United States v. O'Sullivan

Decision Date18 May 2021
Docket Number20-CR-272 (PKC)
PartiesUNITED STATES OF AMERICA, v. DONAL O'SULLIVAN, HELEN O'SULLIVAN, and PADRAIG NAUGHTON, Defendants.
CourtU.S. District Court — Eastern District of New York
MEMORANDUM & ORDER

PAMELA K. CHEN, United States District Judge:

Defendants Donal O'Sullivan, Helen O'Sullivan, and Padraig Naughton are charged with conspiring to participate, and participating, in a multi-year scheme to avoid making required payroll contributions to certain benefits funds for union employees. They presently move to dismiss, in whole or in part, Counts Eight, Nine, Ten, and/or Eleven of the Indictment. (Dkt. 141.) Separately, the Government moves to be allowed to introduce certain evidence at trial as direct evidence of the charged crimes or, alternatively, as evidence of prior bad acts under Federal Rule of Evidence ("Rule") 404(b). (Dkt. 82.) As discussed below, both motions are granted in part and denied in part.

BACKGROUND

On July 29, 2020, a grand jury returned an indictment in this case. (Indictment, Dkt. 1.) According to the Indictment, Navillus Tile, Inc. d/b/a Navillus Contracting ("Navillus"), one of the largest construction companies in New York City, was a party to collective bargaining agreements ("CBAs") with several labor unions. (Id. ¶¶ 1-2.) Under these CBAs, Navillus was required to employ union members on construction projects and make periodic contributions to benefits funds for these employees (the "Benefits Funds") based on the number of hours worked by the employees, accompanied by reports detailing each employee's number of hours worked (the "Remittance Reports"). (Id. ¶¶ 4-5.)

Defendants were all high-ranking employees at Navillus. Donal O'Sullivan was the owner and President of the company and "controlled its overall operations." (Id. ¶ 1.) Helen O'Sullivan was "in charge of the payroll department and employee benefit matters" and, among other responsibilities, "processed payroll checks for Navillus's employees and submitted Remittance Reports and Navillus's accompanying monetary contributions to the Benefits Funds." (Id. ¶ 6.) Padraig Naughton was Navillus's comptroller and oversaw the accounting department. (Id. ¶ 7.)

Between 2011 and 2017, Defendants allegedly "conspired to execute, and executed, a scheme to evade making" required contributions to the Benefits Funds. (Id. ¶ 11.) In particular, according to the Indictment, Defendants fraudulently funneled payroll funds through a consulting firm that was not a party to the CBAs (the "Consulting Firm") so that it appeared that Navillus employees performed work for, and were paid by, the Consulting Firm. (Id. ¶¶ 12-13.) In turn, the Consulting Firm allegedly issued false invoices to Navillus to make it appear that the payroll funds were payments for "masonry" and "consulting" work that the Consulting Firm had performed for Navillus. (Id. ¶ 13.) Defendants also allegedly submitted "one or more false Remittance Reports" to the Benefits Funds that failed to disclose certain employees as having performed work covered under the CBAs. (See id. ¶¶ 31-32, 34.)

The Indictment charges Defendants with eleven violations of federal law. Count One of the Indictment charges conspiracy under 18 U.S.C. § 1349 to commit mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343. (Id. ¶¶ 17-18.) Counts Two through Seven charge several substantive acts of mail fraud and wire fraud under 18 U.S.C. §§ 1341 and 1343. (Id. ¶¶ 19-24.) Count Eight charges conspiracy under 18 U.S.C. § 371 to embezzle or steal fromemployee benefit funds in violation of 18 U.S.C. § 664. (Id. ¶¶ 25-27.) Count Nine charges a substantive violation of 18 U.S.C. § 664. (Id. ¶¶ 28-29.) Count Ten charges conspiracy under 18 U.S.C. § 371 to submit false remittance reports in violation of 18 U.S.C. § 1027. (Id. ¶¶ 30-32.) Finally, Count Eleven charges a substantive violation of 18 U.S.C. § 1027. (Id. ¶¶ 33-34.)

DISCUSSION
I. Defendants' Partial Motion to Dismiss the Indictment

Defendants advance three grounds in support of their motion to dismiss, in whole or in part, Counts Eight, Nine, Ten and/or Eleven of the Indictment. (Defendants' Memorandum of Law in Support of Motion to Dismiss ("Defs.' MTD"), Dkt. 141-1, at 1-2.) First, Defendants argue that Counts Eight and Nine should be dismissed entirely as not legally cognizable, because the terms of 18 U.S.C. § 664 do not reach the alleged conduct in those counts, which respectively charge a conspiracy to violate 18 U.S.C. § 664 and an actual violation of 18 U.S.C. § 664. (Id. at 1, 4-8.) Second, Defendants argue that if Count Eight is not dismissed, the embezzlement conspiracy charged in Count Eight and the false-remittance-report conspiracy charged in Count Ten are multiplicitous, and the Government should be required to elect one to dismiss before trial. (Id. at 1-2, 8-12.) Third, Defendants argue that both Count Nine, which charges a violation of 18 U.S.C. § 664, and Count Eleven, which charges a violation of 18 U.S.C. § 1027, must be partially dismissed to the extent that they charge conduct outside of the five-year statute of limitations period, i.e., prior to July 29, 2015. (Id. at 2, 12-16.) The Government concedes that part of Count Nine should be dismissed as time-barred, but otherwise opposes Defendants' motion. (Government's Memorandum of Law in Opposition to Motion to Dismiss ("Gov.'s MTD Opp."), Dkt. 145, at 1.)

For the reasons set forth below, except as to the pre-July 29, 2015 conduct charged in Counts Nine and Eleven, Defendants' motion is denied.

A. Legal Standard

Rule 12 of the Federal Rules of Criminal Procedure "authorizes defendants to challenge the lawfulness of a prosecution on purely legal, as opposed to factual, grounds." United States v. Benitez-Dominguez, 440 F. Supp. 3d 202, 205 (E.D.N.Y. 2020) (quoting United States v. Ahmed, 94 F. Supp. 3d 394, 404 (E.D.N.Y. 2015)). "A defendant faces a high standard in seeking to dismiss an indictment, because an indictment need provide the defendant only a plain, concise, and definite written statement of the essential facts constituting the offense charged." United States v. Taveras, No. 20-CR-240 (PAE), —F. Supp. 3d—, 2020 WL 7059493, at *3 (S.D.N.Y. Dec. 2, 2020) (quoting United States v. Smith, 985 F. Supp. 2d 547, 561 (S.D.N.Y. 2014)); see also United States v. Nunez, 375 F. Supp. 3d 232, 238 (E.D.N.Y. 2018) ("[A]n indictment . . . need not be perfect, and common sense and reason are more important than technicalities." (quoting United States v. De La Pava, 268 F.3d 157, 162 (2d Cir. 2001))). Nevertheless, "[a] charge in an indictment is insufficient and must be dismissed when it does not describe conduct that is a violation of the criminal statute charged." Benitez-Dominguez, 440 F. Supp. 3d at 205 (citations omitted); see also United States v. Aleynikov, 676 F.3d 71, 75-76 (2d Cir. 2012) ("Since federal crimes are solely creatures of statute, a federal indictment can be challenged on the ground that it fails to allege a crime within the terms of the applicable statute." (internal quotation marks and citations omitted)).

In evaluating a motion to dismiss the indictment, "[a] court must accept the facts alleged in the indictment as true and determine only whether the indictment is valid on its face." Nunez, 375 F. Supp. 3d at 238 (internal quotation marks and alterations omitted) (quoting United States v. Brooks, No. 06-CR-550 (JS), 2009 WL 3644122, at *2 (E.D.N.Y. Oct. 27, 2009)).

B. Government's Theory Under 18 U.S.C. § 664

Section 664 of Title 18 of the United States Code provides:

Any person who embezzles, steals, or unlawfully and willfully abstracts or converts to his own use or to the use of another, any of the moneys, funds, securities, premiums, credits, property, or other assets of any employee welfare benefit plan or employee pension benefit plan, or of any fund connected therewith, shall be fined under this title, or imprisoned not more than five years, or both.

18 U.S.C. § 664. The term "employee welfare benefit plan or employee pension benefit plan" is defined as "any employee benefit plan subject to any provision of title I of the Employee Retirement Income Security Act of 1974 [i.e., ERISA]." Id. As the parties agree, the Second Circuit's decision in Rahm v. Halpin (In re Halpin), 566 F.3d 286, 287, 290-91 (2d Cir. 2009), dictates that, in general, employer contributions to an ERISA employee benefit plan are not "assets" of the plan until they are actually paid.1 (See Defs.' MTD, Dkt. 141-1, at 5; Gov.'s MTD Opp., Dkt. 145, at 7.) Accordingly, because unpaid employer contributions generally are not "assets" of an ERISA benefits plan, the charge in Counts Eight and Nine of the Indictment is that Defendants conspired to, and did in fact, "embezzle, steal and unlawfully and willfully abstract and convert . . . the right to collect monies owed to the Benefits Funds," not any actual monies. (See Indictment, Dkt. 1, ¶¶ 26, 29 (emphasis added).) Defendants argue that a "right to collect" benefits payments cannot be an object of a charge under 18 U.S.C. § 664—that is, it is legally impossible to "embezzle," "steal," "abstract," or "convert" a right to collect payments within the meaning of the statute—and therefore, Counts Eight and Nine of the Indictment must be dismissed. (Defs.' MTD, Dkt. 141-1, at 1, 4-8.)

The Court is not persuaded by Defendants' argument. To start, the Second Circuit has at least implicitly endorsed the Government's charging theory under 18 U.S.C. § 664. In United States v. LaBarbara, 129 F.3d 81, 88 (2d Cir. 1997), the Second Circuit affirmed the conviction of the defendant, LaBarbara, for aiding and abetting a violation of 18 U.S.C. § 664. There, as here, an employer, Strathmore Concrete Company ("Strathmore"), whose owner was one Al Barone, was a party to CBAs that obligated it to make contributions to various union benefits funds. 129 F.3d at 83. Barone, however, used a second company that was not a party to the CBAs, Ju-Lin Building...

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