Carson Gov't Opposition to Motion to Suppress
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ANDR BIROTTE JR.United States AttorneyDENNISE D. WILLETTAssistant United States AttorneyChief, Santa Ana Branch OfficeDOUGLAS F. McCORMICK (180415)Assistant United States AttorneyGREGORY W. STAPLES (155505)Assistant United States Attorney
411 West Fourth Street, Suite 8000Santa Ana, California 92701Telephone: (714) 338-3541
Facsimile: (714) 338-3564E-mail: [email protected] McGOVERN, Acting ChiefCHARLES G. LA BELLA, Deputy Chief (183448)ANDREW GENTIN, Trial AttorneyFraud SectionCriminal Division, U.S. Department of Justice
1400 New York Avenue, N.W.Washington, DC 20005Telephone: (202) 353-3551Facsimile: (202) 514-0152E-mail: [email protected]
Attorneys for PlaintiffUnited States of America
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.
STUART CARSON et al.,
Defendants.
)))))
))))))
NO. SA CR 09-00077-JVS
GOVERNMENTS OPPOSITION TODEFENDANTS MOTION TO SUPPRDEFENDANTS STATEMENTS; MEM
OF POINTS AND AUTHORITIES;DECLARATION OF SPECIAL AGENJ. SMITH AND ASSISTANT UNITSTATES ATTORNEY DOUGLAS F.McCORMICK
Hearing Date & Time:
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Criminal Division, Fraud Section, and the United States
for the Central District of California (collectively, t
government), hereby files its Opposition to Defendants
to Suppress Statements. This Opposition is based upon t
attached memorandum of points and authorities, the Decla
of FBI Special Agent Brian J. Smith and Assistant United
Attorney Douglas F. McCormick attached hereto, the filesrecords in this matter, as well as any evidence or argum
presented at any hearing on this matter.
DATED: April 2, 2012 Respectfully submitted,
ANDRE BIROTTE JR.United States Attorney
DENNISE D. WILLETTAssistant United States AttoChief, Santa Ana Branch Offi
DOUGLAS F. McCORMICKAssistant United States AttoDeputy Chief, Santa Ana Bran
GREGORY W. STAPLESAssistant United States Atto
KATHLEEN McGOVERN, Acting ChCHARLES G. LA BELLA, Deputy ANDREW GENTIN, Trial AttorneFraud Section, Criminal DiviUnited States Department of
/s/
DOUGLAS F. McCORMICKAssistant United States Atto
Attorneys for PlaintiffUnited States of America
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TABLE OF CONTENTS
DESCRIPTION
TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . .
MEMORANDUM OF POINTS AND AUTHORITIES . . . . . . . . .
I. INTRODUCTION . . . . . . . . . . . . . . . . . . .
II. BACKGROUND . . . . . . . . . . . . . . . . . . . .
A. The Governments Principles ofCorporate Prosecution . . . . . . . . . . . .
B. The Companys Voluntary Disclosure . . . . .
C. August 15-17, 2007: E-mails Between theCompany and the Government . . . . . . . . .
D. The Companys Interviews . . . . . . . . . .
III. ARGUMENT . . . . . . . . . . . . . . . . . . . . .
A. Neither the Company Nor Its Lawyers WereState Actors at the Time of DefendantsInterviews . . . . . . . . . . . . . . . . .
B. Defendants Statements Were Not Involuntary .
IV. CONCLUSION . . . . . . . . . . . . . . . . . . . .
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TABLE OF AUTHORITIES
DESCRIPTION
UNITED STATES CONSTITUTION:
U.S. Const. amend V . . . . . . . . . . . . . . . . .
CASES:
Aguilera v. Baca,510 F.3d 1161 (9th Cir. 2007) . . . . . . . . . . .
Blum v. Yaretsky,457 U.S. 991 (1982) . . . . . . . . . . . . . . . .
Carlin Communications, Inc. v. Mountain StatesTelegraph & Telegraph Co.,
827 F.2d 1291 (9th Cir. 1987) . . . . . . . . . . .
D.L. Cromwell Investments, Inc. v. NASD Regulation, Inc.
279 F.3d 155 (2d Cir. 2002) . . . . . . . . . . . .
Fisher v. United States,425 U.S. 391 (1976) . . . . . . . . . . . . . . . .
Flagg v. Yonkers Sav. & Loan Association,396 F.3d 178 (2d Cir. 2005) . . . . . . . . . . . .
Garrity v. New Jersey,
385 U.S. 493 (1967) . . . . . . . . . . . . . . 1
Jackson v. Metropolitan Edison Co.,419 U.S. 345 (1974) . . . . . . . . . . . . . . . .
Lugar v. Edmondson Oil Co.,457 U.S. 922 (1982) . . . . . . . . . . . . . . . .
San Francisco Arts & Athletics, Inc. v. U.S. Olympic Com
483 U.S. 522 (1987) . . . . . . . . . . . . . . . .
Sutton v. Providence St. Joseph Medical Ctr.,192 F.3d 826 (9th Cir. 1999) . . . . . . . . . . .
United States v. Bowers,739 F.2d 1050 (6th Cir. 1984) . . . . . . . . . . .
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TABLE OF AUTHORITIES (CONTINUED)
DESCRIPTION
CASES (contd.):
United States v. Miller,688 F.2d 652 (9th Cir. 1982) . . . . . . . . . . .
United States v. Moyer,--- F.3d ---, 2012 WL 639277 (3rd Cir. Feb. 29, 201
United States v. Reed,15 F.3d 928 (9th Cir. 1994) . . . . . . . . . . . .
United States v. Saechao,418 F.3d 1073 (9th Cir. 2005) . . . . . . . . . . .
United States v. Solomon,509 F.2d 863 (2d Cir. 1975) . . . . . . . . . . . .
United States v. Stein,233 F.3d 6 (1st Cir. 2000) . . . . . . . . . . . .
United States v. Stein,541 F.3d 130 (2d Cir. 2008) . . . . . . . . . . . .
United States v. Stein,435 F. Supp. 2d 330 (S.D.N.Y. 2006) . . . . . . . .
United States v. Stein,440 F. Supp. 2d 315 (S.D.N.Y. 2006) . . . . . . . .
United States v. Vangates,287 F.3d 1315 (11th Cir. 2002) . . . . . . . . . .
United States v. Waldon,363 F.3d 1103 (11th Cir. 2004) . . . . . . . . . .
United States v. Walther,652 F.2d 788 (9th Cir. 1981) . . . . . . . . . . .
United States v. Yielding,657 F.3d 688 (8th Cir. 2011) . . . . . . . . . . .
Upjohn Co. v. United States,
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MEMORANDUM OF POINTS AND AUTHORITIES
I.
INTRODUCTION
On August 16 and 17, 2007, outside counsel for Cont
Components, Inc. (CCI, or the Company) interviewed s
the Companys senior executives, including defendants Ho
Carson, Paul Cosgrove, and David Edmonds (defendants),of the Companys internal investigation into whether cor
payments had been made by the Company and its employees
or retain business. One day earlier, CCI had, through c
voluntarily disclosed its internal investigation and the
underlying concerns to the United States Department of J
(the government). Defendants now ask this Court to su
statements they made during the interviews, arguing that
participation in the interviews was coerced in violation
Fifth Amendment rights against self-incrimination. Defe
Notice of Motion and Motion to Suppress Defendants Stat
(Dkt. #573) (Defts Suppression Motion). Defendants c
that the Company was a state actor at the time of the in
by virtue of its voluntary disclosure and contemplated
cooperation with the government and that their statement
improperly coerced by threats of termination.
Defendants motion to suppress should be denied. O
actors can violate a defendants Fifth Amendment rights,
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evidence does not show that defendants were threatened w
termination.
II.
BACKGROUND
A. The Governments Principles of Corporate Prosecutio
The Justice Department has long had a written polic
governing its treatment of corporate wrongdoing. Since 1990s, that policy has been memorialized in a series of
written by the Deputy Attorney General, one of the highe
ranking officials in the Department. In 2006, then-Depu
Attorney General Paul J. McNulty wrote a memorandum (th
Memorandum) to all federal prosecutors in which he upda
governments Principles of Federal Prosecution of Busin
Organizations. Declaration of Douglas F. McCormick att
hereto (McCormick Decl.), Exh. A.1 Under the McNulty
Memorandum, federal prosecutors were instructed that the
consider the corporations timely and voluntary disclos
wrongdoing and its willingness to cooperate in the inves
of its agents. Id. at 4. The memorandum elaborates as
In determining whether to charge acorporation, that corporations timely andvoluntary disclosure of wrongdoing and its
cooperation with the governmentsinvestigation may be relevant factors. Ingauging the extent of the corporationscooperation, the prosecutor may consider,among other things, whether the corporationmade a voluntary and timely disclosure, andthe corporations willingness to provide
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senior executives.
Id. at 7.
The McNulty Memorandum departed from earlier versio
discussion of how the government should consider a corpo
advancement of attorneys fees:
Another factor to be weighed by theprosecutor is whether the corporation appears
to be protecting its culpable employees andagents. Thus, while cases will differdepending on the circumstances, acorporations promise of support to culpableemployees and agents, e.g., through retainingthe employees without sanction for theirmisconduct or through providing informationto the employees about the governmentsinvestigation pursuant to a joint defenseagreement, may be considered by the
prosecutor in weighing the extent and valueof a corporations cooperation.
Prosecutors generally should not take intoaccount whether a corporation is advancingattorneys fees to employees or agents underinvestigation and indictment. Many stateindemnification statutes grant corporationsthe power to advance the legal fees of
officers under investigation prior to aformal determination of guilt. As aconsequence, many corporations enter intocontractual obligations to advance attorneysfees through provisions contained in theircorporate charters, bylaws or employmentagreements. Therefore, a corporationscompliance with governing state law and itscontractual obligations cannot be considereda failure to cooperate. This prohibition is
not meant to prevent a prosecutor from askingquestions about an attorneys representationof a corporation or its employees.
Id. at 11-12 (emphasis added). The change reflected the
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2d 330, 362-65 (S.D.N.Y. 2006) (Stein I).
B. The Companys Voluntary Disclosure
CCI is a wholly-owned subsidiary of IMI plc, an Eng
company publicly traded on the London Stock Exchange. O
15, 2007, IMIs management informed its Board of Directo
possible improper payments made by CCI. See United Stat
Control Components, Inc., Case No. SA CR 09-00162-JVS, Dat 5.2 IMIs Board of Directors directed a voluntary di
of the investigation to the United States Department of
as well as authorities in the United Kingdom. Id. That
date, IMI made a voluntary disclosure in which it advise
government of possible FCPA violations by CCI and its em
See Declaration of Brian M. Heberlig in Support of Motio
Intervene by IMI plc and Control Components, Inc. (Dkt.
2. (The government has submitted in camera the notes of
Mendelsohn, then-Deputy Chief of the Department of Justi
Fraud Section, reflecting his summary of IMIs voluntary
disclosure.)
C. August 15-17, 2007: E-mails Between the Company anGovernment
Shortly after the Company made its voluntary disclo
of its lawyers, Steptoe & Johnson LLP (Steptoe) partne
M. Norton (Mr. Norton), wrote the following e-mail to
aforementioned Mr. Mendelsohn:3
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Mark,
Ive been discussing with IMIs general
counsel the feasibility of holding off ontheir announcement to the London Exchange. Hedoesnt think its doable. The CompanysBoard of Directors, on advice from UKcounsel, decided at about 6 PM UK time toissue the release at 7:30 AM in Londontomorrow. Its already 9:30 PM in the UK(about 8:30 - 9 when we spoke), and thewheels are in motion. Its simply not
feasible to get UK counsel to opine on thisand contact all the Board members in time toderail the announcement. There would also bea significant risk of a leak if they tried todo this at the last moment, and that wouldcreate other problems.
We fully recognize your and our interest ingetting access to senior management who mayhave been involved in the payments in
questions while may still be willing tocooperate. To that end, I am now planning tofly to LA this evening or first thing in themorning and to be present when theindividuals are informed that they are beingsuspended pending the investigation. Weintend to inform them that the suspension istemporary and we are not prejudging theoutcome, but that the company expects them to
cooperate with the investigation. Then Iproceed to interview them.
This will give our associate in LA time toassemble many, if not all, of the relevantdocuments.
I would hope to be able to advise you by theend of the day tomorrow (probably COB PDT)whether the individuals are cooperating or
not. If they are, you can then decidewhether you wish to send someone from theDOJ or FBI to speak to them. I will also beon-site to help coordinate with the company.If they refuse to cooperate with us, theywill presumably refuse to cooperate with youtoo. In either case, you should have a better
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McCormick Decl., Exh. B at 2.4
Mr. Norton sent Mr. Mendelsohn a second e-mail at 1
on Friday, August 17, 2007, in which he updated Mr. Mend
the first day of interviews:
Mark,
We interviewed five of the senior managementat CCI today in very general terms. So far
they are being cooperative. We intend to askmore difficult questions tomorrow based onspecific documents.
If you would like to discuss this, pleasesuggest a time by email, and I[]ll try tobreak away.
Best regards,Pat
Id. at 2-3. Mr. Mendelsohn responded several hours late
Thanks, Pat. I will be out of the office onFriday [August 17, 2007]. I suggest we speakearly next week, after you have gotten intospecifics.
Id. at 3.
D. The Companys Interviews
As reflected in the e-mails between Mr. Norton and
Mendelsohn, Mr. Norton and other Steptoe attorneys condu
interviews of company employees at CCIs corporate headq
in Rancho Santa Margarita, California, on August 16 and
No FBI agents were present. Declaration of Special Agen
J. Smith attached hereto (Smith Decl.), 2-4. Stept
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confidential and protected by the attorney-client privil
Declaration of Brian Heberlig (Dkt. #121-2) at 4. Stept
attorneys also gave so-called Upjohn warnings5 to each w
indicating that the contents of the interview were privi
but that the privilege and the decision whether to waive
belonged to IMI, not the employee. Id. Steptoe attorne
told the witnesses that they represented IMI, not the wipersonally. Id.
On August 16, 2007, CCIs then-President, Ian Whiti
an all-personnel meeting at which he informed personnel
investigation and the interviews. Both Mr. Edmonds and
Carson describe being present at this meeting. Mr. Edmo
that Whiting announced that IMI had launched an investi
into possible irregular payments and he ordered that eve
employee must fully cooperate with the investigation and
required with investigators. Declaration of David Edmo
Support of Defendants Motion to Suppress Defendants St
(Dkt. #573-3) (Edmonds Decl.), 2.6
Whiting subsequently met with Mr. Edmonds, Mr. Cosg
Mrs. Carson individually. Mr. Edmondss declaration sta
Mr. Whiting told Mr. Edmonds that he [Whiting] expected
cooperation with the investigation. Edmonds Decl., 3
Cosgrove states that Mr. Whiting directed me to coopera
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CCIs internal investigation and submit to an interview
Steptoe. Declaration of Paul Cosgrove (Dkt. #573-4) (
Decl.), 2.
At no time did Mr. Whiting or anyone else at IMI or
threaten to fire Mr. Edmonds, Mr. Cosgrove, or Mrs. Cars
they did not cooperate with the investigation. Mr. Edmo
declaration makes this clear: Because I was ordered by President of CCI [Whiting] to cooperate with the investi
and meet as required with investigators, I believed that
not do what I was told and cooperate and meet with inves
I would be fired. Edmonds Decl., 4 (emphasis added).
Likewise, Mr. Cosgrove states that I believed that if I
agree to submit to an interview, I could lose my job for
disobeying an order from CCIs President. Cosgrove Dec
(emphasis added).
Mr. Cosgrove states that there were two gentlemen
not recognize at CCI on August 17, 2007, and that he was
told that they were in fact FBI agents. Cosgrove Dec
Mr. Cosgroves information is incorrect; no FBI agents w
CCI on August 17, 2007, and, in fact, the FBIs investig
CCIs activities was not even opened until two months la
Smith Decl., 2-4.
After describing Mr. Whitings initial announcement
Carson says she was asked to come out of the restroom on
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describes being asked to go to a conference room where s
subsequently asked to remain. Mrs. Carson says she fel
would be serious repercussions to [her] employment, incl
possibility of immediate termination, if I did not compl
her instructions to stay in the conference room. Carso
3. Mrs. Carson then describes being escorted to a sec
conference room, where she was interviewed by Steptoe la
Id., 4-5. Mrs. Carson says she do[es] not remember
told that I was going to be meeting with lawyers for the
before being taken to this conference room. Id., 4.
Carson states that at all times during the events descr
above, including meeting with the lawyers, I felt that I
not leave the company and that if I did not comply with
various requests, I would be fired or suffer negative
consequences regarding my CCI [sic]. Id., 7.
Mr. Whitings statements to defendants were documen
identical memorandum he wrote to each of them on August
McCormick Decl., Exhs. C1-C3 (Whiting Memorandum). Th
Memorandum stated, in pertinent part:
I write to confirm the conversation we hadtoday. As you and I discussed, IMI haslaunched an investigation into possible
irregular payments associated with certaintrading contracts entered into by its SevereService business. The Company is committedto the highest ethical standards and takesthese matters very seriously. We haveretained external counsel and otherconsultants to conduct a thorough,
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business, the Company expects you tocooperate fully in this process.Arrangements have been made for you to meet
with the investigators. When you do so,please answer all their questions and furnishall information they request. Should theinvestigators contact you later for furtherdiscussions or additional information, pleasecomply promptly. We remind you that you mustkeep all your discussions with theinvestigators in the strictest confidence.You should disclose them to no one, inside oroutside the Company, without advancepermission from Ian Whiting.
This also confirms that you are beingsuspended, with pay, during the investigationprocess. Again, we emphasize that this isnot a termination of your employment. Nor isit a determination that you have madeirregular payments or otherwise behavedunethically. Should there be indications of
misconduct, you will be afforded anopportunity to give your side of the storyduring this phase of the investigation. Youwill be asked to report back to work once adetermination is made that you have notengaged in misconduct. In the event you arefound to have engaged in misconduct, you willbe subject to disciplinary action, up to andincluding termination of employment.
Id. (emphases added). The government is aware of no evi
that suggests that defendants have claimed, at least pri
this motion to suppress, that the Whiting Memorandas de
of Mr. Whitings interactions with defendants is inaccur
III.
ARGUMENT
The Fifth Amendment provides that [n]o person . .
be compelled in any criminal case to be a witness agains
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Amendment rights; the Fifth Amendment restricts only gov
conduct, and will constrain a private entity only insofa
actions are found to be fairly attributable to the gov
See Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982)
Cromwell Investments, Inc. v. NASD Regulation, Inc., 279
155, 161 (2d Cir. 2002).
Second, the statements taken must be compelled. Se
v. United States, 425 U.S. 391, 399 (1976) ([T]he Court
never on any ground . . . applied the Fifth Amendment to
the otherwise proper acquisition or use of evidence whic
did not involve compelled testimonial self-incrimination
sort.) (emphasis added); see also id. at 408 ([T]he Fi
Amendment does not independently proscribe the compelled
production of every sort of incriminating evidence but a
only when the accused is compelled to make a Testimonial
Communication that is incriminating.).
A. Neither the Company Nor Its Lawyers Were State ActoTime of Defendants Interviews
Defendants cite two different lines of cases for de
that CCI and Steptoe were state actors when they conduct
interviews of defendants as part of their internal inves
Defts Suppression Motion at 17-18, 20-21. As part of t
defendants cite Ninth Circuit cases -- e.g., United Stat
Reed, 15 F.3d 928 (9th Cir. 1994), United States v. Mill
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proposition that the government cannot knowingly acquie
and encourage directly or indirectly a private citizen t
in activity which it is prohibited from pursuing where t
citizen has no motivation other than the expectation of
for his or her efforts. Walther, 652 F.2d at 793.
While defendants correctly cite United States v. Da
F.3d 679, 683 (4th Cir. 2010), for the proposition that
regardless of whether the Fourth or Fifth Amendment is
we apply the same test to determine whether a private in
acted as a Government agent, Defts Suppression Motion
6, the cases analyzing whether a private entitys conduc
be considered state action for purposes of the Fifth A
have engaged in a different analysis. See, e.g., United
v. Stein, 541 F.3d 130, 146-47 (2d Cir. 2008); United St
Ferguson, 2007 WL 4240782 (D. Conn. Nov. 30, 2007). Tho
have looked to whether the government has become so perv
entangled in private activity that purportedly private c
should be attributed to the state or the government has
encouraged or facilitated the challenged activity.
Under this line of cases, actions of a private enti
attributable to the State if there is a sufficiently cl
between the State and the challenged action of the . . .
so that the action of the latter may be fairly treated a
the State itself. Jackson v. Metropolitan Edison Co.,
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acquiesces in the initiatives of the private entity. Sa
Francisco Arts & Athletics, Inc. v. U.S. Olympic Comm.,
522, 547 (1987). The purpose of the [close-nexus requi
is to assure that constitutional standards are invoked o
it can be said that the State is responsible for the spe
conduct of which the plaintiff complains. Blum v. Yare
U.S. 991, 1004 (1982). Such responsibility is normally
when the State has exercised coercive power or has prov
significant encouragement, either overt or covert, that
choice must in law be deemed to be that of the State.
nexus of state action exists between a private entity an
state when the state exercises coercive power, is entwin
management or control of the private actor, or provides
private actor with significant encouragement, either ove
covert, or when the private actor operates as a willful
participant in joint activity with the State or its agen
controlled by an agency of the State, has been delegated
function by the state, or is entwined with governmental
policies. Flagg v. Yonkers Sav. & Loan Assn, 396 F.3d
(2d Cir. 2005) (emphases added and internal quotation ma
omitted). Furthermore, the transformation of a private
into a state actor requires a nexus between the state a
specific conduct of which plaintiff complains. Fergus
WL 4240782, at *6 (emphasis in original) (citations omit
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on cooperation with the government).
While the Ninth Circuit has not addressed what test
be applied when determining whether a private entity is
actor for Fifth Amendment purposes, it has adopted a nex
analysis in other, non-Fourth Amendment contexts. When
affirmed a district courts dismissal of a Religious Fre
Restoration Act (RFRA) claim, the Ninth Circuit held t
plaintiff failed to satisfy the state action requireme
RFRA because governmental compulsion in the form of a ge
applicable law, without more, could not transform every
entity that followed the law into a state actor. Sutton
Providence St. Joseph Med. Ctr., 192 F.3d 826, 841 (9th 1999). Rather, the Court held, the plaintiff must estab
other nexus sufficient to make it fair to attribute liab
the private entity. Id.; see also Carlin Communications
Mountain States Tel. & Tel. Co., 827 F.2d 1291, 1295 (9t
1987) (holding that private telephone company was state
when it terminated services of another company at direct
county attorney because county attorney threatened to br
charges if it refused).
Defendants rely heavily on the district courts con
in United States v. Stein, 440 F. Supp. 2d 315 (S.D.N.Y.
(Stein II), that the governments conduct coerced defe
into making statements they otherwise would not have mad
g
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Stein IIs suppression of defendants statements fo
its decision in Stein I, where it found that the governm
violated the Sixth Amendment rights of KPMGs employees
pressuring KPMP not to pay employees legal fees in the
of the governments criminal investigation. 435 F. Supp
367-69. In Stein I, the district court found that vario
statements made and actions taken by the government, cou
the treatment of attorneys fees in the Thompson Memoran
effectively coerced KPMG to abandon its longstanding pra
indemnifying employees through the advancement of legal
costs. Id. at 365.8
When considering whether to suppress defendants stStein II relied explicitly on the its earlier factual fi
Here, the government quite deliberately precipitated KP
of economic threats to coerce the proffer statements in
question. 440 F. Supp. 2d at 334. Stein IIs analysis
not only the Thompson Memorandum but also the government
threats to consider KPMGs failure to cut off attorneys
uncooperative employees as well as the governments prac
reporting uncooperative employees to KPMG in circumstan
which there was no conceivable reason for doing so excep
facilitate the firing threats that ensued. Id. at 335.
It is clear from the district courts opinion that
courts holding relied on much more than just the Thomps
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Memorandum:
The Moving Defendants . . . point to the
Thompson Memorandum, which quite specificallytells a company under investigation, as wasKPMG, that a failure to ensure that itsemployees tell prosecutors what they know maycontribute to a decision to indict, and, inthis case, likely destroy the company. Andthey point also to the USAOs closeinvolvement in KPMGs decision making processby, among other things, pointedly remindingKPMG that it would consider the ThompsonMemorandum in deciding whether to indict,saying that payment of employee legal feeswould be viewed under a microscope, andreporting to KPMG the identities of employeeswho refused to make statements incircumstances in which the USAO knew fullwell that KPMG would pressure them to talk toprosecutors. . . .
. . . This Court finds that the government,both through the Thompson Memorandum and theactions of the USAO, quite deliberatelycoerced, and in any case significantlyencouraged, KPMG to pressure its employees tosurrender their Fifth Amendment rights.
Id. at 336-37 (emphasis added).
The first critical distinction between Stein II and
circumstances is straightforward. In Stein II, the stat
question were made to the government directly, which mad
easier for the district court in Stein II to conclude th
state action. Here, by comparison, the government was n
present when the interviews were conducted, and defendanpersuade the Court that the Companys lawyers were state
But more essentially, there is no evidence here tha
from the government deliberately coerced or significa
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either a close nexus between Steptoe/CCI and the governm
the kind of governmental coercion or encouragement prese
Stein II. This conclusion is underscored in the Whiting
Memorandum. To be sure, the Whiting Memorandum confirms
has launched an investigation because [t]he Company is
to the highest ethical standards and IMI takes the matt
seriously. McCormick Decl., Exh. C1 at 1. The e-mails
that Steptoe/CCI was conducting the investigation and in
for its own purposes.
Shortly after making the voluntary disclosure, Mr.
first e-mail informs the government that (1) IMI was goi
with a planned press release despite apparent governmentabout its timing; (2) the company would be temporarily s
certain employees and then interviewing them, without an
direction or input from the government over which employ
be interviewed or the appropriateness of the actions; an
company would inform the government the following day wh
suspended employees were cooperating so that you should
better idea of what course you wish to take. McCormick
Exh. B at 2. The text of the e-mail itself does not sug
close nexus. Mr. Norton uses the pronoun our to descr
actions and your to describe the governments. See id
Mr. Norton then informed the government the followi
that he had interviewed five of the senior managers and
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simply indicated that he would be available if the gover
wanted to discuss the matter further. Id. at 3. Mr. Me
responded the following morning that he would be out of
office on Friday and suggested they speak early next wee
Steptoe had gotten into specifics. Id.
These e-mails show no nexus between the Company and
government. Instead, they show a company in cooperative
informing the government of what is transpiring in its i
investigation. See, e.g., Ferguson, 2007 WL 4240782, at
(companys efforts to cooperate with the government do n
transform company into an arm of the state). At no time
government direct the actions of Steptoe/CCI. The governot instruct the company who to interview or what questi
ask. In fact, the government provided no direction or
instruction as to the conduct of the interviews. See, e
at *6 (cooperating company was not a state actor in abse
coercive actions taken by government).
Defendants contend (Defts Suppression Motion at 19
is inconsistent for the government to contend that Stept
were not state actors at the time of their interviews, b
the government once charged Mrs. Carson with a violation
U.S.C. 1519 for conduct (the toilet-flushing incident)
occurred within the same time frame. But 1519 does no
the existence of a pending investigation, see United Sta
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numerous cases have concluded that there is no nexus
requirement that the obstructive conduct be tied to a pe
imminent proceeding or matter, see United States v. Moye
F.3d ---, 2012 WL 639277, at *11 (3rd Cir. Feb. 29, 2011
the now-dismissed count, which alleged that Mrs. Carson
obstructive conduct occurred in . . . contemplation of
federal investigation, does not somehow turn Steptoe/CCI
state actors.
Without the type of coercive conduct present in Ste
defendants are left with only the Companys voluntary di
coupled with the McNulty Memorandums guidance to federa
prosecutors to consider a corporations cooperative effoFinding state action on these facts alone would be
unprecedented and unwarranted, the effect of which would
turn the cooperating company into a government agent in
case. There is no precedent for such an outcome.
B. Defendants Statements Were Not Involuntary
Nor is there any merit to defendants claim that th
statements were coerced. Even by their own version of e
defendants cannot demonstrate that their statements were
compelled and were thus involuntary. Defendants motion
suppress should fail for this separate, independent reas
Defendants compulsion argument relies principally
Garrity v. New Jersey, 385 U.S. 493 (1967), and its prog
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privilege against self-incrimination and refuse to answe
that if he did so, he could be fired pursuant to a state
that required complete candor of its officers. Id. Pro
subsequently used the officers responses to prosecute t
conspiracy to obstruct the administration of traffic law
The officers appealed their convictions on the ground th
statements had been coerced. Id. at 495. The Supreme C
that the test for coercion was whether the accused was
of his free choice to admit, to deny, or to refuse to an
Id. at 496 (internal quotations marks and citations omit
The Court analogized the loss of a government job to for
of property protected by the Fourteenth Amendment, and hthe threat of losing ones livelihood could prevent a pe
making a free and rational choice to invoke the constitu
right against self-incrimination. Id. at 497 (being fac
the option to lose their means of livelihood or to pay
penalty of self-incrimination . . . is likely to exert
pressure upon an individual as to disable him from makin
and rational choice.) (citation omitted).
It is clear, however, that to constitute compulsion
defendants must demonstrate that they faced a clear-cut
between asserting their right against self-incrimination
suffering economic hardship. See United States v. Fergu
WL 4240782, at *7 (D. Conn.) (finding defendants statem
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failed to cooperate, and (2) [the employer] would reexam
obligations, under its by-laws, to pay non-cooperating e
legal fees) (emphasis in original).
Although a direct threat of termination may not be
necessary, the defendant must have believed the statemen
compelled on threat of loss of job and this belief must
objectively reasonable. United States v. Vangates, 287
1315, 1321-22 (11th Cir. 2002); accord Stein II, 440 F.
at 328 (an individual claiming that a statement was com
violation of the Fifth Amendment must adduce evidence bo
the individual subjectively believed that he or she had
choice except to speak and that a reasonable person in tposition would have felt the same way). Thus, the def
must have subjectively believed that he was compelled to
statement upon threat of loss of job [and] this belief m
been objectively reasonable at the time the statement wa
Vangates, 287 F.3d at 1322.
Here, there is no evidence to show that defendants
objectively reasonable belief that they faced a clear-c
choice between asserting their rights or suffering econ
hardship. Defendants own declarations do not demonstra
anyone threatened them with termination if they did not
with the internal investigation. None of the defendants
being threatened with termination by Mr. Whiting. The W
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[the investigators] questions and furnish all informati
request. McCormick Decl., Exh. C1 at 1. The only refe
termination in the Whiting Memorandum assures defendants
they are not being terminated and that if indications of
misconduct are found, defendants would be allowed to pre
their side of the story. Id. Nor were defendants threa
with nonpayment of legal fees.9
Defendants claims of coercions are thus analogous
claims rejected by the district court in Ferguson, 2007
4240782, where a defendant claimed that his statements w
involuntary because he feared losing his job if he did
cooperate. Id. at *7. Defendant relied on a letter fremployer which informed him that non-cooperation may re
. in a reassessment by [the Company] of the factors gove
whether it is obligated to indemnify [defendant] for [hi
reasonable legal expenses, then noted that such indemni
was condition on the Companys obligations as set forth
by-laws. Id. at *5. The district court concluded that
letter did not force [defendant] to choose between asse
rights and losing his job, and thus rejected defendants
to suppress his statements. Id. at *7; see also United
Waldon, 363 F.3d 1103 (11th Cir. 2004) (holding that def
belief that he would be fired from sheriffs department
not testify was not objectively reasonable because depar
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regulations did not require testimony under threat of sa
but only reflected a general expectation that officers w
cooperate and testify).
United States v. Saechao, 418 F.3d 1073 (9th Cir.
inapposite. Saechao involved a probationer whose probat
compelled him to truthfully answer all reasonable inqui
from his probation officer or face revocation. Id. at 1
these facts, the Ninth Circuit had little difficulty con
that [defendant] did not have the luxury of remaining s
without violating the conditions of his probation. Id.
Here, by contrast, there has been no showing of employme
or other provisions that would compel defendants to answinvestigators questions. All defendants have shown is
from their supervisor to cooperate with the investigatio
nothing more.
Almost forty years ago, the Second Circuit recogniz
the rule against involuntary confessions did not preclud
scenarios where defendants had to make difficult choices
regarding whether to cooperate with an internal investig
To be sure, [defendants] position was not a particular
pleasant one. But the rule excluding involuntary confes
does not protect against hard choices when a persons se
misconduct has placed him in a position where these are
inevitable. United States v. Solomon, 509 F.2d 863, 87
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because there was no evidence that deputies were compell
answer questions; [i]t is of no moment that refusing to
the investigators questions could have resulted (and, i
did result) in [deputies] reassignment); United States
Stein, 233 F.3d 6, 16 (1st Cir. 2000)(finding no Garrity
where attorney claimed she was compelled to answer quest
before state bar; court reasoned that although she faced
disbarment, it was not automatic); United States v. Bowe
F.2d 1050, 1056 (6th Cir. 1984) (holding Garrity not imp
when employee not told he would lose job if he did not s
interview).
The district courts conclusions in Stein II are cowith these cases. The district court concluded that it
suppress statements made by two defendants who were expr
threatened with termination and/or nonpayment of legal f
KPMG if they refused to cooperate with the government.
331 (The Court finds that [defendant 1] made the statem
the proffer sessions because KPMG threatened to fire him
off payment of his legal fees if he did not [cooperate].
(KPMG coerced his appearance [at proffer sessions with
government] by conditioning payment of his legal fees on
appearance and cooperation.).
Because there is no evidence to support an objectiv
reasonable belief that lack of cooperation with the inte
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IV.
CONCLUSION
For the foregoing reasons, defendants motion to su
should be denied.
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DECLARATION OF BRIAN J. SMITH
I, Brian J. Smith, declare as follows:
1. I am a Special Agent with the Federal Bureau o
Investigation (FBI). I am currently assigned to the W
Field Office (WFO) and focus on investigations of viol
United States law, particularly those involving foreign
I am the lead Special Agent in the case of United States
Stuart Carson, et al., Case No. SA CR 09-00077-JVS.
2. I have reviewed the FBIs case file for the
investigation of corrupt payments at Control Components,
(CCI), to determine if there were FBI agents present a
August 16 and/or 17, 2007. The case file reflects that opened its investigation of CCI and its executives after
headquarters received an e-mail summary on or about Octo
2007, from an attorney in the Fraud Section in Washingto
The FBI opened its investigation on October 19, 2007; th
file does not reflect any earlier activity. There is no
the case file that reflects a lead or other request bein
the Los Angeles Division of the FBI to send Special Agen
in August 2007.
3. I queried the FBIs Automated Case System (AC
database of the FBIs investigative activity, to see if
contained any information about FBI activity at CCI in A
2007. My ACS query returned no information indicating t
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DECLARATION OF DOUGLAS F. McCORMICK
I, Douglas F. McCormick, declare as follows:
1. I am an Assistant United States Attorney in th
States Attorneys Office for the Central District of Cal
I am one of the attorneys representing the government in
matter.
2. Attached hereto as Exhibit A is a copy of an
memorandum issued in December 2006 by then-Deputy Attorn
General Paul J. McNulty regarding Principles of Federal
Prosecution of Business Organizations. This memorandum
called the McNulty Memorandum for short, was in effect i
2007 at the time of CCIs voluntary disclosure.
3. Attached hereto as Exhibit B is a copy of a
written by the prosecution team to defendants counsel i
response to Mr. Edmondss counsels request for all doc
reflecting communications between the Department of Just
and CCI, IMI, or its agents . . . for the period July 1,
and October 31, 2007. The governments letter confirme
had previously told Mr. Edmondss counsel in person: tha
would produce documents reflecting communications betwee
Department of Justice and CCIs outside counsel, Steptoe
Johnson LLP, for the time period of August 15, 2007, thr
August 17, 2007. The letter then re-prints the text of
mails between Steptoe & Johnson LLPs Patrick Norton and
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