Hollywood Accounting

United States v. Leonard, No. 05-5523-cr (2d Cir. June 11, 2008) (Kearse, Calabresi, Katzmann, CJJ)

In this case, the court concludes that interests in film production companies were “investment contracts,” and hence securities, under federal securities law. It also holds, however, that the district court erred in treating the entire cost of the securities as the loss amount under the guidelines.

Facts

The defendants ran sales offices that peddled interests in LLC’s formed to finance the production and distribution of motion pictures. Potential investors were solicited over the phone and, if they expressed an interest, would be sent offering materials, including brochures, operating agreements, and other such documents. Investors could purchase $10,000 “units” by completing and mailing back a subscription agreement.

The defendants’ sales offices would receive a commission of around 45% for each unit sold. This was the fraud - although the offering materials indicated that a commission would be paid, they did not accurately disclose the size. Read generously to the defendants, they seemed to indicate that no more than 20% of the unit price would go toward sales commissions.

The Sufficiency of the Evidence

The defendants’ first claim was that there was insufficient evidence that the investment units were “securities.” The definition of “security” covers many types of instruments. Here, the specific question was whether the units were “investment contracts.” An investment contract is one where the investor “is led to expect profits solely from the efforts of the promoter or a third party.” Here, the defendants argued that the investors were supposed to help manage the LLC’s, and hence never expected to profit “solely” from the efforts of others.

There is a difference between companies that seek “passive investors,” which fall under the securities laws, and those in which there is a reasonable expectation of significant investor control, which do not. But here, this distinction was complicated by the fact that the investment units were shares in LLC’s. According to the circuit, LLC’s, due to their hybrid nature, require a case-by-case analysis of the “economic realities” of the underlying transaction.

Here, the organizational documents describe an investment that, on its face, was not a security. Those documents were intended to create the impression that subscribers would play an active role in the management of the companies. In reality, however, the members of the LLC’s “played an extremely passive role in the management and operation of the companies.” They voted rarely, and only a small number of them served on any committees. Thus, according to the circuit, “the vast majority of investors in both companies did not actively participate in the venture, exercising almost no control.” For example, the trial evidence showed that the managerial rights mentioned in the subscription documents were illusory, because others made almost every significant decision about the making of the films before the fundraising was even complete. Moreover, the investors themselves had no experience in film production, and played no role in shaping the organizational agreements themselves, casting further doubt as to whether the members were truly expected to have significant control over the enterprise.

And that was enough for the jury to properly conclude, considering “substance over form,” that, “from the start,” there was no reasonable exception of investor control.

The Loss Calculation

At sentencing, the district court held the defendants accountable under for the entire cost of the securities they sold, on the theory that the investors would not have participated if they knew the true size of the sales commissions. The circuit deferred to the district court’s finding about the investors’ decision to participate, but held that this did not “in and of itself” mean that the securities they received were “entirely without value.”

Since the investors actually obtained an interest in a company engaged in producing and distributing a motion picture, the district court should have deducted from the purchase price the actual value of the instruments. The court notes that these were “illiquid securities for which there is no public market,” and thus that it will be quite difficult to value them. Nevertheless, the district court must make a “reasonable estimate” of this figure.

Allocution Lessons

United States v. Gonzalez, No. 07-4824-cr (2d Cir. June 11, 2008) (Newman, Walker, Pooler, CJJ)

In this case, the circuit sets out the procedure that a district court should follow when it realizes that it has sentenced a defendant without first giving him an opportunity to allocute. It also criticizes the imposition of the statutory maximum sentence.

1. Facts

Gonzalez admitted that he violated his supervised release by possessing marijuana. At a sentencing hearing, Judge Conti, visiting from the Northern District of California, heard from the probation officer, who reported that Gonzalez was released from prison in November of 2006. He was sent from there to immigration custody, and released by immigration about two weeks later. Although the officer sent him three notices, Gonzalez never reported to probation. The officer later learned that Gonzalez had been convicted of two petty offenses after his release.

With respect to the failure to appear, defense counsel explained that, after his release, Gonzalez reported to an immigration officer, but did not report to probation because he did not understand that he was supposed to report to two separate agencies. Judge Conti, who did not comment on this explanation, sentenced Gonzalez to the statutory maximum - twenty-four months - without giving Gonzalez an opportunity to speak, and without advising him of his right to appeal.

Later that day, the judge re-called the case and advised Gonzalez of his right to appeal. When it was pointed out that the judge also forgot to allocute Gonzalez before sentencing, Judge Conti told him: “[Y]ou have the right to say anything to the Court you want to and it may very well be that there are occasions when the Court changes its mind.” Gonzalez told the court that he had a substance abuse problem, and the judge recommended treatment “during [his] incarceration.”

2. The Lack of an Allocution

The court of appeals held that Judge Conti’s method of dealing with the lack of a presentence allocution rendered the sentence procedurally unreasonable. “The appropriate response to an omission of presentence allocution implicates due regard for the appearance of fairness.” Thus, the “preferable course” for remedying such a denial is for the district judge “to vacate the sentence, accord the right of allocution, and sentence anew.” Since this procedure did not occur here, the correct remedy was to vacate the sentence and order a new sentencing in conformity with Rules 32 and 32.1.

The court established this procedure in the exercise of it supervisory powers to oversee the administration of justice within federal courts. In doing so, it also noted that the noncompliance with the allocution right here was not harmless error.

3. Substantive Reasonableness

Judge Conti’s reasons for maxing Gonzalez were both brief and bizarre. He said that (1) neither Gonzalez nor society would benefit from his being supervised by the probation department, (2) supervision had done Gonzalez no good - even though Gonzalez had never been actively supervised - and (3) Gonzalez knew what he was doing - even though counsel had just explained to the judge that Gonzalez was confused as to his reporting requirements.

The appellate court strongly suggested that, on the existing record, the twenty-four month sentence, which was more than twice the ten-month guideline maximum, was unreasonable. But since it was remanding anyway, it just noted that the “brevity of the reasons” for the sentence “hampered” appellate review of its length.

The Loan Arranger

United States v. Confredo, No. 06-3201-cr (2d Cir. June 10, 2008) (Newman, Winter, Parker, CJJ)

This case takes on the difficult question of fixing the loss amount under the sentencing guidelines when the case involves fraudulently obtained that loans have been partially repaid. It also addresses an interesting Apprendi claim.

1. The Loss Amount

Defendant Confredo and his associates coordinated the submission of more than 200 fraudulent loan applications to New York banks. The borrowers were small businesses, which paid Confredo a fee, and knew that the applications were false, in most instances because the businesses were not credit worthy. Most of the applications were cosigned by second parties with good credit, but none were secured by real collateral. In total, more than $24 million was sought, and more than $12 million was actually lent, mostly from Citibank.

At sentencing, the probation department recommended that the full $24 million be treated as intended loss under the guidelines, although the available evidence suggested that the banks had actually lost significantly less than that, because some of the $12 million in loans had been repaid. When Confredo was originally sentenced, in 1997, the district court used the $24 million figure, rejecting Confredo’s argument that the guidelines should be based on the actual loss, which he conceded was between $10 million and $20 million.

He won his first appeal, which included an unpreserved claim that the loss amount was incorrect. Because the government had conceded on other issues, the court directed that the district court revisit loss amount on remand.

At resentencing, the government urged the district court to stick to its original ruling. Confredo argued that the intended loss was less than $20 million because he expected that (1) the banks would reject some of the applications and (2) some of his customers would repay their loans, at least in part. The district court sided with the government, but the circuit disagreed.

The court first dealt with the “uncertainty” as to whether the district court’s loss calculation was a fact-finding, reviewed only for clear error, or an interpretation of the guidelines, which would be reviewed de novo. Here, the court treated the ruling here a legal question - as a matter of law, does the presenter of loan applications intend a loss equal to the aggregate amount of the loans when the presenter is not the borrower?

Then the court then surveyed the law on this point. Until 1991, it had held that the proper measure of intended loss was always the value of the loan obtained or sought, even if the defendant intended to repay it. A 1991 guideline amendment, however, permitted greater flexibility on this issue, giving a defendant credit for actions - such as loan repayments or assets pledged to secure the loan - that might reduce the intended loss amount.

The court viewed Confredo’s case as more difficult, however, because he was not the borrower himself, and no assets had been pledged to secure the loans. Nevertheless, the court concluded that the 1991 amendment means that a defendant “should have an opportunity to persuade the sentencing judge that the loss he intended was less than the face amount of the loans.” The court remanded the case for this purpose, directing that the district court “determine the extent, if any, to which Confredo has proven a subjective intent to cause a loss of less than the aggregate amount of the loans.”

2. The Apprendi Issue

Confredo also received to a 3-level enhancement for committing some of the offenses to which he had pled guilty while on bail for others. He argued that this enhancement violated his right to a jury trial, under Apprendi. Interestingly, the court held that Apprendi does apply in this situation because, even though Confredo did not receive a sentence above the unenhanced statutory maximum, the enhancement “expose[d him] to the risk of a sentence that exceed[ed] the statutory maximum.” But the court also held that Apprendi’s jury fact-finding requirement was not violated, because Confredo “sufficiently” admitted that he committed offenses while on release, by admitting to conduct that “the public record indisputably establishe[d]” had occurred after his release on bail.

The court also recognized that there was a second Apprendi violation here - the absence from the indictment of an allegation that Confredo committed the offenses while on release. But it held that such an omission is harmless error “where the evidence is overwhelming that the grand jury would have found the fact at issue.”

Breach Blanket Bingo

United States v. Bell, No. 07-0715-cr (2d Cir. June 10, 2008) (Jacobs, Calabresi, Sack, CJJ) (per curiam)

In this case, the circuit had to sift through competing claims as to which party breached the plea agreement.

Defendants Brumer and Klein pled guilty to various offenses relating to healthcare fraud. Their agreements with the government stipulated to a loss amount, and specified that neither party would seek a departure or adjustment other than those contained in the agreement. Based on the proof at a related trial, however, the government offered to amend the agreement and reduce the loss amount. The defendants rejected this offer, and instead sought a Fatico hearing, after which the court held them accountable for a significantly lower loss amount. In exchange, the government sought adjustments for mass marketing and vulnerable victims that were not part of the plea agreement.

So who breached first? The defendants. According to the court of appeals, the government’s original offer to reduce the loss amount, which would have benefited the defendants, was not a material breach. Rather, the defendants breached the agreement by seeking a Fatico hearing and putting the government to its proof, causing it to lose the benefit of its bargain. Accordingly, since the defendants breached first, the government was entitled to treat the agreements as unenforceable and to seek the additional sentencing enhancements.

This decision also contains an interesting discussion of some issues relating to the increasingly common practice of having of magistrate judges preside over felony guilty plea allocutions. First, the court held that defendants do not have the right to be present when the district judge reviews the transcript of the allocutions and signs an order accepting the plea. The court also held that the provisions of 28 U.S.C. § 636(b)(1) and (b)(1)(C), which require the filing of proposed findings and recommendations of the court, do not apply to Rule 11 proceedings.

Finally, the court rejected Klein’s argument that he was denied his Sixth Amendment right to the counsel of his choice when the district court refused to allow him to substitute retained counsel. The request came six years after the indictment and four years after the guilty pleas, and would have meant replacing Klein’s sixth attorney with a seventh. Under the circumstances, the court’s refusal to allow the change was not an abuse of discretion.

Nostab

United States v. Todd, No. 05-5525-cr (2d Cir. June 5, 2008) (per curiam)

In this “reverse-Batson” decision, the court upheld the district court’s decision to re-seat a white juror against whom the defendants, all members of minority groups, had exercised a peremptory challenge. The court found no clear error in the district court’s conclusion that the challenge was based on the juror’s race.

Specifically, the circuit agreed that the defendants' concern that the brother of the juror’s fiancé was a police officer was unjustified because (1) the juror said that this would not affect her and (2) the defense had accepted a Latino juror whose brother was a retired undercover officer. The court also rejected the defendants’ claim that the juror’s residence in Westchester County was a basis for the challenge. That juror lived in Yonkers, which the defense conceded was “more like the Bronx than Westchester” and, in any event, the defendants had seated two Latinos from Westchester. As for the defendants’ concern that the juror was “sheltered” because she still lived with her parents, the circuit accepted the district court’s observation that he juror did not seem so. Finally, the defendants’ argument that the juror was a school teacher in the Bronx was properly deemed incredible; the defendants seated an African American who was a retired Bronx school teacher.

Notably, the defendants also argued on appeal that “a black criminal defendant should not be subject to a Batson challenge” for striking white jurors because “the potential social harms identified in ‘race-related’ cases involving racial minorities ... are not implicated.” The court rejected this argument, noting that the discriminatory use of a peremptory challenge violates the equal protection right of the challenged juror, and thus the harm is the same in both Batson and reverse-Batson cases.

Summary Summary

This crop of summary orders of interest closes out May 2008.

In United States v. McCargo, No. 07-0626-cr (2d Cir. May 30, 2008), the defendant escaped from a halfway house, then months later was found to be in possession of a firearm. The court held that the gun possession was properly deemed "in connection with" the escape - triggering a four-level enhancement - because escape is a continuing offense and the defendant admitted that he acquired the gun for "protection."

In United States v. Rosario, No. 06-5655-cr (2d Cir. May 30, 2008), the court extended the Regalado remand procedure for crack cocaine cases to a case where the offense level was based on a combination of crack and heroin.

In United States v. Konstantin, No. 07-0033-cr (2d Cir. May 29, 2008), the court held that (1) the district court did not violate the defendant's constitutional right to his choice of counsel by denying a change of counsel one week before trial, and (2) the district court might have misunderstood its authority to correct errors in the Judgment under Fed.R.Cr.P. 36 when it denied the defendant's Rule 36 motion that pointed out an error in the designation recommendation.

In United States v. Garcia, No. 06-2879-cr (2d Cir. May 29, 2008), the court held that a defendant's failure to object to the mandatory life sentence triggered by the filing of two prior felony informations under 21 U.S.C. §§ 841(b)(1)(A) and 851 was not plain error -- even though there was a "substantial question of whether a defendant's failure to prove the affirmative defense of withdrawal may satisfy the government's burden to demonstrate that the defendant engaged in criminal activity subsequent to a prior conviction" -- because the defendant received life sentences on other counts. Emphasis in original.

Pimentel Loaf

United States v. Habbas, No. 05-6142-cr (2d Cir. May 30, 2008) (Leval, Sack, CJJ, Garaufis, DJ)

This confusing opinion attempts to sort through the defendant’s claim that the government breached a plea agreement. But because of the imprecise way it is written, it is hard to know what really happened.

Defendant Rahman pled guilty to obstruction of justice in connection with his effort to frame someone named Abdel-Wahed by falsely reporting that Abdel-Wahed had assaulted a third person, who had testified against one of Rahman’s associates. Rahman pled guilty and was sentenced to eight years in prison.

On appeal, he argued that the government violated the plea agreement by advocating for guidelines higher than those contained in the agreement. Specifically, the government agreed with the probation department’s assessment that Rahman merited a four-level role enhancement, even though the agreement did not contain that adjustment. In rejecting this claim, the appellate court characterized the guidelines calculations in the plea agreement as a “Pimentel estimate,” referring to United States v. Pimentel, 932 F.2d 1029, 1034 (2d Cir. 1991), the very early guidelines case in which the court suggested that the government provide defendants with an estimate of the likely guideline range, to ensure that the defendant’s choice to plead guilty was intelligently made.

The decision turned on several factors. First, according to the court, plea the agreement “clearly stated” that the guideline range was a non-binding estimate, and warned that the government might advocate for a higher sentence. Moreover, there was no evidence that the government acted in bad faith or changed its position so dramatically that it would raise doubts as to whether the defendant understood the risks involved in pleading guilty. Rather, it appears that, in the rush to put together the plea agreement, the government simply forgot about the role adjustment. Finally, here, the defendant was not prejudiced by the government’s change of position, since the district judge imposed a sentence far longer than even the enhanced range, and, according to the circuit, in doing so expressly indicated that the guideline dispute was “academic.”

Comment:

This is a bizarre opinion, because it turns on a close reading of the plea agreement, without reproducing the language of the agreement itself, if that is in fact what it was. It is hard to know, because the opinion also uses confusing terminology. In some districts in this circuit, a Pimentel letter is a non-binding informational letter from the government containing a guidelines estimate that is not a plea agreement at all. Here, it is hard to know whether the court is in fact analyzing a claim about a Pimentel letter, or one about a plea agreement that contained a non-binding guidelines estimate, but other binding provisions. The confusion is even more pronounced because the court distinguishes this case from United States v. Palladino, 347 F.3d 29 (2d Cir. 2003), a seemingly identical case that went the other way but that never mentioned Pimentel at all.

In the future, it would be better if the court did not discuss plea agreements under the Pimentel rubric, since most practitioners associate Pimentel estimates with non-binding letters that are not agreements at all.

The opinion is also confusing because it at one juncture indicates that the “dispute” over the role enhancement was made moot by the district court’s findings, then at a later juncture indicates that Rahman’s counsel did not object to the four-level adjustment that is the subject of the appeal. It is hard to see how both can be true.

Summary Summary

The court has only issued 2 published opinions in criminal cases in the past two weeks. But there has been a flurry of noteworthy summary orders. Here is the latest crop:

In United States v. Creary, No. 06-2233-cr (2d Cir. May 27, 2008), a document fraud case, the court vacated the sentence because the district judge did not make sufficient findings that the case involved 100 or more fraudulent documents.

United States v. Berrios, No. 05-6654-cr (2d Cir. May 27, 2008), sorted out a district court proceeding that can only be described as a train wreck. First, the court vacated one defendant’s sentence because the district judge did not give sufficient reasons for the sentence: it did not calculate the guideline range, mention § 3553(a), adopt the presentence report or address the history and character of the defendant. The circuit did not enforce the appellate waiver, because, during the plea, the district judge did not ascertain that the waiver was knowing and voluntary. Next, the court vacated a second defendant’s conviction in its entirety because the plea colloquy was inadequate - the court did not identify the charges or the maximum and minimum penalties. Third, the court vacated two other defendants’ sentences because the district court did not make sufficient findings as to drug quantity. Finally, a fifth defendant’s sentence was vacated because the record is “devoid of explanation or reasoning for [the] sentence.”

In United States v. Valdez, No. 07-0293-cr (2d Cir. May 14, 2008), the sentence was procedurally unreasonable because the district judge indicated that he believed the he would have to find the guideline range unreasonable before he could impose a below-guideline sentence.

Deficiency Expert

United States v. Ellett, No. 07-3682-cr (2d Cir. May 23, 2008) (per curiam)

James Ellett was a tax protester, who stopped paying his federal income tax after reading a book called “Vultures in Eagle’s Clothing,” which purported to describe a lawful way of avoiding taxes. He claimed to have read the book more than 100 times, and spent additional hours studying the subject in a law library. Between 2000 and 2004, Ellett failed to pay more than $64,000 in federal income tax based on his belief that, as a “citizen” of New York State who worked for a private employer, he was not subject to taxation.

At trial, his defense was a lack of willfulness, which the jury rejected. On appeal, he argued that due process required that he be given an opportunity to litigate his position within the tax system before being prosecuted for tax evasion. Under this theory, the existence of a tax deficiency, one of the elements of 26 U.S.C. § 7201, could only be established if the government first adjudicated the matter civilly or administratively, which did not happen here.

The circuit disagreed. The tax deficiency element “arises by operation of law the date a tax return is due but not filed; no formal demand or assessment is required.” Thus, the government need not obtain a civil or administrative determination of the tax deficiency before bringing a criminal tax evasion case.

Two For The Price Of One

United States v. Douglas, No. 06-0581-cr (2d Cir. May 13, 2008) (Kearse, Katzmann, CJJ, Rakoff, DJ)

Douglas was convicted of killing a Brink's employee while attempting to steal money from Citibank ATMS that were serviced by Brink’s. He was sentenced to life in prison.

Douglas had originally been appointed a federal defender. But, once he was indicted on a death-eligible charge, the federal defender requested the appointment of a second attorney, “learned counsel” under 18 U.S.C. § 3005, and the court granted the request. About six months later, the government announced that it would not seek the death penalty, but Douglas asked the court to keep both attorneys on the case. The court rejected the request, but allowed Douglas to choose the attorney he wanted. On appeal, he renewed the claim that he was entitled to two attorneys under 18 U.S.C. § 3005.

The circuit disagreed. The statute, which provides for the appointment of death-qualified counsel once the defendant is indicted for a capital crime, does not say whether the appointment must continue once the government decides not to seek the death penalty. Nonetheless, the court, in a decision of first impression here, joined the First, Third, Ninth and Eleventh Circuits and concluded that, once the government decides not to seek the death penalty, the case is no longer a capital case. The court chose not to follow the Fourth Circuit, which, surprisingly, has a different rule.

It concluded, however, by noting that its holding was only that a district court was not required to continue with two attorneys once the case is no longer capital. This does not preclude the court, in its discretion, from maintaining the dual appointment in a future case.

Quantum Mechanics

United States v. Martinez, No. 06-5502-cr (2d Cir. May 9, 2008) (per curiam).

In this brief per curiam, the court reaffirms that there is only one quantum of proof necessary for sentencing enhancements post-Booker - the preponderance standard.

Specifically, the court rejected Martinez’ argument that where the enhancement requires the sentencing judge to determine that the defendant committed a separate offense (here, the 4-level bump under § 2K2.1(b)(6) for using a gun in connection with another felony offense), those facts should be proven beyond a reasonable doubt. The circuit noted that the district court did not sentence Martinez for the other offense; it merely determined that the separate offense was relevant to the sentence to be imposed on the offense of conviction, and that Martinez did not receive a sentence longer than the applicable statutory maximum.

Yanni, Get Your Gun

United States v. Desinor, No. 05-4500-cr (2d Cir. May 8, 2008) (Walker, Straub, Hall, CJJ)

This prosecution arose from a murderous rivalry between two drug gangs. One, the “Cream Team” (footnote 1 of the opinion, which explains the derivation of this name, is a must-read), was populated largely by the defendants on trial. The rival gang sold drugs out of a neighboring building, and was run by a dealer named Yanni. The appeal raised two issues of first impression relating to jury instructions in homicide cases. The court affirmed on those issues, but one defendant won a partial resentencing.

The Homicide

The trial evidence revealed that members of the Cream Team shot and killed Yanni’s cousin, and that this shooting was the culmination of a period of escalating acts of violence between the two groups. On the day of the shooting, heavily armed Cream Team members were looking for Yanni in his building, seeking to retaliate for something Yanni had done the day before. Two Cream Team members, with guns drawn, were walking down the stairs when Yanni’s cousin burst into the stairwell and reached for what they thought was a gun. They shot and killed him.

Self-Defense

The defendants’ primary claim on appeal was that the district court erred in refusing to instruct the jury on self-defense. They pointed out that the two shooters both testified that they fired because they thought that the victim was reaching for a gun, and that, even if they were the initial aggressors, they withdrew from the conflict and attempted to communicate their withdrawal to the victim.

The circuit held that, on the facts of this case, the defendants were not entitled to an instruction on self-defense.

The court began by noting that “one cannot support a claim of self-defense by a self-generated necessity to kill.” Here, in disputably, the Cream Team defendants were the initial aggressors. The court ducked the question of whether they had provided sufficient evidence of withdrawal and communication, because it held that the defendants failed to establish that the “dangerous situation they had created by setting out to kill Yanni” had dissipated.

For this latter principle, the court turned to state court decisions for “guidance.” A survey of those cases revealed that “a defendant who initiates a violent crime, such as an armed robbery, that results in a fatal shooting may not claim self-defense absent a showing that, at the time the shooting occurred, the dangerous situation created by the initial crime had dissipated.”

Here, the court concluded, the defendants did not meet that burden. When they encountered Yanni’s cousin in the stairwell, they had “already created a dangerous situation, by virtue of their active participation in a conspiracy to commit murder.” There was no evidence that this dangerous situation had abated by the time the Cream Team crew encountered the victim. To the contrary, they were still looking for Yanni and still had their guns drawn.

The “Engaging In” Element

One count of conviction was under 21 U.S.C. § 848(e)(1)(A), which covers murder while “engaging in or working in furtherance” of a drug offense.

The district court charged the jury that the killing had to be “related in some meaningful way” to the drug conspiracy and that “at least one of the defendant’s purposes or motives . . . was because of the narcotics conspiracy.” The court also charged that the drug motive did not need to be the “sole purpose, or even the primary purpose” of the killing.

On appeal, the defendants argued that the court should have charged that the sole or primary purpose of the murder was drug-related. The circuit disagreed. “[T]he government need only prove beyond a reasonable doubt that one motive for the killing . . . was related to the drug conspiracy.” (emphasis in original). The existence of other motives does not affect the government’s ability to satisfy the “engaging in” element. All that is required is that there be a “substantive connection" between the defendant’s role in the murder and his participation in the drug conspiracy.

For these same reasons, the court also rejected a sufficiency challenge as to this element. There was “ample evidence” that the plan to attack Yanni, and the resulting murder of his cousin, were related to the two gangs’ ongoing drug rivalry.

The 924(c) Sentence

One defendant, Wilner Desinor, remained outside the building, armed, during the shooting. He was convicted under 18 U.S.C. § 924(c), but received a ten-year consecutive sentence, instead of the default five, for discharging his gun.

The circuit reversed because there was no finding, either by the judge or the jury, that Desinor had actually discharged his gun. To the contrary, the judge expressly charged the jury that it did not need to make this finding in order to convict under § 924(c).

Summary Summary

United States v. Rattoballi, No. 06-5881-cr (2d Cir. May 8, 2008). Rattoballi faced a guideline range of 27 to 33 months’ imprisonment but received a noncustodial sentence. The government appealed, and, in a published decision, the court vacated the sentence. This summary order affirms the 18-month prison sentence imposed on remand. The sentence was reasonable, and did not violate the parsimony clause.

In United States v. Ibarra, No. 06-0742-cr (2d Cir. May 7, 2008), the court held that the district court erred denying the “minor participant” reduction to a drug courier. The defendant “participated in only one of the conspiracy’s two drug hand-offs,” played “lesser role than anyone else involved in the conspiracy,” and his participation was limited to accompanying another defendant, “to whom he was clearly subordinate.”


In United States v. LaFlam, No. 07-0253-cr (2d Cir. May 5, 2008), the court held that a state conviction for cultivation of marijuana was a career offender predicate because it involved the “manufacture” of a controlled substance.

Diner Out

United States v. Iodice, No. 06-2680-cr (2d Cir. May 6, 2008) (Straub, Pooler, Sotomayor, CJJ).

John Iodice appealed his arson conviction on the ground that there was insufficient evidence of the requisite nexus to interstate commerce. The circuit affirmed.

The building that Iodice torched had been, at one time, a diner. Its owner had purchased it, vacant, eighteen months before the fire. The diner was “complete and ready to open,” and, but for the fire, the owner was planning to move and reopen it six months later. A co-conspirator testified that the fire was intended to destroy the diner and prevent competition with another one already located near the new location.

The court rejected Iodice’s claim that the diner was not “used in” interstate commerce, as required by 18 U.S.C. § 844(i). The diner was a commercial building that was only temporarily inoperative. “[T]emporarily vacant buildings” can have a sufficient connection to commerce “as long as there was evidence at trial of sufficiently definite plant to return the property to the stream of commerce.” Here, the evidence of the owner’s future plans, coupled with the motive for the fire, sufficed.

Impact Victim

United States v. Eberhard, No. 05-3431-cr (2d Cir. May 5, 2008) (Jacobs, Calabresi, Sack, CJJ)

Todd Eberhard, a former stock broker, pled guilty to various fraud charges. Under his plea agreement, the stipulated guideline range was 97 to 121 months’ imprisonment. The presentence report added a 4-level aggravating role enhancement, but then recommended a below-guidelines 96-month sentence. Judge Sweet issued a pre-sentencing opinion indicating that he would impose a 151-month sentence. But, at sentencing, after hearing from victims, who asserted their right to address the court under 18 U.S.C. § 3771(a) (2004), which was enacted after Eberhard pled guilty, the judge imposed a 160-month sentence.

The circuit affirmed the sentence. First, it rejected an ex post facto challenge to the application of § 3771(a). District courts have always had the discretion to consider victim statements, and there is nothing about the new legislation - which requires district courts to hear from the victims of financial crimes - that implicates the Ex Post Facto Clause. The new legislation did not create a new crime, aggravate or increase the penalty for an existing crime, or alter the rules of evidence to dilute the quantum of evidence necessary for the government to secure a conviction.

The court also rejected an interesting due process claim: Eberhard argued that the government violated the plea agreement by presenting victim testimony that made sentencing arguments “by proxy” that the government was barred from making in the plea agreement. The circuit disagreed, since nothing in the plea agreement prevented the government from presenting victim impact testimony and the victims’ pleas for a harsher sentence “were incidental to presentation of facts.”

Finally, Eberhard argued that the court should not have imposed an aggravating role enhancement. Unfortunately for him, he did not contest the enhancement at sentencing and the circuit deemed it “waived.”

Summary Summary

This batch of summary orders of interest wraps up April. Here we go:

In United States v. Moya, No. 05-2432-cr (2d Cir. April 30, 2008), the district court erred in imposing a 2-level aggravating role enhancement. Where the defendant is not a manager or supervisor, but there are five or more participants, the district court’s choice is between a 3-level enhancement or no enhancement at all. “Compromise outcomes” are not permitted.

In United States v. Dono, No. 07-5333-cr (2d Cir. April 23, 2008), the district court erred in setting bail for two alleged members of an organized crime family who were charged with a crime of violence. The defendants did not overcome the statutory presumption of dangerousness, and the bail condition ordering them to stay away from the victims and not associate with other crime family members did “not ensure that they will comply.”

United States v. Desroches, No. 06-3196-cr (2d Cir. April 14, 2008), not surprisingly, rejected the defendant’s claims that he was a immune from federal prosecution as a “Sovereign American,” and because his prosecution had not been “authorized by the State of Vermont.”

In United States v. Johnson, No. 06-2026-cr (2d Cir. April 13, 2008), the defendant was convicted of felony murder in front of Judge Korman, who sentenced him to 30 years’ imprisonment on a finding that the murder was reckless, not intentional. After winning his appeal on Batson grounds, he was retried and reconvicted, this time in front of Judge Johnson, who, although the facts had not changed, sentenced him to life in prison. The circuit vacated the sentence. Judge Johnson should have determined whether the murder was reckless or intentional, and should have explained in more detail his reasons for imposing a drastically higher sentence after retrial.

State of Disagreement

United States v. Williams, No. 05-4416-cr (2d Cir. April 25, 2008) (Calabresi, Cabranes, CJJ, Korman, DJ)

Here, the court vacated two below-guideline sentences that seemed to have been imposed largely in order to minimize a perceived disparity between the sentence recommended by the guidelines and the sentence that would have been meted out in state court.

Williams and Shuler sold crack together in Yonkers. They were first charged in state court, then the case was transferred to federal court. For reasons that are not clear, they were separately charged and their cases were handled by different district judges.

Williams was sentenced first, by Judge McMahon. He faced a 70 to 87 month range (now it would be 57 to 70 due to the crack guideline amendments) but the judge, persuaded by Williams’ attorney that the plea offer from Westchester County D.A.’s office’s would have been between 12 and 66 months, sentenced him to 36 months’ imprisonment. She characterized the disparity between the guideline range and the likely state sentence was “unwarranted.” Later, Judge Brieant sentenced Shuler. Although the judge had intended to impose a 70-month sentence, he instead gave him 40 months, to avoid a disparity with Williams.

The government appealed, and won. Focusing largely Williams, the circuit found the 36-month sentence to be procedurally unreasonable. First, the district judge erred by not treating the guidelines as a “starting point,” and by instead deciding to rely her “personal policy” of conforming to what she viewed as the likely state court sentence. The judge focused on the wrong disparity - § 3553(a)(6) is intended to eliminate disparity on a “national,” not a local, level.

The appellate court was also concerned with basing a federal sentence on the pleading policies of a particular district attorney, since New York has sixty-two of them. Such a practice could easily increase, rather than decrease, sentencing disparities within the federal districts in New York State. Finally, the circuit was concerned about the district court’s reliance on hearsay representations as to what would have happened in state court.

The court also vacated Shuler’s sentence, “if only because” it vacated Williams’. The court identified some other problems, however. While it agreed with Judge Brieant that avoiding disparities among “persons who are engaged in the same misconduct together” is permissible, the court was concerned that he relied too heavily on Williams’ sentence “without making his own assessment of an appropriate sentence.”

The court’s parting shot was to question the “assignment practice” that created Judge Briant’s “predicament.” “[I]t seems difficult on any score to justify the assignment of the Williams and Shuler cases to different judges.” The court suggested that, on remand, one judge take both cases.

On a brighter note, the court speculated that the “real reason” that Judge McMahon imposed such a low sentence was her “understandable desire to ameliorate” the federal crack-v-powder sentencing disparity. It reminded her that she has the discretion to do so on remand.

Rejection Letter

United States v. Negron, 06-3614-cr (2d Cir. April 24, 2008) (Jacobs, Kearse, Pooler, CJJ) (per curiam)

Defendant Silverio, who was sentenced to 272 months (22 years, 8 months) in prison, had been offered, and rejected, a plea agreement with a binding sentencing recommendation of 17 years. On appeal, he argued that district court erred in refusing to consider the terms of the rejected agreement at sentencing.

Not surprisingly, the appellate court disagreed. There is nothing in § 3553(a) - or circuit precedent - that requires a district court to do so. Accordingly, finding no substantive or procedural defect with the sentence, the court affirmed.

Youthful Indiscretion

United States v. Parnell, No. 06-4551-cr (2d Cir. April 23, 2008) (Winter, Straub, Sack, CJJ) (per curiam)

In this case, the court again holds that a New York youthful offender adjudication (a “y.o.”) - here, it was for attempted burglary in the second degree - must be included in the defendant’s criminal history score under the sentencing guidelines and, where applicable, can trigger the “career offender” enhancement.

There is nothing new or surprising about this. What is interesting about this case is its strong dicta that a y.o is not a predicate under the Armed Career Criminal Act (ACCA). Indeed, the circuit cites with approval United States v. Fernandez, 390 F. Supp.2d 277 (S.D.N.Y. 2005) (litigated and won by this very blogger), which so held, and notes that, here, the district court followed Fernandez in declining to sentence Parnell under ACCA, a sentence, not incidentally, that the government did not appeal.

Government’s “Question[able],” “Troub[ling]” and “Disingenous” Conduct Results in an Affirmance. Huh?

United States v. Blech, No 05-3600-cr (2d Cir. April 23, 2008) (Sotomayor, Parker, Hall, CJJ).

Two defendants who were convicted of securities and related frauds appealed on the ground that their cases were misjoined, and one advanced a Brady claim. The court affirmed, but only out of apparent deference to the district court’s findings under the “abuse of discretion” standard.

The Severance Issue

This case went to trial on a thirteen-count indictment that alleged two separate fraud schemes. The first involved appellant Brandon, who, along with others, defrauded customers of Credit Bancorp of more than $200,000,000. The second scheme involved appellant Wexler, who also defrauded Credit Bancorp customers, but in a different way. The district court denied their severance motions, and both were convicted.

The defendants’ severance claim was unusually strong. Although the two schemes shared some participants, and both targeted Credit Bancorp customers, they were otherwise completely distinct. Nevertheless, the appellate court found no error.

The court held that the joinder was permissible under Rule 8(b), even though the two schemes were not - and could not - have been charged as a single conspiracy. Rule 8(b) was still satisfied because the indictment alleged a sufficient overlap in parties and transactions. Nor were the defendants prejudiced by the joinder; the court cited the small risk of “spillover prejudice” and the district court’s limiting instructions.

Nevertheless, the court noted, “[W]e question the government’s decision to try the two conspiracies together.” Neither defendant knew of the other’s activities, it did not appear that one scheme would have been admissible background evidence during the trial of the other had they been severed, and the government unfairly “lump[ed] together all of the conspirators during its rebuttal summation.” So why did it affirm? The district court did not abuse its discretion “given the flexibility of the standard.”

The Brady Claim

Many, many months before trial, the government produced more than two hundred boxes of discovery. One week before trial, it provided to defendant Brandon exculpatory information - the grand jury testimony of a cooperating witness. It waited until the eve of trial to turn over even more Brady material - the FBI agent’s notes of that cooperator’s debriefing. These materials supported Brandon’s claim that he was unaware of the unlawful aims of the conspiracy with which he was charged.

Nevertheless, the circuit found no Brady violation, even though the government “disingenuous[ly]” argued that the material was not exculpatory. In fact, the court concluded that the evidence “quite obviously could be viewed as” favorable to Brandon. The government also disingenuously argued that the evidence was not exculpatory because there was other evidence of guilt, another ridiculous assertion that the court rejected.

But it still affirmed, because the district court found no bad faith (it seems that, here, the government reserved its bad faith for its appellate briefs), and “we do not go to far as to overturn that conclusion.” The court also noted that there was “no probability” that the late disclosure affected the outcome of Brandon’s case. It did provide, however, a stern warning that the government “should have” complied with Brady, but that, of course, gets Brandon nowhere.

Comment

Enough of the free passes! If the court is really serious about curtailing such sharp practice on the part of the government, it needs to start reversing convictions in cases like this.