518 F.3d 775 (10th Cir. 2008), 06-3383, United States v. Ary

Docket Nº:06-3383.
Citation:518 F.3d 775
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. Max L. ARY, Defendant-Appellant.
Case Date:March 04, 2008
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 775

518 F.3d 775 (10th Cir. 2008)

UNITED STATES of America, Plaintiff-Appellee,


Max L. ARY, Defendant-Appellant.

No. 06-3383.

United States Court of Appeals, Tenth Circuit.

March 4, 2008


Page 776

[Copyrighted Material Omitted]

Page 777

[Copyrighted Material Omitted]

Page 778

Stephen M. Joseph, Joseph & Hollander PA, Wichita, KS, for Defendant-Appellant.

Page 779

Eric F. Melgren, United States Attorney (Debra L. Barnett, Assistant United States Attorney, and Annette B. Gurney, Assistant United States Attorney, with him on the brief), District of Kansas, Wichita, KS, for Plaintiff-Appellee.

Before MURPHY and O'BRIEN, Circuit Judges, and KANE, [*] District Judge.

MURPHY, Circuit Judge.

Max L. Ary was convicted on numerous counts of mail and wire fraud, theft of government property, transportation of stolen property, and money laundering.1 Ary's convictions stem from various transactions involving space artifacts. He appeals his convictions, arguing the district court erred (1) by concluding Ary waived the work-product protection and attorney-client privilege; and (2) by allowing the introduction of hearsay evidence at trial. Ary also appeals his sentence, claiming the district court erred in its calculation of loss. Exercising jurisdiction pursuant to 18 U.S.C. § 3742 and 28 U.S.C. § 1291, we affirm.

I. Background

Ary was the President and Chief Executive Officer of the Kansas Cosmosphere and Space Center ("Cosmosphere"), a space museum in Hutchinson, Kansas. He was hired to manage the museum in 1976 and was continuously employed by the Cosmosphere until he resigned in 2002 and moved to Oklahoma City, Oklahoma. The Cosmosphere is home to a significant collection of United States and Soviet space artifacts. Many of the artifacts in the Cosmosphere collection are owned by the museum and were either purchased by or provided to the museum by private donation. Others are provided to the museum on loan from institutions such as the Smithsonian, the United States Air Force, the National Air and Space Museum, the International Space Hall of Fame, and the National Aeronautics and Space Administration ("NASA").

Following Ary's departure from the Cosmosphere, the museum discovered some items in its collection, which were on loan from NASA, were missing. Further investigation revealed the items had been sold at auction through Superior Galleries, an auction house located in California. The museum, however, had not been paid for the missing NASA items sold at auction. Around 1999, Ary established two accounts with the auction house. The first was in the Cosmosphere's name and was used to sell items on behalf of the museum. The second was a personal account in Ary's name. When the Cosmosphere contacted the auction house, it learned Superior Galleries sold these items through Ary's personal account. The proceeds, therefore, were mailed to the defendant and not the Cosmosphere. Over the span of several years, Ary sold numerous space artifacts belonging to the Cosmosphere and the United States Government.

A. Attorney-Client Privilege and Work-Product Doctrine Claims

Ary soon learned he was under investigation and sought legal counsel. He hired Attorney Lee Thompson, who informed

Page 780

the United States Attorney and the Criminal Chief for the District of Kansas that he represented the defendant. Thompson instructed Ary to prepare notes and summaries of his involvement with the sale of artifacts at the Cosmosphere. Ary also collected items from his house belonging to the Cosmosphere, placed them in three boxes, and delivered them to Thompson.

On December 18, 2003, a federal search warrant was executed at the defendant's residence in Oklahoma City, Oklahoma. The agents executing the warrant seized eleven boxes, some of which were labeled "Artifacts." Several items in these boxes were Cosmosphere artifacts. Agents also seized two computers, a black plastic file box containing documents and other miscellaneous documents. Several days later, Ary's defense counsel, Thompson, turned over the three boxes Ary had previously delivered to him.

Following the search of Ary's home, Thompson wrote to Assistant United States Attorney ("AUSA") Debra Barnett on December 22, 2003, and advised her that it "appears as though the search resulted in the seizure of computers and other files containing what is clearly attorney client privileged communications" and urged "that immediate steps be taken to avoid purposeful intrusion by the government into the attorney-client relationship and communications." A second letter was sent on January 5, 2004, identifying files and other items counsel believed to be privileged. AUSA Barnett sent Thompson a letter dated January 28, 2004, in which she included a Compact Disc copy of the computers' files and informed Thompson that a "taint team" had determined several computer files were privileged. The letter assured Thompson the material "will not be reviewed or examined by [Barnett] as part of this investigation." Further, AUSA Barnett informed Thompson that the taint team had been asked to review numerous files that were currently in FBI possession and would contact Thompson when the review was complete.

On February 13, 2004, Thompson was informed that the review was complete and the government returned additional items it deemed privileged. Following this meeting, there were no further communications regarding privileged material and no additional items were returned to Ary. Over a year later, on May 25, 2005, Thompson went to the United States Attorney's office to review Rule 16 discovery materials. Fed. R. Crim. P. 16(a)(1)(E). One of the items provided for review was a container titled "One black plastic box containing misc. documents." The contents of the box included tax returns, calendars and a number of individual file folders containing numerous summaries and analyses of items sold at auction and related information pertaining to Ary's status with the Cosmosphere. A second box, labeled "Box 2," contained files categorized by the names of items sold at auction and was prepared by the government's investigative agents. Each file in the box contained copies of printed and handwritten notes that were also found in the black plastic box. Many of these documents were originally printed from the contents of the computers and indexed under headings such as "Lee Thompson Information" or "Court Case." Defense counsel made a photocopy of these documents but did not immediately review them or inform the United States Attorney's Office that the contents of these boxes might contain privileged information.

On July 15, 2005, the defendant moved to suppress any use of the documents in the two boxes. Ary claimed the files in the black plastic box were prepared in anticipation of litigation and were similar to the documents the government conceded

Page 781

were privileged and returned to Ary. Ary further complained these documents were found in the investigative files used by the government. The district court examined the documents in camera and determined the "vast majority of these documents are records that would be viewed by third parties and thus not protected under attorney-client privilege." United States v. Ary, No. 05-10053-01, at 13, 2005 WL 2367541 (D. Kan. Sept. 27, 2005) (order denying motion to suppress). It determined, however, that the defendant's handwritten notations on the documents, as well as the way in which they were assembled, may raise the issue of work-product protection. Id. The district court nevertheless concluded that because counsel failed to raise the issue when he first reviewed the contents of the boxes at the Rule 16 discovery meeting he waived the protection. Id.

B. Introduction of Database Records

A jury trial commenced on October 18, 2005. Ary objected to the admission of the Cosmosphere's computer and paper inventory records concerning the stolen artifacts. These records were introduced to show the Cosmosphere or the government owned the artifacts in question. Ary argued the records were inadmissible hearsay. The court overruled Ary's objections, admitted the exhibits, and permitted Ary a continuing objection to all of the Cosmosphere's records on the basis of foundation and hearsay.

C. Calculation of Amount of Loss at Sentencing

The jury returned its verdict on November 1, 2005. The presentence report ("PSR") calculated Ary's base level pursuant to Section 2S1.1 of the U.S. Sentencing Guidelines Manual ("U.S.S.G."), which concerns money laundering. Under this guideline, the base offense level is determined from the guideline for the underlying offense, in this case theft and fraud. U.S.S.G. § 2S1.1(a)(1). The base offense level was therefore determined using Section 2B1.1, which concerns theft and fraud offenses.

Section 2B1.1 of the Sentencing Guidelines provides a base offense level of seven for crimes involving monetary transactions in property derived from unlawful activities and includes an enhancement based on the dollar value of loss. When the amount of loss exceeds $200,000, but is less than $400,000, the offense level is increased by twelve levels. Id. § 2B1.1(b)(1)(G). Because the PSR calculated the amount of loss to fall within this range, it recommended a twelve-level increase.

Ary objected to the PSR's loss calculation. First, Ary argued the PSR took into account items Ary sold at auction that were not included in the indictment. He argued ownership was not proved at trial or sentencing. Ary also objected to the use of "auction value" to fix the loss for the artifacts delivered to the government by Ary's lawyer and...

To continue reading