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United States v. Ponds

October 28, 2003



Defendant Navron Ponds was indicted on December 10, 2002, in a seven count indictment charging him with five counts of tax evasion in violation of 26 U.S.C. § 7201, felony fraud under D.C. Code §§ 22-3821 and -3822, and wire fraud in violation of 18 U.S.C. § 1343, all relating to a multi-year scheme involving the non-payment of personal income taxes. On July 7, 2003, defendant was also charged in a parallel information with five counts of failure to pay income taxes or file income tax returns in violation of 26 U.S.C. § 7203. Following a seven-day trial, on July 16, 2003, a jury returned a verdict convicting defendant on all counts.*fn1

Prior to trial, defendant moved pursuant to United States v. Kastigar, 406 U.S. 441 (1972), and United States v. Hubbell, 530 U.S. 27 (2000), for a hearing to determine whether the government's case was improperly tainted by defendant's prior production of documents and grand jury testimony under a grant of immunity and, based on that alleged taint, for dismissal of all charges. On June 3, 2003, the Court granted defendant's request for a Kastigar hearing, and thereafter held a two-day evidentiary hearing to determine whether the government's case was tainted by defendant's prior production of documents and grand jury testimony under a grant of use immunity pursuant to 18 U.S.C. § 6002. See Mem. Op. (June 3, 2003) at 7. The Court concluded that such a hearing was warranted because the government conceded awareness during the course of its investigation that a Kastigar/Hubbell issue was looming, because the documents and information produced under"act of production" immunity in an earlier Maryland federal proceeding may have been known to Internal Revenue agents or prosecutors involved in this case, and because it was not a demonstrably"foregone conclusion" that the records produced by defendant under immunity existed and were in his possession. Id. at 7-8. Accordingly, the Court was concerned that defendant's act of production of documents to the Maryland grand jury might have contained implicit testimonial representations or acknowledgments that were previously unknown to the government, and therefore"this case on the surface would seem to involve implicit, and potentially incriminating, testimonial statements through the production of documents in response to a subpoena." Id. at 8 (citing Hubbell, 530 U.S. at 44-45, and United States v. Fisher, 425 U.S. 391, 411 (1976)).

An evidentiary hearing commenced on June 5, 2003. The Court required that the hearing focus on the facts, circumstances and decisions regarding the grand jury subpoena to defendant, the acquisition of an ex parte order to obtain defendant's tax records, and the acquisition of search warrants for defendant's business and residence. As noted in the Court's June 3, 2003, decision, the hearing was conducted under certain legal ground rules: the government was required to show that its evidence in this case was derived from sources independent of the testimony and documents compelled in Maryland under a grant of immunity, see United States v. Kilroy, 27 F.3d 679, 683 (D.C. Cir. 1994), and the evidentiary burden on the government to establish an independent source was by a preponderance of the evidence, see United States v. Montoya, 45 F.3d 1286, 1292 (9th Cir. 1995); United States v. North, 910 F.2d 843, 854, opinion withdrawn and superseded in part, 920 F.2d 940 (D.C. Cir. 1990) (en banc).
Subsequently, the Court informed the parties prior to trial that it would deny defendant's request to dismiss the indictment under Hubbell and Kastigar. The Court explained that, on the basis of the record created, there had not been the type of use of defendant's immunized production of documents that would require dismissal of the indictment in light of several factors: (1) the proper focus must be on the testimonial aspects of defendant's immunized production (for example, the existence and location of the documents produced) rather than on the contents of the documents; (2) the relevant issue is the direct or derivative use by the government of the immunized testimony or conduct, not the mere exposure of prosecutors or agents to immunized material; (3) the existence of legitimate and wholly independent sources for the evidence the government relied on in obtaining the search warrants of defendant's business and residence and in obtaining the indictment; (4) the absence of any use of immunized testimony or conduct in obtaining the indictment or the search warrants, or in preparing witnesses; (5) the inevitability of the discovery of certain disputed information by the government during the course of its investigation of defendant; and (6) the fact that any minimal direct or derivative use that might have occurred would be"harmless error beyond a reasonable doubt."
Following trial and his conviction, defendant has now renewed his motion to suppress evidence and dismiss the charges against him under Kastigar and Hubbell; alternatively, he requests a new trial pursuant to Fed.R.Crim.P. 33. This opinion provides a further explanation of the Court's decision denying defendant's original request to dismiss the indictment following the Kastigar hearing, and explains the basis for denial of defendant's renewed motion for suppression of evidence and dismissal of charges or, alternatively, for a new trial.

I. Facts and Proceedings

The basic background of this matter is not in dispute. Defendant, a criminal defense attorney, had been representing Jerome Harris in a criminal proceeding in the District of Maryland. In the summer of 2000, defendant came under investigation by the United States Attorney's Office and the Drug Enforcement Administration for possible money laundering, contempt or obstruction of justice relating to defendant's receipt of a 1991 Mercedes Benz as a fee from Mr. Harris, and the failure of defendant to disclose that transfer to the District Court in the context of an assessment of Harris's assets for sentencing and forfeiture purposes.

In August 2000, a grand jury subpoena duces tecum was issued to defendant requiring the production of six categories of documents relating to

ù the use, ownership, possession, custody or control of the 1991 Mercedes Benz;

ù the payment of legal fees by Harris to defendant;

ù any vehicles in Harris's custody (if defendant had access to them);

ù Laura P. Pelzer (defendant's sister) or two other individuals who were on the title of the Mercedes;

ù correspondence between defendant and the government in the underlying criminal case concerning Mr. Harris; and

ù employees in defendant's law office.

When defendant asserted his Fifth Amendment privilege against self incrimination, an Order was issued by the District Court pursuant to 18 U.S.C. §§ 6002 and 6003 providing"act of production" immunity as to the subpoenaed documents, but expressly limited"only to the testimonial aspects of [defendant's] production of these items to the grand jury." Defendant's testimony to the grand jury on August 9, 2000, in connection with the production of responsive documents was narrow and entailed only the assertion of his Fifth Amendment privilege, a review of the District Court's immunity order, and review of the approximately 300 pages of documents produced. Among the documents produced were some of relevance to the tax evasion and fraud charges in this case, including documents relating to a Georgia rental property showing joint ownership by defendant and his sister; documents relating to the Mercedes showing it registered to defendant's sister; documents relating to a Citibank account held jointly with his sister; documents relating to a Porsche demonstrating it was registered to his sister; documents showing the use of money orders by defendant to pay for parts and service on the Mercedes and Porsche; documents relating to other usage of money orders by defendant; and documents identifying Maggie Alexander as defendant's legal secretary.

Thereafter, the United States Attorney in Maryland requested defendant's tax records from the IRS through an ex parte application for a judicial order. In seeking the immunity order from the District Court, the prosecutors represented that they would obtain defendant's tax records from the IRS through an ex parte order. The prosecutors had earlier included a provision for business and personal tax returns in the draft grand jury subpoena, but deleted that item after defendant indicated he would impose a Fifth Amendment objection. When the IRS responded to the ex parte order for defendant's tax records with information that defendant had not filed tax returns for 1996 and 1997, the prosecutors in Maryland recognized that defendant might have committed tax offenses, which would have to be prosecuted in the District of Columbia.

In late 2000, the tax investigation matter was referred to the United States Attorney in the District of Columbia, and the IRS commenced an investigation, which was formally opened by the IRS as a tax investigation in March 2001. Affidavits in support of search warrants for defendant's residence and business were prepared by IRS agents in early 2001. The review and approval process required for the search of an attorney's office took considerable time. The government concedes that, to a limited extent, the IRS made use of some documents that defendant had produced to the grand jury to support the search warrant affidavits, but contends that no use was made of any evidence relating to defendant's"act of production" of any documents. The government has also conceded, and the record reflects, that there was an awareness of the implications of Hubbell and Kastigar in this setting, and that the affidavits were modified, based in part on information from defendant's documents, because of concerns raised by IRS Counsel before the searches were finally conducted on June 26, 2001.

Two boxes of materials were seized from defendant's apartment residence, and four boxes of materials were seized from his office. When the IRS learned from a review of financial records that defendant had engaged the services of a tax preparer, a subpoena was issued to the tax preparer and two additional boxes of financial materials were obtained. Subsequently, the government also issued subpoenas to several financial institutions to obtain additional financial records relating to accounts that defendant and/or his sister had maintained.

Beyond question, the primary materials thereafter utilized by the government in its investigation and prosecution were these materials relating to defendant's financial affairs that were obtained as a result of the search of his residence and office, as well as materials from the IRS and from the financial institutions, and not any documents or information provided by defendant to the Maryland grand jury in early August 2000. The indictment of defendant for tax evasion and fraud was returned on December 10, 2002. The government has established that no document obtained from defendant through the Maryland grand jury was shown to the District of Columbia grand jury which returned the indictment in this case. In addition, the record establishes beyond peradventure that no document obtained from defendant through the Maryland grand jury was used in the trial of this case. However, the Court concluded that a Kastigar hearing was warranted because the documents produced under"act of production" immunity to the Maryland grand jury were known to IRS agents and prosecutors involved in this case, the government was aware during its investigation that a Kastigar/Hubbell issue was looming, and it was not a demonstrably"foregone conclusion" that all the documents produced by defendant under immunity existed and were in his possession, and in light of some uncertainty regarding the use of information obtained from defendant under immunity, or any leads derived therefrom, to obtain subsequent search warrants or the indictment in this case. The record of that two-day evidentiary hearing, together with the trial record, constitutes the factual underpinning of defendant's claim and the government's response.

II. Legal Framework

The basic framework for analysis of defendant's claims is provided by the Supreme Court's decisions in Kastigar and Hubbell. The question presented in Kastigar was whether the United States Government may compel testimony from an unwilling witness, who invokes the Fifth Amendment privilege against compulsory self-incrimination, by conferring on the witness immunity from use of the compelled testimony in subsequent criminal proceedings, as well as immunity from use of evidence derived from the testimony.

406 U.S. at 442. The Court assessed 18 U.S.C. § 6002 and concluded as follows:

The statute's explicit proscription of the use in any criminal case of"testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony or other information)" is consonant with Fifth Amendment standards. We hold that such immunity from use and derivative use is coextensive with the scope of the privilege against self-incrimination, and therefore is sufficient to compel testimony over a claim of the privilege.

Id. at 453. The Court observed that the Fifth Amendment privilege does not insulate one from prosecution, but only from being forced to give testimony leading to criminal prosecution, and therefore immunity from the use of compelled testimony and any evidence derived therefrom affords the necessary constitutional protection. Id.; see also id. at 458 (prior cases"compel the conclusion that use and derivative-use immunity is constitutionally sufficient to compel testimony over a claim of the privilege"). Because both the Fifth Amendment and § 6002 permit the government to prosecute based on evidence from independent sources, immunity under § 6002"leaves the witness and the prosecutorial authorities in substantially the same position as if the witness had claimed the Fifth Amendment privilege. The immunity therefore is coextensive with the privilege and suffices to supplant it." Id. at 462.

Almost thirty years after the decision in Kastigar, the Court addressed in Hubbell (1) whether the Fifth Amendment privilege protects a witness from being compelled to disclose the existence of incriminating documents that the Government is unable to describe with reasonable particularity; and (2) if the witness produces such documents pursuant to a grant of immunity, whether 18 U.S.C. § 6002 prevents the Government from using them to prepare criminal charges against him.

530 U.S. at 29-30. As part of the Whitewater Independent Counsel investigation, Hubbell, who had earlier pled guilty to other charges, produced over 13,000 pages of documents in response to a subpoena and an order under 18 U.S.C. §§ 6002, 6003(a) granting immunity"to the extent allowed by law"; the documents produced provided the prosecutors with information resulting in a second prosecution. Id. at 31.

The Hubbell Court noted that one could be compelled to produce specific documents even if they contain incriminating statements because the creation of those documents was not compelled, and thus"Hubbell could not avoid compliance with the subpoena served on him merely because the demanded documents contained incriminating evidence, whether written by others or voluntarily prepared by himself." Id. at 36 (citing Fisher v. United States, 425 U.S. 391, 409-10 (1976)). However, the Court also observed"that'the act of production' itself may implicitly communicate'statements of fact'" and thus may have a compelled testimonial aspect. Id. at 36. Frequently, the individual producing the documents may be forced to become a witness who must answer questions about whether everything sought by the subpoena has been produced.

The answers to those questions, as well as the act of production itself, may certainly communicate information about the existence, custody, and authenticity of the documents. Whether the constitutional privilege protects the answers to such questions, or protects the act of production itself, is a question that is distinct from the question whether the unprotected contents of the documents themselves are incriminating.

Id. at 37. Moreover, the compass of Fifth Amendment protection extends to compelled information that leads to the discovery of incriminating evidence even if the information itself is not incriminating. Id. at 37-38 (citing Doe v. United States, 487 U.S. 201, 208 n.6 (1988)).

The Hubbell Court noted that Kastigar had confirmed the protection under § 6002 against derivative use of compelled testimony, and"particularly emphasized the critical importance of protection against a future prosecution'"based on knowledge and sources of information obtained from the compelled testimony."'" Id. at 39 (quoting Kastigar, 406 U.S. at 454, and Ullmann v. United States, 350 U.S. 422, 437 (1956)). Given the broad statutory safeguard under § 6002 against any direct or indirect use of compelled testimony or information derived from it, the government has the burden

not merely to show that its evidence is not tainted by the prior testimony, but"to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony."

Id. at 40 (quoting Kastigar, 406 U.S. at 460). As is the case here, the Court in Hubbell noted that"[t]he'compelled testimony' that is relevant in this case is not to be found in the contents of the documents produced in response to the subpoena. It is, rather, the testimony inherent in the act of producing those documents." 530 U.S. at 40. In Hubbell, the Court concluded that the government had, in fact, made derivative use of the testimonial aspect of Hubbell's act of production in obtaining the indictment and preparing the case for trial. Id. at 41. That use was described as Hubbell's assistance in identifying, assembling, cataloging and producing sources of information (because Hubbell must have made extensive use of the knowledge in his mind in doing so). Id. at 41-43. The Court thereby rejected the government's overly-narrow view that the production of documents by Hubbell was non-testimonial and separate"from its'implicit' testimonial aspect so as to constitute a'legitimate, wholly independent source' (as required by Kastigar for the documents produced." Id. at 43.

Thus, a constitutional privilege extends"to the testimonial aspect of a response to a subpoena seeking discovery" of the sources of potentially incriminating evidence just as it does to compelling a witness to answer questions intended to obtain information about those sources. Id. Importantly, the Court noted, although

in Fisher the Government already knew that the documents were in the attorneys' possession and could independently confirm their existence and authenticity through the accountants who created them, here the Government has not shown that it had any prior knowledge of either the existence or the whereabouts of the 13,120 pages of documents ultimately produced by [Hubbell].

Id. at 44-45. The Court rejected the government's broad argument that businessmen like Hubbell will always possess financial and tax records within vague subpoena categories, therefore finding that Fisher's"foregone conclusion" doctrine did not apply. Id. The Court concluded that Hubbell's act of production had a testimonial aspect and thus he could ...

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