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discussing a criminal defendant's use of "good guy" character evidence as a defense
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CASE NO. 1:07 CR 339.
October 2, 2007
MEMORANDUM OPINION AND ORDER
I. Introduction
The trial in this case is scheduled to begin on Friday, October 12, 2007, with the impanelment of the jury, preliminary jury instructions and opening statements, with testimony of witnesses to begin on Monday, October 15, 2007.
In anticipation of the trial, the government filed an omnibus motion in limine regarding the defendant's anticipated "irrelevant and inadmissible defenses." See Docket No. 29. The defendant has filed a response. See Docket No. 38.
In July of 2007, as later discussed herein, counsel for the government provided the defendant notice of anticipated Rule 404(b) evidence. As a consequence, counsel for the defendant filed a motion in limine contesting the proposed Rule 404(b) evidence. Supplemental notices by the government followed along with the government's response to the defendant's motion in limine.
Before ruling on the government's omnibus motion in limine and issues relating to potential Rule 404(b) Evidence, the Court conducted oral argument on the above-described issues. The Court's rulings follow:
II. The Government's In Limine Claim that the Jury Should Hear Neither Evidence Nor Argument that OBWC May have Acted Negligently in Monitoring the ADF and Protecting the Defendant's Over-leveraging of the ADF (SUBPART 1)In the defendant's written response (Docket No. 38), he sets the apparent stage for his defense as it is stated:
The defense is that the representatives of the State knew and approved of the transactions engaged in by the defendant. It is not that the employees at the Ohio Bureau of Worker's Compensation were negligent or failed to mitigate their losses but that they understood the investment philosophy behind the Active Duration Fund and recognized that if the market moved contrary to the assumptions which underlay the fund, it would experience significant losses.
It is important to remember that the Active Duration Fund is only a part of the money managed by MDL Capital Limited. Funds from MDL Capital Limited were primarily held in what were termed "long" positions and these funds always generated gains. However, anticipating that actions of the Federal Reserve Board might depress the value of the bonds, the State and the defendant decided to develop an approach which would provide some protection if the value of the bonds were to drop. The only way the defendant could see a way to make that happen was to engage in the shorting of bonds, betting that the value of the bonds would decline and thereby generate a profit for the Active Duration Fund. Accordingly, after the fund was established, the State transferred a total of $225 million of the funds held in MDL "long" fund to the Active Duration Fund.
In further response, the defendant states that it has no objection to granting the government's motion as it relates to a "negligence" defense because "Defendant does not believe that OBWC officers were negligent. It is his position that they understood what was occurring and approved it."
As a consequence, the Government's In Limine Motion as to subpart number 1 is GRANTED.
III. The Government's In Limine Claim that the Defendant Should be Prohibited from Eliciting Evidence and Presenting Argument on Whether the OBWC Failed to Mitigate its Loss from the Defendant's Overt Leveraging of the ADF (SUBPART 2)The defendant has responded that it has no intention of introducing any evidence which would suggest that the OBWC failed to mitigate its loss and accordingly, has no objection to the allowance of this aspect of the motion.
As a consequence, the Government's In Limine Motion as to subpart number 2 is GRANTED.
IV. The Government's In Limine Claim that the Defendant's Good Faith Belief in the ADF's Investment Strategy is No Defense (SUBPART 3)
The government's initial brief in support of subpart number 3, at pages 14 through 17, presents a compelling argument for granting subpart number 3. The defendant's response is brief and states in its entirety as follows:
The motion of the Government here is a bit perplexing. It admits that good faith is a defense to a charge of mail fraud. Since that is what is alleged in Counts 2, 3, and 4, the Court should, based upon the Government's own brief, deny the motion in limine.
The Government's burden includes proving a "scheme to defraud," and Mr. Lay's good faith belief in the success of the strategy challenged is a defense and that evidence should be permitted. Neither the Sixth Circuit's decision in United States v. Pohl, 1993 WL 503761 (CA 6 (Ohio)) nor the Ninth Circuit's decision in United States v. Beecroft, et al., 608 F. 1d 753 (1979) provide a legal basis for excluding that evidence.
The decision and teachings in United States v. Stull, 743 F.2d. 439 (1984) compels a granting of sub-part number 3 of the government's motion.
The Stull case originated in this district. Former Chief Judge George White was the trial judge. The defendants were tried and convicted of numerous counts of mail fraud. At issue before the Stull court on appeal were the two jury instructions on a good faith defense and a "scheme to defraud."
The good faith instruction stated in part as indicated in footnote number 6:
You are instructed that good faith on the part of a defendant is a defense to a charge of mail fraud.
"Good faith," as used as a possible defense in a mail fraud prosecution, is defined as a genuine belief at the time each alleged false statement or representation was communicated, that each such statement or representation was true.
"Good faith" does not include the defendant's belief or faith that the venture will eventually meet his or her expectations. (emphasis added)
The scheme to defraud instruction, which was challenged by the defendant in Stull, as set forth in footnote number 7 stated:
A "scheme to defraud" is not defined according to a technical standard but a standard which is a reflection of moral uprightness, fundamental honesty, fair play and right dealing in the general business life of members of society.
A statement or representation is false or fraudulent if the maker of the statement knows it to be untrue; if the person making it does so without regard to whether it is true or false; if it is put forth without a reasonable basis; or if it is made with reckless indifference as to truth or falsity. (emphasis added).
The Stull court then acknowledged the previous opinion of Hawley v. United States, 133 F.2d 966 (10th Cir. 1943) and refused to follow the Hawley teachings and then opined:
We find no error in the jury instructions. Since Hawley was decided, courts have consistently held that a defendant's honest belief in the ultimate success of a venture is not in itself a defense to a charge of mail fraud. Beecroft, supra, 608 F.2d at 757; United States v. Amrep Corp., 560 F2d 539, 547 (2d Cir. 1977), cert. denied, 434 U.S. 1015, 98 S.Ct. 731, 54 L.Ed.2d 759 (1978); United States v. Diamond, 430 F.2d 688 (5th Cir. 1970). Furthermore, the Tenth Circuit in discussing the Hawley instruction has made clear that "no matter how firmly the defendant may believe in the plan, his belief will not justify baseless, false, or reckless representations or promises." Sparrow v. United States, 402 F.2d 826, 828 (10th Cir. 1968). With respect to the challenged instruction on "scheme to defraud," we note that this court has previously approved the definition of this element as set forth by the district court. United States v. VanDyke, 605 F.2d 220, 225 (6th Cir.), cert. denied, 444 U.S. 994, 100 S.Ct. 529, 62 L.Ed.2d 425 (1979). The defendant have given us no persuasive reason for overruling our earlier decision. Finally, the district court's definition of false statements likewise conformed to the prevailing legal standard. See United States v. Frick, 588 F.2d 531, 536 (5th Cir.), cert. denied, 441 U.S. 913, 99 S.Ct. 2013, 60 L.Ed.2d 385 (1979); Amrep Corp., supra, 560 F.1d at 543; Irwin v. United States, 338 F.1d 770, 774 (9th Cir. 1964), cert. denied, 381 U.S. 911, 85 S.Ct. 1530, 14 L.Ed.2d 433 (1965).
The Court intends to follow the teachings of Stull and, as a consequence, subpart number 3 of the government's motion in limine is GRANTED.
V. The Government's In Limine Claim that the Defendant's Prior Good Acts are Irrelevant to the Crimes Charged and Not Proper Rule 404(a)(1) Character Evidence (SUBPART 4) The government's briefs in support of its in limine motion as to "Defendant's Prior Good Acts" predicts that the defendant will try to: 1) elicit "good guy" testimony including "evidence of his past generosity to those in needs, [sic] charitable giving, education, financial success, background, and stature in the community," and 2) use character evidence to introduce himself to the jury in opening statements. The government argues that such facts are completely irrelevant to the crimes charged and are not proper Rule 404(a)(1) character evidence.Continuing, the government's brief cites a series of examples where positive character traits were not pertinent to the crime charged and included United States v. West, 67F.2d 675, 682 (7th Cir. 1982), United States v. Scholl, 166 F.3d 964, 975 (9th Cir. 1999), United States v. Cortez, 935 F.2d 135 (8th Cir. 1991), United States v. Washington, 106 F.3d 983, 1000 (D.C. Cir. 1997), United States v. Qaoud, 777 F. 2d 1105, 1111 (6th Cir. 1985), and United States v. Troutman, 814 F.2d 1428 (10th Cir. 1987).
In West, the defendant alleged that the district court committed reversible error when it refused to permit the defendant to introduce testimony of his psychiatrist that he suffered from limited intelligence and therefore, in the opinion of the psychiatrist, the defendant was unlikely to realize that when he accepted a car, it was a bribe or that he would be expected to provide some benefit to a defendant engaged in drug trafficking. The district court rejected the defendant's claim that the psychiatrist's testimony was evidence of a relevant character trait offered to rebut the government's proof that the defendant harbored specific intent to accept a bribe when he accepted the car. In affirming the district court, the Seventh Circuit concluded that intelligence was not a character trait within the meaning of Rule 404(a)(1).
The defendant Scholl, a Superior Court Judge in Tucson, Arizona until his indictment, found fault with the government's cross examination of his character witness, another judge, who testified that the defendant's "integrity is beyond question." The cross examination dealt with the character witness's knowledge of a specific instance, i.e., a $10,000 loan that Judge Scholl had accepted from an attorney who was counsel in a case over which Judge Scholl presided while the loan was outstanding and without disclosing it to all parties. The Scholl court implies that the cross examination of the defendant's character witness, Judge Lacagnina, was permissible because Judge Lacagnina had testified to Judge Scholl's truthfulness, honesty and integrity.
The defendant Cortez was convicted by a jury of knowingly possessing marijuana with the intent to distribute. On appeal, Cortez argued that the trial court erred in excluding expert testimony of a clinical psychologist regarding the defendant's brain damage, psychological profile and character traits. On appeal, Cortez attempted to frame his argument regarding his limitations as a "character trait" issue governed by Rule 404(a)(1). In rejecting the claim, the Eighth Circuit declared that although the rule does not define "character trait", the term has traditionally referred to elements of one's disposition, such as honesty, temperance or peacefulness and added the belief that Rule 404(a)(1) does not encompass slowness to answer, forgetfulness, or poor ability to express oneself.
Washington, the defendant — a police officer, was convicted of conspiracy, attempted possession of cocaine with intent to distribute and weapons offenses. He appealed. The defendant challenged the trial court's refusal to allow the introduction of several commendations Washington had received in his capacity as a police officer. After declaring that the district court did not abuse its discretion in refusing to admit the commendations, it declared: It is true that the accused may introduce evidence of a "pertinent trait character under Federal Rule of Evidence 404(a)(1), such evidence generally must be in the form of testimony as to reputation or by testimony in the form of an opinion" and cited Fed.R.Evid. (405(a)), but then went on to declare "[i]n cases in which character or a trait of character of a person is an essential element of a charge, claim, or defense, proof may also be made of specific instances of that person's conduct." Fed.R.Evid. 405(b). Continuing, the Washington court declared that the commendations were not admissible under either rule because the defendant's "dedication, aggressiveness, and assertiveness" in investigating drug dealing and car jacking is neither "pertinent" to nor an "essential element" of his supposed lack of predisposition to engage in the corrupt criminal activity with which he was charged.
The Qaoud case involved three defendants, one of whom, Evan Callanan, Sr., was a state judge in Michigan. Judge Callanan received a ten year sentence in RICO charges and appealed. The evidence in this case indicated that codefendant Sam Qaoud was presented at trial as the "bag man" for Judge Callanan. Judge Callanan argued on appeal that his due process rights were violated by the trial court's refusal to allow introduction of evidence about another influence peddler (Louis Perry) who failed to receive help from Judge Callanan on another matter. His claim was rejected with a declaration that evidence of non-criminal conduct to negate inference of criminal condition is generally irrelevant citing United States v. Grimm, 568 F.2d 1136 1138 (5th Cir. 1978).
The defendant, Troutman, was the New Mexico State Investment Officer and managed and invested approximately $3 billion in state funds. He was convicted of conspiracy to commit extortion in violation of the Hobbs Act. Troutman sought to introduce testimony from several firms, not related to the present controversy, that he had never conditioned the award of state business upon their making political contributions and that "he went out of his way" to return any donations solicited by persons in his office and assure the contributors their standing with the state would not be affected by their making or withholding contribution. The trial court allowed only one witness to testify along that line, but refused further similar testimony. Troutman asserted that more evidence of his past conduct should be permitted under Fed.R.Evid. 404(a)(1) and 406. The trial court's decision that such testimony was irrelevant was affirmed as neither proper evidence under Fed.R.Evid. 404(a)(1) nor Fed.R.Evid. 406.
The government's conclusion in its initial brief declared that "the issue is whether Defendant Lay mismanaged funds entrusted to his care by OBWC. His management of other public funds in an honest fashion on other occasions has no bearing on the charges in this case. His prior good deeds and community ties provide no defense. To the extent the Defendant seeks to introduce character evidence, the Government requests that the Court limit such testimony to character traits that are 'pertinent' to the charges in the Indictment."
The defendant's brief response as to evidence of good character (Docket No. 38), in part declared:
It would seem that a key part of this case will be the credibility of Mark D. Lay should he take the witness stand. Indeed based upon what the defense anticipates the Government's case to be, such evidence would be admissible even if he did not testify since he will no doubt have attacked his credibility [sic] to bolster the Government's case-in-chief.
But in no small measure, this evidence would be admissible through the general and routine effort to introduce to a jury who the defendant is. The story which is the basis for these charges involves explanations of how Mark D. Lay came to be a manager of funds for the Ohio Bureau of Worker's Compensation. His success with other companies is necessarily a part of that explanation.
Moreover, it is commonly the case that a person's education and accomplishments are introduced in order to allow the jurors to begin to understand who the defendant is. This is not to suggest that there will be a long line of happy clients, caring priests and notable figures testifying as to the bona fides of Mark D. Lay. But some evidence of his good character and accomplishments will necessarily be a part of the presentation of the defense case.
It should be noted that the Government has moved to introduce the circumstances of his termination from Pittsburgh National Bank, which the defendant has opposed. The allowance of that evidence in this case would certainly require fairly unlimited "good character" evidence to rebut the taint the Government would have drawn from that testimony.
The Court is two months from the trial of this case, and defendant respectfully suggest that as is true with the case with most motions in limine perhaps the best approach is for the Court to deny the motion at this point, leaving it to the Government to raise timely objections of the evidence as it is being presented. The context in which the evidence is then offered will help make the decision to admit it or deny it easier.
The Court is of the view that defendant intended to say ". . . since he will not doubt have his credibility attacked . . ."
The government's response (Docket No. 47) disputes the defendant's contention that the Court should delay a ruling and contends that the failure to rule prior to opening statements opens the door to the defendant the opportunity to put before the jury in an opening statement specific acts of good character in order to garner sympathy and empathy for the defendant by inserting acts of good character, whether or not the acts later become relevant.
On the merits of its motion in limine (subpart number 4), the government disputes the defendant's "self serving" claim that "it is commonly the case that a person's education and accomplishments are introduced to allow jurors to begin to understand who the defendant is." Continuing, the government asserts that the introduction of character evidence is limited by the constraints of Rule of Evidence 404(a)(1). As contended by the government, Federal Rule of Evidence Rule 404(a)(1) only renders admissible "evidence of a pertinent trait of character offered by an accused, or by the prosecution to rebut the same" and the character trait to be pertinent must be related to the charged crime or crimes of the defense thereto. As an example, in a corruption trial, evidence of the defendant's prior commendations were not admissible because his "dedication, aggressiveness and assertiveness" in investigating drug dealing and car jacking is neither 'pertinent' to nor an 'essential element' of his supposed lack of predisposition to engage in the corrupt criminal activity with which he was charged." United States v. Washington, 106 F.3d 983, 1000 (D.C. 1997).
Continuing, the government disputes the defendant's claim that evidence of his good character is admissible to rebut evidence in the government's case-in-chief attacking his credibility. The government acknowledges that in the event the defendant exercises his right to testify and his credibility is attacked on cross examination, then and only then may the defendant introduce character evidence to rehabilitate the defendant. In reliance on this argument, the government relies upon Federal Rule of Evidence 608(a) which states in its entirety as follows:
Rule 608. Evidence of Character and Conduct of Witness
(a) Opinion and reputation evidence of character. The credibility of a witness may be attacked or supported by evidence in the form of opinion or reputation, but subject to these limitations: (1) the evidence may refer only to character for truthfulness or untruthfulness, and (2) evidence of truthful character is admissible only after the character of the witness for truthfulness has been attacked by opinion or reputation evidence or otherwise.
In reliance on its position, the government cites United States v. Hilton, 772 F.2d 783, 786 (11th Cir. 1985); United States v. Cylkouski, 556 F.2d 799, 801-802 (6th Cir. 1977); United States v. Jackson, 588 F.2d 1046, 1055 (5th Cir. 1979); United States v. Angelini, 678 F.2d 380, 382 n. 1 (1st Cir. 1982); United States v. Drury, 396 F.3d 1303 314 (11th Cir. 2005).
The defendant Hilton was convicted of certain drug offenses. The primary witnesses against him had agreed in their written plea agreement to take polygraph examinations. The government used that fact to bolster the testimony of the cooperating defendants, arguing that having agreed to take a polygraph examination, the jury should infer that they would not lie because they knew the government could turn around and test their veracity by the polygraph examination. In setting aside the conviction, the Eleventh Circuit relied upon the provisions of Fed.R.Evid. 608(a)(2) which provides that evidence of the witnesses' truthful character is admissible only after character for truthfulness has been attacked.
Cylkouski was convicted of conspiracy to obstruct state criminal laws with intent to facilitate an illegal gambling business. Counsel for the defendant suggested to the trial court that he wished to call Father Dye as a character witness and inquired about whether he should put the defendant or Father Dye on the witness stand first. An ensuing colloquy resulted in the court indicating that counsel for the defendant did not know any portion of the trial up to that time that put the character of the defendant for truthfulness at issue and to which the defendant's lawyer replied "that is right." After indicating that there was some confusion about the state of the record, the circuit opined that the district court was correct if counsel for defendant Cylkouski had in mind to offer Father Dye as a witness to testify to the defendant's reputation for truthfulness. In so ruling, the Cylkouski court pointed to the provisions of Rule 608(a)(2) which provides that evidence of truthful character is admissible only after the character of the witness for truthfulness has been attacked by opinion or reputation evidence or otherwise.
Jackson, the defendant, was convicted of conspiracy to distribute heroin and possession of heroin with intent to distribute. Against that background, Jackson attempted to introduce testimony supporting his reputation for "truth and veracity." The trial court excluded the evidence on the ground that Jackson's reputation for truth and veracity was not pertinent to the crime with which he was charged. Continuing, the circuit court stated "Jackson assumes that a defendant's credibility is an issue in any criminal prosecution. However, not all criminal indictments impugn the defendant's truthfulness and veracity. Since evidence of the trait of truthfulness is not pertinent to the criminal charges of conspiracy to distribute heroin or possession of heroin, Rule 404 forbids its introduction as circumstantial evidence of innocence of those crimes."
The defendant Angelini was convicted after a jury trial of possessing with intent to distribute and distributing Methqualone, a controlled substance, in violation of 21 U.S.C. Section 841(a)(2). Angelini sought to introduce evidence through three character witnesses that he was law-abiding and truthful. The district court refused to allow the witnesses to testify. On appeal, the Angelini court stated it was not error for the district court to have excluded the evidence concerning truthfulness, but that the Court erred in excluding evidence concerning Angelini's character as a law-abiding person. This Court views that decision as concluding that being a law-abiding person is evidence of a pertinent trait of his character. The Angelini court also produced an extensive footnote number one upon which the government relies in the case. In the footnote, the Angelini court reinforced its declaration that Angelini was not permitted to introduce evidence on his character for truthfulness as it was not pertinent to the crime charged and the mere fact that the defendant testifies does not give him the right to present character evidence supporting his veracity.
The defendant Dr. Drury appealed his convictions for violating the federal murder for hire statute and possessing a firearm in connection with a crime of violence. On appeal, Drury challenged the district court's exclusion of evidence of his truthful character. In support of his claim, Drury claimed that the government attacked his credibility at trial entitling him to introduce rehabilitative evidence pursuant to Fed.R.Evid. 608(a)(2) which provides that "evidence of truthful character is admissible only after the character of the witness for truthfulness has been attacked by opinion or reputation evidence or otherwise." Drury's claim was limited to the argument that his character was "otherwise attacked by a series of scattered questions asked by the prosecutor during his cross examination." Drury cited as prosecution's "credibility-laden questions" as "are you telling us that you told an arresting officer that you wanted to make a statement and he wouldn't let you?"; "are you saying that he hushed you up?"; "is that what you want this jury to believe"; "you don't think the officer had any reason to think that you were trying to offer him a bribe?" and "is that what you are telling us?" Against that background, Drury sought unsuccessfully to introduce testimony from six witnesses prepared to attest to his truthful character. The circuit court found no error in the trial court's exclusion of the proffered testimony concluding that an effort by the government's counsel pointing out inconsistencies in testimony and arguing that the accused testimony is not credible does not constitute an attack on the accused's reputation for truthfulness within the meaning of Fed.R.Evid. 608.
The government's motion in limine (subpart 4) also addresses a defendant's method for proving character and emphasizes that evidence of a defendant's character must be presented in the form opinion or reputation testimony. In that regard, a defendant is not permitted to establish his innocence of the charged offenses through proof of the absence of criminal acts on a specific occasion, rather such an attempt to prove character through specific acts is reserved for cross examination. In that context, see United States v. Scarpa, 897 F.2d 63, 70 (2nd Cir. 1990) and United States v. Hill, 40 F.3d 164, 169 (7th Cir. 1994).
Scarpa was convicted of a RICO offense, conspiring to distribute marijuana, two counts of conspiring to commit extortion and one count of extortion. On appeal, he contended that he should have been allowed to introduce tapes that would support his contention that his illicit income came from gambling, rather than from drugs. The Scarpa court held that the defendant may not seek to establish his innocence through proof of the absence of criminal acts on specific occasions.
The defendant Hill was convicted of stealing and cashing a United States Treasury check from the mail. She appealed and contended that she should have been permitted to offer testimony that she did not take three "test letters" on other occasions. After a lengthy analysis, the Hill court found that her failure to steal the three "test letters" in October, 1991, was only tangentially relevant to whether she intended to embezzle the check five months earlier. She also argued that the test letter evidence was probative of her character trait for law abidingness making it admissible under Rule 404(a)(1) which allows a defendant to offer evidence of a "pertinent trait of character." The Hill court went on to state that "Hill offers no authority for her argument that law-abidingness is a pertinent character trait for the crimes with which she was charged. Assuming law-abidingness was a pertinent character trait, however, the proper method of proof would have been by reputation or opinion testimony."
Although not relevant to the government's motion in limine, (subpart 4) the government addresses the law as it relates to rebutting the defendant's character evidence and contends that while the defendant is limited to opinion and reputation testimony to prove character, the prosecution may rebut that evidence through cross examination of defense witnesses about specific instances of conduct and through testimony of character witnesses and cites for its authority United States v. Michelson, 335 U.S. 469, 479 (1948) and in which the Michelson court stated:
The price a defendant must pay for attempting to prove his good name is to throw open the entire subject which the law has kept closed for his benefit and to make himself vulnerable where the law otherwise shields him. The prosecution may pursue the inquiry with contradictory witnesses to show that damaging rumors, whether or not well-grounded, were afloat — for it is not the man that he is, but the name that he has which is put in issue. Another hazard is that his own witness is subject to cross-examination as to the contents and extent of the hearsay of which he bases his conclusions, and he may be required to disclose rumors and reports that are current even if they do not affect his own conclusion. It may test the sufficiency of his knowledge by asking what stories were circulating concerning events, such as one's arrest, about which people normally comment and speculate. Thus, while the law gives defendant the option to show as a fact that his reputation reflects a life and habit incompatible with commission of the offense charged, it subjects his proof to tests of credibility designed to prevent him from profiting by a mere parade of partisans.
The Court is of the view that an issue exists as to whether the defendant may offer character evidence pertaining to himself, in the context of Fed.R.Evid. 608, without testifying in his own defense. If the answer to that question is in the affirmative, then it would seem to the Court that the defendant might be entitled to prepare the jury for the anticipated character evidence in the defendant's opening statement which probably includes the "good guy" descriptions of the defendant that the government has moved the Court to prevent in the defendant's opening statement.
An affirmative answer may require the Court to revisit its tentative ruling in Section VI, infra.
Because of the importance of the issue regarding the use of "good guy" testimony, the Court will entertain additional briefs on the question of whether the defendant may introduce character testimony without testifying. A second question for additional briefing will: 1) assume that the Court rules to allow the defendant to present "good guy" testimony and to present the anticipated testimony in his opening statement, and 2) address whether the Court should allow the government to introduce evidence regarding defendant's prior employment history and introduce the anticipated testimony in its opening statement.
There are certain evidentiary issues that were not the subject of dispute between the government and defendant, and the Court ruled accordingly. See Sections II and III, supra. If the parties are able to reach an accord regarding the issues in Sections V and VI, such as the omission of "good guy" testimony and the submission of government evidence regarding defendant's prior employment history to voir dire by the Court prior to introduction or argument to the jury, then the Court would likely respect that accord and rule accordingly.
The Court requests that the supplemental briefs be filed by noon on Monday, October 8, 2007.
VI. Is the Evidence of the Alleged Misrepresentations and/or Omissions by the Defendant with Respect to his Previous Employment History Relevant, and if Relevant, Does the Prejudice Outweigh the Relevance?By letter dated July 26, 2007, counsel for the government provided a notice to counsel for the defendant that it intended to introduce 404(b) evidence. A copy of the notice is attached as Appendix 1. By letter dated August 7, 2007, counsel for the government provided a supplement notice regarding 404(b) evidence. See Appendix 2 attached hereto. Subsequently, counsel for the government, by a letter dated September 20, 2007, summarized that two previous notices by lettered July 26, 2007 and August 7, 2007. See Appendix 3 attached hereto.
Counsel for the defendant filed on July 30, 2007, a motion in limine opposing the introduction of the proposed Rule 404(b) evidence (Docket No. 30). The government filed a response to the defendant's motion in limine. (Docket No. 41). The proposed Rule 404(b) evidence involves the claim that the defendant left previous employment positions under circumstances that should have been disclosed to the OBWC prior to the decision of OBWC to invest funds with and under the control of the defendant.
The Court construes the defendant's motion of July 30, 2007 to apply to both the government's notice dated July 26, 2007 (Appendix 1) and the government's notice dated August 7, 2007 (Appendix 2) and as summarized in Appendix 3.
While the Court had under consideration the defendant's motion in limine, the grand jury returned on September 7, 2007 a superceding indictment. The issue involving the defendant's prior employment history was injected into the superceding indictment.
The original indictment stated in part as follows:
The Advisory Agreement referred to the ADF's Confidential Private Placement Memorandum (hereinafter "PPM"), as more fully describing the investment vehicle. Among other things, the PPM required that investor clients pay MDL both a Management Fee and an Incentive Fee. During the short life of the ADF, the sole investor client, OBWC, paid MDL approximately $1,793,231 in such fees. The $1,793,231 is in addition to the management fee paid for the MDL's management of the Long Fund referenced in paragraph 14 above, for a total of approximately $3,767.028.
LAY and the then principal (known to the Grand Jury) of a brokerage firm located in Westlake, Ohio (hereinafter Marketer 1), each solicited the OBWC to invest in the ADF. LAY and Marketer 1 provided the OBWC with a PPM one of which bore the notation: "Copy No. 2 Issued to Great Lakes Capital Partners", which outlined the terms and conditions of the ADF. The PPM provided that "up to 150% of the Fund's assets, at the time of investment, may be leveraged (i.e., the combined value of borrowings and short positions)." This limitation on the utilization of leverage applied to all ADF assets, including but not limited to United States Treasury Securities. The PPM cautioned that while leverage may "enhance returns", it may also "substantially increase the risk of loss."
The superceding indictment included additional allegations in paragraphs 21 and 22 as indicated by the italicized material in paragraphs 21 and 22.
a. The Advisory Agreement referred to the ADF's Confidential Private Placement Memorandum (hereinafter "PPM"), as more fully describing the investment vehicle.
b. The PPM provided, among other things, that, as the ADF's Investment Adviser, LAY and others specified in the PPM would "have direct and primary responsibility for all investment decisions of the fund"
c. The PPM also provided employment credentials for LAY that stated "([f]rom 1984 to 1989, Mr. Lay was with Citicorp Investment Bank" and, thereby, falsely extended LAY's time of employment with Citicorp and omitted LAY's employment with Mellon which occurred from approximately June 1988 to approximately August 1988 and Pittsburgh National Bank ("PNC") which occurred from approximately September 1988 to approximately August 1989, in an effort to conceal LAY's past employment with Mellon and PNC and the reasons for his separation from Mellon and PNC from the OBWC and others to whom LAY marketed the ADF.
d. Among other things, the PPM required that investor clients pay MDL both a Management Fee and an Incentive Fee. During the short life of the ADF, the sole investor client, OBWC, paid MDL approximately $1,793,231 in such fees. The $1,793,231 is in addition to the management fee paid for the MDL's management of the Long Fund referenced in paragraph 14 above, for a total of approximately $3,767,028.
LAY and the then principal (known to the Grand Jury) of a brokerage firm located in Westlake, Ohio (hereinafter Marketer 1), each solicited the OBWC to invest in the ADF. LAY and Marketer 1 provided the OBWC with a PPM one of which bore the notation "Copy No. 2 Issued to Great Lakes Capital Partners" and the statement "THE DATE OF THIS MEMORANDUM IS JANUARY 15, 2003", which outlined the terms and conditions of the ADF. The PPM provided that "up to 150% of the Fund's assets, at the time of investment, may be leveraged (i.e., the combined value of borrowings and short positions)." This limitation on the utilization of leverage applied to all ADF assets, including but not limited to United States Treasury Securities. The PPM cautioned that while leverage may "enhance returns", it may also "substantially increase the risk of loss."
The Court is of the view that the issue raised by the defendant's motion in limine remains. The question is whether the government should be permitted in its case-in-chief to introduce evidence concerning the past employment history of the defendant with Mellon and Pittsburgh National Bank. The government contends that the italicized information in the superseding indictment has converted what the government initially described as Rule 404(b) evidence to res gestae evidence which is extricably intertwined with the government contention that the defendant concealed and falsely represented the extent of his over-leveraging thereby eliminating the characterization of defendant's past employment history as Rule 404(b) evidence.
The Court heard spirited argument on the issue of whether the government should be permitted to present, in its case-in-chief, testimony regarding the defendant's past employment with Mellon and Pittsburgh National Bank in the late 1980's.
The Court directs counsel for the government to omit in its opening statement any reference to the defendant's past employment history with Mellon and Pittsburgh National Bank. However, the Court will entertain, in a voir dire setting during the course of the government's case-in-chief, testimony respecting the defendant's past employment history together with any testimony that the government chooses to use demonstrating the relevance of any such testimony. In the event that the Court concludes that the testimony is relevant, it will then consider under the dictates of Federal Rule of Evidence 403 whether the relevance outweighs the prejudice.
This ruling is tentative and may be modified by the Court after ruling on the in limine motion regarding character evidence. See Section V, supra.
In the event the Court rules that the government's evidence regarding the defendant's past employment with Mellon and Pittsburgh National Bank should not be admitted during the government's case-in-chief, the Court will, upon the government's motion, revisit the issue during the defendant's presentation of evidence.
VII. Conclusion
Subpart 1 of the government's motion in limine is granted. Subpart 2 of the government's motion is granted. Subpart 3 of the government's motion in limine is granted.
The ruling on Subpart 4 shall be delayed until counsel have the opportunity to file supplemental briefs by Monday, October 8, 2007, consistent with the Court's instructions as now appear on page ___ of this order.
The ruling on Section VI of this order directing counsel for the government to omit in its opening statement any reference to the defendant's past employment history with Mellon and Pittsburgh National Bank remains in effect, but subject to a subsequent modification based on the supplemental briefs to be filed by Monday, October 8, 2007.
IT IS SO ORDERED.
APPENDIX 1
U.S. Department of Justice United States Attorney Northern District of Ohio United States Court House 801 West Superior Avenue, Suite 400 Cleveland, Ohio 44113-1852 July 26, 2007 VIA FACSIMILE ONLYRichard M. Kerger, Esq.
Kerger and Associates
33 S. Michigan Street, Suite 100
Toledo, Ohio 43604
Percy Squire, Esq.
514 S. High Street
Columbus, Ohio 43215 United States v. Mark Lay, Notice of Intent to Introduce 404(b) Evidence
Re: Case No. 1:07CR0339 Dear Attorneys:Counsel for the government hereby gives notice of its intent to introduce at trial 404(b) evidence regarding Mr. Lay's actions resulting in his termination from Pittsburgh National Bank, in order to prove, among other things, Mr. Lay's intent, knowledge and absence of mistake or accident, in his dealings with the Active Duration Fund and the Ohio Bureau of Workers' Compensation. FAX NO: (216) 522-7358 TELEPHONE: (216) 622-3600 FACSIMILE OUTGOING TRANSMISSION COVER SHEET TO: Hon. David Dowd FAX NO: (330) 252-6040 ORGANIZATION: DATE: 8/31/2007 PHONE: FROM: AUSA Benita Pearson PHONE: (216) 622-3919 NUMBER OF PAGES: (EXCLUDING FAX TRANSMISSION COVER SHEET)
Sincerely yours, Gregory A. White ______________________________ Benita Y. Pearson (0065709) Antoinette T. Bacon (DC 474696) 216) 622-3919/3966 Assistant U.S. Attorneys, NDOH Brenda Shoemaker (0041411) Special Assistant U.S. Attorney, NDOH DEPARTMENT OF JUSTICE OFFICE OF THE UNITED STATES ATTORNEY NORTHERN DISTRICT OF OHIO UNITED STATES COURT HOUSE 801 WEST SUPERIOR AVENUE. SUITE 400 CLEVELAND, OHIO 44113-1852 GREGORY A. WHITE UNITED STATES ATTORNEY _________________________________ _____________________________________ _____________________ ______________ ___________________________________________________________________ ________________________________________________________ ____________________________________________________ _________________________________________________________ ________________________ COMMENTS:SENSITIVE U.S. ATTORNEY FACSIMILE COMMUNICATION
The information contained in this facsimile message, and any and all accompanying documents constitutes sensitive information. This information is the property of the U.S. Attorney's Office. If you are not the intended recipient of this information, any disclosure, copying, distribution, or the taking of any action in reliance on this information is strictly prohibited. If you received this message in error, please notify us immediately at the above number to make arrangements for its return to us.Note: If you do not receive the total number of pages indicated, please call the sending individual listed above.
APPENDIX 2
U.S. Department of Justice United States Attorney Northern District of Ohio United States Court House 801 West Superior Avenue, Suite 400 Cleveland, Ohio 44113-1852
August 7, 2007 VIA FACSIMILE ONLYRichard M. Kerger, Esq.
Kerger and Associates
33 S. Michigan Street, Suite 100
Toledo, Ohio 43604
Percy Squire, Esq.
514 S. High Street
Columbus, Ohio 43215 United States v. Mark Lay, Case No. 1:07CR0339 Supplemental Notice of Intent to Introduce 404(b) Evidence
Re: Dear Attorneys:Counsel for the Government hereby gives notice of its intent to introduce at trial Federal Rule of Evidence 404(b) evidence regarding Mr. Lay's actions resulting in his separation from Mellon Financial. This evidence, together with evidence of Mr. Lay's separation from Pittsburgh National Bank, may be introduced to prove, among other things, Mr. Lay's intent to defraud the Ohio Bureau of Workers' Compensation ("OBWC") with respect to his management of the Active Duration Fund ("ADF") and the effect of his use of leverage on ADF losses, especially in light of Mr. Lay's recent notice to the Government and the Court that he plans to make his intent (or lack thereof) an issue at trial. ( See Def's Mot. in Limine Regarding the Gov't's Proposed Rule 404(b) Evidence, at 2, Docket No. 30). This evidence may also be used to prove Mr. Lay's knowledge and absence of mistake or accident in his dealings with the OBWC and in his management of the ADF. ( Id.) This evidence may also be presented to establish the motive for Mr. Lay's management of the ADF and his dealings with the OBWC and others related to the ADF.
Sincerely yours, Gregory A. White ______________________________ Benita Y. Pearson Antoinette T. Bacon (216) 622-3919/3966 Assistant U.S. Attorneys, NDOH Brenda Shoemaker Special Assistant U.S. Attorney, NDOHAPPENDIX 3
U.S. Department of Justice United States Attorney Northern District of Ohio United States Court House 801 West Superior Avenue, Suite 400 Cleveland, Ohio 44113-1852 September 20, 2007 VIA FACSIMILE ONLYThe Honorable David D. Dowd, Jr.
United States District Judge
Northern District of Ohio
United States Courthouse
Two South Main Street
Akron, OH 44308United States v. Lay, Case No. 1:07CR339
Re: Dear Judge Dowd:Attached please find two notices issued to the Defendant of the Government's intent to introduce 404(b) evidence at trial. Both notices relate to actions surrounding the Defendant's separation from previous employers in the financial industry.
The first notice, transmitted on July 26, 2007, relates solely to 404(b) evidence related to the Defendant's termination from Pittsburgh National Bank (PNC). The second notice, sent on August 7, 2007, reiterates the Government's intent to introduce PNC evidence and also notices the Defendant of the Government's intent to introduce evidence of Defendant's actions resulting in his separation from a second employer, Mellon Financial.
Very truly yours, ______________________________ Antoinette T. Bacon Assistant U. S. Attorney 216-622-3966