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White Collar Litigation Update for the Seventh Circuit


 If your practice involves civil or criminal white collar matters,
the Bar Association presents these helpful summaries and practice pointers for key Court opinions.

Criminal Law and Procedure Committee

Corey Rubenstein, Chair


April 2019

Longer Sentences not Allowed for RDAP Treatment


United States v. Kopp, No. 18-3172 (April 23, 2019)


             The Bureau of Prison’s residential drug treatment program (RDAP) provides prisoners not only with the benefits of treatment but also with the incentive of early release for successful completion of the program.  However, RDAP programs – which can themselves be lengthy – typically apply only to prisoners who have received a sentence long enough to complete the program.  Sentencing courts may feel compelled to give a sufficiently long sentence so that defendants will be eligible for RDAP. 


           That is what happened in this case.  When first sentencing Kopp to 18 months incarceration, the court explained its goal of allowing

sufficient time for Kopp to participate in RDAP.  After the probation officer announced that 18 months might not be sufficient time for RDAP, the court increased the sentence to 20 months.


            The Seventh Circuit vacated the sentence, holding that rehabilitative considerations such as RDAP cannot factor into deciding the term of incarceration.  That is so, the Court held, even though the defendant herself asked for the sentencing court to recommend RDAP. 

Contract Terms can be Charged as “False Statements”


United States v. Freed, No. 17-2816 (April 22, 2019)


            Freed was convicted, in part, of making false statements to a bank in violation of 18 U.S.C. § 1014.  For the pertinent counts, Freed’s offense was not that he misrepresented objective existing or historical facts.  Rather, the “statements” alleged to have been false were operational terms of the loan agreements he signed.  One was a condition precedent to being able to draw funds from an asset.  The other term was a covenant requiring him to seek a release from a third party.  The government’s theory at trial, which the jury accepted, was that Freed had no then-present intention to meet the condition precedent or to comply with the covenant, and he thus made knowingly false statements when he signed that document.


           In what the Court observed was a case of first impression in this Circuit, it addressed whether operational contractual terms (as opposed to representations or warranties) can count as “false statements” under § 1014.  Or, put another way, the question was whether “a promise made with a present intent not to keep it” suffices for criminal liability.  Because the evidence, according to the Court, supported a finding that at the time he entered into the loan agreements Freed did not intend to abide by either the condition precedent to drawing funds or the covenant to obtain the third-party release, both were “false statements” within the statute.

No Warrant Required for Border Search of Cell Phones


United States v. Wanjiku, No. 18-1973 (March 19, 2019)


            In twin cases, the Supreme Court recently has recognized heightened protections under the Fourth Amendment for the contents of cell phones.  In Riley v. California, 134 S.Ct. 2473 (2014), the Court held that law enforcement is not justified in searching the contents of a cell phone incident to an arrest.  In Carpenter v. United States, 138 S.Ct. 2206 (2018), the Court held that a warrant based on probable cause is required to obtain historical cell site location data of a subject’s physical movements. 


            In this case, the contents of defendant’s cell phone were searched by customs agents at the airport, without a warrant or probable cause, upon his return from an overseas trip.  Discovering evidence of criminality on the phone, the government charged defendant.  He challenged his resulting conviction, arguing that the warrant requirement recognized in Riley and Carpenter should be extended to border searches of cell phones.  The Court rejected that challenge, reciting 150 years of precedent that the Fourth Amendment’s warrant requirement stops at the nation’s border.


BOP – not Court – to Decide Credit for Time Served


United States v. Walker, No. 18-2825 (March 11, 2019)


            Walker was detained awaiting trial.  During his detention, he bribed witnesses to testify falsely for him at his impending trial.  The government discovered those bribes and added charges based on that conduct.  He was convicted of the underlying charges and of witness bribery, and the court sentenced him for both offenses.  At sentencing, he asked the court to order that the time he was detained pending trial be credited against his term of imprisonment regardless of his criminal conduct while being detained.  The court declined to do so, saying that the question of time-served credits is to be decided by the Bureau of Prisons.


            Walker appealed, arguing that the sentencing court abdicated its responsibility to determine his whole sentence, including credit for time already served.  The Court disagreed, holding that Congress had specifically delegated to the Attorney General (and his delegate, the BOP) original responsibility for calculating time-served credits.  Defendant’s remedy for any apparent miscalculation was first to exhaust administrative remedies and then by filing a habeas petition in the district court. 



 February 2019

Court Rejects “Literal Truth” Defense to False Statement Charge in IRS Case


Court Rejects “Literal Truth” Defense to False Statement Charge in IRS Case

United States v. Chogsom, No. 18-1263 (Feb. 21, 2019)


          Defendant was interviewed by IRS special agents in a criminal tax investigation. The agents showed him the picture of a woman and asked him if he could identify her. He responded that her name is “Jianmei Li.” It turns out that the woman was defendant’s sister and her Chinese birth name was Brumaa Chogsom, although she went by the name Jianmei Li in the United States. On appeal from his conviction under 18 U.S.C. § 1001 for making a false statement to a federal agent, defendant argued that he could not be guilty because his answer, while perhaps misleading, was not literally false.


           The Court recognized the continued vitality of the “literal truth” defense to § 1001 charges, observing that a misleading or non-responsive answer cannot establish guilt if the answer is otherwise literally true. In this case, the Court agreed that asking a question such as “who is this?” can be ambiguous, because “Jianmei Li” was a name used by the woman in the picture, just not her actual name. Calling the case a close one, the Court nonetheless affirmed the conviction. Given the circumstances in which the question was asked, the Court held the jury was entitled to find defendant’s answer was not merely misleading, but that it was literally false – that defendant understood the question unambiguously was seeking the woman’s actual identity, not an alias.


           This decision could be seen as watering down the “literal truth” defense. By focusing the inquiry on the defendant’s state of mind (whether the defendant believed his answer was false) rather than an objective focus on the literal truth of the defendant’s answer (that “Jianmei Li” was in fact an identity of the woman), the distinction between a misleading answer and a literally false answer arguably has been blurred.

Victim-Doctor’s Lack of Computer Savvy is Basis for “Vulnerable Victim” Enhancement



United States v. Maclin, No. 18-2158 (Feb. 7, 2019)


           Defendant was convicted of embezzling from her employer, a physician named Dr. Kahn. Defendant carried out the fraud by using Dr. Kahn’s username and password to log into her billing system and causing payments from third-party payors, including Medicaid, to be redirected to defendant’s personal account. At sentencing, the district court applied the so-called “vulnerable victim” enhancement. Although Dr. Kahn was highly intelligent, well-educated, and otherwise privileged, the district court found her to be a vulnerable victim because she was computer illiterate and defendant was able to take advantage of her lack of “technological sophistication.”


  The Sentencing Guidelines define “vulnerable victim” to be “someone who is unusually vulnerable due to age, physical or mental condition, or who is otherwise particularly susceptible to the criminal conduct.” The Court affirmed the enhancement based on the last clause of that definition – holding that Dr. Kahn’s lack of computer savvy made her “otherwise” particularly vulnerable. Of course, that type of vulnerability is not akin to being elderly or disabled – the types of vulnerabilities specifically identified in the Guidelines’ definition. The Court nonetheless appears to have opened the door to the enhancement based on the particular method of the offense regardless of the victim’s general level of sophistication. Even the CEO of a Fortune 500 company could be a “vulnerable victim” if the defendant’s fraud targeted an area where the CEO lacked specific experience, education, or information. Because most frauds prey on areas where the victim’s defenses are weakest, the enhancement arguably could be applied to a broad array of white collar offenses even where one would not otherwise label the victim as vulnerable.

Court Declines to Expand Collateral-Order Doctrine


Court Declines to Expand Collateral-Order Doctrine

United States v. Henderson, No. 17-3549 (Feb. 14, 2019)


           The Court’s criminal appellate jurisdiction ordinarily is limited to review of final orders – in other words, appealing from the judgment imposing sentence. One exception is the collateral-order doctrine. But that doctrine is exceedingly narrow and has been limited to four and only four situations: (1) denial of bail, (2) double jeopardy challenges, (3) challenges under the Speech or Debate Clause, and (4) orders requiring the administration of drugs to the defendant to render her competent for trial. The defendant in this case argued that this list shouldn’t be deemed exhaustive. (Henderson was arguing about being shackled during his pretrial court appearances.)


          The Court dismissed the defendant’s appeal for lack of jurisdiction under the collateral-order doctrine. That decision is significant not primarily because of the specific issue asserted (shackling) but because the Court appeared to suggest that any challenge under that doctrine would have a high hurdle to overcome for collateral review unless it is within one of the four situations previously deemed to suffice.



Decision – Requiring Judicial Finding of Probable Cause to Obtain Cell Site Location Data
– Doesn’t Apply to a Carrier’s Voluntary Disclosure


United States v. Adkinson, No. 17-3381 (Feb. 14, 2019)



           The Supreme Court’s recent decision in Carpenter v. United States, 138 S.Ct. 2206 (2018), held that a defendant has a right against the government compelling the defendant’s cell phone company to produce data from cell sites reflecting his physical movements without obtaining a warrant supported by probable cause. In Adkinson, however, the government didn’t obtain a warrant and never attempted to establish probable cause because the cellular company, T-Mobile, voluntarily produced the defendant’s cell location data.



           On appeal, the Court held that Carpenter did not control. Because T-Mobile was not a government agent, but a private party voluntarily producing that information, there was no state action and the Fourth Amendment thus was not implicated. One unique aspect of this case was that T-Mobile was not merely a source of information; it was the victim of the alleged offense: Defendant was charged with robbing T-Mobile stores, so T-Mobile had an independent reason to provide that information to the authorities. Nevertheless, the Court’s decision did not turn on T-Mobile’s status as a victim. It was based simply on T-Mobile’s status as a non-governmental party that “voluntarily” produced the information. It would appear, therefore, that the probable cause requirement of Carpenter might now be avoided by the government persuading cellular carriers to produce information “voluntarily” rather than by some method of formal compulsion like a subpoena or warrant.



Caution to Appellate Counsel:  Court Imposes Sanctions for Failure to Append District Judge’s Oral Statements


United States v. Boliaux, No. 18-1322 (Feb. 12, 2019)


          Boliaux appealed his bank and wire fraud convictions based on the supposed insufficiency of the evidence. As in most jury trials, defendant’s counsel made a perfunctory motion under Rule 29 at the close of the government’s case for a judgment of acquittal. Also, as in many trials, the judge did not prepare a written order denying the motion but instead gave a brief oral explanation for his decision, identifying for the record some of the evidence supporting the sufficiency determination.



          Not only did the Court affirm the conviction, it took the defendant’s appellate counsel to task for failing to append to the brief a transcript of the district judge’s oral discussion of that motion. Circuit Rule 30(b)(1) requires every appellant to append to the brief a copy of any “oral ruling in the case” that addresses the issues raised on appeal. Moreover, Circuit Rule 30(d) requires counsel to certify that all materials required under Circuit Rule 30(b) are included. The Court sanctioned Boliaux’s counsel $1,600 for making what it determined was a false certification because he failed to include the transcript of the district judge’s brief remarks when the judge denied the motion of acquittal.



          This is a cautionary tale for all defense counsel, particularly because one might think that perfunctory denials of perfunctory motions like those under Rule 29, which require de novo review anyway, are not subject to the requirements of Cir.R.30(b). They would be wrong. Counsel should append the transcript of any colloquy during which the judge makes any comments on the issues under appeal.


 January 2019


Booker’s Two-Way Street:  Sentence of Twice the Guidelines Range Affirmed Despite Lack of Warning
and No Explanation for Why Guidelines Were Insufficient


  United States v. Kuczora, No. 17-2725 (Dec. 14, 2018)


           Defendant’s victims paid him millions of dollars in fees for his purported help in obtaining business financing.  In reality, his venture was a garden-variety scheme to defraud; defendant simply pocketed the fees while doing none of what he promised.  As part of his guilty plea, the parties agreed, and the sentencing judge accepted, that the applicable guidelines range was 33 to 41 months in prison.  That calculation included enhancements for the large number of victims and the high dollar amount of the scheme.  Notably, the parties and the court all agreed that the “sophisticated means” enhancement under the guidelines was not applicable. 


            The court nevertheless imposed a sentence of 70 months, more than twice the low end of the guidelines range.  The court summarily said that such a severe sentence was necessary to reflect the “seriousness and sophistication” of the offense.  The court didn’t give the defendant or his counsel pre-hearing warning that it might impose such a high sentence.  Nor did the court explain why the guidelines did not already sufficiently account for the severity of the offense or how the sentence could be enhanced for its “sophistication” when the court agreed the “sophisticated means” enhancement didn’t apply.   


            On appeal, defendant was confronted with the same obstacle that both government and defense counsel have faced since Booker:  the near-complete deference given to district courts regarding the ultimate sentences imposed.  The Court thus quickly rejected defendant’s sentencing challenges.  First, it held that the sentencing judge was not required to warn the defendant in advance that he was considering what amounted to a sentence twice the guidelines range, because Booker itself provided notice to all defendants that judges may sentence above the guidelines range, so no particular defendant is entitled to special notice regardless of the amount of the variance. 


            Second, the Court held that Booker does not require the district court to justify a sentence by reference to the guidelines, as long as the court has said it considered the guidelines.  In so concluding, the Court did not address the inconsistency between the district judge’s finding of lack of “sophisticated means” for guidelines purposes with the judge’s reliance on the supposed sophistication of the offense for imposing sentence under the statutory § 3553(a) factors.  Nor did the Court spend much time assessing the reasonableness of the district court’s large variance from the guidelines – deferring almost entirely to the judge’s individual view of what was an appropriate sentence given the facts of the case.  What this holding really means for practitioners is what we already know:  Booker goes both ways, insulating defendants who have benefitted from a judge’s leniency, while eliminating meaningful review for those who have been sentenced above the guidelines range.



Forfeiture of Proceeds from Phony Coupon Scheme Reversed


    United States v. Balsiger, No. 17-1708 (Dec. 10, 2018)


            IOS was in the business of processing “cents-off” coupons.  It acted as an intermediary between the retail grocers who accepted the coupons and the product manufacturers distributing the coupons.  The manufacturers would reimburse the grocers for products actually purchased and pay fees to intermediaries like IOS who bundled and processed them.  Defendant Balsiger was IOS’s principal and the mastermind of a scheme to defraud manufacturers by falsely representing the source of the coupons.  Particularly, Balsiger knew that manufacturers would reject 60-90% of coupons coming from small independent retailers because of concerns that many of those coupons were “gang cut” and never actually used to purchase products.  In contrast, manufacturers routinely accepted virtually all coupons coming from national grocery chains where those same fraud concerns were not present.  Because IOS was paid fees based on the volume of coupons accepted by the manufacturers, Balsiger caused invoices for small store coupons to reflect falsely that the coupons had been redeemed at large chain stores.


            Balsiger was convicted after a bench trial.  His conviction and sentence were affirmed on appeal with one notable exception:  The district judge ordered a money forfeiture based on the total dollar value of all the small store coupons that IOS submitted for payment.  The court had accepted the government’s argument that forfeiture was governed by 18 U.S.C. § 981(a)(2)(A), which applies in cases involving “illegal goods, illegal services, [or] unlawful activities.”  Under that provision, forfeiture is based on the “gross profits” from the offense.  In contrast, defendant argued that his case should have been governed by § 981(a)(2)(B), which applies in cases involving “lawful goods or lawful services that are sold or provided in an illegal manner.”  If that sub-section had applied, forfeiture would be limited to the proceeds of the offense net the costs incurred in providing those goods or services. 


The Court agreed on review that the district court misapplied the forfeiture provision for “illegal goods or services.”  The Court held that because the coupons weren’t themselves “illegal goods,” but merely redeemed in an unlawful manner (by misrepresenting their source), the forfeiture judgment should only have been based on IOS’s net profit, not on the total dollar value of all the small store coupons redeemed.



Government’s Promise of Guidelines Recommendation Not Breached When Court Finds Higher Sentencing Range than Contemplated


      United States v. Taylor, No. 18-1545 (Dec. 3, 2018)



           Defendant resolved his case by plea agreement.  The agreement reflected the parties’ mutual understanding of the applicable guidelines range, although it also stated that the range would ultimately be determined by the judge.  The government promised to recommend a sentence “within the advisory guideline range as determined by the Court.”  During the hearing, the judge rejected the parties’ guideline calculation, finding that the offense level should be two points higher.  The prosecutor then recommended a sentence within that higher guideline range instead of the lower range that the government and the defendant had predicted would apply.


            Defendant appealed, asserting the government breached the plea agreement by recommending a sentence higher than the range to which the parties had agreed.  The Court affirmed, stating that the plea agreement was clear that the parties’ guideline calculation was not binding on the judge.  Moreover, the Court noted that the government did not agree to recommend a specific sentence.  Nor did it agree to recommend a sentence within a particular guideline range.  Instead, it merely agreed to recommend a sentence within the range “as determined by the Court,” which it did.  Therefore, it complied with its obligations under the agreement.


            Of course, there is nothing that would prevent defense counsel from negotiating a sentencing recommendation with the government that is based on the parties’ agreed view of the guidelines rather than on whatever the court calculates the guidelines to be.  But that agreement was not reached here



Inconsistent Theories in Successive Prosecutions:  Seventh Circuit Again Passes on Deciding Due Process Claim


    United States v. Driggers, No. 17-2994 (Jan. 16, 2019)



           While other circuits have split on the question, the Seventh Circuit has not yet decided whether due process is offended when the government advances a theory of prosecution in one case that is inconsistent with a position it took in a previous case.  Given the opportunity to address that important issue in this case, the Court again declined to take it.


            Defendant was charged with possessing stolen firearms and being a felon-in-possession based on his purchase of guns stolen by others during a train robbery.  One of the key witnesses against defendant was his one-time co-defendant, who pleaded guilty before trial.  The co-defendant testified in defendant’s trial that defendant acted as a fence and sold the guns to him.  Yet, the co-defendant’s plea agreement with the government inconsistently stated that he received those same guns directly from the train robbers, without mentioning defendant’s involvement.


            Defendant asserted that he was deprived of due process because the government’s theory of prosecution in his case was directly inconsistent with the theory of prosecution it advanced in his co-defendant’s case.  The Court noted that the government was unable to explain how those two conflicting positions could coexist, saying “we are at a loss to reconcile them.”  The Court also observed that other circuits are “split on the question whether the prosecution’s use of inconsistent theories in multiple prosecutions violates due process.”  Nevertheless, the Court decided to “take a pass here” because it concluded that defendant was not prejudiced by the government’s actions, particularly because defendant was acquitted of the stolen firearms charge and only convicted of the felon-in-possession charge, which did not depend on the co-defendant’s testimony.  But the case may be an invitation to counsel that the issue is ripe and the Court would be willing to address a due process challenge for inconsistent prosecutions under the right circumstances.


November 2018

Longer Sentences for Chicago-Based Defendants is Justified, Court Holds



     United States v. Hatch, No. 18-1282 (Nov. 29, 2018)


            Defendant was convicted of trafficking firearms in Chicago.  The Sentencing Guidelines called for a period of incarceration between 30 and 37 months.  The district judge sentenced him to 55 months – almost 50% longer than the high end of the range.  The judge justified the above-Guidelines sentence because of Chicago’s peculiar problem with crime, particularly gun violence:  “[The] Guidelines as they are structured today [don’t] adequately reflect the seriousness of this particular type of offense as it relates to this geographic area.”  Defendant appealed his sentence, in part, because of what he viewed to be the district court’s improper emphasis on the geographic location of his offense, rather than on his individual conduct and personal characteristics.


            The Court affirmed, holding that “locality-specific” factors may justify an above-guidelines sentence.  Chicago’s “rise in local crime made the offense more serious” than what the Guidelines contemplated.  While this case involved gun violence, the Court’s opinion could be used to justify above-guidelines sentences for white collar offenses committed in the Chicago-area.  For example, one could imagine a district judge enhancing public corruption sentences for Chicago-based politicians merely based on the general history of corruption in Illinois.  



Mortgage Fraudster’s Guilty Plea Stands Despite Court’s Failure to Advise of Multi-Million Dollar Forfeiture


     United States v. Austin, No. 16-3211 (Oct. 29, 2018)


            Defendant was charged with a multi-year mortgage-fraud scheme involving dozens of loans totaling millions of dollars.  In the middle of trial, he decided to plead guilty without a written plea agreement.  The district court held a plea colloquy, as required by Rule 11, during which the defendant was advised that he was waiving his trial rights, was informed about the maximum period of incarceration he could receive, and was told that the Sentencing Guidelines would be considered at sentencing.  He was not told that his sentence would include an order requiring him to forfeit the millions of dollars in proceeds of his offense or assets he acquired with those proceeds.  At sentencing, in addition to incarceration of 144 months, the court ordered forfeiture of $4,374,070 in cash and other of defendant’s assets.


            On appeal, defendant argued that he was deprived of his right under Rule 11(b)(1)(J) to be informed of “any applicable forfeiture” prior to having his guilty plea accepted.  The government did not contest that Rule 11 was violated.  Nevertheless, because defendant did not raise the Rule 11 issue at the time of sentencing, the Court reviewed it only for plain error.  Finding no basis to conclude that defendant’s decision to plead guilty would have been different if he had been advised of the potential forfeiture, the Court rejected that challenge to his conviction. 

Blanket Appellate Waiver Again Affirmed


  United States v. Bolin, No. 18-2208 (Nov. 7, 2018)


            Defendant entered into a written plea agreement containing the government’s standard appellate waiver.  The broad language provides that a defendant waives his right to a direct appeal of “all provisions of the guilty plea and sentence imposed.”  At sentencing, the court imposed what it called “an additional special assessment of $5,000,” separate and apart from the mandatory $100 special assessment.  The court gave no reason for imposing that additional monetary amount and failed to address defendant’s status as an indigent.


Defendant appealed the $5,000 additional assessment.  He argued that because monetary assessments were not explicitly referenced in the appellate waiver, he was not foreclosed from challenging them on appeal.  The Court disagreed.  Although not itemizing each part of the judgment order, the waiver specifically encompasses “all provisions of the sentence imposed,” which would include any monetary aspect, including an assessment. 


iPhone Screen Notifications Not Protected by Fourth Amendment   


      United States v. Brixen, No. 18-1636 (Nov. 7, 2018)


            We’ve all had it happen:  You’re sitting in a public place with your iPhone on the table when a text message or other notification pops up.  Maybe you don’t care.  But maybe you do because it’s about something you’d rather not share with the general public.  Well, then, you’d be smart to keep the phone in your pocket. 


            Brixen wasn’t that stupid.  When he was on his way to meet someone he thought was a teenage girl with whom he had been Snapchatting, he kept his phone in his pocket.  It turned out that he was walking into a sting, and the “girl” was an undercover officer.  Incident to his arrest, the officer confiscated Brixen’s iPhone and then sent a Snapchat to him, which popped up on his iPhone’s lock screen – proving that he was the same person who had been communicating with the “girl.”  Brixen moved to suppress that evidence as constituting an unreasonable search of his cell phone under the Fourth Amendment.


The Court affirmed the district court’s denial of Brixen’s motion.  It concluded that the officer’s actions did not amount to a search of the iPhone, and thus the Fourth Amendment was not implicated.  In so holding, the Court found decisive the fact that the officer “did not open or otherwise manipulate” the cell phone or attempt to retrieve any content or information from “within the phone.”  Because the phone’s internal content “was not affirmatively accessed by law enforcement officers, no search occurred.”


Restitution to Family of Defendant’s Co-Conspirator is Allowable


 United States v. Price, No. 17-3077 (Oct. 19, 2018)


            A defendant may be ordered to pay restitution to “any person directly harmed by the defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern” of his offense.  18 U.S.C. § 3662(a)(2).  However, no participant in defendant’s offense can be considered a victim for purposes of restitution.  Id., § 3663(a)(1)(A).  Here, during the course of their conspiracy, defendant murdered one of his mates.  The district judge at sentencing imposed an $11,000 restitution order in favor of the decedent’s wife for expenses arising from his death.


            Defendant appealed, arguing that restitution couldn’t be ordered to the family of a co-conspirator for losses deriving from events pertaining to that person’s involvement in the conspiracy.  The Court disagreed.  While a co-conspirator is not entitled to restitution, family members may be.  The question is whether the losses to the family members are purely derivative of the losses to the co-conspirator, or whether the family members have suffered independent losses.  Here, the Court held it was the latter:  the decedent’s wife was independently victimized by the defendant’s murder of her husband.  She was not merely seeking restitution for harm done to her husband. 

August 2018


Mailing Sent Eight Years after Thefts Supports Fraud Conviction;
No Credit for Acceptance of Responsibility Despite Defendant’s Admission of Thefts at Trial 


United States v. Stochel, No. 17-3576 (Aug. 27, 2018)

          Defendant abused his position as a court-appointed receiver to live large.  His embezzlements of hundreds of thousands of dollars from the receivership’s coffers were completed by November 2006, when there was nothing left to steal.  He was indicted for mail fraud almost ten years later in March 2016.  To be within the five-year statute of limitations, the indictment charged a mailing that defendant sent in 2012:  a court filing (sent by U.S. mail) falsely representing that the receivership still had a small amount of money in its bank account.  At trial, defendant acknowledged his wrongdoing.  His sole defense was lack of timeliness of the charge, that his underlying fraud was completed more than five years before he was indicted.

          The jury rejected defendant’s statute-of-limitations defense, and defendant fared no better on appeal.  Although his thefts were completed in 2006, the Court found that defendant’s false mailing in 2016 was in furtherance of that scheme because it “lulled” his victims into a “false sense of security.”  The Court’s holding reaffirms that even though the primary object of a fraud scheme (the defalcations) has been completed, the scheme may be ongoing if it has as another object the concealment of that primary goal.

          What the Court’s opinion doesn’t address is whether there are any outer limits to how long a scheme to defraud can be “held open” because of the potential for some later act of concealment.  The eight-year lapse here between the completion of the primary goal of the scheme and the later act of “lulling” was within those limits, according to the Court.  It is not clear whether a longer lapse of time, say 15 or 20 years, would have made a difference to the ruling.

          Defendant also challenged his sentence because the district court refused to give him credit under the Guidelines for acceptance of responsibility.  Because he acknowledged the facts concerning his offense, including that he wrongfully stole the receivership money, and he went to trial to assert the technical defense under the statute of limitations, defendant argued he was entitled to that sentencing reduction.  In rejecting that challenge, the Court found that defendant contested an “essential factual element of guilt” – namely, that his mailing was not in furtherance of the fraud – so that he cannot be said to have accepted responsibility for his guilt.


Cash-for-Referrals to Marketer of Home Health Care Services Supports AKS Conviction



United States v. George, No. 17-1714 (Aug. 14, 2018)  

             The Anti-Kickback Statute prohibits any person from being compensated for patient referrals, at least where those services are paid for by Medicare or another federal health program.  In this case, the Court reaffirmed that “any person” truly means “any person” – the Act is not limited to referrals made by health care providers.

          George owned and operated a marketing company focused on home health care services.  She was not a doctor, nurse or other kind of health care provider.  Through her company, she entered into a consulting contract with Rosner Home Health Care to organize health fairs and engage in other outreach to find potential patients for Rosner.  Before any patient could utilize Rosner’s services, an independent doctor had to examine him and certify that patient as qualifying for home care.  There was no allegation that any doctors were corrupted or unlawfully compensated for those certifications or that any of the patients were not actually eligible for home health services.

          Up to that point, all would have been fine for George.  There is nothing unlawful about an outside consultant marketing a home health care company’s services or being paid for that work.  But that compensation cannot be in the form of per-patient referral payments.  George’s compensation was.  Particularly, she was paid $500 per patient, sometimes in cash.  If she instead had been paid on a flat fee basis for her marketing work rather than linking the payments to the successful referral of patients, she would have committed no crime.

          Notwithstanding her cash-per-patient remuneration, George argued that marketers should not be deemed within the scope of the Anti-Kickback Statute because a marketer isn’t a decision-maker concerning the patient’s care.  In her case, each patient was certified for those services by an independent doctor, and she had no ability to influence the decision.  Nor was she herself a referring health care provider.  The Court rejected that argument, holding that the Act is not limited to payees who are providers or are in a position to influence the provision of services.  Instead, the Court reaffirmed prior decisions stating that the Act applies to “any person” who receives payment for referring


Good Faith Exception Guts Supreme Court’s Carpenter Ruling for Pending Cases


United States v. Curtis, No. 17-1833 (Aug. 24, 2018)

           The Supreme Court’s recent decision in Carpenter v. United States, 128 S. Ct. 2206 (2018), held that the warrantless collection of a person’s cell phone location data violates the Fourth Amendment.  In that case, as in Curtis, the government obtained court orders under the Stored Communications Act that required the target’s cell phone carrier to provide data reflecting the approximate location of the subscriber’s cell phone at various times.  Carpenter addressed whether the procedures under the SCA, which did not require a finding of probable cause, were consistent with the Fourth Amendment.  The Supreme Court found they were not, and it remanded the case to determine the appropriate remedy for the constitutional violation.

            As the Court observed here, Curtis is indistinguishable from Carpenter.  Curtis’s cell phone location data was obtained in violation of his Fourth Amendment rights.  But the Court still needed to address the issue left unresolved by Carpenter:  what remedy, if any, exists.  Normally, the exclusionary rule would have required his conviction to be vacated because the unlawfully-obtained evidence was used at his trial.  The Court instead held that the good-faith exception to the exclusionary rule applied because the government reasonably relied on a then-valid statute in obtaining that evidence.

           Nor did the Court accept the defendant’s argument that applying the good-faith exception in this manner would have a chilling effect on parties from bringing Fourth Amendment challenges in the first place.  The Court noted that defendants routinely make Fourth Amendment challenges to existing statutes notwithstanding the risk that the good-faith exception may apply.  The bottom line:  Only post-Carpenter use of warrantlessly-obtained cell phone location data can be remedied.

Eert Disclosures Under Rule 16 Deemed Insufficient but Har


Expert Disclosures Under Rule 16 Deemed Insufficient but Harmless 



 United States v. Williams, No. 18-1002 (Aug. 15, 2018)

           The government gave pre-trial written notice that it intended to call an FBI agent as an expert witness about the industry in which defendant was charged with participating, the sex trade.  The notice broadly listed the topics on which the FBI agent would testify, including “the recruiting process” and “the methods used to advertise sex services.”  As the government emphasized on appeal, the notice made clear that the FBI agent would not be providing expert opinions, but merely “background and educational” information.

Defendant’s appeal asserted that the disclosure was insufficient under Rule 16(a)(1)(G), which requires a “written summary” of the expected testimony.  Although the notice itemized the topics on which the agent would testify, it did not reveal what the agent would say about those topics.  The government responded that the notice was sufficient because the agent was not intended to offer opinion testimony.  The Court disagreed, holding that the rule’s requirement of a “written summary” means the same thing for non-opinion experts as it does for experts who would offer opinions.  The Court nonetheless affirmed the conviction because the defendant suffered no prejudice from the inadequate disclosure

July 2018

Fraud Loss Tables Upheld as Reasonable


United States v. Moose, No. 16-3536 (June 27, 2018)


            Defendant pleaded guilty to an investment fraud scheme.  As is typically the case, defendant’s guidelines sentence was primarily determined based on the calculated dollar “loss” to his victims.  What’s interesting about this case is not how that loss was calculated, but that defendant challenged the loss tables themselves.  He argued that the guidelines enhancements for fraud loss amounts are “inherently unreasonable.”  Defendant specifically challenged the “lack of any empirical data” to prove that the graduated enhancements under the loss tables actually deter white collar criminals.


However, as the Court held, deterrence is not the only, and perhaps not even the primary, goal of sentencing.  The retributive purposes of punishment are equally important and themselves support the guidelines’ graduated enhancements for loss.  Moreover, because the loss tables are rationally based on the Sentencing Commission’s “institutional experience,” they do not need “robust empirical support” to survive scrutiny.

NCAA Defeats Players’ Antitrust Challenge for “Year-in-Residency” Requirement


Deppe v. National Collegiate Athletic Association, No. 17-1711 (June 25, 2018)


          When a Division I student-athlete wishes to transfer to another school, he can do so.  But for a year afterward, that student cannot also be an athlete.  The NCAA bars him from participating in his sport under what has been called the “year-in-residency” requirement.  This class action brought on behalf of Division I football players alleged an antitrust violation under Section 1 of the Sherman Act.  The players claimed that the residency requirement unreasonably restrained the ability of universities to compete for each other’s players. 


          The complaint was dismissed on the pleadings, and the Court affirmed the dismissal on appeal.  The Court held that because the year-in-residency rule is an eligibility requirement, it is presumptively pro-competitive.  In particular, the Court found it important that without the rule, college athletes could effectively be traded (presumably, self-traded) year-to-year, or even in the middle of a season, which would “risk severing the athletic and academic aspects of college sports.”  Rules like the residency requirement, according to the Court, are designed to preserve the “amateur character of college athletics,” and thus don’t run afoul of the Sherman Act.

Cell Phone Location Warrant Requirement under Carpenter in not Retroactive


United States v. Thomas, No. 17-1002 (July 26, 2018)

          The Supreme Court recently held in Carpenter v. United States, 137 S. Ct. 2206 (2018), that a warrant is required for the government to obtain a subscriber’s cell phone location data from his wireless carrier.  In Thomas, the government obtained the defendant’s historical location data without a warrant.  Thomas was tried and convicted prior to Carpenter, and his counsel never sought to suppress that evidence based on the lack of a warrant.  He nevertheless sought to assert the issue on appeal.

          The Court rejected his belated challenge, finding no good cause existed for the failure to raise the issue before or during his trial.  The fact that Carpenter had not yet been decided by the Supreme Court, or that a circuit split existed on the question, did not constitute sufficient cause for his counsel’s failure to raise the issue earlier.  In reaching that decision, the Court also implicitly held that the Carpenter decision should not be applied retroactively.

Appellate Waiver in Plea Agreement Covers Restitution


United States v. Perillo, No. 17-3436 (July 30, 2018)

           In exchange for the government’s concessions on charges and guidelines calculations, Perillo agreed as part of his guilty plea to waive his right to appeal his sentence and conviction under certain circumstances.  The standard language in the Southern District of Indiana’s agreement provides that the defendant waives his “right to appeal the sentence” as long as he is sentenced within or below the advisory guideline range as determined by the district court.  Notwithstanding that provision, defendant sought to appeal the amount of his restitution, arguing that restitution was not part of “the sentence” and was not explicitly referenced in the waiver.

            The Court disagreed and dismissed the appeal.  Because the defendant was not given an above-guideline sentence, the terms of the waiver precluded appeal of any aspect of the sentence, not just the term of incarceration.  Restitution is a part of the sentence, so the fact that it was not specifically mentioned in the waiver did not matter


May 2018


Former Congressman’s Challenge under Rulemaking Clause Rejected as Premature

     United States v. Aaron Schock, No. 17-3277 (May 30, 2018)

     Forever to be known as the “Downton Abbey” Congressman, Aaron Schock was charged with mail and wire fraud for misusing funds as a U.S. House Member.  Most famously, he lavishly decorated his congressional office in the style of the hit PBS show and then allegedly concealed those expenditures.  Schock moved to dismiss the indictment.  His primary argument was that criminal charges brought by the executive branch to be tried by the judicial branch are prohibited by the Rulemaking Clause of the Constitution, which gives the House of Representatives exclusive authority to determine its own rules.  According to Schock, an Article III judge is prohibited from interpreting ambiguous House rules enacted under that constitutional provision, including those rules that govern when expenses are deemed reimbursable. 

     He filed this interlocutory appeal after the district court denied his motion to dismiss.  Although the Seventh Circuit’s opinion raises serious questions about the merits of his argument, it did not reject his appeal for those reasons.  The Court instead held that it was premature.  Even if the Rulemaking Clause might later require a conviction to be vacated, that clause does not provide immunity from having to stand trial in the first place.  Unlike the Speech or Debate Clause, which protects an individual legislator from having to face an indictment at all, the Rulemaking Clause does not provide for a legislator’s personal immunity from trial, but rather establishes the allocation of authority among the branches of government.  The lack of personal immunity meant that an interlocutory appeal was improper.  The Court nevertheless concluded:  “If Schock is convicted, he may assert his Rulemaking Clause arguments on appeal from the final decision.  Similarly, he may argue that the Rule of Lenity prevents conviction if the House rules about reimbursement are genuinely ambiguous as applied to his situation.”


Is there any Fraud anymore that does Not Involve “Sophisticated Means”?

      United States v. Redman
, No. 17-1357 (April 17, 2018)

      United States v. Peterson, No. 17-2062 (May 29, 2018)


      In a pair of recent cases, the Court has again rejected challenges to the application of the Guidelines enhancement for the use of “sophisticated means” – continuing the trend in setting a very low bar for when conduct is deemed “sophisticated.”  Each decision focused on the defendant’s creation of false documents as creating the necessary level of sophistication.  In Redman, the defendant’s offense was posing as a psychiatrist, which he accomplished by downloading and printing fake credentials from public websites.  In Peterson, the defendant committed mortgage fraud by providing the bank a letter falsely stating that the funds for the down payment were a gift from the borrower’s aunt. 

     The Court held in each of them that the offense went beyond a “simple” fraud because of the use of the false writings.  The fact that those documents were the gravamen of the offenses – they were the fraud, in essence, and no offense could readily have been committed without them – did not convince the Court that application of the sophisticated means enhancement was improper.  Instead, the Court again appears to say that any conduct that goes beyond the simplest, narrowest definition of a hypothetical offense would justify the enhancement.


“Collective” Knowledge Cannot Establish Organizational Liability

     Mimms v. CVS Pharmacy, Inc.
, No. 17-1918 (May 9, 2018)


     It is axiomatic that corporations can act only through their agents and can “know” only what their agents know.  Similarly, corporations are liable for criminal offenses undertaken by their officers or employees within the scope of their employment.  Corporate fraud and other organizational offenses typically require that the entity has acted “knowingly.”  But what does it mean for a non-natural person, such as a corporation, to act with knowledge?  If Employee A knows something, is that knowledge imputed to Employee B (and to the corporation) for purposes of her actions, even if Employee B did not have actual knowledge of that fact?

     In this civil defamation case, the Court held that the answer is, no.  The plaintiff, Dr. Mimms, is a pain management physician who prescribed narcotics to his patients.  On several occasions, CVS’s pharmacy employees told those patients that they couldn’t fill those scripts because Dr. Mimms either had been to jail or was going to be arrested soon.  Those statements were false, although the employees who made them believed them to be true.  An element of the defamation claim was actual malice, which required proof of knowledge of the falsity.  The issue on appeal was one of collective knowledge:  whether the fact that other employees in CVS knew that Dr. Mimms was not the subject of a criminal investigation was enough to establish CVS’s liability for defamation even though the speakers of the statements did not know those statements to be false.  The Court held that “it is the state of mind of the speaker that is relevant,” and that another employee’s knowledge cannot be imputed to her for purposes of establishing the employer’s liability. 

     This civil holding may be relevant in criminal cases where corporate knowledge is a requirement.  For example, in a criminal False Claims Act investigation based on an employee’s misrepresentations to a government agency, the question would be whether that particular employee knew of the falsity or whether the company merely had “collective knowledge” that the representation was false.  It appears that the latter would not be sufficient to satisfy that element of the offense.


Government’s Use of Cell-Site Simulator is OK

     United States v. Sanchez-Jara
, No. 17-2593 (May 3, 2018)

     Also called a “stingray,” a cell-site simulator is an electronic device used by investigators to locate a subject’s cell phone.  The device acts like a cell tower, sending out signals that prompt cell phones in the vicinity to ping back information identifying themselves.  The information gathered by the stingray only contains the relative location of the cell phone; none of the phone’s contents or other data is revealed.  This technique is used to provide investigators with real-time information on a subject’s location and movements, much like a GPS device attached to the subject’s car.

      Defendant challenged the government’s use of the stingray in his case, which was used to locate him and ultimately drugs and guns in his possession.  He argued that the warrant the government obtained was inadequate because it was not sought under the wiretap statutes.  It was instead obtained under 18 U.S.C. §2703(d), which allows for the interception of limited cell-phone information, such as numbers called. 

     The Court affirmed.  It found that a warrant under the wiretap statutes was not necessary because the cell-site simulator did not intercept the contents of the cell phone or calls placed on it.  Issuance under §2703(d) was sufficient because the warrant allowed for interception of other cell phone information, including location data.


Defendant’s Physical Presence at Change of Plea is Non-Waivable Requirement

     United States v. Bethea, No. 17-3468 (April 26, 2018)

     Federal Rule of Criminal Procedure 43(a) states that “the defendant must be present at . . . the initial appearance, the initial arraignment, and the plea.”  Fed.R.Crim.P. 43(a) (emphasis added).  The rule allows for certain exceptions, mainly for sentencing hearings.  Defendant entered into a plea agreement with the government.  Due to serious health issues, he asked to appear by videoconference at his combined change of plea and sentencing hearing.  On appeal, he nevertheless asked for the judgment to be vacated because his plea was not taken in person.

     The Court agreed and remanded.  While observing that it would be sensible to allow the district court discretion to handle change of plea hearings by videoconference, particularly when a defendant’s health is at issue and the defendant himself has asked for that accommodation, the Court held that Rule 43 simply doesn’t provide for that flexibility. 


March 2018
Bank’s Alleged Part in Loan Fraud Scheme Not Basis to Reduce Defendant’s Sentence

United States v. Tartareanu, No. 17-2759 (March 8, 2018)


            The defendants were convicted of a mortgage fraud scheme involving the recruitment of unqualified buyers of residential properties.  Their original sentences were vacated and remanded because they included restitution orders in favor of Bank of America, which the Court concluded was not truly a “victim” for purposes of restitution.  Specifically, the Court found that the bank was either reckless or deliberately indifferent to the scheme and, therefore, not entitled to restitution for the loan losses.  On remand, defendants argued that the logic for excluding Bank of America’s losses from restitution applies to calculating loss under the Guidelines for purposes of determining the sentence.

            The district judge disagreed, and the Court affirmed.  In a loan fraud scheme, “intended loss” under the Guidelines is based on the amount of money the defendants intended to place at risk.  The lender’s alleged culpability in the fraud, according to the Court, is not material to the analysis.

In-Court Identification of White Collar Defendants Not Essential


       United States v. Armenta, No. 17-2296 (March 5, 2018)

            Defendant went to trial health care fraud charges.  Although the government presented numerous witnesses in its case-in-chief, including many who knew defendant personally, it did not ask any of them to identify her in court.  At the close of the government’s case, she moved for a judgment of acquittal based on the lack of an identification, which the district court denied.

            The Court affirmed, holding that an in-court identification is not essential in fraud cases where the jury could reasonably infer “from the circumstances” defendant’s identity beyond a reasonable doubt.  That defendant’s name is the same as the indicted person and was referred to by witnesses and in documents submitted in evidence, and that none of the witnesses suggested that this person was not in the courtroom, were significant to the Court.  Perhaps more important to the holding, however, was that defendant’s lawyer did not raise a misidentification defense.  The Court did not explain how that rationale squares with the government’s burden of proof or with the defendant’s right to not present any evidence whatsoever.  Indeed, the Court implicitly acknowledged that conflict by stating that “an in-court identification of the defendant is preferred to prove identity.”

Brady Violation for Failure to Disclose Witness was Subject of Prior Investigation

United States v. Ballard, No. 17-2640 (March 19, 2018)

            A day after the jury returned a guilty verdict for bank fraud, Ballard’s lawyer learned that one of the government’s many witnesses had been the subject of a prior FBI undercover probe.  The government possessed undisclosed recordings of that witness reflecting his involvement in unrelated criminal conduct.  Although that evidence was not directly exculpatory of the defendant, it was clearly impeaching of the witness’s credibility – that is, his bias toward the government for getting a pass for those separate offenses.  The trial court granted defendant’s motion for a new trial. 

            The government appealed, arguing that the lack of disclosure was immaterial because the evidence was simply impeaching, rather than exculpatory, and cumulative because numerous other witnesses established Ballard’s guilt.  The Court rejected that argument, and instead deferred to the district judge who “is best equipped” to determine whether that single witness’s testimony was sufficiently important that the inability to impeach him deprived defendant of a fair trial.

Defendant’s Plea to “Dates of Scheme” is Not Conclusive for Sentencing

 United States v. White, No. 17-1131 (March 2, 2018)

           White pleaded guilty to a wire fraud scheme originated by others.  In fact, having been in prison for the first year of that scheme, he was a late-joining participant.  But parroting the indictment, he acknowledged in the factual basis to his plea agreement that the scheme lasted for four years, including the year he was in custody:  “Beginning no later than in or around the fall of 2009 and continuing until at least in or around the summer of 2013 . . . VANCE WHITE . . ., together with other individuals, . . . [engaged in the scheme to defraud].”  Based on that admission, the district court found him responsible for the losses occurring during the entirety of the scheme, even though he did not actually join the scheme until late 2010 after his release from custody.

            The Court vacated his sentence because of the incorrect calculation of loss under the Sentencing Guidelines.  It found that a defendant’s admission in a plea agreement regarding the dates of a scheme or a conspiracy does not conclusively establish his participation during that entire time, and it therefore is not sufficient to attribute to him all losses arising from that scheme.  Although defendant admitted that the scheme lasted for four years and that he was a part of the scheme, he did not admit that he was involved for the entire four years. 

            The Court also rejected the government’s argument that the error was harmless because the sentence was below the wrongly-calculated Guidelines range.  Although the Court again encouraged district judges to state at sentencing whether a “tricky” guideline issue would make a difference to the ultimate sentence, thus making any error harmless, the judge here did not do so.

February 2018

  Whistleblower Protections Limited in Three Recent Cases



         Verfuerth v. Orion Energy Systems, Inc., No. 16-3502 (Jan. 11, 2018)

      Digital Realty Trust, Inc. v. Somers, 583 U.S. ____ (2018)

      Martensen v. Chicago Stock Exchange, No. 17-2660 (Feb. 20, 2018)

     In the Dodd-Frank and Sarbanes-Oxley Acts, two of the most important Wall Street reforms in the last 70 years, Congress included incentives and protections for insiders to blow the whistle on colleagues committing fraud or breaking the securities laws. Three court opinions published in the last month – two in the Seventh Circuit and one Supreme Court case – have clarified that those protections are not as broad as might have been believed.

     The purported whistleblower in Verfuerth was the company’s CEO. When the board of directors fired him after he brought numerous concerns about corporate practices to the board’s attention, he claimed anti-retaliation protection under SOX. The Seventh Circuit rejected his claim because he neither blew the whistle to a governmental agency nor to someone who could be deemed his “supervisor.”

     Since then, the Supreme Court decided a similar question in Digital Realty Trust. The Court construed the scope of the anti-retaliation provisions of Dodd-Frank to be even narrower than the recently-narrowed scope of those provisions under SOX in Verfuerth. In resolving a circuit split, the Court held that the Dodd-Frank protections apply only to whistleblowers who report their concerns directly to the SEC. Reports made to internal supervisors are not enough to trigger those protections.

     Finally, in Martensen, the Seventh Circuit addressed a related issue: whether causation is a requirement of the anti-retaliation provisions of Dodd-Frank. The plaintiff in that case was a compliance supervisor at the Chicago Stock Exchange. Unlike the claimants in the other two cases, Martensen reported the suspected misconduct directly to the SEC before he was fired. However, Martensen acknowledged that his firing was not based on the report to the SEC, but on an unrelated internal complaint he subsequently filed with the Stock Exchange itself. The Seventh Circuit rejected his argument that his prior report to the SEC conferred “whistleblower status” on him so that he couldn’t be fired for any subsequent internal reports that he did not also make to the SEC. The Court specifically held that although the statute does not have an explicit causation requirement, it is inherent to the concept of retaliation.

Health Care Fraud: Low Chance of Detection Justifies Increased Sentence


      United States v. Brown, No. 15-3117 (Jan. 19, 2018)

     Brown was sentenced to 87 months imprisonment for defrauding Medicare. He and his co-conspirators falsely billed for home healthcare services for patients that were not qualified for those services, were dead, or otherwise did not receive the services claimed. The district court justified the length of the sentence because of what the court believed was the enhanced need for general deterrence of white collar crimes. The district court particularly believed that the low likelihood of getting caught for health care fraud compelled a higher sentence than might otherwise be required. Defendant challenged that justification on appeal. He argued that the district court relied on an “unfounded assumption” that would-be white-collar criminals engage in a cost-benefit analysis in deciding whether to engage in illicit activities.

     The Court affirmed Brown’s sentence, accepting the district court’s rationale that the goal of general deterrence allows a sentence to be increased against a particular defendant in order to make the calculus of future would-be offenders more difficult. The Court did not directly respond to the defendant’s argument that no evidence exists to support that premise. Instead, the Court accepted that the belief in the efficacy of general deterrence – especially in white collar cases – is fundamental to the criminal justice system. No actual empirical data or other evidence is necessary to justify a sentence based on that goal.

Probation Sentence Overturned in Blow to Booker


      United States v. Henshaw, No. 17-1628 (Jan 18, 2018)


     Henshaw’s sentencing range under the advisory guidelines for his drug offense conviction was 151 to 181 months. That calculation was enhanced largely because of his criminal history. The district court nonetheless sentenced defendant to probation, citing his minimal role in the offense, his mitigating personal characteristics, and the draconian consequences of the convictions for non-violent conduct. In doing so, the district court relied on its discretion under Booker to reject the advisory guidelines.


     On the government’s appeal, the Court found the sentence of probation to be substantively unreasonable. In particular, the Court found that a probationary sentence was insufficient given defendant’s recidivism and the need for specific deterrence. Because such a departure from the advisory guidelines constituted what the Court held was an abuse of discretion, it vacated and remanded for re-sentencing.

No Right to Present Live Character Witnesses at Sentencing


      United States v. Cunningham, No. 16-3543 (Feb. 21, 2018)


     Submitting “character letters” at sentencing in aid of mitigation has often been used by defense counsel to great effect. Especially in the post-Booker era, humanizing the defendant and giving the judge a picture of the client’s lifetime of good conduct is essential to leading the court to view the defendant as a whole person and not just the person who committed the offense. Character letters have been a routine aspect of that effort. Less frequently, defense counsel have sought to present live witnesses to testify at sentencing about the defendant’s character


     Here, the Court held that there is no right to present live character witnesses during sentencing proceedings. The right of allocution (the defendant’s right to speak on his own behalf) does not encompass a right to live testimony from others. Nor does the right to present character witnesses during trial extend to presenting them at sentencing. Of course, the district court may exercise its discretion to allow such testimony during the penalty phase, but no rule requires it.

December 2017

Bank Employee Whistleblower Not Entitled to Recovery for FDIC Receiver Claims


  United States ex rel. Conner v. Mahajan, No. 17-1162 (Dec. 5, 2017)


            Kenneth Connor brought qui tam claims under the False Claims Act, in the government’s name, against the officers and directors of Mutual Bank.  Connor was a bank employee whose job involved reviewing property appraisals.  In that role, he uncovered a scheme by the bank’s principals to obtain inflated appraisals.  One apparent effect of the scheme was to reduce the bank’s FDIC insurance premiums, because premiums are rated, in part, on the value of the appraised collateral held by the bank.  The alleged damages under the False Claims Act included the underpayment to the FDIC of premiums based on those inflated appraisals.  After the government declined to intervene in the case, Connor entered into a lump sum settlement with the defendants – a portion of which was paid to the FDIC and a portion to him as the whistleblower.


            Mutual Bank failed in the meantime.  The FDIC stepped into its shoes as receiver and brought a separate case for breach of fiduciary duty against many of the same defendants from Connor’s case.  When the FDIC receiver settled those claims, Connor claimed that he was entitled to yet another bounty from that case.  His two-front approach was first to seek to consolidate the FDIC receiver’s case with his, and, when that failed, to move to intervene in the FDIC receiver’s case.  Both efforts were rebuffed at the district court level:  Connor’s qui tam claims were brought on behalf of the FDIC as a direct victim of the defendants’ misconduct.  In contrast, the FDIC receiver’s claims were brought on behalf of the now-defunct Mutual Bank based on the defendants’ wrongful breaches of duty to the bank, not on behalf of the FDIC itself.  Therefore, Connor was not entitled to a qui tam award for the recovery obtained by the FDIC receiver.  On appeal, the Court held that the doctrine of claim preclusion barred Connor from relitigating the issue in his own case.



No “Manager-Supervisor” Sentencing Enhancement for Isolated Conduct


 United States v. Collins, No. 15-1998 (Dec. 12, 2017)


            The Sentencing Guidelines provide for a two-level upward adjustment if the defendant was an “organizer, leader, manager, or supervisor in any criminal activity.”  See U.S.S.G. §3B1.1(c).  The defendant was convicted of a series of narcotics offenses.  In one of them, he asked another dealer to assist by delivering the drugs and taking payment.  At sentencing, the court concluded that the aggravating role enhancement applied because the defendant directed the other dealer’s actions.


            The Seventh Circuit vacated the sentence, finding the enhancement to be erroneously applied.  Defendant’s “isolated, one-time request to another independent dealer to cover for him on a sale did not make him a supervisor or manager within the meaning of the guideline.” 


            This decision may be useful to defense counsel in white collar conspiracy or scheme-to-defraud cases where the client may have given direction to a co-conspirator or co-schemer.  An aggravating role enhancement may be avoided by demonstrating that the client’s instruction to another was an isolated event rather than an essential part of the client’s role in the conspiracy.



No Remedy for Judge’s Violation of Rule 11 Plea Negotiation Bar


Williams v. United States, No. 16-3715 (Jan. 3, 2018)


            Rule 11(c)(1) of the Federal Rules of Criminal Procedure prohibits the trial judge from participating in plea negotiations between the government and the defendant.  The judge in this case failed to abide by that prohibition.  In response to hearing the government’s proposed plea agreement, the judge told the defendant that the deal was “exceedingly fair” and “[o]nly a fool would refuse it.”  Predictably, the defendant took the deal and pleaded guilty.


            When the defendant later sought to set aside his guilty plea under Rule 11, the government confessed error and the Seventh Circuit also found that the district court violated the rule.  Yet, the Court held that a violation of the rule does not require the guilty plea to be set aside.  Such a remedy is required only if the violation also amounts to a deprivation of due process.  And that only occurs when the judge’s participation in plea discussions is so “coercive” as to make the defendant’s guilty plea “involuntary.”  Because the defendant could not establish coercion, the Court affirmed the denial of his petition.


            But the due process tests of coercion and involuntariness exist independently from Rule 11 under the Fifth Amendment.  The Court’s ruling, therefore, appears to recognize a right without any practical remedy.    



Unsworn Venire is Not a Structural Error


 United States v. Wiman, No. 16-3929 (Nov. 13, 2017)


            Voir dire of prospective jurors is a fundamental right to criminal defendants – essential to ferreting out the biased or unqualified.  Because voir dire relies on the venire-members to be truthful, it is federal practice for the court to require potential jurors to be sworn at the beginning of voir dire


            Here, the district court failed to administer the oath at the commencement of voir dire.  The judge realized his mistake near the end of jury selection and then belatedly administered the oath.  On appeal, the Court affirmed the defendant’s conviction, holding that failure to have a sworn venire is not a structural error.  Because the Court found the evidence of guilt to be overwhelming, it also held that the non-structural error was harmless.




October 2017

Habeas Case Shows Importance of Documenting Plea Discussions


     Sawyer v. United States, No. 15-2508 (Oct. 20, 2017)


            Defendant’s lawyer and the prosecutor had informal plea discussions prior to trial in which the government offered a 15 year maximum sentence.  According to Sawyer’s habeas petition, his lawyer advised him to reject the offer and go to trial.  He followed his lawyer’s advice, and he was convicted and then sentenced to 50 years in prison.  The district court dismissed the habeas proceedings that followed – in which he claimed his lawyer’s advice was constitutionally deficient – without holding an evidentiary hearing.  No hearing was needed, according to the district court, because:  (1) Sawyer did not allege that a formal or written plea offer had been made; and (2) he only provided self-serving affidavits from himself and his family members concerning the plea offer and his lawyer’s advice to reject it.


            The Court held on appeal that the district court’s decision to dismiss without holding an evidentiary hearing was erroneous.  Sawyer made out a sufficient claim of ineffective assistance at least to get a hearing.  Defendant is not required to adduce proof beyond his own testimony.  (Of course, here, he also had the sworn statements of his family members.)  More significantly, the Court rejected the notion that informal discussions about a potential plea agreement fail to trigger a defendant’s right to effective assistance. 


            This case highlights the importance – for both defense and government counsel – of documenting a defendant’s decision to go to trial in lieu of even nascent plea negotiations.  Unsuccessful plea discussions may never get to the point where there is a formal offer or a draft plea agreement.  It is in precisely those cases, however, when there is likely to be little if any documentation reflecting that defense counsel communicated the offer to her client or counseled him about the risks and benefits of that offer.  Therefore, defense counsel may want to memorialize her own plea discussions with her client, as well as the client’s reasons for deciding to go to trial notwithstanding those discussions.  Likewise, to protect against a collateral attack on a later conviction, government counsel may wish to put on the record in the defendant’s presence that the plea offer had been made and rejected.  Indeed, when a defendant pleads guilty, he is subject to the court’s colloquy ensuring a knowing and intelligent waiver of his trial rights.  When the converse occurs – a defendant decides to go to trial despite having been offered a plea that significantly limits his exposure – counsel for both sides would be prudent to make some record that the decision was made intelligently.


False Claims Act Damages Require Proximate Causation; Court Joins Other Circuits in Reversing Long-Standing “But-For” Test



           United States v. Luce, No. 16-4093 (Oct. 23, 2017)


            Luce, the owner of a mortgage brokerage company, participated in a federal home loan insurance program administered under the Fair Housing Act.  According to the government, when Luce’s company applied to participate in the program, he falsely omitted his criminal history, which the government claims would have made his company ineligible.  The government sued Luce civilly for violations of the False Claims Act based on his allegedly fraudulent submissions.  Because there was no genuine issue concerning Luce’s criminal background and his failure to disclose it, the district court granted summary judgment to the government, awarding it economic damages equal to the amount of the loan defaults by Luce’s borrowers.  In doing so, the district court noted the Seventh Circuit’s rule requiring only that the government show that defendant’s false statements were a “but for” cause of its injuries.


            The Seventh Circuit’s but-for standard has been the outlier for many years.  All other circuits to address the question have held that the government must prove that FCA damages were proximately caused by the false representations.  The Supreme Court recently held that the FCA ordinarily should be viewed through the lens of common law fraud principles, as long as those principles don’t otherwise thwart the Act’s purposes.  Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989 (2016).  Reviewing Escobar and reconsidering the purpose of the FCA and the weight of the rulings in all other circuits, the Seventh Circuit agreed in Luce for the first time that the correct test is proximate causation.


            The Seventh Circuit’s previously relaxed standard had made its venue a desired one for the government or whistleblowers to bring their FCA cases.  The now-heightened standard may temper whether certain of those cases are brought at all, particularly cases based on false representations that had little to do with the damages being claimed.  In Luce, for example, it may be difficult if not impossible for the government to establish on remand that the damages from the loan defaults by Luce’s customers were the proximate consequence of Luce lying about his own criminal history.  The government may face similar problems in government contracting cases and in FCA cases involving purported minority-owned businesses.



Tax Fraud Convictions Reversed Due to Judge’s Remarks to Jury

United States v. El-Bey
, No. 15-3180 (Oct. 24, 2017)



            El-Bey was a tax protestor.  Unlike most tax protestors, it wasn’t enough for him simply to refuse to pay taxes; he concocted bogus tax returns seeking refunds of hundreds of thousands of dollars in withholdings that he never paid.  He represented himself at trial pro se, and focused much of his challenge to the government’s case on his beliefs that his conduct was not illegal because he considered himself a sovereign citizen.  The evidence of his guilt was overwhelming.  But Judge Posner (sitting by designation) was not content to let the evidence speak for itself.  Increasingly frustrated with the defendant’s questioning of government witnesses about the “voluntary” nature of the tax system, the Judge commented before the jury that “paying taxes is not voluntary” and “if you don’t pay your tax, you go to jail.”  Then, when instructing the jury on the elements of the offense, the Judge went off-script in explaining materiality.  Deviating from the written instructions, he gave an example that parroted the facts of the case:  “If you tell a lie to the IRS which gets them to give you $300,000 to which you’re not entitled, that is a material falsehood.”


            The Court reversed defendant’s conviction and remanded for a new trial, holding that the trial court’s comments to the jury, both during defendant’s cross-examinations and in the court’s oral instructions, conveyed a bias toward defendant and that the trial court had an opinion concerning his guilt.  Those remarks deprived defendant of a fair trial regardless of the weight of the evidence against him.  


No RICO Standing for Third-Party Payers on Claims of Pharma’s Off-Label Promotion of  Drug 

    Sidney Hillman Health Center v. Abbott Laboratories, No. 17-1483 (Oct. 12, 2017)


           In 2012, Abbott Labs pleaded guilty to the off-label promotion of a drug named Depakote.  That drug had been approved by the FDA to treat seizures, but Abbot promoted it for a number of off-label uses, such as ADHD and dementia.  Abbott paid $1.6 billion to the government as part of its guilty plea and to resolve related False Claims Act cases. 


This civil RICO case followed.  Plaintiffs were private welfare plans (such as union funds) that paid health care benefits for their members, including members who were prescribed Depakote.  The plaintiffs asserted that they were directly injured by Abbott’s unlawful promotion of the drug because they paid for their members’ prescriptions.  The Court affirmed the district court’s dismissal of those claims.  The off-label promotion was not directed at the third-party payers, but at the patients and their doctors.  The fact that the plans parted with money as a result of Abbott’s wrongful conduct does not mean that the plans had standing as injured parties.  Too many other variables exist in the chain of events from unlawful promotion to ultimate payment (e.g., the physician’s independent decision concerning the best course of treatment) to conclude that a payer has been proximately damaged by that conduct.  Instead, the Court observed that public prosecution is the proper remedy for such wrongful conduct.



  August  2017

Commodities Fraud Opinion Sweeps More Broadly than “Spoofing” Cases 

United States v. Coscia, No. 16-3017 (Aug. 7, 2017)

     Much has been written already about the Court’s first-in-nation ruling upholding the Dodd-Frank prohibition on the trading practice known as “spoofing.” Spoofing occurs when a trader places a large number of orders with the intent to cancel them before execution. The purpose is to move the market in one direction and then execute a smaller number trades on the opposite side at a now-advantageous price. For example, the trader may place a buy order for 1000 contracts of a commodity and a sell order for 50 contracts. The apparent demand for that commodity due to the large buy order causes the price to increase for a very short time (a fraction of a second). During that short time, the trader executes his sell order at a profit and the large buy order is cancelled. The practice depends on high-frequency trading algorithms. In affirming Coscia’s conviction under Dodd-Frank, the Court rejected his argument that the provision was unconstitutionally vague – primarily because the law explicitly required proof of defendant’s intent that the large order not be executed.

     The case is perhaps more important for a different and more generally-applicable reason: Coscia was also convicted of general commodities fraud separate from the Dodd-Frank “spoofing” violation. Like the mail and wire fraud statutes, Title 18 also generally prohibits “schemes to defraud” involving the purchase or sale of commodities or securities. 18 U.S.C. §1348. That statute, of course, does not specifically address “spoofing” or high-frequency trading strategies. Yet, the Court affirmed Cosica’s convictions under those generic provisions. During oral argument, Judge Rovner challenged the government to explain why Coscia wasn’t being punished simply for “building a better mousetrap.” In other words, he came up with a trading algorithm that took advantage of the deficiencies in the trading algorithms created by other high-frequency traders. Ultimately, the Court held that the evidence supported the existence of fraudulent intent. The trading program was intended to act “like a decoy” and create the “illusion” of market movement, so the Court affirmed the convictions under Title 18 as well.

     But the Court’s decision should give pause to high-frequency traders of all types, not just those who wish to “spoof.” Aggressive prosecutors may seek to charge other sorts of trading strategies that are used to mask the trader’s plan. By their nature, many strategies could be characterized as “deceitful,” in that the trader is attempting to conceal certain facts from counterparties. Other strategies may attempt to take advantage of market movements for which the trader himself is responsible. The point isn’t that those strategies are necessarily unlawful; it is that – in contrast to the specific anti-spoofing law – the broad sweep of the generic fraud statutes creates uncertainty and risk for those traders who rely on innovative technology and strategies.

Qui Tam Opinion Extends Public Disclosure Bar

Bellevue v. Universal Health Services of Hartgrove, Inc., No. 15-3473 (Aug. 8, 2017)

     One of the most powerful tools in combating fraud and abuse in government procurement is the qui tam provision of the False Claims Act. Whistleblowers (a.k.a. “relators”) are deputized to bring claims in the government’s name. A relator who is an “original source” of the allegations may be entitled to a large percentage of any recovery as a bounty. To avoid “parasitic lawsuits” by those who are not true whistleblowers, the FCA bars qui tam cases if the allegations are substantially the same as those already in the public domain. In other words, if the facts showing each element of the fraud were already publicly disclosed, the plaintiff will be barred. Bellevue appears to extend that bar to situations where the facts supporting the element of scienter were not explicitly disclosed.
Hartgrove is a psychiatric hospital that received Medicare reimbursements. Conditions for payment included that admitted patients be assigned a room and that Hartgrove not be over census, meaning that it not admit more patients than allowed by its state license. Audits by state and federal agencies revealed that Hartgrove was over census on certain occasions, yet billed for patients who were given roll-away beds in a dayroom instead of actual beds in overnight hospital rooms. Neither audit concluded that the reimbursements were obtained by fraud, as opposed to mistake. Bellevue, a nurse at Hargrove, filed a qui tam complaint against Hartgrove. Based on his understanding of Hartgrove’s admission practices, he alleged that Hartgrove acted knowingly by submitting claims for reimbursement when it was over census.

     One of the elements of an FCA violation is that the defendant obtained payment by “knowingly” making false representations. Mere falsity is not enough; scienter is required. Because the public disclosure bar only applies where the facts supporting each element of an FCA claim are in the public domain, one would think that disclosure of mere falsity of a claim for payment would not bar the relator who otherwise is an “original source.” In barring Bellevue’s case, the Court called that assumption into doubt. Although neither audit concluded that Hartgrove acted knowingly, the Court held that scienter could be “inferred.” It distinguished cases where incorrect Medicare billings turned on “qualitative judgments,” such as the patient’s standard of care. In those cases, there is an equally plausible inference that billing errors were simple mistakes as opposed to knowing violations. But where incorrect bills result from objective facts, such as the number of beds in census, the Court appears to lay down a new rule: Public disclosure of those errors allows one to infer fraud, and the bar thus applies to the relator’s claims.

     The ruling provides defendants in qui tam cases with a strong argument to bar a whistleblower’s claims where the objective facts were otherwise in the public domain, even if nobody but the relator previously concluded that those facts amounted to fraud.

Court Buttresses Confrontation Clause – Rejects Use of “Course of Investigation” Hearsay Exception 

Richardson v. Griffin, No. 16-1700 (Aug. 8, 2017)

     The Supreme Court held in Crawford v. Washington, 541 U.S. 36 (2005) that the Sixth Amendment’s Confrontation Clause applies to all witness statements taken by law enforcement agents during their investigation. Such out-of-court statements may not be admitted in a criminal case under any of the traditional hearsay exceptions. Prior to (and even since) Crawford, a standard exception to hearsay was the so-called “course of investigation” exception. That is, in giving otherwise non-hearsay testimony, an investigator could be allowed to fill in the gaps by providing a witness’s out-of-court statement to the investigator if needed to explain what the investigator did next. In Richardson, the Court held that, in light of Crawford, the exception has been taken too far.
Defendant was on trial for shooting Mobley. The assigned detective came upon defendant as a suspect by talking to an eyewitness named Holden, who told him that “Chris” (the defendant’s first name) was the shooter. The detective then went to the hospital where Mobley was recovering and asked him if he knew a “Chris.” Mobley said he did, and he identified defendant from a photo spread. At trial, both Mobley and the detective testified. (Holden did not testify, for some unexplained reason.) To bolster Mobley’s testimony, the detective testified about his investigation, including the statement he took from Holden identifying “Chris” as the shooter and relating his discussion with Mobley in the hospital. Defendant objected to the detective’s recitation of Holden’s statement as being hearsay. The trial court allowed it, however, based on the prosecutor’s argument that it was necessary to explain the “course of the investigation,” particularly how the detective first came across the name “Chris.”

     The Court reversed the district court’s decision denying defendant’s habeas petition. Citing to Crawford, the Court found that admission of Holden’s out-of-court statements through the police officer violated the Confrontation Clause because those statements served no legitimate non-hearsay purpose. In doing so, the Court provided ammunition for future cases where the “course of investigation” exception is blindly invoked.

Opinion Testimony from Government “Summary” Witness OK, as is Comparison to Bernie Madoff 

United States v. Lopez, No. 16-2269 (Aug. 29, 2017)

     One challenge the government confronts in prosecuting complex financial crimes is making the evidence understandable for lay people with little or no background in finance or accounting. The government often calls a summary witness (usually an FBI or IRS agent) under Fed.R.Evid. 1006 to distill that evidence for the jury. Through charts sponsored by that witness, the government spoon-feeds the jury with its version of the numerous complicated transactions that form the basis for the alleged scheme to defraud. That testimony typically is limited to an unadorned summary of otherwise-voluminous evidence. Those witnesses are not usually deemed experts or even lay witnesses who may offer explanatory opinions. In Lopez, however, the Court rejected defendant’s challenge that the government’s summary witness improperly offered his opinion regarding the nature of the charged transactions. The Court also affirmed the conviction notwithstanding repeated references to Bernie Madoff during the government’s closing argument.

     The defendant was charged with engaging in a Ponzi scheme – promising investors high rates of return on a sham investment and paying prior investors with funds provided by newer ones to maintain the illusion that the venture actually existed. The government called an IRS agent under Rule 1006 to summarize the flow of funds into and out of defendant’s bank accounts. In walking the jury through his summary charts, the IRS Agent was repeatedly allowed over objection to characterize the repayments to the prior investors as “lulling payments.” He explained that by “lulling payments” he meant that instead of investing the new funds as promised, the defendant used those funds to pay off prior investors. In closing, the government repeatedly used the term “lulling payments” in describing the repayments as a key aspect of defendant’s fraud.

     Defendant argued on appeal that it was improper to allow a Rule 1006 summary witness to offer his characterization of those payments as “lulling” because they were based on the witness’s unwarranted opinions. In a split-panel decision, the Court rejected that argument and held that even a summary witness may offer “conclusory” testimony as a lay witness that is reasonably based on the evidence presented at trial. The majority appeared to be swayed by the fact that the IRS agent did not explicitly offer his view as to defendant’s intention in making those payments (i.e., to “lull” the investors), although the Court did not explain how the term “lulling” could be taken to imply anything other than the defendant’s fraudulent intent.

     The majority also affirmed the conviction despite the government’s comparison of aspects of defendant’s scheme to Bernie Madoff’s unprecedented fraud. The government specifically argued to the jury that defendant’s repayment of certain investors was no defense any more than it was for Madoff. Because the Court did not believe that those comments could have “inflamed the jury,” it held that they were not out of bounds. Judge Posner dissented both as to the summary witness’s opinion testimony and the Madoff comments, concluding that those rulings constituted “serious” errors. Because the majority’s decision may expand the traditional scope of summary testimony, and because the Madoff comments could inspire both prosecutors and defense counsel to make similar references to matters outside the record in other cases, an en banc rehearing could be in the cards.

  July 2017

  Court Guts Impeachment of Cooperating Witnesses


     United States v. Trent, No. 16-3960 (July 13, 2017)

            Prosecutions often turn on the credibility of a witness who is actively working with the government.  Middle manager testifying up the food chain.  Bookkeeper turned on his client.  Corrupt real estate appraiser providing evidence against the leader of a mortgage fraud ring.  That witness is not helping the government out of the goodness of his heart; he was a co-schemer who is now in full self-preservation mode, trying to reduce his own criminal exposure.  Standard cross-examination is to attack the cooperator’s bias by showing he is currying favor with the government to avoid a lengthy sentence of imprisonment.  The longer the potential sentence, the greater the bias – so the thinking went.  So ingrained is this defense technique that a defense lawyer’s failure to confront a cooperator with the length of his potential sentence could well have been malpractice.  But in Trent, the Court has sharply curtailed that aspect of the right to cross-examine.  Trial courts now may prohibit defense counsel from asking the cooperator about or otherwise eliciting the number of years of incarceration to which the cooperator is exposed. 


            Trent was charged with narcotics distribution.  The two government witnesses – his alleged co-conspirators – entered into plea agreements.  Because of their cooperation, they would avoid the same 20-year mandatory minimum sentence that defendant was facing.  Trent’s lawyer predictably sought to impeach them with that fact.  At the government’s request, however, the district court ordered defense counsel to ask no questions that would elicit the length of the cooperators’ potential sentences.  The court accepted the government’s argument that allowing such questioning would lead the jury to infer that the defendant also was exposed to such a lengthy prison sentence.  Because a jury must not consider the defendant’s potential sentence in determining liability, the trial judge agreed to curtail that cross-examination.  Defense counsel was only permitted to elicit that the cooperators were seeking to avoid “substantial” incarceration by helping the government.  He was not allowed to ask about the actual length of their potential sentences.


    On appeal, the Court rejected the defendant’s Sixth Amendment right-to-confrontation challenge.  The Court noted that trial judges have wide latitude to limit cross-examination in general, particularly to avoid unwarranted prejudice.  Here, that supposed prejudice was that the jury might infer defendant himself was facing a 20-year sentence.  However, the Court did not address why it would be insufficient simply to instruct the jury not to consider the defendant’s punishment, a pattern instruction given in every criminal case.  Nor did the Court explain why any speculative prejudice would outweigh the core right of establishing a witness’s bias.  The Court assumed that eliciting the witness’s exposure to a “substantial sentence” was as effective as eliciting the fact that the witness was facing 20 years behind bars.  Of course, any objective practitioner might take issue with that assumption.  Nevertheless, defense counsel should be prepared for motions in limine from the government seeking to prevent the traditional cross-examination technique of questioning a cooperator on the length of his potential sentence.

 Retirement Funds Not Protected from Criminal Restitution 
United States v. Sayyed, No. 16-2858 (July 6, 2017)


            Defendant was convicted of receiving kickbacks from his employer’s vendors in return for steering overpriced contracts to them.  As part of his sentence, defendant was ordered to pay nearly one-million dollars in restitution.  The government sought to collect the restitution from defendant’s tax-qualified retirement accounts.  Those accounts, like IRAs or 401(k) accounts, ordinarily are considered to be protected from creditors in civil proceedings until the owner has an unrestricted right to access the funds without penalty.  But this circuit has previously held that those protections don’t apply in criminal cases.  See, e.g., United States v. Lee, 659 F.3d 619 (7th Cir. 2011).  Cases like Lee rely on 18 U.S.C. § 3613(a), which provides that “a judgment imposing a fine [or criminal restitution] may be enforced against all property or rights to property of the person fined.” 


            Sayyed offered two reasons why his retirement funds could not be taken:  (1) because he was not yet of retirement age, he was unable to take penalty-free distributions; and (2) the Consumer Credit Projection Act (CCPA), which limits garnishment to 25% of disposable “earnings.”  The Court easily disposed of both arguments.  First, there was no dispute that defendant had a present, unconditional right to access his retirement accounts.  Although he may not prefer to do so because of the tax penalties arising from early distributions, the Court stressed that the government’s ability to collect is based on the rights the defendant possesses, not the rights he would prefer to exercise.  Second, while the Court agreed that the CCPA generally protects even a criminal defendant from being forced to turn over more than 25% of his earnings (15 U.S.C. § 1672), it held that the a lump-sum distribution from a retirement account is not “earnings” within the meaning of that law.  If the retirement program had mandated periodic distributions of specified amounts, then they might be protected as earnings.  But the right to a lump-sum distribution from a retirement account doesn’t become “earnings” just because that wealth is traceable to the defendant’s earned income.



Court Warns that Defective Jurisdictional Statements Won't be Tolerated 

Baez-Sanchez v. Sessions, No. 16-3784 (July 10, 2017)

            In these consolidated appeals, Chief Judge Wood issued an order reprimanding the appellees – including the Department of Justice – for shirking their duties in addressing the Court’s jurisdiction.  Although it is the appellant’s obligation to establish jurisdiction through its required statement, Judge Wood noted that the Court’s rules confer an “equally-important” duty on the appellee:  “The appellee’s brief shall state explicitly whether or not the jurisdictional summary in the appellant’s brief is complete and correct.”  Circ. Rule 28(b) (emphasis supplied by Court).  According to the Court, “[t]he appellee cannot simply assume that the appellant has provided a jurisdictional statement that complies with the rules. . .  The job of the appellee is to review the appellant’s jurisdictional statement to see if it is both complete and correct.  The terms are not synonyms.”  (Emphases in original.)  The Court struck the appellees’ briefs in these appeals, one because it only said that the appellant’s jurisdictional statement was correct (without saying it was complete) and the other because it only said that the jurisdictional statement was complete (without saying it was correct). 


            To avoid an embarrassing reprimand like that suffered by the Department of Justice, all counsel should take seriously the Court’s emphasis on an appellee’s duty in addressing the threshold issue of jurisdiction – even if that question is not actually in dispute.



 June 2017

 Retirement Funds Not Protected from Criminal RestitutionRetiementRetiRe
United States v. Sayyed, No. 16-2858 (July 6, 2017)


            Defendant was convicted of receiving kickbacks from his employer’s vendors in return for steering overpriced contracts to them.  As part of his sentence, defendant was ordered to pay nearly one-million dollars in restitution.  The government sought to collect the restitution from defendant’s tax-qualified retirement accounts.  Those accounts, like IRAs or 401(k) accounts, ordinarily are considered to be protected from creditors in civil proceedings until the owner has an unrestricted right to access the funds without penalty.  But this circuit has previously held that those protections don’t apply in criminal cases.  See, e.g., United States v. Lee, 659 F.3d 619 (7th Cir. 2011).  Cases like Lee rely on 18 U.S.C. § 3613(a), which provides that “a judgment imposing a fine [or criminal restitution] may be enforced against all property or rights to property of the person fined.” 


            Sayyed offered two reasons why his retirement funds could not be taken:  (1) because he was not yet of retirement age, he was unable to take penalty-free distributions; and (2) the Consumer Credit Projection Act (CCPA), which limits garnishment to 25% of disposable “earnings.”  The Court easily disposed of both arguments.  First, there was no dispute that defendant had a present, unconditional right to access his retirement accounts.  Although he may not prefer to do so because of the tax penalties arising from early distributions, the Court stressed that the government’s ability to collect is based on the rights the defendant possesses, not the rights he would prefer to exercise.  Second, while the Court agreed that the CCPA generally protects even a criminal defendant from being forced to turn over more than 25% of his earnings (15 U.S.C. § 1672), it held that the a lump-sum distribution from a retirement account is not “earnings” within the meaning of that law.  If the retirement program had mandated periodic distributions of specified amounts, then they might be protected as earnings.  But the right to a lump-sum distribution from a retirement account doesn’t become “earnings” just because that wealth is traceable to the defendant’s earned income.

Court Warns that Defective Jurisdictional Statements Won't be Tolerated

Baez-Sanchez v. Sessions, No. 16-3784 (July 10, 2017)

            In these consolidated appeals, Chief Judge Wood issued an order reprimanding the appellees – including the Department of Justice – for shirking their duties in addressing the Court’s jurisdiction.  Although it is the appellant’s obligation to establish jurisdiction through its required statement, Judge Wood noted that the Court’s rules confer an “equally-important” duty on the appellee:  “The appellee’s brief shall state explicitly whether or not the jurisdictional summary in the appellant’s brief is complete and correct.”  Circ. Rule 28(b) (emphasis supplied by Court).  According to the Court, “[t]he appellee cannot simply assume that the appellant has provided a jurisdictional statement that complies with the rules. . .  The job of the appellee is to review the appellant’s jurisdictional statement to see if it is both complete and correct.  The terms are not synonyms.”  (Emphases in original.)  The Court struck the appellees’ briefs in these appeals, one because it only said that the appellant’s jurisdictional statement was correct (without saying it was complete) and the other because it only said that the jurisdictional statement was complete (without saying it was correct). 


            To avoid an embarrassing reprimand like that suffered by the Department of Justice, all counsel should take seriously the Court’s emphasis on an appellee’s duty in addressing the threshold issue of jurisdiction – even if that question is not actually in dispute.


June 2017


The Demise of the “Good Faith” Instruction

United States v. Lunn, No. 16-1791 (June 20, 2017)


The defendant’s “good faith” often is the central, if not only, defense available to counsel in a fraud case. The objective facts may not genuinely be in dispute, so it is usually the defendant’s “empty head but honest heart” that counsel is forced to pursue as the prime defense theory. The Seventh Circuit has held time and again that a defendant’s good faith is inconsistent with an intent to defraud. See, e.g., United States v. Mutuc, 349 F.3d 930, 936 (2003). That principle is so ingrained that the Circuit’s pattern criminal jury instructions – like those of most other circuits – include one defining “good faith.” Seventh Circ. Pattern Crim. Jury Inst. No. 6.10. But a district court’s refusal to instruct the jury on the defense of good faith, even when at issue and supported by the facts, appears no longer to be erroneous.

Lunn, an investment advisor, was charged with defrauding a number of investors, most notably Scottie Pippen. His alleged scheme involved forging loan extensions and misappropriating investor funds. Lunn testified at trial about his honest belief that he was authorized to sign those documents for Pippen and that he believed the uses to which he put the proceeds were legitimate. Lunn asked the court to give the jury the pattern instruction on good faith: “If the defendant acted in good faith, then he lacked the intent to defraud.” The court refused, although its reason was not because of lack of evidence to support that defense. Instead, the court opined that it was enough to give the standard elements instruction, including the definition of acting with intent to defraud: “A person acts with intent to defraud if he acts knowingly with the intent to deceive or cheat the victim.”


The Seventh Circuit affirmed, holding that the good faith instruction would have been “redundant” to the intent-to-defraud instruction. Because “intent to defraud” will always be defined in a fraud case, that ruling implies that even if a good faith defense is supported by the facts, an instruction about good faith will never be required. The decision offers no guidance on how the district court should exercise its discretion. Nor does the decision address why there is a pattern instruction for good faith at all if that instruction would always be “redundant” to the definitional instruction for acting with intent to defraud. Indeed, the decision contradicts the pattern’s commentary that the “good faith” instruction “should be used in cases in which the government must prove some form of ‘specific intent,’ such as intent to defraud or willfulness.” The Court instead seems to be saying that a trial court may give, or not give, a good faith instruction based on the judge’s personal preference, rather than on any particularities of the case being tried. The bottom line is that defense counsel may well be stuck with the district court’s personal preference.



Court Criticizes Lapses in “Professionalism” of Trial Judge, Affirms Conviction

United States v. Betts-Gatson, No. 16-2034 (June 20, 2017)


In presiding over defendant’s fraud trial, the district court (Norgle, J.) “did not always meet the high standard of professionalism judges do and should set for ourselves,” according to the Seventh Circuit panel. The Court characterized a number of the district court’s rulings in its tit-for-tat exchanges with defense counsel as “puzzling,” such as preventing defense counsel’s paralegal from sitting at counsel table and by improperly prohibiting counsel from showing documents to refresh or impeach government witnesses. Moreover, “several times, [the judge] extended conflicts with counsel when, at least from the cool remove of an appellate court, it seems it might have been better to let the issue drop until the jury left. Once he made a facial expression, reacting to the defendant’s testimony.”


In the end, the Court found that in contrast to defense counsel’s own “frequent and serious” outbursts, the district court’s lapses were “few and minor.” Because defendant was not deprived of a fair trial, the Court affirmed.



No Sherman Act Violation for Exclusivity in Hospital-Insurer Contracts

Methodist Health Services Corp. v. OSF Healthcare System d/b/a Saint Francis Medical Center, No. 16-3791 (June 9, 2017)


St. Francis Hospital is the largest and most dominant in Peoria, providing the greatest number of services and care in that market. Methodist Hospital is its main competitor. For years, St. Francis had “exclusive” arrangements with insurance companies, such as Blue Cross Blue Shield. Those contracts designated St. Francis as the exclusive in-network provider in Peoria, which meant that more than half of the commercially-insured patients in the area were covered by St. Francis alone. Methodist brought civil claims under the Sherman Act, alleging that St. Francis’s exclusivity provision amounted to an unreasonable restraint on trade.


The Court affirmed summary judgment for St. Francis. It likened the exclusivity provision to requirements contracts in general, which are “common and legal.” Good and justifiable reasons exist for a contract to prescribe that the buyer shall purchase all or substantially all of its requirements from the seller. In this case, there were legitimate justifications for St. Francis to serve as Blue Cross’s sole in-network provider, including its status as the only Level 1 trauma center in the area.


Exclusivity in those circumstances does not suggest anti-competitive conduct. According to the Court, it only suggests that the defendant “offered a better deal” by providing a broader and deeper range of services, and that the plaintiff simply choose not to duplicate those services.



District Court Cannot Reject Credibility Findings by Magistrate Judge without De Novo Hearing


Jackson v. United States, No. 16-2470 (June 16, 2017)


The Court addressed the novel question in this Circuit: In deciding to reject a magistrate judge’s report and recommendation, can the district court rely on its own credibility findings of witnesses who testified only before the magistrate judge?


Jackson filed a Sec. 2255 petition claiming ineffective assistance of counsel. He alleged that his lawyer mistakenly told him that he would be ineligible to receive a reduction under the Fair Sentencing Act if he pleaded guilty. He claimed he went to trial because of that mistaken belief, where he was convicted of drug-related offenses. His post-conviction claim was referred to the magistrate judge for an evidentiary hearing and issuance of a report and recommendation. The magistrate judge heard from three witnesses, including Jackson and his former lawyer. Jackson asserted his lawyer told him that the FSA reduction would not apply if he pleaded guilty; his lawyer testified that he had no such conversation with Jackson and that Jackson always insisted on going to trial. The magistrate concluded that Jackson’s testimony was the more credible and thus found that his lawyer’s assistance was constitutionally deficient. He issued a report recommending that Jackson’s petition be granted.

In reviewing the transcript from the evidentiary hearing before the magistrate, the district court came to a different conclusion. It believed that Jackson’s testimony was “self-serving” and that Jackson was a “hard head who would heed no advice [from his lawyer].” The district court did not conduct any evidentiary proceedings itself and did not, of course, observe the witnesses live.


Under the Federal Magistrates Act (28 U.S.C. § 636), magistrates may conduct hearings and issue proposed findings of fact and recommendations. The district court judge must then make a “de novo determination” as to any part of the report to which objections were made. The Supreme Court has held that the Act does not require the district court to hold a de novo hearing when accepting a magistrate judge’s credibility findings. United States v. Radditz, 447 U.S. 667, 675-76 (1980). But the Supreme Court left open the question of whether a de novo hearing is required for a district court to reject those findings.


Joining the other circuits to have addressed this issue, the Seventh Circuit held that the district court was wrong to reject the magistrate judge’s credibility findings without conducting a de novo hearing. By doing so, the district court “effectively denied the evidentiary hearing” that was ordered. This holding goes beyond the context of post-conviction proceedings. It would apply to any case referred to a magistrate judge to conduct an evidentiary hearing – civil or criminal. A district court in this circuit now cannot reject the credibility findings of the magistrate judge without conducting what in effect would be a retrial on those facts.



Contempt Conviction for “Missing Witness” Argument is Cautionary Tale for Defense Lawyers

United States v. Ogoke (Appeal of: Leonard), No. 16-1297 (June 22, 2017)


Michael Leonard vigorously defended Ogoke in his fraud case – perhaps too vigorously. Ogoke’s co-defendant and alleged co-conspirator Okusanya pleaded guilty before trial and became a government cooperator. The government did not call Okusanya at trial. In closing argument, Leonard focused on the government’s burden of proof and its failure to call Okusanya: “If the government had something from Okusanya to support the idea that [Ogoke] did it, you would have heard from the grand schemer, Mr. Okusanya.” Unfortunately for Leonard, the Court had entered a pre-trial order prohibiting the defense from “commenting on the government’s failure to call any witness” unless it made a prior showing that the witness was particularly within the government’s control. Because Leonard made no showing to that effect, the district court sua sponte charged him with criminal contempt, of which he was convicted following his own trial.


The Court affirmed Leonard’s contempt conviction. Although Leonard claimed that he had forgotten about the order, the Court found sufficient evidence to the contrary. Of particular importance was that Leonard was an experienced defense lawyer who should have known the general rule that defense counsel “may not argue an adverse inference from an opposing party’s failure to call a witness, absent a showing that the witness was available only to that party.” That warning should be heeded by all defense counsel. Particularly in the heat of trial, counsel’s arguments about the government’s failure to meet its burden of proof may come dangerously close to commenting on the government’s failure to adduce particular testimony. Of course, counsel must do their zealous duty – but they should always be aware of where the court may perceive the line to be drawn.


May 2017

 Sacred Heart  Execs' Anti-Kickback Provisions Affirmed

    United States v. Nagelvoort, No. 15-2766 (May 12, 2017)


     The Anti-Kickback Statute prohibits paying for referrals of Medicare patients.  42 U.S.C. § 1320a–7b(b)(2)(A).  The government’s wide-ranging investigation of Sacred Heart Hospital resulted in numerous prosecutions of hospital executives, ownership, and doctors for AKS violations.  In the main case, Clarence Nagelvoort, Sacred Heart’s owner/CEO, and his chief lieutenant Edward Novak were convicted of orchestrating that scheme.  At trial, the government focused on Sacred Heart’s payments to doctors under supposed “personal services” contracts, as well as other purportedly legitimate arrangements such as office leases.  Some of the government’s best evidence was provided by cooperating doctors – both in testimony and recorded conversations – of conversations with defendants about referring patients as part of their “contracts” with the hospital. 


     On appeal, defendants tried to convince the Court to reconsider a long-standing, though perhaps controversial, interpretation of the AKS:  A payment is unlawful if “any part or purpose” of it was to induce referrals, as opposed to requiring that inducing referrals be a “primary” or “substantial” purpose of the payment.  Defendants argued that the “any part or purpose” test made the statute unconstitutionally vague.  The Court rejected the vagueness challenge, pointing to its opinion in a 2011 case when it first affirmed that test (United States v. Borrasi, 639 F.3d 774). 


  The Court’s ruling serves as another warning to health care providers about the perils of entering into financial relationships with one another and of the need to have health care counsel thoroughly vet arrangements where one provider also refers patients to the other. 

 Blago Loses Second Appeal - Post-Conviction Good Conduct Remains Important
     United States v. Blagojevich, No. 16-3254 (April 21, 2017)


     Rod Blagojevich’s first appellate victory has proved pyrrhic.  In response to his initial salvo two years ago, the Court reversed convictions on five counts that included allegations that the Court said amounted to lawful political log-rolling (Blago offered to appoint President Obama’s pick for the vacant Senate seat in exchange for a cabinet position for himself).  794 F.3d 729 (2015).  The Court distinguished those counts from the ones it affirmed, where Blago schemed to obtain personal pecuniary benefits such the promise of future employment in the private sector. 


     In remanding for resentencing, the Court observed that the original sentence would not have been unreasonably high when just looking at the surviving convictions.  Taking that cue, the district court imposed the same punishment on resentencing.  In doing so, the sentencing court rejected Blago’s contention that his post-conviction rehabilitation and good conduct in prison, as demonstrated by letters from fellow inmates, warranted a lower sentence on remand.


     Affirming, the Court addressed Blago’s contention and concluded that the district court was not compelled to reduce his sentence based on that factor alone.  Nevertheless, the Court re-emphasized that when a sentencing is set aside on appeal, the defendant’s post-conviction rehabilitation must be considered and can be a basis for a reduced sentence.


No Shortened Sentence for Fraudster to Earn Money for Restitution


    United States v. Gold, , No. 16-3678 (April 27, 2017)


     Alan Gold ran an investment fund.  But instead of putting his victims’ money in equities as he promised, he gambled it away – to the tune of over a million dollars.  He was sentenced to 75 months imprisonment and ordered to pay restitution.  His appeal focused on the length of his sentence.  Gold’s logic was that he couldn’t earn enough to pay restitution if he were incarcerated for so long.  The Court easily rejected that argument, holding that the district court was correct to give “no weight” to it.

Acquittal Not Prerequisite for Fee-Shifting under Hyde Amendment


     United States v. Terzakis, No. 16-3340 (April 27, 2017)


     The Hyde Amendment – a rarely used but powerful tool – allows a criminal defendant to recoup attorneys fees if he is the “prevailing party” and the prosecution was “vexatious, frivolous, or in bad faith.”  18 U.S.C. §3006A.  The issue here was whether a defendant must be acquitted to be a “prevailing party.”  The Court held that an acquittal is not essential.


    The government indicted Terzakis based on the testimony of a witness who the government knew had a serious cognitive disability.  That witness later was also diagnosed with terminal brain cancer.  The government reconsidered its prosecution and voluntarily dismissed the indictment, meaning that any re-prosecution would be barred because the statute of limitations had run. 


  Terzakis moved for fees under the Hyde Amendment.  The government’s primary challenge was that Terzakis was not a “prevailing party” because the dismissal was voluntary and did not result from an acquittal or any adverse finding.  The Court disagreed.  Because the dismissal effectively prevented the government from bringing another prosecution due to the statute of limitations, it “materially altered the legal relationship of the parties” such that defendant won the case.  The Court nevertheless affirmed the district court’s refusal to award fees because it found that the government’s initiation of the prosecution was not objectively frivolous.

 March/April  2017


Court’s Magic Words Make Errors under the Sentencing Guidelines Unreviewable

United States v. Minhas, No. 15-3761 (March 10, 2017)


Defendants and the government fight tooth and nail about enhancements under the Sentencing Guidelines. Application of those enhancements can cause dramatic swings in the advisory sentencing ranges. So probation officers and the court spend tremendous resources dealing with those issues. And an inordinate number of appeals come from adverse Guidelines decisions. Yet, even when those rulings are clearly wrong, all too often those errors are academic. Sentencing judges have figured out in the post-Booker era of the advisory Guidelines that they can protect their records just by saying that the sentence would have been the same regardless of the technical enhancement.


Take Minhas, who was sentenced to almost ten years in prison for defrauding customers of his travel agency. The only issue he appealed was a Guidelines issue: whether his victims suffered “substantial financial hardship.” The bulk of the Seventh Circuit opinion dove into the technical questions related to that enhancement, such as what constitutes a “substantial” hardship for any particular victim. The Court ultimately found that the enhancement applied. However, in almost an afterthought, the Court noted that any error was immaterial because the sentencing judge said he would have imposed the same sentence under the statutory factors of §3553(a), as opposed to the advisory Guidelines. According to the Court, “any error buried in the weeds of the Guidelines was thus harmless.” One is left to wonder why the parties, the probation department, the district court, and the Court of Appeals gave any thought to the Guidelines question since it mattered not at all to the outcome.



Court Nixes Long-Standing Power of Expungement

United States v. Wahi, No. 15-2094 (March 2, 2017)


This Circuit had long recognized that a district court has the inherent power to expunge judicial records in closed criminal cases for equitable reasons. Finding that the precedential cases amounted to “the judicial equivalent of a rumor chain,” the Court decided to revisit the jurisdictional issue. It observed that every other circuit to address the issue held that no jurisdiction existed for expungement. Those circuits pointed to the Supreme Court’s decision in Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375 (1994), which held that ancillary (a.k.a. “inherent”) jurisdiction is limited to two narrow categories of proceedings: (1) those involving claims that are factually interdependent; and (2) those needed to allow the court to “manage its proceedings, vindicate its authority, and effectuate its decrees.” Because expungement of criminal records fits within neither category, the Court overruled its long-standing precedent, bringing circuit practice in line with the rest of the country.



Subpoenas on Local Branches of Foreign Banks Ineffective

Leibovitch v. Bank of Tokyo and BNP Paribas, No. 16-2504 (March 29, 2017)


The victims of terrorist attacks in Israel obtained a $67 million default judgment under the Antiterrorism Act against Iran for sponsoring those attacks. Plaintiffs attempted to collect by searching for Iranian assets known to be held in two large foreign banks. Although both banks had Chicago branches, custody of the Iranian accounts and assets was maintained oversees. Plaintiffs nevertheless issued Rule 45 subpoenas in Chicago seeking an order requiring the banks to reveal information concerning Iranian assets held in any of their worldwide branches. The Court affirmed an order quashing those subpoenas, holding that neither general nor specific jurisdiction existed over those banks that would allow compulsion of a subpoena for information maintained outside of the United States.



LGBTs Protected Under Title VII

Hively v. Ivy Tech Community College, No. 15-1720 (April 4, 2017)


The Court held en banc that an employee’s sexual orientation is a protected status under Title VII. The landmark ruling rejects what has been every other court’s interpretation of the Civil Rights Act since it was enacted in 1964: discrimination based on “sex” means discrimination based on gender, not on sexual orientation. Reversing that decades-long understanding, the Court has created a circuit split that is almost sure to be settled in the Supreme Court.



No Criminal Restitution in Mortgage Fraud Scheme Where Lending Bank Acted Recklessly

United States v. Litos, No. 16-2330 (Feb 10, 2017)


Litos sold residential properties to sham buyers through mortgage financing from Bank of America. His scheme involved secretly providing cash for the down payment to each buyer and directing the buyers to falsify other creditworthiness information on their loan applications to BoA. The bank made almost a million dollars in loans, the proceeds of which were paid to defendant at the closings. Of course, the loans all defaulted. At sentencing, the district court ordered the defendant to pay the full amount of those loans as restitution to BoA.


The Court vacated the restitution order. The multitude and pattern of bogus loan applications contained such obviously false information, according to the Court, that BoA was either reckless or deliberately indifferent to the scheme. For example, numerous “principal residences” were supposedly sold to the same set of buyers, an obvious red flag. The Court held that such a “victim” should not be given the benefit of the Mandatory Victim Restitution Act. The Court remanded and recommended that a criminal fine be imposed in lieu of restitution to ensure that defendant would disgorge the proceeds from his offense, while not benefitting BoA.


Although the case involved the question of restitution, the Court’s logic raises the following unanswered questions about criminal liability itself: If a bank is deliberately indifferent to whether loan applications are false, then how can those statements be material? Indeed, how can a defendant engage in a scheme to defraud a bank if the bank blindly goes along with it?



    Locke Lord Cleared of Civil RICO Conspiracy with Clients

Domanus v. Locke Lord LLP, No 15-3647 (Jan 31, 2017)


After the minority shareholders in a commercial real estate project in Krakow, Poland discovered looting by the controlling shareholders, Locke Lord was hired to represent the project’s interests. But when those plaintiffs realized that the controlling shareholders were judgment-proof, they set their sights on a new target: those same lawyers. Plaintiffs accused Locke Lord of conspiring with the controlling shareholders in violation of RICO. They particularly alleged that Locke Lord helped the controlling shareholders conceal their defalcations. Locke Lord allegedly knew of that looting from previously filed lawsuits, as well as from the law firm’s receipt of documents produced in that prior case.


In affirming dismissal of those claims, the Court distinguished between the lawyers’ potential ethical or professional lapses (their supposed conflict of interest in representing adverse parties) and an actual conspiratorial agreement. Without some evidence of an illicit agreement, lawyers do not engage in a RICO conspiracy simply because they are aware of allegations that their client engaged in wrongdoing, or because they were improperly representing adverse parties, even if the lawyers’ actions cause that misconduct to be concealed. Of course, lawyers are not obliged to treat as true allegations that have been made against their client. And “claims that lawyers have conspired with their clients are insufficient in the absence of allegations that the arrangement involves more than standard legal representation.”



   Sentencing Commission May Weigh in on Individual Cases

United States v. Gibbs, No. 16-1747 (Jan 6, 2017)


The Sentencing Commission’s mission could shift dramatically. Its mandate has always been a system-level one: reviewing historical sentencing data to establish guideposts for future hypothetical cases. The Commission’s role has never been to participate in particular cases. Writing for the Court, Judge Posner proposes to expand its role to advise on a particular defendant’s potential sentence when the sentencing judge or the parties ask for advice.


In Gibbs, the government requested a sentence two years over the high end of the guideline range based on the defendant’s recidivism, and the judge agreed to impose the above-guidelines sentence. The Court affirmed the sentence. However, it criticized the lack of a “sophisticated analysis” of the sentencing factors and that the choice of the particular sentence appeared to be based on a “hunch.” In leveling that criticism, Judge Posner suggested that the Commission’s expertise could have been a valuable tool. “In a case like the present one the Sentencing Commission might advise the prosecutors, defense counsel, and the judge why it had fixed the guideline range where it did and how disapproving it would be of sentences below or above that range. Judgeswouldn’thavetoasktheCommissionforitsinput,orfollowits



But as Judge Kanne cautions in his concurrence, involving the Commission in particular cases would be unprecedented, and it would certainly spark litigation over the scope of the Commission’s authority. It’s also unclear how the Commission and its limited staff could review specific cases and issue guidance (perhaps in hundreds of cases each year), what the mechanics for such a review would be even if it had that authority, or whether the Commission would be inclined to wade into that morass.




   Federal Preemption of Common Law Claims involving Securities Transactions

Holtz v. J.P. Morgan Chase Bank, N.A., No. 13-2609 (Jan 23, 2017)



One of Chase Bank’s many services is to manage its clients’ investment portfolios, including by placing their money in mutual funds. Plaintiff brought a putative class action alleging that Chase paid its employees undisclosed bonuses if they placed clients’ money in the bank’s own mutual funds. The complaint asserted state law breach of contract and breach of fiduciary duty claims. Plaintiff was careful not to allege fraud in an attempt to avoid preemption by the federal securities laws. Nevertheless, the district court found the claims to be preempted under the Securities Litigation Uniform Standards Act (SLUSA – 15 U.S.C. § 78bb(f)) because the mutual funds were “covered securities” and the allegations were based on a “misrepresentation or omission of a material fact in connection with the purchase or sale of a security.” The Court affirmed notwithstanding that plaintiff made no fraud allegations. Congress desired broad preemption under SLUSA for all claims based on misrepresentations or omissions about covered securities, not just fraud-based claims. Fiduciary breaches and even contract violations, if founded on a failure to disclose information, must proceed under federal law if at all.



   Trial Court Must Instruct Jury on Meaning of Regulation underlying a Criminal Charge; Reading the Regulation’s Text is Insufficient

United States v. Bloom, No. 14-1445 (Jan 19, 2017)



Eric Bloom was the CEO of futures commission merchant Sentinel Management Group. His fraud conviction arose from Sentinel’s pledge of customers’ accounts as leverage for trading on Sentinel’s proprietary “house” account. When the market and then Sentinel collapsed in 2007, its customers and other creditors lost $600 million, reportedly the largest bankruptcy of an FCM.


The government’s case relied heavily on CFTC Rule 1.25, a typically jargon-laden regulation. That rule governs aspects of how an FCM like Sentinel must deal with its customers’ funds, such as by using segregated accounts. Bloom’s defense sought to use the rule to its advantage, arguing that notwithstanding the segregated account requirement, the rule specifically permitted Sentinel to engage in leverage using those assets. Bloom asked the trial court to interpret the rule and to instruct the jury that leverage was allowed under it. The court refused to give the requested instruction, but not because it disagreed with Bloom’s interpretation. Instead, the court read the full regulation to the jury, letting the lay jurors determine its meaning.


The Court concluded that the trial judge’s refusal to instruct the jury on the meaning of the regulation was a mistake. Because the judge is the arbiter of the law, and because the question of whether the regulation allowed for leverage was a question of law, the judge shouldn’t have left the jury at sea. Finding that the issue was a minor one, however, the Court held the error to be harmless and it affirmed Bloom’s conviction.



December 2016



Criminal Prosecution of Employee Barred by Government’s Loss in Civil Case Against Company

United States v. Egan Marine Corp., No. 15-2477 (Dec. 12, 2016)


The government’s ability to have two bites at the enforcement apple – first civilly, then criminally – has taken a hit. The Court held that non-mutual collateral estoppel can be asserted by a criminal defendant against the government based on a prior civil judgment against the government and in favor of the defendant’s employer.


Dennis Egan was the principal of Egan Marine, a barge tug company. Dennis was also the master of the tug when an explosion killed one of its deckhands. The government first brought a civil claim against Egan Marine (but not Dennis). After a bench trial, the court found for the company because the government was unable to prove negligence under a preponderance standard. The government then indicted Dennis for the same death. Because negligence was also an element of the criminal charge (to be proved by the higher reasonable doubt standard), Dennis argued that the issue had necessarily been decided against the government and the charge should be barred.


In reversing his conviction, the Court rejected the government’s reliance on cases finding no preclusion in other circumstances – such as acquittals in criminal cases against other defendants or administrative findings against the government. Non-mutual preclusion in the civil-then-criminal context is different, the Court held. Acquittals in criminal prosecutions can be based on jury nullification and are unreviewable, whereas the government can appeal a civil judgment. Administrative proceedings are not reliable enough to justify the preclusive effect in a related criminal prosecution. But when the government tactically chooses to bring a civil case first, “it is the United States that prefers a situation in which it can win but not lose.” Preclusion under those circumstances is mandatory when the factual issue was necessarily decided against the government in the civil case. Because an employee is “in privity” with his employer, the Court found no issue with the “non-mutuality” of the preclusion.


Whether this decision will chill the government’s efforts to bring civil cases preliminary to criminal prosecutions is not known. For practitioners, however, a prior civil judgment against the government and in favor of a client’s employer will be a powerful tool to avoid a criminal charge.





NCAA Athletes Lose Bid as Paid Employees; Concurrence Keeps Door Open for Revenue Sports

Berger v. NCAA, No. 16-1558 (Dec. 5, 2016)


This Circuit – the home of the NCAA – is the latest to weigh in on whether college athletes should be treated as employees under federal law. In this salvo, female track and field stars from the University of Pennsylvania demanded minimum wage under the Fair Labor Standards Act. The Court rejected the claim, holding that dismissal was correct as a matter of law. Its decision was based less on its independent legal analysis, more by deference to the Department of Labor’s strained (and outdated) view that collegiate athletic programs are “primarily for the benefit of the participants.” The panel opinion refused to parse the particulars of the sports at issue, rejecting the athletes’ argument that the employment question was a fact-intensive one. Yet, Judge Hamilton wrote separately to keep the door open for revenue-producing sports: “I am less confident, however, that our reasoning should extend to students who receive athletic scholarships to participate in so-called revenue sports like Division I men’s basketball and FBS football.”



No-Loss Sentence May Result from Superseding Fraud

United States v. Burns, No. 15-2824 (Dec. 12, 2016)


Burns was an investment advisor who lied to his clients about his professional experience. Relying in part on those false representations, those clients invested over $3 million in supposed promissory notes. It turned out that the entire investment opportunity was a Ponzi scheme created by his employer, although Burns did not know that. The district court sentenced Burns based on the entire $3 million loss. The Court remanded for resentencing, holding that the district court plainly erred in failing to consider whether the Ponzi scheme was a superseding fraud that broke the causal chain in Burns’ own fraud. If it was, the dollar loss attributable to Burns for purposes of the guidelines and restitution would be zero.


The decision is useful for clients who are charged as part of an extensive fraudulent scheme but whose conduct (and knowledge) was limited to a particularly narrow or early aspect. Even if that client’s conduct could otherwise result in a high loss figure under the guidelines, intervening misrepresentations by other participants could be deemed a superseding cause that may drastically reduce the client’s exposure.



Caution to Snooping Spouses: Intercepting Your Significant Others’ Emails is a Federal Wiretap Offense

Epstein v. Epstein, No. 15-2076 (Dec. 14, 2016)


Paula suspected that her husband Barry was unfaithful. So like any good millennial, she used her basic email tech skills to find out for sure. She went into her husband’s account and set it to automatically forward all incoming messages to her own account. Her fears were confirmed and the two entered into divorce proceedings, during which Barry found out about Paula’s surveillance activities. He brought a separate civil claim under the Federal Wiretap Act, 18 U.S.C. § 2511, which also provides for criminal liability. The Court reluctantly reversed dismissal of the claim, stating that Paula’s conduct “technically fall[s] within the language of the Act, though Congress probably didn’t anticipate its use as a tactical weapon in a divorce proceeding.” Judge Posner wrote separately to state that – had the argument been made – he would be inclined to dismiss the claim because Barry’s adultery was itself “criminal” and the Wiretap Act shouldn’t be deemed to prevent even private persons from conducting electronic surveillance to ferret out criminal conduct.



November 2016




Federal and Illinois DBE Programs Ruled Constitutional – Fraud Exposure Remains for Contractors Struggling to Comply

Midwest Fence Corp. v. U.S. Dept. of Transportation, No. 15-1827 (Nov. 4, 2016)


Government contractors have tried for decades to reconcile the aspirational requirements of minority- and disadvantaged-business-enterprise programs with the reality of the marketplace. In recent years, notable general contracting firms and subcontractors have come under investigation for allegations of fraud in their efforts to satisfy those requirements. Some of those firms, as well as their senior executives, have been indicted. Others have been compelled to pay millions in civil fines under the Federal False Claims Act and its state counterparts. Theories of prosecution have become ever-more aggressive. Charges are not solely based on allegations of “sham” DBE firms or blatant “pass-through” arrangements. Instead, many involve more subtle conduct such as sharing employees with the DBE firm, loaning equipment to it, and directing or supervising the DBE’s work on the job-site. Yet, the resulting fraud charges are equally damning. Because of those tensions and the large stakes, contractors continue to challenge the constitutionality of those programs in numerous jurisdictions. Those challenges have often focused on the practical impossibility of finding sufficient qualified DBE/MBEs to provide the required portion of work.


Midwest Fence, the most recent of those challenges, addresses DBE requirements for highway construction programs administered by the U.S. Department of Transportation, the Illinois DoT, and the Illinois Tollway. Although the Court writes that it is “troubled” with certain aspects of those programs, such as their disproportionate effect on certain specialty trades, it agreed with the district court that they are not constitutionally infirm. The Court relied on the theoretical availability of “waivers” allowing a general contractor to seek relief from the otherwise rigid requirements. The Court discounted evidence that waivers were almost never granted in practice, and it brushed off the concern that general contractors would be loath to ask for them in the first place for fear of losing the bid to another firm that doesn’t ask for that concession. The Court also was not moved by evidence showing that truly qualified DBE firms often did not exist for the particular types of work deemed to be DBE-eligible.


Contractors will continue to be challenged in trying to comply with those programs’ requirements. Firms and their key personnel, down to project managers and forepersons, need to be reminded that despite those challenges, the programs are here to stay for the foreseeable future, and any short-cuts may invite a federal scrutiny.





FCA Theory of “Implied False Certifications” Takes a Hit

United States v. Sanford-Brown, Ltd., No. 14-2506 (Oct. 24, 2016)


Can a mere request for payment be deemed a “false statement” under the Federal False Claims Act, on the theory that the request implicitly certifies compliance with the underlying contract and regulations? The Supreme Court examined this so-called “implied false certifications” theory in Universal Health Services, Inc. v. United States, 136 S.Ct. 1989 (2016), holding that it can be a basis for liability, but only when two conditions are met: “first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” In Sanford-Brown, the Seventh Circuit had the opportunity to apply that standard for the first time. Affirming summary judgment against the government based on Universal Health, the Court emphasized that the defendant’s mere request for payment did not amount to a “specific representation” that could subject it to liability, even if the defendant knew that its performance had not complied with the underlying regulations and that it was not entitled to payment.



Immediate Payment of Full Criminal Restitution Required Despite Apparent Language to the Contrary

United States v. Wykoff, No. 16-1307 (Oct. 6, 2016)


After pleading guilty to wire-fraud charges, Wykoff was sentenced to imprisonment and to pay restitution of $450,000. One of the terms of supervised release was that any unpaid restitution upon release from prison shall be paid “at a rate of not less than 10% of the defendant’s gross monthly income.” On appeal from a writ of garnishment, defendant argued that the special condition established a payment plan. In rejecting that reading, the Court emphasized that full restitution is required to be paid immediately unless the district court provides otherwise. The condition of paying “not less than 10%” of defendant’s income during supervised release, according to the Court, did not change that rule; it only set a floor for any payments. This case highlights the need for great specificity in a judgment order when defense counsel believes that the Court is amenable to ordering installment payments for restitution instead of a lump sum. The judgment order must be unambiguous, and the provision must be in the restitution order itself; it is not enough to include it as part of the conditions of supervised release.



Obstruction-of-Justice Sentencing Enhancement for Defendant’s Testimony Continues to Exact “Trial Penalty”

United States v. Rash, No. 16-1672 (Oct. 27, 2016)


Rash testified on his own behalf in a felon-in-possession gun case. When he took the stand, he conceded his knowing possession, the only element of the offense that had been in dispute. His defense instead was jury nullification: that the gun was owned by his girlfriend and he was simply returning it to her, which, of course, was no real defense. He argued that the sentencing court’s enhancement for obstruction of justice for falsely testifying about the reason for his possession was erroneous because his testimony amounted to an admission of guilt regardless of the reason. Although recognizing that defendant’s false testimony did not go to an element of the offense, the Court nevertheless affirmed because that testimony invited an acquittal through jury nullification. In doing so, the decision highlights that defendants who testify on their own behalf and are convicted should expect to be penalized for exercising that right, even when the subject of the allegedly false testimony was only marginally related to the charged offense.



September  2016



Courts Are NOT Limited by Rule 6(e) in Allowing Disclosure of Grand Jury Materials

Carson v. United States, No. 15-2972 (September 15, 2016)


The secrecy of grand jury proceedings, and the materials incident to those proceedings, is governed by Fed.R.Crim.P. 6(e). The Rule lists a handful of exceptions where the district court may permit disclosures of those materials. No catch-all provision exists allowing a court to order disclosures in other circumstances or whenever it deems appropriate. Yet, the Court held that district courts’ authority to order disclosures is not so limited. Carson involved grand jury materials sealed from the 1940s of an investigation about cracking Japanese codes during World War II. The government conceded that no interests favored continued secrecy. But it opposed disclosure because none of the exceptions in Rule 6(e) permitted it. The Court rejected the argument that Rule 6(e) was the beginning and the end of the story. Because district courts have inherent powers as supervisors of the grand jury, it found that those powers are not limited by the Rule and a district court can order disclosure “whenever appropriate.” Although the result in Carson might not be controversial on its facts (the release of 70-year old documents of purely historical interest), creative counsel may use the holding to argue for disclosure of grand jury materials in a variety of circumstances regardless of what the Rule provides.





Victim Cannot Waive Right to Restitution under MVRA

United States v. Kolbusz, No. 15-2962 (September 21, 2016)


Even sophisticated victims like insurance companies need to be protected from themselves when seeking restitution. Or so suggests the Court. Dr. Kolbusz was found guilty of submitting fraudulent claims to health insurance carriers for medically unnecessary procedures. In settling parallel civil litigation, some of the insurers gave explicit waivers of their right to receive criminal restitution under the Mandatory Victim Restitution Act. The sentencing court nevertheless ordered the defendant to pay full restitution to each of those victims. The Court affirmed, holding that the government was not bound by those private agreements. The Court did not explain why the government, whose mandate under the MVRA is to benefit the victims, should not be bound by the victims’ fully-informed decision to resolve the restitution issue on their own.



Whistleblower’s Pleading of Personal Expertise Not Sufficient to Support FCA Claims

Presser v. Acacia Mental Health Clinic, LLC, No. 14-2804 (September 1, 2016)


Rose Presser was a nurse and nurse practitioner who worked for the defendant’s mental health clinic. She brought this claim as a relator under the False Claims Act, alleging that the defendants falsely billed for medically unnecessary procedures – such as mandatory drug screenings and a policy requiring that a patient see four different personnel (each incurring a charge to Medicare or Medicaid) before being prescribed medication. Presser based her conclusion about lack of medical necessity on her “years of experience and training” as a nurse and a nurse practitioner. The Court affirmed the dismissal of those claims under Rule 9(b), finding that plaintiff’s personal view, no matter how well-experienced, would not be enough to sustain a finding of lack of medical necessity. The problem with reliance on a relator’s individual estimation of the situation is that a relator “may not be in a position to see the entire picture or may simply have a subjective disagreement with the other party,” and that the relator’s perspective may be colored by self-interest or bias.


The holding is significant beyond the realm of non-physician relators and even beyond health care fraud cases. The dismissal (and the Court’s affirmance) did not turn on whether the relator was sufficiently experienced or knowledgeable to form an opinion of whether the alleged statements were false. A relator who is a physician with a particularly relevant specialty, for instance, might also be unable to sustain an FCA claim if based solely on that relator’s “personal estimation” of what is proper, no matter how much education or experience she has. Instead, the Court concluded that the relator must allege “medical, technical, or scientific context” that would show why the treatments actually were unnecessary. It likewise follows that qui tam complaints in other types of FCA cases (construction, government contracting, etc.) may be attacked regardless of the relator’s wealth of experience in the industry, if the allegations are otherwise thin.



Agreement to Recommend a “Within-Guidelines” Sentence Allows the Government to Ask for High End of the Range

United States v. Morris, No. 15-2402 (September 9, 2016)


A defendant gets no concession at all when the government agrees to recommend a sentence “within the sentencing guidelines range.” Sometimes, the government will enter into a “no-rec” plea agreement. The Court held that this case was not one of those times. When the government agrees to recommend a sentence within the guidelines range, it is not required to utter the words: “The government requests a sentence within the guidelines range,” or anything like them. Instead, because the high end of the range is still within the range, the government is free to ask for the highest sentence available under the guidelines. Worse, assuming the plea agreement doesn’t explicitly prohibit the government from advocating enhancements that would increase the guidelines range, the government can propose any enhancement it wants even in the face of an agreement to recommend the “guidelines range.”




Chambers v. Mississipi Lives

Wayne Kubsch v. Neal, No. 14-1898 (September 23, 2016) (en banc)


More than three decades ago, the Supreme Court held that a criminal defendant’s due process and confrontation rights trump the hearsay prohibition: “Few rights are more fundamental than that of an accused to present witnesses in his own defense. . . [W]here constitutional rights directly affecting the ascertainment of guilt are implicated, the hearsay rule may not be applied mechanistically to defeat the ends of justice.” Chambers v. Mississipi, 410 U.S. 284 (1973). Although the limits of the hearsay prohibition have been challenged now and again, those challenges almost always fail.


In this death penalty habeas case, Chambers was revived in the context of video-recorded eyewitness interviews. Police had questioned the murder victims’ neighbors (a nine-year old girl and her mother) during a recorded interview. The girl recounted having observed the victims come and go from their house at times inconsistent with the state’s theory of when the murders occurred. But when the case came to trial seven years later, the girl couldn’t recall those details; she couldn’t even recall having provided the interview. The trial court excluded the recorded interview on hearsay grounds.


The Seventh Circuit sitting en banc accepted that the hearsay rule was properly applied to exclude the videotaped interviews. Yet, because the interviews were essential to the defense and bore multiple hallmarks of reliability, it found that their exclusion was constitutionally deficient. Although Kubsch was a capital case (a point that the Court said was important in reaching its decision), Chambers now may have renewed vitality for criminal trials of all types, especially in the era of audio- or video-recorded statements.



Judge’s Erroneous Ex Parte Communications with Jurors Does Not Warrant Reversal


United States v. Turner, No. 15-1175 (September 9, 2016)


Only 45 minutes into deliberations, a juror sent a note asking to be released because of a death in the family. Rather than conferring with that juror by note, the judge went back to the jury room – no counsel, no court reporter – to get more information from the juror. After conferring with counsel and ultimately deciding to excuse the juror, the judge had two further ex parte trips to the jury room. In the last of them, the judge admonished the remaining jurors: “We are not going to be able to do this again.”


The Court had no trouble finding that the trial court’s ex parte communications with the jury violated Rule 43(a) of the Federal Rules of Criminal Procedure, which entitles a defendant to be present at all stages of trial, including any “communications between the judge and the jury, or a single juror.” Yet, the Court held the error to be harmless because the defendant was not able to show that those contacts were likely to have affected the outcome of the case. Given that holding, it is not clear how a defendant ever could meet his burden unless the ex parte communications related directly to the substance of the case (the evidence or the law), as opposed to the process of deliberations.







August 2016



Adverse Inference Triggered by Letter Immunity in Prior Criminal Matter – Are Proffer Letters Next?

Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., No. 15-2526 (August 2, 2016)


Whatever the benefits of getting an immunity letter from the government in the course of a criminal investigation, it may come with a significant economic risk if your client is later sued for civil damages: The district court may instruct the jury that it can draw an adverse inference against the client – even though the client testified truthfully in the criminal case, and even if your client fully cooperated in discovery in the civil case. In this Rod Blagojevich-inspired case (see next summary), the government gave letter immunity to horseracing executive John Johnston in exchange for his truthful testimony against Blago regarding an alleged contributions-for-legislation scheme. The immunity letter began with the standard preface that “your attorney has represented that such information may tend to incriminate you.” In the subsequent civil case brought by the state’s casinos against Johnston and his racetracks, the trial judge instructed the jury that it may infer based on the immunity letter that Johnston’s testimony would have been incriminating.


Affirming, the Court found no problem with the instruction, even though Johnston testified in all proceedings, civil and criminal, and the civil jury consequently heard all of the relevant testimony. The Court did not explain why a jury would need to “infer” whether Johnston’s testimony would be incriminating, given that the jury actually heard all of his answers. The Court also did not distinguish the case from the more typical ones involving adverse inferences, such as where a party invokes his Fifth Amendment privilege in the pending case, and thus prevents the opposing party from obtaining his testimony or other discovery. Nevertheless, the Court’s ruling appears to extend substantially the district court’s discretion to instruct on the adverse inference. Anytime a putative civil defendant obtains immunity or invokes his Fifth Amendment privilege in a parallel criminal matter, the adverse inference may come into play. Of equal concern, will obtaining a mere proffer letter containing similar language (“your attorney has represented that such information may tend to incriminate you”) trigger an adverse inference instruction in a separate civil matter?



Blago Horseracing Case Makes It Harder to Sustain Civil RICO Claims: “Continuity” Requirement Not So Easily Satisfied

Empress Casino, Part II (see Part I, above)


One of the many aspects of the Rod Blagojevich corruption investigation was Blago’s alleged agreement to sign a tax bill redirecting revenues from the state’s casinos to the horseracing industry in exchange for the promise of a $100,000 campaign contribution by the racetracks. After this part of the investigation became public, the casinos sued the racetracks for civil RICO violations and state law claims. A jury found in favor of the casinos, awarding almost $26 million in damages, which was trebled under RICO to almost $78 million. While affirming the award of damages under the state law claims, the Court reversed the RICO verdict and the trebling of damages because of insufficient evidence of a pattern of racketeering activity. Although the jury would have been entitled to find numerous individual predicate RICO acts, the Court found lacking any evidence of “continuity” – that is, that the contribution-for-legislation scheme existed over an extended period of time or posed a realistic threat of repetition, as opposed to being a distinct “one-off crime.”



Flipper in Beau Brindley Case Gets a Second Chance at Full Benefit for Cooperation Despite Brindley’s Acquittal

United States v. Harrington, No. 15-3486 (August 19, 2016)


Should credit for cooperation be reduced simply because the defendant on trial winds up being acquitted? Defense lawyer Beau Brindley was charged with suborning perjury in his clients’ criminal cases. The government gained the cooperation of one of his former clients, Richard Harrington, who testified at Brindley’s own trial. Brindley was acquitted. According to the Court’s opinion, there was no evidence in the record that Harrington was untruthful in his testimony or that he was deficient in his cooperation. So the government moved for a 25% reduction in Harrington’s previously-imposed sentence. The district court (a different judge than the one who presided over Brindley’s trial) refused the government’s motion in part, granting only a 14% reduction. On appeal, the Court appeared concerned that the district court might have conditioned full cooperation credit on whether the underlying prosecution proved successful. The Court did not go so far as to call the decision error. It instead remanded for the district court to reconsider the government’s motion and, if it were to stick by its ruling, to clarify its reasons. What seems clear, however, is that the Court will not accept the acquittal of the target of the cooperation as a sufficient reason to deny credit to the cooperator.



Increase in Sentence After Defendant’s Successful Appeal of His Sentence is Strangely OK

United States v. Dorsey, No. 15-3341 (July 21, 2016)


Be careful what you wish for in appealing your client’s sentence. You might just lose by winning. In Dorsey, the defendant successfully appealed the supervised-release conditions of his 276-month sentence, and the case was remanded for resentencing. In the meantime, however, he was convicted of a separate charge for violating his release conditions from a prior case triggered by his instant conviction. On resentencing in this case, the district court took account of that post-sentencing charge to increase defendant’s sentence on the first set of charges. On the ensuing appeal, the Court was unsympathetic to defendant’s unusual position of having won a resentencing only to be punished more severely. The Court cited 18 U.S.C. § 3661, which prohibits placing “any limitation” on the information the sentencing court may consider concerning the defendant’s characteristics, even if that information came to light after the original sentencing.




Sentencing Judge’s Commentary on Social Unrest, Protests against Police, and General Decay of Defendant’s Neighborhood Improperly Blamed Defendant for Society’s Ills

United States v. Robinson, No. 15-2019 (July 22, 2016)


This drug case has an important lesson for sentencings in white collar cases: The sentencing court only may go so far in linking general social or economic problems with the case at hand. In Robinson, the judge decried the decay of defendant’s neighborhood, as well as the overall unrest seen in other cities as a result of urban blight, protests, and even rioting. The Court held that defendant’s sentence must be vacated, because the district judge’s comments improperly tied general societal problems to defendant’s narrow offense. Although the importance of general deterrence in sentencing is a given, the sentencing court’s comments must reflect that the punishment is intended to deter the specific type of conduct at issue, as opposed to being punishment for criminality in general or other problems in society at large. Defense counsel should be sensitive to a judge’s (or prosecutor’s) comments at sentencing concerning things such as the deterioration of the overall economy, the loosening of business ethics among corporate executives, and the culture of greed. Those comments may be enough to garner a new sentencing with a new judge.




Beware the Appellate Waiver . . . Again

United States v. Odeh, No. 15-3389 (August 10, 2016)


Defendants decided to plead guilty to fraud offenses. Their plea agreements with the government contained the standard waiver: They could not appeal their sentences as long as the sentences were within the Guidelines range. You might think that the waiver, like any other contractual term, was contingent on the government living up to its obligations under the plea agreement. You would be wrong. When the government refused to recommend a reduction under the Guidelines for acceptance of responsibility, as it had agreed to do in the written plea agreements, the defendants appealed. The Court dismissed the appeals based on the waiver. It found that the government’s arguable breach of its responsibilities did not save the defendants from their waiver of appellate rights. The Court enforced the narrow language of the waiver, which allowed an appeal only if the sentence exceeded the calculated Guideline range. Although such waivers have become the norm (the government pretends that they are a non-negotiable term of any plea agreement), this case is another warning to counsel who reflexively accept the government’s language.



July 2016



The Continued Demise of Rule 11(c)(1)(C) Plea Agreements: A Sentencing Court’s Unarticulated Rejection of the Agreement is Effectively Unreviewable

United States v. Viren, No. 15-2078 (July 5, 2016)


The Court affirmed the district court’s apparently unbounded discretion to reject a plea agreement under Rule 11(c)(1)(C), without as much as a whiff of a reason being offered by the district court. The government and the defendant had agreed to a maximum sentence of 360 months incarceration for defendant’s child exploitation offenses, whereas the maximum sentence under the Guidelines would have been life imprisonment. The district court did not articulate a reason for its decision; it simply notified the parties, “I will not accept the 360-month cap.” The defendant withdrew his plea, but then decided blindly to enter a plea of guilty. The district court sentenced him to 600 months. Although the Court recited the standard of review as being for abuse of discretion, it refused to require the district court to provide “any justification” for rejecting the parties’ agreement on the maximum sentence. In fact, the Court suggested that by articulating a reason, a sentencing court would run afoul of Rule 11(c)(1)’s prohibition against participating in plea discussions – because, apparently, commenting on what the sentencing court does or does not find acceptable would give the parties a roadmap to a court-sanctioned plea agreement. But in reaching that conclusion, the Court did not discuss how a district court’s decision could ever practically be reviewed for abuse of discretion. The effect appears to be that as long as the sentencing court identifies what term of the Rule 11(c)(1)(C) agreement it finds objectionable, it may reject the agreement without any articulated basis and that decision will be unreviewable.



The Cart-Before-The-Horse Problem of Challenging Agency Investigatory Subpoenas Based on Lack of Agency Jurisdiction

CFTC v. Monex Deposit Co., No. 15-1467 (June 1, 2016)


How can you challenge the enforceability of an agency subpoena when it appears that the agency may not have jurisdiction over the underlying transactions? The Court’s answer is, you can’t. Monex is in the business of selling contracts for delivery of precious metals. The CFTC ordinarily regulates such contracts, and it served Monex with an investigatory subpoena seeking information concerning whether Monex’s contracts were covered transactions. Monex sought to quash the subpoenas, arguing that its contracts were exempted under the Commodities Exchange Act from CFTC regulation because those contracts were for delivery within 28 days. The Court held that the action was premature. “It is clear to us . . that Monex is using its opposition to the subpoena as a means to get a judicial decision on the merits of its statutory argument, before the CFTC makes a substantive decision. . . A contention that the agency lacks ‘jurisdiction’ does not change this timing rule.” The Court’s ruling, however, appeared to be premised on the existence of at least a colorable argument that the CFTC might have jurisdiction based on the results of its investigation. But the conclusion still may be difficult for targets of administrative investigations to stomach: You are likely to have to suffer the slings and arrows of an agency investigation even if you are convinced that the agency has no jurisdiction over the matter it is investigating, and even if you are later proved correct in an enforcement proceeding.



“Sophisticated Means” in Tax Fraud Cases: Almost Anything Counts, even a False 1099

United States v. Bickart, No. 15-2890 (June 17, 2016)


Although tax frauds typically involve falsification of at least one tax document submitted to the IRS, the Court held that creation of false 1099s (purportedly issued by financial institutions) was a step too far to avoid an enhancement for use of sophisticated means. The Court viewed submission of the false 1099s as not being an “inherent” part of the submission of the false underlying tax returns, even though the 1099s were submitted as part of those returns. The Court acknowledged that such conduct “ranks on the low-end of tax scheme sophistication.” But the lesson is that a client’s creation of any false corroborative document to support a false return is likely to trigger the sentencing enhancement



Silvern: Reversal for a Deviation from Silvern Instruction Requires Precise Objection at Trial – It Is Not Enough to Ask for a Mistrial

United States v. Ridley, No. 15-1309 (June 13, 2016)


After just a few hours of deliberations, the jury announced that it was deadlocked. The defendant asked the court to declare a mistrial. The court refused. But instead of giving the standard Silvern instruction (United States v. Silvern, 484 F.2d 879 (7th Cir. 1973) (en banc)), the district court wrote back to the jury: “The Court requests that the jury continue in their deliberations in an effort to reach a unanimous verdict.” Having asked for a mistrial, defendant did not explicitly object to the language of the note. The jury returned guilty verdicts later that day. Although the language of Silvern is thought to be sacrosanct – indeed, the Silvern court itself warned that a resulting conviction from any deviation from the scripted language “will be reversed and remanded for a new trial” – reversal is only required when defendant specifically objects to the instruction before it is given. Here, because defendant failed to make an explicit objection, the Court affirmed.



Court Disqualifies Judge Der-Yeghiayan from Legacy INS Case; Mandamus is Usual Route for Review of Recusal Motion

United States v. Herrera-Valdez (June 17, 2016)


Defendant, previously removed from the United States, was charged with illegal reentry. The criminal case was assigned to Judge Der-Yeghiayan, who had been listed as District Counsel on INS’s pleadings during the preceding removal matter. Regardless of the Judge’s lack of any direct involvement in those prior proceedings, the Court held that the appearance of bias was sufficient to require recusal. More broadly, the Court reiterated this Circuit’s general rule that appellate review of recusal for apparent bias must ordinarily be taken by a pre-trial petition for mandamus. (Mandamus wasn’t required here, however, because the issue was preserved in a conditional plea agreement.)