U.S. v. 09–3176)

• Citation: 631 F.3d 266
• Decision Date: 07 March 2011
• Docket Number: 08–4212,08–4087,Nos. 08–3997,08–4429,09–3176.,08–4085,s. 08–3997
• Parties: UNITED STATES of America, Plaintiff–Appellee,v.Steven WARSHAK (08–3997/4085; 09–3176); Harriet Warshak (08–3997/4087/4429); TCI Media, Inc. (08–3997/4212), Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

631 F.3d 266

UNITED STATES of America, Plaintiff–Appellee,

v.Steven WARSHAK (08–3997/4085; 09–3176); Harriet Warshak (08–3997/4087/4429); TCI Media, Inc. (08–3997/4212), Defendants–Appellants.

Nos. 08–3997

08–4085

08–4087

08–4212

08–4429

09–3176.

United States Court of Appeals, Sixth Circuit.

Argued: June 16, 2010.Decided and Filed: Dec. 14, 2010.Rehearing and Rehearing En Banc Denied March 7, 2011.

ARGUED: Martin S. Pinales, Strauss & Troy, Cincinnati, Ohio, Martin G. Weinberg, Boston, Massachusetts, for Appellants. Benjamin C. Glassman, Assistant United States Attorney, Cincinnati, Ohio, for Appellee. ON BRIEF: Martin S. Pinales, Candace Crouse, Strauss & Troy, Cincinnati, Ohio, Martin G. Weinberg, Boston, Massachusetts, Robert M. Goldstein, Boston, Massachusetts, for Appellants. Anne L. Porter, Assistant United States Attorney, Cincinnati, Ohio, for Appellee. Kevin S. Bankston, Electronic Frontier Foundation, San Francisco, California, for Amici Curiae.Before: KEITH, BOGGS, and McKEAGUE, Circuit Judges.BOGGS, J., delivered the opinion of the court, in which McKEAGUE, J., joined. KEITH, J. (pp. 333–36), delivered a separate opinion concurring in the result.

OPINION

BOGGS, Circuit Judge.

Berkeley Premium Nutraceuticals, Inc., was an incredibly profitable company that served as the distributor of Enzyte, an herbal supplement purported to enhance male sexual performance. In this appeal, defendants Steven Warshak (“Warshak”), Harriet Warshak (“Harriet”), and TCI Media, Inc. (“TCI”), challenge their convictions stemming from a massive scheme to defraud Berkeley's customers. Warshak and Harriet also challenge their sentences, as well as two forfeiture judgments.

Given the volume and complexity of the issues presented, we provide the following summary of our holdings:

(1) Warshak enjoyed a reasonable expectation of privacy in his emails vis-a-vis NuVox, his Internet Service Provider. See Katz v. United States, 389 U.S. 347, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967). Thus, government agents violated his Fourth Amendment rights by compelling NuVox to turn over the emails without first obtaining a warrant based on probable cause. However, because the agents relied in good faith on provisions of the Stored Communications Act, the exclusionary rule does not apply in this instance. See Illinois v. Krull, 480 U.S. 340, 107 S.Ct. 1160, 94 L.Ed.2d 364 (1987).

(2) The district court did not err in refusing to hold a full-fledged hearing under Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972), when determining whether government agents had improperly used privileged materials seized during a valid search of Berkeley's headquarters. Kastigar does not apply with full force outside the context of compelled testimony. See United States v. Squillacote, 221 F.3d 542 (4th Cir.2000).

(3) The district court did not abuse its discretion by failing to order the government to provide discovery in a different format, as Federal Rule of Criminal Procedure 16 is silent on the issue of the form that discovery must take. Moreover, the government did not duck its obligations under Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), by providing the defendants with massive quantities of discovery. See United States v. Skilling, 554 F.3d 529 (5th Cir.2009), vacated in part on other grounds, ––– U.S. ––––, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010). Finally, the district court did not err in refusing to grant the defendants a continuance so that they could continue examining the discovery materials turned over by the government.

(4) The district court did not err in refusing to grant Warshak a new trial based on an alleged Brady violation, as the purportedly exculpatory material did not rise to the level of materiality. See Kyles v. Whitley, 514 U.S. 419, 115 S.Ct. 1555, 131 L.Ed.2d 490 (1995).

(5) The district court did not err in refusing to grant the defendants a new trial on the basis of prosecutorial misconduct. Though the prosecution did make a number of improper remarks during its rebuttal argument, the remarks were not flagrant. See United States v. Carter, 236 F.3d 777 (6th Cir.2001).

(6) The evidence was sufficient to support Warshak's and Harriet's respective convictions for conspiracy to commit mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349. See Jackson v. Virginia, 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979). Those convictions are therefore sustained.

(7) The evidence was sufficient to support Warshak's convictions for mail fraud, in violation of 18 U.S.C. § 1341. Those convictions are therefore sustained.

(8) The evidence was sufficient to support Warshak's and Harriet's respective convictions for bank fraud, in violation of 18 U.S.C. § 1344. Furthermore, the district court did not err in instructing the jury that, under certain circumstances, the government may prove specific intent to defraud a bank by showing specific intent to defraud a third party. See United States v. Reaume, 338 F.3d 577 (6th Cir.2003). Those convictions are therefore sustained.

(9) The evidence was sufficient to support Warshak's conviction for conspiracy to commit access-device fraud, in violation of 18 U.S.C. § 1029. That conviction is sustained.

(10) The evidence was sufficient to support Warshak's and TCI's respective convictions for money laundering, in violation of 18 U.S.C. §§ 1956, 1957. Those convictions are affirmed. By contrast, the evidence was insufficient to support Harriet's money-laundering convictions. Those convictions are therefore reversed.

(11) The evidence was sufficient to support Warshak's conviction for conspiracy to obstruct an FTC proceeding, in violation of 18 U.S.C. §§ 371, 1505. As a consequence, that conviction is sustained.

(12) The district court did not err in refusing to order the government to reveal whether or not it had conducted any additional surreptitious searches of Warshak's emails or communications. The discovery afforded by Federal Rule of Criminal Procedure 16 is limited to the evidence referred to in its express provisions, United States v. Presser, 844 F.2d 1275, 1285 (6th Cir.1988), and those provisions do not encompass the information sought by the defendants.

(13) The district court failed to provide an adequate explanation of its determination that the defendants should be held accountable for $411 million in losses. See Fed.R.Crim.P. 32(i)(3)(B); United States v. White, 492 F.3d 380, 415 (6th Cir.2007). We therefore vacate Warshak's sentence and remand.

(14) The district court did not abuse its discretion in refusing to admit certain evidence during the forfeiture phase of the trial. Furthermore, the evidence was sufficient to support the proceeds-money and money-laundering forfeiture judgments against Warshak. In addition, the evidence was sufficient to support the proceeds-money forfeiture judgment against Harriet, but it was insufficient to support the money-laundering forfeiture judgment against her. Therefore, the proceeds-money forfeiture judgment is affirmed with respect to both Warshak and Harriet, and the money-laundering money judgment is affirmed with respect to Warshak, but reversed with respect to Harriet.

I. STATEMENT OF THE FACTSA. Factual Background

In 2001, Steven Warshak (“Warshak”) owned and operated a number of small businesses in the Cincinnati area. One of his businesses was TCI Media, Inc. (“TCI”), which sold advertisements in sporting venues. Warshak also owned a handful of companies that offered a modest line of so-called “nutraceuticals,” or herbal supplements.¹ While the companies bore different names and sold different products, they appear to have been run as a single business, and they were later aggregated to form Berkeley Premium Nutraceuticals, Inc. (“Berkeley”).² In Berkeley's early days, the company's workforce was relatively minute; the company employed approximately 12 to 15 people, nearly all of whom were Warshak's friends and family. Among them was his mother, Harriet Warshak (“Harriet”), who processed credit-card payments.

As the company grew, Warshak brought on additional employees to facilitate expansion, but he remained extremely “hands-on” with respect to the company's operations. In 2001, he hired James Teegarden, who eventually became Berkeley's Chief Operating Officer. Warshak also hired Shelley Kinmon to oversee the company's sales, later elevating her to the role of Vice–President. In 2002, Sue and Greg Cossman, Warshak's sister and brother-in-law, joined the company. Sue worked in Customer Care, where she dealt with customer complaints. Greg came in as the President of the company and thereafter functioned in various other capacities. That year also saw the hiring of Sam Grote, who was brought on board to work in the marketing department.

To sell its products, Berkeley took orders over the phone, but it also made sales through the mail and over the Internet. Customers purchased products with their credit cards, and their credit-card numbers were entered into a database along with other information. During sales calls, representatives would read from sales scripts,³ which listed the major points to cover during the transaction. Shelley Kinmon testified that Warshak had the final word on the content of the scripts. Often, the scripts would include a description of the desired product, as well as language intended to persuade more pliant customers to make additional purchases.

In the latter half of 2001, Berkeley launched Enzyte, its flagship product. At the time of its launch, Enzyte was purported to increase the size of a man's erection. The product proved tremendously popular, and business rose sharply. By 2004, demand for Berkeley's products had grown so dramatically that the company employed 1500 people, and the call center remained open throughout the night, taking orders at breakneck speed. Berkeley's line of supplements also expanded, ballooning from approximately four...