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White Collar Defense & Compliance

Developments in Criminal Law, Federal Case Law and Statutory Developments

Third Circuit Endorses Use Of In Camera, Ex Parte Witness Interview By Judge To Determine Whether Crime-Fraud Exception Justifies Compelling Attorney To Disclose Privileged Conversation

Posted in Attorney-client privilege

Alain Leibman writes:

Twenty-five years ago, the Supreme Court in United States v. Zolin, 491 U.S. 554 (1989)  endorsed the use by district judges of in camera and ex parte review of privileged documents in order to determine whether the privilege was vitiated by the crime-fraud exception.  The Court held that a factual predicate to any document review by the district court was a demonstrable good faith belief by the party seeking the materials that the judge’s review could establish the privilege had been abused by the client in furtherance of a crime or fraud.

The Third Circuit recently confronted an effort by the government in the grand jury context to compel an attorney to testify about privileged communications with  his client on the basis of an alleged crime-fraud exception to the privilege.   In re Grand Jury Subpoena, 2014 WL 541216 (3rd Cir., Feb. 12, 2014).  The grand jury was investigating alleged violations of the Foreign Corrupt Practices Act, or FCPA, by a loan consultant entity which had aided other companies in obtaining financing from a British bank for overseas ventures.  The company’s president had sought legal guidance in payments to be made for the benefit of a representative of the bank, in order to facilitate the granting of financing from that bank.  The attorney was subpoenaed for testimony about the communications, and the company and its president intervened, moving to quash the subpoena on privilege grounds.  The government made a showing of crime-fraud by ex parte affidavit and sought a Zolin review by having the district judge conduct a private interview of the attorney.

Extending the Zolin protocol to go beyond documents to live witness testimony would not seem to be much of a stretch, but the intervenors argued that the was a substantial difference between a  court reviewing and assessing cold documents and interviewing and evaluating the more fluid answers of a live witness, and they argued for a more rigorous preliminary showing by the government to trigger the protocol.  The Court of Appeals refused to implement a different and higher standard for examining oral communications and rejected the intervenors’ concern that the dynamic of a witness interview, given the different ways in which questions could be framed and in which verbalized answers could be understood, differentiated this case from the document review of Zolin.  The intervenors’ request that they be present during the examination of their attorney was also rejected, on the ground that the questions to be posed by the judge — a number of which were suggested by the government — would unfairly reveal information about the nature of the grand jury investigation and of the government’s strategy.

Nothing thus far in the court’s analysis and application of Zolin could be characterized as terribly surprising.  The more interesting, and substantive, question raised on the facts of this case was whether the District Court correctly determined that the crime-fraud  applied to this attorney-client communication.  There are two elements to the exception which must be established: first, that there is a reasonable basis to believe that the holder of the privilege was committing or intended to commit a crime or fraud and, second, that the attorney-client communication was used to further the crime or fraud.

The first element was readily shown, but the second was  inadequately treated in the Court of Appeals’ opinion.  Typically, a communication from a lawyer which is argued to be in furtherance of the crime is one in which the lawyer provides affirmative and direct guidance as to a course of action which might be followed in order to avoid legal compliance in order to aid a wrongdoer; usually, the attorney is somewhat complicit in the wrongful activity and, usually, the government’s interest is less in what the lawyer had to say that in what the client admitted to the lawyer having done.

According to the opinion, in this case the company president explained to the attorney in their first meeting in 2008 that he intended to pay the banker in order to ensure progress on the foreign transaction, thus admitting to a commercial bribery and Travel Act conspiracy violation, if not to an FCPA violation.  The attorney the explained the bare outlines of the FCPA and asked some questions about the relationships of the banker and his bank to foreign governmental entities.  The attorney, according to the opinion, could not determine whether the payments to the banker were legal or illegal, and so advised the client not to make the payment.  The client ended up making the payments and arranging for the monies to go to the sister of the banker.

Clearly, the government wanted the admissions made by the client about his intended course of illegal payments.  It is difficult to understand how the lawyer’s brief dissertation on the proscriptions of the FCPA or his conclusion that the payments should not be made in any way “furthered” the client’s announced and intended course of conduct.  The court rearranged the facts thusly, in order to affirm the “in furtherance” finding: “Specifically, Attorneys questions about whether or not the Bank was a governmental entity and whether Banker was a government official would have informed Client that the governmental connection was key to violating the FCPA.  This would lead logically to the idea of routing the payment through Banker’s sister, who was not connected to the Bank, in order to avoid the reaches of the FCPA or detection of the violation.”  Id. at *9.

Now, that’s a stretch.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

Witness Affidavit Submitted Years Earlier In Administrative Immigration Proceeding Cannot Be Admitted In Subsequent Criminal Trial

Posted in Constitutional law

Alain Leibman writes:

Following the Supreme Court’s Confrontation Clause jurisprudence over the last ten years, since the decision in Crawford v. Washington, 124 S. Ct. 1354 (2004), and the resulting interpretations of lower courts, has proven to be an uncertain and sometimes dizzying ride.  The Court did not initially enunciate a test to determine the admissibility of out-of-court statements made by unavailable witnesses sufficiently brightly-lined to permit anything approaching predictable outcomes in individual cases.  As discussed here, here, and here, the overall result has been less a bright line than a dimly illuminated, shifting path.

The starting point derived from the cases is that an out-of-court statement is “testimonial” if its primary purpose is to establish facts for use at a trial.  Crawford, 124 S. Ct. at 1354; Davis v. Washington, 547 U.S. 813, 822 (2006).  We are also informed that statements which qualify as “business records” under Fed. R. Evid. 803(6) are still admissible without live witness testimony, because they are “nontestimonial,” serving to record transactions of an entity and not to memorialize facts for trial.  Melendez-Diaz v. Massachussetts, 557 U.S. 305, 324 (2009).  (As discussed here, in a concurring opinion in Bullcoming v. New Mexico, 131 S. Ct. 2705 (2011), Justice Sotomayor suggested other theories to save the admission of seemingly “testimonial” statements, such as are found in laboratory results (including the introduction of lab test data through an independent expert, testifying under Fed. R. Evid. 703 as to hearsay test results generated by another; stripping away technician opinions and conclusions from the lab results, leaving only machine-produced data)).

The Fifth Circuit recently examined the Confrontation Clause implications of the admission in a trial of an old affidavit created for an unrelated purpose by a deceased declarant.  In United States v. Duron-Caldera, 737 F.3d 988 (9th Cir. 2013), the defendant was charged with being an alien who illegally re-entered the country.  The government was required to prove that the defendant was an alien, i.e., that he lacked U.S. citizenship, when he re-entered.  His defense was that he was indeed a citizen, having been born in the U.S. to an alien mother who had been physically present in the U.S. for a sufficient number of years before his birth to confer citizenship rights on her newborn son.  To debunk that theory, the government was permitted to introduce an affidavit executed 40 years earlier by the defendant’s maternal grandmother, calling into question her daughter’s (the defendant’s mother’s) date of entry and duration of stay in this country.  The affidavit had been prepared in connection with an administrative document fraud investigation, and the affiant was deceased, so not avaiable for the defendant’s trial; the record is not clear, but the affidavit was offered and admitted either as a government record under Fed. R. Evid. 803(8) or a Rule 803(6) business record of the government agency.

The district court admitted the Immigration affidavit, and the defendant was convicted.  However, the Ninth Circuit vacated the conviction and held that the affidavit was admitted in violation of the defendant’s Confrontation Clause rights.  The grandmother’s statement was clearly an affidavit, the paradigm type of testimonial statement whose use as trial evidence was abjured by Crawford.  Moreover, the government had not met its burden of showing a nontestimonial purpose for its creation.  To the contrary, there was evidence that the affidavit was in fact prepared for trial use, since it was created during a document fraud investigation and since it exculpated the affiant but implicated others in creating false citizenship documents; it was not doctrinally significant that the trial for which it was prepared was a different trial than the present one.  Further, the admission of the affidavit was not saved by viewing it as business record of the agency, because the usual requirements of such records were not established, including that the source of the documented information was someone providing information in the regular course of business.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

Supreme Court To Tackle Warrantless Cellphone Searches

Posted in Constitutional law

Alain Leibman writes:

We posted here last summer about a recent First Circuit opinion which invalidated a warrantless, incident to arrest, search of a defendant’s cellphone.   Entitled “Setting the Stage for Supreme Court Review,” the post discussed the varying opinions of appeals courts applying a Fourth Amendment which has been adapted uneasily to new technologies, and we predicted that the Supreme Court would soon take up the matter.

Indeed it will.  The Washington Post reported on January 17th that the Court will take up the First Circuit case, and seek to resolve disputes among multiple courts of appeal regarding access to cellphone data.  The decision rendered by the Court is not likely to apply only to cellphones, but is expected to lay down benchmarks for the consideration of searches of other data storage media, in what promises to be the most important Foruth Amendment decision by the high court in years.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

Attorney-Client Privilege Precludes Counsel, Following Discharge By Client, From Testifying To Defendant’s Understanding Of And Agreement To Plea Terms

Posted in Evidence, Trial tactics

Alain Leibman writes:

It is among the most difficult episodes in a defense counsel’s practice.  Whether testifying on a former client’s habeas petition under 28 U.S.C. § 2255 alleging ineffective assistance or on a motion brought by new counsel to withdraw a guilty plea, no defense attorney wants to respond to inquiries from the court or the Government about what the former client knew or agreed to at an earlier time.  Finding oneself in opposition to a former criminal client is uncomfortable, antithetical to the philosophy of advocating only to advance that client’s welfare, and, a recent Fifth Circuit opinion holds, it may be unethical as well.

In United States v. Nelson, 232 F.3d 504 (5th Cir. 2013), an elected official convicted for taking bribes to promote the interests of a government contractor, argued on appeal that the District Court had improperly admitted at trial the factual admissions contained in a plea agreement which he had signed.  He never entered a plea of guilty, and went to trial instead.  At trial, the Government argued, and the trial judge agreed, that Nelson had intentionally and knowingly waived in the written plea agreement itself the protections afforded him under Fed. R. Evid. 410, which normally would bar the use of factual statements made in connection with plea negotiations which do not lead to a plea of guilty.  After all, the Supreme Court held nearly 20 years ago in United States v. Mezzanatto, 513 U.S. 196 (1995) that a defendant could effective waive such protections.

The Government called Nelson’s former criminal attorney to testify at trial before the jury.  The attorney authenticated the written plea agreement and its waiver provision and factual statement, and, without discussing the details of her conversations with Nelson, told the jury that Nelson had read the document, had held a lengthy discussion with counsel about it, and had understood and agreed with its terms.  The plea agreement itself was not admitted into evidence, but the former attorney was directed to read its stated factual basis to the jury.  Nelson was convicted.

The Fifth Circuit noted that the mere appearance of an attorney testifying against her former client is “distasteful” and should only rarely occur, as when a former client’s mental competence or the voluntariness of an action is at issue.  Id. at 519.  The court also suggested that taking such testimony outside the presence of the jury is even then a better practice.  Ibid.  Here, though, the testimony before the jury went beyond a general competence issue or a question about the voluntariness of Nelson’s actions; when the former attorney testified that she and Nelson had a lengthy discussion and that Nelson understood and agreed with the plea agreement and its contents, according to the appeals court, the attorney’s testimony invaded the attorney-client privilege.  Ibid.

However, Nelson had not made a contemporaneous objection to the former attorney’s testimony on privilege grounds and the error was deemed harmless under a plain error analysis because the factual basis had after all been ruled admissible and could have been presented other than through the former attorney’s testimony.  Ibid.  But the teaching point remains, and counsel should be very wary of being placed in a situation of opining about a former client’s apparent awareness or understanding of signal events in the course of a criminal representation.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

Sentencing Judge May Require Defendant To Allocute Under Oath

Posted in Sentencing

Alain Leibman writes:

In a recent decision less notable for its conclusion than for the observations made along the way, the Third Circuit recently held that a sentencing judge did not commit error when he required a defendant to be placed under oath before allocating to the court prior to the imposition of sentence.

The defendant in United States v. Ward, 732 F.3d 175 (3d Cir. 2013), appealed his child pornography conviction on multiple grounds, including that the District Court had required Ward to take an oath prior to presenting his verbal statement to the court at sentencing.  Since Ward appeared to have covered a broad swath of subjects in his sworn allocution, the harm which befell him from being required to be first sworn is entirely unclear – his counsel could only argue on appeal that the obligatory oath violated his “fundamental right to present a personal allocution.”  Id. at 183.

In any event, the appeals court took the claim sufficiently seriously to review the historical right of allocution, noting its antecedents in the 15th century, but pointing out that it is not a constitutionally-guaranteed right, despite other courts having grounded the right in the Fifth and Fourteenth Amendments.  Id. at 181 & n.5.  Also, Fed. R. Crim. P. 32, which governs sentencing, is silent on the point, requiring only that the sentencing court must address a defendant personally and must permit the defendant to speak or present information in mitigation.  Ibid.  The court noted, too, that the Sentencing Guidelines do not distinguish between sworn and unsworn statements by a defendant at sentencing, providing that either may, if false, provide the foundation for an upward adjustment for obstruction of justice under U.S.S.G. § 3C1.1Id. at 182.

The court of appeals noted that the right of allocution is not unlimited, and may be restricted by the sentencing judge as long as the defendant has some opportunity to address the court.  Ibid.  Therefore, a sentencing judge may choose to swear a defendant, or decline to do so, before hearing the defendant’s personal allocution.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)


To Charities and Board Members: Beware and Be Aware of Collateral Damage that May Ensue from Unrelated Legal Proceedings – Part III

Posted in Charitable board governance

Michael J. Kline writes:

Part III of this blog entry will discuss and provide a list of ideas as to how charities may identify and respond to events affecting individual board members and others, such as convictions, consent decrees and admissions of wrongdoing, that may require disclosure in State Reports.  (Capitalized terms not otherwise defined in this Part III shall have the meanings assigned to them in Parts I and II.)

Disclosure and Governance Considerations for Charities Filing State Reports

As mentioned in Part II, charities need to exercise the same level of discipline in responding to questions in State Reports as they do for a Form 990 to be filed with the IRS.  The primary focus by charities in recent years has generally been on preparing and filing Forms 990, not State Reports.  However, any person signing a State Report on behalf of the charity must be aware that, similar to the Form 990, the State Report makes it clear that, under penalty of perjury, the signer is stating that the information contained in the filing is true, correct and complete (or words similar to that effect). 

It is incumbent on every charity that files one or more State Report(s) to provide a questionnaire for Individuals that will allow the charity to answer all applicable questions that may be contained in each State Report that it files.  The State Report questions may be included as part of the charity’s annual conflicts of interest questionnaire to Individuals that is used to respond to Form 990 governance questions or may be in a separate supplemental questionnaire.  The charity will then have a documented basis to respond to such questions in the State Reports.

Further ideas with respect to these issues for charities include the following:

1.         Charities should take the time to prepare the appropriate questions to Individuals in a questionnaire that will cover all State Reports required to be filed.  (There may be different questions in each State Report, as well as variations in the way a question is asked in one State Report as compared to a similar question that is asked in another State Report.)

2.         For a charity that is required to file State Reports in multiple states, determine whether the URS can be used for filing in most or all of the required states, thereby limiting the number of questions that can be generated by item 1 above and the number of separate State Report forms that need to be prepared and filed.

3.         For a charity that must file State Reports in multiple states that include states which do not accept the URS (“Non-URS States”), be certain that the questionnaire is delivered to all Individuals for whom questions are asked in such Non-URS State Reports, especially those Individuals who may not be covered by the URS.

4.         For a charity that must file State Reports in multiple states that include some Non-URS States, be certain that the questionnaire covers all questions that may be asked in both the URS and Non-URS State Reports, especially variations from the form of questions in the URS.

5.        Should an event identified in response to a questionnaire or otherwise relating to an Individual appears to require disclosure and explanation in a State Report(s), the executive committee or other appropriate committee of the board of the charity (“Board Committee”) should review among other things, with the advice of legal counsel, the following:

a.         the charity’s bylaws insofar as they relate to resignation or the removal process of an Individual by the board and potential rights of appeal by the Individual;

b.         the nature and potential effect on the charity, its stakeholders and the Individual of any affirmative response that will require an explanation (“Response”) in a State Report that is a matter of public record; and

c.         the potential for media exposure and difficult questions for the charity, its governing board and the Individual.

6.         The Board Committee should investigate the matter promptly, invite participation by the Individual and his/her legal counsel in the process, and endeavor to come to an amicable resolution that appears to be appropriate for both the charity and the Individual.

7.         In the event that such an amicable resolution cannot be achieved, the Board Committee should make recommendations as promptly as practicable to the board as to how the charity should deal with its Response and the future of the relationship of the Individual to the charity.  (Note that if the Individual is a board member, in many states he or she has an absolute right as a fiduciary to participate fully in the board meeting at which the matter is being discussed, unless the Individual voluntarily chooses to absent himself/herself from the meeting.)


Charities and their board members must be vigilant to have mechanisms in place to identify and respond to convictions, consent orders and/or admissions of wrongdoing by board members, officers and others to limit the adverse effects of such events to the charity, the charity’s governing board, the affected individual and their respective images in the community.

(Michael J. Kline, the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department.  He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

To Charities and Board Members: Beware and Be Aware of Collateral Damage that May Ensue from Unrelated Legal Proceedings – Part II

Posted in Charitable board governance

Michael J. Kline writes:

Part II of this blog entry uses disclosures required for board members of charities to demonstrate the unrelated and unanticipated negative ripple effect that may flow from what may appear to be relatively unimportant consent decrees or admissions of wrongdoing discussed in Part I.  (Capitalized terms not otherwise defined in this Part II shall have the meanings assigned to them in Part I.)

Effect of Consent Settlements and Admissions of Wrongdoing on Charitable Disclosures

What does the discussion in Part I have to do with disclosures by charities and their board members?  It has little relevance to the “Part VI, Governance, Management and Disclosure” section of the Form 990 Annual Return that most charities are required to file annually with the Internal Revenue Service (“IRS”).  Since 2008, charities have become highly attentive to meeting Part VI disclosure requirements under Form 990 because it is a formal IRS filing and becomes universally available on the Internet on Web sites such as GuideStar.

The Form 990 concentrates in Part VI on conflicts of interest; family or business relationships among board members, officers, and others; governance of the charity; whether the charity has a whistleblower policy; whether the charity has a document retention and destruction policy; and compensation of board members, officers and others.  Most charities distribute annual questionnaires to their board members and officers to be able to respond to the Form 990 questions on conflicts of interest and family relationships.  The existence of a consent order and/or an admission of wrongdoing by a board member in an unrelated judicial or administrative proceeding, however, would not ordinarily come to light in responses to the Form 990 questions.

It is, however, a different case for reports to be filed annually with most states under charitable registration statutes (“State Reports”) by organizations that do public fundraising.  Many of these State Reports require filing of a copy of the latest Form 990 and require specific disclosures and explanations about individual board members, officers and other specified persons (collectively, “Individuals”) regarding unrelated events like the SEC or Department of Labor administrative actions discussed in Part I.  This can be enormously embarrassing to the charity and the Individual, as such State Reports are matters of public record and readily available from the states upon request.  As a matter of fact, the Form 990 requires disclosure in Part VI, Section C of those states where a copy of the Form 990 is required to be filed by the charity.

In contrast to the Form 990, the Unified Registration Statement (the “URS”) for charitable organizations, which has become acceptable as an alternative permitted form for State Report filings in approximately 37 of the states that require State Reports, includes the following question 7D, among others:

7. Has [the] organization or any of its officers, directors, employees or fund raisers: . . .

D. Entered into a voluntary agreement of compliance with any government agency or in a case before a court or administrative agency?

Yes ___ No ___

If “yes” to 7A, B, C, D, E, attach explanation

As an additional example of the type of questions that may appear in State Report forms other than the URS, the State Report form for New Jersey (the “NJ Form”), which asks more than the usual number of questions relating to unlawful and/or criminal activities regarding Individuals, contains the following question, among others:

22.       Has the organization or any of its officers, directors, trustees or principal salaried executive staff employees been adjudged liable in any administrative or civil action involving theft, fraud, or deceptive business practices? For purposes of this question a judgment of liability in an administrative or civil action shall include, but is not limited to, any finding or admission that the individual engaged in an unlawful practice in relation to the solicitation of contributions or the administration of charitable assets. Yes  ____       No ____

If “Yes,” identify the individual(s) below and attach to this registration a copy of any order, judgment or other documents indicating the final disposition of the matter.

If the accountants who entered into consent decrees and the theoretical ERISA Defendant discussed in Part I were on a charitable board, it is likely that the charity could not answer “Yes” to the questions quoted above from the URS and the NJ Form.  The charity would likely have to answer “Yes,” with an explanation, in a public document that can be readily acquired by potential donors, foundations and planned giving prospects, as well as employees and the media.  In the case of the ERISA Defendant, further review would be necessary to determine if his/her role with the charitable organization could be deemed to make the ERISA Defendant a fiduciary of the charity’s ERISA-governed plans, thereby resulting in an unintended violation of his/her consent order were such status to continue.

(Michael J. Kline, the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department.  He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

[To be concluded in Part III]

To Charities and Board Members: Beware and Be Aware of Collateral Damage that May Ensue from Unrelated Legal Proceedings – Part I

Posted in Charitable board governance

Michael J. Kline writes:

Background:  The Current Heightened Regulatory Climate for Settling Proceedings

The increase in efforts by the Securities and Exchange Commission (“SEC”) in administrative proceedings to secure admissions of wrongdoing and/or consent orders from accountants highlights the need of charities and their board members to be vigilant as to how such types of actions may affect future disclosure requirements.  It is often the case that individuals against whom such proceedings are brought are members of charitable boards that are unrelated to the proceedings.

The SEC is certainly not the only regulatory agency to be actively involved in seeking consent decrees and admissions of wrongdoing.  As discussed below, many federal and state regulatory agencies and enforcement organizations are choosing this approach to avoid protracted and expensive proceedings and the risks of the potential result and to secure and publicize quickly sanctions against individuals alleged to be wrongdoers.  The SEC has been chosen by this blog post as an example of an agency that has had recent publicity placing it at the forefront in such efforts.

As an example, on September 30, 2013, the SEC reported that it had settled administrative actions against two of three accountants “in a continuing crackdown on gatekeepers,” as a result of which each of the settling accountants will be prohibited from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.  In each of the settlements, the accountants settled without admitting or denying the SEC’s findings.

However, several days earlier, on September 19, 2013, Andrew Ceresney, Co-Director of the Division of Enforcement of the SEC, spoke on SEC efforts to combat accounting fraud.  In the speech, Mr. Ceresney said the following

[O]ur settlement approach, much like numerous other federal regulators, had been to settle essentially all of our cases on a no-admit-no-deny basis. . . .  We recently modified our traditional approach in cases where there has been a criminal or regulatory settlement with admissions.  In such cases, we have eliminated the no admit/no deny language and referenced the admissions.

Again, the SEC is only one example of the many federal and state agencies engaged in securing consent decrees and admissions of wrongdoing to expedite resolution of cases.  In many of the cases a defendant and his/her counsel may be eager to settle and enter into a consent order with or without admission of wrongdoing as the easiest, cheapest and fastest way to get a proceeding finished and out of the defendant’s life.  As will be discussed below, careful analysis of such a decision should be done in light of unanticipated consequences that may flow from what seems to be a relatively benign or perfunctory resolution.

To use a less transparent example than an SEC sanction against a professional, suppose a consent order is entered into by a defendant (“ERISA Defendant”) with the Department of Labor that has the defendant in a civil case agree, among other things, not to serve in the future as a fiduciary of an ERISA-governed plan.  To the ERISA Defendant and his/her counsel, the sanction may seem relatively innocuous if the ERISA Defendant is convinced that he/she well never serve in such a capacity in the future.  However, there may be other subtle consequences to the ERISA Defendant that may flow from such a consent order that requires careful evaluation.

(Michael J. Kline, the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department.  He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

[To be continued in Part II]

Third Circuit Constricts Rule 404(b) Admissibility By Requiring That Evidence Not Only Be Offered For A Permissible Purpose, But That It Not Give Rise To A Propensity Inference

Posted in Evidence, Trial tactics

Alain Leibman writes:

Federal Rule of Evidence 404(b) permits evidence of non-charged crimes, wrongs, or acts to be admitted if probative of a purpose under the Rule, such as motive, intent, or lack of mistake.  The Rule is often referred to as a rule of inclusion, rather than exclusion, because it favors the admissibility of such evidence, and the Supreme Court in Huddleston v. United States, 485 U.S. 681 (1988) established a four-part test for admissibility: (i) the evidence has a proper evidentiary purpose under the Rule; (ii) it is relevant under Rule 402; (iii) its probative value is not substantially outweighed by its unfair prejudice to the defendant under Rule 403; and (iv) a proper limiting instruction is provided to the jury. 

But the Third Circuit recently emphasized that there is more to the first component of the Huddleston test than simply finding a ground in Rule 404(b) – such as motive – to which to stake the evidence, suggesting that the first criterion is otherwise too easily met.  Instead, the court of appeals held in reversing a conviction based in part on such evidence, the evidence which is tied to a proper purpose must still be excluded if it yields an inference of action in conformity with a defendant’s character, that is, that because an act was committed in the past by the defendant, it is more likely that he committed the charged act, too.

In United States v. Smith, 2013 WL 3985005 (3d Cir., Aug. 6, 2013), the defendant was convicted of threatening with a gun several federal officers.  He had been observed standing on a street corner and did not abandon his corner when the undercover officers approached in a car, instead moving towards them and drawing a weapon before he was subdued.  Smith claimed self-defense, since he did not know that the men coming toward him were police officers and they had not identified themselves.

The government sought to prove that Smith was motivated to behave in a threatening manner and intended to assault the officers, and that he was not acting in self-defense.  Relying on the Rule 404(b) permissible purpose of showing motive, the government was allowed to introduce law enforcement officer testimony that Smith had been arrested on the same corner two years earlier for selling heroin there and that drug dealers generally use weapons. The prosecutor then summed up to the jury by characterizing Smith as a drug dealer protecting his turf, motivated to protect his corner against intruders, not by self-defense.

The Third Circuit reversed the conviction. While the Huddleston analysis did first require identification of a proper purpose for evidence of the two-year old drug deal, and the government’s proffered proof of motive met that requirement, evidence “must do more than conjure up a proper purpose [; it] must also establish a chain of inferences no link of which is based on a propensity inference” (emphasis added).  Otherwise, it is too easy for prosecutors to fulfill the obligation to point to a proper purpose; if that were all that was required, then “the basic idea embodied by Rule 404(b), that simply because one act was committed in the past does not mean that a like act was again committed, would be threatened.” So, the Rule 404(b) purpose for admission, at least in the Third Circuit, must be established without an inference that the defendant acted in conformity on the current occasion with the bad character shown by evidence of the earlier act.

In this case, the prior drug act evidence was only relevant to the threatening charge if jurors assumed something about Smith’s bad character from the earlier charge, i.e., that he was a drug dealer, and if they further inferred that the recent incident reflected his acting as a drug dealer defending his turf.  To be sure, the court held, if Smith had been observed selling drugs on the recent occasion, then the government would have had a stronger argument for admissibility of the prior act, including as background information needed to complete the story of the crime.

At least in the Third Circuit, and perhaps by extension elsewhere, the Smith case is an important bulwark against the unfettered use of prior bad act evidence by the prosecution, and counsel may benefit by using Smith aggressively in moving to preclude such propensity-sounding evidence.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

Gun-Possession Conviction Reversed Because Police Officers Testified To Hearsay Contents Of 911 Call Identifying Suspect Resembling Defendant, Going Beyond Permissible “Background” Evidence

Posted in Evidence

Alain Leibman writes:

While much of the jurisprudence addressing the admissibility of out-of-court statements in criminal cases turns on abstract notions of the meaning of the Sixth Amendment’s Confrontation Clause (see a recent example here), defense counsel can sometimes block or successfully appeal the admission of testimony simply because the applicable rules of evidence bar its admission, without reaching questions of constitutional import.

An example of the still-useful role played by the prosaic Federal Rules of Evidence is provided by United States v. Nelson, 2013 WL 4007652 (6th Cir., Aug. 7, 2013).  Nelson, charged as a felon in possession of a firearm, was arrested by local police responding to an anonymous 911 call describing an armed man fitting Nelson’s description.  A series of officers engaged with Nelson on the day in question, some first approaching him and others subsequently chasing him and recovering a pistol found in the area of the chase, but no officer actually witnessed Nelson possessing the weapon and he denied it was his.  Over objection, the government was permitted at trial to have no fewer than five police officers describe their dispatcher’s recapitulation of the detailed 911 call, detailing the reported manner of dress, race, hair style and other characteristics matched by Nelson and, most importantly in an offense hinged on gun possession, claiming that the described individual possessed a weapon.

The government’s proffered rationale for having the officers’ recount the multiple-hearsay statement – the first level of hearsay being the caller’s statements to dispatch, and the second the dispatcher’s retelling of the statement to officers on the scene – was to establish the background for the events surrounding the arrest.  Under Federal Rule of Evidence 801(c)(2), an out-of-court statement is not “hearsay” unless offered to prove the truth of the matters asserted, and so a 911 call, or its recapitulation by a dispatcher, may be relevant to explain why an officer reacted the way he/she did in a particular circumstance. Given that Nelson was African-American and one or more of the officers was presumably not African-American, the prosecution may have desired to provide the jury with a race-neutral explanation for why a bevy of officers descended on a suspect who was outwardly doing nothing to violate the law.

But, the Sixth Circuit held, the prosecution went overboard.  “[T]o the extent the jury needed to hear about what prompted the police action, a less-detailed statement indicating that the police received a 911 call, without detailing the caller’s description, would have avoided the prejudice problem [of using the 911 caller’s description to provide the key evidence that Nelson indeed had possessed a weapon] while still ensuring that the jury was given the minimal background information needed to understand why the officers behaved the way they did.”  Officers could have permissibly testified that they were responding to an anonymous complaint of a person believed to be dangerous in order to provide context for their actions.

The court of appeals acknowledged that in more complex cases, jurors could become confused about why a particular individual was targeted by law enforcement, suggesting that more leeway might be afforded for background evidence in such cases.  But this was not that case.

Since so many reported decisions as to non-hearsay statements root their conclusions with  reference to the “background information” exception drawn from Rule 801(c)(2), and since that exception may allow very prejudicial information before the jury, the Nelson opinion may be useful as a counterpoint in fixing limits to that ambiguously-defined hearsay exception.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office.  A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)