Case o' The Week: One to Watch -- Phillips and Mail Fraud

Trick your company into paying your girlfriend tens of thousands of dollars to pay for an expensive Breguet watch, that you have shipped to yourself from out of state, and you’ve done several things: theft, probably, fraud, certainly, money laundering, maybe.

What you haven’t done, however, is commit mail fraud. United States v. Phillips, 2012 WL 6700220 (9th Cir. Dec. 26, 2012), decision available here.

Players: Decision by Sr. D.J. Rakoff, SD NY, joined by Judges Schroeder and Gould.

Facts: Phillips was the CEO of “MOD” – a high-tech start-up in Seattle. Id. at *1. He also fancied fine watches, and bought a pair from an Arizona company, “Feel Good Watches.” Id. After Feel Good shipped him the watches, Phillips paid for them by forging invoices and convincing MOD to (unknowingly) pay his girlfriend as a “consultant.” Id. at *2-*3. Phillips’ girlfriend then paid Feel Good. Id. Phillips was charged with mail fraud (and other crimes) and was convicted after a jury trial. Id. at *5.

Issue(s): “The [mail fraud] scheme charged . . . was that Phillips ‘devise[d] and intend[ed] to devise a material scheme to defraud MOD and to obtain money from MOD by means of material false and fraudulent pretenses, representations and promises and the concealment of material facts.’ Therefore, the scheme was to defraud MOD and to obtain money from MOD. The only asserted use of the mails was Feel Good Watches's mailing of the first Breguet watch to Phillips. Phillips, citing to United States v. Maze, 414 U.S. 395 (1974), argues that the mailing was not in furtherance of the fraudulent scheme to defraud MOD, and that Phillips ‘simply used the money he obtained from MOD to purchase a watch.’” Id. at *6.

Held: “Here, as in Maze, the success of Phillips's fraudulent scheme did not depend in any way on the use of the mails. The fact that Phillips purchased a watch with $30,000 of fraudulently obtained MOD funds, instead of using the funds for his personal benefit in some other fashion, did not in any way affect the scheme ‘to defraud MOD and to obtain money from MOD,’ as charged in [the mail fraud] Count. The fact that payment eventually was made to a watch dealer and that watch dealer mailed a watch in return was not a part of the scheme to defraud MOD and to obtain money from MOD—it was simply the byproduct of that scheme. Put another way, as a result of Phillips's successful execution of his scheme to defraud, he had sufficient funds to pay for the watch. 

Therefore, even under the demanding plain error standard, Phillips's mail fraud conviction must be reversed.” Id. at *7 (emphasis in original).

Of Note: While Phillips is great on mail fraud, it is less laudable on prosecutorial misconduct. Phillips testified at trial. In closing argument the AUSA argued that Phillips had told “numerous lies” – both to MOD employees and when he testified. Id. at *10. The Ninth tolerates these two categories of references to lies – lies during the fraud, and lies during testimony – explaining that the prosecutor was “commenting on the evidence.” Id. 

The Court emphasizes, though, that the AUSA “did not give his own opinion on defendant’s guilt,” and that the AUSA alleged that Phillips “lied” but didn’t call the defendant a “liar.” Id. “Liar” (the Court assures us) “could have the tendency to overtake the role of the jury as the arbiter of credibility” in a way that “he lied” does not. Id. Verb vs. noun – “lied” vs. “liar”: makes a difference, apparently, when used in closing argument.

How to Use: Mail fraud is a tool frequently abused by the feds in their effort to federalize vanilla state crimes, like theft. In Phillips, Judge Rakoff gives us a brief but valuable description of the lead Supreme Court case on this abuse, United States v. Maze. Id. at *6-*7. Run mail fraud charges through the Phillips test: was the mail just used to buy stuff using the loot of a crime? If so, you’ve got a great mail fraud defense (although you may admittedly have some money laundering problems). See id. at *9 n.9 (discussing the relationship between mail fraud and money laundering theories in Phillips).

                                               

For Further Reading: Phillips got hit with an obstruction of justice enhancement in light of his testimony. Id. at *5. For a wince-inducing article on Phillips’ acceptance of responsibility – or lack thereof – see piece here.

 Thirty-one year old Phillips was sentenced to four years on eight-year guidelines: another example of just and measured sentencing by D. Wa. Judge Coughenour. See, e.g., blog on Ressam here.

Image of Breguet watch from http://www.priceit.in/price-of-watches/breguet-watch-price/

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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Case o' The Week: The Human Comity - Yepez, State Probation Terms, and Safety Valve

“The federal system relies heavily on state courts in sentencing defendants and it's wrong and pernicious to call these judgments into question because the state judges may have taken into account the effects on federal sentencing. State judges are often mindful of the federal implications of their sentences, as well they should be. The majority is wrong to cast aspersions on this salutary practice . . . . 

United States v. Alba-Flores, 577 F.3d 1104, 1112 (9th Cir. 2009) (Kozinski, Chief Judge, dissenting).

The Hon. Kim Wardlaw

   The Chief was spot on the mark when he dissented in Alba-Flores. As he presciently warned, "We shouldn't be so eager to override the hands-on judgment of two trial judges who have actually seen the defendant and are far more familiar with his need for punishment than we are.” Id.

  We’re nostalgic for those Alba-Flores insights, in a disappointing en banc decision that finds the CJ on the wrong side of an important comity battle. United States v. Yepez, 2012 WL 6621346 (9th Cir. Dec. 20, 2012) (en banc), decision available here.

Players: Per curiam decision joined by CJ Kozinski, Graber, Gould, Rawlinson, Callahan, and M. Smith. Dissent by Judge Wardlaw, joined by Judges Pregerson, Reinhardt, Thomas and W. Fletcher. Hard-fought appeal by San Diego AFD Vince Brunkow.

Facts: Defendants Yepez and Acosta-Montes were caught at the border with enough meth to trigger ten-year mand-min sentences. Id. at *1. Both had minor state priors, and both were on probation. Id. Because they were on probation, they were hit with an additional two criminal history points. Id. Those extra points made them ineligible for Safety Valve. Id. Before sentencing, however, state courts in both cases terminated probation nunc pro tunc, as of the day before the meth arrest. Id. One district court then gave Safety Valve, the second refused. Id. In a terrific decision, Judge Wardlaw held that comity required federal deference to the state court’s decision to terminate probation. 625 F.3d 1182 (9th Cir. 2011). En banc review followed.

Issue(s): (As phrased by the per curiam majority): “Yepez and Acosta-Montes argue that their nunc pro tunc orders effectively changed history, so that they were no longer on state probation at the time they committed their federal crimes and were, therefore, eligible for safety valve relief.” Id. at *1.

Held: “The Guidelines assign a defendant two criminal history points if he ‘committed [a federal] offense while under any criminal justice sentence, including probation.’ U.S. Sentencing Guidelines Manual § 4A1.1(d) (emphasis added). By its plain language, the provision looks to a defendant's status at the time he commits the federal crime. Yepez was on probation while he was arrested for importing methamphetamine . . . Acosta–Montes was [also] on probation while he was arrested . . . . That a state court later deemed the probation terminated before the federal crime was committed can have no effect on a defendant's status at the moment he committed the federal crime. That termination may have beneficial consequences for the defendant under state law, but a court cannot alter the historical fact that the defendant had the status of probationer when he committed his federal crime.” Id.

Of Note: It is flatly unjust to sentence these two defendants to decade prison terms. That simple reality was recognized by both district courts, who complained of ten years for young men with minor prior convictions. Id. at *3 (Wardlaw, J. dissenting). In a compelling dissent, Judge Wardlaw decries the injustice of the per curiam decision. As she explains, the majority’s allegation that the state courts rewrote history is both “incorrect and unseemly.” Id. at *9. The dissent persuasively quotes the Chief’s own language from Alba-Flores to question a federal court’s rejection of a state court’s sentencing decision. Id. 

(Fair to speculate that CJ Kozinski authored the per curiam majority opinion, given its familiar tone ("And here is where it gets interesting", id. at *1) and its plug of Justice Scalia’s new book, Reading Law: The Interpretation of Legal Texts, id. at *2). 

Four jurists joined Judge Wardlaw’s righteous dissent: just one vote shy of the right result.

 

How to Use: A cert. petition is in the works. It still might be worth a visit to the Superior Court if your poor client finds himself victim of this Safety Valve injustice, by virtue of a state probationary term.

                                               

For Further Reading: Maybe Santa will bring you Reading Law: The Interpretation of Legal Texts (2012) by Justice Scalia and Bryan Garner. At a whopping 567 pages, you’ll have plenty of reading material during the holiday break. 

For a pithy defense take on this weighty tome, see the blog entry here. (“The fault in the [textualist] argument seems readily apparent to me. What becomes of all those nice people who get swept up in the gap between the passage of a poorly drafted, grossly unconstitutional law, and the time the Supreme Court gets around to fully addressing what the text really means? It appears they're just collateral damage under this theory, taking one for the team of principle.”)

Image of the Honorable Judge Kim McLane Wardlaw from http://weblaw.usc.edu/news/article.cfm?newsID=3647

Image of “Reading Law” from http://online.wsj.com/article/SB10000872396390444318104577589613733295148.html

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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U.S. v. Yepez, No. 09-50271 (12-20-12) (en banc: per curiam with dissent by Wardlaw and joined by Pregerson, Reinhardt, Thomas and Fletcher), decision available here.

Can a state judge try to do a little justice with a nunc pro tunc ruling?  "No," thunders the 9th, in an en banc per curiam chorus, because such an effort would shake the congressional intent of the "safety valve," and mock its limited purpose.  "Really," says the dissent, and what about vaunted comity and respect for the state judges?

This case here saw an effort by defendant to become eligible for "safety valve" consideration even though he was under probation for a small state conviction.  Although he was on probation when he committed the federal drug offense, he went back to state court, where the court granted him a nunc pro tunc ending of probation exactly one day before the commission of the federal offense.  Yes, this effort by a state judge, acting in a state capacity, and aware of the consequences, was an effort to evade the stringent bright line of safety valve consideration imposed by Congress.  It was an end run.  And as such, the 9th tackled it, and held it illegal.  The effort did not erase the fact that when the defendant committed the offense, he was under the sway of probation.  Don't trifle with that.  Judicial fiat will not be accepted.

The dissent looks to the interests of the state courts.  If the state judge, acting in his discretion, decides that the state's interests are served by ending probation before the stated offense, and the oh so cold calculations of criminal history points, why shouldn't the federal courts give credence?  If the district court thinks it is unwarranted, under the Guidelines, the court could sentence higher.  Here, though, the 9th should respect comity, and see it as all well that ends well, rather than decide it is a comity of errors.

Tough loss for valiant Vince Brunkow of the San Diego Federal Defenders.

U.S. v. Valdavinos-Torres, No. 11-50529 (12-20-12) (Zouhary, D.J. ND Ohio, with Goodwin and O'Scannlain).

The modified categorical approach can be cruel.  It was here.  The defendant faced a 1326 charge.  His prior was drug trafficking in California.  Ah, but the state statute is broad, and covers some drugs that are not on the federal schedule.  Alas, for defendant, he escapes the categorical aggravated felony enhancement, but falls prey to the modified analysis, because his plea references to count 2 of the complaint, as does the minute entry.  Count 2 specifically says "meth."  The 9th also finds that his failure to exhaust administrative remedies was not excused.

An important argument raised was the imposition of two years of SR.  Defendant argued that the imposition was substantively unreasonable, given that the Commission states that SR might not make sense in cases where deportation looms, and "ordinarily" should not impose it, although a court can for added deterrence. The issue here is whether the district court particularized the reasons.  The 9th found that the court did, since the defendant had family, and indeed, he came back because of his sick mother. The term of SR was designed to deter him further.  The need for particularized reasons though was stressed, and is a procedure that we should listen for.

Although Jim Fife of the San Diego Federal Defenders lost, he sure gave the prosecutor a run in the appeal.

 

U.S. v. Bustos-Ochoa, No. 11-50471 (09-18-12) (per curiam by Nelson, O'Scannlain and Singleton, Sr DJ D. Alaska)

In a 1326 conviction and appeal, the defendant tries to collateral attack the underlying immigration deportation. The problem is that the defendant was ineligible for relief given the drug trafficking. Nonetheless, the defendant argues that he still suffered prejudice because he may have gotten relief at the immigration proceeding when the government failed to enter the prior conviction.  As such, the immigration judge should have advised him of his rights for relief and he was prejudiced.  The 9th said it made no sense for the immigration judge to so advise because (1) it shifted the burden of proof to the government; and (2), it was pretty speculative, assuming a lot of "ifs, ands and buts".  As such, the defendant suffered no prejudice from the failure to advise of relief when the defendant had no basis for such relief.

Case o' The Week: Ninth Not Sweet on "Anthrax" Sugar - Keyser, Hoaxes and Threats

It is imprudent to threaten the members of three powerful institutions: Congress, McDonald's, and Starbucks.

Marc McMain Keyser is three for three. 

See United States v. Keyser, 2012 WL 6052248 (9th Cir. Dec. 6, 2012), decision available here.

Players: Decision by Judge Clifton, joined by Judges Reinhardt and N.R. Smith. Hard-fought appeal by former ED Cal AFPD John Balazs.

Facts: Keyser, an aspiring author, wanted to publicize his self-published book on the dangers of anthrax. Id. at *2. To do so, he sent a CD of his book with a spray can labeled “anthrax” to a media company in 2007. Id. 911 was called, the building was evacuated, emergency agencies responded. Id. FBI agents visited Keyser and chewed him out: Keyser promised not to do it again. Id. 

In 2008, Keyser mailed out the CD again, this time with a white sugar packet with the label, “Anthrax,” “Sample” in smaller letters, and a biohazard symbol. Id. He sent 120 of these packages out, including one to a Congressman, one to the “Manager” of Starbucks, and another to the “Manager” of McDonalds. Id. at *2-*3. Evacuations and law enforcement response followed at each. Id. Keyser testified at trial, and was convicted of five of the thirteen threat and hoax counts charged. Id. at *3.

Issue(s): “Keyser contends that his convictions under 18 U.S.C. § 876(c) cannot stand because his mailing to Starbucks and McDonald’s were not addressed to specific persons, as he argues is required by the statute. The relevant statutory language criminalizes the mailing of a threat ‘addressed to any other person.’ 18 U.SC. § 876(c).” Id. at *7.

Held: “Earlier this year, an en banc panel of this court interpreted the ‘addressed to any other person’ clause of the statute to require that the relevant mailing be addressed to a natural person or persons rather than non-natural entities, such as corporations. United States v. Havelock, 664 F.3d 1284, 1293 (9th Cir. 2012) (en banc). The addresses in question satisfy this statutory requirement. The envelopes had the business name (Starbucks or McDonald’s) on the first line of the address, the word ‘Manager’ on the second line, and no further indication of an address within the contents of the mailing. The use of ‘Manager’ in the address sufficiently transforms the addressee from the corporation to a natural person – a Starbucks or McDonald’s manager is a natural person.” Id. at *7.

Marc McMain Keyser

Of Note: Exactly eleven months before the Keyser opinion, a divided en banc Court gave us the great Havelock decision on the meaning of “person” in the threat statute. See blog here.  Interestingly, both Judges N.R. Smith and Reinhardt were on the Havelock en banc court, both jurists wrote separate opinions parting ways with the reasoning of the en banc plurality, and both were also on this Keyser panel. See Havelock, 664 F.3d 1284, 1297 (9th Cir. 2012) (en banc) (Judge N.R. Smith concurring); id. at 1303 (J. Reinhardt concurring and dissenting).  Unfortunately, their various concerns in Havelock didn’t trouble them here: both join in the holding that a “manager” is enough of a “natural person” to create criminal liability under the threat statute.

How to Use: Keyser is not a great case for those who defend the troubled folks who face federal threat and hoax charges. In addition to the threat holding discussed above, Judge Clifton finds no First Amendment bar to the hoax convictions, 2012 WL 6052248, *6, rejects a “theory of the defense” instruction challenge, id. at *8, and tolerates a sketchy “reasonable person” instruction with some prosecutorial vouching thrown in. Id. at *9-*10. For better or worse, Keyser joins Bagdasarian, 652 F.3d 1113 (9th Cir. 2011), and Havelock as required reading for the evolving law of threat and hoax prosecutions.  

                                               

For Further Reading: Quoting Protestant reform leader Martin Luther, Keyser refused to recant: “I neither can nor will make any retraction, since it is neither safe nor honorable to act against conscience.” For an interesting article reporting interviews with Mr. Keyser, see article here.

Image of Starbucks and McDonalds from http://www.famousbloggers.net/wp-content/uploads/2011/11/mcdonalds-starbucks.jpg. Image of Mr. Keyser by Michael A. Jones / Sacramento Bee, via AP, from http://www.cleveland.com/nation/index.ssf/2008/10/feds_suspect_in_hoax_anthrax_s.html  Image of relabeled sugar packet from http://www.nti.org/gsn/article/anthrax-hoax-suspect-indicted-on-13-counts/

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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