SUSAN ILLSTON, District Judge.
Defendant David Lonich has moved to suppress evidence obtained as a result of the execution of a search warrant on April 9, 2014. Dkt. No. 186. Lonich also seeks an evidentiary hearing under Franks v. Delaware, 438 U.S. 154 (1978), regarding the validity of that same warrant. Id. The Court held a hearing on April 12, 2016. Having carefully considered the parties' arguments, the Court hereby DENIES the motion to suppress and for a Franks hearing.
The facts of this case are detailed at length in the Court's January 27, 2016 Order re: Motions to Dismiss. Dkt. No. 162. For brevity, the Court recites here only those facts relevant to the motion at hand.
On March 18, 2014, the government filed a twenty-nine count indictment against defendants David Lonich, Brian Melland, and Sean Cutting.
The indictment alleges: "No later than approximately March 2009 until approximately September 2012, the defendants devised and executed a material scheme to defraud Sonoma Valley Bank and others and to obtain money from Sonoma Valley Bank and others by means of materially false and fraudulent pretenses, representations, and promises and by omissions and concealment of material facts." Indictment ¶ 7.
In April 2014, Special Agent Terry M. Neeley of the Special Inspector General for the Troubled Asset Relief Program ("SIGTARP") submitted a search warrant application to Chief Magistrate Judge Joseph C. Spero. Dkt. No. 190-5 (Neeley Decl. ¶ 2). Neeley's twenty-nine page affidavit, which was provided in support of and incorporated into the search warrant application, described the nature of the investigation and the bases for probable cause. See Dkt. No. 190-1 (Warrant Affidavit). The affidavit provided:
Id.
Attachment B "ITEMS TO BE SEIZED" of the affidavit to the warrant application identified the following items for seizure:
Id.
Attachment C of the affidavit specified the search procedures for digital devices. Id. Specifically, it stated that in circumstances where the government cannot complete a search on site, it may duplicate the contents of the device and complete the forensic review of the mirror image within 120 days of the execution of the search warrant. Id. If the government cannot duplicate the device, "the government may seize and retain that device for 60 days in order to make a mirror image of the contents of the device." Id. In circumstances where the government removes the device from the site, "the government must file a return with a magistrate judge that identifies with particularity the removed device . . . within 14 calendar days of the execution of the search warrant." Id.
Pursuant to the process laid out in the affidavit to the search warrant application, the government formed a "taint team" to review the seized materials. Id. The affidavit stated, "[ou]t of an abundance of caution, and given the nature of the requested search which includes the offices and residence of an attorney, all materials seized at the time of the search shall be treated as potentially privileged material and a Privilege Team shall be employed." Id.
On April 7, 2014, Judge Spero approved the search warrant application. Dkt. No. 190-5 (Neeley Decl. ¶ 2). The warrant authorized the search of Lonich's residence, Madjlessi's residence, and the three business offices located at Park Lane Villas ("PLV"). Id. On April 9, 2014, the government executed the search warrant and seized materials from all three locations. Id.
Beginning in December 2014, and continuing over the course of the next approximately ten months, the parties engaged in discussions regarding whether certain of the documents were privileged. See Dkt. No. 123 (Balogh Decl. ¶¶ 28-30). The government has filed a separate motion, not currently before the Court, regarding whether various documents seized during the searches are privileged, and that motion has not yet been heard.
On March 4, 2016, Lonich filed the present motion seeking to suppress the evidence gathered as a result of the April 7, 2014 search warrant and seeking an evidentiary hearing under Franks v. Delaware, 438 U.S. 154 (1978). Dkt. No. 186. The government filed its opposition on March 25, 2016, and Lonich filed his reply on April 1, 2016. Dkt. Nos. 190, 196.
The parties dispute whether Lonich has standing to challenge the searches of Madjlessi's home or the rest of the office space at the Park Lane Villas. The government does not seriously dispute that Lonich has standing to challenge the searches of his own house and office. The Court finds that even assuming Lonich has standing to challenge the searches of Madjlessi's home or the rest of the office space at the Park Lane Villas, Lonich has not shown that the April 7, 2014 search warrant is invalid.
For a warrant to be valid, it must satisfy two related but distinct requirements: the particularity rule and the probable cause rule. "No warrant shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the person or things to be seized." U.S. Const. amend. IV. "Particularity is the requirement that the warrant must clearly state what is sought." In re Grand Jury Subpoenas Dated Dec. 10, 1987, 926 F.2d 847, 856-57 (9th Cir. 1991). Whether a warrant is sufficiently particular is judged on the basis of those facts which the officers knew or should have known at the time the warrant was issued. Maryland v. Garrison, 480 U.S. 79, 85 (1987). A search warrant "must be no broader than the probable cause on which it is based." United States v. Weber, 923 F.2d 1338, 1342 (9th Cir. 1990). The Ninth Circuit has instructed that, in order to determine whether the warrant's description complies with this mandate, a court should ascertain (1) whether there is probable cause to seize all of the items of the type described in the warrant; (2) whether it sets forth objective standards to guide the executing officers' identification of objects that are subject to seizure; and (3) whether the government could have described the items with greater particularity under the circumstances. United States v. Spilotro, 800 F.2d 959, 963 (9th Cir. 1986) (citations omitted).
Review of a determination that a warrant was supported by probable cause is deferential; "the duty of a reviewing court is simply to ensure that the magistrate had a `substantial basis for . . . conclud[ing]' that probable cause existed." Illinois v. Gates, 462 U.S. 213, 238-39 (1983) (alteration in original); see also United States v. Kelley, 482 F.3d 1047, 1050 (9th Cir. 2007) ("Normally, we do not `flyspeck' the affidavit supporting a search warrant through de novo review; rather, the magistrate judge's determination should be paid great deference." (internal quotation marks omitted)).
The main issue before the Court is whether the April 7 search warrant is overbroad because it authorized the seizure of evidence for which there was no probable cause. Lonich does not challenge the warrant's particularity requirement per se.
Lonich argues that the April 7 warrant is overbroad because it permitted the seizure of materials for which the government did not demonstrate probable cause. Lonich cites a string of Ninth Circuit cases, including United States v. Stubbs, 873 F.2d 210, 211 (9th Cir. 1989), to support his assertion that simply because the government may have had probable cause to search materials pertaining to "certain aspects of [an] operation," the government is not justified in seizing any and all documents present on site. Dkt. No. 186 at 13. Lonich contends that the purportedly overbroad warrant allowed the government to seize any and all materials related to defendants and the individuals with whom the defendants interacted, irrespective of the alleged fraud. Lonich states:
Dkt. No. 187 (Balogh Decl. ¶ 10).
Responding to Lonich's claims, the government asserts that the warrant does not authorize the seizure of all documents associated with the listed people and entities. Instead, the government argues that, when read holistically, the warrant validly seeks seizure of "evidence of ownership, custody, control of, and association with" the listed individuals and entities as it relates to the overall scheme to defraud. Dkt. No. 190-1 at 42. "Attachment B specifies a number of names and entities that have been identified as having specific relevance to the investigation leading to this warrant." Id. at 30. The government asserts that by challenging the subsets of the "ITEMS TO BE SEIZED" category of Attachment B, Lonich overlooks the plain language of the warrant. The government points out that Attachment B to the warrant lists the names of entities and individuals as examples of and guides to the overall type of evidence being sought. Such guidelines, the government argues, provide additional direction to the law enforcement officers conducting the search in the face of the existence of potentially privileged materials.
Defendant's overbreadth arguments are not without force. In the Court's view, it was inartful to use the word "all" in the sentence "Such evidence, in physical or electronic form, includes all documents, business records, photographs, audio or video recordings, communications, and any evidence of the ownership, custody, control of, and association with. . . ." Dkt. No. 190-1 (Warrant Affidavit) (emphasis added). However, the Court agrees with the government that "such evidence" relates back to the evidence of the various crimes charged in the indictment and recited in the previous sentence, that "all" modifies "documents," and that "and any evidence of the ownership, ownership, custody, control of, and association with, any of the following" is a an explanatory limitation on "such evidence." When all its parts are read together, the warrant is not overbroad. The warrant commanded the executing officer to seize "[e]vidence of violations [of specific sections of Title 18 of the United States Code referencing a description of the criminal activities
United States v. SDI Future Health, Inc., 568 F.3d 684 (9th Cir. 2009), is also instructive. In SDI, the defendants were charged with a conspiracy to defraud a Medicare program and commit extensive tax fraud. Id. at 691. The district court suppressed in full the evidence obtained from the search warrant on the ground that items 7, 9-13, and 24 of the search warrant were overbroad and lacked sufficient particularity because "`[t]he search warrant did not limit these general categories of business documents and financial records to the seizure of records relating to the criminal activity described in the affidavit,' and because they lacked `any time restriction.'" Id. at 694. Similarly, the district court noted that items 2, 4, 8, and 19, of the search warrant were "border line in acceptability," but nevertheless violated the Fourth Amendment because "some additional description could and should have been provided regarding these categories." Id. at 694.
On review, the Ninth Circuit rejected the district court's conclusion as to items 2, 4, 8, and 19. Id. at 704. The warrant described these four categories as follows:
Id. at 703. In rejecting the district court's conclusion as to these categories, the Ninth Circuit explained:
Id. at 704.
In addition, the Ninth Circuit rejected the district court's finding that categories 7 and 13 were overbroad. Id. The SDI search warrant described these categories as follows: "7. Documents relating to non-privileged correspondence with consultants" and "13. Documents relating to accounting records." Id. As to Category 7, the Ninth Circuit explained that "[c]onsultants are contract counter-parties outside of a firm who assist it with one or another part of its business. Since, again, SDI's entire business involved sleep studies, it could have been difficult to specify beforehand which consultants were complicit in the fraudulent sleep studies." Id. Concerning Category 13, the court stated that "the only accounting records companies typically keep are those of their business dealings; they do not keep accounting records of their employees' personal finances. Since SDI's entire business involved sleep studies, all of its accounting records could potentially reveal evidence of the alleged fraud." Id. at 705.
On the other hand, the Ninth Circuit affirmed the district court's finding that the following categories were overbroad:
Id. at 705. The Ninth Circuit explained that these five categories made no attempt to limit the search. Id. at 704. In fact, as to Category 24, the court called its characterization "the laziest of gestures in the direction of specificity" because this category "practically begs the search team to find and seize the contact information of every person who ever dealt with SDI." Id. at 705. The court explained that "[i]t would have been far more sensible, as well as constitutional, to limit the search to information relating to consultants, physicians, and health insurance companies, or some other group likely to turn up conspirators in the alleged fraud." Id. at 705.
Unlike the overbroad categories in the SDI search warrant, the portions of the search warrant that Lonich challenges are based on probable cause and limit the search and seizure of documents as they relate to the fraudulent scheme under investigation. Id. at 703. Attachment B specifically describes the violations of which Lonich is suspected and lists examples of evidence "includ[ing] all documents, business records, photographs, audio or video recordings, communications, and any evidence of ownership, custody, control of, and association with" specific entities and individuals relevant to the fraud investigation. Dkt. No. 190-1 (Warrant Affidavit). Moreover, the list of names provided in Attachment B is the exact opposite of what the Ninth Circuit called "the laziest of gestures in the direction of specificity." Id. at 705. Instead of commanding the executing officers to seize any and all materials on the authorized premises, the government here provided the names of individuals who are "likely to turn up conspirators in the alleged fraud." Id. at 705. Thus, the Neeley affidavit was not overbroad. It provided a substantial basis for Magistrate Judge Spero to find probable cause as to the seizure of all materials with a connection to the fraud.
In addition to determining whether probable cause exists to seize all of the items of the type described in the warrant, a reviewing court should (1) ascertain whether the government could have described the items to be seized with greater particularity under the circumstances and (2) determine whether the warrant sets forth objective standards to guide the executing officers' identification of objects that are subject to seizure. Spilotro, 800 F.2d at 963.
While Lonich does not challenge the warrant's particularity requirement, he argues that the warrant is unconstitutional because it did not limit the search and seizure to the PLV East portion of the project, the financing of which is at issue in this case. Lonich's argument will be addressed in this section because it relates to the particularity requirement, specifically whether the government was required to make the distinction between the two phases of the project at the time it issued the warrant.
The government contends that the warrant was sufficiently particular. The government asserts that the warrant is not required to be limited to the collection of evidence pertaining only to the involvement of the entities and individuals known at the time the warrant was issued so long as the warrant was based on probable cause. The government further argues that there is no requirement that a warrant must specify exactly how those entities and people were, at the time, known to have been involved in the fraud. In response to Lonich's claim about the lack of a particular distinction between the PLV East and West portions of the project, the government asserts that simply because the overall fraud scheme involved procurement of title to the East section of PLV, does not mean that the PLV project as a whole was not affected by the fraud. The government points out that just because the PLV project was phased into two sections, that does not change the fact that defendant "Madjlessi serve[d] as the primary construction contractor for the entire project. . . ." Dkt. No. 190 (Neeley Decl. ¶ 9). Quoting United States v. Banks, the government argues that "there is no requirement that the warrant be tailored to obtain only that evidence already known to exist." 556 F.3d 967, 973 (9th Cir. 2009). Consequently, it argues, Magistrate Judge Spero was within his authority to approve the seizure of evidence relating to PLV as a whole.
The government's arguments have merit. United States v. Meek, 366 F.3d 705, 715 (9th Cir. 2004) is on point. The Meek court found the warrant to be "sufficiently particular because the attachment to the warrant mentioned the crime . . . and the preface to the warrant limited the scope of the search to evidence of criminal activity." Id. (citing United States v. Hay, 231 F.3d 630, 638 (9th Cir. 2000)). In Meek, the Ninth Circuit distinguished the warrant from one that authorizes `"the seizure of virtually every document and computer file' without indicating how items were related to the suspected crime.'" Id. (quoting Kow, 58 F.3d at 427). To reach its holding, the Meek court also explained that the government provided a "reasonably detailed" description of the items to be seized. Id. at 716. The court described that "[t]he proper metric of sufficient specificity is whether it was reasonable to provide a more specific description of the items at that juncture of the investigation." Id.
Similar to the warrant in Meek, the government here provided a reasonably detailed description of the items to be seized in Attachment B and set out an objective procedure to guide the executing law enforcement agents' identification of items subject to seizure. Id. The warrant clearly stated what it sought, i.e. "documents, business records, photographs, audio or video recordings, communications, and any evidence of the ownership, custody, control of, and association with" the various entities and individuals pertinent to the fraud scheme. Docket No. 190-1 (Warrant Affidavit). Additionally, under the circumstances, the government's warrant was sufficiently specific. The record shows that as of the issuance of the warrant, the government provided the list of the names and entities "without description of their potential role" in order "not to unnecessarily reveal all aspects of the investigation or otherwise prejudice any party." Dkt. No. 190 (Neeley Decl. ¶ 95). Further, at the time of the issuance of the warrant, the government was not required to describe the items to be seized with more particularity. See e.g., Banks, 556 F.3d at 973 (explaining that "[a]lthough the government may have known the name of certain files that supported the finding of probable cause, there is no requirement that the warrant be tailored to obtain only that evidence already known to exist. In fact, this heightened limitation has been specifically rejected."). Because Madjlessi served as the primary construction contractor for the PLV project as a whole, it was sufficiently reasonable for the government not to distinguish between PLV East and PLV West portions of the project. Therefore, the Court finds Lonich's argument concerning a missing distinction between PLV East and West unpersuasive. The search warrant was sufficiently specific to meet the Fourth Amendment particularity requirement.
The government argues that even if Lonich's overbreadth claims have merit, it is entitled to the good-faith exception pursuant to United States v. Leon, 468 U.S. 150 (1984). Because the Court finds that the April 2014 search was valid, it will not address the good faith exception under Leon.
United States v. Tamura, 694 F.2d 591 (9th Cir. 1982), addresses the wholesale seizure of documents for an off-site search and establishes a procedure to be followed when documents to be seized are intermingled with other documents. ". . . [T]he wholesale seizure for later detailed examination of records not described in a warrant is significantly more intrusive, and has been characterized as `the kind of investigatory dragnet that the Fourth Amendment was designed to prevent.'" Id. at 595. Consequently, "the essential safeguard required is that wholesale removal must be monitored by the judgment of a neutral, detached magistrate." Id. at 596. Lonich argues that the government has not established compliance with the warrant's protocol as described in Attachment C. Specifically, Lonich contends that the government failed to file a search warrant return within 14 days and failed to return five seized devices within the 60-day deadline, as prescribed by the warrant. He relies on Tamura and United States v. Comprehensive Drug Testing, Inc. ("CDT"), 621 F.3d 1162, 1172 (9th Cir. 2010) (holding that the government's seizure was in disregard of the Fourth Amendment because the seizure reached information not covered by the warrant and because the government "utterly failed to follow the warrant's protocol.").
The government concedes that it did not meet the 14-day return deadline and instead filed a return three months after the search. The government explains that this "oversight" occurred because "there was confusion as to who was responsible for the return between the trial team, who had taken the lead on obtaining the search warrant, and the taint team, who had taken the lead on processing the evidence obtained." Dkt. No. 190 at 12 (Neeley Decl.). While apologizing for this error, the government argues that this non-compliance is without prejudice to Lonich because the day of the search, the agents conducting the search created a contemporaneous log of all seized items and delivered a copy of the log to Lonich. Dkt. No. 187 (Balogh Decl.), Ex. E. The government asserts that Lonich was effectively provided with a return on the very day of the search. Dkt. No. 190 at 12 (Wilbur Decl.).
The government also acknowledges that it failed to promptly return the five devices that the agents were not able to read on site, and which were consequently removed off-site during the execution of the search. Pursuant to the protocol laid out in Attachment C, the government was required to return the devices within 60 days of seizure. Dkt. No. 190-1 (Warrant Affidavit). Additionally, the government was required to "file a return with a magistrate judge that identifies with particularity the removed device . . . within 14 calendar days of the execution of the search warrant." Id. The government explains, "[u]nfortunately, Special Agent Wilbur forgot about the unreadable devices until, in preparation of this opposition, they came back to his attention. These devices have now been sent for return, clearly outside the 60 day deadline imposed by Attachment C." Id. at 13. Despite this failure, the government contends that the oversight does not merit relief from the Court because these five devices were never searched and, hence, yielded nothing to suppress. Id.
While the Court is disturbed by the errors committed by the government, the record reflects that those errors were the result of negligence rather than intentional misconduct. The Court also agrees with the government that Lonich has not been prejudiced by the government's conduct. The CDT case upon which Lonich relies is distinguishable. In CDT, the Ninth Circuit held that the warrant procedures were "completely ignored" by the government, and that those violations led to the illegal seizure of evidence outside the scope of the warrant. CDT, 621 F.3d at 1171.
A defendant may challenge a facially valid search warrant affidavit by showing that (1) a false statement was, knowingly and intentionally or with reckless disregard for the truth, included in the warrant affidavit, and (2) that the allegedly false statement was necessary to the finding of probable cause. See Franks v. Delaware, 438 U.S. 154, 155-56 (1978); United States v. Putney, 906 F.2d 477, 478 (9th Cir. 1990). A non-conclusory "substantial preliminary showing" of these facts entitles the defendant to an evidentiary hearing. Franks, 438 U.S. at 171-72. If the allegation of reckless disregard or perjury is established by a preponderance of the evidence at a hearing, then the false statements must be stricken and the affidavit's remaining content reviewed to determine whether it is sufficient to establish probable cause. See id. at 156. If it is not, then "the search warrant must be voided and the fruits of the search excluded to the same extent as if probable cause was lacking on the face of the affidavit." Id. In addition to the inclusion of false statements, reckless or knowing omissions from the affidavit that tend to mislead may also constitute a Franks violation. See United States v. Dozier, 844 F.2d 701, 705 (9th Cir. 1988).
A defendant seeking an evidentiary hearing must satisfy five requirements:
United States v. Perdomo, 800 F.2d 916, 920 (9th Cir. 1986) (quoting United States v. DiCesare, 765 F.2d 890, 895 (9th Cir. 1985)). A defendant is not entitled to a Franks hearing if, setting aside the alleged misstatements and omissions, "there remains sufficient content in the warrant affidavit to support a finding of probable cause." Franks, 438 U.S. at 171-72.
Lonich requests a Franks hearing based on the assertion that Special Agent Neeley made material misstatements and omissions that undermine Magistrate Judge Spero's finding of probable cause. Lonich's first argument is that Neeley deliberately omitted from his affidavit material facts that show that J.H., and not Madjlessi, was the actual owner of 101 Houseco. Lonich contends that Neeley omitted the following facts: (1) that J.H. "personally applied for and personally guaranteed the SVB loans made to 101 Houseco;" (2) that when evaluating the 101 Houseco loans, SVB relied on J.H.'s personal application and assets; (3) that J.H. told Neeley that "while he agreed to let Lonich and Madjlessi manage the 101 Houseco project, he was, in fact, the owner of 101 Houseco;" (4) that J.H. "personally authorized, in writing to SVB, Madjlessi and Attorney Lonich to negotiate with the bank on behalf of 101 Houseco;" (5) that John Barr informed the government's investigators that Madjlessi's company manages 101 Houseco for its owners and that "the purchase was an arms-length transaction reviewed by the bank's attorney;" and (6) that "[t]he five-year investigation uncovered no documents reflecting that Bijan Madjlessi ever obtained, possessed or maintained any ownership interest in 101 Houseco, up and through his death in 2014." Dkt. No. 186 (Balogh Decl. ¶ 24). Lonich's second argument is that Neeley purposely omitted material evidence that demonstrates that the Asset Verification Letters ("AVLs"), which were used by Lonich and Cutting to secure financing from Fannie Mae and Freddie Mac, were not fraudulent. Dkt. No. 186 at 32. Lonich claims that Neeley uncovered evidence that these AVLs were merely "promises to fund loans, promises which fell within Cutting's authority . . ." yet failed to include this information for the magistrate judge. Dkt. Nos. 186 at 32, 196 at 16. Without these material facts, Lonich argues, Magistrate Judge Spero would have rejected the warrant application for lack of probable cause. Dkt. No. 196 at 17.
The government responds that Lonich's first allegation is without merit, as the Court has previously rejected the claim that J.H. was not a straw purchaser. As to Lonich's second argument, the government asserts that the AVLs were "false on their face despite what other interested parties may have opined about them,"
The Court has previously rejected Lonich's claim that J.H. was the actual owner of 101 Houseco and will not consider it anew. See Dkt. No. 162. The Court explained the charges in the indictment as follows:
Id. at 3. As to Lonich's second claim, the Court finds no evidence that Special Agent Neeley knowingly and intentionally, or with reckless disregard for the truth, omitted facts to mislead Magistrate Judge Spero in the issuance of the warrant. Nothing in the record demonstrates that the alleged omissions concerning the AVLs were "the result of anything other than negligence or innocent mistake." United States v. Collins, 61 F.3d 1379, 1384 (9th Cir. 1995). Further, even if supplemented by the alleged omissions, the AVLs would not defeat the finding of probable cause. Franks, 438 U.S. at 155-56.
Accordingly, Lonich's motion to suppress evidence and for a Franks hearing is DENIED.
