Wednesday, June 03, 2015

Fifth Amendment Privilege Against Self-Incrimination Inapplicable to Corporate Custodian Under Collective Entity Doctrine

In In re: In the Matter of the Grand Jury Empaneled on May9, 2014, 2015 WL 2262650, No. 15-1264 (3d Cir., May 15, 2015), a clinical blood laboratory in New Jersey had been charged with bribing area doctors to refer their patients to the lab for blood testing. Two of the defendants, a medical doctor and his incorporated medical practice, were charged with accepting said bribes. A grand jury subpoenaed the custodian of records for the medical practice seeking to obtain documents related to, inter alia, the medical practice’s patient list and corporate records. The medical practice initially maintained a staff of six; however, due to financial difficulties arising as a result of the instant matter, the doctor was forced to terminate the staff. Consequently, the doctor ultimately served as the sole owner and employee of the medical practice, as well as its custodian of records. The doctor moved to quash the grand jury subpoena, arguing that compelled disclosure of the corporate records would violate his Fifth Amendment privilege against self-incrimination. He also argued that the subpoena was overbroad. The district court denied his motion, ruling that a corporation may not assert the Fifth Amendment privilege. The court also ruled that the subpoena was not overbroad.  Nonetheless, the defendants, i.e., the doctor and the medical practice, refused to comply with the subpoena. The district court ultimately found the defendants in civil contempt.  

The Third Circuit ruled that the district court’s refusal to quash the subpoena was not an abuse of discretion. The court applied the “collective entity” doctrine, as enunciated in Bellis v. United States, 417 U.S. 85 (1974), and Braswell v. United States, 487 U.S. 99 (1988), to determine that, as a representative of a collective entity, the corporate custodian acts on behalf of the corporation, which may not assert the Fifth Amendment privilege itself. The Third Circuit adopted the Supreme Court’s reasoning in rejecting the “act-of-production” doctrine, which focused on the communicative nature of compelled disclosures and their potential to personally incriminate the corporate custodian.  The Third Circuit concluded that a corporate custodian may not enjoy the benefits of incorporation without also enduring its attendant burdens.  

The Third Circuit also determined that, as a grand jury traditionally possesses broad investigatory powers, a grand jury subpoena is valid if it merely identifies materials which could reasonably contain information that is relevant to the government’s investigation. The Third Circuit concluded that the district court properly had ruled that subpoena at issue was sufficiently specific.


Saturday, May 09, 2015

Supervised release provision requiring warrant or summons to issue before expiration of term is jurisdictional.

United States v. Merlino, No. 14-4341, 2015 WL 2059594 (3d Cir. May 5, 2015).  In this appeal, involving the reputed former head of the Philadelphia La Cosa Nostra, the Court decided that 18 U.S.C. § 3583(i) is a jurisdictional statute requiring that a warrant or summons must issue before the expiration of supervised release in order for a District Court to conduct revocation proceedings. Because the summons here was issued after the termination of supervised release, the Court concluded that the District Court lacked subject-matter jurisdiction to revoke supervised release, it vacated the order revoking supervised release and imposing a prison term on Merlino (note:  Merlino had commenced serving his 4-month term on January 15, 2015). 

Merlino’s three-year term of supervised release began on September 7, 2011. On June 18, 2014, law enforcement saw him at a cigar bar in Boca Raton, Florida, talking with several convicted felons, including a former co-defendant.  Probation concluded this violated the terms of his supervised release. Over two months later, on August 26, Merlino’s probation officer filed a revocation petition.  On September 2, the District Court ordered the issuance of a summons directing Merlino to appear for a revocation hearing. Either later that day or the following day, a deputy clerk called defense counsel in an effort to secure a mutually agreeable hearing date for the parties. Defense counsel asked for some time to clear his schedule. The deputy clerk relayed this request to the District Court judge, who assented. On September 11, defense counsel informed the clerk that he could be available in October. On September 16, the clerk finally issued the summons for October 10.  At the hearing, defense counsel argued that the court lacked jurisdiction over the revocation proceedings because the summons had issued after the expiration of Merlino’s term on September 6, 2014. The court held that § 3583(i)’s deadline had been equitably tolled by defense counsel’s request for time.

The Third Circuit reversed.  Read literally, § 3583(i) requires that a warrant or summons must issue before a term of supervised release expires in order for the District Court to exercise its authority to revoke.  Under Dolan v. United States, 560 U.S. 605, 610 (2010), in which the Supreme Court provided guidelines for the classification of federal statutory deadlines, the consequences for noncompliance with such deadlines, and the availability of tolling, the statute must be considered jurisdictional, and not subject to tolling.  This is because “it does not merely set a deadline—it expressly authorizes a grant of ‘power’ to the district court and conditions the existence of that power on a specific and minimally onerous event” – the issuance of a warrant or summons.  The deadline here easily could have been met, not only by seeking a summons earlier, but also by “asking the court to issue a summons with a control date, i.e., a date on which the parties briefly appear and agree upon further scheduling.”  The court’s request to the clerk to issue a summons was not the equivalent of a summons; a summons is a term of art, and must “requir[e] the defendant to appear and answer.”

 Judge Ambro wrote separately to acknowledge “countervailing considerations,” including recent Supreme Court cases, that raise doubt about whether Congress intended § 3583(i) to be jurisdictional rather than “mandatory but nonjurisdictional.”  In the end, thought, he was “swayed that § 3583(i) is jurisdictional by the provision’s reference to the ‘power of the court,’ by the legislative history (weak as it is) saying the provision grants ‘jurisdiction,’ and by the many circuit court cases calling it jurisdictional.” Judge Schwartz dissented, believing that the district court effectively issued a summons.  In communicating with Merlino’s counsel, the clerk clearly and affirmatively demonstrated to Merlino its intent to adjudicate the alleged violation and thus extended its revocation authority.  Judge Schwartz felt that a more informal definition of summons in this context was consistent with the way supervised release violations are treated generally.

Wednesday, March 11, 2015

Panel's Appellate-Waiver Decision Draws Sharp Criticism from Colleagues

The Court yesterday published a four-judge dissent from the denial of en banc review in what was arguably last year’s most important decision for criminal law practitioners — and certainly the most important for defendants who, after waiving the right to appeal, suffer a sentence premised on legal error.

In United States v.Erwin, 765 F.3d 219, the panel held last summer that in the event a defendant appeals such a sentence in violation of a knowing and voluntary waiver, the government may obtain a remand for resentencing at which it may invoke any breach provision authorizing the withdrawal of consideration given in exchange for the guilty plea.  (A well-established exception, which the panel reaffirmed, permits appeals when enforcing the waiver would work a miscarriage of justice.)  At Christopher Erwin’s sentencing, a Section 5K1.1 motion had saved him 4years from the Sentencing Guidelines’ recommended 20-year prison term.  Despite an appellate waiver, Mr. Erwin took his case to the Third Circuit and argued that the district court had started from an erroneously high level in measuring the 4-year downward departure.  Opposing the appeal based on the waiver, the United States Attorney’s Office for the District of New Jersey sought a remand where it promised (perhaps “threatened” would be more apt) to seek a “modest increase” per a clause providing that the defendant’s breach would release the government from the obligation to file a motion under Section 5K1.1.

Among those judges who did not sit on the original panel, it appears the vote against en banc review was a narrow 6-4 split.  (The order denying rehearing indicates that Judge Shwartz abstained.)  In dissent, Judge Ambro, joined by Judges Rendell, Greenaway, and Vanaskie, marshals cogent criticisms that one hopes might attract the attention of four Justices on a petition for certiorari.  The proper remedy, Judge Ambro explains, was simply to affirm the sentence based on the waiver: “End of case.”  By also remanding for resentencing, the panel veered from “traditional contract principles,” which do not provide the government more than the benefit of its bargain by the remedy of an opportunity to sentence Erwin again without an obligation to compensate him for his cooperation.

Joining “the growing chorus of commentators who have lamented this decision,” the dissent quotes one critic’s well-founded concern for “those defendants who have legitimate appellate issues [who] decline to appeal for fear of a harsher sentence if the court deems the appeal within the scope of their appellate waiver.”  Another commentator’s derision of the panel’s opinion as “ignominious” also wins the dissent’s recognition, as do numerous other published criticisms.

"In every one of the thousands of criminal appeals this Court has heard since the first appellate waiver in a plea bargain," Judge Ambro concludes, "we have never before held that an attempt to litigate a waived argument opens the door to a harsher sentence.  Yet here we do.  This cuts counter to how we have acted, and it goes against the majority of cases in other circuits.”  The emphasis is the dissent’s, and the contrary precedents are from the Fourth, Eighth, and Tenth Circuits.

Tuesday, February 17, 2015

Securities Fraud: Irrevocable Liability Establishes the Locus of a Securities Transaction For Purposes of Determining Whether a Transaction was Domestic

In United States v. Georgiou, Nos. 10-4774, 11-4587, and 12-2077, the Third Circuit upheld the defendant’s securities fraud, wire fraud, and conspiracy convictions against a host of legal challenges.  Georgiou was accused of engaging in a scheme to manipulate the markets of four over-the-counter stocks, i.e. stocks not listed on an American stock exchange.  Georgiou and his co-conspirators opened brokerage accounts in Canada, the Bahamas, and Turks and Caicos and then used these accounts to engage in manipulative trading in the target stocks.  By trading stocks between the various accounts they controlled, the co-conspirators were able to artificially inflate the stock prices to create an impression that each target stock had an active market.  The manipulation allowed Georgiou and his co-conspirators to sell their shares at inflated prices and to use the inflated shares as collateral to fraudulently borrow funds on margin and obtain millions of dollars in loans from different brokerage firms in the Bahamas.  These accounts experienced large trading losses.

The Supreme Court has explained the securities fraud statute, 15 U.S.C. §§ 78j(b) and 78ff, criminalizes deceptive conduct in two contexts:  (1)  transactions involving purchases or sales of securities listed on an American stock exchange; and (2) transactions involving purchases or sales of any other security in the United States (“domestic transactions”).  See Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010).  Prong one’s theory of liability was not applicable because the target stocks were not listed on an American stock exchange.  The Third Circuit held under prong two, irrevocable liability establishes the location of a securities transaction.   Relevant factors demonstrating irrevocable liability include the formation of the contracts, the placement of purchase orders, the passing of title, or the exchange of money.

 The evidence was sufficient to convict Georgiou under prong two’s domestic transaction theory of liability.  The evidence showed at least one of the fraudulent transactions in each target stock was bought and sold through U.S.-based market makers.  Some of the transactions required the involvement of a purchaser or seller working with a market maker and committing to a transaction within the United States, incurring irrevocable liability in the U.S., or passing title in the U.S.  There were also specific instances where target stocks were bought or sold at Georgiou’s direction from entities within the United States.  The district court’s jury instructions, which explained the jurisdictional requirements, were proper.  The district court was not required to preclude the jury from considering foreign activity in assessing guilt.

 Unlike securities fraud, wire fraud applies extraterritorially.  The wire fraud’s jurisdictional requirement is that a communication be transmitted through interstate or foreign commerce for the purpose of executing a scheme to defraud.  The evidence was sufficient to convict Georgiou of wire fraud because he regularly used e-mail to direct a cooperating witness and he wired money from a Canadian bank to an undercover FBI agent’s account in Pennsylvania.  

 The Third Circuit also upheld Georgiou’s conviction and sentence against a host of other challenges:
           Georgiou failed to raise a winning claim under Brady v. Maryland, 373 U.S. 83 (1963) or the Jencks Act based on alleged suppression of evidence regarding the cooperating witness’s mental health issues, drug use, and statements to the SEC.  Evidence of the cooperator’s drug use and mental health were discussed in his bail report and minutes of his guilty plea.  The evidence was not suppressed because it was equally available to the defense through the exercise of due diligence.  Evidence of the drug use was cumulative because it was disclosed pre-trial through statements provided in discovery.  The evidence was not favorable, nor material because there is no evidence to suggest it affected the reliability of the cooperator’s testimony, or that its introduction would have affected the verdict.  Likewise, Georgiou failed to identify any specific statements that were withheld under the Jencks Act.

           An SEC employee’s testimony making comparisons of stock quantities and prices did not require scientific, technical, or specialized knowledge and was therefore proper lay testimony under Federal Rule of Evidence 701.

           The district court did not abuse its discretion when it prohibited Georgiou from introducing extrinsic evidence of, and limited the cross-examination of the cooperating witness regarding his alleged post-cooperation fraud, under Federal Rules of Evidence 608(b) and 403.

           District courts are not required to consider the impact of market forces when making a loss calculation in securities fraud cases under U.S.S.G. § 2B1.1(b)(1)(M).  Even if the district court were required to do so, however, any error would be harmless because the district court properly found that Georgiou’s intended loss was over $100 Million, which would have resulted in an offense level two points above the guideline maximum.

           The district court properly assessed a six-level upward adjustment for 250 or more victims under U.S.S.G. § 2B1.1(b)(2)(C).  The jury found that he participated in a “pump and dump” scheme, and the SEC witness identified 1,918 investor accounts that purchased the stock during the scheme.  All of them lost over $1,000.

           Georgiou waived his right to object to the district court’s forfeiture order. 


Tuesday, January 13, 2015

Interlocutory Appeal Dismissed for Lack of Jurisdiction Because Preclusion of Evidence Would Not Require Dismissal of Any Count

United States v. Wright, Nos. 13-1766, 1767, 1768, -- F.3d --, 2015 WL 106198 (3d Cir. Jan. 8, 2015).  In an earlier iteration, United States v. Wright, 665 F.3d 560 (3d Cir. 2012), the Court vacated the fraud convictions of Wright, Chawla, and Teitelman under Skilling v. United States, 561 U.S. 358 (2010).  On remand for retrial, the defendants sought to limit the scope of the retrial to prevent relitigation of issues they viewed as necessarily decided in their favor when the jury acquitted them on several counts, and to bar certain government arguments that they believed would constructively amend the indictment.  The district court denied the motion, and the defendants took an interlocutory appeal.  The Court dismissed the appeal for lack of jurisdiction, finding that the district court’s order was neither a collateral order subject to immediate review nor a final order pursuant to 28 U.S.C. § 1291.

A collateral order is not final in the traditional sense, but conclusively resolves an important issue separate from the merits, and is effectively unreviewable on appeal.   Collateral order appeals are permitted only in exceptional circumstances, including when double jeopardy may be at issue.  The Court adopted a test used by most of the other circuits to determine whether double jeopardy is sufficiently implicated to permit collateral order review:  would the claim, if successful, require dismissal of – at a minimum – an entire count?
Here, the defendants were acquitted of several substantive counts predicated on a mailing or email relating to a particular transaction.  They argued that the jury necessarily decided that they lacked criminal intent as to those transactions.  Thus, they argued, the government should be precluded from presenting any evidence of those transactions at trial.  They conceded, however, that this would not prevent the government from presenting other evidence of criminal intent on the remaining counts, and that even if they prevailed in precluding the specified evidence, no count of the indictment would be dismissed.  Thus, the Court concluded, it lacked jurisdiction.  (In the process, it rejected an argument that United States v. Serafini, 167 F.3d 812 (3d Cir. 1999), which permits the government to seek review of orders of dismissal excising portions of counts, authorized review here, distinguishing the statutory provision – 18 U.S.C. § 3731 -- at issue.)
The Court held that the constructive amendment aspect of the motion was not appealable either, because constructive amendment, if it occurs, may be addressed on appeal after trial.
Finally, the Court refused to grant mandamus relief, because it identified no irreparable harm.

Monday, January 12, 2015

Striking Recommendation from Plea Doesn't Preclude Government from Arguing Enhancement

In United States v. Davenport, No. 13-3644, --- F.3d ---, 2014 WL 64698 (3d Cir. Jan. 6, 2015), the Court affirmed denial of 2255 relief in a case involving a question of breach of plea agreement. 

The government did not breach Davenport’s plea agreement when it advocated for -- and obtained -- a two-level upward adjustment for possessing a firearm in connection with his conspiracy to distribute narcotics offense.  Even though the defendant and his attorney had stricken and initialed a joint recommendation regarding the U.S.S.G. § 2D1.1(b)(1) enhancement from the written agreement during plea negotiations, the government never agreed not to argue for the enhancement.  Therefore, when the firearm clause was stricken from the agreement, it merely meant that the parties no longer jointly agreed on that specific sentencing recommendation.   Reading the plea agreement as a whole, the government was entitled to put the district court on notice of all relevant information and to respond to all of Davenport’s objections.  Since the government did not breach the plea agreement, Davenport’s trial counsel was not ineffective for failing to make the argument.  The district court properly denied Davenport relief under 28 U.S.C. § 2255.  

(Thanks to Chistofer Bates, EDPA, for his assistance in digesting this case.)

Thursday, January 01, 2015

Manager of Medicare/Medicaid Provider Properly Received Sentencing Adjustment for Abuse of a Position of Trust

In United States v. Ashokkumar R. Babaria,  ___F.3d ___, No. 14-2694 (3d Cir. 12/31/14)Dr. Babaria pled guilty to 42 U.S.C. §1320a-7b(b)(2)(A) for making kickbacks to physicians in order to obtain referrals to his business for the purpose of performing medical diagnostic testing on patients whose bills were paid by Medicare and Medicaid.  He received the kickbacks while at the same time certifying, on behalf of the lab doing the testing, that there were none. The government’s payments for services that resulted in kickbacks exceeded two million dollars. Despite the illegal activity, medical records were not falsified, the government was not billed for testing that did not occur, and patient care was not compromised.

At sentencing, Dr. Babaria objected to a two-level adjustment for abuse of a position of trust pursuant to USSG §3B1.3, and a four-level adjustment for aggravating role pursuant to USSG §3B1.1(a), resulting in a recommended Guidelines range of 70-87 months’ imprisonment . The statutory maximum capped the guidelines range at 60 months imprisonment, and the District Court, applying both adjustments, imposed a sentence of 46 months’ incarceration, a $25,000 fine, and reimbursement of all government fees paid as a result of patients whose doctors received kickbacks. 

On appeal, Dr. Babaria argued that it was error to apply the §3B1.3 adjustment because he neither occupied nor abused a position of trust. The Court, after reviewing the Comments to 3B1.3, restated prior case law describing three factors that determine whether a position of trust exists: “(1) whether the position allows the defendant to commit a difficult-to-detect wrong; (2) the degree of authority to which the position vests in defendant vis-à-vis the object of the wrongful act; and (3) whether there has been reliance on the integrity of the person occupying the position.”  Using these criteria, the Court concluded Dr. Babaria held a position of trust, as in his position he certified compliance with anti-kickback rules, yet concealed the kickbacks. He held a position that both allowed him to commit wrongs and allowed him to make those wrongs harder to detect. He was not subject to any supervision over his actions with respect to the business and its relations with the government. His position in the organization was a significant factor in his ability to commit the crime.

The Court cautioned that Dr. Babaria’s medical license was not the determinative factor in applying 3B1.3. His actions in his minimally supervised position led to application of the enhancement, not his medical license. While the District Court considered his medical license when applying the enhancement, the license was not the sole determinant.

The Court summarily dismissed Dr. Barbaria’s other arguments and allowed his sentence to stand.

Image from The New Yorker.