United States v. Dupree

• Decision Date: 28 January 2013
• Docket Number: No. 11–5115–cr.,11–5115–cr.
• Citation: 706 F.3d 131
• Parties: UNITED STATES of America, Appellant, v. Courtney DUPREE, Defendant–Appellee, Thomas Foley, Rodney Watts, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

706 F.3d 131

UNITED STATES of America, Appellant,

v. Courtney DUPREE, Defendant–Appellee,Thomas Foley, Rodney Watts, Defendants.

No. 11–5115–cr.

United States Court of Appeals,Second Circuit.

Argued: Aug. 30, 2012.

Decided: Jan. 28, 2013.

Michael Yaeger (Peter A. Norling, on the brief), Assistant United States Attorneys, on behalf of Loretta E. Lynch, United States Attorney for the Eastern District of New York, Brooklyn, N.Y., for Appellant.

Meena Sinfelt (Roscoe C. Howard, Jr., Leasa W. Anderson, on the brief), Andrews Kurth LLP, Washington, D.C., for Defendant–Appellee.

Before: WINTER, RAGGI, and LIVINGSTON, Circuit Judges.

DEBRA ANN LIVINGSTON, Circuit Judge:

The government appeals from a November 23, 2011 order of the United States District Court for the Eastern District of New York (Matsumoto, J.) denying its motion in limine to admit a state court temporary restraining order as evidence against Defendant–Appellee Courtney Dupree. The government argues that it is not seeking to admit the order for the truth of any assertion it may contain, but only as evidence that Dupree knew of, and intended to violate, a contractual obligation to maintain funds at Amalgamated Bank when he executed a series of withdrawals and money transfers that deprived the Bank of property to which it was entitled in alleged violation of 18 U.S.C. § 1344.

Because the government is seeking to admit the state court order for a non-hearsay purpose and because the district court's analysis pursuant to Federal Rule of Evidence 403 did not account for the order's probative value if offered to show knowledge, we vacate the district court's order and remand for the district court to conduct a Rule 403 analysis consistent with this opinion.

Background

Defendant–Appellee Courtney Dupree (“Dupree”) is the former Chief Executive Officer and President of GDC Acquisitions (“GDC”), a holding company which owns several subsidiary companies. In 2008, Dupree negotiated a Credit Agreement between Amalgamated Bank (“Amalgamated”), GDC, and three GDC subsidiaries. The Credit Agreement provided the GDC subsidiaries a term loan and revolving lines of credit worth $21 million in total. The loans were secured in part with the subsidiaries' accounts receivable and bank deposits. The accompanying Security Agreement included the accounts receivable and deposits in its definition of collateral, and the Credit Agreement itself required the subsidiaries to maintain operating accounts at Amalgamated and to deposit their revenues into those accounts.

On July 23, 2010, Thomas Foley, GDC's Chief Operating Officer and outside counsel, Rodney Watts, GDC's Chief Financial Officer and Chief Investment Officer, and Dupree were arrested for bank fraud in connection with the 2008 Credit Agreement. The government alleged that Dupree and his codefendants fraudulently secured credit loans from Amalgamated by intentionally inflating the subsidiaries' accounts receivable. The government also alleged that defendants further defrauded Amalgamated by having GDC covertly purchase another company in violation of the Credit Agreement.

On the day of the arrests, Amalgamated sent Dupree a letter informing him that it considered the loan to be in default, and that it was exercising its right under the Credit Agreement to accelerate the loan and demand payment in full of the roughly $18 million outstanding balance. Not convinced that GDC would adhere to the terms of the Credit Agreement, including the requirement that the subsidiaries maintain their accounts at the Bank, Amalgamated brought suit for breach of the Credit Agreement and sought a temporary restraining order in New York County Supreme Court that would, inter alia, enjoin GDC, Dupree, and the subsidiaries, among others, from removing any assets required to be maintained at the Bank other than in the ordinary course of business.

On August 4, 2010, New York Supreme Court Justice Shirley Kornreich issued the requested restraining order (“the Order” or “the August 4 Order”). In relevant part, the Order “temporarily restrained and enjoined [GDC, Dupree, and the three subsidiaries, among others] from moving, removing, transferring, encumbering or otherwise taking any further action to the detriment of plaintiffs with respect to any assets of [GDC and its subsidiaries], including the Collateral ... other than in the ordinary course of business.” ¹ The Order also required “[a]ll collection” to be deposited into an account at Amalgamated Bank.

As relevant here, the grand jury returned a superseding indictment on March 25, 2011. While the first four counts of this indictment stemmed from material misrepresentations made on the loan application and actions taken prior to Dupree's arrest, the fifth count was directed solely at Dupree and arose from his course of conduct after the August 4 Order issued. The government alleges that Dupree knew that the Credit Agreement provided Amalgamated a security interest in the subsidiaries' deposits and that he knowingly and intentionally executed a scheme to defraud Amalgamated of this interest in violation of 18 U.S.C. § 1344. Dupree's alleged fraudulent scheme consisted of converting one of the subsidiary company's revenues for his own personal use, either by withdrawing money in cash from the subsidiary's funding account or by transferring money from that funding account to his personal accounts, all without giving notice to Amalgamated. All told, the government alleges that Dupree converted approximately $331,000 to his personal use in the period after his arrest, using the funds to pay for rent, a car lease, various mortgages, and other expenses.

Dupree moved to dismiss Count Five of the superseding indictment, arguing that the government relied on an alleged violation of the August 4 Order in asserting that he had committed bank fraud, which was not a proper basis on which to ground Section 1344 liability. The district court agreed, concluding that bank fraud “cannot be premised solely on a violation of a state court order” and that because Count Five “allege[d] only that defendant Dupree defrauded Amalgamated via the state court's order,” the Count was insufficiently pled. The district court dismissed Count Five without prejudice and with leave to refile, indicating that a bank fraud charge could properly be premised on a scheme to evade the Credit Agreement's provision obligating the subsidiaries “to maintain operating accounts with, and deposit all of their revenue with Amalgamated.” The government did not appeal the dismissal of Count Five, but rather sought and obtained a second superseding indictment in which Count Five was modified specifically to reference this provision in the Credit Agreement.

On October 3, 2011, the government filed a motion in limine seeking, inter alia, to admit the August 4 Order as evidence that Dupree had knowledge of his obligations under the Credit Agreement and that he intended to evade these obligations and to defraud Amalgamated when he executed his withdrawals and transfers. The district court denied this motion, holding the Order was inadmissible hearsay because the government was seeking to introduce the Order for its truth—in the district court's view, to show that the Order created an independent obligation to maintain the accounts at Amalgamated. The district court also noted that even if the August 4 Order were admissible under a hearsay exception, the court would still exclude it under Federal Rule of Evidence 403 on the ground that the dangers of unfair prejudice and confusion of issues from its admission substantially outweigh its probative value. The government timely filed this interlocutory appeal pursuant to 18 U.S.C. § 3731, divesting the district court of its jurisdiction over the fifth count of the second superseding indictment. The case proceeded to trial as to Dupree on the remaining four counts and he was convicted on each of them.

Because we conclude that the August 4 Order is not hearsay and is probative of Dupree's state of mind at the time he allegedly diverted funds the Credit Agreement required to be maintained at Amalgamated, we vacate the district court's order and remand for the district court to conduct a Rule 403 balancing inquiry consistent with this opinion.

Discussion

We review a district court's evidentiary rulings deferentially, reversing only for abuse of discretion. United States v. Quinones, 511 F.3d 289, 307 (2d Cir.2007). A district court abuses its discretion when “(1) its decision rests on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding, or (2) its decision—though not necessarily the product of a legal error or a clearly erroneous factual finding—cannot be located within the range of permissible decisions.” Zervos v. Verizon N.Y., Inc., 252 F.3d 163, 169 (2d Cir.2001).

1. Waiver

As a threshold matter, Dupree contends that the government failed to argue that the August 4 Order is admissible non-hearsay evidence before the districtcourt, thereby waiving this claim on appeal. As a general rule, we will not consider matters raised for the first time on appeal. See Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 527 (2d Cir.1990). Here, however, the government's motion in limine asserted that it was seeking to admit the August 4 Order “to prove Dupree's knowledge,” and not for its truth. While the government also cited Federal Rule of Evidence 803(8), which provides a hearsay exception for some public records, and its motion papers are not a model of clarity in assessing the Rule 803(8) argument in the alternative, the government's papers specifically cite those portions of the district court's opinion dismissing Count Five as originally pled that note the August 4 Order “is potentially relevant to show defendant Dupree's knowledge and intent to violate the Agreement to maintain all operating accounts at the Bank and deposit all of the...