November 12, 2014

New York Law Journal / Written by: Harvey M. Stone, Peter R. Schlam

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Issues covered include: enhanced sentences, search and seizure, the Sherman Act and forum selection.

Enhanced Sentences

In United States v. Norris, 97 CR 705-01 (EDNY, April 27, 2001), Judge Eugene H. Nickerson, amending and augmenting an earlier memorandum and order, held that under Apprendi v. New Jersey, 120 S.Ct. 2348 (2000), it would violate defendant's constitutional rights if the Court used "sentencing factors" not admitted in the guilty plea but found by a mere preponderance of the evidence, to increase what would otherwise be a sentence of 120 months (the statutory minimum) to a sentence within a Sentencing Guidelines range of 188 to 235 months. Relying on recent decisions in various circuits, the government argued that Apprendi does not apply where a judge has increased the sentencing range based on the judge's own findings by a preponderance of the evidence, provided the sentence does not exceed the maximum fixed by a statute for the crime, here life imprisonment. E.g., United States v. Scheele, 231 F.3d 492, 497 n.2 (9th Cir. 2000); see also, Adu v. United States, 00 CV 6293 (EDNY, April 25, 2001) (Reena Raggi, J.).

Defendant Norris pleaded guilty to conspiring with others to distribute five or more kilograms of cocaine, in violation of 21 U.S.C. 846 and 841(b)(1)(A). The statutory penalty is a term of imprisonment that "may not be less than 10 years or more than life." At his plea allocution defendant admitted to participating in transactions involving six kilograms of cocaine. This would have led to a guideline range of 97 to 120 months, with the statutory minimum at the top end of that range.

In its presentence report the Probation Department added two levels, based on other alleged transactions involving 14.7 kilograms of cocaine. The department then added two further levels for alleged possession of a firearm in connection with the crime and another two levels for defendant's alleged supervisory role. With subtractions for acceptance of responsibility, this analysis led to a guideline range of 188 to 235 months. In his allocution defendant did not admit to any of the additional factors cited by the department.

The Supreme Court in Apprendi held that the Constitution protects the accused against conviction unless a jury finds proof beyond a reasonable doubt of every element of the charged crime. Here the government argued that the facts supporting the three increases in sentence were not proof of "elements" of the crime charged but only "sentencing factors," which could be found by a judge on a "preponderance" standard.

As Judge Nickerson noted, in Apprendi the defendant pleaded guilty in state court to two counts of possessing a firearm for an unlawful purpose. Each count carried a penalty range of five to 10 years. The State reserved the right to request a higher sentence, beyond the 10-year maximum, under New Jersey's "hate crime" law. After a sentencing hearing, the trial judge found by a preponderance of the evidence that the defendant there had been "motivated by racial bias" with "purpose to intimidate." This satisfied the requirements of the "hate crime" law, and the judge increased the sentence to 12 years on one of the counts.

The New Jersey appellate courts affirmed over dissenting opinions, and the U.S. Supreme Court reversed. As to whether something is an "element" of a crime or a mere "sentencing factor," Judge Nickerson observed, the Apprendi Court made the relevant inquiry not one of form, but of effect " 'does the required finding expose the defendant to a greater punishment than that authorized by the jury's guilty verdict?' " 120 S.Ct. at 2365. Slip op. 14.

Here, Judge Nickerson stated, the facts establishing the elements charged in the indictment were contained in defendant's guilty plea, which was the "functional equivalent of a guilty verdict on the charges." Slip op. 14.

Because defendant did not admit any of the facts used to justify the proposed increase in the sentence, he may not be exposed, Judge Nickerson concluded, "to a greater punishment than that authorized" by his plea allocution. As the court also observed, while the statutory maximum penalty is "not more" than life imprisonment, such a sentence would not even be authorized here. Rather, the guidelines provisions, which are binding on a district court, set the relevant limits.

Judge Nickerson disagreed with the recent decisions indicating that there was no problem as long as the sentence imposed does not exceed the statutory maximum:

If those decisions accurately state what the Apprendi opinion means, then the opinion is a dead letter in most substantial narcotics cases in the federal courts. There is no greater sentence than life imprisonment for a defendant dealing in five kilograms of cocaine or one kilogram of heroin. (Slip op. 17- 18).

Since deciding Apprendi, moreover, the Supreme Court has vacated numerous circuit court judgments and remanded for further consideration in light of Apprendi. Many of the remanded cases involved sentences for drug offenses that did not exceed the statutory maximum. Slip op. 19-20.

The deprivation of constitutional rights, Judge Nickerson observed, is the same in Apprendi as here, even though the deprivation is accomplished by a statute in the New Jersey case (which has no guideline system such as that in federal law) and by binding "Guidelines" in this case.

Judge Nickerson concluded:

A defendant's Constitutional rights would not be so violated by a sentencing guidelines system in which all facts exposing the defendant to a particular sentence range must be included in the indictment and found by a jury to have been proven beyond a reasonable doubt. No doubt such a system would be inconvenient. But compromises for the sake of convenience should not be made at the expense of depriving Norris of his rights guaranteed by the United States Constitution.

Search and Seizure

In United States v. Numisgroup International Corp., 00 CR 0352 (EDNY, March 23, 2001), Judge Arthur D. Spatt denied a motion to suppress (a) documents obtained from a defendant company by an employee acting as an undercover informant, and (b) items seized pursuant to a search warrant based on that information, where the company had no reasonable expectation of privacy in the documents that came to the informant's attention.

Defendants were indicted for selling "rare coins" at inflated prices through false representations. In their motion to suppress, they argued that the employee-informant had stolen company documents, that this was effectively an illegal search and that a subsequent search warrant resulting in the seizure of more records was tainted and therefore invalid.

As shown at a hearing on the motion, one Michael Zelen, who had pleaded guilty in another jurisdiction, agreed to cooperate with the authorities. He told the government about rare coin "boiler rooms" on Long Island. Working with a postal inspector, he responded to an employment ad by one of the defendant companies. Mr. Zelen got the job and began feeding information to the inspector by fax and telephone. The faxes enclosed copies of various documents.

Analyzing the 22 documents that Mr. Zelen obtained and turned over, Judge Spatt saw no illegal search. The documents, the court noted, "were voluntarily given to [Zelen] or openly displayed to him in plain view as part of his employment as a salesman." Slip op. 17. Nor was there anything illegal about the methods used in procuring the other information which Mr. Zelen orally gave to the government. Mr. Zelen never went to a locked area or another person's closed drawer to retrieve documents for the postal inspector. In short, defendants had no legitimate expectation of privacy in the materials and data supplied by Mr. Zelen, and there was no illegal search at any point in the process.

Sherman Act 1

In Beyer Farms, Inc. v. Elmhurst Dairy, Inc., 00 CV 1353 (EDNY, April 11, 2001), Judge David G. Trager granted Elmhurst's motion to dismiss a restraint of trade action brought under 1 of the Sherman Act.

Beyer distributes milk and milk products to restaurants, small grocery stores and convenience stores for sale to the general public. Elmhurst processes such products and sells them to various dairies, which sell the products under their own brand names. Elmhurst also sells and packages its own milk products to retail outlets under the Elmhurst brand name.

Beyer claimed that Elmhurst refrained from selling its name products directly to certain retail outlets, but sold its products directly to retail outlets carrying Beyer products, causing those outlets to breach contracts with Beyer. Beyer also alleged that Elmhurst offered very low prices to retail outlets supplied by Beyer (but had no intention of consummating sales) in order to induce these outlets to demand lower prices from Beyer. Elmhurst also allegedly colluded with other dairies to divide up territory in order to force Beyer to purchase Elmhurst products or to drive it out of business.

As Judge Trager noted, because 1 of the Sherman Act is directed at joint action, allegations that one entity acted unilaterally do not state a claim under that section. Thus, Beyer's contention that Elmhurst conspired with other dairies to divide up retail outlets was insufficient to satisfy 1 without further allegations detailing a meeting or agreement with any other entity. Slip op. 7. Only the allegation that Elmhurst and another dairy agreed to exchange routes met 1's requirements for alleging a conspiracy.

Rule of Reason

Applying the rule of reason analysis applicable to vertical restraints, Judge Trager first held that Beyer had failed to properly allege a relevant product market because the complaint does not explain what "fluid milk products" are; nor does it explain what the sources for such products are in the relevant market or if there are other, substitute products available. Slip op. 13.

As a result, "the complaint provides no basis upon which the court can properly evaluate what impact the challenged agreement would have on competition." Slip op. 15.

Similarly, Judge Trager determined that the complaint failed to allege an injury to the market. Injury to an individual competitor, the court noted, even if the competitor is excluded from the market as a result of a contract, combination or conspiracy, is not sufficient to state a claim under the Sherman Act. Instead, the plaintiff must demonstrate a negative effect on competition in the relevant market as a whole, not merely on sellers of the same products. Here, the alleged agreement between Elmhurst and its customers had the effect of increasing the ability of both to compete in the market as a whole rather than stifling competition.

Finally, the only injuries Beyer alleged were to itself, not competition in the entire market. Nothing in the complaint indicated how the elimination of competition between Elmhurst and Bartlett (a distributor which sold under its own name products processed by Elmhurst) would hurt competition and allow one of them to take over a significant portion of the market. And no alleged fact prevented Beyer from attempting to sell the same products to the same outlets. (Slip op. 24-25).

Forum Selection

In Unity Creations, Inc. v. Trafcon Industries, Inc., 00 CV 2168 (EDNY, March 20, 2001), Judge Spatt denied plaintiffs' motion to remand the case to New York Supreme Court, Nassau County.

A forum selection clause in the contract between the parties stated: "Jurisdiction of all legal disputes shall be decided in the Supreme Court of New York, County of Suffolk." Plaintiff, a New York corporation, brought this contract action against defendants, a Pennsylvania corporation and two residents of Pennsylvania, in Supreme Court, Nassau County. Defendants removed the case to federal court, arguing that the forum selection clause did not prevent removal to federal court and, in any event, plaintiff had commenced the action in the wrong county.

As Judge Spatt noted, an agreement to a specific venue for a dispute waived the defendant's right to remove a case to federal court, but an agreement establishing state court jurisdiction did not act as a waiver of defendant's right to remove. Finding the clause at issue ambiguous, the court interpreted it against the plaintiff drafter to establish only jurisdiction, but not venue, in New York Supreme Court. Judge Spatt also found that jurisdiction in New York Supreme Court was not exclusive.

Indeed, plaintiff had waived its right to remand because it had sued in an unauthorized forum. Slip op. 6. The court rejected plaintiff's justification that it had commenced the action in Nassau County because its corporate offices had moved there during the life of the contract. To the contrary, Judge Spatt concluded that, because remanding to Nassau County would not have the effect of providing what the parties bargained for, such a result would be unjust to defendants, who had agreed to jurisdiction only in Supreme Court, Suffolk County.

Peter R. Schlam and Harvey M. Stone are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[Reproduced with permission from New York Law Journal Volume 225, Friday, June 8, 2001.  Copyright 2001 ALM Properties, Inc.  All rights reserved.]