January 11, 2017

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

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 Arthur D. Spatt rejected a coram nobis petition challenging, in light of post-trial developments, the reliability of a government expert witness in a coin fraud case. Judge Spatt also vacated a default judgment in a bankruptcy proceeding. And Judge Kiyo A. Matsumoto denied defendant's request for discovery and a bill of particulars in a criminal case.

Coram Nobis: Expert Reliability

In  Du Purton v. United States, 15 CV 1026 (EDNY, Dec. 16, 2016), Judge Spatt denied a petition for a writ of error coram nobis, 28 U.S.C. §1651(a), relating to petitioner's 2001 fraud conviction for selling rare coins at inflated prices. The petition attacked the reliability of an expert trial witness for the government whose post-trial appraisal of petitioner's coin inventory in connection with forfeiture proceedings was vastly lower than the eventual auction sales price.

Having served his 51-month custodial sentence, petitioner's only recourse was coram nobis, which requires a showing of "extraordinary" circumstances or "fundamental" error.

Petitioner owned four coin-selling companies. The key issue at trial was the "grade" of his coins, turning on factors such as luster, visual appeal and lack of defects. A two-point increase in grade, from 64 to 66, may increase value tenfold. The Professional Coin Grading Service has attempted to prescribe grading standards

The 702 coins offered at trial were owned by petitioner's customers (the trial coins). Petition also had a separate inventory of 26,600 coins confiscated by the government (the inventory coins).

Two experts testified for the government. Both graded the trial coins, but only one, Anthony Swiatek, appraised them. Both experts concluded that most of the trial coins were highly over graded. In addition to his jail sentence, petitioner was ordered to pay $1,873,819 in restitution, jointly and severally with his co-defendants.

During the sentencing phase, the court permitted the government to sell the inventory coins at public auction. In 2001, right after the trial, Swiatek valued them at $430,000. Nine years later they were sold at public auction for $1,827,176. The time lapse does not explain this radical disparity. Over those nine years, coin prices went up only 23 percent.

The chronology of events is relevant to the timeliness of the petition.

  • October 2005: Petitioner began serving his sentence.
  • February 2009: The court entered an order of forfeiture, authorizing the sale of the inventory coins.
  • December 2010: The inventory coins were sold at auction.
  • November 2013: Petitioner asked the government to disclose the balance remaining on his restitution payment.
  • March 2014: In response, the government told petitioner that about 10 percent of the restitution payment was still owing.
  • April 2014: Petitioner allegedly first learned of the auction sales price and retained counsel to retrieve documents.
  • February 2015: The coram nobis petition was filed, arguing that Swiatek's methodology was "grossly unreliable" in light of the auction prices.

As Spatt found, petitioner failed to offer "sound reasons" for the delay in seeking coram nobis relief. He waited more than three years to inquire about the public auction. And he waited ten months after learning of the auction sales price to file his petition.

In any event, the challenge to Swiatek's methodology was without merit. Aside from the attempt to relitigate arguments made on direct appeal, "Swiatek's practices are widely accepted in the coin industry and are based on objective sources[.]" Slip op. 8. In another coin fraud case, the Second Circuit upheld the admission of Swiatek's testimony.  United States v. Romano, 79 F.3d 317 (2d Cir. 2015).

Even without that testimony, there was enough evidence to support petitioner's conviction-including the testimony from the other expert and from petitioner's employees and customers. Slip op. 9-10.

Default Judgment Vacated

In  Citizens Bank v. Decena, 16 CV 1918 (EDNY, Nov. 29, 2016), Judge Spatt vacated an entry of default judgment in a bankruptcy adversary proceeding, illustrating that even a party with sympathetic facts cannot rely on actual notice to cure a service defect.

Appellant Citizens Bank lent Debtor/Appellee Lorelei Decena $161,591.19 to attend St. Christopher's College of Medicine (St. Christopher's), "a Senegalese institution, with a campus located in the United Kingdom." Upon her acceptance, St. Christopher's sent Decena a loan application with certain information pre-preprinted, including a six-digit code, purportedly taken from the Federal School Codes list that identifies all postsecondary schools that, after vigorous vetting, have been deemed eligible for federal student aid. Decena took this to mean that St. Christopher's was "an eligible educational institution in the eyes of the federal government" when, in fact, "not only was St. Christopher's not included on the Federal School Codes List, but it was also neither licensed nor accredited as a postsecondary educational institution." Slip op. 2.

Decena received a series of loans from Citizen's Bank to fund her education at St. Christopher's. After graduating in 2004, she learned that she would not be allowed to sit for her medical boards in the United States. She filed for bankruptcy in 2015, received a discharge, and commenced an adversary proceeding to specifically declare her debt toward Citizens Bank discharged. When Citizens Bank did not answer the complaint or an amended complaint, the Clerk of the Court noted its defaults, and Decena sought entry of a default judgment. Citizens Bank then appeared for the first time, through counsel, and objected that, under Fed. R. Bank. P. 7004(h), service upon "an insured depository institution" such as the bank must be made by certified mail, while the service up to that date had all been by regular mail. Slip op. 3-6.

The bankruptcy court granted the default judgment, noting the bank's actual notice of the adversary proceeding by first class mail and its failure to answer. Spatt reversed. Because it was not properly served by certified mail, the bank had no obligation to answer. Fed. R. Bankr. P. 7004(h)(1), which allows service by first class mail on an insured depository institution that has appeared by counsel, could not be applied to validate service effected before counsel's first appearance. Slip op. 12-15.

Congress had required certified mail service on such institutions specifically to protect them from the risk of defaults resulting from service by regular mail: "It seems that the more stringent service requirements applicable to insured depository institutions were implemented precisely to avoid situations like this one." Slip op. 12.

Discovery in Criminal Cases

In  United States v. Shkreli, 15 CR 637 (EDNY, Dec. 14, 2016), Judge Matsumoto denied motions made by defendant Evan Greebel, an attorney, for disclosure of  Brady materials and for a bill of particulars. The opinion discusses basic discovery procedures in criminal cases.

Greebel and Martin Shkreli were charged with wire and securities fraud resulting from efforts to defraud Retrophin and its investors. In his motion, made more than six months before trial, Greebel sought immediate disclosure, inter alia, of FBI reports and notes; evidence that Shkreli lied and did not follow Greebel's advice or that of other counsel, and that Greebel was not Shkreli's personal attorney; all statements by Shkreli to the government; and impeachment evidence against government witnesses. Greebel also asked the government to identify exculpatory information within the three million pages it has produced.

Brady v. Maryland, 373 U.S. 83 (1963), requires the government to provide defendants with evidence that is exculpatory or useful for impeachment in sufficient time for its effective use at trial. Matsumoto denied Greebel's request for  Brady materials because the government had made repeated good faith representations that it "has complied with said obligations and will continue to do so in a timely manner," and the court had no reason to believe that the government would not do so. Slip op. 6. Greebel also had no right to witness statements and  Giglio impeachment material before trial, let alone six months before trial. Finally, while the Jencks Act, 18 U.S.C. §3500(a), requires the government to produce any statement of a witness relating to the subject matter of the witness's testimony, "no witness statement or report in the possession of the Government shall be 'the subject of subpoena, discovery, or inspection' until the witness has testified on direct examination at trial." Slip op. 8.

Greebel's motion for a bill of particulars pursuant to Fed. R. Crim. P. 7(f) fared no better. As the court explained, the government had already provided defendant "with sufficient information to satisfy the three-fold purpose of a bill of particulars[:]"

the "speaking" Superseding Indictment, the Crime Fraud Affidavit, the Crime Fraud Emails, the Government's September 30, 2016 Letter and the Government's multiple other pre-trial disclosures, including representations by the Government at meetings and conversations with defense counsel and during the oral argument on October 14, 2016, are sufficiently detailed to allow Mr. Greebel to prepare for trial, avoid surprise and to interpose a plea of double jeopardy should he be prosecuted a second time for the same offense. Accordingly, Mr. Greebel's motion for a bill of particulars is denied in its entirety.

Slip op. 11, 23.

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.