U.S. v. Warshak

Full title: UNITED STATES OF AMERICA v. STEVEN E. WARSHAK, et al

Court: United States District Court, S.D. Ohio, Western Division

Date published: Feb 19, 2008

NO. 1:06-CR-00111 (S.D. Ohio Feb. 19, 2008)

Opinion

NO. 1:06-CR-00111.

February 19, 2008

OPINION AND ORDER

S. SPIEGEL, Senior District Judge

This matter is before the Court on two motions: first, the government's Motion to Reconsider Proposed Jury Instructions (doc. 336), Defendants' Response in Opposition (doc. 338), and the government's Reply (doc. 338). The second motion before the Court is Defendant Chavan's Motion to Reconsider Instructing Jury on Breach of Contract (doc. 337), and the government's Response in Opposition (doc. 339). For the reasons indicated herein, the Court GRANTS the government's motion, and DENIES Defendant Chavan's Motion.

A. The Government's Motion

The government requests three modifications to the jury instructions in this case (doc. 336). First, it requests the Court remove the instruction to the jury that proof of an overt act is required to establish a conspiracy to commit mail fraud, wire fraud, or bank fraud under 18 U.S.C. § 1349 (Id., citing United States v. Shabbani, 513 U.S. 10, 11 (1994)). Second, it requests the Court modify the current instructions so as to reflect that intent to defraud under the bank fraud statute, 18 U.S.C. § 1349, can be established by showing Defendant executed a scheme to defraud a third party that exposed the bank to risk of loss, or caused it to transfer funds under its possession and control (Id. Citing United States v. Reaume, 338 F.3d 577 (6^th Cir. 2003), and United States v. Everett, 270 F.3d 986 (6^th Cir. 2001)). Finally, the government requests an instruction on Pinkerton liability as to co-conspirators (Id., citing Pinkerton v. United States, 328 U.S. 640 (1946)).

Defendants argue that prior to the enactment of Section 1349, the prosecution of mail, wire, and bank fraud was done pursuant to 18 U.S.C. § 371, which does contain an overt act requirement (doc. 338). Defendants argue that Congressional silence in the legislative history of Section 1349 about the requirement of an overt act shows that Congress had no intention of doing away with such requirement (Id.).

As for the question concerning intent to defraud under 18 U.S.C. § 1344, Defendants argue the Court should not adopt the government's recommended instruction because 1) the Court should limit itself to the Sixth Circuit Pattern Jury Instruction § 10.03, 2) Everett and Reaume are inapplicable, 3) the instruction would amount to a constructive amendment to the Indictment, and 4) the instruction would create a prejudicial variance (doc. 338). Defendants leave the question of an instruction concerning Pinkerton liability to the discretion of the Court (Id.).

Having reviewed this matter, the Court finds the government's motion well-taken in all respects. The Court is convinced that where the text of a statute makes no requirement of the element of an overt act to establish an offense, the government need not prove an overt act for conviction. Whitfield v. United States, 543 U.S. 209, 214 (2005), United States v. Shabani, 513 U.S. 10, 14-15 (1994) (Congressional silence regarding an overt act requirement in a statute more specific than Section 371 means that Congress dispensed with such a requirement), United States v. Pistone, 177 F.3d 957 (11^th Cir. 1999).

The Court further finds well-taken the government's concern regarding the appropriate instruction applicable to intent to defraud under Section 1349. The pattern instruction is just that, a pattern, and is not particularly appropriate to the sort of bank fraud alleged in this case. The Court finds the principles of Everett and Reaume instructive here, and as such, it is appropriate to instruct the jury that intent to defraud can be met by showing that a Defendant executed a scheme to defraud a third party that exposed the bank to risk of loss, or caused it to transfer funds under its possession and control. The Court does not find Defendants' argument well-taken that the government's instruction amounts to a constructive amendment to the Indictment or to a prejudicial variance. The Indictment lays out the bank fraud charges, as well as the banks and processors involved, and alleges Defendants' scheme was to obtain funds under the custody and control of the banks. The Court does not find the terms of the Indictment altered by the government's instruction, nor that the evidence at trial has proven facts materially different from those alleged in the Indictment. United States v. Manning, 142 F.3d 336, 339 (6^th Cir. 1998), United States v. Hathaway, 798 F.3d 902, 910 (6^th Cir. 1986). Finally, the Court finds Pinkerton liability instructions appropriate in this matter, and shall therefore include them.

B. Defendant Chavan's Motion

Defendant Chavan moves the Court to include an instruction to the jury on breach of contract, such that the jury be instructed that if Defendants action amount to no more than a breach of contract, then they are not guilty of violating federal conspiracy statutes (doc. 337). The government opposes such instruction, arguing that it represents an effort "to blend the distinct line that separates criminal and civil" (doc. 339). The government argues that whether methods used by Defendants to artificially inflate transactions may have amounted to breaches of contract is not relevant to the government's theory of the crime (Id.). The Court agrees. Having presided over a six-week long trial, the Court finds a clear basis in the record in support of the government's theory that Defendants recognized problems with the credit card chargeback ratio threatened the existence of their credit card processing relationships. Defendants' efforts through double and triple "dinging," charging and crediting consumer credit cards, and other schemes, may indeed constitute breaches of contract with processors. However, because such actions allegedly allowed Defendants to continue to make unauthorized charges to consumer credit cards, Defendant Chavan's proposed instruction would only conflate civil and criminal standards.

C. Conclusion

Accordingly, the Court GRANTS the government's Motion to Reconsider Proposed Jury Instructions (doc. 336), and MODIFIES the jury instructions in accordance with this Order. The Court further DENIES Defendant Chavan's Motion to Reconsider Instructing Jury on Breach of Contract (doc. 337).

SO ORDERED.