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United States v. Hungerford

United States District Court, E.D. Louisiana

April 29, 2019


         SECTION I

          ORDER & REASONS


         Before the Court is defendants William B. Hungerford and Timothy O. Milbrath's (together, “defendants”) motion[1] to dismiss the superseding indictment[2]based on violations of their constitutional right to due process under the Fifth and Fourteenth Amendments and their constitutional right to counsel under the Sixth Amendment. Specifically, defendants allege a breach of client confidentiality that has infected the superseding indictment and prejudiced them. The government opposes the motion.[3] For the foregoing reasons, the motion is denied.


         On or about May 5, 2006, defendants formed NobleOutReach, LLC (“NOR”).[4]Defendants allege that the purpose of NOR was to “resurrect the dormant EB-5 foreign investment program in New Orleans.”[5] The EB-5 program allows foreign nationals who invest a certain amount of money in a new or troubled American business to obtain a legal permanent residency in the United States if, after two years, the investment creates at least ten full-time employment positions for qualifying United States workers.[6] Generally, the qualifying capital contribution for participation in the EB-5 program is $1, 000, 000.00, but individuals could qualify by investing $500, 000.00 in a “targeted employment area” (“TEA”).[7]

         The EB-5 program is administered by United States Citizenship and Immigration Services (“USCIS”). “Immigrant investors could qualify for EB-5 visas by investing though Regional Centers designated by USCIS.”[8] Defendants allegedly established NOR to operate the New Orleans Regional Center and NobleReach-NOLA, LLC to act as the principal agent of the New Orleans Regional Center.[9]

         Defendants allegedly created NobleRealEstateFund, LP (the “Fund”), the entity in which the foreign investors would invest their capital contributions and become limited partners.[10] Defendants allege that attorney Rana Jazayerli (“Jazayerli”) assisted them in drafting the documents that governed the Fund and the relationship between defendants, NOR, and other related entities.[11] The superseding indictment alleges that, according to the Fund's operating documents, “the purpose of the Fund was to create financial returns for investors, assist investors in meeting the criteria for the EB-5 program, and to contribute to the ‘reconstruction and rejuvenation of New Orleans.'”[12] The superseding indictment also alleges that operating documents stated that the Fund would conduct its business in the New Orleans TEA, permitting the investors to contribute a minimum of $500, 000.00.[13]

         Defendants allege that Jazayerli also worked directly with the foreign investors to assist them with certifications, USCIS filings, and responding to USCIS's requests for information.[14] Defendants allege that Jazayerli and other attorneys were “intimately involved in all aspects of the deliberation and creation of NOR and the EB-5 Program.”[15] Thus, they allege, Jazayerli and other NOR attorneys possessed defendants' privileged and confidential information.[16]

         Defendants allege that in March 2011, USCIS began denying the investors' I-526 petitions for conditional residency.[17] Defendants allegedly looked to Jazayerli for guidance as to why the petitions were being denied and how such issues could be resolved.[18] The issues were seemingly never resolved, however, because in late 2011, defendants allege that NOR informed its investors of the “USCIS stalemate” and that NOR might have to liquidate the Fund.[19] The government alleges that all of the investors' I-829 petitions were denied as well.[20] According to defendants, that was “the point at which the interests of [d]efendants and NOR began to diverge from those of the investors.”[21]

         In January 2012, Jazayerli announced that she had joined the firm of Dilworth Paxon, LLP (“Dilworth Paxon”).[22] A few months later, on March 15, 2012, Dilworth Paxon, on behalf of a group of “dissatisfied Fund investors” (the “plaintiffs”), filed a derivative action against defendants, NOR, and their other entities in the Eastern District of Louisiana, which was allotted to U.S. District Judge Susie Morgan.[23] The law firm of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC (“Baker Donelson”) served as local counsel on behalf of the plaintiffs.[24]

         On September 14, 2012, after alerting the plaintiffs that Jazayerli and Dilworth Paxon had a conflict of interest in the civil lawsuit, defendants filed a motion to disqualify plaintiffs' counsel.[25] On May 30, 2013, Judge Morgan granted the motion pursuant to Rules 1.9 and 1.10 of the Professional Rules of Conduct of the Louisiana State Bar, finding that Jazayerli and defendants had had an attorney-client relationship, that her representation of the plaintiffs in the civil matter created a conflict of interest, and that the conflict must be imputed to Dilworth Paxon and Baker Donelson.[26]

         Defendants allege that, while the motion to disqualify was pending and after Judge Morgan ruled on the motion, the government engaged in improper meetings and communications with defendants' former attorneys. Defendants allege that on or around February 15, 2013, prior to Judge Morgan's decision on the motion to disqualify, James J. Rodgers of Dilworth Paxon (“Rodgers”) voluntarily contacted and met with the FBI to be interviewed about NOR and defendants' involvement with the EB-5 program.[27] Rodgers described, among other things, defendants' alleged mismanagement of the EB-5 program, NOR, and other entities.[28] Defendants specifically assert that Rodgers discussed “claims that later showed up in the Government's Indictment-information Jazayerli would have been privy to as NOR's lawyer.”[29]

         The government interviewed attorney Michael Fantaci (“Fantaci”) in August 2015.[30] Fantaci was a member of the Fund Advisory Board (the “FAB”), [31] and defendants allege that he only served on the board in his capacity as an attorney in order to provide legal advice to the directors.[32] The government agent and Fantaci agreed “to check the bounds of attorney/client privileged information, ” and Fantaci said he was “open” to another interview with his “boss”[33] and another attorney knowledgeable about attorney-client privilege.

         The government contacted Fantaci again in May 2018. On May 18, 2018, the government subpoenaed Fantaci to appear before the grand jury and to produce documents.[34] Fantaci was subpoenaed in his capacity as a member of the FAB, and the government requested any and all original documents of FAB meeting minutes.[35] Further, the subpoena specifically stated that it was not requesting any privileged attorney-client communications.[36]

         The government then interviewed Fantaci on or about May 24, 2018.[37] At that interview, the FBI agents again warned Fantaci not to provide any privileged information, and he was told that he was being interviewed only as a member of the FAB and not as defendants' attorney.[38]

         Defendants also allege that the government obtained privileged and confidential information from Maurice Berez (“Berez”), former USCIS EB-5 program manager and advisor to NOR.[39] They allege that an email from Berez's attorney shows that Berez provided NOR's privileged and confidential documents to the government.[40] In the email to a government agent, Berez's attorney explained that he was providing a thumb drive of redacted copies of files that Berez had already turned over and that he “erred on the side of privilege” to remove any questionable files.[41]

         Defendants further allege that the government pursued attorney interviews after defendants were indicted. Specifically, they assert that the government met with the attorney for Elizabeth Milbrath, defendant Milbrath's wife, to encourage Mrs. Milbrath to communicate to her husband that he could get a better plea deal if he testified against defendant Hungerford.[42] Mrs. Milbrath's attorney stated that the government showed him an email between Mrs. Milbrath and Hungerford that appeared to be a privileged communication.[43]

         Finally, defendants allege that the government failed to establish a taint team to review any privileged materials before they were viewed by the prosecuting team, in violation of the U.S. Attorney's Justice Manual.[44]


         Courts may dismiss indictments “based on constitutional grounds or on the court's inherent supervisory power.” United States v. Rogers, 751 F.2d 1074, 1077 (9th Cir. 1985). “The supervisory powers of the district court allow it to impose the extreme sanction of dismissal of an indictment with prejudice only in extreme circumstances.” United States v. Fulmer, 722 F.2d 1192, 1195 (5th Cir. 1983) (citing United States v. Campagnulo, 592 F.2d 852, 865 (5th Cir. 1979)). “[A] district court may dismiss an indictment with prejudice only where it has been shown that governmental misconduct or gross negligence in prosecuting the case actually prejudiced the defendant.” Fulmer, 722 F.2d at 1195 (citations omitted); see also United States v. Swenson, 894 F.3d 677, 684 (5th Cir. 2018).

         “Government misconduct does not mandate dismissal of an indictment unless it is ‘so outrageous' that it violates the principle of ‘fundamental fairness' under the due process clause of the Fifth Amendment.” United States v. Johnson, 68 F.3d 899, 902 (5th Cir. 1995) (citing United States v. Russell, 411 U.S. 423, 431-32 (1973)). Furthermore, “government interference with a defendant's relationship with his attorney may render that attorney's assistance ineffective and thus violate the Sixth Amendment.” United States v. Marshank, 777 F.Supp. 1507, 1518 (N.D. Cal. 1991) (citing United States v. Irwin, 612 F.2d 1182, 1185 (9th Cir. 1980)). “[M]ere error or oversight is neither gross negligence nor intentional misconduct.” Swenson, 894 F.3d at 684 (quoting Fulmer, 722 F.2d at 1195).

Dismissal of an indictment with prejudice is a rare result because, even in the face of prosecutorial misconduct, there is a “public interest in having indictments prosecuted.” [United States v. Welborn, 849 F.2d 980, 985 (5th Cir. 1988)]. That said, [the Fifth Circuit] has expressly declined to “foreclose the possibility that governmental ineptitude and carelessness could be so abhorrent as to warrant dismissal with prejudice.” Fulmer, 722 F.2d at 1196.

Id. at 684-85.

         “[A] defendant who asserts the defense of outrageous government conduct has an extremely high burden of proof.” United States v. Asibor, 109 F.3d 1023, 1039 (5th Cir. 1997); see also United States v. Voigt, 89 F.3d 1050, 1070 (3d Cir. 1996) (explaining that the defendant “bear[s] both the burden of production and persuasion on his outrageousness claim”). “Whether outrageous government misconduct exists turns on the totality of the circumstances.” Marshank, 777 F.Supp. at 1523 (citing United States v. Tobias, 662 F.2d 381, 387 (5th Cir. 1981)). “[E]very case must be resolved on its facts.” Id. (citing United States v. Bogart, 783 F.2d 1428, 1438 (9th Cir.) vacated on other grounds, United States v. Wingender, 790 F.2d 802 (9th Cir. 1986)).


         Defendants argue that the government's actions-interviewing defendants' former attorneys and advisors and allegedly receiving defendants' privileged and confidential information-rises to the level of outrageous government conduct, thereby violating their constitution rights. The Court disagrees and finds that defendants have not met their burden of showing outrageous government conduct sufficient to warrant dismissal of the indictment.


         To demonstrate that the government violated their right to due process under the Fifth and Fourteenth Amendments, defendants rely primarily on two cases, United States v. Schell, 775 F.2d 559 (4th Cir. 1985) and United States v. Marshank, supra, wherein both courts dismissed the indictments against the defendants because of the government's intrusion into the defendants' attorney-client relationships. Neither case is persuasive.

         In Schell, the U.S. Fourth Circuit Court of Appeals held that the district court should have dismissed the indictment as to two defendants because the defendants' former criminal defense attorney “switched sides, ” which was per se prejudicial. Schell, 775 F.2d at 565. Attorney David Jividen (“Jividen”) represented two defendants, John Cain (“Cain”) and Frieda Virginia Gallo Wilson (“Wilson”), among others, who had been issued grand jury subpoenas. Id. at 562. Cain informed Jividen that he would invoke his Fifth Amendment privilege, so Jividen contacted the government on Cain's behalf and Cain was released from his grand jury subpoena. Id. Wilson testified when the grand jury convened, and Jividen spoke with Wilson before and during a break in her testimony. Id. A few months later, Jividen became an Assistant U.S. Attorney and appeared before a grand jury in the same investigation and criminal matter, eliciting testimony from witnesses about his former clients. Id. at 563. The Fourth Circuit held that “Jividen represented Wilson and Cain with respect to the very same criminal activity which led to the indictment that he ultimately helped to prosecute and under which Wilson and Cain were convicted, ” and that “due process is violated when an attorney represents a client and then participates in the prosecution of that client with respect to that same matter.” Id. at 565.

         Defendants argue that the same reasoning applies here because Jazayerli represented defendants before “switching sides” and “virtually constructed the Government's case.”[45] Schell is clearly distinguishable.

         Jividen, the attorney in Schell, switched sides in that he was the defendants' criminal defense attorney and, a short while later, a criminal prosecutor in the exact same criminal matter involving his former clients. Id. at 565. Jazayerli, on the other hand, advised defendants with respect to their business affairs, and her participation was limited to the civil matter that has been closed.[46] Other than defendants' speculative allegations that the government “adopted Jazayerli's betrayal whole-cloth” and based the entire indictment on “Jazayerli's civil complaint, ”[47] defendants' have not alleged or demonstrated that their former attorneys participated in the prosecution beyond sitting for interviews or responding to subpoenas.[48]

         In Marshank, the district court dismissed the indictment for outrageous government misconduct after government prosecutors “actively collaborated” with the defendant's attorney, Ronald Minkin (“Minkin”). 777 F.Supp. at 1524. Minkin had an ongoing attorney-client relationship with the defendant, and the district court held that the government “show[ed] a complete lack of respect for the constitutional rights of the defendants and Minkin's other clients and an utter disregard for the government's ethical obligations.” Id. Furthermore, “the government colluded with Minkin to obtain an indictment against the defendant, to arrest the defendant, to ensure that Minkin would represent the defendant despite his obvious conflict of interest, and to guarantee the defendant's cooperation with the government.” Id.

         The government's conduct in the instant matter is not remotely close to the government's misconduct in Marshank.[49] Defendants essentially restate the factual findings in Marshank as broad allegations of the government's conduct, hardly applying them to the facts of this case. Defendants argue that the government deliberately intruded on their attorney-client relationships by interviewing Rodgers, Jazayerli's colleague at Dilworth Paxon; “extract[ing] privileged information” from Berez, EB-5 program director; interviewing defendants' “then-attorney” Fantaci; requesting that defendants waive their privilege as to the documents already in the government's possession; and meeting with Mrs. Milbrath's attorney to discuss a plea deal for defendant Milbrath.[50]

         Unlike the government's misconduct in Marshank, in which the government colluded with the defendant's criminal defense attorney who was actively representing the defendant at the time, none of the attorneys that the government contacted in the instant matter were actively representing defendants in any criminal matter or criminal investigation. In fact, Fantaci is the only attorney with whom defendants allege they had an ongoing attorney-client relationship at the time he met with the government.[51] Defendants have not demonstrated any collusion between the government and defendants' attorneys-current or former.

         The Court finds United States v. Rogers, supra, to be more instructive. In Rogers, the defendant moved the district court to dismiss the indictment, arguing that the government interfered with the attorney-client relationship of the defendant and an attorney. 751 F.2d at 1076. Specifically, the defendant argued that an IRS agent's interview with the defendant's former attorney about an ongoing criminal investigation relating to the defendant, which resulted in an indictment five years after the initial interview, prejudiced the defendant. Id. The district court ruled that the government agent improperly interfered with the attorney-client relationship and it dismissed the indictment, but the U.S. Ninth Circuit Court of Appeals reversed. Id. at 1077-79.

The attorney-client privilege is an evidentiary rule designed to prevent the forced disclosure in a judicial proceeding of certain confidential communications between a client and a lawyer. In this case, there has not been any forced disclosure of a confidential communication in a judicial proceeding. Whether the communication between [the defendant] and his attorney [ ] is in fact privileged and, thus, whether evidence of that communication can be objected to and excluded at trial, is a matter to be resolved in the trial court if the case proceeds to trial.
The central question in this case is whether an agent of the Federal Government has improperly induced an attorney to breach his ethical duty of confidentiality to his client and, if so, whether that conduct was so outrageous, and resulted in such prejudice to the defendant, as to justify dismissing the indictment with prejudice.

Id. at 1077.

         Defendants attempt to distinguish Rogers by arguing that the government in that case spoke with the defendant's former attorney only after the government had initiated the criminal investigation, asserting that the government in the instant matter “initiated its investigation in response to the efforts” of Rodgers and Jazayerli.[52] Defendants' argument is not persuasive. The fact that Rodgers approached the FBI and the government lends credence to the fact that the government did not purposefully intrude or force the disclosure of defendants' confidential communications.[53]

         The government asserts that, following the meeting with Rodgers, it instituted an independent investigation that proceeded for many years.[54] In that investigation, the government issued subpoenas to businesses that worked with NOR as well as financial institutions in custody of bank records related to NOR and its investors' transactions.[55] The government also alleges that it met with members of USCIS as well as NOR's investors.[56] The government asserts that it obtained waivers from some of the investors, thereby permitting the government to subpoena their attorneys for their client files; some of these investors were represented by Jazayerli.[57] The government subpoenaed Jazayerli for her investor clients' files, specifically instructing her to include only non-privileged documents and providing the waivers from each of her clients.[58] The government further asserts that any documents disclosed by Jazayerli, as well as other potentially privileged documents from former employees or consultants, were reviewed for privilege by a taint team, consisting of Assistant U.S. Attorneys that were not part of the prosecution team in this matter.[59]

         Nevertheless, to the extent that Rodgers, Jazayerli, Fantaci or other attorneys or persons may have ...

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