White Collar Defense and Compliance

Severance granted based on disparity in weight of evidence

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 29 Sep 2008 13:05:11 -0500

Practitioners in this area are wearily familiar with the Zafiro standard for granting severance under FRCP 14: there must be a serious risk that a joint trial will compromise a specific trial right of one of the defendants, or prevent the jury from reaching a reliable verdict. The risk of spillover is not enough, because juries are presumed able to compartmentalize evidence, and inconsistent defenses are not sufficient, since the moving defendant must show that there are “antagonistic” defenses at play, which are irreconcilable and mutually exclusive. See Zafiro v. United States, 506 U.S. 534 (1993).

The Zafiro formulation, and the resulting gloss placed on it by the courts of appeal, leaves defense attorneys with a markedly poor record of successful severance motions. So, when such a motion succeeds, it is worth noting and citing in subsequent motions.

A successful severance argument was recently made in United States v. Troutman, 546 F. Supp.2d 610 (N.D. Ill. 2008). Chicago Alderman Troutman was charged in a years-long scheme under 18 U.S.C. §§ 1341, 1346 with city employee Boone to solicit and accept payments from real estate developers in exchange for various approvals. Moving defendant Gilbert was identified in the indictment as an acquaintance of the alderman.

Gilbert was not charged in the overarching first count, and in only one of fifteen counts in the indictment. Gilbert was charged with a single episode of soliciting a payment from a developer.

Granting the motion by Gilbert to sever his case from that of the other defendants, the district court held that he had shown a “gross disparity” in the evidence which would likely prejudice him despite any limiting instructions. Since Gilbert was charged only in relation to one illegal act, much of the evidence as to the other acts in the indictment would not be admissible in a separate trial for Gilbert. Finally, severance of Gilbert would only “minimally lengthen” trial time since his separate trial was not estimated to exceed eight days in length.

Expert testimony to negate mens rea still admissible despite Insanity Defense Reform Act

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 29 Sep 2008 13:01:44 -0500

The Insanity Defense Reform Act, 18 U.S.C. § 7 generally bars expert testimony to established a diminished capacity defense, if that lessened capacity falls short of demonstrating insanity. However, the Act, as construed by the courts, effects a bar only as to a complete defense predicated on something less than insanity; it does not bar such evidence if it serves to negate an element of the charged offense, such as mens rea. See United States v. Pohlot, 827 F.2d 889 (3d Cir. 1987), cert. denied, 484 U.S. 1011 (1988).

A recent decision illustrates the continuing vitality of expert psychological testimony in a white collar case where specific intent is an essential element of the offense. In United States v. Mister, 553 F. Supp.2d 377 (D.N.J. 2008), the defendant was charged with a Hobbs Act violation for accepting payoffs on behalf of a member of the Pleasantville board of education. The defense wished to argue at trial that Mister was not told explicitly about the nature of the payments and thought the monies he funneled to the council member were campaign contributions, not payoffs for official action.

The defense sought to introduce the testimony of a psychologist who had tested Mister to the effect that the defendant was of low intelligence and also that he was highly suggestible. Acting on the government’s in limine motion to exclude all of the testimony under the Act and Pohlot, the trial court ruled that since an element of the offense was knowledge of the unlawful purpose of the activity, Mister was entitled to rebut that proof with evidence of his low intelligence and perception. However, the court drew the line at the “suggestibility” evidence, since it was not relevant to the issue of knowledge.

The Mister case, then, confirms that there remains an open door to the admission of certain psychological expert testimony in white collar cases. The key is relating the proposed testimony to a particular knowledge or intent element, rather than offering that testimony to more generally rebut the thrust of the government’s charge.

District Judge eases defendant's burden in obtaining a Rule 17(c) subpoena to a third party

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 23 Sep 2008 17:30:50 -0500

A court in the Southern District of New York recently made it easier for a defendant to secure a Rule 17(c) documentary subpoena to a third party, rejecting a more rigorous standard often employed in this circumstance. In United States v. Tucker, 249 F.R.D. 58 (S.D.N.Y. 2008), Judge Scheindlin granted a defense motion and issued a subpoena for BOP audio recordings of cooperators.

Typically, Rule 17(c) subpoenas sought by defendants are scrutinized under the standard of United States v. Nixon, 418 U.S. 683 (1974), requiring a defendant to show that the subpoenaed material is relevant, admissible, and specific (that is, something more than mere hope actuates the request). Id. at 702. In Nixon, of course, the government sought a trial subpoena to obtain third party records, and the Tucker court considered whether a defendant should in fairness be held to the same standard when he seeks third party records. The court considered the relative imbalance between the government's expansive tools for obtaining evidence and the defendant's meager opportunities to gain information through discovery from the government.

The Tucker court concluded that the Nixon standard is too restrictive when applied to a defendant's subpoena to a third party close to the trial date. In those circumstances, the defendant need only show that the subpoena is reasonable, i.e., material to the defense, and no unduly oppressive or burdensome for the responding party.

Defense counsel would be well advised to rely upon Tucker in those jurisdictions where Rule 17(c) subpoenas can be issued and made returnable before trial only upon motion, since the government invariably argues in opposing such motions that the higher, Nixon standard has not been met.

New Jersey's Appellate Division limits employees' rights of privacy in content of workplace computers

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 02 Sep 2008 12:10:37 -0500

In a recent decision, the Appellate Division of New Jersey Superior Court upheld a warrantless search of an employee's workplace computers, and affirmed the resulting conviction of the employee for stealing more than $650,000 from his employer. The court's reasoning, however, left something to be desired, notwithstanding the arguably correct conclusion.

The employee in State of New Jersey v. M.A., Docket No. A-4922-06T4 (App. Div., Aug. 29, 2008) acted as a bookkeeper for a manufacturer of adhesive-backed labels. The owner confronted the employee over an unauthorized increase in the employee's salary; the latter admitted a small theft, offered repayment, and was fired. When the owner suspected that the defalcation was much greater, he called in the police and consented to a search of a desktop and laptop computer used by the former employee, but maintained at the company's offices. On the computers was found evidence of the employee's much larger theft.

The trial court denied a motion to suppress the results of the computer searches, and the appeals court affirmed. The Appellate Division reasoned first that the owner had the authority to consent to the searches, since he, and not the former employee, owned the computers. But, the court acknowledged, the search could still have been unlawful if the former employee had a reasonable expectation of privacy in the information he stored on the company-owned computers.

However, the court dismissed the "expectation of privacy" argument needed to ground a Fourth Amendment claim, saying simply "in the criminal context, employees have no reasonable expectation of privacy in a workplace computer." Yet, that statement is incorrect, jurisprudentially speaking, and the cases cited by the court do not support that broad assertion.

Generally, as shown in the federal cases cited by the court, employees can and do have a reasonable expectation of privacy in workplace computers, whether the context is criminal conduct or not. However, there is an exception to the Fourth Amendment's warrant requirement for a government employer which suspects the subject employee of workplace related misconduct; in that circumstance, warrantless searches of office computers are permitted. See O'Connor v. Ortega, 480 U.S. 709 (1987) (plurality opinion). (There is also a diminution of any expectation of privacy where the workplace computers announce via banners or the employer had declaimed through an explicit office policy that the computers' content are subject to review by the employer. See O'Connor).

In this case, the label manufacturer had in hand an admission from the former employee of an embezzlement, albeit a small one; this evidence of workplace misconduct would under O'Connor and subsequent cases have authorized a warrantless search of the computers. So, the Appellate Division reached what is likely the correct result, but got there for the wrong reasons.

Department of Justice revises corporate prosecution guidelines to prevent federal prosecutors from overreaching

ALeibman@foxrothschild.com (Alain Leibman) — Fri, 29 Aug 2008 13:10:31 -0500

On August 28, 2008, the Department of Justice announced revisions to its controversial Principles of Federal Prosecution of Business Organizations.

Initially cast as the "Thompson Memo" and then revised as the "McNulty Memo," these principles had been wielded by federal prosecutors as a cudgel, used to bludgeon corporations into waiving the attorney-client privilege and work product protections associated with the fruits of internal investigations and to compel the turnover of those materials in order to qualify the corporation for lenient treatment or no prosecution at all. Corporations who would not comply with these demands could, and would, be charged. Prosecutors had gone even further; the earlier formulations of these Principles had implicitly authorized them to take severe measures against corporations which advanced the legal fees of indicted officers or which had joined in common defense arrangements with such officers.

Spurred by Judge Lewis Kaplan's excoriation of the government for such heavy-handed tactics and his dismissal of an indictment in the KPMG prosecution in the Southern District of New York (United States v. Stein, et al), the DOJ finally surrendered. Yesterday, the DOJ adopted changes to the Principles which now provide explicitly that corporate cooperation will not be judged by a willingness to waive the privilege or work product protection associated with employee interviews and other investigative efforts, but will turn only on a willingness to disclose relevant facts. Prosecutors are now prohibited from seeking disclosure of privileged communications or opinion work product.

Moreover, prosecutors may no longer consider in assessing a corporation's eligibility for leniency whether the corporation is advancing legal fees for employees, or whether the entity has or has not fired or disciplined culpable employees. No longer will corporate participation in a joint defense agreement render the entity ineligible for favorable treatment.

These changes have been a long time in coming. Punishing corporations which act to protect the Sixth Amendment rights of their employees and which take the ameliorative step of internally investigating allegations of misconduct in an appropriate and confidential manner was not right and it was not consistent with the Constitution. And now it is also prohibited.

Non-target letter not worth paper it's printed on?

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 05 Aug 2008 14:11:30 -0500

Practitioners have long understood that there is some psychic, but little practical, value in securing from the government a letter attesting that the client is not, based on the information then known to the prosecutor, currently considered a target of a grand jury investigation. Such letters are generally heavily caveated, making it clear that the client could readily find himself or herself in jeopardy upon the discovery of any new inculpatory fact or allegation. A recent Eighth Circuit case underscores the ephemeral advantage gained by the possession of a non-target letter.

In Fresenius Medical Care v. United States, 526 F.3d 372 (8th Cir. 2008), plaintiff FMC, a hemodialysis provider, had entered into civil settlements concerning certain sales of a drug called Epogen. As part of a settlement with the U.S. Attorney's Office for the District of Massachusetts, FMC received a so-called "cold comfort letter" advising that DOJ had no open civil or criminal investigations of FMC, and that DOJ had no present intention, based on facts then known as of April 2002, to initiate any matters against FMC. Then, in 2005, the U.S. Attorney's Office for the Eastern District of Missouri issued administrative subpoenas to FMC relating to Epogen sales. The company moved to quash the subpoenas to the extent that they covered a time period including prior to April 2002, based on the "cold comfort" letter of April 2002. The district court denied the motion to quash and the Eighth Circuit affirmed.

The court of appeals rejected any argument that the 2002 letter immunized FMC from further Epogen investigations; the letter was "simply an assurance from the government that, based on the facts it then knew, it was not then planning any further investigation. The letter does not preclude the United States from investigating FMC based on new facts." In other words, never mind.

Doyle at work in the circuits: can the government highlight omissions and silence in a post-Miranda statement?

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 05 Aug 2008 13:59:10 -0500

More than thirty years ago, the Supreme Court laid down in Doyle v. Ohio, 426 U.S. 610 (1976) a principle both elegant in its fairness and seemingly simple in its application: due process does not permit the government to make use of the silence at the time of arrest and/or questioning of a Mirandized suspect. But, as illustrated in recent cases from the Fifth and Ninth Circuits, the results of applying Doyle have been less than even and predictable.

In the Fifth Circuit case, the defendant was arrested as a felon-in-possession and had been administered Miranda warnings, after which he answered some questions before stopping. United States v. Fambro, 526 F.3d 836 (5th Cir. 2008). Fambro did not testify at trial, but the interviewing officer testified that Fambro did not deny knowing of the existence of the weapon which was found and the prosecutor argued in closing that Fambro had not denied knowledge or possession of the weapon. The court held that there was no Doyle violation, but in doing so the Fambro panel seemed to distort the trial record and ignore inconsistent intra-circuit precedent. For example, the opinion reported a series of direct examination questions put to the interviewing officer which clearly intended to highlight the omissions in Fambro's arrest statement ("Did he say [X]? No, he did not"]. Yet, the Fambro panel somehow characterized these questions not as exploiting the defendant's Mirandized silence, but as "testimony [which] only emphasizes what Fambro had said in his post-Miranda statement." Of course, pointing out that which a witness did not say could always be characterized as emphasizing the remainder which was said, but that logic guts Doyle completely. The Fambro court also brushed aside other Fifth Circuit decisions which "seem[] internally inconsistent."

In contrast, the Ninth Circuit recently came out dramatically differently in its application of Doyle. In United States v. Caruto, 526 F.3d 445 (9th Cir. 2008), the defendant's conviction was reversed because of a Doyle violation. In a drug importation case, Caruto had been arrested at a border crossing when cocaine was found in the gas tank of her truck. After being read her Miranda rights, Caruto answered a few questions from ICE agents, then invoked her right to counsel and the interview ended. An issue at trial was under what circumstances was Caruto in possession of the truck. One of the interviewing agents testified affirmatively to what Caruto had said in the interview about the vehicle. But in summation, the government argued from the omissions in Caruto's statement, repeatedly asking the jurors "Why did she not say [X, Y, or Z as to the truck]?" The Ninth Circuit held that this argument impermissibly highlighted the omissions from Caruto's statement and violated Doyle.

Extrinsic Evidence May Be Used To Impeach Even If FRE 608(b) Appears To Prohibit It

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 14 Jul 2008 07:55:42 -0500

Trial attorneys understand that generally a witness can be impeached with evidence of his or her prior acts going to truthfulness, but only by cross-examining the witness on the point. FRE 608(b) requires the examiner to accept the witness’s answer, and prohibits accomplishing the impeachment extrinsically, through the testimony of a follow-on witness or the admission of a document. Unless the misconduct qualifies as a prior conviction under FRE 609 and can under that Rule be proved extrinsically, the cross-examiner may enthusiastically wave a document before the witness or accuse loudly and longly, but the witness can always retreat to the safety of a denial, confident that no other witness or document will be later offered to contradict.

Unless, that is, the prior act in question is an earlier inconsistent statement of the witness, which can be proven extrinsically notwithstanding the wording of Rule 608(b). The court in United States v. Rodriguez, 539 F. Supp.2d 592 (D. Ct. 2008) allowed the government to call two rebuttal witnesses to contradict the testimony offered by defendant Rodriguez regarding alleged drug deliveries. The defendant had argued that Rule 608(b) prohibited the extrinsic evidence which contradicted him.

The court held that, although not explicitly authorized by Rule 608(b), the doctrine of impeachment by contradiction is an exception to the Rule's general bar against extrinsic impeachment. There is, of course, another theory under which to admit extrinsic proof of a prior inconsistent statement by the witness, albeit not one discussed by the court. FRE 613(b) requires that the witness be given an opportunity to explain or deny a prior inconsistent statement, but then permits its proof extrinsically.

Trial Court Endorses Delayed Defense Opening

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 14 Jul 2008 07:54:25 -0500

Although not commonly seen in this District, it has always been understood that a defendant's attorney has the right to delay presentation of his or her opening statement until after the close of the government’s case. Advocates of the trial theory of primacy would argue that such a strategy risks denying the fact-finder an alternative view of the facts at an impressionable moment of the trial, but there is no doubt that FRE 611 gives the court the authority to allow the procedure.

In the Northern District of Ohio, it appears, the practice is more widespread, and was recently upheld over the government’s objection. In United States v. Amawi, 541 F. Supp.2d 955 (N.D. Ohio 2008), the Court rejected the government’s argument that allowing one defendant to reserve would prejudice both the government and the remaining defendants.

The trial judge observed that, in his experience, defense attorneys “more often than not” reserve opening. The only prejudice suffered by the government in the practice is the denial to the prosecutor of the opportunity to learn early in the trial what strategy the defense intends to pursue.

Daubert permits former-agent expert to offer opinion as to shoddy investigative techniques

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 14 Jul 2008 07:52:53 -0500

Another example of the wide berth given to non-scientific expert testimony under Daubert is United States v. Poulsen, 543 F. Supp. 2d 809 (S.D. Ohio 2008). In that health care fraud case, the defendant proposed to elicit the testimony of Wayne Barnes, a former FBI agent who had in his government career worked health care fraud cases, to the effect that the government “did not conduct a proper investigation, nor do they have the necessary understanding of the health care industry and fraud within the industry.”

The government sought on two grounds to preclude this unusual testimony. First the government argued that Mr. Barnes’ testimony failed the Daubert reliability test in that the test failed to identify any industry standards or testing methodologies upon which he had relied. The district court rejected the argument, noting that under Sixth Circuit precedent the reliability of “specialized knowledge” (as opposed to scientific) expert testimony could not be measured by a strict application of the Daubert factors. Experience-based testimony satisfies Daubert’s reliability requirements.

Second, and more obviously, the government argued that Mr. Barnes’ testimony was irrelevant. This argument should have carried the day, since the depth of the prosecution’s understanding of an industry, or the completeness of its investigation, are not matters which in the ordinary case assist the jury in determining whether there has been proof beyond a reasonable doubt of the essential elements of the offense.

Yet, the district court rejected the relevance objection, too. The court held that expert testimony – just as much as cross-examination of law enforcement witnesses – which tends to show that the government failed to follow leads, misinterpreted information, or used investigative techniques “could be probative of whether the Government has made its case against Defendants.”

We do not know if the government is seeking an interlocutory appeal, but at least until it is reversed the Paulsen decision would support a broad array of expert testimony attacking the government’s general competence in conducting its investigation.

FRE 702 Permits Expert Opinion Testimony on Industry Practices

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 14 Jul 2008 07:47:00 -0500

Defending a broker, telemarketer, or other salesperson against allegations of fraud in the sale of stocks, products or services often requires enlisting expert testimony as to industry standards concerning the nature and type of disclaimers and caveats typically provided to customers. This testimony is usually offered to persuade the jury that a defendant lacked any intent to defraud, since the implicit argument to the jury is that his/her compliance with commonly observed practices amounts virtually to adherence to a legal standard of conduct. One must of course avoid an explicit and impermissible cross-over into eliciting testimony from an expert that, as a matter of law, the defendant committed no wrong.

This fine distinction is illustrated by Ji v. Bose Corp., 538 F. Supp.2d 354 (D. Mass. 2008), which involved a dispute over the meaning of language in releases signed by the plaintiff-model for a photo shoot. Both sides sought to call expert witnesses, and the opinion reflects the court's relative assessments of the admissibility of the expert testimony. The defendant’s expert was a casting director, who opined that certain language in a release was routinely ignored in the industry and that certain additional language, not present here, was almost always required in order to effect certain restrictions. That testimony, which hewed to the language of industry standards, practices, and expectations, met the Rule 702 and Daubert standard, according to the district court.

The plaintiff-model’s proposed expert fared less well, perhaps because he was an entertainment lawyer who could not avoid the argot of the law. The lawyer-witness proposed to testify that certain release language controlled while other language had no legal force at all. The district court precluded the testimony as impermissible statements to the jury about the requirements of the law, since this expert's proposed testimony contained pronouncements about the effect of common law on the applicability of certain rights (as opposed to the understanding of those rights held by others in the industry as a matter of custom and usage); the lack of consideration reflected in a contract; and the legal precedent held by one document over another.

Shorn of the legal catchwords and phrases - - “common law,” “consideration,” “precedent” – the two experts sounded very much alike, yet the non-lawyer expert passed through the Daubert gates easily while the lawyer-witness was impaled on the gateposts. Moral of the story: if you want to inform the jury of the legal effect of disclaimers and contractual provisions, do not employ a lawyer-witness and lawyer-jargon to do so, but instead have an industry expert communicate the same concepts to the jury in the language of industry custom and usage.

Witness Absence Caused by Defendant Allows Hearsay Statement

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 03 Jul 2008 09:41:51 -0500

This week, the United States Supreme Court narrowed the “forfeiture by wrongdoing” exception to the Sixth Amendment’s Confrontation Clause. The Court vacated and remanded the California Supreme Court holding in Giles v. California, 2008 WL 2511298 (U.S., June 25, 2008) that a statement made by a victim to the police months before she was killed by the defendant was admissible under the common-law doctrine of “forfeiture by wrongdoing.”

Giles was accused of murdering his ex-girlfriend. During his trial, the prosecution told the jury about a conversation police had with the victim, in which she said Giles had assaulted and threatened to kill her. Giles asserted that since the victim was deceased, he could not cross examine her, and thus, was denied his Sixth Amendment right to confrontation. The California Supreme Court disagreed and admitted the victim’s statement under the forfeiture by wrongdoing exception to the Confrontation Clause.

In a 6-3 decision with the majority written by Justice Scalia, the Court found that California’s exception to the Confrontation Clause was too broad, and not an exception that existed when the Sixth Amendment was adopted. The dissent, written by Justice Breyer and joined by Justices Stevens and Kennedy, argued that historical cases found that an exception applies and the evidence should be admitted.

As the Court noted, it has previously acknowledged an exception to the Confrontation Clause under the “forfeiture by wrongdoing” doctrine, which “permitted the introduction of statements of a witness who was ‘detained’ or ‘kept away’ by the ‘means or procurement’ of the defendant.” The underlying policy of the rule is that a defendant should not benefit from his wrongdoing by the exclusion of such testimony. The exception, however, has been narrowly construed by the Court – relying on established common law at the time the Sixth Amendment was adopted – to apply only where the defendant’s purpose was to prevent the witness from testifying at trial, but not where the defendant merely caused the witnesses’ absence.

This Court first addressed the issue in Reynolds v. United States, 98 U. S. 145 (1879) where it held the testimony of a witness from the defendant’s prior trial was admissible where the defendant had kept his wife away from home so that she could not be served with a subpoena to testify. The doctrine was codified in 1997 when the Court approved FRE 804(b)(6), entitled “forfeiture by wrongdoing.” In its holding, the Court relied principally on the countless common law cases consistently excluding the admission of such testimony “in the innumerable cases in which the defendant was on trial for killing the victim, but was not shown to have done so for the purpose of preventing testimony.”

New Jersey's Supreme Court Explores Parameters of Crawford

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 03 Jul 2008 09:38:12 -0500

In three recent decisions, the New Jersey Supreme Court considered and applied the parameters of the United States Supreme Court case of Crawford v. Washington, 541 U.S. 36 (2004) to similar, but distinct questions of evidence admissibility. In Crawford, the Court held that under the Confrontation Clause of the Sixth Amendment, “[t]estimonial statements of witnesses absent from trial have been admitted only where the declarant is unavailable and only where the defendant has had a prior opportunity to cross examine.” Id. at 59. The three New Jersey Supreme Court opinions, State v. Ryan Buda (A-45/5-07), State in the Interest of J.A. (A-2-07), and State v. William Sweet (A-1-07)/State v. James Dorman (A-38-07), required the court to consider whether certain types of evidence ran afoul of the Confrontation Clause and the holding in Crawford.

In State v. Ryan Buda, the court was asked to evaluate whether two separate hearsay statements made by a severely abused child were “testimonial” under Crawford and therefore inadmissible without the child testifying and being subjected to cross examination. The first statement made by the child – “Daddy beat me” – was made to the child’s mother. The second statement – “Dad says nobody beat me. I fell when I was sleeping in my room.” – was made to a representative of the Division of Youth and Family Services (DYFS) who was called in to speak to the child after he had been hospitalized for injuries. Buda was charged with three counts of second degree endangering the welfare of a child and one count of third degree aggravated assault, and the child did not testify at trial. The trial court held that both statements were excited utterances and admissible. On appeal, the appellate division affirmed that the statements were excited utterances, and further found that the statement to the child’s mother was admissible but the statement to the DYFS worker was testimonial and inadmissible because the child did not testify at Buda’s trial and was not subject to cross examination.

The New Jersey Supreme Court affirmed in part and reversed in part, holding that the trial court was correct in admitting the statements into evidence as “excited utterances” under N.J.R.E. 803(c)(2) [FRE 803(2)] and, further, that the statements were not testimonial and did not violate the Confrontation Clause. All parties agreed that the child’s statements were hearsay, and the court easily held that the statement to the mother was an excited utterance. The statement to the DYFS worker presented a “closer question,” but was still an excited utterance, considering the context in which it was delivered and the time and circumstances that elapsed between the child’s abuse that day and when the statement was made. Moving to the Crawford analysis, the court concluded that the child’s statement to his mother was nontestimonial because it did not “bear the indicia of a ‘formal statement to government officers’” and instead was more like “ ‘a casual remark to an acquaintance.’” Buda at p. 32 (citing Crawford, 541 U.S. at 51). It then considered whether the child’s statement to the DYFS worker was nontestimonial. The court rejected the conclusion that the DYFS worker stood in the shoes of a polices officer and therefore, the statement was the result of a policy inquiry. Instead, the court believed that the DYFS worker, in questioning the child, was confronted with a battered child who needed protection from the adults charged with his care, and the worker took the necessary steps to attain that protection. Her question to the child was designed to elicit information that would help her determine how to remove the threat of continued bodily harm, and possibly even death, to the child. The court noted that the primarily obligation of a DYFS worker is “to protect prospectively a child in need” and “not to collect evidence of past events to secure the prosecution of an offender.” Buda at p. 34. The court drew an analogy to Davis v. Washington, 547 U.S. 813 (2006), where the United States Supreme Court held that a statement during a 911 call was nontestimonial, even though made in the course of a police interrogation, because the primary purpose was to enable police to meet an ongoing emergency. Accordingly, the New Jersey Supreme Court concluded that both of the child’s statements were excited utterances and nontestimonial, and therefore admissible.

In State in the Interest of J.A. (A-2-70), the New Jersey Supreme Court tackled the issue of whether statements made by a non-testifying witness, to a police officer, and describing a robbery that had been committed ten minutes earlier and the witness’ subsequent pursuit of the robbers, were admissible. In this case, two juveniles robbed a woman and ran off with her purse. A police officer responded to the scene and eventually found a witness to the robbery about a block and a half away from where the robbery took place. At trial, the officer was allowed to testify about the witness’ account of the robbery as a present sense impression, and therefore an exception to the hearsay rule under N.J.R.E. 803(c)(1) [FRE803(1)]. The witness did not testify. Likely due in large part to the statements made by the non-testifying witness, the family court adjudicated J.A. as delinquent and the appellate division affirmed that adjudication. The appellate division concluded that the witness’ statements were admissible under the present sense impression and the excited utterance exceptions to the hearsay rule, and, further, that the admission of those statements did not violate the Confrontation Clause. The appellate division concluded that the witness’ statements were nontestimonial because “an ‘objective witness’ would not have reasonably believed they would be available for use in a later trial.” The Supreme Court then held that the witness’ hearsay statements were a narrative of past events, and that neither the declarant, nor the victim were in imminent danger when the statements were made, and therefore ineligible for an exception to the hearsay rule. The court further found that the statements were testimonial and the admission of such statements violated the defendant’s Sixth Amendment rights because the witness was not produced at trial and subject to cross examination.

In reaching its conclusion, the Supreme Court held that the witness’ statements conveying the details of a robbery that had occurred ten minutes earlier did not describe the crime “immediately after” it occurred, and therefore, were not admissible under the present sense exception. The Supreme Court then clarified that a statement which does not qualify for admission under a present sense exception can be admissible as an excited utterance, but the facts elicited on the record in this case did not support such a conclusion. Finally, the court moved on to the Confrontation Clause question, noting the “seismic shift” in modern jurisprudence on the subject created by Crawford. The court explained that the non-testifying witness in this case described “what had happened” to the officer, and that at that time, there was no ongoing emergency or immediate danger. The Supreme Court then concluded that a narrative delivered after a crime has been completed and after the conclusion of any imminent danger to the declarant or someone else, is testimonial. J.A. at p. 32. The court also held that the witness’ statements to the police officer met the formality and solemnity requirements of Crawford and that the out-of-court statement was the equivalent of in-court testimony, without being subject to cross examination. Id. at 34. All of these factors led to the conclusion (with little difficulty) that the witness’ statements to the police officer were testimonial and the admission of that testimony violated the defendant’s Sixth Amendment right to confrontation. Id. at 35.

Finally, in State v. William Sweet (A-1-07) and State v. James Dorman (A-33-07), the court addressed whether the introduction into evidence of foundational documents concerning the operational status of a Breathalyzer machine used to attain two separate driving while intoxicated convictions violated the defendants’ right to confront a witness against them.

At trial, defendant William Sweet (charged with driving while intoxicated and assorted other traffic violations) challenged the admissibility of two “Certificates of Analysis – Breath Alcohol Reagent Ampoule” that were prepared by a laboratory and concerned certain reagent ampoules used in the breathalyzer on the basis that the certificates were inadmissible hearsay. Likewise, defendant James Dorman, also charged with driving while intoxicated, challenged the admissibility of two “Breath Testing Instrument Inspection Certificates,” claiming that the documents were testimonial and inadmissible under the Confrontation Clause. All documents were admitted at the municipal court level.

On appeal, the New Jersey Supreme Court held that the ampoule testing certificates in Sweet and the inspection certificates in Dorman were hearsay statements. However, those “statements” were admissible under the business records exception to the hearsay rule, codified at N.J.R.E. 803(c)(6) [FRE 803(6)]. In order to qualify under this exception to the hearsay rule, the court explained that the proponent must satisfy three conditions: (1) the writing is made in the regular course of business; (2) the writing must be prepared within a short time of the act, condition, or event described; and (3) the source of the information and the method and circumstances of the preparation of the writing must justify allowing it into evidence. State v. Sweet, State v. Dorman, at p. 17. The court concluded that all of the certificates that were the subject of these appeals qualified as business records.

Further, the court held that the records were nontestimonial under Crawford and, accordingly, admissible under the Confrontation Clause. Regarding the Crawford analysis, the court noted that, under the jurisprudence of that case, business records are considered, by their nature, to be nontestimonial, and consequently, usually not implicating the Confrontation Clause. The court agreed that these certificates were nontestimonial because neither of them “related to or reported a past fact”, and neither of them was “generated or prepared in order to establish any fact” that was an element of the offense. Id. at p. 21. The court unanimously affirmed the convictions of both Sweet and Dorfman.

Advice of counsel defense limited to "complex" crimes?

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 03 Jul 2008 09:36:23 -0500

Since the vast majority of white-collar offenses are crimes of intent, it is widely thought that a defense based on “advice of counsel” is generally available in defending those cases. However, a district court in the Fifth Circuit which recently explored the defense found it generally not available unless the particular offense charged additionally required proof of willfulness and was a “complex” offense.

Joseph Impastato, a municipal official in Louisiana, entered into a partnership with two business persons as a result of which certain Hurricane Katrina clean-up work was steered in the direction of their entity. Impasto’s partners required him to provide an opinion letter setting forth the legitimacy of such a relationship, and in due course he came up with such a letter.

When Impastato was charged with violations of the Hobbs Act (18 U.S.C. § 1951), federal program fraud (18 U.S.C. § 666), and money laundering (18 U.S.C. § 1956) for obtaining the clean-up work, he sought to offer the attorney opinion letter in his defense to negate the intent elements of the subject offenses. However, the district court ruled that the opinion letter was inadmissible because it was not relevant. United States v. Impastato, 543 F. Supp.2d 569 (E.D. La. 2008).

Relying on Fifth Circuit case law, the Impastato court held that the advice of counsel defense applied only to refute the “willfulness” element of an offense, that is, the requirement that an act be committed voluntarily and purposely, with the specific intent to do something the law forbids. Id. at 574 (citing Fifth Circuit Pattern Jury Instructions). Where a federal offense, such as mailing obscene materials, did not require that a defendant have knowledge of the illegal status of the materials, advice of counsel was not a defense. Id.

The court analyzed each of the charged offenses -- it noted that the color of official right Hobbs Act violation required only simple knowledge that the defendant had obtained a payment to which to which he was not entitled, knowing that the payment was made in return for official acts; that money laundering required only the knowledge that the proceeds were derived from some unlawful activity and knowledge that the transaction was designed to conceal the source or origination of the proceeds; and that program fraud required only “corrupt” action. Id. at 575-578.

Thus, in none of the charged offenses was "willfulness" an essential element. Id. The court concluded that the advice of counsel defense is reserved, at least in the Fifth Circuit, “mainly for violation of ‘complex’ statutes” (citing cases; including tax fraud, false subscribing of tax returns). Id. It is "inappropriate” for less complex crimes (citing cases; including mailing obscene materials, illegal receipt of firearm).

Arguably, the Impastato court’s reading of the elements of some commonly-charged specific intent offenses is too narrow, reading the "willfulness" requirement out of those statutes. In the District of New Jersey, however the government’s own charging habits may provide a basis for the advice of counsel defense even when a narrow reading of the statutory elements might preclude it. Commonly- charged offenses such as mail and wire fraud are often expressed in terms of both knowing and “willful” conduct by a defendant. Even within the narrow parameters of a decision like Impastato, the advice of counsel defense would arguably be available against an offense charged in that fashion.

Legislative fix in works for DOJ overreaching?

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 03 Jul 2008 09:30:40 -0500

Determined to halt efforts by DOJ attorneys to improperly demand the fruits of internal investigations as a price for achieving a DPA or a non-prosecution agreement, 32 former federal prosecutors recently issued a letter expressing their support for legislation that would preclude federal attorneys and agents from seeking waivers of attorney-client privilege or attorney work product protection in conducting civil or criminal investigations of business organizations (http://www.nytimes.com/2008/06/23/business/23law.html?ref=business&pagewanted=print).

The legislation, entitled the Attorney-Client Privilege Protection Act of 2007, is authored by Pennsylvania Senator Arlen Specter. A corresponding bill passed in the House of Representatives in November 2007 (http://www.foxrothschild.com/Newsstand/News.aspx?id=5666). The Senate Judiciary Committee held hearings on the legislation in September 2007, receiving testimony from such witnesses as former Attorney General Dick Thornburgh (http://www.foxrothschild.com/Newsstand/News.aspx?id=5328). Senator Specter introduced a revised bill on June 26, 2008, modified to tighten language regarding organizations eligible to benefit from the organization and other language that the Department of Justice had criticized as ambiguous (http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=S6294&dbname=2008_record). As Senator Specter, a former prosecutor, noted, “The prosecutor has enough power without the coercive tools of the privilege waiver" (http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=S6295&dbname=2008_record).

Selective Waiver Exception to Work Product Protection

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 03 Jul 2008 09:26:06 -0500

A corporation which desires to cooperate either with a civil investigative agency, such as the Securities Exchange Commission, or a prosecutive authority, such as the local U.S. Attorney’s Office, is often asked by the government to turn over the results of any internal investigation as a demonstration of its cooperative spirit and as a badge of good corporate citizenship.

Much ink has been spilled, electronically speaking, on the propriety of governmental demands for the fruits of internal investigations, demands which reached their height in the Justice Department under corporate prosecution guidelines issued in 2003 and known as the Thompson Memorandum (http://www.usdoj.gov/dag/cftf/corporate_guidelines.htm), and which continue to a lesser extent under the superseding 2006 McNulty Memorandum (http://www.justice.gov/dag/speeches/2006/mcnulty_memo.pdf). The SEC has sought similar materials under the coercive pressure of the so-called "Seaboard Report" (Exchange Act Release No. 449969, Oct. 23, 2001). Defenders of the attorney-client privilege have rightly argued that exacting the production to the government of the results of internal investigations as a price for non-prosecution severely undermines the privilege and exemplifies overreaching by the government. Another, corollary consequence of the compelled production of such materials has been less widely discussed: production to the government may effect a general waiver of the work product protection attaching to documents such as interview memoranda and attorney-opinion analyses, leaving them subject to discovery in related civil litigation.

Most circuit courts of appeal have been hostile to corporations seeking to preserve opinion work product in the face of disclosure to the government, holding that a disclosure – even in furtherance of cooperation or under compulsion of a subpoena – amounts to a general waiver. E.g., In re Quest Communications, Int’l, 450 F.3d 1179 (10th Cir. 2006); United States v. Mass. Inst. of Technology, 129 F.3d 681(1st Cir. 1997); Westinghouse Electric Corp. v. Republic of the Philippines, 951, F.2d 1414 (3d Cir. 1991); Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981).

Only the Eighth Circuit, in Diversified Indus. v. Meredith, 572 F.2d 596 (8th Cir. 1977), has applied a selective waiver approach, holding that a company’s production of internal memoranda to the SEC under compulsion of a subpoena causes the documents to retain their work product protection. The rationale of the Diversified Indus. court was that protecting such materials even after their disclosure to the government would encourage corporations to retain outside counsel to investigate corporate wrongdoing and would facilitate the disclosure of such evidence to the government.

The Second Circuit in In re Steinhardt Partners, 9 F.3d 230 (2nd Cir. 1993) stopped short of Diversified Indus., and held that no work product protection remained for documents which were voluntarily disclosed to the SEC. The Second Circuit, however, left the door to a selective waiver argument open a crack by suggesting that work product protection could be retained where the disclosing party and the government had a “common interest in developing legal theories and analyzing information” or where the SEC had explicitly agreed to maintain the confidentiality of the documents. Id. at 236.

Recently, however, that door was further closed by the district court in In re Initial Public Offering Sec. Litig., 2008 WL 400933 (S.D.N.Y., Feb. 14, 2008). There, Credit Suisse had produced to the SEC and U.S. Attorney’s Office interview summaries created as part of an internal investigation into alleged IPO allocation misconduct. But Credit Suisse only did so after securing confidentiality agreements from both agencies, expecting that by doing so it would enjoy a safe harbor under the Steinhardt analysis.

Stopping just short of rejecting entirely the selective waiver doctrine, since Steinhardt had in theory recognized the possible application of the doctrine to some hypothetical state of facts, the IPO district court concluded that “selective waiver is not in the long-term best interests of the government, the adversarial system, or litigants.” *6. The court held that a “strong presumption” existed against a finding of selective waiver, and that it should not be permitted “absent special circumstances,” id., which were not identified.

Since the Credit Suisse attorneys believed they had followed the prescription of Steinhardt, yet still found that their disclosure to the government had effected a complete waiver of work product protection, the more prudent course of action in the Second Circuit – at least until the court of appeals speaks again to the selective waiver doctrine - - is to assume that disclosure to the government constitutes a waiver as to the rest of the world.

Work Product Doctrine Does Not Extend to Tape Recording

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 12 Jun 2008 15:33:15 -0500

In an effort to turn the tables on a person believed to be cooperating with the government, an attorney may direct his client to record conversations with the informant, hoping to hoard those recordings for later trial use against the informant, secure in the belief that the attorney-directed recordings are protected from the prying eyes of the government by the work product doctrine. In the Second Circuit, at least, that attorney would be wrong.

In In re Grand Jury Subpoena Dated July 6, 2005, 510 F.3d 180 (2nd Cir. 2007), cert. denied, 2008 WL 2047559 (2008), an attorney opposed a grand jury subpoena seeking the tapes' production on the ground that the recordings constituted opinion attorney work product, entitled to the greatest level of protection, because the topics raised by his client with the other party and captured on tape reflected the attorney’s mental impressions and theories. The Second Circuit rejected the argument, largely because of a procedural flaw: the attorney did not produce the recordings for in camera review by the district court, so the only support for any finding of opinion work product was the attorney’s conclusory assertions about the recordings’ content.

Protected only as lesser fact work product prepared in anticipation of litigation, the court of appeals agreed with the district court that the government had shown substantial need for the information and an inability to obtain the equivalent elsewhere. The district court’s order directing compliance with a grand jury subpoena for the recordings was affirmed.

It is unclear from the opinion why the tape recordings were not reviewed by the district court, that is, whether the judge did not ask for them or the attorney simply did not volunteer them. Except in the unusual situation, it would seem that the better practice in arguing for opinion work product is to let the judge see, or hear, exactly what it is that purports to reflect the attorney’s mental impressions.

Gall's Reasonableness Standard Invalidates Another Below - Guidelines Sentence

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 12 Jun 2008 15:32:20 -0500

As many practitioners are all too keenly aware, the Sentencing Guidelines remain alive and well. Gall instructed district judges that reasonableness and abuse of discretion review freed them from the structures of the Guidelines. But, to paraphrase Al Pacino in Godfather III, the courts of appeals just keep pulling the Guidelines back in.

The Seventh Circuit became only the latest to upend a sentence as too lenient and too far below the Guidelines minimum. In United States v. Omole, 523 F.3d 691 (7th Cir. 2008), the “lead architect” of an identity theft scheme – a brazen one in which the defendants used 120 stolen identities to buy cell phones and clothing, then had 300 auctions on eBay to sell the merchandise – faced a sentencing range of 87-102 months. However, noting that Omole was only 20 years old and that this was his “first substantial involvement with the law” (although he had a prior record of one felony and three motor vehicle convictions, and was in Criminal History category II), the district judge departed downwards and imposed a 36 month sentence.

The Seventh Circuit could find no procedural error in the sentence, as the trial judge had properly calculated the Guidelines range and considered the § 3593(a) factors. But as a mater of substantive reasonableness, the circuit court observed that Omole’s sentence was a full 81% lower than the Guidelines minimum. Although the court of appeals would not in the abstract venture a view as to the precise point below a Guidelines minimum that a sentence turns from reasonable to unreasonable, it noted that in this case the sentencing judge had disparaged Omole’s arrogance and contempt for others, was “scathing” in his comments, and identified no unusual rehabilitative potential. In short, Omole seemed to deserve the punishment prescribed by the Guidelines.

The moral of the story: if you’re lucky enough to get a below-Guidelines sentence for your client in a non-cooperation sentencing, try to get the sentencing judge to say some nice things about your client on the record. Or, at least, to stop yelling at him while giving him a tremendous break.

Witness's Sworn Statement to Government Investigators

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 12 Jun 2008 15:30:48 -0500

Defense counsel will often use private investigators to interview potential government witnesses and to secure signed, sometime sworn, statements from them. Such statements are extremely useful as impeachment tools should those witnesses testify at trial and, once the witness has been confronted and afforded an opportunity to explain away the earlier inconsistent statement, they can be admitted under FRE 613 (b).

Of course, the most helpful written statements are those which exculpate one's client. But can those sworn statements be admitted by the defendant if the witness never testifies? Not under the residual hearsay exception of FRE 807, according to the Sixth Circuit.

The case of United States v Hunt, 521 F. 3d 636 (6^th Cir. 2008) was a fraud prosecution of a doctor, who had signed medical necessity orders necessary to allow Noble, a diagnostic technician, to receive Medicare and private insurance payments for ultrasound tests performed on patients seen by the doctor. Unfortunately, Dr. Hunt signed those orders without ever having seen the patients.

In the course of their investigation, government agents had interviewed Noble, who later pled guilty but did not testify against the doctor. In an unusual step, agents obtained a sworn affidavit from Noble, in which he exculpated Dr. Hunt (perhaps explaining why Noble did not testify for the government at Hunt’s trial).

Dr. Hunt sought to introduce the Nobel affidavit in his own defense in any event, but the district court held it was inadmissible, and the Sixth Circuit agreed. Statements in the affidavit to the effect that Dr. Hunt did not, in Nobel’s opinion, “do anything wrong,” contained lay opinions inadmissible under FRE 804 (b)(1) (former testimony), because although the government [the adverse party which, under the Rule, must have had an opportunity and motive to develop the testimony]created the affidavit, its agents did not have the necessary motive to fully develop the statements, a condition of admissibility under the Rule.

Hunt argued that FRE 807, the residual hearsay exception, supported admission of the statements because it was reasonable to believe that Noble was being truthful because his words tended to incriminate him, while exculpating the doctor. The Sixth Circuit observed that the Rule’s requirements that an out-of-court statement bear circumstantial guarantees of trustworthiness were not satisfied simply because the statement exculpated someone other than the declarant, citing FRE 804 ((b)(3), which requires corroborative evidence of trustworthiness before admitting a statement implicating the declarant while exculpating the accused.

Ninth Circuit Endorses Government's Use of Parallel

ALeibman@foxrothschild.com (Alain Leibman) — Thu, 12 Jun 2008 15:28:53 -0500

Generally, the Supreme Court has approved the Government’s use in a criminal case of evidence gathered in a related civil proceeding, often by a civil agency of the Government. The leading authority in this area is United States v. Kordel, 397 U.S. 1 (1970). The Kordel Court, addressing the criminal use of evidence garnered by the FDA, required only that the Government show an absence of bad faith on the part of the civil agency. Id. at 12-13. A civil action brought solely to advance a criminal investigation is one brought in bad faith. Id.; United States v. Rand, 308 F. Supp. 1231 (N.D. Ohio 1970).

Of course, a prosecutor violates Fed. R. Crim. P. 6(e) if evidence collected by a grand jury is turned over to civil authorities, even within the same United States Attorney’s Office, absent the applicability of an exception to that Rule. E.g., 18 U.S.C. § 3322 (disclosure permitted in connection with civil forfeiture).

Recently, the Ninth Circuit reinstated indictments which had been dismissed by a district court based on the Kordel standard and in so doing breathed new life, and breadth, into the government's ability to manipulate civil proceedings to assist criminal prosecutions. In United States v. Stringer, 521 F. 3d 1189 (9^th Cir. 2008), the SEC first began investigating Stringer, the former CEO of a defense contractor, and others for fraud, then began holding coordination meetings with the U.S. Attorney’s Office. A criminal investigation into the same activities was then initiated.

In due course, access to the SEC’s files was granted to the prosecutors. The SEC was advised that targets of the investigation included Stringer and his former CFO, although apparently a grand jury had not been formally convened at that point in time.

The prosecutors stayed hidden to the targets, but coordinated with the SEC on how the latter should conduct witness interviews, and even suggested the venue for SEC depositions to facilitate criminal prosecution of false statements made in depositions in that district. Prior to the SEC depositions of Stringer and other persons who subsequently became defendants, the witnesses were given an advice of rights and a warning text explaining only that the SEC often makes its files available to federal prosecutors. Asked directly by Stringer’s attorney whether any, and if so which, U.S. Attorney’s Office was working with the SEC, however, the SEC attorney was less than candid and made no disclosure.

Following their indictment, Stringer and the other defendants moved to dismiss the indictment alleging a due process violation in the misuse of two parallel proceedings and moved to suppress their statements to the SEC. Defendants argued that their Fifth Amendment rights were violated by the SEC’s trickery and deceit.

The Ninth Circuit rejected the argument that defendants’ Fifth Amendment rights were not undermined by the quality of the notice given to them by the SEC; even though the notice only generally warned of the possibility of criminal prosecution and did not identify the prosecutors with whom the SEC was shaping strategy, the notice was not deemed to be deceitful. The court also naively found no Kordel violation because the SEC investigation began first, which "tends to negate any likelihood that the government began the civil investigation in bad faith as, for example, in order to obtain evidence for a criminal prosecution. Id. at 1197-99.

It remains to be seen how Stringer is received by other circuit courts of appeals. Unless checked, the Stringer analysis leaves criminal prosecutors absolutely free to orchestrate SEC or other agency investigations, choreographing the content and even location of depositions, and allows the SEC or other agency to act with no meaningful disclosure to deponents of the furious behind-the-scenes activity designed solely to collect evidence against those witnesses.