New York Federal Criminal Practice

EDNY Judge Declines to Give "Self-Dealing" Jury Instruction in Honest Services Fraud Prosecution

Tue, 24 Nov 2009 08:18:46 -0500

Guest contributor Marshall Mintz writes:

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

Two Courts Decline to Limit the Reach of the Honest Services Theory of Fraud in Cases Involving Public Officials

Mon, 23 Nov 2009 08:34:59 -0500

Guest contributor Justin Sher writes:

In two recent cases involving former public officials – Joseph Bruno, the former majority leader of the New York State Senate, and Bernard Kerik, the former police commissioner of New York City – federal courts in New York declined to narrow the scope of the “honest services” theory of fraud. In United States v. Bruno, the court reaffirmed the principle that a state official may commit the federal crime of honest services fraud even if his conduct is legal under state law. In United States v. Kerik, the court ventured further by holding that a public official could commit the crime of honest services fraud by engaging in influence peddling even when the influence is directed at areas that are beyond the scope of the official’s authority. Both decisions highlight the difficulty many courts have had applying this vague and controversial statute, which Justice Scalia has described as “nothing more than an invitation for federal courts to develop a common-law crime of unethical conduct.” They also raise some of the same issues that are likely to be addressed by the Supreme Court this term in Weyhrauch v. United States.

Background on Honest Services Fraud

The honest services theory of fraud is codified in 18 U.S.C. § 1346. It provides that the federal statutes prohibiting mail and wire fraud extend to schemes that “deprive another of the intangible right of honest services.” Congress enacted section 1346 in 1988 in response to McNally v. United States, in which the Supreme Court ruled that the scope of the mail and wire fraud statutes was limited to the deprivation of tangible property rights. Since Congress’s abrogation of McNally through the adoption of section 1346, courts have struggled to define the honest services theory of fraud so that it applies to cases of clear corruption, such as those involving bribery and kickbacks, without applying to every instance of unethical or dishonest conduct.

United States v. Bruno

Facts

Joseph Bruno, the former Majority Leader of the New York State Senate, was charged with honest services fraud for failing to disclose conflicts of interest. The indictment alleged that Mr. Bruno had accepted employment that impaired his independent judgment, used his official position to secure unwarranted privileges and accepted unauthorized gifts. Mr. Bruno sought to dismiss the indictment on the grounds that the honest services statute is unconstitutionally vague both on its face and as applied. Mr. Bruno also argued that the charges violated principles of federalism because they served as a mechanism through which the federal government could regulate the ethical conduct of state officials. As part of his federalism argument, Mr. Bruno maintained that, as in other circuits, the government should be required to allege and prove an underlying state violation in order to charge a state official with honest services fraud. Finally, Mr. Bruno sought a stay pending the Supreme Court’s decision in Weyhrauch, where the Court is expected to address this very issue.

Holding

In a decision dated August 21, 2009, the court rejected all of Mr. Bruno’s arguments. United States v. Bruno, 2009 WL 2601249, No. 09 Cr. 29 (N.D.N.Y. Aug. 21, 2009). The court reaffirmed the pre-McNally rule announced in United States v. Margiotta, 688 F.2d 125 (2d Cir. 1982), that the government was not required to demonstrate a violation of a New York statute or a duty imposed by New York law in order to convict a state official of honest services fraud. The Court also held that the statute was neither unconstitutionally vague on its face nor as applied. Finally, noting that the law on these issues was “clear” in the Second Circuit and declining to speculate as to what the Supreme Court might do, the court refused to issue a stay.

Mr. Bruno’s trial is currently underway in the Northern District of New York.

United States v. Kerik

Facts

Bernard Kerik was charged with committing honest services fraud while he held the positions of Commissioner of the New York City Department of Corrections from 1998 through 2000 and New York City Police Commissioner from 2000 through 2002. The omnibus indictment also included charges, which are not relevant here, of tax fraud, mortgage fraud and making false statements to the federal government in connection with his nomination for the position of Secretary of the Department of Homeland Security.

The government alleged that Mr. Kerik used his influence as Commissioner of Corrections and subsequently as Police Commissioner, to “vouch” for XYZ Company, a construction company with ties to organized crime, in order to influence regulators and other public officials who were considering whether XYZ should be permitted to do certain municipal-regulated business in New York City. In return, Mr. Kerik received approximately $255,000 in renovations to his apartment in Riverdale.

Mr. Kerik moved to dismiss the honest services fraud on the ground that the alleged conduct – influence peddling where the public official was acting outside the context of his official duties – does not constitute honest services fraud. Mr. Kerik’s attorneys attempted to draw a “sharp distinction between the use, or even misuse, of the influence of office in activities falling outside a defendant’s official duties – which cannot support a prosecution for federal honest services fraud – and corruption in connection with the performance of a defendant’s official duties – which can.”

Holding

In a decision in May 2009, Judge Stephen Robinson acknowledged that the honest services fraud crime is “nebulous” and that the court was not the first to struggle with its scope. United States v. Kerik, 615 F. Supp. 2d 256, 263 (S.D.N.Y. 2009). In fact, the court admitted that it “desire[d] to cabin the breadth of section 1346.” Id. at 265. Nonetheless, the court determined that the indictment alleged that Kerik had used his office to vouch for XYZ Company and would not have been able to do so but for his official status. Quoting United States v. Bloom, a Seventh Circuit case, the court explained that, “misuse of office (more broadly, misuse of position) for private gain is the line that separates run of the mill violations of state-law fiduciary duty . . . from federal crime.”   Although the case “teeter[ed] on the boundaries of 18 U.S.C. § 1346,” the Court concluded that the indictment charged a colorable allegation of honest services fraud.

On November 5, 2009, Bernie Kerik pled guilty to eight felonies, including charges of tax fraud relating to his acceptance of $255,000 of renovations from XYZ Company. As part of the plea agreement, the government dropped the charges that were based on honest services fraud. Thus, while Kerik’s plea led to his release for the holidays, his case will not lead to any further clarification of the honest services fraud theory.

Conclusion

In both Bruno and Kerik, the courts declined to limit the reach of the honest services theory of fraud. As the law currently stands in the Second Circuit, a state official may be convicted of depriving citizens of their intangible right of honest services even if the official is not acting within the scope of his or her duties and even if his or conduct is perfectly legal under state law. It remains to be seen whether the Supreme Court will come out differently in Weyhrauch.

Two SDNY Judges Reject Guideline Enhancements Based on Prior Convictions

Mon, 16 Nov 2009 17:45:41 -0500

Guest contributor Eric Creizman writes:

Every defense lawyer knows that even though the mandatory Sentencing Guidelines regime is a thing of the past, the calculation of a defendant’s advisory Guidelines range remains a very meaningful component of sentencing. Although they are not bound by a defendant’s Guidelines range, courts nonetheless are instructed to “begin all sentencing proceedings by correctly calculating the applicable Guidelines range.” United States v. Savage, 542 F.3d 959, 963-64 (2d Cir. 2008). And while the Second Circuit has directed sentencing courts not to presume that a Guidelines sentence is reasonable, see United States v. Cavera, 550 F.3d 180, 189 (2d Cir. 2009), adherence to the Guidelines (and the comfort they provide) runs deep. Accordingly, although defense lawyers are not restricted as they were under the pre-Booker regime in requesting below-Guidelines sentences, many defense lawyers recognize that effective advocacy under the Guidelines is a substantial, if not the most important, part of the battle at sentencing.

One of the biggest challenges for defense lawyers at sentencing is overcoming the often-enormous Guidelines enhancements based on a client’s prior offenses. Two recent sentencing decisions in the Southern District of New York rejected such sentencing enhancements, likely sparing the defendants in those cases substantial additional prison time.

United States v. Johnson, 2009 WL 3415334 (S.D.N.Y. Oct. 23, 2009)

One frequently-litigated enhancement for prior offenses is the upward adjustment for “adult convictions” under the firearm offenses guideline as applied to Youthful Offender (“YO”) adjudications under New York state law. Although New York does not regard YO adjudications as convictions under state law, the Second Circuit has held that they may be considered “convictions” for the purposes of the federal sentencing Guidelines because under New York procedure, a defendant must first plead guilty to, and be convicted of, a criminal offense before a judge, in his or her discretion, rules that the conviction be changed to a YO adjudication. See United States v. Cuello, 357 F. 3d 162 (2d Cir. 2004). Moreover, although YO defendants are, by definition, not “adults,” the Second Circuit has held that a state’s classification of a conviction is not dispositive for the purposes of applying the enhancement under the Guidelines. Under the Second Circuit’s approach, whether a conviction was an “adult” conviction depends on whether the defendant was treated as an adult, an assessment the district court must make after examining “the nature of the proceedings, the sentences received, and the actual time served.” Cuello, 357 F.3d at 168-69.
Because YOs in New York are always adjudicated in an adult court (Supreme Court), and sentences of imprisonment are generally served in adult facilities, courts in the Second Circuit frequently have considered YO adjudications “adult convictions” for the purposes of the Guidelines enhancement. Indeed, in an unpublished opinion, the Second Circuit even upheld an enhancement for a YO adjudication which resulted in a probationary sentence on the grounds that probation is a punishment adult defendants regularly receive, and (like all New York YO probationary sentences), the defendant was supervised by a probation department that supervised adults . See United States v. Cruz, 136 Fed. Appx. 386 (2d Cir. 2006). Because the decisional law makes YO adjudications an almost can’t win proposition, only very infrequently have judges ruled in favor of the defense on this issue. For a notable defense victory, see Valle.

In United States v. Johnson, No. 09 Cr. 139 (RWS), 2009 WL 3415334 (S.D.N.Y. Oct. 23, 2009), however, Judge Sweet refused to apply the “adult conviction” enhancement based on a YO adjudication that the defendant received at the age of fourteen for a crime the defendant committed fourteen years later. In Johnson, the defendant, Jamal Johnson, was sentenced on a guilty plea to one count of possession of a firearm by a felon (18 U.S.C. § 922(g)(1)). The government argued that Mr. Johnson’s prior YO adjudication for second-degree robbery when he was fourteen years old qualified for the “adult conviction” enhancement because he served eight months in an adult prison. See Johnson, 2009 WL 3415334, at *3. Mr. Johnson, however, served the great majority of his four-year prison term for the YO adjudication in a juvenile detention facility. Id. Moreover, Judge Sweet noted that in the many cases where the Second Circuit has deemed a YO adjudication a basis for the “adult conviction” enhancement, the defendants were at least sixteen years old. Mr. Johnson’s “considerable youth at the time is grounds for excluding that adjudication in calculating his base offense level for the purposes of this sentence.” Id. at *4.

United States v. DeJesus-Quezada, No. 09-CR-628, 2009 WL 3519505 (S.D.N.Y. Oct. 28, 2009)

In United States v. DeJesus-Quezada, No. 09-CR-628 (JSR), 2009 WL 3519505 (S.D.N.Y. Oct. 28, 2009), Judge Rakoff addressed whether a conviction under foreign laws qualifies for an “aggravated felony” statutory enhancement and for a “crime of violence” guideline enhancement in sentencing for the crime of illegal reentry. There, the defendant was deported from the United States after it was discovered that he had been convicted of the Dominican analogue of voluntary manslaughter for having fatally shot his wife. DeJesus-Quezada, 2009 WL 3519505, at *1. In addressing the statutory enhancement, Judge Rakoff noted that on its face, voluntary manslaughter is a “crime of violence,” which seemingly would trigger the “aggravated felony” enhancement. Id. Judge Rakoff explained, however, that the Second Circuit requires the district court to take a “categorical approach” to determining whether the enhancement applies, which means that the specific circumstances of the defendant’s conduct are not considered; only the “minimum criminal conduct necessary to sustain a conviction under a given statute is relevant.” Id. (internal citations omitted). Although defense counsel creatively suggested scenarios where passive conduct, like starving a child, without using any force, may violate the Dominican statute, Judge Rakoff held that the “categorical approach” does not require that “all commissions of the crime require use of force, but only that there be a substantial risk of force inherent in the crime’s nature.” Id. at 2. In any event, all of defense counsel’s hypotheses would also constitute violations of New York’s first-degree manslaughter statute, which, categorically, is a “crime of violence” under the illegal reentry statute. Id.

Judge Rakoff reached a different conclusion with respect to the sixteen-level “crime of violence” enhancement under the Guidelines. Id. at 2. Unlike the statutory enhancement, the Guidelines enhancement “only relates to crimes of violence committed in violation of domestic laws.” Indeed, the commentary to the guideline provides that the enhancement applies to “offenses under federal, state, or local law.” U.S.S.G. § 2L1.2(b)(1) cmt. N.1(B)(iii). Judge Rakoff held that if the Sentencing Commission wished to include foreign crimes as a basis for the enhancement, it should have explicitly done so. Without plain language incorporating foreign crimes as a basis for the enhancement, it is reasonable to assume that the Sentencing Commission concluded that foreign convictions should not count toward the enhancement “because such convictions frequently lack the procedural safeguards typical of U.S. convictions.” Id. at *2.

Comment

Both Johnson and Dejesus-Quezada underline the importance of a defense counsel subjecting every aspect of the Guidelines calculation to scrutiny and challenge, and not simply relying solely on the sentencing factors set forth in 18 U.S.C. § 3553(a) to minimize the client’s exposure. There remain battles to be fought, and won, in determining the applicable Guidelines range. Once a favorable Guidelines range is achieved, it is the baseline from which the §3553(a) factors can be used to advocate more credibly for a sentence even farther below the sentence advocated by the government.

Second Circuit Explains its Understanding of a "Substantively Unreasonable Sentence"

Fri, 06 Nov 2009 00:14:58 -0500

A review of 2008 sentencing statistics reveals some fascinating facts: courts in the Eastern and Southern districts of New York impose non-government-sponsored below-Guidelines sentences in about a third of the cases (30% in the Eastern; 33% in the Southern) – well more than twice the equivalent departure rate nationally (13%) – but they incarcerate at a rate equal to their national counterparts. In fact, 87% of all federal offenders sentenced last year in New York’s busiest two districts were sent to prison.

In other words, as I noted on this blog two years ago, New York judges are flexing their post-Booker departure muscle to tinker with the machinery of incarceration-nation, but they are not dismantling it. Not surprisingly then, as Jay Hurst found out for us under FOIA, most of the federal prisons where New York’s sentenced offenders are serving their time, are seriously overcrowded. (e.g. Otisville FCI – Gen Pop is 57% overcapacity; Fort Dix FCI is 24% overcapacity; Lewisburg USP is 50% overcapacity; Schuykill FCI is 50% overcapacity).

But like the old joke about God sending several worldly rescue missions to the drowning man who later claimed God had abandoned him, appellate courts keep sending reminders to district judges that they do not need action from Congress or the Sentencing Commission before they can impose non-custodial sentences in most cases.

United States v. Rigas

The latest lifebelt is United States v. Rigas, 2009 WL 3166066 (2d Cir. October 5, 2009), in which the Court rejected defense arguments that the 17 and 12-year sentences imposed on Aldephia’s former executives for fraud were substantively unreasonable. (His lawyers pointed out that these sentences were only marginally shorter than some convicted terrorists.) Acknowledging that its previous definitions of “substantive unreasonableness” have given credence to an echo chamber, the Court held in Rigas that the concept is the same idea as that captured in the “manifestly unjust” standard or the “shock-the-conscience” standard – standards that “provide a backstop for those few cases that, although procedurally correct, would nonetheless damage the administration of justice because the sentence imposed was shockingly high, shockingly low, or otherwise unsupportable as a matter of law.” In other words, appellate review of the reasonableness of a sentence “necessarily places great trust in sentencing courts” and will “provide relief only in the proverbial ‘rare case.’” Or, I know it when I see it.

Comment

In case after case, the Supreme Court and the Second Circuit could not be clearer in their insistence on the centrality of the district judge’s sentencing discretion. Rigas is yet another shot of courage to judges who are dismayed by the appalling federal incarceration rate in this country. It also underlines the importance of defense counsel ensuring a procedurally sound hook for the judge’s hat at sentencing. And a reminder not to hold out too much hope if your appeal is based on the substantive unreasonableness of the sentence.

Lawyers: Stephen McAllister (Thompson Ramsdell & Qualseth); Lawrence, KS, Neal Katyal (Morgan Legal Consulting) Lawrence G. McMichael, (Dilworth Paxson, LLP) (defendants); AUSAs William Johnson, Katherine Polk Failla; Douglas Berman, Stephanos Bibas, Marc Miller, Michael O’Hear, Mark Osler, Sandra Guerra Thompson (Amicus Curiae)

EDNY Judge Assails Guidelines' Denial of Safety Valve Relief to Individuals with Minor Records

Fri, 06 Nov 2009 00:12:19 -0500

“Minimal [statistical] impact,” as Judge Weinstein points out in United States v. Feaster, 2009 WL 2757157 (E.D.N.Y. August 26, 2009), is no consolation to the individual who is impacted. Just because an inequity is infrequent doesn’t make it any less an inequity, or “is no less real and no less unfair for the few ill-fated defendants facing what can only be considered a ‘pothole on the road to justice.’” Speaking about the quirks of fate that affect one’s eligibility for the safety valve (the escape hatch from mandatory minimums in drug cases) – but in words that could address so many other quirks of inequity in the Guidelines – he concludes: “To take away years of a young man’s life based on bureaucratic rigidity under the banner of ‘criminal justice’ is an intolerable cruelty.”

Facts

Feaster pled guilty to crack distribution, and would have avoided a mandatory minimum ten-year prison sentence under the statutory “safety valve” provision but for the fact that he had three criminal history points – two of which stemmed from a 2001 disorderly conduct conviction involving dice playing when he was eighteen years old. The “safety valve” provision applies only if a defendant has no more than one criminal history point, and the Guidelines specifically preclude a sentencing judge from reducing the defendant’s criminal history score in order to make him safety-valve eligible.

Holding

Judge Weinstein concluded reluctantly that “[b]inding decisions of the Court of Appeals for the Second Circuit require denial of safety valve relief” for Mr. Feaster, so he sentenced him to the mandatory minimum120 months. He noted, however, that he would have imposed a sentence of 60 months if his hands were not tied, and he called for the Second Circuit and the Sentencing Commission to revisit the issue of minor records precluding individuals from safety valve relief. Taking to heart the Supreme Court’s call for sentencing courts to sentence an individual, he took no solace from the Commission’s 2009 study, which concluded that only “a very small percentage” of minor offenders were affected by this inequity. In addition to the lines excerpted above, he pointed out that it “also violates the fundamental statutory requirement to consider in sentencing ‘the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct.’”

Lawyers: Joseph Kilada (defendant); AUSAs David Bitkower, Elizabeth Latif, William Schaeffer

Second Circuit Reverses Two Cases Because of Improper Admission of Propensity Evidence

Fri, 06 Nov 2009 00:09:58 -0500

Evidence - even suggestions - of uncharged conduct at trial can be devastating, especially in a circumstantial case, as the Second Circuit acknowledged recently in two cases. In one, United States v. Farmer, 2009 WL 3200690 (2d Cir. October 8, 2009), the Court vacated a defendant’s attempted murder conviction where gratuitous references to his nickname “murder” “short-circuited the jury’s fact-finding” regarding a plausible defense. In the other, United States v. Williams, 2009 WL 3429594 (2d Cir. October 27, 2009), the Court vacated a conviction for gun possession where the trial judge had admitted evidence that the defendant had access to an apartment that was discovered a day after his arrest to contain, among other savory items, loaded firearms, ammunition, drugs, and bullet-proof vests. Rejecting the government’s claim that this was essential “background evidence” (it didn’t fill any “gaps in the government’s case” or add “missing pieces of the story”), the Court also rejected the argument that the evidence was relevant under Fed.R.Evid. 404(b) to prove the defendant’s “opportunity and motive” to possess a gun. Even if this was the case - and the government didn’t use it for this purpose at trial - much of the evidence “went far beyond what was necessary for this purpose.” In lines that could be applied to many motions by the government to admit the defendant’s other alleged bad acts, the Court explained:

Its admission ignored a “common sense precaution which should clearly be taken ... to limit the prosecutor’s presentation to such facts ... as are reasonably necessary to prove the point for which the evidence is admitted, and to exclude unsavory details which go beyond what is necessary to make the point.” David W. Louisell & Christopher B. Mueller, Federal Evidence § 140, at 209 (rev. ed.1985); see also United States v. Bradwell, 388 F.2d 619, 622 (2d Cir.1968) (discussing the undue prejudice that can result when the “minute peg of relevancy [is] entirely obscured by the dirty linen hung upon it” (citation omitted)).

Lawyers (Farmer): Jeremy Epstein, Seth Kean, Grace Lee, Rebecca Boon (Shearman & Sterling LLP) (defendant); AUSAs Ilene Jaroslaw, Peter Norling
Lawyers (Williams): Donald Yanella (defendant); AUSAs Justin Lerer, Jo Ann Navickas

Second Circuit Holds that Fraud Losses May Not Be Offset by Legitimate Business Expenditures

Fri, 06 Nov 2009 00:05:49 -0500

Loss calculations in white collar cases are the critical driver of the (often huge) sentences in those cases. In United States v. Byors, 2009 WL 3461584 (2d Cir. October 29, 2009), the Second Circuit interpreted a Guidelines comment addressing permissible offsets when calculating the losses of a fraud scheme. The defendant argued that offsets should include expenditures he made to “capitalize” his business, which were “services rendered” to the victim-investors. Pointing out that the plain language of the Guidelines permits offsets only for value conferred on the victim in the form of money, property or services, the Court concluded that:

Byors’s expenditures, legitimate or not, conferred nothing of value and no benefit on his victims, who were his investors and creditors. He rendered no “services” to them and failed to deliver any return on their “investment.” Accordingly, the District Court did not err in failing to treat defendant’s capitalization of his business as “services rendered” to his victims.

The case also held, as a matter of first impression in this Circuit, that obstructive conduct relating to an underlying fraud offense may be the basis of a guideline enhancement for money laundering.

Lawyers: Bradley Stetler (Stetler, Allen & Kampmann) (Defendant Byors); AUSAs Gregory Waples, Thomas Anderson, Paul Van de Graaf

Erroneous Jury Instruction on Scope of the Word "Knowingly" Leads to Reversal

Fri, 02 Oct 2009 23:54:27 -0500

Sometimes, the defense, or successful appellate argument, may lie in something as elementary as the proper reading of the charging statute. In United States v. Shim, 2009 WL 3127210 (2d Cir. October 1, 2009), for example, the defendant was charged with “knowingly transport(ing) any individual in interstate . . . commerce . . . with intent that such individual engage in prostitution...” The Court reversed her conviction, holding that the district court erred in failing to instruct the jury that to be guilty of the offense, Shim had to know, not only that she was transporting the women, but that the women were transported in interstate commerce.

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

NYSACDL's Fall Federal Criminal Practice Seminar - SDNY Courthouse 9/24

Wed, 23 Sep 2009 15:11:22 -0500

The NYSACDL is holding its Fall Federal Criminal Practice Seminar tomorrow at the Southern District courthouse from 2:00 to 5:00 p.m. With presentations on proffers, restitution and forfeiture, and innovative approaches to sentencing (not to mention 3 CLE credits), it promises to be an afternoon well-spent. More information is available here. To tie in with that program, I wrote an article for the NYSACDL's newsletter on the pitfalls of proffers. You can access that here.

Second Circuit Holds Defendant Has Right to Speedy Sentencing

Tue, 15 Sep 2009 16:12:16 -0500

In an important recognition that incarceration can undermine successful presentence rehabilitation, the Second Circuit vacated the custodial portion of a sentence on the grounds that a fifteen-year delay in sentencing violated the defendant’s right to a speedy sentence under the Due Process Clause of the Fifth Amendment. Citing more cases from the 19th Century than an opinion by Justice Scalia, United States v. Ray, 2009 WL 2616247 (2d Cir. August 27, 2009), is also notable as a precedent for the right to a speedy sentence and the Constitutional underpinnings of such a right (turns out, it does not emanate from the Sixth Amendment’s Speedy Trial Clause), and gives EDNY Judge Platt the unique badge of honor of having precipitated seminal decisions on both Speedy Trial rights (Zedner v. United States, 547 U.S. 489 (2006)) and speedy sentencing rights.

Facts

Ms. Ray was convicted of mail fraud and sentenced to 12 months. On direct appeal, her case was remanded by stipulation for resentencing. The case lay dormant for 15 years, before she was summoned for resentencing. In the interim, she raised three children, built a career, remarried, bought a home and a car, and enrolled in an associate’s degree program at a community college. Rejecting her motion for dismissal for violation of her right to a speedy sentence, and rejecting her request for a probationary sentence (which had been supported by the government), Judge Platt “keeping his own counsel,” as the Second Circuit noted, resentenced her to three years of supervised release with a special condition that she serve six months in a halfway house. She appealed claiming a violation of her speedy sentence rights.

Constitutional Right to a Speedy Sentence

The Court held that Ms. Ray’s right to a speedy sentence had indeed been violated, but in a lengthy and fascinating historical analysis into the “original meaning of the word ‘trial,’” concludes that this right emanates not from the Sixth Amendment’s right to a speedy trial – as the Supreme Court and most circuits, including the Second, had presumed – but rather, under the Due Process Clause of the Fifth Amendment. Whether a defendant has been deprived of her due process right to a speedy sentence depends on the reasons for the delay as well as any prejudice she suffered.

Reasons for the Delay

Here, the government’s admitted negligence in allowing the case to languish, weighed against it. On the other hand, since “it is not the defendant’s duty, or that of her attorney, to see that she is speedily prosecuted and sentenced,” Ray’s failure to request a sentencing would only weigh against her to the extent that she sought dismissal of the indictment. If all she seeks is a modification of the terms of her sentence, the Court saw “no reason to impose blame, fault, or responsibility on her for the delay, on the mere basis of the fact that she did not take earlier steps to be sentenced more rapidly.”

Prejudice to the Accused

For a sentencing delay to be a due process violation, the prejudice to the defendant must be “substantial and demonstrable.” Here, there was serious prejudice where “to remove [Ray] from her current life and compel her to reside for six months in a halfway house would undermine her successful rehabilitation.” Agreeing with the observations of the Eighth Circuit, the Court held “a defendant should be allowed to do his time, live down his past, and reestablish himself. Permitting a sentence to go unexecuted does not encourage rehabilitation.”

Holding

Weighing the reasons for the delay and the prejudice to Ray (which was “truly significant”), the Court concluded that “the dictates of fundamental fairness clearly compel [the Court] to conclude that Ray’s [Due Process] rights were violated.”

Remedy

The remedy the Court adopted here is also interesting. Rather than remand for resentencing, it simply vacated the custodial portion of Ray’s sentence, since that was the source of the prejudice she suffered.

Comment

Delays in sentencing are not uncommon in federal cases, and presentence rehabilitation is quite common. While the facts in this case are highly unusual and unlikely to be repeated (the Court took pains to emphasize “the narrowness of this holding”), the case is an important one on the right to a speedy sentence, the defense lawyer’s duty (or lack thereof) to enforce that right, and – of wider application – the acknowledgement that incarceration after a long period of pre-sentence release can undermine successful rehabilitation. This is especially true in cases involving first-time non-violent offenders.

Lawyers: Yuanchung Lee of Federal Defenders; AUSAs Charles Kelly and David James

Second Circuit Reverses Unsealing of Wiretap Applications in Investigation of Public Official

Tue, 15 Sep 2009 15:51:58 -0500

Does a newspaper have a right of access to wiretap applications that led to the downfall of New York’s governor? SDNY Judge Rakoff had said yes (see here), but the Second Circuit disagreed in In the Matter of the Application of The New York Times Company to Unseal Wiretap & Search Warrant Materials, 2009 WL 2526486 (2d Cir., August 20, 2009) (Spitzer II). Presenting a stark contrast to Judge Rakoff’s pro-disclosure decision, the Court reversed his unsealing order, holding that the newspaper was not an “aggrieved person” in order to satisfy Title III’s “good cause” requirement for disclosure, and that it had no First Amendment right of access to the records. The case is an important (and unfortunately restrictive) one on the right of the press to scrutinize judicial documents, and thus judicial and prosecutorial processes. It is also an important precedent for those defendants who may want to shield some of the more salacious details of their alleged wrongdoing from public voyeurism.

Facts

In lines that beg a key chicken and egg question, the Court states: “In March 2008, the government charged four people with running a prostitution ring called the ‘Emperor’s Club.’ Soon after, the news media identified Governor Spitzer as a client of the ring; Spitzer resigned his office within days.” The New York Times sought access to the applications underlying wiretap surveillance in the case, which, may have revealed the origins and motivations behind this unusual federal probe of a high-end escort service involving consenting adults and personal money. SDNY Judge Rakoff granted the Times’ motion to unseal the applications, concluding that the Times had a common law First Amendment right of access to judicial records that was coextensive with Title III’s good cause requirement for disclosure. The government appealed, and Elliot Spitzer was permitted to file an amicus brief.

Title III’s Good Cause Requirement

Under Title III, wiretap applications may only be disclosed “upon a showing of good cause.” Neither the statute nor the Supreme Court have defined the term or who may invoke it, but in NBC v. DOJ, 735 F.2d 51 (2d Cir. 1984), a case where NBC sought wiretap applications to assist its defense in a libel action, the Court held that the applicant seeking to unseal wiretap applications must be an “aggrieved person.” It reached this conclusion in part based on a statement in Title III’s legislative history, which gave as an example of “good cause” an aggrieved person’s right to suppress wiretap contents. In Spitzer II, the Court saw no reason to depart from its analysis in the NBC case. “It is irrelevant for the purposes of Title III that the Times is a newspaper investigating a matter of public importance. Like NBC, the Times does not suggest, much less show, that it is an ‘aggrieved person’ within the express terms of the statute – that is, like NBC, the Times does not claim to be a ‘party to any intercepted wire or oral communication or a person against whom the interception was directed.’”

First Amendment Right of Access

There is a qualified First Amendment right of access to judicial records in two situations. One is the “history and logic” situation, where the records have been traditionally open to the press and public, and public access helps the functioning of the process in question. The other is where the documents have been filed in connection with a judicial proceeding that can be publicly attended. In Spitzer II, the Court concluded that neither situation applied here. Wiretap applications have not been historically open to the press and public since their inception in Title III, and “the Times does not present a good reason why its preferred public policy (‘logic’) – monitoring the government’s use of wiretaps and potential prosecutions of public officials – is more compelling than Congress’s concern for confidentiality and privacy.” As for the “attendance at proceedings” approach, the press and public are not allowed to attend the ex parte, in camera proceedings where wiretap applications are presented to a district judge, and therefore can have no corollory First Amendment right of access to the sealed applications.

Comment

This case sets a very high bar for media access to wiretap applications. It’s hard not to imagine a more compelling reason for public disclosure of the submissions to a judge in support of surveillance than a now closed investigation that led to the resignation of a state governor. While one can certainly empathize with Mr. Spitzer’s desire to put this humiliating episode behind him, media scrutiny is an important check on the exercise of prosecutorial power, especially the decisions to engage in the kind of highly intrusive surveillance at issue here. But if access to wiretap applications is limited to “aggrieved persons,” it puts the fox in charge of the proverbial henhouse. As the Court has acknowledged more than once, prosecutors’ bargaining power is “awesome.” While there is no indication that their bargaining power was in any way abused in this case, prosecutors nonetheless can use this power, along with their charging discretion, to silence all the people “aggrieved” by wiretapping.

Lawyers: David McCraw and Itai Maytal of The New York Times Company; AUSAs Daniel Stein and Jesse Furman; James Brochin, Marc Falcone and Michelle Hirshman of Paul, Weiss, Rifkind, Wharton & Garrison LLP (Elliot Spitzer)

Second Circuit Remands for Supplementation of Reasons for Leadership Role Sentencing Enhancement

Sun, 13 Sep 2009 08:39:06 -0500

In United States v. Ware, 2009 WL 2512321 (2d Cir. August 18, 2009), proving that you don’t always get what you pay for, a defendant convicted after trial of securities fraud, filed a pro se appeal, and - under plain error review, no less - won himself a remand so that the district court can either explain its reasons for applying a four-level leadership role enhancement to Ware's sentencing guideline range or resentence him.

The Leadership Role Enhancement

The Guidelines provide a four-level upward adjustment under §3B1.1(a) if the defendant was an organizer or leader of a criminal activity that involved five or more participants, or was otherwise extensive. A “participant” is defined as someone who is criminally responsible for the offense, and therefore cannot include participants who were unwitting or lacked criminal intent. A leadership enhancement based on the “otherwise extensive” prong does not require that the participants be criminally liable themselves, but could be premised on a finding of less than five actual participants and the use of the unknowing services of many outsiders. The district court must make specific findings as to why a role adjustment is made, and may not simply adopt the factual findings in the PSR, if those findings are inadequate.

Holding

Here, the Court held that the district court’s findings were not specific enough. There were only four obvious criminal participants in the scheme, and the Court refused to “endorse the role enhancement on the basis of the government’s speculation as to what the sentencing judge had in mind” or on the basis of unidentified participants where there was “no indication in the record that they could be criminally liable.” In addition, it was not clear why the district judge thought the criminal activity was “otherwise extensive.” This finding could not be based simply on the period of time spanned by the criminal activity, or the mere use of wire services, two factors mentioned by the district judge in imposing the leadership enhancement.

So, the Court remanded for the district court to supplement the record with findings as to why the criteria of a leadership role enhancement were met here, or, if not, for resentencing. I wonder if Mr. Ware will use the same ace lawyer he had on appeal....

Lawyers: Ulysses Thomas Ware (pro se); AUSAs Nicholas Goldin and Andrew Fish

EDNY Judge Stands By Previous Suppression Ruling

Sat, 12 Sep 2009 00:35:10 -0500

In United States v. Matos, 2009 WL 2883054 (E.D.N.Y. September 03, 2009), the government got a do-over, but not the result it sought. After EDNY Judge Garaufis had suppressed drugs seized in a “dropsy” case, finding the testimony of the government’s witnesses “incredible,” “unfathomable” and “absurd” (see here), the government moved for reconsideration and was given permission to present the testimony of no less than six additional agents, as well as additional testimony from the two Judge Garaufis had already found incredible. The lady clearly protesteth too much . . . In this second decision, parsing the testimony like a slow motion camera – not missing the slightest inconsistency (and there were many) – Judge Garaufis refused to alter his original conclusion, concluding:

The court remains unpersuaded by the Government’s theory that the evidence against Matos was obtained through a series of fantastic coincidences: that, at the precise moment that the team decided it was necessary to seek entry to the apartment, an individual exited the residence, tossed evidence of criminal contraband in the plain view of the officers, and then invited six armed officers into the apartment – all the while spontaneously volunteering incriminating statements and substantial quantities of narcotics to the officers. The court did not find this account to be credible at the May Hearing, and the testimony presented at the Supplemental Hearing has not changed the court’s view.

Lawyers: Guy Oksenhendler, Jay H. Schwitzman (defendant); AUSA James Donald Gatta

Lawyers in the Dock: EDNY Judge Suppresses Communications Obtained in Violation of Title III’s Minimization Requirement

Fri, 21 Aug 2009 15:29:31 -0500

Behind the convictions of criminal defense lawyers Robert Simels and Arienne Irving yesterday on charges of witness tampering and obstruction of justice is a profound question: should there be different rules for the prosecution of lawyers? The Simels prosecutors thought yes, and drafted a unique protocol for the minimization of communications intercepted under a Title III warrant. EDNY Judge Gleeson disagreed. In United States v. Simels, 2009 WL 1924746 (E.D.N.Y. July 2, 2009), he suppressed the fruits of the Title III surveillance because the protocol was internally inconsistent and improperly minimized dissemination rather than the initial interception. In addition to being a detailed primer on Title III minimization issues, especially in the context of privileged communications, the decision joins its companion, discussed here, as another important landmark in the small body of jurisprudence on how (and how not) to prosecute a lawyer for an act of lawyering.

Facts

As part of an investigation into allegations that defense attorneys Robert Simels and Arienne Irving were seeking to influence witnesses in the upcoming trial of their client Shaheed Kahn, the government obtained an order under Title III permitting it to intercept communications between Simels, Irving and Kahn, in the attorneys’ visiting rooms at MCC.

Because the targets included two lawyers, the order contained two minimization provisions, both proposed by the government. The first was a standard provision, requiring the monitoring agents “to minimize the interception of communications not otherwise subject to interception under [Title III], including . . . privileged communications.” The second directed the agents to record (without listening to) all communications between Simels or Irving and their client, and provided for after-the-fact minimization by “Wall Agents” and a “Wall AUSA.”

Two meetings were recorded under the order, and only the second minimization directive was followed (in other words, the meetings were recorded in their entirety and not contemporaneously monitored). Simels and Irving were later indicted on obstruction of justice and witness tampering charges, among others. They moved to suppress the fruits of the wiretap surveillance because of a failure to minimize.

Minimization Cannot Occur After the Horse Has Bolted

Granting the motion and suppressing the communications, Judge Gleeson found that the government’s minimization efforts here were unreasonable, and the post-interception minimization procedure violated Title III. For one thing, the two minimization provisions in the order were internally inconsistent. “By definition, an agent cannot minimize the interception of communications that should not be intercepted by intercepting all communications and sorting them out later.” Moreover, while Title III permits post-interception minimization in two circumstances (where the communications are in code or in a foreign language), neither applied here.

[T]he way to avoid intercepting privileged or nonpertinent communications (as opposed to merely avoiding the unlawful dissemination of communications that should never have been intercepted in the first place) is take reasonable steps not to intercept them. Automatically recording everything, even where that is followed by a post-interception minimization protocol, virtually guaranteed the interception of communications the government should not have seized. The post-interception minimization may have closed the barn door, but the horse was already gone . . . When the government deliberately intercepts nonpertinent communications, it is no comfort to those whose privacy has been invaded that only government actors not involved in a particular criminal investigation will be listening to them.

Privileged Communications Are Not Special

The prosecutors had taken pains to avoid disseminating privileged communications, but Judge Gleeson debunked the idea that privileged communications should not be intercepted in wiretaps. “Communications undoubtedly occur that are both pertinent to the crimes enumerated in an order issued pursuant to 18 U.S.C. § 2518 and privileged under some other body of law, and nothing in Title III prohibits the interception of such communications based on their privileged status.”

Good Faith Not a Defense

Although the court found that the prosecutors’ good faith was “indisputable,” that was not relevant to the outcome. Title III has its own statutory exclusionary rule, and Judge Gleeson found “no indication in the statute that good faith is relevant to the operation of this exclusionary rule.”

Comment

In developing their ill-fated protocol, the Simels prosecutors, to their credit, recognized the serious ramifications of bugging MCC’s attorney interview rooms. But from a defense perspective, if you’re challenging the fruits of such interceptions on minimization grounds, the horse has already bolted. What is far more interesting here is what led to the wiretap authorizations in the first place: several visits to Simels’ law office by a cooperating witness wearing a wire, who proceeded to discuss defense strategy in Khan’s case with Simels and Irving. Judge Gleeson had denied Simels’ concededly “novel” motion to suppress these consensual recordings and their fruits on the grounds that the government’s use of a wired cooperator in these circumstances was unconstitutional. But the motion begs the important question of whether there should be some formal rules requiring judicial supervision before wired cooperators are deployed into a law office. Bad lawyers do not deserve special treatment, but aggressive advocacy does, and that kind of advocacy may be chilled by the kinds of highly intrusive surveillance and investigative techniques employed in this case.

Second Circuit Affirms Admission of “Other Act” Evidence; District Judge Dissents

Tue, 21 Jul 2009 11:20:47 -0500

Contributor Robert Culp writes:

Common sense would seem to dictate that a dissent by a district judge sitting by designation is a rare occurrence. Indeed, a rough calculation in the Second Circuit found some 2500 cases decided in the last five years with a district judge sitting by designation with only 14 dissents by those judges. And only three of those dissents were in criminal cases. (Apologies if the research methodology missed some.)

In United States v. Mercado, 2009 WL 2096234 (2d Cir. 2009. (July 17, 2009), Judge Droney, a district judge in the District of Connecticut and formerly the U.S. Attorney in that district, dissented from a panel affirmance on an issue of whether the district court should have admitted “other act” evidence under Rule 404(b) of the Federal Rules of Criminal Procedure and concluded the error was sufficient to warrant a new trial. This is the kind of issue where appellate judges inevitably state the importance of deference to district judges, so the prospect of a district judge sitting by designation disagreeing with two appellate colleagues on such an issue makes for interesting reading indeed.

Majority Opinion

The case is presented unusually in that the dissent is where the background and overall case description is found while the majority opinion is limited to conclusions and analysis. After rejecting an evidentiary sufficiency claim as to which there was no disagreement, the majority opinion turned to the Rule 404(b) issue. Noting applicability of the “abuse of discretion” standard, the majority turns abruptly to its conclusion that the other act evidence was admissible because it went to “knowledge and intent” and furnished background to the charges and prior dealings between the alleged conspirators. Noting that the defense in part was that defendant did not know he was participating in any drug transaction, the Court concluded that “prior gun sales” can “suggest that defendant was not an innocent pawn taken by surprise by the drug transaction.” The Court went on to conclude that the probative value of the evidence outweighed any prejudice, and that the prior gun transactions were “not especially worse or shocking than the transactions charged.” The Court also noted that the district court gave limiting instructions to the jury.

Judge Droney’s Dissent

Judge Droney wrote that while he was mindful of the “considerable deference accorded a trial court’s evidentiary rulings” and the abuse of discretion standard, he felt obligated to dissent. He then turned to what is absent in the majority opinion – the background of the Rule 404(b) proffer in the context of the case. Defendant Townsend was charged with participating in narcotics trafficking by driving principals to various locations for errands, including one where a drug transaction ensued, and by having a gun in the car at one point. The main defense in the case was that defendant in driving others on various errands was merely present and did not knowingly join any drug conspiracy, and in fact he was not paid for his role. (In fact, just such a defense persuaded EDNY Judge Sifton to grant a judgment of acquittal recently in Heras.) The Rule 404(b) evidence was that defendant had previously arranged for sale of a handgun to one of the principals, Jones – who at all relevant times for purposes of the crimes charged and the Rule 404(b) evidence was cooperating with law enforcement.

Judge Droney, detailing and distinguishing Circuit precedent, argued that the Rule 404(b) act of arranging for a gun purchase did not bear any similarity to the charge of driving others to a drug transaction allegedly with intent to join a drug conspiracy. Nor, argued Judge Droney, did it bear on the relationship between Townsend and Jones since it was undisputed that they had been friends since childhood. Judge Droney also concluded that the prejudice outweighed any probative value – that the district court concluded little more than the Rule 404(b) evidence was “no worse” than the crimes charged, and that the proffer was not at all necessary to establish any relationship between Townsend and Jones. It also concerned Judge Droney that the Rule 404(b) evidence itself grew out of the importuning of a government cooperating witness. Judge Droney also concluded that the limiting instructions by the district court were erroneous, describing the evidence as being relevant to an aspect of knowledge that was actually undisputed and mischaracterizing the relevant time period. Judge Droney concluded finally that the error was not harmless, calling the government’s case as to defendant’s knowing participation weak and based essentially on the word of a cooperator Jones whose credibility had been seriously undermined at trial.

Comment

The Rule 404(b) issues in the case alone make it a worthwhile read. A critic might find that the majority’s conclusion that the gun evidence suggested that Townsend was not an “innocent pawn” itself suggests the very character inference that Rule 404(b) is supposed to exclude – that because defendant committed a previous “bad” act involving Jones, he more likely did so as to the charged offense as well – and that the lack of similarity between the Rule 404(b) act and the charged offense disrupts any nexus to knowledge or intent. Nor, arguably, is it so easy to understand why the evidence was necessary to explain a relationship between undisputed lifelong friends, particularly where that relationship was skewed by Jones becoming a cooperating witness at the time of the events in question. But beyond Rule 404(b), the case makes for good theater because a district judge, presumably well aware of the deference accorded to trial evidentiary rulings, disagreed with his appellate colleagues about whether such deference was due here. Whether Judge Droney was more drawing his own conclusion than deferring to the trial court, or whether he was undertaking a pointed explication of why deference was not appropriate is the crux of the debate in this case.

Lawyers: Elizabeth E. Macedonio (Defendant); AUSAs Amanda Kramer and Michael Levy