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United States v. Nicoletti

United States District Court, E.D. Michigan, Southern Division

November 16, 2016





         This matter comes before the Court on Defendant Paul Nicoletti's Motion for Discovery. (Docket no. 28.) Defendant filed an Errata Sheet with regard to his Motion (docket no. 29), Plaintiff United States of America responded to Defendant's Motion (docket no. 33), and Defendant replied to Plaintiff's Response (docket no. 35). The parties have also filed a Joint Statement of Resolved and Unresolved Issues relative to Defendant's Motion. (Docket no. 36.) The Motion has been referred to the undersigned for consideration. (Docket no. 30.) The Court has reviewed the pleadings and dispenses with oral argument pursuant to Eastern District of Michigan Local Rule 7.1(f)(2). The Court is now ready to rule pursuant to 28 U.S.C. § 636(b)(1)(A).

         I. BACKGROUND

         On June 23, 2015, Defendant was indicted on one count of conspiracy to commit bank fraud in violation of 18 U.S.C. § 1349 and three counts of aiding and abetting bank fraud in violation of 18 U.S.C. §§ 1344 & 2. (Docket no. 1.) Specifically, the Indictment alleges that from approximately May 2005 to November 2005, Defendant, an attorney licensed in the State of Michigan and the President of Continental Title Insurance Agency, Inc., did knowingly and willfully conspire with and aid and abet others to execute and attempt to execute a scheme to defraud and obtain money from Fifth Third Bank by securing three multi-million dollar mortgage/construction loans under material false and fraudulent pretenses and representations. (Id.) The Indictment also alleges that as part of the scheme and conspiracy, Defendant and his alleged co-conspirators employed straw buyers to serve as mortgage loan applicants for the purchase of real property that the conspirators wanted to purchase and develop. (Id. at 4.) It was also allegedly part of the scheme and conspiracy to provide false information in the loan applications regarding the income and assets of the straw buyers, the source of the down payments for the loans, and the intentions of the purported purchasers to use the properties as their primary residences to qualify the straw buyers for the loans. (Id. at 4-5.) According to the Indictment, Defendant's role in the conspiracy was to knowingly facilitate the fraudulent real estate transactions by acting as the title agent, coordinating and conducting real estate closings, preparing HUD-1 Settlement Statements, and disbursing the proceeds of the mortgage loans. (Id. at 5-6.)

         Defendant filed the instant Motion for Discovery on August 5, 2016, through which he seeks a court order compelling Plaintiff to produce evidence of Fifth Third Bank's alleged misconduct or improper practices related to the issuance and sale of mortgage loans during the time period relevant to the allegations in the Indictment, which evidence was allegedly generated through investigations conducted by other government agencies, such as the United States Department of Justice, the Securities and Exchange Commission, and the Residential Mortgage-Backed Securities Working Group. (Docket nos. 28 and 29.)


         Defendant asserts that the information requested is discoverable under Federal Rule of Criminal Procedure 16 and Brady v. Maryland, 373 U.S. 83 (1963). (Docket no. 29 at 11-12.) Under Rule 16, upon a defendant's request, the government must permit the defendant to inspect and copy documents within its possession, custody, or control that are material to preparing the defense. Fed. R. Crim. P. 16(a)(1)(E)(i). Under Brady v. Maryland, a defendant's due process rights are violated when the government withholds evidence favorable to the defendant that is material to guilt or sentencing. Brady, 373 U.S. at 87. Evidence is material under Brady “when there is a reasonable probability that, had the evidence been disclosed, the result of the proceeding would have been different.” Cone v. Bell, 556 U.S. 449, 469-70 (2009) (citing United States v. Bagley, 473 U.S. 667, 682 (1985)). Nevertheless, “[t]he Supreme Court has made clear that the Brady rule is not an evidentiary rule which grants broad discovery powers to a defendant.” United States v. Todd, 920 F.2d 399, 405 (6th Cir. 1990). “The Court also has made it clear that while the Brady rule imposes a general obligation upon the government to disclose evidence that is favorable to the accused and material to guilt or punishment, the government typically is the sole judge of what evidence in its possession is subject to disclosure.” United States v. Presser, 844 F.2d 1275, 1281 (6th Cir. 1988).

         III. ANALYSIS

         “To obtain a conviction for bank fraud under 18 U.S.C. § 1344, the government must demonstrate three elements: ‘(1) that the defendant knowingly executed or attempted to execute a scheme to defraud a financial institution; (2) that the defendant did so with the intent to defraud; and (3) that the financial institution was insured by the FDIC.'” United States v. Warshak, 631 F.3d 266, 312 (6th Cir. 2010) (quoting United States v. Everett, 270 F.3d 986, 989 (6th Cir. 2001)). Consistent with the common-law definition of “fraud, ” the government must also demonstrate that the alleged falsehood made by the defendant was material. United States v. Gordon, 493 F.App'x 617, 629 (6th Cir. 2012) (citing Neder v. United States, 527 U.S. 1, 22 (1999)); United States v. Murray, 152 F. App'x 492, 494 (6th Cir. 2005) (citing Neder, 527 U.S. at 25). “In general, a false statement is material if it has a natural tendency to influence, or is capable of influencing, the decision of the decisionmaking body to which it was addressed.” Neder, 527 U.S. at 16 (citations and internal quotation marks omitted).

         Defendant asserts that the evidence he seeks is relevant to the element of materiality. (Docket no. 29 at 3.) Specifically, Defendant believes that the evidence will show that Fifth Third Bank systemically approved volumes of fraudulent loan applications without regard to the accuracy of the information therein or to the borrower's ability to pay, in an effort to generate profits. (Id. at 3, 12-14.) Defendant explains that this evidence will negate the element of materiality because it indicates that any misrepresentations or omissions in the loan applications would not have had a tendency to influence the decision makers at Fifth Third Bank to approve or deny the loan applications. (Id. at 3.) Defendant expounds that “[i]f the decision-makers at Fifth Third did not care whether representations in loan applications were accurate so long as the representations qualified the applicants for the loans that they were seeking, Fifth Third cannot have been defrauded, because any misrepresentations were not material to their decisions.” (Id. at 10-11 (footnote omitted).)

         Plaintiff asserts that where it has been over fourteen months since the Indictment and Defendant has already received thousands of pages of discovery, Defendant's request for “what may well amount to hundreds of thousands of additional records and investigative materials underlying three civil cases and enforcement actions and settlements involving Fifth Third Bank [] in entirely unrelated matters in different jurisdictions” is improper. (Docket no. 33 at 4-5.) Plaintiff continues that the discovery Defendant seeks has no bearing on the materiality of the misrepresentations alleged in this case. (Id. at 5.) Plaintiff argues in this regard that materiality in federal fraud cases is judged under an objective standard, that is, whether the misrepresentation was one capable of influencing a reasonably prudent lender, and it has nothing to do with whether the misrepresentation actually influenced or was capable of influencing Fifth Third Bank subjectively. (Id.) Plaintiff further argues that it does not have possession of or access to the documents Defendant seeks, as they are in the possession of other government agencies. (Id. at 6, 20-23.)

         Defendant replies that the materials sought are relevant because Fifth Third Bank's underwriting and lending practices were at issue in the subject government investigations. (Docket no. 35 at 1.) Defendant also replies that the objective “reasonably prudent lender” standard of materiality advocated by Plaintiff is contrary to Supreme Court precedent, particularly Neder, supra, which Defendant asserts defines materiality with regard to the actual decisionmaker. (Id. at 1-6.) According to the parties' Joint Statement of Resolved and Unresolved Issues, the parties have been unable to resolve the issue of whether the test for materiality is objective or subjective, but they agree that if it is determined to be an objective standard, then the discovery Defendant seeks is not material to his defense under Rule 16 or Brady. (Docket no. 36 at 1-2.)

         The law of this Circuit is well settled that the element of materiality in fraud cases is governed by an objective standard. In United States v. Jamieson,427 F.3d 394 (6th Cir. 2005), the Sixth Circuit held that “a scheme to defraud, as prohibited by the mail fraud statute, [1] ‘must involve misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension.'” Jamieson, 427 F.3d at 415 (quoting Berent v. Kemper Corp.,973 F.2d 1291, 1294 (6th Cir. 1992) (quoting Walters v. First Tenn. Bank,855 F.2d 267, 273 (6th Cir. 1988))). Notably, the Jamieson court found that a plain reading of Neder did not change this requirement. Id. at 415-16. Moreover, as recently as this year, the Sixth Circuit held that “[t]o satisfy the materiality requirement, the fraudulent scheme must ‘be credible enough to deceive persons of ordinary prudence and comprehension.'” United States v. Bravata, 636 F.App'x 277, 283 (6th Cir. 2016), cert. denied, No. 15-9456, 2016 WL 3002210 (U.S. Oct. 3, 2016) (quoting Jamieson, 427 F.3d at 416). See also United States v. Benchick, No. 13-cr-20453, 2014 WL 4181970, at *3 (E.D. Mich. Aug. 21, 2014) ((“The test for determining whether a misrepresentation is material is an objective standard.”). Furthermore, as both Plaintiff and Defendant point out, the Sixth Circuit's Pattern Jury Instructions for bank fraud ...

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