United States v. Doe, No. 13-4274, Opinion Published Then Vacated.

This case concerns an appeal from the denial of a 28 U.S.C. §2255 motion filed in 2012 and a request to reopen a separate §2255 motion filed in 2008.  Petitioner was sentenced in federal court in 2003, under the then mandatory Sentencing Guidelines, as a career offender. The procedural and legal history of the case are especially complex, and the case presents a number of procedural and jurisdictional questions, including disputes over statute of limitations, retroactivity, collateral review, and mootness. The Third Circuit published an opinion on this case on December 9, 2015, remanding the case for further proceedings.  However, the Court subsequently vacated the opinion and granted a petition for rehearing.  A new opinion will be filed following rehearing. 

http://www2.ca3.uscourts.gov/opinarch/134274po1.pdf
http://www2.ca3.uscourts.gov/opinarch/134274p1.pdf

Court denies suppression challenge, finding shareholder and corporate executive did not have reasonable expectation of privacy in employees' offices, employees' computers, or electronic files located on network server, but reverses and remands for new loss calculation in government contracts fraud case

In a matter of first impression, the Court, in United States v. Nagle, Nos. 14-3184, 14-3422 (3d Cir. Sept. 30, 2015), held that defendant, a shareholder and corporate executive, did not have a reasonable expectation of privacy in his employees' offices, employees' computers, or the electronic files located on the company's network server, as required to challenge the search and seizure of the corporate offices.

Defendants Nagle and Fink were co-owners and executives of concrete manufacturing and construction corporations specializing in state highway construction and mass transit projects. The defendants devised and executed a scheme to defraud the United States Government by obtaining subcontracts set aside for disadvantaged business enterprises (DBE). During the execution of two search warrants at the corporations' compound, eleven employee computers plus the network server were seized and imaged. Defendant Nagle moved to suppress the electronic evidence recovered during these searches. The District Court denied the suppression motion, holding that, while Nagle may have had an expectation of privacy in his official capacity as an officer and executive of the companies, Nagle had no personal expectation of privacy in the seized information.

Following a string of cases from other circuits, the Third Circuit ruled, as a matter of first impression, that a shareholder or company executive may not challenge a search of corporate property based merely on his status as a shareholder or executive. He may only challenge the search if he shows some personal connection to the places searched and material seized and protected those places or materials from outside intrusion. Here, Nagle failed to show that he used the employees' offices or computers or that he ever accessed other employees' emails or files on the network server. Accordingly, because Nagle failed to show a personal connection to the computers or files, he had no reasonable expectation of privacy in those items and no basis to move for suppression.

Turning to the loss analysis, the defendants challenged the District Court's determination that they were responsible for the face value of the DBE contracts received without any credit for actual work performed on the contracts. The Third Circuit disagreed, finding that the amount of loss Nagle and Fink were responsible for was the face value of the DBE contracts minus the fair market value of the services they provided under those contracts. The Court found that such an offset would be due regardless of whether it applied U.S.S.G. §2B1.1 Application Note 3(A) (standard loss definition) or Note 3(F)(ii) (special application note for loss in "government benefit" cases). Accordingly, the Court vacated the defendants' sentences and remanded for a new loss calculation applying the appropriate credit for the fair market value of the services rendered under the contracts.

“Innocent Round Trip” Exception Not Applicable to Violation of 18 U.S.C. § 2423(b)

In United States v. Schneider, Nos. 12-1145 and 13-1491, 2015 WL 5235131 (3dCir., Sept. 9, 2015), Defendant was charged with one count of traveling in foreign commerce for the purpose of engaging in illicit sexual conduct with a minor, in violation of 18 U.S.C. § 2423(b) (2000), and one count of transporting an individual in foreign commerce with the intent that such individual engage in illegal sexual activity, in violation of 18 U.S.C. § 2421 (2000).

Defendant was an American attorney and philanthropist who initiated a sexual relationship with an underaged ballet dancer from Russia whom he sponsored. Defendant met the young dancer when he was 12 years old. By the time the dancer was 14 years old, he and Defendant were living together in Moscow. Defendant and the young ballet dancer traveled between the United States and Russia twice to allow the young dancer to study ballet. Eventually, the dancer’s family learned about the relationship and filed a civil suit against Defendant in 2009. However, when law enforcement officials learned about the relationship, the civil suit was stayed and federal criminal charges were filed against Defendant in 2010.

At trial, the jury convicted Defendant of the traveling charge under § 2423(b), but found Defendant not guilty of the transporting charge under § 2421. The jury based its acquittal on the “innocent round trip” exception to § 2421, as enunciated in Mortensen v. United States, 322 U.S. 369 (1944). Defendant appealed his conviction under § 2423(b) on several grounds.

Defendant challenged the trial court’s refusal to apply the “innocent round trip” exception to his transporting charge under § 2423(b). As a matter of first impression in the Third Circuit, the court ruled that the “innocent round trip” exception did not apply to a charge of transporting under § 2423(b) . In Mortensen, the defendants operated a brothel. On one occasion, the defendants took a vacation, accompanied by two women employed at the brothel. However, no illegal sexual conduct occurred during the vacation. The Supreme Court concluded that the trip at issue was a “complete break or interlude” in the illicit sexual  activity. As the trip was “not undertaken for immoral ends,” it did not violated § 2421.

Defendant argued that the court should interpret § 2421 and § 2423(b) similarly. While both statutes involve traveling with the intent or purpose to engage in illegal sexual activity, the court concluded that the prohibited conduct under each statute was sufficiently dissimilar. Specifically, the Third Circuit ruled that, unlike the trip in Mortensen, Defendant’s trips did not constitute a “complete break or interlude” in the illicit sexual conduct. To the contrary, the court concluded that Defendant hosted the trips as part of his ongoing scheme to maintain his sexual relationship with the young ballet dancer.

The Third Circuit also upheld the trial court’s denial of Defendant’s motion to dismiss the indictment as untimely under the federal statute of limitations, concluding that Defendant’s conduct fell under the exception provided by 18 U.S.C. § 3283, which extends the statute of limitations for child sexual abuse offenses. The Third Circuit rejected Defendant’s challenge to the trial court’s refusal to admit evidence regarding his inability to seek proper medical treatment for a non-life threatening condition during his pre-trial incarceration. The Third Circuit also upheld to the trial court’s admission of excerpts from a film which Defendant had shown to the young dancer/victim, depicting a similar relationship between a young dancer and an older patron. The Third Circuit also concluded that Defendant had not met his burden to prove newly discovered evidence regarding the victim’s deposition testimony from the civil suite required a new trial. The Third Circuit also upheld the lower court’s application of the cross reference under U.S.S.G. §§ 2A3.2(c)(1) and 2A3.1, related to child sexual abuse offenses.  

Court examines White v. Woodall, reaffirms grant of habeas relief due to Bruton violation.

Washington v. Secretary, No. 12-2883, 2015 WL 5103330 (3d Cir. Sept. 1, 2015),

In an opinion by Judge Fisher, the panel reaffirms its earlier decision granting habeas relief because of a Bruton violation.  At Washington's trial, the prosecution introduced a statement by his codefendant that redacted Washington's name and replaced it with generic terms.  One codefendant, Taylor, testified that Washington was the driver, who stayed in the car while two other accomplices entered, shot and killed two store employees, and stole cash from a safe.  Taylor claimed Washington entered the store following the shootings and helped remove the cash.  Taylor testified at trial and was impeached on cross-examination.  Then a detective read a redacted version of the confession of a non-testifying codefendant, Waddy, in which Washington's and a fourth defendant's names were replaced with phrases like "they guy who went into the store" and "the driver."

 
The district court and the 3d Circuit granted habeas relief, relying on the combined holdings of Bruton, Richardson v. Marsh, and Gray v. Maryland for the proposition that no reasonable reading of those cases can tolerate a redaction that would be "transparent to the jurors."  Here, the redactions were transparent because Taylor had explicitly identified Washington as the driver.

The Supreme Court granted certiorari, vacated, and remanded for further consideration in light of White v. Woodall(which held that a state court decision merely declining to "extend" a SCTOUS precedent cannot be an unreasonable application of clearly established federal law under AEDPA).

 Judge Fisher acknowledges how difficult the AEDPA "unreasonable application" test is to meet, and stresses that "applying a general standard to a sepcific case can demand a substantial element of judgment," requiring deference by habeas courts.  In his reading, the distinction between Richardson v. Marsh, which upheld the use of a redacted confession, and Gray v. Maryland, which disapproved it, was that in Richardson the redactions removed all mention of the existence of the nonconfessing defendant.

 

“Taken together, the current state of the law is that there is a Confrontation Clause violation when a non-testifying codefendant’s confession is introduced that names another codefendant, Bruton, 391 U.S. at 126, or that refers directly to the existence of the codefendant in a manner that is directly accusatory, Gray, 523 U.S. at 193-94. That is because such statements present a ‘substantial risk that the jury, despite instructions to the contrary, [will] look[] to the incriminating extrajudicial statements in determining [the defendant’s] guilt.’ Bruton, 391 U.S. at 126. But there is no violation if the confession is properly redacted to omit any reference at all to the codefendant, making it more likely that the jury will be able to follow the court’s instruction to disregard this evidence in rendering its verdict. Richardson, 481 U.S. at 208, 211. It is against this background that we assess whether the Pennsylvania Superior Court unreasonably applied clearly established federal law.” 

In Fisher's view, this is not a “close call” case that is subject to “fairminded disagreement.”  The Superior Court applied a blanket rule providing that a redaction was permissible as long as the jury had to apply an additional piece of information outside the confession to link it to the nonconfessing defendant.  This rule is "not a reasonable view of the law."

 

Fisher goes on to explain why, in contrast to Woodall, the state court ruling was not a mere refusal to extend the Bruton rule to a new context.

 

Thanks to Claudia Van Wyk, for providing this summary.

 

Habeas relief affirmed: government concedes unreliable fire-science and chromatography evidence has been discredited and Court finds remaining evidence not sufficiently “ample” to prove arson and murder beyond a reasonable doubt

In Han Lee v. Superintendent Houtzdale SCI, the Third Circuit affirmed habeas relief (under 28 U.S.C. § 2254) granted to a father who spent 24 years in prison for allegedly setting a fire that killed his daughter. 

First, the Court accepted the case on the merits, rejecting procedural challenges to the appeal. A notice of appeal is delivered when received by the clerk, regardless of when it was officially filed. (discussing Fed.R.Civ.P. 5(d)(2)). A notice of appeal is valid so long as it specifies the appealing party, designates the judgment being appealed, and names the court to which the appeal is taken, even if it violates a local electronic filing requirement. (citing Fed.R.App.P. 3(c)(1)). 

 The Court then reviewed magistrate’s report and recommendation for plain error, without AEDPA deference, consistent with the law of the case.  See Lee v. Glunt, 667 F.3d 397, 400–03 (3d Cir. 2012).  The magistrate found that Lee had shown “that the admission of the fire expert testimony undermined the fundamental fairness of the entire trial because the probative value of [that] evidence, though relevant, [was] greatly outweighed by the prejudice to the accused from its admission.” Lee, 667 F.3d at 403.  The Commonwealth conceded that the basis for fire-science and gas-chromatography evidence has now been discredited.  The Court found that the remaining evidence was not sufficiently “ample” to prove arson and murder beyond a reasonable doubt.  That evidence was: (1) alleged inconsistencies in the Korean-to-English interpretation of statements made by Lee in the hours following his daughter’s death, (2) a cultural stoicism construed as nonchalance, and (3) autopsy results which posited two alternate theories of cause of death, one wholly consistent with death in an accidental fire, and the other (strangulation) which had very little forensic support.

Martinez v. Ryan does not apply to excuse procedural default caused by attorney error at the state collateral appeal stage.

In Norris v. Brooks,No. 13-4448, the Court addressed a Rule 60(b) motion filed by a 2254 habeas petitioner who claimed that the case of Martinez v. Ryan, 132 S.Ct. 1309 (2012), called for the reopening of his federal habeas petition, previously denied in 2007.

Procedural background in Norris:

            In his state PCRA proceedings, Norris raised a claim of ineffective assistance of trial counsel (“IAC trial counsel”) for failing to move to dismiss on rule based and constitutional speedy trial grounds.  PCRA counsel raised the IAC trial counsel claim (poorly, citing the wrong dates) in the initial PCRA petition and then abandoned the claim, over Norris’s strenuous objections, on PCRA appeal.  Norris sought review of his IAC trial counsel/speedy trial claim in a 2254 federal habeas petition.  The federal habeas court denied his petition finding that the claim was procedurally defaulted because it was not raised at the PCRA appeal level. 

A recap of Martinez:

In Martinez v. Ryan, SCOTUS held that, under certain circumstances, attorney error at the initial collateral review stage could constitute cause for the procedural default of an IAC trial counsel claim in a federal 2254 proceeding.  For example, in Pennsylvania, the first time a defendant can claim IAC trial counsel is in a PCRA petition.  If the defendant fails to raise an IAC trial counsel claim in the PCRA petition, then the claim is normally considered procedurally defaulted and federal habeas court cannot review the claim.  Under Martinez, if the reason that the trial counsel-IAC claim was not presented in the initial PCRA petition was due to ineffective assistance of PCRA counsel, then it is possible that the PCRA counsel’s error constitutes cause and excuse for the procedural default and the federal habeas court may be able to review the trial counsel-IAC claim even though it was never presented in state court.  In this way, Martinez overruled Coleman v. Thompson, 501 U.S. 722 (1991).

Raising Martinez via Rule 60(b)(6) motions:

            Fed.R.Civ.Pro. 60(b)(6) allows for relief from civil judgments in “extraordinary circumstances.”  The question of whether SCOTUS’s decision in Martinez could constitute extraordinary circumstances allowing for the reopening of a federal habeas petition which had previously been denied due to procedural default under Coleman was addressed by the Third Circuit in Cox v. Horn, 757 F.3d 113 (3d Cir. 2014).  In Cox, the Court held that while Martinez, by itself, did not constitute extraordinary circumstances allowing for the re-opening of a federal habeas petition under Rule 60(b)(6), Martinez, in conjunction with other equitable factors, could potentially merit Rule 60(b)(6) relief.

No relief for Norris:

            The problem for Norris was that the procedural default of the IAC trial counsel-speedy trial claim occurred at the PCRA appeal level (according to the original federal habeas court) and not at the initial PCRA proceeding.  Because Martinez explicitly applied only to claims that were procedurally defaulted at the initial PCRA stage and not at the appellate stage, Norris’s appeal was denied. 

Doyle Error Not Harmless in Credibility Contest Between Cooperator and Accused

In United States v.Jace Edwards, No. 14-4088, the Court remands for a new trial following the government's concession that the trial prosecutor had violated the constitutional rule of Doyle v. Ohio, 426 U.S. 610 (1976).  As restated in contemporary Third Circuit precedent, that rule prohibits the prosecutor from causing the jury to draw an impermissible inference of guilt from a defendant’s post-arrest silence after the defendant has been Mirandized.  On appeal, the government’s sole contention was that the trial prosecutor’s misconduct was harmless.

The Court easily dispatches of the government's contention.  Though the prosecution was founded on a controlled delivery, the Court explains, the trial boiled down to a credibility contest between the defendant and a cooperating witness.  Despite “some evidence suggesting that [the defendant’s] exculpatory story was not plausible,” there was no way to say the verdict “was surely unattributable to the error.”  Accordingly, the government had failed to "prove[] beyond a reasonable doubt that the error complained of did not contribute to the verdict obtained," as required to establish that constitutional error was harmless.  Along the way, the Court lays stress on “the District Court’s belated and ineffective curative instruction,” noting that the court initially overruled defense counsel’s objection to the prosecutor’s improper closing argument, and that language elsewhere in the charge approved consideration of “any statements made and acts done or omitted by the defendant.”  Quoting its earlier criticism of this language in United States v. Waller, 654 F.3d 430 (3d Cir. 2011), the Court notes that “jurors were invited by the District Court to consider the statements that [the defendant] failed to make.”

Court Clarifies Mental State Requirement for 'Color of Official Right' Extortion, Rejects Challenges to 'Sophisticated Means' Enhancement

In United States v.Fountain, Nos. 13-3023 &c., the Court finds occasion to clarify the elements of extortion under “color of official right” within the meaning of the Hobbs Act, 18 U.S.C. § 1951.  The three appellants were found guilty after a two-week trial of participating in a tax refund scam.  A Hobbs Act count named only one defendant, an IRS employee who drew upon her knowledge of internal auditing procedures to avoid the red-flagging of fraudulent applications for certain tax credits.  The applications were submitted using personal information supplied by third-party claimants in exchange for a portion of the refunds.  The Hobbs Act count rested on one claimant’s agreement to pay $400 to the IRS employee in the belief — on the government’s theory — that it would help the claimant obtain the refund and avoid an audit.

Distinguishing certain broad language in two prior opinions, the Court (per Krause, J., joined by Fuentes and Fisher, JJ.) holds that to prove extortion under color of official right, the evidence must show: “(1) that the payor made a payment to the defendant because the payor held a reasonable belief that the defendant would perform official acts in return, and (2) that the defendant knew the payor made the payment because of that belief.”  (Emphasis supplied.)  That some earlier decisions had not explicitly referenced the italicized mental state requirement, the Court explains, reflects only that the reasonableness of the payor’s belief was uncontested and obvious in those cases.  Applying the clarified standard, the Court upholds conviction based on the $400 payment despite what the IRS employee submitted was insufficient evidence as to the claimant’s state of mind in making it.

The Court also upholds a bevy of sentence enhancements.  It first rejects challenges to the two-level enhancement for “sophisticated means” under the fraud guideline at U.S.S.G. § 2B1.1.  The enhancement can apply, the Court concludes, based on conduct “less sophisticated” than the examples set forth in a guideline application note referencing “the use of fictitious entities, corporate shells, or offshore financial accounts.”  While the opinion proceeds to reiterate that the sophisticated-means enhancement requires conduct showing “a greater level of planning or concealment than a typical fraud of its kind,” the ensuing analysis states that “factors like the duration of a scheme,” the “number of participants,” and “efforts to avoid detection” may be relevant.  Nonetheless, the Court also points to reliance on specialized expertise, as in the IRS employee’s use of “inside knowledge of the IRS’s enforcement thresholds” and another defendant’s electronic filing of claims in a manner traceable only to a third party’s wireless network.

The Court also rejects more fact-specific challenges to enhancements for use of a minor, see U.S.S.G. § 3B1.4, aggravating role, see id. § 3B1.1(a),  loss amount calculation, see id. § 2B1.1(b)(1), and substantive reasonableness, see 18 U.S.C. § 3553(a).  As to role, the Court firms up the rule that the defendant must have exercised “some degree of control over at least one other person involved in the offense.”  Regarding reasonableness review, the Court repeats what it has occasionally described as a rule that “[s]entences that fall within the applicable Guidelines range are more likely to be reasonable than those that do not.”  Of course, district courts may not indulge any such presumption when sentencing in the first instance.  Nelson v. United States, 555 U.S. 350 (2009).

Officers did not have reasonable suspicion at the moment of seizure.

In United States v. Shawn Lowe, No. 14-1108, ___ F.3d. ___, 2015 WL 4032921 (3d. Cir. July 2, 2015), the Third Circuit reversed the district court's denial of Lowe's suppression motion, finding that the district court had erred in determining the moment of seizure during a Terry stop.  The Court explained:

Here, three marked police cars nearly simultaneously arrived at Ms. Witherspoon’s residence at 4 o’clock in the morning. Four uniformed police officers immediately got out of their patrol cars and approached Lowe and Witherspoon, commanding them to show their hands. . . .  [T]he record indicates that [the officers] arrived in a hurried manner and at least one drew his firearm at some point during the encounter. A reasonable person in Lowe’s position would not have felt free to decline this interaction, turn, and leave.

 

The Court also determined that Lowe submitted to the show of authority. The seizure was effectuated when he did not flee, did not make any threatening movement or gesture, and remained stationary.  Lowe's "few startled steps back in the face of onrushing, armed police officers is entirely consistent with a surprised reaction and even acquiescence" and did not amount to flight. 

Prosecutorial Conduct, Response to Jury's Request and Evidentiary and Sentencing Issues Denied by Circuit

In United States v. Kolodesh, No. 14-2904 (3d. Cir. May 28, 2015), the Third Circuit affirmed the district court’s sentence of 176 months’ imprisonment, three years supervised release, and an order for $16.2 million in restitution.

Kolodesh, who co-owned Home Care Hospice, Inc., appealed his conviction of one count of conspiracy to defraud a health care benefit program (18 U.S.C. § 1349), twenty-one counts of health care fraud (18 U.S.C. § 1347), two counts of mail fraud (18 U.S.C. § 1341), and eleven counts of money laundering (18 U.S.C. § 1957) based on his company’s involvement in a Medicare fraud scheme.  Kolodesh and his co-workers falsified records to show that patients were eligible for continuous Hospice care that the patients never received, gave doctors kickbacks, gifts, and cash for referrals, and even put some doctors on the company’s payroll with sham job titles.  Kolodesh’s company also submitted fraudulent claims for Medicare reimbursement, which constituted 90% of their revenue.

On appeal, Kolodesh alleged prosecutorial misconduct, evidentiary issues, errors in responding to a request from the jury, and in sentencing.

Prosecutorial Misconduct

 

The first allegation of prosecutorial misconduct involved wiretap recorded conversations of Kolodesh talking about opening a Swiss bank account but avoiding one specific Swiss bank because “[it] reports everything to the American government.”  The Court of Appeals found that the district court did not err by allowing the government to refer to this recorded conversation of the defendant because he did not object, and, the recording was relevant.

 

The second allegation of prosecutorial misconduct involved a translated wiretap and testimony about Russian stereotypes.  FBI wiretaps recorded Kolodesh stating he had to “f*** them [Medicare] over this time, one more time .…” Kolodesh argued that the statement was inaccurately translated from Russian to English, and that it was irrelevant.  The Circuit found that the government did not commit prosecutorial misconduct by eliciting testimony about Russian stereotypes because the statements were innocuous and volunteered by the witnesses without government suggestion.

Evidentiary Issues

The Third Circuit found the district court erred by not allowing Kolodesh’s wife to testify that he was home and very ill during some of the years in question.  However, the Court ruled the error was harmless, as other testimony indicated that Kolodesh met with co-workers via phone and at his home while he was ill.

Kolodesh’s former co-workers and co-conspirators pled guilty and testified for the government.  The Court held it was not error to admit testimony of their uncharged acts of fraud because they were not offered to show Kolodesh’s character as a defrauder, but rather as circumstantial evidence of his knowledge of fraudulent activity at the company.

The Court of Appeals also held that the district court did not err in allowing the previously discussed recorded conversation about Kolodesh’s Swiss bank account to be introduced into evidence as the evidence’s probative value substantially outweighed its prejudicial effect.

Response to Jury’s Request

The jury requested the testimony of certain government witnesses at various times during deliberations.  The district court told the jury that, if possible, they should continue their deliberations while the audio recordings and transcripts were prepared.  Two hours later, before the recordings and transcripts were delivered, the jury returned a verdict.  The Third Circuit found that the district court acted properly in instructing the jury that they could wait for the transcripts or continue deliberating using their recollection.

Sentencing

The Court of Appeals held that the district court did not err in determining that the government proved a $16.2 million loss due to Kolodesh’s fraud because witnesses were competent to testify to the amount of loss.

The Court also held that the district court did not err in holding Kolodesh jointly and severally liable for the full amount of loss since no atypical situation had occurred.

Kolodesh objected to the four-level sentencing enhancement for his role as an organizer or leader of fraudulent activity.  The Third Circuit found no error and upheld the sentencing enhancement.

Kolodesh likewise objected to the two-level adjustment for obstruction of justice.  The Court of Appeals upheld the enhancement because Kolodesh pointed to nothing in the record indicating error.

The Court held that the district court did not err in deciding that Kolodesh was an appropriate candidate for a lengthy incarceration because the BOP was fully capable of provide adequate medical care for him.

The Circuit also held that a lengthy prison sentence combined with restitution was not substantively unreasonable because the restitution merely served to make the government whole and the district court imposed a sentence below the applicable guideline range.

Many thanks to Law Clerks Robert K. Lavelle and Anne Yoskoski who prepared this post.

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.

 

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.

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 4⅓ years 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 4⅓-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.

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. 

 

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.

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.)

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.