United States v. Fortuna, Crim. No. 12-636 (NLH/JS)
| Decision Date | 22 April 2013 |
| Docket Number | Crim. No. 12-636 (NLH/JS) |
| Parties | UNITED STATES OF AMERICA v. MELIDO FORTUNA, et al. |
| Court | U.S. District Court — District of New Jersey |
Presently before the Court is the Motion to Dismiss the Indictment of Defendants Melido Fortuna, Jose G. Fortuna,1 Kamran Khalid, Mohammad Rafiq, Muhammad Shafique and Mhand Hassam.2 Forthe reasons set forth below, Defendants' Motion to Dismiss the Indictment is denied.3
In order to place this matter in context, it is first necessary to note that each state in the country has the independent authority to decide whether or not to tax cigarettes and tobacco products within its boundaries. The tax rates for these products vary significantly across state lines. States located in the southern regions of the country where tobacco is grown and processed tend to have lower rates, while states in the northeastern United States — such as New Jersey — have higher tax rates. In most states, a carton of cigarettes that has been properly assessed by state tax authorities typically has a stamp affixed to its outer packaging. The tax rate disparities across the country have caused an incentive to create a black market for contraband cigarettes, which either bear fraudulent or no tax stamps altogether, and are smuggledfrom low-tax states to high-tax states. These smuggling operations have resulted in the loss of millions of dollars of federal and state tax revenue each year. In recognition of this problem, Congress has enacted several federal laws to criminalize such behavior. Amongst them is the Contraband Cigarette Trafficking Act ("CCTA"), 18 U.S.C. § 2341, et seq., which criminalizes the shipment, transport, receipt, possession, sale, distribution, and purchase of contraband cigarettes.
The Indictment4 in this matter charges the Defendants with the unlawful purchase and distribution of over 10,000 contraband cigarettes within the District of New Jersey and elsewhere. Beginning in approximately September 2010, officers of the Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF") began an investigation into cigarette smuggling operations in New Jersey and New York. At the time, the State of New Jersey charged a tax of $2.70 per pack of cigarettes, or $27.00 per carton. Only cigarettes stamped with a valid New Jersey tax stamp were permitted to be sold within the state. As part of the investigation, the ATF agents designed and executed an undercover "sting" operation. The cigarettes used in the sting were purchased by the ATF from a tobacco manufacturer in North Carolina, and were shipped — unstamped and pre-tax — to the ATFField Office in New Jersey. Upon receipt of the cigarettes, ATF officers transported them to a private entity in Pennsylvania, where they were stamped with counterfeit New Jersey tax stamps that the ATF agents were able to trace. The counterfeit packs were then transported back to New Jersey, where they were sold by undercover agents to individuals involved in cigarette smuggling.
During the course of the investigation, Defendant Khasharmeh contacted a confidential informant working with the ATF (hereinafter "CS-1"), and expressed his interest in purchasing counterfeit cigarettes. Following this initial contact, CS-1 and Khasharmeh engaged in a series of cigarette buys, all of which (except for one instance) took place at Khasharmeh's home in New Jersey. In March of 2011, CS-1 gave Khasharmeh the telephone number of an undercover officer (hereinafter "UC-2")5 posing as a cigarette smuggler from Virginia, and Khasharmeh contacted UC-2 to discuss the sale and delivery of cigarettes from Virginia. During this conversation, Khasharmeh admitted to UC-2 that he already had one source of cigarettes in Virginia that was unrelated to the instant investigation. Approximately one month later, Khasharmehintroduced UC-2 to Jose and Hassam because they had also expressed interest in the criminal enterprise. Following this introduction, Jose introduced UC-2 to his brother Melido and his father, Jose D. Fortuna,6 and involved them in the unlawful scheme as well. In June of 2011, Khasharmeh introduced UC-2 and another undercover officer (hereinafter "UC-3") to Shafique, who in turn involved his son, Khalid, and business partner, Rafique, in the operation. Most of these individuals were retail distributors of cigarettes that owned convenience stores throughout New Jersey. Over the course of approximately eighteen months, they purchased 253,741 cartons of contraband cigarettes from ATF agents. The Defendants then sold the cigarettes in their respective stores, or resold them to other retail distributors. The tax loss to the State of New Jersey as a result of the conspiracy is alleged to be approximately $6,851,655.00.
A Criminal Complaint and arrest warrants for the Defendants were issued on February 10, 2012. On September 25, 2012, an Indictment was returned charging the Defendants with violating 18 U.S.C. §§ 371 and 2342. A Superseding Indictment was subsequently returned on October 16, 2012. On February 4, 2013, Defendants filed the instant Omnibus Motion to Dismiss the Indictment predicated on the theories that: (1) the ATF agents'conduct during the sting operation violated the clear language of the CCTA; and (2) the manner in which the undercover operation was carried out was so outrageous as to constitute a violation of their Due Process rights. [Docket No. 59.] The United States responded in opposition on February 20 and 21, 2013, respectively, and Defendants filed a Reply brief on February 25, 2013. [Docket Nos. 67-69.] On March 27, 2013, the Court held Oral Argument on this issue, at which time all parties were given the opportunity to be heard and present any additional evidence and arguments they wished the Court to consider.7 After reviewing the parties' paper submissions and considering the statements made at Oral Argument, the Court orally ruled from the bench at the close of the hearing, wherein it denied the Defendants' Motion to Dismiss the Indictment. The Court, however, reserved the right to supplement its oral ruling by written opinion. The present Memorandum Opinion therefore serves as a supplement to the Court's oral ruling denying Defendants' Motion.
The CCTA makes it "unlawful for any person knowingly to ship, transport, receive, possess, sell, distribute or purchasecontraband cigarettes." 18 U.S.C. § 2342(a); see also City of N.Y. v. Milheim Attea & Bros., No.Civ.A.06-3620, 2009 U.S. Dist. LEXIS 19351, at *4 (E.D.N.Y. Mar. 11, 2009). "Contraband cigarettes" are defined under the Act as:
A quantity in excess of 10,000 cigarettes, which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp . . . to be placed on . . . cigarettes to evidence payment of cigarette taxes[.]
18 U.S.C. § 2341(2). It has been recognized that "[a] violation of a state or local cigarette tax law [ ] is a predicate to a CCTA violation; [and] the state or local government must 'require' a stamp to be placed on cigarette packages as evidence of payment of an applicable tax." Milheim, 2009 U.S. LEXIS at *4 (internal citation omitted); see also United States v. Funds from First Reg'l Bank, 639 F.Supp.2d 1203, 1206 (W.D. Wa. 2009). It is undisputed amongst the parties here that, during the relevant timeframe at issue, New Jersey state law required an official state tax stamp to be affixed to each package of cigarettes prior its sale.
The ATF is the agency vested with the authority to "[i]nvestigate, administer, and enforce the laws related to . . . tobacco," including, as is relevant here, laws "related to trafficking in contraband cigarettes." 28 C.F.R. §§ 0.130 &0.130(a)(1).8 Congress has specifically authorized the ATF to spend government funds to: (i) conduct undercover investigative operations as are necessary for the detection and prosecution of criminal activity, (ii) establish and operate business entities as part of such undercover operations, and (iii) use proceeds from such undercover operations to offset any reasonable expenses incurred in the course of the operations. See United States v. Hasan, 846 F.Supp.2d 541, 546 (E.D. Va. 2012) (citing P.L. 102-395, Sec. 102(b)).
Defendants set forth two reasons for why they believe the Indictment must be dismissed under these circumstances: (1) the actions of ATF agents during the course of the sting operation violated the clear language of the CCTA, and it is therefore a legal impossibility to convict them under a law which the government itself violated; and (2) the government's conduct during the operation was so outrageous that it constituted a violation of Due Process. In response, the United States argues that the ATF was within its congressionally-prescribed authority when it conducted the investigation, and that Defendants' reading of the CCTA is mistaken and would yield absurd results.The United States further asserts that binding Supreme Court and Third Circuit precedent clearly indicate that the government's conduct in this case was not so outrageous or shocking so as to constitute a violation of Due Process. The Court addresses each of these arguments in turn below.
As indicated above, the CCTA makes it "unlawful for any person knowingly to ship, transport, receive, possess, sell, distribute or purchase contraband cigarettes." 18 U.S.C. § 2342(a). Importantly, Congress specifically excluded from the "contraband cigarettes" definition cigarettes within the possession of any of the following persons:
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