United States v. Walters

963 F.Supp.2d 125

UNITED STATES of America,

v.Wendell WALTERS, et al., Defendants.

No. 11 CR 683(NG).

United States District Court, E.D. New York.

July 2, 2013.

Anthony M. Capozzolo, Cristina Marie Posa, United States Attorneys Office, Brooklyn, NY, for Plaintiff.

Howard R. Leader, Howard R. Leader, Maurice H. Sercarz, Diane Ferrone, Sercarz & Riopelle LLP, Gerald J. Dichiara, Law Offices of Gerald J. Dichiara, Bruce Loren Wenger, Wenger & Arlin Esqs LLP, Michael Beys, New York, NY, Michael K. Schneider, Federal Defenders of New York, Inc., Brooklyn, NY, for Defendants.

OPINION & ORDER

GERSHON, District Judge:

Defendants, Lee Hymowitz and Michael Freeman (“Hymowitz” and “Freeman,” or, collectively, “Defendants”), are charged by Superseding Indictment (the “Indictment”) with conspiracy to commit wire fraud (Count Two), wire fraud (Count Three), conspiracy to commit money laundering (Count Seven), and money laundering (Count Eight). By this motion, Hymowitz and Freeman seek to dismiss the Indictment, or, in the alternative, to compel the government to produce a bill of particulars.¹

Defendants also move to sever their trial from that of co-defendant, Stevenson Dunn (“Dunn”), or to redact Dunn's post-arrest statement, in order to preserve their confrontation rights, in accordance with Bruton v. United States, 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476 (1968), and its progeny. ²

For the reasons set forth below, the Defendants' motion is denied in part and granted in part.

BACKGROUND

According to the Indictment, between 2005 and 2011, the New York City Department of Housing Preservation and Development (“HPD”) administered various programs intended to develop affordable housing. (Ind. ¶¶ 2, 13.) In connection with these programs, HPD selected real estate developers, or “sponsors,” who would then, with HPD, select general contractors to manage the construction and other work the projects required. ( Id. ¶ 3.) One such developer selected by HPD was co-defendant Dunn, whose corporate entities included SML Development LLC, SML Bed Stuy Development, LLC, and Hancock Street SML LLC (collectively, the “SML Entities”). ( Id. ¶ 7.) Hymowitz and Freeman were partners, with Dunn, in the SML Entities, and, separately, in the law firm of Hymowitz & Freeman. ( Id.)

The Indictment contains allegations that Dunn, Hymowitz and Freeman solicited and received kickback payments from certain general contractors (“John Doe # 1” and “John Doe # 2”) in exchange for awarding them work in connection with various HPD projects. Dunn, Hymowitz and Freeman allegedly included the amounts of the kickback payments in requisitions submitted to HPD, “thereby passing on the costs of their own corrupt activity to HPD.” (Ind.¶ 13.) Hymowitz and Freeman also allegedly provided to John Doe # 1 a “sham retainer agreement” for legal services and, to John Doe # 1 and John Doe # 2, “false and inflated invoices” for certain services and supplies. ( Id.) It is further alleged that Dunn threatened John Doe # 2 and his family with violence when John Doe # 2 failed to make some of the kickback payments, and that Dunn made a cash bribe payment to John Doe # 3. ( Id.)

While the Indictment contains charges of Racketeering Act violations, money laundering, wire fraud, extortion, bribery and various conspiracies against Dunn, the only charges asserted as to Hymowitz and Freeman are conspiracy to commit wire fraud, wire fraud, money laundering, and conspiracy to commit money laundering. ( See id. ¶¶ 27–33.)

The government has indicated that it expects to introduce at the trial of Dunn, Hymowitz and Freeman, Dunn's post-arrest statement, in which he implicates himself in the kickback scheme underlying the wire fraud and money laundering charges. Although the government has proposed certain redactions to the statement, Defendants argue that they are insufficient to protect their constitutional rights under Bruton, 391 U.S. 123, 88 S.Ct. 1620.

DISCUSSION

A. Standard of Review on a Motion to Dismiss

Pursuant to Rule 7 of the Federal Rules of Criminal procedure, the indictment “must be a plain, concise, and definite written statement of the essential facts constituting the offense charged.” On a motion to dismiss, the court must treat the allegations contained in the indictment as true. See, e.g., United States v. Coffey, 361 F.Supp.2d 102, 111 (E.D.N.Y.2005). Moreover, an indictment is read “to include facts which are necessarily implied by the specific allegations made.” United States v. Stavroulakis, 952 F.2d 686, 693 (2d Cir.1992). “[A]n indictment is sufficient when it charges a crime with sufficient precision to inform the defendant of the charges he must meet and with enough detail that he may plead double jeopardy in a future prosecution based on the same set of events.” Id. In fact, “[a]n indictment need 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. Tramunti, 513 F.2d 1087, 1113 (2d Cir.1975). “Generally, the indictment does not have to specify evidence or details of how the offense was committed. Simply put, the validity of an indictment is tested by its allegations, not by whether the Government can prove its case.” Coffey, 361 F.Supp.2d at 111 (citations omitted).

B. Sufficiency of the Wire Fraud Charges

Under § 1343 of Title 18, United States Code, it is unlawful to transmit by wire any writing or signal for the purpose of executing a scheme to defraud.³ It is well-settled that the elements of a violation of this statute are a scheme to defraud, money or property as the object of that fraud, and use of the wires to further the scheme. See, e.g. United States v. Miller, 997 F.2d 1010, 1017 (2d Cir.1993). The allegations relating to the “scheme to defraud” must also reflect the defendants' contemplation of “actual harm or injury to their victims.” United States v. Novak, 443 F.3d 150, 156 (2d Cir.2006).

Defendants argue that the allegations set forth in the Indictment are insufficient to support a charge of wire fraud for two reasons, both relating to the “scheme to defraud.” ⁴ First, Defendants argue that, to the extent the allegations relating to the scheme to defraud arise out of a failure to disclose, rather than an affirmative misrepresentation, the Indictment must also contain allegations of a fiduciary relationship or obligation. Second, the Defendants argue that, in order to amount to a scheme to defraud within the meaning of § 1343, the alleged scheme must consist of more than “only a deceit;” the Defendants argue that, if there is no discrepancy between the benefits anticipated and those received by the alleged victim, then there is no scheme to defraud within the statute.

With respect to the first argument, Hymowitz and Freeman assert that the failure to acknowledge receipt of a bribe in a requisition for payment is an omission, not an affirmative misrepresentation and, as such, does not amount to a scheme to defraud in the absence of a fiduciary relationship between the parties. However, the inclusion in a requisition for payment, of the amount of a kickback payment received by Defendants, as a “cost” to be recouped by them, is an affirmative misrepresentation. The requisition would be understood by HPD to set forth the amount of expenses incurred by the Defendants in connection with a given HPD project; and a kickback payment received is not an expense incurred. The circumstances giving rise to the charges at issue here do not require allegations relating to fiduciary duty.

In their second argument relating to the scheme to defraud, defendants assert that, if HPD and SML Entities selected a contractor based upon a fixed budget—i.e., if they awarded the project to the lowest bidder—and if SML Entities and the contractor completed the project for the amount of the bid, then, even if there were a misrepresentation contained in the requisition for payment the parties later submitted to HPD, such misrepresentation amounts only to deceit and does not give rise to a scheme to defraud. Defendants further argue that, since the Indictment does not allege that HPD actually paid more than it would have in the absence of the alleged fraud, the charge of wire fraud must be dismissed.

Defendants cite to United States v. Shellef, 507 F.3d 82 (2d Cir.2007), to support this contention. In Shellef, the Court of Appeals for the Second Circuit vacated the judgments of conviction of two defendants on charges of, inter alia, defrauding the IRS and wire fraud and remanded for a new trial. ⁵ The scheme alleged in Shellef involved the purchase and sale, by the defendants, of a certain chemical, CFC–113, without the payment of appropriate excise taxes. The indictment alleged as follows:

It was a further part of the scheme and artifice that by promising to export all of the CFC–113 purchased, [Shellef] induced Allied Signal to sell additional amounts of virgin CFC–113 to [Shellef's company,] Poly Systems that it would not have sold had it known that Shellef in fact intended to sell the product domestically.

Id. at 109. In discussing the sufficiency of this allegation relating to wire fraud, the Second Circuit wrote:

[o]ur cases have drawn a fine line between schemes that do no more than cause their victims to enter into transactions they would otherwise avoid—which do not violate the mail or wire fraud statutes—and schemes that depend for their completion on a misrepresentation of an essential element of the bargain—which do violate the mail and wire fraud statutes.

507 F.3d at 108. As examples of the former, the Shellef Court discusses United States v. Regent Office Supply Co., 421 F.2d 1174 (2d Cir.1970), where the defendants' sales personnel misrepresented their identities in order to get access to prospective customers, and United States v. Starr, 816 F.2d 94 (2d Cir.1987), where the defendants represented that their customers' shipments were sent...