United States v. Friedman, 15 CR 675-2
| Decision Date | 06 April 2018 |
| Docket Number | No. 15 CR 675-2,15 CR 675-2 |
| Parties | UNITED STATES OF AMERICA v. ARTHUR FRIEDMAN |
| Court | U.S. District Court — Northern District of Illinois |
Defendant Arthur Friedman has filed a motion to dismiss the indictment. (R. 84.) For the following reasons, the Court denies his motion.
Trial in this bank-fraud prosecution is set to begin in a matter of days. Friedman, however, seeks to dismiss the indictment and claims that his former lawyer's representation of a cooperating witness gives rise to a conflict that deprives him of constitutional rights.
A grand jury returned an indictment against Friedman and his former business partner, Leon Bilis, on November 12, 2015. The indictment charged that the two men had committed bank fraud in violation of 18 U.S.C. § 1344, by submitting to banks fraudulent loan requests for automobiles leased by their business, Prestige Leasing, Inc. (R. 1.) Two attorneys, Michael D. Ettinger, and presently, Steven A. Greenberg, have represented Friedman in these proceedings. (R. 8; R. 44.) Jeffrey B. Steinback has represented Bilis. (R. 23.) On March 6, 2017, Bilis appeared before the Court and changed his plea from not guilty to guilty. The Court filed the plea agreement publicly on the case's docket on the same day. (R. 58.) As a part of his plea deal, Bilis is cooperating with the government. (See id. at 13.)
Friedman is scheduled to proceed to trial. In advance of trial, the government served on Friedman its witness list and a Santiago proffer requesting conditional admission of certain coconspirator statements. The witness list identified Bilis as the last of nineteen potential witnesses. The Santiago proffer sought to admit statements made by Bilis exclusively. (See R. 87.)
Federal Rule of Criminal Procedure 12(b)(1) allows a defendant to raise "by pretrial motion any defense, objection, or request that the court can determine without a trial on the merits." Fed. R. Crim. P. 12(b)(1). On March 11, 2018, Friedman filed a motion to dismiss the charges against him or, alternatively, to exclude Bilis's testimony at trial. (R. 84.) Friedman submits that the Court should dismiss the case because Steinback previously represented Friedman when the alleged scheme first began to unravel, rendering Steinback conflicted and making it "impossible" for Friedman to now receive a "fair trial."
Specifically, Friedman's motion claims that in 2011 he and Bilis "sought legal counsel" after the state "police began investigating them." They hired Steinback, who "agreed to represent the two" of them. During that representation, Steinback "acted on behalf of both" men, "attempting to quell a criminal investigation." Steinback met, according to Friedman's motion, with Friedman and Bilis "jointly" on more than one instance, and he also communicated solely with Friedman on occasion. From the two men, Steinback learned, "in detail, the facts and circumstances of the underlying conduct" now at issue in this prosecution. Steinback never advised the two on potential conflicts of interest. Sometime in 2012, Friedman ended his relationship with Steinback, and secured Ettinger's representation. Steinback continued to represent Bilis.
Friedman's motion argues that Steinback's dual representation created a plain conflict of interest for Steinback. According to the motion, because Bilis is now cooperating, Steinback's conflict has likely harmed Friedman in several ways—Steinback, for example, may have "subtly impart[ed]" to Bilis the confidences Friedman shared, or he may have "correct[ed] or question[ed]" Bilis based on information "shaped" by Friedman's disclosures. Friedman's motion further speculates that Steinback also may have prepared Bilis for his cooperation sessions with the government by turning Bilis's focus to Friedman's legal vulnerabilities, vulnerabilities into which Steinback had "unique insight." (R. 84 at 13-14.) Friedman also points to a November 3, 2011 interview the Buffalo Grove police conducted with Bilis, in which Bilis purportedly told the state police that he would "tak[e] full responsibility" and that Friedman was "fairly removed from the" alleged scheme. (R. 84 at 4 n. 2.) He argues that the fact that Bilis has since changed his story indicates that he has been "negative[ly]" affected by the conflict. (R. 92 at 9.) Friedman's briefs, however, do not describe what confidences he shared with Steinback, nor do they identify what confidences Bilis may have in turn shared with the government.
The government's response disputes most of Friedman's narrative. Based on discussions with Steinback, the government asserts that Steinback and Friedman met only once, and Bilis was also present. Friedman made "[n]o admissions" during that meeting, and "Friedman did not retain Steinback." Further, although there may have been additional, limited communications, Friedman never provided Steinback with "any admissions" or "privileged information." Soon after, according to the government, Steinback "informed" Friedman he would need to retain separate counsel. (R. 88 at 2 n. 1.)
To resolve these factual disputes, and in light of the Seventh Circuit law discussed below (infra at 15-17), the Court requested additional information regarding the alleged attorney-client relationship between Friedman and Steinback and held an evidentiary hearing on April 3, 2018.1 During the hearing, the Court carefully evaluated the demeanor and credibility of each witness, including his body language, tone of voice, facial expressions, mannerisms, and other indicative factors. The Court summarizes below the testimony of both witnesses.
Steinback testified on direct examination that in the fall of 2011, Bilis called him to set up a meeting. Bilis told him that he had a problem with his business, and wanted to speak with Steinback about it. They set up an appointment. Steinback initially believed, and testified, that the meeting took place at his former office in downtown Chicago; after the hearing, however, Steinback contacted the government and notified it that the meeting likely took place at a hotel in Rockford, Illinois. In any case, Steinback testified that both Bilis and Friedman attended the meeting. Steinback did not believe that, as of that meeting, he represented Bilis and Friedman personally.
Steinback testified they talked about Prestige Leasing and potential issues regarding its outstanding loans.2 They discussed potential civil actions pertaining to the loans, and Steinback hoped to keep the matter confined to civil disputes. Indeed, Steinback testified that during the meeting, neither Bilis nor Friedman admitted any criminal wrongdoing. Steinback also believed that the meeting occurred before the Buffalo Grove police had interviewed Bilis. Steinback left the meeting, he testified, believing that he would represent a "combination" of the company, Prestige Leasing, and Bilis and Friedman "in connection with their business." Steinback further testified that he told Bilis and Friedman he could represent them both "at this juncture," but if "things change[d]," they may have to retain separate counsel. Although he did not specifically recall telling them, he testified that per his common practice, he would have explained to them how clients' interests can diverge as a matter progresses. If they do, "then we will have to talk about a change in representation, someone else coming in for one or the other of you," he would have told them.
Confirming the arrangement, Steinback stated that he received one retainer check (for $30,000) from Prestige Leasing, which Bilis delivered. He continued to have ongoing discussions with Bilis about the matter, and spoke with Friedman one-on-one over the phone maybe one or two additional times. Friedman conveyed nothing substantive in those discussions, according to Steinback. Steinback, in fact, testified that Friedman never, at any point, admitted any wrongdoing with respect to the at-issue bank loans. Steinback also had ongoing joint communications with Bilis, Friedman, and Michael Kralovec, a lawyer who specializes in bank negotiations and regulatory matters and whom Steinback brought in to handlediscussions with the banks. The communications submitted ex parte—reflecting joint emails among Bilis, Friedman, Steinback, and Kralovec—confirm that Kralovec negotiated with the banks on Bilis, Friedman, and Prestige Leasing's behalf. (See R. 99-5-99-8.) Later in his testimony, Steinback again confirmed that at no point did Friedman ever make an admission of fraud to him. He noted that, despite the passage of time, he would have remembered if a client—Friedman—had admitted wrongdoing to him. He also stated emphatically that he has never passed along information learned from Friedman to Bilis or the government.
Steinback testified on cross-examination that, at some point after Kralovec's unsuccessful negotiations with the banks, he realized his clients may have criminal exposure. He testified also that Bilis likely opened up to him directly about Prestige Leasing's bank dealings around the same period. Around January 2012, Friedman called Steinback to tell him that he had retained separate, individual counsel—Michael Ettinger. Ettinger later contacted Steinback to discuss legal fees, and Steinback agreed to write him a check for $5,000 on January 20, 2012, which came out of Steinback's unearned initial retainer. Steinback concluded his testimony by asserting that "Friedman was a client," and he did not believe that he would ever do anything "harmful" to a client, "past or present."
Friedman also testified during the hearing. On direct examination, Friedman testified that he believed Steinback represented him from the fall of 2011 until January 2012, when he hired Ettinger. He testified that he met...
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