November 13, 2014

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

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 Edward R. Korman declined to invalidate directives relating to the search and detention of laptop computers at border crossings.  Judge Jack B. Weinstein dismissed a variety of claims against an "assisted living facility" that allegedly misrepresented the date of its licensing.  Judge Frederic Block imposed restitution and forfeiture as concurrent penalties in a criminal case.  And Judge Allyne R. Ross dealt with issues of collateral estoppel in a RICO case in light of a prior acquittal on related charges.

Border Search — Laptops

In Abidor v. Napolitano, 10 CV 04059 (EDNY, Dec. 31, 2013), Judge Korman granted a motion to dismiss a challenge to regulations adopted by the Department of Homeland Security (DHS) authorizing agents to inspect the electronic devices, including laptop computers, of travelers entering the United States.

In August 2009, U.S. Immigration and Customs Enforcement (ICE) and U.S. Customs and Border Protection (CBP), components of DHS, issued directives allowing agents at border crossings to inspect files stored on electronic devices, to search and detain the devices for a reasonable time, and to copy stored information. These steps may be taken without reasonable suspicion of unlawful activity.

Plaintiffs — one Pascal Abidor, the National Association of Criminal Defense Lawyers (NACDL), and the National Press Photographers Association (NPPA) — sought a declaratory judgment that the directives violate the First and Fourth Amendments, and an injunction blocking defendants from searching and detaining electronic devices at the border without reasonable suspicion. Plaintiffs also challenged the directives as applied to the search and detention of Abidor's laptop when he crossed the Canadian border.

The directives regulate and circumscribe the conduct of the searches. For instance, they seek to impose reasonable limits on how long devices can be detained, the CBP directives require supervisory approval in certain circumstances to retain a device or information from it, and the directives of both agencies have special provisions relating to privileged or other sensitive information, such as legal materials, medical records, and materials carried by journalists.

Abidor was a 26-year-old graduate student in Islamic studies at McGill University. He told a CBP officer inspecting his customs declarations that he had lived briefly in Jordan and visited Lebanon the previous year. His visas to those two countries were contained not in his U.S. passport, but in a French passport that he was also carrying. The officer turned on Abidor's laptop and saw photos depicting rallies of Hamas and Hezbollah, both designated by the State Department as terrorist organizations. Abidor explained that he was researching the modern history of Shiites in Lebanon. This did not explain why he saved the pictures of Hamas, a terrorist organization not composed of Shiites or based in Lebanon.

Abidor alleged that his laptop was searched during the five hours of his detention. The laptop was then retained by CBP for further inspection. His laptop and external drive were returned to him 11 days later by mail.

Abidor claimed that he now "self-censors" the information stored on his computer. The NACDC and NPPA claimed that the specter of laptop searches interfered in various ways with their work.

The complaint challenged both "quick look" searches of computers and "comprehensive forensic examinations" of computer hard drives.

To establish standing, plaintiffs had to show an actual or imminent or "certainly impending" injury, not one that is "conjectural or hypothetical." Here, there was not even a "substantial risk" that their computers would be subject to a search or seizure without reasonable suspicion. The available statistics show "less than a one in a million chance that a computer carried by an international traveler will be detained." Even including "quick looks," there is "less than a five in a million chance that their computer will be subject to any kind of search." Slip op. 14.

Korman agreed with the U.S. Court of Appeals for the Ninth Circuit that, as a matter of "common sense" and limited government resources, full forensic searches will take place "only when reasonable suspicion is aroused." United States v. Cotterman, 709 F.3d 952, 967 n. 14 (9th Cir. 2013). The search there — and Abidor's — were both based on reasonable suspicion. Slip op. 15. A potential widespread dragnet would be "troublesome," Cotterman, 709 F.3d at 966, but such a speculative development is not a basis for standing.

"[C]losely related principles of declaratory judgment law warrant dismissal." Slip op. 17. Delaying a decision here, moreover, would allow Congress and the Executive Branch to respond to any future abuses of the CBP and ICE directives — which show (a) "efforts to cabin the nature and extent" of searches, and (b) sensitivity to privileged and private information.

Plaintiffs are wrong in thinking that a "reasonable suspicion" requirement would "guarantee" confidentiality to their sources. Even apart from the risk of loss or theft of laptop computers, Abidor "surely" "cannot be so naïve to expect that when he crosses the Syrian or Lebanese border, the contents of his computer will be immune from searches at the whim of those who work for Bashar al-Assad or Hassan Nasrallah." Slip op. 22-23.

Though finding no standing, the court addressed the merits to complete the record. While a person entering the United States is normally subject to search by that fact alone, Korman agreed with the Ninth Circuit in Cotterman that a comprehensive forensic search of a computer at a border crossing would require reasonable suspicion if such searches "threaten to become the norm." Slip op. 30.

Many factors provided reasonable suspicion for both the quick look and comprehensive searches of Abidor's electronic devices. Slip op. 31-32. By way of limited example, even if his purported Ph.D. thesis — Shiites in Lebanon — explained the pictures of Hezbollah, it did not explain why he saved the pictures of Hamas.

Assisted Living Facility

In Boykin v. 1 Prospect Park ALF, LLC, 12 CV 6243 (EDNY, Jan. 21, 2014), Judge Weinstein granted summary judgment dismissing claims brought on behalf of residents in an "assisted living facility" that allegedly misrepresented itself as licensed by the State of New York.

Plaintiffs were the representatives of three residents of Prospect Park Residence, which referred to itself as an "assisted living facility" and allegedly represented that it was licensed as such from 2006 forward. The residence was not so licensed until November 2012. Plaintiffs brought a variety of state and federal claims against companies affiliated with its ownership, operation, finances or management. The court's decision followed an evidentiary hearing on defendants' motions for summary judgment and plaintiffs' motion for class certification.

Plaintiffs' claim under Article 46-B of the New York Public Health Law (PHL) was dismissed because that Article contemplates administrative enforcement, not a private cause of action. "Whatever the potential benefits of a private enforcement model, it is not the approach established when the New York Legislature vested the Commissioner [of Public Health] with responsibility to ensure the effective operation of the laws and complex institutional arrangements for the aged and others needing special protection." Slip op.18. Plaintiffs also misplaced their reliance on PHL §2801 — which creates a private right of action with respect to "public health facilities" — because PHL §4651 excludes "assisted living facilities" from the definition of "public health facilities." Slip op. 15-16.

The remaining state law claims — for negligence per se, breach of contract, common law fraud, violations of N.Y. General Business Law §§349 and 350, and unjust enrichment — failed to show a triable issue with respect to damages, a necessary element of each. Plaintiffs relied on evidence that some of them paid higher than the average rent in Brooklyn to argue that they were charged a premium for licensed status. This failed to account for the premium associated with their prime location near Prospect Park or for the meals and other services provided them, and there was no showing that they received lesser accommodation or service due to the lack of licensing or that licensed and unlicensed facilities charged different rates. Slip op. 18-26.

Claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §1961 et seq., failed to show a triable issue regarding either damages or a "pattern of racketeering activity" based on mail fraud predicates. Such a pattern requires a "scheme to defraud." The residence functioned as an "assisted living facility" at all relevant times, and there was insufficient evidence that plaintiffs drew any justifiable inference of licensing from defendants' statements. Slip op. 29-31.

Weinstein dismissed plaintiffs' claims under 42 U.S.C. §1983, alleging deprivation of a right created by the Federal Nursing Home Reform Amendments, 42 U.S.C. §§1395i-3, 1396r, because defendants were not acting under color of state law. Slip op. 32-33.

As all of plaintiffs' claims were dismissed, the court did not reach their motion for class certification.

Restitution and Forfeiture

In United States v. Cohan, 97 CR 841 (EDNY, Dec. 23, 2013), Judge Block determined that restitution and forfeiture may be imposed concurrently as part of a judgment of conviction, but that restitution payments should be satisfied before the government executes on its amended forfeiture order.

Defendant is subject to a forfeiture judgment of $600,000 and a restitution judgment of $607,186 arising from a guilty plea to health care fraud and aggravated identity theft. The victims were the Port Authority of New York & New Jersey and Align Technology. He contended that "the government should be estopped from enforcing the restitution judgment by virtue of an alleged promise it made to apply forfeited funds to restitution." In the plea agreement, defendant agreed to both restitution and forfeiture. Defendant forfeited specific assets and agreed that the government could execute on the forfeiture judgment. The plea agreement also contained a merger clause stating: "This agreement supersedes all prior promises, agreements or conditions between the parties."

Although it is well settled that restitution and forfeiture may be imposed concurrently, defendant had understood that the government intended to allocate seized forfeiture funds to defendant's restitution obligation. Denying any such representation, the government stated that Department of Justice policy "limits its discretionary authority to apply forfeited funds to restitution obligations to cases in which the defendant otherwise lacks the resources to pay restitution." Slip op. 4.

The government has collected a total of $222,054 against the forfeiture judgment, leaving a balance of $377,946. Defendant paid a total of $675 toward restitution during his incarceration and then made no further payments. In the meantime, the government has sought to garnish defendant's accounts at Stifel, Nicolaus & Company ($559,624) and Financial Network Investment Corporation ($67,876).

As the court explained, forfeiture and restitution each serve a different purpose, so they may be imposed concurrently. Criminal forfeiture involves disgorgement of ill-gotten gains, while the purpose of restitution is to compensate victims. Forfeited assets become property of the United States, and restitution is paid to the victims. Because the plea agreement here did not include any commitment by the government to apply forfeited funds to defendant's restitution obligation, the merger clause barred the introduction of any contradictory extrinsic evidence.

Based on the submissions and testimony at the hearing, the court inferred that "any statements that the forfeited funds would eventually be turned over to the Port Authority were premised on the assumption that [defendant] lacked sufficient assets to satisfy both his forfeiture and restitution obligations." Slip op. 9. Subsequent events showed that defendant does have sufficient assets to satisfy both the forfeiture and restitution obligations. Thus, defendant must satisfy those obligations separately.

In determining the order of payment regarding assets that had not yet been allocated for forfeiture, priority should be given to restitution. Accordingly, "the Court will sign the proposed second amended forfeiture order, with the proviso that the government not execute the order until [defendant's] restitution obligation is satisfied in full." Slip op. 12. (Ronald Russo, who is affiliated with the authors' firm, represented defendant in this proceeding. The proceeding below is terminated, and Russo no longer represents defendant.)

Racketeering Acts

In United States v. Mayes, 12 CR 385 (EDNY, Jan. 2, 2014), Judge Ross held that collateral estoppel did not require dismissal of seven racketeering acts alleged against defendant Antoine Mayes, but that the jury should be instructed not to consider these seven acts in assessing whether the government met its burden of proving beyond a reasonable doubt one particular element of the charged racketeering conspiracy.

Antoine Mayes had pleaded guilty to seven cocaine base sales in a prior federal court proceeding. This plea came before a trial where the jury was told of those sales as evidence of a charged conspiracy. Antoine Mayes and his brother Anthony Mayes were acquitted of the conspiracy charge on June 6, 2012.

On June 7, 2012, the grand jury returned the first of three indictments in this case, alleging the seven cocaine distributions to which Antoine Mayes had pleaded guilty among the predicate acts for the RICO conspiracy and substantive RICO charges. Antoine Mayes moved to dismiss those racketeering acts on the ground that both Mayes brothers had been acquitted of any cocaine base conspiracy during a time frame that encompassed those seven sales.

The court first considered whether the issue Antoine Mayes sought to foreclose was necessarily decided in his favor: "By acquitting both defendants of [the conspiracy] charge, the jury necessarily determined that the government had not proven beyond a reasonable doubt the existence of an agreement between the two brothers to distribute cocaine base on any of the seven occasions that were the subject of Antoine Mayes's guilty pleas." Slip op. 5. The court viewed what the prior jury verdict necessarily determined as narrow—the acquittal did not say anything "about whether they agreed to engage in a conspiracy involving a different type of narcotic drug, or a narcotics conspiracy spanning a distinct time frame, or a conspiracy to commit an entirely different crime, such as the RICO conspiracy alleged in this case." Slip op. 7.

Concerning the substantive RICO count, the government must prove the existence of an enterprise, the nexus of the enterprise with interstate commerce and the defendant's participation in the enterprise through a pattern of racketeering activity consisting of at least two predicate acts. Here, the government was free to use Antoine Mayes' guilty pleas to the sales of cocaine to prove the substantive RICO offense, notwithstanding the jury's acquittal on related conspiracy charges, because he "could have conducted narcotics sales independently, without the unlawful agreement required for a conspiracy, but those sales could nonetheless have furthered an enterprise of which Anthony Mayes was also a member." Slip op. 10.

Next, to prove a RICO conspiracy, the government must prove an agreement to participate in the enterprise's affairs through a pattern of racketeering activity through the commission of two or more predicate acts. The government does not need to prove defendant's intention to commit two acts to further the enterprise, but only the agreement to commit the acts. The court concluded:

the government is barred by collateral estoppel only from using Antoine Mayes's guilty pleas to the seven cocaine base distributions to prove that the Mayes brothers entered into an unlawful agreement that one or more members of the enterprise would commit two predicate acts, because a prior jury determined that the government did not prove such an agreement between the brothers with regard to those sales. Slip op. 14.

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 February 14, 2014, issue of the New York Law Journal.  Copyright © 2014 ALM Properties, Inc.  All rights reserved.  Further duplication without permission is prohibited.]