United States District Court, D. Delaware
Whitney C. Cloud, Lesley F. Wolf, Assistant United States
Attorneys, Wilmington, Delaware Counsel for United States of
E. Carluccio, LAW OFFICE OF THOMAS E. CARLUCCIO, Plymouth
Meeting, Pennsylvania; Frank G. Fina, LAW OFFICE OF FRANK G.
FINA, Plymouth Meeting, Pennsylvania Counsel for Defendant
CONNOLLY, UNITED STATES DISTRICT JUDGE.
before me are competing motions filed by the parties: the
government's Motion in limine to Admit Evidence
Regarding July 10, 2013 Meeting between Defendant and
Artisan's Bank (D.I. 74) and Defendant's Motion
in limine to Exclude Statements of Defendant's
Prior Counsel (D.I. 76). Both motions ask me to rule on the
admissibility at trial of testimony from three Artisans'
Bank (the "Bank") employees about statements made
to them by Defendant's prior counsel in Defendant's
presence at a meeting in July 2013. The government argues
that the out-of-court statements of Defendant's prior
counsel are an "adoptive confession" of the
Defendant that are admissible under Federal Rule of Evidence
("FRE") 801(d)(2)(B) and (C). D.I. 74 at 9.
Defendant argues that the statements of his prior counsel
were made in connection with settlement negotiations and are
barred by FREs 408 and 802 from being admitted at trial. I
have studied the parties' briefing on the matter and
heard oral argument on December 4, 2018.
The Superseding Indictment
has been charged by Superseding Indictment with one count of
bank fraud, four counts of making false statements to a bank,
and one count of money laundering. D.I. 36. The charges arise
out of a line of credit extended by the Bank to
Defendant's food broker business, AJJ Distributing, LLC,
between 2008 and 2013. The line of credit was secured in part
by accounts receivable owed to AJJ. Under the terms of the
line of credit, the amount of money Defendant could borrow
from the Bank was dependent on the value of "eligible
items," a term which the line of credit agreement
defined as "accounts receivable and inventory aged less
than 90 days." Id. ¶ 11. Defendant was
contractually obligated to submit to the Bank on a weekly
basis and when he sought withdrawals from the line of credit
Borrowing Base Certificates ("BBCs") that listed
AJJ's "eligible items." Id.
¶¶ 13, 14.
false statement counts in the Superseding Indictment are
based on allegations that Defendant provided the Bank on four
occasions with BBCs that listed certain accounts receivable
that in fact were no longer owed to Defendant. See
Id. ¶¶ 46, 48, 50 and 52 (alleging Defendant
"provided the Bank with a BBC listing [million-dollar
sums] in accounts receivable, which falsely inflated monies
owed to AJJ"). The bank fraud count is similarly based
in part on the allegation that Defendant submitted to the
Bank "false and fraudulent" BBCs that
"included as 'eligible items' accounts
receivable that were no longer owed to AJJ."
Id. ¶ 33. The bank fraud count alleges
specifically that Defendant submitted BBCs that
"included dozens of accounts receivable" from
AJJ's primary customer that "were no longer owing to
AJJ." Id. ¶ 30.
allegations in the bank fraud count, however, would also
support an alternative prosecution theory that the BBCs were
false because they listed accounts receivable that were older
than 90 days. The Superseding Indictment alleges in the bank
fraud count that "eligible items" were defined as
"accounts receivable and inventory aged less than 90
days" (¶ 11), that "AJJ agreed to identify
'eligible items' to the Bank in the form of Borrowing
Base Certificates ('BBCs') listing all accounts
receivable less than 90 days old" (¶ 13), that
"AJJ's eligible accounts receivable were less"
than Defendant represented in the BBCs (¶ 36), and that
the Bank utilized Defendant's "false and fraudulent
BBCs reporting AJJ's eligible accounts receivable in
evaluating requests for extensions or restructuring of the
Line of Credit" (¶ 41). Further, in describing the
scheme to defraud on which the bank fraud charge is based,
the Superseding Indictment alleges that "[b]y listing
non-'eligible items' on the BBCs," Defendant
"falsely and fraudulently inflated AJJ's accounts
receivable, which: a) induced the Bank to disburse money
under the Line of Credit to AJJ; b) influenced the Bank's
decisions in connection with extensions and conversions of
the Line of Credit; c) deterred the Bank from requiring
larger payments on the Line of Credit; and d) delayed the
Line of Credit's termination." Id. ¶
The July 2013 Meeting
to the Superseding Indictment, Defendant's false
statements and fraudulent scheme induced the Bank to loan AJJ
millions of dollars; and, by July 2013, AJJ owed and was
unable to repay the Bank approximately $4.2 million. The
evidentiary dispute before me concerns a meeting Defendant
and his prior counsel had with Bank employees in July 2013 to
discuss Defendant's then-outstanding debt.
Purpose of the July 2013 Meeting
to Defendant, "[t]he only purpose for having th[e] [July
2013] meeting was to discuss the loan and to negotiate
whether the loan was going to continue, the terms under which
it was going to continue." Tr. 11:23-12:1. The grand
jury testimony of Defendant's prior counsel confirms and
adds detail to this stated purpose:
I was there [at the July 2013 meeting] to tell them that
[Defendant] would not be making any further payments because
his stream of income from these receivables [would not
... And I told them that [A]J's primary customer] was
cutting off its business with [Defendant] and that the
receivables would not be - he would not have the same stream
of receivables, and that we have to figure out a way to go
forward and settle the civil case.
* * * *
The whole idea was how he was going to pay back the loan.
D.I. 74, Ex. B at 10:20-11:8, 18:25-19:1.
has not suggested that the Bank initiated or threatened a
civil law suit. It is clear from later portions of
Defendant's prior counsel's grand jury testimony that
the "settlement" he was trying obtain for Defendant
was an arrangement that would resolve any potential claims
AJJ's primary customer and Defendant had relative to each
other and at the same time restructure the repayment terms
for the debt Defendant owed to the bank:
Q. And again, I'm not seeking any attorney/client
privileged communications here, but in terms of the period -
and it sounds like it was about a month or so where you were
involved in a series of meetings, both with [the primary
customer] and with Artisans' Bank.
A. Yeah, one meeting with Artisans, two with [the primary
Q. Was the information that you were conveying to the third
parties based on any independent investigation or review, or
were you relying in large part upon information furnished to
you by your client?
A. ... I can't say [Defendant] told me, but as far as
what I learned regarding the information about the
receivables, that came from his discussions that he had with
[A]J's primary customer] in my presence, so it wasn't
really attorney/client. So, yes, to some extent it would be
[Defendant] talking to [A]J's primary customer] in my
presence. My job again was to negotiate a civil - to get out
of it, and negotiate a civil end to it.
Q. And that was your understanding of why you were brought
in, or was that an explicit, you know, term of engagement -
A. No, there had been - it was just, [Defendant's prior
counsel], can you help me? I need to negotiate my way out.
[A]J's primary customer] has this problem with this guy.
They're going to stop the business. I owe X amount of
dollars to the bank. I need to get the -1 need to work it out
with the bank and to work it out with [A]J's primary
customer]. Typically, we do that at a bankruptcy.
We get everybody in the room and say, you owe, you owe $10 to
the bank. You have a deal with these guys. How can we work
this out over three years? That's what I was hoping.
Id. at 34:10-35:20.
Defendant's Prior Counsel's Statements at The
to the government:
During the meeting, [Defendant's prior counsel] stated
that he was attending with Defendant as his
"friend" and would be speaking on his behalf.
[Defendant's prior counsel] acknowledged that Defendant
had been submitting falsified Borrowing Base Certificates to
the Bank since approximately 2009. Further, [Defendant's
prior counsel] conceded that Defendant had used the money
from the line of credit, in large part, to fund his other
businesses. As a result, the collateral to secure the line of
credit and loans did not exist. [Defendant's prior
counsel] recognized that Defendant owed money (roughly 4.2
million) on the outstanding AJJ loans and line of credit and
wanted to repay them, but that Defendant had no ability to
pay. When one of the Bank witnesses described Defendant's
conduct as bank fraud, [Defendant's prior counsel] agreed
with that characterization. [Defendant's prior counsel]
closed the meeting by saying that he and his client would
next be meeting with the Attorney General's Office.
D.I. 74 at 3-4. The government has proffered that it will
present this account of the meeting at trial through the
testimony of three members of the Bank's loan workout
group who participated in the meeting. The government cites
in support of this account of the July 2013 meeting: (1) a
memorandum written "one to two days" after the
meeting by one of the three Bank employees, and (2) three
reports written by a Postal Inspector who interviewed the
three Bank employees in question. See generally D.I.
74, Ex. A.
reviewed the memorandum and reports and find that they are
generally consistent with each other and support the
government's account of the July 2013 meeting. According
to the memorandum, for example, the meeting was held at
Defendant's request "to discuss workout
arrangements," and during the meeting
[Defendant's prior counsel] stated that [Defendant] wants
to repay the Bank's loans, but that the Bank's
collateral securing the line [of credit] is "not
there," and[, ] further[, ] approximately 85% of the
receivables securing [the] line were "falsified"
beginning in 2009. I [the memorandum's author] responded
that [Defendant] has committed Bank Fraud and