United States v. Channon (Matthew) , 881 F.3d 806 ( 2018 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS January 31, 2018
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v. No. 16-2254
MATTHEW CHANNON,
Defendant - Appellant.
_________________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v. No. 16-2285
BRANDI CHANNON,
Defendant - Appellant.
_________________________________
Appeal from the United States District Court
for the District of New Mexico
(D.C. Nos. 1:13-CR-00966-JCH-KK-1 and 1:13-CR-00966-JCH-KK-2)
_________________________________
Marc H. Robert, Assistant Federal Public Defender, Albuquerque, New Mexico, for
Defendant - Appellant Matthew Channon.
Todd B. Hotchkiss, Albuquerque, New Mexico, for Defendant - Appellant Brandi
Channon.
C. Paige Messec, Assistant United States Attorney (James D. Tierney, Acting United
States Attorney, with her on the brief), Albuquerque, New Mexico, for Plaintiff -
Appellee.
_________________________________
Before PHILLIPS, KELLY, and MURPHY, Circuit Judges.
_________________________________
KELLY, Circuit Judge.
_________________________________
Defendants-Appellants, Matthew and Brandi Channon, were convicted by a jury
of wire fraud and conspiracy to commit wire fraud relating to a scheme to defraud retailer
OfficeMax. 18 U.S.C. §§ 1343, 1349.1 They now appeal, challenging the district court’s
decision to (1) admit exhibits derived from computer records and (2) enter a money
judgment forfeiture. Exercising jurisdiction under 28 U.S.C. § 1291, we uphold the
district court’s admission of the exhibits but remand so the district court may conduct
further proceedings on the money judgment of forfeiture.
Background
Defendants used fictitious names and addresses to open rewards accounts at
OfficeMax — known as MaxPerks accounts. They used these accounts to fraudulently
obtain more than $100,000 in OfficeMax products. The scheme came to light when
Steven Gardner, an OfficeMax fraud investigator, noticed an unusually high number of
online-adjustments across several different accounts. Mr. Gardner observed that most of
1
Mr. Channon was sentenced to imprisonment of one year and a day, and two
years’ supervised release to run concurrently (Counts 1, 3, 5, 6, and 7), as well as
restitution of $96,278. Mrs. Channon was sentenced to probation of three years to run
concurrently (Counts 1, 2, and 4), as well as restitution of $96,278. In addition, the
district court entered a money judgment of forfeiture jointly and severally against them in
the amount of $105,191.
2
these accounts were registered to one of three email addresses, although a fourth address
was discovered later.2 Defendants used the same email addresses and simply interspersed
periods between the characters of each address (e.g., teechur123.45678@gmail.com).
OfficeMax recognized the variations as unique email addresses, but gmail did not.
Defendants then used these fraudulent email addresses to claim purchases by other
customers, thus generating rewards to which they were not entitled. They also used
various accounts to sell more than 27,000 used ink cartridges, receiving $3 in rewards
from OfficeMax for each after paying an average of $.32 per cartridge on eBay.3 In total,
over the 21 months of their scheme, Defendants redeemed $105,191 in OfficeMax
rewards.
Prior to trial, Defendants objected to the use of summary exhibits regarding their
accounts. These exhibits summarized thousands of transactions and were drawn from
three Excel spreadsheets containing OfficeMax records — which had been maintained by
a third party formerly known as SHC Direct (SHC). OfficeMax would send SHC the
data it collected each day, and if OfficeMax later needed to view information, SHC
would place the data into a user-friendly Excel spreadsheet for OfficeMax to use. SHC
would not alter the raw data, but would consolidate the necessary information from the
larger database.
2
Those email addresses were teechur12345678@gmail.com, coach12345678
@gmail.com, bargle12345678@gmail.com, and garble12345678@gmail.com. These
accounts make up the bulk of what is called the Group 2 accounts, while another 118
accounts were designated as Group 1.
3
Defendants used many fraudulent accounts for the ink cartridge sales because
OfficeMax restricted customers to a monthly maximum of 20 cartridges per month,
and only up to the amount the customer had already spent at OfficeMax that month.
3
The three Excel spreadsheets (also called workbooks) at issue in this case
consisted of (1) enrollment and transaction activity for the majority of fraudulent
accounts (File 1); (2) information for the Group 1 accounts during the specific time
period of the scheme (File 2); and (3) an enhanced spreadsheet, essentially a user-friendly
version of File 1 and 2 combined (File 3). Each Excel workbook contained several
worksheets. These included a worksheet listing the 5,463 suspect accounts, a worksheet
listing the 63,581 transactions associated with the suspect accounts, and a worksheet
listing the 2,144 transactions in which a reward card was used by one of the suspect
accounts.
Defendants argued that the exhibits derived from Excel were inadmissible because
they were not originals, and Defendants never received the full database maintained by
SHC. They also argued that the spreadsheets were hearsay because they were prepared
for purposes of litigation. The district court rejected Defendants’ arguments, finding that
the spreadsheets were originals under Federal Rule of Evidence 1001(d). Moreover, the
district court found that File 1 and File 2 were business records,4 and also that the records
were likely machine generated. The files were therefore found to be admissible.
After Defendants were convicted, the government moved for entry of an order of
forfeiture in its favor. The district court entered a money judgment of $105,191, or the
value of the merchandise Defendants fraudulently obtained from OfficeMax.
4
The district court did not rule on File 3. Only the first two files were
necessary for the summary exhibits, since File 3 was simply an enhanced version of
Files 1 and 2.
4
Discussion
A. Summary Exhibits
Defendants first contend that the district court erred in admitting several of the
government’s trial exhibits. We review the district court’s admission of evidence for an
abuse of discretion. United States v. Jenkins, 313 F.3d 549, 559 (10th Cir. 2002). Under
this standard, “we will not disturb an evidentiary ruling absent a distinct showing that it
was based on a clearly erroneous finding of fact or an erroneous conclusion of law or
manifests a clear error in judgment.” Id.Federal Rule of Evidence 1006 permits summary exhibits “to prove the content of
voluminous writings . . . that cannot be conveniently examined in court.” Although the
information upon which a Rule 1006 summary is created need not itself be admitted into
evidence, it must still be admissible. United States v. Irvin, 682 F.3d 1254, 1261 (10th
Cir. 2012). Moreover, the party who offers the summary exhibit must make the originals
or duplicates available to the other party. Fed. R. Evid. 1006. Defendants contend both
that the spreadsheets (on which the summary exhibits were based) were not originals and
that they were not granted access to the original database.
Federal Rule of Evidence 1001(d) defines an “original” of electronically stored
information as “any printout — or other output readable by sight — if it accurately
reflects the information.” In other words, the question is whether the spreadsheets
accurately reflect the information found in the underlying database. The government is
required to lay a foundation to this effect. See United States v. Whitaker, 127 F.3d 595,
601 n.3 (7th Cir. 1997).
5
The government’s witnesses, Mr. Gardner, FBI Agent Jeffrey Moon, and Victoria
Mills, a former manager at SHC, testified that the spreadsheets reflected the same
information as in the database. Defendants’ expert, Janet McHard, a forensic accountant,
testified that it was not possible to determine whether the spreadsheet was accurate
without examining the main databases, given the potential for alteration. The district
court found that the government’s experts had provided a proper foundation and
determined that Files 1 and 2 were originals under Rule 1001(d). Memorandum Opinion
and Order, United States v. Channon, 13-966-JCH-KK (D.N.M. Jan. 12, 2016), ECF No.
287; 5 R. 1004–09, 1050–51.5
Defendants contend, as they did in the district court, that the process by which the
data was selected and then transferred (to the Excel spreadsheets) renders them other than
original. According to Defendants, because the spreadsheets resulted from many data
queries, they are not originals. They maintain that the government should have provided
them with access to complete databases. However, the district court’s finding that the
spreadsheets (Files 1 and 2) accurately reflect database information and are thus originals
under Rule 1001(d) is supported by the record and therefore not clearly erroneous.
Therefore, because the spreadsheets are originals and were provided to Defendants,
Defendants’ additional argument that they were not provided access to the database also
fails.
5
The district court noted that File 3 was based on File 1 and File 2, thus
implicitly finding that File 3 was also an original.
6
B. Hearsay
Defendants next contend that the summary exhibits were inadmissible hearsay
because the underlying spreadsheets were created for purposes of litigation and are
therefore not admissible under the business records exception. Although we review
district court determinations on the admissibility of evidence for an abuse of discretion,
because “hearsay determinations are particularly fact and case specific,” we provide a
more deferential review. United States v. Hamilton, 413 F.3d 1138, 1142 (10th Cir.
2005). The district court found that the spreadsheets fell under the business records
exception and, alternatively, appeared to be machine-generated non-hearsay. 5 R. 720–
21, 1072. We agree.
Under Federal Rule of Evidence 801, hearsay is defined as an oral or written
assertion by a declarant offered to prove the truth of the matter asserted. “‘Declarant’
means the person who made the statement.” Fed. R. Evid. 801(b) (emphasis added).
Here, the Excel spreadsheets contained machine-generated transaction records. The data
was created at the point of sale,6 transferred to OfficeMax servers, and then passed to the
third-party database maintained by SHC. In other words, these records were produced by
6
To the extent that a cashier would have manually entered any information,
that would still fall under the business records exception discussed below. Similarly,
the customer-enrollment worksheet detailing the suspect accounts created by the
Channons falls under both the business records exception or as non-hearsay
statements by a party-opponent. See Fed R. Evid. 801(d)(2).
7
machines. They therefore fall outside the purview of Rule 801, as the declarant is not a
person. United States v. Hamilton, 413 F.3d 1138, 1142 (10th Cir. 2005).7
Even if the records were considered hearsay, they would fall under the business
records exception. See Fed. R. Evid. 803(6). To satisfy the exception, the business
record must have been prepared in the normal course of business, made near the time of
the events at issue, based on the knowledge of someone with a business duty to transmit
such information, and there must be an indication that the methods, sources, and
circumstances of preparation were trustworthy. See United States v. Ary, 518 F.3d 775,
786 (10th Cir. 2008).
As discussed above, the records at issue in this case were prepared by OfficeMax
and then transferred daily to SHC. Although this would appear to be enough to meet the
Rule 803(6) standard, Defendants contend that transferring these records into
spreadsheets for purposes of litigation eliminates the business records exception. We
disagree. As we have previously held, business records in one form may be presented in
another for trial. United States v. Hernandez, 913 F.2d 1506, 1512–13 (10th Cir. 1990).
Here, we have just that — business records in one form, a database, simply presented in
another form, a spreadsheet.
In sum, the district court did not abuse its discretion in admitting the spreadsheets;
it committed no legal error and its decisions are supported by the record.
7
Many of Defendants’ arguments are better placed as questions concerning
authentication. However, as this was not raised in the briefs, any argument to this
effect was waived. Bronson v. Swensen, 500 F.3d 1099, 1104 (10th Cir. 2007).
8
C. Forfeiture
Defendants last argue that the government failed to meet its burden to prove
the amount forfeited ($105,191) was traceable to the offense of wire fraud. We have
held that wire fraud proceeds are subject to forfeiture under 18 U.S.C. § 981(a)(1)(C)
and 28 U.S.C. § 2461. See United States v. Courtney, 816 F.3d 681, 685 (10th Cir.
2016). The property subject to forfeiture includes “[a]ny property, real, or personal,
which constitutes or is derived from proceeds traceable to [the] violation.” 18 U.S.C.
§ 981(a)(1)(C). The substitute-asset provision, 21 U.S.C. § 853(p), provides the only
method for the forfeiture of untainted property. Honeycutt v. United States, 137 S.
Ct. 1626, 1633 (2017).
The government concedes a remand to conform the money judgment to the
requirements of § 853(p) may be necessary. The government explains that going
forward it will seek only to enforce a forfeiture money judgment through the
substitute-asset provisions of § 853(p) and will seek to amend the forfeiture order
under Fed. R. Crim. P. 32.2(e). Accordingly, we remand so the district court may
conduct further proceedings on this issue.
AFFIRMED in part, REMANDED in part.
9