Petition for Writ of Certiorari — Logan v. United States

\

(1 ) Supreme Court, U.8.

| FILED

01 259 auc 8 0 2001

NQeRCEOFTHED cnx

In the

Supreme Court of the Anited States

JOHN M. LOGAN,

Petitioner,

UNITED STATES OF AMERICA,

Respondent.

On Petition For Writ OF CERTIORARI

To Tue Unitep States Court Or APPEALS

For Tue SixtH Circuit

PETITION FOR WRIT OF CERTIORARI

JERRY W. LAUGHLIN

Counsel of Record

RoGers, LAUGHLIN, NUNNALLY,

Hoop & Crum, P.C.

100 S. MAIN STREET

CORNER OF MAIN & Depot STREETS

GREENEVILLE, TN 37743

(423) 639-5183

Counsel for Petitioner

BECKER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

QUESTION PRESENTED

Does the search warrant in this case, which merely

describes separate categories of business records, but which

contains no limitation on which documents could be seized or

suggests how they relate to specific criminal activity,

constitute a general warrant prohibited by the Fourth

Amendment?

PARTIES TO THE PROCEEDINGS

Petitioner |

John M. Logan. Petitioner is an individual and has no

affiliations with any publicly traded corporation.

Respondent

United States of America.

Other Parties

Alan Michael Laws. A co-defendant who is an

individual with no affiliations with any publicly traded

corporation.

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TABLE OF CONTENTS

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PARTIES TO THE PROCEEDINGS ............

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STATUTORY PROVISIONS INVOLVED .........

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I. THE COURT OF _ APPEAL'S

DECISION IS IN CONFLICT WITH

THE DECISIONS OF OTHER

CIRCUIT COURTS OF APPEALS ...

Il. THE GOOD FAITH EXCEPTION TO

THE EXCLUSIONARY RULE IS

INAPPLICABLE TO A WARRANT

THAT IS INVALID ON ITS FACE

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APPENDIX

APPENDIX A

COURT OF APPEALS OPINION 5/11/01 .... la

APPENDIX B

DISTRICT COURT MEMORANDUM

ee ere ere 60a

iV

TABLE OF AUTHORITIES

Cases Page

Andresen v. Maryland,

427 U.S. 463, 96 S.Ct.

2137, 49 L.Ed.2d 627 (1976) ............-. 5

Center Art Galleries v. United States,

S73 F.2d 747 (Sth Cir. 1909) ............. 6

Coolidge v. New Hampshire,

403 U.S. 433, 29

L.Ed.2d 564, 91 S.Ct. 2002 (1971)

Dalia v. United States,

441 U.S. 238, 99 S.Ct.

1682, 60 L.Ed.2d 177 (1979) ............. 4

United States v. Kow, :

38 F.36 423 (Sth Cir. 1995)... 0... . 252s. 6, 8

United States v. Leary,

846 F.2d 592 (10th Cir. 1988) ............ 6

United States v. Leon,

468 U.S. 897, 104

S.Ct. 3405, 82 L.Ed.2d 677 (1984) ........ 3, 8

United States v. Roberts,

852 F.2d 651 (2d Cir.), cert. denied,

Sy GR. SSN 2k eee ER ee 6

PETITION FOR WRIT OF CERTIORARI

Petitioner respectfully petitions for a writ of certiorari

to review the judgment of the United States Court of Appeals

for the Sixth Circuit in this case.

OPINIONS BELOW

The District Court's memorandum opinion denying the

petitioner's motion to suppress the items seized during the

execution of the search warrant issued on July 21, 1996 is set

forth in the Appendix hereto (App. B at 60a).

The opinion of the United States Court of Appeals for

the Sixth Circuit is reported at United States v. Logan, 250

F.3d 350 (6th Cir. 2001), and is set forth in the Appendix

hereto (App. A at la).

BASIS FOR JURISDICTION

The judgment of the United States Court of Appeals

for the Sixth Circuit ("Court of Appeals") was entered on

May 11, 2001. This petition for writ of certiorari is filed

within ninety days after that date. 28 U.S.C. §2101(c).

The jurisdiction of this Court is invoked under 28

U.S.C. §1254(1).

STATUTORY PROVISIONS INVOLVED

There are no statutory provisions involved in the

single question presented in this petition.

l

STATEMENT OF THE CASE

The petitioner and Alan Michael Laws each owned

one-half of the outstanding stock of Logan-Laws Financial

Corporation (LLFC), a corporation formed in 1983, and

which had been approved since 1984 by the Department of

Housing and Urban Development and the Federal Housing

Administration (HUD/FHA) as a Title I lender to the

purchasers of mobile homes, and also approved by the

Government National Mortgage Association (GNMA) as an

issuer of mortgage-backed securities. Thus, LLFC not only

made loans to mobile home purchasers secured by liens on

those mobile homes, but also collected the payments on those

loans which in turn served as the source of payment to the

purchasers of GNMA mortgage-backed securities.

On July 21, 1993, Special Agent Derek B. Johnson of

the Federal Bureau of Investigation prepared an application

and affidavit for a search warrant for the business offices of

LLFC. In that application and affidavit Agent Johnson set

forth information which alleged that LLFC had falsified loan

documents on insurance claims that had been filed by it with

FHA commencing in 1988, and information which alleged

that LLFC had, since August of 1992, deposited its own funds

to collection accounts on behalf of borrowers from whom it

was expected to collect monthly payments on mobile home

loans.

Based upon that affidavit and application by Agent

Johnson, United States District Judge Thomas G. Hull issued

a search warrant for the business premises of LLFC. The

breadth of the description in the search warrant of the records

that could be seized is set forth in the opinion of the Court of

Appeals in the Appendix hereto (App. A at 15a-18a).

In denying the Petitioner's motion to suppress the

items seized in the execution of that search warrant on July

26, 1993, the District Court held that because the FBI agent

could not have particularized the warrant in this case any

further than he did, that "naming only a generic class of items -

will suffice" (App. B at 68a). The question, according to the

District Court, was whether there was sufficient probable

cause to substantiate such a broad warrant, and which it

answered in the affirmative. (App. B at 67a-68a).

The Court of Appeals simply found that because the

search warrant specified that the items sought were those

related to HUD/FHA and GNMA securities it did not violate

the particularity requirement of the Fourth Amendment.

(App. A at 23a). The Court of Appeals also cited United

States v. Leon, 468 U.S. 897, 918-21, 104 S.Ct. 3405, 82

L.Ed.2d 677 (1984), for the proposition that even- if this

particular search warrant lacked particularity, the good faith

exception to the exclusionary rule would not require the

suppression in this case of the fruits of the search. (App. A

at 24a).

Because the petitioner submits that the decisions of the

District Court and the Court of Appeals on his motion to

suppress are not consistent with decisions from other circuit

courts of appeal, and because he also submits that those

decisions in this case fail to consider that the good faith

exception to the exclusionary rule does not apply to a warrant

that is invalid on its face, he now asks this Court to grant a

writ of certiorari and settle these important issues in the

application of the provisions of the Forth Amendment.

REASONS FOR GRANTING THE WRIT

I.

THE COURT OF APPEAL'S DECISION IS

IN CONFLICT WITH THE DECISIONS

OF OTHER CIRCUIT COURTS OF

APPEALS

The Fourth Amendment to the United States

Constitution requires that search warrants describe with

particularity "the place to be searched and the persons or

things to be seized." Thus, the Fourth Amendment itself

requires that a warrant particularly describe the things that

may be seized, as well as the place to be searched. Dalia v.

United States, 441 U.S. 238, 255, 99 S.Ct. 1682, 60 L.Ed 2d

177 (1979).

The search warrant issued for the offices of LLFC

typifies the general warrants prohibited under our

Constitution. It authorized the seizure of almost every single

piece of information that could be expected to be found on the

premises of LLFC. It authorized law enforcement agents to

seize all magnetic or electronic coding or data on computers,

electronic devices, instructions and software, all printed

material, telephone records, records, files, documents, notes,

correspondence, microfiche, computerized entries concerning

HUD, GNMA or FHA, accounts receivable and records

thereof, retained copies of banking transactions, bank

correspondence files, general ledgers, general journals,

subsidiary ledgers, check request forms, daily posting records

and slips, internal documents or instructions to employees,

calendars, working papers of employees and officers of 4

LLFC. In addition, no time limitation at all for such records

was contained within the warrant.

a fina Os Bit AAR al adalat sta me

4

In Coolidge v. New Hampshire, 403 U.S. 443, 467, 29

L.Ed.2d 564, 91 §.Ct. 2022 (1971), the Court noted that the

Fourth Amendment's particularity requirement served to

insure "that those searches declared necessary [by a

magistrate] should be as limited as possible." According to

the Court, "the specific evil is that the ‘general warrant'

abhorred by the colonists, and the problem is not that of

intrusion per se, but of a general rummaging in a person's

belongings. The warrant accomplishes this objective by

requiring a ‘particular description’ of the things to be seized."

Id. (citations omitted). Stated another way, the Fourth

Amendment requires that search warrants describe the items

to be searched for and seized with particularity so that the

warrant does not authorize the police to conduct a general

rummaging search. Andresen v. Maryland, 427 U.S. 463,

480, 96 S.Ct. 2737, 49 L.Ed. 2d 627 (1976). Here that

particularity is not only missing, but from the record in this

cause obviously was available. i

As to the allegations of the conduct by LLFC in

depositing payments on behalf of the borrowers from whom

it was collecting mobile home loans, the affidavit itself

reflects that the FBI was provided with information that such

conduct was undertaken after LLFC "exceeded the allowable

loan delinquency rate as prescribed by HUD in August 1992."

As to the allegations of the insurance claims filed by LLFC

and under investigation, the affidavit reflects that the FBI was

told by Iva Jean Lewis that she was employed by LLFC in

February 1988 to file insurance claims with HUD/FHA, and

that LLFC had not filed any such claims prior to her

employment. Based upon this information available to the

FBI, there surely was no probable cause for the issuance of a

search warrant so broad as to encompass virtually all of the

records of LLFC since its inception.

Because the warrant did not have any limits, its

general nature very closely resembles search warrants the

Ninth Circuit Court of Appeals and other circuit courts of

appeal have thrown out as lacking sufficient particularity. See

United States v. Kow, 58 F.3d 423, 426 (9th Cir. 1995);

Center Art Galleries v. United States, 875 F.2d 747, 750 (9th

Cir. 1989). See also United States v. Leary, 846 F.2d 592

(10th Cir. 1988) (warrant authorizing search deemed

overbroad when documents identified were typical of the

records kept by that type of business, and no real limitation

placed on the records to be seized in the warrant); United

States v. Roberts, 852 F.2d 651 (2d Cir.), cert. denied, 109

S.Ct. 556 (1988) (description of business records that

"encompassed every business record that could be found on

the premises" was too broad where there was no probable

cause to establish there was evidence of any criminality).

Indeed, in United States v. Kow, supra, the Ninth

Circuit Court of Appeals found a strikingly similar warrant to

be a general warrant and held that:

The warrant authorized the seizure of virtually

every document and computer file at HK

Video. To the extent that it provided any

guidance to the officers executing the warrant,

the warrant apparently sought to describe

every document on the premises and direct that

everything be seized. The government

emphasizes that the warrant outlined fourteen

separate categories of business records.

However, the warrant contained no limitations

on which documents within each category

could be seized or suggested how they related

to specific criminal activity. By failing to

describe with any particularity the items to be

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seized, the warrant is indistinguishable from

the general warrants repeatedly held by this

court to be unconstitutional. E.g., Center Art

Galleries-Hawaii, Inc. v. United States, 875

F.2d 747, 750 (9th Cir. 1989); United States

v. Stubbs, 873 F.2d 210, 211 (9th Cir. 1989)

(warrant invalid "because of the complete lack

of any standard by which an executing officer

could determine what to seize"). (Emphasis

added.)

Id. at 427.

It is for these reasons that the petitioner submits that the

decision by the Sixth Circuit Court of Appeals to sustain the

denial of his motion to suppress is in conflict with the

aforesaid decisions from other circuit courts of appeal.

Here the terms of the search warrant are not only so

broad as to include virtually all of the records of LLFC, but

they describe those records in categories without any

limitation on which documents within each category could be

seized or suggested how they might relate to specific criminal

activity. On the other hand, it is quite clear that the

information was available from the affidavit itself for which

such specifics could have been included in the description of

the records referred to in the search warrant. For instance,

from the information contained in the affidavit, it is obvious

that any evidence of the alleged falsification and forgery of

documents for FHA insurance claims could only be expected

to be contained either in those claim files (all of which had

been generated since February, 1988), the corresponding loan

files for those borrowers, and the records of some such claims

submissions alleged to have been maintained by the person

filing such claims, and for none of which there was any

7

reason to believe were contained on computer or electronic

media records of LLFC. Also, with respect to the activity of

allegedly posting deposits by LLFC to the accounts of

otherwise delinquent borrowers, the only information in the

affidavit is that this activity did not commence until after

August of 1992, and even though some of such records may

have been possibly contained in the computer records of

LLFC subsequent to that date, it is also obvious from the

affidavit that the description could have at least been limited

to payment records subsequent to that date, checks and check

request forms of LLFC subsequent to that date, and monthly

records used in preparing reports to GNMA subsequent to that

date. Thus, it is obvious that a more precise description of

the documents and records to be searched and seized could

and should have been included in the search warrant at issue.

Instead, the generic classification of documents and records,

without the inclusion of any such available particularization,

surely constitutes a prohibited general warrant.

II

THE GOOD FAITH EXCEPTION TO THE

EXCLUSIONARY RULE IS

INAPPLICABLE TO A WARRANT THAT

IS INVALID ON ITS FACE

The decision of the Court of Appeals in this case also

cited United States v. Leon, 468 U.S. 897, 918-921, 164

S.Ct. 3405, 82 L.Ed.2d 677 (1984) for the proposition that

even if this particular search warrant lacked particularity, the

good faith exception to the exclusionary rule would not

require the suppression of the fruits of that search. (App. A

at 24a). While the decision lists some of the exceptions to the

good faith standard, it obviously does not list the exception

for a warrant that is so broad-as to be invalid on its face.

8

Indeed, there is no indication at all that the Court of

Appeals considered the statement by the Court in Leon, supra,

that

[A] warrant may be so facially deficient - -i.e.,

in failing to particularize the places to be

searched or the things to be seized - - that the

executing officers cannot presume it to be

valid.

486 U.S. at 923, 104 S.Ct. at 3421.

Therefore, for the same reasons the petitioner insists that the

search warrant in this case is invalid, he also submits that the

good faith exception to the exclusionary rule is likewise

inapplicable.

CONCLUSION

The Sixth Circuit Court of Appeals’ decision in this

case conflicts with decisions of other circuit courts of appeals

as set forth herein. Accordingly, this Court should grant a

writ of certiorari in this case to decide this important issue

and to bring uniformity to the lower courts.

Respectfully submitted,

Jerry W. Laughlin (TN BPR #2120)

ROGERS, LAUGHLIN, NUNNALLY,

HOOD & CRUM, P.C.

100 South Main Street

Greeneville, TN 37743

423-639-5183

Attorneys for Petitioner

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

January 31, 2001, Argued

May 11, 2001, Decided

May 11, 2001, Filed

Nos. 99-6176/99-6198

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

V.

JOHN M. LOGAN (99-6176);

ALAN MICHAEL LAWS (99-6198),

Defendants-Appellants.

i ed

JUDGES:

Before: MARTIN, Chief Judge; COLE, Circuit Judge;

NUGENT, District Judge.”

OPINION BY:

* The Honorable Donald C. Nugent, United States District

Judge for the Northern District of Ohio, sitting by designation.

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Court of Appeals Opinion - May 11, 2001

Donald C. Nugent

OPINION

NUGENT, District Judge. Appellants John M. Logan

and Alan Michael Laws were found guilty by a jury sitting in

the United States District Court for the Eastern District of

Tennessee on ninety-four counts of criminal charges, which

included making false statements, false entries, false claims,

and one count of conspiracy. Appellants filed a timely notice

of appeal to this Court, challenging their convictions and the

corresponding sentences. We exercise jurisdiction pursuant to

28 U.S.C. § 1291 to review the final judgment of the district

court and pursuant to 18 U.S.C. § 3742(a) to review the

sentence imposed. For the reasons set forth below, we hereby

AFFIRM the judgment reached and sentences imposed by the

district court.

I. BACKGROUND

Appellants in this case are the sole shareholders and

controlling officers of Logan-Laws Financial Corporation

("LLFC"), an entity which made mortgage loans co-insured

by the Federal Housing Administration of the Department of

Housing and Urban Development ("HUD/FHA"). Through

LLFC, Appellants issued securities backed by pools of

federally insured mortgages to secondary market purchasers

under the Government National Mortgage Association's

("GNMA's") mortgage-backed securities program ("MBS

program"). As an issuer of securities under the MBS

program, LLFC was required to collect monthly principal and

interest payments from property owners, which it passed

through to the security holders, less servicing fees. In the

2a

Court of Appeals Opinion - May 11, 2001

event that a property owner failed to make a monthly

payment, LLFC's role as a HUD/FHA co-insured lender

required it to pay security holders from its own funds. If

LLFC failed to make such payments, GNMA guaranteed

payment to the security holders. Thus, the United States,

through GNMA, was ultimately responsible for the timely

payment of principal and interest due on LLFC's mortgage-

backed securities.

In connection with this practice, a grand jury returned

a ninety-six count Indictment against Appellants, charging

them with conspiring to defraud and commit offenses against

the United States; making false claims to HUD/FHA; making

false entries in reports to GNMA; making false statements to

GNMaA,; and wire fraud. Prior to trial, one count of making

false claims to HUD/FHA and the wire fraud count were

dismissed. A jury convicted Appellants on each of the

remaining Counts in the Indictment. Pursuant to the United

States Sentencing Guidelines (the "Guidelines"), the district

court sentenced Appellants to serve eighty-seven months of

imprisonment, to be followed by three years of supervised

release. In addition, the district court ordered Appellants to

make restitution to HUD/FHA and GNMA in the amount of

one million dollars.

In this Court, Appellants challenge both their

convictions and sentences. More specifically, Appellants raise

the following issues: (1) whether the search warrant executed

by the government of LLFC's premises was a general warrant

in violation of the Fourth Amendment of the United States

Constitution; (2) whether there was sufficient evidence to find

Appellants guilty of false claims; (3) whether there was

sufficient evidence to find Appellants guilty of false entries or

3a

Court of Appeals Opinion - May 11, 2001

false statements; (4) whether there was sufficient evidence to

demonstrate that there was a knowing and willing agreement

between Appellants to commit a crime; (5) whether the

district court erred in admitting evidence of a settlement

agreement between HUD/FHA and LLFC; (6) whether the

district court erred in permitting the government to inquire as

to Appellants’ reported taxable income; (7) whether the

district court incorrectly calculated loss under the Guidelines;

(8) whether the district court improperly refused to depart

downward from Appellant Laws's sentencing computation

under the Guidelines; (9) whether the district court erred by

enhancing Appellants’ sentences for obstruction of justice;

(10) whether the district court incorrectly calculated Appellant

Laws's criminal history category under the Guidelines; and

(11) whether the district court improperly refused to allow

investigation of alleged jury misconduct. The Court considers

each of these issues below.

II. DISCUSSION

The issues raised on appeal in this case generally fall

into three categories. First, Appellants challenge the

sufficiency of the evidence leading to their convictions. Next,

-Appellants assert that the district court erred in making

several material evidentiary rulings. Finally, Appellants raise

various Challenges to the post-trial rulings made in the court

below. We consider these categories in turn.

A. Sufficiency of the Evidence

In considering claims for sufficiency of the evidence

to support a conviction, this Court, while reviewing the record

in the light most favorable to the prosecution, should grant

4a

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Court of Appeals Opinion - May 11, 2001

relief only if it is found that upon the record evidence adduced

at trial, no rational trier of fact could have found proof of

guilt beyond a reasonable doubt. See Jackson v. Virginia, 443

U.S. 307, 324, 61 L. Ed. 2d 560, 99 S. Ct. 2781 (1979).

1. False Claims Convictions

On appeal, Appellants argue that the evidence

presented at trial was insufficient to support their convictions

for making, or causing to be made, false HUD/FHA loan

insurance claims under 18 U.S.C. § 287. Appellants contend

that the false claims counts were based upon submission of

either a Verification of Employment form ("VOE") or a

Verification of Deposit form ("VOD"), neither of which

satisfies the materiality requirement present in the false claims

statute. Thus, Appellants argue that these forms, even if false,

did not render the claims "false" within the meaning of the

Statute because the required element of materiality remains

unsatisfied.

This Circuit first addressed the particular issue of

whether materiality is an element of a false claims offense in

United States v. Nash, 175 F.3d 429, 433-34 (6th Cir. 1999).

As in this case, the appellant in Nash argued that materiality

is an element of this offense, and that because the government

failed to prove that his statements were material, no rational

trier of fact could find him guilty beyond a reasonable doubt

of making false statements. /d. at 433.

In determining whether materiality was an element of

the false claims statute in Nash, this Court first looked to the

plain language of 18 U.S.C. § 287. That language provides:

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Court of Appeals Opinion - May 11, 2001

Whoever makes or presents to any person or officer in

the civil, military, or naval service of the United States, or to

any department or agency thereof, any claim upon or against

the United States, or any department or agency thereof,

knowing such claim to be false, fictitious, or fraudulent, shall

be imprisoned not more than five years and shall be subject to

a fine in the amount provided in this title. Jd. Based upon that

section, this Court noted that the plain language neither

mentions materiality nor in any way implies that the claim

must be material. Nash, 175 F.3d at 434. Furthermore, we

recognized that: (1) reading materiality into the statute would

make surplusage of Congress's explicit use of the term in

other statutes; (2) the legislative history of § 287 does not

indicate that Congress intended to make materiality a

necessary element of the statute; and (3) the requirement of

materiality "would set up an incongruous ‘heads I win, tails

you lose' dichotomy." /d. This being the case, we made clear

in Nash that the Sixth Circuit joined the Second, Fifth, Ninth,

and Tenth Circuits in finding that materiality is not an element

of 18 U.S.C. § 287. Jd. On this basis alone, we find

Appellants’ argument concerning insufficiency of the evidence

as to the false claims convictions to be entirely without merit.

Under the law of this Circuit, materiality is not an element of

an offense arising under 18 U.S.C. § 287.

Moreover, even if materiality were to be considered an

element of this offense, the evidence was still sufficient to

support Appellants’ convictions under 18 U.S.C. § 287. That

is, in light of the fact that the trial in the instant case took

place pre-Nash, the jury was charged that materiality was

6a

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Court of Appeals Opinion - May 11, 2001

required.’ The jury found that the false VOEs and VODs

were, in fact, material to HUD/FHA's decision concerning

whether to pay particular claims upon default. The record

reveals that claims manager James Gibson testified at trial that

the VOEs and VODs for the relevant claims were fraudulent.

More specifically, Mr. Gibson explained that he, Appellants,

or other LLFC employees forged the documents to make the

loan files acceptable to HUD/FHA for payment on the loan

insurance claims. J.A. at 1711-56. Furthermore, Allen

Stailey, a marketing and outreach specialist for HUD,

testified that because the program is primarily based on the

creditworthiness of the borrower, it is critical that-the lenders

follow procedures and that they are truthful in the verification

of employment and deposit information so that HUD/FHA can

determine whether to pay on a particular claim. J.A. at 1779.

Based upon this testimony, it was reasonable for the jury to

conclude, as it did, that the contents of the VOEs and VODs

were material to the HUD/FHA's decision as to whether to

pay particular claims.

' Specifically, the district court charged that the elements

of 78 U.S.C. § 287 are as follows:

(1) that the defendant made or presented or caused

to be made or presented to HUD a claim against

the United States; (2) that at the time of this claim,

HUD was a department or agency of the United

States; (3) that the claim presented was fictitious or

fraudulent in that the loan insurance claim

contained false documents that were material to the

claim; and (4) that the defendants knew that the

claim was false, fictitious, or fraudulent. J.A. at

2223.

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Court of Appeals Opinion - May 11, 2001

Appellants make much of the fact that neither the

applicable regulations governing approval by a lender of a

loan, nor the regulations governing the submission of a claim,

specifically require that a VOE or VOD form be used or

submitted. This technical argument amounts to nothing more

than an unsuccessful attempt to circumvent the inevitable

conclusion that Appellants submitted false documents in order

to induce HUD/FHA to pay on certain loan insurance claims,

regardless of the manner in which such information was

submitted. In viewing the record in the light most favorable to

the prosecution, the Court finds that the evidence adduced at

trial was such that a rational trier of fact could have found

proof of guilt beyond a reasonable doubt. For the above-stated

reasons, the Court finds Appellants' argument concerning

insufficiency of the evidence with respect to the false claims

convictions to be without merit.

Zz False Entries and False Statements

Convictions

Appellants next assert that there was insufficient je

evidence adduced at trial upon which a rational jury could

find them guilty of the offense of making false entries in

reports under 18 U.S.C. § 1006. Similarly, Appellants argue

that there is insufficient evidence to support a conviction for

making false, fictitious, or fraudulent statements concerning

material facts within the jurisdiction of GNMA in violation of

18 U.S.C. § 1001. The Court considers these arguments in

turn.

Section 1006, entitled "Federal Credit Institution

Entries, Reports and Transactions," provides, in pertinent

part, the following:

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Court of Appeals Opinion - May 11, 2001

Whoever, being ... connected in any capacity

with the ... Department of Housing and Urban

Development ... with intent to defraud [the]

institution ... or to deceive any officer,

auditor, examiner or agent of [the] institution,

... Makes any false entry in any book, report

or statement of or to any such institution, or

without being duly authorized, draws any

order or bill of exchange, makes any

acceptance, or issues, puts forth or assigns any

note, debenture, bond or other obligation ...

or, with intent to defraud the United States or

any agency thereof ... participates or shares in

or receives directly or indirectly any money,

profit, property, or benefits through any

transaction, loan, commission, contract, or any

other act of any such corporation, institution,

or association, shall be fined not more than $

1,000,000. or imprisoned not more than 30

years, or both.

18 U.S.C. § 1006. Thus, the offense of making false entries

under § 1006 requires that Appellants, while officers, agents,

or employees of a lending corporation, acting pursuant to

federal law and in a capacity connected with the GNMA of

the HUD, with the intent to defraud such agencies, knowingly

and willfully made or caused to be made false entries in

reports to them.

In the instant case, the government alleged at trial that

Appellants made false entries in Form 11710A reports, which

provided information on pools of loans; in Form 11710D

reports, which summarized all of the pools that LLFC issued

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Court of Appeals Opinion - May 11, 2001

during its existence; and in letters from Appellant Logan to

Guy Wilson, a Vice-President of GNMA, which repeated the

information represented in the 11710A and 11710D forms.

: J.A. at 358. Appellants do not dispute the fact that, as an

authorized Title I lender, LLFC was required to submit

monthly reports to GNMA reflecting the status of each

borrower's account on a Form 11710A and a Form 11710D.

As in the court below, however, Appellants argue that the

forms and letters were not false because the payments

reflected therein were actually made to the borrowers’

accounts, regardless of the fact that they were paid out of

LLFC's own funds. On this basis, Appellants contend that the

reports accurately reflect that a payment had been made and,

therefore, were not false.

In United States v. Walker, 871 F.2d 1298, 1308 (6th

Cir. 1989), this Circuit made clear that "[a] statement may be

false when it contains a half truth or when it conceals a

material fact." In that case, we were faced with a similar

situation, in which the appellant argued that the entries were

not false because they recorded actual transactions as they

occurred. /d. Nevertheless, the government “alleged and

proved that the entries at issue were false because they failed

to disclose that the loans were not made for the benefit of the

named borrower and that the named borrower had not made

the interest payments with his own funds." /d. On this basis,

we upheld the false entries convictions. /d.

Here, the GNMA guidelines establish that the reports

in question are required to reflect the payments that were

actually received from the borrowers. According to the

testimony presented at trial, GNMA requires lender reports to

reflect actual payments from borrowers and the loan

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Court of Appeals Opinion - May 11, 2001

delinquency information because it needs to obtain a complete

picture of how many loans were delinquent and how such

delinquency affected the lender's cash flow. J.A. at 1512A-

1512B. In this way, GNMA is able to gauge the risk that it is

undertaking with respect to each lender, and it is able to

determine whether to allow the lender to continue

participating in the program. /d. at 1512B. If the lender masks

the number of delinquent loan payments by making the

payments from its own funds, and thereby classifies such

payments as actually received, the effect would be to deprive

GNMA of the mandatory information it requires to assess

continued relations with the lender. The record reflects that

each witness who testified about the propriety of a lender

making payments to the accounts of delinquent borrowers,

with the exception of Appellants, explained that such a

practice was not permitted pursuant to the GNMA guidelines

and would have been done only to deceive GNMA about the

lender's true loan delinquency rates. J.A. at 359. Viewing the

record in the light most favorable to the prosecution, we find

that the record evidence adduced at trial could have led a

rational jury to find guilt beyond a reasonable doubt as to the

false entries convictions.

Similarly, Appellants challenge their convictions for

making false statements pursuant to 18 U.S.C. § 1001. That

statute provides in part:

whoever, in any matter within the jurisdiction

, Of the executive, legislative, or judicial branch

of the Government of the United States,

knowingly and willfully -

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Court of Appeals Opinion - May 11, 2001

(1) falsifies, conceals, or covers up by any

trick, scheme, or device a material fact;

(2) makes any materially false, fictitious, or

fraudulent statement or representation; or

(3) makes or uses any false writing or

document knowing the same to contain any

materially false, fictitious, or fraudulent

statement or entry;

shall be fined under this title or imprisoned not

more than 5 years, or both.

18 U.S.C. § 1001. In order to establish a violation of 18

U.S.C. § 1001, the government must demonstrate that: (1)

the defendant made a statement; (2) the statement is false or

fraudulent; (3) the statement is material; (4) the defendant

made the statement knowingly and wilfully; and (5) the

statement pertained to an activity within the jurisdiction of a

federal agency. See United States v. Rogers, 118 F.3d 466,

470 (6th Cir. 1997). A statement is material under § 1001 if

it has the natural tendency to influence, or is capable of

influencing, the federal agency. See United States v. Lutz, 154

F.3d 581, 588 (6th Cir. 1998).

In this case, the statements at issue relate to letters

from Appellants to Guy Wilson relating to LLFC's "DQ

ratios." The DQ ratios are “an indicator of the loan

delinquencies for a GNMA issuer's loan portfolio and were

used by GNMA to determine whether authority to issue

additional GNMA-guaranteed securities would be granted."

J.A. at 360. These DQ ratios were determined from the loan

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Court of Appeals Opinion - May 11, 2001

delinquency information contained in the Form 11710A and

the Form 11710D reports. The government contends that

because these reports contained false loan delinquency

information -- brought about by LLFC making delinquent loan

payments from its own funds -- the DQ ratios submitted to

Mr. Wilson based upon this information were also false.

At trial, Mr. Wilson testified that if LLFC's DQ ratios

Were not in proper compliance with GNMA standards, then

GNMA was going to end the commitment authority and not

issue any more pools. J.A. at 1512C. He further explained

that the result of masking the DQ ratios by making delinquent

payments from its own funds allowed LLFC to falsely

represent to GNMA that its delinquency rates were in

compliance. J.A. at 1512C. In this way, LLFC allowed its

commitment authority and the issuance of new pools to remain

unchanged. We find that this testimony provides an adequate

basis upon which the jury could find that the false

representations were material and that GNMA relied on the

Statements in extending additional loan commitments to

LLFC. Accordingly, viewing the record in the light most

favorable to the prosecution, the evidence presented at trial

could have led a rational jury to find Appellants guilty beyond

a reasonable doubt as to the false entries convictions.

a Conspiracy Convictions

Appellants further argue that there was insufficient

evidence to establish the conspiracy convictions. More

specifically, Appellants assert that the government failed to

demonstrate that there was a knowing and willing agreement

between them to commit a crime because there was

insufficient evidence to support the underlying substantive

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Court of Appeals Opinion - May 11, 2001

claims. As discussed previously, the government produced

sufficient evidence upon which a rationai jury could find

Appellants guilty beyond a reasonable doubt of making false

entries, false claims, and false statements. The evidence

produced by the government established that Appellants

knowingly and voluntarily entered into an agreement to

commit the underlying substantive offenses, and that they

committed an overt act for the purpose of advancing or

helping the conspiracy. On this basis, the jury possessed a

rational basis upon which it concluded that Appellants were

guilty beyond a reasonable doubt of the crime of conspiracy.

B. Propriety of the Evidentiary Rulings

Appellants also raise several challenges to specific

evidentiary rulings made by the district court. As an initial

matter, Appellants argue that the district court erred in

denying their motions to suppress evidence due to the alleged

insufficiency of the search warrant that led to the discovery of

such evidence. Furthermore, Appellants contend that the trial

court improperly admitted into evidence a 1991 review by

HUD's monitoring division, the resulting action by HUD's

mortgagee review board, LLFC's July 1991 response to the

mortgagee review board, and the settlement agreement and

letter of reprimand disposing of the administrative action. In

addition, Appellants state that the district court erred in

permitting the government to inquire as to their amount of

income gained from LLFC and related corporations. We now

consider each of these arguments in turn.

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Court of Appeals Opinion - May 11, 2001

1. Sufficiency of the Warrant

On July 21, 1996, Special Agent Derek B. Johnson of

the Federal Bureau of Investigation prepared an application

and affidavit for a search warrant of LLFC's premises.

Special Agent Johnson sought the warrant after obtaining

information indicating that LLFC regularly falsified loan

documents filed with HUD/FHA and fraudulently manipulated

its records to give the appearance that it was in compliance

with GNMA requirements. Upon review of the affidavit and

application, United States District Judge Thomas G. Hull

issued a search warrant. The warrant authorized the following

items to be seized:

1) Information and/or data stored in the form

_ of magnetic or electronic coding on computer

media or in media capable of being read by a

computer or with the aid of computer related

equipment. This media includes but is not

limited to floppy diskettes, fixed hard disks,

removable hard disk cartridges, tapes, laser

disks, video cassettes, and any other media

which is capable of storing magnetic coding.

2) Electronic devices which are capable of

analyzing, creating, displaying, converting, or

transmitting electronic or magnetic computer

impulses or data. These devices include but are

not limited to computers, computer

components, computer peripherals, word

processing equipment, modems, monitors,

printers, plotters, encryption circuit boards,

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Court of Appeals Opinion - May 11, 2001

optical scanners, external hard drives and other

computer related electronic devices.

3) Instructions or programs in the form of

electronic or magnetic media which are

capable of being interpreted by a computer or

related components. The items to be seized

could include but would not be limited to

operating systems, application software, utility

programs, compilers, interpreters, and any

other programs peripherals either directly or

indirectly via telephone lines, radio, or other

means of transmission.

4) Printed material which provide [sic]

instructions or examples concerning the

operation of a computer system, computer

software, and/or any related device.

5) Telephone long distance call records and

records of wire and electronic interstate

communications.

6) Records, files, documents, notes,

correspondence, microfiche, or computerized

entries concerning the Department of Housing

and Urban Development (HUD), Government

National Mortgage Association (GNMA),

Federal Housing Administration (FHA),

manufactured home dealers, borrowers both

past and present, payment history and current

loan status of borrowers, loan files and

accounts of borrowers, loan applications, and

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Court of Appeals Opinion - May 11, 2001

copies of submissions to FHA, GNMA,

HUD, FHA insurance claims and claims

records.

7) Accounts receivable and records thereof.

8) Retained copies of documents relating to

banking transactions, including but not limited

to:

(1) retained copies of signature cards;

(2) bank statements;

(3) canceled checks;

(4) deposit tickets;

(5) retained copies of items deposited;

(6) retained copies of credit and debit

memos.

9) Bank correspondence files.

10) Documents in books of original

entry containing entries reflecting any

and all transactions, including but not

limited to General ledgers, General

journals, Subsidiary ledgers, including

but not limited to loan loss account

ledgers, trial balances, Summary

journals including but not limited to

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Court of Appeals Opinion - May 11, 2001

cash receipts and cash disbursements,

Daily posting records and slips, check

request forms, “special handling

accounts" and "special handling

account” reports.

11) Internal documents or instructions

to employees, representatives or agents

concerning GNMA, FHA, borrowers

or manufactured homes _ dealers,

personal and informal files, notes,

diaries, telephone call logs and

telephone records, calendars and

working papers of employees and

officers of Logan-Laws, Articles of

incorporation, or Partnerships.

12) All of the above listed documents

may be found in written or electronic

form.

J.A. at 171-176. Thus, the warrant authorized agents of the

government to search for and seize any records, files, and

documents relating to the mobile home loans made by LLFC

co-insured by HUD/FHA and upon which LLFC issued

mortgage-backed securities pursuant to GNMA. The

government agents executed the search warrant on July 26,

1996.

Prior to trial, Appellants filed motions to suppress the

documents and items seized during the search of LLFC. In the

motions, Appellants argued that the search warrant was

"general" and that it “effectively authorized the seizure of

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Court of Appeals Opinion - May 11, 2001

almost every single piece of paper or piece of information in

the Logan-Laws corporate building." J.A. at 110. The district

court referred the matter to Magistrate Judge Dennis H.

Inman for report and recommendation. On February 14,

1997, Magistrate Judge Inman held an evidentiary hearing on,

inter alia, the motions to suppress. Thereafter, the Magistrate

Judge issued a report and recommendation concluding that the

"warrant was, in light of the nature of the activity under

investigation, and the manner of storing the information, as

particular as it could be." J.A. at 112. Furthermore, the

Magistrate Judge stated: ‘

This warrant was broad, to be sure, but it was

not ‘general.’ The warrant was rather specific

about what could be searched and seized.

Although the description encompassed virtually

all of the business records of the corporation,

that does not mean that the warrant lacked

particularity; it simply means that it was

extremely broad. The issue, therefore, is

‘whether there was probable cause to support

a search of this breadth, not whether the

warrant was general. '

J.A. at 112 (internal citation and quotations omitted). Finding

that all records of the corporation relating to its HUD/FHA

and GNMA activities were potentially probative of criminal

conduct, Magistrate Judge Inman recommended that the

district court deny the motions to suppress on the ground that

there was probable cause to support a search of this breadth.

Appellants filed timely objections to the report and

recommendation. The district court denied these objections

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Court of Appeals Opinion - May 11, 2001

and, consequently, adopted the report and recommendation in

its entirety. In a memorandum opinion, the district court

found that the search warrant, though broad, attempted to

uncover specific evidence of convoluted fraudulent activity,

buried amidst mounds of paperwork and computer

documentation. J.A. at 182. In addition, the district court

stated the following:

Because of the complex nature of the criminal

scheme in the present case, the warrant could

not have been more specific as to the identity

of the documents to be seized. Even with the

aid of the confidential informants who

provided the information upon which the

affidavit in support of the warrant was based,

the officers could not have known precisely

where and in what form documentation of this

scheme existed. For example, according to the

statements of one informant, the checks used to

make payments to delinquent borrowers'

accounts were returned to Logan-Laws and

stored ‘with other records ... in the second

floor storage area,’ which also housed all of

the ‘records dating to the beginning of the

Logan-Laws Corporation.' These records also

included, amidst mountains of paperwork,

evidence, in unknown forms, of fraudulent

loan payments and filings with FHA and

GNMaA. Hence, naming the general class of

items, such as all documents relating to the

HUD, FHA, and GNMA transactions and loan

payments, was as specific as possible, and thus

reasonable under the circumstances.

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Court of Appeals Opinion - May 11, 2001

J.A. at 184 (internal citation omitted). Thus, the district court

held that the warrant sufficiently stated the items to be seized,

even though it effectively encompassed the bulk of the

company's records. J.A. at 184.

Appellants contend that the district court should have

declared the search warrant invalid because the description of

tie property did not meet the constitutional standards of

particularity. They argue that the warrant was general in

nature and, therefore, allowed for a general rummaging

search. Furthermore, Appellants contend that the law

enforcement officials seeking the warrant had specific

information with which they could have limited the search to

a significant degree but which they chose not to include in the

warrant. Based upon these alleged deficiencies, Appellants

State that the district court erred in denying their motions to

suppress.

We review a district court's factual findings regarding

motions to suppress for clear error and its legal conclusions de

novo. See United States v. Blair, 214 F.3d 690, 696 (6th Cir.

2000). In doing so, we extend great deference to a previous

finding of probable cause for the issuance of the search

warrant. See id. Thus, it is this Court's task to determine

whether, in light of the totality of the circumstances, the judge

issuing the warrant had a substantial basis for concluding that

a search of the specified premises would uncover evidence of

wrongdoing. See id.

The Fourth Amendment to the United States

Constitution requires a warrant to "particularly describe the

place to be searched, and the persons or things to be seized."

U.S. Const. amend. IV. The purpose of this particularity

2la

Court of Appeals Opinion - May 11, 2001

requirement is to prevent the use of general warrants

authorizing wide-ranging rummaging searches in violation of

the Constitution's proscription against unreasonable searches

and seizures. See Andresen v. Maryland, 427 U.S. 463, 480,

49 L. Ed. 2d 627, 96 S. Ct. 2737 (1976); United States v.

Schultz, 14 F.3d 1093, 1098 (6th Cir. 1994); see also United

States v. Blakeney, 942 F.2d 1001, 1026 (6th Cir. 1991)

(recognizing that the warrant must enable a searcher to

reasonably ascertain and identify the things which are

authorized to be seized). This Court has recognized that the

issue of whether a warrant is general, or lacks the requisite

particularity, is best resolved upon examination of the

circumstances of the particular case. See White Fabricating

Co. v. United States, 903 F.2d 404, 411 (6th Cir. 1990); see

also Blair, 214 F.3d at 697 (stating that "the degree of

specificity in a warrant must be flexible, depending upon the

type of items to be seized and the crime involved"); United

States v. Henson, 848 F.2d 1374, 1383 (6th Cir. 1988)

(finding that the particularity required depends on the items

sought and the specific circumstances in the case). A

description contained in a warrant is sufficiently particular if

it is as specific as the circumstances and the nature of the

alleged crime permit. Blair, 214 F.3d at 697. In addition,

once a category of documents has been adequately described

in the warrant, in part by an illustrative list of items to be

seized, the Fourth Amendment is not violated when officers

executing the warrant exercise minimal judgment as to

whether a particular document falls within the described

category. See id.

In this case, we find that the lower court correctly

deterrnined that the search warrant satisfies the particularity

requirement. The search warrant at issue authorizes the

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Court of Appeals Opinion - May 11, 2001

seizure of items specifically related to false or fraudulent

activity taking place within the context of the HUD/FHA co-

insured loans and the GNMA mortgage-backed securities. In

particular, items such as records, files, documents, notes,

correspondence, microfiche, or computerized entries

concerning HUD/FHA, GNMA, manufactured home dealers,

borrowers both past and present, payment history and current

loan status of borrowers, loan applications, and copies of

submissions to FHA, GNMA, and HUD, FHA insurance

claims, and other claims records could logically lead to

evidence that Appellants were involved in the suspected illegal

activity. Appellants' argument concerning the particularity

requirement is based upon their position that investigating

officers dug too deeply into the overall business of LLFC,

instead of focusing on one portion of the operation that was

alleged to have involved illegal practices. Appellants miss the

point.

From the face of the search warrant and accompanying

affidavit, it is clear that the warrant's general nature was due

to the investigators’ belief that granting HUD/FHA co-insured

loans and GNMA mortgage-backed securities constituted

LLFC's entire operation. That being the case, law

enforcement officials were necessarily involved in an

examination of an extensive paper trail in order to discover

which transactions may have been illegal in nature. Keeping

in mind that the particularity requirement is determined

relative to the specific circumstances in each case, we find

that the items sought in light of the illegal activity alleged

were appropriate. The warrant specified that the items sought

were those related to HUD/FHA lending and GNMA

securities and, as such, did not violate the particularity

requirement of the Fourth Amendment.

23a

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Court of Appeals Opinion - May 11, 2001

Furthermore, even if we were to find that the warrant

lacked sufficient particularity under the Fourth Amendment,

the district court would still have been correct in denying the

motions to suppress under the good faith exception to the

exclusionary rule outlined in United States v. Leon, 468 U.S.

897, 918-21, 82 L. Ed. 2d 677, 104 S. Ct. 3405 (1984). See

Schultz, 14 F.3d at 1098. The good faith exception to the

exclusionary rule states that the fruits of a constitutionally

infirm search need not necessarily be suppressed unless: (1)

the warrant contained a knowing or reckless falsehood; (2) the

issuing judge acted as a mere "rubber stamp" for the police;

or (3) the warrant and the affidavit, even after extending

appropriate deference to the issuing judge's determination, did

not establish probable cause or possessed a_ technical

deficiency such that the executing officers cannot reasonably

assume the warrant to be valid. Leon, 468 U.S. at 922-23.

In the instant matter, there exists no evidence that

Special Agent Johnson gave a knowingly false affidavit or

otherwise acted in bad faith upon seeking the search warrant.

The warrant was issued by a proper authority, namely United

States District Judge Thomas G. Hull. Furthermore, the

record is devoid of any evidence that Judge Hull abandoned

his neutral role when he issued the warrant. Finally, we |

cannot say that this warrant was "so lacking in indicia of i.

probable cause as to render official belief in its existence |

entirely unreasonable." Schultz, 14 F.3d at 1098. This being | 3

the case, the officers' good faith reliance on the warrant in F-

executing the search was, indeed, reasonable. Therefore,

under either scenario, the evidence obtained from the search

warrant at issue properly survived Appellants’ motions to

suppress.

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Court of Appeals Opinion - May 11, 2001

ie Admission of the Settlement Agreement

Over Appellants’ objections at trial, the district court

admitted into evidence: (1) a 1991 review by HUD's

monitoring division; (2) the resulting action by HUD's

mortgagee review board; (3) LLFC's July 1991 response to

the mortgagee review board; and (4) the settlement agreement

and letter of reprimand disposing of the administrative action.

Appellants contend that the district court erred in admitting

this evidence. In particular, Appellants argue that the

admission of the settlement agreement was in violation of

Federal Rules of Evidence ( "Rules") 408, 404(b) and 403.

The government asserts that the evidence was relevant,

material, and admissible to demonstrate that Appellants were

on notice of improprieties in their loan origination process and

to explain one reason why Appellants were falsifying loan

insurance claims.

We review the district court's admission of testimony

or other evidence at trial for an abuse of discretion. See

United States y. Talley, 164 F.3d 989, 998 (6th Cir. 1999).

An abuse of discretion exists only if this Court is firmly

convinced that the district court has made a mistake. See

United States v. Wiedyk, 71 F.3d 602, 608 (6th Cir. 1996).

This Court first considers Appellants' argument that the

evidence in question was admitted in violation of Rule 408.

Rule 408 provides:

Rule 408. Compromise and Offers to

Compromise Evidence of (1) furnishing or

offering or promising to furnish, or (2)

accepting or offering or promising to accept, a

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Court of Appeals Opinion - May 11, 2001

valuable consideration in compromising or

attempting to compromise a claim which was

disputed as to either validity or amount, is not

admissible to prove liability for or invalidity of

the claim or its amount. Evidence of conduct

"or statements made in compromise negotiations

is likewise not admissible. This rule does not

require the exclusion of any evidence

otherwise discoverable merely because it is

presented in the course of compromise

negotiations. This rule also does not require

exclusion when the evidence is offered for

another purpose, such as proving bias or

prejudice of a witness, negativing a contention

of undue delay, or proving an effort to obstruct

a criminal investigation or prosecution.

Fed. R. Evid. 408. The issue of whether Rule 408 serves to

prohibit admission of administrative or civil settlement

negotiations in a criminal context is one of first impression in

this Circuit.

In ruling on motions for judgment of acquittal or, in

the alternative, for a new trial, the district court held, without

citation, that "Rule 408, which excludes evidence of

compromise and settlements in a civil context, does not

foreclose the use of this type of evidence in a criminal case."

J.A. at 363. Several circuits, including the Second and

Seventh Circuits, have confronted the question of whether

Rule 408 applies to evidence of a settlement agreement sought

to be admitted in a criminal matter. In each instance, the court

held that Rule 408 is inapplicable to criminal cases.

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Court of Appeals Opinion - May 11, 2001

The Second Circuit reached the conclusion that Rule

408 does not apply to criminal cases by looking to the plain

language of the Rule. See United States v. Baker, 926 F.2d

179, 180 (2d Cir. 1991) (finding it "fairly evident that the

Rule applies only to civil litigation"). In reviewing the plain

language, the court held that words such as "validity" and

"claim" establish that the drafters of the Rule intended for it

to apply solely in a civil context. See id. Furthermore, the

Second Circuit has held that the primary policy consideration

that underlies the purpose of Rule 408, which is to encourage

the settlement of civil cases, does_not apply to criminal

prosecutions. See Manko v. United States, 87 F.3d 50, 54 (2d

Cir. 1996); United States v. Gonzalez, 748 F.2d 74, 78 (2d

Cir. 1984); see also United States v. Peed, 714 F.2d 7, 10

(4th Cir. 1983) (holding that Rule 408 was inapplicable in the

context of a criminal case because the negotiations at issue

"were not negotiations aimed at settling a civil claim,

negotiations that the policy behind Rule 408 seeks to

encourage").

Similarly, the Seventh Circuit held that the plain

language of Rule 408 reflects that it applies only to civil

cases, "specifically the language concerning validity and

amount of a claim." United States v. Prewitt, 34 F.3d 436,

439 (7th Cir. 1994). In addition, the court recognized that

nothing in Rule 408 particularly circumscribes the use of

evidence of settlement negotiations with a private party in the

context of a criminal case. See id. Finding that the public

interest in the prosecution of crime is greater than the public

interest in the settlement of civil disputes, the court made

clear that the law in the Seventh Circuit provides that Rule

408 should not be applied to criminal cases. See id.

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Court of Appeals Opinion - May 11, 2001

We find that the cases that exist in the Second and

Seventh Circuits are correct in concluding that the plain

language of Rule 408 makes it inapplicable in the criminal

context. Although this conclusion arguably may have a

chilling effect on administrative or civil settlement

negotiations in cases where parallel civil and criminal

proceedings are possible, we find that this risk is heavily

- outweighed by the public interest in prosecuting criminal

matters. Based upon the foregoing, we conclude, as have the

Second and Seventh Circuits, that Rule 408 does not serve to

prohibit the use of evidence from settlement negotiations in a

criminal case.

_ Next, we turn to Appellants’ argument that the 1991

review by HUD's monitoring division, the resulting action by

HUD's mortgagee review board, LLFC's July 1991 response

to the mortgagee review board, and the settlement agreement

and letter of reprimand disposing of the administrative action

were inadmissible pursuant to Rule 404(b). That Rule

provides, in pertinent part:

Rule 404. Character Evidence Not Admissible

to Prove Conduct; Exceptions; Other Crimes

(b) Other crimes, wrongs, or acts. Evidence of

other crimes, wrongs, or acts is not admissible

to prove the character of a person in order to

show action in conformity therewith. It may,

however, be admissible for other purposes,

such as proof of motive, opportunity, intent,

preparation, plan, knowledge, identity, or

absence of mistake or accident, provided that

upon request by the accused, the prosecution in

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Court of Appeals Opinion - May 11, 2001

a criminal case shall provide reasonable notice

in advance of trial, or during trial if the court

excuses pretrial notice on good cause shown,

of the general nature of any such evidence it

intends to introduce at trial.

Fed. R. Evid. 404(b). On appeal, Appellee contends that these

documents were properly admitted to prove knowledge and

intent to defraud.

In United States v. Gold Unlimited, Inc., 177 F.3d

472, 488 (6th Cir. 1999), this Court set out a three-part test

for the admission of evidence under Rule 404(b). In that case,

we Stated:

This court requires a district court to make

three findings before the district court admits

evidence under Federal Rule of Evidence

404(b). The district court must find that the

prior bad acts occurred (a finding reviewed for

Clear error); that the evidence helps prove a

material issue (a finding reviewed de novo);

and that the evidence passes the balancing test

of Rule 403 (a finding reviewed for abuse of

discretion).

Id. (citing United States v. Jobson, 102 F.3d 214, 220 (6th

Cir. 1996)). Appellants do not contest the first or second

elements, implicitly admitting that the bad acts transpired and

that the evidence helps to prove a material issue. Instead,

Appellants direct their argument to the third element, claiming

that the probative value of the evidence was substantially

29a

Court of Appeals Opinion - May 11, 2001

outweighed by the danger of unfair prejudice, confusion of the

issues, and misleading the jury under Rule 403.

Rule 403 states the following:

Rule 403. Exclusion of Relevant Evidence on

Grounds of Prejudice, Confusion, or Waste of

Time

Although relevant, evidence may be excluded

if its probative value is _ substantially

outweighed by the danger of unfair prejudice,

confusion of the issues, or misleading the jury,

or by considerations of undue delay, waste of

time, or needless presentation of cumulative

evidence.

Fed. R. Evid. 403. In reviewing Rule 403 challenges to the

district court's decision to admit certain evidence, we view the

evidence in the light most favorable to the prosecution. See

United States v. Sanders, 95 F.3d 449 (6th Cir. 1996). As

such, we maximize the probative value of the evidence and

minimize its potential prejudice to the defendant. See id. The

prejudice noted by the court is only the unfair prejudice

against the defendant caused by the admission of the evidence.

See id. Accordingly, "evidence that is prejudicial only in the

sense that it paints the defendant in a bad light is not unfairly

prejudicial pursuant to Rule 403." /d. at 453 (citing United

States v. Mullins, 22 F.3d 1365, 1373 (6th Cir. 1994)). Based

upon these standards, the trial court has broad discretion in

deciding whether to admit evidence pursuant to Rule 404(b).

See Talley, 164 F.3d at 999.

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Court of Appeals Opinion - May 11, 2001

In this case, the Court finds that the district court did

not abuse its discretion in admitting a 1991 review by HUD's

monitoring division, the resulting action by HUD's mortgagee

review board, LLFC's July 1991 response to the mortgagee

review board, and the settlement agreement and letter of

reprimand disposing of the administrative action. Viewing the

evidence in the light most favorable to the prosecution, the

evidence at issue was properly admitted to demonstrate

Appellants’ knowledge, motive, and intent. Although some

prejudice may have arisen due to the admission of this

evidence, the prejudice does not amount to the type of un “air

prejudice contemplated by Rule 403. Based upon the

foregoing, we find that the trial court acted within its broad

discretion in admitting the evidence pursuant to Rule 404(b)

and that Appellants’ argument in this regard is without merit.

rH Admission of Income Evidence

Similarly, Appellants contend that the district court

erred in permitting Appellee to inquire about the amount of

their income from LLFC and related corporations. The

evidence in question reflected a gross income of over $

700,000 for each Appellant. Appellants argue that the

admission of this income evidence was unfairly prejudicial,

lacked any probative value of any element of the crime

charged by the government, and was in violation of Rule 403.

In maximizing the probative value of this evidence and

minimizing its prejudicial effect, we find that the income

evidence was relevant to demonstrate that financial gain was

the motive for the crimes charged. See, e.g., Pointer v.

United States, 151 U.S. 396, 414, 38 L. Ed. 208, 14 S. Ct.

410 (1894) (proof of motive always welcome). Stated another

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Court of Appeals Opinion - May 11, 2001

way, Appellants’ substantial income was necessarily

dependent upon GNMA's continuation of LLFC's loan

commitment authority. In the event that GNMA became

aware of the actual number of LLFC's loan delinquencies, the

result would have had a profound financial effect on

Appellants, LLFC's sole shareholders, in that they would

cease to gain profits from the issuance of the mortgage-backed

securities. In this way, the income evidence had a significant

probative value because it demonstrated what Appellants stood

to lose if they properly reported the actual loan delinquencies.

For this reason, the trial court properly exercised its broad

discretion in admitting this evidence.

Cc. Post-Trial Rulings

Next, Appellants challenge various post-trial rulings

made in the court below. The first four of these challenges

relate to the district court's decisions in fashioning appropriate

sentences under the Guidelines. More specifically, Appellants

challenge the district court's determination of the amount of

loss attributable to them, its denial of a motion for downward

departure made by Appellant Laws, its application of an

obstruction of justice enhancement, and its computation of

Appellant Laws's criminal history category. The final

challenge involves the district court's ruling concerning an

investigation into alleged jury misconduct at trial. Prior to

addressing these particular issues, we briefly reiterate the

district court's general determinations at sentencing.

At the sentencing hearing, the district court allowed

testimony and other evidence concerning Appellants’

objections to the presentence investigation reports. Upon

conclusion of such evidence and argument related to the same,

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Court of Appeals Opinion - May 11, 2001

_ the district court sentenced each Appellant to a term of eighty-

seven months of imprisonment, to be followed by a three-year

term of supervised release. The court further ordered that

Appellants make restitution to the victims in this case, namely

HUD/FHA and GNMA, in the amount of one million dollars.

Appellants now appeal their sentences to this Court.

Re Amount of Loss

Appellants first contend that the district court erred in

calculating the amount of loss attributable to them at

sentencing. The district court's definition of loss is a question

of law to be reviewed de novo. See United States vy.

Kohlbach, 38 F.3d 832, 841 (6th Cir. 1994). We review the

district court's factual findings with respect to loss under the

clearly erroneous standard. See id. To the extent that one

challenges the district court's calculation of loss, therefore,

the appellant bears the heavy burden of persuading the

reviewing court that "the evaluation of the loss was not only

inaccurate, but was outside the realm of permissible

computations.” United States v. Jackson, 25 F.3d 327, 330

(6th Cir. 1994).

In this case, the district court computed the amount of

loss under § 2F1.1 of the Sentencing Guidelines. Section

2F1.1 of the Guidelines governs the calculation of loss for

offenses involving fraud or deceit. That section begins by

assigning a base offense level of six, and then increasing the

base offense level by the amount of loss. In the instant case,

the district court computed the amount of loss using three

figures. First, the district court determined the amount of loss

to HUD/FHA incurred due to the false claims convictions.

Next, the district court inquired as to the amount of loss

33a

Court of Appeals Opinion - May 11, 2001

calculated in light of the conspiracy conviction. Last, the

district court included the amount of loss incurred by GNMA.

The district court added these three figures to arrive at a total

loss of at least $ 9,271,400 for purposes of sentencing.

Section 2F1.1(b) provides that if the loss was more than $

5,000,000 but less than $ 10,000,000, then the district court

shall increase the base offense level of six by fourteen levels,

resulting in an offense level of twenty. U.S.S.G. § 2F1.1(a)

and (b)(1)(O). Accordingly, the district court increased

Appellants’ offense levels to twenty. We now consider

Appellants’ argument that the district court's computation of

loss and corresponding increase in the offense levels was in

error.

a. Amount of Loss for False Claims Convictions

In examining the amount of actual or intended loss

caused by Appellants’ false claims, the district court first

noted the presentence investigation reports' ("PSRs'")

calculation of $ 750,000 in actual or intended losses to

HUD/FHA. J.A. at 384-85. The court adopted the PSRs'

calculation in this regard, based in part on the undisputed fact

that HUD/FHA paid a total of $ 709,876.42 in actual loss on

69 of the 74 false claims. J.A. at 385. With respect to three of

the false claims upon which HUD/FHA denied payment, the

district court found that because the average claim payment

was approximately $ 10,000, those claims represented an

additional $ 40,000 in intended losses to HUD/FHA. J.A. at

385 (citing United States v. Moored, 38 F.3d 1419, 1427 (6th

Cir. 1994) ("'Loss' under § 2F1.1 is not the potential loss,

but is the actual loss to the victim, or the intended loss to the

victim, whichever is greater.")) Adding the $ 709,876.42 in

actual loss to $ 40,000 in intended loss, the district court

34a

Pa IT RIE bids wii eget eatin cea epee

‘Court of Appeals Opinion - May 11, 2001

arrived at $ 749,876.42 as the total amount of loss to

HUD/FHA. J.A. at 385. <

Appellants contest the computation of the false claims

figure by arguing, inter alia, that it fails to include any set-

offs for amounts collected on the defaulted loans, the

inclusion of monies paid by LLFC in annualized amounts for

each loan to cover losses, or the value of the note for each

loan assigned to the government in exchange for payment of

the claim. Such an argument, however, is insufficient to

demonstrate that the evaluation of the loss fell outside the

realm of permissible computations under the Guidelines. The

commentary to § 2F1.1 provides:

For the purposes of subsection (b)(1), the loss

need not be determined with precision. The

court need only make a reasonable estimate of

the loss, given the available information. This

estimate, for example, may be based on the

approximate number of victims and an estimate

of the average loss to each victim, or on more

general factors, such as the nature and duration

of the fraud and the revenues generated by

similar operations. ...

Id. at cmt. n.9. Furthermore, the commentary addresses the

circumstances presented in fraudulent loan application cases

and contract procurement cases in note 8(b), which states:

In fraudulent loan application cases and

contract procurement cases, the loss is the

actual loss to the victim (or if the loss has not

yet come about, the expected loss). For

35a

Court of Appeals Opinion - May 11, 2001

example, if a defendant fraudulently obtains a

loan by misrepresenting the value of his assets,

the loss is the amount of the loan not repaid at

the time the offense is discovered, reduced by

the amount the lending institution has

recovered (or can expect to recover) from any

assets pledged to secure the loan. However,

where the intended loss is greater than the

actual loss, the intended loss is to be used.

Id. at cmt n.8. According to these passages, the district court

was not required to make the precise determination of loss

caused by Appellants, set-off by amounts recovered on the

defaulted loans. To the contrary, the application notes

specifically delineate that in circumstances where the intended

loss is greater than the actual ioss incurred, the district court

shall use the intended loss in calculating the proper offense

level under the Guidelines.

The relevant case law also supports the use of intended

loss under § 2F1.1, explaining that the figure is designed to

assign responsibility for the harm that was meant to take

place, regardless of whether the harm did, in fact, occur. See

Moored, 38 F.3d at 1425. That is, so long as the intended loss

is supported by a preponderance of the evidence, the district

court may use it in reaching the appropriate offense level. See

id. at 1427-28. In this instance, the district court found that

there was evidence in the record sufficient to support a finding

that Appellants caused a loss of $ 749,876.42 to HUD/FHA.

J.A. at 385. Upon a review of § 2F1.1, its accompanying

commentary, and the relevant case law as applied to the facts

in the record in this case, we find that the court below

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Court of Appeals Opinion - May 11, 2001

properly calculated the amount of loss for false claims

submitted to HUD/FHA.

b. Amount of Loss for Conspiracy Convictions

Moreover, because Appellants were found guilty of

conspiracy to submit false claims, the district court found that

§ 1B1.3 of the Guidelines required that all false claims

submitted by co-conspirators, even those claims not charged

in the Indictment, be included within the relevant conduct for

purposes of fashioning the appropriate sentence. At trial, Mr.

Gibson testified that there were 335 additional claims

submitted to HUD/FHA that contained materially false

documents, in addition to those with which Appellants were

charged. J.A. at 385, 2233-35. The amount HUD/FHA paid

on these additional false claims was $ 3,326,663.75. J.A. at

385. Based upon this testimony, the district court determined

that the total loss for all false claims was $ 4,076,540. 17.

Appellants contest the district court's findings with

respect to the loss arising out of the conspiracy convictions.

Generally, Appellants argue that the relevant conduct should

not have included these additional false claims because the

government failed to establish that these 335 loan files actually

contained any materially false documents. Accordingly,

Appellants ask this Court to reverse the district court's

finding concerning the relevant conduct for purposes of

sentencing.

Section 1B1.3(a)(1)(A) of the Guidelines explains that

fraudulent claims that are submitted and paid, but not part of

the counts of conviction, shall be included in the sentencing

calculation as relevant conduct. This provision instructs that

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Court of Appeals Opinion - May 11, 2001

the offense level be determined based upon "all acts and

Omissions committed, aided, abetted, counseled, commanded,

induced, procured, or willfully caused by the defendant; ...

that occurred during the commission of the offense of

conviction, in preparation for that offense; or in the course of

attempting to avoid detection or responsibility for that

offense." U.S.S.G. § 1B1.3(a)(1)(A). Here, Appellants were

found guilty on the charge of conspiracy to defraud the United

States. The additional false claims were identified at trial by

Mr. Gibson. The record further reflects that, upon

examination by HUD investigators, the files in question did

contain false claims. As such, these claims constitute

additional criminal wrongdoing, not specifically charged in

the Indictment, that is properly taken into consideration when

tormulating the relevant conduct for sentencing. Based upon

the information in the record, we find Appellants’ argument

concerning the relevant conduct to be without merit.

e. Amount of Loss to GNMA

Finally, the trial court considered the amount of loss

to GNMA which, without knowledge of LLFC's actual loan

delinquency rates, extended additional loan pool commitment

authority to LLFC. The district court explained that

Appellants' misrepresentations resulted in an increased

amount of loans and securities, of which 522 loans defaulted.

J.A. at 387. The record reflects that these defaulted loans

resulted in a loss of $ 5,194,860 to GNMA. J.A. at 387.

Adding the loss incurred by GNMA to the loss incurred by

HUD/FHA, the district court found that the PSRs correctly

determined the amount of loss to be at least $ 9,271,400. J.A.

at 388.

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Court of Appeals Opinion - May 11, 2001

The general rule in determining loss requires the court to

examine the causal connection between the criminal conduct

and the alleged loss, and whether it was reasonably

foreseeable to the defendants that the loss would occur. Cf.

United States v. Krenning, 93 F.3d 1257, 1269 (Sth Cir.

1996) (stating that the amount of loss must bear a reasonable

relation to the actual or intended harm of the offense). In this

: regard, the district court observed that:

portfolio due to the high number of

falsifications in the documents, which

falsifications were the direct result of

: defendants' knowing and willful actions. Loans

were therefore made to individuals who were

poor credit risks. The government has

established by a preponderance of the evidence

i that [LLFC] manipulated the delinquency rate

information in order to conceal its true

delinquency rate from GNMA authcrities. In

other words, “but for" the criminal action by_

these defendants, the additional loans would

not have been issued by [LLFC] and

underwritten by GNMA. It was foreseeable to

these defendants that a high number of loans

would default because [LLFC] had been

previously warned by GNMA that the

default/delinquency rate was not currently at

an acceptable level.

| [LLFC] had a high delinquency rate in its loan

}

| J.A. at 387-88 (footnote omitted). Upon a thorough review of

| the evidence presented at trial, in addition to the law and

argument set forth by the parties on this issue, we find that the

39a

Court of Appeals Opinion - May 11, 2001

district court properly concluded that it was reasonably

foreseeable that the loss in question would be incurred by

GNMaA as a direct result of Appellants' conduct. For this

reason, we affirm the district court's ruling that the loss

incurred by GNMA was in the amount of $ 5,194,860.

Furthermore, the district court correctly added this loss to that

incurred by HUD/FHA, finding that the total loss was at least

$ 9,271,400.

Based upon our determination that the district court

made proper findings concerning: (1) the amount of loss to

HUD/FHA incurred due to the false claims convictions; (2)

the amount of loss under the relevant conduct figure

calculated in light of the conspiracy convictions; and (3) the

amount of loss incurred by GNMA, we conclude that the

district court properly applied § 2F1.1(b), which required it

to increase Appellants' base offense level of six by fourteen

levels, resulting in a level twenty. U.S.S.G. § 2F1.1(a) and

(b)(1)(O). As such, we find Appellants’ argument concerning

the district court's computation of loss and corresponding

increase in the offense level to be without merit. The district

court's computation of loss in this case is, therefore, affirmed.

2. Downward Departure

Next, we consider Appellant Laws' argument that the

district court improperly refused to depart downward from its

sentencing computation under the Guidelines. The record

reflects that counsel for Appellant Laws filed a written motion

in the district court just one day prior to the sentencing

hearing, in which he requested a downward departure from

the Guidelines pursuant to § 5K2.0. J.A. at 391-92. While

recognizing its authority to make such a departure, the district

40a

Court of Appeals Opinion - May 11, 2001

court, nevertheless, found that the grounds set forth in the

motion and supporting memorandum did not warrant the

requested departure. J.A. at 392. On this basis, the district

court denied the motion. J.A. at 392. Appellant Laws now

objects to the district court's failure to grant him a downward

departure pursuant to § 5K2.0 of the Guidelines.

Section 5K2.0 states, in pertinent part:

the sentencing court may impose a sentence

outside the range established by the applicable

guidelines, if the court finds that there exists

an aggravating or mitigating circumstance of a

kind, or to a degree, not adequately taken into

consideration by the Sentencing Commission in

formulating the guidelines that should result in

a sentence different from that described.

U.S.S.G. § 5K2.0 (internal quotations omitted). Appellant

Laws argues that he was entitled to a departure pursuant to

this provision because there are at least two features of his

conduct that take this case outside of the heartland of

comparable fraud cases. First, Appellant Laws argues that he

lacked the intent to steal money from the United States.

Second, he argues that the VOE and VOD forms were not

even necessary, as the loan files already contained adequate

verification of employment and adequate verification of

deposit upon which HUD/FHA could and would have relied

to pay the majority of the claims. As to the latter argument,

Appellant Laws states that while he was found by a jury to

have technically violated the law, his intention was not to

defraud the government but rather to ensure prompt payment

on the claims to which it was rightfully entitled payment.

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Court of Appeals Opinion - May 11, 2001

The refusal of a district. judge to make a downward

departure is not ordinarily appealable. See United States v.

Byrd, 53 F.3d 144, 145 (6th Cir. 1995). In United States v.

Davis, 919 F.2d 1181, 1187 (6th Cir. 1990), we held:

Where, as here, the guideline range was

properly computed, the district court was not

unaware of its discretion to depart from the

guideline range, and the sentence was not

imposed in violation of law or as a result of an

incorrect application of the guidelines, the

failure to depart is not cognizable on appeal

under 18 U.S.C. § 3742(a).

In the instant case, Appellant Laws does not make any effort

to avoid this rule, which prevents him from making the

argument concerning the downward departure in this Court.

Furthermore, the district judge went beyond this Circuit's

requirements in ruling on the motion, by stating affirmatively

that he was aware that he possessed the power to make a

downward departure but declined to do so. Cf. Byrd, 53 F.3d

at 145 (explaining that the trial judge does not have a duty to

state affirmatively that he knows that he possesses the power

to make a downward departure, but declines to do so). For

these reasons, we affirm the district court's ruling.

a Obstruction of Justice Enhancement

We now turn to Appellants’ argument that the district

court erred when it enhanced their sentences for obstruction

of justice. Section 3C1.1 of the Guidelines states that:

42a

Court of Appeals Opinion - May 11, 2001

If ... the defendant willfully obstructed or

impeded, or attempted to obstruct or impede,

the administration of justice during the course

of the investigation, prosecution, or sentencing

of the instant offense, ... increase the offense

level by 2 levels.

U.S.S.G. § 3C1.1. One type of obstructive conduct

specifically mentioned in the Guidelines is perjury. See id. at

cmt. n.4(b). We employ a clearly erroneous standard in

reviewing a district court's factual determination that a

defendant's conduct warrants an obstruction of justice

enhancement. See United States v. Walker, 119 F.3d 403, 405

(6th Cir. 1997).

In the instant case, the court below determined that

Appellants falsely testified under oath about a material matter

when they denied any knowledge concerning the admission of

false and fraudulent claims. J.A. at 389. In particular, in a

memorandum and order issued on October 7, 1999, nunc pro

func August 6, 1999, the district court pointed to the

following testimony made by Appellant Logan:

Q. ... Mr. Logan, at any time, at any time, did

you ever direct any employee of [LLFC] to

make any false entries in any claims?

A. No, sir, never.

* KX

Q. What about Mr. Jim Gibson? What

knowledge did you have before your business

43a

Court of Appeals Opinion - May 11, 2001

was closed that he was submitting any false

insurance claims to HUD or FHA?

A. I had no knowledge of him doing that.

J.A. at 389 (citing Doc. 360, attachment, pp. 27-28). The

district then turned to the following testimony made by

Appellant Laws:

Q. ... Did you or not ever [sic] knowingly or

willfully make or cause anyone else to make

any false claims to HUD?

A. No, I didn't.

* KK

Q. Did she [Iva Jean Lewis] ever indicate to

you that she was forging any documents?

A. No, she didn't not -

Q. Did she ever indicate to you she needed to

forge any documents to get the claims filed?

A. No, she did not.

*

Q. Did you ever tell anybody to falsify any

documents?

Court of Appeals Opinion - May 11, 2001

A. I never told Jim Gibson or Iva Lewis or

anybody else in our office to falsify any

documents whatsoever.

J.A. at 389-90. Contrary to this testimony made by

Appellants, however, the district court noted that, at trial,

witnesses Gibson and Lewis swore under oath that Appellants

Logan and Laws directed them to falsify documents for the

submission of loan insurance claims. J.A. at 390.

In addition, the district court stated the following with

respect to the evidence in the form of testimony made by

various LLFC employees:

Ms. Lewis pointed to specific entries in her

contemporaneous notes in which she detailed

Mr. Laws' directions to [falsify documents]. —

Likewise, Jacquelyn Matheson testified that

she was directed by Mr. Laws to complete

missing forms for use in FHA claims.

Similarly, Leisa Tadlock Campbell testified -

that she and other employees were personally

directed by ... defendants [Logan and Laws] to

falsify documents for use in FHA loan

insurance claims. Finally, Sarah Mays, a co-

defendant, testified that it was common

knowledge throughout [LLFC] that Mr.

Gibson was using false documents in FHA

claims and that she too had been asked to

create false documents.

J.A. at 390-91. Considering the record as a whole, the district

court found that, based upon its own assessment of the

45a

Court of Appeals Opinion - May 11, 2001

evidence presented at trial, Appellants committed perjury by

giving untruthful testimony on material matters designed to

substantially affect the outcome of the case. J.A. at 391.

Thus, the district court applied the two-level enhancement to

Appellants’ Guideline calculation. J.A. at 391. In doing so,

the district court was careful to note that it made the finding

of obstruction of justice independent of the jury's verdict of

guilty. /d. Therefore, the district court made its own

independent determination that Appellants engaged in

obstructive conduct which warranted an application of the

enhancement.

Appellants’ main argument on appeal is that the district

court's memorandum and order making the findings required

by § 3C1.1 is without effect because it was issued after

Appellants filed a timely notice of appeal and was not timely

served on Appellants’ counsel. Even assuming that

Appellants’ position properly reflects the relevant procedural

history, we find any error by the district court committed in

this regard to be harmless in nature. The information upon

which the district court ultimately based its decision to apply

the two-level enhancement is clearly set forth in the PSRs,

which state:

The [defendants rely] on U.S. v. Spears, 49

F.3d 1136 (6th Cir. 1995), in stating that the

adjustment for obstruction of justice is

inappropriate when the defendant testifies and

the court relies on the jury's verdict of guilt in

applying the enhancement. This is true to the

extent that the court cannot rely simply on the

verdict of guilt to support the enhancement.

The court must make findings of specific

46a

Court of Appeals Opinion - May 11, 2001

instances of the defendant's testimony, which

was directly contradicted by the testimony of

other witnesses. The United States has a

transcript of various witnesses at the trial,

listing specific examples for the court of direct

contradictions to the [defendants'] perjured

testimony. This transcript will be provided at

the sentencing hearing for the court's use in

determining specific examples of perjured

testimony. Once this testimony is identified,

the enhancement meets the standard set forth in

Spears.

In the presentence report, the [defendants']

perjured testimony has been used as the basis

of the obstruction of justice enhancement.

While the probation officer feels that this alone

is sufficient to warrant the two-level increase,

it should also be noted that the [defendants] ...

transferred over 1.5 million dollars in assets

from [LLFC] to John H. Laws, defendant Alan

Michael Laws' father, and Elizabeth Logan,

wife of co-defendant John Logan. These

transactions occurred after the FBI search and

seizure of records from [LLFC], and the

defendants were aware they were under

investigation for the instant offense. Details of

these transactions are outlined in the financial

section of the presentence report. The transfer

of these assets represents an obstruction of

justice, in that it impedes the administration in

the collection of restitution. The enhancement

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Court of Appeals Opinion - May 11, 2001

for the transfer of assets is supported by U.S.

v. Black, 78 F.3d 1 (1st Cir. 1996).

J.A. at 2319, 2381. Appellants' argument on appeal is

tantamount to an assertion of lack of notice with respect to the

district court's findings in support of the obstruction of justice

enhancement. We find this argument to be without merit for

several reasons.

At sentencing, the district court adopted the factual

findings as suggested by the probation officer in the PSRs and

thereby made Appellants aware of the basis for its application

of the two-level enhancement, overruling Appellants’

objections on the record to the same. Furthermore, the record

at the time of sentencing was replete with examples of the

obstructive conduct, including a detailed explanation of the

perjury and the transfer of assets outlined in a brief submitted

by the government. J.A. at 2405-13. At the time of

sentencing, the district court had before it the information in

the PSRs, the government's brief, and its own observations of

the trial made independent of the jury's verdict of guilty.

Based upon this record, the district court found that the

enhancement was proper. Moreover, the district court issued

the above outlined memorandum and order specifically

addressing the findings that gave rise to its application of the

enhancement. Although the memorandum and order would

have been more properly issued prior to Appellants’ filing the

notice of appeal, Appellants were adequately aware of the

particular basis upon which the trial judge made his decision.

Here, the Court is not faced with a situation in which

the trial court altered the sentence or otherwise materially

changed the record after the notice of appeal had been filed.

48a

Court of Appeals Opinion - May 11, 2001

Rather, in this case, the district judge merely supplemented

the existing record with findings that were consistent with his

previous rulings. The district court did not alter the

punishment to the benefit or detriment of Appellants, nor did

it alter any aspect of the case involved in the appeal. The

memorandum and order served only to expand more fully

upon the findings that had already been made in open court.

Even if we were to find that the filing of the notice of appeal

divested the district court of jurisdiction to issue the

supplemental statement of reasons, being fully informed of

the allegations leading to the court's determination that they

obstructed justice, any error on the part of the district court in

this regard was harmless and, thus, does not warrant reversal.

4 Criminal History Computation

We now consider the argument that the district court

incorrectly calculated Appellant Laws's criminal history

category under the Guidelines. More specifically, Appellant

Laws states that the district court incorrectly assessed one

criminal history point for a driving-under-the-influence

("DUI") conviction that took place on April 7, 1987.

Appellant Laws argues that because he was not represented by

counsel on this misdemeanor charge, and the conviction

resulted in a sentence of imprisonment, it should not have

been included in his criminal history computation.

In support of this position, Appellant Laws relies

principally upon Nichols v. United States, 511 U.S. 738, 128

L. Ed. 2d 745, 114 S. Ct. 192] (1994). He argues that

Nichols indicates that a sentencing court may consider a

defendant's previous uncounseled misdemeanor conviction for

DUI only if the previous uncounseled misdemeanor did not

49a

Court of Appeals Opinion - May 11, 2001

result in a sentence of imprisonment. Because a sentence of

imprisonment was imposed with respect to his 1987

conviction, Appellant Laws asserts that this offense should not

be included in calculating his criminal history category. We

find Laws's use of Nichols here to be misplaced.

The Nichols case established the rule that uncounseled

misdemeanor convictions are properly included when

determining a defendant's criminal history category only if the

convictions did not result in sentences of imprisonment. /d.-

at 746-47. Despite Appellant Laws's arguments to the

contrary, however, the rule in Mchols is inapplicable to the

instant case. The record reflects that Appellant Laws

knowingly and intelligently waived his right to counsel in

connection with the 1987 DUI conviction and, thus, it did not

constitute an "“uncounseled" misdemeanor conviction as

addressed in Nichols. Furthermore, the fact that Appellant

Laws was sentenced to a term of imprisonment in connection

with this conviction alone does not preclude the district court

from including the offense in the criminal history

computation. The knowing and intelligent waiver of the Sixth

Amendment privilege reflects that the district court properly

assessed one criminal history point for the 1987 DUI

conviction pursuant to § 4A1.1.(c) of the Guidelines. For

these reasons, we find that the district court did not err in

computing Appellant Laws's criminal history category.

Fe Investigation of Alleged Jury Misconduct

Finally, Appellants contend that the district court erred

in denying a motion filed by Appellant Laws for permission

to communicate with jurors. In the motion, Appellant Laws

stated that "after the jurors in this case were released from

50a

Court of Appeals Opinion - May 11, 2001

further jury service, counsel for Mr. Laws ... had a

communication with a juror in this case, but did not feel that

further communication should be had without permission of

the Court." J.A. at 367. Out of a purported abundance of

caution, therefore, Appellant Laws requested permission to

interrogate the jurors. J.A. at 367.

In considering the motion filed by Appellant Laws, the

district court first recognized the existence of Local Rule 48.1

for the Eastern District of Tennessee, which governs post-

verdict communications with jurors. J.A. at 367. It provides

that:

No attorney, party, or representative of either

may interrogate a juror after a verdict has been

returned or the trial has been otherwise

concluded, without prior permission of the

court. :

J.A. at 367 (quoting L.R. 48.1 (E.D.Tenn.)). The district

court also acknowledged that Rule 606(b) further

circumscribes the practice of post-verdict inquiries, by stating

that jurors may testify only as to whether extraneous

prejudicial information was improperly brought to their

attention or whether any outside influence was improperly

brought to bear upon any juror. J.A. at 370. In light of these

standards, and in addition to the relevant case law, the district

court made the following determination:

In the instant case, [Appellant] Laws did not

allege any juror misconduct during the trial,

and does not allege any now. The defendant's

motion and supporting brief provide no

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Court of Appeals Opinion - May 11, 2001

grounds upon which post-verdict interrogation

should be granted, except to note that only by

communicating with the jurors’ could

defendant's counsel discover if there had been

any external influences on jurors. The same is

true of every case, however, and granting

defendant's motion on these grounds alone

would potentially open up any jury verdict to

impeachment.

J.A. at 370-71. Finding that a grant of the motion

would give rise to an improper fishing expedition through

which Appellant sought to undermine the integrity of the jury

verdict, the district court denied the request for permission to

interrogate the jurors. J.A. at 371.

In response to the district court's ruling, Appellant

Laws filed a motion to alter or amend the court's order

denying permission to interview the jurors. J.A. at 372. In

this second motion, counsel for Appellant Laws explained that

during his communication with a juror, he learned that the

jury routinely discussed evidence among themselves during

the course of the entire trial, thereby effectively deliberating

prior to the close of the evidence and prior to being advised

of the appropriate jury instructions. J.A. at 373. Based upon

this allegation of jury misconduct, Appellant Laws argued that

he should be permitted to investigate the situation, which may

have given rise to a violation of his Sixth and Fifth

Amendment rights to a fair trial and an impartial jury under

the Constitution. J.A. at 373. Furthermore, counsel for

Appellant Laws, Robert W. Ritchie, attached his sworn

affidavit in support of the motion.

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Court of Appeals Opinion - May 11, 2001

Thereafter, Appellant Logan filed a "motion to adopt

defendant Law's [sic] pending motion to alter or amend [the]

July 14, 1999 order denying permission to interview jurors."

On July 19, 1999, the district judge denied Appellants’ motion

to alter or amend its prior ruling in a marginal entry order.

Appellants now raise this issue concerning the alleged jury

misconduct before this Court.

It is a well-established principle of law that trial Judges

are afforded considerable discretion in determining the

amount of inquiry necessary, if any, in response to allegations

of jury misconduct. See United States v. Griffith, 17 F.3d

865, 880 (6th Cir. 1994); United States v. Franks, 511 F.2d

25 (6th Cir. 1975). We have thus recognized that because "the

trial judge is in the best Position to determine the nature and

extent of the alleged jury misconduct, his decision on the

scope of the proceedings necessary to discover misconduct is

reviewed only for an abuse of discretion." See Griffith, 17

F.3d at 880 (quoting United States y. Shackelford, 777 F.2d

1141, 1145 (6th 1985)). In cases involving a post-verdict

investigation into alleged jury misconduct, the relevant federal

law concerning the impeachment of jury verdicts is codified

in Rule 606(b).

Rule 606(b) provides:

Upon an inquiry into the validity of a verdict

or indictment, a juror may not testify as to any

matter or statement occurring during the

course of the jury's deliberations or to the

effect of anything upon that or any other

juror's mind or emotions as influencing the

juror to assent to or dissent from the verdict or

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Court of Appeals Opinion - May 11, 2001

indictment or concerning the juror's mental

processes in connection therewith, except that

a juror may testify on the question whether

extraneous prejudicial information was

improperly brought to the jury's attention or

whether any outside influence was improperly

brought to bear upon any juror. Nor may a

juror's affidavit or evidence of any statement

by the juror concerning a matter about which

the juror would be precluded from testifying be —_-

received for these purposes.

Fed. R. Evid. 606(b). Accordingly, the Rule is designed to

prohibit testimony on matters that take place during

deliberations, the effect of anything on the juror's minds or

emotions, and the mental process of any juror. As provided

in the language of the Rule, exceptions are made only with

respect to extraneous prejudicial information improperly

brought to the jury's attention and evidence concerning an

outside influence brought to bear upon any juror.

In Tanner v. United States, 483 U.S. 107, 116-34, 97

L. Ed. 2d 90, 107 S. Ct. 2739 (1987), the Supreme Court

provided a detailed examination of Rule 606(b) in upholding

the lower court's exclusion of evidence offered by two jurors

regarding the other jurors' alleged use of drugs and alcohol

during the course of the trial. In reaching the conclusion that

the influence at issue was internal in nature, rather than

external in nature, and consequently not properly a subject for

questioning of the jurors pursuant to Rule 606(b), the

Supreme Court explained that public policy considerations

have long emphasized the necessity of shielding jury

deliberations from public scrutiny. /d. at 119. In this regard,

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Court of Appeals Opinion - May 11, 2001

the Supreme Court referred to the 1915 decision of McDonald

v. Pless, 238 U.S. 264, 267-68, 59 L. Ed. 1300, 35 S. Ct.

783, which stated:

Let it once be established that verdicts

solemnly made and publicly returned into court

can be attacked and set aside on the testimony

of those who took part in their publication and

all verdicts could be, and many would be,

followed by an inquiry in the hope of

discovering something which might invalidate

the finding. Jurors would be harassed and

beset by the defeated party in an effort to

_ Secure from them evidence of facts which

might establish misconduct sufficient to set

aside a verdict. If evidence thus secured could

be thus used, the result would be to make what

was intended to be a private deliberation, the

constant subject of public investigation - to the

destruction of all frankness and freedom of

discussion and conference.

483 U.S. at 119-20 (citing Mattox v. United States, 146 U.S.

140, 36 L. Ed. 917, 13 S. Ct. 50 (1892)). Thus, the Supreme

Court recognized the various public policy considerations that

weigh in favor of protecting a jury's deliberations from

intrusive inquiry as to internal influences. 483 U.S. at 127.

Based upon the foregoing, it is clear that the very

purpose behind Rule 606(b) is to preserve one of the most

basic and critical precepts of the American justice system: the

integrity of the jury. See id. Rule 606(b) allows for a system

in which jurors may engage in deliberations with the utmost

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Court of Appeals Opinion - May 11, 2001

candor, performing in an uninhibited way the fact-finding

duties with which they are charged. See id. In this manner,

the Rule-provides jurors with an inherent right to be free from

interrogation concerning internal influences on the decision-

making process. See id. Such internal influences have been

held to include pressure of one juror on another, see Smith v.

Brewer, 444 F. Supp. 482 (S.D. lowa 1978); juror

misunderstanding of court instructions, see United States v.

D'Angelo, 598 F.2d 1002 (Sth Cir. 1979); a verdict achieved

through compromise, see United States v. Campbell, 221 U.S.

App. D.C. 367, 684 F.2d 141 (D.C. Cir. 1982); juror

misgivings about the verdict, see United States v. Barber, 668

F.2d 778 (4th Cir. 1982); and juror agreement on a time limit

for a decision, United States v. Badolato, 710 F.2d 1509 (11th

Cir. 1983). Accordingly, Rule 606(b) prevents the

unwarranted badgering of jurors that would invariably arise

in its absence in an alleged attempt to search for the "truth" as

to the manner in which each and every jury reaches a verdict.

See Tanner, 483 U.S. at 119-27.

Moreover, Rule 606(b) does not exist in a vacuum.

See id. at 127. To the contrary, the Rule exists as just one

portion of the overall justice system, which is likewise

designed to protect the constitutional rights of the defendant,

including the defendant's Sixth and Fifth Amendment rights

to a fair trial and an impartial jury under the Constitution. See

id. In this regard, the Supreme Court has stated, for example:

Petitioners' Sixth Amendment interests in an

unimpaired jury ... are protected by several

aspects of the trial process. The suitability of

an individual for the responsibility of jury

service, of course, is examined during voir

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Court of Appeals Opinion - May 11, 2001

dire. Moreover, during the trial the jury is

observable by the court, by counsel, and by

court personnel. Moreover, jurors are

observable by each other, and may report

inappropriate juror behavior to the court

before they render a verdict. Finally, after the

trial a party may seek to impeach the verdict

by nonjuror evidence of misconduct.

/d. (emphasis in original) (internal citations omitted). Thus,

there exist various sources of protection built into the legal

system which protect the defendant's constitutional rights

throughout the trial process. See id. Hence, the entire process,

including Rule 606(b), is designed to balance the integrity of

the jury system against the rights of the defendant. See id.

Against this backdrop, a court facing post-verdict

allegations of jury misconduct shall rely on the essence of

Rule 606(b), which provides that if the case involves an

extraneous or external influence on the jury, then a post-

verdict interrogation of jurors is permitted in order to

adequately protect the defendant's constitutional! rights. See

id. Conversely, if the case involves an internal influence, the

Rule does not permit the post-verdict interrogation of jurors.

In the latter instance, the preservation of the integrity of the

jury system outweighs any potential violation of the

defendant's constitutional rights. See id. In this way, the

internal influence versus external influence distinction in the

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Court of Appeals Opinion - May 11, 2001

Rule is designed to balance the preservation of the integrity of

the jury system and the rights of the defendant.” See id.

In the instant case, the alleged jury misconduct

consisted of potentially premature deliberations that occurred

during the course of the trial. The district court correctly

determined that this alleged misconduct constituted a potential

internal influence on the jury. Because Rule 606(b) prohibits

post-verdict interrogation of jurors as to internal influences,

the district court did not err in denying Appellants’ motion

for permission to interview the jurors. Accordingly, we shall

not reverse the lower court on this basis.

Iii. CONCLUSION

For the reasons stated herein, we AFFIRM the

judgment reached and the sentences imposed in the court

below. More specifically, we hold that the district court did

not err in finding that the search warrant executed by the

government of LLFC's premises was not a general warrant in

violation of the Fourth Amendment. In addition, the district

court properly held that there was sufficient evidence to find

Appellants guilty of making false claims, false entries or false

statements, and conspiracy. Furthermore, the district court did

not err in admitting evidence of a settlement agreement

between HUD/FHA and LLFC and evidence of Appellants’

> But see Doan v. Brigano, 237 F.3d 722, 722 (6th Cir.

200]). In that case, a panel of this Court framed the issue in terms

of whether an application of Rule 606(b) violated the defendant's

constitutional rights, as opposed to relying on the internal versus

external influence distinction built into the Rule to preserve the

integrity of the jury as well as the rights of the defendant.

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Court of Appeals Opinion - May 11, 2001

reported taxable income. As to sentencing, we find that the

district court did not err in calculating loss, in refusing to

depart downward from Appellant Laws's sentencing

computation, in enhancing Appellants' sentences for

obstruction of justice, and in calculating Appellant Laws's

criminal history category. Finally, we hold that the district

court did not err in refusing to allow counsel for Appellants

to conduct a post-verdict interrogation of jurors concerning

alleged jury misconduct that took place during the trial.

59a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF

TENNESSEE AT KNOXVILLE

[Filed June 30, 1997]

No. 2:96-Cr-17

United States of America

Plaintiff,

v.

John M. Logan,

Alan Michael Laws,

Ramon Sanchez-Vinas,

Sarah M. Mays,

Robert L. Logan, and

Tracy W. Fleenor,

Defendants.

Nem me me eee eee ee ee ee”

MEMORANDUM OPINION

This matter is presently before the court on

defendants’ timely objections [Doc. No. 171] and [Doc. No.

District Court Memorandum Opinion - 6/30/97

172}? to the Report and Recommendation ("R&R") [Doc. No.

170] filed by the Honorable Dennis H. Inman, United States

Magistrate Judge, on March 14, 1997. In that R&R, Judge

Inman recommended the denial of the motion to suppress

made by defendants John Logan [Doc. No. 112], Tracy

Fleenor [Doc. No. 140], Robert Logan [Doc. No. 109], and

Alan Laws [Doc. No. 106] regarding all evidence seized as a

result of the search of Logan-Laws Financial Corporation's

premises located in Johnson City, Tennessee, on July 26,

1996. As required by statute, see 28 U.S.C. § 636(b)(1), the

court has now made a de novo determination of those portions

of the R&R to which the defendants have objected. For the

reasons that follow, the R&R. will be accepted in whole and

defendants’ motion to suppress will be DENIED.

* Defendant Robert L. Logan failed to object to the Report

and Recommendation of Judge Inman, and therefore waived any

such objections pursuant to 28 U.S.C. § 636(b)(I )(B) and (C). See

United States v. Walters, 638 F.2d 947-950 (6 "Cir. 1981); Thomas

v. Arn, 474 U.S. 140 (1985).

Defendant Tracy W. Fleenor purports to join in the

objections of defendants John M. Logan and Alan Michael Laws

[Doc. No. 173 ]. However, Judge Inman concluded in his R & R

that only defendants Logan and Laws had standing to contest the

legitimacy of the search, and that defendant Fleenor had no standing

to object to any seizure of evidence excepting that of her own

personal office in the corporation’s building. Consequently, as

neither Logan nor Laws objected to the issue of standing, Fleenor

also waived any objections she may have had to the R & R, except

those concerning any items seized from her personal office. 28

U.S.C. §636(b)(I (13) and (C) ,"See Walters , 638 F.2d at 947-50:

Thomas, 474 U.S. at 140.

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District Court Memorandum Opinion - 6/30/97

I. FACTS

On July 21, 1996, United States District Judge

Thomas G. Hull issued a search warrant for the premises of

Logan-Laws Financial Corporation ("Logan-Laws"). Logan-

Laws is a Tennessee corporation located in Johnson City,

Tennessee. The warrant authorized agents of the government

to search for and seize any records, files, and documents

relating to mobile home loans made by the corporation, which

were issued by the Federal Housing Administration ("FHA")

and the Government National Mortgage Association

("GNMA"“). The warrant also included documents stored or

maintained by means of computer.

The affidavit filed in support of the application for the

warrant recited that (1) Logan-Laws was a mobile home

financing company in Johnson City; (2) its entire business

consisted of making loans to mobile home buyers, which were

insured against losses (to Logan-Laws) under Title I of the

FHA; (3) these insured loans were sold by the corporation

through the mortgage backed securities program of GNMA;

(4) Logan-Laws continued to service these loans after their

sale; (5) GNMA requires a lender such as Logan-Laws to

maintain a specific ratio of current loans to delinquent loans,

reserving the right to cancel the lender's authorization to

underwrite loans in the program if a lender exceeds the

allowable percentage; (6) Logan-Laws regularly falsified loan

documents filed with the FHA in support of the corporation's

claims on defaulted loans; (7) Logan-Laws fraudulently

manipulated its records by posting payments to delinquent

accounts, in order to create the impression that its current-to-

delinquent loan ratio was within the parameters required by

GNMaA: (8) communication of these fraudulent transactions

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District Court Memorandum Opinion - 6/30/97

occurred via interstate phone lines and United States Mail:

and (8) records of these transactions could be found in the

offices of named employees, in computer files, and among

other records in a storage area.

The warrant issued by the district judge authorized the

officers to search Logan-Laws’ premises for the following

evidence: information stored in electronic or magnetic form

(i.e., Computer stored); the computer hardware itself: any

computer programs or operating systems; any printed

instructions for operating the computer systems and its

software; long distance telephone records and records of wire

and electronic interstate communication; any records, files,

documents or computerized entries regarding the Department

of Housing and Urban Development ("HUD"), GN MA, FHA,

manufactured home dealers, past and present borrowers of the

corporation, loan histories, loan files and accounts of

borrowers, loan applications, and copies of loan insurance

claims submitted to FHA, GNMA, and HUD: accounts

receivable and records thereof; various banking records

(signature cards, statements, deposit tickets, etc.); bank

correspondence file; and various account books including

those concerning “special handling accounts” (those involving

payments made to borrowers’ accounts by Logan-Laws in

order to manipulate the current-to-delinquent loan ratio). The

warrant further indicated that all of the documents “may be

found in written or electronic form.”

The warrant was executed on July 26, 1996, at Logan-

Laws’ offices in Johnson City. According to the government’s

response to the motion to suppress, the documents seized were

individual loan files; “special handling” reports and

documents that were used to track payments paid to accounts

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District Court Memorandum Opinion - 6/30/97

of delinquent borrowers; binders which contained records of

false claims made to the FHA; bank records and other

documents showing that payments were made to the accounts

of borrowers; correspondence to FHA and GNMaA that

contained false representations; internal memoranda

concerning discussions of these “special handling accounts” ;

and an optical disk (i.e., a computer disk) that contained a

backup of the corporation's file server.

Subsequently, the defendants filed a motion to

suppress the evidence seized in the search. Defendants claim

that the warrant was so broad as to constitute a “general”

warrant, which gave the executing officers unlimited

discretion to search and seize anything on the premises in an

effort to ferret out evidence of some crime. Alternatively,

defendants argue that the descriptions of the items to be seized

were so overly broad as to encompass virtually all of the

corporation’s business records, thereby commanding the

executing officers to seize all such documents, including those

not arguably connected to any alleged crime. Defendants also

claim that the warrant was so “facially deficient” that the

executing officers could not have presumed it to be valid.

Further, the defendants assert that, notwithstanding the

objections to the warrant itself, the optical disk, containing a

backup of the corporation’s entire computer system, was

»eyond the scope of the warrant and should therefore be

suppressed.*

*As neither the government nor the defendants objected to

the Judge Inman’s conclusions of standing, this court will not

address that issue.

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District Court Memorandum Opinion - 6/30/97

II. PROBABLE CAUSE

The Fourth Amendment to the United States

Constitution decrees that “no Warrants shall issue, but upon

probable cause, supported by Oath or affirmation, and

particularly describing the place to be searched, and the

persons or things to be seized.” A warrant lacking in

particularity as to the areas to be searched and the items to be

seized “create[s] a danger of unlimited discretion in the

executing officer’s determination of what is subject to seizure

and a danger that items will be seized when the warrant refers

to other items.” United States v. Savoca, 761 F.2d 292, 298-

99 (6th Cir. 1985). Thus, if a warrant authorizes a “general,

exploratory rummaging in a person’s belongings,” it is

unconstitutional. Coolidge v. New Hampshire 403 U.S.

443,467, 91S. Ct. 2022, 2038, 29 L.Ed.2d (1971).

The degree of particularity as to items to be seized,

however, varies with the crime involved and the types of

items sought. United States v. Henson, 848 F.2d 1374, 1383

(6th Cir. 1988). See also United Stales v. Blakeny, 942 F.2d

1001, 1026-27 (6 Cir. 1991). “Thus a description is valid if

it is as specific as the circumstances and the nature of the

activity under investigation permit.” Henson, 848 F.2d at

1383 (quoting United Slates v. Blum, 753 F.2d 999, 1001

(11th Cir. 1985)).

In Henson, the Sixth Circuit upheld the validity of a

search warrant calling for the seizure of a multitude of

documentation, including records, computers, and electronic

media, in a case involving conspiracy to commit mail fraud

through the fabrication of mileage statements on used

vehicles. In upholding the warrant, the court reasoned that the

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District Court Memorandum Opinion - 6/30/97

officer “could not have known at the time he applied for the

warrant what precise records or files would contain

information concerning the [criminal] scheme.” Henson,

848F.2d at 1383. Further, the court held that “[b]ecause the

warrant.., was ‘inclusive,’ it did not leave room for the

officers to exercise unlimited discretion,” and the evidence

seized pursuant to the warrant should be admitted, as there

was probable cause to support a search of such breadth, /d.

See also United States v. Savoca, 761 F.2d 292, 299 (6" Cir.

1985) (where the discretion is not in the hands of the

executing officer “the actual issue is whether there was

probable cause to support a search of this breadth, not

whether the warrant was general”), cited with approval in

Henson, 848 F.2d at 1383.

The case at hand is markedly similar to Henson in that

both involved broad search warrants that attempted to uncover

specific evidence of convoluted fraudulent activity, buried

amidst mounds of paperwork and computer documentation.

Here, the warrant signed by the district judge, authorized,

inter alia, the seizure of:

[rjecords, files, documents, notes,

correspondence, microfiche, or computerized

entries concerning [HUD], [GNMA], [FHA],

manufactured home dealers, borrowers both

past and present, payment history and current

loan status of borrowers, loan files and

accounts of borrowers, loan applications, and

copies of submissions to FHA, GNMA, FHA

insurance claims and claims records.

District Court Memorandum Opinion - 6/30/97

See Warrant { 6. Further, the warrant provided that “[a]ll of

the above-listed documents may be found in written or

electronic form." Jd. { 12. Thus, as practically all of Logan-

Laws’ business dealt with Title I mobile home financing under

FHA and GNMA, this warrant, similar to the warrant in

Henson, effectively encompasses the bulk of the

documentation stored by the company in its files as well as its

computers.

However, as set forth in Savoca and reiterated by

Henson, where the discretion of what shall be seized is taken

from the hands of the officer executing the warrant due to the

particularity of the items listed, the question turns to whether

there was probable cause to support such a broad warrant,

regardless of the inclusiveness of the items listed ,Savoca, 761

F.2d at 299; Henson, 848 F.2d at 1383. This, precisely, is the

Situation at hand, as the warrant, though vastly inclusive,

specifically stated the items to be seized.

Turning to the issue of whether there was probable

cause to support this warrant, the Supreme Court noted in

Andersen v. Maryland, 427 U.S. 463, 481 n.10 (1976) that

“[t]he complexity of an illegal scheme may not be used as a

shield to avoid detection when the State has demonstrated

probable cause to believe that a crime has been committed and

probable cause to believe that evidence of this crime is in the

Suspect’s possession.” /d. Thus, we return to the question of

whether the warrant was as “specific as the nature of the

activity under investigation permitted. “Henson, 848 F.2d at

1383 (quoting United States v. Shoffner, 826 F.2d 619 (7th

Cir.), cert. denied sub nom. Strange v. United States, __

U.S.___, 108 S. Ct. 356 (1987)).

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District Court Memorandum Opinion - 6/30/97

As the Sixth Circuit stated in Henson, “[w]here the

precise identity of goods cannot be ascertained at the time the

warrant is issued, naming only a generic class of items will

suffice.” /d. (quoting United States v. Porter, 831 F.2d 760

(8 Cir. 1987)). Because of the complex nature of the criminal

scheme in the present case, the warrant could not have been

more specific as to the identity of the documents to be seized.

Even with the aid of the confidential informants who provided

the information upon which the affidavit in support of the

warrant was based, the officers could not have known

precisely where and in what form documentation of this

scheme existed. For example, according to the statements of

one informant, the checks used to make payments to

delinquent borrowers’ accounts were returned to Logan-Laws

and stored “with other records... in the second floor storage

area,” which also housed all of the “records dating to the

beginning of the Logan-Laws Corporation.” See Affidavit in

Support of Warrant § 30. These records also included, amidst

mountains of paperwork, evidence, in unknown forms, of

fraudulent loan payments and filings with FHA and GNMA.

Hence. naming the general class of items, such as all

documents related to the HUD, FHA, and GNMA

transactions and loan payments, was as specific as possible,

and thus reasonable under the circumstances. The warrant,

therefore, sufficiently stated the items to be seized, even

though it effectively encompassed the bulk of the company's

records.

Defendants argue that the officers could have made the

warrant more specific by including a restrictive date as to the

time period during which the alleged wrongdoings occurred.

Defendants further contend that the absence of such a date

created a warrant that was not wholly supported by probable

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District Court Memorandum Opinion - 6/30/97

cause and was facially deficient. As a result, defendants urge

that evidence seized by the warrant should be excluded. In

support of this contention, defendants adamantly rely on the

Ninth Circuit case of United States v. Kow, 58 F3d 423 (9th

Cir. 1995), in which the facts are very similar to the case at.

hand. In Kow, a warrant was executed to seize evidence

related to a conspiracy to defraud the IRS. As in this case, the

warrant in Kow was specific as to the documents to be seized

but encompassed virtually all of the company’s records. In

addition, the warrant in Kow notably lacked a restrictive date.

In finding the warrant invalid, the Ninth Circuit pointed to

the fact that the warrant “sought to describe every document

on the premises and direct that everything be seized.” Also,

the Court pointed out that the warrant in Kow, unlike the

warrant in this case, was not aimed-at the specific conduct in

question. /d. at 427. The lack of a restrictive date, therefore,

was but one contributing factor in the Ninth Circuit’s

decision.

In the present case, the warrant was not aimed at

seizing all of the records in the Logan-Laws office but was

particularly directed at FHA, GNMA. and HUD related

documents. While this description included practically all of

Logan-Laws’ records, it was necessitated by the nature of

Logan-Laws’ business.

Moreover, in Kow, the affidavit stated in detail the

locations and descriptions of the documents sought to be

seized, leaving no reason for this information to be excluded

from the warrant. /d. By contrast, in this case, the locations

of the documents were only generally averred in most

instances, see Affidavit in Support of Warrant 44 28-30, and

could not have been more specifically stated in the warrant.

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District Court Memorandum Opinion - 6/30/97

Defendants nonetheless argue that the government

knew, through the affidavit, of account numbers and names

of accounts involved in the fraudulent activity. See Affidavit

in Support of Warrant § 24 (informant provided affiant with

computer printout of certain account records labeled as

“special handling accounts”). However, there is no reason to

believe that this information was inclusive of the evidence

located at Logan-Laws. In fact, the information provided in

the affidavit and upon which defendants rely in making this

argument actually buttresses the level of probable cause,

since it is evidence of Logan-Laws’ propensity to commit

fraud.

This Court is perplexed by the defendants’ consistent

dependence on Ninth Circuit decisions and disregard for the

Sixth Circuit precedent set forth in Henson. Nevertheless,

again relying on Kow and another Ninth Circuit case,

defendants contend that the government can only support a

request for a warrant lacking in particularity by asserting in

the affidavit that the place to be searched was “permeated

with fraud.” See Kow, 58 F.3d at 428; Center Art Galleries

v. United States, 875 F.2d 747, 750-51 (9" Cir. 1989): This

argument must fail for two reasons.

First, while the notion of “permeated with fraud” may

have been accepted by the Ninth Circuit, Followed by the

First Circuit in United States v. Brien, 617 F.2d 299, 308-309

n. 11 (1st Cir.), cert. denied, 446 U.S. 919, 100 S. Ct. 1854,

64 L. Ed. 273 (1980), amd the Second Circuit in National City

Trading Corp. v. United States, 635 F.2d 1020, 1026 (2d Cir.

1980), it has never been accepted, or even cited, by the Sixth

Circuit. Furthermore, the Sixth Circuit had ample opportunity

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District Court Memorandum Opinion - 6/30/97

to consider this doctrine in Henson, but instead adopted the

test of whether the warrant was as “specific as the nature of

the activity under investigation permitted.” Henson 848 F.2d

at 1383 (citations omitted).

Second, even if the doctrine of “permeated with fraud”

were adopted by this district, the circumstances of this case

would fulfill the requirements, with the exception of

“permeated with fraud” being specifically averred in the

affidavit for the warrant. Defendants again cite the Ninth

Circuit in its attempt to apply the test of “permeated with

fraud” to the case at hand. In Center Art Galleries v. United

States, 875 F.2d 747 (9th Cir. 1989), the Ninth Circuit found

that an art gallery accused of forging Salvador Dali artwork

was not so “permeated with fraud” as to warrant a seizure of

“five truckloads of documents, artwork and other property.”

Id. at 749. However, the court, in making this decision,

pointed out that the forgeries were limited to the works of

Dali, and only twenty percent of the gallery’s business

involved Dali. The present case is clearly distinguishable, as

the fraud at Logan-Laws involved its dealings with HUD,

FHA, and GNMA, which constituted virtually all of the

company’s business. Therefore, whether it was specifically

averred in the affidavit, which is still not a requirement in this

circuit, Logan-Laws was necessarily “permeated with fraud.”

III. Good Faith

While it is clear that there was probable cause to

support such an encompassing warrant in this case, and that

the warrant here was as particular as possible under the

circumstances with respect to the type of items to be seized,

the issue of the absence ora restrictive date in the warrant still

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remains. The court must look at the purpose of the

exclusionary rule and the “good faith” test under United

States v. Leon, 468 U.S. 897 (1984), to decide if the absence

of a date necessitates the exclusion of the fruits of the warrant.

The Supreme Court in Leon noted that the Fourth

Amendment has not been interpreted to require the exclusion

of evidence obtained in violation of the amendment. /d. at

906. Further, the rule of exclusion is “a judicially created

remedy designed to safeguard Fourth Amendment rights

generally through its deterrent effect, rather than personal

constitutional right of the party aggrieved.” /d. (quoting

(United States v. Calandra, 414 U.S. 338,348 (1974)).

Nevertheless, the rule has been applied to exclude seized

evidence from use at trial, due to the invalidity of a warrant.

The application of the rule of exclusion, however, has been

limited to situations in which its purpose -- the deterrence of

police misconduct in obtaining and executing warrants -- is

further served. /d. at 918.

In Leon, the Supreme Court considerably restricted the

rule of exclusion by adopting a “good faith test” to determine

the benefit of applying the rule. The test of good faith is

applied to the officers involved and not to the judges and

magistrates who sign the warrants. The reason is primarily

that the rule is intended to deter police misconduct and not

the conduct of judges or magistrates. /d. at 916. Thus, “if the

exclusion of evidence obtained pursuant to a subsequently

invalidated warrant is to have any deterrent effect.., it must

alter the behavior of individual law enforcement officers or

the policies of their departments.” Leon at 918. The Court

concluded that suppression should be ordered on a case-by-

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case basis and “only in those unusual cases in which exclusion

will further the purposes of the exclusionary rule.” /d.

The Supreme Court further reasoned that the purpose

behind the exclusionary rule inherently assumes that the

actions of the law enforcement officer were willful, or at least

negligent, and that, where the officers have acted in good

faith and without wrongdoing, the deterrence effect is

minimized. /d. at 919 (quoting United States v. Peltier, 422

U.S. 531, 539 (1975)). Thus, where “the officer is acting as

a reasonable officer would and should act in similar

circumstances... (e]xcluding the evidence can in no Way affect

his future conduct unless it is to make him less willing to do

his duty.” /d. at 920 (quoting Stone v. Powell, 428 U.S. 465,

539-40 (1976) (White, J. dissenting)).

: The Court did not stop there in its rationale, but

concluded that, ordinarily, an officer is not expected to

second-guess the judge’s or magistrate’s finding of probable

Cause or judgment that the form of the warrant is sufficient,

provided that the officer acted in good faith in applying for

the warrant. Further, “penalizing the officer for the

magistrate’s error, rather than his own, cannot logically

contribute to the deterrence of Fourth Amendment

violations.” /d. at 921. This, however, is not to Say that there

will be free reign for invalid warrants. There are four areas to

which the Supreme Court pointed where the good faith

exception will not apply. First, suppression is appropriate if

the judge or magistrate is misled by the officers, See Franks

v. Delaware, 438 U.S. 154 (1978). Second, the exception

will not apply if the judge or magistrate abandons his or her

“detached and neutral” position. See Lo-Ji Sales, Inc. v. New

York, 422 U.S. 319 (1979). Third, evidence should be

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excluded where the warrant is based on an affidavit “so

lacking in indicia of probable cause as to render the official

belief in its existence entirely unreasonable.” Brown v.

Illinois, 422 U.S. 590, 610-11 (1975) (Poweli, J. concurring

in part). Finally, the evidence will be suppressed where a

warrant is “so facially deficient that the executing officers

cannot reasonably presume it to be valid.” Leon, 897 U.S. at

923 (citing Massachusetts v. Shepard, 468 U.S. 981 (1984)).

In none of these situations should a court consider the officers

to have acted in reasonable good faith.

Turning to the case at hand and the issue of the

absence of a restrictive date, defendants argue that the

warrant, due to its breadth, is so “facially deficient” that the

executing officer could not have reasonably relied on the

warrant in good faith. There is no reason to believe that the

district judge was misled or that he was acting outside of his

detached and neutral role, and, as previously stated, there

clearly was probable cause to support the issuance of the

warrant.

The government conceded during oral arguments that

the absence of a date was an oversight. However, there is no

reason to believe that, after having the warrant signed by a

district judge, the officer could not have reasonably relied on

the validity of the warrant merely because there was no

restrictive date. Considering the complexity of the fraudulent

scheme involved and the magnitude of the warrant at issue, a

reasonable law enforcement officer, having not misled the

judge or acted in any other form of bad faith, should not be

expected to question the legal knowledge of a federal district

court judge. As such, excluding the evidence in question

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would not serve to deter future Fourth Amendment violations,

but only to deter the officers from performing their duties.

The Supreme Court in Massachusetts v. Sheppard, 468

U.S. 981 (1984), set out an example of “good faith” behavior

on the part of a law enforcement officer. In Shepard, an

officer, because it was Sunday, had difficulty in procuring a

warrant form from his district. The officer finally found a

form used in another district and altered it to fit his occasion.

Upon delivering the warrant to a judge, the officer explained

the situation and noted that the warrant form may need

additional corrections. The judge replied that he would

correct any mistakes, but when the warrant was signed there

were still significant errors on the form. /d. at 985. The

Supreme Court ruled that the warrant was not so facially

deficient that a reasonable officer would not have relied on it,

even though the officer may have been aware of some

deficiencies in the warrant when it was presented to the judge.

Id. at 990.

In the present case, this court is hard pressed to

believe that a reasonable officer would question the authority

of a district judge based upon an oversight such as a missing

date, but not where the officer had express knowledge that a

warrant application may have contained deficiencies before it

was submitted to the judge. Therefore, defendants’ contention

that the warrant was “facially deficient” to the extent that a

reasonable officer could not rely on it must fail.

IV. The Optical Disk

Defendants argue that the seizure of the optical disk,

upon which data from Logan-Laws’ file server was stored,

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exceeded the scope of the warrant and should therefore be

suppressed. Defendant Laws attempts to analogize the instant

situation with Jn re Subpoena Duces Tecum, 846 F. Supp. 11

(S.D.N.Y. 1994), where the district court quashed a grand

jury subpoena as overbroad because it demanded computer

disks that contained irrelevant information. That case,

however, can be distinguished from the matter at hand in two

respects. First, in /n re Subpoena Duces Tecum, it appears

that the government counsel knew that the subpoena

demanded irrelevant documents. Second, “the government ...

acknowledged that a ‘key word’ search of the information

stored on the devices would reveal ‘which of the documents

are likely to be relevant to the grand jury’s investigation.’” Jd

at 13 (quoting /n re Horowitz, 482 F.2d 72,79 (2d Cir.), cert.

denied, 414 U.S. 867, 94S. Ct. 64, 38 L.Ed.2d 86 (1973)).

In the present case, there is no evidence that the

government agents involved in the search of the premises of

Logan-Laws knew that irrelevant information was being

demanded. Likewise, it does not appear that the government

could have conducted a “key word” search similar to that in

In re Subpoena Duces Tecum due to the pervasiveness of the

alleged criminal conduct. See Affidavit in Support of Warrant.

The district court’s decision in /n re Subpoena Duces Tecum

was based primarily on these two factual occurrences. Since

these circumstances are absent from the present situation, this

court finds that defendant’s reliance on that case is misplaced.

Furthermore, the warrant expressly authorizes the

seizure of information regarding the alleged criminal activity

stored in electronic or magnetic form. See Search Warrant

1. For the reasons given above, such broad language was

justified under the circumstances. The opticai disk clearly falls

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within this language and, therefore, within the scope of the

warrant.

“(T]he ultimate measure of the constitutionality of a

governmental search is ‘reasonableness.’” Veronica School

Dist. 47] v. Acton, 115 S. Ct. 2386, 132 L. Ed.2d. 564

(1995). The extensive nature of the alleged criminal activity

combined with the exclusive character of Logan-Laws

business created a unique situation that made seizing the

optical disk entirely reasonable. The government alleges that

Logan-Laws regularly falsified loan documents filed with the

FHA and fraudulently manipulated its records to comply with

the requirements of GNMA. Logan-Laws’ entire business

consisted of providing loans to mobile home buyers, which

were insured against losses under the Title insurance program

of the FHA. These factors, taken together, justifiably

implicate most of the data generated by Logan-Laws. Since

Logan-Laws utilized its networked computer system to carry

out these alleged activities, seizing the optical disk that stored

large portions of the data in question was reasonable.

Additional support for this contention can be seen in

light of the unreasonableness of the alternative -- allowing

government agents unlimited access to the Logan-Laws file

server for an indeterminate period of time. To have required

the agents to wade through the tremendous amount of data

stored in the Logan-Laws computer files would have been

impracticable. See United States v. Henson, 848 F.2d 1374

(6th Cir. 1988). Furthermore, the complete monopolization

of the file server that would surely have been required for

such a search would have caused the daily activities of Logan

Laws to grind to an immediate halt. This court does not find

either of these scenarios sensible and views the seizing of the

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optical disk as, by far, the lesser intrusion. It is, therefore, the

decision of this court that the seizure of the optical disk was

reasonable and therefore not unconstitutional.

V. Conclusion

Therefore, for the reasons stated above, the

defendants’ motion to suppress evidence will be denied.

Order Accordingly,

/s/

James H. Jarvis

UNITED STATES DISTRICT JUDGE

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