Opinion
CR-05-870-PHX-DGC.
March 26, 2007
ORDER
Pending before the Court are five pretrial motions filed by Defendant Jeffrey Kilbride: motion to sever count nine, motion for judicial review and disclosure of Brady material, motion for hearing to determine admissibility of alleged co-conspirator statements, motion for hearing to determine admissibility of co-defendant's out-of-court statements, and motion to strike surplusage from count eight. Dkt. ##70-74. The Government has filed responses to the motions and Defendant has filed replies. Defendant has requested oral argument on the motions. The request is denied because the parties have thoroughly discussed the law and evidence and oral argument will not aid the Court's decisional process.
I. Background.
Unsolicited commercial e-mail is commonly known as "spam." On December 16, 2003, President George W. Bush signed into law the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM Act"), Pub.L. 108-187, 117 Stat. 2619 (codified at 15 U.S.C. §§ 7701- 7713 and 18 U.S.C. § 1037). The Act went into effect on January 1, 2004. Id. § 16. One of the purposes of the Act is to prohibit senders of spam e-mail from deceiving intended recipients as to the source or subject matter of the e-mail. See S. REP. NO. 108-102, at 1 (2003), reprinted in 2004 U.S.C.C.A.N 2348.
Defendant Kilbride and two of his alleged co-conspirators, Jennifer Clason and James Schaffer, were indicted on August 25, 2005. Dkt. #1. The indictment asserts nine counts. Counts one through three allege that between January 1, 2004 and April 12, 2005, Defendants conspired to send over the Internet unsolicited commercial e-mail that contained embedded pornographic images. Defendants are charged with knowingly falsifying header information in the spam e-mail in violation of 18 U.S.C. § 1037(a)(3) and registering Internet domain names using information that materially falsified the identity of the actual registrant in violation of 18 U.S.C. § 1037(a)(4). Id. at 2-14. Counts four and five allege that Defendants Kilbride and Schaffer violated 18 U.S.C. § 1462 by knowingly using an interactive computer service to transport obscene images in interstate commerce. Id. at 14. Counts six and seven allege that Defendants Kilbride and Schaffer violated 18 U.S.C. § 1465 by knowingly causing obscene images to be transported in interstate commerce for the purpose of sale and distribution. Id. at 14-15. Count eight charges Defendants Kilbride and Schaffer with conspiracy to launder money instruments in violation of 18 U.S.C. § 1956(h). Id. at 15-18. Count nine charges Defendant Schaffer with record keeping violations under 18 U.S.C. § 2257(f) with respect to three pornographic Internet sites. Id. at 18-19.
II. Motion to Sever Count Nine.
Defendant Kilbride seeks to sever count nine from the other counts in the indictment for purposes of trial pursuant to Rule 14 of the Federal Rules of Criminal Procedure. Dkt. #70. Defendant argues that count nine should be severed because it is asserted only against Defendant Shaffer, it does not relate to counts one through eight either factually or legally, and it would be highly prejudicial to Defendant to permit the Government to introduce at trial evidence regarding the three pornographic websites allegedly operated by Defendant Shaffer. Id. The Government does not oppose the severance of count nine. Dkt. #87.
Rule 14 provides that if the joinder of counts in an indictment "appears to prejudice a defendant or the government, the court may order separate trials of counts[.]" Fed.R.Crim.P. 14(a). The Court will exercise its discretion under Rule 14 and sever count nine for purposes of trial. Given this ruling, the Court need not address Defendant's argument that the joinder of count nine with the other counts in the indictment was improper under Rule 8(a).
"There is a high risk of undue prejudice whenever joinder of counts allows evidence of other crimes to be introduced in a trial of charges with respect to which the evidence would otherwise be inadmissible." United States v. Lewis, 787 F.2d 1318, 1320 (9th Cir. 1986) (citation omitted). In this case, count nine relates solely to Defendant Schaffer's alleged operation of three pornographic websites. The alleged websites contained visual depictions of sexually explicit conduct. Count nine alleges that the websites failed to contain a statement describing where records pertaining to the performers of the sexually explicit conduct were located in violation of 18 U.S.C. § 2257(f). Dkt. #1 at 18. Defendant Kilbride asserts that pages of the websites disclosed by the Government contain sexually explicit images and that the Government will seek to introduce these images, as well as the names of the websites, at trial. Dkt. #70 at 4-5.
The term "sexually explicit conduct" means actual sexual intercourse, bestiality, masturbation, sadistic or masochistic abuse, or lascivious exhibition of the genitals or pubic area of any person. 18 U.S.C. § 2257(h)(1) (citing 18 U.S.C. § 2256(2)(A)(i)-(v)).
The Court concludes that evidence of the websites described in count nine would be prejudicial to Defendant Kilbride. The evidence likely would not be admissible in a trial limited to counts one through eight of the indictment. See Lewis, 787 F.2d at 1318. Given the sexually explicit nature of the evidence, its introduction at trial could prejudice Defendant Kilbride, particularly in light of counts four through seven which charge both Defendants Kilbride and Schaffer with sending two obscene images over the Internet. Id. at 14-15. The prejudice would be difficult to cure by way of limiting jury instructions and is not outweighed by the judicial economy of a single trial.
The Court will grant Defendant Kilbride's motion to sever count nine for purposes of trial. Counts one through eight will be tried first. The trial on counts one through eight will be held on June 5-7, 12-14, 19-22, 2007. See Dkt. ##160-61. The trial schedule with respect to count nine will be addressed at the status conference set for April 13, 2007. See id.
III. Motion for Judicial Review and Disclosure of Brady Material.
Following a status conference on March 6, 2007, the Court denied this motion as moot. Dkt. ##160-61. Counsel for Defendant subsequently informed the Court that the motion was not moot and needed to be ruled on by the Court.
Relying on United States v. Strifler, 851 F.2d 1197 (9th Cir. 1988), and United States v. Alvarez, 358 F.3d 1194 (9th Cir. 2004), Defendant Kilbride requests the Court to review in camera the probation files and presentence reports relating to testifying co-conspirators Jennifer Clason, Andrew Ellifson, and Kirk Rogers and to disclose to Defendant all Brady material contained therein. Dkt. #71. Defendant has submitted a proposed order that directs the United States Probation Office to deliver to the Court certain categories of information. Id. Attach. 1. The proposed order provides that the Court will review in camera the witnesses' probation files and presentence reports and "disclose to the defense all Brady material, including the categories of information set forth [in the order]." Id.
The Government has no objection to the Court's in camera review of the documents in question. Dkt. #92 at 2. The Government argues, however, that Defendant's motion and proposed order are overbroad because they incorrectly assert that certain categories of information constitute per se Brady material. Id. The Government contends that certain types of information, such as correspondence between the Government and the Probation Office regarding sentencing issues, is simply not Brady material because it does not bear on the witnesses' credibility. Id.
Defendant counters that the Government's view of Brady material is too narrow, and that under Alvarez the Court is required to review entire probation files and disclose to Defendant all Brady material contained therein. Dkt. #95.
In Alvarez, the Ninth Circuit reaffirmed the holding in Strifler that a defendant is entitled to material in a probation file or presentence report "`that bears on the credibility of a significant witness in the case.'" Alvarez, 358 F.3d at 1207 (quoting Strifler, 851 F.2d at 1201). "[T]he appropriate procedure with respect to probation files is for the trial judge to conduct an in camera review to determine whether they contain discoverable information." Id. at 1208 (citing Strifler, 851 F.2d at 1201). With respect to presentence reports, "trial judges have discretion either to make an in camera inspection of the materials or to rely on the examination by a probation officer." Id. Information that is relevant, material, and probative as to the witnesses' credibility must be released to the defendant. Id.
In light of Alvarez and Strifler, the Court will grant Defendant Kilbride's motion. The Court will direct the Probation Office to deliver to the Court the files and any available presentence reports relating to Clason, Ellison, and Rogers by April 13, 2007. The Court will review the documents in camera and will release to Defendant all Brady material contained therein by May 4, 2007. If Defendant is aware of specific information contained in the documents, he may argue in favor of its disclosure. See Alvarez, 358 F.3d at 1209 n. 10. Any such motion shall be filed by April 13, 2007. The Government shall file a response to any such motion by April 20, 2007 and Defendant may file a reply by April 27, 2007.
IV. Motion for Hearing to Determine Admissibility of Alleged Co-Conspirator Statements.
Defendant Kilbride requests the Court to hold a pre-trial hearing to determine whether the Government has met its burden of proving that out-of-court statements by alleged co-conspirators that refer to Defendant or may be used to incriminate Defendant satisfy the hearsay exception set forth in Rule 801(d)(2)(E) of the Federal Rules of Evidence. Dkt. #72 at 1. "Under Rule 801(d)(2)(E), the statement of a co-conspirator is admissible against a defendant if the government shows by a preponderance of the evidence that a conspiracy existed at the time the statement was made; the defendant had knowledge of, and participated in, the conspiracy; and the statement was made in furtherance of the conspiracy." United States v. Bowman, 215 F.3d 951, 960-61 (9th Cir. 2000) (citing Bourjaily v. United States, 483 U.S. 171, 175 (1987)). Defendant contends that a pre-trial hearing is necessary due to the complexity of this case, the large number of expected out-of-court statements, and the potential prejudice to Defendant. Id. at 3. The Government argues that the Court should conditionally admit co-conspirator statements subject to later motions to strike by Defendant. Dkt. #88 at 1-2.
The Ninth Circuit has made clear that a district court may admit co-conspirator statements before the existence of a conspiracy is established, with the statements to be stricken from the evidence if the Government ultimately fails to satisfy the foundational requirements. See Parente v. United States, 249 F.2d 752, 754 (9th Cir. 1957); United States v. Zemek, 634 F.2d 1159, 1169 (9th Cir. 1980); United States v. Perez, 658 F.2d 654, 658 (9th Cir. 1981). The Court concludes that a pretrial hearing to determine which co-conspirator statements may be admissible under Rule 801(d)(2)(E) is not necessary in this case. The Court will deny Defendant's motion.
V. Motion for Hearing to Determine Admissibility of Co-Defendant's Out-of-Court Statements.
Defendant Kilbride requests the Court to hold a pretrial hearing to determine whether out-of-court statements of Defendant Schaffer violate Bruton v. United States, 391 U.S. 123 (1968). Dkt. #73. Bruton held that the admission at a joint trial of a non-testifying co-defendant's hearsay statement implicating the defendant violates the defendant's Sixth Amendment right to confrontation, even if the jury is instructed that the statement is admissible only against the co-defendant. 391 U.S. at 126, 128 n. 3. In Richardson v. Marsh, 481 U.S. 200 (1987), the Supreme Court limited Bruton to statements that are facially incriminating and held that the admission of such statements does not violate the Confrontation Clause where the trial court gives a limiting instruction and the statements are redacted to eliminate any reference to the defendant's existence. 481 U.S. at 211.
The Government argues that the requested pretrial hearing is unnecessary because any hearsay statements of Defendant Schaffer that the Government intends to admit at trial will be properly redacted in accordance with Richardson. Dkt. #89. The Government states that shortly before trial it will provide any such statements to the Court for in camera review to ensure that the statements have been properly redacted. Id. at 2 (citing Fed.R.Crim.P. 14(b) (providing that the court may review in camera any defendant's statement before ruling on a defendant's motion to sever)).
Defendant does not dispute that the admission of properly redacted statements would not violate Bruton. Rather, Defendant requests that the Court order the Government to identify the statements in the form it intends to admit them at trial so that Defendant has an opportunity to review the statements and object to their admission prior to trial. Dkt. #97 at 2. Defendant cites no legal authority in support of this request.
The Court concludes that a pretrial hearing to determine the admissibility of Defendant Schaffer's statements is not necessary. Defendant Kilbride's motion will therefore be denied. Whether the Court should review the statements in camera will be addressed at the April 13, 2007 status conference.
VI. Motion to Strike Surplusage from Count Eight.
Defendant Kilbride seeks an order striking "surplusage" from count eight pursuant to Rule 7(d) of the Federal Rules of Criminal Procedure. Dkt. #74. Defendants Kilbride and Schaffer are charged in count eight with conspiracy to launder money instruments in violation of 18 U.S.C. § 1956(h). Dkt. #1 at 15-18. Count eight is based on four separate types of prohibited conduct under § 1956. Id. ¶¶ 2(a)-(d). The parties agree that an essential element of three of the prohibitions requires that the financial transactions involve "proceeds of specified unlawful activity." Dkt. ##74 at 1, 102 at 2; see Dkt. #1 ¶¶ 2(a), (b), (d). The unlawful activity alleged in count eight includes the use of an interactive computer service to transport obscene images in interstate commerce as alleged in counts four and five, causing obscene images to be transported in interstate commerce for the purpose of sale and distribution as alleged in counts six and seven, and the CAN-SPAM Act violations alleged in counts one through three. Dkt. #1 ¶¶ 2(a) (d)
Defendant Kilbride contends that the indictment fails to allege that property involved in Defendants' financial transactions represented "proceeds" of unlawful activity as required by § 1956 because "no proceeds were generated directly from the sending of the e-mails by [D]efendants." Id. at 3 (emphasis added). Defendant claims that the indictment makes clear that the alleged bulk e-mail and obscenity violations ended when Defendants sent the e-mails. Id. at 3. Defendant further claims that any proceeds Defendants earned came from payments by operators of adult websites under legal marketing programs after an e-mail recipient voluntarily elected to view an adult website. Id. at 3. Defendant moves to strike the allegedly deficient offenses in paragraphs 2(a), (b), and (d) of count eight as prejudicial and inflammatory. Defendant moves to strike as irrelevant the allegations regarding the manner of the conspiracy in paragraph 6 and the overt acts described in paragraph 8. Id. at 4-5.
The Government argues that Defendant's interpretation of "proceeds" is too narrow, noting that Defendant has cited no case where a court has read a "directness" requirement into the definition of "proceeds." Dkt. #102 at 2. The Government relies on cases from other jurisdictions for the proposition that a "but for" test is used to determine whether property represents proceeds of unlawful activity. Id. at 3. Defendant counters that these cases are not controlling and do not relate to money laundering offenses. Dkt. #109 at 3.
"The term `proceeds' is not defined in the money laundering statute. In the absence of statutory definition, `words will be interpreted as taking their ordinary, contemporary, common meaning.'" United States v. Akintobi, 159 F.3d 401, 403 (9th Cir. 1998) (quoting Perrin v. United States, 444 U.S. 37, 42 (1979)). Webster's defines "proceeds" as "the total amount brought in (the proceeds of a sale); the net amount received (as for a check or from an insurance settlement) after deduction of any discount or charges." Webster's New Collegiate Dictionary 910 (1981); see Merriam-Webster OnLine, available at http://www.m-w.com/cgi-bin/dictionary (last visited Mar. 23, 2007) (same). The Oxford dictionary defines "proceeds" as "[t]hat which proceeds, is derived, or results from something; that which is obtained or gained by any transaction; produces, outcome, profit." Oxford English Dictionary (2d ed. 1989), available at http://dictionary.oed.com (last visited Mar. 23, 2007). Thus, the term "proceeds" has a broader meaning than money "generated directly from" a transaction. It also refers to the results, product, and outcome of a transaction. Other courts agree. See Akintobi, 159 F.3d at 403 ("[W]hile the term `proceeds' may refer to something of value, the term has the broader meaning of `that which is obtained by any transaction.' The term `proceeds' is used in the statute to denote property that is derived from an unlawful activity[.]") (citation and alteration omitted); United States v. Estacio, 64 F.3d 477, 480 (9th Cir. 1995) (noting that courts have adopted dictionary definitions that define the term broadly and holding that a fraudulently obtained line of credit that resulted in an artificially inflated bank balance constituted "proceeds" under § 1956).
The indictment in this case sufficiently alleges that the financial transactions involved "proceeds" of unlawful activity as that term is used in § 1956. Paragraph 10 of the indictment alleges that Defendants Kilbride and Schaffer "earned commissions from directing Internet traffic to the pornographic [websites] advertised in the spam messages" and that "[t]he businesses operating the [websites] would then pay [Defendants] through arrangements called `affiliate programs[.]'" Dkt. #1 ¶ 10. Paragraph 10 further alleges that the more spam messages sent, "the greater the potential for [Defendants] to profit from them" because Defendants "were paid on the number of persons who visited and/or purchased access to the sites as a result of the spam messages." Id. Paragraph 11 alleges that Defendants Kilbride and Schaffer deposited payments received from the pornographic websites into various financial accounts "in order to conceal and disguise the nature, location, source, ownership, and control of the proceeds." Id. ¶ 11.
Rule 7(d) provides that "[u]pon a defendant's motion, the court may strike surplusage from the indictment[.]" Fed.R.Crim.P. 7(d). "The purpose of Rule 7(d) is to protect a defendant against prejudicial or inflammatory allegations that are neither relevant nor material to the charges." United States v. Ramirez, 710 F.2d 535, 544-45 (9th Cir. 1983); see United States v. Terrigno, 838 F.2d 371, 373 (9th Cir. 1988) (same). In this case, the allegations Defendant Kilbride seeks to have stricken from count eight are both relevant and material to the charges against him. The Court accordingly will deny his motion to strike.
IT IS ORDERED:
1. Defendant Kilbride's motion to sever count nine (Dkt. #70) is granted.
2. Defendant Kilbride's motion for judicial review and disclosure of Brady material (Dkt. #71) is granted.
3. Defendant Kilbride's motion for hearing to determine admissibility of alleged co-conspirator statements (Dkt. #72) is denied.
4. Defendant Kilbride's motion for hearing to determine admissibility of co-defendant's out-of-court statements (Dkt. #73) is denied.
5. Defendant Kilbride's motion to strike surplusage from count eight (Dkt. #74) is denied.