Grand Slam

United States v. Gonzalez, No. 11-1490-cr (2d Cir. July 19, 2012) (Jacobs, Kearse, McLaughlin, CJJ)

Omar Gonzalez was originally charged with a narcotics conspiracy in a superseding indictment that alleged his involvement with “mixtures and substances containing a detectable amount of cocaine.” The indictment did not allege a drug quantity, and cited 21 U.S.C. §§ 846 and 841(b)(1)(C), a penalty section that carries no mandatory minimum. Before trial, the government superseded again. The second superseding indictment was identical to the first except it replaced the citation to § 841(b)(1)(C) with a citation to § 841(b)(1)(B), a penalty provision that, in cases involving 500 grams or more of cocaine, has a five-year mandatory minimum; in 500+ gram cases like Mr. Gonzalez’, where the government files a prior felony information, it specifies a ten-year minimum.

During trial, the defense, after seeing the government’s proposed jury instructions, objected, noting that trafficking in 500 grams or more of cocaine was not actually alleged in the indictment, and that drug quantity is an element that must be pled. Counsel questioned how the court could be sure that the grand jury actually found that the case involved 500 grams or more of cocaine. The district court disagreed that the indictment was insufficient, on the ground that § 841(b)(1)(B) was mentioned in the text of the indictment, not merely the parenthetical at the end, and thus that Gonzalez could be convicted, which he was, and sentenced, which he was, under that section. Believing itself bound by a  ten-year mandatory minimum - the statutory five doubled - the court sentenced Mr. Gonzalez to 120 months’ imprisonment.

On appeal, the circuit remanded the case for resentencing under § 841(b)(1)(C) because sentencing Gonzalez under § (b)(1)(B) violated his rights under the Grand Jury Clause. 

But to get there, the court had to harmonize some seemingly conflicting precedents. In one case, Berlin, the indictment did not include a factual allegation that the defendant knew of the falsity of a statement he made in order to obtained mortgage insurance, even though that was an element of the offense charged, a violation of 18 U.S.C. § 1010.  There, the circuit held that the deficiency was “not cured by the fact that each count cited the statute that [he] was alleged to have violated.” After all, “stating that an act is ‘in violation of’” a particular statute “adds no factual information as to the act itself.” In another, Doe, the court found an indictment defective where, although it alleged a statutory violation that contained a drug quantity, the indictment itself had no language referring to any particular quantity; only a “parenthetical string citation” suggested the quantity of drugs involved in the offense. Thus, it was unclear whether the grand jury actually made findings on the drug quantity involved.

But, by contrast, in Hernandez, an indictment was sufficient; although it failed to allege in its text that a drug possession conspiracy involved the intent to distribute, the indictment had “both explicit and implicit” references to the “neglected element.” That indictment did more than merely cite a statutory section: the element was in the caption of the indictment and the indictment alleged a large enough quantity of heroin that an intent to distribute could be inferred. In addition, the statutory citation containing the missing element appeared in the text of the indictment, and not just, as in Doe, in a parenthetical after the factual allegations.

The district court had viewed this case as more like Hernandez due to the placement of the citation, but the circuit made clear that that was “not the only difference” between Doe and Hernandez. Doe could be distinguished from Hernandez because there was other language in the Hernandez indictment that sufficiently indicated that the grand jury hade made a finding on the element. 

Gonzalez’ case was accordingly governed by Doe, not Hernandez, irrespective of the placement of the statutory citation.  The circuit also rejected the government’s argument that the indictment should be “construed liberally in favor of sufficiency,” since it contained “no helpful language to construe.”   Thus, it is now clear that a citation to a statutory section is not, by itself, sufficient to cure a defective indictment that fails to allege all the elements of an offense, and it does not matter whether the statutory citation is located in the text of the indictment or in a parenthetical following the text.

Circuit Buries The Lede

United States v. Esso, No. 11-570-cr (2d Cir. June 27, 2012) (Walker, Lynch, Droney, CJJ)

The published opinion in this case is a short and fairly unremarkable decision holding that the district court did not err in allowing the members of a deliberating jury to take the indictment - it charged conspiracy to commit wire and bank fraud and substantive bank fraud - home with them to read overnight. The judge instructed the jurors that they must not show the indictment to - or discuss it with - anyone else, or conduct any outside research, and that the indictment was not evidence. 

That said, however, the circuit strongly “question[ed] the wisdom of the practice,” and “urge[d] caution on district courts considering it.” The practice increases the chance that jurors will be exposed to outside influences in a way that the court cannot monitor and also risks overemphasizing the significance of the indictment itself. But, nevertheless, here, it did not deprive the defendant of a fair trial. Jurors are permitted to think about the case before them on their own time, and the jurors received very thorough instructions, which there was no evidence that they disregarded. 

But the decision that is of real interest in this case is the accompanying summary order, bearing the same docket number, that vacates Esso’s sentence, finding an unwarranted disparity between his sentence and that imposed on a co-defendant, Persaud. Both defendants were convicted on all counts.  The district court sentenced Esso first. It deemed him the “least culpable participant” in the scheme, and imposed a below-Guideline sentence of one year and one day in prison.  Three weeks later, the same judge sentenced Persaud to 12 weekends in a halfway house, but no jail. Esso then moved for resentencing, and the court denied the motion on the ground that it lacked jurisdiction, while noting that it was “tempted to say that it would have given” Esso a lower sentence if it could.

The circuit agreed that Esso’s sentence was procedurally unreasonable. The district court, having concluded that Esso was the “smallest player,” did not explain why his sentence was longer than Persaud’s. And, to the circuit, apart from their distinct roles in the offense (Persaud faced higher Guidelines, too), the defendants seemed to be similarly situated.  The circuit accordingly vacated Esso’s sentence so that the district court could either better explain it or “correct its mistake and exercise its discretion anew.”

Remorse Code

United States v. Aleynikov, No. 11-1126 (2d Cir. April 11, 2012) (Jacobs, Calabresi, Pooler, CJJ)

Sergey Aleynikov, a former Goldman Sachs computer programmer, stole a portion of Goldman’s proprietary high frequency trading (“HFT”) computer code, apparently in preparation for taking a related, but higher paying, job at a startup company.  A jury convicted him of violating 18 U.S.C. § 2314, which makes it a crime to transport stolen “goods” in interstate commerce, and § 1832, which makes it a crime to steal a trade secret that is related to or included in a “product” that is “produced for or placed in” commerce.  Two months ago, the circuit reversed these convictions in a one-line order with an opinion to follow.

And here it is. While we were all expecting a sufficiency-of-the-evidence opinion, the court instead concluded that the indictment charging Aleynikov with those crimes was itself insufficient because it failed to allege a crime within the terms of the applicable statutes.

First, as to the stolen property count, the court concluded that the stolen HFT code did not constitute “goods,” “wares,” or “merchandise” within the meaning of the statute.  

In 1966, the court had held that stolen photocopies of documents detailing a pharmaceutical manufacturing process were “goods” because the documents were tangible items that were transported across state lines. But that case also suggested that if intellectual property were stolen in an intangible form, the statute would not apply. Moreover, in 1985, the Supreme Court held that the interstate transmission of intangible property - there it was the musical compositions contained in bootleg recordings - did not violate § 2314. Several circuits have subsequently held that intangible property is not a “good” “ware or “merchandise.” 

Aleynikov’s case is no different. He uploaded Goldman’s HFT code to a server in Germany, thereby stealing “purely intangible property embodied in a purely intangible format.”  The indictment did not allege that he “physically seized anything tangible from Goldman,” such as a CD or a flash drive.  And, while he later copied some of the code onto his own laptop and flash drive and transported it interstate, this did not violate the statute either, since the “thing stolen” must be a good or ware “at the time of the theft.”  “The later storage of intangible property on a tangible medium” - just like the bootleg phonograph records in the Supreme Court case - “does not transform the intangible property into a stolen good.”

For the trade secret count, the court concluded that code was not “related to or included in a product that is produced for or placed in” commerce, as required by § 1832.  This language covers two distinct categories of products: those “placed in” commerce are already in the marketplace, while those “produced for” commerce are still in development.  Clearly the source code here was not a product “placed in” commerce. But was also not “produced for” commerce simply because its function was to execute trades in financial markets.  And Godlman had no intention of selling its HFT system or of licensing it to anyone else. Thus, since that code “was not designed to enter or pass in commerce, or to make something that does,” its theft did not violate § 1832. At a minimum, the statute was ambiguous as to whether it would cover stolen HFT code, and under the rule of lenity the outcome would be the same.

In a concurring opinion, Judge Calabresi noted that, while it certainly appeared that Aleynikov’s theft of Goldman’s code was the type of “mischief” that Congress intended to be covered by § 1832, he agreed with the majority’s textual analysis. He suggested that Congress “return to the issue.”

IF THE CRIME DOESN’T FIT THEY CAN’T FORFEIT

United States v. Capoccia, No. 06-0669-cr (2d Cir. September 19, 2007) (Sotomayer, Katzmann, CJJ, Gertner, DJ)

In this case, the district court erred in ordering forfeiture of the proceeds of conduct that occurred prior to the date of the conduct with which the defendant was charged. The decision turned on a very narrow reading of the indictment, as well as on the nature of the statute under which the defendant was charged.

At issue was money that Capoccia, a lawyer, misappropriated from a credit counseling/debt reduction service that he founded. Capoccia was convicted of misappropriating unearned client retainer fees, failing to give complete refunds to clients who withdrew from the program, and embezzling client escrow funds that was supposed to be paid to credit card companies to settle clients’ debts.

Capoccia was charged with interstate transportation of stolen money under 18 U.S.C. § 2314. While the indictment referenced a “scheme” that existed between 1997 and 2002, the earliest actual interstate money transfers with which he was charged occurred on May 24, 2000. Despite this, the district court ordered Capoccia to forfeit the proceeds from pre-May 2000 transfers.

The court of appeals reversed. Reading the indictment very closely, it distinguished between language that “refer[ed] to the existence of” the scheme and that which “charge[d]” a scheme. [emphasis in original]. The court concluded that only the charging portion of the indictment, which listed the particular transactions that the government alleged to be violations of § 2314, determined the conduct that could be the basis of a forfeiture. Since the earliest discrete act listed occurred on May 24, 2000, the district court erred in ordering the forfeiture of the proceeds of earlier transactions.

In addition, the court relied on the nature of the particular offense with which Capoccia was charged. He was accused under the first paragraph of § 2314, which criminalizes only individual acts of transportation of stolen property, and not the second paragraph, which criminalizes, inter alia, a scheme or artifice to defraud. Accordingly, the indictment’s reference to conduct from before 2000 was treated as “background” for the specific acts alleged in the charging paragraphs, but did not itself charge a violation of the statute encompassing pre-May 2000 conduct.

Finally, the court held that, not only did the indictment did not charge Capoccia with pre-May 2000 conduct, the government failed to establish a nexus between the earlier transfers and the conduct of which he was convicted. Purely as a matter of logic, the government could not establish that the funds involved in earlier transactions were “obtained ... as the result” of the later ones.

Comment: This is a nice win for Capoccia, since the amount involved is more than $1.1 million dollars.