US v. Zhang

• Decision Date: 27 September 1993
• Docket Number: No. 92 Cr. 373 (KC).,92 Cr. 373 (KC).
• Citation: 833 F. Supp. 1010
• Parties: UNITED STATES of America, Plaintiff, v. ZHANG Jian Zhong, Li Ping, Wu Yimin, Sunlight International, Inc., China Jiangsu Knitwear & Home Textiles Import & Export (Group) Corporation, C & H West Merchandising, Inc. and Robert Hsu, Defendants.
• Court: U.S. District Court — Southern District of New York

833 F. Supp. 1010

UNITED STATES of America, Plaintiff, v. ZHANG Jian Zhong, Li Ping, Wu Yimin, Sunlight International, Inc., China Jiangsu Knitwear & Home Textiles Import & Export (Group) Corporation, C & H West Merchandising, Inc. and Robert Hsu, Defendants.

No. 92 Cr. 373 (KC).

United States District Court, S.D. New York.

September 27, 1993.

COPYRIGHT MATERIAL OMITTED

ORDER

CONBOY, District Judge:

The defendants in this case are all charged with conspiring to defraud the U.S. Customs Service ("Customs") in connection with various imports of clothing from China during 1989 through 1991. In addition, Defendants Li,¹ Sunlight, Jiangsu Knitwear, C & H West, and Hsu are charged with importing goods while underpaying import duties, depriving the United States of customs duties by means of false statements, and smuggling. Defendants Li, Sunlight, and Jiangsu Knitwear are further charged with conspiring to defraud the Internal Revenue Service ("IRS"). All of these charges relate to violations of various sections of Title 18 of the United States Code.

Defendants Li, Wu, and Sunlight (the "Sunlight defendants") have filed pretrial motions in which Defendants Hsu and C & H West (the "C & H West defendants") join. (As Zhang and Jiangsu Knitwear have not yet appeared in this matter, this order will refer to the other five defendants as simply "the defendants.") The defendants have moved to suppress the evidence discovered during the search of Sunlight's offices on the grounds that the search warrant depended for its showing of probable cause on false statements made knowingly and intentionally or with reckless disregard for the truth, and that the search warrant was unconstitutionally general.

The defendants have also challenged the indictment as impermissibly multiplicitous, arguing that it improperly charges a single course of conduct in multiple counts. The defendants claim this multiplicity is achieved by arbitrarily breaking down the counts of the indictment into calendar years, and by charging single acts as violations of multiple statutory provisions. In addition, the defendants have moved for a severance of the count charging a conspiracy to defraud the IRS.

Separately, Defendant Wu has moved for a severance of the charges against him on the ground of prejudicial joinder. Finally, the Sunlight defendants have requested a bill of particulars, and made a number of discovery-related motions.

I. SUPPRESSION OF EVIDENCE DISCOVERED DURING SEARCH OF SUNLIGHT'S OFFICES

A. Standing

Before reaching the claim by the defendants that the search warrant depended on false statements, we must address the Government's contention that the defendants lack standing to challenge the search warrant. In order to challenge a search or seizure on Fourth Amendment grounds, a defendant must establish a reasonable expectation of privacy with respect to the area searched. E.g., Katz v. United States, 389 U.S. 347, 361, 88 S.Ct. 507, 516, 19 L.Ed.2d 576 (1967) (Harlan, J., concurring).

It is obvious at the outset that the C & H West defendants have no standing to challenge the search of Sunlight's offices, as they have not even attempted to make a showing of a reasonable expectation of privacy. With respect to Sunlight's standing, corporations have standing to challenge searches of their corporate offices and seizure of corporate records from their corporate offices. See G.M. Leasing Corp. v. United States, 429 U.S. 338, 352-55, 97 S.Ct. 619, 628-30, 50 L.Ed.2d 530 (1977). The Government suggests that two facts — that Sunlight's offices were on a floor with other offices, and that its offices and file cabinets were unlocked when the Customs agents entered — diminish Sunlight's expectation of privacy to a degree that deprives Sunlight of standing to challenge the search. This contention is without merit. Through the affidavits of Defendants Li and Wu, Sunlight has demonstrated a reasonable expectation of privacy in its offices; that there may have been a failure to lock the door on the occasion the Customs agents entered does not diminish this expectation, and certainly does not transform the offices into a "common area" within the meaning of the cases cited by the Government. E.g., United States v. DeWeese, 632 F.2d 1267, 1269-70 (5th Cir. 1980) (captain of a large shrimping vessel has no legitimate expectation of privacy in ship's ice hold), cert. denied, 454 U.S. 878, 102 S.Ct. 358, 70 L.Ed.2d 188 (1981); United States v. John Bernard Indus., Inc., 589 F.2d 1353, 1362 (8th Cir.1979) (employee who was most frequent user of desk to which other employees had ready access did not have legitimate expectation of privacy in contents of employer's business records stored in desk).

The Government further argues that Customs' limited authority to examine Sunlight's business records also lessens Sunlight's expectations of privacy, as Sunlight is part of a "closely regulated" industry. New York v. Burger, 482 U.S. 691, 700-01, 107 S.Ct. 2636, 2642-43, 96 L.Ed.2d 601 (1987). However, in order for industry regulation to diminish expectations of privacy to a point where warrantless searches are permitted, the regulation must provide notice to owners of firms in the industry that their "`property will be subject to periodic inspections undertaken for specific purposes.'" Id. at 703, 107 S.Ct. at 2644 (quoting Donovan v. Dewey, 452 U.S. 594, 600, 101 S.Ct. 2534, 2538, 69 L.Ed.2d 262 (1981)).² The statute granting examination powers to Customs provides no notice of unannounced searches such as the search of Sunlight's offices, as it requires Customs to provide reasonable notice before conducting any examination. See 19 U.S.C. § 1509(a)(1) (1988). Further, Customs' examination power is not limited to one industry; rather, Customs is broadly empowered to examine "any" document relevant to:

any investigation or inquiry conducted for the purpose of ascertaining the correctness of any entry, for determining the liability of any person for duty and taxes due or duties and taxes which may be due the United States, for determining liability for fines and penalties, or for insuring compliance with the laws of the United States administered by the United States Customs Service....

Id. (emphasis supplied). Thus, Sunlight cannot be said to have been put on notice that, due to its industry classification, its records were subject to unannounced examination by Customs.³

In addition, Defendants Li and Wu have demonstrated the required "nexus between the area searched and their respective work space," Chuang, 897 F.2d at 649 (quoting United States v. Britt, 508 F.2d 1052, 1056 (5th Cir.1975), cert. denied, 423 U.S. 825, 96 S.Ct. 40, 46 L.Ed.2d 42 (1975)), with respect to at least some of the seized documents, including those taken from Wu's desk and Li's desk and personal computer. In light of this Court's ruling on the merits of the Fourth Amendment challenge of the Sunlight defendants, however, it is unnecessary to determine precisely to which areas of the office they have established the required connection.

B. Alleged Falsity of the Affidavit Supporting the Search Warrant

The Sunlight defendants argue that the warrant was based on knowing misrepresentations of material fact, and not upon probable cause. To challenge successfully the sworn statements in a warrant affidavit, a defendant must make substantial preliminary showings on each of three grounds:

(1) that the warrant affidavit includes a false statement,

(2) that the allegedly false statement was made knowingly and intentionally or with reckless disregard for the truth, and

(3) that the allegedly false statement is necessary to a finding of probable cause.

United States v. U.S. Currency, The Amount of $228,356.00, 895 F.2d 908, 919 (2d Cir.), cert. denied, 495 U.S. 958, 110 S.Ct. 2564, 109 L.Ed.2d 747 (1990); see also United States v. Levasseur, 816 F.2d 37, 43 (2d Cir.1987); United States v. Ferguson, 758 F.2d 843, 848 (2d Cir.), cert. denied, 474 U.S. 1032, 106 S.Ct. 592, 88 L.Ed.2d 572 (1985). These preliminary showings must include both allegations and offers of proof. See Franks v. Delaware, 438 U.S. 154, 171, 98 S.Ct. 2674, 2684, 57 L.Ed.2d 667 (1978).

The Sunlight defendants claim that two allegations in the affidavit upon which the warrant was based are false, and seek a Franks hearing regarding these allegations. First, the Sunlight defendants contend that the allegation in the affidavit regarding the control relationship between China National Textiles Import and Export Corporation ("China National") and Jiangsu Knitwear is false. There is no need to explore this contention, as this Court finds that the challenged statements constitute background material and are not necessary to the showing of probable cause.⁴

Second, the Sunlight defendants challenge the allegation that attorneys for All American Apparel — a customer of Jiangsu Knitwear and Sunlight — told Customs agents that All American, Sunlight and Jiangsu Knitwear were involved in a complicated scheme to conceal from Customs dutiable quota payments. This scheme allegedly involved disguising quota payments as yarn payments. The Sunlight defendants' challenge to this allegation is insufficient to warrant a Franks hearing. The Sunlight defendants have offered thin, if any, proof that the challenged allegation is even false, much less that the allegation was made with reckless disregard for the truth. To support the claim that there was no scheme to disguise quota payments as yarn payments, the Sunlight defendants offer two invoices from Jiangsu Knitwear to All American, one for quota and one for yarn, as examples of invoices which the Sunlight defendants claim that Customs had possessed at the time the affidavit was sworn. Obviously, the fact that Jiangsu Knitwear issued some invoices for quota is in no way inconsistent with Jiangsu Knitwear and Sunlight having concealed other quota payments; thus, possession of these...