United States v. Friedman, No. 19-2004

971 F.3d 700

UNITED STATES of America, Plaintiff-Appellee,

v.Arthur FRIEDMAN, Defendant-Appellant.

No. 19-2004

United States Court of Appeals, Seventh Circuit.

Argued June 2, 2020

Decided August 21, 2020

Ashley Chung, Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Chicago, IL, for Plaintiff - Appellee.

Steve A. Greenberg, Attorney, STEVEN A. GREENBERG AND ASSOCIATES, LTD., Chicago, IL, Joshua Herman, Attorney, LAW OFFICE OF JOSHUA G. HERMAN, Chicago, IL, for Defendant - Appellant.

Before Flaum, Kanne, and Brennan, Circuit Judges.

Brennan, Circuit Judge.

To keep his car dealership afloat, Arthur Friedman secured loans for fake buyers of a phony inventory of cars. The scheme resulted in a bank fraud conviction, a 108-month prison sentence, and an order to pay roughly $5 million in restitution. We have cautioned against raising too many issues on appeal; Friedman raises nine to his conviction and his sentence. The district court ruled correctly in all respects, so we affirm.

I. Background

Arthur Friedman and Leon Bilis co-owned Prestige Leasing, a luxury used car dealership. The dealership purchased, leased, sold, and exported luxury vehicles. When their dealership began to suffer financially in 2008, Friedman devised a plan and schemed with Bilis to get cash for their business. The dealership exported cars overseas yet kept the title certificates for many of them as "a lot of countries did not require original titles, just the copies." Friedman and Bilis secured loans against the exported cars, using the title certificates as proof of collateral. So Friedman and Bilis obtained loans backed by assets they no longer possessed.

At first the two used their own names on loan applications. Later they used the names of family, friends, former employees, and customers, most often without that person's knowledge. For each loan, Friedman and Bilis falsely said that the car was present in the United States and being sold to the listed borrower. The loan applications also included false employment or income information, falsified corporate documents and title information, and forged signatures, on which the banks relied.

To conceal the fraud, Friedman and Bilis took cash from customers for cars that the dealership never had or delivered. In particular, customers gave down payments or full deposits under the ruse that advance payments were needed to lock up cars with a limited inventory. Rather than use the customer funds as promised, Friedman and Bilis used the money to pay down the bogus car loans. They similarly bilked floor-plan investors. Those investors financed cars to be marketed and sold on the Prestige dealership lot in exchange for a cut of the mark-up price; instead, their funding was tied to cars that the dealership neither stocked nor intended to sell. The investors’ funds, too, were used to pay down fraudulent loans.

Unsurprisingly, this scheme was unsustainable and in late 2011 banks came calling for unpaid loans. Local police, too, began investigating suspicious loan activity. Given the police investigation, Friedman and Bilis retained attorney Jeffrey Steinback to jointly represent them. This joint counsel arrangement was short-lived; around January 2012, Friedman ended his relationship with Steinback and retained separate counsel. Almost four years later the federal government got involved, and Friedman and Bilis were indicted.

The indictment charged seven counts of bank fraud—each count pointing to a specific loan—in violation of 18 U.S.C. § 1344. It alleged that from November 2008 until November 2011, Friedman and Bilis schemed to defraud banks by submitting loan applications for fake car purchases. It also alleged that Friedman and Bilis concealed the bank fraud by deceiving customers and floor-plan investors into fronting money for other fake car purchases, then used that money to make loan payments. Bilis—still represented by Steinback—pleaded guilty and entered a cooperation agreement with the government. Due to Bilis's plea, the government filed a redacted indictment, removing two counts charging Bilis alone and renumbering the rest. Friedman proceeded to trial on the remaining five counts. In relevant part, count five of the redacted indictment charged that Friedman and Bilis executed the fraud scheme by "knowingly caus[ing] American Eagle Bank to fund a vehicle loan for $62,589.57 in the name of Michael Blekhman for the purchase of a 2011 Porsche Panamera."

Less than a month before trial, Friedman moved to dismiss the indictment or, in the alternative, to exclude Bilis's testimony. Friedman claimed he shared "confidential information" with Steinback during the brief period of joint representation. And because Steinback represented Bilis through his eventual plea deal, "[i]t is impossible to discern ... what confidential information Steinback provided to Bilis ... that has now tainted Bilis as a witness."

The district court held an evidentiary hearing on Friedman's motion, at which Steinback and Friedman testified. Steinback testified he represented Prestige Leasing, Bilis, and Friedman "in connection with their business." Though no federal investigation loomed when hired, Steinback believed his representation "very well could be" for a criminal defense matter "but, at that juncture, it could also remain civil." In any event, Steinback advised Friedman and Bilis that they may later need independent counsel. Steinback testified Friedman never shared substantive information about the car loans or made any admission of wrongdoing during their discussions. For his part Steinback did not pass on information provided by Friedman to Bilis or the government. Steinback also produced his client file for the district court's ex parte review, and the court closed a portion of the hearing to allow Steinback to testify ex parte about potentially privileged matters.

Friedman gave a different account of the joint representation arrangement. He said he and Bilis met with Steinback at least three times. During those meetings, Friedman initially claimed that he kept discussing the joint matter with Steinback during Bilis's bathroom breaks because "[i]t's too expensive to talk about other stuff." That story evolved during the evidentiary hearing. Friedman later claimed he waited for Bilis's bathroom breaks to tell Steinback "certain things" he did not want Bilis to hear, adding that Bilis took bathroom breaks lasting around ten to fifteen minutes. When asked whether those conversations had anything to do with the alleged fraud, Friedman responded, "in a way," and that "[m]ost of" those conversations involved "privileged communications" Still, Friedman never told Steinback to keep those communications from Bilis. Nor did Friedman ever attempt to privately relay these confidences to Steinback via telephone or a separate one-on-one meeting. Friedman testified he shared purportedly privileged information only when Bilis took bathroom breaks.

The district court denied Friedman's motion, explaining that it "carefully evaluated the demeanor and credibility of each witness, including his body language, tone of voice, facial expressions, mannerisms, and other indicative factors." Based on these factors, the court found that Friedman did not make any admissions of criminal wrongdoing to Steinback, crediting Steinback's "emphatic[ ]" testimony on this point and the lack of evidence in his client file suggesting that Friedman made such admissions. The court also found Friedman's testimony farfetched:

[T]hat a criminal defendant—apparently concerned with his individual criminal exposure and desirous of keeping that concern from his business partner—would enter into joint representation with that business partner, and then await inherently unpredictable bathroom breaks to provide his lawyer with critical information (rather than calling him or meeting with him one-on-one) breaks the Court's credulity.

The district court continued: "Friedman testified that he read the government's reports on Bilis's proffers—yet in his briefs, on redirect, or ex parte , Friedman did not identify any similarities between what was contained in those reports and what he supposedly shared with Steinback in confidence." Because Friedman lacked evidence of prejudice from the use of privileged information, the district court ruled that a dismissal of charges or exclusion of Bilis's testimony was unwarranted. As a precaution, the district court provided a cautionary instruction that "Bilis was promised a benefit in return for his cooperation with the government" and to "consider [his] testimony with caution and great care."

When trial commenced, Bilis testified Friedman first proposed the scheme to secure loans on exported cars, and that the pair sought cash from other sources, including defrauding customers and floor-plan investors, to pay down those loans. According to Bilis, Friedman ramped up the fraud to build a house and to furnish it with imported décor. Friedman also prepared Prestige's financial documents, including outstanding loans and cash flow reports. Bilis identified Friedman's signature on loan documents, and he confirmed that no actual car transaction occurred on any loan, and that the cars involved were exported overseas before they submitted loan applications. Bilis further explained that Prestige made the car loan payments, not the named borrowers, and that dealerships do not pay down customer loans, especially when the car buyer is personally responsible for the debt.

Purported "borrowers" also testified, explaining they never purchased the cars in question, authorized the loan applications bearing their names, or received loan funds from the banks. Similarly, several Prestige customers and floor-plan investors testified about giving large sums of cash for car purchases and investments, only to learn that their money was squandered. In particular, Prestige made a cash cow out of the Porsche Panamera vehicle noted in count five. Evidence showed that...