Confrontation and Co-conspirators. Two cases came down from the Second Circuit on July 28, 2004 relating to whether a criminal defendant's Sixth Amendment confrontation right was violated by the admission into evidence of statements by co-conspirators. In United States v. McClain, the defendants were accused of money laundering, wire fraud and conspiracy to commit money laundering and wire fraud. At trial, the government was permitted to introduce three co-conspirators' guily plea allocutions to establish the existence of a conspiracy. The defendants were convicted and appealed. After the appeal was filed, but prior to oral arguement, the Supreme Court decided Crawford v. Washington, in which the Court established a per se bar on the admission of out-of-court statements made by unavailable declarants where there had been no prior opportunity for cross-examination. The Second Circuit held that the plea allocutions were testimonial in nature in that they are formally given in court, under oath, and in response to questions by the court or the prosecutor. The Court, however, noted that while the admission of these allocutions violated the Confrontation Clause, the violation was subject to harmless error review. Since the evidence against the defendants was overwhelming, the Second Circuit held that the violation of the defendants' confrontation rights was harmless error and affirmed the convictions.

In United States v. Saget, the defendant was accused of trafficking in firearms and conspiracy to traficking in fire arms. The trial court allowed the government to enter into evidence statements that the defendant's co-conspirator made to a confidential informant. The defendant was convicted and appealed. The Second held that Crawford did not place any limites on the admissibility of non-testimonial statements. And Crawford at least suggested "that the determinative factor in determing whether a declarant bears testimony is the declarant's awareness or expectation that his or her statements may later be used at trial." The Second Circuit held that the co-conspirator's statements were not testimonial in nature. However, if the statements do not fall within a firmly rooted hearsay exception or contain particularized guarantees of trustworthiness, their admission would still violate the Confrontation Clause. The Court found that, under its precedents, the statements "were made in circumstances that confer adequate indicia of reliability on [them]." Hence, the Confrontation Clause was not violated. The conviction was affirmed.

McClain can be found here. Saget can be found here.

The Competition.  I just discovered another blog covering the Second Circuit beat.  Check out Second Circuit News.

Tax Relief.  In Superintendent of Insurance for the State of New York v. Ochs (In re First Central Financial Corp., the Second Circuit decided whether a tax refund, to which an insurance company in rehabilitation was entitled pursuant to a written contract with its parent, was part of the bankruptcy estate of the parent.  The parent filed a consolidated tax return for itself, the insurance company and another subsidiary.  Because the insurance company was the only one of the three entities that had income, it paid the entire tax burden.  Pursuant the agreement with its parent, it would be entitled to any refund up to the amount it would have been entitled had it filed separately.  The past practice was that the refunds were paid to the insurance company.  But when the parent went into bankruptcy, things changed.  The trustee took the position that the $2.5 million refund it received was part of the bankruptcy estate.  The Superintendent of Insurance took the position that the parent was holding the refund in trust for the insurance company, and asked the bankruptcy court to impose a constructive trust on the funds.  The Bankruptcy Court declined to do so, and the District Court affirmed.

The Second Circuit held that the existence of a written contract relating to how tax refunds would be allocated was fatal to any claim of unjust enrichment, an essential element of a constructive trust claim.  Also, the Court noted that the remedy of a constructive trust was "fraud-rectifying" rather than "intent-enforcing."  As there was no allegation of fraud, the remedy was found not be appropriate.  Finally, while recognizing that bankruptcy law does not trump New York constructive trust,  courts are required to "act very cautiously" to minimize conflict with the Bankruptcy Code.  As a result, bankruptcy courts are reluctant to impose constructive trusts without a substantial reason for doing so.

The insurance company can, of course, file a claim as an unsecured creditor.  As the Second Circuit noted: "While [the insurance company] may understandably chafe at being required to accept less than it was entitled to receive under the Agreement, the short -- and conclusive -- answer is that this is not injustice, it is bankruptcy."

The decision can be found here.

Issue Preclusion and the Rooker-Feldman Doctrine.   No, that's not the title of one of a show on HBO this fall (although I'd watch such a show).  It's the issue in Vargas v. The City of New York.   Vargas was a police officer who was terminated for the use of excessive force.  He brought an Article 78 proceeding in state court seeking to overturn the NYPD's decision, but the court found substantial evidence supporting the charges. 

Vargas then brought a section 1983 action in federal court, alleging that his termination violated his equal protecti rights in that his punishment was racially discriminatory because it was allegedly the policy and practice of the NYPD to selectively prosecute Hispanic and minority officers more often and more severely than their white colleagues.  The District Court dismissed the case under the Rooker-Feldman doctrine.  Under that doctrine, inferior federal courts have no subject matter jurisdiction over suits that seek direct review of judgments of state courts or that seek to resolve issues that are "inextricably intertwined" with an earlier state court determination.  Vargas appealed.

The Second Circuit noted that the doctrine is generally applied coextensively with principles of res judicata and collateral estoppel.  In the case of an Article 78 proceeding, res judicata would not apply because a state court hearing such a proceeding does not have the power to award the full measure of relief available in a subsequent section 1983 litigation.  In order for Vargas's claim to be barred by the Rooker-Feldman doctrine, it had to be subject to New York's collateral estoppel rules.

The Court noted that the racial discrimination claim had never been presented to the state court.  Hence, it could not have been necessarily decided in the Article 78 proceeding.  Nor would a decision on the equal protection claim require the federal court to reconsider the precise issue decided in the Article 78 proceeding.  In other words, even if there was a rational basis for the dismissal, it still could have been based on a discriminatory motive.  Hence, the doctrine was held not to bar the equal protection claim.

Vargas had also asserted a due process claim based on the fact that the NYPD waited almost three years before prosecuting him for using excessive force, in violation of NYPD regulations requiring such action be taken within 18 months.  The District Court had dismissed this claim not on the grounds of the Rooker-Feldman doctrine, but because Vargas had not established that the procedural safeguards established by the state were insufficient to protect his rights.  The Second Circuit affirmed the dismissal of this claim.

The case can be found here.

Interesting Strategy.  I've been thinking about Martha Stewart these days.  I've read that she's considering serving her sentence pending appeal.  And she's not planning on dropping the appeal.  This is an interesting strategy.  If Stewart was out on bail pending appeal and won her appeal, the likely result would be that she would be retried.   But if she serves her sentence while awaiting appeal, would the government bother trying her again if she prevailed?  I'm not an expert on criminal law, but if they did try her again and convicted her again, could she be given a longer sentence?  I'm anxious to see how this plays out.

Looky what I found!  I just wanted to clue Second Opinions readers to a website that I've found.  (I'm not sure if it's technically a blog, but it sort of looks like one.)  It's called Humble Opinion.  It's chock full of interesting legal information.

Also, if anybody is interested in the INDUCE Act (and who isn't), check out the INDUCE Act Blog.  It's a group blog by Andrew Raff, Chris Rush Cohen and Kevin (no last name).

The Devil's in the details.  A general contractor was unable to collect on a performance bond where the subcontractor defaulted because it had failed to comply with certain terms of the bond.  In Elm Haven Construction Limited Partnership v. Neri Construction LLC, the general contractor failed to provide notice of the subcontractor's default to the bonding company prior to hiring a new subcontractor.  Such notice was required under the terms of the bond.   In failing to give the subcontractor time to cure the default, as provided under the terms of the bond, the general contractor had breached the agreement and was unable to collect under the bond. 

The general contractor also was not able to collect on a payment bond.  The contractor had directly paid certain sub-subcontractors, who had claimed that they were not paid.  The subcontract agreement, however, explicitly prohibited the general contractor from directly paying sub-subcontractors without the permission of the subcontractor and the bonding company.  By making the payments without permission, the general contractor was deemed an "intruder," not entitled to reimbursement.

The decision in the case can be found at the Second Circuit website.  It was decided on June 23, 2004.

Super hotties of the Second Circuit.  Sure, it's frivolous, but one of our own Second Circuit Judges, Robert Katzmann, was named runner up in the Judicial Superhottie Competition going on at the Underneath Their Robes blog.  And a District Court Judge from the Southern District of New York -- Kimba Wood -- won the title in the women's competition.  Congratulations to our Second Circuit super hotties -- and to Ninth Circuit JudgeAlex Kozinski, who won the male competition, edging out Judge Katzmann.   (To those looking for actual substance -- well, the Second Circuit appears not to have decided any cases yesterday.) 

Congratulations II.  No, Douglas Berman did not make Law Review (actually, he probably did, just not recently).  But the 35-year old law professor has had an article in the Wall Street Journal written about him and his Sentencing Law and Policy blog.  It's nice to see blawgs getting play in the press.

Congratulations!  Heidi Bond of Letters of Marque has made law review at the University of Michigan.  Since she gets a zillion more hits per day than I do, I don't know why I'm directing even more traffic her way, but I guess that's just the kind of guy I am.  

No discovery.  German litigants in a German action tried to get discovery in America via 28 U.S.C. 1782 in an action against Deutsche Telecom AG from the attorneys representing the parties in a similar class action pending in the Southern District of New York.   The German litigants wanted the discovery material that had been produced in the the class action and were willing to be subject to the same confidentiality order entered in the class action.  However, a criminal action against Deutsche Telecom AG relating to the same transactions that were the subject of the civil action was pending in Germany, and the Bonn Prosecutor asserted that discovery in this proceeding would interfere with the criminal investigation.  The District Court found that the German litigants met the requirements of 28 U.S.C. 1782, but that it was exercising its discretion, in light of the German prosecutor's view, not to order discovery.  In Schmitz v. Bernstein Liebhard & Lifshitz, the Second Circuit affirmed.  The decision in this case can be found at the Second Circuit website and was decided on July 20, 2004.

A Cautionary Tale.  Not that it has anything to do with the Second Circuit, but appellate lawyers should read this article before filing a motion for additional time in the Seventh Circuit.

Check this out!  Here's an interesting article from law.com (printed in the New York Law Journal yesterday) about the Second Circuit's decision to certify questions to the United States Supreme Court in United States v. Penaranda.

Contact Me!  No, I'm not desparate for attention (well, ok, maybe I am), but I just wanted to alert you to my nifty new Contact me link on the left hand side of this blog.  If you want to alert me to a case I've missed or tell me how boring (or fascinating) this blog is, you can now do so.

Martha's appeal.  Well, now that Martha Stewart has been sentenced, it's on to the Second Circuit.  Here is an article from law.com regarding her appeal.

FREE!  Off topic.  When I started this blog, I said that occassionally I would engage in off topic sallies, and this is one of them.  I have just found out that Mark Belnick, former Tyco general counsel, has been acquitted of all charges.  The Manhattan DA had accused Belnick of stealing more than $30 million in compensation and loans from Tyco.  I never believed it.  I was an associate at Paul, Weiss, Rifkind, Wharton & Garrison back in the late 1980s when Belnick was a partner there.  I did not know him well.  In fact, I don't recall ever working on a case with him.  But I knew him.  And I could never reconcile my impression of the man with that of a crook.  Was it possible that, tempted by huge sums of money, he gave into the dark side.  Sure, it's possible.  But I never thought it likely, and it appears that the jury agreed.  I'm very pleased for Mark.  It's a good thing he made all that money.  He's going to need it to pay his attorneys.  And the civil suits are still pending!

They haven't cited me, yet! Well, this is interesting. In its Penaranda case, which was the subject of this post, the Second Circuit actually cites to a blog. No, not to Second Opinions, drat the luck. It cites to the Sentencing Law and Policy blog. Well, I can only hope that someday it will happen to me. Thanks to the Falconred Goes to Law School blog for alerting me to this fact.

To the Supremes! The Second Circuit, in United States v. Penaranda, has certified three questions to the Supreme Court for resolution in light of its decision in Blakely v. Washington. In Blakely, the Supreme Court held that facts that warrant enhancing a sentence must be found by a jury. Since Blakely was decided last month, there has been much speculation whether the Federal Sentencing Guidelines were constitutional in that sentences under the Guidelines are based on factors that are not decided by the jury. That question arose in this case. The Second Circuit ordered the appeals in this case to be heard in banc, limited to the issue of the validity of the defendants' sentences under Blakely. The active judges of the Court unanimously agreed that they should certify the following questions to the United States Supreme Court:

1. Does the Sixth Amendment permit a federal district judge to find facts, not reflected in a jury's verdict or admitted by a defendant, that form the basis for determining the applicable adjusted offense level under the Federal Sentencing Guidelines and any upward departure from the offense level?

2. In a case where a jury has convicted a defendant of possessing with intent to distribute five kilograms or more of cocaine and one kilogram or more of heroin, does the Sixth Amendment permit a federal district judge to determine, under the Federal Sentencing Guidelines, the quantity of drugs for which the defendant is responsible and upon whihc his based offense level and corresponding sentencing range will be calculated under U.S.S.G. 2D1.1?

3. In a case where a defendant has pled guilty to conspiring to distribute five kilograms or more of cocaine, does the Sixth Amendment permit a federal district judge to determine, under the Federal Sentencing Guidelines, (a) the quantity of drugs for which the defendant is responsible and upon whihc his base offenses level and corresponding sentencing range will be calculated under U.S.S.G. 2D1.1, (b) the applicability of a two-level enhancement to the base offense level for carrying a fun in connection with the offense, under U.S.S.G. 2D1(b)(1), and (c) the applicability of a three-level managerial role enhancement under U.S.S.G. 3B1.1(b)?

The decision can be found here.

Rules? What rules? Regina Jacobs is a world-class track athlete, who may very well compete in the Olympics next month. However, the United States Anti-Doping Agency has accused her of using a prohibited substance and has threatened to sanction her, which may result in her not competing in Greece. She, not surprisingly, took issue with that and demanded arbitration before the American Arbitration Association. So here's the issue. Both parties have agreed to arbitrate -- but they can't agree on whether the AAA's Commercial Rules or Supplementary Rules apply. Both agree that an arbitrator can make that decision, but the rules differ in how an arbitrator is chosen. The AAA has decided that the Supplementary Rules apply and that an arbitrator should be chosen under those rules. Jacobs brought an action, seeking to compel arbitration under the Commercial Rules. The District Court held that it lacked jurisdiction and the Second Circuit agreed. An action to compel arbitration may only be brought if the other party refuses to arbitrate. Since the Agency was willing to arbitrate and the only dispute was the rules, the court had no jurisdiction. The decision in Jacobas v. USA Track and Field can be found here.

Man, oh, Mandamus. I'm sure you've all heard about Martha Stewart's criminal problems. Well, she also has civil problems in the form of a class action. When the criminal court hit, the parties to the civil case agreed to stay all discovery by and against Ms. Stewart. But the district judge had other ideas. He directed Ms. Stewart to conduct any discovery she decided. So, on October 21, 2003, Martha Stewart subpoenaed two attorneys for the SEC -- Helene Glotzer and Jill Slansky -- who had interviewed Stewart and her co-defendant in the criminal case, Peter Bacanovic.

Not surprisingly, the SEC was not so eager to allow its employees to appear for a deposition. It inquired of Stewart as to her reason for subpoenaing Glotzer and Slansky. Stewart's attorneys told the SEC that they wanted to question the lawyers regarding their recollection of interviews that they had conducted with Steward Bacanovic and his assistant, Douglas Faneuil.

The SEC declined to allow its attorneys to testify, claiming that such a deposition would violate the attorney work product privilege.

Stewart moved to compel compliance with teh subpoena. The SEC claimed that Stewart had not exhausted her administrative remedies, but the district judge granted the motion, asserting that he would deal with any privilege issues as they arose.

The SEC filed an emergency motion with the Second Circuit, seeking a stay of the district court's order and for a petition for mandamus. The Court heard argument on the motion and granted the petition for mandamus, dismissing the stay motion as moot.

The Court found that there was a novel and significant issue of law -- whether the Administrative Procedure Act's exhaustion requirement applies to a motion to compel a government agency to comply with a subpoena -- and that resolution of the issue would "lend structure to the procedural framework for adjudicating discovery disputes involving government agencies."

Second, the Court found that mandamus was proper because the district court's order was not appealable and, hence, mandamus was the only adequate means available to the SEC to protect its interests. While the SEC could just refuse to comply and deal with the issue on a contempt motion, the Court noted that the circumstances of the case were unusual and that such a procedure was not appropriate under the facts of the case. First, the SEC was not arguing that the district court had abused its discretion in granting the motion. It was asserting that the district court lacked jurisdiction to consider the motion. Second, the Court felt it inappropriate to force a government agency to submit to a contempt order.

Third, the Court held that resolution of the issue would aid in the administration of justice.

Having found, based on the above, that mandamus was a proper remedy, the Court turned to the merits of the petition. The Court held that in order to seek judicial review of an agency's non-compliance with a subpoena, a party must exhaust administrative remedies pursuant to section 704 of the Administrative Procedure Act. Stewart failed to do so. Hence, the district court lacked jurisdiction to hear the motion, and, on that basis, the petition for mandamus was granted.

In re SEC ex rel. Glotzer can be found at the Second Circuit website. It was decided on July 6, 2004.

Get it in writing. That's what Judge Newman says, speaking of plea agreements, in United States v. Graves. Graves was indicted for narcotics offenses. He agreed to plead guilty to one firearms violation count for which he would receive a sentence of 15 years. The plea agreement provided a cooperation section, which required that Graves cooperate with the Government by providing complete and truthful information about his criminal activity and testifying where necessary. The cooperation section did not say anything about acquiring new information about criminal activity by acting as an informant, nor did it require the Government to move or consider moving for a 5K1.1 departure for rendering substantial assistance.

The District Court approved the plea agreement. During the plea allocution, the prosecutor stated that there was a 5K aspect to the plea agreement because the Government might make a 5K motion. The Court explained the plea agreement to Graves, stating that if he provided substantial assistance to the Government, "then the government will move for a downward departure under Rule 5K of the sentencing guidelines and ask that I impose a lower sentence." The Court, however, warned Graves that "the government is not obligated under this agreement to do that, but will do so only if you have given substantial assistance and cooperation to the government."

Graves sought to withdraw his plea. He complained that, although he was cooperating with the Government, the Government claimed his assistance was not substantial. While the prosecutor admitted that the information provided by Graves was "good, fruitful information," it did not make a 5K motion. The Government decided that the evidence provided, in light of his criminal background, was not substantial enough to warrant making the motion and certainly not worth releasing him to act as an outside informant.

Graves' attorney claimed that despite the language of the plea agreement, there was an understanding with the prosecutor that the actual sentence would be substantially less than 15 years. The prosecutor did not deny that such had been discussed, but claimed that he had told Graves that it was a long shot that he would be released.

The District Court denied the motion to withdraw Graves's plea.

The Second Circuit remanded the case to the District Court. In light of the fact that there clearly had been discussions about a 5K motion, the Court held that there were issues of fact for a factual inquiry as to exactly what was said aobut proactive cooperation, what understanding was reasonably conveyed to Graves concerning the cooperation that would be required for him to have a chance for a reduced sentence and whether he would be released in order to render such cooperation.

Judge Newman noted: "Of course, all of the uncertainties surrounding this plea could have been avoided if the Government had heeded our prior admonition to include all representations in the written plea agreement."

The decision can be found here.

Reliance not required. I know. It's hornbook law that in order to prove a case for fraud, you have to show reliance. Well, according to the Second Circuit in Ideal Steel Supply Corp. v. Anza, reliance is not required to state a RICO claim based on mail or wire fraud. In that case, Ideal's competitior was gaining a competitive advantage by not charging tax to customers who paid in cash. The competitor sent fraudulent tax information to the government. This practice was put in place, according to Ideal, to give its competitor a competitive advantage over Ideal and to gain customers it would not be able to obtain absent the practice. The District Court dismissed the complaint, holding that because Ideal did not rely on the fraudulent tax information, it lacked standing. The Second Circuit held that reliance was not necessary. What was necessary was a showing that Ideal was an intended victim of the fraud and that its injury was proximately caused by the fraud. The decision can be found at the Second Circuit website. The decision came down on July 2, 2004.

Are you a debt collector? That question was raised in Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carrol & Bertolotti. There, a law firm was sued under the Fair Debt Collection Practices Act. The firm moved for summary judgment asserting that its actions -- sending out a three-day notice pursuant to the New York State Real Property Actions and Proceedings Law -- did not violate the Act and that it was not a debt collector within the meaning of the Act. The district court granted the motion on the second ground. The plaintiff appealed.

The district court's decision was grounded in the fact that the law firm had not derived significant revenue from debt collection over the past year, did not devote significant resources to that area of practice, did not market itself as a debt collector and had no regular client relationship with a debt collecting business. The Second Circuit, however, held that the determination of whether a law firm regularly engages in debt collection activity such as to make it a debt collector under the Act must be assessed on a case by case basis. In assessing "regularity," a court should consider a number of factors, including (1) the number of debt collection communications issued and/or debt collection litigations commenced over the relevant period, (2) the frequency of such communications or litigations, (3) whether the firm has personnel specifically assigned to work on debt collection matters, (4) whether the firm has systems or contractors in place to facilitate such activity and (5) whether the activity is undertaken in connection with ongoing client relationships with entites that have retained the frim to assist in the collection of outstanding debt collection activity.

Finding that, based on the facts before the district court, a rational fact finder could find that the law firm was a debt collector under the Act, the Second Circuit vacated the summary judgment and remanded the case for further proceedings.

The decision can be found here.

It's un-bear-able! The Vermont Teddy Bear Company sued Robert M. Schwimer upon finding that Schwimer was using its BEARGRAM mark in the marketing of his products, asserting various intellectual property and related state law tort claims. The Company moved for summary judgment, and, despite having received notice, Schwimmer failed to oppose the motion. The district court granted the summary judgment motion simply by endorsing the notice of motion and adopting, with slight modifications, the Company's proposed order as judgment. The order contained no reasoning. Schwimer appealed.

On July 1, 2004, the Second Circuit vacated and remanded. It wrote "to clarify the procedure to be followed when a motion for summary judgment is unopposed." The Court held that Rule 56 does not embrace default judgment principles and even if a summary judgment motion is unopposed, the district court still has to decide whether the movant is entitled to judgment as a matter of law. It took no position as to whether summary judgment was appropriate in this case, but remanded the case to the district court for a reasoned determination on that issue.

The decision in Vermont Teddy Bear Co. v. 1-200 Beargram Co. can be found here.

Effective July 6, 2004, certain policies of the Second Circuit will be modified. As of that date, conferences in counseled immigration appeals will no longer be automatic. Also, as of that date, absent any need for expedition, the Court will grant a party one 30-day extension of time to file a brief upon filing an appropriate motion. Such extensions will be granted administratively by the Clerk, unless opposed, in which case it will be referred to a judge. For more information, see this.

Was I wrong? When the Calabresi imbroglio came to light, I knew that Washington lawmakers would not let the Judge off easily. A group of legislators have asked a committee that studies the enforcement of judicial conduct rules to conduct an investigation into the remarks of Judge Calabresi in which he compared Bush to Hitler and Mussolini. For those of you who have had your head in the sand for the past couple of weeks, I have posted about this incident here, here and here. Justice Breyer, who chairs the committee has told the legislators that the committee is not the proper forum for such an investigation. An article on the legislators' request can be found here. I'm not sure that we've heard the end of this.

UPDATE: The New York Sun printed this article on the latest Calabresi news. Actually, that was the article I first read about the issue, but since I am not a subscriber to the electronic version of the Sun, I had no access to the on-line version of the article. Evidently, Howard Bashman of How Appealing doesn't have that problem, and I thank him for providing the link.

ANOTHER UPDATE: Here is the letter that was sent to Justice Breyer. Thanks to Eugene Volokh, who posted it, and Howard Bashman (again) who pointed me to it.