Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Archive for the ‘Federal Criminal Procedure’ Category
Dec 20
2013

First Circuit Reverses District Court Order Granting New Trial

Appellate courts do not often reverse a trial judge’s decision to grant a new trial, so we took notice when the First Circuit did so in United States v. Carpenter.  Given the case history, the First Circuit decision should help to answer an important question:  How much leeway do prosecutors have when summarizing evidence in closing arguments?

In 2005, a jury convicted Daniel Carpenter on nineteen counts of wire and mail fraud.  The charges pertained to Carpenter’s operation of Benistar, a company that handled “like kind” exchanges for owners of investment property.  Under federal law, investors may defer capital gains on the sale of investment property if they exchange it for another property of like kind.  In order to qualify, the seller or “exchangor” must complete the exchange within 180 days of the initial sale and must not take possession of sale proceeds in the interim.  To meet the requirements, exchangors usually rely on a qualified intermediary to hold the exchange funds until they are reinvested.  Benistar’s business as a qualified intermediary gave rise to the charges against Carpenter.

The government alleged that Carpenter obtained investors’ exchange funds by fraud.  At trial, the prosecution argued that Carpenter persuaded investors to contract with Benistar by misrepresenting that their funds would be managed conservatively for a modest return of 3 to 6%.  According to prosecutors, Carpenter made the representations knowing full well that the money would be used for high-risk trades.  The jury apparently agreed, returning a guilty verdict on all counts.

Carpenter requested a new trial, which the trial judge granted due to the government’s repeated use of a gambling metaphor in closing arguments.  The court noted that the evidence against Carpenter was sufficient for a conviction, but not overwhelming.  The government may have tipped the scales by arguing that Carpenter had gambled with investors’ money hoping to make millions for himself.  It was possible the jury convicted based on moral disapproval of gambling rather than evidence of fraud.

In a divided opinion, the First Circuit affirmed, largely deferring to the trial court’s assessment.

At the end of the re-trial, the government omitted the gambling metaphor, focusing instead on Benistar’s marketing materials, contracts with investors, and Carpenter’s profit motive.  Again, the jury returned a guilty verdict on all counts having deliberated for roughly two hours.

At Carpenter’s request, the trial judge ordered a third trial, but not for reasons advanced by the defense.  This time, the judge was troubled by the jury’s two-hour deliberation.  He observed that it would be nearly impossible for jurors to walk through the evidence for nineteen different counts in two hours.  They must have taken a shortcut.  Thus, the judge ordered a new trial on grounds that the prosecutor had invited jurors to employ certain presumptions based on mischaracterizations of evidence.  For one, the government implied that Benistar’s marketing materials made express misrepresentations about the safety and security of investor funds.  In reality, the marketing materials supported only an inference to that effect.  The government also invited jurors to presume that qualified intermediaries are prohibited from using exchange funds for high-risk trades, when that is not the case.  Moreover, by emphasizing Carpenter’s profit motive, the government may have encouraged jurors to convict for “greed” rather than fraud.

On appeal, the First Circuit disagreed and reinstated the guilty verdict.  A unanimous panel held that the prosecution’s statements were permissible summations of the government’s theory of the case, not mischaracterizations of record evidence.  The government had argued that Carpenter took in millions based on false pretenses that Benistar would keep the exchange funds safe and secure.  That argument was not improper, as the trial court found, because the prosecution followed it with a discussion of specific evidence supporting that conclusion.  Similarly, the government argued that “like kind” transactions are typically conservative—not so the jury would convict based on some imaginary statutory violation or breach of contract, but to establish that Carpenter knew Benistar’s risky investment strategy differed from investors’ expectations.  And the government’s references to Carpenter’s profit motives were equally permissible.  Those comments went to prove Carpenter’s specific intent for the fraud, which was to make more money.

A comparison of the two appellate decisions suggests that the district court erred because it failed to see the forest for the trees.  By treating each of the government’s questionable statements in isolation, the court found support for a new trial.  But the statements had to be considered in context.  In context, the prosecution’s comments were not mischaracterizations of evidence but main points of the government’s theory, which the prosecution supported from the record.

Given Carpenter’s pro-defense trial judge, it’s unclear why the defense opted for a third jury trial.  In hindsight, Carpenter may have fared better by ditching the jury request in favor of a bench trial.

Dec 11
2013

Taking Advantage of a Video Poker Glitch Can Land you in Jail in Nevada

Last month, federal prosecutors in Nevada filed a motion to dismiss an indictment that shined a bright light on overly broad federal criminal statutes and the abuse of prosecutorial discretion in using them.

John Kane and Andre Nestor were each charged in an indictment in January 2011 with one count of conspiracy to commit wire fraud and one count of computer fraud in violation of the Computer Fraud and Abuse Act (CFAA), the same law that was used to prosecute Internet activist Aaron Swartz and Andrew Auernheimer.

The indictment alleged that Kane and Nestor used an exploit on video poker machines to defraud casinos and win money that they were not entitled to, which “exceeded their authorized access” on the machines in violation of the CFAA. Kane, who reportedly spent an extremely significant amount of time playing video poker, discovered a bug in the software of the video poker machine that allowed for him, and later his co-defendant Nestor, to achieve large payouts on certain slot machines through a series of moves where he switched games and made bets at different levels. There is absolutely nothing illegal about pressing buttons on slot machines to change the amount of money you are betting or to switch games you are playing, but the prosecution alleged that doing this exceeded lawful access. The court agreed with the defendants and ruled in favor of their motion to dismiss the CFAA count in the indictment.

The CFAA was enacted in 1986 to protect computers that there was a compelling federal interest in protecting, such as computers owned by the federal government and certain financial institutions. The CFAA has been amended numerous times since it was enacted to cover a broader range of computer related activities and there has been recent discussion on Capitol Hill of amending it further. The CFAA prohibits accessing a computer without proper authorizationor it is used in a manner that exceeds the scope of authorized access. The law has faced steep criticism for being overly broad and allowing prosecutors wide discretion by allowing them to charge individuals who have violated a website’s terms of service.

In November, after filing nine stipulations to continue the trial date, the government filed a motion to dismiss the remaining conspiracy to commit wire fraud charges against both Kane and Nestor because “the government has evaluated the evidence and circumstances surrounding court one [wire fraud conspiracy] and determined that in the interest of justice it should not go forward with the case under the present circumstances.”

Although the charges were ultimately dismissed,the issue remains that these charges never should have been brought in the first place. Kane and Nestor had to deal with open criminal charges against them for nearly three years. There are proper uses for statutes such as the CFAA, but the people and the courts should demand that the government only use them for their intended purposes. Prosecutions taking broad and unjustified interpretations of these statutes are not justified.

Nov 05
2013

District Court Holds Anti-Retaliation Provision of Dodd-Frank Act Does Not Apply in Case Virtually Lacking Any U.S. Connections

A recent decision in the United States District Court for the Southern District of New York has reinforced the United States Supreme Court’s jurisprudence on the extraterritorial application of federal statutes.

In Liu v. Siemens A.G., the plaintiff asserted that he was fired as a consequence of his disclosure of business practices by his employer in connection with sales in China and North Korea that he believed to be in violation of the Foreign Corrupt Practices Act, and sought damages from Siemens under the anti-retaliation provision of the Dodd-Frank Act.  But the multinational character of the case – with almost no contacts with the United States – led the Court to grant Siemens’ motion to dismiss on the ground that the anti-retaliation provision of Dodd-Frank has no extraterritorial application.

In Morrison v. National Australia Bank, the United States Supreme Court significantly limited the extraterritorial reach of federal statutes that do not affirmatively provide for such application.  That case involved alleged fraud in the shares of an Australian bank whose shares were not sold on any American exchange, and involved purchases of those shares outside of the United States.  Though the bank had American Depositary Receipts (ADRs) the Supreme Court affirmed dismissal of the securities fraud claims in that case.

The Liu case reaffirmed this principle based on a tailor-made set of facts.  As the Court explained: “This is a case brought by a Taiwanese resident against a German corporation for acts concerning its Chinese subsidiary relating to alleged corruption in China and North Korea.”  The Court noted that the only contact with the United States was that Siemens had ADRs traded on an American exchange, just as was the case in Morrison.

In granting Siemens’ motion to dismiss, the court observed that the anti-retaliation provision of the Dodd-Frank Act is silent as to extraterritoriality – a fact that the court viewed as weighing heavily against a finding of extraterritoriality.  The court also noted that other parts of the Dodd-Frank Act do provide for extraterritoriality – making the silence of the anti-retaliation provision even more meaningful.  The court also observed that the only other court to consider this issue also ruled against extraterritorial application of this portion of the statute.

While the court engaged in a lengthy discussion of whether the disclosures at issue fell within the scope of the statute, it ultimately concluded that there was no need to resolve that issue given that the statute simply did not apply to this conduct lacking almost any connection to the United States.  The court’s decision signals a willingness of the federal judiciary – at least in the context of civil litigation – to limit the extraterritorial reach of federal statutes where Congress has failed affirmatively to provide for such an application of the statute.  On the other hand, the case leaves open the question of whether a court might rule otherwise in a case in which there were greater contacts with the United States.

Sep 13
2013

FBI Hacking Into Electronic Devices: An Effective But Invasive Tool

Privacy and national security interests are notoriously tricky to balance.  Lean too far one way, and you lose an important tool in preventing and detecting crime; lean too far the other way, and you are depriving Americans of their liberty through persistent government intrusion and observation. This balancing act has been an especially hot topic given recent revelations about the National Security Agency’s surveillance and data-gathering networks. While attention has been focused on the NSA and the mass surveillance disclosures that took place earlier this summer, a particularly startling revelation about the FBI’s actions has flown largely under the radar.

A recent New York Times article revealed that the FBI has been gathering information from suspects by remotely hacking into their electronic devices and covertly tapping into the information that can be found on and through the devices.  The FBI accomplishes this in much the same way that criminal, civilian hackers do: by delivering spyware to the devices through web or email links. When the user clicks on the link, either on a computer or a smartphone, the government can use the spyware either to collect existing files or to activate the device’s recording devices for continuing surveillance.  According to the article, one former U.S. official confirmed that the FBI can remotely activate the microphones in phones running the Android operating system to record conversations.

This sort of government intrusion goes well beyond the NSA’s acknowledged collection of telephone and email metadata.  This spyware is programmed to collect full conversations, real-time photos and videos, and stored files of all types, from devices that people have near them 24 hours a day.  This type of intrusive government intrusion into a device in which an individual has a reasonable expectation of privacy is the type that the Constitution’s Fourth Amendment is meant to address.  And, in theory, it does.  The FBI and other law enforcement agencies are required to obtain a warrant each time that they implement this technology to gather content such as computer files, and must meet a stricter standard for wiretaps when conducting surveillance using the webcam or microphone.

As technology advances, it becomes easier for the government to watch our every move.  Whereas once the government could listen to conversations only on wiretapped telephones or bugged areas, it is now able to keep an open microphone on a device that people keep on them no matter where they are.  We hope that law enforcement and the courts will seek and allow the use of this incredibly invasive and effective technique only rarely where no other surveillance is sufficient and not as a matter of course in standard investigations.

Aug 22
2013

Circuit Split Brewing Over Government Access to Cell Phone Location Data

A split among the U.S. courts of appeals is taking shape over the threshold requirements for the government’s ability to obtain historical cell phone location data, in the wake of a July 30, 2013, ruling by the U.S. Court of Appeals for the Fifth Circuit.

That court held that a U.S. district court must order a cell phone service provider to produce a subscriber’s cell site data when the government presents specific and articulable facts showing reasonable grounds to believe that the records are relevant and material to an ongoing criminal investigation.

The case began in 2010, when federal authorities in the Southern District of Texas filed applications for cell phone data in connection with three criminal investigations. The applications, submitted under § 2703(d) of the Stored Communications Act, requested 60 days of subscriber information and cell site data for specific cell phone numbers.

Section 2703 states that the government may require third-party service providers to turn over their subscribers’ cell phone data as long as the requisite burden is met. Generally speaking, authorities may obtain substantive communications, i.e., “content” records, without notice to the subscriber, but only based on probable cause as required by the Fourth Amendment. “Non-content” records, on the other hand, may be obtained on a lesser showing.

Thus, service providers may be compelled to turn over details of a subscriber’s call history, including numbers called, session times, and the duration of calls. To obtain non-content data, the government must offer “specific and articulable facts showing that there are reasonable grounds to believe that the . . . information sought [ is] relevant and material to an ongoing criminal investigation.” The statute provides that an order may be issued by any court of competent jurisdiction and shall be issued only if the government makes the required showing.

The magistrate reviewing the applications granted the government’s requests for subscriber information but denied the requests for cell site data. Although the government had met its burden under the statute, the magistrate held that compelled production of location data would constitute a warrantless search in violation of the Fourth Amendment. The district judge affirmed.

On appeal, the Fifth Circuit considered two issues. First, the court considered whether the Act requires the issuance of an order for non-content records when the government meets the “specific and articulable facts” standard or, alternatively, whether district courts may impose a higher burden. Second, the court considered whether the compelled production of cell site data constitutes a “search” under the Fourth Amendment.

On the first issue, the court held that an order must issue when the government meets the “specific and articulable facts” standard: the test is both a necessary and sufficient condition for an order under § 2703. The court resolved the tension between the statute’s permissive and mandatory terms by explaining that any court of competent jurisdiction may order the production of historical location data; but, if the government meets its burden under the statute, the court must issue an order compelling production of non-content data. Under such circumstances, district courts may not deny the government’s request or impose a warrant requirement.

The Fifth Circuit answered the second question by holding that compelled production of cell site data is not a “search” under the Fourth Amendment. The court’s decision rested on its conclusion that location data are simply the service provider’s business records, not data from a tracking device. As the court explained, the service provider stores and collects cell site data voluntarily for its own business purposes, not on behalf of the government. Additionally, the records concern commercial transactions to which the service provider is a party. Unlike content data, the subscriber’s location information is intended solely for the provider, who needs it to complete the subscriber’s calls.

The court explained further that subscribers do not have a reasonable expectation of privacy in cell site data. Subscribers know full well that phone service depends on transmission of the caller’s location data. And even if that were not common knowledge, subscribers would still have no reasonable expectation of privacy in location data because the provider’s terms of service and privacy policies explain how the data are used, collected and stored. Armed with that knowledge, subscribers make informed choices about whether and how they use their cell phones.

The Fifth Circuit opinion is fascinating, especially because of the tension it creates with a Third Circuit case decided just weeks before the government filed its applications in Texas. Like the Fifth Circuit, the Third Circuit considered whether a court may deny an order for historical non-content records when the government makes the requisite showing under § 2703(d).

First, that court held that orders based on “specific and articulable facts” are not per se unconstitutional. But unlike the Fifth Circuit, the Third Circuit held that § 2703(d) establishes the conditions necessary, but not the conditions sufficient, for an order. In other words, courts can still require probable cause in limited circumstances. The court’s holding followed logically from its conclusion that, at least in some cases, cell phones are like tracking devices. And when historical cell site data is used to track a suspect’s physical movement in places where the suspect has a reasonable expectation of privacy – the home, for example – the Fourth Amendment may require a showing of probable cause. The Third Circuit held that, in such cases, district courts may require a warrant.

Disputes over government access to historical cell site data are far from over. If these cases are any indication, these rulings will hinge on whether courts deem cell phone location data to be more like third-party business records or more like data from a tracking device. Since a clear split among the circuit courts seems to be developing, it appears fairly likely that the U.S. Supreme Court will take up the issue soon.

Jul 19
2013

Judge Declares He’s Not Potted Plant, Asserts Right to Supervise Deferred Prosecution Agreements

A recent decision by U.S. District Judge John Gleeson in the Eastern District of New York may be the harbinger of new limits on the government’s ability to use a prosecutorial tool of which it has become very fond lately – the deferred prosecution agreement. Judge Gleeson’s assertion that a district court has a right to approve or disapprove the use of a DPA in a criminal case has the potential to change entirely the way in which the government uses these agreements.

The government frequently uses DPAs in criminal cases against large companies as a means of leveraging the threat of criminal conviction to get the company to correct practices that the government believes to be illegal.

A DPA is a formal written agreement that customarily provides that criminal proceedings against the company will be held in abeyance for a period of years during which the company agrees to take steps, subject to monitoring, to correct its past misdeeds. The DPA is commonly filed along with a criminal information that commences a criminal case, and the parties then request that the court stay any proceedings in the case for the period defined in the DPA. If the company complies with the terms of the DPA, the government will dismiss the case at the conclusion of that period.

Because the government implements a DPA through the commencement of a criminal proceeding, however, it must contend with the application of the speedy trial statute during the period of deferral. The parties usually request jointly that the time period be excluded from the calculation of the 70-day period within which the trial must otherwise commence pursuant to statute. 18 U.S.C. § 3161(c)(1).

In United States v. HSBC Bank USA, N.A., 12-CR-763 (E.D.N.Y.), the government filed an information on December 11, 2012, charging HSBC Bank USA, N.A. with violations of the Bank Secrecy Act, 31 U.S.C. § 5311 et seq. (including, among other things, willfully failing to maintain an effective anti-money laundering policy) and with willfully facilitating financial transactions on behalf of sanctioned entities in violation of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1702 & 1705 and the Trading with the Enemy Act, 50 U.S.C. App. §§ 3, 5, 16. On that same day, the government also filed a DPA, a Statement of Facts, and a Corporate Compliance Monitor agreement. The government filed these documents as exhibits to a letter requesting that the court hold the case in abeyance for five years in accordance with the terms of the DPA and that the court exclude that time from the speedy trial clock.

In responding to this request, Judge Gleeson surprised the parties by asserting that he had the authority not only to rule on the request to exclude time from the speedy trial clock, but also to accept or reject the DPA itself. In a written opinion issued on July 1, 2013, Judge Gleeson acknowledged that the court’s authority did not stem from Fed. R. Crim. P. 11(c)(1)(A) (dealing with plea agreements to predetermined sentences) or from Section 6B1.2 of the United States Sentencing Guidelines (which addresses policy statements on the acceptance of such pleas). Rather, Judge Gleeson concluded that the court’s general supervisory power over criminal cases – to ensure that the integrity and fairness of those proceedings – vested the court with authority to approve or reject the DPA.

In so concluding, Judge Gleeson noted that the government retains “absolute discretion not to prosecute,” and noted that a non-prosecution agreement “is not the business of the courts.” Judge Gleeson further noted that the government “has near-absolute power under Fed. R. Crim. P. 48(a) to extinguish a case that it has brought.” But once the government and the defendant chose to build into their DPA the filing and maintenance of a criminal prosecution – albeit one expected to be held in abeyance – the government gave up its largely unfettered discretion. “There is nothing wrong with that,” Judge Gleeson observed, “but a pending federal criminal case is not window dressing.”

“Nor is the Court,” Judge Gleeson noted, using Brendan Sullivan’s famous observation from the Iran-Contra hearings, “a potted plant.” If the parties chose to seek the court’s imprimatur on the DPA by involving the court in the process, they also subjected the DPA to the review and approval of the court pursuant to its supervisory authority over its proceedings.

Judge Gleeson’s self-described “novel” application of the court’s supervisory powers in this context is part of a pattern of increased judicial scrutiny of certain tools used in obtaining the cooperation of companies that are the focus of criminal investigations. Judge Gleeson noted the recent history of cases in which efforts to gain corporate cooperation had run afoul of companies’ attorney-client privilege and work product protections or its employees’ Fifth or Sixth Amendment rights, and noted that there are other hypothetical situations in which a company’s obligation to cooperate could be used in an improper manner.

Ultimately, Judge Gleeson approved the DPA in this case but also noted that the court’s approval was subject to continued monitoring of its execution and implementation.

If other judges follow Judge Gleeson’s lead, this may signal a change in the way in which prosecutors use DPAs. Historically, a DPA permitted the government to retain virtually unlimited discretion in its dealings with the party that entered into that agreement. To the extent that courts will now be more alert to potential abuses of cooperation arrangements, DPAs may be fairer to companies but may also become less attractive to prosecutors.

In asserting authority to approve or reject a DPA, Judge Gleeson readily acknowledged the broad discretion of the Executive Branch in exercising prosecutorial discretion. But if DPAs continue to incorporate the filing of criminal informations that are then held in abeyance, the courts may indeed be more than just drop-boxes for those filings – or more than just potted plants.

Jul 10
2013

High Court Clarifies Rule on Plea Discussions in Federal Criminal Cases

In a unanimous decision, the Supreme Court held last month in United States v. Davila that a guilty plea does not need to be automatically vacated, regardless of whether there has been prejudice to the defendant, when a magistrate judge improperly advises a defendant to plead guilty.

In 2009, Anthony Davila was charged with conspiracy to defraud the United States by filing false income tax returns. While the charges were pending, Davila requested new court-appointed counsel, complaining that his current public defender was telling him to take a guilty plea without advising him about alternative strategies. The Magistrate Judge held a private, closed hearing at which Davila and his attorney, but no representative of the prosecution, appeared. At the hearing, the Magistrate Judge told Davila that the court would not appoint a different lawyer and that, given the strength of the prosecution’s case, it would be wise for him to take a guilty plea. The magistrate offered this advice in violation of Rule 11(c)(1) of the Federal Rules of Criminal Procedure, which states that “[t]he court must not participate in [plea] discussions.”

Three months later, Davila entered a guilty plea before a U.S. District Judge. Before the sentencing hearing, however, Davila backtracked and moved to vacate his plea and dismiss the indictment. He did not mention the magistrate judge’s advice in his motion to vacate, instead stating that he agreed to plead as a “strategic move” that ultimately backfired. Finding that Davila’s plea had been knowing and voluntary, the District Judge denied the motion.

On his appeal to the U.S. Court of Appeals for the Eleventh Circuit, for the first time Davila raised the issue of the magistrate’s improper participation in plea discussions. The Court of Appeals found that the court’s error in weighing in on the plea affected Davila’s substantial rights. This was a key finding, as errors that do not affect substantial rights are considered “harmless” under Rule 11(h) and cannot form the basis for vacating a plea. The Court of Appeals concluded that the magistrate judge’s violation of Rule 11(c)(1) required Davila’s guilty plea to be automatically vacated, without any inquiry into whether the error was prejudicial.

On appeal, however, the U.S. Supreme Court ruled otherwise. In a ruling released on June 13, 2013, the high court found that under Rule 11(h), the court is not required to automatically vacate a guilty plea if the record does not show that the defendant was prejudiced by the violation of Rule 11(c)(1). The Supreme Court concluded that a violation of Rule 11(c)(1) would not undermine the fairness of the entire criminal proceeding such that it would trigger automatic reversal. Rather, in reviewing Rule 11 errors the court must consider the full circumstances of the individual case.

Here, the Supreme Court noted that Davila’s guilty plea was entered three months after the magistrate judge advised him to plead guilty and that the District Judge thoroughly examined and provided Davila the opportunity to raise any questions before accepting his plea. Therefore, in light of the full record, it is possible that a court would not determine it necessary to vacate the plea. The Supreme Court remanded the case to the Eleventh Circuit to review the surrounding circumstances and determine whether it was probable that, but for the Magistrate Judge’s advice, Davila would have decided against entering a guilty plea and would have instead elected to go to trial.

The Supreme Court is generally reluctant to recognize new “structural errors” in trials that require an automatic reversal without an inquiry into the surrounding circumstances. This is understandable, as structural errors are generally fundamental constitutional errors that involve issues such as denial of choice of counsel, denial of self-representation, and denial of a public trial.

While the Supreme Court made the right call in refusing to find that this error required automatic reversal, on remand the Eleventh Circuit must recognize the massive influence that a judge’s words could have on a defendant who is deciding whether to go to trial or take a plea, and weigh that heavily in an analysis of the surrounding circumstances leading to the plea.

May 24
2013

A Legislative Solution to Prosecutors’ Tracking of Suspects Via Their Devices?

The U.S. Supreme Court’s decision in the landmark 1966 case of Miranda v. Arizona underlined the importance of the Fifth and Sixth Amendments and drew a line that law enforcement must not cross – all in the interest of protecting individuals’ constitutional rights. Unfortunately, however, the high court was not as clear regarding the level of protection required under the Fourth Amendment in its 2012 decision in United States v. Jones.

In Jones, the Court held that a Fourth Amendment “search” occurs, and a warrant is required, when a GPS tracking device is attached by law enforcement to a person’s vehicle and then used to track its movements. Remaining unclear from the opinion, however, was whether and when such searches could be ever be exempt from the warrant requirement. Further unclear was whether the ruling would apply to other technologies, such as smartphones and OnStar systems.

Because of these ambiguities, and magnified by developments in location technologies, Fourth Amendment and privacy rights are giving way to aggressive law enforcement – and courts are divided on the propriety of these tactics. The Obama Administration recently argued before the U.S. Court of Appeals for the 3rd Circuit that the Supreme Court has given the government broad exemptions to search warrant requirements (such as the “reasonable suspicion” and the “probable cause” exceptions) and that device tracking can fall under these exemptions.

Far more troubling, however, is a recent opinion by a federal magistrate in New York in which U.S. Magistrate Judge Gary Brown effectively eviscerated Fourth Amendment protections for device tracking. Brown ruled that a search warrant is not necessary for authorities to obtain real-time location information for a suspect’s cell phone. Brown held that “phone users who fail to turn off their cell phones do not exhibit an expectation of privacy.” The magistrate’s opinion would mean that we are all effectively giving our consent to search by virtue of using a ubiquitous (and near-essential) technology.

Brown’s opinion contrasts starkly with Justice Sonia Sotomayor’s concurring opinion in Jones, in which she noted:

People disclose the phone numbers that they dial or text to their cellular providers, the URLs that they visit and the e-mail addresses with which they correspond to their Internet service providers, and the books, groceries and medications they purchase to online retailers . . . I would not assume that all information voluntarily disclosed to some member of the public for a limited purpose is, for that reason alone, disentitled to Fourth Amendment protection.

The contrasting statements among the courts have reinforced the need for Congress to step in and circumscribe law enforcement tracking tactics. Currently before the House are both H.R. 983, the Online Communications and Geolocation Protection Act and H.R. 1312, the Geolocation Privacy and Surveillance Act. Both bills are aimed at providing a legal framework for when and how location tracking devices can be used, and when and how data location records may be obtained. Both bills were introduced during the last Congress and reintroduced during this term. With bipartisan support, hopefully they will get traction. In the meantime, you may want to keep your cell phone powered off.

Apr 19
2013

Court to Rule on Exceptions to Warrant Requirement for GPS Tracking

The U.S. Court of Appeals for the 3rd Circuit is set to become the first federal appellate court to answer the question left open by the Supreme Court in United States v. Jones. Last year, the Court held in Jones that a Fourth Amendment “search” occurs, and a warrant is required, when a GPS tracking device is attached by law enforcement to a person’s vehicle and then used to track its movements. The Court did not consider when, if ever, that type of search would be exempt from the Constitution’s warrant requirement.

Last month, the 3rd Circuit heard oral arguments on that question. It is expected to issue its decision later this year.The appeal relates to the prosecution of Harry, Michael, and Mark Katzin — three brothers charged with the burglary of a Rite Aid pharmacy in Pennsylvania. In 2009, authorities began investigating a rash of pharmacy burglaries in the Northeast. Most of the crimes targeted Rite Aid stores and appeared related because each occurred after someone had cut the wires to the pharmacy’s alarm system. Eventually, authorities identified Harry Katzin as a person of interest. He had been implicated in suspicious activities involving other Rite Aid pharmacies and was known to keep electrician’s tools, gloves and ski masks in his van.

Initially, agents physically tracked Katzin’s movements. Then they decided more comprehensive surveillance was needed, so they attached a GPS tracking device to Katzin’s bumper and waited. Two or three days later, the tracking device showed that the van had stopped at a Rite Aid store in Hamburg, Pa. After the van left, one agent drove to the store to confirm it had been burglarized while state troopers followed the van onto the highway. When the burglary was confirmed, troopers stopped the van and arrested the Katzins. Only then did authorities obtain a search warrant, which led to their discovery of merchandise from the Rite Aid store, parts of the pharmacy’s alarm system, and Schedule II drugs.

In April 2011, the brothers were charged with pharmacy burglary and possession of Schedule II drugs with intent to distribute. They filed a pretrial motion to suppress the evidence found in the van. At that time, neither the 3rd Circuit nor the Supreme Court had decided whether the attachment and use of an external GPS tracking device constitutes a Fourth Amendment search. In early 2012, the Jones Court made clear that it does. Applying Jones, the trial judge granted the Katzins’ motion, and the government appealed.

On appeal, the government argues that the search in question, i.e., the attachment and use of the GPS device, falls within one of two exceptions to the warrant requirement. Under the “reasonable suspicion” exception, a warrantless search may be conducted under limited circumstances if the minimal intrusion on the individual’s privacy is outweighed by a legitimate government interest. In this case, the government contends, the “trespass” to Katzin’s van was minimal because it involved the placement of a magnetic GPS device on the bumper. Subsequent monitoring of the device was minimally intrusive because it revealed only the location of the van — information that could be obtained by physical surveillance. In the government’s view, these minimal intrusions were outweighed by the government’s interests in investigating crime.

The government also argues that the search falls within the “probable cause” exception. Under that exception, officers may conduct a warrantless search of an automobile if there is probable cause to believe it contains contraband or if exigent circumstances make a warrant application impractical. The government claims that no warrant was required in this case because officers had probable cause to believe that Katzin would use his van to burglarize another Rite Aid pharmacy.

The Katzin brothers counter that neither exception applies. First, the “reasonable suspicion” exception does not apply because the officers installed the device without a reasonable, articulable suspicion that criminal activity was afoot at the time of installation. Instead, the officers proceeded on a hunch that turned out to be right. The Constitution requires more than that.

The “probable cause” exception does not apply because, when the officers installed the device, they had no reason to believe there was contraband in the van or that the van was readily mobile, which might have made a warrant application impractical. As the Katzins point out, the officers attached the device in the dead of night on a deserted street. If the officers had evidence to support probable cause under those circumstances, they should have applied for a warrant.

Our sense is that the trial court will be upheld. The Fourth Amendment’s baseline requirement is that searches be conducted pursuant to a valid warrant supported by probable cause. These facts do not appear to support an exception. As the trial judge noted, the government argues for application of the “reasonable suspicion” exception based on its general interest in efficient law enforcement. The government did not prove that the special needs of this case required the warrantless intrusion visited on the defendants.

Likewise, the government argues for application of the “probable cause” argument based on the officers’ general suspicion that Katzin would use his van to commit a crime in the coming days, weeks, or months. The government did not prove that the officers had probable cause to believe that a crime was in progress when the device was attached. If courts do not hold the line on these exceptions, the Fourth Amendment will be eviscerated.

Mar 11
2013

Court: Data on Unsecured Network May Qualify for 4th Amendment Protection

The vast increase in the use of wireless data networks has led to new legal issues regarding network users’ right to privacy. A recent opinion issued by the U.S. District Court for the District of Oregon indicates that, under some circumstances, individuals on an unsecured wireless network have a reasonable expectation of privacy entitling them to Fourth Amendment protection. As a result, police officers must obtain a warrant prior to accessing files on that network.

In United States v. Ahrndt, defendant John Henry Ahrndt moved to suppress evidence that a police officer obtained by accessing Ahrndt’s wireless home network and opening files without a search warrant.

In February 2007, one of Ahrndt’s neighbors connected to Ahrndt’s unsecured wireless internet network. When she opened her iTunes program, she was able to see “shared” files from Ahrndt’s iTunes and LimeWire accounts, and saw a number of titles indicative of child pornography.

The neighbor did not open any of the files, but called the police to report what she saw. A deputy came to her house and she showed him the file names as she had seen them. The deputy asked her to open one of the files. When she did, it opened an image of child pornography.

The deputy questioned the neighbor about whom the unsecured wireless network might belong to. She indicated that the network had been available since she moved into the building, and at the time Ahrndt’s home was the only other one that was occupied. The police ran the license plate of a car parked outside of the home and identified it as belonging to Ahrndt, a convicted sex offender.

Using a general description of what the neighbor and deputy recalled seeing in the list of file names, the police applied for and received a search warrant to access the wireless network again in order to get an IP address. The police then served a summons on the Internet provider. The provider disclosed that Ahrndt was the subscriber in question.

Using that information, the police obtained a search warrant for Ahrndt’s home. They ran a forensic search of his computer and identified images of child pornography in various folders. The forensic report did not mention either iTunes or LimeWire.

In considering the motion to suppress the evidence obtained through the initial warrantless search, the court concluded that it would have been appropriate for the deputy to view the titles of the files without a warrant, since a private party (the neighbor) had already viewed those files and told the police about them. However, the court concluded that it was a violation of Ahrndt’s Fourth Amendment rights for the police to instruct the neighbor to open the file, which she had not previously done. The opened image was no longer within the purview of private search, but a government search.

The court also found that Ahrndt’s privacy expectations were not eliminated by accessing an unsecured wireless network. There was no evidence that Ahrndt had intentionally enabled sharing for those files; rather, the default setting of the LimeWire program enabled sharing. It was Ahrndt’s reasonable belief that those files were contained only on his hard drive, and not shared on a public network. The court said that “[i]n short, the government does not dispute a person has a reasonable expectation of privacy in the files on his home personal computer.”

The court concluded that, lacking specific file names and a description of images, a magistrate would not have found probable cause to issue a search warrant. The only evidence that the police viewed lawfully was the file names, which the neighbor and deputy could not remember with specificity. Since the “partial recollections and characterizations” were too general to support a warrant, all related evidence from the unlawful search must be suppressed.

The court came to the right conclusion on this one. Our reliance on the Internet has become such that what is on our computers is as personal and private as the inside of our homes. The government is no more entitled to search our computer without probable cause than to search our homes. This case does not represent a free pass to intentionally share information on wireless networks and then assert Fourth Amendment rights when the government comes knocking. Rather, it is only that information to which an user has a reasonable expectation of privacy—such as files that he is not aware are accessible to others—that is protected against the government’s unlawful search and seizure.

It’s easy to see how this has implications for potential white-collar cases: the government might try to use financial information unintentionally made available to a neighbor through an unsecured network as a basis to initiate a financial fraud investigation. We hope that the courts will rely on this case and suppress any evidence obtained as a result of this type of unlawful search.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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