Petition for Writ of Certiorari — Laws v. United States
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Gupreme Court, U.S.
FILED
\
/ 01 497 SEP | 82001
OFFICE OF Ih,
No.
eile iaaam i cenddititiiinn
In The
Supreme Court of the United States
October Term, Year 2001
ALAN MICHAEL LAWS
Petitioner,
v.
UNITED STATES
Respondent.
On Petition for Writ of Certiorari
from the United States Court of Appeals
for the Sixth Circuit
ROBERT W. RITCHIE
RITCHIE, FELS & DILLARD, P.C.
606 West Main Street, Suite 300
Knoxville, TN 37902
(865) 637-0661
RICHARD L. GAINES
ELDRIDGE, IRVINE & GAINES
606 West Main Street, Suite 350
Knoxville, TN 37902
(865) 523-7731
COUNSEL FOR PETITIONER
IT.
QUESTIONS PRESENTED FOR REVIEW
WHETHER A SEARCH WARRANT ISSUED
ON JULY 21, 1993 OF THE LOGAN-LAWS
FINANCIAL CORPORATIONS’. JOHNSON
CITY, TENNESSEE CORPORATE PREMISES
WAS A GENERAL SEARCH WARRANT
PROHIBITED BY THE UNITED STATES
CONSTITUTION, FOURTH AMENDMENT.
WHETHER THE’ DISTRICT COURT’S
REFUSAL TO ALLOW COUNSEL FOR MR.
LAWS TO COMMUNICATE WITH JURORS
AFTER IT WAS LEARNED THAT THE JURY
ORGANIZED AND DELIBERATED PRIOR TO
RECEIVING A JURY CHARGE WAS A
VIOLATION OF THE UNITED STATES
CONSTITUTION, FIFTH AND SIXTH
AMENDMENTS.
PARTIES TO THE PROCEEDINGS
Petitioner
Alan Michael Laws, Petitioner is an individual and has
no affiliations with any publicly traded corporation.
Respondent
United States of America
Other Parties
John M. Logan. A co-defendant who is an individual
with no affiliations with any publicly traded corporation.
ee.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED ...........................
PARTIES TO THE PROCEEDING ..................... i
TABLE OF CONTENTS ....................002--.... iii
TABLE OF AUTHORITIES .......................... vi
OPINION BELOW .................. ccc cc ceeee eee.
STATEMENT OF THE BASIS OF JURISDICTION .......
CONSTITUTIONAL AND STATUTORY .
ee 2
STATEMENT OF THEFACTS ....................... 2
QUESTIONS PRESENTED FOR REVIEW ............. 12
REASON FOR GRANTING THE WRIT ................ 13
iV
l. THIS COURT SHOULD RESOLVE THE
SPLIT BETWEEN THE SIXTH AND NINTH
CIRCUITS’ INTERPRETATIONS OF THE
FORTH AMENDMENT’S REQUIREMENT
THAT SEARCH WARRANTS BE
ec. i FTP ETT TREE TOT TLE T TT Tee 13
Il. THIS COURT SHOULD ESTABLISH A RULE
CONSISTENT WITH THE CONSTITUTION
TO DETERMINE WHEN JURORS CAN BE
COMMUNICATED WITH AFTER TRIAL ....... 22
I i Be ee is ae
APPENDIX:
COURT OF APPEALS OPINION
DATED MAY 11,2001 ............ App. 2
SCARCE WARRAING 2 cscissnccscsessas App. 60
MEMORANDUM OPINION OF
U.S. DISTRICT COURT JUDGE
FILED JUNE 30, 1997. ............ App.66
MEMORANDUM AND ORDER OF
U.S. DISTRICT COURT JUDGE
PUR ee CR NAPE Secs dnevveaes App.85
Vv
MOTION TO ALTER OR AMEND ORDER
OF JULY 14, 1999 DENYING
PERMISSION TO INTERVIEW
pre ces App.88
AFFIDAVIT OF ROBERT W. RITCHIE
FILED JULY 28,1999 ............. App.93
UNITED STATES CONSTITUTION,
Amondmem TV on. cctecccscces App. 98
UNITED STATES CONSTITUTION,
er ee erry App. 99
UNITED STATES CONSTITUTION,
kk errr eC rr eT App. 100
FEDERAL RULES OF EVIDENCE,
RT GN dns buckceenssazcashs App.101
U.S. DISTRICT COURT
LACAL SIRE MKS... ips App.102
vi
TABLE OF AUTHORITIES
Page
Cases:
Andresen v. Maryland,
427 U.S. 436, 49 L.Ed.2d 627
96 S. Ct. 2737 (1976) 2... cc ccc cccccccccccceces 13
Center Art Galleries-Hawaii v. United States,
875 F.2d 747 (9 Cir. 1989) ........ 22 eee eee eeee 16
Coolidge v. New Hampshire,
403 U.S. 443, 29 L.Ed.2d 564,
OF BOe BORD ISTE) oc ccccncuvesceseseseceess 13
Dalia v. United States,
441 U.S. 238, 99 S.Ct. 1682,
GO L.Ed.2d 177 (1979) 2... ccccccccccccccccccces 13
Remmer v. United States,
947 UB. F27 CIDSD cc ccccccncsccssacecss 23,24,25
United States v. Blair,
214 F.3d 690 (6" Cir. 2000) .........-.---- 00s 15
United States v. Blum,
753 F.2d 999 (119 Cir. I9BS) .. 2... cece eee eee 15
Vii
United States v. Chavis,
Sn TE as 23
United States v. Corrado,
227 F.3d 543 (6" Cir. 2000) ......... ital aiian tts 23,25
United States v. Eldredd,
SERB Fee Gk BED 6 sk bce evecelennsnens 23
United States v. Ford,
ee eee Ge Cee 6 kc b ceubenecnseasiun 15
United States v. Henson,
SUR PAE ISPS Ge, GHD i ic ds wn sewed ccvacss 1S
United States v. Kow,
58 F.3d 423 (9" Cir.1995) ............. 16,17,18,19
United States v. Leary.
ie Ff) ge | reer rr or 14
United States v. Leon,
Ss CUED hoes wcccccsecceevacds 8,21,22
United States v. Logan,
250 F.2d 350 (6" Cir. 2001) ............... 8,15,23
United States v. Michaelian
Pe ee FO onc dec cceisscsncins 18
ee
Vill
United States v. Oloyede,
£ eh fet) ge See 18,19
United States v. Resko,
ER fc gle rae rrr 24
United States v. Savoca,
761 F.2d 292 (6" Cir. 1984)
cert. denied 474 U.S. $2 (1965S) 2... cc ccsccccces 13
United States v. Stubbs,
Boe Pe ee Ge, WUD hak dnd nescceesaceess 17
United States v. Washington,
ph fF ge S| ror rrr 16
United States v. Wiesner,
yo by ER Te ee | ee 24
White Fabricating Co. v. United States,
ee ee Ge FE ok vo scsdedodaeavcnte 15
Statutes:
EE se icnabee dv nk aca den ehe hoe eee l
EE ade e see edh exe ok ecewhedadeeewenen l
SP fee ee ee eRe ee eee bel eed |
Soke SRA et AR RS Sep ee Meee eis ely eas
iX
Constitutional and Statutory Provisions:
United States Constitution, Amendment IV .....
United States Constitution, Amendment V ......
United States Constitution, Amendment VI .....
Federal Rules of Evidence, Rule 606(b) ........
Other Authorities:
Hardwick & Ware, Juror Misconduct § 7.04
Oe ee CU ere Ak endes vata neces a's
Propriety and Effect of Juror’s Discussion of
Evidence Among Themselves Before Final
Submission of Criminal Case, 21 ALR 4"
U.S. District Court Local Rule 48.1 ...........
l
PETITION FOR WRIT OF CERTIORARI
Petitioner, Alan Michael Laws, respectfully prays that a
writ of certiorari issue to review the decision of the United
States Court of Appeals for the Sixth Circuit.
*
OPINION BELOW
The United States Court of Appeals for the Sixth Circuit
denied petitioner’s brief on May 1, 2001. [App. at 2] A petition
for rehearing en banc was also denied on June 21, 2001.
STATEMENT OF THE BASIS OF JURISDICTION
Petitioner seeks a writ of certiorari from this Court to
review the final decision by the United States Court of Appeals for
the Sixth Circuit. This case originated in a criminal prosecution
by the United States against petitioner on 95 counts of violations
of 18 U.S.C. § § 1001, 1006, 287 and 371. Petitioner was
convicted of 94 counts as charged in the indictment. A timely
appeal was filed in the United States Court of Appeals for the Sixth
Circuit.
—_.
2
On May 11, 2001, the Sixth Circuit denied relief to
Petitioner. On May 25, 2001, petitioner filed a petition for
rehearing and suggested a rehearing en banc with the Sixth
Circuit, which was denied on June 21, 2001. This petition for
writ certiorari follows.
--- +
CONSTITUTIONAL AND STATUTORY PROVISIONS
United States Constitution, Amendment IV
United States Constitution, Amendment V
United States Constitution, Amendment VI
STATEMENT OF FACTS
The two issues petitioned for review are whether a
search warrant was a general warrant and whether counsel
should have been allowed to communicate with jurors after the
trial. Each of these issues will be discussed seriatim.
I. THE SEARCH WARRANT
The petitioner, Mr. Laws, was a fifty percent of Logan-
Laws Financial Corporation (“LLFC”), and from January to July
1993 was also the President of LLFC. The LLFC was a
Tennessee corporation which made loans co-insured by the
Federal Housing Administration of the Department of Housing
3
and Urban Development (“HUD/FHA”). Prior to July 21, 1993,
‘LLFC chiefly operated at a corporate structure at 500 Princeton
Road in Johnson City, Tennessee. This structure contained the
main body of LLFC, including the work place of 125 employees.
On July 21, 1993, Special Agent Derek B. Johnson,
Federal Bureau of Investigation, prepared an application and
affidavit for a search warrant of LLFC’s premises. Upon review
of the application and affidavit, United States District Judge
Thomas G. Hull issued a search warrant. The warrant
authorized the following items to be seized from the LLFC
corporate premises as followed:
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, optical scanners,
th earn
4
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 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 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;
5
(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 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.
[Search warrant, App. at 60]
These descriptions encompassed all of the documents
and information within the LLFC building.
6
On July 23, 1993, on the authority of this warrant, the
FBI began an extensive sweeping search of the entire Logan-
Laws’ premises. FBI agents, accountants from HUD, and other
federal emp!oyees made a thorough search of the LLFC’s
premises, seizing a vast assortment of files, papers and
electronic data, including 787 megabytes of computer data
downloaded from the Logan-Laws’ networked computer files.
Prior to the trial, petitioner filed motions to suppress all
documents, items and information seized during the search of
LLFC because the warrant was a “general warrant” and
“effectively authorized a seizure of almost every single piece of
paper or piece of information in the Logan-Laws’ corporate
building.”
The district court referred this motion to Magistrate
Judge Dennis H. Inman for report and recommendation. After
an evidentiary hearing, Magistrate Judge Inman concluded that
the warrant was not general and 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 the warrant lacked
particularity; it simply means that it was
extremely broad. The issue therefore, is
‘whether there was probable cause to support a
7
search of this breadth, not whether the warrant
was general.’
Magistrate Judge Inman found that all documents seized
by the FBI were potentially probative of criminal conduct and
denied the motion to suppress evidence.
Petitioner filed timely objections to the Report and
Recommendation. The district court denied these objections and
adopted the Report and Recommendation of the Magistrate
Judge in its entirety. Although acknowledging that there were
“mountains of paper work, evidence in unknown forms,” the
district court found that the warrant describing a general class of
items relating to HUD/FHA and GNMA transactions and loan
payments was “as specific as possible, and thus reasonable
under the circumstances.” [App. at 66]
Upon conviction, Mr. Laws timely appealed all
evidentiary rulings of the district court in the United States
Court of Appeals for the Sixth Circuit. The Sixth Circuit
affirmed the district court’s ruling that the search warrant in
question was not general. The Sixth Circuit found that the
search warrant in question was not a general warrant because:
[t]he investigator’s belie[ved] that granting
HUD/FHA co-insured loans and GNMA
mortgage-backed securities constituted the
LLFC’s entire operation. That being, the case,
law enforcement officials were necessarily
8
involved in an extensive paper trail in order to
discover which transactions may have been
illegal in nature. Keeping in mind the
particularity requirement is determined relative
to this specific circumstance 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
particularly requirement of the Fourth
Amendments.”
United States v. Logan, 250 F.3d 350 (6" Cir. 2001).
Finally, the Sixth Circuit found that even if the warrant
was a general warrant, the district court was correct in denying
motions to suppress under the good faith exception to the
exclusionary rule outlined in United States v. Leon, 468 U.S.
897, 918-21 (1984). The Sixth Circuit found that law
enforcement agents could have reasonably relied on the face of
the search warrant issued by United States District Court Judge
Thomas G. Hull and, because there was no evidence of bad faith,
the execution of the warrant was reasonable.
On June 21, 2001, the Sixth Circuit denied petitioner’s
petition for rehearing en banc under the validity of the search
warrant. This petition for writ of certiorari followed.
9
II. COMMUNICATION WITH THE JURY
After conclusion of the trial and jury verdict, the district
court gave these final words to the jury and to the lawyers in the
courtroom:
The Court: We will release you to go now. You don’t have
to discuss this case with anyone unless you
wish, unless you want to; and if these lawyers
have any other cases involving your jury panel,
they know not to discuss it with you until after
your time has been released; so with that, we
give you our thanks. We let you go.
[Trial transcript, dated May 14, 1998 at 10:50 a.m.]
Counsel, believing this statement allowed permission to
talk to the jurors following the trial of this case, spoke with the
jury foreman after the trial was over. At that time, it was learned
that the jury had organized early in the course of this five week
trial; had selected a jury foreman; had discussed the proof on a
daily basis; and had discussed the guilt or innocence of the
defendants, all of which occurred prior to the jury charge by the
district court.
Following this communication, and out of an abundance
of caution, counsel for petitioner filed a motion for permission
to communicate with the jurors in light of Local Rule 48.1 for
the Eastern District of Tennessee, which provides:
vo a
10
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.
[App. at 102 ]
The district court denied this motion to communicate
with jurors, stating that “defendant Laws did not allege any juror
misconduct during the trial, and does not allege any now.”
[App. at 85, 87]
In response to the district court’s ruling, petitioner filed
a motion to alter or amend the district court’s Order denying
permission to interview the jurors. This motion included the
affidavit of counsel for petitioner, Robert W. Ritchie, which
stated that during a communication that Mr. Ritchie had with the
jury foreman, it was learned that the jury routinely discussed
evidence among themselves during the course of the entire trial,
prior to the close of evidence and prior to being advised of the
appropriate jury instructions. [App. at 88, and 93]
On July 29, 1999, the district court again denied, in a
margin notation, petitioner’s motion to alter or amend its prior
ruling and denied permission to interview any of the jurors in
this case. [App. at 91]
Upon timely appeal to the United States Court of
Appeals for the Sixth Circuit, the Sixth Circuit, relying primarily
1]
upon Federal Rules of Evidence 606(b), af’ irmed the district
court’s denial of petitioner’s motion to communicate with the
jurors. Citing the “integrity of the jury,” and the Sixth Circuit’s
belief that the petitioner was challenging the verdict in this case
due to jury misconduct, the Sixth Circuit affirmed the district
court’s denial of petitioner’s request to communicate with any
jurors in this case.
The United States Court of Appeals denied petitioner’s
petition for rehearing en banc on June 21, 2001.
12
QUESTIONS PRESENTED FOR REVIEW
WHETHER A SEARCH WARRANT ISSUED
ON JULY 23, 1993 OF THE LOGAN-LAWS
FINANCIAL CORPORATIONS’ JOHNSON
CITY, TENNESSEE CORPORATE
PREMISES WAS A GENERAL SEARCH
WARRANT PROHIBITED BY THE UNITED
STATES CONSTITUTION, FOURTH
AMENDMENT.
WHETHER THE DISTRICT COURT’S
REFUSAL TO ALLOW COUNSEL FOR MR.
LAWS TO COMMUNICATE WITH JURORS
AFTER IT WAS LEARNED THAT THE
JURY ORGANIZED AND DELIBERATED
PRIOR TO RECEIVING A JURY CHARGE
WAS A VIOLATION OF THE UNITED
STATES CONSTITUTION, FIFTH AND
SIXTH AMENDMENTS.
13
REASONS FOR GRANTING THE WRIT
I. THIS COURT SHOULD RESOLVE THE SPLIT
BETWEEN THE SIXTH AND NINTH CIRCUITS’
INTERPRETATIONS OF THE FOURTH
AMENDMENT?’S REQUIREMENT THAT
SEARCH WARRANTS BE “PARTICULARIZED.”
The search warrant used to search the premises at 500
Princeton Road, Johnson City, Tennessee [App. at 60] on July
23, 1993 was a general warrant.
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.” Dalia v. United States, 441 U.S. 238, 255, 99
S.Ct. 1682, 60 L.Ed.2d 177 (1979); Coolidge v. New Hampshire,
403 U.S. 443, 467, 29 L. Ed. 2d 564, 91 S. Ct. 2022 (1971).
General warrants are search warrants that fail to describe with
particularity the things to be searched for and seized and “create
a danger of unlimited discretion in the executing officer’s
determination of what is subject to seizure and danger of items
that will be seized when the warrant refers to other items.”
United States v. Savoca, 761 F.2d 292, 298-99 (6" Cir. 1984),
cert. denied 474 U.S. 852 (1985). See Andresen v. Maryland,
427 U.S. 463, 49 L.Ed.2d 627, 96 S.Ct. 2737 (1976). At an
“fi]rreducible minimum, a proper warrant must allow the
executing officers to distinguish between items that may and
14
may not be seized.” United States v. Leary, 846 F.2d 592, 602
(10" Cir. 1988).
The warrant at issue here covered every tangible and
intangible piece of information of document at the Logan-Laws’
premises. It authorized the seizure of almost every single piece
of information on the LLFC’s premises, including 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 or 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 from employees and
officers of LLFC, and articles of corporation with little or no
restriction, or whether it was on paper, microfiche, or any other
electronic form. [App. at 60]
This warrant did not have any limits, temporal,
descriptive, or otherwise. No time frame was given within the
warrant describing dates of alleged activity of dates that
documents seizure would be limited to. This warrant, on its
face, was a general warrant. The only limit in the warrant that
conceivably narrowed the scope of the search was the reference
to GNMA, FHA and HUD documents under numbered
paragraphs 6 and 11. [App. at 60] With no time constraint on
this warrant, and little other restrictions, the government was
15
allowed “the virtual unlimited seizure of a lifetime’s worth of
documentation, which is extremely intrusive.” United States v.
Ford, 184 F.3d 566, 575 (6" Cir. 1999).
The district court, however, found that although the
search warrant was broad, it was as narrow as the circumstances
and the nature of the alleged crimes permitted and was not a
general warrant. The district court denied Mr. Laws’ motion to
suppress evidence. [App. at 66]
The Sixth Circuit, affirming the district court, recited its
standard for evaluating the generality and breath of search
warrants, stating: “the degree of specificity required [in a search
warrant] is flexible and will vary depending upon the crime
involved and the types of items sought.” United States v. Logan,
250 F.3d 350 (6" Cir. 2001) (Citing United States v. Henson,
848 F.2d 1374, 1382 (6" Cir. 1988)). “Thus. a description is
valid if it is specific as the circumstances and the nature of the
activity under investigation permit.” Henson, 848 F.2d at 1382
(citing United States v. Blum, 753 F.2d 999, 1001,(1 cr.
1985)). “Where the precise identity of the goods cannot be
ascertained at the time of the warrant is issued, naming only the
generic class of items will suffice.” Henson, 848 F.2d at 1382
(citations omitted). See also United States v. Blair, 214 F.3d
690, 696 (6" Cir. 2000); White Fabricating Co. v. United States,
903 F.2d 404, 411 (6" Cir. 1990).
antes
5 sich wciortret
16
The Sixth Circuit rule, therefore, allows for search
warrants that are not particularized, contrary to the clear
language of the Fourth Amendment. The Sixth Circuit has
carved out a hole in the Fourth Amendment’s particularity
clause based on the purported necessity and difficulty law
enforcement has in particularizing documents relating to
criminal activity. Because of this law enforcement necessity, the
Sixth Circuit has reasoned, the government may seize complete
masses of documentation from a corporation or business and
then take the time to go through it fishing for evidence of crime.
Contrary to the Sixth Circuit’s “flexible” standard, the
United States Court of Appeals for the Ninth Circuit has applied
a stricter standard, finding the precise same type of warrants
unconstitutional. See United States v. Kow, 58 F.3d 423, 426
(9" Cir. 1995), Center Art Galleries-Hawaii v. United States,
875 F.2d 747, 750 (9" Cir. 1989). The Ninth Circuit’s rule
requires the government to make a showing before obtaining a
search warrant that the criminal activity “was inseparable from
the other business documents or that the business was permeated
with the fraud.” See Center Art Galleries, 875 F.2d at 751;
United States v. Washington, 797 F.2d 1461, 1473 (9" Cir.
1986).
Indeed, in United States v. Kow, supra, the Ninth Circuit
Court of Appeals found a strikingly similar warrant to be a
general warrant held that:
17
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 seized, the warrant
is indistinguishable from the general warrants
repeatedly held by this court to be
unconstitutional. E.g., Center Art Galleries-
Hawaii, Inc. vy. United States, 875 F.2d 747, 750
(9" Cir. 1989); United States v. Stubbs, 873 F.2d
210, 211 (9" Cir. 1989) (warrant invalid
“because of the complete lack of any standard
by which an executing officer could determine
what to seize”). (Emphasis added)
Kow, 58 F.3d at 427.
As for the government’s necessity, the Ninth Circuit
stated that:
18
To the extent that it was difficult for the
government to create a more particularized
warrant, the government may be to blame. Like
the District Court, we are troubled by the
“government’s decision to refrain from further
investigation such as the audit done in (United
States v. Michaelian, 803 F.2d 1042 (9" Cir.
1986), and yet rely on the lack of specific
information to justify the lack of particularity in
the warrant.
Kow, 58 F.3d at 427, n.2
The Ninth Circuit requires that before a warrant can
have broad descriptions of documents and lack specificity and
particularity, the government must make a showing when
obtaining a search warrant that it was unable to particularize
further. Certainly this holding is more consistent with the
strictures of the Fourth Amendment’s particularity clause then
the after-the-fact flexibility allowed the government in the Sixth
Circuit.
The Sixth and Ninth Circuits, accordingly, disagree as to
the particular standard to use in reviewing the generality and
breadth of these type of business search warrants. This split was
recognized by the United States Court of Appeals for the Fourth
Circuit in United States v. Oloyede, 982 F.2d 133, 140 (4" Cir.
1993). In Oloyede, the Fourth Circuit noted the Ninth Circuit’s
rule requiring law enforcement to describe at the time that they
19
obtained the search warrant that the business was permeated
with fraud or that the documents were inseparable from other
documents. Oloyede, 982 F.2d at 140. Although the Fourth
Circuit declined to follow the Ninth Circuit, it was clear from
Oloyede that there was a clear difference between the Fourth and
Ninth Circuits, and similarly the Sixth and Ninth Circuits.
Oloyede, 982 F.2d at 140.
Furthermore even under the Sixth Circuit standard, the
record reflects that the government did not have this necessity to
ask for such a general warrant. Much like the Ninth Circuit
case Kow, supra, the records reflects the government was able to
particularize this search warrant through the use of an
administrative audit. After the search of this case, counsel for
the petitioner deposed the HUD auditors that were present
during the execution of the search warrant on the LLFC
premises. It was learned that these same HUD auditors
originally planned on conducting an audit of the LLFC in May
or June of 1993. Instead, the FBI contacted the auditor’s
supervisor and told him to postpone the audit until July so that
the auditors could help the HUD auditors during the search.
Thus, a regulatory audit — the surest method that the FBI had to
obtain the specific and current information necessary to
specifically describe what to seize in the search warrant affidavit
_ was deliberately canceled.
Moreover, the FBI possessed HUD audit information
from prior audits as well. These audits indicated loan files
questionable to HUD with the names of borrowers and specific
sae
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20
files. The FBI also possessed computer printouts of “special
handling” accounts within LLFC, later to be the source of
multiple charges against the petitioner.
The affidavit from FBI Special Agent Derek Johnson
did little to clarify and ‘imit the search warrant itself. The
affidavit contained a wealth of stale information. At § 20, Leisa
Ann Taedlock’s information was given to Special Agent Smith
21 months before the search warrant was sought. Moreover, she
had not been employed at LLFC since 1989, 4 4 years before
the search. At 421, Cl's information as transmitted to Johnson is
10 months stale. At 923, CCW2 provided the listed information
on June 12, 1993, but the information was actually at least 11
months old. At 425, the government describes information
derived from Iva Jean Lewis, an employee fired almost four
years before the affidavit executed.
All of this reflects that the government could have
particularized this particular search warrant. Nothing in the
record reflects a sense of urgency that may have precipitated the
need for seizure of all of the corporate records. There is nothing
in the record reflecting destruction of evidence or that the
Logan-Laws Corporation even knew it was being investigated.
Certainly, the staleness of the information in the search warrant
affidavit reflects no hurry or emergency by the government. The
circumstances and nature of the crime here reflect that the
government could have particularized the search warrant further,
but declined to do so in an effort to ease their burden and seize
as much as possible from the LLFC premises.
21
Moreover, nether the affidavit or the search warrant here
implicitly or explicitly supported the finding that the LLFC was
permeated with fraud, or that the documents were inseparable
from other documents in relation to alleged criminal activity.
The Ninth Circuit would have found this warrant
unconstitutional under its rule because no proper showing was
made in obtaining this warrant. The Sixth Circuit, conversely,
allowed the government more flexibility in obtaining this
general warrant, and has found the search warrant here to be
constitutional.
The petitioner submits that this Court should review the
search warrant and affidavit of this case and determine whether
a particularity standard of the United States Constitution, Fourth
Amendment was violated by the United States in executing this
search warrant. This Court should take this opportunity to
resolve this split in interpretation of the Fourth Amendment by
the Ninth and Sixth Circuits and articulate a clear standard to
limit governmental intrusion into citizen’s businesses, consistent
with the precise language.
The decision of the Court of Appeals in this case also
cited United States v. Leon, 468 U.S. 896, 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. While the decision lists
some of the exceptions to the good faith standard, it obviously
22
does not list the exception for a warrant that is so broad as to be
invalid on its face.
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.
Leon, 46 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.
Il. THIS COURT SHOULD ESTABLISH A RULE
CONSISTENT WITH THE CONSTITUTION TO
DETERMINE WHEN JURORS CAN BE
COMMUNICATED WITH AFTER TRIAL.
The petitioner’s Fifth and Sixth Amendment rights were
violated when the district court refused to allow his counsel to
interview the jurors after the trial of this case.
23
The district court, relying on Rule 606(b), Fed. R. Evid.
and Local Rule 48.1 of the United States Court of the Eastern
District of Tennessee, denied Mr. Laws’ motion to communicate
with the jurors. [App. at 85] On appeal, the Sixth Circuit,
relying on the same rules, declined to find that the district court
abused its discretion in denying counsel communications with
the jurors after the trial was completed. The Sixth Circuit found
that the showing made by Mr. Laws that the jury had organized,
selected a foreman, and had discussed the evidence regularly
throughout the course of the trial, prior to being given a jury
charge, was an “internal” jury issue, and therefore, no jurors
could testify as to the validity of the verdict under Rule 606(b),
Fed. R. Evid. Therefore, the Sixth Circuit reasoned, there was
no reason to inquire as to potential juror misconduct. United
States v. Logan, 250 F.3d 350 (6" Cir. 2001).
It is well-settled that when there is a showing of
misconduct by the jury, the district court has a responsibility to
investigate the matter to determine what type of misconduct
could have taken place. See Remmer v. United States, 347 U.S.
227 (1954). See also United States v. Corrado, 227 F.3d 543,
552 (6" Cir. 2000); United States v. Chavis, 772 F.2d 100, 110
(5" Cir. 1985); United States v. Eldredd, 588 F.2d 746, 752 (Che
Cir. 1978).
Mr. Laws, through affidavit of counsel, made a showing
that the jurors deliberated on the verdict of his guilt or innocence
prior to being given the charge and read the law of the case. The
affidavit of trial counsel, Robert W. Ritchie, was submitted
PO ne Pe eT ee ee
24
supporting a showing of the reasons why communication was
necessary. [App. at 93] Counsel learned that the jurors routinely
discussed the evidence during the course of the entire trial and
prior to having been given a juror charge of the law.
These pre-deliberation discussions violated Mr. Laws’
right to a fair trial before an impartial jury. See, e.g., United
States v. Resko, 3 F.3d 684, 695 (3d Cir. 1993) (and reasons
cited therein); United States v. Wiesner, 789 F.2d 1264, n.3 (7th
Cir. 1986) (requiring instruction not to deliberate prior to
presentation of all of the evidence); Hardwick & Ware, Juror
Misconduct § 7.04, at 7-27 (1988); Propriety and Effect of
Juror’s Discussion of Evidence Among Themselves Before Final
Submission of Criminal Case, 21 ALR 4th (and cases cited
therein).
The constitutional violation, however, was exacerbated
by the summary denial of the petitioner’s motion, without
hearing, and the refusal to allow petitioner permission to contact
or communicate with the jurors in any way. No hearing or
findings were made by the district court at all. No investigation
was had by the district court, nor was any allowed.
The district court and the Sixth Circuit failed to follow
this Court’s ruling in Remmer v. United States, 347 U.S. 227
(1954). In Remmer, this Court required the trial court to take
action upon receipt of information that could relate to jury
misconduct in order to “determine the circumstances, the impact
thereof on the juror, and whether or not it was prejudicial in a
25
hearing with all interested parties to participate.” Remmer, 347
U.S. at 230. Remmer still defines the “nature and scope of the
investigation required when jury misconduct is credibly
alleged.” Remmer, 347 U.S. 227. See United States v. Corrado,
227 F.3d 543, 551 (6" Cir. 2000).
Counsel asks this Court to review the lower courts’
determination that prevented any communication with the jurors.
There would be no other way to determine whether any
misconduct occurred or whether the petitioner suffered any
prejudice from any misconduct. The only way to determine that
would be to allow contact with the jurors, at least by the district
court. As this Court held in Remmer, some investigation must
be had by the trial court to determine the type, nature and degree
of alleged misconduct after a showing has been made. The
affidavit of Robert W. Ritchie [App. at 93] is more than
adequate showing that some misconduct occurred on the part of
the jury.
This Court should grant certiorari on this issue to
elaborate on what requirements the trial court has to determine
the type, nature and degree of jury misconduct when a proper |
showing has been made by a defendant. To apply a prophylactic
protection of the jurors and disallow any communication by
counsel of the petitioner to communicate with the jurors
infringes upon the petitioner’s Fifth and Sixth Amendment
rights to a fair trial by an impartial jury.
|
|
CONCLUSION
For the above reasons, petitioner, Alan Michael Laws
respectfully prays that this Honorable Court grant this petition
for writ of certiorari.
Respectfully submitted,
ROBERT W. RITCHIE (TN BPR#000777)
RITCHIE, FELS & DILLARD, P.C.
606 West Main Street, Suite 300
Knoxville, TN 37902
(865) 637-0661
RICHARD L. GAINES (TN BPR # 015462)
ELDRIDGE, IRVINE & GAINES
606 West Main Street, Suite 350
Knoxville, TN 37902
(865) 523-7731
Counsel for Petitioner
App. |
No.
.
In The
Supreme Court of the United States
October Term, Year 2001
ALAN MICHAEL LAWS
Petitioner,
v.
UNITED STATES OF AMERICA,
Respondent.
¢
Petition For A Writ of Certiorari
From the United States Court of Appeals
for the Sixth Circuit
©
APPENDIX
ROBERT W. RITCHIE
RITCHIE, FELS & DILLARD, P.C.
606 West Main Street, Suite 300
Knoxville, TN 37902
(865) 637-0661
RICHARD L. GAINES
ELDRIDGE, IRVINE & GAINES
606 West Main Street, Suite 350
Knoxville, TN 37902
(865) 523-7731
Counsel for Petitioner
App. 2
United States Court of Appeals,
Sixth Circuit.
UNITED STATES of America, Plaintiff-Appellee,
v.
John M. LOGAN (99-6176); Alan Michael Laws (99-6198),
Defendants-Appellants.
Nos. 99-6176, 99-6198.
Argued Jan. 31, 2001.
Decided and Filed May 11, 2001.
Shareholders and controlling officers of lender making
government-insured mobile home loans and issuing mortgage-
backed securities were convicted in the United States District
Court for the Eastern District of Tennessee, James H. Jarvis, J., on
94 counts, which included making false statements, false entries,
false claims, and one count of conspiracy, and they appealed. The
Court of Appeals, Nugent, District Judge, sitting by designation,
held that: (1) materiality is not an element of the offense under the
false claims statute; (2) in any event, the evidence was sufficient:
(3) reporting payments to borrowers' accounts when the payments
were made out of lender's own funds supported false entry
convictions; (4) search warrant for records, files, and documents
was not a general warrant; (5) Rule of Evidence barring admission
of compromise and offers to compromise does not prohibit
admission of administrative or civil settlement negotiations in a
criminal context; (6) evidence of defendants’ income from lender
and related corporations was relevant; (7) loss computations were
App. 3
proper, (8) prior misdemeanor DUI conviction was properly
included in one defendant's criminal history; and (9) the district
court correctly denied defendants' motion for permission to
conduct a post-verdict interrogation of jurors.
Affirmed.
M. Neil Smith (argued and briefed), Asst. U.S. Atty., Greeneville,
TN, for Plaintiff-Appellee.
John T. Milburn Rogers, Jerry W. Laughlin (argued and briefed),
Rogers, Laughlin, Nunnally, Hood & Crum, Greeneville, TN, for
Defendant-Appellant in No. 99-6176.
Robert W. Ritchie (argued and briefed), W. Thomas Dillard
(briefed), Richard L. Gaines, Ritchie, Fels & Dillard, Knoxville,
TN, for Defendant- Appellant in No. 99-6198.
Before: MARTIN, Chief Judge; COLE, Circuit Judge;
NUGENT, District Judge. ji N*|
! \* The Honorable Donald C. Nugent, United States District
Judge for the Northern District of Ohio, sitting by designation.
OPINION
NUGENT, District Judge.
App. 4
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 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.
App. 5
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 GNMA; 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 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
ain h ait
as
App. 6
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; arid (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 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
App. 7
reasonable doubt. See Jackson v. Virginia, 443 U.S. 307, 324, 99
S.Ct. 2781, 61 L.Ed.2d 560 (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. Id.
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:
Whoever makes or presents to any person or
officer in the civil, military, or naval service of
}
;
App. 8
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.
Id. 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." Id. 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. Id. 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 required. it \i! The jury
found that the false VOEs and VODs were, in fact, material to
App. 9
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.
i Ni. Specifically, the district court charged that the
elements of 18 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.
App. 10
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.
2. False Entries and False Statements Convictions
Appellants next assert that there was insufficient 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:
-
App. 11
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 during its existence;
App. 12
and in letters from Appellant Logan to Guy Wilson, a Vice-
President of GNMA, which repeated the information represented
inthe 11710A and 11710D forms. J.A. at 358. Appellants do not
dispute the fact that, as an authorized Title | 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. Un 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. Id. 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." Id. On this
basis, we upheld the false entries convictions. Id.
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 delinquency information
because it needs to obtain a complete picture of how many loans
were delinquent and how such delinquency affected the lender's
App. 13
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 ts 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. [he 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 talse statements pursuant to 18 U.S.C. § 1001. That statute
provides in part:
whoever, in any matter within the jurisdiction of the
c\ecutive, legislative, or judicial branch of the
Ciovernment of the United States, knowingly and
illfully-
(|) lalsifies, conceals, or covers up by any trick,
~cheme, or device a material fact;
*) makes any materially false, fictitious, or
'raudulent statement or representation; or
App. 14
(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 fora 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 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.
Attrial, Mr. Wilson testified that if LLFC's DQ ratios were
not in proper compliance with GNMA standards, then GNMA was
App. 15
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.
3. 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 claims. As
discussed previously, the government produced sufficient evidence
upon which a rational 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
App. 16
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.
1. Sufficiency of the Warrant
On July 21, 1996, [sic] Special Agent Derek B. Johnson of
the Federal Bureau of Investigation prepared an application and
affidavit for a search warrant of ILLFC's premises. Special Agent
Johnson sought the warrant after obtaining information indicating
thai 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
App. 17
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, 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
App. 18
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 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.
App. 19
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 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 almost every
App. 20
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 and,
consequently, adopted the report and recommendation in its
App. 21
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 GNMA.
Hence, naming the general class of items, such as
all documents relating to the HUD, FHA, and
GNMaA transactions and loan payments, was as
specific as possible, and thus reasonable under the
circumstances.
App. 22
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 the
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 describ[e] the place to be
searched, and the persons or things to be seized." U.S. Const.
amend. IV. The purpose of this particularity 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.
App. 23
Maryland, 427 U.S. 463, 480, 96 S.Ct. 2737, 49 L.Ed.2d 627
(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
determined that the search warrant satisfies the particularity
requirement. The search warrant at issue authorizes the 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
App. 24
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.
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
App. 25
outlined in United States v. Leon, 468 U.S. 897, 918-21, 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, 104 S.Ct. 3405.
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 probable cause as to render official belief in its
existence entirely unreasonable." Schultz, 14 F.3d at 1098. This
being the case, the officers' good faith reliance on the warrant in
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.
2. 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
ve CFOS ESP aS ee ee ee ee ee te gee eee
et a
ste BP eet
App. 26
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
v. 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.1995). 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 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.
App. 27
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.
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
ee
a
Ee eel eee
App. 28
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.
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.
App. 29
Next, we turn to Appellanis' 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 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:
Lier erbead i ote ¥
App. 30
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 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
App. 31
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,
"[e]vidence that is prejudicial only in the sense that it paints the
defendant in a bad light is not unfairly prejudicial pursuant to Rule
403." Id. 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.
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 unfair 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.
App. 32
3. 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 tor
the crimes charged. See, e.g., Pointer v. United States, 151 U.S.
396, 414, 14 S.Ct. 410, 38 L.Ed. 208 (1894) (proof of motive
always welcome). Stated another 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.
App. 33
C. 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, 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.
1. 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
App. 34
reviewed de novo. See United States v. 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 calculated in light of the conspiracy conviction.
Last, the district court included the amount of loss incurred by
GNMaA. 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. ‘Ve now consider Appellants' argument that the district
court's computation of loss and corresponding increase in the
offense levels was in error.
ee
App. 35
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) (" '[L]oss' 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 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:
App. 36
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
Ba ek hal Sena te .
the victim (or if the loss has not yet come about,
the expected loss). For example, if a defendant
fraudulently obtains a loan by misrepresenting the
RR eT ee es
value of his assets, the loss is the amount of the
loan not repatd 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.
/d. 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.
App. 37
To the contrary, the application notes specifically delineate that in
circumstances where the intended loss is greater than the actual
loss 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 forthe 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 §
2 |.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 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 §
1131.3 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
es
Pe
ath haiSerait air teinilal
App. 38
HUDALIA 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 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 formulating the
relevant conduct for sentencing. Based upon the information in the
App. 39
record, we find Appellants’ argument concerning the relevant
conduct to be without merit.
c. Amount of Loss to GNMA
Finally, the trial court considered the amount of loss to
GNMaA 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
GNMaA 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.
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:
{LLFC] had a high delinquency rate in its loan
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
App. 40
poor credit risks. The government has
established by a preponderance of the evidence
that [LLFC] manipulated the delinquency rate
information in order to conceal its true
delinquency rate from GNMA authorities. 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.
; 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 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 §
App. 41
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
che 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 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
App. 42
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.
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).
App. 43
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.
3. 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:
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).
App. 44
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 tunc
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.
* * *
Q. What about Mr. Jim Gibson? What knowledge did you
have before your business 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.
* * *
Q. Did she [Iva Jean Lewis] ever indicate to you that she
was forging any documents?
App. 45
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?
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
;
App. 46
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 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. Jd. 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:
App. 47
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 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 ts 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 trom [LLFC], and the defendants were aware
App. 48
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 represent[s] an
obstruction of justice, in that it impedes the administration in the
collection of restitution. The enhancement 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 meiiorandum 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.
App. 49
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. 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, 114 S.Ct.
1921, 128 L.Ed.2d 745 (1994). He argues that Nichols indicates
App. 50
that a sentencing court may consider a defendant's previous
uncounseled misdemeanor conviction for DUI only if the previous
uncounseled misdemeanor did not 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. Id. at 746-47, 114 S.Ct.
1921. Despite Appellant Laws's arguments to the contrary,
however, the rule in Nichols 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.
App. 51
5. 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 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 aburdance 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
App. 52
does not allege any now. The defendant's motion
and supporting brief provide no 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,
App. 53
counsel for Appellant Laws, Robert W. Ritchie, attached his sworn
affidavit in support of the motion.
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 v.
Shackelford, 777 F.2d 1141, 1145 (6th Cir.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
App. 54
influencing the juror to assent to or dissent from
the verdict or 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, 107 S.Ct. 2739,
97 L.Ed.2d 90 (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
App. 55
jury deliberations from public scrutiny. Id. at 119, 107 S.Ct. 2739.
in this regard, the Supreme Court referred to the 1915 decision of
McDonald v. Pless, 238 U.S. 264, 267-68, 35 S.Ct. 783, 59 L.Ed.
1300, which stated:
[L]et 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.
Id. at 119-20, 107 S.Ct. 2739 (citing Mattox v. United States, 146
U.S. 140, 13 S.Ct. 50, 36 L.Ed. 917 (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. Id. 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
App. 56
engage in deliberations with the utmost 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, 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, 107 S.Ct. 2739.
Moreover, Rule 606(b) does not exist ina vacuum. See id.
at 127, 107 S.Ct. 2739. To the contrary, the Rule exists as just one
portion of the overall justice system, which is likewise desi gned 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 dire. Moreover,
a
4
App. 57
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.
Id. (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 Rule
is designed to balance the preservation of the integrity of the jury
system and the rights of the defendant. |t N21 See id.
i N2. But see Doan v. Brigano, 237 F.3d 722, 722 (6th
Cir.2001). In that case, a panel of this Court framed the issue in
Se pS
App. 58
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.
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.
Ill. CONCLUSION
For the reasons stated herein, we AFIIRM 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’ reported
taxable income. As to sentencing, we find that the district court
did not err in calculating loss, in refusing to depart downward
SE BEST AVAILABLE COPY
App. 59
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.
oO ees.
Bide nl t hee ood ot
App. 60
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
GREENEVILLE
FILED
AUG 4 1:57 PM’93
U.S. DISTRICT COURT
EASTERN DIST. TENN
BY CL, DEP. CLERK
IN THE MATTER OF THE SEARCH )
OF THE LOGAN-LAWS FINANCIAL )
CORPORATION, 500 PRINCETON )
ROAD, JOHNSON CITY, )
TENNESSEE AND ANY AND ALL )
OUTBUILDINGS, APPURTENANCES)
STORAGE AREAS AND UNITS )
ASSOCIATED THEREWITH. THE )
LOGAN-LAWS FINANCIAL )
CORPORATION IS REACHED FROM)
NORTH ROAN STREET BY )
TURNING EAST ON PRINCETON )
ROAD AND TRAVELLING )
APPROXIMATELY .8 MILES TO A )
SINGLE STORY OFFICE BUILDING )
CONSTRUCTED OF LIGHT BROWN )
BRICK, ALUMINUM SIDING AND )
STUCCO AT THE INTERSECTION )
SEARCH
WARRANT
No. Misc-2-93-21
App. 61
OF PRINCETON ROAD AND )
SILVERDALE DRIVE. THE )
BUILDING HAS STORAGE AREAS _)
ABOVE THE FIRST FLOOR )
WORKSPACE AND THE FRONT )
OF THE BUILDING HAS A RED )
AWNING TRIMMED IN WHITE AND)
A WHITE MAILBOX LABELED 500_ )
WITH BLACK NUMBERS. )
TO: — Any Authorized Officer of the United States.
Affidavit having been made before me by Derek B.
Johnson, Special Agent, Federal Bureau of Investigation, who
has reason to believe that on the premises of the business of
LOGAN-LAWS FINANCIAL CORPORATION, located at 500
Princeton Road, Johnson City, Tennessee, and any and all
outbuildings, appurtenances, storage areas and units associated
therewith, in the Eastern District of Tennessee, there is now
concealed certain property, namely:
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.
App. 62
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, 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 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
App. 63
borrowers, loan files and accounts of borrowers, loan
applications, and 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 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,
App. 64
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.
All of these items are evidence of or have been used as
the means of committing violations of Title 18, United States
Code, Section 286, 287, 1001, 1010, 1012, 1341, 1343, and 1956
(a)(1)(A)(I), and constitute evidence of the commission of the
above criminal offenses, and are currently being used by Logan-
Laws Financial Corporation and others in violation of Title 18,
United States Code, Section 286, conspiracy to defraud the
United States with respect to claims; Section 287, presenting
false claims to a department or agency of the United States;
Section 1001; making false statements as to material facts
concerning matters within the jurisdiction of a department of the
United States; Section 1010, making or passing false statements
or documents to influence the Department of Housing and urban
Development; Section 1012, making false reports to the
Department of Housing and Urban Development; Section 1341,
devising or engaging in a scheme or artifice to defraud involving
the U.S. mails; Section 1343; devising or engaging in a scheme
or artifice to defraud involving wire communications in
interstate commerce; and Section 1956(a)(1)(A)(1), engaging in
financial transactions involving the proceeds of specified
unlawful activity with the intent to facilitate the carrying on of
the specified unlawful activity, as the facts in the accompanying
affidavit, herein incorporated by reference, establish.
App. 65
I am satisfied that the affidavit and any recorded
testimony establishes probable cause to believe that the property
so described is now concealed on the person or premises above-
described and establish grounds for the issuance of this warrant.
YOU ARE HEREBY COMMANDED to search within
10 days of issuance the person or place named above for the
person or property specified, serving this warrant and making
the search in the daytime — 6:00 a.m. to 10:00 p.m., and if the
person or property be found there to seize same, leaving a copy
of this warrant and receipt for the person or property taken, and
prepare a written inventory of the person or property seized and
promptly return this warrant to Thomas G. Hull, United States
District Judge, as required by law.
July 21, 1993 At Greeneville, Tennessee
Date and Time Issued City and State
THOMAS G. HULL
UNITED STATES DISTRICT JUDGE /S/
Name/Title of Judicial Officer Signature — Judicial
Officer
he
ee ee ee
ae taba
App. 66
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
UNITED STATES OF AMERICA ) “STAMPED FILED”
) JUN 30 5:38 PM ‘97
) U.S. DISTRICT COURT
Vv. )
) No. 2:96-CR-17
JOHN M. LOGAN, )
ALAN MICHAEL LAWS,
RAMON SANCHES-VINAS,
SARAH M. MAYS,
ROBERT L. LOGAN, and
TRACY W. FLEENOR,
tl i a
Defendants.
MEMORANDUM OPINION
This matter is presently before the court on defendants’
timely objections [Doc. No. 171] and [Doc. 172]' to the Report
‘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)(1)(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
App. 67
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 motions 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 [sic]. As required by statute, see 28
U.S.C. § 636(b)(1), the court has not 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.
1. FACTS
On July 21, 1996, [sic] 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
to object to any seizure of evidence excepting that of her own personal office in
the corporations 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)(1)(B) and (C). See Walters, 638 F.2d at 947-50; Thomas, 474
U.S. at 140.
Or etttrtictas Maps ota |e
App. 68
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 GNMA; (8) communication of these
fraudulent transactions occurred via interstate phone lines and
United States Mail; and (8) [sic] 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.,
App. 69
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”), GNMA, 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, [sic] 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 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 GNMA that contained false
representations; internal memoranda concerning discussion of
these “special handling accounts”; and an optical disk (i.e., a
eee
App. 70
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 executive 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 beyond the scope of the warrant and should
therefore be suppressed.’
ll. 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
*As neither the government nor the defendants objected to the Judge
Inman's conclusions of standing, this court will not address that issue.
App. 71
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 (6" Cir. 1985).
Thus, if a warrant authorizes a “general, exploratory rummaging
in a person’s belongings,” it is unconstitutional. Coolide v. New
Hampshire, 403 U.S. 443,467,91 S 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 types of items
sought. United States v. Henson, 848 F.2d 1374, 1383 (6" Cir.
1988). See also United States v. Blakeny, 942 F.2d 101, 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 States v. Blum, 753 F.2d 999, 1001 (11" 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 officer “
could not have known at the time he applied for the warrant that
precise record or files would contain information concerning the
[criminal] scheme. “Henson, 848 F2d 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
So'de vee bbl nstaabia seid Whe asc R aed SoendaabaaaaniesehY Bae ocetheh oe wre YW
App. 72
the evidence seized pursuant to the warrant should not be
admitted, as there was probable cause to support a search of
such breadth. Id. 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 [HU Dj],
[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 claim records.
See Warrant 46. Further, the warrant provided that {alll of the
above listed documents may be found in written or electronic
form.” /d. {| 12. Thus, as practically all of Logan-Laws’ business
dealt with Title | mobile home financing under FHA and
GNMaA, this warrant, similar to the warrant in Henson,
App. 73
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 be
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 questions 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
Anderson 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 had been committed and probable cause
to believe that evidence of this crime is in the suspect’s
possession.” Jd. Thus, we return to the question of whether the
warrant was as “specific as the nature of the activity under
investigation permitted.” Henson, 848F.2d at 1383 (quoting
United States v. Shoffner, 826F .2d 619 (7" Cir.), cert. denied sub
nom. Strange v. United States,---U.S.---, 108 S. Ct.356 (1987).
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"
MoE BK Cit te Bes
Hit PL Ales ERIC
scsitt A Sadat Ow
paren Ea A ete SOP Meh ey Sk, oe BT A ee
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7
het PA a ON
Pas Pe APR Rea ASRS SAP ERPS RE wht eS yy ih ay ae ssid ere a)
: App. 74
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
the “records dating to the beginning of the Logan-Laws
Corporation.” See Affidavit in Support of Warrant J 30. Theses
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
cause and 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
App. 75
case of United States v. Kow,58 F3d 423 (9" 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 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 the
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 Circuits’ 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 $j 28-30, and could not have
been more specifically stated in the warrant.
App. 76
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, 308-309n. | I(Ist
Cir.), cert. denied, 446 U.S. 919,100 S.Ct. 1854,64 L.Ed.273
(1980), and 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,
App. 77
the Sixth Circuit had ample opportunity 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 (9" 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. “/d. 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 requirements in this
circuit, Logan-Laws was necessarily “permeated with fraud.
111. 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
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respect to the type of items to be seized, the issue of the absence
of a restrictive date in the warrant still 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.
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