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rejecting defendant's specificity argument because there was no ambiguity regarding a material element of the offense and the indictment alleged the manner in which the defendant supposedly defrauded the victim, his mental state, and the appropriate statute
Summary of this case from U.S. v. KleinOpinion
No. S3 01 Cr. 00058 (LTS).
June 18, 2002
Attorneys for the United States: James B. Comey, United States Attorney for the Southern District of New York. By: Peter G. Neiman, Esq. and Justin S. Weddle, Esq. from New York, New York.
Attorneys for Defendant Michael Reddy: By: Robert S. Fink, Esq. of Kostelanetz Fink, LLP., from New York, New York.
Attorneys for Defendant Joseph Amato: By: Robert Hill Schwartz, Esq. of the Law Offices of Robert Hill Schwartz from New York, New York.
Attorneys for Defendant John Fasciana: By: Richard A. Greenberg, Esq. of Newman Greenberg from New York, New York.
OPINION AND ORDER
Defendant John Fasciana ("Fasciana"), has moved to dismiss Counts and One and Two of the Indictment and to strike certain portions of the Indictment. Defendant Joseph Amato ("Amato") moves to sever his trial from the trials of defendants Michael Reddy ("Reddy") and Fasciana. Defendant Reddy also has moved to sever his trial from those of Defendants Fasciana and Amato. For the reasons set forth below, defendant Fasciana's motions are denied. Defendant Amato's motion is also denied, and Defendant Reddy's motion is granted on consent.
Defendants Fasciana and Amato originally moved against the second superseding indictment on November 21, 2001. The Government filed a third superseding indictment on December 4, 2001. Defendant Fasciana thereafter made additional motions against the third superseding indictment, which incorporated his motions of November 21, 2001 and further argued that Count Two of the third superseding indictment is time-barred. Defendant Fasciana's original motion argued that the portions of the Indictment relating to the right of "honest services" under 18 U.S.C. § 1346 should be dismissed. Prior to oral argument on the motions, the Government, by letter, indicated that it no longer intended to pursue the "honest services" theory. Accordingly, at oral argument, the parties stipulated to strike certain portions of the third superseding indictment pertaining to "honest services." This Opinion identifies those portions so stricken.
BACKGROUND
The Indictment charges Defendants with thirteen counts of mail and wire fraud in connection with an alleged scheme to defraud Electronic Data Systems, Inc. ("EDS"). The relevant facts alleged in the 31-page Indictment can be summarized as follows.
The term "Indictment" refers to the third superseding indictment ("S3") unless otherwise indicated herein.
EDS' Acquisition of FCI
Pursuant to a stock purchase agreement executed on or about May 4, 1995 (the "Purchase Agreement"), EDS purchased FACS Corporation International ("FCI"). Reddy owned approximately 70% of FCI's stock and also served as FCI's chairman and CEO. Amato was the CFO of FCI, and owned approximately 1.6% of FCI's stock. After the purchase, FCI became part of EDS's Global Financial Markets Group ("GFMG"). Reddy became the chairman and CEO of the GFMG, and at various times in 1995 and 1996, Amato served as the GFMG's CFO. Fasciana served as counsel to FCI and its shareholders in connection with FCI's purchase by EDS. Indictment ¶¶ 1-4, 7.
In connection with the purchase, EDS paid approximately $6 million to FCI's shareholders and agreed to make several contingent payments to those shareholders and to certain "key employees" who were to be employed by EDS after it purchased FCI. EDS paid $2 million into an escrow account controlled by Fasciana, and agreed that these funds would be released to the FCI shareholders if the GFMG met specified earnings targets for the eight months following the acquisition. EDS paid a further $1 million into the Fasciana escrow account and agreed that those funds would be released to the FCI shareholders in May 1996 if the GFMG (i) met the year-end 1995 performance goals, and (ii) succeeded in collecting approximately $2.8 million in receivables that were outstanding on FCI's books at the time of the stock purchase ("Pre-Acquisition Receivables"). The Purchase Agreement further provided that the escrow funds relating to the Pre-Acquisition Receivables could be released on a dollar for dollar basis after May 1996 in connection with collections of those receivables. Id. ¶ 9. EDS also agreed, as part of an Incentive Compensation Plan ("ICP") with Reddy and other "key employees," to pay those individuals up to a total of $14 million in 1996, 1997, and 1998 if those key employees remained with EDS and if the GFMG met certain performance targets. Id. ¶¶ 9-10. Reddy agreed to pay Fasciana a portion of the contingent payments he received. Id. ¶ 11.
The Business of the Asset Research and Recovery Division
GFMG, through its Asset Research and Recovery division, assisted bank and brokerage firm clients in recovering funds that had been erroneously escheated to states as abandoned property. The Asset Research and Recovery division analyzed records to identify any funds belonging to such a client that had been escheated in error to a state. Upon identification of such funds, the Asset Research and Recovery division prepared claims documenting the client's ownership of the escheated funds and caused those claims ("Escheatment Claims") to be presented to the state for payment. Id. ¶ 6.
The Asset Research and Recovery division also analyzed clients' records relating to funds that such clients had earmarked for escheatment in the future, but which had not yet turned over to state authorities because the requisite number of years had not yet passed ("Pre-Escheatment Funds"). When it determined that located Pre-Escheatment Funds belonged to a client (rather than a third party), the Asset Research and Recovery division assembled documentation demonstrating the client's ownership of the funds and presented the documentation to the client. If the client agreed that the Asset Research and Recovery division had established the client's ownership of the Pre-Escheatment Funds, it would keep the funds rather than escheating them to the state. Id.
Another aspect of the Asset Research and Recovery division's business was the analysis of records on behalf of clients to determine whether any funds owing to the client relating to its security holdings had been mistakenly paid to or retained by a third party. Upon identification of any such funds, the Asset Research and Recovery division prepared claims documenting the client's entitlement to the funds and caused the claims ("Streetside Claims") to be submitted to the third party for payment.Id.
The Asset Research and Recovery division typically was paid on a contingent fee basis, receiving 30% of any funds recovered for its clients from Escheatment, Pre-Escheatment or Streetside Claims. Id.
The $2 Million Escrow Payment for 1995 Performance
Under the Purchase Agreement, FCI shareholders were entitled to a $2 million payment from the escrow account controlled by Defendant Fasciana if the GFMG realized $1.17 million in net revenue for the final eight months of 1995. The Indictment alleges that Defendants and others defrauded EDS by fraudulently representing to EDS that the GFMG had met that performance target. The Indictment further alleges that the Defendants perpetrated this fraud by taking "dead" Pre-Escheatment items (i.e., items that the Asset Research and Recovery division had already reviewed and found appropriate for future escheatment) relating to the Asset Research and Recovery division's client Kidder Peabody ("Kidder") and Kidder's parent, GE Capital ("GECC"), and booking revenue relating to those items as if they were valid Pre-Escheatment claims.
The Indictment alleges that this fraud was accomplished as follows: Reddy instructed EDS employees to create a list of more than $7 million of the "dead" items and to record as GFMG income for 1995 75% of the fee that EDS would have earned if these Pre-Escheatment claims had in fact been valid, or approximately $1.6 million. Reddy did this knowing full well that the Pre-Escheatment claims on the list were not valid. The Indictment alleges that Reddy knew that EDS could not document ownership of the funds, and that the funds should have been escheated to the State of Delaware. Id. ¶¶ 15-17. By booking this $1.6 million in additional revenue in December 1995, Reddy boosted the GFMG's performance sufficiently to make it appear to have met its performance target specified in the EDS-FCI purchase agreement. Because, as of December 1995, EDS had not completed all of the work necessary to establish Kidder's ownership of the funds, it was, however, improper to recognize as 1995 income the fees attributable to those Pre-Escheatment Funds. Id. ¶ 18. Based on the reported performance and pursuant to its obligations under the Purchase Agreement, EDS authorized Fasciana to pay the FCI shareholders the 1995 performance payment of $2 million, plus interest, from his escrow account. Id. ¶ 19.
The Indictment alleges that, in order to conceal the improper accrual of $1.6 million in revenue Reddy, with the assistance of Fasciana, attempted in 1996 to convince Kidder and GECC to approve the $7 million in Pre-Escheatment claims on the list, move those funds from the Pre-Escheatment accounts to the Kidder/GECC accounts, and pay a 30% fee to EDS as if these were valid Pre-Escheatment claims. Id. ¶¶ 20-21. As part of that effort, Reddy falsely told Kidder and GECC, in substance, that EDS's expert personnel had determined that the items should not have been earmarked for escheatment and that, where records were incomplete, Kidder and GECC should take the items back into income because there was "enough information, documented patterns of behavior and knowledge of street practice" to conclude that they should not have been earmarked for escheatment in the first place. The Indictment asserts that, because EDS's personnel had researched these items and in fact determined that they were proper Pre-Escheatment items, "reasonable business judgment and street practice, as well as Delaware law" actually required Kidder and the GECC to escheat the funds. Id. ¶ 21.
The 1997 $5 Million ICP Payment
In the Indictment, the Government alleges that the Defendants and others defrauded EDS by fraudulently representing to EDS that the GFMG had met the 1997 year-end performance targets under the ICP, and therefore that the key employees included in the ICP had earned a $5 million payment when, in truth and in fact, the GFMG had not met its performance targets in 1997, and the employees therefore were not entitled to share in the $5 million ICP payment.
The Government asserts in the Indictment that, as the end of 1997 approached, it became clear to Reddy that the GFMG would not meet the ICP performance targets for 1997, and therefore that the key employees would not receive the $5 million payment available under the ICP for 1997. Rather than truthfully report to EDS that the GFMG had not met its performance targets, Reddy and others decided to record as revenue approximately $7 million that the GFMG had not earned. The anticipated revenues related to work the Asset Research and Recovery division was performing for Cigna Investments, Inc. and Prudential Investments. By year-end 1997, Asset Research and Recovery had only identified potential claims for those clients; it had not completed the research necessary to determine whether the claims were valid and none of the claims had been submitted for payment. Because the work necessary to substantiate the potential claims had not been completed in 1997, the Indictment alleges, it was not proper under EDS's accounting rules and generally accepted accounting principles ("GAAP") for the GFMG to record as 1997 income revenues associated with these potential claims Id. ¶ 25.
Notwithstanding the fact that the GFMG had not earned revenue relating to these potential claims, Reddy and others decided to book approximately $7 million in 1997 revenue relating to these claims so that it would appear (falsely) that the GFMG had met its performance targets for year-end 1997. As a result, EDS made the $5 million ICP payment to the key employees of the GFMG. Id. (Reddy's share of the payment amounted to approximately $3.6 million).
To conceal the improper 1997 recording of income associated with these potential Cigna and Prudential claims, Reddy and Fasciana instructed the head of the Asset Research and Recovery division to "substitute" later-researched valid claims for the improperly booked claims. Thus, during 1998, the GFMG substituted valid claims that it had identified in 1998 for the invalid claims improperly booked for 1997, making it appear that income earned in 1998 was really earned in 1997. Id. ¶¶ 26-28.
Fraudulent Escrow Claim Relating to Pre-Acquisition Receivables
In November 1996, more than $500,000 of the Pre-Acquisition Receivables remained uncollected, and a corresponding amount of money remained in the escrow account, held by Defendant Fasciana, that had been established when EDS purchased FCI. Under the Purchase Agreement, these funds were to remain in escrow or revert to EDS unless the GFMG recovered receivables that were outstanding on the books of FCI at the time of the purchase.
The Indictment charges that, from about November 1996 to February 1997, Defendants Reddy, Fasciana and Amato falsely made it appear that they had collected approximately $111,870 of the Pre-Acquisition Receivables by making it appear that a check from a post-acquisition client was actually a payment in respect of a Pre-Acquisition Receivable. By so doing, they fraudulently induced EDS to authorize Fasciana to release approximately $111,870 from the escrow account to the FCI shareholders. Id. ¶ 29.
By late 1997, more than $350,000 in Pre-Acquisition Receivables remained uncollected and a corresponding amount of money remained in the Fasciana escrow account. The Indictment charges that Defendants Reddy and Fasciana deceived EDS into believing they had collected the Pre-Acquisition Receivables. According to the Indictment, Defendants Fasciana and Reddy "laundered," through Fasciana's bank accounts, more than $350,000 that EDS had received from other sources, and then represented to EDS that the funds were attributable to the collection of Pre-Acquisition Receivables. Based on Reddy and Fasciana's false representations, EDS approved the release of approximately $350,000 from the escrow account to the FCI shareholders. Id. ¶ 30.
DISCUSSION
Defendant Fasciana's Motion to Strike Count Two of the Second Superseding Indictment
Defendant Fasciana contends that Count Two of the second superseding indictment ("S2"), which charges Defendants Reddy and Fasciana with mail fraud, should be dismissed because it fails to allege sufficiently that Fasciana had knowledge of the scheme involving the $2 million performance payment.
"[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense." Hamling v. United States, 418 U.S. 87 (1974); see also, Fed.R.Crim.P.7(c). The Second Circuit has "consistently upheld indictments that `do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime.'" United States v. Walsh, 194 F.3d 37, 44 (2d Cir. 1999) (quoting United States v. Tramunti, 513 F.2d 1087, 1113 (2d Cir. 1975)). The Supreme Court, however, has recognized a limitation on this practice, so that "where the definition of an offense, whether it be at common law or by statute, includes generic terms, it is not sufficient that the indictment shall charge the offense in the same generic terms as in the definition; but it must state the species, — it must descend to particulars." United States v. Pirro, 212 F.3d 86, 93 (2d Cir. 2000) (quoting United States v. Cruikshank, 92 U.S. 542 (1875). "Undoubtedly, the language of the statute may be used in the general description of an offense, but it must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offense, coming under the general description, with which he is charged." United States v. Hess, 124 U.S. 483, 487 (1888).
Count Two of S2 (in paragraph 35) specifically incorporates by reference paragraphs 1 through 29 and 33 of S2. Paragraph 11 charges Defendant Fasciana with participating "in a scheme to defraud EDS by inducing EDS to make various contingent payments to the FCI Shareholders and the Key Employees, when, in truth and fact, such payments were not due and owing." Id. at ¶ 11. Paragraph 19 of S2 alleges that Defendant Reddy, with the assistance of Defendant Fasciana, attempted to convince Kidder and GECC to approve approximately $7 million in potential Pre-Escheatment claims. Id. at ¶ 19. Paragraphs 30 and 31 of S2 allege that Defendant Fasciana willfully and knowingly conspired to commit offenses under sections 1341 (mail fraud) and 1343 (wire fraud) of title 18 of the United States Code. Paragraph 31 of S2 specifically alleges that Defendant Fasciana knowingly placed matters in the U.S. mail for purposes of executing the scheme to defraud EDS as alleged in the Indictment. Paragraph 36 of S2 alleges that Defendant Fasciana, with the other Defendants, "unlawfully, willfully and knowingly, placed in a post office or authorized depository for mail matter, matters and things to be sent and delivered by the Postal Service . . . for the purpose of executed the fraud scheme set forth in Count One. . . ." Id.
Defendant Fasciana relies on United States v. Pirro, 212 F.3d 86. InPirro, the Second Circuit determined that a tax-fraud indictment failed to allege sufficiently that the defendant had made an omission that amounted to a material falsehood. The Court of Appeals found that, in order for the charged omission to amount to a false statement within the meaning of the applicable criminal statute, the indictment should also have contained background information that specified the duty to disclose the fact that was omitted. Id. at 93. The court found that, because the underlying facts alleged in the indictment were insufficiently specific, the indictment alleged the omission of a fact that the defendant "might not have been required to report." Pirro, at 95. Thus, the defendant inPirro was not adequately informed of the nature of the charge against him.
Defendant Fasciana also relies on United States v. Berlin, 472 F.2d 1002 (2d Cir. 1973). In Berlin, the defendant was charged with aiding and abetting another in submitting false statements to a savings and loan company. An essential element of the crime charged in that case was knowledge that the documents were false. The indictment in Berlin did not allege such knowledge but alleged that the defendant had "counselled and caused" the other person to submit the false documents. The court inBerlin determined that the allegation that defendant "counselled and caused" the statement to be submitted was not equivalent to an allegation that defendant knew the documents contained false statements because one could "counsel and cause" another to make a statement that "one only later learns to be untrue." Id. at 95.
In each of Pirro and Berlin, the indictments were determined to be insufficient because allegations pertaining to a material element of the offense charged were ambiguous. Here, there is nothing in Count Two of S2 that is ambiguous. Rather, at issue is whether the indictment alleges sufficiently that Defendant Fasciana had knowledge of the scheme involving the $2 million performance payment. See Fasciana's Nov. 21, 2001 Mem. at 31.
Because the Indictment alleges that Defendant Fasciana knowingly committed mail fraud in furtherance of the scheme to defraud EDS and because the Indictment alleges facts describing the manner in which Defendants allegedly misled EDS, together with citations of the relevant statute, the Court finds that the Indictment provides Defendant Fasciana with adequate notice of the nature of the charges against him. See United States v. Hernandez, 980 F.2d 868, 871 (2d Cir. 1992) (the precise language in the caption to the challenged count, citation to the statute and factual allegations provided defendant with adequate notice of the charges against him).
Whether Count Two of the Third Superseding Indictment is Time-Barred
Defendant Fasciana contends that Count Two of the Indictment is time-barred due to flaws in the second superseding indictment in which the mail fraud charge was originally asserted. "[O]nce an indictment is brought, the statute of limitations is tolled as to the charge contained in that indictment." United States v. Grady, 544 F.2d 598, 601 (2d Cir. 1976). Further, "if brought during the valid pendency of the initial indictment, a superseding indictment containing substantially the same charges as the superseded indictment should have no effect on the initial tolling of the statute of limitations." United States v. Robilotto, 828 F.2d 940, 949 (2d Cir. 1987) (citations omitted). "Superceding indictments have been deemed timely when they simply added detail to the original charges, narrowed rather than broadened the charges, contained amendments as to form but not substance, or were otherwise trivial or innocuous." United States v. Zvi, 168 F.3d 49, 54 (2d Cir. 1999).
Defendant Fasciana argues that Count Two of S2 should be dismissed because it failed to allege Fasciana's knowing participation in the fraud scheme charged in Count Two and that Count Two of S3 thus cannot relate back and is accordingly time-barred. Having determined above that Count Two of S2 alleges sufficiently Defendant Fasciana's knowing participation in the fraud scheme, the Court finds that Count Two of S3 is not time-barred. The third superseding indictment contains amendments that add detail to, but do not affect the substance of the allegations contained in Count Two of S2. Count Two of S3 thus relates back and is timely.
Fasciana's Motion to Dismiss Count One
Defendant Fasciana further moves to dismiss Count One of the Indictment contending that it charges more than one conspiracy.
Whether a conspiracy is multiple or a single conspiracy is generally a fact question for the jury. United States v. Fries, 224 F.3d 107, 114 (2d Cir. 2000). An indictment alleges a single conspiracy if it charges defendants with agreeing to participate in one or more common criminal ventures. See United States v. Alessi, 638 F.2d 466, 473 (2d Cir. 1980).
"[I]n order to prove a single conspiracy, the government must show that each alleged member agreed to participate in what he knew to be a collective venture directed toward a common goal. The co-conspirators need not have agreed on the details of the conspiracy, so long as they agreed on the essential nature of the plan." United States v. McDermott, 245 F.3d 133, 137 (2d Cir. 2001) (citing United States v. Maldonado-Rivera, 922 F.2d 934, 963 (2d Cir. 1990) (internal quotations and citations omitted). The "essence of conspiracy is the agreement and not the commission of the substantive offense." Id.. (citations omitted).
In order to support a conviction for conspiracy, the evidence must be sufficient to permit the jury to infer that the defendant and other alleged co-conspirators entered into a joint enterprise with consciousness of its general nature and extent. United States v. Beech-nut Nutrition Corp., 871 F.2d 1181, 1191 (2d Cir. 1989) (citations omitted). When a conspiracy has been charged, the alleged co-conspirators' actions may be assessed in light of their "interrelationship and interdependency" as well as "the nature and duration of the enterprise." United States v. Alessi, 638 F.2d at 473. A defendant may be deemed to have agreed to join a conspiracy if there is some indication that the defendant knew of and intended to further the illegal venture. Beech-nut Nutrition, 871 F.2d at 1191 (citing United States v. Zambrano, 776 F.2d 1091, 1095 (2d Cir. 1985). The agreement needed to support a charge of conspiracy need not be explicit but may be tacit. Id.
A single conspiracy, rather than multiple conspiracies, may be found where the co-conspirators had a "common purpose." United States v. Heinemann, 801 F.2d 86, 91-92 (2d Cir. 1986) (quoting Kotteakos v. United States, 328 U.S. 750, 769 (1946)). The participants' goals need not be congruent for a single conspiracy to exist, so long as their goals are not at "cross purposes." United States v. Heinemann, 801 F.2d at 92 and n. 1 (citations omitted).
In charging that the Defendants entered into a conspiracy to defraud EDS (Indictment ¶¶ 12, 31-33) by inducing EDS to make certain payments to FCI shareholders and other key employees when the payments were not owing, Count One alleges a single conspiracy. This common purpose and common goal was the scheme to induce EDS to make several payments performance-related payments under the Purchase Agreement and Incentive Compensation Agreement for the benefit of the Defendants when such payments were not owing.
The allegedly fraudulent methods used to trigger each of the improper payments alleged in the Indictment were similar. The Indictment alleges that the Defendants made false representations to EDS concerning the income earned by GFMG. In so doing, Defendants allegedly booked revenue that had not been earned (the $2 million payment for 1995 performance); booked revenue to make it look like it had been earned earlier (the $5 million payment for 1997 performance); and misled EDS into believing that they had collected funds in respect of Pre-Acquisition Receivables when they had not (1997 and 1998 payments for Pre-Acquisition Receivables). With respect to each of these instances, the Indictment charges Defendants with defrauding EDS by making false representations, false book entries or other misleading accounting techniques to induce EDS to make the payments that allegedly should not have been made.
Thus, the Indictment, on its face, alleges a single conspiracy with a common purpose. Whether the Government can present sufficient evidence to prove the single conspiracy alleged in Count One is question that will be resolved at trial. See Alessi, 638 F.2d at 472. In light of the foregoing, Defendant Fasciana's motion to dismiss Count One is denied.
Fasciana's Motion to Strike Portions of the Indictment as Stating Legal Conclusions
Defendant Fasciana moves to strike references to Delaware law, language referring Defendant Fasciana's alleged "laundering" of money and paragraph eight of the Indictment which alleges that Defendants had a fiduciary relationship to EDS.
Delaware Law
Paragraph 16 of the Indictment states: "In fact as Reddy well knew, EDS could not document Kidder's supposed ownership of these funds, Kidder was obligated under Delaware law to escheat these funds to Delaware, and EDS was not entitled to any fee." Id. ¶ 17. Paragraph 20 states: "In these circumstances, reasonable business judgment and street practice, as well as Delaware law, required Kidder to escheat the funds to Delaware."Id. ¶ 21. Fasciana contends that the Indictment's references to Delaware law should be stricken as surplusage and as improper legal conclusions. Further, Defendant Fasciana argues that the Government's reference to Delaware law is incorrect.
"Motions to strike surplusage from an indictment will be granted only where the challenged allegations are `not relevant to the crime charged and are inflammatory and prejudicial.'" United States v. Hernandez, 85 F.3d 1023, 1030 (2d Cir 1996) (citations omitted). If the allegations are admissible and relevant, they should not be stricken. United States v. Scarpa, 913 F.2d 993, 1013 (2d Cir. 1990).
The Indictment charges that Defendants made misrepresentations concerning Pre-Escheatment claims in respect of certain principal or interest payments that Kidder had held for third parties for between one and four years. The Indictment asserts, in paragraph 16, that "under Delaware law, Delaware was entitled to these funds if they remained unclaimed for five years." Indictment at ¶ 16. The Indictment charges Defendants with misrepresenting the ownership of the claims. It is relevant to the charges in the Indictment that Delaware law requires that unclaimed funds escheat to Delaware if they are unclaimed for five years. In order for the jury to understand the charges against the Defendants, the jury must be apprised of the relevant Delaware law governing escheatment.
Defendant Fasciana contends that paragraph 17 misstates Delaware law because it states that Kidder was required to escheat funds to the state of Delaware. Read together, paragraphs 16 and 17 of the Indictment make clear that Delaware is entitled to unclaimed funds if the funds remained unclaimed for five years. Under these circumstances, the references to an obligation to escheat under Delaware law are neither inflammatory nor prejudicial. Accordingly, because the statements regarding Delaware law in the Indictment are relevant to the charges against Defendant Fasciana and are not inflammatory or prejudicial, his motion to strike the references to Delaware law in the Indictment is denied.
Allegations of Money Laundering
Paragraph 30 of the Indictment alleges that Defendants Fasciana and Reddy deceived EDS into believing that certain Pre-Acquisition Receivables had been collected, when they had not been collected. The Indictment further alleges that "Reddy and Fasciana accomplished this by laundering through Fasciana's bank accounts more than $350,000 in funds EDS received from sources other than the collection of Pre-Acquisition Receivables." Id. ¶ 30.
Defendant Fasciana contends that the use of the word "laundering" is inflammatory and will unfairly prejudice Defendant Fasciana by inferring that he was involved in money laundering a crime that is not charged in the Indictment.
As set forth more fully in the preceding section, a motion to strike language from an indictment will be granted if the challenged language is irrelevant and inflammatory. United States v. Hernandez, 85 F.3d at 1030. The Indictment's use of the term "laundering" appears to be relevant to the Government's allegations concerning the manner in which Defendants Fasciana and Reddy deceived EDS into believing that they had collected Pre-Acquisition Receivables. Since the term is relevant to the charge, Defendant's contention that the term is inflammatory, alone, is an insufficient basis for the Court to strike the term. Accordingly, Defendant Fasciana's motion to strike the reference to laundering in the Indictment is denied.
Paragraph Eight; Fiduciary Duty
As explained above, the Government has stipulated to withdraw the portions of the Indictment alleging that Defendants had deprived EDS of their "honest services." At oral argument in this matter Defendant Fasciana asserted that paragraph eight of the Indictment should be stricken because paragraph eight is a legal conclusion added to support the Government's "honest services" theory. The Government argued that paragraph eight does not relate solely to its "honest services" theory and thus, that it should not be stricken.
Paragraph eight of the Indictment reads as follows:
In their capacities as officers and employees of EDS, MICHAEL REDDY and JOSEPH AMATO, the defendants, owed a fiduciary duty to EDS. In his capacity as attorney representing EDS, JOHN FASCIANA, the defendant, owed a fiduciary duty to EDS. FASCIANA was well aware that defendants AMATO and REDDY owed a fiduciary duty to EDS.
Indictment ¶ 8.
As noted above, the challenged language must be irrelevant and inflammatory in order to warrant the granting of a motion to strike language from an indictment. United States v. Hernandez, 85 F.3d at 1030.
Whether Defendants had a fiduciary duty to EDS is relevant to the mail fraud charges in the Indictment. "[C]oncealment by a fiduciary of material information which he is under a duty to disclose to another under circumstances where the non-disclosure could or does result in harm to the other is a violation of the [mail fraud] statute." United States v. Altman, 48 F.3d 96, 102 (2d Cir. 1995) (quoting United States v. Bronston, 658 F.2d 920, 926 (2d Cir. 1981.)).
Given that paragraph eight is relevant to Defendants' alleged fraud against EDS, the paragraph is neither inflammatory or prejudicial. Accordingly, Defendant Fasciana's request to strike paragraph eight is denied.
Defendant Amato's Motion to Sever
Defendant Amato moves to sever his trial from the trials of Defendants Fasciana and Reddy. After Defendant Amato filed his motion to sever, Defendant Reddy moved to sever his own trial from those of Defendants Fasciana and Amato, based on defendant Reddy's ill health. The Government has consented to severance of Reddy's trial. Thus, the remaining question posed by Defendant Amato's motion is whether Defendant Amato should be tried separately from Defendant Fasciana.
Rule 14 of the Federal Rules of Criminal Procedure provides, in pertinent part, that, "[i]f it appears that a defendant or the government is prejudiced by a joinder of . . . defendants in an indictment . . . or by such joinder for trial together, the court may . . . grant a severance of defendants or provide whatever other relief justice requires." Fed.R.Crim.P. 14. Motions for severance under Rule 14 are committed to the discretion of the district court. See United States v. Dacunto, No. 00 Cr. 620, 2001 WL 13343, at *3 (S.D.N.Y. Jan. 5, 2001) ("[t]here is a strong federal policy `favoring joinder of trials, especially when the underlying crime involves a common plan or scheme and defendants have been jointly indicted'") (quoting United States v. Cardascia, 951 F.2d 474, 482-83 (2d Cir. 1991)). "In order to justify severance under Rule 14, a defendant must establish that he will be `so severely prejudiced by the joinder as to have been denied a fair trial. . . .'" Id. (quoting United States v. Torres, 901 F.2d 205, 230 (2d Cir. 1990)).
Even if prejudice is shown, Rule 14 does not require severance, but leaves the tailoring of the relief to be granted, if any, to the district court's sound discretion. Zafiro v. United States, 506 U.S. 534, 538-39 (1993). "A district court should grant a severance under Rule 14 only if there is a serious risk that a joint trial would compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable judgment about guilt or innocence." Id. at 539.
Amato argues for severance from the trials of Reddy and Fasciana based in part upon concern over "spillover prejudice." He contends that the bulk of the evidence in the case is admissible only against defendants Reddy and Fasciana. See Amato Mem. of Law at 16.
Defendant Amato characterizes the Indictment as charging four separate incidents of alleged fraud: the $2 million escrow payment for the 1995 performance, the $5 million incentive payment for 1997 performance, the 1997 payment for the collection of Pre-Acquisition Receivables and the 1998 payment for the collection of Pre-Acquisition Receivables. Defendant Amato contends that the Indictment contains allegations concerning his conduct only in connection with the 1997 payment for the collection of Pre-Acquisition Receivables. Defendant Amato further argues that, even in connection with 1997 payment for the collection of Pre-Acquisition Receivables, most of the allegations in the Indictment concern the activity of the Asset Research and Recovery Division of EDS. Defendant Amato contends that he had only a passing association with the Asset Research and Recovery Division, when he worked off-site for one of the division's clients. Amato Mem. of Law at 17. In addition the Indictment, Amato points out, alleges that he received only $1,500 from his participation in the alleged accounts receivable fraud.
The Government contends that the Indictment charges Defendant Amato with conspiring to commit one or more of the objects of the broad conspiracy discussed supra. Thus, the Government argues, evidence admissible to prove the conspiracy, including evidence relating to the conduct of Fasciana and Reddy, is admissible against Amato and would be admissible against him even if his trial was severed. Government's Mem. of Law at 55.
Courts have considered the following nonexclusive factors in determining whether severance is warranted: (1) the number of defendants and the number of counts; (2) the complexity of the indictment; (3) the estimated length of the trial; (4) disparities in the degrees of involvement by defendants in the overall scheme; (5) possible conflict between various defense theories; and (6) prejudice resulting from evidence admissible as to some defendants, but not others. United States v. Santiago, 174 F. Supp.2d 16, 22 (S.D.N.Y. 2001) (citing Gallo, 668 F. Supp. at 749).
Moreover, "[a] defendant raising a claim of prejudicial spillover bears an extremely heavy burden. Indeed, a motion to sever under Rule 14 is committed to the discretion of the trial court and is `virtually unreviewable.'" United States v. Friedman, 854 F.2d 535, 563 (2d Cir. 1988) (citations omitted). To establish an abuse of discretion, an appellant must show more than that he would have stood a better chance of obtaining an acquittal had he had a separate trial. United States v. Carson, 702 F.2d 351, 366 (2d Cir.), cert. denied, 462 U.S. 1108 (1983). Rather, he must show that a "miscarriage of justice" has occurred. United States v. Nersesian, 824 F.2d 1294, 1303 (2d Cir. 1987) (citation omitted).
In considering these factors, the Court, as explained below, has determined that Defendant Amato's trial should not be severed.
Number of Defendants and Counts: complexity
Because Defendant Reddy's trial has been severed, Amato would be tried only with Defendant Fasciana. There are 13 counts asserted against Defendants Amato and Fasciana in the Indictment; as set forth above, the Indictment alleges that Defendants conspired to defraud EDS and accomplished such fraud through the schemes set forth in respect of the payments made by EDS discussed herein. As discussed below, evidence concerning co-defendants' acts would be admissible in Amato's trial as proof of the existence and nature of the conspiracy. Thus, this factor does not support severance.
Estimated Length of Trial
Trial is estimated to last from six to eight weeks. The length of the trial and concerns of judicial economy counsel against severance.
Disparities in Degree of Involvement: Spillover Prejudice
Defendant Amato argues that most of the evidence at trial will concern the conduct of Defendant Reddy and that Amato will suffer "spillover prejudice" as a result. Because Defendant Reddy will not be tried with Defendant Amato, this concern is greatly reduced. Moreover, the conspiracy charges in the Indictment are not mutually exclusive such that the allegations against Reddy and Fasciana have no relationship to those charges against Amato. Even though there may be different amounts of proof offered against Reddy and Fasciana as opposed to Amato, it is settled that "differing levels of culpability and proof are inevitable in any multi-defendant trial and standing alone, are insufficient grounds for separate trials." United States v. Nunez, No. 00 Cr. 121, 2001 WL91708, at *3 (S.D.N.Y. Feb. 1, 2001) (quoting United States v. Carson, 702 F.2d at 366-67. In addition, "even if the Court were to grant severance, much of the evidence regarding . . . co-defendants' acts . . . would be admissible in . . . [their] trial as proof of the existence and nature of the . . . conspiracy." United States v. Muyet, 945 F. Supp. 586, 596 (S.D.N.Y. 1996). Accordingly, this factor does not weigh in favor of severance.
Conflict Between Defense Theories
Defendant Amato has not contended that there would be conflict between his defense theory and that of Defendant Fasciana. Thus, this factor does not weigh in favor of severance.
In light of the foregoing, Amato has not shown that a joint trial will prejudice him to a degree amounting to a miscarriage of justice. See United States v. Rosa, 11 F.3d 315, 341 (2d Cir. 1993). Accordingly, his motion for severance is denied.
CONCLUSION
For the reasons stated herein, Defendant Fasciana's motions to dismiss Counts One and Two of the Indictment are denied; Defendant Fasciana's motion to strike references to Delaware law and to money laundering in the Indictment is denied; Defendant Fasciana's application to strike paragraph eight of the Indictment is denied; Defendant Reddy's motion to sever his trial is granted; Defendant Amato's motion to sever his trial is denied.
In light of the Government's withdrawal of those elements of the Indictment pertaining to deprivation of "honest services," the following portions of the Indictment are hereby stricken:
In paragraph 31, the words "and 1346" at the end of the paragraph;
In paragraph 32, the words "including a scheme to deprive EDS of the honest services of Reddy, Amato and Fasciana;"
In paragraph 33, the words "including a scheme to deprive EDS of the honest services of Reddy, Fasciana and Amato;"
In paragraph 37, the words "including a scheme to deprive EDS of the honest services of Michael Reddy, John Fasciana and Joseph Amato;"
In paragraph 39 the words "including a scheme to deprive EDS of the honest services of Reddy and Fasciana."
The final pre-trial conference with respect to the trial of Messrs. Amato and Fasciana will be held on September 5, 2002 at 3:30 p.m.
A pre-trial conference with respect to Mr. Reddy will be held on January 17, 2003 at 12:00 p.m. The Court finds that Mr. Reddy is at this point physically unable to stand trial and that such inability is expected to last indefinitely. Accordingly, the time period from today's date through January 17, 2003, is excluded from speedy trial calculations with respect to Mr. Reddy pursuant to 18 U.S.C. § 3161(h)(4) and in the interests of justice.