US v. Najarian

• Decision Date: 18 December 1995
• Docket Number: Crim. No. 3-95-45(1).
• Parties: UNITED STATES of America, Plaintiff, v. John S. NAJARIAN, Defendant.
• Court: U.S. District Court — District of Minnesota

915 F. Supp. 1441

UNITED STATES of America, Plaintiff, v. John S. NAJARIAN, Defendant.

Crim. No. 3-95-45(1).

United States District Court, D. Minnesota, Third Division.

December 18, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Peter Thompson and John W. Lundquist, Thompson, Lundquist & Sicoli, Minneapolis, MN, for defendant.

Henry J. Shea, Mark D. Larsen, and Janet A. Newberg, Assistant United States Attorneys, Minneapolis, MN, for U.S.

ORDER

KYLE, District Judge.

This matter is before the Court on (1) Defendant's Objections to the November 24, 1995 Report and Recommendation ("R & R") of United States Magistrate Judge Raymond L. Erickson, (2) Defendant's Appeal from the November 24 Order ("November 24 Order") of Magistrate Judge Erickson, and (3) Defendant's Appeal from the December 1, 1995 Order ("December 1 Order") of Magistrate Judge Erickson. In the R & R, Magistrate Judge Erickson recommends Defendant's Motion to Suppress be denied; in the November 24 Order, Magistrate Judge Erickson denied Defendant's Motion for the Conduct of a Franks Hearing; and in the December 1 Order, Magistrate Judge Erickson denied Defendant's Motion to Compel production of Item 1B385.¹

The Court reviews a magistrate judge's report and recommendation de novo and reviews a magistrate judge's order under the clearly erroneous standard. 28 U.S.C. §§ 636(b)(1)(C) and 636(b)(1)(A); Banbury v. Omnitrition Int'l, Inc., 818 F.Supp. 276, 279 (D.Minn.1993).

In his Objections to and Appeal from the November 24 Order and R & R, Defendant claims the Magistrate Judge erroneously concluded (1) Defendant lacks standing to challenge the search of the home of James Coggins; (2) the search warrant was supported by adequate probable cause; (3) the defense is not entitled to a Franks hearing; and (4) the search warrant was not overbroad and, alternatively, is saved by the "good faith" exception.

The Court has carefully reviewed the Defendant's Objections, Appeals, and supporting memoranda. The November 24 Order and R & R is thorough and well-reasoned. The Court concurs with the Magistrate Judge's conclusions and rationale; it will accordingly adopt the R & R and affirm the Order. The Court need not resolve Defendant's Appeal from the December 1 Order. Subsequent to the Defendant's Appeal from that Order, the Government notified the Court it has produced Item 1B385; Defendant's Appeal from that Order is therefore moot.

Based on the foregoing, and all the files, records, and proceedings herein, IT IS ORDERED that:

(1) The Court will ADOPT the November 24, 1995 Report and Recommendation (Doc. No. 162) of Magistrate Judge Erickson and Defendant's Motion to Suppress (Doc. No. 65) is accordingly DENIED;

(2) The November 24, 1995 Order (Doc. No. 162) of Magistrate Judge Erickson is AFFIRMED; and

(3) The Defendant's Appeal from the December 1, 1995 Order of Magistrate Judge Erickson (Doc. No. 166) is DENIED AS MOOT.

ORDER and REPORT AND RECOMMENDATION

ERICKSON, United States Magistrate Judge.

At Duluth, in the District of Minnesota, this 24th day of November, 1995.

I. Introduction

This matter came before the undersigned United States Magistrate Judge pursuant to a special assignment, made in accordance with the provisions of Title 28 U.S.C. § 636(b)(1)(A) and (B), upon the Defendant's Motion for a Franks Hearing, and upon his Motion to Suppress evidence that was seized during the execution of two Search Warrants.¹ See, Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978).

A Hearing on the Motions was conducted on November 9, 1995, at which time the Defendant appeared personally and by Peter Thompson and John W. Lundquist, Esqs., and the Government appeared by Henry J. Shea, Mark D. Larsen, and Janet A. Newberg, Assistant United States Attorneys.

For reasons which follow, we deny the request for a Franks Hearing, and we recommend that the Motion to Suppress be denied.

II. Findings of Fact²

Upon the Application and Affidavit of James Molnar ("Molnar"), a Special Agent with the Criminal Investigation Division of the Internal Revenue Service ("IRS"), two Search Warrants were issued by United States Magistrate Judge Jonathan G. Lebedoff, on September 29, 1995. One of the Warrants authorized a search at 4157 Rahn Road, Eagan, Minnesota, which was the residence of James E. Coggins ("Coggins"), who then served as the Administrative Director of the University of Minnesota Department of Surgery and as the Chief Financial Officer of the Department of Surgery Associates ("DSA"), a partnership that operates a private medical practice within the University of Minnesota Medical School. The second Warrant authorized a search of the offices of DSA, of Coggins, and of Coggins' Secretary, which were located, respectively, in Rooms 11-118, 11-116, and 11-114 of the Phillips Wangensteen Building, at 516 Delaware Street, S.E., in Minneapolis, Minnesota. According to the averments of Molnar's Affidavit, Coggins performed DSA-related business at his personal residence and, therefore, there was reason to believe that DSA's records could be found at that location.

Molnar's Affidavit, which was 29 pages in length, also attested to his 26 years of experience in investigating violations of the Federal tax laws, and reported on his investigation of the financial affairs of DSA. According to Molnar, the partners in DSA were employed as instructors on the faculty of the Department of Surgery at the University of Minnesota ("University"), and they earned their income from both DSA, in their capacities as private practitioners, and from the University, as members of the teaching staff. Having reviewed certain of the University's financial records, which had been produced pursuant to a Grand Jury Subpoena, Molnar related a series of transactions which he regarded as irregular. For instance, Molnar made the following observation with respect to the confidentiality that attended DSA's financial affairs:

Based upon my experience in investigating financial crimes over the past 23 years, I believe that although confidentiality of financial matters is necessary to a certain extent, the secrecy with which DSA dealt with both Bernie Ley the Administrative Director of the Department of Surgery and the Legislative Auditors of the State of Minnesota is an indication of more than just a concern over confidential financial information. Furthermore, neither the University nor the auditors can conduct any type of financial inquiry without such information. The complete control of financial information by an entity such as DSA allowed DSA total unrestricted use of the private practice income since no accounting of this money was apparently made to anyone. In addition, the commingling of private practice monies with other monies such as gifts or grant funds and the inconsistent use of accounting codes in moving this money from DSA to the University appear to be additional attempts to conceal the true source and identity of the monies.

Based upon his investigation, Molnar concluded that "the only persons in the financial know at DSA were Coggins and the managing partner and Director of the Department of Surgery, John Najarian." Molnar opined that, based upon his past experience, "the likelihood of the commission of financial crimes increases where secrecy shrouds financial affairs, discreet revenue sources are commingled and many different accounting codes are used to reflect similar or identical transactions."

Although a "private practice monitor" reviewed the compensation received by the partners of DSA, both from DSA and from the University, Molnar and the Legislative Auditor believed that the Monitor rarely examined supporting documentation in overseeing DSA's financial affairs. Molnar's Affidavit then recounted certain accounting practices which he grouped under the heading of "False Business Expenses." Included among these practices were the retroactive payment of income by DSA to Dr. Stuart Jamieson ("Jamieson"), the former head of the University's Cardiothoracic Surgery unit; a series of low interest loans to DSA's partners; the deferral of payments to the University, following the close of DSA's tax year; and purported irregularities in DSA's balance sheet entries and in its tax returns. Based upon his past experience, and the results of his investigation, Molnar expressed the following views:

I * * * believe that there is probable cause to believe that these records as identified in an attachment to Molnar's Affidavit will constitute evidence that DSA filed false tax returns during the years 1988 through 1991 in violation of Title 26, United States Code Sections 7206(1) and 7206(2) and committed violations of Title 18, United States Code Section 371, the conspiracy statute. In addition, I believe that these records will also show a violation of Title 18, United States Code Section 666 as its relates to substantial amounts of interest income lost annually by the University of Minnesota, a federally funded entity.

As noted, Magistrate Judge Lebedoff issued Warrants for the seizure of some 21 categories of DSA's records, in addition to its computer equipment. Following their issuance, the Search Warrants were executed and DSA documents, including papers belonging to the Defendant, were seized.

On June 1, 1995, the Defendant filed a Motion to Suppress the evidence that was seized during the execution of the two Search Warrants. In support of his Motion, the Defendant contends that Molnar's recitation of the facts, which surrounded DSA's payment to Jamieson of $531,308.00, were false or were recklessly made; that the Affidavit of Molnar did not support a finding of probable cause for the issuance of a Search Warrant; and, that the Warrants issued upon that Affidavit were overbroad and lacked specificity as to the items to be seized.

With respect to Jamieson, Molnar's Affidavit relates that, in June of 1993, he interviewed Jamieson concerning...