking up drugs or that he Correa was a drug dealer was not the same as knowledge of any plan on Correa’s part to distribute drugs, much less the equivalent of Heras “knowingly join[ing] and participat[ing] in it or promot[ing] the venture himself.” Moreover, once evidence was introduced of Heras’ “innocent explanation” prefaced with the words “whoa, whoa,” the jury could no longer presume that Heras intended to bring about the ordinary consequences of his actions. “When faced with an innocent explanation sufficiently supported by the evidence to create a reasonable doubt about the defendant’s guilt, the Government’s burden is to present evidence sufficient to dispel that doubt.”
Whoa, now that’s a decision worth noting!
Lawyers: Justine Harris, Federal Defenders of New York, Inc. and Justin Levine, Seijas & Levine (defendant); AUSA Andrew Goldsmith
The tragic tale of Peter Polizzi has now generated another notable decision on the power of a district court to instruct a jury about mandatory minimum sentences. The Second Circuit has just issued its decision on the appeal and cross-appeal from Judge Weinstein’s huge decision, previously blogged about here. In United States v. Polouizzi, 2009 WL 1098796 (2d Cir. April 24, 2009), the Court rejected Judge Weinstein’s holding that Polizzi had a Sixth Amendment right to have the jury instructed on the five-year mandatory minimum sentence applicable to the charge of receiving child pornography. Importantly, however, the Court also held that a district court “has discretion to instruct the jury on applicable mandatory minimum sentence in some circumstances.” In addition, the Court found several Double Jeopardy violations with regard to Polizzi’s multiple convictions for receipt and possession of multiple images of child pornography. As a result, on remand, there may be a path that could rescue Mr. Polizzi from the five-year mandatory minimum sentence Judge Weinstein and several of the jurors found so abhorrent in his case.
Jury Instruction Regarding Mandatory Minimums
As readers of this blog will recall, Judge Weinstein vacated Polizzi’s twelve convictions for receipt of child pornography, concluding (in a case of judicial remorse) that he should have granted the defendant’s request to have the jury instructed about the five-year mandatory minimum sentence carried by these convictions. (A conviction of possession of child pornography carries no mandatory minimum sentence.) The Second Circuit held that Judge Weinstein had erred in holding that denying this request had violated Polizzi’s Sixth Amendment right to trial by an informed jury. In a decision that is not surprising, the Court pointed out that Judge Weinstein’s holding was foreclosed by its own precedent. Whether the Supreme Court in Booker effectively changes that precedent “is a decision we must leave to the Supreme Court.”
What is surprising is the Court’s rejection of the government’s position that a district court may never instruct a jury regarding a mandatory minimum sentence. Rather, the Court held, “the law does not support such an absolute prohibition.” It goes on:
Without attempting to define the boundaries of a district court’s discretion in this regard, we recognize the possibility, as the [Supreme] Court in Shannon did, that circumstances may exist in which instructing the jury on the consequences of its verdict will better ensure that the jury bases that verdict solely on the evidence and will better discourage nullification.
Moreover, the court also reaffirmed that “jurors have the capacity to nullify,” although it’s not something judges should encourage.
Finally, the Court left open the possibility that in a case like Polizzi’s (a non-violent offender who had been abused as a child, and who in middle-age, engaged in passive consumption of child pornography), an instruction about the mandatory minimums may have been appropriate: “[i]n this case, it is not necessary to decide whether it would have been within the district court’s discretion to inform the jury of the applicable mandatory minimum sentence.” The Court pointed out that Judge Weinstein had exercised his discretion not to give this instruction, and “[a] trial court’s failure to take discretionary steps that might have induced jurors to nullify does not furnish an adequate justification for a finding under Rule 33 that ‘the interest of justice ... requires’ a new trial.”
Needless to say, this is going to inspire some very interesting litigation on the issue of advising juries of applicable mandatory minimum sentences, especially in cases involving mandatory minimums that yield startlingly unjust results, like in Polizzi’s case, or cases that produce an effective life sentence (e.g., Ballard).
Double Jeopardy Issues
The Court’s rulings on the Double Jeopardy issues are also notable, and could lead to some tangible results for many defendants, including possibly Polizzi.
First, the Court ruled that multiple possession convictions relating to a collection of pornography possessed on one date violated the Double Jeopardy Clause. “Based on the clear language of the statute, we conclude that Congress intended to subject a person who simultaneously possesses multiple books, magazines, periodicals, films, video tapes, or other matter containing a visual depiction of child pornography to only one [child pornography possession] conviction.” Accordingly, it directed the district court on remand to vacate all but one of the possession convictions. (This conclusion has no practical effect vis a vis mandatory minimums, since possession of child pornography does not carry a mandatory minimum sentence; but it does affect the ability of those rare judges who want to stack consecutive sentences in these cases.)
Second, the Court ruled that multiple receipt convictions arising out of one instance of downloading violated the Double Jeopardy Clause: “the rule of lenity requires the conclusion that a person who receives multiple prohibited images in a single transaction can only be charged with a single [receipt] violation.” Here, the record did not establish “whether Polizzi’s receipt of multiple images on any one of these dates reflected a single simultaneous transfer or discrete and distinct transfers” and as such, the “record would appear to support Polizzi’s conviction on [only] four receipt counts – one for each date on which he received images – but not multiple receipt counts per day.”
Third, the Court highlighted without deciding the issue of whether the crime of possession of child pornography is a lesser included offense of the crime of receipt of child pornography. Both the Third and Ninth Circuits have ruled that it is “because receiving an item necessitates taking possession of it.” (Notably, in United States v. Miller, 527 F.3d 54, 73 (3rd Cir.2008), the Third Circuit held that on remand, the district court was free to decide which of the convictions – possession or receipt – to vacate.) The Second Circuit noted it found the reasoning in these cases “persuasive” but declined to decide the issue here, because it viewed Polizzi’s case factually distinguishable due to the fact that he had been convicted of possession counts that did not have a receipt counterpart. (I believe, however, that the dispositive issue may be whether Polizzi was convicted of receipt counts that have no possession counterpart.)
Polizzi’s Fate
On remand, it would appear that Judge Weinstein must go through several steps to comply with the Court’s ruling and eliminate the Double Jeopardy problems in this case.
First, assuming he accepts the Second Circuit’s analysis that the record does not support more than four receipt convictions, he must reinstate only four of the twelve receipt convictions - one for each date upon which images were downloaded. Supreme Court precedent gives Judge Weinstein discretion which ones to reinstate.
Second, he must decide as a matter of first impression in this Circuit the issue of whether possession is a lesser included offense of receipt, since the Circuit declined to do so here.
Third, assuming he answers that question affirmatively, he must discount either a possession or a receipt conviction, where two such convictions relate to one downloaded image. Hopefully, that analysis permits him to discount all of the receipt counts.
Finally, he must discount all but one of the possession counts remaining.
If Judge Weinstein conducts his analysis in the order I have set forth here, Polizzi may have a shot of ending up with only one conviction for possession of child pornography and avoiding any mandatory minimum sentence – a resolution that would be eminently just and appropriate in this case.
At the heart of the two decisions, implicitly in Cuellar and explicitly in Santos, is disquiet with the “merger problem,” that is, where the underlying illegal activity merges with money laundering by virtue of concealment or expenditure of the money generated. As all Justices recognized in Santos, it is the rare crime that doesn’t involve some payment of expenses associated with the commission of the crime. And the same can be said about concealment. While the Court rejected the narrow definition of money laundering advocated by the defense in Cuellar – that it should be limited to those classic money laundering situations where illegal proceeds are given the appearance of legitimate wealth – the Court expressed concern in Santos that an expansive definition of money laundering gives extraordinary power to prosecutors to induce plea bargains. As Justice Scalia comments in his majority opinion (and is no surprise to defense lawyers in New York’s district courts): “Prosecutors . . . would acquire discretion to charge the lesser offense, the greater money-laundering offense, or both – which would predictably be used to induce a plea bargain to the lesser charge.”
Catapano
The merger problem is explored in United States v. Catapano, 05 CR 229 (SJG), 2008 WL 4107177 (E.D.N.Y. August 12, 2008), where the defendants were charged with two frauds, one involving bribes to representatives of public utility companies and another involving false statements to procure New York City construction contracts. The defendants moved to dismiss the money laundering charges they faced under Santos, claiming that the money laundering charges alleged transactions based on mere receipts not profits. The court denied the motion, holding that even if Santos’s proceeds/profits analysis applied beyond the gambling context (an issue that is by no means certain), the indictment here was facially valid and therefore could not be challenged based on the quality or adequacy of the evidence. (This is of course totally accurate, but how cost- and time-effective it would be to root out weak cases through some kind of judicial review of the grand jury process, as happens in the state system, but that’s another blog piece . . . ).
The court nonetheless went on to address the merits of the argument, since the government had provided a summary of the evidence it planned to present at trial – essentially that the defendants used the proceeds of the corruptly or fraudulently obtained contracts to perpetrate more crimes through the payment of additional bribes. In other words, “the defendants conspired to conduct transactions with the profits derived from completed crimes in order to commit new ones.” Unlike an ongoing gambling operation, the bribery scheme involved several discrete acts of wrongdoing. Accepting the government’s proffer as true, the court found that the “merger problem” identified in Santos does not arise here.
Lawyers: Michael Rosen (Law Office of Michael Rosen), Diarmuid White (White & White), Peter J. Driscoll (Driscoll & Redlich), Jason W. Kreiss, Melvyn K. Roth, for Defendants. AUSA Charles Kleinberg
Diaz
In United States v. Diaz, 04 Cr. 1353 (KMW), 2008 WL 4387209 (S.D.N.Y. September 12, 2008), in the context of a motion for a judgment of acquittal, the defendant argued that there was insufficient evidence to satisfy the concealment purpose of the statute, where the defendant established a bank account called “Fine Quality Shipping,” into which money was deposited and then transferred to the Dominican Republic. Judge Wood held, however, that concluding concealment was a purpose of these bank records was not unreasonable: here, “a reasonable jury could find a sophisticated and complex financial scheme intended to do more than simply send money from New York City to the Dominican Republic undetected by law enforcement authorities.”
Ness
In United States v. Ness, 01 Cr. 699 (AKH), 2008 WL 3842961 (S.D.N.Y. August 15, 2008), in the context of a motion for bail pending appeal, the court addressed whether evidence presented at the defendant’s money laundering trial was sufficient to establish the concealment element in light of Cuellar. Ness had run an armored carrier business that transported valuables internationally, along with millions of dollars in narcotics proceeds, commingled with jewelry and other packages of valuables. Finding no “close question” likely to result in reversal or a new trial, the court noted that the transportation was designed to conceal or disguise three aspects of the funds at issue: the “nature” of that which was being transported, its “location” among the valuables that Ness was allowed to transport and move from one airplane to another at JFK airport, and the fact that its “source” was ecstasy distributions.
Mercedes
In a summary order in United States v. Mercedes, 283 Fed.Appx. 862 (2d Cir. 2008), the Court indicated that Cuellar did not disturb its previous circular holding (delivered, coincidentally, in a prior ruling in the highly litigated Ness case) that if transactions were part of a “highly complex and surreptitious” process, one can infer that they “had been designed in a way that would conceal the source of the moneys.” In Mercedes the “highly complex and surreptitious” process consisted of a “highly secretive” process of transferring money, and the storage of narcotics proceeds in saran-wrap in an apartment, along with “money laundering ledgers, a money-counting machine, and a record detailing the amounts of the narcotics proceeds.” Other than the “money laundering ledgers,” whatever they are, this doesn’t sound that different from the highly surreptitious method of concealment at issue in Cuellar: a hidden compartment in a vehicle, surrounded by animal hair. But the paucity of facts here make this an unhelpful indicator of where the Second Circuit will go in interpreting Cuellar.
Lawyers: Mary Anne Wirth (Bleakley Platt & Schmidt, LLP) for appellant. AUSAs Amy Lester, Assistant, Celeste L. Koeleveld.
Transparency International points out that “[b]ribery may be so much a part of a business culture in some places, that dealing with it can seem an over-whelming challenge, and no one business, especially a small one, can fight it alone.” The non-profit organization publishes a Corruption Perceptions Index, which ranks 180 countries based on perceived levels of corruption, with Denmark, Sweden and New Zealand scoring the highest (or cleanest) at 9.3 and Iraq scoring among the lowest at 1.3. Azerbaijan, the country at issue in a fascinating Foreign Corrupt Practices Act (FCPA) case, United States v. Kozeny, 05 cr 518 (SAS), 2008 WL 4658807 (October 21, 2008), scores close to Iraq, at 1.9. The score effectively means that it’s close to impossible to do business in Azerbaijan, especially lucrative business involving Azerbaijan’s oil resources, without paying bribes and kickbacks.
FCPA Focuses on Payment not Payer
At issue in Kozeny was whether one of the defendants could avail himself of the affirmative defense under the FCPA relating to payments that “are lawful under the written laws and regulations” of the country. Azeri law criminalizes the payment of bribes, but relieves the briber of responsibility if he had been extorted or if he subsequently reported it. The defendant – accused of bribing Azeri officials involved in the privatization of the State Oil company – argued that both circumstances existed here, and therefore the payments he made were lawful under Azeri law. Judge Scheindlin disagreed, pointing out that “[f]or purposes of the FCPA’s affirmative defense, the focus is on the payment, not the payer.” The question is whether the payment was illegal under Azeri law. If it is, then the fact that the payer may be “relieved” from criminal responsibility by Azeri law is immaterial. “[T]here is no immunity from prosecution under the FCPA if a person could not have been prosecuted in the foreign country due to a technicality (e.g., time-barred) or because a provision in the foreign law ‘relieves’ a person of criminal responsibility.”
FCPA Does not Apply to “True Extortions”
All is not lost for this defendant, however. The court went on to say that he may nonetheless be permitted to argue at trial “that he cannot be guilty of violating the FCPA by making a payment to an official who extorted the payment because he lacked the requisite corrupt intent to make a bribe.” Here, the court makes a distinction between bribes that are exacted to commence a business relationship and “true extortions” – analogous to acts of coercion that exact payments under duress – which occur after the business relationship is up and running. Quoting the legislative history of the FCPA, the court held that
[W]hile the FCPA would apply to a situation in which a “payment [is] demanded on the part of a government official as a price for gaining entry into a market or to obtain a contract,” it would not apply to one in which payment is made to an official “to keep an oil rig from being dynamited,” an example of “true extortion.” The reason is that in the former situation, the bribe payer cannot argue that he lacked the intent to bribe the official because he made the “conscious decision” to pay the official. In other words, in the first example, the payer could have turned his back and walked away - in the latter example, he could not.
If the defendant provides an evidentiary foundation for the claim that he was the victim of “true extortion,” the court concluded that it will instruct the jury that “true extortion” negates the “corrupt intent” required under the FCPA.
Comment
The case appears to be one of first impression addressing the issue of extortion of the defendant in an FCPA prosecution. And it raises intriguing questions. The FCPA criminalizes payments made to corruptly obtain or retain a business. While the absence of an extortionate situation may be readily apparent in the context of a bribe paid to enter a market, the situation is by no means clear-cut when it comes to staying in a market. At what point does a payment made to retain business stop being simply a bribe and become an extortionate payment akin to a ransom to save one’s oil rig? When does the payment stop being a “conscious decision” and become one from which the payer could not “turn his back and walk away?” If one voluntarily paid a bribe to enter a corrupt market, does one forfeit the claim that subsequent bribes were products of “true extortion?” These questions have important ramifications for individuals and entities doing business in countries with a low CPI score, where corruption is endemic not just in the business and political realms, but also in law enforcement.
Lawyers: Dan Webb, Esq., James Reich, Jr., Esq. (Winston & Strawn LLP) (defendant); AUSA Harry Chernoff
Today, in a footnote, the Second Circuit has discarded a troubling principle – the concept that once a conspiracy has been established, “only slight evidence” or evidence that is not “overwhelming” is necessary to link another defendant to it. In United States v. Huezo, 07-0031-cr, 2008 WL 4553150 (October 14, 2008), in a decision authored by Judge Walker and circulated to the entire Court prior to filing, the Court held that this formulation should no longer be part of its case law, explaining:
[It] risks misleading not only jurors but district and appellate courts reviewing post-verdict challenges as to the sufficiency of the evidence. The “slight evidence” formulation may lead juries and reviewing courts improperly to focus on simply the quantity of evidence of a defendant’s participation in a conspiracy rather than the quality of that evidence (whether quantitatively extensive or limited) viewed in the context of the particular conspiracy at issue. The relevant inquiry - and the determinative inquiry - is not whether a particular quantum of evidence has been presented but whether the evidence that has been adduced establishes, in the mind of a reasonable juror, the defendant’s guilt beyond a reasonable doubt.
Judge Newman’s thoughtful concurrence appeared to have spearheaded the critical footnote. He points out that in a form of judicial telephone [updated 10/16/08], the formulation was repeated in case after case, but “in the course of repetition, important qualifications have been omitted,” such as the requirement that “the prosecution must sufficiently prove the defendant’s participation beyond a reasonable doubt” and “even though the quantity of evidence connecting the defendant to the conspiracy might be slight, the persuasive force of that evidence must nonetheless be substantial [enough] . . .to establish the element beyond a reasonable doubt.”
The irony of the decision is that the evidence connecting Huezo to the conspiracy was slight indeed. This was a money laundering prosecution, and the defendant’s role consisted primarily of driving individuals engaged in a money laundering scheme in his car as they made deliveries of suitcases containing money, and placing a bag containing $6,000 under the driver’s seat of the vehicle. There was no direct evidence that he observed or was told of the contents of the suitcases or the bag, or that he participated in any discussions regarding the money laundering scheme. While the Court ultimately found the evidence sufficient – relying on part on the defendant’s travel plans, his association with the other individuals, and his security-guard like activities – and thus reversed the trial court’s post-verdict judgment of acquittal, it is noteworthy that of the four judges to review the sufficiency of the evidence, two found it lacking.
As Judge Sotomayor points out in a compelling dissent, citing the Supreme Court’s recent decision in Cuellar v. United States, 128 S.Ct. 1994 (2008):
While each piece of circumstantial evidence discussed by the majority may be probative to some degree of Huezo’s guilty knowledge that he was involved in something illegal, the evidence in its totality is insufficient to demonstrate beyond a reasonable doubt that Huezo knew that the transactions in which he participated were designed to launder the proceeds of illegal activity . . . Delivering suitcases containing money . . . is common not only to money laundering . . . The majority fails to recognize that evidence of [ ] knowledge [of a money laundering purpose] must be something more than mere presence at the exchange or delivery of concealed money.
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