United States v. Gatto

986 F.3d 104

UNITED STATES of America, Appellee,

v.James GATTO, aka Jim, Merl Code, Christian Dawkins, Defendants-Appellants.

Docket Nos. 19-0783-cr

19-0786-cr

19-0788-cr

August Term 2019

United States Court of Appeals, Second Circuit.

Argued: March 13, 2020

Decided: January 15, 2021

Edward B. Diskant, Assistant United States Attorney (Aline R. Flodr, Eli J. Mark, Noah D. Solowiejczyk, and Won S. Shin, Assistant United States Attorneys, on the brief), for Audrey Strauss, United States Attorney for the Southern District of New York, New York, New York, for Appellee.

Michael S. Schachter (Casey E. Donnelly, on the brief), Willkie Farr & Gallagher LLP, New York, New York, for Defendant-Appellant James Gatto.

Andrew A. Mathias, Nexsen Pruet, LLC, Greenville, South Carolina, for Defendant-Appellant Merl Code.

Steven Haney, Haney Law Group, PLLC, Southfield, Michigan, for Defendant-Appellant Christian Dawkins.

Before: Lynch and Chin, Circuit Judges, and Engelmayer, District Judge.^*

Judge Lynch Concurs in Part and Dissents in Part in a separate opinion.

Chin, Circuit Judge:

In this case, defendants-appellants James Gatto, Merl Code, and Christian Dawkins ("Defendants") were convicted of engaging in a scheme to defraud three universities by paying tens of thousands of dollars to the families of high school basketball players to induce them to attend the universities, which were sponsored by Adidas, the sports apparel company, and covering up the payments so that the recruits could certify to the universities that they had complied with rules of the National Collegiate Athletic Association (the "NCAA") barring student-athletes and recruits from being paid.

At trial, Defendants admitted that they engaged in the scheme and broke NCAA rules, but argued that what they did was not criminal. On appeal, they contend that the government failed to prove that they intended to defraud the universities -- North Carolina State University ("N.C. State"), the University of Kansas ("Kansas"), and the University of Louisville ("Louisville") (collectively, the "Universities") -- and that their intent instead was to help the Universities by bringing them top recruits to ensure winning basketball programs. They contend that, "in the real world, ... universities engage in an all-out arms race to recruit the best talent, motivated by the tens of millions of dollars that can be earned each year by a successful men's basketball program," Appellants' Br. at 98 (internal quotation marks omitted), and that they "broke NCAA rules out of a genuine desire to see the Universities' basketball teams succeed," Appellants' Br. at 96. They argue that under-the-table payments to student-athletes are widespread in college sports, and that, indeed, many college coaches are aware of and endorse the practice. And they argue, as they did in their opening statements at trial, that "[t]he kids on the court, ... the ones whose blood, sweat and tears is making this game a billion dollar industry, they are not allowed to earn a dime." App'x at 107.

We have no doubt that a successful men's basketball program is a major source of revenue at certain major universities, but we need not be drawn into the debate over the extent to which college sports is a business.¹ Instead, our task is to determine whether the government proved beyond a reasonable doubt that Defendants knowingly and intentionally engaged in a scheme, through the use of wires, to defraud the Universities of property, i.e. , financial aid that they could have given to other students. We conclude that the government did. We also reject Defendants' arguments that the district court abused its discretion in its evidentiary rulings and committed reversible error in its instructions to the jury. Accordingly, we affirm.

BACKGROUND

On appeal from a conviction following a jury trial, the "facts are drawn from the trial evidence and described in the light most favorable to the government." United States v. Wilson , 709 F.3d 84, 85 (2d Cir. 2013).

I. The Landscape

The NCAA is a private organization that oversees collegiate sports in America. It promulgates rules that its member universities must follow, among which is the requirement that all student-athletes must remain amateurs to be eligible to compete for their schools. This means that the student-athletes -- and their families -- may not accept payments of any form for the student-athletes' playing or agreeing to play their sport. This rule extends from the time when the student-athletes are still in high school and are being recruited to play at the collegiate level.

There are, however, exceptions. Colleges are permitted, for example, to offer athletic-based aid to a certain number of student-athletes, to cover tuition, room, and board. And the schools themselves are permitted to enter into sponsorship agreements with sports apparel brands, which allow them to provide their student-athletes with clothing and footwear that they receive from their corporate sponsors. Essentially, these sponsorship agreements are marketing deals. Major sports apparel brands, including Adidas, Nike, and Under Armour, enter into such contracts to promote their brands. Under these agreements, student-athletes must wear the brand of the company their school has partnered with when they compete for their school -- that is, at practice and during games.

II. The Scheme

Gatto was Adidas's director of global sports marketing for basketball. He managed the sports marketing budget, and part of his job entailed overseeing the relationship that Adidas had with various schools, including N.C. State, Kansas, and Louisville. This included helping to ensure the success of the sponsorship agreements Adidas signed with the Universities pursuant to which Adidas paid the Universities for the right to provide their NCAA sports teams with Adidas apparel.

Gatto worked with Code and Thomas Joseph Gassnola, both Adidas consultants. He also worked informally with Dawkins, an aspiring sports agent, and Munish Sood, a financial advisor. Together, these men paid the families of top-tier high school basketball recruits -- including Dennis Smith Jr., Billy Preston, and Brian Bowen Jr. (collectively, the "Recruits") -- to entice those players to enroll at one of the Universities. This activity violated NCAA rules, and if the NCAA were to discover the payments, the players would not be permitted to play in games and the Universities would be subject to penalties. As a result, Defendants and those who assisted them concealed these payments by falsifying Adidas invoices to make it seem as though the payments were going to youth basketball teams affiliated with the Amateur Athletic Union ("AAU"), a non-profit, multi-sport organization that, among other things, facilitates youth basketball tournaments. In reality, the money was being funneled through AAU teams with which some Defendants were affiliated to the families of top basketball prospects. In addition to creating fake expense reports to mask these payments, Defendants used phones that were not registered in their names while communicating with the Recruits' families.

Per the NCAA bylaws, every member institution must certify that its prospective student-athletes are amateurs and thus eligible to compete. Consequently, the Universities required all their recruits to sign paperwork attesting that they were aware of and in compliance with the NCAA bylaws. By signing the certifications, the recruits affirmed, among other things, that they had not used their "athletics skill (directly or indirectly) for pay in any form in that sport." App'x at 780. A recruit's athletic-based aid was contingent upon his certifying his eligibility. Those in charge of compliance at the Universities explained that they would have never awarded athletic-based aid to the Recruits had they known they were ineligible to compete, and the head coaches' contracts required the coaches to be stewards of the NCAA rules and report any suspected violations.

A. N.C. State

Smith verbally committed to play basketball for N.C. State in September 2015. At the time, he was one of the top recruits in North Carolina, but, according to Gassnola, there were rumors that he was going to change his mind about which college he would attend. To ensure that Smith enrolled at N.C. State, Gassnola gave the Smith family $40,000 in the Fall 2015. He was reimbursed by Adidas via Gatto, who filed false invoices to facilitate the repayment. Shortly after the Smith family received the $40,000 payment, Smith signed forms enrolling at N.C. State indicating that he was compliant with the NCAA eligibility rules. He played one season at N.C. State before being selected as the ninth overall pick in the 2017 NBA Draft.

B. Kansas

Preston verbally committed to play for Kansas in Fall 2016. After Preston committed, however, Gassnola heard that the Preston family was accepting money from sports agents and financial advisors, thereby putting Preston's eligibility in jeopardy. Because, according to Gassnola, he thought that he was better-equipped to prevent illicit payments from being discovered, Gassnola arranged to pay the Preston family to stop them from taking money from others and preserve Preston's NCAA eligibility. With Gatto's permission, Gassnola paid the Preston family around $50,000. Gassnola paid the money and then, with the help of Gatto, submitted false AAU expense reports to Adidas for reimbursement. In November 2016, Preston signed forms indicating that he was compliant with the NCAA eligibility rules. His ineligibility, however, was discovered, and he never played for Kansas.

C. Louisville

Bowen committed to play for Louisville in May 2017. Around the same time, Bowen's family agreed to accept $100,000 from Adidas, to be paid in four installments. These payments were to be funneled through an AAU program with which Code was affiliated. On June 1, 2017 and June 9, 2017, Bowen signed forms accepting athletic-based aid and indicating that...