Wire Fraud, Money Laundering and the Inadvertently Disclosed Email

This post examines an opinion from the U.S. Court of Appeals for the 6th Circuit:  U.S. v. Dobson, 2015 WL 5449905 (2015).  The opinion begins by explaining the judgment from which the defendants were appealing:

Joshua Dobson and Paul Gott III, appeal their convictions and sentences for one count of conspiracy to commit wire fraud and money laundering, in violation of 18 U.S. Code §§ 371, 1343, and 1957; three counts of wire fraud, in violation of 18 U.S. Code § 1343; and two counts of money laundering, in violation of 18 U.S. Code § 1957. Defendants' convictions arise out of a mortgage-fraud scheme in which Defendants made the down payments for purchasers of properties without disclosing such fact to the lenders. Defendants used so-called `gift letters’ in some of these transactions to disguise the down payments they made for purchasers. The district court sentenced Dobson to 126 months of imprisonment and five years of supervised release and Gott to 75 months of imprisonment and five years of supervised release, and ordered restitution.

U.S. v. Dobson, supra.  You can, if you are interested, read more about the case in the news stories you can find here, here and here.

As the Sixth Circuit noted, in their appeal the defendants

argue[d] that their constitutional rights were violated when Gott's counsel inadvertently disclosed a privileged communication to the government and the district court failed to remove the prosecutors and agents who viewed the privileged materials from the case. 

U.S. v. Dobson, supra.

The Court of Appeals began its analysis of that argument by explaining what the conduct was that resulted in the defendants being prosecuted for the offenses noted above:

Southern Group, LLC and its various subsidiaries (collectively, Southern) developed and sold real estate, including lots in a development known as `The Preserve,’ located in Rising Fawn, Georgia. Dobson was a principal of Southern and was in charge of sales and marketing of the properties. Gott was an independent contractor of Southern who was responsible for facilitating mortgage loans for the real estate transactions.

As early as 2007, Southern, through Dobson, offered lots for sale with a `no-money-down’ financing program, through which Southern would make the down payments and the first three years of mortgage payments for purchasers with good credit. Southern did not disclose to the lenders in these transactions that it provided the down payments to the purchasers or that it was making the mortgage payments.

Beginning in approximately 2009, Southern began to use `gift letters’ as part of its financing scheme. In these transactions, a third person signed a `gift letter,’ which falsely stated that the third person was related to the purchaser and was gifting funds to the purchaser to use as a down payment. Southern provided the down payment funds to the third person, who in turn provided them to the purchaser for the down payment at closing.

On May 1, 2012, Dobson and Gott were charged with conspiracy to commit wire fraud and money laundering, seven counts of wire fraud, and four counts of money laundering. The conspiracy count alleged that Dobson and Gott engaged in a scheme to defraud the mortgage lenders by creating the appearance, through false closing documents and gift letters, that the down payment was being provided by the purchaser, when in fact it was being provided by the seller.

U.S. v. Dobson, supra.

The court then explains how the inadvertent disclosure of the communication occurred:

[i]n the course of providing discovery to the government, Gott's trial counsel gave the government three documents, consisting of four pages, which contained statements by Gott that were subject to the attorney-client privilege or were work product. The issues for trial included whether Dobson and Gott made down payments for purchasers though disguised gifts by fictitious `family members’ and whether they engaged in such acts with the intent to defraud. Dobson and Gott intended to defend the government's allegations, in part, by claiming that Keith Smartt, a mortgage broker, had told them that a gifter need not be a family member.

One of the disclosed documents, an email from Gott to his counsel, stated that Gott had called several mortgage companies to ask whether they had any programs that allowed the seller to contribute the down payment and all of them said no. Gott stated that he then called Keith Smartt, who said that several lenders had gift loan programs, under which, `as long as the funds were sourced and seasoned for 30 days, the lenders did not care where the gifter got their funds from.’ Gott further stated, however, that in a subsequent conversation with both Dobson and Gott, Smartt said that `it did not matter where the gifter got the funds from as long as it was from a family member.’

Upon discovering the foregoing documents, the government's counsel contacted Gott's counsel, who confirmed that the disclosure was inadvertent. The government's counsel also sought advice from his office's Professional Responsibility Officer and the Department of Justice's Professional Responsibility Advisory Office. Subsequently, the government filed a Motion for Judicial Inquiry, seeking the district court's guidance on how to proceed.

The district court held a two-hour hearing on the matter, during which it thoroughly explored the issues with Gott's and the government's counsel and questioned Gott. Gott's counsel confirmed that the disclosure was inadvertent, that the email contained attorney-client privileged information, and that Gott did not intend to waive the privilege. Gott's counsel explained that most of the information in the email, including Smartt's involvement, had previously been disclosed to the government through other means and suggested that precluding the government from using the email at trial would be an appropriate remedy. After the district court speculated about possible indirect uses of the email, Gott's counsel confirmed that it did not disclose a defense theory or identify any witness of whom the government was previously unaware. The government's counsel confirmed that the government had previously interviewed Smartt and said that, because certain questions he intended to ask (or probably would have asked) Gott if Gott chose to testify at trial might be construed as derivative of Gott's email, it would `be hard to unring the bell.’ As such, the government's counsel noted, the email might inhibit his cross-examination of Gott at trial. Dobson's counsel attended the hearing but did not speak.

The district court then heard from Gott. Gott said that the court should not only prohibit the government from using the email at trial, but should also remove anyone from the prosecution team that had read the email. The court questioned Gott about how the information in the email might harm Gott's case, but Gott was unable to identify any harm—simply that the prosecutors would always have the information in the back of their minds. Gott's counsel did not comment on Gott's suggestion. The court observed that removal of the prosecution team was a `radical remedy’ not appropriate for the circumstances because the disclosure was unintentional, the government played no part in it and took prompt and appropriate remedial steps, and removal would impose a `tremendous hardship on the government’ after all of the time the attorneys and other staff spent preparing the case. Thus, the district court precluded the government from using the email in its case-in-chief, but said that it might allow it for impeachment if Gott were to testify inconsistently with his email.

U.S. v. Dobson, supra.

The outcome of the trial was that “the jury found Defendants guilty on Counts 1, 5 through 8, 11, and 12.” U.S. v. Dobson, supra.  After the trial, the U.S. District Court Judge who had the case analyzed the relevant facts and the relevant issues under the U.S. Sentencing Guidelines and ultimately “sentenced Dobson to 126 months' imprisonment and Gott to 75 months' imprisonment, imposed five years of supervised release, and ordered them to pay $3,091,650.56 in restitution.” U.S. v. Dobson, supra. 

That brings us back to the disclosure of the privileged material:  On appeal,

Dobson and Gott argue[d] that Gott's counsel's pretrial disclosure of Gott's email violated their rights to a fair trial under the Fifth Amendment and interfered with their rights to counsel under the Sixth Amendment. Gott also argue[d] that the district court should have removed the prosecutors and investigators from the case to remedy the prejudice from the disclosure. This court reviews the district court's factual findings for clear error, but reviews de novo the question of whether such facts give rise to a constitutional violation. U.S. v. O'Dell, 247 F.3d 655 (U.S. Court of Appeals for the 6th Circuit 2001). A district court's determination regarding disqualification of counsel `will be upheld unless “arbitrary” or “without adequate reasons.”’ U.S. v. Swafford, 512 F.3d 833 (U.S. Court of Appeals for the 6th Circuit 2008) (quoting U.S. v. Mays, 69 F.3d 116 (U.S. Court of Appeals for the 6^th Circuit 1995)).

U.S. v. Dobson, supra. 

The Court of Appeals began its analysis of their argument by explaining that

[i]nitially, we note that Dobson lacks standing to assert a Sixth Amendment violation based on the disclosure of Gott's email. `Sixth Amendment rights are at bottom personal to the accused.’ U.S. v. Blair, 661 F.3d 755 (U.S.Court of Appeals for the 4th Circuit 2011); see also Texas v. Cobb, 532U.S. 162 (2001) (noting that `[t]he Sixth Amendment right to counsel is personal to the defendant’).

Accordingly, a defendant lacks standing to assert the Sixth Amendment rights of his co-defendant. U.S. v. Ramirez, 50 F. App'x 257 (U.S. Court of Appeals for the 6th Circuit 2002) . . . (`Even if the agents' actions violated Olsen's right to counsel, Sims has no standing to assert this claim’)). Dobson was represented by separate counsel, his privileged communications were not disclosed, and the disclosed Gott email had no impact on Dobson's relationship with his counsel. Dobson thus has no standing to assert a Sixth Amendment violation based on an alleged interference with Gott's attorney-client relationship.

In addition, Dobson fails to show that the disclosure deprived him of a fair trial. The government did not use Gott's email in any manner at trial against Dobson or Gott. Dobson had no right to object to the disclosure, nor did he have any reason to expect that Gott would not provide incriminating information to the government. In other words, Dobson's position was no different than if Gott had cooperated with the government and testified against Dobson. Thus, Dobson cannot show a constitutional violation.

U.S. v. Dobson, supra (emphasis in the original).

It went on to point out that

[e]ven assuming that Dobson does have standing and agreeing that Gott does have standing to assert a Sixth Amendment claim, such a claim fails because neither Defendant can show prejudice. A defendant's Sixth Amendment rights may be violated if the government intrudes on the attorney-client relationship and prejudice is shown. See Weatherford v. Bursey, 429 U.S. 545 (1977); U.S. v. Valencia, 541 F.2d 618, 623 (U.S. Court of Appeals for the 6th Circuit 1976). Most often, the government actively intrudes into the attorney-client relationship. For example, in Valencia, the government arranged for a paid informant—a defense counsel's secretary—to interact with the defendant and his counsel. See U.S. v. Valencia, supra.

Although some courts have suggested that the government's intentional invasion of the attorney-client relationship, without more, can result in a violation, see Bishop v. Rose,701 F.2d 1150 (U.S. Court of Appeals for the 6th Circuit 1983) . . ., this court's precedent requires a showing of prejudice, even when the intrusion is intentional. U.S. v. Steele, 727 F.2d 580 (U.S. Court of Appeals for the 6th Circuit 1984).

U.S. v. Dobson, supra (emphasis in the original).

The court then outlined the factors and analysis involved in determining whether there has been a Sixth Amendment violation:

`1) whether the presence of the informant was purposely caused by the government in order to garner confidential, privileged information, or whether the presence of the informant was the result of other inadvertent occurrences; 2) whether the government obtained, directly or indirectly, any evidence which was used at trial as the result of the informant's intrusion; 3) whether any information gained by the informant's intrusion was used in any other manner to the substantial detriment of the defendant; and 4) whether the details about trial preparations were learned by the government.’

U.S. v. Steele, supra. Even where a violation has occurred, courts are free to impose an appropriate remedy `tailored to the injury suffered.’ U.S. v. Morrison, 449 U.S.361 (1981). The issue in Morrison was whether an assumed Sixth Amendment violation required dismissal of the indictment. . . . The Court held that it did not because there was no “demonstrable prejudice, or substantial threat thereof.’ U.S. v. Morrison, supra. The Court explained,

`Our approach has . . . been to identify and then neutralize the taint by tailoring relief appropriate in the circumstances to assure the defendant the effective assistance of counsel and a fair trial. . . . Absent such impact on the criminal proceeding, however, there is no basis for imposing a remedy in that proceeding, which can go forward with full recognition of the defendant's right to counsel and to a fair trial.’

U.S. v. Morrison, supra. Moreover, the Court observed that the right to counsel must be balanced against `society's interest in the administration of criminal justice.’ U.S. v. Morrison, supra.

U.S. v. Dobson, supra. 

The Court of Appeals then found that the

Steele factors show that no Sixth Amendment violation occurred in this case. First, there was no intrusion, intentional or otherwise, into Gott's relationship with his counsel. The government obtained Gott's email by happenstance rather than some deliberate act. Second, the government did not use Gott's email at trial. Although Defendants argue that the disclosure of the email was fatal to their defense, they fail to explain why this is so. In fact, Gott testified consistent with the defense he sought to assert—that he did not believe what he was doing was wrong. Third, there is no indication that the government used Gott's email to either Defendant's detriment. As both Gott's trial counsel and the government's counsel told the district court, the government was already aware of Smartt, had interviewed him, and knew that Smartt had discussions with Defendants in which he told them that gift funds had to come from a family member.

While Defendants suggest that the government made some derivative use of the email, they fail to explain what information the government obtained that it did not already possess. Finally, the email disclosed no information about Gott's counsel's trial preparations. In short, Defendants have not met their `onerous task’ of demonstrating prejudice. U.S. v. Moses, 337 F. App'x 443 (U.S. Court of Appeals for the 6th Circuit 2009). For these same reasons, Defendants fail to demonstrate a due-process violation.

The argument that the district court should have removed the government's counsel and investigators and appointed a new prosecution team is without merit. Given the lack of any discernable prejudice, the district court sensibly described this request as a `radical remedy.’ The prosecutors had invested a significant amount of time preparing for trial, trial was set to start in a matter of weeks, the prosecutors were already aware of most of the information in the email through other means, and a less drastic remedy was available. The district court's remedy was thus appropriately `tailored to the injury suffered from [any possible] constitutional violation.’ U.S. v. Morrison, supra.

U.S. v. Dobson, supra. 

Finally, the Court of Appeals also explained that

[w]e are also not persuaded that the district court erred in failing to appoint new counsel for Gott or by questioning him at the hearing on the motion for judicial inquiry. Gott never requested new counsel at the hearing, and he never informed the district court that he believed that there was a conflict.

Nor do we view Gott's counsel's failure to support Gott's request for removal of the government's attorneys and agents as a conflict necessitating new counsel. Gott's request was unreasonable, and his counsel merely suggested a reasonable remedy. In addition, Gott fails to show how the district court's questioning of him violated his rights. The district court's questions were limited to the prejudice that might result to Gott from use of the email. The court did not delve into trial strategy, did not ask Gott questions about the substance of the email, and probed no further than necessary to fashion a proper remedy.

U.S. v. Dobson, supra. 

For these and other reasons, the court affirmed the defendants’ convictions and the sentences imposed by the U.S. District Court Judge. U.S. v. Dobson, supra.