November 12, 2014

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

In the U.S. District Court for the Eastern District of New York, Judge Nina Gershon concluded that defendants' guilty plea to willful securities fraud foreclosed any sentencing benefit from the "no knowledge" provision of 15 USC § 78ff(a). Judge David G. Trager held that New York, not Israel, was a child's "habitual residence" for purposes of the Hague Convention on child abduction. And Judge Jack B. Weinstein granted a habeas petition where the trial judge had erroneously declined to give a "justification" charge in a homicide case, and the defense lawyers' citation of the wrong cases to support the charge amounted to "ineffective assistance.'

§ 78ff(a): 'No Knowledge'

In United States v. Knueppel, 03 CR 0536 (EDNY, Nov. 17, 2003), Judge Gershon held that defendants, who had pleaded guilty to willful violations of Rule 10b-5 and § 10(b), 15 USC § 78j(b), could not avoid imprisonment by relying on the "no knowledge" provision of § 78ff(a). That section defines applicable penalties for violations of the chapter "or any rule or regulation thereunder." It then states: "but no person shall be subject to imprisonment under this section for the violation of any such rule or regulation if he proves that he had no knowledge of such rule or regulation."

Defendants Misfeldt and Tyres were machinists in Wisconsin who knew each other and began investing in securities. Defendants Knueppel and Sonday worked at Perry-Judd's Inc. (Perry), which prints Business Week. Perry gave them employee handbooks, prohibiting the dissemination of any information contained in magazines printed by Perry before the information became public, and warning of possible criminal sanctions. Signs posted at Perry also warned against such conduct.

Ms. Knueppel nonetheless agreed to give her friend Ms. Misfeldt information on Business Week before its publication. She did so by repeatedly pilfering advance copies of the magazine and reading the "Inside Wall Street" column to Ms. Misfeldt or Ms. Tyres over the phone. When Ms. Knueppel went on maternity leave, she recruited Sonday to carry on this service. Ms. Misfeldt and Ms. Tyres mailed Ms. Knueppel and Ms. Sonday $50 to $200 per week for their help.

Using the confidential information, Ms. Misfeldt and Ms. Tyres would, prior to close of the markets, acquire stock positions (including short sales) in public companies reviewed by "Inside Wall Street." The next morning, when the markets reopened, they would dispose of their positions. From May 1997 to February 1999, Ms. Misfeldt and Ms. Tyres made some $1.4 million dollars of profit in these transactions. Ms. Knueppel and Ms. Sonday received a total of $8,800.

Ms. Knueppel, Ms. Sonday and Ms. Tyres pleaded guilty to an information charging them with "knowingly and willfully" conspiring to use manipulative devices, in violation of Rule 10b-5, in that they "knowingly and willfully" conspired to defraud members of the investing public, in violation of § § 78j(b) and 78ff(a).

As Judge Gershon observed, defendants pleaded guilty not just to violating an SEC rule, but rather to conspiring to violate Rule 10b-5 and § 78j(b). Their guilty pleas thus "take them outside the protections of the ' no knowledge' provision."

In connection with the sentencing, defendants argued that the "no knowledge" provision of § 78ff(a) precludes imprisonment because they allegedly did not know of the misappropriation theory underlying the charges. Judge Gershon found this argument to be meritless:

Whether or not defendants knew that they faced potential prosecution under a theory labeled by lawyers as the "misappropriation theory," they pleaded guilty to participating in a conspiracy to use stolen, nonpublic information to trade in securities to the harm of the investing public, conduct that is inherently culpable both because of the theft and because of the harm to which the information was put.

In any event, the court also found, after an evidentiary hearing, that defendants failed to show their lack of knowledge within the meaning of § 78ff(a). In reaching this conclusion, Judge Gershon pointed to a number of factors, including (a) the employee handbook and the warning signs posted by Perry, (b) admissions by Ms. Knueppel and Ms. Sonday showing their understanding of the purpose of the scheme, (c) their theft of the information, (d) the cash payments and (e) the experience and sophistication of Ms. Tyres and Ms. Misfeldt in securities trading. In light of this record, no defendant could plausibly assert a belief that the scheme was not inherently illegal.

Hague Convention: Child Abduction

In Gitter v. Gitter, 03 CV 3374 (EDNY, Nov. 26, 2003), Judge Trager denied a father's petition to return his son from New York to Israel under the 1980 Hague Convention on the Civil Aspects of International Child Abduction (convention) and the International Child Abduction Remedies Act, 42 USC § § 11601-11610, where petitioner failed to prove that Israel was the child's "habitual residence" prior to his removal.

Sorting through the conflicting testimony at an evidentiary hearing, the court, in essence, made the following findings: Petitioner Yossi Gitter and respondent Miriam Gitter were first married in New York in 1999. Their son Eden was born there in December 2000, and the family lived near Mrs. Gitter's relatives in Monsey. Mr. Gitter was not doing well financially, but had relatives, a support system and an available job in Israel. Though Mrs. Gitter was unwilling to live in Israel indefinitely, her husband persuaded her to try living there for one year. In March 2001 all three went to Israel. Mrs. Gitter never adjusted to life there and, in February 2002, she took Eden back to New York to visit her sister. Mr. Gitter joined them a week later. His wife told him she would not return to Israel. With the help of one Lord Aristo, a mystic, Mr. Gitter prevailed upon his wife to agree to another trial period in Israel. Lord Aristo guaranteed Mrs. Gitter that she could go back to New York if she was still unhappy after six months. The second sojourn in Israel lasted from February 2002 to June 30, 2002, when she again returned to New York with her son.

Mrs. Gitter was thereafter unwilling to rejoin her husband in Israel–a risk that Mr. Gitter, contrary to his testimony, apparently understood before she left Israel for the second time.

The convention, Judge Trager observed, provides for children under 16 to be returned to the country that was their "habitual residence" immediately prior to their wrongful removal. The threshold issue was whether Israel or the United States was the "habitual residence" of Eden in June and July 2002. If Eden's habitual residence has always been the United States, the convention does not apply and the issue of custody is properly resolved in the state courts of New York.

In Judge Trager's view Eden's habitual residence did not shift to Israel after March 2001. Given the child's young age, it is the parents' intentions that matter. Habitual residence cannot be shifted, moreover, without the parents "mutual agreement." Slip op. 6. The Gitters, the court found, moved to Israel only on condition that Mrs. Gitter would be happy there. Mr. Gitter therefore could not meet his burden of proving a shift in Eden's habitual residence.

Judge Trager noted, without fully deciding, another possible defense for Mrs. Gitter. The convention states that, if proceedings have been commenced after a year or more since the unlawful removal, the court need not order the child's return if "the child is now settled in its new environment.'

Here, despite Mr. Gitter's spin on the events, he became aware by July 2002 or earlier of his wife's intention not to return to Israel, yet he waited over a year to file his petition. Judge Trager declined to determine, absent a full hearing, whether Eden is now "settled" in New York.

Ineffective Assistance

In Jackson v. Edwards, 01 CV 0501, 03 MISC 0066 (EDNY, Sept. 25, 2003), Judge Weinstein, granting a habeas corpus petition, held that the state court criminal proceedings were so constitutionally deficient as to warrant relief on two independent grounds: First, the trial judge refused to submit to the jury a "justification" instruction, even though there was ample evidence in this murder prosecution to warrant the charge. Second, defense counsel, in requesting the instruction, failed to cite the relevant supporting decisions but rather relied on inapposite case law.

Petitioner was the superintendent of an apartment building. A family living in an apartment there had moved out, but left some furniture and went back occasionally to pick up mail. One evening in March 1997 a family member returned a set of keys to the apartment, at the petitioner's re-quest. Later that night, a heated argument broke out between the family and petitioner when they found him changing the lock on the apartment door.

Selwyn Brown, another family member, heard about the controversy, insisted on getting back the keys and confronted petitioner. Petitioner and Mr. Brown began a loud and hostile argument. Other tenants became involved in the altercation. One of the relatives left to go downstairs after she saw Mr. Brown raise his hands and push petitioner. A tenant saw Mr. Brown punch petitioner twice, knocking him to the ground. All observers testified that the argument between Mr. Brown and petitioner was heated, and that Mr. Brown was motioning with his hands as he spoke.

During the argument petitioner pulled a gun from his pocket. The gun discharged and Mr. Brown was shot. Mr. Brown later died from the wound. Petitioner ran away, then voluntarily surrendered, confessed and tried to help the police find the gun.

While acquitting petitioner of second-degree murder, the jury found him guilty of a charged lesser-included-offense, manslaughter in the second degree and of criminal possession of a weapon in the second degree.

Despite the closeness of the issue, Judge Weinstein saw no failure to exhaust state court remedies. Though petitioner's counsel did not present his argument on the justification defense on direct appeal in federal constitutional terms, he had alleged "a pattern of facts well within the stream of constitutional litigation.'

Turning to the merits, Judge Weinstein noted that, under New York Penal Law § 35.15(2), deadly physical force may be used by a person when he reasonably believes (1) that another is about to use deadly physical force (unless the actor knows he can retreat in complete safety), or (2) that such other person is attempting to commit a burglary, and the use of deadly force is authorized by § 35.20. Subdivision three of § 35.20 authorizes a person "in possession or control of, or licensed or privileged to be in, a dwelling or an occupied building," to use deadly force when he reasonably believes that another is attempting to commit a burglary of the building and that deadly force is necessary to terminate the burglary.

As Judge Weinstein observed, a jury could have concluded that petitioner reasonably believed Mr. Brown to have been either attempting to take the keys from him (attempted robbery) or attempting to enter the apartment with the intent to take the keys (attempted burglary).

Significantly, petitioner's justification claim was supported by the testimony of other witnesses and by petitioner's videotaped confession. As the superintendent of a building engaged in his regular work, petitioner could have believed "that he was preventing a burglary as well as defending himself." Slip op. 15.

Had the justification charge been given, Judge Weinstein added, the jury could have found for petitioner not only on the homicide charge, but also on the second-degree weapons charge. A properly charged jury, in other words, could have found that at no time, either before or during the shooting, did petitioner act with "intent" to use his firearm unlawfully against another person.

Finally, trial counsel's citation of inapposite case law on the "justification" charge, when good law was available, cannot be construed as a "strategic choice"–and falls below any objective standard of reasonable representation. Slip op. 25-26.

Peter R. Schlam and Harvey M. Stone are partners at Schlam Stone & Dolan.

[This article is reprinted with permission from the December 12, 2003, issue of the New York Law Journal. Copyright © 2007 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]