This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Arthur D. Spatt declined to stay a civil case pending defendant’s appeal of his criminal conviction involving substantially the same facts. Judge William F. Kuntz II, granted the government’s motion to disqualify an attorney in a criminal case for an unwaivable conflict of interest. And Judge Margo K. Brodie held, in the context of a criminal sentencing, that the court had no authority to apply forfeited funds to a restitution order.
Stay Pending Criminal Appeal Denied
In Commodity Futures Trading Commission v. Lamarco, 17 CV 04087 (EDNY, May 7, 2018), Judge Spatt denied a defendant’s application for a stay pending appeal of his related criminal conviction, and vacated a clerk’s default entered against his corporate co-defendant.
Defendant Daniel Lamarco pleaded guilty to wire fraud and commodities fraud in August 2016. After Robert J. Del Col appeared as his new counsel in March 2017, Lamarco filed both an appeal and a motion to vacate his conviction based on ineffective assistance of counsel.
In July 2017, the CFTC commenced this civil proceeding, based on substantially the same facts as the criminal matter, alleging fraud and violations of the Commodities Act by Lamarco and co-defendant GDLogix, Inc. (GDLogix). In September 2017, Magistrate Judge A. Kathleen Tomlinson appointed Del Col to represent Lamarco for the limited purpose of attempting to negotiate a settlement with the CFTC. By a letter dated Feb. 28, 2018, Del Col advised Judge Tomlinson that he was unable to reach a settlement, and requested a stay of the civil case pending Lamarco’s criminal appeal.
Judge Tomlinson terminated Del Col’s limited appointment as Lamarco’s counsel in the civil case, asked Lamarco to confirm if he wished to retain new counsel or proceed pro se, and cautioned him that GDLogix could not appear without counsel. Lamarco elected to appear pro se, and filed a motion formalizing Del Col’s letter request for a stay of the civil case pending his criminal appeal. GDLogix did not appear and, after the Clerk entered a certificate of default, Lamarco wrote the court requesting that a default judgment not be entered against it. The CFTC filed a motion to strike Lamarco’s letter because, as a non-lawyer, he was not authorized to represent a corporate defendant.
Spatt denied Lamarco’s motion for a stay. A stay is warranted only where required in the interests of justice upon balancing the overlap between the relevant matters, the procedural status of the two cases; the interests of or prejudice to plaintiff, the interests of or burden on defendant, the interests of the courts, and the public interest, see Louis Vitton Malletier v. LY USA, 676 F.3d 83, 99 (2d Cir. 2012). The first factor favored Lamarco as the cases presented overlapping issues. But the remaining factors did not: “courts have found that civil cases should not be stayed while a criminal appeal is pending,” slip op. 8-9 (collecting cases), and the plaintiff, the court and the public all have an interest in expeditious resolution.
Lamarco’s assertions of undue prejudice failed. That he would have difficulty conducting legal research while incarcerated “is not the kind of prejudice typically considered by the courts. Furthermore, this is not undue prejudice, as Lamarco has pleaded guilty, and now must defend himself for civil violations.” Lamarco could possibly face an adverse inference if he asserted his Fifth Amendment right not to testify based on concerns about the use to which his statements might later be put if his challenge to the conviction proved successful. But courts typically assign less weight to such prejudice after conviction than they do pretrial, and the court could in any event “tailor discovery to avoid undue prejudice.”
Though agreeing that Lamarco lacked standing to oppose entry of a default judgment against GDLogix, the court exercised its discretion to vacate the default sua sponte, “solely for the purpose of [GDLogix] securing counsel to discuss settlement.” The default did not appear willful and, given its recency, no prejudice could be shown.
Defense Counsel’s Conflict of Interest
In United States v. Elder, 18 CR 00092 (EDNY, May 29, 2018), Judge Kuntz held that counsel in a criminal case had an actual, unwaivable conflict of interest where, according to the government, he was the subject of an ongoing investigation related to certain potential charges against his client. The conflict existed whether or not the attorney was in fact guilty of any misconduct.
A grand jury returned a sealed indictment charging defendant McCoy and others with extortionate extension of credit, causing the death of another through use of a firearm and other crimes. The government was continuing to investigate defendant for additional offenses, such as conspiring to harbor a fugitive and unlawful flight to avoid prosecution. The investigation stemmed from defendant’s successful avoidance of arrest on a federal warrant between March 1 and March 7, 2018.
The government was also investigating whether defendant’s attorney played any role in facilitating defendant’s ability to avoid apprehension. On March 5 or 6, 2018, the attorney contacted the government to say he would be representing a witness in the indicted case and perhaps defendant as well. The attorney informed the government that the dual representation could create a potential conflict; and defendant wanted his representation and was “‘just about ready to surrender.’”
On March 7, the witness appeared before the grand jury. The attorney advised the government that, as of that date, his representation of the witness would cease. That same day, after discussing the timing of defendant’s surrender with the government, the attorney drove him to the FBI offices to surrender.
At defendant’s arraignment, the government noted the conflicts of interest. The court appointed separate counsel (“conflicts counsel”) to advise the defendant about conflicts of interest.
The government moved to disqualify the attorney in the criminal case based on his alleged involvement in the defendant’s avoidance of arrest and the prior representation of a witness. The court held a Curcio hearing to examine the conflicts. The defendant waived his right to an attorney free of conflicts, even though conflicts counsel took the position that there was an unwaivable conflict.
The government argued that an actual conflict existed because the attorney was under investigation for helping defendant avoid arrest. The attorney countered that he had advised defendant to surrender without delay, but was not obliged to “become an arm of law enforcement.”
As Kuntz observed, given the attorney’s alleged involvement in defendant’s unlawful avoidance of arrest, the attorney “may have been involved in misconduct that could be the subject of evidence in the instant case.” This gives the attorney an overriding interest to handle the case in a way that reduces the risk to him of reputational harm or criminal charges. This could affect his advice to his client about pleading guilty, testifying or cooperating. No valid waiver is possible in these circumstances.
The court emphasized that it took no position on whether the attorney had engaged in misconduct. The allegations underlying the government’s investigation were enough to disqualify the attorney.
In light of the actual, unwaivable conflict, the court saw no need to decide on the potential conflict arising from the attorney’s representation of a witness and the efficacy of any waiver on that point.
Restitution and Forfeiture
In United States v. Pratt, 17 CR 262 (EDNY, June 11, 2018), Judge Brodie denied defendant’s motion to credit forfeited funds to restitution.
In April 2017, the defendant stole $29,485 from the U.S. Postal Service. He pleaded guilty to theft of government funds and misappropriation of property by a USPS employee. In November 2017 the court granted, without opposition, the government’s motion for a preliminary order of forfeiture in the amount of $29,485, representing the proceeds of the crime. As part of his sentencing submission, the defendant moved to require the government to apply the forfeited funds to restitution because the amounts of forfeiture and restitution were the same. The defendant sought to avoid double payment.
As Brodie observed, forfeiture and restitution serve different purposes. Forfeiture is paid to the government and is intended to relieve a defendant of ill-gotten gains, while the purpose of restitution is to compensate the defendant’s victims. Recently, the U.S. Court of Appeals for the Second Circuit has held that without specific statutory authorization, district courts do not have authority to order the use of forfeited funds for payment of restitution, see United States v. Bodouva, 853 F.3d 76 (2d Cir. 2017). Other circuits, including the Fourth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits, have reached the same conclusion.
The government has sole discretion to apply forfeited funds that it has collected to restitution. But as set forth in the DOJ’s Asset Forfeiture Policy Manual, the government may do that only where other property is not available to satisfy a restitution order.
Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.