A restraining order against a just-arrested defendant telling him to leave a bank account untouched was not hearsay and should have been allowed as evidence in a federal bank fraud trial, the U.S. Court of Appeals for the Second Circuit ruled yesterday.
The circuit vacated a lower court decision excluding evidence of an asset restraining order against Courtney Dupree, a former college basketball star and Obama fundraiser and the former CEO and president of the holding company, GDC Acquisitions, who was convicted in 2011.
The circuit found that the 2010 restraining order on the account of GDC and its subsidiaries at Amalgamated Bank was admissible evidence that Dupree knew of, and intended to violate his obligation to maintain funds at the bank and should have been admitted to allow prosecutors to prove Dupree diverted $331,000 from company accounts even after his arrest in 2010.
Dupree was convicted in 2011 on four counts—conspiracy to commit bank fraud, a substantive count of bank fraud and two counts of making false statements—for defrauding Amalgamated of $16 million through GDC, a Long Island-based holding company.
The circuit decision came on a fifth count that never went to trial because of the hearsay ruling—an allegation that Dupree drained the $331,000 out of the accounts for personal use after his arrest and after the restraining order was issued by Manhattan Supreme Court Justice Shirley Kornreich (See Profile).
With the ruling, prosecutors can now argue before Eastern District Judge Kiyo Matsumoto (See Profile) that Dupree’s transfer of the funds for personal use is “relevant conduct” warranting a longer prison term when Dupree is sentenced on the four counts.
The circuit ruling by Judges Ralph Winter (See Profile), Reena Raggi (See Profile) and Debra Ann Livingston (See Profile) on the government’s interlocutory appeal in United States v. Dupree, 11-5115-cr, vacates the hearsay ruling made pretrial by Matsumoto.
Prosecutors charged that Dupree, a former basketball star at the University of North Carolina who held a fundraiser for then-to-be-President Barack Obama in 2008, lied about accounts receivable at the company to obtain and maintain a $21 million credit line at Amalgamated, a violation of the law and the terms of the company’s credit agreement with the bank.
When Dupree was arrested, on July 23, 2010, Amalgamated accelerated the loan, filed suit in state court to enforce its rights under the credit agreement, and obtained a restraining order from Kornreich on Aug. 4, 2010, blocking the movement or transfer of any assets of GDC and its subsidiaries.
In October 2011, the government filed a motion in limine seeking to admit Kornreich’s order at trial as evidence that Dupree had knowledge of his obligations under the credit agreement and that he intended to defraud Amalgamated when he made the withdrawals.
Matsumoto, however, held the order was inadmissible hearsay. And even if it was admissible under the hearsay exception, the judge said, it would still be excluded under Federal Rule of Evidence 403 on the grounds that its probative value would be outweighed by the danger of unfair prejudice and confusion.
While the case proceeded to trial on the four counts, the government was allowed to pursue an interlocutory appeal on the hearsay issue before the Second Circuit, which heard oral arguments on Aug. 30, 2012.
Before the court, Dupree argued the 2010 order was excludable hearsay because it was being offered “for its truth.”
But writing for the circuit panel yesterday, Livingston said, “as the government aptly argues, the significance of the Order lies in the fact that it issued—making it less likely that Dupree, aware of the August 4 Order, could be unaware of relevant provisions in the Credit Agreement on which it was premised and that he allegedly disregarded in diverting funds to his personal use.”
Livingston said the panel agreed with the government that the order served as a reminder to Dupree of his obligations under the credit agreement and “makes it less likely that Dupree’s conduct with regard to the allegedly diverted funds could be an innocent mistake.”
“We have repeatedly held that a statement is not hearsay where, as here, it is offered, not for its truth, but to show that a listener was put on notice,” Livingston said. “Here, a jury could infer that given the August 4 Order’s timing, posture and language, Dupree knew of his obligation under the Credit Agreement and further knew that he was depriving Amalgamated of its property interests when he allegedly withdrew and transferred money for personal use in violation of the Credit Agreement’s terms.”
She added, “Moreover, a jury could draw this inference without deciding whether the August 4 Order itself created any obligations that Dupree subsequently violated, and without relying on the truth of any assertion that the August 4 Order might contain.”
Having addressed the error and vacated the ruling, the circuit remanded the case to Matsumoto to conduct a Rule 403 analysis anew, “consistent with this opinion.”
“Given its relevance,” Livingston said, “the August 4 Order may be properly excluded only if its probative value in shedding light on Dupree’s state of mind is substantially outweighed by the dangers of which Rule 403 warns.”
Assistant U.S. Attorney Michael Yaeger argued for the government.
Dupree is scheduled to appear again before Matsumoto on Feb. 4, a tentative sentencing date that could be postponed if more briefing is ordered.
Meena Sinfelt of Andrews Kurth in Washington, D.C., argued for Dupree at the circuit.
Roscoe Howard, also of Andrews Kurth, represented Dupree at trial. Howard has asked Matsumoto for a noncustodial sentence. Howard declined comment yesterday, but his sentencing memorandum argues that his client was engaged in “aberrant” conduct and did not personally profit from the alleged fraud.
Eastern District spokesman Robert Nardoza said the office was reviewing its options in the case.
Yaeger and fellow Assistant U.S. Attorney David Woll filed a sentencing memorandum opposing a non-custodial sentence and noting that the U.S. Sentencing Guidelines calls for a sentence of 11 years and three months.
Saying that the defendant “for years led an elaborate fraud,” the prosecutors ask the judge to consider that “the defendant took the witness stand and lied to the court and the jury.”
@|Mark Hamblett can be contacted at firstname.lastname@example.org.