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United States v. Cook

United States District Court, D. Delaware

December 11, 2018

WILLIAM COOK, Defendant.

          Whitney C. Cloud, Lesley F. Wolf, Assistant United States Attorneys, Wilmington, Delaware Counsel for United States of America

          Thomas 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



         Presently 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.[1]

         I. Background

         A. The Superseding Indictment

         Defendant 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.

         The 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.

         The 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. ¶ 34.

         B. The July 2013 Meeting

         According 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.

         1. Purpose of the July 2013 Meeting

         According 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 continue]....
... 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.

         Defendant 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 customer].
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.

         2. Defendant's Prior Counsel's Statements at The Meeting

         According 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.

         I have 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 ...

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