UNITED STATES of America, Appellee, v. Daniel GREENBERG, Defendant-Appellant.
Nos. 14-4208-cr(L), 14-4278-cr(con)
United States Court of Appeals, Second Circuit.
August 31, 2016
August Term 2015. Argued: January 11, 2016. See also, 2016 WL 4574482.
835 F.3d 295
FOR DEFENDANT-APPELLANT: ERIC M. CREIZMAN, Creizman PLLC, New York, N.Y., for Daniel Greenberg.
Before: STRAUB, LIVINGSTON, and CHIN, Circuit Judges.
DEBRA ANN LIVINGSTON, Circuit Judge:
This appeal arises from Daniel Greenberg‘s conviction of wire fraud, access device fraud, aggravated identity theft, and money laundering in connection with a scheme to make unauthorized credit card charges to the credit cards of customers of Greenberg‘s digital retail company, Classic Closeouts, LLC (“CCL“). During the summer of 2008, there were approximately 77,000 unauthorized charges to these customer cards, totaling approximately $5 million, all supposedly related to a “Frequent Shopper Club” program at CCL. Following a civil case brought by the Federal Trade Commission (“FTC“) and a criminal investigation, the Government filed a Superseding Indictment, charging Greenberg with eight counts of wire fraud, in violation of
This opinion addresses two of Greenberg‘s arguments on appeal.1 First, Greenberg contends that the district court erred in denying his motion to dismiss the Superseding Indictment for spoliation of evidence. Next, he argues that the wire fraud counts should have been dismissed because of a “lack of convergence” between the parties injured and those deceived by the “Frequent Shopper Club” scheme. We reject both arguments and, accordingly, affirm the judgment of conviction.
BACKGROUND
I. Factual Background2
From 2002 until 2009, Greenberg owned and operated CCL, an Internet retailer of discounted clothing and other merchandise. Greenberg served as CCL‘s president and managing member, and was the sole signatory on CCL‘s accounts. CCL operated from 110 West Graham Avenue in Hempstead, New York (“the Premises“). CCL maintained a website, classiccloseouts.com, from which it sold its merchandise.3 The website was certified by TRUSTe, an independent organization that certifies the privacy practices of its Internet licensees.4
A. The Scheme
In the first part of 2008, during a period of declining sales volume at CCL, Greenberg called Jason Mizrahi, a CCL graphic designer, to task him with creating a template, supposedly for distribution to customers, to promote a CCL “Frequent Shopper Club.” This was unusual, as Mizrahi generally received assignments from his direct supervisor, head graphic designer Lisa Chin, and not Greenberg. Mizrahi designed the promotion template and provided it to Greenberg, but the designer never saw his work product on the CCL website. Greenberg did, however, send the template to Venkata Chittabathini, a CCL computer programmer, and directed him to create a program for charging customer credit cards in connection with the membership program. Notably, despite these undertakings by Greenberg, other CCL employees who were otherwise heavily involved in CCL‘s marketing and sales (including CCL‘s customer service manager, Simcha Geller, its warehouse manager, Alejandro Rubenstein, and Chin) never discussed the Frequent Shopper Club with Greenberg or were ever directly informed of its existence.6
During the summer of 2008, CCL received an influx of complaints from customers asserting that their credit cards had been charged even though they had not placed an order with CCL. Customers making such complaints testified at trial that they had made at least one purchase from CCL in the past, and they were unaware that CCL had retained their credit card information. Numerous customers attempted to contact CCL about the charges during this period, but their
As complaints mounted, Geller informed Greenberg about the influx sometime in June 2008.7 Greenberg responded that a computer programmer was working on the problem, a computer glitch. Even as Geller noted the questionable transactions continuing to increase—he testified that they eventually reached tens of thousands of dollars a day—Greenberg never mentioned the Frequent Shopper Club in his discussions with Geller about the issue.8 Greenberg, however, did ask Geller whether payment for these transactions had come into the company‘s bank accounts.
During this period, other companies that had a relationship with CCL—TRUSTe, Cynergy, and Shop.com—noticed increased consumer complaints regarding unauthorized charges and began to make inquiries. Greenberg provided inconsistent explanations to each company. Thus, Greenberg told a TRUSTe compliance officer that the charges were due to a computer glitch that had occurred over the Fourth of July weekend, affecting “at most 100 consumers,” all of whom had been or would be given chargebacks.9 In a follow-up email, Greenberg mentioned the Frequent Shopper Club, claiming that CCL had been offering it to customers “for years at various times and in various formats” and that “thousands of previous members [had] gladly paid and renewed yearly for several years already.” In July, Greenberg explained to Cynergy that the chargebacks were due to customers who initially joined the Frequent Shopper Club but were disgruntled because they were not able to get through to CCL‘s customer service department because of the flood of interest in the program. Last, when Shop.com inquired as to the “alarming number of inquiries from customers” about unauthorized charges, Greenberg explained that the charges resulted from “a promotion offering consumers a members only shipping benefit.” He specified that none of CCL‘s customers’ personally identifiable information had been compromised. Ultimately, owing to continuing customer complaints and Greenberg‘s insufficient explanations, TRUSTe, Cynergy, and Shop.com all terminated their respective relationships with CCL.
Between June and August 2008, CCL customers incurred over 77,000 unauthorized charges, totaling approximately $5 million.10 Approximately 44,000 charge-
B. The FTC Action
On June 24, 2009, the FTC filed a civil action against both Greenberg and CCL in the United States District Court for the Eastern District of New York (Wexler, J.). FTC v. Classic Closeouts, LLC, 09-cv-2692 (LDW). The FTC alleged that Greenberg and CCL had engaged in “unfair or deceptive acts or practices in or affecting commerce,”
The Receiver interviewed Greenberg at the Premises the very next day. According to the Receiver‘s account of that interview, presented in a report to the district court later that summer, Greenberg claimed that in January 2009, he sold CCL to Hazen NY Inc. (“Hazen“), a company owned by CCL‘s former warehouse manager, Jonathan Bruk. Greenberg indicated that after the sale he maintained his office at the Premises and worked as a consultant to Hazen.11 The Receiver also reported that the FTC attempted to preserve evidence that day by imaging the hard drives of CCL computers, but FTC employees were unable to image everything owing to power failures. When the FTC‘s computer specialist returned the next day to complete the task, he was denied access to the premises.
In her report to the district court, dated August 20, 2009, the Receiver concluded that the sale of CCL to Hazen “may be a sham” and that “CCL‘s operations may be continuing through the [n]ew [d]efendants.”12 Gov‘t App‘x 14. The report explained that the original defendants had failed to cooperate with the Receiver, as the TRO required, by “failing to provide repeatedly requested documentation about the ... assets and transfers of money and property.” Id. Next, the report indicated that the Receiver had found “no evidence of a legitimate transfer of ownership of CCL.” Id. at 15. The report explained that although CCL was apparently “not operating,” it “may [have been] continuing its sales operations through certain of the [n]ew [d]efendants.” Id. at 17. Last, the report detailed evidence of transfers of CCL‘s assets to new defendants, and the failure to produce documents.
On September 21, 2009, CCL was evicted from the Premises. According to the Government, in that eviction, representatives of Bennett Moving, Storage and Evictions (“Bennett“) took possession of all
C. The Criminal Investigation
The criminal investigation began in February 2010, some seven or eight months after the FTC action commenced. The Government asserts that on April 14, 2010, Inspector Charles Schriver of the United States Postal Inspection Service contacted Bennett, the company that had taken possession of CCL‘s property, and was informed that Greenberg had retrieved it. Inspector Schriver next contacted United Storage, which confirmed that the CCL property, including the computers and servers, had been removed in January 2010. Schriver thereafter obtained copies of the previously-imaged CCL hard drives from the FTC. The FTC indicated to Schriver in an email that some of the data from CCL computers and servers had not been successfully acquired. The FTC retained the originally imaged computer evidence in Washington, D.C.
Discussions between the United States Attorney‘s Office for the Eastern District of New York (“EDNY“) and Jason Berland, an attorney representing Greenberg, began months before Greenberg was first indicted in April 2012. On January 12, 2012, Berland, one of numerous successive attorneys who represented Greenberg in connection with the criminal case, emailed Inspector Schriver and the Assistant United States Attorney (“AUSA“) handling the investigation. The email stated that Greenberg retained “back-up copies of the servers that he and some of his employees were able to access at Classic Closeouts,” and that data that Berland had reviewed with Greenberg and also “discussed with a forensic analyst,” had been obtained from these back-ups and would be provided to the Government. Gov‘t App‘x 21. Two weeks later, on January 26, 2012, Berland reported that Greenberg possessed “a few dozen gigabytes of data to be analyzed” and indicated that he would obtain the material for the Government to review. Id. at 26. On February 1, 2012, Berland again emailed, attesting that he would provide “data pertinent to establishing that an email went out to customers and that there were legitimate customer enrollments” and expressing the hope that this “conclusive proof” would persuade the Government not to move forward with the case. Id. at 35. Berland indicated that Greenberg was “finishing the process of copying the data to a back-up drive” and that Berland would thereafter provide it. Id.
Berland‘s efforts did not ultimately dissuade the Government from seeking an indictment. More pertinent here, the Government asserts that neither Greenberg nor his counsel indicated during this period leading up to indictment “that Greenberg lacked the evidence to prove his innocence or that the CCL computers and servers were in the possession or control of someone other than Greenberg.” Gov‘t Br. 8. At the conclusion of the negotiations, Berland thanked the AUSA for “extraordinary” generosity with her time “over the past couple of months” during which these negotiations occurred. Gov‘t App‘x 36.
II. Procedural History
On April 26, 2012, the Government filed a three-count indictment against Greenberg and about one month later provided him with its initial discovery letter, which indicated that “[t]he replica of hard drives seized by the Federal Trade Commission [was] being stored” and was “available for copy.” Letter Regarding Discovery at 8, United States v. Greenberg, No. 12-cr-0301 (ADS) (E.D.N.Y. May 30, 2012), ECF No. 27. After the Government filed the Su-
On June 13, 2013, after replacing Wallenstein, Greenberg filed a motion seeking dismissal of the Superseding Indictment based on the Government‘s alleged spoliation of evidence.13 In a declaration, Greenberg admitted that he had known, from June 2009, that the FTC had not captured all the CCL computer and server data. Without discussing what had happened with the computers and servers after the FTC‘s attempt to image the data, he also declared that he learned from Wallenstein in May 2013 that Wallenstein had inquired and been advised by the Government that the original computers and servers were not in Washington, D.C., and that their whereabouts were unknown. Greenberg argued that though he had saved some data to his personal computer, including evidence of emails sent to customers, he could not introduce this evidence at trial because he would not be able to establish chain of custody for these materials. The district court denied the motion without an evidentiary hearing, concluding that Greenberg had “failed to show bad faith on the part of the government” and that this showing was “[v]ery important for a spoliation motion.” App‘x 101-02.
Trial commenced a few weeks later and spanned about three weeks. On January 24, 2014, the jury convicted Greenberg on all thirteen counts of the Superseding Indictment.14 On October 31, 2014, the district court sentenced Greenberg principally to 84 months’ incarceration, three years’ supervised release, and restitution in the sum of $1,125,022.58. On November 7, 2014, the district court entered a corrected judgment of conviction and order of forfeiture. This appeal followed.
DISCUSSION
This opinion addresses two of Greenberg‘s claims on appeal: (1) whether the Superseding Indictment should have been dismissed for spoliation of material evidence (or, in the alternative, whether the district court should have held an evidentiary hearing concerning the prosecution‘s bad faith); and (2) whether the Superseding Indictment fails to plead a legally cognizable wire fraud scheme under
I
We first consider Greenberg‘s argument that the Superseding Indictment should have been dismissed based on spoliation of material evidence—CCL‘s computers and servers—or, in the alternative, that an evidentiary hearing should have
A criminal defendant moving for dismissal on the basis of spoliation of the evidence must make a two-pronged showing that the evidence possessed exculpatory value “that was apparent before [it] was destroyed” and that it was “of such a nature that the defendant would be unable to obtain comparable evidence by other reasonably available means.” California v. Trombetta, 467 U.S. 479, 489 (1984); see also United States v. Rastelli, 870 F.2d 822, 833 (2d Cir. 1989). In addition, while Brady v. Maryland, 373 U.S. 83 (1963), teaches that good or bad faith is irrelevant when the Government suppresses or fails to disclose material exculpatory evidence, when the Government has, instead, failed to preserve evidentiary material that is “potentially useful,” such failure “does not violate due process ‘unless a criminal defendant can show bad faith’ on the part of the Government.” Illinois v. Fisher, 540 U.S. 544, 547-48 (2004) (quoting Arizona v. Youngblood, 488 U.S. 51, 58 (1988)). Failure to satisfy any of these requirements, including a failure to show the Government‘s bad faith, is fatal to a defendant‘s spoliation motion. See Rastelli, 870 F.2d at 833; see also United States v. U.S. Currency in the Amount of $228,536.00, 895 F.2d 908, 917 (2d Cir. 1990) (noting that “unless a defendant can show bad faith ... destruction of potentially useful evidence is not a denial of due process“).
At the outset, it is doubtful that Greenberg‘s moving papers even raised a due process issue regarding the failure to preserve evidence. As we have said in the past, “the record must first show that evidence has been lost and that this loss is ‘chargeable to the State.‘” Rahman, 189 F.3d at 139 (quoting Colon v. Kuhlmann, 865 F.2d 29, 30 (2d Cir. 1988)). The FTC, in its civil investigation, sought to image the computer hard drives. These images were deficient and incomplete in various ways—a fact that Greenberg admits to knowing at the time and that was also disclosed to the defense during discovery. Greenberg now complains that the FTC acted negligently in imaging the drives. Even assuming such negligence, however, at the time of the civil investigation only the FTC was involved and Greenberg points to no evidence that a criminal indictment was directly contemplated. See Rahman, 189 F.3d at 139-40 (holding that the loss of recordings made without the awareness of the criminal investigators could not be charged to the prosecution). And while he asserts in his opening brief that “the prosecution team was equally culpable for failing to take adequate steps to collect the original computers and servers,” Greenberg Br. 42, Greenberg points to no facts consistent with this assertion and does not provide substantive support for his argument that the failure to collect evidence could ground a due process claim in circumstances analogous to those here.
Greenberg‘s arguments to the contrary do not point to ways in which he can overcome this evidentiary gap. He contends, first, that “‘bad faith’ in the context of a spoliation motion can be established short of the intentional destruction of documents” by mere “carelessness in preserving documents of obvious relevance and importance.” Greenberg Br. 41. But this argument (even assuming that Greenberg could point to facts in support of it) is foreclosed by Youngblood, where the Supreme Court held that the loss of semen samples that were of obvious potential use to the defense did not deprive the defendant of due process where this loss by police could “at worst be described as negligent.” 488 U.S. at 58; see also Fisher, 540 U.S. at 548 (holding that the mere fact that destroyed evidence was at the time sought in a pending discovery request did not “eliminate[] the necessity of showing bad faith on the part of police“).15
Greenberg next attempts, in passing, to bolster his allegation of bad faith with the claim that the information the FTC was unable to image was materially exculpatory, not simply of potential use in his defense. Greenberg Reply Br. 16. The “presence or absence of bad faith,” however, as the Supreme Court noted in Youngblood, “necessarily turn[s] on the police‘s knowledge of the exculpatory value of the evidence at the time it was lost or destroyed.” 488 U.S. at 56 n.*. Suffice it to say here, moreover, that Greenberg offers no facts in support of his conclusion that the evidence was materially exculpatory, much less that the Government could have known this information. Greenberg relies heavily on the district court‘s observation, before trial, that while Greenberg‘s motion to dismiss the indictment was properly denied for failure to show bad faith, Greenberg satisfied Trombetta‘s two prongs by showing that the missing computer data had exculpatory value and that he could not obtain comparable evidence through other reasonably available means. The district court, however, did not conclude that the missing data
In sum, “the record is barren of proof that the government [failed to preserve] the evidence in bad faith.” Rastelli, 870 F.2d at 833-34. As the district court noted, the record instead reveals, at most, that the FTC in a civil action had access to computer data that was not successfully imaged on the first attempt and that a complete image was never thereafter obtained by criminal investigators. None of this suggests bad faith and thus, as the district court concluded, there is no merit to Greenberg‘s argument that he was denied a fair trial. We discern no error in this conclusion, nor in the district court‘s related determination not to hold an evidentiary hearing on the issue. See United States v. Binday, 804 F.3d 558, 593 (2d Cir. 2015) (noting that a district court‘s denial of evidentiary hearing is reviewed for abuse of discretion).
II
Greenberg next contends that the district court erred in denying his motion to dismiss the wire fraud counts in the Superseding Indictment, Counts One through Eight, because they failed to articulate a legally cognizable wire fraud scheme. Specifically, Greenberg advances the “convergence theory” of wire fraud, which, he argues, requires the party defrauded and the party injured to be one and the same. Here, Greenberg argues that because the Superseding Indictment alleged that he “lied not to the customers, but to the issuing banks and credit card processors when they confronted him with disputed charges,” there was a “lack of convergence between the intended victim of the scheme and the party deceived.” Greenberg Br. 44. We review de novo a district court‘s denial of a motion to dismiss charges in an indictment. United States v. Yousef, 327 F.3d 56, 137 (2d Cir. 2003).
The federal mail and wire fraud statutes penalize using the mails or a wire communication to execute “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.”
To that end, the wire fraud statute requires the Government to show proof of a “scheme or artifice to defraud,”
We have never read the wire and mail fraud statutes as limited to schemes in which the party whose money or property is the object of the scheme is the same party whom a fraudster seeks to deceive. Indeed, we have declined opportunities to do so. See Ideal Steel Supply Corp. v. Anza, 373 F.3d 251, 263 (2d Cir. 2004), rev‘d in part, vacated in part on other grounds, 547 U.S. 451 (2006); United States v. Eisen, 974 F.2d 246, 253 (2d Cir. 1992).
Greenberg marshals only two Second Circuit cases in support of his argument: United States v. Evans, 844 F.2d 36 (2d Cir. 1988), and United States v. Covino, 837 F.2d 65 (2d Cir. 1988). In Evans, however, although we observed that it “seems logical that the deceived party must lose some money or property,” 844 F.2d at 39, we specifically declined to adopt that proposition as an element of wire fraud. Id. at 40 (“[T]he case before us today does not require us to decide this general question.“); see also Anza, 373 F.3d at 262-63 (discussing, among other cases, Evans, and explaining that although such cases discussed the convergence theory, “[t]his Court has not held that the civil-RICO plaintiff who alleges mail fraud or wire fraud must have been the entity that relied on the fraud“); United States v. Novod, 923 F.2d 970, 974 (2d Cir. 1991), on reh‘g, 927 F.2d 726 (2d Cir. 1991) (”Evans contended in part that the property must belong to the deceived party. ... We did not reach this question ...“). And Greenberg‘s reliance on Covino is likewise inapposite, as the language he cites was in consideration of a wholly different issue—namely, whether the withholding of material information concerning breach of a fiduciary duty amounted to a deprivation of property under the statute. See id., 837 F.2d at 71-72.
Thus, in this case we join at least four sister circuits and make clear that we reject the requirement of convergence urged by Greenberg: wire fraud does not require convergence between the parties intended to be deceived and those whose property is sought in a fraudulent scheme.16 Because
CONCLUSION
For the foregoing reasons, and for those stated in the summary order that accompanies this decision, we AFFIRM the judgment of conviction.