United States v. Knight

09-5195-cr (L)
United States v. Knight
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY
PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals for the Second Circuit, held at the
2 Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on
3 the 1st day of February, two thousand twelve.
4
5 PRESENT: JOHN M. WALKER, JR.,
6 CHESTER J. STRAUB,
7 DEBRA ANN LIVINGSTON,
8 Circuit Judges.
9
10
11 UNITED STATES OF AMERICA,
12 Appellee,
13
14 -v.- Nos. 09-5195-cr (L), 09-5198-cr (con), 09-5336-cr (con)
15
16 MELVIN RAY LYTTLE,
17 Defendant,
18
19 PAUL E. KNIGHT, VIOLETTE GAIL ELDRIDGE, JOHN L. MONTANA, JR.,
20 Defendants-Appellants.
21
22
23
24 For Defendant-Appellant Knight: MARK D. HOSKEN (Jay S. Ovsiovitch, on the brief),
25 Federal Public Defender’s Office, Western District of New
26 York, Rochester, New York.
27
28 For Defendant-Appellant Eldridge: MAURICE J. VERRILLO, Law Offices of Maurice J.
29 Verrillo, PC, Rochester, New York.
30
31 For Defendant-Appellant Montana: JON P. GETZ, Muldoon & Getz, Rochester, New York.
1 For Appellee: BRADLEY E. TYLER, Assistant United States Attorney
2 (William J. Hochul, Jr., United States Attorney, on the brief),
3 Western District of New York, Rochester, New York.
4
5
6 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
7 DECREED that the judgment of the district court be AFFIRMED.1
8 Defendants-Appellants Violette Gail Eldridge (“Eldridge”), Paul E. Knight (“Knight”), and
9 John L. Montana, Jr. (“Montana”) appeal from judgments of the United States District Court for the
10 Western District of New York (Charles J. Siragusa, Judge), convicting each of them, after trial by
11 jury, of conspiracy to commit mail fraud in violation of 18 U.S.C. § 371, mail fraud in violation of
12 18 U.S.C. § 1341, and wire fraud in violation of 18 U.S.C. § 1343; and convicting Eldridge and
13 Knight of conspiracy to launder money in violation of 18 U.S.C. § 1956(h) and money laundering
14 in violation of 18 U.S.C. § 1956(a)(1)(A)(i). The court sentenced Eldridge principally to 20 years’
15 imprisonment, Knight principally to 14 years’ imprisonment, and Montana principally to 6 years’
16 imprisonment. We assume the parties’ familiarity with the underlying facts, procedural history of
17 the case, and issues on appeal.
18 I. Dismissal of the Money Laundering Charges
19 Eldridge argues that, pursuant to United States v. Santos, 553 U.S. 507 (2008), the money
20 laundering charges against her should have been dismissed before trial because the relevant financial
21 transactions did not involve the “proceeds” of alleged illegal activity. We review her challenge de
22 novo. United States v. Quinones, 635 F.3d 590, 597 (2d Cir. 2011). “The federal money laundering
1
In a separate opinion filed simultaneously with this summary order, we address Defendant-
Appellant Violette Gail Eldridge’s argument that the indictment should have been dismissed on
statute of limitations grounds, notwithstanding issuance of a tolling order pursuant to 18 U.S.C.
§ 3292.
2
1 statute makes it a crime to conduct a ‘financial transaction’ knowing that the property involved in
2 the transaction represents the ‘proceeds’ of some form of unlawful activity when the transaction in
3 fact involves the proceeds of specified unlawful activity . . . .” Id. Although the Justices in Santos
4 divided on whether (and when) gross receipts of a criminal enterprise might be “proceeds” for
5 purposes of the money laundering statute, they all agreed that net profits always qualify as
6 “proceeds.” See generally Santos, 553 U.S. 507.
7 Eldridge argues that the district court erred in denying her pretrial motion to dismiss.
8 Eldridge’s indictment, on its face, does not specify whether the three specific financial transactions
9 charged as money laundering relate to the net profits or gross receipts of the fraudulent enterprise.
10 Nothing in the indictment, however, indicates that these transactions did not involve profits; rather,
11 the indictment uses the word “proceeds,” which echoes the statute. This wording is not
12 impermissible. “[A]n indictment need only track the language of the statute and, if necessary to
13 apprise the defendant of the nature of the accusation against him, . . . state time and place in
14 approximate terms.” United States v. Flaharty, 295 F.3d 182, 198 (2d Cir. 2002) (quoting United
15 States v. Bagaric, 706 F.2d 42, 61 (2d Cir. 1983)) (internal quotation marks omitted). As for the
16 money laundering conspiracy count, moreover, several of the overt acts alleged in the indictment
17 clearly relate to “profits,” such as the payment of a personal charge account and the purchase of
18 home furnishings. Accordingly, the district court did not err in refusing to dismiss the money
19 laundering charges based on the indictment’s face.
20
3
1 II. Confrontation Clause
2 Eldridge next argues that the district court erred in admitting transcripts of her codefendants’
3 testimony before the Securities and Exchange Commission (“SEC”) on the grounds that the
4 admission of such transcripts violated the Confrontation Clause of the Sixth Amendment. “Alleged
5 violations of the Confrontation Clause are reviewed de novo, subject to harmless error analysis.”
6 United States v. Vitale, 459 F.3d 190, 195 (2d Cir. 2006). Where evidence has been admitted in
7 violation of the Confrontation Clause, we will affirm a conviction only if we are persuaded beyond
8 a reasonable doubt that the challenged evidence “did not contribute to the verdict obtained.” United
9 States v. McClain, 377 F.3d 219, 222 (2d Cir. 2004) (quoting United States v. Casamento, 887 F.2d
10 1141, 1179 (2d Cir. 1989)) (internal quotation marks omitted).
11 In this multi-defendant trial, the government used the SEC testimony principally against the
12 individuals who gave it, as evidence of their untruthfulness.2 This use does not implicate the
13 Confrontation Clause. See Crawford v. Washington, 541 U.S. 36, 59–60 & n.9 (2004); United States
14 v. Logan, 419 F.3d 172, 177 (2d Cir. 2005); see also United States v. Stewart, 433 F.3d 273, 292 (2d
15 Cir. 2006). Granted, at one point in its summation, the government relied upon the SEC testimony
16 of Paul Knight to establish his true relationship with Eldridge by telling the jurors that “Knight’s
17 S[E]C testimony demonstrates . . . a continuing participation in a conspiracy with Gail Eldridge.”
2
For example, the prosecution told the jury at the end of the trial:
I submit to you, ladies and gentlemen, all of the defendants’ S[E]C testimony should
be critically reviewed against the evidence presented during the course of the trial,
and if you find it to be materially false and self serving, you should disregard it in its
entirety. However, the defendants’ S[E]C testimony does indicate something else
not related to its truthfulness. It demonstrates the defendants’ extreme arrogance in
believing that anything they say will be believed, regardless of how incredible it is,
just because they say it.
4
1 In the context of the full trial record, however, this use of Eldridge’s codefendant’s SEC testimony
2 was harmless. Multiple witnesses, including Randall Jacoby, Ronald Petlev, Christopher Quinn,
3 Kurt Slep, and Trutzwel Wolff, testified to Eldridge’s role and involvement with her codefendants
4 in the fraudulent scheme. The government’s stray use of Knight’s prior testimony, even assuming
5 it was error, therefore cannot justify reversal.
6 III. Collusion with the SEC
7 Relying on United States v. Kordel, 397 U.S. 1 (1970), Eldridge next argues that government
8 prosecutors worked closely with the SEC in its civil proceeding, and therefore that the district court
9 should have granted Eldridge’s motion to suppress the SEC testimonial evidence or to dismiss the
10 indictment due to collaboration between prosecutors and the SEC. We disagree. Setting aside
11 Eldridge’s conclusory assertions, Eldridge does not allege any facts that suggest improper collusion
12 between the SEC and the prosecution in her case. Because there is no indication that the
13 government acted in bad faith, the district court did not err in denying Eldridge’s motion. See id.
14 at 11 (“It would stultify enforcement of federal law to require a governmental agency . . . invariably
15 to choose either to forgo recommendation of a criminal prosecution once it seeks civil relief, or to
16 defer civil proceedings pending the ultimate outcome of a criminal trial.”); Nosik v. Singe, 40 F.3d
17 592, 596 (2d Cir. 1994).
18 IV. Admissibility of the Trust Management Agreements
19 Eldridge next argues that the district court should have admitted certain trust management
20 agreements into evidence to show the nature of her relationship with her codefendants and her
21 alleged lack of knowledge of the fraudulent scheme. Because the agreements were exhibits at the
22 SEC proceedings, Eldridge contends that they should have been admitted under Federal Rule of
5
1 Evidence 106, which allows for the admission of documents or parts of documents that explain or
2 contextualize other recorded statements (or parts thereof) introduced into evidence. See Fed. R.
3 Evid. 106. “We have interpreted Rule 106 to require that a document be admitted when it is
4 essential to explain an already admitted document, to place the admitted document in context, ‘or
5 to avoid misleading the trier of fact.’” Phoenix Assocs. III v. Stone, 60 F.3d 95, 102 (2d Cir. 1995)
6 (quoting United States v. Marin, 669 F.2d 73, 84 (2d Cir. 1982)). Rule 106 requires admission of
7 a document when it is “necessary for the ‘fair and impartial understanding of the admitted portion
8 [of the document]’ or [a related] document.” Id. (quoting Marin, 669 F.2d at 84). “We will reverse
9 the evidentiary rulings of a district court only if they are manifestly erroneous.” Id. at 100.
10 As explained above, the government only once (and only briefly) cited the SEC transcripts
11 for the purpose of establishing the relationship between Eldridge and a codefendant. The trust
12 management agreements therefore were not essential to explain the SEC transcripts, especially
13 because Eldridge points to no particular misunderstandings of the transcripts due to the unadmitted
14 agreements. Indeed, it was Eldridge’s counsel who made repeated reference to the portions of the
15 SEC transcripts discussing the trust management agreements, not the government. The district court
16 therefore did not manifestly err in refusing to admit the trust management agreements.
17 V. Denial of Severance
18 Both Eldridge and Montana argue that the district court abused its discretion by denying their
19 motions for severance. If a joint trial “appears to prejudice a defendant[,] . . . the court may . . .
20 sever the defendants’ trials.” Fed. R. Crim. P. 14(a). “[A] district court order denying a Rule 14
21 motion . . . will be overturned only if a defendant can show prejudice so severe that his conviction
22 constituted a miscarriage of justice and that the denial of his motion constituted an abuse of
6
1 discretion.” In re Terrorist Bombings of U.S. Embassies in E. Africa, 552 F.3d 93, 131 (2d Cir.
2 2008) (quoting United States v. Yousef, 327 F.3d 56, 150 (2d Cir. 2003)) (internal quotation marks
3 omitted). “To obtain a severance on the ground of antagonistic defenses, a defendant must show that
4 the conflict is so irreconcilable that acceptance of one defendant’s defense requires that the
5 testimony offered on behalf of a codefendant be disbelieved.” United States v. Tutino, 883 F.2d
6 1125, 1130 (2d Cir. 1989). “[E]ven when the risk of prejudice is high, measures less drastic than
7 severance, ‘such as limiting instructions, often will suffice to cure any risk of prejudice.’” United
8 States v. Diaz, 176 F.3d 52, 104 (2d Cir. 1999) (quoting Zafiro v. United States, 506 U.S. 534, 539
9 (1993)).
10 Eldridge claims that she was prejudiced by the joint trial because the court’s admission of
11 SEC testimony allowed her codefendants’ out-of-court statements to incriminate her by linking her
12 to the actions of her codefendants. Moreover, she argues, the court’s denial of admission of the trust
13 management agreements prevented her from establishing the nature of the agreement she had with
14 her codefendants. As explained above, both of these arguments are meritless. See supra. To the
15 extent Eldridge claims the joint trial prevented her from effectively arguing that her role was limited
16 and her codefendants were to blame, she had ample opportunity to make this argument and, indeed,
17 did so.
18 Montana points out that, unlike his codefendants, he was not charged with money laundering
19 and took home no profits from the scheme; he argues that the evidence relating to his codefendants’
20 money laundering and profits therefore prejudiced him. He also argues that the indictment was
21 highly complex and confusing, which led jurors to impute the actions of Montana’s codefendants
22 to him. However, the judge told the jury no fewer than three times that Montana was not charged
7
1 with money laundering and that they should only consider evidence of Montana’s commission of
2 the charged offenses. We presume that jurors follow their instructions. United States v. Stewart,
3 590 F.3d 93, 124 (2d Cir. 2009). The district court therefore did not abuse its discretion in denying
4 severance.
5 VI. “Good Faith” Jury Instruction
6 Eldridge argues that the district court erred by failing to instruct the jury properly regarding
7 her good-faith defense to the mail and wire fraud charges. “We review de novo the propriety of jury
8 instructions. ‘A jury instruction is erroneous if it misleads the jury as to the correct legal standard
9 or does not adequately inform the jury on the law.’ Reversal is required only if the instructions,
10 viewed as a whole, caused the defendant prejudice.” United States v. Naiman, 211 F.3d 40, 50-51
11 (2d Cir. 2000) (quoting United States v. Walsh, 194 F.3d 37, 52 (2d Cir. 1999)) (citations omitted)
12 (internal quotation marks omitted).
13 Here, Eldridge rightly asserts that good faith is a defense to the charges of mail fraud and
14 wire fraud. The district court, however, expressly instructed the jury that “good faith on the part of
15 a defendant is a complete defense to a charge of mail or wire fraud.” Although this was not the
16 precise wording that Eldridge requested, it stated the same substantive defense and was fair and
17 accurate. The jury instruction was therefore not erroneous.
18 VII. Sufficiency of the Evidence
19 Eldridge, Knight, and Montana each argue that the evidence was insufficient to establish
20 their guilt of the charged offenses. “The test for sufficiency is whether, as to a given count, a
21 ‘rational trier of fact could have found the defendant guilty beyond a reasonable doubt.’” United
22 States v. Persico, 645 F.3d 85, 104 (2d Cir. 2011) (quoting United States v. Jackson, 335 F.3d 170,
8
1 180 (2d Cir. 2003)). We must view the evidence in the light most favorable to the government,
2 which entails “crediting every inference that the jury might have drawn in favor of the government.”
3 United States v. Eppolito, 543 F.3d 25, 45 (2d Cir. 2008) (quoting United States v. Temple, 447 F.3d
4 130, 136–37 (2d Cir. 2006)) (internal quotation marks omitted).
5 Eldridge argues that the evidence did not establish that a criminal agreement existed between
6 her and her codefendants. Multiple investors, however, testified that her codefendants told them that
7 Eldridge was the “trader” (or was the intermediary with the trader). Moreover, Christopher Quinn
8 testified to talking directly with Eldridge about the allocation of his mother’s funds. Michael Fine
9 testified that Eldridge disbursed funds through his law firm’s escrow account to Knight. And Agent
10 Kassouf testified to tracing funds from investors into investment accounts controlled by Eldridge.
11 While Eldridge asserts that none of the charged crimes was established beyond a reasonable doubt,
12 the numerous witnesses’ accounts of her involvement, plus the documentary and testimonial
13 evidence described above, easily demonstrate that a reasonable juror could have found otherwise.
14 Montana similarly argues that there was no evidence that he knew of the crimes or the
15 conspiracy, especially in light of the fact that he received no money. However, investors testified
16 that Montana promised that he was directly involved in the program, that he met with the traders,
17 and that “he has been involved in these transactions to successful conclusions and that they were
18 running at that moment and making money for clients of his other joint partners.” Paula Tepedino,
19 Montana’s secretary, testified that Montana talked and met with his codefendants on various
20 occasions. Moreover, Tepedino testified that Montana said he created a new investment program
21 himself and said that he could “do it on his own without Mel [Lyttle] or Paul [Knight].” This
22 testimony, considered in conjunction with the other evidence, was more than sufficient for a
9
1 reasonable juror to have concluded that Montana knew of the fraud and conspired with his
2 codefendants to perpetrate it.
3 Knight argues first that while he was admittedly involved with his codefendants in offering
4 the investment program, there was insufficient evidence to prove that he intended to harm the
5 investors. He claims that he believed the program would actually help the investors earn money.
6 Second, Knight argues that the evidence does not show that he intended to promote unlawful activity
7 within the meaning of the money laundering statute. Third, Knight contends that there was
8 insufficient evidence that he agreed with his codefendants to commit mail or wire fraud. These
9 arguments regarding Knight’s mental state are refuted by the evidence offered to the jury. Investors
10 testified that Knight told them that his program was private and secret, and that they would be killed
11 if the investment program was exposed to the media. Randall Jacoby testified that Knight told him
12 that his “funds would be locked up and [he] would be arrested for perjury” after he sent Knight a
13 letter demanding the return of his investment. Investors also testified that Knight said that he had
14 other clients who were successfully generating returns. A reasonable juror could have concluded,
15 based on this and other evidence, that Knight knew the program would harm investors, intended to
16 promote mail or wire fraud, and agreed with his codefendants to do so.
17 VIII. Sentencing
18 Eldridge, Knight, and Montana challenge their sentences as procedurally and substantively
19 unreasonable. “While factual determinations underlying a district court’s Guidelines calculations
20 are reviewed for clear error, a district court’s application of the Guidelines is reviewed de novo.”
21 United States v. Conca, 635 F.3d 55, 62 (2d Cir. 2011). “[W]hen a party fails to raise a sentencing
22 issue in the district court, we review for plain error.” United States v. Folkes, 622 F.3d 152, 156 (2d
10
1 Cir. 2010). Further, we review sentences for substantive reasonableness under a “deferential
2 abuse-of-discretion standard.” United States v. Cavera, 550 F.3d 180, 189 (2d Cir. 2008) (en banc)
3 (internal quotation marks omitted). “[W]e will not substitute our own judgment for the district
4 court’s on the question of what is sufficient to meet the § 3553(a) considerations in any particular
5 case,” and “will . . . set aside a district court’s substantive determination only in exceptional cases
6 where the trial court’s decision cannot be located within the range of permissible decisions.” Id.
7 (internal quotation marks omitted).
8 Eldridge argues that her 20-year sentence is harsh and unreasonable under the totality of the
9 circumstances. Specifically, she disputes the factual basis for each of the enhancements, and she
10 argues that the district court should have adjusted downward further for overlapping adjustments
11 and for her age (65 years old at the time of sentencing), her health concerns, and for her record of
12 community service. She also argues that the district court should have departed downward with
13 respect to her criminal history because her only other conviction was subsequent to her indictment
14 in this case. These arguments are without merit.
15 With regard to the enhancements, Eldridge does not point out any specific facts that she
16 disputes; “merely incorporating by reference an argument presented to the district court, [or] stating
17 an issue without advancing an argument,” does not suffice to raise an issue for appellate review.
18 Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998). As to the overlapping adjustments, the
19 district court’s decision not to depart more than four points from the advisory offense level of 41 was
20 well within its discretion. See United States v. Jackson, 346 F.3d 22, 25–26 (2d Cir. 2003). Next,
21 age, health, family ties, or community involvement generally only justify a downward departure in
22 “unusual” or “extraordinary” cases, such as serious infirmity. See U.S.S.G. § 5H1.1, .4, .6, .11. The
11
1 district court did not abuse its discretion in declining to depart downward based on these factors in
2 Eldridge’s particular case. Finally, Eldridge does not contest the factual basis for the court’s finding
3 of a criminal history level of II; the district court did not abuse its discretion in deciding not to depart
4 from the Guidelines based on the fact that Eldridge’s only other criminal conviction occurred after
5 the indictment in the present case.
6 Montana argues that his six-year sentence is unreasonable because he received no profits and
7 was not involved in the “daily activity and operations” of the conspiracy, especially in light of his
8 age, health problems (diabetes and high blood pressure), and lack of prior criminal history. The
9 district court, however, did not abuse its discretion in determining that his circumstances were not
10 so unusual or extraordinary to justify a downward departure for his personal characteristics. See
11 U.S.S.G. § 5H1.1, .4, .6. Montana also argues that “the actual investor money lost, according to the
12 record, is $13,615,012, which is less than the $20 million excess as set forth in § 2F1.1(b)(1)(Q).”
13 For sentencing purposes, however, “loss in fraud cases includes the amount of property taken, even
14 if all or part has been returned.” United States v. Coriaty, 300 F.3d 244, 251 (2d Cir. 2002) (quoting
15 United States v. Carrozzella, 105 F.3d 796, 805 (2d Cir. 1997)) (internal quotation marks omitted).
16 The government showed that more than $30 million had been invested in the fraud. The evidence
17 also shows both that the scheme was complex and that transactions were concealed, despite
18 Montana’s assertions to the contrary. Finally, Montana contends that “[h]e did not have a public or
19 private trust to abuse.” But the evidence at trial showed that many investors trusted him with their
20 savings, and that he lied to them and abused their trust, despite having a fiduciary relationship with
21 them.
12
1 Knight argues that the district court should not have applied the sophisticated means
2 enhancement because his personal involvement was unsophisticated. The evidence, however, shows
3 that Knight helped to construct an intricate façade of secrecy and a false image of success.
4 Moreover, funds were often transferred through him to his co-conspirators or to investors. Knight
5 also claims that he did not organize, lead, manage, or supervise the conspiracy. The Guidelines
6 Manual, however, notes that “[a]n upward departure may be warranted” for someone who “exercised
7 management responsibility over the property, assets, or activities of a criminal organization.”
8 U.S.S.G. § 3B1.1, comment. This Court reviews a district court’s application of § 3B1.1 for clear
9 error because the issue is “predominantly factual rather than legal.” United States v. Gotti, 459 F.3d
10 296, 349 (2d Cir. 2006). The evidence and testimony amply demonstrated that Knight managed a
11 significant amount of money for the conspirators; the district court did not clearly err in applying
12 an enhancement for Knight’s role in the offense.
13 IX. Ineffective Assistance of Counsel
14 Finally, Montana argues before this Court that his trial counsel was unconstitutionally
15 ineffective because he failed to obtain investment experts and because he stipulated to the SEC
16 testimony and related documents. “When faced with a claim for ineffective assistance of counsel
17 on direct appeal, we may: (1) decline to hear the claim, permitting the appellant to raise the issue
18 as part of a subsequent petition for writ of habeas corpus pursuant to 28 U.S.C. § 2255; (2) remand
19 the claim to the district court for necessary factfinding; or (3) decide the claim on the record before
20 us.” United States v. Morris, 350 F.3d 32, 39 (2d Cir. 2003). Because this Court has a “baseline
21 aversion to resolving ineffectiveness claims on direct review,” id. (quoting United States v. Salameh,
13
1 152 F.3d 88, 161 (2d Cir. 1998)) (internal quotation marks omitted), we decline to consider the
2 argument at this time.
3 We have considered all of Defendants-Appellants’ remaining arguments and find them to
4 be without merit. For the foregoing reasons, the judgment of the district court is hereby
5 AFFIRMED.
6
7 FOR THE COURT:
8 Catherine O’Hagan Wolfe, Clerk
9
14