MEMORANDUM AND ORDER
INTRODUCTION
A four-count indictment (“Indictment”), filed August 13, 2010, charges defendants Courtney Dupree (“Dupree”), Thomas Foley (“Foley”) and Rodney Watts (“Watts”) 1 (together, “defendants”) with one count of Conspiracy to Commit Bank, Mail and Wire Fraud in violation of 18 U.S.C. §§ 1349, 2 3551 et seq. 3 one count of Bank Fraud in violation of 18 U.S.C. §§ 1344, 4 2, 5 355 et seq., and two counts of making False Statements, in violation of 18 U.S.C. §§ 1014, 6 2, 3551 et seq. (See ECF No. 22, Indictment (“Indictment”).) Defendant Dupree was the president and chief executive officer of GDC Acquisitions, LLC (“GDC”), and at different times relevant to the Indictment, defendant Foley was GDC’s outside counsel and its chief operating officer and defendant Watts was GDC’s chief financial officer and chief investment officer. (Indictment at ¶¶2, 3, 4.)
All defendants move (1) for an order seeking relief from the July 27, 2010 seizure of funds from bank accounts at J.P. Morgan Chase held by GDC and/or its subsidiaries; (2) to suppress evidence seized at the offices of GDC and its subsidiaries pursuant to a search warrant executed on July 23, 2010; and (3) for relief, including dismissal of the Indictment, due to alleged prosecutorial misconduct. The
BACKGROUND
I. Charges
The allegations in the Indictment, the Complaint and the submissions of the government are as follows:
Between January 2007 and July 2010, defendants Dupree, Foley and Watts allegedly orchestrated a scheme to defraud Amalgamated Bank (“Amalgamated”), a financial institution, the deposits of which were insured by the Federal Deposit Insurance Corporation, and C3 Capital, LLC, a private equity investment firm (“C3 Capital”), by obtaining, and attempting to obtain, loans for GDC and its subsidiaries JDC Lighting, LLC, Unalite Electric and Lighting, LLC, and Hudson Bay Environments Group, LLC, TDC Acquisitions, LLC, Interconnect Lighting, LLC, Image Lighting Services, LLC, Image Lighting, LLC, Image Lighting Corp., Unalite Southwest, LLC, Unalite NJ, LLC, and Unalite Distribution, LCC (collectively, the “subsidiaries”) on the basis of false financial statements and other material misrepresentations. (Indictment at ¶¶ 1, 8; ECF No. 1, Complaint and Affidavit in Support of Application for Arrest Warrants (“Shea Complaint Aff.”) at ¶ 3 n. 2.) Specifically, on or about August 29, 2008, the subsidiaries and Amalgamated Bank allegedly entered into an agreement under which the subsidiaries could borrow up to $21 million from Amalgamated Bank through a revolving credit loan and a term loan (“Agreement”), both of which loans were guaranteed by GDC. (Indictment at ¶ 9.) Under the terms of the Agreement, the subsidiaries pledged their accounts receivable as security for the loans. (Id. at ¶ 10.) The Agreement further permitted the subsidiaries to borrow an amount equal to the sum of 75 percent of the subsidiaries’ eligible accounts receivable plus the current value of the subsidiaries’ inventory. (Id.) The Agreement required that the subsidiaries submit Borrowing Base Certificates (“BBCs”), certified as accurate by GDC, to Amalgamated Bank each month stating the total value of both the subsidiaries’ accounts receivable and their current inventory so that Amalgamated Bank could determine the amount that the subsidiaries could borrow in any given month. (Id.)
According to the Indictment, the defendants allegedly “deliberately and falsely overstated the accounts receivable on the consolidated financial statements and BBCs that they supplied to Amalgamated Bank. They achieved this result by a variety of means, including: (a) booking fictitious sales, thereby creating fictitious accounts receivable; (b) ‘re-aging’ the accounts receivable by issuing credits for old sales invoices, then re-booking the sales so that they appeared to have been incurred more recently, and were thus more valuable; (c) prematurely recognizing sales and the corresponding revenue, thereby creating accounts receivable before the appropriate time under generally accepted accounting principles; and (d) failing to reduce the accounts receivable with cash received from customers, and instead improperly booking the cash in another line item on the balance sheet.” (Id. at ¶ 12.)
In addition, the Indictment charges that the Agreement limited the ability of GDC and the subsidiaries to make new capital
Finally, the Indictment charges that between October 2008 and October 2009, defendants “attempted to obtain approximately $5 million in funding from C3 Capital by submitting false financial statements and accounts receivable aging reports that inflated GDC’s accounts receivable,” but C3 Capital ultimately did not lend money to GDC or the subsidiaries. (Id. at ¶ 14.)
II. Search Warrant
On July 21, 2010, the government applied for a warrant to search the offices of GDC and its subsidiaries at 47-07 32nd Place, Long Island City, New York (the “subject premises”). (ECF No. 56, Executed Search Warrant, filed July 27, 2010 (the “search warrant”).) Exhibit A to the search warrant set forth the following list of items to be seized and the search, seizure and removal procedures for computerized electronic data:
1. The items to be seized are evidence or instrumentalities of violations of 18 U.S.C. §§ 1341, 1343, 1344 and 1349, specifically:
a.All documents or other materials relating to loans or other extensions of credit to GDC Acquisitions, Inc. (“GDC”) and its subsidiaries,
TDC Acquisitions, LLC,
Interconnect Lighting, LLC,
Image Lighting Services, LLC,
Image Lighting, LLC,
Image Lighting, Inc.,
Hudson Bay Environments Group,
LLC Unalite Electric & Lighting,
LLC,
Unalite Southwest, LLC,
Unalite NJ, LLC,
Unalite Distribution, LLC, and
JDC Lighting, LLC,
(collectively, the “Subsidiaries”), such as loan agreements, loan applications, Borrowing Base Certificates, and other documents provided to creditors in support of extensions of credit from the following entities:
MVC Capital, Inc.,
C3 Capital LLC,
Steelcase Inc.,
Steelcase Financial Services, Inc., and Amalgamated Bank,
(collectively, the “Creditors”), and all bank records, including, but not limited to, account statements and documents related to transactions in bank accounts such as canceled checks and wire transfer records, for the period from January 1, 2006 to the present;
b. All documents relating to assets, liabilities, income, expenses, sales and accounts receivable of GDC or the Subsidiaries, including, but not limited to, accounting records, general ledgers, work papers, journals relating to the receipt or disbursement — or anticipated receipt or disbursement — of money or property, financial statements, trial balances, records detailing the relative age of various accounts receivable, invoices, and federal and state tax records (including income tax records), for the time period from January 1, 2006 to the present;
c. All documents relating to any mail box located at a commercial mail receiving agency, including, but not limited to,customer applications and correspondence;
d. All documents relating to communications or contacts between the conspirators and any of their principals, employees, or agents, or the Creditors, including, but not limited to, letters, phone messages, e-mail, text messages, “chat,” or instant messages, including any attachments to such e-mails or messages, sent by or received by the user(s) of any computer located at the SUBJECT PREMISES, whether saved or deleted, and whether contained directly in an e-mail, text message, chat, or instant message account or in a customized “folder”;
e. All documents relating to the conspirators’, or any of their principals’, employees’, or agents’ calendar, contact, or personal planner data or files including, but not limited to, data contained in Outlook, Lotus Notes, or Eureka, created or maintained by the user(s) of any computer located at the SUBJECT PREMISES.
2. The search procedure for electronic data contained in computer operating software or memory devices, whether performed on site or in a laboratory, or other controlled environment, may include seizure of any computer or computer-related equipment or data, including floppy diskettes, fixed hard drives, or removable hard disk cartridges, software or memory in any form containing material described above, and the removal thereof from the SUBJECT PREMISES for analysis by authorized personnel.
The government supported its search and seizure warrant request with an affidavit from FBI Special Agent Gavin Shea, which alleged that “there is probable cause to believe that there is presently located within the SUBJECT PREMISES evidence and instrumentalities, as set forth in Exhibit A to the Search Warrant attached hereto, of violations of federal law, including violations of 18 U.S.C. §§ 1341, 1343, 1344, 1349.” (ECF No. 55, Affidavit in Support of Application for Search and Seizure Warrants, dated July 21, 2010 (“Shea Aff.”) at ¶ 11.) The Shea Affidavit also incorporated as Exhibit E thereto the Complaint and Affidavit in Support of Application for Arrest Warrants of the defendants and Frank Patello, which described the alleged fraudulent scheme in detail. (ECF No. 55, Ex. E, Complaint and Affidavit in Support of Application for Arrest Warrants (“Shea Complaint Aff.”).)
In the affidavits he submitted, Agent Shea described his professional qualifications: he is a certified public accountant and has worked with the FBI over the past twelve years investigating “white collar crime, including bank fraud, securities fraud, telemarketing fraud, money laundering schemes, and other types of schemes.” (Shea Aff. at ¶ 1.) The affidavit also described the appearance, location and layout of the subject premises occupied by GDC and its subsidiaries (Shea Aff. at ¶¶ 3, 4), and provided factual support for the government’s position that there was probable cause to search the subject premises. Specifically, Special Agent Shea relied on a confidential source (“CS-1”) to support probable cause to issue the search and seizure warrants. (Shea Aff. at ¶¶ 6, 7, 8.)
Special Agent Shea affirmed that based upon “the information set forth and incorporated ..., [his] training, experience, and participation in this and other financial crime and money-laundering investigations, and [his] conversations with other law enforcement officers, there is probable cause to believe that the SUBJECT PREMISES is being used by the conspirators for the storage of various financial
On July 21, 2010, Magistrate Judge Go signed the warrant to search GDC’s offices at 47-07 32nd Place, Long Island City, New York 11101. (ECF No. 56, Executed Search Warrant, filed July 27, 2010.) Judge Go ordered that “the search of computers and electronic devices should be in accordance with the procedures set forth in the affidavit of Agent Shea.” (Id.)
The search warrant was executed on July 23, 2010. The government seized approximately 188 boxes of documents, images of the company’s computer servers, and images of desktop computers and other electronic storage devices on the premises. (See id.)
III. Seizure Warrants
On July 21, 2010, the government also applied for seizure warrants. The government sought to seize funds in Amalgamated Bank accounts held by GDC and the subsidiaries. (ECF No. 57, Seizure Warrant, dated July 21, 2010.) In support of its application for seizure warrants, the government submitted several affidavits from Special Agent Shea. In his Affidavit in Support of Application for Search and Seizure Warrants, discussed above, which also incorporated the Complaint Affidavit, Special Agent Shea affirmed that there “is probable cause to believe that any and all funds on deposit in the accounts listed below and in Exhibit B to this affidavit (collectively, the “SUBJECT ACCOUNTS”) are subject to forfeiture pursuant to Title 18, United States Code, sections 981(a)(1)(C), 981(a)(1)(D), 982(a)(2), and Title 28, United States Code section 2461, as representing property which constitutes or is derived from proceeds traceable to a conspiracy to commit bank fraud, mail fraud, and wire fraud contrary to Title 18, United States Code, Sections 1344 (bank fraud), 1341 (mail fraud), and 1343 (wire fraud), respectively, all specified unlawful activities.” (Shea Aff. at 2.)
In addition to his Affidavit in Support of Application for Search and Seizure Warrants dated July 21, 2010, Agent Shea also submitted additional affidavits in support of the seizure warrants that were ultimately issued on July 23 and July 27, 2010 to seize funds in GDC’s and its subsidiaries’ accounts at Amalgamated Bank and J.P. Morgan Chase Bank.
(See
ECF No. 58, Affidavit in Support of Application for Seizure Warrants, dated July 23, 2010 (“7/23/10 Shea Seizure Aff.”); Declaration of Marion Bachrach (“Bachrach Decl.”), Ex. E (same); Ex. F, Affidavit in Support of Application for Seizure Warrants, dated July 27, 2010 (“7/27/10 Shea Seizure Aff.”).) In these affidavits, Special Agent Shea provided the source of his information and his grounds for believing probable cause existed to seize the funds, including setting forth details of the scheme to defraud and the fraudulent financial statements. (Shea Aff. at ¶ 7;
see also
7/23/10 and 7/27/10 Shea Seizure Affs.) Following the government’s execution of the search and seizure warrants on July 23, 2010, and in further support of probable cause, Special Agent Shea affirmed that “[a]fter being placed under arrest, PATELLO, [GDC’s] controller and chief financial offi
Magistrate Judge Go signed two seizure warrants for accounts at Amalgamated and J.P. Morgan Chase Bank on July 21, 2010, and limited the seizures to $21,000,000. (ECF No. 57, Seizure Warrants, dated July 21, 2010 (“7/21/10 Seizure Warrants”); see also Bachrach Decl., Ex. A.) Pursuant to these seizure warrants, sixteen bank accounts at Amalgamated were seized on July 23, 2010. (7/23/10 Shea Seizure Aff. at ¶ 3.) A second seizure warrant for five additional bank accounts at Amalgamated was signed by Judge Reyes on July 23, 2010, The government subsequently learned that the additional bank accounts and one of the original subject accounts were held at J.P. Morgan Chase Bank rather than at Amalgamated Bank as listed in the warrant. (7/27/10 Shea Seizure Aff. at ¶ 3; see also ECF No. 100, Memorandum of Law in Opposition to Defendants’ Motion Opposing Government’s Seizure and Restraint of Funds (“Govt. Seizure Opp.”), at 3 n. 2.) Accordingly, on July 27, 2010, Magistrate Judge Reyes reissued the seizure warrant authorizing seizure of funds held at J.P. Morgan Chase Bank by Unalite Southwest LLC and Unalite NY, LLC (the “Chase accounts”). (ECF No. 60, Seizure Warrant, dated July 27, 2010.)
Upon Amalgamated’s request, on August 2, 2010, the government informed Amalgamated that it had decided to return the seizure warrant as unexecuted as to the funds in the Amalgamated accounts. (See generally ECF No. 100, Govt. Seizure Opp., at 5.) According to the government, the only funds that currently remain under the government’s control (the “restrained funds”) are approximately $1,000,556 from the Chase accounts, which were seized pursuant to the July 27, 2010 warrant. (Id. at 5-6.)
In a separate state court proceeding initiated by Amalgamated, by Order to Show Cause dated August 4, 2010, New York Supreme Court Justice Shirley Werner Kornreich granted Amalgamated’s request, inter alia, for an order temporarily restraining defendants, GDC and its affiliates, from “moving, removing, transferring, encumbering ... assets ... and ... books [and] records ... other than in the ordinary course of business.... ” (ECF No. 100, Ex. F, Order to Show Cause Appointing Temporary Receiver, dated Aug. 4, 2010, at ¶ 21.) Justice Kornreich also ordered that all funds in the Chase accounts be deposited into the Amalgamated Bank account. (Id. at ¶ 24.)
On August 8, 2010, counsel for defendant Dupree contacted AUSA Evan Weitz to discuss making funds in the Chase accounts available for use by GDC. (ECF No. 91-5, Affidavit of Roscoe C. Howard, Jr. (“Howard Aff.”) at ¶¶ 20, 23.) According to defendants, AUSA Weitz advised Dupree’s counsel that the government intended to freeze the approximately $700,000 in the Chase accounts in contemplation of forfeiture, but that the government would release the funds in the Chase accounts on the condition that the funds be transferred to an account at Amalgamated and that Amalgamated agree to the transfer of such funds. (Howard Aff. at ¶ 24.)
On August 17, 2010, defense counsel asked Amalgamated to make funds in the
DISCUSSION
Defendants now make the following motions: (1) to vacate the seizure warrants and release the funds in the Chase accounts pursuant to Fed.R.Crim.P. 41(g), and request (a) an evidentiary hearing regarding issues of fact relating to the seizures pursuant to Rule 41(g), (b) a hearing pursuant to
Franks v. Delaware,
I. Defendants’ Motions Opposing Seizure of Funds
a. Standard
As discussed below, in order for property to be seized, the government must have probable cause to believe that the seized property is subject to forfeiture.
See
18 U.S.C. §§ 981, 982; 21 U.S.C. § 853(f); 28 U.S.C. § 2461(c). To demonstrate probable cause, the government must establish a nexus between the property and the illegal activity.
See
Fed.R.Crim.P. 32.2(b);
United States v. Galestro,
No. 06-CR-285,
b. Application
Defendants Dupree and Watts argue that (1) the government failed to establish probable cause for the seizure of funds; (2) the government cannot seize or restrain assets prior to trial pursuant to 28 U.S.C. § 2461; (3) defendants were deprived of due process because they were not given notice or an opportunity to be heard prior to the government’s seizure of funds; (4) the government’s seizure of funds should be vacated based on “false statements and omissions” in the government’s affidavits in support of the seizure warrants, and that they are entitled to an evidentiary hearing pursuant to
Franks v. Delaware,
In opposition, the government asserts that (1) defendants do not have standing to seek the return of the seized funds; (2) the government met its burden -to establish probable cause for the issuance of seizure warrants; (3) 28 U.S.C. § 2461 allows for pretrial seizure of funds; (4) defendants were afforded all appropriate due process in the seizure of the fraud proceeds; (5) defendants are not entitled to a Franks hearing; and (6) defendant Watts is not entitled to a Monsanto hearing. (See generally ECF No. 100, Govt. Seizure Opp.) The court will consider each argument in turn.
i. Standing
Defendants argue that their individual status, respectively, as an owner (Dupree), executives (Dupree and Watts), and claimant-creditor (Foley), they have standing to contest the seizure of the funds in the accounts of GDC and its subsidiaries. (See ECF No. 90, Defs. Seizure Mem., at 20; ECF No. 94, Ryan Decl., at ¶2.) In response, the government argues that defendants “lack standing to seek the return of restrained funds because Amalgamated possesses a superior interest in the funds as a result of the loan agreement.” (ECF No. 100, Govt. Seizure Opp., at 7.) In reply, defendants argue that “[wjhere, as here, the government has not started a civil suit, the only issue is whether a claimant has Article III standing, which these defendants clearly do.” (ECF No. 105, Reply Memorandum of Law in Support of Motion by Defendants Watts and Dupree Opposing Government’s Unconstitutional and Unlawful Seizure and Restraint of Funds (“Defs. Reply. Seizure Mem.”) at 3.) Defendants further argue that “a claimant need only show injury to claim constitutional standing.” (Id.) The court finds that, for purposes of their motions to vacate the seizure warrants, defendants have standing to contest the seizure of GDC’s funds.
In order to contest the seizure of funds in the accounts of GDC and its subsidiaries, “a litigant must allege a ‘distinct and palpable injury to himself that is the direct result of the ‘putatively illegal conduct of the [adverse party]’ and likely to be redressed by the requested relief.’ ”
United States v. Cambio Exacto S.A.,
Here, defendants allege that they were injured when GDC was allegedly “shuttered,” that they were deprived of salaries and advances of legal fees to which they were entitled, and that they were denied their Fifth and Sixth Amendment rights to due process and counsel. The court will discuss the merits of defendants’ claims,
infra,
but finds that they have satisfied their initial burden of establishing Article III standing.
See, e.g., United States v. Hooper,
ii. Statutory Authority to Seize
Defendants argue that the government was not entitled to a pretrial seizure of funds or substitute assets pursuant to 18 U.S.C. § 982 and 28 U.S.C. § 2461. (ECF No. 90, Defs. Seizure Mem., at 27-28.) In response, the government argues that defendants have mischaracterized the law, and that 18 U.S.C. §§ 981, 982, 21 U.S.C. § 853(f) and 28 U.S.C. § 2461, as amended, allow for pretrial seizure of funds. (ECF No. 100, Govt. Seizure Opp., at 14-15, 19-20.) In reply, defendants argue that the Magistrate Judges did not make a determination that an order pursuant to 21 U.S.C. § 853(e) may not be sufficient to assure the availability of forfeiture assets, as required by 21 U.S.C. § 853(f). (ECF No. 105, Defs. Reply. Seizure Mem., at 8.)
Defendants have raised two distinct issues: (1) whether the government, in a criminal case, is authorized to seize property prior to conviction; and if it is, (2) whether the government is required to show that a restraining order, injunction or temporary restraining order without notice or opportunity for a hearing, provided by 21 U.S.C. § 853(e), would not be sufficient to assure the availability of the funds for forfeiture.
The government executed seizure warrants pursuant to its authority under the civil forfeiture statute, 18 U.S.C. § 981(a)(1)(C), and the criminal forfeiture statutes, 18 U.S.C. § 982(a)(2) and 28 U.S.C. § 2461(c). Both 18 U.S.C. § 982(b)(1) and 28 U.S.C. § 2461(c) apply the procedures of 21 U.S.C. § 853 for seizure and forfeiture, as discussed infra.
Title 18 U.S.C. § 981 provides that the United States may obtain civil forfeiture of “[a]ny property ... which constitutes or is derived from proceeds traceable to a violation of section ... 1344 [bank fraud].” 18 U.S.C. § 981(a)(1)(C). In addition, “[a]ny property, real or personal, which represents or is traceable to the gross receipts obtained, directly or indirectly, from a violation of ... 18 U.S.C. § 1341 (relating to mail fraud) and § 1343 (relating to wire fraud),” is also subject to forfeiture. 18 U.S.C. § 981(a)(1)(D), (E).
The government did not commence an administrative or judicial civil forfeiture action. Had the government commenced a civil forfeiture action pursuant to 18 U.S.C. § 981, the Federal Rules of Civil Procedure and the Supplemental Rules for Certain Admiralty and Maritime Claims would apply.
See Cambio,
In addition to 18 U.S.C. §§ 981 and 982, the seizure warrants signed by Judges Go and Reyes were issued pursuant to 28 U.S.C. § 2461, upon their findings that probable cause existed to believe that the funds held in the specified bank accounts were subject to seizure and forfeiture. Section 2461(c) of Title 28 provides that where a person is charged in a criminal case with a violation for which civil or criminal forfeiture is authorized, the procedures set forth in 21 U.S.C. § 853 “shall apply to all stages of a criminal forfeiture proceeding
The court finds that the criminal forfeiture provisions of 18 U.S.C. § 982(b)(1) and 28 U.S.C. § 2461(c), as amended, both of which explicitly apply the provisions of 21 U.S.C. § 853 to all stages of criminal forfeiture proceedings, authorize pretrial seizure of funds.
The history of 28 U.S.C. § 2461, one of the statutes relied upon by the government for the seizure, is instructive on the first issue defendants raise, whether the government, in a criminal case, is authorized to seize property prior to conviction. Prior to 2006, § 2461(c) stated:
If a forfeiture of property is authorized in connection with a violation of an Act of Congress, and any person is charged in an indictment or information with such violation but no specific statutory provision is made for criminal forfeiture upon conviction, the Government may include the forfeiture in the indictment or information in accordance with the Federal Rules of Criminal Procedure, and upon conviction, the court shall order the forfeiture of the property in accordance with the procedures set forth in section 413 of the Controlled Substances Act (21 U.S.C. § 853), other than subsection (d) of that section.
Interpreting this pre-amendment version of § 2461, the Second Circuit, in 2005, held that § 2461 did not permit the government to seize assets prior to conviction.
United States v. Razmilovic,
In 2006, Congress amended § 2461, which now provides in subsection (c) as follows:
If a person is charged in a criminal case with a violation of an Act of Congress for which the civil or criminal forfeiture of property is authorized, the Government may include notice of the forfeiture in the indictment or information pursuant to the Federal Rules of Criminal Procedure. If the defendant is convicted of the offense giving rise to the forfeiture, the court shall order the forfeiture of the property as part of the sentence in the criminal case pursuant to the Federal Rules of Criminal Procedure and section 3554 of title 18, United States Code. The procedures in section 413 of the Controlled Substances Act (21 U.S.C. § 853) apply to all stages of a criminal forfeiture proceeding, except that subsection (d) of such section applies only in cases in which the defendant is convicted of a violation of such Act.
28 U.S.C. § 2461(c) (emphasis added).
The Second Circuit has not yet decided whether the explicit language in amended § 2461(c), making applicable the procedures in 21 U.S.C. § 853 to “all stages of a criminal forfeiture proceeding,” permits pretrial seizure. The government relies on a decision from a Missouri district court which, applying the procedures of 21 U.S.C § 853, notes in dicta, that “[i]t appears that Congress has clarified its intent that section 2461(c) authorizes the pretrial restraint of assets.”
United States v. Schlotzhauer,
No. 06-00091-01/03-CRW-GAF,
The court has undertaken an independent review of the relevant statutes. Congress, in § 2461(c), specifically singled out subsection (d) of § 853 as the only subsection of § 853 that is restricted to post-conviction application, and provided that all other subsections of § 853, including subsection (f), “apply to all stages of a criminal forfeiture proceeding.” 28 U.S.C. § 2461(c).
Similarly, 18 U.S.C. § 982(b)(1) provides that criminal forfeitures of property under § 982, including any seizure and disposition of property, and any related judicial or administrative proceeding, shall be governed by 21 U.S.C. § 853. Like 28 U.S.C. § 2461(c), any judicial or administrative proceeding, including the seizure and disposition of property subject to criminal forfeiture under 18 U.S.C. § 982, is governed by 21 U.S.C. § 853 (except subsection (d)).
Section § 982(b)(1) provides that:
The forfeiture of property under this section, including any seizure and disposition of the property and any related judicial or administrative proceeding, shall be governed by the provisions of section 413 (other than subsection (d) of that section) of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 853).
The Second Circuit has recognized that 18 U.S.C. § 982(b)(1) provides that “forfeiture of property, including seizure in a judicial proceeding, shall be governed by 21 U.S.C. § 853.”
De Almeida v. United States,
Pursuant to 21 U.S.C. § 853(f), if the court determines that “there is probable cause to believe that the property to be seized would,
in the event of conviction,
be subject to forfeiture” and that a restraining order, injunction or temporary restraining order under subsection (e) “may not be sufficient to assure the availability of the property for forfeiture, the court
The court next turns to the second issue raised by defendants, whether the government sustained its burden to show that the procedures set forth in 21 U.S.C. § 853(e) “may not be sufficient to assure the availability of the property for forfeiture.” 21 U.S.C. § 853(f) (The court shall issue a seizure warrant if it determines that “an order under subsection (e) of this section may not be sufficient to assure the availability of the property for forfeiture.”). The parties do not dispute that § 853(f) requires this determination. Defendants assert, however, that the government did not ask either Magistrate Judge Go or Magistrate Judge Reyes to make the determination, under a probable cause standard, that measures less drastic than seizure would have been insufficient to assure the property’s availability for forfeiture, nor did the government provide the Magistrate Judges with the basis for making any such determination. (ECF No. 105, Defs. Reply. Seizure Mem., at 8.) The government contends that the “fungible and easily transferable nature of funds, especially in electronic form, makes a seizure warrant appropriate.” (ECF No. 100, Govt. Seizure Opp., at 20.)
Here, funds were seized pursuant to both civil and criminal forfeiture statutes. (ECF No. 100, Govt. Seizure Opp., at 19.) 18 U.S.C. § 981(b), the civil forfeiture statute authorizing the seizure of property subject to forfeiture, requires a showing of probable cause, but does not require a showing that less restrictive means may not be sufficient to secure the funds.
9
18
The determinations by Magistrate Judges Reyes and Go that the affidavits established probable cause to believe that the funds were subject to seizure and that a sufficient showing had been made to issue each of the seizure warrants presumptively included their determination that an order under § 853(e) may not be sufficient.
See, e.g., United States v. Singh,
Here, the supporting affidavits presented to Magistrate Judges Go and Reyes described an ongoing, complex scheme by defendants to falsify documents and submit those documents to induce Amalgamated to continue making available funds from the revolving credit line. The affidavits further state that two individuals who were employed by GDC and who had knowledge of the scheme informed the government that the fraud proceeds from Amalgamated were deposited into a subject account and disbursed amongst all of the subject accounts to be seized, and then used to run the business. (Shea Aff. at ¶ 7; 7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 32.) According to the affidavits, the balance of the subject accounts was expected to be far below the total amount of fraud proceeds, thus demonstrating that the funds were being moved and dissipated. (Shea Aff. at ¶ 7; 7/27/10 Shea Seizure Aff. at ¶ 30.) Moreover, the affidavits detailed defendants’ allegedly fraudulent scheme which employed elaborate methods to create false accounting records to obtain
As determined by Magistrate Judges Go and Reyes, seizure under the criminal statutes was thus appropriate because the seized funds could be, and had been, easily transferred in and out of the accounts.
See, e.g., United States v. Daccarett,
iii. Probable Cause for Seizure Warrants
Defendants argue that the government “failed to establish probable cause for a proper nexus between the criminal conduct and the assets seized for forfeiture.” (ECF No. 90, Defs. Seizure Mem., at 21-27.) Specifically, defendants argue that the government “made no showing of probable cause to believe GDC obtained $21 million in loans by material misrepresentations.” (Id. at 21-22). In support of their arguments, defendants contend that the three affidavits submitted in support of the seizure warrants failed to establish probable cause to believe that the loan obtained in 2008 from Amalgamated was based on material misrepresentations, and that the government “needed to make an evidentiary showing of at least one material misrepresentation that was the basis for the $21 million loan.” (Id. at 22.) Specifically, defendants contend that the government failed to “point to a single falsehood or misrepresentation in support of the loan application.” (Id.)
Second, defendants contend that the government made no showing that there were specific loan proceeds from the charged fraudulent scheme in the seized accounts, and that the government intentionally omitted the fact that the accounts contained legitimate customer payments from its seizure affidavits, and failed to address “nexus and tracing principles.” (Id. at 22-27.) Defendants, relying on affidavits by Roscoe Howard, Esq., counsel for Dupree, and Marion Bachrach, Esq., counsel for Watts, attaching three bank statements for Unalite accounts at Chase Bank, instead of on affidavits from persons with knowledge, claim, without explanation, that “the Unalite accounts, which now hold approximately $1.2 million, did not receive or hold loan proceeds at any time.” (ECF No. 90, Defs. Seizure Mem., at 23 (citing Howard Aff.; Bachrach Aff., Ex. H, bank statements).) Defendants further assert that the seized Chase accounts “held funds paid by customers for goods and services” and that the government seized all funds in the accounts without showing that each of the seized accounts held only loan proceeds or that the account balances were “equal to or less than fraud proceeds previously deposited into the accounts to be seized____” (ECF No. 90, Defs. Seizure Mem., at 23.)
In response, the government argues that it met its burden to demonstrate probable cause for the issuance of seizure warrants. (ECF No. 100, Govt. Seizure
It is undisputed that a magistrate judge’s finding of probable cause should be accorded great deference in challenges to pretrial warrants to seize assets.
Illinois v. Gates,
Based on its consideration of the parties’ submissions, including the affidavits of Special Agent Shea, the court agrees with Magistrate Judge Go’s and Reyes’s findings of probable cause to seize the accounts and disagrees with defendants that the “affidavit was devoid of a single specific fact to support the conelusory statement^.” (ECF No. 90, Defs. Seizure Mem., at 22.) On the contrary, the affidavits set forth numerous alleged falsehoods made by the defendants relating to the documentation required by the terms of the Amalgamated loans and adequately set forth facts, supported by citations to and quotations from emails and recorded conversations, thereby connecting the charged fraudulent conduct by defendants to the funds received from Amalgamated and deposited into the accounts. For example, Frank Patello (“Patello”) certified false BBCs that were submitted by GDC to Amalgamated. (Shea Complaint Aff. at ¶ 7.) Specifically, in November 2009, Patel-lo, in his capacity as controller and CFO of GDC, submitted a BBC to Amalgamated which certified that “GDC had $25.2 million in accounts receivable” despite the fact that he stated, in a consensually recorded conversation on May 19, 2010, that GDC “had only $9 million in accounts receivable in November 2009.” (Id.) The government further described consensually recorded conversations between CS-1 and the defendant-conspirators in which they discuss creating and booking fictitious sales and accounts receivable in order to preserve and obtain funds under the revolving credit facility with Amalgamated Bank. (Shea Complaint Aff. at ¶ 9.) Specifically, on May 14, 2010, CS-1 reported that defendant Watts told CS-1 about the need to create additional sales so GDC could borrow additional money from the credit line. (Id.) Further, in emails and consensually recorded conversations, Watts and Dupree discussed with their co-conspirators techniques for creating false accounts receivable, thus making the fraud more difficult for Amalgamated to detect. (Shea Complaint Aff. at ¶ 10.) These statements support the Magistrate Judges’ findings of probable cause to seize the funds. 10
For the foregoing reasons, because the court agrees with the Magistrate Judges’ determination that the government established probable cause and because the defendants did not satisfy their burden of demonstrating that the funds in the seized accounts were not traceable to or proceeds of the fraud, the court rejects defendants’ argument that the Chase accounts contained solely legitimate funds paid by customers for goods and services provided by the companies. (ECF No. 90, Defs. Seizure Mem., at 23.) For the same reasons, the court rejects defendants’ suggestion that the government needed to show “that each of the accounts seized had
only
loan proceeds.”
(Id.)
(emphasis in original). As set forth above, the government met the probable cause threshold by showing that that the balance in the accounts “was equal to or less than fraud proceeds previously deposited.”
(Id.); see also United States v. $448,342.85,
iv. Due Process
a. Pre-Seizure Due Process
Defendants next argue that they were deprived of due process rights afforded to them by the Fifth Amendment to the United States Constitution because they did not receive notice and an opportunity to be heard prior to the seizure of the restrained funds, and that the seizure by the government was the “direct cause” of the companies’ failure and the loss of funds to pay the costs of their legal defense. (ECF No. 90, Defs. Seizure Mem., at 29-33.) In response, the government argues that defendants were afforded all appropriate due process in the seizure of the fraud proceeds. Specifically, the government argues that (1) it seized funds but did not seize “the business in its entirety”; (2) the civil forfeiture statute, 18 U.S.C. § 981(b), does not contain any requirement that the government use the least restrictive means of securing the property; and (3) even under the criminal forfeiture statute, 21 U.S.C. § 853(f), Judge Go and Judge Reyes properly exercised their discretion to issue the warrants. (ECF No. 100, Govt. Seizure Opp., at 15-22.) The court discussed the government’s statutory arguments in opposition to defendants’ motion, supra, and found that the criminal forfeiture statutes, 18 U.S.C. § 982, 28 U.S.C. § 2461, and 21 U.S.C. § 853, permit the pretrial seizures here. In addition, for the reasons set forth below, the court finds that defendants’ due process rights were not violated by the government’s seizure of the funds of GDC and its subsidiaries without a pre-seizure notice and hearing.
The Due Process Clause of the Fifth Amendment states that “no person shall ... be deprived of life, liberty, or property, without due process of law.” U.S. Const, amend. Y. The touchstone of due process is that “a person in jeopardy of serious loss [be given] notice of the case against him and opportunity to meet it.”
Mathews v. Eldridge,
First, in
Calero-Toledo,
the Supreme Court considered whether notice and an opportunity to be heard were required before the government could seize a yacht subject to civil forfeiture. The Court considered the three
Mathews v. Eldridge
factors and found that (1) seizure served a significant governmental purposes by permitting the government to assert
in rem
jurisdiction over property implicated in a crime, thereby fostering the public interest in preventing continued illicit use of the property and in enforcing criminal sanctions; (2) pre-seizure notice and hearing might frustrate the interests served by the statute, because the property seized' — a yacht — -is of the sort that could be removed to another jurisdiction, destroyed, or concealed, if advance warning of seizure were given; and (3) “seizure [was] not initiated by self-interested private parties; rather, Commonwealth officials determine whether seizure is appropriate.”
Calero-Toledo,
Several years later, the Supreme Court further considered the issue in
James Daniel Good,
after the government seized defendant’s house and the 4-acre parcel of property on which it was situated on the ground that it had been used to commit or facilitate a federal drug offense and was thus subject to forfeiture.
The holding in
James Daniel Good
establishes a distinction between the seizure of real property, which requires pre-deprivation notice, and other property, which may constitute an “extraordinary circumstance” for which pre-deprivation notice is not required.
See, e.g., CEDC Fed. Credit Union v. NCUA,
No. 96-6064,
Applying the first of the
Mathews v. Eldridge
factors, the court considers defendants’ private interest in the seized funds. Defendants’ interest, if any, in the funds is distinguishable from an interest they might have in other types of property such as a home or business.
See, e.g., James Daniel Good,
Here, defendants argue that the government’s seizure has caused them substantial injuries by causing the “businesses to shutter,” and depriving them not only of their salaries and livelihoods, but also of advances necessary to fund their legal defenses and the ability to pay the premiums for Directors and Officers (D & 0) insurance coverage. (ECF No. 105, Defs. Reply Seizure Mem., at 4.) The court, however, is not persuaded by defendants’ unsubstantiated argument that, because of the government’s seizure, they are “without the ability to obtain advancement of legal fees from the businesses to which [they are] legally entitled.” (ECF No. 90, Defs. Seizure Mem., at 12.)
Although the Sixth Amendment guarantees a criminal defendant the right to counsel, it does not follow that the Sixth Amendment requires a corporation to pay the legal fees for its employees.
Cf. Caplin & Drysdale, Chartered v. United States,
In order to establish a property interest in funds of an employer or corporation that have been seized by the government, and to justify the release of those funds for an individual defendant’s legal fees and expenses in a criminal fraud case, the defendant must satisfy three factors: (1) the defendant has a valid expectation that the company would advance its funds for the defendant’s legal fees; (2) the funds are not the proceeds of or traceable to the defendant’s fraud; and (3) the amount of the funds requested are necessary to the defendant’s choice of criminal counsel.
SEC v. FTC Capital Mkts., Inc.,
No. 09 Civ. 4755,
Factors that create a valid expectation that an employer will reimburse legal fees could include where the company’s by-laws state that an employee’s legal fees will be paid by the company in the event of an employment-related civil or criminal case; or, where a personal employment contract, signed agreement or repeated representations to the employee provide that legal fees and costs will be paid by the company.
FTC Capital Mkts., Inc.,
Here, none of the defendants have submitted any evidence that GDC’s by-laws, corporate resolutions, their employment contracts or any other agreement signed by an individual authorized by GDC created a valid expectation that the company would advance legal fees. Moreover, defendants state that had the government not seized GDC funds necessary to pay insurance premiums, their “attorneys’ fees, expert fees and other related costs would have been paid by GDC and its Directors and Officers Liability (“D & O”) insurer,” but provide no evidence or documentation of such a policy, or its coverage, exclusions or coverage decisions. (See ECF No. 109, Reply to Government’s Opposition to Defendants’ Joint Motion for Relief, Including Dismissal of the Indictment, from Prosecutorial Misconduct (“Reply. Pros. Misconduct”) at 2.) 13
Nevertheless, defendant Watts argues that he has a property interest in the
Defendant Foley makes no argument regarding his property interest in the seized funds other than that he has been “adversely impacted by the unavailability of the funds for his defense.” (ECF No. 94, Ryan Decl., at ¶ 2.) Accordingly, for the reasons set forth above, the court finds that defendant Foley has not established a valid expectation that GDC and its subsidiaries would pay his legal fees and costs.
Finally, defendant Dupree relies on his status as the “owner” of GDC to establish his property interest in the seized funds of GDC and its subsidiaries. The court finds Dupree’s argument insufficient. The Second Circuit has recognized that “shareholders do not hold legal title to any of the corporation’s assets. Instead, the corporation — the entity itself — is vested with title.”
United States v. Wallach,
As to the third prong considered by the court in FTC, as discussed infra, the court finds that defendant Watts has presented evidence sufficient to support a finding that the seized funds are necessary to retain his choice of counsel. Because defendants have not established a valid property interest in the seized funds and have not shown that the funds are not the proceeds of or traceable to defendants’ alleged fraud, they have not shown that they were entitled to a pre-seizure hearing. The court thus need not consider the other factors under Mathews v. Eldridge and finds that defendants were not denied due process when they were not afforded a hearing prior to the seizure of funds,
b. Post-Seizure Pre-Trial Due Process
Notwithstanding whether defendants had a due process right to a pre-seizure hearing, defendant Watts argues that he is entitled to a post-seizure pre-trial hearing pursuant to
United States v. Monsanto,
In
Monsanto IV,
on remand from the Supreme Court, the Second Circuit held that where a defendant’s own assets are restrained
ex parte
and pre-indictment and where the government seeks to continue the restraint, “a pre-trial adversary hearing is required where the question of attorney’s fees is implicated,” under the Fifth and Sixth Amendments.
The court granted defendant Watts’ request to supplement his motion for a
Monsanto
hearing with a sealed affidavit describing his financial circumstances so that the court could determine whether he had sufficient unrestrained funds to pay his legal fees.
(See
Order dated Feb. 9, 2011.) Defendant Watts submitted the affidavit on February 15, 2011, in which he specified his assets, liabilities, and total net worth. (ECF No. 113, Affidavit of Rodney Watts.) The government responded under seal to defendant Watts’ submission on February 25, 2011 (ECF No. 121, Letter dated Feb. 25, 2011), and defendant Watts submitted a sealed reply in further support of his request for a
Monsanto
hearing on March 2, 2011 (ECF No. 123, Letter dated Mar. 2, 2011). The court has carefully reviewed these submissions and based on defendant Watts’ assets and outstanding and expected legal fees, with which the parties are familiar, but the court will not discuss here because the submissions were filed under seal, the court is satisfied that defendant Watts does not have sufficient unrestrained funds to pay his legal counsel.
See, e.g., United States v. Hatfield,
06-CR-0550,
The court finds, however, that defendant Watts has not sustained his burden to make a
prima facie
showing regarding “the lack of probable cause ... as to ... forfeitability of [seized] assets,”
Monsanto IV,
Defendants rely on two cases to support their argument that their Fifth and Sixth Amendment rights will be violated if they are denied a post-seizure pre-trial hearing to contest the seizure of funds:
United States v. Stein,
Accordingly, notwithstanding that defendant Watts has shown that he needs the seized funds to pay for his counsel of choice, because he has not made a prima face showing that the seized funds are not forfeitable in the event of his conviction, the court need not hold a Monsanto hearing.
v. Franks Hearing
Defendants next argue that they are entitled to a hearing pursuant to
Franks v. Delaware,
In
Franks v. Delaware,
the Supreme Court held that the Fourth Amendment entitles a defendant to a hearing if he or she makes (1) a “ ‘substantial preliminary showing’ that a deliberate falsehood or statement made with reckless disregard for the truth was included in the warrant affidavit and [ (2) ] the statement was necessary to the judge’s finding of probable cause.”
United States v. Falso,
“The
Franks
standard is a high one.”
Rivera v. United States,
Defendants’ first argument in support of their request for a Franks hearing is that the affidavit falsely states that GDC had “obtained approximately $21 million in loans,” when the government well knew that GDC was not the borrower on the loan, but rather was the guarantor. (ECF No. 90, Defs. Seizure Mem., at 36.) However, as the government points out, Agent Shea’s Complaint Affidavit, incorporated by reference into his Affidavit in Support of Application for Search and Seizure Warrants (Shea'Aff. at ¶ 5), and Shea’s subsequent seizure affidavits, make clear that GDC’s subsidiaries were the borrowers, and that GDC was the guarantor:
On August 29, 2008, JDC Lighting, Unalite, and Hudson Bay entered into a $21 million Revolving Credit and Term Loan Agreement with Amalgamated Bank (the “Agreement”); GDC signed as guarantor. (Shea Compl. Aff. at ¶ 6; 7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 7.)
(See also
Shea Compl. Aff. at ¶ 3 and 7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 4 (the conspirator defendants “orchestrated a scheme to defraud Amalgamated Bank by obtaining loans for subsidiaries of [GDC]”); Shea Compl. Aff. at ¶20 and 7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 21 (“I have reviewed the Agreement that Amalgamated Bank entered into with GDC (as guarantor) and GDC’s subsidiaries on
The second statement in the Shea Affidavit that defendants contend is false is the statement in paragraph 6 that “GDC has obtained approximately $21 million in loans ... on the basis of false financial statements and other misrepresentations.” (ECF No. 90, Defs. Seizure Mem., at 36; Shea Aff. at ¶ 6.) Defendants contend that Shea’s affidavits fail to “set forth a single misrepresentation made to obtain the loan,” and did not “attach or describe any false financial statement made to obtain the loan.” (ECF No. 90, Defs. Seizure Mem., at 36.) Defendants’ argument again fails. First, paragraph 6 of the Shea Affidavit recounts that a confidential source provided the information. (Shea Aff. at ¶ 6.) Second, the affidavits do not say that the defendants’ false statements were made to induce Amalgamated to enter into the Revolving Credit Line and Term loan agreement on August 29, 2008. (See 7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 7.) Rather, the Shea affidavits provide numerous examples of false financial statements and false financial documents that the defendants submitted to Amalgamated subsequent to the August 2008 Agreement, to continue to obtain funds from Amalgamated under the loan agreements. (7/23/10 and 7/27/10 Shea Seizure Affs. at ¶¶ 8-18.) Accordingly, defendants have not established that this alleged misstatement entitles them to a Franks hearing.
Third, defendants contend that Agent Shea falsely stated in all of his affidavits that there was probable cause to seize “any and all funds on deposit” at Chase and Amalgamated, when the agent knew or should have known that the accounts held funds from legitimate customers. (ECF No. 90, Defs. Seizure Mem., at 36.) Defendants generally cite to the Howard affidavit in support of their statement that the Chase Unalite accounts did not hold fraudulent loan proceeds.
(Id.)
The court first notes that the Howard affidavit merely cites to the Bachrach affidavit, which, in turn, attached only three months of Unalite bank statements from January to March 2010, without explanation, much less from anyone with knowledge as to how those statements establish that no fraud proceeds were deposited into their accounts.
(Id.;
Bachrach Aff.) Moreover, the Shea Seizure Affidavits explicitly set forth CS-l’s professed familiarity with GDC’s financial transactions, and CS-l’s statement that fraudulently obtained funds from Amalgamated were deposited into a subject account and then disbursed among the remaining subject accounts as needed to run the businesses, and that the balance of the subject accounts would be “far below the total amount of fraud proceeds.” (Shea Aff. at ¶ 7.) Furthermore, in Agent Shea’s 7/23/10 and 7/27/10 seizure affidavits, Agent Shea noted that upon the July 23, 2010 arrest of defendant Frank Patello, the controller of GDC, Patello confirmed the statements of CS-1 that the fraud proceeds were initially deposited into a GDC account and then disbursed throughout the subject accounts, including the Chase Bank Unalite accounts. (7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 32.) The
Defendants next argue that all of the affidavits contained material omissions that warrant a Franks hearing. Specifically, defendants claim that the affidavits omitted that (1) “these were legitimate, functioning, ongoing businesses with nearly $60 million in trailing sales, and hundreds of long-standing legitimate customers”; (2) the businesses were current on their interest payments on the loans in question; (3) the businesses had not drawn on the loan in question for nearly six months and during that same time had paid nearly $600,000 in interest to Amalgamated, as well as nearly $300,000 in principal; and (4) the majority of the Amalgamated loan proceeds were paid to a predecessor lender. (See ECF No. 91-1, Memorandum in Support of Defendants’ Joint Motion to Suppress (“Defs. Mot. Suppress”) at 9; ECF No. 90, Defs. Seizure Mem., at 36-37.) In response, the government argues that the first omission regarding defendants’ description of the businesses of GDC and its subsidiaries is irrelevant because defendants are accused of defrauding their lenders, not their customers. (ECF No. 98, Memorandum of Law in Opposition to Defendants’ Motion to Suppress (“Govt. Opp. Suppress”) at 26-27; see also ECF No. 100, Govt. Seizure Opp., at 23-25.) Similarly, the government argues that the second and third omissions regarding the status of the loans are irrelevant because “the Complaint does not suggest that the subsidiaries were not current on the loan. To the contrary, the Complaint makes clear that the crime consisted in how the loan was obtained and perpetuated.” (ECF No. 98, Govt. Opp. Suppress, at 27.) Finally, the government argues that the fourth omission regarding the payment of the Amalgamated loan proceeds to a predecessor lender is immaterial by setting forth the analogy that “[i]f the defendants robbed Peter to pay Paul, that motive would not render a description of the robbery misleading.” (Id. at 27-28.)
The court agrees that the omissions do not establish a “substantial showing” that the government’s affidavits contained a deliberate falsehood, or made omissions of material fact with reckless disregard for the truth. Rather, the government’s affidavits established probable cause for the search, seizures and arrests.
See United States v. Mandell,
For all of the reasons set forth above, defendants’ motions seeking relief from the seizure of funds are denied.
The Fourth Amendment provides that “no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” U.S. Const, amend. IV. A valid search warrant rests on a finding that probable cause exists to believe that (1) a crime has been committed and (2) evidence or instrumentalities of the crime will be found in the place to be searched.
United States v. Souza,
No. 06-CR-806,
“[A]n evidentiary hearing on a motion to suppress ordinarily is required if ‘the moving papers are sufficiently definite, specific, detailed, and noneonjectural to enable the court to conclude that contested issues of fact going to the validity of the search are in question.’ ”
United States v. Pena,
b. Application
i. Standing
Although neither party addresses the argument, the court believes that the preliminary inquiry is whether defendants have standing to object to the documents that were seized pursuant to the search warrant executed on July 23, 2010 at GDC’s premises.
Fourth Amendment rights “are personal rights ... [that] may not be vicariously asserted.”
Rakas v. Illinois,
“It is well-settled that a corporate officer or employee in certain circumstances may assert a reasonable expectation of privacy in his corporate office, and may have standing with respect to searches of corporate premises and records.”
Id.
The corporate officer or employee must show that he had “a possessory or proprietary interest in the area
Here, the Indictment charges that defendant Dupree was the president and chief executive officer of GDC. At different times relevant to the Indictment, defendant Foley was GDC’s outside counsel and its chief operating officer and defendant Watts was GDC’s chief financial officer and chief investment officer. (Indictment at ¶¶ 2, 3, 4.) It is undisputed that in executing the search warrant, officers searched and seized documents from each of the defendants’ offices.
(See
ECF No. 91-1, Ex. A, Floor plan of GDC offices that were searched, including spaces marked “Foley,” “Dupree,” and “Watts.”) Furthermore, defendants participated in the affairs of GDC, and were regularly present at its offices. Under these circumstances, as to the first prong, defendants have demonstrated “a possessory or proprietary interest in the area searched” and have standing to contest the constitutionality of the search warrant.
See Burke,
Accordingly, defendants have standing to contest the search warrant executed at GDC on July 23, 2010.
ii. Particularity Requirement
Defendants next argue that the search warrant did not meet the particularity requirement of the Fourth Amendment because it “lacked sufficient guidance to allow the searching agents to determine which items to seize.” (ECF No. 91-1, Defs. Mot. Suppress, at 18.) In response, the government argues that the warrant was sufficiently particular because the documents subject to search and seizure were limited by the phrase “evidence of instrumentalities of violations of 18 U.S.C. §§ 1341, 1343, 1344 and 1349” and because the warrant sufficiently described the items to be seized. (ECF No. 98, Govt. Opp. Suppress, at 13-17.) For the reasons set forth below, the court finds that the warrant satisfies the particularity requirement of the Fourth Amendment.
The Fourth Amendment protects against “wide-ranging exploratory searches” unsupported by probable cause,
Maryland v. Garrison,
“General warrants,” that authorize “a general, exploratory rummaging in a person’s belongings,”
Coolidge v. New Hampshire,
The level of specificity required by the Fourth Amendment depends on many factors. The nature of the crime, for example, may require a broad search.
United States v. Cioffi,
Defendants complain that the warrant amounted to a general warrant because it “authorize^] the search for and seizure of all, or virtually all, documents located at GDC’s offices whether or not they were evidence of a crime.” (ECF No. 91-1, Defs. Mot. Suppress, at 15.) Although it is true that a warrant may lack the requisite particularity if it fails to inform the searching officers of the crimes for which the search is being undertaken, that is not the case here.
Cf. United States v. George,
Defendants also complain that the government used “generic, catch-all phrases in its Warrant instead of the case-specific information it had at its disposal to describe which of GDC’s files were to be seized.” (ECF No. 91-1, Defs. Mot. Suppress, at 21.) However, “[t]he standard for constitutional particularity ... requires only that a warrant be ‘sufficiently specific to permit the rational exercise of judgment [by the executing officers] in selecting what items to seize.’ ”
United States v. Regan,
1. The items to be seized are evidence or instrumentalities of violations of 18 U.S.C. §§ 1341, 1343, 1344 and 1349, specifically:
a. All documents or other materials relating to loans or other extensions of credit to GDC Acquisitions, Inc. (“GDC”) and its subsidiaries,
TDC Acquisitions, LLC,
Interconnect Lighting, LLC,
Image Lighting Services, LLC,
Image Lighting, LLC,
Image Lighting, Inc.,
Hudson Bay Environments Group, LLC Unalite Electric & Lighting, LLC,
Unalite Southwest, LLC,
Unalite NJ, LLC,
Unalite Distribution, LLC, and JDC Lighting, LLC,
(collectively, the “Subsidiaries”), such as loan agreements, loan applications, Borrowing Base Certificates, and other documents provided to creditors in support of extensions of credit from the following entities:
MVC Capital, Inc.,
C3 Capital LLC,
Steelcase Inc.,
Steelcase Financial Services, Inc., and Amalgamated Bank,
(collectively, the “Creditors”), and all bank records, including, but not limited to, account statements and documents related to transactions in bank accounts such as canceled checks and wire transfer records, for the period from January 1, 2006 to the present;
b. All documents relating to assets, liabilities, income, expenses, sales and accounts receivable of GDC or the Subsidiaries, including, but not limited to, accounting records, general ledgers, work papers, journals relating to the receipt or disbursement — or anticipated receipt or disbursement — of money or property, financial statements, trial balances, records detailing the relative age of various accounts receivable, invoices, and federal and state tax records (including income tax records), for the time period from January 1, 2006 to the present;
c. All documents relating to any mail box located at a commercial mail receiving agency, including, but not limited to, customer applications and correspondence;
d. All documents relating to communications or contacts between the conspirators and any of their principals, employees, or agents, or the Creditors, including, but not limited to, letters, phone messages, e-mail, text messages, “chat,” or instant messages, including any attachments to such e-mails or messages, sent by or received by the user(s) of any computer located at the SUBJECT PREMISES, whether saved or deleted, and whether contained directly in an e-mail, text message, chat, or instant message account or in a customized “folder”;
e. All documents relating to the conspirators’, or any of their principals’, employees’, or agents’ calendar, contact, or personal planner data or files including, but not limited to, data contained in Outlook, Lotus Notes, or Eureka, created or maintained by the user(s) of any computer located at the SUBJECT PREMISES.
With respect to enumerated documents in Exhibit A, the court finds that the descriptions of the items to be seized were sufficiently particular because the executing officers could “rationally understand and interpret these terms.”
Regan,
On the other hand, the officers’ seizure of ESI requires further analysis. Although the Fourth Amendment standard of “reasonableness” applies to both ESI and hardcopy documents, district courts in this circuit have noted that searching for ESI raises unique Fourth Amendment issues.
See, e.g., United States v. Vilar,
No. 05-CR-621,
Notwithstanding unique challenges raised by computer searches, the ultimate Fourth Amendment standard is the same for both computer and hard-copy searches: reasonableness.
Id.
at *36,
Here, the affidavit and warrant, authorizing search and seizure of evidence of specified violations, provides a definition of the term “documents” that includes electronic documents. More particularly, the search warrant, at Exhibit A subsection (e), authorizes seizure of evidence of violations of 18 U.S.C. §§ 1341, 1343, 1344 and 1349, specifically, “All documents relating to the conspirators’, or any of their principals’, employees’, or agents’ calendar, contact, or personal planner data or files including, but not limited to, data contained in Outlook, Lotus Notes, or Eureka, created or maintained by the user(s) of any computer located at the SUBJECT PREMISES.” (ECF No. 56, Executed Search Warrant, filed July 27, 2010, at ¶ 1(e).) Courts in this district have upheld similar warrants for ESI.
See, e.g., Dinero Express, Inc.,
The court’s inquiry, however, does not end with the seizure of the documents. The court must also consider whether the government’s subsequent search of GDC’s computers that it imaged during the execution of the search warrant passes constitutional scrutiny. “While the warrant must state with particularity the materials to be seized from a computer, the warrant need not specify
how
the computers will be searched.”
Vilar,
Although the government is not required to include in its application for a search warrant a search protocol, enumerating the methods that the government might use to search computers, where the government does so, courts have found the warrant sufficiently particular.
Vilar,
Here, Paragraph 2 of Exhibit A annexed to the search warrant, signed by Judge Go
iii. Overbreadth
Defendants next argue that the search warrant was overbroad in violation of the Fourth Amendment in that it authorized “the search for and seizure of all, or virtually all, documents located at GDC’s offices,” without probable cause to believe the item represents evidence of a crime. (ECF No. 91-1, Defs. Mot. Suppress, at 15.) Defendants contend the agents were
In contrast to the particularity analysis, the overbreadth analysis focuses on whether the magistrate judge authorized search warrants that provided for the seizure of specific items for which there was no probable cause.
Hernandez,
Here, a review of the Complaint Affidavit and the Affidavit in Support of Application for Search and Seizure Warrants establishes that Magistrate Judge Go had a substantial basis to determine that the scope of the search warrant was appropriate. Although, as defendants assert, some of the categories listed in the warrant are not limited by date, Agent Shea’s affidavits describe a scheme of significant duration and complexity to defraud to Amalgamated Bank such that the warrant may properly include a broad range of documents.
(See generally
Shea Complaint Aff.);
see also Yusuf,
Defendants argue that the warrant is “not limited to any time period.” (ECF No. 91-1, Defs. Mot. Suppress, at 10.) In response, the government argues that the time frame should be understood in the context of the fraud’s “duration, breadth and complexity.” (ECF No. 98, Govt. Opp. Suppress, at 18.) The court agrees. The court finds that neither the time frame provided for in the warrant as to some items, nor the lack of time frame as to other items, renders the warrant over-broad.
A failure to indicate a time frame could render a warrant overbroad because it could “allow[] the seizure of records dating back arbitrarily far” and could be untethered to the scope of the affidavit which ostensibly provided probable cause.
Cohan,
Applying these standards, the court finds that first, on its face, the warrant contains several temporal limitations. As to items (l)(a) and (l)(b), records are limited to the “period from January 1, 2006 to the present.” (ECF No. 56, Executed Search Warrant, filed July 27, 2010.) Second, to the extent that items (l)(c), (l)(d), and (l)(e) lack a temporal limit, because Agent Shea’s affidavit described a complex multiyear fraud scheme, the court finds that the omission of a temporal limit does not render the warrant overbroad and unconstitutional.
See, e.g., Hernandez,
iv. Execution of the Warrant
Defendants next argue that the agents executing the warrant failed to comply with its terms and “seized documents indiscriminately.” (ECF No. 91-1, Defs. Mot. Suppress, at 23.) In response, the government argues that the executing agents did not flagrantly disregard the warrant’s terms. (ECF No. 98, Govt. Opp. Suppress, at 20.)
Flagrant disregard of a warrant is found only in extraordinary cases such as those where the government affects a widespread seizure of items clearly not within the scope of a warrant and does not act in good faith, or when the lawful basis of a warrant was a pretext for the otherwise unlawful aspects of a search.
See United States v. Hamie,
The court finds that the executing officers did not flagrantly disregard the terms of the search warrant here. Defendants complain that the government seized documents not relevant to the charges in this case, such as,
inter alia,
“[defendants’ personal USB drives,” “human resources documents,” “undated PNC corporate statements,” “the credit report of Defendant Watts,” and “documents related to a cleaning business owned by Defendants Watts.” (ECF No. 91-1, Defs. Mot. Suppress, at 13.) However, the court finds that such documents are not properly characterized as irrelevant to the instant charges or clearly outside the scope of the warrant, and even if some of these documents were outside the scope of
The Shea Affidavit set forth the government’s probable cause to believe that documents constituting evidence or instrumentalities of conspiracy to commit bank fraud, mail fraud and wire fraud would include,
inter alia,
“[documents relating to the finances of persons or entities perpetrating the fraud ... bank records ... assets, liabilities, income, expenses .... ” (Shea Aff. at ¶ 10.) The warrant authorized seizure of documents relevant to the government’s investigation to determine where the proceeds of the fraud were routed, including documents relating to communications between conspirators and others and relating “to the conspirators’ ... personal planner data or files.” (ECF No. 56, Executed Search Warrant, filed July 27, 2010, at ¶ 1(d) and (e).) Thus, evidence of the defendants’ use of the proceeds from the fraud to finance their businesses, improve their credit scores, or pay themselves bonuses or employment-related benefits could be found in documents specified in the warrant, including the conspirators’ communications and contacts with one another, their principals, employees or agents, and the conspirators’ personal files, all of which are relevant to the government’s investigation of the charged fraud.
Cf. United States v. Bowen,
Accordingly, the court finds that the officers acted properly in executing the search warrant and defendants’ motions to suppress the documents seized pursuant to the warrant on this ground are denied.
v. Confidential Source
Defendants request a hearing “to determine whether the government engaged in conduct which further violated their Fourth Amendment rights when it ... received documents stolen from the GDC premises by a confidential government informant and utilized those improperly obtained documents in its application for a search warrant....” (ECF No. 91-1, Defs. Mot. Suppress, at 2, 6-8.) Defendants point out that the Shea Affidavit cites numerous emails to which the confidential source, Serrano, was not a party, or which pre-dated Serrano’s hiring. Defendants, however, admit that Dupree expressly authorized Serrano to access Patello’s emails, thus allowing Serrano to obtain emails that pre-dated Serrano’s employment and to which Serrano was not a party. (ECF No. 91-3, Defs. Pros. Misconduct Mem., at 5-7.) Defendants argue that because Serrano was acting as a government agent who “impermissibly stole multiple e-mails to which he was not a party and gave them to the government,” Serrano needed a warrant to seize GDC’s documents. (ECF No. 91-1, Defs. Mot. Suppress, at 7.) Defendants also assert that Serrano stole at least one document covered by the attorney-client privilege, specifically an email between co-defendants Dupree and Foley, who was then outside counsel. (Id. at 7-8.)
In response, the government argues that “the exclusionary rule does not apply to evidence obtained by nongovernmental ac
The Second Circuit has stated that “reliance on a confidential informant is permissible in an affidavit submitted in support of a request for a search warrant.”
United States v. Smith,
Here, it is undisputed that the government relied, in part, on emails provided to it by a confidential source, Emilio Serrano, who, according to defendants, commenced employment on a temporary basis in August 2008, on a permanent basis as assistant controller in September 2008, and as controller and head of accounting in March 2010. (ECF No. 108, Reply Mot. Suppress, at 3 n. 2.; ECF No. 91-1, Defs. Mot. Suppress, at 6.) Defendants have provided no evidence to contradict the government’s assertion that “Serrano and his lawyer contacted the FBI, not vice versa, and by that time Serrano had already obtained and collected the documents he later provided to the government.” (ECF No. 98, Govt. Opp. Suppress, at 12.) Defendants therefore have not met their burden of establishing that Serrano was acting as a government agent when he obtained the disputed emails.
Notwithstanding this failure, defendants, citing
Walter v. United States,
Although the agents in this case also did not obtain a separate warrant to review the emails that Serrano provided to them, unlike the agents in
Walter,
here, the agents did not conduct any “separate search” but instead were provided with copies of the emails to which Serrano was granted access by Dupree. Thus, the agents merely read the emails that Serrano accessed, printed and provided in hard copy.
Walter
is therefore distinguishable. Moreover, defendants cannot claim a legitimate expectation of privacy in emails that they gave Serrano permission to access and view.
See, e.g., United States v. Lifshitz,
Because defendants bear the burden to establish that a private party acted as a government agent and have not provided any evidence to support their theory that Serrano was a government agent, the court finds that the agents were not required to obtain a separate warrant to read the emails that Serrano provided to them. Accordingly, defendants’ motions to suppress on this ground are denied. 18
vi. Franks Hearing
Defendants again argue that based on misstatements and omissions in Agent Shea’s affidavits and on the government’s allegedly improper use of documents provided by Serrano, they are entitled to a hearing pursuant to
Franks v. Delaware,
For all of the reasons set forth above, defendants’ motions to suppress are denied.
a. Standard
To constitute a due process violation on the ground of egregious government misconduct, the government’s actions must be so outrageous as to “shock the conscience.”
United States v. Rahman,
b. Application
Defendants argue that the Indictment against them should be dismissed pursuant to Fed.R.Crim.P. 12(b)(2) due to a “pattern of improper conduct of the government during its investigation and prosecution of the Defendants which undermines the fairness of the proceedings.” (ECF No. 91-3, Defs. Pros. Misconduct Mem., at 1.) Specifically, defendants assert the following allegedly improper actions by the government (some of which they have also asserted in support of their other motions):
(1) The affidavits in support of the applications for the search and seizure warrants contained material misrepresentations and omissions (id. at 19);
(2) The search warrant was overbroad (id. at 19);
(3) In executing the search warrant, law enforcement disregarded its terms (id. at 7-8);
(4) The government did not provide the defendants with “notice and an opportunity to be heard” before obtaining seizure warrants (id. at 21);
(5) The seizure warrants and affidavits were filed under seal (id. at 21);
(6) Retired FBI Special Agent Martin Finn was “allowed to access all areas of the office throughout the search without limitations or supervision” (id. at 19);
(7) The government “obtained privileged and confidential documents and communications from GDC’s offices” (id. at 20);
(8) The government told the bank not to pay the defendants’ salaries (id. at 21-22);
(9) The government has “improperly delayed in unsealing the warrant affidavits” (id. at 13);
(10) The government has used the grand jury improperly (id. at 23-24); and
(11) The government has “refus[ed] to provide necessary discovery” (id. at 24).
In opposition, the government argues that defendants’ alleged “pattern of misconduct” is “mostly a repackaged version of their other motions attacking the constitutionality of the search warrant and seizure warrants, coupled with a rehashing of their prior discovery demands, most of which have already been rejected by this Court.” (ECF No. 97, Govt. Pros. Misconduct Mem., at 1.) In reply, defendants argue that “[t]he government’s efforts to marginalize their actions by treating them as discreet, separate, unrelated acts is of no avail, and is not the prism through which prosecutorial misconduct is judged.”
i. Search and Seizure Warrants
The government argues that defendants’ first four allegations are “essentially re-purposed versions of the defendants’ other motions attacking the search and seizure warrants.” (ECF No. 97, Govt. Pros. Misconduct Mem., at 4.) Further, the government argues that none of the eases defendants cite relate to the issuance of search and seizure warrants, and are distinguishable from the conduct at issue in this case. (Id. at 5-9.) The court agrees. As discussed extensively above, the court has considered defendants’ arguments regarding the government’s application for and execution of the search and seizure warrants and found that they were supported by probable cause, properly issued, and properly executed. Accordingly, the court finds that no law enforcement or prosecutorial misconduct occurred with respect to the issuance and execution of the search and seizure warrants.
ii. Martin Finn’s Presence During Search of GDC
Defendants argue that the government engaged in prosecutorial misconduct by allowing Martin Finn, a former FBI Special Agent and the husband of GDC officer Veronica Finn, “free and unfettered access to all areas of [GDC’s] office” during the execution of the search warrant. (ECF 91-3, Defs. Pros. Misconduct Mem., at 9.) In response, the government argues that even if defendants’ version of the events was accurate, it would not constitute prosecutorial misconduct. (ECF No. 97, Govt. Pros. Misconduct Mem., at 9.) The government also argues that defendants are attempting to re-litigate their unsuccessful motion for a bill of particulars insofar as they seek discovery regarding Mr. Finn. (Id. at 10-11.) The court agrees.
Initially, the court acknowledges that the assertions of the parties regarding Mr. Finn appear to present a factual dispute regarding the circumstances under which Mr. Finn arrived at GDC and the areas to which he was allowed access while the FBI searched the premises. According to defendants’ version of the events, GDC surveillance video establishes that Mr. Finn arrived at GDC “approximately 15 minutes after the agents started the search shortly after 7:00 a.m.” and was “allowed to wander, unescorted ... during [the] search.” (ECF 91-3, Defs. Pros. Misconduct Mem., at 9;
see also
Howard Aff. at ¶ 44 (“Interviews with GDC staff have revealed that, unlike the GDC employees, who were sequestered in the cafeteria and guarded by FBI and Postal Inspectors during the search and seizure, Mr. Finn was permitted to walk around the office without a law enforcement escort.”).) On the other hand, according to the government, Veronica Finn called her husband after obtaining the permission of Special Agent Vincent Gerardi, but Martin Finn did not arrive at GDC’s headquarters until “[a] few hours later” and then sat with his wife in the “company’s cafeteria area” during the search. (ECF No. 97, Govt. Pros. Misconduct Mem., at 12.) Despite the fact that both parties argue that there were witnesses to Mr. Finn’s presence at GDC on that date, neither party supports its version of the events with any affidavits from witnesses with knowledge or other evidence. (ECF No. 91-1, Defs. Mot. Suppress, at 13 (“witnesses advise that [Finn] was free to move about during the search”); ECF No. 97, Govt. Pros. Misconduct Mem., at 11-12 (suggesting that Special Agent Vincent Gerardi would have knowledge of the events in question).) De
Defendants’ assertions do not satisfy their very heavy burden of establishing misconduct by the government. Without providing factual support for their contentions regarding Mr. Finn’s alleged conduct during the search, defendants’ request for an evidentiary hearing, as the government asserts, is nothing more than an attempt to re-litigate issues that were extensively briefed in defendants’ motion for discovery and a bill of particulars and decided by the court in a decision issued December 30, 2010. As the court ruled previously, defendants’ requests for particulars regarding Mr. Finn’s presence during the search were “speculative,” and were accordingly denied. (See ECF No. 84, Memorandum & Order, dated Dec. 30, 2010.) Defendants’ assertions in the instant motions regarding Mr. Finn’s conduct during the search remain “speculative.” Indeed, defendants have not proffered any evidence from a witness with knowledge that Mr. Finn’s presence was not authorized by a GDC officer or that he was granted unfettered access to GDC during the search. Moreover, if, as defendants contend, all employees were sequestered in the GDC cafeteria during the search, defendants offer no explanation as to how “numerous employees” could have observed Mr. Finn’s allegedly unfettered access to all areas of GDC’s premises.
Notwithstanding the deficiencies in defendants’ factual proffer, the court finds that even if defendants’ version were sufficiently supported, defendants have not established that the government committed prosecutorial misconduct in executing the search. Defendants bear the “very heavy” burden of establishing outrageous government conduct.
See, e.g., Rahman,
iii. Privileged Documents
Similarly, defendants’ allegation that the government seized privileged documents during the search does not establish prosecutorial misconduct. The court previously considered this argument at oral argument on defendants’ motion for discovery and for a bill of particulars on December 20, 2010. The government represented that a “taint team,” comprised of an agent and an Assistant United States Attorney not otherwise affiliated with the case, was still reviewing the documents it had isolated as potentially privileged, and although it had not yet identified any privileged documents, if it found any, it would produce them promptly to defendants.
(See
ECF No. 84, Memorandum
&
Order, dated Dec. 30, 2010;
see also
Transcript of December 20, 2010 Oral Argument at 38-39.) In its opposition to defendants’ instant motion, the government reiterated that “[i]f the Review Team determines that there are privileged documents, they will return the
On February 9, 2011, the court ordered the government “to produce any ... privileged documents to defendants, and to notify defendants of any potentially privileged documents that the privilege team intends to turn over to the prosecuting AUSAs, by 2/25/11.” (See Order dated Feb. 9, 2011.) The government requested an extension (see ECF No. 115, letter dated Feb. 17, 2011), and on February 18, 2011, the court granted the government’s request and directed that the government produce privileged documents no later than March 11, 2011. (See Order dated Feb. 18, 2011.) The court expects that the government has complied with this order.
On this record, the court finds that, as a matter of law, the government followed appropriate procedures with respect to handling potentially privileged documents.
United States v. Triumph Capital Gr. Inc.,
iv. Defendants’ Salaries and Legal Fees
Defendants next argue that the government directed Amalgamated Bank not to pay defendants’ salaries, and as such, violated defendants’ Fifth and Sixth Amendment rights by depriving them of funds to pay legal counsel and mount a defense. (ECF No. 91-3, Defs. Pros. Misconduct Mem., at 13-14.) Defendants also argue that they are “legally entitled” to advancement of legal fees from GDC, which the government has unlawfully withheld. (See, e.g., ECF No. 90, Defs. Seizure Mem., at 12.) In response, the government denies that it ever told Amalgamated Bank not to release funds to pay defendants’ salaries, and even if it had, the facts are factually and legally distinguishable from the cases defendants cite. (ECF No. 97, Govt. Pros. Misconduct Mem., at 14-22.)
As discussed in detail supra, the court has found that defendants have not established any valid expectation that GDC would advance their legal expenses, and accordingly, defendants’ Fifth and Sixth Amendment rights were not violated.
Accordingly, defendants’ motions for relief. based on prosecutorial misconduct on this ground are denied.
v. Unsealing Warrants
Defendants argue that the government unnecessarily filed the seizure warrants under seal, delayed providing notice to GDC, and thereafter delayed “in unsealing the warrant affidavits, notwithstanding requests by counsel and an order by the Court.” (ECF No. 91-3, Defs. Pros. Misconduct Mem., at 21.) In response, the
Neither party cites any legal authority in support of their arguments as to whether the three-month delay in unsealing the warrants was reasonable or not, and left their dispute entirely to the court to research and determine. The court finds the parties’ advocacy lacking, and expects better of attorneys who appear before it. However, the court has undertaken an independent analysis of the law and has determined that defendants’ motions to dismiss the Indictment based on a three-month delay in unsealing the seizure affidavits and warrants are without merit.
The decision of whether to seal an affidavit in support of a search or seizure warrant is a decision left to the discretion of the court.
See, e.g., In re Application of Newsday, Inc.,
Here, it is undisputed that the warrant affidavits were sealed when they were filed and the search and seizure warrants were issued on July 21, 23, and 27, 2010. One month and eighteen days after the first affidavits and search and seizure warrants were filed under seal, on September 8, 2010, the government moved for “an order unsealing the search warrant, the seizure warrants, and the affidavit in support of the search and seizure warrants” (ECF No. 33), which the court granted the following day, on September 9, 2010 (Order granting Motion to Unseal, dated Sept. 9, 2010). On October 8, 2010, after the government reported that the Clerk’s Office had not yet unsealed the affidavits, the court again ordered the warrants and affidavits unsealed and directed counsel for the government to work with the Clerk’s Office to ensure that such unsealing was properly and expeditiously accomplished.
(See
Minute Entry dated Oct. 8, 2010.) Also on October 8 and 10, 2010, the government emailed copies of all of the affidavits in support of the warrants to defendants. (ECF No. 97, Govt. Pros. Misconduct Mem., at 22-23.) The court finds that the government’s one-month and eighteen day delay in moving to unseal the search warrant, seizure warrants, and the affidavits in support of the search and seizure warrants, and the three-month delay in unsealing the remaining affidavits are not sufficient to establish prosecutorial misconduct.
See, e.g., Semtex Indust. Corp.,
Accordingly, defendants’ motions to dismiss the Indictment on the ground that the government improperly delayed in unsealing the affidavits in support of the search and seizure warrants are denied,
vi. Use of Grand Jury
Defendants argue that the government is improperly using the grand jury to “continue to investigate the charges specified in the Indictment.” (ECF No. 91-3, Defs.
It is “improper for the Government to use the grand jury for the sole or dominant purpose of preparing for trial under a pending indictment.”
United States v. Leung,
Defendants contend that the government’s “dominating purpose” for continuing to use the grand jury is to prepare for trial under the pending Indictment. The government countered that it issued grand jury subpoenas as part of a continuing investigation and offered to discuss the nature and breadth of the investigation with the court ex parte and in camera. (ECF No. 97, Govt. Pros. Misconduct Mem., at 23-24.) On February 11, 2011, the court ordered the government submit a letter ex parte outlining the “nature and breadth” of the government’s continuing grand jury investigation in this case. (Order dated Feb. 11, 2011.) The government submitted a letter ex parte for the court’s in camera review on February 17, 2011. (ECF No. 120, Letter dated Feb. 17, 2011.) Based on a careful consideration of the information provided to the court in the government’s ex parte submission, the court finds that the government’s continued use of the grand jury is appropriate, and denies defendants’ request for relief on this ground.
vii. Discovery Disputes
Finally, defendants argue that that the government “has intentionally left Defendants in the dark regarding the details underlying the charges, thereby preventing them from preparing a proper defense.” (ECF No. 91-3, Defs. Pros. Misconduct Mem., at 24.) In response, the government argues that defendants are attempting to re-litigate issues already decided and circumvent the requirement to file a motion for reconsideration. (ECF
Accordingly, for the reasons set forth above, defendants’ motions for dismissal of the Indictment are denied. The court has considered defendants’ allegations both individually and as a whole, as defendants urge, and finds that they have not sustained their heavy burden to show that the government’s conduct “shocked the conscience.” Defendants’ request for an evidentiary hearing on their allegations of prosecutorial misconduct is accordingly denied.
CONCLUSION
For the foregoing reasons, defendants’ motions seeking relief from the seizure of funds are denied. Defendants’ motions to suppress evidence seized during the search of the offices of GDC and its subsidiaries are denied. Defendants’ motions to dismiss the Indictment are denied. Defendants’ motions for a Franks and Monsanto hearing are denied. The parties shall appear for a status conference on March 25, 2011 at 10:00 a.m.
SO ORDERED.
Notes
. Defendant Frank Patello was also named in the Indictment and pleaded guilty to Count One on September 24, 2010. (See ECF Docket 10-CR709, No. 4, Minute Entry dated Sept. 24, 2010.)
. 18 U.S.C. § 1349 provides that the penalties for conspiracy match those for the substantive underlying offense.
. 18 U.S.C. § 3551 et seq. generally provides penalties for offenses described in federal statutes.
. 18 U.S.C. § 1344 provides that "[w]hoever knowingly executes, or attempts to execute, a scheme or artifice — (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises” is punishable by fine and imprisonment.
. 18 U.S.C. § 2 provides that "whoever ... aids, abets, counsels, commands, induces or procures [the] commission” of an act or "willfully causes an act to be done” against the United States is punishable as a principal.
. 18 U.S.C. § 1014 provides that "[w]hoever knowingly makes any false statement or report ... for the purpose of influencing in any way the action of” a federal agency, is punishable by fine and imprisonment.
. Defendants have framed this motion as a "Motion Opposing Government’s Unconstitutional and Unlawful Seizure and Restraint of Funds.” (See ECF No. 89, Notice of Motion.)
. Upon receiving notice pursuant to Supplemental Rule C(4) of the execution of process, a claimant must file a statement of interest in, or right against, the seized property in accordance with Supplemental Rule C(6). Rule C(6) requires that a claimant in a civil forfeiture proceeding file a sworn notice of claim within fourteen days after the execution of process of the commencement of a civil forfeiture action, unless the court grants an extension. If no claim is properly filed, a putative claimant lacks standing to contest civil forfeiture of the property.
United States v. Contents of Account Number 901121707,
. Moreover, 18 U.S.C. § 983(a)(l)(A)(iii) provides that if, within 60 days of a seizure, the government does not "file a civil judicial forfeiture action, but does obtain a criminal indictment containing an allegation that the property is subject to forfeiture," as the government did here, the government shall either "send notice within the 60 days and continue the nonjudicial civil forfeiture proceedings under this section; or terminate the nonjudicial civil forfeiture proceeding, and take the steps necessary to preserve its right to maintain custody of the property as provided in the applicable criminal forfeiture statute.” 18 U.S.C. § 983(a)(1)(A)(iii);
see also United States v. Kramer,
No. 06-cr-200,
. The court need not address defendants' argument that pretrial seizure of substitute assets is not authorized because the basis for the instant seizures is that the funds are pro
. The court rejects defendants' argument that “it appears to have been the government’s choice to seek and execute warrants before it had obtained and reviewed the financial and banking records, which were all easily available to the government through subpoena .... Instead, the government relied upon conclusory statements, allegedly made by its informan1/s, that are false and willfully chose not to review available bank records.” (ECF No. 90, Defs. Seizure Mem., at 4.) As set forth in Agent Shea’s affidavit in support of the seizure warrants, dated July 27, 2010, it was not until after the government executed the Amalgamated seizure warrants on July 23, 2010 that it learned that additional accounts containing proceeds were held at J.P. Morgan Chase Bank, rather than at Amalgamated Bank. (7/27/10 Shea Seizure Aff. at ¶ 3.) Prior to execution of the warrants, the government did not know where the funds were
. The court finds the instant case distinguishable from
Statewide,
a case discussed by both parties. Unlike the instant case, in
Statewide,
the government seized an entire business in connection with an
in rem
forfeiture, including hanging “out of business” signs, interrupting phone service, and sealing the premises.
. The court finds defendants' argument that the government "deprived defendants of their salaries and the ability to receive advancement of legal fees under New York Business Corporation Law (“BCL”) §§ 722, 723
et seq.”
unavailing. (ECF No. 90, Defs. Seizure Mem., at 10.) BCL § 722(a) states that a "corporation may indemnify any person made ... a party to an action or proceeding ... whether civil or criminal ... if such [person] acted, in good faith ... [and] had no reasonable cause to believe that his conduct was unlawful.” BCL § 722(a). BCL § 723 discusses a person’s right to indemnification upon “success[], on the merits or otherwise, in the defense of a civil or criminal action.” BCL § 723(a). To the extent defendants invoke these provisions as authority for their position that they are entitled to the release of the seized corporate funds for the advancement of fees, they have not shown that they “had no reasonable cause to believe that [their] conduct was unlawful.” Accordingly, the court finds that the BCL provisions do not provide defendants with the relief they seek.
Cf. Bansbach v. Zinn,
. As discussed,
infra,
although somewhat similar in focus to the particularity requirement, whether a warrant is overbroad is a distinct legal issue and focuses on whether the warrant authorized the search and “seizure of items as to which there is no probable cause.” (ECF No. 91-1, Defs. Mot. Suppress, at 18 n. 9; ECF No. 98, Govt. Opp. Suppress, at 17.)
See United States v. Hernandez,
No. 09 CR 625,
. In contrast to the Supreme Court’s decision in
Groh v. Ramirez,
. Defendants correctly assert that the "all-records” exception to the prohibition against general warrants is inapplicable to the instant case because it is undisputed that GDC maintained a legitimate business in addition to the offenses charged here. It is also undisputed that the government did not seize "all records” of GDC.
See, e.g., United States v. Burke,
. Moreover, even if the court had found that the warrant was overbroad or lacked particularity, the search would be saved by the “good faith’’ exception recognized by the Supreme Court in
United States v. Leon,
. Finally, the court agrees with the government that the attorney-client communication that Serrano allegedly stole from GDC’s premises is covered by the "crime fraud exception” to the attorney client privilege. (ECF No. 98, Govt. Opp. Suppress, at 12-13 n. 5.) "The crime-fraud exception removes the privilege from those attorney-client communications that are related to client communications in furtherance of contemplated or ongoing criminal or fraudulent conduct.”
United States v. Jacobs,
. Defendants argue that the government’s "failure to clarify the different acts underlying Counts One and Two of the Indictment by January 4, 2011” is evidence of the government “repeatedly ignoring] [the] Court's orders regarding the production and identification of documents and necessary information.” (ECF No. 91-3, Defs. Pros. Misconduct Mem., at 15.) Defendants misunderstand the court's December 30, 2010 ruling on this issue. The court interpreted the plain and clear language of Counts One and Two of the Indictment and found that those counts alleged that defendants committed the same core acts with respect to both Counts One and Two. (See ECF No. 84, Memorandum & Order, dated Dec. 30, 2010, at 19-20.) Accordingly, the court directed the government to advise defendants by no later than January 4, 2011, "if [the court's] reading [was] incoirect," and disclose which acts defendants are alleged to have committed with respect to Count Two that are different than those alleged in paragraphs 1 through 14 of the Indictment. {Id. (emphasis added).) The court understands the government's lack of further response on this issue to confirm that the same core acts underlie both Counts One and Two of the Indictment.