Case Insights -- A Legal Blog

Wednesday, August 6, 2014

Violent Rap Lyrics Penned by Defendant Unduly Prejudicial, NJ Supreme Court Finds

Supreme Court of New Jersey – In State v. Skinner, A-57/58-12 (N.J. Aug. 4, 2014) the Supreme Court of New Jersey affirmed the Appellate Division’s reversal of a defendant’s conviction for first-degree attempted murder and related charges.


Facts -- Vonte Skinner was charged with shooting Lamont Peterson seven times. The State contended that Skinner shot Peterson because Peterson owed money to a drug dealer that Skinner was working for as “muscle.” After the shooting, police searched Skinner’s car and found three notebooks containing violent and profane rap lyrics glorifying murder and rape. Over objection by defendant, the trial court admitted the rap lyrics as evidence of Skinner’s motive and intent.


Holding – The Court determined that, contrary to the State’s contention, the lyrics did not establish that Skinner would resort to violence and instead caused undue prejudice. Utilizing the 4-part test for admitting “extrinsic evidence of other crimes or wrongs” pursuant to Rule 404(b) of the New Jersey Rules of Evidence established in State v. Cofield, 127 N.J. 328 (1992), the Court explained that merely writing violent rap lyrics is not a crime. “Nor is it a bad act to or a wrong to engage in the act of writing about unpalatable subjects, including inflammatory subjects such as depicting events or lifestyles that may be condemned as anti-social, mean-spirited, or amoral.” Opinion, p. 28. Particularly when the violent lyrics do not relate to the specific crime at issue, in this case the shooting of Peterson, the Court determined that the lyrics would merely inflame the jury and prejudice the defendant.


Reasoning – The Court distinguished State v. Koskovich, 168 N.J. 448 (2001), in which lyrics authored by the defendant were allowed into evidence as proof of a “thrill kill” motive. In Koskovich, unlike in Skinner, the lyrics admitted related directly to the crime as it occurred because it showed an intent to engage in a murder for the sheer excitement of killing. By contrast, in Skinner, the lyrics admitted were of a generally violent nature, rather than specific to the shooting of Peterson.

Friday, July 25, 2014

New Jersey Supreme Court Proposes “Crime Fraud” Exception to Marital Privilege Rule

Supreme Court of New Jersey – In State v. Terry & Savoy, A-71-12 (N.J. July 22, 2104) the Supreme Court of New Jersey affirmed the Appellate Division’s decision that wiretapped conversations between spouses that are otherwise privileged cannot be intercepted or otherwise introduced into evidence. However, because of public policy concerns, the Court proposed new language amending Rule 509 of the New Jersey Rules of Evidence to create a “crime-fraud” exception so that conversations such as the one intercepted in the case before the Court are admissible on a going forward basis.

Teron Savoy and Yolanda Terry were married. In 2010, the Ocean County Prosecutor investigated Savoy as the leader of a drug trafficking network. In connection with the investigation, the Prosecutor obtained court orders authorizing a wiretap of Savoy’s cell phones. Evidence obtained through the wiretaps included text messages between Savoy and Terry: among them was one in which Savoy asked Terry to collect money from a co-defendant to whom drugs allegedly had been lent; another involved a request by Savoy that Terry retrieve items from a car that had been seized and in which heroin had been found. At trial, Savoy and Terry moved to preclude the phone conversations and texts between them because the evidence was protected from disclosure by the marital privilege set forth in Rule 509 of the Rules of Evidence. The trial court denied the motion, but the Appellate Division reversed, finding that the communications were privileged. The Appellate Division noted, however, that a crime-fraud exception did not apply, but “strong public policy concerns supported applying a crime-fraud exception to the privilege.” Opinion, p. 5.

The Court explained that the marital privilege prevents only one spouse from testifying against the other. Tracing the history of how the marital privilege developed, the Court noted that “a marital communication loses its privileged character if it is overheard by a third party ‘either accidentally or by eavesdropping.’” Opinion, p. 9 (citations omitted). The State argued that a wiretap is akin to a neighbor overhearing or an eavesdropper, and thus the marital privilege should not apply to wiretapped evidence. The Court disagreed and held that under section 11 of the wiretap statute, N.J.S.A. 2A:156A-11, “no otherwise privileged wire, electronic or oral communication intercepted in accordance with, or in violation of, the provisions of this act, shall lose its privileged character.” Thus, a confidential communication between spouses, which would remain confidential in the absence of the wiretap, does not lose its privileged status by virtue of the wiretap.

 The Court rejected the State’s reading of the statute that the privilege is a personal one, so an eavesdropper may testify about the contents of the overheard communication. Citing the legislative history of section 11 of the wiretap statute, the Court determined that a “state authorized wiretap, unlike a private eavesdropper, does not destroy the privilege.” Opinion, p. 14. Any other reading of section 11 would render obsolete that part of the statute discussing the privileged nature of a communication overheard via wiretap.

 Although the statements retained their privilege, the Court proposed an amendment to the Rules of Evidence pursuant to the Evidence Act that would create a crime-fraud exception to the marital privilege. Noting that all eleven federal circuits and a number of states already have imposed a crime-fraud exception to the marital privilege, the Court recommended amending Rule 509 “to include a crime-fraud exception that is similar to the exceptions that apply in federal and state courts throughout the nation as well as other evidentiary rules in New Jersey.” Opinion, p. 20. Because the proposed rule change is “fundamental,” the Court submitted the proposed change for approval by joint resolution of the Legislature and for the Governor’s signature. The proposed amendment “should not protect a communication that relates to an ongoing or future crime or fraud in which the spouses were joint participants at the time of the communication.” Opinion, p. 26.

Sunday, June 15, 2014

Third Circuit Finds No Reasonable Expectation of Privacy When “Mooching” Neighbor’s Internet Connection to Download Child Pornography

Third Circuit Court of Appeals – In United States v. Stanley, No. 13-1910, (3d Cir. June 11, 2014) the Third Circuit upheld the conviction of a man who downloaded child pornography by “mooching” off his neighbor’s unsecured wireless Internet connection. Finding that there was no reasonable expectation of privacy, the court allowed the evidence seized with the assistance of software known as “MoocherHunter.”


Richard Stanley possessed child pornography that he received online using a signal from his neighbor’s unsecured wireless router. Corporal Robert Erdely of the Pennsylvania State Police was investigating distribution of child pornography, when he became aware of a peer-to-peer sharing network that appeared to contain child pornographic images. He located the IP address of the user and determined that the user was a Comcast Cable subscriber. Erdely then obtained a court order compelling Comcast to reveal the subscriber’s name and address. Erdely’s search of the person’s home found no child pornography, but he discovered that the wireless Internet router was not password protected. As a result, he concluded that the offender was likely using this person’s Internet router to obtain the offending materials. In other words, the Third Circuit noted, “Erdely determined that the computer in question was ‘mooching’ off the Neighbor’s Internet connection.” Opinion p. 5. The neighbor then allowed Erdely to connect a device to his router that would reveal the IP addresses of computers connected to his network.


Using a “MoocherHunter” device – mobile tracking software that can be downloaded by anyone from the manufacturer’s website – Erdely attempted to locate the offender by using MoocherHunter’s passive mode. This allows the user to enter an address of a wireless card he wishes to locate, and the device measures signal strength. As the MoocherHunter antenna is pointed toward or gets closer to the computer in use, the signal increases in strength. Before deploying the MoocherHunter, Erdely discussed with an Assistant United States Attorney for the Western District of Pennsylvania whether he needed a search warrant to utilize the device. They concluded that it would be impossible to get a warrant without first knowing which specific address the signal was coming from, which could not be ascertained with precision without the MoocherHunter. So without a warrant, Erdely took the MoocherHunter to an apartment complex where the signal was emanating from and ultimately determined that Stanley’s apartment was the source. Erdely then obtained a search warrant for Stanley’s home and discovered the child pornography.


The district court upheld Stanley’s conviction. Stanley appealed.


The Third Circuit explained that a search occurs in two ways: one is when the government physically occupies private property for the purpose of obtaining information; the other is when the government violates a person’s reasonable expectation of privacy that society recognizes as “legitimate.” Opinion p. 10. Stanley conceded that the government did not physically search his property. Rather, he claimed that the MoocherHunter search violated his reasonable expectation of privacy. The Third Circuit explained that a determination of whether a reasonable expectation of privacy has been violated depends on two criteria: (1) whether the individual had an actual or subjective expectation of privacy in the area to be searched; and (2) whether the expectation of privacy is objectively justifiable under the circumstances.


The Third Circuit distinguished Erdely’s search using the MoocherHunter from the search at issue in Kyllo v. United States, 533 U.S. 27 (2001), in which police remained outside a private home but used thermal imaging technology to locate heat lamps being used to grow marijuana. The Supreme Court in Kyllo held that using the heat sensing technology violated the defendant’s expectation of privacy because his criminal activities had been confined solely to his residence, and law enforcement gained information “regarding the interior of the home that could not otherwise have been obtained without physical intrusion into a constitutionally protected area.” Kyllo, 533 U.S. at 34. This was particularly true when the technology used is not readily available to the general public. The Third Circuit determined that not only was the MoocherHunter technology readily available to the public by downloading it from the Internet, but Stanley did not confine his activities to his own home. In fact, by sharing the child pornography with other Internet users, Stanley deliberately projected “outside of his home, as it required interactions with persons and objects beyond the threshold of his residence.” Opinion p. 14 (emphasis in original).


As a result, unlike the defendant in Kyllo, Stanley “deliberately ventured beyond the privacy expectations of the home, and thus, beyond the safe harbor provided by Kyllo.” Opinion p. 14. Even though Stanley’s transmission started in his home, the Third Circuit found that he could not reasonably expect privacy in the invisible radio waves he was transmitting, particularly due to the nature of his illegal activities. By acting as a “virtual trespasser” in the words of the Third Circuit, Stanley forfeited his expectation of privacy, particularly when the MoocherHunter “revealed only the path of this signal and not its contents.” Opinion p. 16.


The Third Circuit also was wary of rewarding Stanley’s unauthorized Internet access. By more effectively hiding his locale from law enforcement (the investigation began with Stanley’s neighbor who owned the unsecured wireless router), Stanley could not then ask society to recognize an expectation of privacy. The Third Circuit compared the MoocherHunter to a drug sniffing dog – it merely heightens senses and allows for discovery of evidence or information not otherwise accessible to normal human perception – which is permissible and not considered a search.


Although it agreed substantially with the district court’s decision, the Third Circuit fell short of adopting the district court’s reasoning in its entirety. The wireless signal was not information being “conveyed,” but instead was partial information that led to Erdely’s additional investigation and which he ultimately used to obtain a warrant to search Stanley’s home. Stanley did not assume the risk that his neighbor would provide his information to law enforcement because the neighbor never had that information – hence the need for the MoocherHunter. The Third Circuit was concerned about a holding that an Internet user discloses his or her signal every time it is routed through third-party equipment, because “without adequate qualification, [it could] unintentionally provide the government unfettered access to this mass of private information without requiring its agents to obtain a warrant.” Opinion p. 25.

Wednesday, June 11, 2014

Robing Room Jury Instruction Found to be Reversible Error

New York Court of Appeals – In People v. Rivera, No. 117 (June 10, 2014), the Court of Appeals determined that a brief colloquy in the robing room between the trial judge and a juror should not have taken place outside the presence of the defendant, even with the consent of counsel. Because it did, the Court of Appeals affirmed the Appellate Division’s reversal of defendant’s conviction for second-degree criminal possession of a weapon.


Anner Rivera shot and killed Andres Garcia after Garcia shot Rivera’s friend several times. Rivera was indicted for intentional murder and weapons possession, but claimed that he shot Garcia in self defense. The trial court instructed the jury on the defense of justification on each count of the indictment. After deliberating for more than a day, the jury sent a note seeking an explanation of certain terms defined in the jury instructions. The court advised the jury and directed it to continue deliberations.


Shortly thereafter, juror number 11 requested to speak with the court. The judge agreed to hear from the juror in his robing room on notice to the prosecutor and counsel, but outside their presence and on the record. It is not clear whether the defendant was aware that his counsel consented to this procedure. After a brief colloquy between the judge and juror, the court summarized the conversation in the presence of counsel and (after realizing the defendant was not present and returning him to the courtroom) the defendant. Rivera was acquitted of murder and manslaughter, but convicted of second-degree possession of a weapon. The Appellate Division reversed the conviction, finding that the colloquy was improper.


The Court of Appeals explained that a defendant’s constitutional right to be present at all material phases of a trial includes the right to be present during jury instructions. This right is derived from case law, see People v. Harris, 76 N.Y. 2d 810, 812 (1990); People v. Mehmedi, 69 N.Y. 2d 759, 760 (1987); and incorporated into the Criminal Procedure Law (CPL) at section 310.30. Under CPL 310.30, whenever a deliberating jury requests additional guidance or trial evidence, “or any other matter relevant to its consideration of the case,” the court should direct the jury to be brought back into the courtroom and, after notice to both sides, should give the information or instruction as it deems proper. In the eyes of the Court of Appeals, the fact that the trial court “cured” the initial defect of speaking with a juror outside the presence of the defendant was not sufficient to overcome the procedural error in the first instance.


The Court of Appeals relied on People v. Cain, 76 N.Y. 2d 119 (1990) to support its finding that the trial court committed procedural error. In Cain, a similar robing room conversation occurred, and the Court of Appeals reversed the defendant’s conviction because “the defendant had an absolute right to be present and therefore, the error ‘mandate[d] reversal’ without regard to whether any prejudice flowed and despite the presence and consent of defense counsel.” Decision p. 6 (citation omitted). The Court of Appeals rejected the dissent’s de mimimis argument, because CPL 310.30 is unequivocal about the defendant’s right to be present at crucial stages of the trial. Likewise, the Court of Appeals disagreed with the dissent that the conversation with juror number 11 was merely “ministerial” and therefore not prejudicial to the defendant. As a result, the Court of Appeals affirmed the Appellate Division and held that the defendant was entitled to a new trial. 

Friday, June 6, 2014

Second Circuit Rejects Judge Rakoff’s Rejection of Citigroup Settlement with SEC

Court of Appeals for the Second Circuit – In United States Securities and Exchange Commission v. Citigroup Global Markets, Nos. 11-5227-cv; 11-5375-cv; 11-5242-cv, the U.S. Court of Appeals for the Second Circuit found that the district court abused its discretion by rejecting a proposed Consent Judgment between Citigroup Global Markets (Citi) and the Securities and Exchange Commission (SEC). The court vacated Judge Rakoff’s decision and remanded for further proceedings.


In October 2011, the SEC filed a complaint against Citi claiming that it negligently misrepresented its role and economic interest in structuring and marketing a certain fund. Essentially, the SEC alleged that Citi took a short position, but advised investors that the fund’s investment portfolio had been selected by an independent advisor. As a result of the misrepresentation, Citi realized profits of approximately $160 million, while investors suffered millions of dollars in losses. Soon after the complaint was filed, the SEC and Citi presented the Southern District of New York with a proposed Consent Judgment: (1) permanently enjoining Citi from further violating certain provisions of the Securities Act of 1933; (2) disgorging $160 million, which the SEC calculated were the profits gained by the negligent conduct alleged in the complaint; (3) prejudgment interest in the sum of $30 million; (4) a civil penalty of $95 million; and (5) Citi’s agreement not to set off any sums paid against subsequent related investor actions, and an agreement by Citi to make certain internal changes to prevent similar acts from occurring in the future. As part of the Consent Judgment, Citi was not required to admit guilt or wrongdoing.


Judge Rakoff presided over the motion to approve the Consent Judgment. He presented both sides with a number of questions relating to why the court should accept the Consent Judgment. After both sides responded to the court’s questions and the court conducted a hearing, in November 2011, Judge Rakoff rejected the proposed Consent Judgment. In doing so, Judge Rakoff noted that although deference is due to the SEC, a court may not be used “as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest.” Opinion p. 8. The district court further noted that “[a]n application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous.” Opinion, p. 10. Judge Rakoff found it problematic that Citi was not required to admit to any wrongdoing, or even to allocute to any of the facts that gave rise to the complaint and, subsequently, the proposed Consent Judgment.


Applying an abuse of discretion standard, the Second Circuit explained that an interlocutory appeal of a proposed settlement may be proper when a party can show that: (1) the district court, by refusing to approve the settlement, effectively denied injunctive relief, and (2) without an interlocutory appeal, the party will suffer irreparable harm. Opinion p. 16 (citing Grant v. Local 638, 373 F.3d 104, 108 (2d Cir. 2004). The Second Circuit explained that the proposed Consent Judgment contained two types of injunctive relief – one enjoining Citi from further statutory violations, and the other requiring Citi to take steps to prevent future occurrences of fraud. The irreparable harm was the district court’s order that both parties try the case in the absence of a Consent Judgment.


The Second Circuit then explained that Judge Rakoff’s insistence on some admission of liability was improper because “there is no basis in the law for the district court to require an admission of liability as a condition for approving a settlement between the parties.” Opinion p. 17. If the SEC did not require such an admission, the court held, the district court could not do so.


A district court is not merely a rubber stamp, of course, the Second Circuit noted. Rather, a court presented with a proposed Consent Judgment should determine whether the proposed settlement is “fair and reasonable, with the additional requirement that the ‘public interest would not be disserved’” if the proposed consent judgment includes injunctive relief. Opinion p. 19 (citing eBay, Inc. v. MercExchange, 547 U.S. 388, 391 (2006). Because a consent judgment between a government agency and a private party is significantly different than a class action settlement that bars future private rights of action, the Second Circuit left out the “adequacy” requirement usually required when evaluating the fairness of a proposed settlement. The factors to consider the reasonableness and fairness of a proposed consent judgment are: (1) the basic legality of the proposed decree; (2) whether the terms are clear; (3) whether the proposed consent decree actually resolves the claims in the complaint; and (4) whether the proposed consent decree is tainted by collusion or other corruption of some kind. The primary focus, however, according to the Second Circuit, is whether the proposed consent decree is procedurally proper.


The Second Circuit also declined to require that the SEC establish the truth of the allegations set forth against the settling party. Noting that “trials are primarily about the truth. Consent decrees are primarily about pragmatism,” Opinion p. 21, the Second Circuit noted that a compromise involves many considerations, and a district court should not derail a settlement in order to demand a factual recitation by the settling party. A district court still should rely on the evidence in the record to ensure that the proposed settlement or consent judgment is fair and reasonable, but a separate factual allocution is not required.


According to the Second Circuit, deference to the SEC means that the inquiry about whether the public is being disserved by the proposed settlement is framed by the SEC’s determination in the first instance that the settlement is beneficial and within the public interest. Merely disagreeing with the terms of the proposed settlement is not a sufficient basis for denying a proposed consent decree by the district court, the Second Circuit explained.


Judge Lohier concurred, but felt that if the four factors enumerated by the court above were satisfied, “the perceived modesty of monetary penalties proposed in a consent decree is not a reason to reject the decree.” Concurrence p. 1. Additionally, Judge Lohier explained that because it does not appear that additional facts need to be developed in order to find that the Consent Judgment is fair and reasonable, remand was not necessary.

Thursday, May 29, 2014

FCPA Guidance from the Eleventh Circuit? Not Entirely

Court of Appeals for the Eleventh Circuit – In United States v. Esquenazi, No. 11-15331 (11th Cir. May 16, 2014), the U.S. Court of Appeals for the Eleventh Circuit affirmed the convictions of two men charged with violating the Foreign Corrupt Practices Act (FCPA), in violation of 15 U.S.C. § 78dd-2, concealment money laundering, conspiracy, and conspiracy to commit money laundering. In doing so the Eleventh Circuit defined the statutory term “instrumentality” as used in the FCPA, however the definition may not ultimately provide the clarity the court intended.


Joel Esquenazi and Carlos Rodriguez co-owned Terra Telecommunications Corp. (Terra), a Florida company that purchased phone time from foreign vendors and resold the minutes to customers in the United States. One main vendor was Telecommunications D’Haiti (Teleco), which was an entity with ties to the Haitian government. Specifically, when Teleco was formed, it was granted a monopoly on telecommunications services; it had significant tax advantages; its Board of Directors had certain members appointed by the Haitian government; and the National Bank of Haiti owned 97 percent of Teleco. According to testimony adduced during trial, essentially everyone in Haiti considered Teleco a public administration.


In 2001, Terra owed Teleco approximately $400,000. Esquenazi arranged for a deal in which an officer of Teleco would shave minutes from Terra’s bill in exchange for payment of 50 percent of what the company saved. The payments would be made through sham companies so as to disguise their purpose. Ultimately, through another sham company established with the assistance of Esquenazi, Terra made six transfers totaling $75,000 to the sham company. Esquenazi (who admitted he had bribed Teleco officials) and Rodriguez were convicted after trial. After the trial concluded, the Haitian Prime Minister submitted a declaration stating that Teleco is not a state enterprise. He later clarified his initial declaration by stating that “there exists no law specifically designating Teleco as a public institution.”


The Eleventh Circuit explained that the FCPA prohibits any “domestic concern” from making use of the mail or any means of interstate commerce “corruptly in furtherance” of a bribe to any foreign official, or to any person, “while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official,” for the purpose of “influencing any act or decision of such foreign official . . . in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person.” 15 U.S.C. § 78dd-2(a)(1), (3). Foreign official is defined as any officer or employee of a foreign government, or any “department, agency, or instrumentality thereof.” 15 U.S.C. § 78dd-2(h)(2)(A). Finding that no other court of appeal has defined “instrumentality,” the Eleventh Circuit endeavored to do so.


The court began with the dictionary definitions of “instrumentality” and determined that the parties agree that “an instrumentality must perform a government function at the government’s behest.” Esquenazi at p. 11. But, according to the court, this does not provide a complete definition and so the court felt the need to dig deeper. Looking at the statutory company kept by the word “instrumentality,” the court found that words like “agency” and “department” are in the same statutory clause as “instrumentality.” As a result, an entity must be “under the control or dominion of the government to qualify as an ‘instrumentality’ within the FCPA’s meaning.” Esquenazi, at 13. Likewise, based on the statute’s context, “an instrumentality must be doing the business of the government.” Id. The question, then, is what will be considered the government’s business.


After a long explication of the United States’ ratification of the Organization for Economic Cooperation and Development’s Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions (OECD Convention), the Eleventh Circuit determined that the definition of “instrumentality” within the FCPA was intended to reach “the types of officials the United States agreed to stop domestic interests from bribing when it ratified the OECD Convention.” Esquenazi, at 18. Thus, the court declined to limit the definition – as advocated by defendants Esquenazi and Rodriguez – to entities that perform only traditional, core government functions. Instead, it determined that “the most objective way” to determine whether an instrumentality is one of a foreign government, “is to examine the foreign sovereign’s actions, namely, whether it treats the function the foreign entity performs as its own.” Esquenazi, at 19 (emphasis in original). The Eleventh Circuit thus defined an “instrumentality” as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” Esquenazi, at 20.


Recognizing itself that this definition seems incomplete, the Eleventh Circuit then listed factors to consider when determining whether an entity is an instrumentality of a foreign government. The measure of control will be determined by looking at how the government designated the entity; whether the government has a majority interest in the entity; whether the government may hire and/or fire executives of the entity; whether any of the entity’s profits go to the government’s coffers; and how long these factors have existed. Consideration of the entity’s function will focus on whether the entity has a monopoly over the function it is tasked with carrying out; whether it receives government subsidies for providing its services; whether the entity provides services to the general public; and whether the government of the foreign country generally perceives the entity to be performing a government function. These are fact-based questions, and will depend on the entity at issue.


Applying this definition, the Eleventh Circuit affirmed the defendants’ FCPA convictions. The jury instructions provided a sufficient basis for concluding that Teleco was an instrumentality of the Haitian government. Likewise, the evidence established that the government had satisfied the FCPA’s knowledge requirement because the defendants knew or had reason to know that the bribes paid would reach the hands of a foreign official. Lastly, the court dismissed the Haitian Prime Minister’s declaration – which defendants claimed constituted exculpatory material pursuant to Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194 (1963) – because the information was never in the hands of the prosecutor, so it was not required to be disclosed.


The takeaway from the Esquenazi case is that in attempting to clarify what constitutes an “instrumentality” for the purposes of the FCPA, the Eleventh Circuit provided a definition that still requires significant factual analysis and still prohibits payments to an entity acting as an arm of the government. Yet whether an entity will be considered an instrumentality of the government will still depend on local perceptions and a factual analysis that could put defendants in the crosshairs of enforcement with only slightly clearer guidance than they had before the Esquenazi decision. Businesses should continue to proceed with caution when doing business with entities that are not clearly private and that may be connected to, controlled by, or performing the functions of the government.

Thursday, May 22, 2014

Attorney Malpractice Claim in Underlying Criminal Case Need Not Show Defendant Would have Been Exonerated

New Jersey – Appellate Division. In Cortez v. Gindhart, No. A-0430-12T1 (App. Div. May 21, 2014) the Appellate Division rejected the traditional notion that in order to assert a legal malpractice claim in an underlying criminal case, the defendant must prove that he would have been exonerated but for the attorney’s negligence. Eduardo Cortez was represented by Joseph G. Gindhart in connection with several violations of the Internal Revenue Code. He claimed that Gindhard failed to engage in plea negotiations and, as a result, he was forced to retain new counsel who negotiated a plea agreement that resulted in a thirty-six month period of incarceration, restitution in the amount of $442,734, a special assessment of $100, and a three-year term of supervised release.


Gindhart moved to dismiss the legal malpractice complaint, claiming that Cortez had to prove that he would have been exonerated. The trial court granted summary judgment. The Appellate Division affirmed the dismissal, but explained that the view that exoneration was required “rested upon a misinterpretation” of precedent. In the leading cases, McKnight v. Office of the Public Defender, 197 N.J. 180 (2008) and Rogers v. Cape May Cnty. Office of the Pub. Defender, 208 N.J. 414 (2011), the New Jersey Supreme Court found that the accrual of a legal malpractice action occurs when the conviction is shown to be invalid, with some degree of finality. Cortez freely admitted his guilt of the offense. Rather, he claimed a lost opportunity as a result of Gindhart’s alleged negligence; he was deprived of the opportunity to accept a more favorable plea offer and thus received a harsher sentence.


Noting that attorneys are not guarantors of results, the Appellate Division explained that attorneys are charged with exploring the possibility of resolving criminal charges through plea agreements, keeping a client informed of a plea offer, and to follow a client’s instructions in accepting or rejecting a plea offer. As a result, even if a client pleads guilty, an attorney may be negligent in discharging his duties on behalf of that client. According to the Appellate Division, failing to engage in plea negotiations on behalf of a client “could form the basis for a legal malpractice claim without evidence of exoneration if he was able to prove that he suffered an actual injury that was proximately caused by the alleged negligence.”


Notwithstanding this, the court found that Cortez’s legal malpractice claim failed because he failed to bring forth any evidence that he could have gotten a plea offer better than the one he ultimately accepted. 

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