Opinion
08 Cr. 694 (JFK).
December 15, 2008
For the United States of America: LEV L. DASSIN, Acting United States Attorney for the Southern District of New York, New York, New York, Of Counsel: Harry A. Chernoff Assistant United States Attorney.
For Defendant: Michael Hurwitz, Esq., Hurwitz Stampur Roth, New York, New York.
OPINION and ORDER
The Motion
Defendant Michael Schlussel moves (1) to dismiss the Indictment against him claiming "it fails to charge a crime against the United States" and (2) to preclude "the Government from introducing certain evidence of `prior bad acts'" pursuant to Rule 404(b). The defendant's motion is denied in all respects.
BACKGROUND
The defense motion papers have both the Indictment and the Complaint attached thereto. They each lay out in detail the mail fraud scheme charged. In their papers, both sides quote from paragraph 5 of the Indictment and the Government also relies on paragraph 6. The Government also quotes extensively from paragraphs 1 through 4 of the Indictment which refer to a prior scheme in 1999 which Schlussel operated and from which he agreed with the Postal Inspection Service to desist. A copy of the Indictment is affixed to this Opinion as Court Exhibit 1.
Discussion
The defense argument essentially is that the Indictment charges nothing more than a breach of contract and the allegations would not support a civil fraud claim "under New York common law." The defense contention is belied by the words of the Indictment. In setting forth the scheme charged, paragraph 5 of the charging document reads:
From at least in or about September 2001, through in or about March 2008, MICHAEL SCHLUSSEL, the defendant, and others known and unknown (the "co-conspirators"), engaged in a scheme to defraud hundreds of companies through the mail by using invoice-style solicitations to cause companies to pay for goods they had not ordered and would not receive. Based on his experience operating a collections agency, SCHLUSSEL was aware that, due to the volume of invoices processed by most businesses, a percentage of false invoices that were mass-mailed, particularly if they were amounts less than $1,000, would be paid without further inquiry. Accordingly, SCHLUSSEL and his co-conspirators mailed and caused to be mailed thousands of invoice-style solicitations to companies across the United States, soliciting in each invoice payments of $995 purportedly for fluorescent light bulbs. The solicitations bore a disclaimer similar to that required by the laws and regulations governing the United States Postal Service, but the disclaimer was not in the required color or typeface.
Paragraph 6 goes on to allege:
As MICHAEL SCHLUSSEL, the defendant, and his co-conspirators intended, numerous companies made payments as a result of the invoice-style solicitations, but did not receive light bulbs before or after the solicitations. SCHLUSSEL and his co-conspirators did not intend to, and did not, send light bulbs to these companies either before or after those payments were made.
All an Indictment needs is a "plain, concise and definite written statement of the essential facts constituting the offense charged." Fed.R.Crim.P. (7c). We have that here and more. As the defense acknowledges at p. 5 of its moving papers "An essential element of mail fraud . . . is intent to defraud," citing United States v. D'Amato, 39 F.2d 1249, 1256-57. The language of paragraphs 5 and 6 clearly charge an intent to defraud and the fact that a disclaimer, albeit an improper one, is referred to in paragraph 5, does not negate the allegation. The defense claim that the misrepresentation is "only a promise of future performance" is simply not so. In paragraph 6, the statement e.g. "SCHLUSSEL and his co-conspirators did not intend to, etc." is an unequivocal allegation of a present, past and existing state of mind.
The indictment comports with and properly pleads the requirement of the D'Amato case that there is "actual harm . . . contemplated by the schemer." It fairly informs the defendant of the offense charged and tells him what he must defend against. It also enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense. United States v. Alfonso,. 143 F.3d 772, 776 (2d Cir. 1988) ("An indictment need do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime.") The Indictment is sufficient.
Schlussel's second application is to exclude evidence concerning his prior bad acts. He engaged in the same scheme as charged in the Indictment in the 1990s and then agreed to cease it in a consent order. His argument is that this is inadmissible under Rule 404(b). The rule provides that:
Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident. . . .
In United States v. Pitre, 960 F.2d 1112, 1119 (2d Cir. 1992), the Second Circuit set forth the standards for assessing the admissibility of evidence under Rule 404(b):
First, the district court must determine if the evidence is offered for a proper purpose, one other than to prove the defendant's bad character or criminal propensity. If the evidence is offered for a proper purpose, the district court must next determine if the evidence is relevant to an issue in the case, and, if relevant, whether its probative value is substantially outweighed by the danger of unfair prejudice. Finally upon request, the district court must give an appropriate limiting instruction to the jury.
The Second Circuit's approach in this area is an "inclusionary" one. See United States v. Inserra, 34 F.3d 83, 89 (2d Cir. 1994);United States v. LaSanta, 978 F.2d 1300, 1307 (2d Cir. 1992);Pitre, 960 F.2d at 1118-19; United States v. Roldan-Zapata, 916 F.2d 795, 804 (2d Cir. 1990).
The admission of extrinsic evidence concerning a defendant's prior conduct is appropriate where the defendant's state of mind, such as motive and intent, is at issue:
Federal Rule of Evidence 404(b) . . . generally prohibits the introduction of extrinsic acts that might adversely reflect on the actor's character, unless the evidence bears upon a relevant issue in the case such as motive, opportunity, or knowledge. Extrinsic acts evidence may be critical to the establishment of the truth as to a disputed issue, especially when that issue involves the actor's state of mind and the only means of ascertaining that mental state is by drawing inferences from conduct.Huddleston v. United States, 485 U.S. 681, 685 (1988); see also 2 J. Weinstein M. Berger, Weinstein's Evidence ¶ 404[13], at 404-98 to 404-102.
Federal Rule of Evidence 403 ("Rule 403"), sets forth a balancing test for evidence that is at once probative and prejudicial. The rule provides that evidence, although relevant,
may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.
"In reviewing a challenge to a Rule 403 balancing, [the Second Circuit] must look at the evidence in a light most favorable to its proponent, maximizing its probative value and minimizing its prejudicial effect." United States v. Rubin, 37 F.3d 49, 53 (2d Cir. 1994). "`Unfair prejudice' within [Rule 403's] context means an undue tendency to suggest decision on an improper basis commonly, though not necessarily, an emotional one." Advisory Committee's Notes on Rule 403. As the Court explained in United States v. Jimenez:
To be sure, all evidence incriminating a defendant is, in one sense of the term, "prejudicial" to him: that is, it does harm to him. What "prejudice" as used in Rule 403 means is that the admission is, as the rule itself literally requires, "unfair" rather than "harmful."789 F.2d 167, 171 (2d Cir. 1986); see Oregon v. Kennedy, 456 U.S. 667, 674 (1982) ("Every act on the part of a rational prosecutor during a trial is designed to `prejudice' the defendant by placing before the judge or jury evidence leading to a finding of his guilt."); see also United States v. Gilliam, 994 F.2d 97, 100 (2d Cir. 1993) ("`Evidence is prejudicial only when it tends to have some adverse effect upon a defendant beyond tending to prove the fact or issue that justified its admission into evidence.'" (quoting United States v. Figueroa, 618 F.2d 934, 943 (2d Cir. 1980))).
Schlussel's prior conduct is admissible whether he entered into a consent decree with the Postal Service or not. The Government maintains the earlier conduct was the exact same scheme. The conduct is admissible to establish motive, intent, plan and opportunity. Apparently, the scheme had succeeded in the past.
The entry into the consent order by the defendant is also admissible to show that he was aware of the postal regulations that he willfully violated. The "Agreement Containing Consent Order To Cease and Desist" is signed by the defendant and is admissible as his statement under Rule 801(d)(2). Schlussel's efforts to do an end run around the regulations, by including the required disclaimer on his solicitations in tiny typeface, is, the Government argues, probative of his intent. The Government argument makes sense.
Whether Schlussel admitted wrongdoing in the consent order is not relevant. The proceedings are admissible to show that Schlussel knew of the regulations and violated them. Schlussel argues that the jury will be unable to understand the "distinction between a violation of the Postal Service regulations versus the crime of mail fraud" (Def. Decl ¶ 29). This can be readily explained to the triers of the facts by the Court.
If the jury is not permitted to learn of the applicable postal regulations, the jury would be left with the distorted impression that Schlussel had voluntarily, on his own initiative, included his own disclaimer on the bottom of his invoices. The jury can be given limiting instructions so that the evidence of Schlussel's earlier mail scheme and his entry into the consent decree is considered only for proper purposes. The evidence is probative and neither F.R. Evidence 403 or 404 precludes its admissibility.
The motion is denied in all respects.
SO ORDERED.
COURT EXHIBIT 1
INDICTMENT UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------- UNITED STATES OF AMERICA : — v. — : 08 Cr. MICHAEL SCHLUSSEL, : Defendant. :COUNT ONE (Conspiracy To Commit Mail Fraud)
The Grand Jury charges:Background
1. The United States Code requires that matter deposited in the mails which "is in the form of, and reasonably could be interpreted and construed as, a bill, invoice, or statement of account due, but constitutes, in fact, a solicitation for the order by the addressee of goods or services" must bear "on its face, in conspicuous and legible type in contrast by typography, layout, or color with other printing on its face, in accordance with regulations which the Postal Service shall prescribe" the following notice, or a notice to the same effect which the Postal Service may prescribe:
"This is a solicitation for the order of goods or services, or both, and not a bill, invoice, or statement of account due. You are under no obligation to make any payments on the account of this offer unless you accept this offer."39 U.S.C. § 3001(d). The related regulations require that the specified disclaimer must be "displayed in conspicuous boldface capital letters of a color prominent contrasting with the background against which it appears . . . not smaller than 30-point type." Domestic Mail Manual, Chapter 601, Section 12.1.2.
2. At all times relevant to this Indictment, MICHAEL SCHLUSSEL, the defendant, operated a collections agency called "Alden Curtis and Michaels, Ltd." headquartered in New York, New York. SCHLUSSEL had a general familiarity with the bill-payment and invoice-processing practices of businesses.
3. In or about March 1999, MICHAEL SCHLUSSEL, the defendant, and Alden Curtis and Michaels, Ltd., among others, were charged by the United States Postal Service ("the Postal Service") in an administrative complaint with making false representations and solicitations in the guise of a bill for fluorescent light bulbs ("the Complaint"). The solicitations, some of which were annexed to the Complaint as exhibits, each bore the following disclaimer in small type at the bottom: "UNITS WILL BE SENT WITHIN TWELVE WEEKS FOLLOWING RECEIPT OF PAYMENT. ALL RETURNS WILL BE CREDITED. THIS IS A SOLICITATION. THIS IS NOT A BILL. YOU ARE UNDER NO OBLIGATION TO PAY THE AMOUNT STATED ABOVE UNLESS YOU ACCEPT THIS OFFER."
4. On or about February 1, 1999, to resolve the litigation initiated by the Complaint, MICHAEL SCHLUSSEL, the defendant, individually and as vice president of Alden Curtis and Michaels, Ltd., entered into an agreement with the Postal Service in which he agreed to "refrain from making alleged materially false representations in the future" such as those contained in the exhibits to the Complaint, "under any name or names, or through any corporate or other device." SCHLUSSEL also agreed, among other things, "to cease and desist immediately from depositing into the United States mail any solicitation that is in the form of and could be reasonably construed as a bill, invoice, or statement of account due, but which in fact constitutes a solicitation for the order of a product, unless the solicitation carries the disclaimer prescribed by 39 U.S.C. § 3001(d)(2)(A) and/or the notice set forth in the Domestic Mail Manual."
The Scheme
5. From at least in or about September 2001, through in or about March 2008, MICHAEL SCHLUSSEL, the defendant, and others known and unknown (the "co-conspirators"), engaged in a scheme to defraud hundreds of companies through the mail by using invoice-style solicitations to cause companies to pay for goods they had not ordered and would not receive. Based on his experience operating a collections agency, SCHLUSSEL was aware that, due to the volume of invoices processed by most businesses, a percentage of false invoices that were mass-mailed, particularly if they were amounts less than $1,000, would be paid without further inquiry. Accordingly, SCHLUSSEL and his co-conspirators mailed and caused to be mailed thousands of invoice-style solicitations to companies across the United States, soliciting in each invoice payments of $995 purportedly for fluorescent light bulbs. The solicitations bore a disclaimer similar to that required by the laws and regulations governing the United States Postal Service, but the disclaimer was not in the required color or typeface.
6. As MICHAEL SCHLUSSEL, the defendant, and his co-conspirators intended, numerous companies made payments as a result of the invoice-style solicitations, but did not receive light bulbs before or after the solicitations. SCHLUSSEL and his co-conspirators did not intend to, and did not, send light bulbs to these companies either before or after those payments were made.
7. To disguise the ownership and control of proceeds realized from the fraudulent scheme, MICHAEL SCHLUSSEL, the defendant, established a number of shell companies from which the invoice-style solicitations were purportedly mailed, and opened private mailboxes at commercial mail receiving agencies ("CMRAs") to receive checks. These shell companies included "Mark Industries," "Portland Industries," "Phillips Industries," "Oakland Industries," "Green Industries," and "Hewlett Industries" (collectively, the "Shell Companies"). The checks payable to the Shell Companies were then deposited into an account held by Alden Curtis and Michaels, Ltd., and controlled by SCHLUSSEL.
Statutory Allegation
8. From at least in or about September 2001, through in or about March 2008, in the Southern District of New York and elsewhere, MICHAEL SCHLUSSEL, the defendant, and others known and unknown, unlawfully, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit offenses against the United States of America, to wit, violations of Title 18, United States Code, Section 1341.,
9. It was a part and an object of the conspiracy that MICHAEL SCHLUSSEL, the defendant, and his co-conspirators, unlawfully, willfully, and knowingly, having devised and intending to devise a scheme and artifice to defraud, and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, for the purpose of executing such scheme and artifice, and attempting so to do, would and did place in post offices and authorized depositories for mail matter, matters and things to be sent and delivered by the Postal Service, and would and did deposit and cause to be deposited matters and things to be sent and delivered by private and commercial interstate carriers, and would and did take and receive therefrom, such matters and things, and would and did knowingly cause to be delivered by mail and such carrier according to the direction thereon, such matters and things, in violation of Title 18, United States Code, Section 1341.
Overt Acts
10. In furtherance of said conspiracy and to effect the illegal objects thereof, the following overt acts, among others, were committed in the Southern District of New York and elsewhere:
a. On or about September 25, 2001, co-conspirators known and unknown caused an invoice-style solicitation from "Mark Industries" for $995 for fluorescent light bulbs to be mailed from New York, New York, to a marketing company in Aspen, Colorado.
b. On or about February 25, 2002, co-conspirators known and unknown caused an invoice-style solicitation from "Portland Industries" for $995 for fluorescent light bulbs to be mailed from New York, New York, to a medical company in Tampa, Florida.
c. On or about May 31, 2006, a co-conspirator ("CC-1") opened a CMRA mailbox in New York, New York, for "Hewlett Industries, Inc."
d. On or about April 25, 2007, co-conspirators known and unknown caused an invoice-style solicitation from "Oakland Industries" for $995 for fluorescent light bulbs to be mailed from New York, New York, to a company in North Bergen, New Jersey.
e. On or about January 22, 2007, CC-1 opened a CMRA mailbox in Queens, New York, for "Hewlett Industries."
f. On or about May 25, 2007, co-conspirators known and unknown caused an invoice-style solicitation from "Green Industries" for $995 for fluorescent light bulbs to be mailed to a technology company in Cisco, Texas.
g. On or about June 12, 2007, co-conspirators known and unknown caused a check from a technology company in Perris, California, in the amount of $995 payable to "Oakland Industries" to be deposited at a bank in New York, New York, into an account held by Alden Curtis and Michaels, Ltd.
h. On or about June 29, 2007, CC-1 collected mail from a CMRA in New York, New York, for "Oakland Industries."
i. On or about August 16, 2007, MICHAEL SCHLUSSEL, the defendant, filed a change-of-address request at a post office in New York, New York, for "Green Industries."
(Title 18, United States Code, Section 1349.)
COUNT TWO (Mail Fraud)
The Grand Jury further charges:
11. The allegations contained in paragraphs 1 through 7 and 10 are repeated and realleged as if fully stated herein.
12. From at least in or about September 2001, through in or about March 2008, in the Southern District of New York and elsewhere, MICHAEL SCHLUSSEL, the defendant, unlawfully, willfully, and knowingly, having devised and intending to devise a scheme and artifice to defraud, and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, for the purpose of executing such scheme and artifice, and attempting so to do, did place in post offices and authorized depositories for mail matter, matters and things to be sent and delivered by the Postal Service, and did deposit and cause to be deposited matters and things to be sent and delivered by private and commercial interstate carriers, and did take and receive therefrom, such matters and things, and did knowingly cause to be delivered by mail and such carriers according to the directions thereon, such matters and things, to wit, SCHLUSSEL used invoice-style solicitations to deceive companies into paying for light bulbs that they had not ordered.
(Title 18, United States Code, Sections 1341 and 2.)
COUNT THREE (Conspiracy to Launder Money)
The Grand Jury further charges:
13. The allegations contained in paragraphs 1 through 7 and 10 are repeated and realleged as if fully stated herein.
14. From at least in or about September 2001, through in or about March 2008, in the Southern District of New York and elsewhere, MICHAEL SCHLUSSEL, the defendant, and others known and unknown, unlawfully, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit offenses against the United States of America, to wit, violations of Title 18, United States Code, Section 1956(a)(1)(B)(i).
15. It was a part and an object of the conspiracy that MICHAEL SCHLUSSEL, the defendant, and others known and unknown, would and did conduct and attempt to conduct financial transactions involving the proceeds of specified unlawful activity, knowing that the property involved in such financial transactions represented the proceeds of some form of unlawful activity, and knowing that such financial transactions were designed in whole and in part to conceal and to disguise the nature, location, source, ownership, and control of the proceeds of specified unlawful activity, to wit, mail fraud, in violation of Title 18, United States Code, Section 1956(a)(1)(B)(i).
(Title 18, United States Code, Section 1956(h).)
FORFEITURE ALLEGATION (As to Counts One and Two)
16. As a result of committing one or more of the mail fraud and conspiracy offenses alleged in Counts One and Two of this Indictment, MICHAEL SCHLUSSEL, the defendant, shall forfeit to the United States, pursuant to Title 18, United States Code, Section 981(a)(1)(C) and Title 28, United States Code, Section 2461, any and all property, real and personal, that constitutes or is derived from proceeds traceable to the commission of the offenses, including but not limited to at least $1,000,000 in United States currency, in that such sum in aggregate is property representing the amount of proceeds obtained as a result of the mail fraud and conspiracy offenses alleged in Counts One and Two of this Indictment.
Substitute Asset Provision
17. If any of the forfeitable property, as a result of any act or omission of the defendant:
a. cannot be located upon the exercise of due diligence;
b. has been transferred or sold to, or deposited with, a third person;
c. has been placed beyond the jurisdiction of the Court;
d. has been substantially diminished in value; or
e has been commingled with other property which cannot be subdivided without difficulty; it is the intent of the United States, pursuant to 21 U.S.C. § 853(p), to seek forfeiture of any other property of said defendant up to the value of the above forfeitable property.
(Title 18, United States Code, Section 981, Title 21, United States Code, Section 853(p) and Title 28, United States Code, Section 2461.) FORFEITURE ALLEGATION (As to Count Three)18. As a result of committing the money laundering conspiracy offense alleged in Count Three of this Indictment, MICHAEL SCHLUSSEL, the defendant, shall forfeit to the United States, pursuant to 18 U.S.C. § 982, all property, real and personal, involved in the money laundering offenses, and all property traceable to any such property, including, but not limited to, at least $1,000,000 in United States currency, in that such sum in aggregate is property which was involved in the money laundering offenses or is traceable to such property.
Substitute Assets Provision
19. If any of the property described above as being subject to forfeiture, as a result of any act or omission of the defendant,
a. cannot be located upon the exercise of due diligence;
b. has been transferred or sold to, or deposited with, a third person;
c. has been placed beyond the jurisdiction of the Court;
d. has been substantially diminished in value; or
e has been commingled with other property which cannot be subdivided without difficulty; it is the intention of the United States, pursuant to 18 U.S.C. § 982(b), to seek forfeiture of any other property of the defendant up to the value of the forfeitable property.
(Title 18, United States Code, Sections 982 and 1956.)