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United States v. Mayfield

United States District Court, E.D. Louisiana

November 12, 2019

UNITED STATES OF AMERICA
v.
IRVIN MAYFIELD RONALD MARKHAM

         SECTION "A" (1)

          ORDER AND REASONS

          JAY C. ZAINEY, UNITED STATES DISTRICT JUDGE

         On October 2, 2019, the Court held an evidentiary hearing in conjunction with Defendants' Motion to Suppress and Request for Evidentiary Hearing (Rec. Doc. 144). The purpose of the hearing was to determine if oral statements made to a state employee in conjunction with a state audit should be suppressed at Defendants' federal criminal trial. (Rec. Doc. 191, Order and Reasons).

         Prior to the hearing, Defendants filed a motion requesting that the Court reconsider (Rec. Doc. 220, Motion to Reconsider) its prior ruling (Rec. Doc. 216, Minute Entry ruling) on the Government's motion to quash Rule 17(c) subpoenas (Rec. Doc. 202, Motion to Quash).

         Having considered the parties' exhibits, the extensive testimony elicited at the evidentiary hearing, the parties' memoranda, the arguments of counsel, and the applicable law, the Court DENIES both motions.

         Background

         On December 14, 2017, a grand jury in the Eastern District of Louisiana indicted Irvin Mayfield and Ronald Markham charging conspiracy to commit wire fraud, mail fraud, and money laundering, wire fraud, mail fraud, money laundering, and obstruction of justice. (CR17-241). As charged in the indictment, Mayfield founded New Orleans Jazz Orchestra (“NOJO”) in 2002, and served as its Artistic Director. NOJO was composed of 18 musicians who routinely performed and toured, and it employed staff. (Rec. Doc. 78, Superseding Indictment ¶ 3). Both Mayfield and Markham received salaries from NOJO. Throughout NOJO's existence the organization relied heavily on donations and charitable grants to fund its operations. (Id. ¶ 5). In February 2011, a significant source of NOJO's funding was terminated. (Id. ¶ 6).

         Mayfield also served as a board member and later chairman of the board of the New Orleans Public Library Foundation (“NOPLF”), a nonprofit that maintained a significant investment account. Markham also joined the board and succeeded Mayfield as chair. (Id. ¶¶ 8-11). The crux of the indictment is that when the funding for NOJO dried up, from August 2011 until about November 2013, Defendants transferred large sums of money from the NOPLF account and used it to fund NOJO and enrich themselves. (Id. ¶ 11). The indictment also charges Defendants with creating false and misleading business records in order to conceal their scheme from auditors, investment managers, and other NOPLF board members. A superseding indictment was returned on June 21, 2018. (Rec. Doc. 78). A second superseding indictment was returned on December 6, 2018, (Rec. Doc. 113), and it constitutes the current charging document.

         The criminal trial in this matter is scheduled to commence on January 21, 2020. (Rec. Doc. 195).

         Defendants' Motion to Suppress

         Via their motion to suppress, Markham and Mayfield sought to exclude at trial recorded statements made to an employee of the Louisiana Legislative Auditor's office (“the LLA”) as well as certain documents provided to that agency during an audit. The statements and documents that the LLA gathered were turned over to the Government pursuant to a subpoena and are expected to be used against Defendants at trial. On June 25, 2019, the Court issued its Order and Reasons denying the motion to suppress as to the audit documents.[1] (Rec. Doc. 191, Order and Reasons at 16-17).

         In that same Order and Reasons the Court explained why its greater concern was the recorded oral statements that both defendants willingly made to Investigative Auditor Brent L. McDougall (who works for the LLA) and which he secretly recorded. (Id. at 17). Defendants pointed out that they were interviewed extensively regarding the NOPLF funds at issue in the indictment and suggested that McDougall's questions went beyond the scope of what was arguably necessary to assist with the audit. Defendants contended that it was only through his role as a state auditor that McDougall was able to convince them to speak with him so candidly yet nothing about their dealings with McDougall suggested that he was cooperating with federal authorities. Defendants argued that it was only through deception and concealment that they consented to be interviewed by McDougall, and if they had known that McDougall was coordinating with federal authorities to investigate them personally they would not have consented.

         In its Order and Reasons the Court explained why Defendants should be given an evidentiary hearing as to the oral statements. Because the governing legal principles drive the question of which facts are material to the suppression analysis, the Court also provided the legal framework that would govern the admissibility determination. The Court explained that United States v. Caldwell, 820 F.2d 1395 (5th Cir. 1987), provides the proper analysis for whether the oral statements should be excluded at trial. (Rec. Doc. 191, Order and Reasons at 17). Defendants were granted an evidentiary hearing so that they could demonstrate under the standards discussed in Caldwell whether their recorded statements are inadmissible.[2] (Id. at 19).

         The evidentiary hearing was held on October 2, 2019 (Rec. Doc. 221, Minute Entry). The matter was submitted on October 24, 2019, upon receipt of the parties' post-hearing memoranda.

         Discussion

         Before proceeding to the oral statements, the Court reiterates with the benefit of having heard the testimony at the hearing, that this case does not present a situation where the Government initiated a sham civil audit that was a federal criminal investigation in disguise. The LLA received a bona fide complaint in June 2015 from the Metropolitan Crime Commission (“MCC”) alleging questionable financial transactions by NOJO, an entity that receives public funds. The MCC requested that the LLA audit NOJO's finances, including “grants” from the financial accounts of the NOPLF to NOJO. MCC had sent a similar complaint to the FBI. Raphael Goyneche, MCC's President, testified regarding his efforts to have NOJO's finances investigated. Mr. Goyneche explained at the hearing that he was eager to have the LLA investigate his complaint because nothing seemed to be happening with the complaint that he sent to the FBI. Mr. Goyneche testified that he had never spoken to the lead prosecutor at the United States Attorney's Office until he received a subpoena to appear at the evidentiary hearing. Mr. Goyneche confirmed that no one with the Government had asked him to request that the LLA audit NOJO. The Court found Mr. Goyneche to be a credible witness.

         As the Court explained in its Order and Reasons, the LLA had the statutory authority under state law to conduct the audit based on the MCC's request, and the commingling of public and private funds made the NOPLF funds fair game for the LLA's audit. McDougall explained at the hearing how public and private funds had been commingled at NOJO and the audit report discusses this commingling, which was extensive. (Government Exhibit 2 at 3). The LLA did not exceed the scope of the audit authorized under state law by delving into the NOPLF transfers. McDougall credibly explained, from an auditing standpoint, why a proper audit of NOJO would necessarily have to include all of NOJO's funds, including the private NOPLF funds.

         Simply, there is no evidence in this case that the LLA's audit was initiated at the request of the Government in order to assist with the federal criminal investigation. Special Agent Courtney Lantto testified that the FBI did not need the services of the LLA to investigate NOJO. Thus, this case is distinguishable from United States v. Tweel, supra, because in that case the purported civil audit was supposititious from its inception. See United States v. Carriles, 541 F.3d 344, 356 (5th Cir. 2008) (citing Blocker, 104 F.3d at 729) (discussing and distinguishing the audit in Tweel). In Tweel the civil audit had been undertaken solely at the behest of criminal investigators for the purpose of a criminal investigation. Id. at 357. That is not what occurred in this case.

         Further, the fact that the MCC's audit request alluded to possible criminal activity did not deprive the audit of its civil nature under the Louisiana statutory scheme. In Caldwell itself, the civil audit had been triggered after a confidential informant had first reported possible fraudulent activity to the IRS's criminal division. 620 F.2d at 1397. Because the criminal division lacked sufficient evidence of fraud the matter was referred to the civil examination division for review. Id. The audit in this case was not a criminal investigation at its inception.

         McDougall was assigned to work on the audit by his superiors at the LLA. The Court found credible both McDougall's and Special Agent Courtney Lantto's testimony that it was McDougall who initiated contact with the FBI in February 2016 for the purpose of ensuring that the audit would not be duplicating the work that the FBI was doing as part of its own investigation. McDougall contacted the FBI after his supervisor told him to do so.

         Even though the LLA's audit was not a sham and it was not initiated as a federal criminal investigation, McDougall entangled himself with the federal criminal investigation while executing his legitimate duties as a state auditor. It is clear that beyond the initial contact with the FBI that McDougall was instructed to initiate in early 2016, he continued to work cooperatively with the Government during the course of the audit. McDougall's numerous meetings and communications with the Government went beyond what was necessary from an objective standpoint to ensure that no work was duplicated but the LLA had also expressed concern with inadvertently interfering in the federal criminal investigation. The Court is not persuaded that McDougall altered the manner in which the audit was conducted in order to assist the Government, even though McDougall knew as early as February 2016 what the focus of the federal investigation would be. Again, the Court found credible McDougall's testimony regarding why the private NOPLF funds received the attention that they did in the audit. The audit in this case did not evolve into a criminal investigation as it moved forward notwithstanding the escalating level of entanglement between McDougall and the Government.

         McDougall's efforts in conducting the audit were welcomed by the Government. There is no evidence, however, that anyone with the Government requested McDougall's assistance or asked him to alter the subject areas of his audit in any manner to assist with the federal investigation. There is no evidence that the Government affirmatively sought to control or direct the course of the audit. And because McDougall credibly explained from an auditing perspective why it was necessary to delve into the NOPLF funds, the Court does not find that McDougall took it upon himself to alter the course of the audit in order to assist the Government. Simply, the fact that the LLA, whose jurisdiction is premised on public funds, included the NOPLF funds in the audit does not raise an inference that either the Government steered the course of the audit or that McDougall (even if not asked or encouraged to do so) modified the permissible scope of the audit in order to assist the Government. Surely Defendants' argument in this vein would have had more weight if no commingling of funds had occurred but having extensively commingled public and private funds in the operation of NOJO, Defendants cannot now complain that the scope of the audit was broader than necessary.[3]

         1. Oral Statements

         Even though McDougall interviewed a multitude of persons in conjunction with the audit, he only recorded conversations with Defendants, and he knew when he did so that they were under federal investigation. There is no evidence that the FBI or anyone with the United States Attorney's Office asked or encouraged McDougall to either interview Mayfield and Markham or secretly record the conversations. Of course, it would not have taken an affirmative indication from the Government to know that secretly recording two individuals who were the targets of a federal investigation might interest the Government. But McDougall explained at the hearing why he interviewed both Defendants, why he recorded the interviews, and why he did not tell Defendants he was recording them. The LLA left it to the discretion of an employee in McDougall's position whether to record conversations. McDougall decided on his own to record Mayfield and Markham.

         Per Caldwell, if Defendants can prove that material misrepresentations regarding the nature of the inquiry (the audit) were made to them, and that because of those misrepresentations they consented to participate in the interviews with McDougall, then the evidence elicited from Defendants at those interviews would be inadmissible. 820 F.2d at 1399. The showing that McDougall used fraud, trickery, or deceit to obtain the interviews, i.e., that he made material misrepresentations about the nature of the inquiry, must be made by clear and convincing evidence. Id. (citing United States v. Prudden, 424 F.2d at 1033). Defendants' suppression burden under the Caldwell analysis is a heavy one. United States v. Powell, 835 F.2d 1095, 1099 (5th Cir. 1988).

         In analyzing the admissibility of the statements it is important to remain mindful that the mere failure to warn that the investigation may result in criminal charges is not fraud, trickery, and deceit. United States v. Knight, 898 F.2d 436, 438 (5th Cir. 1990); Carriles, 541 F.3d at 355 (citing Blocker, 104 F.3d at 729 & n.11). And silence can only be equated with fraud when there is a legal or moral duty to speak or where an inquiry left unanswered would be intentionally misleading. Prudden, 424 F.2d at 1032.

         Defendants' contention that they had no reason to suspect that McDougall was cooperating with the Government, and had they known he was doing so they would not have consented to speak with him, may be true but that does not render their statements inadmissible under the jurisprudence. McDougall had no duty to inform Mayfield and Markham that the audit had been triggered by a complaint from the MCC or that criminal charges could result from the audit. Powell, 835 F.2d at 1099; Prudden, 424 F.2d at 1032-33. Likewise, McDougall had no duty to divulge to Mayfield and Markham that he was cooperating with the federal criminal investigation as the civil audit moved forward. Carriles, 541 F.3d at 356-57 (recognizing that the government is under no general obligation of disclosure). Because McDougall had no legal duty to speak, his reticence as to these issues cannot be considered fraud, trickery, or deceit.

         With this backdrop in mind, the Court turns its attention to whether Mayfield and Markham have shown by clear and convincing evidence that McDougall made material misrepresentations about the nature of his inquiry. If this showing is made, then the Court must determine whether Defendants have established that it was because of those misrepresentations that they consented to participate in the interviews.

         a. Markham's September 14, 2016 Interview

         Markham has the burden of showing by clear and convincing evidence that McDougall made material misrepresentations about the nature of the audit prior to the September 14, 2016 interview.[4]

         McDougall's first contact with Markham was on August 11, 2016 by phone so that McDougall could set up a meeting with Markham. (Rec. Doc. 144-2, Calendar at 2). At the hearing McDougall explained that in a typical audit he would do an entrance conference and an exit conference with key personnel at the auditee organization. At Markham's request, McDougall emailed (on 8-11-16) the conference request to him, and McDougall indicated in that email that the purpose of the meeting would be to “discuss the nature, objectives and scope” of the NOJO audit. (Government Exhibit 1).

Markham responded (on 8-11-16):
May I ask what the nature of this request is? It's not stated in your email. I can only assume that's [sic] these requests are targeted for specific reasons, and I'm also assuming that I have the right to ask and be informed as to the specific reasons your office is contacting me to release information.
McDougall responded (on 8-11-16):
Please feel free to ask any questions and I will go into further detail during our meeting on Monday. As for the nature of our request, our section conducts audits based on requests, complaints, and just about any type of information that is received by our office. Due to this, when we begin a project we conduct a brief review of financial information from several to all areas of the agency. This allows us to determine if the ...

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