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Seventh Circuit White Collar Litigation Update – July 2017

Court Guts Impeachment of Cooperating Witnesses

United States v. Trent, No. 16-3960 (July 13, 2017)

Prosecutions often rely on the credibility of a witness who is actively working with the government.  Middle manager testifying up the food chain.  Bookkeeper turned on his client.  Corrupt real estate appraiser providing evidence against the leader of a mortgage fraud ring.  That witness is not helping the government out of the goodness of his heart; he was a co-schemer who is now in full self-preservation mode, trying to reduce his own criminal exposure.  Standard cross-examination is to attack the cooperator’s bias by showing he is currying favor with the government to avoid a lengthy sentence of imprisonment.  The longer the potential sentence, the greater the bias – so the thinking went.  So ingrained is that defense technique that a defense lawyer’s failure to confront a cooperator with the length of his potential sentence could well have been malpractice.  But in Trent, the Court has sharply curtailed that aspect of the right to cross-examine.  Trial courts now may prohibit defense counsel from asking the cooperator about or otherwise eliciting the number of years of incarceration to which the cooperator is exposed. 

The defendant there was charged with narcotics distribution.  The two government witnesses – defendant’s alleged co-conspirators – entered into plea agreements.  Because of their cooperation, they would avoid the same 20-year mandatory minimum sentence that defendant was facing.  Trent’s lawyer predictably sought to impeach them with that fact.  At the government’s request, however, the district court ordered defense counsel to ask no questions that would elicit the length of the cooperators’ potential sentences.  The court accepted the government’s argument that allowing that questioning would allow a jury to infer that the defendant also was exposed to such a lengthy prison sentence.  Because a jury must not consider the defendant’s potential sentence in determining liability, the trial judge agreed to curtail that cross-examination.  Defense counsel was only permitted to elicit that the cooperators were seeking to avoid “substantial” incarceration by helping the government.  He was not allowed to ask about the actual length of their potential sentences.

On appeal, the Court rejected the defendant’s Sixth Amendment right-to-confrontation challenge.  The Court noted that trial judges have wide latitude to limit cross-examination in general, particularly to avoid unwarranted prejudice.  Here, that supposed prejudice was that the jury might infer defendant himself was facing a 20-year sentence.  However, the Court failed to address why it would be insufficient simply to instruct the jury not to consider the defendant’s punishment, a pattern instruction given in every criminal case. Nor did the Court explain why any speculative prejudice would outweigh the core right of establishing a witness’s bias.  The Court assumed that eliciting the witness’s exposure to a “substantial sentence” was as effective as eliciting the fact that the witness was facing 20 years behind bars.  Of course, any objective practitioner would take issue with that assumption.  Nevertheless, defense counsel should be prepared to see motions in limine from the government seeking to prevent the traditional cross-examination technique of questioning a cooperator on the extent of his potential sentence.

Retirement Funds Not Generally Protected from Criminal Restitution

United States v. Sayyed, No. 16-2858 (July 6, 2017)

Defendant was convicted of receiving kickbacks from his employer’s vendors in return for steering overpriced contracts to them.  As part of his sentence, defendant was ordered to pay nearly one-million dollars in restitution.  The government sought to satisfy the restitution order from defendant’s tax-qualified retirement accounts.  Those accounts, like IRAs or 401(k) accounts, ordinarily are considered to be protected from creditors in civil proceedings until the owner has an unrestricted right to access the funds without penalty.  But this circuit has previously held that those protections don’t apply in criminal cases.  See, e.g., United States v. Lee, 659 F.3d 619 (7th Cir. 2011).  Those holdings rely on 18 U.S.C. § 3613(a), which provides that “a judgment imposing a fine [or criminal restitution] may be enforced against all property or rights to property of the person fined.” 

Sayyed offered two reasons why his retirement funds could not be taken:  (1) because he was not yet of retirement age, he was unable to take penalty-free distributions; and (2) the Consumer Credit Projection Act (CCPA), which limits garnishment to 25% of disposable “earnings,” only allows the government to take 25% of his distributions after he elects to take them.  The Court easily disposed of both arguments.  First, there was no dispute that defendant had a present, unconditional right to access his retirement funds.  Although he may not prefer to do so because of the tax penalties arising from early distributions, the Court stressed that the government’s ability to collect on retirement funds is based on the rights the defendant possesses, not the rights he would prefer to exercise.  Second, while the Court agreed that the CCPA generally protects even a criminal defendant from being forced to turn over more than 25% of his earnings (15 U.S.C. § 1672), it held that the a lump-sum distribution from a retirement account is not “earnings” within the meaning of that law.  If the retirement program had mandated certain periodic distributions of certain amounts, then they might be protected earnings.  But a lump-sum distribution from a retirement account doesn’t become “earnings” just because that wealth is traceable to the defendant’s earned income.

Warning:  Defective Jurisdictional Statements Won’t be Tolerated

Baez-Sanchez v. Sessions, No. 16-3784 (July 10, 2017)

In these consolidated appeals, Chief Judge Wood issued an order reprimanding the appellees – including the Department of Justice – for shirking their duties in addressing the Court’s jurisdiction.  Although it is the appellant’s duty to establish jurisdiction through its required statement, Judge Wood noted that the Court’s rules confer an “equally-important” duty on the appellee:  “The appellee’s brief shall state explicitly whether or not the jurisdictional summary in the appellant’s brief is complete and correct.”  Circ. Rule 28(b) (emphasis supplied by Court).  According to the Court, “[t]he appellee cannot simply assume that the appellant has provided a jurisdictional statement that complies with the rules. . .  The job of the appellee is to review the appellant’s jurisdictional statement to see if it is both complete and correct.  The terms are not synonyms.”  (Emphases in original.)  The Court struck the appellees’ briefs in these appeals, one because it only said that the appellant’s jurisdictional statement was correct (without saying it was complete) and the other because it only said that the jurisdictional statement was complete (without saying it was correct). 

To avoid an embarrassing reprimand like that suffered by the Department of Justice, all counsel should take seriously the Court’s emphasis on an appellee’s duty in addressing the threshold issue of jurisdiction – even if that question is not actually in dispute.

This article was first published in the July 2017 issue of the Seventh Circuit White Collar Litigation Update on the 7th Circuit Bar Association’s website.

Loeb & Loeb partner Corey Rubenstein authors this monthly newsletter containing helpful summaries and practice pointers for key Seventh Circuit Court opinions involving civil and criminal white collar matters.