Opinion
Case No. 3:15-cr-238-SI
04-07-2017
UNITED STATES OF AMERICA, v. DAN HEINE and DIANA YATES, Defendants.
Billy J. Williams, United States Attorney, and Claire M. Fay, Michelle Holman Kerin, and Quinn P. Harrington, Assistant United States Attorneys, UNITED STATES ATTORNEY'S OFFICE FOR THE DISTRICT OF OREGON, 1000 S.W. Third Avenue, Suite 600, Portland, OR 97204. Of Attorneys for the United States of America. Jeffrey Alberts and Mark Weiner, PRYOR CASHMAN, LLP, 7 Times Square, New York, NY 10036; Caroline Harris Crowne and Michael C. Willes, TONKON TORP, LLP, 1600 Pioneer Tower, 888 S.W. Fifth Avenue, Portland, OR 97204. Of Attorneys for Defendant Dan Heine. Janet Lee Hoffman, Kelsey R. Jones, Andrew T. Weiner, Katherine Feuer, and Douglas J. Stamm, JANET HOFFMAN & ASSOCIATES, LLC, 1000 S.W. Broadway, Suite 1500, Portland OR 97205; Matthew J. Kalmanson, HART WAGNER, LLP, 1000 SW Broadway, Suite 2000, Portland, OR 97205. Of Attorneys for Defendant Diana Yates.
OPINION AND ORDER
Billy J. Williams, United States Attorney, and Claire M. Fay, Michelle Holman Kerin, and Quinn P. Harrington, Assistant United States Attorneys, UNITED STATES ATTORNEY'S OFFICE FOR THE DISTRICT OF OREGON, 1000 S.W. Third Avenue, Suite 600, Portland, OR 97204. Of Attorneys for the United States of America. Jeffrey Alberts and Mark Weiner, PRYOR CASHMAN, LLP, 7 Times Square, New York, NY 10036; Caroline Harris Crowne and Michael C. Willes, TONKON TORP, LLP, 1600 Pioneer Tower, 888 S.W. Fifth Avenue, Portland, OR 97204. Of Attorneys for Defendant Dan Heine. Janet Lee Hoffman, Kelsey R. Jones, Andrew T. Weiner, Katherine Feuer, and Douglas J. Stamm, JANET HOFFMAN & ASSOCIATES, LLC, 1000 S.W. Broadway, Suite 1500, Portland OR 97205; Matthew J. Kalmanson, HART WAGNER, LLP, 1000 SW Broadway, Suite 2000, Portland, OR 97205. Of Attorneys for Defendant Diana Yates. Michael H. Simon, District Judge.
Defendants Dan Heine ("Heine") and Diana Yates ("Yates") are charged with conspiring to commit bank fraud and making false bank entries, reports, or transactions during the time when they were the two most senior officers of The Bank of Oswego ("Bank"). In this Opinion and Order, the Court resolves the following motions filed by Defendants Heine and Yates: (1) Defendant Yates's Motion for Evidentiary Hearing on Willful Spoliation of Evidence and Adverse Inference Jury Instruction (ECF 558); (2) Defendant Yates's Motion to Dismiss and Alternative Motion for Jury Instruction (ECF 574), which Defendant Heine joins (ECF 590 at 4); (3) Defendant Heine's Renewed Motion for Severance (ECF 598), which Defendant Yates joins and provides additional arguments (ECF 682); (4) Defendant Heine's Motion to Dismiss (ECF 590); and (5) Defendant Heine's Third Motion for a Bill of Particulars (ECF 592). Defendant Yates requests an evidentiary hearing for her first motion and oral argument for her second. Defendant Heine does not request oral argument. After reviewing all of the pending motions, all supporting memoranda and declarations, all memoranda and declarations in opposition, and all reply memoranda and declarations, the Court does not believe that an evidentiary hearing is warranted or that oral argument will be helpful on any of the motions addressed in this Opinion and Order. For the reasons that follow, these motions are denied.
Defendants Heine and Yates have other pending motions that will be addressed elsewhere.
BACKGROUND
Heine and Yates co-founded the Bank in 2004. The Bank is a financial institution engaged in the business of personal and commercial banking and lending. The Bank is headquartered in Lake Oswego, Oregon. Heine served as the Bank's President and Chief Executive Officer ("CEO"). As President and CEO, Heine supervised and managed the Bank's affairs and operations. Heine also was a member of the Bank's Board of Directors ("Board"). Heine left the Bank in September 2014. Yates served as the Bank's Executive Vice President and Chief Financial Officer ("CFO"). As CFO, Yates was responsible for ensuring the Bank's compliance with federal and state regulations. Yates also was the Secretary of the Board. Yates resigned from the Bank on March 22, 2012.
On August 12, 2016, the Bank sold loans and other assets to HomeStreet Bank. The Bank of Oswego continues to exist as a corporate entity, but has relinquished its banking charter and now operates as Oswego Resolution.
Both Heine and Yates were responsible for ensuring that the Bank operated in a sound and safe manner and for keeping the Board informed about the Bank's financial condition and the adequacy of the Bank's policies, procedures, and internal controls. Additionally, Heine and Yates were members of the Bank's Internal Loan Committee ("ILC"). The duties of the ILC included approving loans that were outside the authority of individual Bank loan officers, ensuring the quality of the Bank's loan portfolio, and minimizing risks in that portfolio.
The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"), and the Bank is subject to regular monitoring and examinations by the FDIC. For example, federal regulations require the Bank to file with the FDIC what are commonly known as "Call Reports" on a quarterly basis. A Call Report contains information about the Bank's financial position and is divided into a number of schedules. One of the schedules, known as "Schedule RC-N," requires disclosure of the correct value of outstanding loans.
On March 9, 2017, a federal grand jury returned a 19-count Superseding Indictment against both Heine and Yates, alleging misconduct related to their activities with the Bank. ECF 623. The Superseding Indictment charges Heine and Yates with one count of conspiring to commit bank fraud, in violation of 18 U.S.C. § 1349, and 18 counts of making false bank entries, reports, or transactions, in violation of 18 U.S.C. §§ 1005 and 2. The Superseding Indictment alleges that between September 2009 and September 2014, Heine and Yates conspired to defraud the Bank through materially false representations and promises. The Superseding Indictment further alleges that one of the purposes of the conspiracy was to conceal the true financial condition of the Bank from the Board, the Bank's shareholders, the Bank's regulators (including the FDIC), and the public. According to the Superseding Indictment, Heine and Yates reported false and misleading information about loan performance, concealed information about the status of foreclosed properties, made unauthorized transfers of Bank proceeds, and failed to disclose material facts about loans to the Board, shareholders, and regulators, all in an effort to conceal the Bank's true financial condition.
The Superseding Indictment supersedes the original Indictment (ECF 1) that was returned by a federal grand jury against Defendants Heine and Yates on June 23, 2015.
Both the Superseding Indictment and the original Indictment also contain forfeiture allegations.
The Superseding Indictment against Heine and Yates alleges the following five schemes that purportedly advanced the alleged conspiracy's purpose of falsely creating a healthier appearance of the Bank's finances than actually existed:
1. Payments Made on Delinquent Loans. Heine and Yates made payments, using Bank proceeds, on behalf of Bank customers who were delinquent on their loans. The payments sometimes were made without the knowledge or consent of the Bank's customer. The payments were made so that the delinquent loans would not appear in the Call Reports. On March 31, 2011, Yates transferred funds from a Bank customer's business checking account to the customer's personal loan account, which was delinquent, without the customer's consent. Heine and Yates's alleged practice of paying delinquent loans with Bank or other proceeds hid delinquent loans that otherwise would have been included in the Call Reports and reported to the Board.
2. Wire Transfer and Loan to Bank Customer M.K. Between July 2010 and September 2010, Heine and Yates permitted to be made an unsecured draw in the amount of $675,000 for Bank customer M.K. and then approved a $1.7 million loan for the benefit of M.K. in order to conceal the unsecured draw and to pay other Bank borrowers' delinquent loans. Yates approved the unsecured draw.
3. Straw Buyer Purchase (A Avenue Property). From October 2010 through May 2011, Heine and Yates recruited a Bank employee, D.W., to facilitate a straw buyer purchase of real property located at 952 A Avenue, Lake Oswego, Oregon 97034 ("A Avenue Property") for the purpose of concealing a loss to the Bank. Heine and Yates gave D.W. two checks totaling $267,727.89 from the Bank's
cash account to purchase the A Avenue Property. Yates falsely represented in transactional documents that D.W. funded the purchase personally.ECF 623 at 4-11, ¶¶ 13-26. The Superseding Indictment further alleges that Heine and Yates knowingly made 18 false entries in the books, reports, and statements of the Bank with the intent to injure and defraud the Bank. Heine and Yates allegedly did so by omitting material information about the true status and condition of loans and assets from the Call Reports and reports to the Board. Id. at 12-13.
4. Other Real Estate Owned ("OREO") Properties Sold to Bank Customer R.C. From March 2010 through June 2013, Heine and Yates removed two properties from the Bank's OREO account after the properties were sold to a Bank borrower, R.C., even though the sales did not meet the requirements to remove the properties from the account. Heine and Yates did not require R.C. to make any down payment and provided R.C. with full financing from the Bank for both properties. As a result of the transactions, the properties were no longer reported on the Call Reports as OREO assets. On January 24, 2011, FDIC examiners questioned the validity of the removal of the properties from the Bank's OREO account and advised Heine and Yates that the purchases did not meet the minimum equity requirements needed to remove the properties. Yates advised the FDIC examiners that R.C. was going to make down payments for the two homes, which would then permit the Bank properly to remove the properties from the OREO account. On January 31, 2011, Yates prepared two memos to each of the R.C. loan files that falsely stated R.C. was willing to make a 15 percent down payment on the properties. Heine and Yates represented that R.C. paid down payments for the properties, when in fact no payment was received by the Bank.
5. Misrepresentations to Shareholders. From September 2009 through September 2014, Heine and Yates caused the Bank to misrepresent to the Bank's shareholders the Bank's "Texas Ratio," which is a measure of the Bank's credit troubles and potential for bank failure, thus misrepresenting the true extent of the Bank's delinquent loans.
The Superseding Indictment also names Geoffrey Walsh ("Walsh") as a person who played a role in the alleged conspiracy. Walsh was the former Senior Vice President of Lending at the Bank. Id. at ¶ 13. On May 2, 2012, the Bank, acting through Heine, terminated the employment of Walsh for cause, in part based on Walsh's alleged misconduct concerning lending practices. On June 11, 2012, Heine called the Federal Bureau of Investigation ("FBI") to report alleged criminal activity by Walsh. In July 2013, a federal grand jury indicted Walsh in a separate case for conspiracy to commit wire fraud, wire fraud, and conspiracy to make false entries in bank records, among other charges. United States v. Walsh, Case No. 3:13-cr-00332-SI-1 (D. Or.) ("Walsh Criminal Action"). On July 22, 2015, Walsh pleaded guilty in the Walsh Criminal Action to certain charges alleged in a superseding indictment and second superseding information. In Walsh's plea agreement, he accepted responsibility for his role in many of the same acts described in the Superseding Indictment against Heine and Yates. Walsh is awaiting sentencing.
RULINGS ON PENDING MOTIONS
A. Defendant Yates's Motion for Evidentiary Hearing on Willful Spoliation of Evidence and Adverse Inference Jury Instruction
Defendant Yates moves for an evidentiary hearing on willful spoliation of evidence and for an adverse inference jury instruction "stating that the Bank, acting through Dan Heine and others, destroyed documents that contained favorable evidence for Ms. Yates." ECF 558 at 2. In her motion, Yates does not seek a remedy against the Government, but adds that she "might do so after the evidentiary hearing." Id. at 12 n.5.
1. Background
According to Yates, when she resigned from the Bank, she left behind her contemporaneous work papers for the period relevant to the Superseding Indictment. In addition, Yates contends that Walsh kept a file or notebook that contained negative information about every Bank employee during his tenure. According to Yates:
It is likely that Ms. Yates's work papers and Mr. Walsh's notebook contained highly relevant evidence. The work papers are perhaps the best source of documentary evidence of what Ms. Yates knew at the time, and that she was not part of a "conspiracy" to defraud the Bank. Walsh's notebook almost certainly contains
impeachment material on the Government's main witnesses, including Mr. Walsh.ECF 558 at 2. Yates has attempted to locate these documents using subpoenas, document review, and conferral with the Bank, the FDIC, and the Government. She argues that that "there is substantial evidence that the Bank, acting through Dan Heine and other Bank agents, destroyed them." Id.
Yates generally describes categories of documents that she left behind at the Bank after resigning. Yates also presents evidence from Beth Anderson, who served as Yates's administrative assistant at the Bank. According to the deposition of Anderson taken by the FDIC in a civil investigation, Anderson found a file kept by Walsh pertaining to Heine. Another Bank employee, Kelly Francis, corroborates that after Walsh was fired, the bank found a notebook kept by Walsh that listed every employee at the bank and "contained bad information about each one of them." Id. at 6. In addition, Anderson testified during her FDIC deposition that after Yates resigned, Anderson saw Heine in Yates's office shredding manuals and duplicate financial reports. Yates argues that this description "likely refers to Ms. Yates's work papers." Id. at 7.
2. Discussion
In support of her motion, Yates argues:
In criminal cases where the Government destroys evidence or is somehow complicit in the destruction of documents, spoliation can "rise to the level of a constitutional violation" depending on "the government's knowledge of the apparent exculpatory value of the evidence at the time it was lost or destroyed." United States v. Sivilla, 714 F.3d 1168, 1172 (9th Cir. 2013) (citation omitted). A defendant need not show bad faith to require dismissal, if the destroyed evidence was "materially exculpatory." Id. Bad faith is required if the evidence was only potentially exculpatory. Id.ECF 558 at 11. Yates's cited authority, however, does not support the relief she requests.
In Sivilla, the Ninth Circuit described two configurations of the test for when destruction of evidence by the Government can rise to the level of a constitutional violation in a criminal case. Under either configuration, however, the defendant must show bad faith on the part of the Government for there to be a constitutional violation when the Government destroys evidence. Sivilla, 714 F.3d at 1172.
In addition, the Ninth Circuit in Sivilla clarified the rule previously discussed in United States v. Loud Hawk, 628 F.2d 1139 (9th Cir. 1979), governing sanctions and remedies that apply in a criminal case when the Government loses or destroys evidence while the evidence is in the Government's custody, even in the absence of bad faith. The Ninth Circuit ruled in Sivilla, following then-Judge Kennedy's controlling concurrence in Loud Hawk, that when evidence is lost or destroyed while in the Government's custody, even by negligence, and the defendant suffers significant prejudice, a remedial instruction may be warranted. Sivilla, 714 F.3d at 1173 ("Courts must balance 'the quality of the Government's conduct' against the 'the degree of prejudice to the accused,' where the Government bears the burden of justifying its conduct and the accused of demonstrating prejudice") (quoting then-Judge Kennedy's concurrence in Loud Hawk).
Sivilla, however, does not assist Yates's motion for two reasons. First, and most importantly, the evidence that Yates contends was lost or destroyed was not lost or destroyed while in the Government's custody. Nevertheless, Yates argues that she is entitled to an evidentiary hearing to learn more about the Government's conduct. She asserts:
Defendant [Yates] does not know with certainty what happened to Ms. Yates's work papers and Walsh's notebook. Nor do we know what efforts, if any, the Government made to try to obtain these documents with its subpoena power, or otherwise investigate this issue. Counsel is limited to the record created by the Government, and is further limited by former Bank employees' unwillingness to
risk disfavor with the Government or Bank, and speak to the defense. This is why the Court should order an evidentiary hearing.ECF 558 at 10-11 (footnote omitted).
This is an insufficient showing to warrant an evidentiary hearing. As the Ninth Circuit has explained, "'[a] hearing will not be held on a defendant's pre-trial motion . . . merely because a defendant wants one. Rather, the defendant must demonstrate that a "significant disputed factual issue" exists such that a hearing is required.'" United States v. Howell, 231 F.3d 615, 621 (9th Cir. 2000) (quoting United States v. Harris, 914 F.2d 927, 933 (7th Cir. 1990)). Yates has not demonstrated the existence of a significant factual issue that warrants holding an evidentiary hearing.
Second, Yates has not met her burden of showing prejudice. Yates describes the contents of the missing documents using the words "likely," "perhaps," and "almost certainly." ECF 558 at 2, 10, 16. Even if the Government had contributed to the loss of evidence through its own negligence, these descriptions are insufficient to show prejudice. See United States v. Tercero, 640 F.2d 190, 193 (9th Cir. 1980) (holding that a remedy will be appropriate only when a defendant suffers a "significant degree of prejudice"). Yates has not met her burden on this issue either. See Sivilla, 714 F.3d at 1173 ("[T]he accused [bears the burden] of demonstrating prejudice.").
Yates also argues that even in situations that do not implicate the Government's conduct, when a person destroys evidence when that person is under a duty to preserve it, courts typically fashion an appropriate remedy after considering the prejudice suffered by the non-spoliator and the level of culpability of the spoliator, including the spoliator's motive or degree of fault. ECF 558 at 11. Thus, argues Yates, the Court should instruct the jury that "the Bank, acting through Heine and others, destroyed documents that contained favorable evidence for Ms. Yates." Id. at 2. In support of this conclusion, Yates cites numerous cases involving spoliation of evidence caused by one party to the prejudice of another party, but always arising in the context of civil litigation between those parties. Yates's authorities, all taken from civil disputes, do not support the relief that Yates seeks in this criminal case brought by the Government against two defendants. Yates cites no case law from a criminal case that an "adverse instruction" is appropriate when evidence was destroyed by someone other than the Government, even if it were destroyed by a co-defendant.
In addition, Heine opposes Yates's motion, arguing that he "will dispute that he shredded or otherwise destroyed the documents described." ECF 596 at 2. Thus, it would be inappropriate for the Court to instruct the jury, as Yates requests, that Heine and others at the Bank destroyed documents that contained favorable evidence for Yates. See generally Sandstrom v. Montana, 442 U.S. 510, 523 (1979) (reversing conviction when jury instruction "invad[ed] the factfinding function which in a criminal case the law assigns solely to the jury"); United States v. Hall, 552 F.2d 273, 275 (9th Cir. 1977) ("Where the evidence raises a factual issue, an instruction dictating the result invades the ultimate fact-finding role of the jury.").
This not does mean, however, that Yates is without any ability to remedy what she contends has been the intentional destruction of evidence by Heine. At trial, Yates may offer admissible evidence to prove the contents of any documents that she asserts have been destroyed. She also may offer admissible evidence, either direct or circumstantial, regarding who may have destroyed that evidence and why. Further, Yates may argue at closing any reasonable inferences that she contends the jury should draw from the evidence received at trial. The jury will be appropriately instructed that it may consider both direct and circumstantial evidence and that the law makes no distinction between the weight to be given to either direct or circumstantial evidence.
Yates is not entitled, however, either to an evidentiary hearing or to an adverse inference jury instruction. Yates's motion for evidentiary hearing on willful spoliation of evidence and adverse inference jury instruction is denied.
B. Defendant Yates's Motion to Dismiss and Alternative Motion for Jury Instruction
Defendant Yates moves for an order dismissing all charges against her or, in the alternative, that the Court "instruct the jury on investigatory bias and discovery obstruction" by the Government. ECF 574 at 3.
1. Background
Previously in this action, Yates filed a motion to suppress several statements that she made to special agents of the FBI during noncustodial interactions, some of which Yates initiated. She also moved to suppress statements that she made during her third-party deposition taken by the Bank on May 9, 2013, in a civil lawsuit brought by the Bank against Walsh. The Court held a joint evidentiary hearing to consider Yates's motion to suppress along with two motions to suppress filed by Heine.
The evidentiary hearing began on August 22, 2016. That day focused on Heine's motions. At the end of the day, the hearing was recessed at the request of the parties. The hearing resumed on November 7, 2016, and continued day-to-day until November 10, 2016. During this five-day evidentiary hearing, the Court received numerous exhibits and heard testimony from 12 witnesses. On November 18, 2016, the Court issued its written opinion denying Yates's motion to suppress. ECF 514.
In her pending motion to dismiss, Yates argues that a special agent from the Office of Inspector General ("OIG") of the FDIC testified falsely at the suppression hearing. ECF 574 at 2. Yates further contends that an Assistant United States Attorney on the prosecution team also made false statements to the Court. Id. Among other things, Yates argues that the prosecution team "misrepresented the extent of its access to exculpatory information in the FDIC's custody." Id.
2. Discussion
A court may dismiss an indictment based on a defendant's assertion of outrageous governmental conduct either (1) when a violation of the due process clause of the Fifth Amendment has occurred; or (2) when it is otherwise appropriate for the Court to invoke its supervisory powers. United States v. Russell, 411 U.S. 423, 431-32 (1973) ("While we may some day be presented with a situation in which the conduct of law enforcement agents is so outrageous that due process principles would absolutely bar the government from invoking judicial processes to obtain a conviction, . . . the instant case is distinctly not of that breed.") (citation omitted). Dismissal based on a violation of due process, however, is limited to extreme cases in which the Government's conduct violates fundamental fairness and is shocking to the universal sense of justice. United States v. Williams, 547 F.3d 1187, 1199 (9th Cir. 2008).
A district court also may exercise its supervisory powers to dismiss an indictment in response to outrageous conduct by the Government that falls short of a due process violation, although this is disfavored and appropriate only when there has been "flagrant prosecutorial misconduct." United States v. Simpson, 927 F.2d 1088, 1091 (9th Cir. 1991) abrogated in part by United States v. W.R. Grace, 526 F.3d 499, 511 n. 9 (9th Cir. 2008); see also United States v. Struckman, 611 F.3d 560, 574-75 (9th Cir. 2010). To justify the exercise of the court's supervisory powers, the Government must have engaged in flagrant misconduct that caused substantial prejudice to the Defendant. United States v. Fernandez, 388 F.3d 1199, 1239 (9th Cir. 2004), modified, 425 F.3d 1248 (9th Cir. 2005). Further, dismissal requires that no other lesser remedial action be available. United States v. Chapman, 524 F.3d 1073, 1087 (9th Cir. 2008).
The evidence presented by Yates in support of her motion to dismiss and alternative motion for jury instruction does not support a finding either of a due process violation or a need for the Court to exercise its supervisory powers. There has been no violation of fundamental fairness or outrageous conduct by the Government. The prosecution team has made significant efforts to provide requested and otherwise discoverable documents and other information to both Defendants. In addition, from time to time, the Government discovered that a witness provided an incorrect answer to a question or that a member of the prosecution team made an unintentional misstatement to the Court. Each time that occurred, the Government took prompt and transparent corrective action. In addition, the prosecution team assisted Defendants in obtaining documents from the FDIC when that agency declined to produce documents without a subpoena. Yates's motion to dismiss and alternative motion for jury instruction is denied.
The Court has reviewed the district court's decision in United States v. Cutting, 2017 WL 132403 (N.D. Cal. Jan. 12, 2017), and concludes that this case is factually distinguishable and does not support the relief that Yates is seeking in her motion. --------
C. Defendants Heine and Yates's Renewed Motions for Severance
Defendant Heine renews his previously denied motion for severance. ECF 598. Defendant Yates joins Heine's renewed motion and supplements it with additional arguments. ECF 682.
1. Background
On February 5, 2016, Heine and Yates each separately moved for severance. ECF 109 (Heine's motion); ECF 110 (Yates's motion). On March 14, 2016, the Court denied both motions. ECF 184. Heine's renewed motion raises many of the same arguments that the Court previously rejected. In his renewed motion, Heine emphasizes what he contends is a disparity in evidence between him and co-defendant Yates and their mutually antagonistic defenses. Heine also argues that Yates's motion for an evidentiary hearing regarding the destruction of documents by the Bank during Heine's tenure after Yates resigned and Yates's request for an adverse inference instruction telling the jury that the Bank, acting through Heine and others, destroyed documents that contained favorable evidence for Yates provides further support for Heine's renewed motion for severance. As discussed earlier in this Opinion and Order, however, the Court denies both Yates's motion for an evidentiary hearing and her request for an adverse inference instruction.
2. Discussion
In its response, the Government correctly describes the relevant legal standard applicable to a motion for severance. ECF 619 at 2-3. Generally, persons who are indicted together should be tried together. United States v. Doe, 655 F.2d 920, 926 (9th Cir. 1980). The rationale is that joint trials expedite the administration of justice, reduce congested trial dockets, conserve judicial time, lessen the burden on citizens who serve on juries, and avoid the necessity of recalling witnesses who would otherwise testify only once. United States v. Brady, 579 F.2d 1121, 1128 (9th Cir. 1978). Further, in Zafiro v. United States, 506 U.S. 534 (1993), the Supreme Court explained:
There is a preference in the federal system for joint trials of defendants who are indicted together. Joint trials "play a vital role in the criminal justice system." Richardson v. Marsh, 481 U.S. 200, 209 (1987). They promote efficiency and "serve the interests of justice by avoiding the scandal and inequity of inconsistent verdicts." Id. at 210. For these reasons, we repeatedly have approved of joint trials.Zafiro, 506 U.S. at 537-38. In addition, joint trials are particularly compelling "where the co-defendants are charged with conspiracy, because the concern for judicial efficiency is less likely to be outweighed by possible prejudice to the defendants when much of the same evidence would be admissible against each of them in separate trials." Fernandez, 388 F.3d at 1242.
Heine is charged with conspiracy, among other things. In its response, the Government has identified what the Government contends is direct evidence of Heine's participation in the alleged conspiracy. Thus, Heine's argument of disparity of evidence is not persuasive.
In addition, Heine's claim of mutually antagonistic defenses is insufficient to warrant severance for the reasons previously described by the Court in denying Heine's and Yates's first motions for severance (ECF 184). This is especially true in light of the Court's denial in this Opinion and Order of Yates's motion for an evidentiary hearing and adverse inference instruction.
Similarly, the Court previously considered and rejected Heine's arguments based on the Sixth Amendment's Confrontation Clause. Notwithstanding Bruton v. United States, 391 U.S. 123 (1968), the mere fact that one co-defendant has made a statement incriminating another co-defendant does not require that severance be granted, so long as the trial court properly cautions jurors that such a statement may not be considered against the other defendant. Amsler v. United States, 381 F.2d 37, 43 (9th Cir. 1967).
The need for judicial economy outweighs the minimal risk of unfair prejudice from a joint trial. See United States v. Polizzi, 801 F.2d 1543, 1553 (9th Cir. 1986) (holding that the public has a substantial interest in a joint trial). The Government's witness list contains 49 named trial witnesses in the Government's case-in-chief against both Heine and Yates, plus various unnamed record custodians who also may need to be called at trial. ECF 640. All parties have agreed that the combined jury trial against both Heine and Yates is expected to last approximately four weeks. If severance were allowed, the Court estimates, based on the Court's review of and familiarity with what the parties have submitted thus far, that separate trials would still likely consume at least three weeks each, with many of the same witnesses being required to appear in both cases.
Finally, in addition to the arguments raised by Heine, Yates contends that a joint trial will restrict her right to cross-examination. Yates asserts that several of Heine's motions in limine seek orders that would limit her right to cross-examine adverse witnesses and present an individual defense. The evidence that Heine seeks to exclude relate to Yates's stated intention of introducing evidence of Heine's misconduct beyond the scope of the Superseding Indictment. Much of this evidence, however, is tangential to the "critical question" of Yates's participation in the crimes alleged. Grisby v. Blodgett, 130 F.3d 365, 370 (9th Cir. 1997) (holding that in a defendant's joint trial for aggravated murder and assault, there was no error in joining the defendants for trial because excluded testimony of third-party that incriminated a co-defendant was not clearly exculpatory when it merely confirmed that the co-defendant initiated the shooting and the excluded testimony had no bearing on the critical question of whether defendant Grisby participated in the murders). A joint trial would not compromise Yates's right to present an individual defense.
Heine's renewed motion for severance is denied. Similarly Yates's renewed motion for severance is denied.
D. Defendant Heine's Renewed Motion to Dismiss
Defendant Heine moves for an order dismissing all charges against him. ECF 590.
1. Background
In addition to the arguments advanced by Yates in her motion to dismiss, which Heine joins and are discussed above, Heine asserts that there have been violations of Rule 6(e) of the Federal Rules of Criminal Procedure. Heine contends that the Government took documents obtained through a grand jury subpoena and improperly shared those documents with the FDIC for use in its civil investigation. Heine adds that the FDIC abused its civil investigative power by issuing a subpoena to Heine, which compelled him to testify at a deposition. Heine argues that this is a violation of his Fifth Amendment rights. ECF 590 at 5 (internal page 2). Heine further argues that the Government questioned Heine outside the presence of his counsel, both by making recorded calls to Heine (through a Government informant) and by questioning Heine outside the presence of counsel immediately after his arrest. Id. Heine also argues that the Government presented testimony to the grand jury through conclusory and misleading questions that prevented the grand jury from making a proper finding of probable cause with respect to Heine. Id. at 6 (internal page 3). In addition, Heine contends that some of the testimony presented to the grand jury by a special agent of the FDIC-OIG was false. Id. Heine also argues that there was no evidence presented to the grand jury of certain charges alleged against him. Id. at 17-32 (internal pages 14-29). As relief, Heine asks the Court to dismiss all charges against him or, in the alternative, to dismiss specific counts.
On July 15, 2016, Heine filed a motion to suppress all statements that he made: (1) during a civil investigative deposition compelled by the FDIC; (2) in covertly recorded telephone conversations with a Government informant; and (3) after he was arrested and invoked his right to remain silent and to have counsel present during questioning. ECF 315. As described above, the Court held a joint five-day evidentiary hearing on both Heine's motion to suppress and Yates's motion to suppress. After the Court received numerous exhibits and heard testimony from 12 witnesses, the Court issued its written opinion on Heine's motion on November 17, 2016. ECF 513. The Court granted Heine's motion regarding his post-arrest statements made while in custody and denied his motion in all other respects. Id. The Court sees no basis to revisit issues that the Court has already resolved.
2. Discussion
The same standards for dismissing criminal charges that the Court discussed above in connection with Yates's motion to dismiss also apply to Heine's motion. In short, Heine must show either that the Government's conduct violates fundamental fairness and is shocking to the universal sense of justice (i.e., violates due process) or that the Government engaged in flagrant misconduct that caused Heine substantial prejudice (i.e., warrants the court exercising its supervisory powers). The evidence presented by Heine in support of his motion to dismiss does not support a finding either of a due process violation or a need for the Court to exercise its supervisory powers.
Heine identifies several statements made to the grand jury by a special agent for the FDIC-OIG that appear to be incorrect. The Government responds, however, that not all erroneous statements of government agents warrant dismissal of an indictment. See, e.g., United States v. Gonzalez, 800 F.2d 895, 899 (9th Cir. 1986). Dismissal of an indictment is not appropriate when a witness' alleged false statement is not material to the indictment and affects only the witness' credibility. See United States v. Flake, 746 F.2d 535, 539 (9th Cir. 1984), overruled on other grounds by United States v. Uchimura, 125 F.3d 1282, 1286 (9th Cir. 1997). The Court agrees with the Government's characterization of the challenged statements.
Regarding Heine's argument that the Government violated the grand jury secrecy provisions of Rule 6(e), Heine must demonstrate that the Government's conduct subverted the independence of the grand jury or misled it sufficient to warrant dismissal. United States v. Stone, 633 F.2d 1272, 1275 (9th Cir. 1979). The evidence presented by Heine does not rise to this level.
Finally, Heine argues that no evidence was presented to the grand jury that supports the charges alleged against him. Courts will interfere with the independence and sanctity of the grand jury's function only if it has been so subverted as to compromise the integrity of the judicial process. United States v. Everett, 692 F.2d 596, 601 (9th Cir. 1982). As Chief Judge Learned Hand wrote for a Second Circuit panel, however, "if it appeared that no evidence had been offered that rationally established the facts, the indictment ought to be quashed; because then the grand jury would have in substance abdicated." United States v. Costello, 221 F.2d 668, 677 (2d Cir. 1955), affirmed Costello v. United States, 350 U.S. 359, 364 (1956). The Court has reviewed the evidence presented to the jury as cited by the parties. The Court agrees with the Government's characterization of that evidence, ECF 616 at 9-13, and is satisfied that Heine has failed to meet his burden of showing "no evidence." Heine's renewed motion to dismiss is denied.
E. Defendant Heine's Third Motion for a Bill of Particulars
Defendant Heine moves, for the third time, for a bill of particulars. ECF 592.
1. Background
On February 5, 2016, Heine filed his first motion for bill of particulars (ECF 109), which the Court denied on March 14, 2016. ECF 183. On October 14, 2016, Heine filed his second motion for a bill of particulars (ECF 450), and the Court denied that motion on November 17, 2016. ECF 512. As the Court stated in its Order denying Heine's second motion,
As shown in the Indictment, the government's case against Defendant Heine is based on a failure to disclose. The Indictment, along with the other disclosures provided by the government, contains sufficient detail of what Heine allegedly knew but failed to disclose to enable him to prepare for trial, avoid or minimize the danger of surprise at trial, and protect against double jeopardy. That is all that is required. A bill of particulars is not needed in this case.ECF 512 at 5.
2. Discussion
As the Court previously held when denying Heine's second motion for a bill of particulars, "[a] bill of particulars is not necessary if 'the indictment itself provides sufficient details of the charges and if the government provides full discovery to the defense.'" ECF 512 at 2-3 (quoting United States v. Mitchell, 744 F.2d 701, 705 (9th Cir. 1984)). The same standard applies to Heine's third motion for a bill of particulars. For the same reasons that the Court denied Heine's first and second motions, the Court denies Heine's motion for a third bill of particulars.
CONCLUSION
Defendant Yates's Motion for Evidentiary Hearing on Willful Spoliation of Evidence and Adverse Inference Jury Instruction (ECF 558) is DENIED; Defendant Yates's Motion to Dismiss and Alternative Motion for Jury Instruction (ECF 574), in which Defendant Heine joins (ECF 590), is DENIED; Defendant Heine's Renewed Motion for Severance (ECF 598), in which Defendant Yates joins and Defendant Yates's Renewed Motion for Severance (ECF 682) are DENIED; Defendant Heine's Motion to Dismiss (ECF 590) is DENIED; and Defendant Heine's Third Motion for a Bill of Particulars (ECF 592) is DENIED.
IT IS SO ORDERED.
DATED this 7th day of April, 2017.
/s/ Michael H. Simon
Michael H. Simon
United States District Judge