Sunday, August 28, 2011

Big Brother Listens To Big Sister

United States v. Rodriguez, No. 10-2724-cr (2d Cir. August 25, 2011) (Miner, McLaughlin, Pooler, CJJ)

While detained at the MDC, Rodriguez called his sister and asked her to tell their brother to contact Rodriguez’ attorney so that they could discuss whether he should “cop out” before being indicted. He indicated that the sooner he spoke with his attorney the better, and that they should tell the lawyer to tell the prosecutor that he wanted to plead guilty to the “five-to-40" drug charge in the complaint.

The district court found that the call was not covered by the attorney-client privilege because Rodriguez knew that the BOP was recording it. It allowed the government to play the recording at Rodriguez’ trial, and the circuit affirmed.

First, the court had to decide on a standard of review. Whether the attorney-client privilege applies is reviewed de novo, while a finding that it has been waived is reviewed for abuse of discretion. Even though the district court seemed to look at the issue one of application, on appeal Rodriguez framed the issue as one of waiver. Accepting this, and noting that the question “involves the application of the attorney-client privilege as our case law has already developed it to the novel set of facts before us” and did not “require us to address the scope of the privilege itself in a novel way,” the court reviewed only for abuse of discretion.

Here, it found none. “[O]n the basis of the undisputed fact that Rodriguez was aware that his conversation was being recorded by BOP, Rodriguez’s disclosure to his sister of his desire to engage in plea discussions with his attorney was not made in confidence and thus constituted a waiver of the privilege.” Rodriguez did not claim that he had no way to reach out to his attorney directly, and under BOP regulations, that call would not have been monitored. Accordingly, he could “just as easily” have contacted his attorney directly to discuss his options in confidence.

Rodriguez’ second argument was based on Fed. R. Evid. 410, which privileges statements made in the course of plea discussions. The court made short work of this, noting that the rule only covers discussions with “an attorney for the prosecuting authority.” While the district court did not rule on this issue, the circuit found the inapplicability of Rule 410 to a conversation with one’s sister to be so clear that it did not remand for a ruling.


This is a disturbing precedent, not because it seems incorrect, but because of its policy implications.

On the government’s part, it seems fairly short sighted to use conversations like this against defendants at trial, since the practice might deter incarcerated defendants from taking whatever steps are in their limited power to resolve the case quickly. Any action of the government that might chill the speedy resolution of criminal cases through plea negotiations would seem to be inadvisable.

On the court’s part, the decision seems to take very little account of the difficulties of prison life. Inmates at the MDC have limited mobility, restricted funds, irregular access to telephones and a limited number of “minutes” per month. Even though Rodriguez did not claim that these obstacles restricted his ability to contact his counsel directly, they most likely - at least to some degree - informed his choice to seek to contact counsel through a family member.


Have Guns, Will Travel

United States v. Nadirashvili, No. 08-4211-cr (2c Cir. August 23, 2011) (Winter, Pooler, Hall, CJJ)

Six-defendant appellants appealed their convictions in a wide-ranging firearms conspiracy that had both international and domestic components. One part of the activity involved trafficking in “foreign defense articles” - here, grenades, warheads, missiles and launchers, amongst other things - under 22 U.S.C. 2278(b), and the other part involved domestic firearms trafficking under 18 U.S.C. § 922(a)(1)(A). Apart from one sentencing glitch, the circuit affirmed.

The opinion contains two interesting discussions of statutory requirements that the criminal activity involve those who are “in the business” of weapons dealing.

First, two defendants argued that there was insufficient evidence to support their § 922(a)(1)(A) convictions because they were aware of only a single gun transaction, and the evidence did not show that they knew the seller was engaged in the business of trafficking in firearms. The court agreed that the statute requires proof of “more than just a single sale of weapons,” since the statute uses the phrase “engaged in the business” of dealing in firearms and defines this as involving their “repetitive purchase and resale.” But the evidence is sufficient under this section where a seller holds himself out as a source of firearms who is ready to procure them for his customers. The evidence supported this, albeit barely, since while “[p]erhaps not every rational trier of fact would” convict on the evidence here, at least some might, and that was enough.

Next, the court considered - and rejected - an “as applied” vagueness challenge to 22 U.S.C. 2278(b)(1)(A)(ii), which covers “engag[ing] in the business of brokering activities with respect to ... any defense article.” Brokering includes any action that “facilities the manufacture, export, or import of a defense article.” While the court suggested that there might be “ambiguity at the outer reaches” of this definition - perhaps merely providing information about prices and availability might be problematic - here the challenge failed, since the defendant’s activities clearly fell within its intended scope.

Finally, the court agreed that, for one defendant, the district court used the wrong evidentiary standard for certain sentencing enhancements. The court applied a preponderance standard but, this case was governed by the conspiracy guideline, § 2X1.1(a). This section provides that for a conspiracy that is not covered by a specific offense guideline, the court should apply the base offense level from the guideline for the substantive offense, plus any adjustments from that guideline for “any intended offense conduct that can be established with reasonable certainty.” Since the offense level adjustments in guideline section 2K2.1(b) “make no mention of a conspiracy,” the court should have applied the “reasonable certainty” standard instead of the preponderance standard.


Gone To Pot

United States v. Celaj, No. 10-2792-cr (2d Cir. August 22, 2011)(Miner, Cabranes, Straub, CJJ)

Din Celaj headed a crew that would rob - or try to rob - drug dealers. When successful, they would obtain drugs, which they would themselves sell, money and firearms.

He went to trial on several Hobbs Act robbery and associated 924(c) counts, was convicted, and received a 601-month sentence. On appeal, he made a sufficiency claim as to the jurisdictional element of the Hobbs Act counts where the goal was to steal marijuana. He did so despite entering into a stipulation at trial that “marijuana is grown outside of the state of New York and travels in interstate and foreign commerce to arrive in the New York City area.” The circuit affirmed.

The court began by surveying the area. In Parkes, see "Government Has No Evidence; Court Deems It Sufficient," posted September 23, 2007, the court found the evidence sufficient
even though there was no specific evidence about the origin of the marijuana that was stolen, where there was evidence that the object of the robbery was a “small but going” marijuana enterprise, the theft netted several bags of marijuana and $4,000 in cash, and an expert testified that marijuana is typically trucked in through Mexico and very little is grown in New York. By contrast, in Needham, see "Reefer Gladness," posted May 23, 2010, the court found the evidence - which was limited to the amount of money obtained - insufficient since there was no proof that the marijuana sold by the robbery victims had either originated or been sold out of state.

“Guided by” these cases, the court concluded that the evidence here “achieve[d] the same effect as the evidence offered in Parkes,” which was sufficient. There, the “key evidence” was the expert testimony. Here, the stipulation conveyed “the same information about the interstate nature of the marijuana trade.” And, unlike Neeham, there was more evidence than just drug money, because Celaj had made statements that he was in the business of stealing marijuana and selling it.

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Saturday, August 27, 2011

PC World

United States v. Echeverry, No. 10-2828-cr (2d Cir. August 19, 2011) (Winter, Parker, Chin, CJJ) (per curiam)

The facts of this latest per curiam could have been pulled straight from a law school exam. During an ongoing narcotics conspiracy, Echeverry and his accomplice attempted to recover stolen narcotics from a third person; they possessed and brandished a gun but, during the incident, the intended victim grabbed it and discharged it, wounding the accomplice.

The issue was whether Echeverry should get the seven-year brandishing § 924(c) sentence or the ten-year discharge § 924(c) sentence. The district court gave him the longer sentence, holding that if a defendant possesses a firearm during a drug-trafficking offense he is responsible for a subsequent discharge of that firearm, no matter who fires it.

The circuit affirmed. The statute provides that the enhanced sentence applies “if the firearm is discharged,” and “does not require that the firearm be discharged by the defendant.” In addition, the recent Supreme Court case, Dean v. United States, which held that the discharge enhancement applied when the gun went off accidentally, controls. The use of the passive voice in the statute indicates that the statute focuses “on an event that occurs without respect to any specific actor.” Thus, a defendant “need not directly cause a discharge to be subject to the firearm-discharge enhancement.”


Crew Bayou

United States v. Marino, 09-1965-cr (2d Cir. August 18, 2011) (Jacobs, Winter, McLaughlin, CJJ)

Matthew Marino was at the margin of the Bayou Hedge Fund Group disaster - a Ponzi scheme that defrauded its investors of more than $300 million. The fund was opened in 1996 by two principals, who hired Marino’s CPA brother, Daniel Marino, to keep its books. This defendant, Matthew Marino, was hired by Bayou in 2002 and over the next three years took steps to help perpetuate and conceal the fraud. The scheme came crashing down in 2005, and the principals, including Marino’s brother, all pled guilty to fraud charges.

Appellant Marino, on his part, pled to one count of misprision of felony, covering his actions between January and August of 2005, a period during which investors lost $60 million in the Bayou scheme. He received a twenty-one month prison sentence. This appeal concerns only his challenge to the $60 million restitution order. In this very long decision - the slip opinion runs to nearly thirty-two pages - the circuit rejects Marino’s claim that he was not the “direct and proximate” cause of that loss.

The restitution statute that the court applied to Marino, 18 U.S.C. § 3663A, defines a “victim” as “any person directly and proximately harmed as a result of” the commission of the offense. According to the circuit’s review of the legislative history, Congress included this causation standard as a way of avoiding complex restitution litigation that might unduly prolong the sentencing proceedings.

Applying this standard here, the circuit concluded that Marino’s actions constituted both direct and proximate causation.

Marino’s knew of, failed to report, and helped conceal the Bayou fraud during 2005. Had Marino disclosed the fraud, no investor would have injected fresh cash into the scheme. Accordingly, his crime was a “cause in fact” - a direct, “but for” cause - of those losses. And it was not merely “speculative” for the circuit to assume that the losses would have ceased if Marino had reported the fraud. An insider-whistleblower is much more likely to be “taken seriously by enforcement officials.”

As for proximate causation, under the circuit’s “zone of risk” approach - thanks again, Mrs. Palsgraf - his actions were “clearly the proximate cause” of the victims’ losses, even if his actions were not like the “wantonly fraudulent” conduct of the Bayou principals. His role in the losses was significant, since he vouched for the accuracy of the fund’s books to the Bayou investors. It therefore does not matter that Marino’s actions were “less serious” than those of the principals. During the period of his criminal activity, his acts remained “essential to” the “criminal scheme.”

Tamper Proof

United States v. Simels, No. 09-5117-cr (2d Cir. August 12, 2011) (Newman, Calabresi, Hall, CJJ)

Former defense attorney Robert Simels appealed his conviction, after a jury trial, of various counts relating to a witness-tampering scheme, and his fourteen-year sentence. The circuit dismissed two minor counts as insufficient but otherwise affirmed.

The case arose from Simels’ representation of one Shaheed Khan, a Guyanese narcotics trafficker, who was detained at the MCC. The case against Simels had three main components. First, he lied to prison officials in an effort to speak to another prisoner, David Clarke, whom he believed to be a witness against Khan, by saying he was Clarke’s attorney. Second, an associate of Khan’s, Selwyn Vaughn, had several conversations with Simels, in which Simels discussed bribing and threatening potential witnesses against Khan. Vaughn had approached the DEA when he learned that Simels was reaching out to him, and wore a wire during these discussions. Third, the government recorded conversations between Simels and Khan in an attorney-client visiting room at the MCC.

Khan ultimately pled guilty and, in doing so, waived any claim that the government violated the Fourth, Fifth and Sixth Amendments in investigating him. He also also waived his work-product and attorney-client privilege claims with respect to the investigation of Simels.

Simels raised a number of significant issues on appeal about the way the evidence against him was gathered, but the circuit affirmed.

Evidentiary Issues

Simels' first argument was based on the Sixth Amendment. The court agreed that the use of an informant to meet with him and discuss his defense of Khan “potentially raise[d] serious issues concerning the Sixth Amendment rights of the lawyer’s client and other issues arising from intrusion into the attorney-client relationship.”

Simels asserted third-party standing over Khan’s Sixth Amendment rights. But the court, having identified the importance of the standing question, did not really resolve it. The court held that the “law is unclear” on the point, but would “assume that Simels can assert a Sixth Amendment right on behalf of his client” for the purposes of his own appeal.

As to the merits of the Sixth Amendment claim, the opinion is similarly inconclusive. It wonders whether investigators who believe that an attorney is attempting to obstruct justice in the course of representing a client “are constitutionally required to have a reasonable basis for their suspicion of possible obstruction before sending an informant to contact the lawyer,” but stops short of holding that the requirement exists. Instead, it concludes only that “the existence of such a basis adequately allays any concern that the attorney-client relationship has been improperly invaded.”

And here, the district court’s finding that the DEA had reasonable basis was adequate. It relied on Simel’s deception so that he could meet with Clarke, and Vaughn’s initial report to the DEA that he believed that Khan and Simels wanted to recruit him to assist in intimidating Clarke and others.

Simels also raised an interesting wiretap issue. The district court had held that the government obtained the recordings of Simels and Khan at the MCC in violation of Title III and suppressed them. But the court allowed the government to use the recordings to impeach Simel on cross-examination. The circuit again affirmed. Although 18 U.S.C. § 2515 provides that illegally obtained wire communications may not be “received in evidence in any trial,” Title III was not meant to provide more protection than the Fourth Amendment, and it has long been recognized that evidence obtained in violation of the Fourth Amendment can be used for impeachment purposes.

Sufficiency Issues

The circuit had no trouble finding that there was sufficient evidence to support the bulk of the counts of conviction - the attempted obstruction of various individual witnesses - but agreed that two counts relating to the importation and possession of certain electronic surveillance devices had to be tossed. The evidence established that the devices were inoperable, and the circuit concluded that the statute - 18 U.S.C. 2512 - which covers devices “which can be used to intercept” communications, excludes inoperable equipment. But, since Simels received time served and no supervised release on these counts, and since there was no “prejudicial spillover" affecting the other counts, all that was necessary was a limited remand for the entry of a corrected judgment reflecting the dismissal of these counts.

Sentencing Issues

Of Simels’ three sentencing claims, one stands out. He received a fourteen-year sentence and, at his request, the judge recommended that he be housed at the camp at FCI Otisville. At the time of sentencing, the judge was unaware that the BOP will not designate a prisoner to a camp, absent a BOP waiver, if the defendant is sentenced to more than ten years’ imprisonment. The judge only learned this after Simels was sentenced. Even so, for reasons unexplained, “the sentence was not imposed under a misunderstanding of facts that would impair the validity of the sentence.”

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Ex-Facto Knife

United States v. Riggi, No. 09-4391-cr (2d Cir. August 10, 2011) (Jacobs, Wesley, Chin, CJJ)

Philip Abramo’s case has been running for several years. He was originally convicted after trial of murder and racketeering charges, and received a life sentence. But the circuit reversed, finding that the admission of eight of his co-conspirators’ plea allocutions violated Crawford. See The Three Racketeers, posted September 6, 2008. On remand, Abramo pled guilty to reduced charges, carrying an eighteen-year statutory maximum. His plea agreement used the 2008 guideline manual, under which his range exceeded eighteen years, making eighteen years his guideline sentence. It also contained an appeal waiver, under which Abramo agreed not to challenge any sentence of eighteen years or less.

At sentencing, Abramo pointed out a potential ex post facto violation. The Commission increased significantly the guidelines for murder conspiracy in 1990, but the conspiracy to which he pled guilty ended in 1989. Under the 1989 guidelines, the sentencing range was 78 to 97 months. Nevertheless, the district court, looking to the nature of Abramo’s conduct, imposed an eighteen-year sentence.

On appeal, the circuit enforced the waiver and dismissed the appeal. The court agreed that the “violation of a fundamental right warrants voiding an appeal waiver” and reviewed the kinds of issues that trigger this. It also noted, however, that “other meaningful errors are insufficient” to void the waiver. The “decisive considerations dividing these cases appear to be the nature of the right at issue and whether the sentence was reached in a manner that the plea agreement did not anticipate.”

Here, “neither consideration” warranted voiding Abramo’s appeal waiver. While there is dicta in a 1997 case, Rosa, suggesting that an ex post facto violation might cause the court to set aside a waiver, even there the court enforced the waiver. Moreover, there was nothing about the sentence itself that warranted voiding the waiver. The judge was not biased, did not “abdicate his judicial responsibility,” and imposed the sentence that was contemplated by three separate provisions of the plea agreement.

Finally, the court rejected Abramo’s claim that, since he was unaware of his ex post facto rights, his “contract” - the plea agreement - was void as based on a mutual mistake of fact. The court ducked this, suggesting instead that it might be better “subsumed by a claim based on ineffective assistance of counsel. ” Such a claim can “survive an appeal waiver where the claim concerns the advice the defendant received from counsel.”


Sunday, August 21, 2011

Custody Battle

United Stateds v. FNU LNU, No. 10-419-cr (2d Cir. August 9, 2011)
(Jacobs, Calabresi, Lohier, CJJ)

Defendant, traveling under the name Sandra Calzada, arrived at JFK on a flight from the DR. A border patrol agent noticed that Calzada had an open arrest warrant, and flagged her for secondary inspection. An “armed guard” escorted her to the secondary inspection room, from which she was not free to leave, and the agent questioned her for 90 minutes without first reading the Miranda warnings.

The interrogation included questions about her pedigree, passport and the like. Eventually, the agent found some discrepancies: she did not look like the photograph on the original passport application, gave inconsistent biographic information, and could not recall any of her addresses in Puerto Rico, where she said she was born.

The district court refused to suppress the statements, holding that Miranda warnings were not required during a “routine border crossing inquiry” and because the questioning was not interrogation. The agent’s “function or intent” was to determine the defendant’s true identity.

The circuit affirmed, albeit on different grounds. The majority squarely rejected the notion that routine border questioning could never be “custodial interrogation” requiring Miranda warnings. While there is a Fourth Amendment exception for routine border searches, there is “no similar exception to Miranda’s prophylactic requirement under the Fifth Amendment.” The circuit has long held that where a “stop” was permissible under the Fourth Amendment is “irrelevant to the Miranda analysis.”

The question thus remains, for Miranda purposes, whether the suspect was “in custody.” The standard is whether “a reasonable person in the suspect's position would have understood herself to be subjected to restraints comparable to those associated with a formal arrest.” This is a very fact-bound determination requiring close consideration of the circumstances surrounding the encounter with the authorities - the interrogation’s duration, its location, whether the suspect volunteered for the interview, whether the officers used restraints, whether weapons were present or drawn, where the officers told the suspect she was free to leave or under suspicion, and a juvenile suspect's age. A “reasonable person’s expectations about how the questioning is likely to unfold are also relevant.” This last consideration is important at borders, since a reasonable traveler will “expect some constraints as well as questions and follow-up,” without considering himself to be under arrest.

Here, the court identified “several” facts to suggest that the interrogation was custodial - “it took place in a closed room, out of public view; armed guards escorted the defendant there and remained in the vicinity; it lasted for 90 minutes ... [and the agent] took the defendant’s fingerprints and did not inform her she was free to go. On the other hand, “the officers never drew their weapons, no physical restraints were used; and, crucially, a reasonable person would recognize that the questions being asked were “par for the course of entering the country from abroad.”

That said, after seventeen pages of reasoning, here is the court’s entire analysis - a single sentence: “In light of the totality of these circumstances, we conclude that a reasonable person in the defendant’s position would not have considered what occurred to be the equivalent of a formal arrest.”

Conviction affirmed.

Chief Judge Jacobs concurred in result, but did not sign on. He thought this case was too easy, and did not “remotely” merit a “tour d’horizon of Miranda law” or “pages of tendentious analysis in which useful precedents of this Circuit are deconstructed.” To the chief, the majority opinion “unnecessarily complicates what should be a straightforward holding.” Miranda warnings are simply not required in a routine secondary inspection when a reasonable person would consider the questions asked to be relevant to an admissibility or customs determination.

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Reversal of Fortune

United States v. Plugh, No. 10-2815-cr (2d Cir. August 8, 2011) (Jacobs, Livingston, CJJ, Rakoff, DJ)

This about-face arises from a supervening Supreme Court decision.

In its original opinion in this case, a divided panel held that the defendant had successfully invoked his Miranda rights by declining to sign a waiver-of-rights form. See “Car, Men, Miranda,” posted July 31, 2009. The circuit affirmed, on a government appeal, suppression of the defendant’s statements, viewing the case as an application of Davis v. United States, 512 U.S. 452 (1994), which held that a suspect must “unambiguously” invoke his Miranda rights to cut off questioning.

But a 2010 case, Berghuis v. Thompkins, 130 S. Ct. 2250 (2010), held that the Davis “unambiguous” standard should control not just the “cut-off,” but also the initial invocation of the rights. There, Court found that the suspect’s refusal to sign was not an “unambiguous” invocation of his rights.

Viewing this as an “intervening change in the law” that “compels a different outcome” on the facts of the case, the court “reconsidered the district court’s order of suppression” and vacated it.


Sunday, August 14, 2011

Rowe, Rowe, Rowe, You’re Toast

United States v Jackson, No. 07-0263-cr (2d Cir. August 4, 2011)
Leval, Lynch, CJJ, Korman, DJ)

Appellant Derrick Rowe, charged with a drug-related murder, had three trials. At the first, he was convicted of only drug trafficking and possession of ammunition, but the jury hung on three other counts - murder, § 924(c) and § 924(j). The court sentenced him to 32 years. At the second, the jury hung on all of the remaining counts. At the third, Rowe was convicted of the three open counts and received a 45-year concurrent sentence.

On appeal, his primary claim was that, at the third trial, the district court erred in allowing the government to play portions of his some of his prison phone calls without allowing him to play other portions under the Fed. R. Evid. 106 “rule of completeness.” The circuit found no abuse of discretion. In he first conversation, Rowe instructed a third party to tell a potential witness, named Battle, to keep quiet. But the portion he wanted to play, in which he said he was “not mad at” Battle would not have affected the jury’s “complete and proper understanding of the portion played by the government.”

In the other conversation, the government played a portion of a conversation with Battle's mother that reflected Rowe’s anxiety that the Battle had been arrested. Rowe wanted the court to play portions of the conversation that showed other reasons why Rowe might have been agitated but, again, the court found no abuse of discretion in precluding them.

Rowe also pursued a double jeopardy claim, arguing that the drug trafficking offense of which he was convicted at the first trial was a lesser included offense of the murder charge that the first jury hung on, and of which he was not convicted until the third trial. The court punted on whether this claim was legally correct, instead holding that it did not matter. Given the hung juries, for double jeopardy purposes, the second and third trials “are properly seen as continuations of the initial trial, and did not expose Rowe to double jeopardy.” Nor was there an Ashe v. Swenson-type collateral estoppel problem, since Rowe was not acquitted of the drug trafficking charge.


What’s In A “Same”?

United States v. Feldman, No. 10-2275-CR (2d Cir. August 1, 2011) (McLaughlin, Pooler, Sack, CJJ)

Defendant Feldman sought appellate review of four sentencing enhancements. The government argued that the court should not review them because the district court had indicated that it would impose “the same sentence” even without some of the errors. The circuit rejected this argument, reviewed the claims, found no error, and affirmed.


The facts of the case are particularly unpleasant. Feldman was a psychiatrist who, in the 1990's, operated mental health facilities in Florida. These facilities proved to be Medicare/Medicaid fraud mills and, just as Feldman was negotiating a plea agreement, he fled to the Philippines.

There, he set up an even more egregious scheme. Through a website called, he fraudulently offered kidney and liver transplants in the Philippines. Desperate patients and their families wired him tens of thousands of dollars and traveled to the Philippines, but did not receive what they were promised. Eventually, Feldman was deported from the Philippines and prosecuted in the Northern District of New York, the locus of the bank accounts to which the victims wired their money. In NDNY, he was sentenced on both the transplant case and the Florida conduct. With enhancements, the district court found that the rage was 151 to 188 months, and sentenced Feldman at the top.

During the hearing, the court noted that “even if some of my rulings ... are inaccurate, there is no question that I still would give the same sentence I am about to give.” Citing this, the government argued in the circuit that the court “should decline to consider Feldman’s claims of procedural error at sentencing.”

The Circuit’s Decision

While noting that a guideline error can be harmless if “it could not have supported any lesser sentence,” the court held that the district court’s “same sentence” statement did not moot Feldman’s claims of error. The key, according to the circuit is ambiguity. Unless there is “unambiguous indication to the contrary,” the court will not assume that a sentence will be the same absent a guideline error. The court did not think that the district court’s “same sentence” statement was unambiguous because it referred only to “some” of the challenged enhancements “without stating which enhancement - or which combination of enhancements - would not affect Feldman’s sentence.”

While this disposed of the matter, the court went on to discuss the policy considerations. Given the importance of the guideline range to the selection of the sentence, the court “cannot lightly assume that eliminating enhancements from the guidelines calculation would not affect the sentence.” The court will be “especially wary of making such an assumption” where the appellate claims would have a dramatic effect on the sentence. Here, for example, if Feldman had prevailed on all of his arguments the range would have been 63 to 78 months, less than half of the range calculated by the district court.

Finally, the court noted that district courts “generally should not try to answer the hypothetical question of whether or not it definitely would impose the same sentence on remand if this Court found particular enhancements erroneous.” Criminal sentences cannot and should not be “exempted from procedural review with the use of a simple incantation.”

That said, however, the court found no merit to any of Feldman’s appellate claims. Those claims - objections to characterizing his website as mass marketing, the loss amount, the risk of death enhancement and obstruction of justice - tread no new ground, and the court’s resolution of them is not summarized here.


Saturday, August 13, 2011

Insurance [Snow] Job

United States v. Ferguson, No. 08-6211-cr (2d Cir. August 1, 2011) (Jacobs, Kearse, Straub, CJJ)

For 3Q of 2000, the insurer AIG’s stock price dropped significantly, even though its earnings were satisfactory. The company concluded that the cause was a $59 million decline in its loss reserves - a measure of the company’s risk exposure.

In the true spirit of 21st Century American business ingenuity - the same, it seems, that caused the company to all but collapse entirely, and require a $90 billion government bailout, in 2008 - AIG, or at least some of its principals, decided that the best course would be - rather than actually increasing its loss reserves and satisfying its stockholders - to engage in an accounting fraud. The company accordingly entered into a sham reinsurance contract with General Re. The deal was structured to look - to AIG’s investors and auditors - like it was causing an increase in its loss reserves, but did not actually transfer any risk to General Re, which is, ordinarily, the sine qua non of a reinsurance contract. So shady was the deal that, while AIG booked the transaction - this opinion calls it the Loss Portfolio Transfer, or LPT - as a reinsurance contract (it had to, since that was its ostensible purpose) General Re booked it as a deposit.

Five defendants - four from General Re and one from AIG - were convicted after a jury trial of conspiracy, mail and securities fraud, and making false statements to the SEC. Although the circuit rejected a number of claims - including conscious avoidance, insufficiency, severance claims, evidentiary errors and prosecutorial misconduct - it found that two significant trial errors - one evidentiary and one in the jury charge - warranted a new trial.

The Evidentiary Error

Materiality was an element of “most of the charged offenses.” The government had to prove a “substantial likelihood” that the LPT misstatements “would be important to a reasonable investor.” And the government could have done so in legitimate ways, such as expert testimony on the LPT’s effect on AIG's stock price. Instead, the district court permitted the government to show this in an unfairly prejudicial way.

AIG’s stock price declined by twelve percent in 2005, once the nature of the LPT’s impropriety was publicly revealed in a series of new articles. While the district court excluded as overly prejudicial a chart graphing this decline as a line, it permitted the government to use a “functionally identical” chart in its opening, and also allowed the government to introduce bar charts showing single-day stock prices for the days following each article’s publication. These charts were “prejudicial” because there were several other problems affecting AIG’s stock price at the time; unrelated allegations of bid-rigging, self-dealing, earnings manipulation “and more,” which had been redacted from the articles.

Thus, the defendants faced a dilemma: they either had to allow the jury to attribute the full stock drop to the LPT, or accept the introduction of evidence of how thoroughly corrupt the company had become. To avoid this, the defendants offered to stipulate to materiality, but the government refused.

The circuit strongly suggested that the government should have been forced - Old Chief-style - to accept the stipulation. With no stipulation, the government not only got the benefit of an inflated sense of the effect of the LPT transaction on AIG’s stock, it “exploite[d] it [in summation] to emphasize the losses caused by the transaction.”

Since the charts suggested - without foundation - that the LPT was the sole cause of the twelve per cent “plummet” in the value of AIG’s stock, they should not have been admitted.

The Jury Instruction

The court also found reversible error in the district court’s “willfully caused” jury instruction. Willful causation is a theory of culpability akin to aiding and abetting, set out in 18 U.S.C. § 2(b). Under this section a defendant commits an offense if he “willfully causes an act to be done which if directly performed by him or another would be an offense.” Here, largely misled by the requests to charge, the district court structured the § 2(b) part of its jury instruction as a series of questions that omitted entirely the concept of causation. Instead, the jury was instructed to consider only whether each defendant acted knowingly, willfully and with the intent to defraud, and whether he intended that the crime would actually be committed by others.

The circuit found plain error, since the government “argued for guilt on a causation theory.” In addition, willful causation was a “likely theory of liability,” since the AIG accountants who actually filed the false LPT forms were not named as co-conspirators. A new trial was therefore warranted because it was “improbable, let alone absolutely certain, that the jury based its verdict on a properly instructed ground.”

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Point of Controversy

United States v. Lee, No. 10-493-cr (2d Cir. July 26, 2011) (Parker, Chin, CJJ, Korman, DJ)

For the many years, the third acceptance of responsibility point - although to be completely faithful to guideline lingo, it is a “level,” not a “point,” since “points” are for criminal history - was something of a given. As long as the defendant either confessed early on or pled guilty timely, the reduction was granted. Effective November 1, 2003, however, the Commission amended the language of this adjustment, guideline section 3E1.1(b), to require a government motion for the third point. The amended section indicates that such a motion should state “that the defendant has assisted authorities in the investigation or prosecution of his own misconduct by timely notifying authorities of his intention to enter a plea of guilty, thereby permitting the government to avoid preparing for trial and permitting the government and the court to allocate their resources efficiently.” This amendment was the result of a congressional directive in the PROTECT Act, and the Commission justified it on the theory that only the government knew whether its resources had truly been conserved.

There has been surprisingly little third-point litigation in the ensuing years. But this case resolves an important question about the adjustment over which there is a circuit split.

Defendant Lee pled guilty to a four-count drug indictment without much fanfare. He later objected to several facts contained in the PSR,and the district court scheduled a Fatico hearing. On the eve of the hearing, the defendant withdrew all but one of the objections, and a pared down hearing went forward on that single objection, which the court resolved in the government’s favor. At sentencing, the government refused to move for the third acceptance point, over Lee’s objection, and the district court refuse to compel it. The court imposed a very long, but bottom-of-the-range sentence based on the range resulting from a two-level adjustment.

On appeal, the circuit reversed. While a government motion is a “necessary prerequisite” to the third point, circuit precedent has indicated a district court can still grant the point if the government’s refusal is based on an unconstitutional motive or a plea agreement leaves it to the government’s discretion and the government acts in bad faith.

Here, since there was no plea agreement, only the first option was available, but the circuit found that it was met, although the court seemingly identified an alternative reason for granting the point: the government’s reason for not making the motion was based on an “unlawful” - although perhaps not unconstitutional - reason: the refusal was not permitted by the guideline itself, which addresses only avoiding preparing for “trial.” While Lee put the government to its burden at a Fatico hearing, he undisputedly pled guilty early on and “spared the government from ‘preparing for trial.’” Thus, under the “plain language” of the guideline, “the government’s refusal” was “not justified.” The court also noted that the commentary to § 3E1.1 - which is binding - likewise limits the determination to whether the government has saved resources by avoiding preparing for trial.

Finally, and most interestingly - see comments below - the court also held that a defendant has a “due process right to reasonably contest errors in the PSR that affect his sentence” - and that “a defendant should not be punished for doing so.” If there is a “good faith dispute” as to a material fact in the PSR, “the defendant’s request that the dispute be resolved is not a permissible reason for the government to refuse to make the § 3E1.1(b) motion, even if resolution of the dispute requires an evidentiary hearing. “The court, not the government, imposes sentence, and the court is entitled to a full and accurate record - as are the parties.”


There are several interesting issues raised by this opinion. First, it forces consideration of the oddity of the whole acceptance of responsibility scheme at all. A sentence is supposed to be consistent with the goals of sentencing set forth in § 3553(a)(2), and none of those goals seem to have anything at all to do with whether the government - or the court, for that matter - was inconvenienced by the need to prepare for, or even conduct, a trial.

A second important point is this: since the inception of the guidelines, the circuit has held to the fiction that institutionalizing lower sentences for defendants who plead guilty does not “punish” going to trial, which would be unconstitutional, it “rewards” pleading guilty, which is not. What’s the difference? None, of course, or at least none that can be articulated. And this decision clearly implodes that whole line of reasoning, since it expressly holds that denying a defendant the third point for contesting a material sentencing fact - or at least doing so in “good faith” - “punishes” him for doing so. This decision should accordingly open the door to a similar argument that a defendant who goes to trial with a “good faith” claim that he should be acquitted is entitled to all three acceptance of responsibility points.

Finally, a close look at the rationale of the amended third point language reveals yet another oddity. The stated purpose of the amendment is to help conserve the resources of both the government and the court. While it is true that the government knows best whether it has expended resources, it is not in a better position than the court itself to know whether the court was inconvenienced by an untimely plea. Accordingly, the guideline should permit the court to impose the third point on its own if it concludes that no significant judicial resources were consumed by an untimely plea of guilty.


Sunday, August 07, 2011

Trace Amounts

United States v. Gonzalez, 10-2202-cr (2d Cir. July 22, 2011) (Kearse, Miner, Chin, CJJ)

Former state senator Efrain Gonzalez, Jr., pled guilty to various fraud-related charges in connection with two sham charities that he set up while in office. This opinion contains an interesting discussion of the concept of “tracing” criminal proceeds. In it, the court concludes that tracing is not required to determine the number of victims under § 2B1.1, but is required, to some degree at least, to calculate the actual loss for restitution purposes.

The case arose from the actions of two supposed charities, West Bronx Neighborhood Association (WBNA) and United Latin American Foundation (ULAF). Each received both public money and private donations, and each - although supposed to be engaged in charitable activities - instead spent most of its money enriching Gonzalez by paying his personal bills - and those of some of his cronies - and funding a lavish lifestyle.

Gonzalez ultimately pled guilty to mail fraud, federal-program fraud, wire fraud and conspiracy. He later tried, unsuccessfully, to take the plea back - the circuit’s rejection of that issue, while very long, is straightforward and is not summarized here - and ultimately received a below-guideline 84-month sentence and restitution.

In challenging the length of his prison sentence, Gonzalez argued that the district court erred in concluding that the offense involved 50 or more victims under § 2B1.1(b)(2)(B). He claimed that, although more than 50 individuals donated money to WBNA, the government had not traced back the misappropriated funds to those particular donors. The circuit rejected this argument. It is not true that “before a person who has made a charitable contribution can be considered a victim within the meaning of § 2B1.1(b)(2)(B), his donation must be traced to a particular misallocation by the defendant.” Rather, a victim is a person who sustained any part of the actual loss, with no need that he be “linked with a specific part of the loss.” Such a holding is particularly apt given the specific instruction in the commentary to § 2B1.1 that defendants who exploit victims’ charitable impulses “create particular social harm.”

Interestingly, the court reached a somewhat different conclusion with respect to the restitution amount. In fixing restitution, the district court relied on WBNA’s donor lists. While it is true that any such donor could be a victim for restitution purposes, the circuit disagreed that each donor should be compensated for the full amount donated, since some of them “received value in return for their donations.” Some donated to and attended a WBNA gala that offered a “Buffet Supper” and an “Open Bar,” and others donated money for advertisements that appeared in the event’s program. The district court’s view that these donors expected that 100 per cent of their contributions would be used for charitable purposes was sufficient to make the determination that they were victims for restitution purposes, but was not sufficient to order full restitution of the amounts they gave. The circuit remanded the restitution order for “further proceedings to determine to what extent donors suffered [actual] losses.”

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Saturday, August 06, 2011

PC World

United States v. Vilar, No. 10-521-cr (2d Cir. July 19, 2011) (Jacobs, CJ, Rakoff, DJ)

Defendant Vilar and his co-defendant Tanaka were convicted of fraud-related charges after a jury trial. Both filed timely notices of appeal and the appeals were consolidated. Vilar, represented by new counsel, decided to develop a claim that his trial counsel was ineffective, and make a motion under 18 U.S.C. § 2255. This per curiam resolves his motion to dismiss the appeal without prejudice, with leave to reinstate it after completing the 2255. The circuit denied the motion, but granted Vilar a six-month extension of time to perfect his appeal.

The court noted that Vilar’s request was somewhat unusual. Usually, a defendant first pursues a direct appeal then, if he wishes, a 2255 motion. Vilar’s application would allow a collateral attack first and a direct appeal second, a route that “raises concerns both jurisdictional and practical.”

Under Appellate Rule 4, the court only has jurisdiction over an appeal if a notice of appeal is timely filed - that is, within 14 days, extendable by up to 30 days on a motion to the circuit. Vilar’s request - that the appeal be dismissed, but with jurisdiction to be revived more than 30 days later - is inconsistent with this rule.

There is, however, an “effective equivalent.” The circuit could stay adjudication of the appeal pending the outcome of the 2255. This would avoid the jurisdictional constraints of Rule 4, and the circuit has done it before. The court accordingly construed Vilar’s motion to dismiss and reinstate as a motion for a stay, but then denied the motion. The court found no compelling justification for the stay in Vilar’s claim of judicial economy, particularly since Vilar “has not shown that his § 2255 motion is more likely to succeed than his direct appeal.” While it is true that handling the 2255 first would allow consolidation of that appeal and the direct appeal, “few if any judicial resources would be conserved.” The consolidated appeals would “entail different standards, different records, and separate analyses,” and “simultaneous adjudication of interrelated issues using different standards and different records would increase the complexity of the consolidated appeal."

Nor did fairness concerns require granting the stay. The court rejected Vilar’s claim that the trial attorney’s ineffectiveness in developing the factual record below would prejudice the direct appeal, since any “additional fact-finding done pursuant to a habeas proceedings” would not be part of the record” on which the direct appeal would be decided.

Moreover, it would be unfair to Tanaka and the government to grant the stay. Either Tanaka’s appeal would be delayed or, if it were severed from Vilar’s, the government would have to litigate separately two identical appeals.

The court accordingly denied the motion, but granted Vilar a six-month extension of time, finding that nether the government nor Tanaka would be unduly prejudiced by the delay.

Summary Summary

At last - more summary orders of interest.

In United States v. White, No. 10-2631-cr (2d Cir. July 18, 2011) (summary order), the circuit vacated the district court’s decision denying resentencing under 18 U.S.C. § 3582(c)(2).

The case has a long procedural history. White originally rejected a plea offer that included one § 924(c) count while dropping another, but his attorney never told him that the second one carried a mandatory twenty-five year consecutive sentence. White ended up convicted after trial and facing a 570 to 622 month guideline range. On his habeas corpus petition, the district court concluded that his attorney had been ineffective, and fashioned an equitable remedy under which the court sentenced him under the final offer White had rejected - one count of crack trafficking and one § 924(c) count. This produced a 168-month sentence: 108 (a guideline sentence) on the crack count, plus 60 on the 924(c). The circuit upheld all of this back in 2007.

In 2010, the district court rejected White’s § 3582(c)(2) motion, holding that the crack portion of the sentence was not “based on” a guideline range affected by the 2007 ameliorating amendment. On this, White's second appeal, the circuit reversed. White’s “sentence was indeed ‘based on’ the guidelines.” The district court’s equitable remedy to White’s attorney’s ineffectiveness produced a sentence “based on” the range reflected by the counts of conviction that survived the remedy - the range contemplated by the final plea offer. This, although not the range for the counts on which White was convicted after trial, was “designed to replicate the sentence” he “would have received had he accepted the plea offer.” Thus, White was clearly eligible for a § 3583(c)(2) reduction. On remand, of course, the district court still has the discretion to grant or deny the motion.

In United States v. Johnson, No. 09-3917-cr (2d Cir. July 6, 2011) (summary order), the court rejected a claim that the guilty plea did not satisfy Rule 11. While the plea failed to advise the defendant of his rights to compel witnesses, plead not guilty, counsel at every stage of the case, or the court's obligations to order restitution and consider the guidelines, possible departures under the guidelines and the § 3553(a) factors, the circuit found no evidence that the defendant did not understand the charge or that he would not have pled guilty but for the court’s omissions.

To The Manner Porn

United States v. Jennings, No. 10-1642-cr (2d Cir. July 22, 2011) (Kearse, Miner, Chin, CJJ)

For defendant Russell Jennings, looking at child pornography was a hard habit to break. He served a twenty-one-month possession sentence in a 2006 case then, in 2009, while on supervised release, did it again. For the 2009 case, he received a long prison sentence, plus a concurrent supervised release violation sentence on the 2006 case, and a lifetime term of supervised release.

His appellate claims related largely to the way the evidence against him in the 2009 case was developed. He argued that his probation officer was improperly involved in the procurement of the search warrant and criminal complaint, and that incriminating statements he made to the officer were obtained in violation of the Fifth Amendment. The circuit affirmed.

For the first argument, Jennings asserted that his probation officer lacked the statutory and constitutional authority to (1) meet with the prosecutor to plain the 2009 criminal investigation (2) swear out, apply for and execute a search warrant and (3) become involved in the criminal investigation by interrogating Jennings at the government’s direction and by swearing out the criminal complaint.

The circuit disagreed. The duties of a probation officer are set out in 18 U.S.C. § 3603, and include protecting the public from persons whose release proves threatening to the community. Thus, officers should report a releasee’s wrongdoing, and the officer here did not act beyond the scope of this authority when he put the information he developed into affidavit form that better allowed other agencies to perform their duties. Nor did the officer usurp the Executive Branch’s prosecutorial function, in violation the doctrine of separation of powers. The United States Attorney’s Office drafted the search warrant and criminal complaint based on information that the officer provided, which was not a separation-of-powers violation.

Relatedly, Jennings also argued that the probation officer’s one-week delay in reporting its violation findings to the court violated a statutory requirement that he do so “immediately.” The circuit found no plain error, since the statutory requirement of immediacy, set out in 18 U.S.C. § 3603(8)(B), covers only those persons conditionally released after having been found not guilty by reason of insanity or otherwise suffering from a mental disease or defect, but not persons on supervised release in general.

The circuit likewise rejected Jennings’ Fifth Amendment claim, which derived from a condition of supervised release requiring him to answer his probation officer’s questions truthfully. Since he gave incriminating answers to the officer during an interview about his violation conduct, Jennings argued that those answers were compelled and should be protected by the Fifth Amendment.

But, since Jennings did not invoke the privilege against self-incrimination during the interview, the statements could be used. The Fifth Amendment privilege is not “self-executing,” and thus statements made by a person to his probation officer are not covered, unless the officer threatened that invocation of the privilege would subject the person to a penalty. But merely requiring a releasee to answer his probation officer’s questions truthfully does not render the answer to those questions “compelled,” even if the officer deliberately sought incriminating evidence.

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