U.S. v. Falon

Decision Date06 February 1992
Docket NumberNo. 91-2120,91-2120
Citation959 F.2d 1143
PartiesUNITED STATES, Appellant, v. Paul FALON, a/k/a Peter Maitra, a/k/a Pradeep Kumar Maitra, Defendant, Appellee. . Heard
CourtU.S. Court of Appeals — First Circuit

Margaret R. Hinkle, Asst. U.S. Atty., with whom Wayne A. Budd, U.S. Atty., Boston, Mass., was on brief for appellant.

Daniel D. Gallagher with whom Kathryn S. Ragan, Boston, Mass., was on brief for defendant, appellee.

Before TORRUELLA, Circuit Judge, COFFIN, Senior Circuit Judge, and CYR, Circuit Judge.

COFFIN, Senior Circuit Judge.

This is a government appeal, under 18 U.S.C. § 3731, from the district court's actions in granting defendant's motion to suppress and in denying the government's motion for reconsideration. At issue in this prosecution for mail fraud (18 U.S.C. § 1341), using a false name in furtherance of mail fraud (18 U.S.C. § 1342), inducing interstate transportation for fraud (18 U.S.C. § 2314), and fraudulent use of a Social Security number (42 U.S.C. § 408(g)(2)), are some six boxes of records seized from defendant's apartment pursuant to a warrant. After a non-evidentiary hearing and several rounds of briefing, the district court held the warrant to be insufficiently particular. It subsequently denied a motion for reconsideration in which the government belatedly raised the defense of good faith to the motion to suppress. We have concluded that the warrant was sufficiently particular with respect to several categories of records. We therefore hold that those records may be admitted into evidence and that all other items must be suppressed.

The Affidavit

The affidavit on which the search warrant was based was a fourteen page document subscribed to by FBI Special Agent Carazza, who had conducted a nine month investigation of an "advance fee scheme" involving defendant "doing business as Orion Capital Group (Orion) and Trinity Holdings Limited (Trinity Holdings)." He had been assisted by Special Agent Egan, who had spent most of his ten years with the FBI in investigating and prosecuting financial crimes and fraudulent schemes. The following information is contained in the affidavit.

The scheme. An advance fee scheme was defined as a scheme in which an individual solicits potential borrowers seeking large loans from non-conventional sources, charges a fee in advance, and thereafter misleads the borrowers into thinking that the loans are in the process of being funded. In defendant's case, the scheme was averred by Agent Carazza to have worked as follows:

My nine month investigation has revealed that although the scheme varies from borrower to borrower, Falon usually tells the victims that Orion has millions of dollars to lend. Falon then requires the victims to pay an advance fee. After receiving an initial fee, Falon tells the victims he will arrange financing rather than provide it. Falon also tells the victims that they are assured of financing, but that his fee for arranging the financing is one percent of the loan. Falon then issues a commitment letter to the victims and requires the one percent fee be paid when the commitment letter is signed, which is prior to receiving the loan. Falon then promises the victim a closing date within a couple of weeks.

To the agent's knowledge no loans were ever made by or through the efforts of defendant, Orion, or Trinity Holdings.

The victims. The affidavit identified five victims who, between December 1989 and October 1990, had paid defendant some $91,750. Named in the affidavit were the following individuals, the first three of whom had been referred to defendant by Jain, a mortgage broker in Rhode Island:

Krah, who sought a loan of from $5,000,000 to $8,000,000 for an apartment complex, and made three payments, totalling $57,250.

Todd, who sought a loan of $3,000,000 to refinance a self-service storage business, and made one payment of $2,500.

Donabedian, who sought a loan of $7,000,000 to build a golf course, and made one payment of $2,500.

Grillo, who sought a loan of $25,000,000 to fund a hotel project, and made two payments totalling $17,000.

Shyamalan, who sought a loan of $1,200,000 for his business, and made one payment of $12,500.

From a review of bank records of defendant, Orion, and Trinity Holdings, Agent Carazza estimated that, between October 1989 and January 1991, there were 25 other potential victims of the scheme and that the total "advance fees" collected exceeded $275,000. He also discovered no evidence of any return of payments or any depositing in escrow of any payments.

The participants. Defendant, in registering a motor vehicle, had used a fabricated Social Security number. Orion's telephone number, as it appeared in a Wall Street Journal advertisement, was the same number used by defendant in his apartment. Contrary to defendant's representations, Orion was not listed on the Zurich stock exchange, nor were Krah's advance fee payments of $57,250 held in escrow in Orion's account at Shawmut Bank. Orion's account at Shawmut had a balance at the time of $152. Moreover, there was no other account then maintained by Orion, Trinity Holdings or defendant. Trinity Holdings was averred to be a name occasionally used by Orion.

The premises. The affidavit described two adjoining suites, numbers 602 and 603, each consisting of two bedrooms, a living room and kitchen, in a luxury apartment building at 125 Coolidge Avenue in Watertown, Massachusetts. Victim Krah had visited the suites and reported that defendant "keeps his business records throughout the suites....[and] has a facsimile machine in the kitchen of Suite 603." Defendant had rented the premises on October 30, 1989. This date coincides with the first records of the scheme reviewed by Agent Carazza and the placing of the Wall Street Journal ad about Orion. A Watertown police officer had visited the apartments and had observed "beautiful leather furniture" and defendant's "enormous wardrobe consisting mainly of Italian suits and clothing." Agent Carazza concluded, from a review of bank records, that the furniture and clothing had been purchased from the advance fees received by defendant.

The Warrant

The search warrant, without specifically incorporating or attaching the affidavit, authorized the search of Suites 602 and 603 and the seizure of items listed in an attachment labeled Schedule A, which read as follows:

The following documents, records and other tangible objects for the period from October 1, 1989 to the present [January 7, 1991] relating to Paul Falon, Orion Capital Group and/or Trinity Holdings Limited:

1. Borrowers' files;

2. Lists of borrowers;

3. Banking and financial records;

4. Financial statements;

5. Advertising records;

6. Checkbooks;

7. Cancelled checks;

8. Telephone records;

9. Address indexes;

10. Message slips;

11. Correspondence, memoranda and documents relating to loans, loan guarantees, potential loans and potential loan guarantees;

12. Mail, telex and facsimile records;

13. Sales literature and brochures;

14. Calendars and diaries;

15. Memory typewriters;

16. Word processors;

17. Computer discs, both hard and floppy; and

18. Other electronic media devices, electronic storage media and related software.

The Decision Below

The district court, after a non-evidentiary hearing and the submission of memoranda held the warrant to be insufficiently particular and granted defendant's motion to suppress. It first noted the absence of any reference in the warrant to the criminal offenses for which the evidence was sought. The court appropriately invoked our decision in Application of Lafayette Academy, 610 F.2d 1, 3 (1st Cir.1979), where we pointed out that, in a case where "general rummaging" would seem to be authorized by a warrant, it is necessary to set forth "the precise nature of the fraud and conspiracy offenses ... in order to delimit the broad categories of documentary material and thus to meet the particularity requirement of the fourth amendment."

The court then addressed the government's argument that the affidavit supporting the search warrant, which was both possessed and reviewed by each officer involved in the search, made adequate references to the offenses and thus supplied any defect of particularity in the warrant. It very properly noted that the affidavit, contrary to our holding in United States v. Klein, 565 F.2d 183, 186 n. 3 (1st Cir.1977), repeated in Lafayette, 610 F.2d at 4, did not use "suitable words of reference which incorporate the affidavit." The government's attempt to argue that Klein did not say that an unincorporated affidavit may never come to the rescue of an overgeneral warrant simply indicates that it does not recognize a negative pregnant when it sees one.

The government, however, advanced another argument, indeed, its principal one, to show why the warrant was sufficiently particular. This was that the defendant's enterprise was similar to the high pressure "boiler room" telephone securities sales operation of Lloyd, Carr & Company in United States v. Brien, 617 F.2d 299, 309 (1st Cir.1980), as to which we said:

We hold that where there is probable cause to find that there exists a pervasive scheme to defraud, all the business records of an enterprise may be seized, if they are, as here, accurately described so that the executing officers have no need to exercise their own judgment as to what should be seized.

At one point in the course of the hearing the court seemed to have resolved this issue favorably to the government, saying, after finding no suggestion in the record of any other business being carried on:

Here I think it's not simply a conclusion, but a finding that I'm making that on the evidence before me this case is quite distinct from a case involving primarily an ongoing legitimate business but along with it some allegedly illegal operation.... This instead is a circumstance in which one may have found there was probable cause for a finding...

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