United States v. Finazzo
| Decision Date | 07 March 2017 |
| Docket Number | No. 14-3213-cr(L), 14-3330-cr(Con),August Term, 2015,14-3213-cr(L), 14-3330-cr(Con) |
| Citation | 850 F.3d 94 |
| Parties | UNITED STATES of America, Appellee, v. Christopher FINAZZO, Douglas Dey, Defendants–Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Robert J.A. Zito (Alan S. Lewis, Karen E. Meara, Madelyn K. White, on the brief), Carter Ledyard & Milburn LLP, New York, New York, for Defendant–Appellant Christopher Finazzo.
T. Barry Kingham (Jacques Semmelman, Rachel L. Cohn, on the brief), Curtis, Mallet–Prevost, Colt & Mosle LLP, New York, New York, for Defendant–Appellant Douglas Dey.
Winston M. Paes , Assistant United States Attorney (Amy Busa, Claire S. Kedeshian, Assistant United States Attorneys, on the brief), for Loretta E. Lynch, United States Attorney for the Eastern District of New York, Brooklyn, New York, for Appellee.
Before: Sack, Chin, and Droney, Circuit Judges.
Defendant–Appellant Christopher Finazzo is a former merchandising executive for teen apparel retailer Aéropostale, Inc. Defendant–Appellant Douglas Dey controlled South Bay Apparel Inc. ("South Bay"), a clothing vendor. Between 1996 and 2006, Finazzo caused Aéropostale to use South Bay as its supplier of T–shirts and fleeces in exchange for secret payments to Finazzo of portions of South Bay's profits. As a result of this scheme, Finazzo and Dey were charged in the United States District Court for the Eastern District of New York with one count of conspiracy to commit mail and wire fraud and to violate the Travel Act, as well as fourteen counts of mail fraud and one count of wire fraud.
Dey pleaded guilty to conspiracy to violate the Travel Act and was sentenced to 42 months' imprisonment. Finazzo was convicted of all counts1 after a three–week jury trial. The jury rendered a special verdict. On the conspiracy count, the jury found Finazzo guilty of conspiracy to commit mail fraud "[o]n the basis of intent to deprive Aéropostale of money" and "[o]n the basis of Aéropostale's right to control use of its assets." Dist. Ct. Dkt. No. 260, at 2. It found Finazzo guilty of conspiracy to commit wire fraud on the basis of Aéropostale's right to control use of its assets, but not on the basis of intent to deprive Aéropostale of money. On each of the fourteen substantive mail fraud counts and the substantive wire fraud count, the jury found Finazzo guilty on the basis of Aéropostale's right to control use of its assets, but not on the basis of intent to deprive Aéropostale of money.2 The district court (Mauskopf, J. ) sentenced Finazzo to 8 years' imprisonment on the substantive mail and wire fraud counts and 5 years' imprisonment on the conspiracy count, all to run concurrently. The court also imposed a $13,690,822.94 restitution order jointly and severally against Finazzo and Dey.
Finazzo does not challenge his conspiracy conviction in this appeal. He challenges only his convictions on the mail and wire fraud counts. Both Finazzo and Dey also challenge the restitution order.
In this opinion, we address: (1) Finazzo's challenge to the district court's jury instructions regarding the "right to control" property under the mail and wire fraud statutes, (2) the sufficiency of the evidence to support Finazzo's convictions for depriving Aéropostale of the "right to control" its assets, and (3) Finazzo's and Dey's challenge to the district court's restitution order. We affirm the district court's "right to control" jury instructions and conclude that there was sufficient evidence to support the challenged portions of the jury verdict. However, we vacate and remand the district court's restitution order as to Finazzo and Dey. In a summary order issued simultaneously with this opinion, we affirm the district court on the remaining issues on appeal.
Finazzo and Dey were first indicted on June 8, 2010. The original indictment alleged that Dey and Finazzo "agreed that Finazzo would cause Aéropostale to use South Bay as a vendor to purchase merchandise at rates that were less favorable to Aéropostale than the prevailing market rate." Dist. Ct. Dkt. No. 1, at 3. "In exchange, Dey covertly paid Finazzo approximately fifty percent of South Bay's profits" through C & D Retail Consultants, Inc. ("C&D")—a consulting business controlled by Finazzo—and through various joint ventures. Id. The indictment alleged that Finazzo and Dey did not disclose this scheme to Aéropostale. The indictment further stated that, between August 1996 and November 2006, Finazzo caused Aéropostale to pay South Bay more than $350 million in payments for its merchandise. Over that period, Dey paid Finazzo more than $14 million through bank transfers to C&D and transferred over $13 million to three jointly owned entities: Vertical Line Apparel, Inc., Vertical Line Apparel II, Inc., and Vertical Line Apparel III, Inc. (the "Vertical Line entities").
The September 6, 2011 Second Superseding Indictment3 added that Finazzo and Dey defrauded Aéropostale by:
(1) depriving Aéropostale of the opportunity to make informed decisions, thereby preventing Aéropostale from seeking lower prices for merchandise it purchased from South Bay and the opportunity to select other vendors based upon price, quality and timely delivery; and (2) causing Aéropostale to pay higher prices on merchandise it purchased from South Bay than were available from other vendors, thereby increasing South Bay's profits and the amounts Dey paid Finazzo.
Dey App'x at 59. That indictment included seventeen counts. Count One alleged conspiracy to commit mail and wire fraud and to violate the Travel Act from August 1996 to November 2006 in violation of 18 U.S.C. § 371. Counts Two through Fifteen alleged mail fraud in violation of 18 U.S.C. § 1341. Count Sixteen alleged wire fraud, in violation of 18 U.S.C. § 1343, and Count Seventeen alleged a false statement in a report required to be filed with the Securities and Exchange Commission, in violation of 15 U.S.C. § 78ff(a).4 Like the conspiracy charge, the scheme to defraud for the mail and wire fraud counts was also alleged to have taken place between August 1996 and November 2006. The mail and wire fraud counts were linked to fifteen specific payments by Aéropostale to South Bay between June 9, 2005 and November 1, 2006.
On September 27, 2012, Dey pleaded guilty to conspiracy to violate the Travel Act. In his plea agreement, Dey agreed to a $7,500,000 forfeiture order, but specifically reserved the right to appeal any restitution order imposed by the court.
Finazzo's case proceeded to a three-week jury trial on the Second Superseding Indictment, beginning on April 8, 2013. At trial, the Government called fifteen witnesses—most of whom were current or former Aéropostale employees—and the defense called three witnesses. Because one of the issues on appeal is sufficiency of the evidence, we recount in some detail the evidence presented at trial.
In July 1996, Julian Geiger—Aéropostale's President and CEO—hired Finazzo as its Men's Divisional Merchandising Manager.5
Prior to being hired by Aéropostale, Finazzo owned a small sports-clothing retailing business called C&E Marketing, at which Dey was an employee. Shortly after Finazzo was hired by Aéropostale, Peter Conefry—Finazzo's and Dey's former private accountant and a cooperating Government witness—attended a meeting with Finazzo and Dey in which Finazzo stated that he and Dey were going to a start a new company that would do business with Aéropostale.6 Conefry testified that he told Finazzo that Finazzo "better be careful because if you have a relationship with a vendor as an employee of [a] company it could create a problem." Dey App'x at 1229. Conefry advised Finazzo to check with Aéropostale before proceeding with the new company. Finazzo responded that he "didn't think Aéropostale would go for it." Id. Nevertheless, in August 1996, Dey incorporated South Bay Apparel, Inc. South Bay's business with Aéropostale comprised approximately 99% of South Bay's total business from 1996 to 2006.
In 1998, Finazzo started C&D. Finazzo told Conefry—who also acted as South Bay's and C&D's accountant—that he formed C&D so that he could receive "consulting fees" for directing Aéropostale's business to South Bay. Id. at 1232. Indeed, Conefry testified that C&D primarily received payments from South Bay.
Initially, Finazzo and Dey had an informal agreement pursuant to which Finazzo simply told Dey to send funds to C&D. As the South Bay supply business with Aéropostale grew larger, Conefry was directed to split South Bay's net profits nearly evenly between South Bay—owned by Dey—and C&D—owned by Finazzo. Although these payments from South Bay to C&D were not for actual consulting, Conefry classified them as such on South Bay's books. Id. at 1234–36. The payments steadily increased from $355,000 in 1998 to $5,161,550 in 2004. In 2005, the payments from
South Bay to C&D totaled approximately $13 million, and Conefry classified them as cost of sales, because $13 million in consulting fees "would be a red flag." Id. at 1236. Conefry testified that, throughout this time period, he discussed these payments with Finazzo annually during the preparation and filing of Finazzo's tax returns. When Conefry pushed Finazzo to disclose the arrangement to Aéropostale, Finazzo responded that "it was too late at this time." Id. at 1238. In response to Conefry's concern that Aéropostale becoming a public company in 2002 could bring scrutiny from the Securities and Exchange Commission, Finazzo told Conefry "it's gone along so far so we will just continue." Id. at 1240.
Finazzo and Dey also jointly owned the Vertical Line entities. These entities served as vendors to Aéropostale as well. In addition, Finazzo and Dey jointly owned other South Bay entities, including South Bay Sports Plex, South Bay Ticketing, and South Bay Knitting (the "related...
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..."intangible" property rights. Among those is the right of an entity to control the use of its assets. See United States v. Finazzo, 850 F.3d 94 (2d Cir. 2017). Withholding information or reporting inaccurate information that could affect an entity's economic decisions may jeopardize this ri......