Case o' The Week: Needing Neo in the Ninth - Costanzo, bitcoin, and interstate commerce

  Morpheus versus the Agents, again.

  (Spoiler alert: not a happy ending, this time).

United States v. Costanzo, 956 F.3d 1088 (9th Cir. Apr. 17, 2020), decision available here.

Players: Decision by Judge Hawkins, joined by Judges Owens and Bennett. Hard-fought appeal by D. Arizona AFPD Dan Kaplan.  

Facts: Costanzo’s (a.k.a. “Morpheus Titania”) enthusiastic bitcoin sales drew the Feds’ attention. Id. at 1089. Over five meetings, undercover agents used cash to purchase over $100k in bitcoin. Id. at 1090. Agents explained the cash came from drug sales. Id. 

  Costanzo was charged with, among other things, money laundering and went to trial. Id. at 1091. At trial, the government presented evidence about the “verification process,” as bitcoin was transferred from Costanzo to the agents. Id. One such verification took place in Germany. Id. 

  The Court denied Costazno’s motion for acquittal, and he was convicted. Id.

Issue(s): “Appellant contends that the transfer did not have the requisite effect on interstate commerce, an element of each of the charged offenses.” Id. at 1089. (footnote omitted). 

  “Costanzo [argues] that the government failed to prove that the transactions affected interstate commerce in any way.” Id. at 1091.

Held: “Because we conclude that the transfer in question, which involved the use of an Internet or cellular network connected Personal Computer Device (PCD) to transfer bitcoin (together with the digital code necessary to unlock the bitcoin) to the digital wallet of another Internet or cellular network connected PCD, had the necessary effect on interstate commerce, we affirm.” Id. (footnote omitted). “Here, the government presented evidence regarding Costanzo's business; his use of global platforms; and the transfer of bitcoin through a digital wallet, which by its nature invokes a wide and international network. Costanzo advertised his business through localbitcoins.com—a website based outside of the United States. He encouraged the undercover agents to download applications from the Apple Store or other similar platforms to facilitate their communications and transactions. He then utilized those applications to engage in encrypted communications with the agents to arrange the transfers. Then, in each transaction, Costanzo and the agent used those applications on their smartphones to transfer bitcoin from one digital wallet to another. Each transaction was complete only after it was verified on the blockchain. Viewing all of this evidence in the light most favorable to the government, we are satisfied that the evidence is sufficient for some trier of fact to find the ‘minimal’ interstate commerce nexus required under § 1956.” Id. at 1092-93.

Of Note: Constanzo’s co-D, Peter Steinmetz, was less blasé about the illegal origins of the cash. Like Constanzo, Steinmetz was charged with money laundering using bitcoin. Transcripts later revealed, however, that Steinmetz refused to sell bitcoin to an agent posing as a Russian heroin buyer. Steinmetz became “a poster child for heavy-handed bitcoin enforcement.” See article here. 

  New currencies: old law-enforcement problems.

How to Use: What is the standard of review, for the sufficiency of evidence for an interstate commerce element? Judge Hawkins uses de novo review, and asked whether “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Id. at 1091-92 (emphasis in original). The government, however, argued that the proper standard of review was, “manifest injustice.” Id. at 1092 & n.3. The panel avoids the issue by explaining the result would be the same under either standard. Id.

  Beware, however, of the government’s more-onerous theory of review for future interstate commerce challenges.

                                   

For Further Reading: The federal Terminal Island and Lompoc facilities are now the subjects of new civil suits, brought by medically-vulnerable inmates facing the COVID-19 pandemic.

For a must-read brace of terrifying Complaints, by Bird Marella and the SoCal ACLU, see here.

Image of Morpheus and Agent Smith from https://scottmanning.com/content/smith-interrogates-morpheus-transcript/

Image of Lompoc from https://www.sfchronicle.com/news/article/574-inmates-test-positive-for-coronavirus-at-15255843.php

Image of Terminal Island from https://www.latimes.com/california/story/2020-04-29/coronavirus-terminal-island-prison-inmates-outbreak

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

Case o' The Week: One Good Turn Deserves . . . a stop, a search, and a federal prosecution -- Guerrero and New Rule 12 motions on appeal

  How bad is the “good cause” appellate standard?

  By comparison, plain error looks good!

United States v. Guerrero, 921 F.3d 895 (9th Cir. Apr. 22, 2019), decision available here.

Players: Per curiam decision, with Judges Tashima, Watford, and District Judge Robreno. Hard fought appeal by CD Cal AFPD Gia Kim.

Facts: Guerrero was charged with being a felon in possession of a gun an ammo. Id. at 896. At the evidentiary hearing on a suppression motion, Guerrero, the driver, and officers testified. Id. The cops were credited, and the district court held that the driver’s failure to signal a turn provided a lawful basis for the stop. Id.

  Guerrero entered a conditional plea. Id.

  On appeal, Guerrero presented a new theory – that a driver only has to signal in California if another vehicle on the road is affected by the movement. Id. He argued that because the government had failed to introduce evidence that the alleged failure to signal affected another vehicle, the officers lacked a lawful basis for the stop. Id.

  That ground for suppression had not, however, been advanced in the district court. Id. at 897.

Issue(s): “Guerrero contends that we should align ourselves with the circuits that review untimely defenses, objections and requests for plain error.” Id. at 897.

Held: “Were we writing on a blank slate, we might have been inclined to follow their lead. . . . . Nevertheless, as a three-judge panel, we may not forge our own path unless our prior precedent is clearly irreconcilable with the text and history of subsequent legislation or rulemaking.” Id. at 897-98. “[W]e cannot say that our prior precedent is clearly irreconcilable with the amended version of Rule 12. Rule 12(c)(3)’s good-cause standard continues to apply when, as in this case, the defendant attempts to raise new theories on appeal in support of a motion to suppress. Guerrero has not shown good cause for failing to present in his pre-trial motion the new theory for suppression he raises in this appeal. Nor has he challenged the district court’s rejection of the one theory that he did raise below. We therefore affirm the district court’s denial of his motion to suppress.” Id. at 898.

Of Note: It is unusual when the defense wants plain error, but that’s the case here. The nub of the fight is the standard under Federal Rule of Criminal Procedure 12(c)(3), when a party does not make a timely 12(b)(3) motion (like a suppression motion). The Fifth, Sixth, and Eleventh have held that the familiar plain error standard applies in that situation. Id. at 897. Other circuits review for the amorphous “good cause” standard. Id. In this per curiam decision, the panel sticks by Ninth precedent that concludes it is “good cause” (although there is the strong sense that they think the plain error approach is a better solution).

How to Use: Bring it in the district court, or face the “good cause” gauntlet on appeal. What motions are affected by this holding? Rule 12(b)(3) includes the following: “a defect in instituting the prosecution, including: improper venue; preindictment delay; a violation of the constitutional right to a speedy trial; selective or vindictive prosecution; and an error in the grand-jury proceeding or preliminary hearing; a defect in the indictment or information, including: joining two or more offenses in the same count (duplicity);charging the same offense in more than one count (multiplicity); lack of specificity; improper joinder; and failure to state an offense; suppression of evidence; severance of charges or defendants under Rule 14; and discovery under Rule 16.”

                                           

For Further Reading: Last week Senator McConnell filed a cloture motion on the nomination of Mr. Daniel Bress to the Ninth Circuit.  See Nomination report here. Senator Feinstein is not enthused. See Sen. Feinstein statement here   A vote on Mr. Bress’s nomination is expected after the July 4^th recess. See here.

Image of turn signal from https://giphy.com/gifs/HrNxWCMFrEj9S

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

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Case o' The Week: Ninth Shrugs, and Swallows Questionable Beers - Ruvalcaba and Explicit Reliability Findings for Federal Experts

 Under Daubert the Court of Appeals acts as a gatekeeper that evaluates the reliability and admissibility of the testimony of expert witnesses in federal court.

   

  (Not a typo).

United States v. Ruvalcaba-Garcia, 2019 WL 2063373 (9th Cir. May 10, 2019), decision available here.

Players: Per curiam decision with Judges Graber and Bybee, and District Judge Harpool. 

  Admirable advocacy by Ass’t Fed. Defender Kara Hartzler, Federal Defenders of San Diego, Inc.   

Facts: Ruvalcaba-Garcia was charged with illegal reentry, based on a 2015 removal order. Id. at *1. His trial defense was that he was not the person removed in ’15. Id. The government introduced a 2015 “Verification of Removal” form, that had a signature, a photograph, and a fingerprint of the removed person. Id.

  FBI fingerprint “expert” David Beers testified for the government. On cross, he conceded that he had not taken continuing education courses in fingerprint analysis, admitted that he was not a member of two important working groups for fingerprint “experts,” and revealed that he did not strictly follow the “ACE-V” method of analysis. Id. at *2. The defense objected to the admission of Beers as an expert: that objection was overruled, but there was no express finding of reliability of the expert’s testimony. Id.

  Beers testified, identified the 2015 print as Ruvalcaba’s, and the jury hung.

  On retrial, Beers went through a similar drill, the defense objection was again overruled, and Ruvalcaba-Garcia was convicted. Id. at *3.   

Issue(s): “Ruvalcaba argues on appeal that the district court abused its discretion by admitting the expert’s testimony without first finding it ‘relevant’ and ‘reliable.’ Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993); see Fed. R. Evid. 702.” Id. at *1.

  “The issue here is ‘reliability,’ which requires that the expert’s testimony have a reliable basis in the knowledge and experience of the relevant discipline. . . . The district court must assess whether the reasoning or methodology underlying the testimony is scientifically valid” and “properly can be applied to the facts in issue, . . . with the goal of ensuring that the expert employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field, . . . The test ‘is not the correctness of the expert’s conclusions but the soundness of his methodology,’ and when an expert meets the threshold established by Rule 702, the expert may testify and the fact finder decides how much weight to give that testimony.” Id. at *3 (internal citations and quotations omitted).

Held: “We agree that the district court’s failure to make these gateway determinations was an abuse of discretion.” Id. at *1. 

  “Here, the district court abused its discretion by failing to make any findings regarding the reliability of Beers’s expert testimony and instead delegating that issue to the jury.” Id. at *4. “To satisfy its ‘gatekeeping’ duty” under Daubert, the court must make an explicit reliability finding. . . . The district court’s failure to make an explicit reliability finding before admitting Beers’s expert testimony in this case constituted an abuse of discretion.” Id. at *4 (internal citations and quotations omitted; emphasis added).

Of Note: Ruvalcaba is a thoughtful analysis of the district court’s gatekeeping responsibilities, when considering the admission or exclusion of expert witnesses. 

  Unfortunately for Ruvalcaba, the Ninth then denies relief, after a harmless error analysis. See id. at *5.

  Note the frustrating “findings” by the Ninth in the context of this harmless error review – the panel marches through cold-record gatekeeping and concludes that Beers' "expertise" was good enough for Daubert. Id. at *6; see also "For Further Reading" below.  

How to Use: The defense objected – repeatedly – to Beers’ testimony, over two trials. 

  Despite these objections below, the government argued on appeal that because the defense did not specifically make a “gatekeeping” objection, the review should be for plain error (instead of harmless error). Id. at 3 & *2. 

  The Ninth avoided that question, but let footnote 2 be a warning: expert objections should be specific. Objections should include the magic FRE 702 litany of reliability, relevance, and the court’s gatekeeping function.

For Further Reading: In Ruvalcaba, the Ninth acted as a second Daubert gatekeeper. That procedure is controversial – at least five active Ninth jurists think remand and a post-hoc Daubert hearing would be appropriate when this problem arises. 

  For an accessible piece on the en banc Barabin case that created this odd appellate approach (and that prompted a major en banc split), see article here.  

Image of “Gatekeeper” from https://www.chronicle.com/blogs/linguafranca/2012/11/26/no-more-gatekeeping/

Steven Kalar, Federal Public Defender Northern District of California. Website available at www.ndcalfpd.org

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Case o' The Week: Doc Convicted When Patients Didn't Die - Wijegoonaratna and Ex Post Facto Issues at Sentencing

  Reports of impending deaths (unfortunately) exaggerated.

United States v. Wijegoonaratna, 2019 WL 1870688 (9th Cir. Apr. 26, 2019), decision available here.

Players: Decision by Judge Gould, joined by Judges Nguyen and Owens.
  Nice sentencing win in a tough case, by former CD Cal AFPD, current CD Cal CJA member Alyssa Bell.  

Facts: Dr. Wijegoonaratna certified patients as “terminal,” and eligible for Medicare-funded hospice care. Id. at *2. In reality, however, the majority of these patients did not die within six months (85% of hospice patients die in hospice). Id. at *1-*2. 

  Wijegoonaratna was convicted after trial of seven counts of healthcare fraud. Id. at *2. The district court sentenced Wijegoonaratna for six of the counts using revised guidelines that post-dated the conduct. Id. at *7. The defense did not object.

Issue(s): “Wijegoonaratna contends that the district court violated the ex post facto clause . . . by sentencing him under the revised Guidelines Manual on the six counts . . . arising from conduct that occurred before the revision.” Id. at *7. “The crux of the issue . . . is whether Wijegoonaratna was charged with a continuing offense. If so, application of the 2016 Guidelines . . . to all counts would not violate the ex post facto clause.” Id. at *8.

Held: “[T]he government’s decision to charge Wijegoonaratna with multiple counts has consequences. The government could have charged Wijegoonaratna’s offense as a continuing offense, but it chose not to do so. For that reason, the ex post facto rule that applies to continuing offenses—just like the statute of limitations rule for continuing offenses—does not apply here, where the health care fraud was charged as multiple counts. Instead, the district court was required to calculate and apply the guideline ranges from the Guidelines Manual in effect at the time of each count. It did not. We vacate Wijegoonaratna’s sentence and remand for further proceedings consistent with our decision.” Id. at *8.

Of Note: Wijegoonaratna didn’t object to the use of the revised guideline at sentencing, so what is the standard of review? In an interesting discussion, Judge Gould notes that this would typically be “plain error” review. Id. at *7. Because this ex post facto issue is a “purely legal” question, however, the panel reviewed this sentencing issue de novo. Id. 

  This approach isn’t without controversy –Judge Graber has sought to take this “purely legal” carve-out en banc. Id. (citing Yijun Zhou, 838 F.3d at 1015-17 (Graber, J., concurring)).

  Hopefully the en banc review suggested by Judge Graber never happens –until it does, this “purely legal” hook can help us avoid the pit of plain error.

How to Use: Wijegoonaratna was sentenced to 108 months – a term that was lower than both the old guideline, or the new revised guideline, ranges. Id. at *7 & n.3. Although the actual sentence imposed was below these guideline ranges, Wijegoonaratna still earned a remand for the ex post facto error. Id. Why? Because “regardless of whether the sentence imposed is inside or outside the Guidelines range,” the appellate court’s job is to “ensure that the district court committed no significant procedural error, such as . . . improperly calculating the Guidelines range.” Id.

  Twelve years after SCOTUS made this principle crystal clear in Gall, the government still argues on appeal that guideline error is harmless (or, in an odd recent government brief, that such guideline error is “moot.”) Use Wijegoonaratna footnote 3 to fend off this tiresome attack.      

                                               

For Further Reading: Does a DJ worry about the appellate standard of review, when contemplating a below-guideline sentence? An interesting piece tackles that question (and concludes, “it depends.”) See “Do Standards of Review Matter? The Case of Federal Criminal Sentencing, available here. 

  For a very helpful outline untangling the extraordinarily confusing standards of review, see the Ninth’s “S.O.R.” webpage, available here. 

Image of Mark Twain from https://kimblechartingsolutions.com/2018/02/bonds-poised-blast-off-similar-2000-2007/

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

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Case o' The Week: Of Non-Disclose and Oreos - Liew, Brady, and FBI 302 Rough Notes

  Remarkably, exculpatory statements were somehow omitted in an FBI 302 (and the agent’s rough notes were never disclosed).

  Happily, the government now gets a second bite at the Brady apple.

United States v. Liew, 2017 WL 1753269 (9th Cir. May 5, 2017), decision available here.

Players: Decision by Judge Owens, joined by Judges Schroeder and Wardlaw. Nice Brady win for ND Cal stalwart Dennis Riordan in this NorCal case.

Facts: DuPont perfected a lucrative and (it claimed) secret process to create a type of pigment used in everything from paint to the filling of Oreo cookies. Id. at *2.

 China wanted this tech.

  Walter Liew worked with Chinese representatives to start a pigment plant there. Id. at *3. Liew hired a former DuPoint employee, “Spitler,” as a consultant. Id. at *3.

  Liew and Spitler spoke, and in a note documenting their conversation they worried the plant might fail, “even with the best technology and stolen prints.” Id. at *4. Liew, however, later claimed Spitler told him that, as far as DuPont was concerned, “[a]fter 5 years, you are a free man.” Id.

  DuPoint disagreed.

  After learning of the planned Chinese pigment plant, DuPoint sued Liew in federal court. Id. In his civil answer, Liew stated he and his company never “’wrongfully obtained or possess[ed] any’ DuPoint trade secrets.” Id. at *5.

  Liew was later indicted, and charged with obstruction (for his answer in the civil suit), and with economic espionage charges. Id. at *5. Spitler struck an apparent cooperation deal with the government, then committed suicide. Id. at *6.

  Before trial, the government produced a FBI 302 of Spitler’s meetings with the prosecution team. [Ed. note: not in the opinion, but reported in district court briefing, is the fact that Spitler met with FBI Special Agent Kevin Phelan, and others on the prosecution team, six times.] The government did not produce the Special Agent’s rough notes of the Spitler interviews. Id.

  Liew was convicted at trial.

  The defense then produced a declaration from Spitler’s attorney. Id. at *7. Spitler’s attorney reported Spitler’s exculpatory statements omitted from the FBI 302, including his denial that he was involved in a criminal conspiracy. Spitler had also revealed to the government that, after his retirement, DuPont had shipped him a box of documents that Spitler sold to Liew. Because DuPont had voluntarily relinquished those documents, Spitler explained in interviews with the government that he considered them valueless. Id. at *7.

  The defense moved for disclosure of the rough notes of the Spitler interviews. That motion was summarily denied. Id.

Issue(s): “Liew argues that the district court erred by not requiring the prosecution to disclose the rough notes of the FBI’s interviews with deceased co-conspirator Tim Spitler.” Id. at *15.

Held: “While mere speculation about materials in the government’s files does not require a court to make the materials available for defense inspection . . . Liew had more than mere speculation -- he had the declaration of Spitler’s attorney . . . . In light of this declaration, defendants carried their initial burden of producing some evidence to support an inference that the government possessed or knew about material favorable to the defense and failed to disclose it. . . . 

  Although the errors and inconsistencies in the declaration provided by [Spitler’s attorney] cast some doubt on the declaration’s reliability, defendants’ burden was a low one, and the declaration sufficed to support an inference that the rough notes contained favorable material. Because the prosecution did not disclose the rough notes, it did not meet its burden of demonstrating that it satisfied its duty to disclose all favorable evidence known to it. Furthermore, if the rough notes referenced the statements that [Spitler’s attorney] averred Spitler made during the interviews, that material could be sufficient to undermine confidence in the verdict. . . . . 

  [W]e vacate the district court’s order denying defendants’ request for production of the rough notes and remand to the district court for in camera review of the material to determine whether disclosure of the notes might have affected the outcome of the trial.” Id. at *15 (internal citations and quotations omitted).

Of Note: Does your civil client deny wrongdoing when answering in federal court? Be careful: the ND Cal USAO may later indict them for obstruction of justice.

  Judge Owens, thankfully, comes out the right way on this troubling charging stretch, id. at *14, but Liew’s discussion on civil responses and obstruction of justice should be a required read for civil counsel.

How to Use: Is the standard of review for this claim the deferential “abuse of discretion” standard, or the less demanding de novo standard? 

  In an interesting note, Judge Owens explains that – here, in the context of a new trial motion - it is de novo. See id. at *8 n.6. A welcome footnote worth saving for appellate folks.

                                               

Former AUSA Kathryn Haun

For Further Reading: (Former) AUSA Kathryn Haun is one potential candidate for the next United States Attorney for the Northern District of California. See article here. 

  Ms. Haun just gave a candid and revealing interview, defending Attorney General Sessions’ new policy on mandatory minimums. See KQED link here. 

Image of former AUSA Haun from https://static.wixstatic.com/media/bcd40f_342196e499f143a3954b3687110c5860~mv2.gif_srz_200_200_85_22_0.50_1.20_0.00_gif_srz 

Image of Oreo from https://i.ytimg.com/vi/STwpxAWAbrw/0.jpg

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

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