United States v. Stephen B. Deluca

Case: 15-12033 Date Filed: 10/25/2016 Page: 1 of 13

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

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No. 15-12033

Non-Argument Calendar

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D.C. Docket No. 6:11-cr-00221-JA-KRS-1

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

STEPHEN B. DELUCA,

a.k.a. Steve Deluca,

Defendant-Appellant.

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Appeal from the United States District Court

for the Middle District of Florida

________________________

(October 25, 2016)

Before MARTIN, ROSENBAUM, and ANDERSON, Circuit Judges.

PER CURIAM:

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Following his convictions for defrauding financial institutions, Stephen

DeLuca appeals the denial of his motion to dismiss the indictment against him

based on the government’s violation of his attorney-client privilege. The district

court agreed that the government had violated DeLuca’s attorney-client privilege

by reviewing privileged email communications but ultimately concluded that he

was not entitled to dismissal of the indictment because he had not shown that he

was prejudiced by the violation. In his sole contention on appeal, DeLuca argues

that, in light of technological changes in communication, defendants should no

longer have to show prejudice in order to obtain dismissal of the indictment as a

sanction for the government’s deliberate invasion of a defendant’s attorney-client

privilege. After careful review, we affirm.

I.

A federal grand jury returned a thirty-three-count indictment alleging that

DeLuca defrauded financial institutions in his role as president and sole

shareholder of Delco Oil, Inc. (“Delco”), a company that distributed oil and

gasoline. The indictment claimed that DeLuca, in seeking financing for Delco,

submitted false statements to lending institutions regarding the company’s

accounts receivable and inventory, and that the institutions made loans to Delco in

reliance on the fraudulent information. DeLuca pled not guilty, and the case

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proceeded to trial. The jury deadlocked, however, so the district court declared a

mistrial. After a second trial, a jury found DeLuca guilty of all charges.

As part of its investigation, the Federal Bureau of Investigation (“FBI”)

searched Delco’s offices and seized the company’s computers and hard drives.

The government also acquired a particular external hard drive relevant to the

investigation. Data on these devices included communications between DeLuca

and his various lawyers. DeLuca notified the government of that fact, and the

parties discussed a proposed stipulation providing a procedure to exclude

privileged communications from the government’s criminal investigation.

The proposed stipulation provided, in broad terms, that an FBI computer

analyst would segregate any communications to or from DeLuca’s attorneys based

on a list of attorneys that DeLuca provided. These segregated communications

would then go to a “filter team,” who were not members of the prosecution team,

while the remaining communications would go to the prosecution. If the filter

team believed that any communications were not privileged, or that the privilege

had been waived, the team would provide notice to DeLuca, who could contest the

filter team’s assessment and have the matter resolved by a magistrate judge. Any

communications over which a disagreement existed were not to be provided to the

prosecution team until a magistrate judge determined that the communications

were not privileged. DeLuca signed the stipulation in December 2009.

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Thereafter, the FBI computer analyst segregated the data and provided the

potentially privileged communications to the filter team, but one of the members of

the filter team, John Guard, a former Assistant United States Attorney (“AUSA”),

unilaterally decided that the stipulation was not in effect for various reasons. As a

result, he gave the prosecution team—without notice to DeLuca—access to

communications that he deemed not privileged, including at least some

communications between DeLuca and attorneys on DeLuca’s list. Guard gave

these communications to Vanessa Stelly, the FBI agent assigned to DeLuca’s case,

who reviewed them and ultimately provided one of the email communications to

Russell Stoddard, the AUSA in charge of DeLuca’s trial.

DeLuca first learned that the government had accessed his privileged

communications in February 2013, just before the start of the second trial, after the

government filed an amended exhibit list that included an email from DeLuca to

his attorney from January 2006 regarding Wachovia Bank (“the Wachovia email”).

In response, DeLuca filed a motion to dismiss the indictment based on the

government’s violation of both his attorney-client privilege and the stipulation.

DeLuca asserted more broadly that the Wachovia email raised serious questions

about whether the government had examined and used other privileged documents

in preparation of its case. The district court reserved ruling on the motion until

after the trial. The Wachovia email was not entered into evidence.

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After the second trial, DeLuca filed a renewed motion to dismiss the

indictment for prosecutorial misconduct. He asserted that the government had

improper, unlimited access to his privileged materials, and he requested an

evidentiary hearing to call as witnesses various persons involved with handling the

privileged materials and preparing the case against him. The government

responded that DeLuca could not show that he was prejudiced by the alleged

breach, because the privileged material was not entered into evidence or otherwise

used by the prosecution. In reply, DeLuca analogized the government’s use of

privileged communications to the use of compelled, incriminating testimony.

The district court held an evidentiary hearing on DeLuca’s motion to dismiss

on June 4, 2013. The court heard testimony from former AUSA Guard, Agent

Stelly, AUSA Stoddard, DeLuca, and the FBI computer analyst who initially

segregated the data for the filter team. The district court held another hearing on

DeLuca’s motion to dismiss the indictment on October 11, 2012, again hearing

testimony from Agent Stelly.

After the hearing, the district court denied DeLuca’s motion to dismiss the

indictment. The court first determined that the Wachovia email and other email

communications were privileged and that the government had violated DeLuca’s

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attorney-client privilege by viewing privileged communications. 1 But despite the

government’s disregard of “the important protections provided by the privilege,”

the court found that DeLuca had not shown that he was prejudiced by the violation,

even if he had established a constitutional violation, so neither dismissal of the

indictment nor vacatur of his convictions was appropriate.

Specifically regarding prejudice, the district court explained that DeLuca

had not come forth with any evidence showing that any privileged material was

directly used in the case against him at trial or otherwise influenced the

government’s prosecution strategy in any way. According to the court, “the

evidence show[ed] that though Agent Stelly did review a small percentage of

privileged material, that material did not impact the case—very little of it was

shown to the U.S. Attorney’s office, and the single email that was shown to the

prosecutor did not impact the trial strategy and was not introduced as evidence at

trial.” “Furthermore,” the court stated, “Agent Stelly was the only member of the

prosecution team to view privileged data other than the Wachovia email.” In

addition, the court found that DeLuca failed to explain how he could have been

prejudiced by any of the emails, including the Wachovia email. The district court

also concluded that the result on the prejudice inquiry would be the same even if

1

The district court ordered the government to destroy all of the privileged

communications in its possession and prohibited their use at sentencing.

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the government bore the burden to show the lack of prejudice. After he was

sentenced on April 27, 2015, DeLuca filed this appeal.

II.

The denial of a motion to dismiss the indictment is reviewed for an abuse of

discretion. United States v. Cavallo, 790 F.3d 1202, 1219 (11th Cir. 2015). In

determining whether a court abused its discretion, we review issues of law, such as

the proper allocation of the burden of proof, de novo. See id.

III.

Precedent from this Circuit clearly establishes that dismissal of the

indictment as a sanction for a violation of a defendant’s attorney-client privilege is

inappropriate absent “demonstrable prejudice.” United States v. Ofshe, 817 F.2d

1508, 1515 (11th Cir 1987); United States v. Bell, 776 F.2d 965, 973 (11th Cir.

1985); United States v. Sander, 615 F.2d 215, 219 (5th Cir. 1980).2 “[T]here is no

per se rule requiring dismissal of the indictment as the sanction for intrusion into

the attorney-client relationship by government agents.” United States v. Melvin,

650 F.2d 641, 643 (5th Cir. July 13, 1981) (describing the Supreme Court’s

decision in United States v. Morrison, 448 U.S. 361, 101 S. Ct. 665 (1981)).

Rather, for the sanction of dismissal to be appropriate, a showing of “demonstrable

prejudice, or substantial threat thereof,” must be made, even in cases where the

2

This Court adopted as binding precedent all Fifth Circuit decisions prior to October 1,

1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).

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violation is a deliberate intrusion. Morrison, 448 U.S. at 365, 101 S. Ct. at 668;

see Ofshe, 817 F.2d at 1515; Bell, 776 F.2d at 973. In most cases “[w]here there is

an intrusion on the attorney-client relationship[,] the remedy for such a violation is

not dismissal but the suppression of any evidence so obtained.” Sander, 615 F.2d

at 219.

We note at the outset that the grounding for DeLuca’s motion to dismiss the

indictment is unclear. Although he initially relied on the Sixth Amendment, he has

since acknowledged that the Sixth Amendment does not apply because the

privileged communications occurred well before the initiation of the prosecution

against him. He also cited the Fifth Amendment, which may provide relief where

the government’s conduct is so outrageous that it violates a defendant’s due-

process rights, but the government’s conduct in this case falls short of that

standard. Cf. Ofshe, 817 F.2d at 1515–16 (no due-process violation where the

government “placed a body bug on [the defendant’s] attorney and surreptitiously

monitored a conversation which included discussion concerning future criminal

activity and discussions regarding his pending court case,” in part because there

was no “demonstrable evidence of prejudice”). On appeal, DeLuca’s arguments

are untethered to any specific constitutional violation. Instead, he bases them on

the importance of the attorney-client privilege, but, in any case, he does not dispute

that the district court properly required him to show prejudice under existing law.

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Nevertheless, DeLuca does not challenge the district court’s finding that he

was not prejudiced by the government’s violation of his attorney-client privilege.

He has, therefore, abandoned any challenge to that finding, which otherwise

appears to be well-supported by the record. See Sapuppo v. Allstate Floridian Ins.

Co., 739 F.3d 678, 680–81 (11th Cir. 2014). Because this Circuit’s precedent

requires a showing of “demonstrable prejudice” in order for dismissal of the

indictment to be appropriate, see Ofshe, 817 F.2d at 1515, it follows that the

district court’s denial of his motion to dismiss the indictment is due to be affirmed.

See Sapuppo, 739 F.3d at 680. Even if we accepted DeLuca’s contention that the

government deliberately invaded the attorney-client relationship, dismissal is

inappropriate without a showing of prejudice. See Morrison, 448 U.S. at 365, 101

S. Ct. at 668.

DeLuca argues that existing precedent requiring a defendant to show

prejudice should be revisited. He contends that this requirement, though

reasonable as applied to a world in which paper records were the norm, is

outmoded as applied to modern-era digital communications and data storage. The

ubiquitous use of computers and personal devices in daily life, he reasons, “not

only makes privileged materials more readily available to the government, but also

makes the task of searching for incriminating material significantly easier to

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accomplish.” 3 DeLuca contends that it is impossible for a defendant to show

prejudice because there is no way to track whether the government accessed

privileged material or how the government used the privileged material it accessed.

Relying on the Supreme Court’s decision in Kastigar v. United States, 406 U.S.

441, 92 S. Ct. 1653 (1972), DeLuca proposes that, in cases where the government

has deliberately invaded the defendant’s attorney-client privilege, the government

should be required to prove that all the evidence it proposes to use in the case was

derived from a legitimate source independent of the government’s misconduct.

In Kastigar, the Supreme Court held that the United States may compel

testimony from an unwilling witness who invokes the Fifth Amendment privilege

against compelled self-incrimination by granting the witness immunity from use or

derivate use of the compelled testimony in subsequent criminal proceedings. 406

U.S. at 442, 462, 92 S. Ct. at 1655, 1666. If the witness is then prosecuted for a

matter related to the compelled testimony, the government bears “the affirmative

duty to prove that the evidence it proposes to use is derived from a legitimate

source wholly independent of the compelled testimony.” Id. at 461, 92 S. Ct. at

1665. According to DeLuca, the same burden should apply here.

3

The government asserts, and the defendant disputes, that electronic storage and better

computer software may in fact make it less likely that privileged material will be reviewed

because, as in this case, a computerized search will be able to screen out potentially privileged

information before it is reviewed by human beings.

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However, this case does not involve compelled testimony, and whatever the

merits of a Kastigar-like approach 4, our precedent requires a showing of

demonstrable prejudice in order to obtain dismissal of the indictment as a sanction

for the government’s violation of the defendant’s attorney-client privilege. See,

e.g., Ofshe, 817 F.2d at 1515; Bell, 776 F.2d at 973. As DeLuca acknowledges, we

are bound to apply that requirement under the prior-panel-precedent rule.5 United

States v. Archer, 531 F.3d 1347, 1352 (11th Cir. 2008) (“[A] prior panel’s holding

is binding on all subsequent panels unless and until it is overruled or undermined

to the point of abrogation by the Supreme Court or this court sitting en banc.”).

Moreover, DeLuca has provided no compelling reason why establishing

prejudice is more difficult now than it was when, for example, Ofshe was decided

in 1987. Even accepting his contention that technological changes have made

accessing privileged communications easier than it used to be in an age of paper

records, it does not clearly follow that showing prejudice is more difficult than it

used to be. DeLuca asserts that a defendant will be unable to know whether the

4

It makes sense that a presumption of prejudice would be in effect in a Kastigar-type

situation, where the subsequent prosecution against the defendant relates to incriminating

testimony that the government compelled by conferring immunity. In that situation, a high

potential exists for overlap between the compelled testimony and the case against the defendant,

clearly implicating the defendant’s constitutional right against compelled self-incrimination. But

that is not the case where the government has violated the attorney-client privilege, as the

privileged information could potentially relate to any number of matters, some of which may

have nothing at all to do with the case.

5

For the same reason, we need not and do not address DeLuca’s various other arguments

by analogy to other areas of law, such as Fourth Amendment jurisprudence.

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government has accessed information and what it has done with that information,

but that is not a new concern. Indeed, Justice Marshall, in his dissenting opinion in

Kastigar, which DeLuca quotes in his brief, recognized this same problem as it

applied to compelled testimony in 1972:

For the information relevant to the question of taint is

uniquely within the knowledge of the prosecuting

authorities. They alone are in a position to trace the

chains of information and investigation that lead to the

evidence to be used in a criminal prosecution. A witness

who suspects that his compelled testimony was used to

develop a lead will be hard pressed indeed to ferret out

the evidence necessary to prove it. . . . For the paths of

information through the investigative bureaucracy may

well be long and winding, and even a prosecutor acting in

the best of faith cannot be certain that somewhere in the

depths of the investigative apparatus, often including

hundreds of employees, there was not some prohibited

use of the compelled testimony.

Kastigar, 406 U.S. at 469, 92 S. Ct. at 1669 (Marshall, J., dissenting). In other

words, showing how the government used certain information within its control as

part of a criminal investigation has always been an uphill battle. There is no

qualitative difference between electronic records and paper records in that respect.

In sum, because there has been no showing of prejudice based on the

government’s violation of DeLuca’s attorney-client privilege, the district court

properly concluded that dismissal of the indictment was not appropriate. DeLuca

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does not otherwise challenge his convictions or sentences. We, therefore,

AFFIRM. 6

6

To the extent DeLuca asks this panel to refer his case for en banc consideration, we

DENY his request. However, we note that he is free to file a petition for rehearing en banc. See

Fed. R. App. P. 35(b).

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