November 13, 2014
This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Frederic Block granted a motion to suppress based on an overly broad search warrant. Judge Kiyo A. Matsumoto declined to enforce an oral settlement agreement. And Judge Sandra L. Townes denied a motion for an interlocutory appeal of certain Bankruptcy Court orders.
Search Warrants For Email Declared Too Broad
In United States v. Cioffi, 08 CR 415 (EDNY, Oct. 26, 2009), Judge Block granted defendant Matthew Tannin's motion to suppress evidence seized from his personal email account on the ground that the warrant authorizing the seizure was facially invalid under the Warrants Clause of the Fourth Amendment. (On Nov. 10, 2009, both defendants in this case were acquitted after a jury trial.)
Mr. Tannin was charged with conspiracy, securities fraud and wire fraud in connection with two hedge funds he managed for Bear Stearns Asset Management. In July 2009, an FBI agent applied to a Magistrate Judge for a warrant to search Mr. Tannin's personal email account. The accompanying affidavit incorporated by reference the 27-page indictment to show probable cause that Mr. Tannin had committed the charged crimes.
To connect these offenses to Mr. Tannin's personal email account, the affidavit alluded to a paragraph of the indictment excerpting an April 2007 email sent by Mr. Tannin to his co-defendant, allegedly bearing on Mr. Tannin's knowledge and intent. The affidavit also averred that the search would be limited to emails created before Mr. Tannin's retention of private counsel. The affidavit set forth other details as well about the alleged offenses, the statutes allowing the government to obtain from companies such as Google the contents of subscriber accounts, and the procedures necessary to execute the search. Finally, the affidavit stated that the government was seeking authority to seize only evidence of securities fraud, wire fraud and related conspiracies.
The warrant itself, served on Google, authorized a search of 'the premises known as electronic mail address firstname.lastname@example.org.' The items to be seized – categories of 'records and other stored information' in the email account – were listed in Attachment A to the warrant. The listing pertinent here described 'all email up through August 12, 2007 [the day before Mr. Tannin retained counsel],' including any attachments, folders, or messages sent or received. There was no provision limiting the emails to be seized to those containing evidence of the charged crimes or of any crimes at all. The warrant did not attach the agent's affidavit or incorporate it by reference. In October 2009 the government informed defense counsel that it intended to offer into evidence at trial a November 2006 email uncovered by the search.
Judge Block held:
The warrant did not, on its face, limit the items to be seized from Tannin's personal email account to emails containing evidence of the crimes charged in the indictment, or, indeed, any crime at all. It was therefore unconstitutionally broad under [United States v. George, 975 F.2d 72, 75 (2d Cir. 1992)].
As Judge Block explained, before the U.S. Supreme Court's decision in Groh v. Ramirez, 540 U.S. 551 (2004), the affidavit might have saved the warrant under United States v. Blanco, 998 F.2d 1112 (2d Cir. 1993). 'Because, however, the affidavit was not attached to or formally incorporated into the warrant, Groh renders it an irrelevancy.' Slip op. 16. Judge Block was not impressed by the government's invocation of the 'good faith' exception to the exclusionary rule. The Supreme Court's decision in Groh, Judge Block observed, 'has been on the books since 2004.' Slip op. 17. A reasonably well-trained officer would therefore have known that the warrant was defective despite the accompanying affidavit.
Judge Block also found the 'inevitable discovery' doctrine to be inapplicable. This is not a case where the evidence in question, the November email, would have been discovered by lawful means had the warrant never been executed. Rather, the government argued that the November email could lawfully be obtained 'through another, more particularized warrant now that the warrant has been invalidated.' Slip op. 18 (emphasis in original). This argument, the court stated, was merely a request for 'a second chance to fix a problem that never should have arisen.' Slip op. 20.
Judge Block concluded by pointing to his own decision in United States v. Cohan, 628 F.Supp.2d 355 (EDNY 2009), which warned the government to heed Groh's holding that, to salvage a warrant, an affidavit must be attached to the warrant and incorporated by reference. Cohan was issued 'this past June, two weeks before the warrant [here] was sought.' Slip op. 21.
Oral Settlement Agreement Held Unenforceable
In Cook v. Detective Michael L. Huckabey, 07 CV 4467 (EDNY, Oct. 1, 2009), an action seeking damages for alleged false arrest and malicious prosecution, Judge Matsumoto denied defendants' motion to enforce an oral settlement agreement that the parties anticipated would be reduced to writing.
Plaintiffs' lawyer orally indicated to defendants' lawyer that all three plaintiffs had accepted defendants' settlement offer. Defendants' lawyer informed the court that a settlement had been reached and that the parties would submit a Stipulation of Settlement and Dismissal 'upon execution by the parties.' Plaintiffs' lawyer did not object to the letter. As to one plaintiff, defendants' lawyer sent plaintiffs' attorney a Stipulation and Order of Settlement and Discontinuance, along with documents relating to the settlement with that plaintiff. As to plaintiff Stephen Penn, counsel requested a detailed statement of attorney's fees, but did not send any settlement documents specific to Mr. Penn. Plaintiffs' lawyer later notified defendants' counsel that Mr. Penn no longer wished to settle.
Defendants moved to enforce the oral settlement agreement. Judge Matsumoto described the primary question as whether the oral settlement agreement was a valid and binding contract. The court evaluated the intent of the parties to be bound by an oral agreement, applying factors identified by the Second Circuit in Winston v. Mediafare Entm't Corp., 777 F.2d 78 (2d Cir. 1985). Although there was no evidence of an express reservation by either side not to be bound absent a written agreement, the conduct and communications of the parties did not, on the whole, call for enforcement. Defendants' counsel's letter to the court stated without reservation that a settlement had been reached, but counsel subsequently sent paperwork for only one plaintiff's settlement to plaintiffs' counsel. In addition, the language of the settlement documents, including a merger clause, indicated that a signed writing was anticipated to complete the settlement. Thus, the court concluded: 'despite some contradiction, the balance of these communications weighs slightly against enforcement of the settlement agreement with respect to the first Winston factor.' Slip op. 14.
Regarding the second factor, partial performance, Judge Matsumoto found no performance, partial or whole. This too weighed against enforcement. Regarding the third factor – terms remaining to be negotiated – the parties had not yet agreed upon a major item, the amount of attorney's fees. Further, because defendants' counsel had not forwarded any paperwork relating to the settlement with Mr. Penn, there might be a number of other items to be negotiated. Slip op. 17.
Finally, the court considered whether this was the type of agreement that is usually reduced to writing – the fourth factor under Winston. The Second Circuit had determined that settlements are usually required to be in writing or on the record in open court. Moreover, under New York CPLR §2104, a settlement must either: (1) be memorialized in a signed writing; (2) made orally between counsel in open court; or (3) reduced to the form of an order and entered. None of those steps was taken here. Slip op. 20.
IRS Loses A Round In Bankruptcy Court
In United States v. Bond, as Liquidating Trustee, 09 CV 1824 (EDNY, Oct. 7, 2009), Judge Townes denied for want of jurisdiction an IRS motion for leave to file an interlocutory appeal of Bankruptcy Court orders granting the Liquidating Trustee's motion for summary judgment, where one remaining issue relating to the IRS's claims was the subject of an ongoing evidentiary hearing.
n the bankruptcy proceedings, the judge had issued three orders in favor of the Liquidating Trustee granting motions to disallow the IRS's claims, leaving the issue on a 2001 Tax Refund unresolved and directing an evidentiary hearing on that issue alone. The IRS sought leave to appeal the issues decided in the Liquidating Trustee's favor, including: (1) bankruptcy court jurisdiction; (2) United States' statutory waiver of sovereign immunity; (3) its waiver of sovereign immunity by filing a claim; (4) the absence of any obligation by the Liquidating Trustee to file a tax refund request, when a refund is sought as a counterclaim to a proof of claim; (5) a directive enjoining the IRS to accept a tax return; (6) rejection of the IRS argument that the court's injunction violated the Anti-Injunction Act; (7) barring of the IRS's claim for taxes and interest for one period because it was filed after the administrative bar date; (8) denial of right to setoff and recoupment of tax refunds for time-barred claims; and (9) discharge of 2002 tax year liability.
The court applied the standards set forth in the statute applicable to motions for leave to appeal to the circuit courts, 28 U.S.C. §1292(b), because the statute applicable to bankruptcy appeals, 28 U.S.C. §158(a)(3), gives jurisdiction to the district courts to hear interlocutory appeals from bankruptcy court with leave of the court without specifying standards. Rejecting the United States' argument that a broader standard should apply, Judge Townes observed that '[b]ankruptcy courts and parties, including the United States, are better served by an articulable standard in this regard rather than a 'whatever-fits-the-judge's-fancy' test.' Slip op. 8. As Judge Townes also noted, interlocutory appeals are a 'rare exception' to the final judgment rule.
None of the issues the United States sought to appeal met the §1292(b) standard for interlocutory appeals, because the United States failed to demonstrate how an immediate appeal 'would materially advance the ultimate termination of the litigation.' Slip op. 13. The issues remaining to be resolved by the evidentiary hearing were the only matters outstanding in bankruptcy court, and after they are decided, the entire case will be ripe for appeal. The bankruptcy court is 'presumably on the eve of concluding its role in this litigation,' and an appeal of all the issues would result in an efficient and timely resolution of the case. Slip op. 16.
The United States also contended that it was entitled to an appeal as of right under the collateral appeal doctrine to the extent its claim of sovereign immunity had been denied. But as Judge Townes concluded, 'whether federal sovereign immunity confers a right not to be sued or solely a right to be free from liability is tethered to the specific statutory or constitutional basis for the immunity.' Slip op. 22. The Second Circuit has read the two statutory provisions (Bankruptcy Code, 11 U.S.C. §106(a)(1), (b) and APA, 5 U.S.C. §702) that the bankruptcy court applied here as a broad waiver of sovereign immunity, so the IRS has no appeal as of right.
Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.
[This article is reprinted with permission from the November, 2009, issue of the New York Law Journal. Copyright © 2009 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]