Thursday, December 3, 2015
The New York Times reported today (Goldstein, "Witness in Insider Trading Inquiry Sentenced to 21 Days, see here) what it called a "surprising" 21-day prison sentence imposed by Judge P. Kevin Castel upon a felony conviction broke "what has been the standard practice" in insider trading cases in the Southern District of New York. Anyone not familiar with the customs of that court's prosecutors and judges might think that such a sentence was out-of-the-ordinary lenient. However, as the article makes clear, that sentence, for a major cooperator, was apparently considered out-of-the-ordinary harsh.
The defendant, Richard Choo-Beng Lee, was a California hedge-fund owner who, after being approached by FBI agents with evidence that he (and his partner, Ali Far, who was later sentenced to probation by a different judge) had broken securities laws, cooperated with the government by recording 171 phone calls with 28 people, including Steven A. Cohen, DOJ's no. 1 target, who has not been indicted (although his firm, SAC Capital Advisers, was and pleaded guilty and paid a multi-billion dollar fine).
New York City is the cooperation capital of the world. As the Times article indicates, cooperators in white-collar (and other) cases in the Southern District of New York are given considerable benefits for cooperating (far greater than in most jurisdictions) and the default and almost uniform sentence for them is probation and not jail. To be sure, cooperators make cases, and many of those cases and the individuals charged would go undetected without cooperators looking to provide assistance to the government to lessen their own potential sentences.
However, the cooperation culture in New York has many deleterious consequences. To the extent that deterrence is achieved by jail sentences (and I believe it is in white-collar cases, but not in many other areas), its effect has been minimized. The clever white-collar criminal (and most but not all are intelligent) knows that he has in his pocket a "get-out-of-jail card," the ability to cooperate against others and get a non-jail sentence. The mid-level financial criminal can commit crimes, enjoy an outrageously lucrative, high-end life style, and, when and if caught, cooperate, stay out of jail and pay back what assets, if any, remain from his wrongdoing.
Knowledgeable white-collar defense attorneys are well aware of the benefits of cooperation. It is often good lawyering to urge cooperation, at times even in marginal cases, to avoid jail sentences. Indeed, more than a a trifling number of those who plead guilty in white-collar cases are actually innocent, often because they lack the requisite mens rea (a difficult, even when accurate, defense). And sometimes, at the urging of their lawyers, they admit guilt and tailor their stories and testimony to what the prosecutors and agents (who usually see only the dark side of equivocal facts and circumstances) believe actually occurred so that others actually innocent are convicted (or also choose to plead guilty and perhaps cooperate against others). The bar for indictment and conviction has been lowered. The adversary system has been turned sideways, if not upside-down.
To many, probably most, lawyers, cooperation is personally easier than going to trial. Cooperation avoids the stress of battle and the distress of (statistically probable) defeat at trial. No longer do lawyers walk around with "no-snitch" buttons. The white-collar bar has become generally a non-combative bar. To the extent it ever had one, it (with notable and not-so-notable exceptions) has lost its mojo. The first (and often only) motion many lawyers make upon being retained is to hail a taxi to the prosecutor's office.
I write about the role of the bar as a lament more than a criticism. I too represent cooperators when I think cooperation is to their benefit. There is a great penalty (or, to put it gently, "loss of benefit") for not cooperating. Those accused who choose not to cooperate, or those whose own scope of criminality and knowledge of wrongdoing of others is so limited that they cannot, receive (in my opinion sometimes, but far from usually, appropriate) severe jail sentences. Those who cooperate, except for the unfortunate Mr. Lee, almost always avoid jail.
Lawyers and professors talk about the "trial penalty," the extra, often draconian, prison time one receives for exercising his right to trial. The principal "penalty" in white-collar cases is not the trial penalty, but the "non-cooperation penalty." Even those who choose not to go to trial and plead guilty are punished much more severely than those who cooperate.
Remaining in this case is a single misdemeanor charge following the court's dismissal of homicide charges against a BP engineer on the Deepwater Horizon oil rig. (see here) Eleven charges were dismissed by the government in 2014 premised on the statute not applying to the operator of a drilling ship and eleven other charges were now dismissed by the court as the "government agreed" to this dismissal of charges of "'involuntary homicide' based on lack of evidence and other arguments. Initially, this individual faced 22 felony homicide charges, plus one misdemeanor charge of water pollution. The remaining misdemeanor charge is scheduled for a February trial. David Gerger from Quinn Emanuel represented the accused. See also Smyser, Kaplan & Veselka, LLP lawyers David Isaak, Shaun Clarke, and Dane Ball's role in this case (see here).
Tuesday, June 9, 2015
Three years ago, I wrote a lengthy blog piece about U.S. v. Daguerdas, a case in which a SDNY judge ordered a new trial for three of four defendants because of juror misconduct. ("Lying Juror Requires New Trial in Tax Fraud Case," July 12, 2012). The judge denied a new trial for the fourth defendant, Parse, because his lawyers, said the judge, knew or should have known of the juror's misconduct and chose not to report it to the court, and thus Parse waived the misconduct. On appeal to the Second Circuit, U.S. v. Parse (13-1388, June 8, 2015)), the Court, with Judge Amalya Kearse writing the majority opinion, reversed Parse's conviction and remanded for a new trial as to him also.
The Court spent a considerable time reviewing the record to conclude that the district court's factual findings (by Judge William Pauley) that prior to the verdict the lawyers knew about the misconduct or failed to exercise due diligence to determine whether it had occurred was "clearly erroneous" and "unsupported by the record." This ruling, with which Judge Chester Straub, while concurring in the reversal, disagreed, I am sure gave some measure of relief to the trial lawyers, from the firm of Brune and Richard, whom Judge Pauley had chastised. Those lawyers appeared to have been faced with the difficult dilemma of whether and when a lawyer is obliged to report suspected misconduct by a trial participant that is likely to be favorable to her client and to have chosen not to report something that would have diminished his (and their) chance of winning. (It is also possible that during the heat and travail of trial the lawyers never focused on the reporting issue.)
This ethical/practical dilemma arises, for instance, when an attorney suspects or believes - but lacks actual knowledge - about trial misconduct, whether minor misconduct such as a juror engaging a defendant in casual conversation outside a courtroom despite a court admonition, or major misconduct such as a witness or defendant perjuring himself. Reporting the misconduct would likely result in removing a potentially favorable juror in the first example and in striking favorable testimony and severely limiting the defense in the second, in both cases lessening the client's (and attorney's) chance of a favorable outcome.
The Court declined to adopt a general rule, as requested by the defendant and amicus New York Council of Defense Lawyers, that lawyers (including prosecutors presumably) need not bring juror misconduct to the attention of the court unless counsel actually knew that such misconduct had occurred. Nonetheless, I suspect lawyers will cite the case for that specific proposition and the broader proposition that lawyers need not report any trial misconduct unless they have actual knowledge.
Interestingly, the extensive, case-specific factual analysis about the extent of the attorneys' knowledge of the juror's misconduct was unnecessary to the Court's decision, as both the two-judge majority and concurring opinions demonstrated. Even assuming the district court was correct in its negative evaluation of the attorneys' conduct, the Court found the denial to Parse of his basic Sixth Amendment right to an impartial jury by the improper presence of the lying juror was so significant that it could not be, as the district court had found, "waived" by the lawyers' conduct, and warranted reversal.
Tuesday, June 2, 2015
Yesterday I skimmed through the FIFA indictment referred to by my colleague Lucian Dervan on May 26, 2015 ("FIFA Officials Facing Corruption Charges"), primarily to determine how the government justified jurisdiction over alleged criminal activities that largely, seemingly almost entirely, occurred in other nations, a complaint made by none other than Vladimir Putin. Upon review, I believe the indictment, apparently drafted with that question in mind, facially makes a reasonably strong case for U.S. jurisdiction, based largely, although not entirely, on money transfers through U.S. financial institutions.
There remains, however, the question whether the U.S. Department of Justice should assume the role of prosecutor of the world and prosecute wrongs, however egregious, that were almost wholly committed by foreigners in foreign nations and affected residents of those foreign nations much more than residents of the United States. Our government's refusal to submit to the jurisdiction of the International Criminal Court is arguably inconsistent with our demand here that citizens of other nations submit to our courts.
On another subject, what struck me as just wrong was a minor part of the indictment, the obstruction of justice charge against Aaron Davidson, one of the two United States citizens indicted (the other, a dual citizen, is charged with procuring U.S. citizenship fraudulently). While the obstruction of justice count itself (count 47) is a bare bones parsing of the statute, the lengthy 112-page preamble to the actual recitation of counts (to me in clear violation of Fed. R. Crim. P. 7(c), which says the indictment "must be a plain, concise and definite written statement")(emphasis added) describes Davidson's allegedly criminal conduct as follows: "Davidson alerted co-conspirators to the possibility that they would be recorded making admissions of their crimes."
Such advice is provided as a matter of course - absolutely properly and professionally, in my opinion - by virtually every white-collar or other criminal lawyer representing a target of a criminal investigation. Since lawyers are given no special treatment different from others, if these facts justify a criminal conviction, a lot of white-collar lawyers will be counting the days until the five-year statute of limitations has passed since their last pre-indictment stage client meeting.
The obstruction of justice statute is so vague that it gives the government the opportunity to charge virtually any effort by lawyers or others to advise persons under investigation to exert caution in talking with others. The applicable statute, the one used against Davidson, prescribes a 20-year felony for "whoever corruptly...obstructs, influences, or impedes any official proceeding, or attempts to do so..." 18 U.S.C. 1512(c)(2). That catch-all statute, which follows one proscribing physical destruction of tangible evidence, to me is unconstitutionally vague, but courts have generally upheld it and left the determination of guilt to juries on the ground the word "corruptly," which itself is subject to many interpretations, narrows and particularizes it sufficiently. I hope that the presiding judge in this case, the experienced and respected Raymond Dearie, does not allow that count to get to the jury.
Tuesday, April 14, 2015
Earlier this month, the Second Circuit, as expected (at least by me), denied Southern District of New York U.S. Attorney Preet Bharara's request for reargument and reconsideration of its December 2014 ruling in United States v Newman which narrowed, at least in the Second Circuit, the scope of insider trading prosecutions. I would not be surprised if the government seeks certiorari, and, I would not be all that surprised it cert were granted.
In Newman, the defendants, Newman and Chiasson, were two hedge fund portfolio managers who were at the end of a chain of recipients of inside information originally provided by employees of publicly-traded technology funds. The defendants traded on the information and realized profits of $4 million and $68 million respectively. There was, however, scant, if any, evidence that the defendants were aware whether the original tippors had received any personal benefit for their disclosures.
The Second Circuit reversed the trial convictions based on an improper charge to the jury and the insufficiency of the evidence. Specifically, the court ruled that:
1) the trial judge erred in failing to instruct the jury that in order to convict it had to find that the defendants knew that the corporate employee tippors had received a personal benefit for divulging the information; and
2) the government had indeed failed to prove that the tippors had in fact received a personal benefit.
Thus, at least in the Second Circuit, it appears that the casual passing on of inside information without receiving compensation by a friend or relative or golf partner does not violate the security laws. "For purposes of insider trading liability, the insider's disclosure of confidential information, standing alone, is not a breach," said the court. Nor, therefore, does trading on such information incur insider trading liability because the liability of a recipient, if any, must derive from the liability of the tippor. To analogize to non-white collar law, one cannot be convicted of possessing stolen property unless the property had been stolen (and the possessor knew it). Those cases of casual passing on of information, which sometimes ensnared ordinary citizens with big mouths and a bit of greed, are thus apparently off-limits to Second Circuit prosecutors. To be sure, the vast majority of the recent spate of Southern District prosecutions of insider trading cases have involved individuals who have sold and bought information and their knowing accomplices. Although Southern District prosecutors will sometimes now face higher hurdles to prove an ultimate tippee/trader's knowledge, I doubt that the ruling will affect a huge number of prosecutions.
The clearly-written opinion, by Judge Barrington Parker, did leave open, or at least indefinite, the critical question of what constitutes a "personal benefit" to a provider of inside information (an issue that also might impact corruption cases). The court stated that the "personal benefit" had to be something "of consequence." In some instances, the government had argued that a tippee's benefit was an intangible like the good graces of the tippor, and jurors had generally accepted such a claim, likely believing the tippor would expect some personal benefit, present or future, for disclosing confidential information. In Newman, the government similarly argued that the defendants had to have known the tippors had to have received some benefit.
Insider trading is an amorphous crime developed by prosecutors and courts - not Congress - from a general fraud statute (like mail and wire fraud) whose breadth is determined by the aggressiveness and imagination of prosecutors and how much deference courts give their determinations. In this area, the highly competent and intelligent prosecutors of the Southern District have pushed the envelope, perhaps enabled to some extent by noncombative defense lawyers who had their clients cooperate and plead guilty despite what, at least with hindsight, seems to have been a serious question of legal sufficiency. See Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255 (1983)(test for determining insider liability is whether "insider personally will benefit, directly or indirectly"). As the Newman court refreshingly said, in language that should be heeded by prosecutors, judges, and defense lawyers, "[N]ot every instance of financial unfairness constitutes fraudulent activity under [SEC Rule] 10(b)."
As I said, I would not be shocked (although I would be surprised) if Congress were to enact a law that goes beyond effectively overruling Newman and imposes insider trading liability on any person trading based on what she knew was non-public confidential information whether or not the person who had disclosed the information had received a personal benefit. Such a law, while it would to my regret cover the casual offenders I have discussed, would on balance be a positive one in that it would limit the unequal information accessible to certain traders and provide a more level playing field.
Tuesday, March 17, 2015
The NACDL White Collar Crime College at Stetson completed an exhausting and exhilarating program with top white collar defenders teaching white collar advocacy skills to practitioners. This year, the instructors teaching in the program were:
A. Brian Albritton, Henry "Hank" W. Asbill, Brian H. Bieber, Barry Boss, Ellen C. Brotman, Preston Burton, Jean-Jacques Cabou, Robert M. Cary, Lee A. Coppock, David Debold, Lucian E. Dervan, James E. Felman, Drew Findling, Roberta Flowers, Ian N. Friedman, Lee Fugate, Helen Gredd, Lawrence S. Goldman, John Wesley Hall, Jr., John F. Lauro, Bruce Lyons, Terrance MacCarthy, Edward A. Mallett, Bruce Maloy, Eric R. Matheney, Michael D. Monico, Jane W. Moscowitz, Marc L. Mukasey, Kevin J. Napper, Julie Nielsen, Cynthia Eva Orr, J. Edward Page, Marjorie J. Peerce, Patricia A. Pileggi, Ellen S. Podgor, Gregory Poe, Mark P. Rankin, Shana-Tara Regon, Kerri L. Ruttenberg, Brian Sanvidge, Melinda Sarafa, Fritz Scheller, Adam P. Schwartz, George Ellis Summers, Brian L. Tannebaum, Kevin Tate, Larry Thompson, Gary R.Trombley, Morris (Sandy) Weinberg, Jr., Solomon L. Wisenberg
The opening keynote was given by Cynthia Orr, with Larry Thompson speaking about things not to do in a white collar case. The 2015 White Collar Award went to Hank Asbill of Jones Day (see here).
Monday, October 6, 2014
Rob Cary's book, "Not Guilty: The Unlawful Prosecution of U.S. Senator Ted Stevens" is a wonderful read and reminder of what needs to be corrected in our criminal justice system. Discovery in a criminal case is incredibly important, and this book emphasizes its importance in the criminal justice system and to society. In white collar document driven cases, the amount of paperwork can be overwhelming. It becomes important to not merely provide discovery to defense counsel, but also that it be given in an organized manner. Dumping documents on defense counsel is not enough. And failing to provide crucial documents, witnesses, and evidence is even more problematic. More needs to be done to correct discovery injustices in society and hopefully this book can serve as the momentum and real-life story to make it happen.
Thursday, September 18, 2014
Appellate Court Reverses Conviction Based on Last-Minute Prosecutorial Provision of Brady Material "Buried" in Mass of Discovery
Two of the many issues relating to prosecutorial disclosure of Brady material are the timing of the disclosure and the identification of the material as exculpatory. Many, perhaps most, prosecutors believe that they have satisfied their ethical and constitutional obligations under Brady by providing the exculpatory material just before trial (or before the witness affected testifies) without any specification that it is Brady material. Courts rarely -- almost never -- reverse a conviction because the Brady material was provided late or without any signal that it is exculpatory material.
In this connection, yesterday an intermediate New York appellate court in Brooklyn upon an appeal of a denial of a post-conviction motion unanimously reversed a kidnapping conviction because of the untimely disclosure of Brady material in a "document dump" on the eve of trial. The prosecutors there had during jury selection delivered the documents "interspersed throughout a voluminous amount of other documentation, without specifically identifying the documents at issue at the time of delivery," thereby, said the court, "burying" them. By doing so, the prosecution "deprived the defendants of a meaningful opportunity to employ that evidence during cross-examination of the prosecution's witness." People v. Wagstaffe, A.D.3d -- (2d Dept., Sept. 17, 2014). See here.
The prosecution's case was based exclusively on the testimony of a witness under the influence of drugs and alcohol at the time of the event who testified that she saw the defendants force the 16-year old victim into a car. The documents, police requests for records for both defendants, would have revealed that the defendants were being investigated one day prior to the initial police interview with the witness, contrary to the testimony of one of the investigating officers that the interview led them to the defendants. Thus, the documents, said the court, would "bear . . . negatively upon the credibility of [the witness] and the investigating detectives," issues of "primary importance in this case."
Too often appellate courts, often while giving lip service to the notion that Brady material should be provided to the defendant in time for him or her to use in a meaningful fashion, accept the view that a few minutes before cross-examination is sufficient, or that the defense lawyer's failure to request an adjournment is fatal to the defense appeal. Too often courts distinguish between Giglio impeachment of witness material and other Brady material and accept that it is acceptable that the former be given as late as just before cross-examination. Too often courts expect defense counsel to find the Brady "needle in a haystack" in a pile of discovery or 3500 material provided shortly before trial.
It is refreshing for an appellate court to accept the practicality that a harried on-trial defense lawyer cannot be expected to appreciate immediately the significance of a single item or a few items of paper provided at the last-minute and/or together with a mass of other less significant documents. It is refreshing for a court not to accept the prosecutorial tactic or custom to provide a "document dump" to conceal a page or a few pages of significant exculpatory material.
Hopefully, this decision will be affirmed on appeal (if taken or allowed) to New York's highest court, the Court of Appeals, and will be a bellwether for other courts, and not ignored or consigned to history as an aberrant decision of an intermediate appellate court.
Wednesday, September 3, 2014
Last month Prof. Douglas Berman reported in his indispensable Sentencing Law and Policy blog about a ten-year prison sentence imposed by SDNY judge Richard Berman upon defendant Rudy Kurniawan, who had sold counterfeit wine to the very rich, including billionaire William Koch (one of the less political Koch brothers), and allegedly profited by over $28 million (see here by scrolling down to August 10, "Can wine fraudster reasonably whine that his sentence was not reduced given wealth of victims?" See also here). Some of the ersatz wine sold for as much as $30,000 per bottle.
Having a somewhat perverse sense of humor, I found it somewhat amusing that the 1% paid astronomical sums for and presumably sometimes drank the same wine that the other 99% of us drink. However, neither the judge nor the prosecutor (nor certainly the defendant and his lawyer) viewed the sentencing proceeding as a laughing matter.
To be sure, a $28 million fraud is a serious matter deserving serious punishment. Additionally, the judge seemed to view the crime in part as a public safety violation, declaring "The public at large needs to know our food and drinks are safe, -- and not some potentially unsafe homemade witch's brew," even though this was hardly a contaminated baby food case.
At the sentencing hearing, Kurniawan's attorney argued, reasonably I believe, that his client should be treated somewhat less severely since the victims were exceedingly wealthy. That argument provoked the prosecutor to the Captain Renault-like response that it was "quite shocking" for a lawyer to argue for a different standard for theft from the rich than from the poor.
That retort reminded me of Anatole France's immortal line (although not directly on point), "The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, beg in the streets or steal bread." In my view, a sentencing judge should certainly consider in sentencing the extent of damage to the victim(s). A fraudster who steals a million dollars from a billionaire, notwithstanding the Sentencing Guidelines' overemphasis on absolute figures, should (all things being equal) not deserve as harsh a sentence as one who steals the same amount if it were the entire life savings of a senior citizen.
Prosecutors, when fraud victims are pensioners and widows, argue, I believe reasonably, that the judge should consider the degree of suffering of the victims. Indeed, every seasoned white-collar trial lawyer knows that in a multi-victim fraud case the government is likely to call as "representative" witnesses those most sympathetic victims for whom the monetary loss was most damaging.
I assume that the prosecutor will get over his "shock" when he prosecutes a fraud case where a less than affluent victim's life savings are stolen. I further assume he will not argue that the judge should impose the same sentence she would if the victim were a billionaire for whom the loss figure might be pocket change.
Wednesday, August 27, 2014
Article About Former Penn State President Raises Issues Concerning Independent Investigative Reports and Role of Corporate Counsel
The New York Times Magazine several weeks ago published a lengthy, largely sympathetic article about Graham Spanier, the former Penn State president (Sokolove, "The Shadow of the Valley"), see here, who is awaiting trial on charges of perjury and other crimes in connection with the Pennsylvania grand jury investigation of his alleged complicity or nonfeasance concerning the actions of now-convicted (and affirmed on appeal) former assistant football coach Jerry Sandusky.
The article rather gently criticized the Freeh report, commissioned by the university, as I too did (see here), and asserts that it "probably led to [Spanier's] indictment." Commissioning an independent investigative report -- generally either by a former prosecutor or judge, or a large law firm -- is the de rigueur response of institutions or corporations accused of wrongdoing. An independent investigative report, especially by a respected authority, has the weight of apparent impartiality and fairness and thus the appearance of accuracy. However, the investigative report -- frequently done with no input from the accused or presumed wrongdoers (since, fearful of prosecution, they choose not to be interviewed) -- is often based on an incomplete investigation. Further, since the investigator is expected to reach conclusions and not leave unanswered questions, but unlike a prosecutor may not be required to have those conclusions tested by an adversary in an open forum, such investigations, like the Freeh investigation, are often based on probability, and sometimes even speculation, more than hard evidence. Lastly, the "independent" report, like the report concerning Gov. Christopher Christie's alleged involvement in Bridgegate, may be less than independent.
* * *
The article also discusses an interesting pretrial motion in Spanier's case concerning a question that had puzzled me since the Penn State indictments were announced over two years ago -- what was Penn State's counsel doing in the grand jury? Sub judice for six months is a motion for dismissal of the indictment and other relief related to the role of the Penn State general counsel ("GC") who appeared in the grand jury with Spanier, and also earlier with two other officials who were indicted, Tim Curley, the former athletic director, and Gary Schultz, a vice president.
According to the submitted motions (see here , here and here ), largely supported by transcripts and affidavits, the GC appeared before the grand jury with Spanier (and also separately with Curley and Schultz) and Spanier referred to her as his counsel (as also did Curley and Schultz). According to what has been stated, neither she, who had previously told the supervising judge -- in the presence of the prosecutor but not Spanier -- that she represented only Penn State, nor the prosecutor corrected Spanier. Nor did the judge who advised Spanier of his right to confer with counsel advise Spanier that the GC was actually not representing him or had a potential conflict.
Later, after Spanier's grand jury testimony, according to the defense motion, the GC -- represented by Penn State outside counsel -- was called to testify before the grand jury. Curley and Schultz -- both of whom had by then been charged -- objected in writing to the GC's revealing what they asserted were her privileged attorney-client communications with them. Spanier apparently was not notified of the GC's grand jury appearance and therefore submitted no objection.
Prior to the GC's testimony, Penn State's outside counsel asked the court essentially to rule on those objections and determine whether the GC was deemed to have had an attorney-client relationship with the individuals, as they claimed, before Penn State decided whether to waive its privilege (if any) as to the confidentiality of the conversations. Upon the prosecutor's representation "that he would put the matter of her representation on hold" and not "address . . . conversations she had with Schultz and Curley about [their] testimony," the judge chose not to rule at that time on the issue of representation, which he noted "perhaps" also concerned Spanier, and allowed her to testify, as limited by the prosecutor's carve-out.
Nonetheless, despite the specific carve-out to conversations with Schultz and Curley analogous to those she had with Spanier and the judge's mention that the issue might also apply to Spanier, the prosecutor questioned the GC about her conversations with Spanier in preparation for his testimony. Her testimony was reportedly harmful to Spanier (see here). At no time did the GC raise the issue of whether her communications with Spanier were privileged.
Whether the motion will lead to dismissal, suppression of Spanier's testimony or preclusion or limitation of the GC's testimony, or none of the above, will be determined, presumably soon, by the judge. Whatever the court's ruling(s), I have little hesitation in saying that is not how things should be done by corporate or institutional counsel. At the least, even if the GC were, as she no doubt believed, representing the university and not the individuals, in my opinion, the GC (and also the prosecutor and the judge) had an obligation to make clear to Spanier (and Schultz and Curley) that the GC was not their counsel. Additionally, the GC had, in my view, an obligation to make clear to Spanier that the confidentiality of his communications with her could be waived by the university if it (and not he) later chose to do so. Further, the GC, once she was called to testify before the grand jury, had in my opinion an obligation to notify Spanier that she might be questioned as to her conversations with him in order to give him the opportunity to argue that they were privileged. And, lastly, the GC had, I believe, an obligation to ask for a judicial ruling when the prosecutor went beyond at least the spirit of the limit set by the judge and sought from her testimony about her communications with Spanier.
Wednesday, July 16, 2014
As my editor, Ellen Podgor, noted last week (see here), the winning streak in insider trading cases of the U.S. Attorney's Office for the Southern District of New York ended with the jury's acquittal of Rengan Rajaratnam, the younger brother of Raj Rajaratnam, who was convicted of insider trading in 2011 and sentenced to eleven years in prison.
The U.S. Attorney has done an excellent job in prosecuting insider trading, securing convictions by plea or trial of 81 of the 82 defendants whose cases have been concluded in the district court. The office has appropriately targeted primarily professional financial people who seek or provide insider information rather than those incidental offenders who by chance have received or provided insider tips and taken advantage of their knowledge. A few of these trial convictions, however, appear to be in jeopardy. At oral argument in a recent case the Second Circuit Court of Appeals seemed sympathetic to the contention that a trader may not be found guilty unless he knew that the original information came from a person who had received a benefit, and not only had violated a fiduciary duty of secrecy. Judge Naomi Reice Buchwald, who presided over the Rajaratnam case, agreed with that contention and thereupon dismissed two of the three counts.
Whether the prospective Second Circuit ruling, if it comes, will make good public policy is another matter. Insider trading (which fifteen years ago some argued should not be a crime) is, or at least was, endemic to the industry. Presumably, the U. S. Attorney's successful prosecutions have had a positive step in putting the fear of prosecution in traders' minds. Such deterrent to a particularly amoral community seems necessary: a recent study demonstrated that twenty-four percent of the traders interviewed admitted they would engage in insider trading to make $10 million if they were assured they would not be caught (the actual percentage who would, I suspect, is much higher). See here.
The latest Rajaratnam case, indicted on the day before the statute of limitations expired, was apparently not considered a strong case by some prosecutors in the U.S. Attorney's Office. See here and here. Indeed, jurors, who deliberated four hours, described the evidence as "no evidence, period" and asked "Where's the evidence?" That office nonetheless did not take this loss (and generally does not take other losses) well. It was less than gracious in losing, making a backhanded slap at Judge Buchwald, a respected generally moderate senior judge. A statement by the U.S. Attorney Preet Bharara noted, "While we are disappointed with the verdict on the sole count that the jury was to consider, we respect the jury trial system . . . ." (Italics supplied.)
Southern District judges, generally out of deference to and respect for the U.S. Attorney's Office, whether appropriate or undue, rarely dismiss entire prosecutions or even counts brought by that office, even in cases where the generally pro-prosecution Second Circuit subsequently found no crimes. See here. It is refreshing to see a federal judge appropriately do her duty and not hesitate to dismiss legally or factually insufficient prosecutions.
Such judicial actions, when appropriate, are particularly necessary in today's federal system where the bar for indictment is dropping lower and lower. The "trial penalty" of a harsher sentence for those who lose at trial, the considerable benefits given to cooperating defendants from prosecutors and judges, and the diminution of aggressiveness from a white-collar bar composed heavily of big firm former federal prosecutors have all contributed to fewer defense challenges at trial and lessened the prosecutors' fear of losing, a considerable factor in the prosecutorial decision-making process. Acquittals (even of those who are guilty) are necessary for a balanced system of justice.
Lastly, it is nice to see a major victory by a comparatively young (43) defense lawyer, Daniel Gitner of Lankler, Siffert & Wohl, an excellent small firm (and a neighbor), in a profession still dominated by men in their sixties or seventies.
David Gerger just joined Quinn Emanuel Urquhart & Sullivan, LLP with the opening of their office in Houston. (see here) Gerger will be the managing partner of the new Houston office. He will be joined by Shaun Clarke, who will become Special Counsel and Co-chair of the Houston office’s white collar group. Also joining the firm will be Dane Ball, Sammy Khalil and David Isaak, who will be Of Counsels to the firm.
Gerger, a top white collar practitioner, has handled cases across the United States including matters related to Enron and the BP Deepwater Horizon oil spill. David Gerger has also taught as part of the NACDL White Collar Criminal Defense College at Stetson.
Monday, June 30, 2014
Campaign finance law-election law-lobbying law gurus Elliot Berke and Bill Farah have left McGuire Woods to form their own political law/white collar shop at Berke Farah LLP. Helping them out as senior consultant is veteran DC white-collar hand John Kern, who will also maintain his separate practice. Elliot, Bill, and John are something of a rarity in DC. Seasoned professionals who quietly and discreetly get the job done with a minimum of self-promotion. (Although Elliot comes from the GOP side, he was one of the first members of the campaign finance bar to criticize the dubious prosecution of former Senator John Edwards.) Best of luck to them all.
Tuesday, May 20, 2014
The sentencing of three former Wellcare individuals demonstrates the importance of having the guidelines as advisory, and the importance of an independent judicary that can recognize that sentences should be about individuals and not about arithmetic. (see here) Hats off to Hon. James S. Moody for being a judge that went beyond the math in sentencing the individuals and for his recognition that the stigma and collateral consequences of a conviction for a white collar offender are huge. With little chance of recidivism, strict guideline sentences were unwarranted here. (see here)
The court gave Todd Farha three years (significantly below the number asked for by the government). Paul Behrens received a sentence of 24 months; William Kale a year and a day, and Peter Clay 60 months of Probation. The attorneys representing these individuals were:
Todd Farha: Barry Boss, Stephen Miller, Rebecca Brodey, Seth Waxman, Peter Neiman, Alan Schoenfeld, Robert Stauffer, Laura Vaughan
Paul Behrens: John Lauro; Jeffrey Lamken; Michael Matthews, Michael Califano
William Kale: Stan Reed, Patrick Donahue, Lauri Cleary, Larry Nathans
Peter Clay: Bill Jung, Larry Robbins, Donald Burke.
Thursday, May 15, 2014
An amici brief was filed by a group of law professors and practitioners in support of three defendants in United States v. Farha. It's unusual to see amici coming in at the trial level, but this esteemed group offers some important reasons for allowing this brief.
They note "that this case highlights a serious problem facing federal sentencing judges today - namely, that the federal sentencing guidelines as currently written place too much emphasis on economic 'loss' and too little emphasis on other factors that traditionally have been important factors in determining a fair and just sentence that takes full account of the factors set forth in 18 U.S.C. s 3553(a)." In addition to discussing the distortion caused by the loss guidelines, the authors of this brief also note how other judges have recognized that focusing on loss under the guidelines presents problems. As aptly noted by Hon. Jed Rakoff, the guidelines "tend to place great weight on putatively measurable quantities, such as .....the amount of financial loss in fraud cases, without however, explaining why it is appropriate to accord such huge weight to such factors." (United States v. Adelson).
Hopefully the court will note the growing number of judges that reject strict adherence to a sentence that is ascertained solely by examining numbers and will remember that we sentence people, not numbers.
See Amici- Download AmiciBrief
Monday, March 24, 2014
Keker and Little Receive White Collar Criminal Defense Award at NACDL White Collar Criminal Defense College at Stetson
On Saturday, March 22, the National Association of Criminal Defense Lawyers presented both John Keker and Jan Nielsen Little with the 2014 White Collar Criminal Defense Award at Stetson University College of Law in Gulfport, Fla. Keker and Little received their awards during NACDL’s White Collar Criminal Defense College at Stetson. The White Collar Criminal Defense Award is presented annually to individuals who have made a profound impact on the field of white collar criminal defense advocacy.
Keker and Little are partners at the San Francisco, Calif., law firm of Keker & Van Nest LLP. They have worked together on numerous high-profile white collar criminal cases, including former Enron CFO Andrew Fastow who was charged with over 100 counts of securities fraud and other crimes. The pair has also represented Mississippi plaintiffs’ attorney Dickie Scruggs and investment banker Frank Quattrone. In 1995, they obtained an acquittal at trial for San Francisco attorney Patrick Hallinan, charged with RICO and drug conspiracy offenses.
Presenting the award, NACDL Executive Director Norman Reimer said, “This year’s recipients of NACDL's White Collar Criminal Defense Award, John Keker and Jan Nielsen Little, partners at Keker & Van Nest LLP, are truly a dynamic duo. They are two lawyers of extraordinary talent and tenacious resolve who not only excel in advocacy for their clients, but excel also in setting the highest standards of professionalism and service to their colleagues in the defense bar and society at large.”
Keker co-founded Keker & Van Nest LLP in 1978. He represented cyclist Lance Armstrong in a case in which the Department of Justice terminated its investigation of Armstrong without filing any criminal charges. Keker is a graduate of Yale Law School and received his B.A. from Princeton University. He clerked with U.S. Chief Justice Earl Warren and served as a Marine infantry platoon leader during the Vietnam War.
Little has been a practicing criminal defense lawyer for more than 25 years. She represented a Silicon Valley executive in the country’s first stock options backdating prosecution, obtaining a dismissal of six of eight counts and a 60-day sentence on the remaining counts. Little earned her J.D. at Yale Law School and her B.A. at the University of California, Berkeley, completed a clerkship with Judge William W. Schwarzer of the U.S. District Court, Northern District of California, and worked with the U.S. Department of Justice’s Criminal Division before becoming a defense attorney.
The NACDL White Collar Criminal Defense College at Stetson is an educational “boot-camp” program for legal practitioners from across the country wishing to gain key advocacy skills and learn substantive white collar law from masters in the field.
Wednesday, March 5, 2014
In Kaley v. United States (12-464, decided February 25, 2014) (see here), the Supreme Court by a 6-3 vote extended the rulings of United States v. Monsanto, 491 U.S. 600 (1989) and Caplin & Drysdale v. United States, 491 U.S. 617 (1989) by determining that a grand jury finding of probable cause that a federal defendant committed a crime was conclusive in any effort by that defendant to secure funds out of temporarily restrained assets to hire a private attorney of his choice. A defendant seeking release of funds may still be able to challenge the grand jury determination that there was probable cause that the assets seized resulted from or were involved in the purported criminal activity, but not that the activity was criminal.
The opinion, written by Justice Kagan, exalts the inviolability of the grand jury and demonstrates a naive misunderstanding of (or lack of concern about) the reality of its role in the determination of probable cause, ignores the presumption of innocence, and denigrates the importance of independent defense counsel in the criminal justice system. It tilts the playing field of justice in the government's favor by giving the government, in some cases, the option to deprive the defendant of the counsel he has selected or intends to select.
Essentially, the premise of the opinion is that since grand juries historically have the unreviewable power to determine probable cause to indict and require a person to stand trial and thus derivatively to deprive him of pre-trial liberty, they similarly have the power derivatively to deprive him of his right to counsel of choice. Justice Kagan, worrying that a different decision would be incongruous and unsymmetrical, seems more concerned with the effect of the decision on the pillars of architecture of the criminal justice system than the pillars of justice and fairness.
The underlying (but unspoken) foundation of the opinion is essentially fraudulent: the legal fiction that federal grand juries actually make independent, considered determinations of probable cause necessary to indict. Every experienced federal prosecutor, defense attorney, or judge knows otherwise; grand juries, especially federal ones, are virtually invariably merely "rubber stamps" for the prosecution. The government -- not the grand juries -- makes the actual decision who and for what to indict.
Former New York Court of Appeals Chief Judge Sol Wachtler famously said, "A grand jury would indict a ham sandwich" -- referring to a grand jury in a state where prosecutors are constrained because they know that judges are mandated by law upon defense motion to review the grand jury minutes to determine whether the evidence presented was legally sufficient and to dismiss the indictment if not, and where hearsay evidence is not admissible. In contrast, in federal courts, as stated in Kaley (quoting United States v. Williams, 504 U.S. 36, 54 (1992)), "a challenge to the reliability or competence of the evidence supporting a grand jury's finding of probable cause will not be heard" (and an indictment may be, and sometimes is, based wholly on hearsay, often from a single government agent). A federal prosecutor thus has no such constraint as his New York State counterpart; he knows that no matter how flimsy or inadmissible the evidentiary basis for an indictment may be, that basis is unchallengeable. Thus, if a New York State grand jury would indict a ham sandwich, a federal grand jury would indict a slice of bread.
* * *
Chief Justice Roberts, to my knowledge the only current justice who had a significant career representing paying clients and thus may have greater empathy for the private bar than most of his colleagues, wrote a powerful dissent noting the basic lack of fairness allowing the prosecution essentially to disqualify an accused's counsel of choice without even a hearing. He wrote:
[F]ew things could do more to undermine the criminal justice system's integrity than to allow the Government to initiate a prosecution and, then, at its option, disarm its presumptively innocent opponent by depriving him of his counsel of choice -- without even an opportunity to be heard. . . . [I]t is fundamentally at odds with our constitutional tradition and basic notices of fair play. . . .
The issues presented here implicate some of the most fundamental precepts underlying the American criminal justice system. A person accused by the United States of committing a crime is presumed innocent until proven guilty beyond a reasonable doubt. But he faces a foe of powerful might and vast resources, intent on seeing him behind bars. That individual has the right to choose the advocate he believes will most ably defend his liberty at trial. . . .
In my view, the Court's opinion pays insufficient respect to the importance of an independent bar as a check on prosecutorial abuse and government overreaching. Granting the Government the power to take away a defendant's chosen advocate strikes at the heart of that significant role.
* * *
Following Monsanto, which explicitly left open the question as to whether a hearing on the provenance of seized funds was required, the federal courts divided on the issue. Some prosecutors had chosen to allow defendants to pay from restrained funds reasonable and legitimate fees to counsel of choice. Most had done so in order to avoid giving the defendant a preview of their case; others had done so out of respect for the constitutional right to counsel and a robust adversary system -- a right apparently not as much respected by the Court majority -- and a preference for a fair fight where the accused is not hampered by denial of his choice of counsel.
The elimination of the requirement in many courts for what was called "a Monsanto hearing" (a term likely to be soon forgotten) will undoubtedly eliminate, or at the very least severely limit, the opportunity for defendants in federal courts to pay counsel of choice from seized funds. Prosecutors who had chosen to allow defendants to pay counsel from restrained assets in order to avoid discovery of their cases will no longer have that reason to do so. Those who used the avoidance of discovery as a cover out of respect for the constitutional right to counsel of choice or the adversary system will no longer be able to do so. Pre-trial forfeiture claims will now in some cases offer a prosecutor a potential bonus beyond the stated goals of depriving a defendant of wrongfully-gained assets and using them for governmental purposes -- the elimination of a top-notch adversary. Thus, there is now a tactical trial benefit to the prosecutor to institute pre-trial asset restraint. In white-collar cases, where the prosecutor often knows who will probably represent the defendant from pre-indictment discussions, his determination to seek pre-trial restraint may be affected by whether he likes or dislikes the attorney, whether the attorney is dogged and aggressive, or whether the attorney is likely to give the defendant a better chance of success than a replacement.
The Kaley decision will also have a severe harmful effect on the finances of an already financially-distressed private middle-class (other than big-firm) criminal defense bar, which will (as will large firms) be deprived of a considerable number of well-paying clients because of lack of available assets outside of those seized. Defendants -- generally either drug or white-collar defendants, those who had a considerable amount of money prior to pre-trial seizure -- will be deprived of representation by the most experienced and successful criminal defense lawyers. They will be represented by court-appointed public defenders, institutional or private appointed attorneys, or less expensive private attorneys -- often, but not always, experienced, dedicated and able, but generally less so than high-profile, high-paid private attorneys, and almost always with more cases and clients and less time and resources to devote to them than well-compensated private attorneys (and it is unlikely that government funding will be increased to provide public defenders those resources). The ability, energy and knowledge of who represents them will often depend on the luck of the draw from assigned counsel lists, rather than their considered choice. The gulf between counsel of choice and public defenders is greatest in white-collar cases since few public defenders have experience in these cases, or ample resources to defend them.
In his opinion, Chief Justice Roberts alluded to, but failed to state explicitly, the general disparity between the selected best of the private bar and the average (and an assignment-by-rotation system necessarily leads to the mean or average) public defender or assigned attorney. It is unfashionable (and politically incorrect) for judges (and bar leaders) to say or write anything that might be construed to disparage public defenders (and perhaps provide ammunition to ineffective assistance claimants). Rather, they, as did Chief Justice Roberts, often speak of "counsel of choice" when they mean "the private bar." Lawyers -- whether chosen or assigned -- are not fungible. Just as there is a difference in quality between a $300,000 Bentley and a $15,000 Toyota Corolla, there is usually a difference in quality between an attorney who commands large fees because of her reputation and stature and the average assigned attorney. (To be sure, like automobiles, there are lemons and diamonds among both the expensive and the inexpensive.)
As Chief Justice Roberts said, "The possibility that a prosecutor could elect to hamstring his target by preventing him from paying his counsel of choice raises substantial concerns about the fairness of the entire proceeding." Just as a basketball team opposing the Miami Heat might choose, if it could, that LeBron James sit out the game, so too a prosecutor, if he could, might now choose to seek pre-trial restraint to keep a first-rate private lawyer on the bench.
Tuesday, February 11, 2014
To the surprise of nobody I know, Mathew Martoma, the former SAC Capital portfolio manager, was convicted of insider trading last Thursday by a Southern District of New York jury. The evidence at trial was very strong. It demonstrated that Martoma had befriended two doctors advising two drug companies on the trial of an experimental drug, received confidential information from them about the disappointing result of the drug trial prior to the public announcement, and then had a 20-minute telephone conversation with Steven A. Cohen, the SAC chair, a day or so before Cohen ordered that SAC's positions in these companies be sold off. The purported monetary benefit to SAC, in gains and avoidance of loss, of the trades resulting from the inside information is about $275 million, suggesting that Martoma receive a sentence of over 15 years under the primarily amount-driven Sentencing Guidelines (although I expect the actual sentence will be considerably less).
Cohen is white-collar Public Enemy No. 1 to the Department of Justice, at least in its most productive white-collar office, the U.S. Attorney's Office for the Southern District. That office has already brought monumental parallel criminal and civil cases against SAC, receiving a settlement of $1.8 billion, about a fifth of Cohen's reported personal net worth, but it has apparently not garnered sufficient evidence against Cohen to give it confidence that an indictment will lead to his conviction. It had granted a total "walk" -- a non-prosecution agreement -- to the two doctors whose testimony it felt it needed to convict Martoma, unusually lenient concessions by an office that almost always requires substantial (and often insubstantial) white-collar wrongdoers seeking a cooperation deal to plead to a felony. As an FBI agent told one of the doctor/co-conspirators, the doctors and Martoma were "grains of sand;" the government was after Cohen.
In an article in the New York Times last Friday, James B. Stewart, an excellent writer whose analyses I almost always agree with, asked a question many lawyers, including myself, have asked: why didn't Martoma cooperate with the government and give up Cohen in exchange for leniency? Mr. Stewart's answer was essentially that Martoma was unmarketable to the government because he would have been destroyed on cross-examination by revelation of his years-ago doctoring his Harvard Law School grades to attempt to secure a federal judicial clerkship and covering up that falsification by other document tampering and lying. Mr. Stewart quotes one lawyer as saying Martoma would be made "mincemeat" after defense cross-examination, another as saying he would be "toast," and a third as saying that without solid corroborating evidence, "his testimony would be of little use." See here.
I strongly disagree with Mr. Stewart and his three sources. The prosecution, I believe, would have welcomed Mr. Martoma to the government team in a New York minute -- assuming Martoma would have been able to provide believable testimony that Mr. Cohen was made aware of the inside information in that 20-minute conversation. When one is really hungry -- and the Department of Justice is really hungry for Steven A. Cohen -- one will eat the only food available, even if it's "mincemeat" and "toast." And there is certainly no moral question here; the government gave Sammy "the Bull" Gravano, a multiple murderer, a virtual pass to induce him to testify against John Gotti. Given the seemingly irrefutable direct, circumstantial and background evidence (including, specifically, the phone call, the fact that Cohen ordered the trades and reaped the benefit, and generally, whatever evidence from the civil and criminal cases against SAC is admissible against Cohen), testimony by Martoma to the effect he told Cohen, even indirectly or unspecifically, about the information he received from the doctors would, I believe, have most likely led to Cohen's indictment.
I have no idea why Martoma did not choose to cooperate, if, as I believe, he had the opportunity. "Cooperation," as it is euphemistically called, would require from Martoma a plea of guilty and, very likely in view of the amount of money involved, a not insubstantial prison term (although many years less than he will likely receive after his conviction by trial). Perhaps Martoma, who put on a spirited if unconvincing defense after being caught altering his law school transcript, is just a fighter who does not easily surrender or, some would say, "face reality," even if the result of such surrender would be a comparatively short jail sentence. (In a way, that choice is refreshing, reminding me of the days defense lawyers defended more than pleaded and/or cooperated.) Perhaps Martoma felt cooperation, a condition of which is generally full admission of all prior crimes and bad acts, would reveal other wrongs and lead to financial losses by him and his family beyond those he faces in this case. Perhaps he felt loyalty -- which it has been demonstrated is a somewhat uncommon trait among those charged with insider trading -- to Cohen, who has reportedly paid his legal fees and treated him well financially (and perhaps Martoma hopes will continue to do so), or perhaps to others he would have to implicate.
And perhaps -- perhaps -- the truth is that in his conversation with Cohen, he did not tell Cohen either because of caution while talking on a telephone, a deliberate effort to conceal from Cohen direct inside information, or another reason, and he is honest enough not to fudge the truth to please the eager prosecutors, as some cooperators do. In such a case his truthful testimony would have been unhelpful to prosecutors bent on charging Cohen. That neutral testimony or information, if proffered, which the skeptical prosecutors would find difficult to believe, would at best get him ice in this very cold wintertime. Lastly, however unlikely, perhaps Martoma believed or still believes he is, or conceivably actually is, innocent.
In any case, it is not necessarily too late for Martoma to change his mind and get a benefit from cooperation. The government would, I believe, be willing to alter favorably its sentencing recommendation if Martoma provides information or testimony leading to or supporting the prosecution of Cohen. Indeed, I believe the government would ordinarily jump at a trade of evidence against Cohen for a recommendation of leniency (or less harshness), even if Martoma is now even less attractive as a witness than before he was convicted (although far more attractive than if he had testified as to his innocence). However, the five-year statute of limitations for the July 2008 criminal activity in this matter has apparently run, and an indictment for substantive insider trading against Cohen for these trades is very probably time-barred.
To be sure, federal prosecutors have attempted -- not always successfully (see United States v. Grimm; see here) -- imaginative solutions to statute of limitations problems. And, if the government can prove that Cohen had committed even a minor insider trading conspiratorial act within the past five years (and there are other potential cooperators, like recently-convicted SAC manager Michael Steinberg, out there), the broad conspiracy statutes might well allow Martoma's potential testimony, however dated, to support a far-ranging conspiracy charge (since the statute of limitations for conspiracy is satisfied by a single overt act within the statutory period). In such a case, Martoma may yet get some considerable benefit from cooperating, however belatedly it came about.
Monday, December 16, 2013
Monday, November 18, 2013
How many federal appellate opinions begin like this?
"An attorney's reputation is her most valuable possession. It forms the basis for her peers' view of her and plays an important role-often a determinative one-in how she advances in her career. This case began with a government attorney's unauthorized filing of a motion for sanctions against Debra K. Migdal, an attorney who has served as an Assistant Federal Public Defender for nearly 25 years. It quickly took on a life of its own, resulting in two district-court orders strongly, publicly, and, we conclude, erroneously reprimanding Migdal. Because the record does not support any basis for these orders, we VACATE the sections of the first order pertaining to sanctions, REVERSE the second order in its entirety, and DISMISS the sanctions proceeding against Migdal."
And how many of them end like this?
"This opinion closes the book on a regrettable chapter in Debra Migdal's career, clears her of all claims that her conduct in this matter was sanctionable, and removes any taint of public censure on her reputation."
As anyone who practices criminal law in the federal court system knows, different districts, and sometimes different judges within a district, have different rules, formal and/or informal, for the issuance of subpoenas demanding early document production pursuant to Fed. R. Crim. Proc. 17(c). Some districts allow prosecutors and defense attorneys to issue the subpoenas, and examine documents, on their own. Other districts require a motion and court order. (Of course, the playing field is uneven, because the prosecution typically has the evidence it needs well before trial through the use of grand jury subpoenas.)
In 2011 Debra Migdal was an Assistant Federal Public Defender in the Northern District of Ohio handling a case in front of U.S. District Judge John R. Adams. At the time, neither the Northern District of Ohio nor Adams had any formal policy regarding the issuance of Rule 17(c) subpoenas. Migdal issued two Rule 17(c) subpoenas on her own, one of which was sent to the custodian of records at the U.S. Border Control, calling for the early production of materials in Judge Adam's court, but on a day she designated that was prior to a scheduled court date. Two previous district court opinions in the Northern District, neither of which were written by Judge Adams, had come to opposite conclusions about the propriety of issuing such subpoenas absent the court's permission. Migdal was unaware of the opinion holding that a court order is necessary.
Migdal used Administrative Office of the U.S. Courts Form AO 89, which commands both the appearance and testimony of the witness and, if necessary, the production of documents. In other words, unless the issuer crosses out the part of the authorized pre-printed form calling on the witness to testify, he/she is always commanded to appear and testify, even though in many cases the issuing party is only interested in obtaining documents. By way of contrast, on the federal civil side, there are two authorized subpoena forms, one calling for documents only and one calling for witness testimony.
AUSA Gregory Sasse told the Border Patrol Agent to ignore the subpoena. Sasse then moved to quash the subpoena and asked the court to impose whatever sanctions it deemed appropriate. Sasse wasn't authorized to move for sanctions and his superiors later withdrew this request. But Judge Adams was clearly not happy with Migdal. He held two hearings and publicly sanctioned Migdal under 28 U.S.C. Section 1927 and his inherent authority.
Section 1927 reads as follows:
"Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct."
The Sixth Circuit, noting that nothing whatsoever in the statute's language authorizes the imposition of non-monetary sanctions, ruled that Judge Adams abused his discretion in sanctioning Migdal under 1927.
The Sixth Circuit then rejected the three rationales Judge Adams relied on for sanctioning Migdal pursuant to his inherent authority. (Any sanctions against Migdal required a showing of bad faith on her part.)
1. Adams had ruled that a criminal defendant is entitled to materials under Rule 17(c) "only after requesting-and not getting-the necessary items from the government via Rule 16 discovery." Incredibly, he believed he had the inherent authority to sanction Migdal for failing to follow this protocol. But as the Sixth Circuit pointed out, no such protocol exists under Rules 16 and 17.
2. Adams had ruled that Migdal violated her duty of candor to to the court by commanding production at a hearing that had not been scheduled or requested. (He referred to it as a "fabricated" hearing.) Migdal acknowledged that the subpoenas were defective in this regard, apologized to the court, and argued that she had not acted in bad faith. The Sixth Circuit agreed, emphasizing that: a) AO Form 89 lacks clarity; b) Migdal called for production in Judge Adams' courtroom, so she was obviously not trying to hide anything from the court; c) the longstanding practice in Migdal's office and in many Federal Public Defender Offices, was to issue Rule 17(c) subpoenas without prior court approval; and d) Migdal relied on a prior Northern District of Ohio opinion specifically authorizing issuance of Rule 17(c) subpoenas without prior court approval. Judge Adams noted that he preferred the contrary judicial opinion. "But Judge Adams' inclination to side with one judge's view over that of another obscures the point that Migdal did not act in bad faith when she hewed to at least one judge's reading of the controlling rule."
3. Adams had ruled that Migdal "utterly disregarded Rule 17(c)'s implicit requirement that the court must approve and order early-production subpoenas." (internal quotations omitted). The Sixth Circuit carefully pointed out that reasonable people could disagree on this point, as evidenced by the conflicting district court opinions. That Migdal chose to take a view of Rule 17(c) at odds with Judge Adams' position, at a time when there was no clear controlling authority, could hardly amount to bad faith.
Throughout Judge Jane Stranch's opinion, for a unanimous Sixth Circuit panel, there runs a tone of incredulity at Judge Adams' actions in "branding a blemish on Migdal's reputation." It should never have happened. It should never happen again.
Here is the Sixth Circuit Migdal Vindication Opinion.