Appendix — Reich v. United States, 128 S. Ct. 115 (2007) (No. 06-1591)

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APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term 2006

(Argued: January 26, 2007 Decided: March 2, 2007)

Docket No. 06-1445-cr

UNITED STATES OF AMERICA,

Appellee,

vV.

PERRY REICH,

Defendant-Appellant.

Before:

KEARSE and SOTOMAY OR, Circuit Judges,

and KOELTL, District Judge. '

Defendant-appellant Perry Reich appeals from a judg-

ment of conviction on one count of corruptly obstructing a

judicial proceeding, in violation of 18 U.S.C. § 1512(c)(2),

one count of forging a judge’s signature, in violation of 18

U.S.C. § 505, and one count of making a false statement to

a federal officer, in violation of 18 U.S.C. § 1001(a)(2), in

connection with his fabrication of a court order. We hold

principally that (1) 18 U.S.C. § 1512(c) requires a nexus

' The Honorable John G. Koeltl, United States District Judge for

the Southern District of New York, sitting by designation.

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between a defendant’s conduct and the effect on the judi-

cial proceeding, as described in United States v. Aguilar,

515 U.S. 593 (1995), and that the trial evidence in this case

was sufficient to establish such a nexus; and (2) 18 U.S.C.

§ 505 does not require an intent to defraud. We also reject

Reich’s other challenges. The judgment of conviction of

the United States District Court for the Eastern District of

New York (Garaufis, J.) is AFFIRMED.

AMY BUSA, Assistant United States Attorney

(Roslynn R. Mauskopf, United States Attorney,

Eastern District of New York, David C. James,

Assistant United States Attorney, on the brief),

Brooklyn, New York, for appellee.

MARK M. BAKER (Benjamin Brafman, Karen A.

Newirth, on the brief), Brafman & Associates, P.C.,

New York, New York, for defendant-appellant.

SOTOMAYOR, Circuit Judge:

Defendant-appellant Perry Reich appeals from the

March 31, 2006 and the May 1, 2006 amended judgment of

the United States District Court for the Eastern District of

New York (Garaufis, J.), convicting him, following a jury

trial, of one count of corruptly obstructing a judicial pro-

ceeding, in violation of 18 U.S.C. § 1512(c)(2), one count

of forging a judge’s signature, in violation of 18 U.S.C.

§ 505, and one count of making a false statement to a fed-

eral officer, in violation of 18 U.S.C. § 1001(a)(2), in con-

nection with his fabrication of a court order. Reich

challenges his conviction on all three counts, his sentence

to twenty-seven months imprisonment, and the district

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court’s March 10, 2006 denial of his motions for a judg-

ment of acquittal, for a new trial, and for bail pending

appeal, United States v. Reich, 420 F. Supp. 2d 75 (E.D.N.Y.

2006). Reich raises five issues on appeal: (1) that there was

insufficient evidence to establish that his conduct would

have the “natural and probable effect” of obstructing the law-

suit, such that a conviction for obstruction of justice under 18

U.S.C. §1512(c)(2) was inappropriate; (2) that the jury

should have been instructed to find, and evidence was

required to establish, an intent to defraud under 18 U.S.C.

§ 505; (3) that it was error to permit the government to

crossexamine Reich’s character witness by asking about an

allegedly “private” unauthorized change to his law part-

ner’s life insurance policy; (4) that there was insufficient

evidence to establish that he made a false statement to a

government agent; and (5) that the district court improperly

applied a “special skills enhancement” in calculating

Reich’s sentence under the United States Sentencing

Guidelines Manual (“U.S.S.G.” or “Guidelines”). We dis-

agree with all of Reich’s arguments on appeal and affirm

his conviction on all counts.

BACKGROUND

The following account is drawn from the evidence

adduced at trial before Judge Nicholas G. Garaufis.

The Ryan Beck Lawsuit

Sometime before the activity that gave rise to Reich’s

criminal conviction, Reich, who is a lawyer, commenced

through counsel an arbitration proceeding against a bro-

kerage firm he alleged had mishandled his account. This

firm was subsequently acquired by Ryan Beck & Co.

(“Ryan Beck”), another brokerage firm, and Reich

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amended his arbitration claim to include Ryan Beck as a

respondent. In July 2002, Ryan Beck filed a lawsuit in the

Eastern District of New York, seeking to enjoin Reich and

several other defendants, also former investors who had

filed arbitration claims (collectively, the “investor-defen-

dants”), from arbitrating against it. Ryan Beck & Co. vy.

Fakih, No. 02 Civ. 4052 (E.D.N.Y.) (“Ryan Beck v. Fakih”

or the “Ryan Beck lawsuit”).2 The case was assigned to

Chief Judge Edward R. Korman, who referred the prelim-

inary injunction motion to Magistrate Judge Roanne L.

Mann; eventually, the parties agreed to have Magistrate

Judge Mann preside over the entire case. See Order, Ryan

Beck v. Fakih, No. 02 Civ. 4052 (E.D.N.Y. Nov. 7, 2002)

(Docket Entry No. 49).°

In September 2002, Magistrate Judge Mann issued an

order denying Ryan Beck’s motion for a preliminary

injunction staying arbitration, and on June 4, 2003, she

issued another order denying Ryan Beck’s motion for

reconsideration of that decision. See Order, Rvan Beck v.

Fakih, No. 02 Civ. 4052 (E.D.N.Y. Sept. 23, 2002) (Docket

Entry No. 28); Order, Ryan Beck v. Fakih, No. 02 Civ.

4052 (E.D.N.Y. June 4, 2003) (Docket Entry No. 83) (the

“June 3 Order’”).4 Because the June 3 Order did not resolve

Ryan Beck’s outstanding summary judgment motion, how-

ever, Ryan Beck’s attorney, Joel Davidson (“Davidson’’),

> Though a lawyer. Reich was represented by counsel in the pro-

ceedings. Civil Docket, Beck & Co. v. Fakih, No. 02 Civ. 4052

(E.D.N.Y.).

* The Order was signed September 11, 2002, but was not dock-

eted until November 7, 2002.

Though this Order was docketed June 4, Magistrate Judge Mann

signed it on June 3. Because the district court and the parties have

referred to it as the “June 3 Order,” we now do so for consistency.

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of the law firm Davidson & Grannum, filed an application

for a writ of mandamus in the United States Court of

Appeals for the Second Circuit to compel Magistrate Judge

Mann to issue a ruling.

The Forged Order

On June 17, 2003, at approximately 11:10 a.m., David-

son & Grannum’s law office received a four-page fax

transmission that purported to be, but was not, an order

issued by Magistrate Judge Mann (“the forged Order”),

which was dated June 17, 2003, and bore Magistrate Judge

Mann’s fax header and signature. The forged Order

directed that “[t]he orders denying the preliminary injunc-

tion are recalled and vacated, and defendant Fakih and its

counsel are enjoined from proceeding with the arbitration

hearing against Ryan Beck and the brokers.” It also

recused Magistrate Judge Mann from further proceedings

in the case, stating that she had discussed the suit with

Chief Judge Korman, “who recommended to me that

I recuse myself from the case and return the matter to him.

.. . Given the manner in which I have handled this case, a

reasonable person would believe that I was not impartial,

and recusal logically follows.” Finally, the order returned

the matter to Chief Judge Korman and stated:

The parties shall notify Chief Judge Korman by

letter whether they consent to further proceed-

ings before a different Magistrate Judge, whether

the matter can be decided on the basis of the cur-

rent submissions without the necessity for addi-

tional argument, and whether. . . sanctions may

be imposed against and [sic] of the defendants.

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The forged Order bore similarities to the June 3 Order:

It had the same caption, final page, and fax header, and

was faxed at the same time of day. The date of the forged

Order appeared to have been changed by hand, and one

part of the text alignment was skewed. The forged Order

also contained information that only someone familiar

with the Ryan Beck lawsuit would know; for example, it

included details of the June 3 Order and contained a

phrase—‘“mixing apples and oranges”—that Davidson

occasionally used during the litigation. Telephone records

produced at trial indicated that at 11:08 a.m. on June 17, a

call lasting several minutes was initiated to Davidson’s fax

machine from Reich’s home using a pre-paid calling card.

Davidson’s secretary found the forged Order in the fax

tray shortly after 11 a.m., and handed it to another lawyer

at Davidson’s firm; that attorney faxed the forged Order to

Davidson, who was at home. In response to the forged

Order, Davidson wrote a letter to the Second Circuit with-

drawing his application for a writ of mandamus, which he

understood the forged Order to render moot. Because the

forged Order purported to enjoin only one of the investor-

defendants from arbitrating, however, Davidson also con-

tacted Chief Judge Korman to inquire how he should

proceed regarding the remaining investor-defendants. In

addition, Davidson circulated the forged Order to various

arbitration panels and attorneys representing Ryan Beck in

other jurisdictions.

Magistrate Judge Mann learned of the forged Order

sometime in the afternoon of June 17 or June 18, when the

attorney for one of the investor-defendants called her

chambers to say he had heard that she had issued a deci-

sion. On June 18, she signed an order stating that the

forged Order was fraudulent, had not been issued by the

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court, and should not be relied on in any manner. See

Order, Rvan Beck v. Fakih, No. 02 Civ. 4052 (E.D.N-Y.

June 23, 2003) (Docket Entry No. 110). She also contacted

the Second Circuit so that it would not rely on the forged

Order for purposes of considering the mandamus applica-

tion, and notified the United States Attorney’s Office for

the Eastern District of New York of the forged Order. The

United States Attorney’s Office referred the matter to the

Federal Bureau of Investigation (“FBI”) for investigation.

Reich’s Pretrial and Trial Statements

After the FBI’s initial investigative efforts yielded phone

records linking Reich’s phone number to the fax transmis-

sion of the forged Order, FBI agents interviewed Reich at

the end of July 2003. Reich denied having any contact with

Davidson on June 17, and denied using prepaid telephone

cards. The agents again spoke to Reich in August, when

they searched his home pursuant to a warrant. Reich stated

that he may have contacted Davidson regarding a confi-

dentiality agreement. When an agent asked Reich why

telephone records would reflect a several-minute connec-

tion between his phone and the Davidson fax machine,

Reich stated that he may have dialed the fax line inadver-

tently and hung up. To explain why such an inadvertent

call would last over three minutes, he stated that his phone

did not always disconnect the line immediately upon hang-

ing up.

The following March, Reich and his attorney met with

the FBI agents for a proffer session. When asked whether

he had called Davidson, Reich reiterated that he had dialed

the Davidson fax by mistake, and again denied owning or

using calling cards, although he said he had purchased one

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for his girlfriend. The agents offered Reich the opportunity

to state that he had sent the forged Order as a “joke.”

According to Reich’s testimony at trial, he responded:

“No, I told them distinctly no matter what, no matter

[what] the consequences ... were to me | said I would

never, never say that. I didn’t do it. As I sit here today,

I will never say that I did something | didn’t do.”

At trial, Reich continued to deny creating the forged

Order. He stated that he had tried to call Davidson’s phone

line to discuss a discovery issue and engage in settlement

discussions, but dialed Davidson’s fax number by mistake

and subsequently hung up. He admitted using a calling

card to make the call, but said he had done so because he

was having trouble with his phone service.

Asked about his fax capabilities, Reich admitted he

owned a fax modem the government had seized during its

search. He was also questioned about whether he owned a

Canon Fax Phone 8, the manual to which had been found

in his home. He admitted he had once owned such a

machine but claimed that he had discarded it several years

earlier.

Fax Testimony at Trial

The government called a fax expert at trial, who testified

that the evidence was consistent with the forged Order

having been faxed from Reich’s home. For example, the

length of the call was consistent with the transmission of a

four-page document, and the fax log records could not

have been generated from an inadvertent phone call

because Davidson’s fax machine, which would have

received the phone call, was designed to terminate such

calls after forty-one seconds. The expert also stated that

because of the page numbering on the forged Order, he

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could tel] that the last three pages of the fax had been

transmitted as a single long sheet. Reich’s fax expert coun-

tered that Reich’s fax modem could not have transmitted

the final three pages as a single sheet, and so could not

have been used to transmit the forged Order found in

Davidson’s fax tray. He admitted, however, that he had not

tested a Canon Fax Phone 8. The government’s rebuttal

witness testified that a Canon Fax Phone 8 could have

transmitted the forged Order.

Character Testimony at Trial

Reich called James Pelzer, Clerk of the Court, New York

State Supreme Court, Appellate Division, Second Depart-

ment, as a character witness. Pelzer testified that he and

others believed Reich to be a person of honesty and

integrity. On cross-examination, the government sought to

ask Pelzer about an incident in which Reich, immediately

after learning that his law partner Steven Schapiro had ter-

minal cancer, allegedly changed the beneficiary of

Schapiro’s life insurance plan from Schapiro’s family to

the partnership without first notifying him as the partner-

ship agreement required. Following an objection by

defense counsel and a discussion outside the jury’s pres-

ence, Judge Garaufis permitted the government to ask the

following question: “[I]f 1 told you that Mr. Reich had

changed the beneficiary of an insurance policy away from

Mr. Schapiro’s family members, designating the law firm

the beneficiary in the event of Mr. Schapiro’s death, with-

out notice to Mr. Schapiro and in violation of the partner-

ship agreement that the two of them had, would that

change your opinion or the opinion of the community ...

with regard to the defendant’s honesty or good character?”

Trial Tr. 847. Pelzer responded that it might.

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When Reich testified ta its own defense, he explained’

that he had notified Schapiro before changing the policy

beneficiary, and that he had done it in order to protect the

firm with regard to money loaned by Schapiro’s mother to

Schapiro, for which the firm was responsible.

Conviction, Sentencing, and Post-Trial Motions

After deliberations on August 25, 2005, the jury returned

a verdict of guilty on all three counts. Reich moved for a

judgment of acquittal and for a new trial pursuant to Fed-

eral Rules of Criminal Procedure 29 and 33, alleging insuf-

ficient evidence to support convictions on any of the three

counts, improper impeachment of a character witness, and

improper rebuttal.” See Reich, 420 F. Supp. 2d at 81. He

also moved for bail pending appeal. Judge Garaufis denied

the motions for a judgment of acquittal and for a new trial,

holding principally that there was sufficient evidence that

Reich sent the forged Order, that he obstructed an official

proceeding within the meaning of § 1512(c)(2), and that he

made a false statement to the FBI. Reich, 420 F. Supp. 2d

at 82-85. Judge Garaufis also denied Reich’s motion for

bail pending appeal, finding that his rulings did not raise

any substantial questions for appeal. /d. at 90-91.

The presentence report prepared by the United States

Probation Department calculated Reich’s combined adjusted

offense level as 18. This included a “special skills enhance-

ment,” see U.S.S.G. § 3B1.3, on all three counts, based on

the Probation Department’s conclusion that Reich’s special

skills as an attorney facilitated his crimes. At sentencing,

Judge Garaufis found the enhancement warranted and

> He subsequently amended those motions, but did not change in

any way their significant underlying bases.

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applied it to all three counts. Ile found the Guidelines range

of 27 months to 33 months to be reasonable and sentenced

Reich to 27 months’ imprisonment. This appeal followed.

DISCUSSION

We address each of Reich’s challenges to his conviction

in turn.

I. Obstruction of Justice

Reich challenges as insufficient the evidence supporting

his conviction for obstruction of justice under 18 U.S.C.

§ 1512(c)(2), which subjects to criminal liability one who

“corruptly ... obstructs, influences, or impedes any offi-

cial proceeding, or attempts to do so.” In United States v.

Aguilar, 515 U.S. 593 (1995), the Supreme Court con-

strued the intent element of 18 U.S.C. § 1503, whose rele-

vant language is substantially similar to the relevant

language in 18 U.S.C. § 1512(c)(2),° to include a “nexus

requirement.” /d. at 600 (internal quotation marks omit-

ted); see also United States v. Schwarz, 283 F.3d 76, 108

(2d Cir. 2002). To satisfy this requirement, the defendant’s

conduct must “have a relationship in time, causation, or

logic with the judicial proceedings”; in other words, “the

endeavor must have the natural and probable effect of inter-

fering with the due administration of justice.” Aguilar, 515

U.S. at 599 (internal quotation marks omitted). Reich con-

cedes that the necessary nexus can exist when the discre-

* Section 1503, titled “Influencing or injuring officer or juror gen-

erally.” subjects to criminal liability one who corruptly “endeavors to

influence, intimidate, or impede” an officer or juror or “influences,

obstructs, or impedes, or endeavors to influence, obstruct, or impede,

the due administration of justice.” 18 U.S.C. § 1503(a).

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tionary actions of a third person are required to obstruct

the judicial proceeding, but he alleges that the evidence

adduced at trial failed to establish such a nexus because it

was not foreseeable to Reich that the third party, Davidson,

would act on the forged Order in such a way as to obstruct

the judicial proceeding.

This Circuit has not previously applied Aguilar’s nexus

requirement to § 1512(c)(2). We have, however, applied it

not only to § 1503, see Schwarz, 283 F.3d at 108-09, but

also to 18 U.S.C. § 1505, which subjects to criminal liabil-

ity one who “corruptly . . . influences, obstructs, or impedes

... the due and proper administration of the law under

which any pending proceeding is being had before any

department or agency of the United States,” see United

States v. Quattrone, 441 F.3d 153, 174 (2d Cir. 2006). The

language of § 1505 is even more similar to § 1512(c)(2)

than is § 1503, and given that the parties have not disputed

Aguilar’s application to § 1512(c)(2), there is no reason

not to apply it. See Quattrone, 441 F.3d at 170 n.18 (stat-

ing that the parties had treated §§ 1503 and 1505 “the same

for analytical purposes” and that the court saw “no reason

for taking a different tack” because “[t]he only relevant dis-

tinction between the two statutes—at least in the context of

this case—lies in the attendant circumstances of the obstruc-

tion”). Accordingly, we hold that § 1512(c)(2) incorporates

a “nexus requirement” as articulated in Aguilar.

Reich has failed to show that the evidence was insuffi-

cient to establish a nexus between his actions and obstruc-

tion of the proceeding. See United States v. Matthews, 20

F.3d 538, 548 (2d Cir. 1994) (describing the “heavy bur-

den” on defendants who challenge the sufficiency of evi-

dence). Because the forged Order appeared to render moot

Ryan Beck’s application to the Second Circuit for a writ of

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mandamus, it was foreseeable that upon receiving the

forged Order, Davidson would withdraw the application,

as he in fact did. In addition, because the forged Order

expressly invited the parties to contact Chief Judge Kor-

man regarding further proceedings, it was foreseeable that

Davidson would contact Chief Judge Korman, as he in fact

did. This evidence is clearly sufficient to establish a “rela-

tionship in time, causation, or logic” between Reich’s

transmission of the forged Order and effects on the judicial

proceeding, as Aguilar requires. 515 U.S. at 599. More-

over, that relationship is much closer than those found

insufficient in Aguilar or Schwarz, where the defendants

merely made false statements to agents who might or

might not later testify before a grand jury. See Aguilar, 515

U.S. at 600; Schwarz, 283 F.3d at 109. It is also closer in

time, causation, and logic than the relationship found suf-

ficient in Quattrone, where the defendant sent an email to

his staff endorsing a suggestion to destroy documents that

might eventually be subpoenaed by a grand jury. 441 F.3d

at 166, 172. Here, by contrast, Reich directly injected a

false order into ongoing litigation to which he was a party.

The forged Order purported to enjoin a party from acting

in an arbitration, directed the parties to contact Chief

Judge Korman, and mooted a party’s application before the

Second Circuit, thereby inducing that party to withdraw it.

The effects of the forged Order were more “natural and

probable” than those in Aguilar, Schwarz, or Quattrone.

Reich also claims that no “obstruction” occurred within

the meaning of § 1512(c)(2) because there was no evidence

that “the fairness or outcome of the Ryan Beck lawsuit was

affected in any way.” He observes that unlike the language

of § 1503, which contemplates action affecting the “due

administration of justice,” § 1512(c)(2) contemplates only

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actions affecting “any official proceeding.” This differ-

ence, Reich contends, indicates Congress’s intent not to

criminalize under § 1512(c)(2) actions that impact the

administration of justice but that do not “actually” affect

the outcome of the official proceedings. This interpreta-

tion, however, is inconsistent with the plain language of

the statute, which encompasses all actions that “corruptly

... influence[]” a proceeding—or even attempt to do so—

not merely those that affect its ultimate outcome. More-

over, the injection of the forged Order into the Ryan Beck

lawsuit at the very least “influence[d]” the proceedings, in

that it caused a litigant to withdraw a filing and contact a

judge, and caused Magistrate Judge Mann to issue an order

explaining the falsity of the forged Order and to convene a

status conference to discuss it.

Il. Forgery of a Judge’s Signature

Reich claims the district court erred in failing to instruct

the jury that the forgery count under 18 U.S.C. § 505

requires proof of intent to defraud. Acknowledging that

§ 505, which makes it a crime to “forge[] the signature of

any judge ... of any court of the United States ... or

forge[] or counterfeit[] the seal of any such court, or know-

ingly concur[] in using any such forged or counterfeit sig-

nature or seal, for the purpose of authenticating any

proceeding or document,” does not on its face require an

“intent to defraud,” Reich nonetheless argues that we

should find such a requirement because it is an element of

common-law forgery, and the common law should inform

our interpretation of federal criminal statutes.

Whether § 505 requires an intent to defraud is an issue

of first impression for this Court, but two other circuits

have addressed it. In 1931, the Sixth Circuit endorsed the

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view Reich now advances, holding that Congress intended

§ 505 to include the common-law element of intent to

defraud. Levinson v. United States, 47 F.2d 470, 471 (6th

Cir. 1931);’ see also United States v. Bertrand, 596 F.2d

150, 152 (6th Cir. 1979) (referring to Levinson and finding

that the appeal was governed by stare decisis). The Tenth

Circuit, however, drew the opposite conclusion.® United

States v. Cowan, 116 F.3d 1360, 1361 (10th Cir. 1997). We

now join the Tenth Circuit in holding that § 505 does not

require an intent to defraud.

In interpreting a statute, “[wJe start, as always, with the

language of the statute.” Williams v. Taylor, 529 U.S. 420,

431 (2000). The text of § 505 contains no intent-to-defraud

element; “{t]o the contrary, §505’s plain language only

requires that a defendant . . . knowingly forge the signature

of a federal judge ‘for the purpose of authenticating any

proceeding or document.’” Cowan, 116 F.3d at 1362 (quot-

ing 18 U.S.C. § 505).

7 The version of 18 U.S.C. § 505 analyzed in Levinson was part of

a predecessor statute to the current § 505, which was enacted in 1948,

see Pub. L. No. 80-772, 62 Stat. 683 (1948), but the relevant language

is identical.

S Reich claims that two additional Circuits have joined the Sixth

in holding that § 505 requires an intent to defraud, but neither of the

cases he cites actually reached that question. See United States v. Lon-

don, 714 F.2d 1558, 1563-64 (11th Cir. 1983) (looking to the scope of

common law forgery for the unrelated purpose of shedding hght on

whether passing off a photocopy of a judge’s signature as an original

fell within the ambit of § 505, but not addressing the question of intent

to defraud, which was not before the court); United States v. Dver, 546

F.2d 1313, 1316 (7th Cir. 1976) (expressly declining to reach the ques-

tion of whether § 505 required an intent to defraud because the court

below erred in failing to find an unrelated “essential element,” though

suggesting in dictum that “much could be said for” the view that § 505

did require an intent to defraud).

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It is true that courts frequently construe an undefined

statutory term in a federal criminal statute to carry its com-

mon-law meaning, see United States v. Turley, 352 U.S.

407, 411 (1957), and that the common-law crime of for-

gery required an intent to defraud, see generally Moskal v.

United States, 498 U.S. 103, 121-28 (1990) (Scalia, J., dis-

senting). But it is also well-established that courts should

not assign a common-law meaning to a statutory term

“when that meaning is ... inconsistent with the statute’s

purpose.” Zaylor v. United States, 495 U.S. 575, 594-95

(1990); see also Moskal, 498 U.S. at 117 (“Congress’ gen-

eral purpose in enacting a law may prevail over th[e] rule

of statutory construction” that terms be given their com-

mon-law meanings.). Here, we agree with the Tenth Cir-

cuit that to import the common-law element of intent to

defraud into § 505 would thwart Congress’s goal in enact-

ing the provision. See Cowan, 116 F.3d at 1363.

Historically, the term “to defraud” has “refer{red] to

“wronging one in his property rights by dishonest methods

or schemes,’ and ‘usually signif[ied] the deprivation of

something of value by trick, deceit, chicane or overreach-

ing.’” McNally v. United States, 483 U.S. 350, 358 (1987)

(quoting Hammerschmidt v. United States, 265 U.S. 182,

188 (1924)). By contrast, § 505 is concerned not with pro-

tecting private parties from financial loss, but with pro-

tecting the integrity of a government function—namely,

federal judicial proceedings. “In considering a statute

enacted for the protection of the government,” we need not

interpret a term “from the same standpoint from which the

question would be considered if the word . .. were used in

a State statute enacted for the protection of ordinary prop-

erty rights of individuals .. . [because] in the one instance

the statute in its ordinary acceptation has reference to

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property and property rights alone, while in the other it has

reference to a broader purpose, that of protecting the gov-

ernment in its administration under the law... .” Curley v.

United States, 130 F. 1, 8 (1st Cir. 1904) (finding that a

statute penalizing conspiracies to “defraud” the United

States encompassed conspiracies not aimed at property

interests); see also McNally, 483 U.S. at 359 & n.8 (citing

Curley with approval). When an individual forges a

judge’s signature in order to pass off a false document as

an authentic one issued by the courts of the United States,

such conduct implicates the interests protected by § 505

whether or not the actor intends to deprive another of

money or property. To construe § 505 to proscribe such

conduct is “true to both its text and purpose.” Cowan, 116

F.3d at 1363.9

A survey of the counterfeiting and forgery provisions of

Title 18, Chapter 25, in which § 505 appears, supports this

interpretation. The current §505 was enacted in 1948

along with the bulk of the other provisions appearing in

Chapter 25. See Pub. L. No. 80-772, 62 Stat. 683 (1948)

(the “1948 Act’). Of those provisions, some very clearly

require an intent to defraud, see, e.g., 18 U.S.C. § 471

(prohibiting forgery of federal obligations and sccurities

with “intent to defraud”); 18 U.S.C. § 478 (prohibiting for-

gery of foreign obligations and securities “with intent to

defraud”); 18 U.S.C. § 482 (prohibiting forgery of foreign

bank notes “with intent to defraud”), while others do not

contain such a requirement, see, e.g., 18 U.S.C. § 493 (pro-

hibiting forgery of writings issued by certain federal lend-

ing agencies); 18 U.S.C. § 496 (prohibiting forgery of

9 We note, as did the Tenth Circuit. that there is “[n]o elucidating

legislative history” of § 505, making us even more “hesitant to stray

from the plain language of the statute.” Cowan, 116 F.3d at 1363.

18a

documents pertaining to imports and customs duties), and

still others enumerate several crimes, only one or some of

which require an intent to defraud, see, e.g., 18 U.S.C.

§ 506 (prohibiting, without mention of intent to defraud, the

“false[] mak[ing], forge[ry], counterfeit[ing}], mutilat[ion],

or alter[ation]” of the seal of any U.S. department or agency,

but prohibiting the possession, sale, or other transfer of

such fraudulent seal only with “fraudulent intent”).!° This

variation strongly suggests that Congress deliberately

chose to require an intent to defraud for some forgery and

counterfeiting crimes, but not for others. Cf Whitfield v.

United States, 543 U.S. 209, 216 (2005) (stating that Con-

gress’s inclusion of an express overt-act requirement in

many conspiracy statutes, but not the one considered by

the Court, “clearly demonstrat{[ed] that it knows how to

impose such a requirement when it wishes to do so”).

We also note that of the provisions originally enacted in

the 1948 Act, those requiring an intent to defraud were

generally oriented toward a different purpose than those

not requiring such an element. Provisions in the first cate-

gory frequently criminalized forgeries and counterfeits

likely to be used to defraud private citizens out of their

money or property—for example, the forgery of U.S. and

foreign obligations and securities, 18 U.S.C. §§ 471, 478.

Those in the second category, meanwhile—like § 505—

criminalized activities likely to impugn the reputation or

integrity of the federal government regardless of whether

10

Stull other provisions contain other intent requirements. See,

e.g., 18 U.S.C. § 473 (prohibiting dealing in counterfeit obligations or

securities when the actor has “the intent that the same be passed, pub-

lished, or used as true and genuine”); 18 U.S.C. § 474 (prohibiting pos-

session of plates or stones used for printing U.S. securities with “intent

to use such plate, stone, or other thing . . . in forging or counterfeit-

ing”).

19a

the perpetrator intended to defraud private citizens. See,

e.g., 18 U.S.C. § 497 (prohibiting forgery of letters patent);

18 U.S.C. § 498 (prohibiting forgery of military discharge

papers); 18 U.S.C. § 506 (prohibiting forgery of the seal of

any U.S. department or agency). In those provisions enu-

merating separate but related crimes and assigning differ-

ent intent requirements to each, those crimes most likely to

defraud private citizens were the ones containing an intent-

to-defraud element. See, e.g., 18 U.S.C. § 485 (requiring

an “intent to defraud” to “pass//, utter[], publish[{], [or]

sell[]” counterfeit coins or bars, but not to “falsely make[/,

forge[], or counterfeit{]” such coins or bars (emphasis

added)); 18 U.S.C. § 507 (prohibiting the forgery of ship’s

papers without an intent to defraud, but prohibiting the

“utter[ing], publish[ing], or pass[ing]” of such papers only

with “intent to defraud”). Section 505’s prohibition on forg-

ing a judge’s signature, which is concerned with preserving

the integrity of the courts, falls logically into the category of

crimes Congress intended to penalize even when the actor did

not intend to deprive others of money or property. In light of

this meaningful variation, we decline to read into § 505 an

intent-to-defraud element Congress chose to omit.

In sum, like the Tenth Circuit, we hold that engrafting an

intent-to-defraud element onto § 505 would not effectuate

Congress’s intent, and we find no crror in the district

court’s jury instruction on the §505 count omitting an

intent-to-defraud requirement.

As an additional matter, Reich claims that there was

insufficient evidence to demonstrate that he personally

forged Magistrate Judge Mann’s signature. Now conceding

that there was evidence that the forged Order was faxed

from his home, Reich argues that this could at most show

that he “knowingly concur[red]” in the forgery, which,

20a

though also prohibited under § 505, is not the crime with

which the government charged him. There was ample evi-

dence presented at trial, however, that Reich himself

forged the Order. For example, the government presented

evidence that the author of the forged Order was intimately

familiar with the Ryan Beck lawsuit and that the forged

Order was faxed from Reich’s residence. It is well-estab-

lished that in considering a defendant’s challenge to his

conviction based on insufficiency of the evidence, “the

evidence [must] be viewed in the light most favorable to

the government and all permissible inferences drawn in its

favor,” and that so long as “the evidence, thus construed,

suffices to convince any rational trier of fact of the defen-

dant’s guilt beyond a reasonable doubt,” the conviction

must stand even if the government’s case has not

“exclude[d] every possible hypothesis of innocence.”

United States v. Martinez, 54 F.3d 1040, 1042-43 (2d Cir.

1995) (internal citations and quotation marks omitted).

I11. Other Claims

A. Impeachment of Character Witness

Reich claims that the district court erred in permitting

the government to cross-examine his character witness,

James Pelzer, regarding Reich’s having changed the bene-

ficiary of his law partner’s life insurance policy in viola-

tion of the partnership agreement.'! In particular, Reich

'! The Federal Rules of Evidence state that “[{e]vidence of a perti-

nent trait of character offered by an accused, or by the prosecution to

rebut the same” is admissible, Fed. R. Evid. 404(a)(1), and may be

made by “testimony as to reputation or . . . in the form of an opinion,”

Fed. R. Evid. 405(a). On cross-examination regarding reputation or

opinion, “inquiry is allowable into relevant specific instances of con-

duct.” /d.

2la

cites United States v. Monteleone, 77 F.3d 1086, 1089-90

(8th Cir. 1996), for the proposition that the life insurance

incident was “private in nature and not likely to have been

known in the community at large,” and thus was imper-

missible “‘specific act’ cross-examination.” We review the

district court’s decision to allow the question for abuse of

discretion, United States v. Damblu, 134 F.3d 490, 494 (2d

Cir. 1998), bearing in mind that “[o]nce a defendant offers

character testimony, the prosecution is afforded substantial

latitude to rebut such evidence,” United States v. Russo,

110 F.3d 948, 952 (2d Cir. 1997).

At the outset, we note that Monteleone, an Eighth Cir-

cuit case, is not binding in this Circuit. Even if it were,

however, we would find that it does not render the district

court’s decision to permit the cross-examination an abuse

of discretion. First, in Monteleone, the conduct in ques-

tion—perjury before a grand jury—was “not likely to have

been known in the community at large” only because it

was “protected by an obligation of secrecy,” and so “the

only legitimate source of any rumors pertaining to Mon-

teleone’s [conduct] would have been Monteleone himself.”

Monteleone, 77 F.3d at 1090. In contrast, Reich’s conduct

with respect to the life insurance policy was not legally

protected as a secret and was in fact known to a number of

others besides Reich himself, including his partner’s fam-

ily and attorneys involved in dissolving the partnership.

Second, the Eighth Circuit has clarified that Monteleone

applies to reputation witnesses but not to opinion wit-

nesses, because “[a] specific instance of misconduct, even

if not of the kind generally known in the community,

would be relevant to the witness’s own opinion.” United

States v. Bruguier, 161 F.3d 1145, 1150 (8th Cir. 1998); see

also United States v. Birney, 686 F.2d 102, 108 (2d Cir.

22a

1982) (upholding trial court’s admission of cross-examina-

tion question as to whether certain nondisclosures by the

defendant in loan applications would affect the witness’s

opinion of the defendant’s character). Pelzer, who testified

both about his own impressions of Reich and those of the

community, served as both a reputation and an opinion

witness. Accordingly, because the question to which Reich

objects was directed at least in part to his opinion testi-

mony, it was proper regardless of whether it was generally

known in the community. See Trial Tr. 847 (“[I]f I told you

that Mr. Reich had changed the beneficiary of an insurance

policy ... would that change your opinion or the opinion

of the community ... with regard to the defendant’s hon-

esty or good character?” (emphasis added)). We also reject

Reich’s challenge that the cross-examination was uncon-

stitutional because it “forced” or “compelled” him to tes-

tify. The questioning may have affected his trial strategy,

but it certainly did not force him to testify.'?

B. False Statement Charge

Reich argues that the evidence adduced at trial was

insufficient to prove “the precise allegation in the indict-

ment” with respect to the false statement charge, which

alleged specifically that on March 4, 2004, Reich told the

FBI agents that the forged Order had not been faxed from

his home. Reich contends that the agents testified at trial

only that Reich had not admitted faxing the Order, not that

he denied faxing it. The former is not “an express denial,”

he claims; rather, it ts merely a “lack of forthrightness.”

Because the indictment charged him with an express

'2 On appeal, Reich did not challenge the form of the question

posed to his character witness, which took the form of a hypothetical.

23a

denial, Reich argues, finding him guilty based on a lack of

forthrightness would constitute a constructive amendment

of the indictment.

As the district court found, however, Reich’s argument

is “contrary to the facts.” Reich, 420 F. Supp. 2d at 85. One

of the agents testified that when confronted with the phone

records, Reich stated that he had called the Davidson fax

machine by mistake when trying to reach Davidson about

a deposition. Moreover, Reich himself testified that, when

asked if he would admit sending the forged Order in order

to avoid prosecution, he said: “No, I told them distinctly

no matter what, no matter [what] the consequences ...

were to me I said I would never, never say that. I didn’t do

it. As [I] sit here today, I will never say that I did some-

thing I didn’t do.” Trial Tr. 896. This testimony would

have permitted a rational juror to find that Reich denied

having sent the forged Order. Thus, unlike the defendant in

Bronston v. United States, 409 U.S. 352 (1973), a perjury

case Reich cites as analogous, Reich was not convicted

based on a response that was “literally true” but “arguably

misleading.” /d. at 353, 362 (finding that the perjury

statute did not criminalize the making of such statements).

C. Special Skills Enhancement

Finally, Reich argues that the district court improperly

applied a two-level special skills sentence enhancement,

see U.S.S.G. §3B1.3, to his convictions on the counts of

obstruction of justice (“Count One”) and making a false

statement to a federal officer (“Count Three’’). The special

skills enhancement provides for a two-level increase in the

Guidelines range whenever a defendant used a special skill

“in a manner that significantly facilitated the commission

or concealment of the offense.” /d.; see also id. cmt. n.4

24a

(naming “lawyers” as an example of individuals possess-

ing special skills). Reich does not challenge the enhance-

ment’s application to the count of forgery (“Count Two”).

He contends, however, that his special skills did not “sig-

nificantly facilitate[]” either of the other counts.

First, Reich claims that the “sole basis” for the obstruc-

tion of justice charge was faxing the forged Order, and that

his legal skills and training did not facilitate his use of the

fax machine. The district court’s “determination of

whether a defendant utilized a . . . special skill in a manner

that significantly facilitated the commission ... of the

offense is a question of fact reviewed for clear error.”

United States v. Thorn, 446 F.3d 378, 388 (2d Cir. 2006).

Count One of the indictment charged Reich broadly with

“knowingly, intentionally and corruptly obstruct[ing],

influenc[ing] and imped[ing] an official proceeding.” This

necessarily included the creation of the forged Order, with-

out which the obstruction, influencing, or impeding of the

judicial proceeding would have been impossible. Because

Reich used his special skills as a lawyer to create the

forged Order, it was not clear error for the district court to

apply the enhancement to Count One.

Because we affirm the district court’s application of the

enhancement to Count One, we need not resolve Reich’s

challenge to the application to Count Three because the

three counts of conviction were grouped pursuant to sec-

tion 3D1.2(c) of the Guidelines. The offense level for the

grouped counts was determined by reference to “the high-

est offense level of the counts tn the Group,” U.S.S.G

§ 3D1.3(a), which was level 18 for Count One. Thus'‘the

decision to apply the enhancement to Count Three had no

effect on Reich’s sentencing. See United States v. Richards,

302 F.3d 58, 72 (2d Cir. 2002) (finding “no persuasive

25a

grounds for a sentencing remand” when a defendant’s chal-

lenge to one aspect of his sentence, even if successful,

“would have no effect” on his term of imprisonment).

CONCLUSION

For the foregoing reasons, we find that (1) 18 U.S.C.

§ 1512(c) requires a nexus between a defendant’s conduct

and the effect on the judicial proceeding, as described in

United States v. Aguilar, 515 U.S. 593 (1995), and that the

trial evidence in this case was sufficient to establish such

a nexus; (2) 18 U.S.C. § 505, criminalizing the forgery of

a judge’s signature, does not require an intent to defraud,

and the evidence was sufficient to support Reich’s convic-

tion under the statute; (3) the district court did not abuse

its discretion in permitting the government to cross-exam-

ine Reich’s character witness regarding Reich’s change to

his law partner’s life insurance policy because character

witness was an opinion witness as well as a reputation wit-

ness; (4) the evidence was sufficient to establish that Reich

personally created the forged Order; and (5) the district

court’s application of a special skills enhancement to

Reich’s conviction under 18 U.S.C. § 1512(c), after con-

cluding that his skills as a lawyer facilitated the underlying

conduct, was not clearly erroneous, and the enhancement

was therefore proper. The judgment of conviction is

AFFIRMED.

26a

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

04-Cr.-587(NGG)

UNITED STATES OF AMERICA

—against—

PERRY REICH,

Defendant.

MEMORANDUM AND ORDER

GARAUFIS, United States District Judge

A jury found the Defendant Perry Reich (“Reich” or

“Defendant”) guilty of forgery of a judge’s signature, of

corruptly obstructing a judicial proceeding, and of making

willfully false statements to Federal Bureau of

Investigation (“FBI”) agents. The Defendant now moves

for a judgment of acquittal or, in the alternative, a new

trial, pursuant to Rules 29(c) and 33 of the Federal Rules

of Criminal Procedure, respectively, for bail pending

appeal, and to modify the trial transcript. For the reasons

stated below, the Defendants’ motions are DENIED,

except for the application to modify the transcript, which

is GRANTED in part and DENIED in part.

27a

I. FACTUAL BACKGROUND

Because the questions raised by Defendant in his post-

trial motions require this court to look at the entire trial

record, what follows is a detailed examination of the evi-

dence presented at trial. Reich’s convictions arise from a

forged judicial order in Ryan, Beck & Co. v. Fakih, No. 02

Civ. 4052 (E.D.N.Y.) (Mann, J.) (“the Ryan Beck law-

suit”). Prior to the lawsuit, Reich, who held an account

with Gruntal & Co. (“Gruntal”), a brokerage firm, filed an

arbitration claim against Gruntal claiming a mishandling

of his account, and then amended his claim to include

Ryan Beck & Co. (“Ryan Beck”), another brokerage firm,

after Ryan Beck purchased the assets of Gruntal. (Trial

Transcript (“Tr.”) 328-32.) In the Ryan Beck lawsuit,

plaintiff Ryan Beck sought to enjoin investors, including

Reich, from arbitrating these claims against it. (/d.)

A. Evidence Adduced at Trial

On June 17, 2003, at approximately 11:10 a.m., the law

offices of Joel Davidson (“the Davidson firm”), the repre-

sentative of Ryan Beck in the lawsuit, received by facsimile

transmission a document that purported to be an order (“the

forged Order”), dated June 17, 2003, issued by Magistrate

Judge Roanne L. Mann, who was assigned to the Ryan Beck

lawsuit. (Tr. 532-33; Gov. Ex. 1.) The forged Order recalled

and vacated a previous order, dated June 3, 2003, denied a

preiiminary injunction, enjoined the parties from proceed-

ing with an arbitration hearing and recused Judge Mann

from further proceedings in the case. (Gov. Ex. 1.)

The forged Order was transmitted as a four page docu-

ment, including a cover letter and three page Memorandum

and Order. (Gov. Ex. 1.) The forged Order has Judge

28a

Mann’s fax header and her signature, and the cover page

appears to be from the Eastern District of New York, with

Judge Mann’s address and telephone number. (/d.) How-

ever, the forged Order appears to have been fashioned

from the June 3, 2003 Order, which has the same caption

and same third page. (Tr. 532-33; Gov. Ex. 24; compare

Gov. Ex. | with Ex. 31.) The date of the cover page, the fax

header, and the forged Order appear to have been changed

by hand, and the text of the forged Order is skewed. (Tr.

533; Gov. Ex. 1.) As explained in the expert testimony pre-

sented at trial, on the first page of the document “P 01” is

printed upside-down at the bottom of the page, on the sec-

ond page of the document “P 02” appears upside-down at

the bottom of the page, the third page of the document

states above the header “Extended Page 2.1,” and on the

last page of the document is printed upside-down at the

bottom of the page, “Extended Page 2.2.” (Gov. Ex. 1, 4.)

Phone records of Reich’s home and the Davidson firm

fax machine indicate that at 11:08 a.m., a call was initiated

to the Davidson firm fax machine from a pre-paid AT&T

calling card purchased by Reich. (Gov. Exs. 2, 35, 37.)

Maureen Vollers, the secretary of Joel Davidson, who is

counsel to Ryan Beck, testified that she found the forged

Order on the Davidson firm fax machine tray shortly after

11:00 a.m. (Tr. 102-03, 129, 170.) Vollers and Naomi

Weinberg, an associate at the Davidson firm, testified that

Vollers handed Weinberg the forged Order between 11:15

and 11:20 a.m. (Tr. 104-105, 187.) Ms. Weinberg testified

that she maintained control of the forged Order until she

had it faxed to Joel Davidson at his home at approximately

12:30 p.m. (Tr. 183-90.) Joel Davidson testified that Reich

was the only person with any relationship to the Ryan

29a

Beck lawsuit who sent a facsimile transmission to that

machine that day. (Tr. 358-60.)

In response to the forged Order, the Davidson firm with-

drew its June 9, 2003 application for a writ of mandamus

from the Second Circuit that it filed in response to Judge

Mann’s previous (and still controlling) June 3, 2003 Order.

(Tr. 363-64.) Mr. Davidson contacted Judge Korman, the

district court judge assigned to the case, to request that an

order be entered applying the rulings in the forged Order to

all other former investors in the Ryan Beck lawsuit. (Tr.

361.) Judge Mann then communicated in an order that the

forged Order was not issued by her. She held a status con-

ference in which she discussed the forged Order, and con-

tacted the Second Circuit to inform it that the forged Order

should not be relied on in deciding the writ of mandamus.

(Tr. 536-38, 547-48; Gov. Ex. 24.) Judge Mann’s law

clerk, John Marco, testified that the forged Order substan-

tially complicated the proceedings. (Tr. 547-48.)

B. Reich Pretrial Statements and Trial Testimony

Reich made four separate statements denying his

involvement in the creation and transmission of the forged

Order. Federal Bureau of Investigations (FBI) Special

Agent Richard Wilfling testified that he and agent Robert

Katzman interviewed Reich on July 31, 2003 (“July 31

interview’), in which Reich denied using pre-paid tele-

phone cards, and could not recall having any interaction

with Joel Davidson. (Tr. 576-77, 581.) He testified that he

interviewed Reich again on August I1, 2003 (“August 11

interview’), during an FBI search of Reich’s home, in

which Reich admitted to contacting Joel Davidson regard-

ing a confidentiality agreement that Reich may have faxed.

30a

(Tr. 590-91.) Confronted with telephone records showing a

connection for over three minutes on July 11, 2003 between

his residence and the Davidson fax machine, agent Wil-

fling testified that Reich explained that he may have inad-

vertently called the Davidson firm fax machine and

disconnected, and that the call lasted over three minutes

because his telephone does not always disconnect after

hanging up. (Tr. 591.)

Agent Wilfling further testified that on March 3, 2004,

he, agent Katzman, a government prosecutor, and Reich

and his counsel met in the United States Attorney’s Office

for a proffer session (“March 3 proffer session”). At that

session, agent Wilfling testified that Reich denied owning

or using an AT&T calling card, but said that he purchased

a prepaid calling card for his girlfriend in 2002. (Tr. 599.)

According to agent Wilfling, Reich reiterated that he had

been trying to reach Joel Davidson, but that he acciden-

tally dialed the Davidson firm fax machine, and that his

telephone sometimes did not disconnect after a call ends.

(Tr. 600-01.)

At trial, Reich denied that he created or sent the forged

Order, but admitted that he called the Davidson firm fax

machine number on June 17, 2003, at the time in question.

(Tr. 886-87, 894, 896.) However, Reich testified that he

did not intend to send a facsimile transmission, but rather

had wanted to speak with Joel Davidson to resolve a dis-

covery issue and engage in settlement discussions with the

Davidson firm. (Tr. 885.) Reich explained that he dialed

the fax number because he confused the Davidson fax and

phone numbers from the Davidson firm letter head. (Tr.

887). He also testified that he used an AT&T calling card

to make the call because he was having trouble connecting

telephone calls with his Verizon account. (Tr. 886.) Lastly,

31a

Reich testified that he did not actually connect with the

Davidson firm, and he suggested that the telephone records

showed a long communication because his computer fax

modem sometimes engages his telephone line and causes

the line to remain connected after the call has ended. (Tr.

887-88.)

Regarding his capability of sending the forged Order, at

trial Reich admitted that he owned a fax modem that was

seized by the government, and testified that at one time he

owned a Canon Fax Phone 8, but he explained that he dis-

carded the machine in 2000. (Tr. 892-93, 949.)

C. Expert Testimony Regarding Facsimile Transmission

of Forged Order

Cameron Smith, an expert on the Hewlett Packard (“HP”)

LaserJet 3100 and fax machines generally, testified for the

government regarding the facsimile transmission of the

forged Order. Smith testified that the Davidson firm fax

machine is an HP LaserJet 3100, and that its transmission

log for June 17, 2003 indicates that at 11:10 a.m., the

machine received a three minute, eighteen second, facsim-

ile transmission from a fax machine that had no identifica-

tion field to identify the sender at 9600 bits per second

(“bps”) that completed successfully. (Gov. Ex. 2; Tr. 424-

25.) Smith also testified that the length of this transmission

is consistent with a facsimile transmission of a four page

document, such as the forged Order, sent at 9600 bps. (Tr.

456, 472.)

Smith testified that the call from Reich’s home must

have sent a fax transmission, because the Davidson firm

fax machine automatically terminates calls without a fax

signal within 41 seconds. (Tr. 406, 410, 413, 454-55.) He

explained that the HP LaserJet 3100 changes the scale of

32a

the images sent to fit on the page. When the HP LaserJet

3100 cannot fit an image on a single page, it prints

“Extended Page” on each additional page that the image

requires. Thus, if a page is sent to the HP LaserJet 3100

that is 33 inches in length, the HP LaserJet 3100 prints on

the first page the page number, “X,” on second page

“Extended Page X.1,” and on third page “Extended Page

X.2.” (Tr. 457-59.)

Smith testified that at the government’s request, he

tested the “Extended Page” function by sending facsimile

transmissions to the HP LaserJet 3100 of one regular page

followed by one 44-inch long page.! Based on this testing,

Smith determined that if the last three pages of a four page

transmission to the HP LaserJet 3100 were attached together

(thereby constituting one extra-long page), the HP LaserJet

3100 would print the image in four pages, printing “Page

2” on the second page, “Extended Page 2.1,” on the third

page and “Extended Page 2.2,” on the fourth page, and

indicate a two page fax in the transmission log. (Tr. 460-

68, Gov. Exs. 75, 76.) Smith testified that the “Extended

Page” prints in the forged Order were generated by the HP

LaserJet 3100, and that the “P01” on the cover page was

not generated by the HP LaserJet 3100. (Tr. 470-71.)

The defense produced Mark Alcock, a forensics expert

witness. (Tr. 983-86.) Alcock testified that his examination

of the computers seized by the FBI showed that they did

not create the forged Order, and that Reich’s computer fax

l

Smith’s tests used two different types of elongated paper: three

pages of “tractor feed paper,” paper with perforated edges and holes on the

sides to accommodate the sprockets on a tractor feed printer, with the per-

forated edges torn off. and one specially made page 44 inches in length.

(Tr. 463.) However, Smith testified that three partially overlapped regular

sheets of paper would have had the same result. (/d.)

33a

modem could not have sent it. (Tr. 997-99.) He disputed

the reliability of Smith’s tests of the “Extended Page”

function on the HP LaserJet 3100, explaining that after try-

ing twice to send multiple pages that were taped together,

he jammed his machine. (Tr. 1000-01.) Alcock also testi-

fied that the “Extended Page” function could not have been

triggered by a facsimile transmission sent by a fax modem

and a flatbed scanner, as Reich alleged to have used in his

home to fax. (Tr. 1002-03.) Alcock challenged the authen-

ticity of the Government’s exhibits. He asserted that the

degraded quality of the header in the forged Order demon-

strated that it was never originally sent as a facsimile

transmission (Tr. 1023-27), and that ‘the Davidson firm fax

machine transmission log could have been replicated on

Microsoft Word. (Tr. 1029-31.) Alcock also found plausi-

ble Reich’s testimony that his fax modem could have

“jatched” onto the Davidson firm fax machine and pro-

longed the call after Reich had hung up. (Tr. 1038-39.)

Alcock admitted that he has never used a Canon Fax

Phone 8, and that he did not test whether a Canon Fax

Phone 8 could have transmitted the forged Order. He con-

firmed that the service manual states that one model of the

Canon Fax Phone 8 faxes at 9600 bps. (Tr. 1001-02, 1039,

1114.) On cross examination, Alcock admitted that he is

not an expert in the extended page feature of the HP Laser-

Jet 3100. (Tr. 1069-78.) Alcock further admitted that his

conclusion that the forged Order did not originate as a fax

was based on assumptions about the magnification and res-

olution of the copy and the fax header of the copy. (Tr.

1143-49.)

As a rebuttal witness to Alcock, the government pro-

duced Yogeshwar Burchell. an expert in the operation of

the Canon Fax Phone 8. Burchell testified that the Canon

34a

service manual seized in Reich’s home was most likely of

the 9600 bps model (Tr. 1214), and that the Canon Fax

Phone 8 does not transmit a header. (Tr. 1215-16.)

C. Relevant Pre- and Post-Trial Motions

Before the trial, the Defendant moved in limine to pre-

vent the government from introducing the forged Order,

arguing that the government had failed to established its

authenticity. (United States v. Reich, slip op., dated June

10, 2005, at 4.) I ruled that a reasonable juror could find

the forged Order to be authentic based on the testimony of

Davidson firm employees Weinberg and Vollers, despite

the testimony of expert witness Alcock, and denied the

Defendant’s motion in limine to exclude the document pur-

suant to Federal Rule of Evidence 901(a). (/d. at 7.) At

trial, the Defendant sought a dismissal of the charges on

the basis that Alcock established that the forged Order was

not sent as a facsimile transmission from Reich’s home to

the Davidson firm fax machine. (Tr. 1226-35.) I denied

that motion from the bench. (Tr. 1235.)

After deliberations on August 25, 2005, the jury con-

victed Reich of (1) forgery of a judge’s signature in the

forged Order; (2) obstruction of justice for his role in inter-

fering with the Ryan Beck lawsuit; and (3) making false

representations to FBI agents at the March 3 proffer ses-

sion.

On September 17, 2005, Defendant moved for a judg-

ment of acquittal or for a new trial pursuant to Federal

Rules of Criminal Procedure 29 and 33, based on insuffi-

cient evidence, improper impeachment of a character wit-

ness, and improper rebuttal. Reich also moved for a

post-trial Franks hearing. (See Def’s Mem. Supp. Pre-Trial

Mot.) Defendant supplanted this motion on November 30,

35a

2005, withdrawing his Rule 29 bases of improper charac-

ter impeachment and improper rebuttal, and his application

for a post-trial Franks hearing, and adding as new grounds

for his Rule 33 motion that the uncontradicted portions of

Alcock’s testimony warrant a new trial. (Def’s Ltr. Br.,

dated Nov. 30, 2005, at 1-7.) Defendant also applied for

several changes to the transcript, and for bail pending

appeal. (Def’s Ltr. Br., dated Nov. 30, 2005, at 7.)

Il. STANDARD OF REVIEW

A. Rule 29

The defendant “bears a heavy burden” on a Rule 29

claim as the court “must credit every inference that the

jury may have drawn in favor of the government.” United

States v. Finley, 245 F.3d 199, 202-3 (2d Cir. 2001) (inter-

nal quotation and citation omitted). “The jury’s verdict

must be sustained, if any rational trier of fact could have

found the essential elements of the crime beyond a reason-

able doubt.” /d. (emphasis in original). In reviewing the

sufficiency of evidence underlying a conviction, the court

is reminded that it is the jury’s duty alone to make infer-

ences from the evidence. See e.g., United States v. Jackson,

335 F.3d 170, 180 (2d Cir. 2003). Where “either of the two

results, a reasonable doubt or no reasonable doubt, is fairly

possible, the court must let the jury decide the matter.”

United States v. Autuori, 212 F.3d 105, 114 (2d Cir. 2000).

In short, as the Second Circuit has put it: “the court may

enter a judgment of acquittal only if the evidence that the

defendant committed the crime alleged is nonexistent or so

meager that no reasonable jury could find guilt beyond a

reasonable doubt.” United States v. Guadagna, 183 F.3d

122, 130 (2d Cir. 1999) (internal quotation and citation

omitted).

36a

B. Rule 33

Federal Rule of Criminal Procedure 33 provides that,

“({ujpon the defendant’s motion the court may vacate any

judgment and grant a new trial if the interest of justice so

requires.” Fed. R. Crim. P. 33. “The ultimate test on a Rule

33 motion is whether letting a guilty verdict stand would

be a manifest injustice.” United States v. Ferguson, 246

F.3d 129, 134 (2d Cir. 1997). The Second Circuit has

stated that a district court should exercise such authority

only “in the most extraordinary circumstances.” United

States v. Locascio, 6 F.3d 924, 949 (2d Cir.1993). “Although

a trial court has broader discretion to grant a new trial pur-

suant to Rule 33 than to grant a motion for a judgment of

acquittal pursuant to Fed. R. Crim. P. 29, where the truth

of the prosecution’s evidence must be assumed, that dis-

cretion should be exercised sparingly.” United States v.

Sanchez, 969 F.2d 1409, 1414 (2d Cir. 1992) (internal cita-

tion omitted).

Ili. DISCUSSION

In this post-trial motion, Defendant argues that a Rule

29 judgment of acquittal is warranted because the evidence

adduced at trial was insufficient to convict him on any of

the three counts, and that in the alternative this court

should grant a new trial pursuant to Rule 33 because the

government failed to rebut Alcock’s expert opinion that the

forged Order was never sent by facsimile transmission to

the Davidson firm fax machine, and the verdict ts therefore

against the weight of the evidence. Both these arguments

lack merit.

37a

A. Defendant’s Rule 29 Motion for Judgment of

Acquittal

Defendant contends that a judgment of acquittal is war-

ranted because there was insufficient evidence to support

his convictions. I will proceed to examine all three counts

under a Rule 29 sufficiency of the evidence standard.

1. Sending of The Forged Order

Defendant was convicted of having knowingly forged

the signature of Magistrate Judge Mann for the purpose of

authenticating the forged Order. (Indictment 4f 11-12.)

Title 18 of the United States Code makes criminal the

“forg[ing of] the signature of any judge .. . of any court of

the United States ... for the purpose of authenticating any

proceeding or document... .” 18 U.S.C. § 505.

Defendant argues that there was insufficient evidence to

support the jury’s verdict that Reich sent the forged Order

from his home as a facsimile transmission to the Davidson

firm fax machine. (Def’s Mem. Supp. Post-Trial Mot., at

5-9.) Defendant points to two facts brought out in the trial,

viz: (1) that Vollers, the secretary of Joel Davidson and the

only witness who testified that the forged Order was in the

tray of the machine shortly after 11:00 a.m., could not pin-

point when it arrived and did not actually witness the

Davidson firm fax machine generate the forged Order (id.

at 7); and (2) that Alcock, a forensics expect, concluded

that the forged Order was never originally a faxed docu-

ment. (/d. at 8.)

The Government provided strong evidence that Reich

created and sent the forged Order as a facsimile transmis-

sion to the Davidson firm fax machine. The jury heard

competent and uncontested evidence that Vollers received

38a

the forged Order from the Davidson firm fax machine tray,

and that Reich had placed a phone call from his home to

that machine around the time that Vollers discovered the

document. Davidson firm staff testified that Reich was the

only person who called the Davidson firm fax machine

who had sufficient knowledge of the case to be able to cre-

ate the forged Order.

Ajithough Reich initially denied having called the David-

son firm fax machine and possessing a phone card, Reich

later recanted this statement in the face of mounting evi-

dence and admitted that he did place the call using the

phone card listed in the Davidson firm fax machine trans-

mission log. At trial, he stated that he had meant to call

Joel Davidson’s telephone line, and hung up immediately

after he realized that he dialed the incorrect number. How-

ever, Reich’s phone records and the Davidson firm fax

machine log showed a several minute communication

between Reich and the fax machine, and expert testimony

established that the length of this communication was con-

sistent with Reich having sent the forged Order via fac-

simile transmission. Under the circumstances, a rational

juror would have been justified in concluding from Reich’s

conflicting statements that he was not a credible witness,

and could have resolved the conflicting expert opinions

against Reich. To the extent that the Defendant seeks to

show that he was more credible than Vollers, and that

Alcock was more credible than Smith, I must “defer to the

jury’s assessment of witness credibility and the jury’s res-

olution of conflicting testimony.” United States v. Bala,

236 F.3d 87, 93-94 (2d Cir. 2000).

Second, the Defendant urges that no rational trier of fact

after hearing Alcock’s opinion that the forged Order that

did not originate as a facsimile could find beyond a rea-

39a

sonable doubt that Reich had sent the forged Order from

his home. At trial, Alcock presented to the jury this opin-

ion based on a forensics examination of the forged Order.

Alcock concluded that the fax header had degraded in such

a way as to indicate that it was never sent by fax, and that

the “Extended Page” signals did not appear on the earliest

generation of the forged Order received into evidence.’

It is axiomatic that a jury is free to accept or reject the

opinion of an expert. This is especially true “in forensic

document examination, where... conclusions are drawn, in

large part, on subjective criteria.” United States v. Starzec-

pyzel, 880 F. Supp. 1027, 1048 (S.D.N.Y. 1995). On cross

examination, Alcock admitted that his conclusion relied on

assumptions regarding the magnification and resolution of

the copy of the forged Order represented by Government’s

Exhibit |. The jury could reasonably have rejected Alcock’s

opinion that the forged Order was not originally a fax

based on these assumptions. Furthermore, the jury was

fully justified in rejecting Alcock’s opinion that a Canon

Fax Phone 8 could not have sent the forged Order in the

manner described by Smith, as Alcock admitted that he

never operated a Canon Fax Phone 8.

In conclusion, | find that a rational juror could have

inferred from the evidence that Reich forged Judge Mann’s

signature to authenticate the forged Order and faxed it to

the Davidson law firm. See United States v. Canady, 126

F.3d 352, 356 (2d Cir. 1997) (directing that a court “must

affirm the conviction so long as, from the inferences rea-

Insofar as Reich questions the authenticity of the Government's

Exhibit | in an attempt to re-litigate its admissibility, I adhere to the ruling

in my June 10, 200S Memorandum and Order. (See United States v. Reich,

slip op., dated June 10, 2008, at 5-7.)

40a

sonably drawn, the fact finder might fairly have found

guilt beyond a reasonable doubt’).

2. Obstruction of Justice

Reich argues that no rational juror could have found that

Reich sent the forged Order to the Davidson firm to

“knowingly, intentionally and corruptly obstruct, influence

and impede,” the Ryan Beck lawsuit, in violation of 18

U.S.C. § 1512(c)(2). (Indictment 9 10.) Section 1512(c)(2)

states that a person who “corruptly ... obstructs . .. any

official proceeding, or attempts to do so,” violates this

criminal provision. 18 U.S.C. § 1512(c)(2).

As a predicate matter, the defense argues that it is the

Government’s burden to show that the Defendant intended

to deceive the court in sending the forged Order to the

Davidson firm. (See Def.’s Mem. Supp. Post-Trial Mot., at

9-11.) Defendant urges that because there was no proof

offered that the forged Order deceived any court, that

I must overturn the jury’s verdict on this obstruction of

justice charge.

As a relatively new provision, the few cases that discuss

Section 1512(c)(2) do not specifically address the question

of whether deception of a litigant in order to interfere with

a judicial proceeding constitutes obstruction of justice pur-

suant to Section 1512(c)(2). See, e.g., United States v.

Alvarez, 352 F. Supp. 2d 356, 358 (E.D.N.Y. 2005) (find-

ing that an allegation that defendant provided a false dec-

laration to a grand jury to defeat an indictment states a

violation of Section 1512(c)(2)); United States v. Hey, No.

03-80863, 2005 U.S. Dist. LEXIS 38550, *13-*14 (E.D.

Mich. 2005) (denying motions for new trial or acquittal of

Section 1512(c)(2) count for offering perjured testimony

to a grand jury). However, the Defendant’s proposed con-

4la

struction of Section 1512(c)(2) does not comport with the

plain meaning of the statute, which is not limited to actions

directed at a court. Whether Reich faxed the forged Order

directly to the court, or faxed it to opposing counsel, it

may still constitute a violation of the statute if sending the

forged Order could reasonably be expected to influence a

court proceeding.’ I therefore find that a violation of this

statute occurs where, as here, a person acts with the intent

to deceive an adverse party with the reasonable expecta-

tion that the deception will interfere with a judicial pro-

ceeding.

Here, the unrefuted evidence shows that Reich sent the

forged Order with the reasonable expectation that it would,

and that it did, obstruct the Ryan Beck litigation. Joel

Davidson testified that the Davidson firm wasted time and

legal expenses in withdrawing and then resubmitting its

application for a writ of mandamus, and in discussing the

forged Order with Judge Korman and Judge Mann. Judge

Mann’s law clerk testified that the forged Order wasted

judicial resources in requiring Judge Mann to issue an

Order and to communicate to Judge Korman and the Sec-

ond Circuit that the forged Order did not come from her,

and to discuss the forged Order at a status conference with

the parties. A rational juror could conclude from this evi-

dence that the forged Order obstructed the Ryan Beck law-

suit.

> If Section 1512(c\(2) required an intent to deceive the court,

! would find that there was sufficient evidence for a rational juror to con-

clude that Reich intended in sending the forged Order to deceive the Sec-

ond Circuit into believing that the writ of mandamus was moot, and that

Reich drafted the Davidson law firm as an unwitting agent in the decep-

tion.

42a

It can be inferred from the impact of the forged Order on

the Ryan Beck lawsuit that Reich intended to obstruct the

proceedings. See United States v. MacPherson, 424 F.3d

183, 189 (2d Cir. 1997) (“The law . . . recognizes that the

mens rea elements of knowledge anu intent can often be

proved through circumstantial evidence and the reasonable

inferences drawn therefrom... .”) Defendant’s contention

that the “contrived” and “crude construction” of the forged

Order belies the Government’s contention that it was

intended to deceive is without merit. (Def.’s Mem. Supp.

Pre-Trial Mot., at 12.) Testimony from employees of the

Davidson firm established that the forged Order was not so

facially flawed as to be dismissed as a fake instrument. On

the contrary, the Davidson firm accepted the document as

a true Order, and as a result withdrew its application for a

writ of mandamus and contacted the District Judge to

expand the reach of the Order to all defendants in the law-

suit.

Defendant’s argument that sending the forged Order was

not a “corrupt” act because no dishonest purpose can be

inferred from the creation and facsimile transmission of

the forged Order is also without merit. (Def.’s Mem. Supp.

Pre-Trial Mot., at 13.) The question is whether Reich sent

the forged Order knowing that the natural outcome of

sending it to the Davidson firm would be to obstruct the

Ryan Beck litigation. See United States v. Neiswender, 590

F.2d 1269, 1274 (4th Cir. 1979) (interpreting similar pro-

vision in 18 U.S.C. § 1503 and holding that “[t]he defen-

dant’s design is irrelevant: if the natural result of his plan

is to interfere with judicial processes, justice will be

obstructed whether he hopes it is or not... .”) The Gov-

ernment put forward sufficient evidence for a jury to con-

clude that the natural result of sending the forged Order

43a

was to obstruct the Ryan Beck lawsuit. Accordingly, the

Government is not required to prove beyond a reasonable

doubt the motivation for Reich’s deception, whether it was

to have Judge Mann recuse herself, to deceive or embar-

rass a hated adversary, or for future blackmailing purposes.

In conclusion, I find that a rational juror could reasonably

conclude that the Defendant violated 18 U.S.C.

§ 1512(c)(2) in sending the forged Order to the Davidson

firm with the intent to obstruct the Ryan Beck lawsuit.

3. False Statement to FBI

Lastly, Reich urges this court to find that no rational

juror could have concluded from the evidence that he made

a willfully false statement to government agents in the

March 3 proffer session. (Def.’s Mem. Supp. Pre-Trial Mot.,

at 13-14.) This obstruction of justice count is grounded in 18

U.S.C. § 1001(a)(2), which states that it is a criminal act

for “whoever, in any matter within the jurisdiction of the

Government of the United States, knowingly and willfully

... [to] make[] any materially false, fictitious, or fraudu-

lent statement or representation.” /d.

Defendant contends that there is a “failure of proof” to

show that Reich made a materially false statement at the

March 3 proffer session, because agent Katzman’s testi-

mony that Reich never admitted to having sent the forged

Order suggests that he made no statement at all regarding

his culpability. This argument is contrary to the facts.

Agent Wilfling testified that at the March 3 proffer ses-

sion, when Reich was confronted with the allegation that

he sent the forged Order during his 11:10 a.m. phone call

to the Davidson firm fax machine, Reich stated that he had

been trying to reach Joel Davidson but he accidentally

dialed the Davidson firm fax machine, and that his tele-

44a

phone sometimes does not disconnect after a call ended.

(Tr. 600-01.) At trial, when Reich was asked on direct how

he responded in the March 3 proffer session to Agent Katz-

man’s offer not to prosecute in exchange for admitting that

he sent the forged Order, Reich testified “No, I told them

distinctly no matter what ... | would never, never say that.

I didn’t do it. As [I]} sit here today, I will never say that I

did something I didn’t do.” (Tr. 896.) A rational juror could

have concluded from this testimony that Reich at the

March 3 proffer session denied having sent the forged

Order to the Davidson firm. Accordingly, Defendant’s

motion for a judgment of acquittal for this obstruction of

justice charge is denied.

For the reasons stated above, Defendant’s Rule 29

motion for a judgment of acquittal on the grounds of insuf-

ficient evidence is denied.

B. Defendant’s Rule 33 Motion for A New Trial

Defendant submits that a new trial is warranted on all

counts because Reich’s expert witness, Mark Alcock, cor-

roborated Reich’s testimony that he “inadvertently” made

the phone call to the Davidson law firm, and the Govern-

ment did not adequately rebut this expert testimony.

(Def.’s Ltr. Br., dated Nov. 30, 2005, at 5.) Reich’s Rule 33

motion is based on Alcock’s purportedly “uncontradicted

testimony” that (1) the forged Order was not created on the

seized computers; (2) Reich’s fax modem did not send the

forged Order; (3) Defendant could not have created the

subject fax by taping pages together or using tractor paper;

(4) Government’s Exhibit | never was a fax: and (5) “when

Defendant connected to the Davidson firm fax machine,

his computer modem ‘latched’ onto the Davidson machine

after Defendant hung up, until it timed out.” (/d.)

45a

As stated supra, Alcock’s testimony that Government

Exhibit 1 was never a fax and could not have been sent via

facsimile transmission was indeed contradicted by expert

testimony and by other evidence adduced at trial. The

Government’s expert witness, Cameron Smith provided

lengthy testimony that the forged Order and transmission

log are consistent with the use of a fax machine, such as

the Canon Fax Phone 8, to send a fax at 9600 bps to the HP

LaserJet 3100 in which the second page was three pages

long. Furthermore, Defendant’s contention that it was

“uncontradicted” that Reich could not have taped the last

three pages together or used tractor paper to fax the forged

Order is contrary to the facts. By Alcock’s own admis-

sions, he only made two attempts to send a fax with the last

three pages taped together, he never attempted to send a

fax with tractor paper, and he did not test the capability of

the Canon Fax Phone 8 to fax attached pages. (Tr. 1000-

02.) In contrast, Smith’s uncontested testimony was that

the forged Order could have been sent as a three page

attached document using tractor paper. (Tr. 463.)

Alcock’s opinion that Defendant’s fax modem ‘latched’

onto the Davidson machine after he disconnected the call

is contradicted by Smith’s uncontested testimony that the

Davidson firm fax machine times out after 41 seconds.

Alcock’s ‘latching’ theory does not on its face explain why

the fax log records would reflect a call lasting several min-

utes if the Davidson firm fax machine is designed to ter-

minate calls after 41 seconds. Although Alcock at trial

dismissed this contradiction by positing, essentially, that

anything is possible when a fax modem malfunctions, he

also admitted that it was possible that there was no mal-

function and that Reich sent a fax. (Tr. at 1178-1180.)

Under the circumstances, the jury was justified in crediting

46a

Smith’s opinien that the fax modem could not have

‘latched’ onto the call because the HP LaserJet 3100 would

have terminated the call after 41 seconds.

With respect to the remainder of Alcock’s testimony,

specifically that the forged Order was not created on the

seized computers and that Reich’s fax modem did not send

the forged Order, the Government was not required to

prove these facts. Inasmuch as Defendant argues that a

new trial is necessary because Defendant offered expert

testimony tending to disprove two subsidiary facts of a

possible means by which Reich sent the forged Order, this

argument lacks merit because “[t]he burden does not oper-

ate upon each of the many subsidiary facts upon which the

prosecution may collectively rely to persuade the jury that

a particular element has been established beyond a reason-

able doubt.” United States v. Viafara-Rodriguez, 729 F.2d

912, 913 (2d Cir. 1984). Therefore, the question before this

court is whether the weight of the evidence supports

beyond a reasonable doubt the allegation that Reich faxed

the forged Order to the Davidson firm.

Assuming, arguendo, that Alcock’s testimony showed

that the forged Order was not created on Reich’s seized

computers or sent using Reich’s seized fax modem, the

weight of the evidence supports the inference that Reich

was otherwise capable of creating and faxing the forged

Order from his home. Reich could have converted the June

3, 2003 Order into the forged Order on a typewriter using

manual instruments, or on a different computer not seized

by the Government. Defendant could have sent the forged

Order with the Canon Fax Phone 8 that he admitted to

owning at one time, or some other fax machine that the

Government did not seize. The testimony of the Davidson

firm employees that they received the forged Order at the

47a

same time that Reich called the fax machine and that Reich

was the only person to have called that day who could have

created the forged Order was credible. Alcock did not in

his testimony create a reasonable doubt as to Reich’s abil-

ity to send the forged Order. Accordingly, the weight of the

evidence supports the jury’s conclusion that the Defendant

sent the forged Order via fax to the Davidson firm fax

machine.

The decisional law relied on by Reich in support of his

motion supports this conclusion. In Sanchez, the Second

Circuit reversed a district court that granted a Rule 33

motion because the trial judge erroneously rejected the tes-

timony of three police officers because of “insignificant”

discrepancies in their testimony. United States v. Sanchez,

969 F.2d 1409, 1414 (2d Cir. 1992). In Ferguson, the Sec-

ond Circuit upheld a new trial order by the district court in

a trial for conspiracy to commit murder in aid of racket-

eering, on the basis that the prosecution failed to provide

any evidence showing the necessary motive element that

the act was for pecuniary gain or for gang membership or

status. United States v. Ferguson, 246 F.3d 129, 135-136

(2d Cir. 2001). See also United States v. Morales, 902 F.2d

604, (7th Cir. 1990) (Posner, J.) (granting a new trial

because of the discrepancies in the only witness’s testi-

mony and aspects of the physical evidence, and the harsh

minimum sentence for conviction).

As in Sanchez, this is not a case in which “testimony ts

patently incredible or defies physical realities ... .” Sanchez,

969 F.2d at 1414. The Government presented competent

and admissible evidence demonstrating that Reich had the

capacity to fax the forged Order from his home. Uniike

Ferguson, in which there was no proof to support an ele-

ment of the charged offense, whether Reich created and

48a

sent the forged Order via his scanner and fax modem are

subsidiary facts that are unnecessary for the jury to find

that Reich created and sent the forged Order beyond a rea-

sonable doubt.

In conclusion, this court finds that the weight of the evi-

dence supports the conclusion that Reich faxed the forged

Order to the Davidson firm fax machine, and Reich’s

motion is therefore denied.

C. Continuation of Bail Pending Appeal

The defense moves for bail pending appeal pursuant to

18 U.S.C. § 3143(b)(1), which provides that:

a judicial officer shall order that a person who

has been found guilty of an offense and sen-

tenced to a term of imprisonment, and who has

filed an appeal or a petition for a writ of certio-

rari, be detained, unless the judicial officer finds

... by clear and convincing evidence that the per-

son is not likely to flee or pose a danger to the

safety of any other person or the community if

released ... and ... that the appeal is not for the

purpose of delay and raises a substantial question

of law or fact likely to result in....

reversal, a new trial, or a sentence that does not include

imprisonment on all counts. /d. Therefore, in order to grant

Defendant’s motion for bail pending appeal, I must find

that (1) Reich is not likely to flee or pose a danger to the

safety or any other person or the community; (2) his appeal

is not for the purposes of delay; (3) the appeal raises a sub-

stantial question of law or fact; and (4) that if the Second

Circuit decides the appeal in a manner favorable to Reich,

whether that decision is likely to result in a reversal or a

49a

new trial on all counts. See United States v. Randell, 761

F.2d 122, 125 (2d Cir. 1985)

With respect to the first element, Reich is unlikely to

flee or pose a danger to any person or the community. The

Government does not dispute this. I did not find Reich to

be a flight risk or a danger to the community before trial,

and | decline to do so now. See United States v. DiSomma,

951 F.2d 494, 497 (2d Cir. 1991) (“trial judge’s close

familiarity with the evidence presented in the case” affords

discretion to trial judge in determining whether the defen-

dant poses a danger to the community).

The second and the third elements of this analysis are

interrelated, because whether or not an appeal is made to

delay the sentence depends in large part on whether any

substantial appeal questions are presented. The Second

Circuit defines a “substantial” question as “one of more

substance than would be necessary to a finding that it was

not frivolous. It is a ‘close’ question or one that very well

could be decided the other way.” United States v. Randell,

761 F.2d 122, 124 (2d Cir. 1985) (internal quotation omit-

ted) (finding this articulation of a “substantial” question to

be the most appropriate).

In viewing the totality of the evidence, Defendant in his

post-trial motions has not raised any close questions for

appeal.* The Government provided strong evidence on all

three counts for which Reich was convicted, and any con-

4 The only potentially open question, whether 18 U.S.C. § 1512(c)(2)

requires a showing of deception of the court, does not present a substantial

question on appeal because there was sufficient evidence for the jury to

conclude that Reich in sending the forged Order intended to deceive the

Second Circuit. Moreover, as this question implicates only one of the three

counts of which Reich was convicted, it does not provide a basis for bail

pending appeal.

50a

clusions of guilt that required an inference are well within

the boundaries of permissible inferences set forth by the

Second Circuit. Further, while the standard for a Rule 33

motion for a new trial is lower, a trial court is given dis-

cretion in deciding whether to grant a Rule 33 motion. See

United States v. Ferguson, 246 F.3d 129, 133 (2d Cir.

1997) (reviewing a district court’s ruling on a Rule 33

motion for abuse of discretion, and finding that “the dis-

trict court’s holding is not an abuse of discretion even

though we may have decided differently if we were the

trial judge”). As a result, I find that the Rule 29 and Rule

33 motions presented to me do not pose close questions for

appeal purposes.

Defendant in his response to the Government’s opposi-

tion to bail pending appeal submits that his withdrawn

motions should be considered in deciding whether his

appeal raises any substantial questions of law or fact.

(Def’s Ltr. Br., dated Jan. 10, 2006, at 2-3.) In particular,

Defendant contends that his withdrawn Rule 29 motion

based on the Government’s impeachment of Reich’s char-

acter during the cross-examination of a character witness

presents a substantial question of law. (/d.) As Defendant

has previously raised this objection, and Defendant sub-

mitted briefing on the issue before withdrawing it, I shall

now consider this ruling strictly for the purposes of

whether it raises a substantial question of law or fact.°

Defendant’s Rule 29 motion based on improper impeach-

ment of Reich’s character argues that the Government

* | shall not, however, delve into unarticulated “numerous other

issues which had been litigated prior to, and during the course of the trial,”

(Def’s Ltr. Br., dated Jan. 10, 2006, at 3) as it is Defendant's burden to

overcome the presumption of post-trial detention pending appeal. See Ran-

dell, 76) F.2d at 124-25.

S5la

improperly cross-examined James Pelzer, a character wit-

ness for Reich. Pelzer testified on direct examination that

Reich is “a person of high honesty and integrity, a person

that you can trust... and... others share that same opinion.

(Tr. 813.) On cross-examination, the Government sought to

attack Reich’s character by asking about an unauthorized

change in his law partner’s life insurance policy in viola-

tion of the partnership agreement. (Tr. 817.) At a hearing,

I examined a partnership agreement between the partner

and Reich, in which each had life insurance paid by Reich,

the proceeds of which went to their own families in the

event of their death. (Tr. 822.) The agreement stated that if

Reich sought to change the terms of the agreement, that he

would have to notify his partner. (Tr. 823.) Lastly, | exam-

ined correspondence that established that Reich changed

the terms of the agreement after the partner was diagnosed

with cancer without consulting the partner. (Tr. 823-25.)

Based on that proffer, I allowed the following question

over defense counsel’s objection:

Mr. Pelzer, if | told you that Mr. Reich had

changed the beneficiary of an insurance policy

away from Mr. Schapiro’s family members, des-

ignating the law firm the beneficiary in the event

of Mr. Schapiro’s death, without notice to

Mr. Schapiro and in violation of the partnership

agreement that the two of them had, would that

change your opinion or the opinion of the com-

munity ... with regard to the defendant’s honesty

or good character?

(Tr. 847.)

“Once a defendant offers character testimony, the prose-

cution is afforded substantial latitude to rebut such evi-

52a

dence.” United States v. Russo, 110 F.3d 948, 952 (2d Cir.

1997). Federal Rule of Evidence 405 provides that if the

defense puts forward a character witness to testify to the

defendant’s good reputation, that “[o]n cross-examination,

inquiry is allowable into relevant instances of conduct.”

F.R.E. 405(a). The cross-examination is permitted to eval-

uate the character witness’s credibility and knowledge of

the defendant. United States v. Birney, 686 F.2d 102, 108

(2d Cir. 1982). Before allowing the prosecution to attack a

defendant’s credibility by asking character witnesses on

cross-examination about a specific instance of conduct, the

trial court should ascertain that the prosecution has a good

faith belief that the act occurred, and that the incident is

relevant to the character trait at issue. Michelson v. United

States, 335 U.S. 469, 481 n.18 (1948). The Second Circuit

reviews “a trial court’s ruling on the admissibility of char-

acter evidence for an abuse of discretion.” United States v.

Damblu, 134 F.3d 490, 494 (2d Cir. 1998); see also

Michelson v. United States, 335 U.S. 469, 480 (1948).

With these principles in mind, there is no substantial

question presented as to whether this question was permis-

sible under Federal Rule of Evidence 405. The defense

counsel offered a character witness who testified to

Reich’s reputation for honesty and integrity in the New

York legal community. On cross-examination, the prosecu-

tion is entitled to ask the witness about an act, based upon

a good faith basis to believe that the act occurred, that

tended to show Reich’s character for dishonesty. Further,

Reich’s propensity for integrity and honesty was relevant

to the charges that he would seek to deceive an adversary’s

counsel and obstruct a judicial proceeding through the use

of a forged Order.

53a

Defendant argues that the insurance agreement was a

“private” issue that was not intended to test the witness’s

knowledge of Reich, but simply to prejudice him in the

eyes of the jury. (Def. Mem. Supp. Pre-Trial Mot., at 16-

22.) Defendant relies on United States v. Monteleone, 77

F.3d 1086, 1089 (8th Cir. 1996), in which the Eighth Cir-

cuit held that the prosecutor must have a good faith belief

that the incident is “likely to have become a matter of gen-

eral knowledge, currency or reputation in the community.”

Id. (quoting United States v. Duke, 492 F.2d 693, 696 (Sth

Cir. 1974)). The Eighth Circuit reversed a conviction for

improper character impeachment because the prosecution

asked a character witness about the defendant’s alleged

perjury as a witness in a grand jury proceeding. Jd. at

1090. Because of the judicially mandated secrecy sur-

rounding grand jury proceedings, the court found that it

was “patently unlikely” that the public would be aware of

the alleged perjury. /Jd.; see also Duke, 492 F.2d at 696

(private nature of alleged bad act demonstrated by the fact

that the prosecutor learned of the incident through grand

jury testimony).

The private nature of the grand jury proceeding in Mon-

teleone is distinguishable from the instant violation of the

partnership agreement. The prosecution offered a letter

from Reich’s partner’s family regarding the violation of

the partnership agreement, which, unlike the grand jury in

Monteleone, was not legally bound to secrecy. Further-

more, the question by the prosecution to test Mr. Pelzer’s

knowledge of Reich’s reputation for honesty and integrity

in the New York legal community involved a violated

agreement between partners in a New York law firm, the

precise community that was likely to know about this inci-

dent. Defendant’s characterization of the private nature of

54a

the law partnership is belied by Pelzer’s own testimony, in

which he admitted having known that Reich practiced with

the law partner and that the partner had recently died. (Tr.

at 817.) Furthermore, in contrast to Monteleone where the

grand jury statement at issue was never shown to be perju-

rious, Monteleone, 77 F.3d at 1090, there is no dispute that

Reich changed the policy without his law partner’s consent

in violation of the partnership documents. (See Tr. at 825-

26.) In short, the substance of the Government’s Rule 405

question does not approach the type of conduct considered

private by the Eighth Circuit in Monteleone.®

Whether the Prosecution was entitled to question Pelzer

about Reich’s change to his law partner’s life insurance

policy under Federal Rule of Evidence 405, after this court

determined that there was a good faith basis for the ques-

tion and that it was relevant to the charged offenses, does

not present a close question. Moreover, even if this ruling

were incorrect, it would be harmless error, as there was

strong evidence as to Reich’s guilt. Accordingly, there is

no substantial question raised for appeal purposes by this

court’s decision to permit the Prosecution to question

Pelzer about Reich’s violation of the partnership agree-

ment.

® Defendant further argues that this question should not have been

permitted because of its prejudicial nature. (Def.°s Mem. Supp. Pre-Trial

Mot., at 22.) Balancing relevancy against prejudice is governed by Federal

Rule of Evidence 403, which states that the trial court may exclude evi-

dence if it “is substantially outweighed by the danger of unfair prejudice.”

F.R.E. 403. I find that the question did not cause unfair prejudice, but

rather legitimately probed the character witness's knowledge of Reich. As

Rule 403 provides discretion to the trial judge, and | found that its proba-

tive value outweighed the likelihood of unfair prejudice, this does not pres-

ent a substantial question on appeal.

55a

I will briefly address the remaining arguments that

Defendant has raised for appeal. Reich’s argument that the

search warrant of his home was issued based on false

information does not raise a substantial question because

even if true, the warrant was supported by probable cause

after excising the allegedly false information. See United

States v. Canfield, 212 F.3d 713, 718 (2d Cir. 2000) (find -

ing that remaining portions of an affidavit with false infor-

mation supported probable cause). Furthermore, Reich’s

argument that the Government’s summation was improper

in light of my rulings limiting his cross-examination fails

because “[t]he scope and extent of cross-examination are

generally within the sound discretion of the trial dourt.”

United States v. Weiss, 930 F.2d 185, 197 (2d Cir. 1991).

Assuming, erguendo, that any of these rulings were

improper, they were harmless error, as the purported

improper comments did not substantially influence the

jury in light of the strong evidence presented by the Gov-

ernment showing Reich’s culpability for the charges of

which he was convicted. See United States v. Pedroza, 750

F.2d 187, 197 (2d Cir. 1984) (citing Kotteakos v. United

States, 328 U.S. 750, 764-65 (1946)).

In conclusion, as Defendant raises no substantial ques-

tions of law or fact, I find that Reich’s appeal would sim-

ply be for the purposes of delay. As a result, I need not

reach the question of whether these questions, if success-

ful, would have the effect of overturning or ordering a new

trial of all charges. Therefore, Reich’s motion for bail

pending appeal is denied.

56a

D. Changes To The Transcript

Lastly, Reich moves for a number of changes to the trial

transcript. Reich’s motion is governed by Federal Rule of

Appellate Procedure 10(e), which provides that this court

“has the power to resolve a dispute over the record in the

first instance.” United States v. Zichettello, 208 F.3d 72, 93

(2d Cir. 2000) (interpreting Fed. R. App. P. 10(e)). The dis-

trict court reconstructs the record at its discretion unless

the record “‘was intentionally falsified or plainly unrea-

sonable.’” Jd. (quoting United States v. Keskey, 863 F.2d

474, 478 (7th Cir. 1988)).

On page 817, lines 17 - 20, the Government asks Pelzer:

“Would it change your opinion of Mr. Reich or would it

change, in your opinion, would it change the community’s

view of Mr. Reich if you learned about Mr. Reich’s chang-

ing the beneficiaries of an insurance policy of Mr.

Schapiro?” (Tr. 817.) Mr. Mahler, Reich’s former defense

counsel who was present when the question was asked,

posits that the reporter failed to capture the following words

at the end of that sentence: “from Mr. Schapiro’s children to

himself, in violation of a partnership agreement, the day

after he learned that Mr. Schapiro had terminal cancer.”

(Decl. of Stephen Mahler 4] 19.) The Government states that

it did not reference “terminal cancer in front of the jury nor

did the government at that time refer to Mr. Schapiro’s

children or that they were young ... .” (Gov’t Mem. Opp.

Post-Trial Mot., at 31 n.13.)

My review of the transcript shows that the Government

in its cross-examination of Pelzer never mentioned that

Schapiro had terminal cancer or that he had children. This

is supported by events subsequent to the initial question.

During this cross-examination, there was a lengthy discus-

sion outside the presence of the jury about whether this

S7a

question was permissible, and if so, in what form, and

I took the precaution of instructing the prosecutor that

“you are not to discuss cancer in asking the question ... .”

(Tr. 839). The prosecutor’s ultimately permitted question

did not mention cancer, Schapiro’s death, or his children.

(Tr. 847.) The record appearing correct as stated, | deny

Defendant’s motion to change this portion of the tran-

script.

Regarding this court’s statement on page 831, my recol-

lection is, and | direct that the transcript be modified to

reflect from line 2 on page 831 the following: “Katz. The

person who knows best what happened with the insurance

policy is sitting in the courtroom.”

As there is no objection to any of the other modifica-

tions to the transcript, I direct that the transcript be modi-

fied in the following manner: “Vuscone V-U-S-C-O-N-E”

changed to “Biscone B-I-S-C-O-N-E” on page 823, line

19; “DeBono” changed to “Bodenmiller” on page 824, line

5; and “firearms” changed to “telephones” on page 986,

line 14.

IV. Conclusion

Having considered thoroughly the entire case and

Defendant’s specific arguments, the court concludes that

the guilty verdict rendered by the jury was amply sup-

ported by competent, satisfactory and sufficient evidence

properly admitted in the course of a fair trial, and that

Defendant raises no substantial questions on appeal.

Accordingly, the Defendant’s motions for a judgment of

acquittal pursuant to Rule 29 of the Fed. R. Crim. Pro. and

for a new trial pursuant to Rule 33 of the Fed. R. Crim.

Pro., and his application for bail pending appeal are hereby

DENIED. Defendant’s motion to modify the transcript pur-

58a

suant to Rule 10(e) of the Federal Rules of Appellate Pro-

cedure is GRANTED in part and DENIED in part.

SO ORDERED.

Dated: March 10, 2006

Brooklyn, NY

/s/ Nicholas G. Garaufis

Nicholas G. Garaufis

United States District Judge

59a

APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

02-CV-4052 (RLM)

Filed: June 23, 2003

RYAN, BECK & CO., LLC,

Plaintiff,

—against—

YOUSSEF FAKIH, et al.,

Defendants.

MEMORANDUM AND ORDER

ROANNE L. MANN, UNITED STATES MAGISTRATE

JUDGE:

Plaintiff Ryan, Beck & Co., LLC (“plaintiff’ or “Ryan

Beck”) filed this action against defendants Perry S. Reich

(“Reich”), Franka Jones, as trustee of the Franka Jones

Trust (“Jones”), and Youssef and Ali Fakih (“the Fakihs”)

(collectively referred to herein as “the investors” or

“defendants”), seeking the following relief: a declaratory

judgment that Ryan Beck has no obligation to arbitrate cer-

tain disputes with the investors; a stay of three pending

arbitrations brought by the investors against Ryan Beck;

and a declaratory judgment absolving Ryan Beck of liabil-

ity for the acts that are the subject of those arbitrations. See

generally Complaint (“Compl.”) at 998, 10-20 and ad

damnum clause.

60a

Currently before this Court, following the parties’ con-

sent to have a magistrate judge handle the case for all pur-

poses (see 28 U.S.C. § 636(c)(1)), are various dispositive

motions and cross-motions filed by Ryan Beck, Jones and

the Fakihs.' Specifically, Ryan Beck has moved for sum-

mary judgment on its second claim for declaratory relief

{i.e., adjudging the parties’ disputes non-arbitrable) and

demands a permanent stay of each of the arbitrations pend-

ing against it. All three groups of investors* have filed

papers opposing Ryan Beck’s motions,’ and Jones and the

Fakihs have cross-moved to compel arbitration.*

' Ryan Beck’s motion for sanctions against Reich, and Reich’s

cross-motion for sanctions against Ryan Beck, were denied from the

bench during oral argument on January 21, 2003. See Transcript of Pro-

ceedings on January 21, 2003 (“1/21/03 Tr.”) at 15. (All transcripts of

court proceedings are cited herein as “[date] Tr.”’)

2 For ease of reference. the Fakihs hereinafter will be referred to

as one investor.

> Because the parties have filed numerous briefs and affidavits,

references to the parties” submissions will, in order to avoid confusion,

include the document number [“# ”] as reflected on the docket sheet.

4 Although all three investors have signed onto the Defendants”

Joint Memorandum of Law in Support of Their Cross-Motion to Com-

pel Plaintiff to Submit to Arbitration and in Opposition to Plaintiff's

Motion (“Def. Joint Mem.” [#99]), Reich has not filed any notice of

cross-motion. For the reasons detailed in this opinion, Reich’s situation

is materially distinguishable from that of his co-defendants and, had he

cross-moved for declaratory relief and/or to compel arbitration, this

Court would have denied the motion.

The Fakihs* Notice of Cross-Motion (#94) seeks “an order declaring

that the plaintiff must arbitrate” its dispute with them. No party has

addressed the distinction between an order declaring a duty to arbitrate

versus an order compelling arbitration and thus, for purposes of this

opinion, the Court will treat those concepts interchangeably.

-

61a

For the reasons that follow, the Court denies Ryan

Beck’s motions in all respects and grants in part the cross-

motions of the Fakihs and Jones, directing Ryan Beck to

arbitrate the issue of arbitrability with respect to those

investors. Reich’s arbitration proceeding is hereby stayed

pending the outcome of this lawsuit.

FACTUAL BACKGROUND?

Several years ago, each of the investors opened an

account with Gruntal & Co., L.L.C. (“Gruntal’”’),® which

was then registered with the Securities and Exchange

Commission as a broker-dealer and was a member of the

New York Stock Exchange (“NYSE”) and the National

Association of Securities Dealers (“NASD”). Upon

becoming a client of Gruntal, each investor entered into a

form contract entitled “Client Agreement & Margin Agree-

ment” (hereinafter “Client Agreement”). See, e.g., Court

Exhibit (“CX”) 2; CX 3; 9/5/02 Tr. at 5-6.’ Each such

>

Unless otherwise indicated, the facts recounted are not in dis-

pute.

© The Fakihs opened a joint account. Reich transferred his funds

from another brokerage firm. See Deposition of Perry S. Reich, on

October 30, 2002 (“Reich Dep.”), attached as Exhibit (“Ex.”) A to

Plaintiff's Supplemental Brief in Support of Its Motion for Summary

Judgment Against Defendant Perry Reich (“P1. Supp. Br.” [#90}) at 6,

15-16. (Reich also opened a second account with his mother, but that

account is not at issue in this action or in Reich’s pending arbitration.

See Reich Dep. at 24-25.)

The Jones and Fakih Client Agreements were marked as court

exhibits at oral argument on Ryan Beck’s motion for a preliminary

injunction. (Aithough the proceeding was held on September 4, 2002,

the transcript is incorrectly dated September 5, 2002, and is therefore

cited as “9/5/02 Tr.”) Copies of the Jones and Fakih Client Agreements

are also appended to the submissions of their respective counsel. See

ee

ri 5

62a

Client Agreement included a broadly worded arbitration

provision, see, e.g., CX 2 and 3 at 916,° and provided

that the Client Agreement would “inure to the benefit of

and be binding upon” the parties to the Client Agreement

and, among others, their respective successors and

assigns. See id. at 417; PX 2A (#90 [Ex.A]), Client

Agreement at 41.”

Exhibit B to Affidavit [of Edward H. Glenn, Jr.] in Support of Cross-

Motion to Submit to Arbitration (“Glenn Aff.” [#89]); Exhibit A to

Defendant Fakih’s [sic] Response to Local 56.1 Statement (“Fakih 56.1

Stmt.” [#94]).

The Reich Client Agreement was included among the documents

marked as Plaintiff’s Exhibit 2A (“PX 2A”) at Reich’s deposition

(appended to Pl. Supp. Br. {[#90]). Although the new account form

attached to the Client Agreement was signed by a Gruntal account

executive and approved by a Gruntal manager, the Court’s copies of the

form and Client Agreement do not appear to have been signed by

Reich. Inasmuch as no party has focused on the absence of Reich’s sig-

nature, the Court will assume that the Client Agreement reproduced

within PX 2A was the operative agreement between Gruntal and Reich.

8 The Jones and Fakih Client Agreements provide in pertinent

part that the parties thereto “agree that all disputes that may arise

between or among [those parties and certain specified other parties],

arising out of or relating to [that investor’s] Accounts (except for regu-

lated commodity accounts), orders, transactions or any construction,

performance or breach of this or any other agreement between or

among [the parties thereto] will be settled by arbitration.” CX 2 and 3

at 416.

° The language of the Client Agreement as to Reich differs from

that of the Fakihs and Jones in respects not material to the issues in this

case. The Reich Client Agreement provides, among other things, that

“[a]ny dispute | now or hereafter may have with Gruntal or any of its

current or former officers, directors, agents and/or employees, arising

out of or relating to any of my accounts with Gruntal or to transactions

heretofore or hereafter made therein or to any agreement between

myself and Gruntal, shall be settled by arbitration.” PX 2A (#90

63a

In March 2001, Reich notified Gruntal, in writing, that

he had “made arrangements to move [his] accounts to

another brokerage firm,” and he directed Gruntal “not to

make any further transactions with respect to this

account.” Letter from Perry S. Reich to Joseph Burgos,

dated March 16, 2001, included in PX 2A and PX 4 (#90

[Ex.A]). The next day, in a follow-up letter to a Gruntal

supervisor, Reich complained that his account manager

had not “follow[ed his] directions,” and he accused the

account manager of seeking “to increase his personal com-

missions at [Reich’s] continued expense.” Letter from

Perry S. Reich to Mark Serby, dated March 17, 2001,

included in PX 4 (#90 [Ex.A]). Reich transferred all of the

assets in his Gruntal accounts to Quick & Reilly on or

about April 9, 2001. See Reich Dep. (#90 [Ex.A]) at 31-32.

The accounts of the other defendants remained open in and

after the end of April 2002. See 9/5/02 Tr. at 11; 1/21/03

Tr. at 21; see also id. at 48.

In June 2001, Reich initiated an arbitration proceeding

before the NASD against Gruntal and its agent, Joseph

Burgos, charging that his account had been mishandled. In

April 2002, the Fakihs and Jones commenced similar

arbitration proceedings against Gruntal and its agents:

the Fakihs brought their claims before the NASD and

Jones brought hers before the NYSE.

Later that month, on or about April 20, 2002, Ryan

Beck, a broker-dealer headquartered in Livingston, New

Jersey, entered into a series of interrelated agreements,

-~acluding an ainended asset acquisition agreement

pex.Al). Chent Agreement at 914. Like the Jones and Fakih Client

Agreements, Reich's Agreement further provides that it “shall inure to

the benefit of and be binding upon you and me and our respective ...

successors and assigns.” /a. at 91.

64a

(“Acquisition Agreement”), with Gruntal, its parent com-

pany Gruntal Financial, L.L.C., and Gruntal Facilities

Management, L.L.C.'° Pursuant to the Acquisition Agree-

ment, Ryan Beck agreed to purchase most of the assets of —

Gruntal, including customer accounts and related books

and records. The nature and effect of the transaction—that

is, whether it constituted a de facto merger or rendered

Ryan Beck a successor-in-interest to Gruntal’s liabilities—

are the subject of much controversy among the parties, as

is the adequacy of the purchase price paid by Ryan Beck.

Part of the debate centers on a provision in the Acquisition

Agreement, pursuant to which the parties to that contract

agreed that, with certain exceptions not relevant here,

Ryan Beck would not assume any of Gruntal’s liabilities or

obligations other than those arising as of the closing date,

April 26, 2002 (“the Closing Date’). See Acquisition Agree-

ment § 1(B)(2) (stating, inter alia, that Ryan Beck “will

not assume ... liabilities for litigation, arbitrations or

other claims relating to operations prior to the Closing

Date [April 26, 2002], whether instituted before or after

the Closing Date ....”).

On the Closing Date, the defendants and other investors

were sent form letters on Gruntal letterhead, signed by the

chairmen and chief executive officers of Gruntal and Ryan

Beck, respectively. Following the salutation “Dear Valued

Client,” each letter advised that Ryan Beck had acquired

certain assets and liabilities of Gruntal; that the investor’s

account would be transferred to Ryan Beck, effective April

29, 2002, unless the investor immediately notified his or

her account executive otherwise and made arrangements

The Acquisition Agreement and related documents are attached

as Exhibit A to the Affidavit of Robert M. Berson In Support of Plain-

tiff Ryan, Beck’s Motion for Summary Judgment (“Berson Aff.” [#55]).

65a

for the account and/or securities to be transferred else-

where; and that the account would be serviced at Ryan

Beck by the same account executive as at Gruntal.!! It is

undisputed that none of the defendants signed a new client

agreement with Ryan Beck. See, e.g., 9/5/02 Tr. at 15.

However, plaintiff acknowledges that the Gruntal Client

Agreements with Jones and the Fakihs became the opera-

tive contracts with those customers. See 9/5/02 Tr. at 15-

16, 25, 71-73; 10/11/02 Tr. at 19, 44-45; 1/21/03 Tr. at

21-23, 33, 48.

Within several months of Ryan Beck’s acquisition of

Gruntal’s accounts and other assets, each of the investor-

defendants amended his or her statement of claim in arbi-

tration to add Ryan Beck as a respondent.'* On June 25,

2002, Ryan Beck filed its answer to the Fakihs’ arbitration

claims, requesting their dismissal. The underlying arbitra-

tion proceedings have continued, subject to a stipulation

by the defendants that they “will not assert or argue that

further participation of Ryan, Beck & Co., L.L.C. in the

[respective] arbitration proceeding[s] .. . constitutes a waiver

by Ryan, Beck & Co., L.L.C. of any rights it may have to

contest the propriety of its inclusion in such arbitration

proceeding[s]}.” Stipulation & Agreement of the Defen-

'' Asample of the form letter—hereinafter referred to as the “Dear

Client Letter”---is attached as Exhibit A to the Glenn Affidavit (#89).

'2 Ryan Beck is a member of the NASD but, unlike Gruntal, is not

a member of the NYSE. Plaintiff's complaint includes a cause of action

seeking to stay the Jones arbitration proceeding on the ground that the

NYSE “has no jurisdiction” over Ryan Beck. Compt. at 9.19. In order

t. simplify the issues before this Court, Jones agreed to and, in Octo-

ber 2002, did in fact refile her arbitration claims against Ryan Beck

(which had been pending before the NYSE) with the NASD. See Stup-

ulation of Defendant [Jones], dated September 18, 2002 (#51): 9/5/02

Tr. at 105-07; 10/11/02 Tr. at 30; 1/21/03 Tr. at 72.

66a

dants, dated September 18, 2002 (#51); see 9/5/02 Tr. at

100-05.'°

On July 17, 2002, Ryan Beck commenced this federal

action with the filing of its complaint for declaratory and

injunctive relief. On July 25, 2002, Ryan Beck sought a

temporary restraining order, which was denied by the Hon-

orable Edward R. Korman, who referred plaintiff’s motion

for a preliminary injunction to this magistrate judge.’*

After the motion: was fully briefed and argued, and after

the case was, with the parties’ consent, reassigned to a

magistrate judge for all purposes, this Court issued a Mem-

orandum and Order on September 20, 2002, denying the

motion for a preliminary injunction. See Memorandum &

Order, dated September 20, 2002 (“9/20/02 M&O”).'° On

October 11, 2002, the Court denied from the bench a cross-

motion filed by the Fakihs to dismiss the action on the

ground that Ryan Beck had waived its objection to arbitra-

bility. See 10/11/02 Tr. at 4-7. The Court then ordered

discovery limited to the issue of Reich’s status as a cus-

tomer of Ryan Beck (see id. at 54-57, 60-61) and estab-

lished a briefing schedule on the cross-motions for

summary judgment.

'3 The Jones arbitration hearing has been scheduled for January

2004; the Fakihs’ arbitration hearing is scheduled for February and

March 2004; the Reich hearing has not been set. See Letter to the Court

dated April 11, 2003, from Joel E. Davidson, Esq. (#75); Letter to the

Court dated June 12, 2003, from Stuart D. Meissner, Esq. (#109).

4 Plaintiff at the same time moved for summary judgment, but this

Court concluded that the motion was premature. See infra note 38.

1s

Plaintiff recently moved for reconsideration of the ruling as to

the Fakihs, and the Court adhered to its decision. See Memorandum and

Order dated June 3, 2003.

67a

Gruntal filed for bankruptcy protection on October 30,

2002, in Jn re GCO Services LLC, No. 02-15360 (S.D.N-Y.

Bankr.). See Berson Aff. (#55) at 42.

DISCUSSION

i rties’ Positions

The investors advance a series of arguments as to why

Ryan Beck is obligated to arbitrate the disputes at issue.

Looking first to traditional principles of contract and

agency, the investors assert that, as plaintiff’s customers,

their relationships with Ryan Beck were governed by the

Gruntal Client Agreements, each of which included an

arbitration provision; therefore, they argue, Ryan Beck

assumed the obligation to arbitrate the parties’ disputes

and, having derived the benefits of that contractual rela-

tionship, plaintiff is estopped from denying its duty to

arbitrate. See Def. Joint Mem. (#99) at 4-8. Secondly, the

investors contend that, apart from the aforesaid contractual

right to arbitration, NASD rules compel member firms to

arbitrate disputes with their customers. See id. at 8-13.

Moreover, they claim, the scope of the arbitration clause in

the Client Agreement is a matter for the arbitrators to

decide. See id. at 13-14.

Plaintiff resists arbitration on a number of grounds.

Relying principally on the disclaimer of liability contained

in the Acquisition Agreement, Ryan Beck maintains that it

did not agree to arbitrate “antecedent Gruntal disputes”!®

lo

Plaintiff's Reply Memorandum of Law in Support of Its Motion

For Summary Judgment/Declaratory Judgment (“Pi. Reply” [#103])

at 2.

68a

or “disputes relating to successor liability.”'’? According to

plaintiff, its arbitration agreement with former Gruntal

customers did not encompass “the subject matter of the

[pending] arbitrations.” Pl. Mem. (#87) at 3. Plaintiff also

disputes the investors’ claim that the arbitrators should

decide the scope of the arbitration provision; in plaintiff’s

view, the “plain meaning” of the Acquisition Agreement

“reflects [plaintiff’s] intent not to arbitrate ....” Pl. Reply

(#103) at 3.

Concerning the duty to arbitrate imposed by the NASD

Code, plaintiff takes the position that “customer” status

must be determined as of the time of the alleged wrongdo-

ing; in this case, the investors were Gruntal customers

when their claims arose. See Pl. Mem. (#87) at 4-6; PI.

Reply (#103) at 8.

As to Reich, plaintiff alleges that he never became a cus-

tomer of Ryan Beck, as he closed his Gruntal accounts and

transferred his assets one year prior to the acquisition, see

generally Pl. Supp. Br. (#90); consequently, Reich “totally

failed to prove that he has any agreement to arbitrate” with

Ryan Beck. /d. at 11.

Finally, Reich maintains that he “must be deemed to

have been a ‘customer’ of Ryan, Beck,” because he received

a “Dear Client Letter” advising him of the acquisition. See

Memorandum of Law Regarding Perry Reich’s Status as a

Ryan, Beck Customer (“Reich Mem.” [#105]) at 1. He also

invokes a series of theories for binding plaintiff, as a suc-

cessor-in-interest, to his Gruntal Client Agreement. See id.

at 6.

'7 Id. at 8; see id. at 2-3; Plaintiff's Memorandum of Law In Sup-

port of its Motion For Summary Judgment’Declaratory Judgment (“P1.

Mem.” [#87]) at 14.

69a

Il. Arbitration; General Legal Principles

As a preliminary matter, while counsels’ submissions

are silent on this issue, it appears that the parties’ disputes

are governed by the Federal Arbitration Act (“FAA”), 9

U.S.C. § 1 et seqg., inasmuch as (1) there are a series of

written arbitration agreements (albeit ones whose applica-

bility and scope are contested); (2) diversity provides an

independent basis for federal jurisdiction; and (3) the arbi-

tration provisions are contained in contracts affecting

interstate commerce. See Shaw Group Inc. v. Triplefine

Int'l Corp., 322 F.3d 115, 120 (2d Cir. 2003); ACEquip

Ltd. v. Am. Eng’g Corp., 315 F.3d 151, 154 (2d Cir. 2003).

Pursuant to section 4 of the FAA, the role of the Court 1s

“limited to determining two issues: i) whether a valid

agreement or obligation to arbitrate exists, and 11) whether

one party to the agreement has failed, neglected or refused

to arbitrate ....” PaineWebber Inc. v. Bybyk, 81 F.3d 1193,

1198 (2d Cir. 1996); accord Shaw, 322 F.3d at 120. The

latter issue is not disputed, as Ryan Beck is protesting the

arbitration proceedings.

As the Supreme Court has recently reiterated, the FAA

expresses a strong federal policy favoring arbitration

agreements. See Howsam v. Dean Witter Revnolds, Inc.,

123 S. Ct. 588, 591 (2002) (citing Moses H. Cone Mem'l

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983));

see also PacifiCare Health Systems, Inc. v. Book, 123

S. Ct. 1531, 1536 n.2 (2003). The FAA creates “a body of

federal substantive law of arbitrability, applicable to any

arbitration agreement within the coverage of the Act.”

Moses H. Cone, 460 U.S. at 24 (quoted in National Union

Fire Ins. Co. v. Belco Petroleum Corp., 88 F.3d 129, 133

(2d Cir. 1996)). “Whether a party is bound by an arbitra-

70a

’

tion clause is governed by federal law,” which creates a

framework of presumptions that inform the Court’s analy-

sis. John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48, 58

(2d Cir. 2001). Nevertheless, because arbitration “is a mat-

ter of contract,” id. (quoting AT&T Techs., Inc. v. Commu-

nications Workers of Am., 475 U.S. 643, 648, 89 L. Ed. 2d

648, 106 S. Ct. 1415 (1986)), federal courts look to “gen-

eral state law contract principles” to determine whether the

parties have in fact agreed to arbitrate. John Hancock, 254

F.3d at 58; see Bybyk, 81 F.3d at 1200 (state law applies to

“disputes arising out of the contractual relationship,” but

does not impose “special rules limiting the authority of the

arbitrators.”) (quoting Mastrobuono v. Shearson Lehman

Hutton, Inc., 514 U.S. 52, 59, 64 (1995)); see also Shaw,

322 F.3d at 120.'8

In light of liberal federal policy favoring arbitration

agreements, “any doubts concerning the scope of arbitra-

ble issues should be resolved in favor of arbitration.”

Moses H. Cone, 460 U.S. at 24-25; accord Shaw, 322 F.3d

at 120; Bybyk, 81 F.3d at 1198. This principle is, however,

subject to an important exception: when the ambiguity

'8 Each of the three Client Agreements in this case contains two

choice-of-law-related provisions. The general choice-of-law provision

in each states in pertinent part that “[t]his Agreement and its enforce-

ment will be governed by the laws of the State of New York without

regard to conflict of laws provisions.” CX 2 and 3 at 4.17; PX 2A (#90

[Ex.A]), Client Agreement at 4.1. Each arbitration provision states,

inter alia, that any arbitration proceeding “will be conducted pursuant

to applicable Federal laws, the laws of the State of New York, without

regard to the conflict of laws, and the rules of the selected arbitral facil-

ity.” CX 2 and 3 at 916; PX 2A (#90 [Ex.A]), Client Agreement at | 14.

Given the interplay between federal and state law, this opinion will rely

for the most part on cases in this circuit applying New York law. See

Shaw, 322 F.3d at 121.

T7la

concerns who should determine arbitrability, “[t]he law

then reverses the presumption to favor judicial rather than

arbitral resolution.” Shaw, 322 F.3d at 120 (citing First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45

(1995)); see Bybyk, 81 F.3d at 1198. Consequently, the

issue of arbitrability may be referred to the arbitrator if and

only if “there is ‘clear and unmistakable’ evidence from

the arbitration agreement, as construed by the relevant

state law, that the parties intended that the question of arbi-

trability shall be decided by the arbitrator.” Bybyk, 81 F.3d

at 1198-99 (quoting First Options, 514 U.S. at 944);

accord Howsam, 123 S. Ct. at 591; Shaw, 322 F.3d at 121;

see Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir.

2003); Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir.

2002); see also Smith Barney Shearson Inc. v. Sacharow,

91 N.Y.2d 39, 45-46, 666 N.Y.S.2d 990, 993 (1997)

(applying New York law and recognizing the same princi-

ples and presumptions). :

The threshold issue in this case is who should determine

arbitrability; in other words, should the Court or the arbi-

trators decide “whether the parties are bound by a given

arbitration clause,” Howsam, 123 S. Ct. at 592, and resolve

the parties’ disagreements as to its scope?!’ Because this

determination entails an evaluation of the parties’ intent,

and because the facts as to Reich differ markedly from

those relating to his co-defendants, Reich’s situation will

be separately addressed.

19

In Howsam, the Supreme Court narrowly construed “arbitrabil-

ity” to encompass “gateway” issues of this nature and to exclude “pro-

cedural” questions such as limitations defenses. 123 S. Ct. at 592.

72a

Ill. The Fakihs and Jones

A. The Contractual Duty to Arbitrate (Assump-

tion/Estoppel)

In contrast to its position concerning Reich, plaintiff has

conceded that, by virtue of the investors’ “negative con-

sent” in response to the notice of transfer contained in the

“Dear Client Letter,”?° the Gruntal Client Agreements with

the Fakihs and Jones became the controlling contracts with

those customers. See 9/5/02 Tr. at 15-16, 25, 71-73; 10/11/02

Tr. 19, 44-45; 1/21/03 Tr. at 21-23, 33, 48. The Second Cir-

cuit has recognized a series of “theories for binding

nonsignatories to arbitration agreements,” including estop-

pel and the doctrine of assumption of the obligation to

arbitrate. Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64

F.3d 773, 776 (2d Cir. 1995); see Smith/Enron Cogenera-

tion Ltd. P ship, Inc. v. Smith Cogeneration Int’l, Inc., 198

F.3d 88, 97 (2d Cir. 1999). As the Fakih and Jones Client

Agreements both contain arbitration provisions, there can

be no dispute that, by adopting those agreements as their

own, Ryan Beck agreed to be bound by the terms of their

arbitration clauses and thus assumed the duty to arbitrate.

See, e.g., Shaw Group, Inc. v. Triplefine Int’l Corp., No.

01 Civ. 4273 (LMM), 2001 WL 883076, at *2 (S.D.N.Y.

Aug. 3, 2001) (court orders one of the petitioners, a non-

Signatory to a contract containing an arbitration clause, to

arbitrate its dispute with the respondent, a signatory,

where it was uncontested that that contract had been

assumed by that petitioner as part of an acquisition of the

assets of another entity that had signed the contract),

vacated in part on other grounds, 322 F.3d 115 (2d Cir.

“0 See Pl. Mem. at 13-14; Berson Aff. (#55) at 997-8 & Ex. C.

73a

2003)?!; see also, Fidelity & Guar, Ins. Co. v. West Point

Realty, Inc., No. 02 Civ. 1951 LMM, 2002 WL 1933780, at

*4-5 (S.D.N.Y. Aug. 21, 2002) (plaintiff, which issued a

performance bond and, after its insured defaulted, entered

into a Takeover Agreement that incorporated by reference

the original construction contract, was bound by the arbi-

tration provision in the original contract, although not a

signatory thereto).?

In addition, Ryan Beck is bound to the arbitration agree-

ments with the Fakihs and Jones under a theory of estop-

pel, which holds that “a nonsignatory to an agreement

containing an arbitration clause may be compelled to arbi-

trate with a signatory where the nonsignatory knowingly

accepts benefits derived directly from the agreement.”

E.G.L. Gem Lab Ltd. v. Gem Quality Inst., Inc., No. 97 Civ.

7102 (LAK), 1998 WL 314767, at *3 (S.D.N.Y. June 15,

1998) (citing Thomson-CSF, 64 F.3d at 778-79). Having

taken over the Fakih and Jones accounts, assets and cus-

tomer relationships, subject to the protections afforded the

firm by the Client Agreements, Ryan Beck thereby derived

direct benefits and is estopped from avoiding the duties

“1 On appeal in Shaw, the Second Circuit vacated another aspect of

the district court’s order, which had enjoined arbitration of a particular

claim; the Court of Appeals left undisturbed the lower court’s ruling

that the non-signatory, “by assuming the assets of [the acquired entity].

had obligated itself to comply with the arbitration provision ofthe Rep-

resentation Agreement ... .” 322 F.3d at 119.

22 ‘The fact that the arbitration provisions at issue here specifically

refer to Gruntal does not affect this conclusion. See Fidelity, 2002 WL

1933780, at *5 (although language in the arbitration provision referred

to the original contracting parties, the Takeover Agreement, by substi-

tuting plaintiff for its insured, “place[d] [plaintiff] within the scope of

the arbitration clause in the Original Contract.”). See 1/21/03 Tr. at 28-

30, 46.

74a

imposed by the arbitration provisions contained in those

agreements.*> See Am. Bureau of Shipping v. Tencara Ship-

yard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999); Deloitte

Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d

1060, 1064 (2d Cir. 1993).

B. The Scope of The Duty to Arbitrate

1. Who Determines Arbitrability

Ryan Beck does not dispute that it agreed to arbitrate

with the Fakihs and Jones; instead plaintiff argues that it

did not agree to arbitrate the claims now pending in arbi-

tration, which arose on Gruntal’s watch. See Pl. Mem.

(#87) at 3, 8, 14; Pl. Reply (#103) at 2-3; 1/21/03 Tr. at 21-

26. In other words, as to the Fakihs and Jones, plaintiff

challenges the scope of the arbitration agreements, but not

their existence or validity. See generally Bell, 293 F.3d at

567-68 (distinguishing between a challenge to the exis-

tence of an agreement to arbitrate and a challenge to the

scope of an arbitration provision).

Ordinarily, “a disagreement about whether an arbitration

clause in a concededly binding contract applies to a partic-

ular type of controversy is for the court,” not the arbitrator,

to resolve. Howsam, 123 S. Ct. at 592. However, this pre-

sumption is subject to a significant qualification: as previ-

23 Indeed, Ryan Beck has acknowledged that it derived a direct

benefit from the arbitration clause itself, as well as from the Client

Agreement as a whole: members of the NASD and NYSE are required

by their rules to arbitrate with their customers at the customers’ request,

and thus a broker-dealer gains mutuality by including in a client agree-

ment an arbitration clause by which the broker-dealer can compel the

customer to arbitrate. See 1/21/03 Tr. at 35-36: Berson Aff. (#55) at 99:

see also Kidder, Peabodv & Co. v. Zinsmever Trusts Partnership, 41

F.3d 861, 864 (2d Cir. 1994).

75a

ously noted, “under First Options and AT&T Technologies,

the arbitrability of a given issue is a question for the court

unless there is ‘clear and unmistakable’ evidence from the

arbitration agreement, as construed by the relevant state

law, that the parties intended that the question of arbitra-

bility shall be decided by the arbitrator.” Bybyk, 81 F.3d

at 1198-99 (emphasis in original). Under New York law,

the “court must ascertain the intent of the parties from the

plain meaning of the language employed” in the agree-

ment itself, id. at 1199 (quoting Tigue v. Commercial Life

Ins, Co., 631 N.Y.S.2d 974, 975 (4th Dep’t 1995)), and,

where “the intent of the parties can be determined from

the face of the agreement, interpretation is a matter of

law ....” Bybyk, 81 F.3d at 1199 (quoting Am. Express

Bank Ltd. v. Uniroyal Inc., 562 N.Y.S.2d 613, 614 (Ist

Dep’t 1990)).

The Second Circuit’s recent decision in Shaw is instruc-

tive on this issue. There the Court, faced with similarly

broad language in an arbitration provision, vacated an

order of the district court enjoining the respondent from

pursuing a certain claim in arbitration against a party that,

like Ryan Beck, was not a signatory to the arbitration

agreement but had assumed the contract containing the

arbitration clause. See Shaw, 322 F.3d at 119, 125. Reject-

ing the district court’s ruling, the Court of Appeals con-

cluded that “the evidence manifests the parties’ clear and

unmistakable intent to submit questions of arbitrability”

—as here, issues concerning the scope of the arbitration

provision—“to arbitration.” /d. at 121.

Applying New York contract law, the Court in Shaw

inferred that intent from the language of the arbitration

clause itself. First, the Court focused on the breadth of the

referral to arbitration. Although the provision did not con-

76a

tain “an express contractual commitment of the issue of

arbitrability to arbitration,” the clause did provide for arbi-

tration of “[a]ll disputes ... concerning or arising out of”

the Representation Agreement of which the clause was a

part. See id. at 121. The Court viewed that language as suf-

ficiently sweeping to indicate an intent to reserve the issue

of arbitrability for the arbitrators. See id. (citing federal

and New York cases construing similar provisions).

So too here, the relevant contractual provision states

that “all disputes ... arising out of or relating to [the

investor’s] Accounts, ... or any construction, performance

or breach of this or any other agreement between [the par-

ties] will be settled by arbitration.” CX 2 and 3 at 916.4

Clearly, a referral of “all” disputes concerning the con-

struction of the Client Agreement is sufficiently plain and

sweeping to encompass disputes over the scope of the arbi-

tration clause and to manifest the parties’ intent to have the

arbitrators decide that issue. See Bybyk, 81 F.3d at 1299

(“[t]he words ‘any and all’ are elastic enough to encom-

pass disputes over whether a claim ... is within the scope

of arbitration. That provision expressly includes the cate-

gory of disputes regarding the construction of the Agree-

ment ....”); Optibase, Ltd. v. Merrill Lynch Inv.

Managers, No. 02 Civ. 9813 (LTS), 2003 WL 1587244, at

*3-4 (S.D.N.Y. March 27, 2003) (arbitration clause that

covered “all controversies that may arise ... , including

but not limited to, those involving . . . the construction,

performance or breach of this or any other agreement... ,”

required the court to defer to the arbitrator’s arbitrability

24 See supra note 8. The only carve-out relates to disputes arising

out of or relating to “regulated commodity accounts,” CX 2 and 3 at

4] 16, which are not implicated here.

T7a

decision); New Avex, Inc. v. Socata Aircraft Inc., No. 02

Civ. 6519 DLC, 2002 WL 1998193, at *1, 5-6 (S.D.N.Y.

Aug. 29, 2002) (arbitrability issue was reserved for arbi-

tration, where the arbitration clause encompassed “[a]ny

dispute, controversy or claim arising under or related to

this agreement, other than a dispute concerning a Withheld

Amount....’’).

In Shaw, the Second Circuit additionally found that “the

parties’ intent to arbitrate arbitrability [was] further evi-

denced by their agreement to refer all disputes to” the

{International Chamber of Commerce, the rules of which

provide for the arbitral body to resolve questions of arbi-

trability. Shaw, 322 F.3d at 122. In this case, the arbitration

clause in the Jones and Fakih Client Agreements expressly

provides for arbitration proceedings before the NASD,

conducted pursuant to “the rules of the selected arbitral

facility.” CX 2 and 3 at 916. As the Second Circuit recog-

nized in Bybyk, the NASD Code commits “all issues,

including issues of arbitrability ..., to the arbitrators.” 81

F.3d at 1202; accord Shaw, 322 F.3d at 123; Howsam, 123

S. Ct. at 593 (citing NASD Code of Arbitration Procedure

§ 10324). Consequently, the contractual reference to

NASD arbitrations and rules provides further evidence of

the parties’ “clear and unmistakable intent” to submit

questions of arbitrability to the arbitrators.

2. The Language in the Acquisition Agreement

In seeking to avoid arbitration, Ryan Beck relies on the

“plain meaning” of the Acquisition Agreement. See PI.

Reply (#103) at 3. That reliance is misplaced. First, as

demonstrated by Shaw, Byvbyk, and the New York cases

cited therein, to determine the intent of the parties, the

78a

Court must look to the language of the arbitration provi-

sion and construe the contract of which it is a part. As the

arbitration provision here is plain on its face,?> extrinsic

evidence may not be considered. See Kidder, Peabody &

Co. v. Zinsmeyer Trusts Partnership, 41 F.3d 861, 865 (2d

Cir. 1994) (citing Jnt’] Klafter Co. v. Cont’l Cas. Co., 869

F.2d 96, 100 (2d Cir. 1989));?° see also John Hancock, 254

F.3d at 60 (citing Klafter). This principle applies with par-

ticular force where, as here, the extrinsic evidence does

not relate to discussions among the parties, but rather con-

cerns a document to which the investors were not privy.

Whatever the intent of Ryan Beck and the Gruntal enti-

ties in entering into the Acquisition Agreement, it is undis-

puted that the terms of that document, and the temporal

limit that plaintiff seeks to impose, were not communi-

cated to Gruntal’s customers—1in the “Dear Client Letter”

or otherwise—in soliciting their negative consent to trans-

fer their accounts from Gruntal to Ryan Beck. See 1/21/03

Tr. at 24, 26, 34. Even assuming arguendo that the Acqui-

sition Agreement may be read to limit Ryan Beck’s duty to

arbitrate claims arising prior to the Closing Date,*’ that

25 See generally infra note 28.

26

In Kidder, Peabody, the Second Circuit held that the excision,

from a brokerage firm’s Customer Agreement, of a provision authoriz-

ing either party to demand arbitration, did “not evidence a clear intent

to waive the customer’s arbitration right” under the NASD Code; the

Court refused to consider the contents of the transmittal letter that

accompanied the revised version of the Customer Agreement, as “there

[was] no ambiguity” in that agreement and thus “no reason to incorpo-

rate the transmittal letter into the contract.” 41 F.3d at 865.

27 However, while disclaiming liability for antecedent claims, the

language relied on (stating that Ryan Beck “will not assume .. . liabil-

ities for litigation, arbitrations or other claims relating to operations

79a

limitation was not incorporated by reference into the

Client Agreements assumed by Ryan Beck. Under New

York law and the law of this Circuit, two essential ele-

ments must be satisfied before a document will be deemed

to have been incorporated by reference into another instru-

ment or agreement. First, the agreement must specifically

reference and sufficiently describe the document to be

incorporated, such that the latter “may be identified beyond

all reasonable doubt.” Bybyk, 81 F.3d at 1201 (quoting

Chiacchia v. Nat’l Westminster Bank USA, 507 N.Y.S.2d

888, 889-90 (2d Dep’t 1986)) (emphasis supplied in

Bybyk). Second, “it must be clear that the parties to the

agreement had knowledge of and assented to the incorpo-

rated terms.” Bybyk, 81 F.3d at 1201 (quoting Lamb vy.

Emhart Corp., 47 F.3d 551, 558 (2d Cir. 1995)); see gen-

erally Federated Mut. Ins. Co. v. Woodstock ‘99, LLC, 140

F. Supp.2d 225, 228 (N.D.N.Y. 2001) (before a document

will be deemed incorporated by reference, “the document

to be incorporated must be identified with sufficient speci-

ficity,” and “there must be a clear manifestation of an

intent to be bound by the terms of the incorporated instru-

ment.”’).

Neither of these elements is satisfied here. First, the

Client Agreement in no way refers to a separate contract

that was neither in existence nor even contemplated when

the Client Agreement was executed. To the extent that the

“Dear Client Letter” is regarded as a supplemental agree-

ment substituting Ryan Beck for Gruntal, none of that let-

ter’s “oblique references to an otherwise unidentified

[acquisition arrangement] meet[s] [the] exacting standard”

prior to the Closing Date ... ,” Acquisition Agreement § 1(B)(2) (#55

[Ex.A]), does not clearly disclaim the duty to arbitrate those claims.

See 9/5/02 Tr. at 17-19; 1/21/03 Tr. at 27.

80a

for incorporation by reference. Shark Info. Servs. Corp. v.

Crum & Forster Commercial Ins., 634 N.Y.S.2d 700, 701

(Ist Dep’t 1995) (where insurance policy inadvertently

omitted a flood exclusion, vague references in the policy

to a separate “Coverage Form” were insufficient to bring

the claimed exclusion within the policy under the doctrine

of incorporation by reference).

Nor can it be said that the investors’ “negative consent”

to transfer their accounts to Ryan Beck in any way mani-

fested their intent to be bound by the terms and conditions

of a series of agreements that had not been provided or

explained to them. See Federated, 140 F. Supp.2d at 228-

29 (letter agreement between the sponsor of a music festi-

val and a supplier did not incorporate by reference a

waiver-of-the-right-to-subrogation provision contained in

a separate agreement between the festival organizer and

the sponsor, even though the letter agreement specifically

referenced the agreement between the organizer and spon-

sor); see also Kidder, Peabody, 41 F.3d at 864-65; Thom-

son-CSF, 64 F.3d at 777. Accordingly, as a matter of basic

contract law, the intent of the parties cannot be drawn from

the Acquisition Agreement between Ryan Beck and the

Gruntal entities.

3. The Decision in Dusch

To support its contention that Ryan Beck assumed the

obligation to arbitrate only those claims arising after the

Closing Date, plaintiff cites the district court’s decision in

Prudential-Bache Securities v. Dusch, 1994 WL 374425

(S.D. Cal. March 28, 1994). The Dusch opinion is of lim-

ited precedential value and persuasive force. First, the

decision does not address the threshold question of who

Sla

determines arbitrability—an issue that, in this Circuit and

on the facts of this case, mandates a ruling in favor of the

Fakihs and Jones. Moreover, while the court in Dusch

reached and resolved the scope of the duty to arbitrate, the

opinion does not quote the language of the arbitration pro-

vision, which was contained on the signature card that was

transferred to Prudential Securities from Thompson McK-

innon Securities when its assets were acquired by Pruden-

tial. Indeed, in concluding that “the card does not apply to

the time before Dusch became a customer of Prudential,”

id. at 2, the court focused instead on the language of the

purchase agreement between Prudential and Thompson

McKinnon. See id. As previously noted, such an analysis 1s

at odds with case law in this Circuit and in New York

State.

For the foregoing reasons, this Court must defer to the

arbitrators on the parties’ disputes about the arbitrability of

the claims of the Fakihs and Jones.?®

7S Even if this Court agreed with Ryan Beck that the issue of arbi-

trability should not be reserved for the arbitrators, plaintiff's attempt to

superimpose a temporal limitation onto the contractural arbitration pro-

vision would not succeed. In accordance with the strong federal policy

favoring arbitration, courts must “construe arbitration clauses as

broadly as possible,” Oldrovd v. Elmira Sav. Bank, FSB, 134 F.3d 72,

76 (2d Cir. 1998) (citation and internal quotation marks omitted), and

“any doubts concerning the scope of arbitrable issues should be

resolved in favor of arbitration ....” Moses H. Cone, 460 U.S. at 24-

25; accord Bell, 293 F.3d at 566. Furthermore, “the strong federal pre-

sumption in favor of arbitrability applies with greater force when an

arbitration clause is a broad one,” as here. McDonnell Douglas Fin

Corp. v. Pa. Power & Light Co., 858 F.2d 825, 832 (2d Cir. 1988) (cit-

ing ATRT Techs., 475 US. at 650); accord Oldrovd, 134 F.3d at 76.

Indeed, the presumption in favor of arbitrability is so strong that, upon

finding a broad, enforceable arbitration agreement, the court must com-

pel arbitration “unless it may be said with positive assurance that the

82a

IV. Perry Reich

The facts as to Reich are entirely distinguishable, and

the law thus compels a different result. Ryan Beck does not

concede that it assumed Reich’s Client Agreement with

Gruntal; to the contrary, plaintiff argues that Reich never

became its customer and that therefore those parties never

entered into any arbitration agreement of any scope.

Under these circumstances, the parties’ quarrel as to

arbitrability may not be deferred to the arbitrators. As the

Supreme Court has observed, “a gateway dispute about

arbitration clause is not susceptible of an interpretation that covers the

asserted dispute.” AT&T Techs., 475 U.S. at 650; accord Mehler v. Ter-

minix Int'l Co., 205 F.3d 44, 49 (2d Cir. 2000); see Smith/Enron, 198

F.3d at 99; Oldrovd, 134 F.3d at 76.

In this case, it cannot be said with positive assurance that the broad

arbitration clause in the Client Agreement excludes arbitration of dis-

putes arising prior to the Closing Date. Indeed. Ryan Beck has con-

ceded that the clause is silent on this issue (see 1/21/03 Tr. at 34; see

also id. at 26) and that no such limitation was communicated to the

investors whose accounts were transferred. See id. at 24, 26. Contrary

to Ryan Beck’s assumption, “the Second Circuit has expressiy rejected

the argument that securities industry arbitration agreements cannot be

applied retroactively.” Marcus v. Masucci, 118 F. Supp.2d 453. 457

(S.D.N.Y. 2000). Thus, where, as here, the arbitration clause did “not

contain any temporal limitation.” the Second Circuit has compelled

arbitration despite the fact that the challenged conduct predated the

signing of the parties’ agreement. Smith/Enron, 198 F.3d at 99 (“SCI's

argument that its claims against Enron concern events that predate the

1994 Agreement does not persuade us that the district court erred here

in ordering arbitration.”’) (citing Coenen v. R.W Pressprich & Co., 453

F.2d 1209, 1212 (2d Cir. 1972) (“we think the clause is clear on its face.

It reads “any controversy,” not “any future controversy ....”)); see

ACE Capital Re Overseas Ltd. v. Central United Life Ins. Co., 307 F.3d

24, 31, 34 (2d Cir. 2002) (arbitration clause’s “temporally non-limit-

ing” language did not exclude disputes arising “pre- and post-contract

formation.”).

83a

whether the parties are bound by a given arbitration clause

raises a ‘question of arbitrability’ for a court to decide.”

Howsam, 123 S. Ct. at 592; see ACEquip, 315 F.3d at 155

(“the first type of factual scenario, involving the exis-

tence of the arbitration agreement itself, generally pres-

ents an issue for the court to decide.”); John Wiley &

Sons, Inc. v. Livingston, 376 U.S. 543 (1964) (court must

decide whether an arbitration clause survived a corporate

merger and bound the resulting corporation); Calamia v.

Riversoft, Inc., No. 02-CV-1094 (FB) (RML), 2002 WL

31779991, at *5 (E.D.N.Y. Dec. 13, 2002) (“Whether ...a

non-signatory[] should be deemed a party to the agree-

ment, and hence a party to the arbitration clause, under any

of the traditional principles of agency or contract law is an

issue for the Court to decide.) This Court must therefore

determine whether Ryan Beck is somehow bound to arbi-

trate Reich’s claims against it.”

A. Assumption/Estoppel (Reich’s Customer Status)

The logical starting point in this analysis is an examina-

tion of the record to ascertain whether Reich’s theory that

he became a Ryan Beck customer is factually sustainable.

In determining arbitrability in connection with a motion to

29 To the extent that any of Reich’s arguments may be read to sug-

gest that Ryan Beck’s membership in the NASD in and of itself war-

rants submission of the arbitrability question to the arbitral body, that

argument is foreclosed by the Second Circuit’s decision in John Han-

cock, 254 F.3d at $3 (“John Hancock’s membership in the NASD, with-

out more, is not sufficient to show that the parties agreed to submit the

question of arbitrability to the arbitrators ....”); see also id. at 57

(“absent an express agreement between the Investors and John Hancock

incorporating the NASD Code or providing ‘any and all’ disputes be

settled in arbitration, the district court properly undertook the determi-

nation of whether the Investors’ claims are arbitrable.”).

84a

prevent arbitration, “the court applies a standard similar to

that applicable for a motion for summary judgment.” Ben-

sadoun, 316 F.3d at 175. Thus, in ruling on Ryan Beck’s

motion, the Court must review the record to determine

whether there are any genuine issues of fact as to the mak-

ing of an arbitration agreement with Reich, so as to require

a hearing. See Fed. R. Civ. P. 56(c); Bensadoun, 316 F.3d

at 175; cf 9 U.S.C. §4. In this regard, “[t]he Supreme

Court has held that ‘the mere existence of some alleged

factual dispute between the parties will not defeat an oth-

erwise properly supported motion for summary judgment;

the requirement is that there be no genuine issue of mate-

rial fact.’” Opals on Ice Lingerie v. Bodylines Inc., 320

F.3d 362, 368 (2d Cir. 2003) (quoting Anderson v. Liberty

Lobby, 477 U.S. 242, 247-48 (1986) (emphasis in origi-

nal)).

Judged by this standard, and with the evidence analyzed

in light of New York contract law, Reich’s submissions fail

to create any genuine tissue of material fact to support his

theory that he, like his co-defendants, became a customer

of Ryan Beck, which thereby assumed the benefits and

obligations of his Client Agreement.

“Under New York law, a contract for services that makes

no specific provision for duration is presumed to be ter-

minable at will.” White Plains Towing Corp. v. Patterson,

991 F.2d 1049, 1062 (2d Cir. 1993). Reich’s communica-

tions with Gruntal in March 2001,°° and his subsequent

transfer of all of the assets in his accounts to another bro-

kerage firm, clearly and unequivocally indicated that he

was terminating his relationship with Gruntal and rescind-

30 See PX 2A and PX 4 (#90 [Ex.A]) (letters dated March 16, 2001,

and March 17, 2001).

85a

ing Gruntal’s authority to act on his behalf.*! Such a sev-

erance need not be preceded by any particular verbal for-

mulation. New York courts have held that a

“broker/principal relationship and accompanying fiduciary

duty can be severed by agreement of the parties or by uni-

lateral action of the principal.” Dubbs v. Stribling &

Assocs., 96 N.Y.2d 337, 340, 728 N.Y.S.2d 413, 415, 752

N.E.2d 850 (2001) (citations omitted); see Aegis Prop.

Servs. Corp. v. Hotel Empire Corp., 484 N.Y.S.2d 555, 561

(Ist Dep’t 1985) (“the right of the principal to terminate

[the broker’s] authority is absolute and unrestricted.”)

(citation and internal quotation marks omitted). “Authority

created in any manner terminates when either party in any

manner manifests to the other dissent to its continuance...

.” Restatement (Second) of Agency § 119 (1985). Accord-

ingly, “[a] revocation of an agent’s authority ... may be

implied by words or conduct of a principal which are

inconsistent with the continuation of authority.” Whiting v.

Marine Midland Bank-Western, 365 N.Y.S.2d 628, 644

(Sup. Ct. 1975); see also Savitskv v. Sukenik, 659 N.Y.S.2d

48, 50 (2d Dep’t 1997) (“In general, abandonment of a

contract need not be express, but may be inferred from the

conduct of the parties and the attendant circumstances.”)

(citing Rosiny v. Schmidt, 587 N.Y.S.2d 929, 932 (Ist

Dep't 1992)).

Unquestionably, once Reich cancelled his contract with

Gruntal, removed his funds, and opened accounts at

another brokerage firm, his relationship with Gruntal came

3]

Reich conceded as much at oral argument, stating that, in light

of his actions terminating his Client Agreement with Gruntal, “he’s not

a customer in that respect.” 1/21/03 Tr. at 92.

86a

to an end; there was no open Gruntal account or existing

contract for Ryan Beck to assume.

Notably, Reich proffers no sworn statement to the effect

that he considered himself to be a Ryan Beck customer;

indeed, when asked at his deposition to identify all his cur-

rent and previous brokerage accounts, Ryan Beck was con-

spicuously absent from the list. See Reich Dep. (#90

[Ex.A]) at 6-7. That omission is entirely understandable,

inasmuch as he does not dispute that he closed his Gruntal

accounts, and transferred all of his assets to another firm,

more than one year prior to the acquisition. See id. at 31-

32; 1/21/03 Tr. at 85-89, 92, 110. Reich never maintained

any assets at Ryan Beck, never engaged in any transactions

through or with Ryan Beck, never received a monthly

statement or other communication from Ryan Beck (apart

from the “Dear Client Letter’), and had no dealings what-

soever with representatives of Ryan Beck. See Reich Dep.

(#90 [Ex.A]) at 31-33; 1/21/03 Tr. at 89, 114-16.

“Under New York contract law, ... if there is no meet-

ing of the minds on all essential terms, there is no contract.

This is because an enforceable contract requires mutual

assent to the essential terms and conditions thereof.” Opals

on Ice, 320 F.3d at 372 (quoting Schurr v. Austin Galleries

of Ill., 719 F.2d 571, 576 (2d Cir. 1983)) (internal citations

and quotation marks omitted). With respect to Reich and

Ryan Beck, “it is clear from the record that there was no

meeting of the minds, and no contract was ever formed.”

Opals on Ice, 320 F.2d at 371-72. Therefore, there was no

agreement to arbitrate.

In spite of these facts and legal principles, Reich

advances the notion of an “implied contractual relationship

between Ryan, Beck and Perry Reich” (1/21/03 Tr. at 93),

and asserts that he “must be deemed to have been a ‘cus-

87a

tomer’ of Ryan, Beck.” Reich Mem. (#105) at 1. In support

of this argument, he cites his receipt of the “Dear Client

Letter,” and his ability to access his account information—

showing a zero balance—through the Ryan Beck website

sometime after April and prior to October 2002. See Reich

Mem. (#105) at 1-2; 1/21/03 Tr. at 89.5 However, plain-

tiff’s unchallenged proof as to the applicable records

retention policy refutes any inference that Gruntal’s trans-

fer of the file to Ryan Beck, Reich’s receipt of the “Dear

Client Letter,” and the inclusion of his account information

in the clearing firm’s database, resurrected an otherwise

dead account. See Gruntal & Co. v. Steinberg, 843 F. Supp.

1, 12 (D.N.J. 1994) (rejecting suggestion that the acquiring

entity’s “mere possession of documents relating to” the

investors’ account at the acquired entity “requires a find-

ing” that the acquirer is “bound by” the predecessor’s con-

tract with the investors).

It is uncontroverted that Pershing LLC (“Pershing”)—

the clearing firm that served as the “back office” and han-

dled “operational functions” for Gruntal and for Ryan

Beck*?—typically “maintains an account with the ‘closed’

designation for approximately 18 months,” during which

time the customer would not be able to engage in transac-

32 Ryan Beck responds that any such on-line access would at all

tunes have revealed that Reich’s accounts were “closed.” See Pl. Supp.

Br. (#90) at 3-4; Deposition of Dennis Tobin (“Tobin Dep.”) at 27,

appended as Exhibit B to Pl. Supp. Br. (#90); 1/21/03 Tr. at 106. For

purposes of this motion, the Court will assume otherwise, given Reich’s

(undocumented) assertion to the contrary. See Reich Dep. (#90 [Ex.A])

at 19-23. Nevertheless, for all intents and purposes, the account was

closed—whether or not so labeled on the website.

33

Affidavit of Tom DelleCave (“DelleCave Aff.”) at 92 (attached

as Exhibit A to Supplemental Affidavit of Joel E. Davidson {#107]);

Tobin Dep. (#90 [Ex.B]) at 21-22.

88a

tions without first arranging to reopen the account. PI.

Supp. Br. (#90) at 6-7 (citing Jobin Dep. at 23-26). As

Reich closed his accounts in April 2001, his name was not

scheduled to be purged from the clearing firm’s list of

open and closed accounts until October 2002. See PI.

Supp. Br. (#90) at 7-8; Affidavit of Linda Scorsone in Sup-

port of Ryan, Beck’s Motion for Summary Judgment

(“Scorsone Aff.” [#91]) at 93; DelleCave Aff. (#107) at

493. The “Dear Client Letter” was sent to all account-hold-

ers whose files had not yet been purged. For those whose

accounts had been closed in 2002, the notification of the

transfer had some significance, as those former Gruntal

customers needed to be sent 1099 tax information forms in

early 2003. Rather than delay the issuance of the “Dear

Client Letters” by first creating a system to sort out those

whose accounts had been closed but not yet purged, Persh-

ing sent the letter to all Gruntal customers and former cus-

tomers whose account information had not been purged.

See Scorsone Aff. (#91) at 93; DellaCave Aff. (#107) at

93; Berson Aff. (#55) at 47.

In similar circumstances, also involving the Gruntal

acquisition by Ryan Beck, the district court in Ryan Beck

& Co. v. Campbeli, No. 02 C 7016, 2002 WL 31696792

(N.D. Ill. Dec. 2, 2002), reconsideration denied, 2003 WL

193524 (N.D. Ill. Jan. 28, 2003), issued a preliminary

injunction against further arbitration proceedings.

Addressing the likelihood of Ryan Beck’s success, the

court observed:

We are convinced, at this point, that Ryan Beck never

entered into any agreement to arbitrate with Camp-

bell. Campbell withdrew all the assets in his accounts

at Gruntal by February 2002, months before Ryan

89a

Beck acquired the customer accounts of Gruntal.

Campbell was never a client of Ryan Beck. No con-

tracts were executed between Campbell and Ryan

Beck. Based on this evidence, we find that Ryan Beck

is likely to prevail in proving that it did not enter into

an agreement to arbitrate disputes with Campbell.

sa. 72.

Given the record in the present ease, Reich has failed to

present an issue of material fact to support his demand that

he be “deemed” to have been a customer of Ryan Beck.

Therefore, Ryan Beck cannot be said to have assumed

Reich’s Client Agreement with Gruntal or its contractual

obligation to arbitrate. Nor did Ryan Beck receive any

direct benefits from Reich’s closed accounts, the Client

Agreement, and/or the arbitration clause contained therein;

thus, plaintiff is not estopped from denying any duty to

arbitrate with Reich. See Thomson-CSF, 64 F.3d at 778-79.

B. The NASD Code

Reich also cites the NASD Code of Arbitration Proce-

dure as an alternative basis for plaintiff’s obligation to

arbitrate Reich’s claims. As a member of that organization,

Ryan Beck is required to abide by its rules and regulations,

including those provisions governing arbitration of cov-

ered disputes. See NASD Code of Arbitration Procedure

§ 10301(a). The NASD Code contains “two prerequisites

before an NASD member can be compelled to arbitrate.”

Wheat, First Securities, Inc. v. Green, 993 F.2d 814, 820

(llth Cir. 1993). “First, a complaining party must be a

‘customer’ of the NASD

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