Second Circuit Criminal Law Blog

Courts Reinstates Embezzlement Charges Dismissed as Untimely, Holding that Dismissal was Based on a Premature Assessment of the Government’s Evidence

In United States v. Sampson, decided August 6, 2018, the Court (Cabranes, Livingston, Carney, C.J.J.) reversed the district court’s dismissal of embezzlement charges levied against former New York State Senator John Sampson.  In a companion decision issued the same day, which we summarize in a separate post, the Court affirmed Sampson’s conviction on obstruction and false statement charges that proceeded to trial.

As detailed below, in reinstating the embezzlement charges the Court explained that the crime of embezzlement requires not just conversion but also “fraudulent intent,” and that the government was entitled to have an opportunity to prove that the requisite fraudulent conversion was not complete until years after Sampson’s initial failure to timely remit escrow funds—and thus, within the statute of limitations.  The Court emphasized that a pretrial dismissal under Rule 12(b) is generally limited to defenses that are clear on the face of the indictment.  Dismissal is not appropriate if it requires a court to make factual determinations related to a defendant’s guilt, as this would invade the province of the jury and turn Rule 12(b) into a proxy for summary judgment—which does not exist in federal criminal procedure.  The tone of the Second Circuit’s opinion was not optimistic about the strength of the government’s theory of timeliness.  The opinion states that “on the record before us, we do not know if the government will be able to prove that Sampson completed the alleged embezzlements within the statute of limitations.”  However, the Court concluded that a jury, not a judge, should decide whether the statute of limitations defense is meritorious.

Factual Background

In addition to serving as a member of the New York State Senate from 1997 to 2015, Sampson was a member of the New York State Bar and served as a referee in Kings County foreclosure actions.  In his capacity as a referee, Sampson was from time to time appointed by New York State Supreme Court Justices to conduct the sale of foreclosed properties and distribute the proceeds.  After paying off outstanding liens on the property, Sampson was obligated to remit any excess funds to the Kings County Clerk within five days, for the benefit of prior owners and any other interested parties.  According to the indictment, Sampson instead embezzled the surplus funds on at least two occasions – referred to as the “Forbell Street Property Action” and the “Eighth Avenue Property Action.” 

With respect to the Forbell Street Property Action, Sampson reported excess funds of $84,000 on October 7, 1998.  He placed the funds into escrow, as required by the court order and judgment, but opened the account at a different bank than that specified in the order, and then failed to remit those funds to the clerk within five days as required by both the order and state law.  Instead, through several transactions between 1998 and 2008, he withdrew or transferred approximately $80,000 for personal use.

With respect to the Eighth Avenue Property Action, Sampson reported excess funds of $80,000 on June 28, 2002.  He placed the funds into escrow, but once again opened the account at a different bank than that specified in the order, and then failed to remit those funds to the clerk within five days.  Instead, he withdrew nearly $25,000 for personal use over the course of several years, such that only $55,167.94 remained as of July 2006.

In July 2006, Sampson appeared to take some steps towards repaying certain of these funds.  He obtained three banks checks totaling $188,500 from a Queens businessman, Edul Ahmad.  He combined one $27,500 check from Ahmad with the $55,167.94 remaining in the Eighth Avenue Property Action escrow account in order to secure a bank check for $82,677.94 payable to the Kings County Clerk.  In exchange for the money, Sampson allegedly conferred certain political favors on Ahmad—and, as became the grounds for his ultimate conviction, thereafter lied to the FBI about his dealings with Ahmad and “endeavored” to tamper with the testimony of Ahmad and other witnesses.  In any event, despite Samson obtaining the bank check, this money never made it to the Kings County Clerk.  Two years later, in June 2008, Sampson exchanged the $82,677.94 bank check for nine checks made out to himself.  Between June 2008 and January 2009, Sampson redeemed, negotiated, or deposited most of those checks for his own benefit.

Procedural History

On April 29, 2013, Sampson was indicted by a federal grand jury on several counts, including two counts of federal-program embezzlement, in violation of 18 U.S.C. § 666(a)(1)(A).  One such count alleged that Sampson embezzled $8,000 from the Forbell Street Referee Account when on February 13, 2008 he transferred $8,000 from that account to his personal account.[1]  The other count alleged that he embezzled the $82,677.94 bank check made out to the Kings County Clerk when on July 7, 2008 he exchanged that bank check for nine checks made payable to himself.

Sampson moved pursuant to Rule 12(b) of the Federal Rules of Criminal Procedure to dismiss both embezzlement counts as untimely, based on the five-year statute of limitations imposed by 18 U.S.C. § 3282(a).  Samson argued that both embezzlement counts were “complete” upon his initial failure to remit the funds to the Kings County Clerk after ascertaining the surplus amounts, in 1998 and 2002.  The government argued that Sampson’s motion was not “ripe” since it had not yet offered its evidence of when Sampson formed the “fraudulent intent” necessary for the offense.

The district court granted Sampson’s motion to dismiss.  It rejected the government’s argument that the motion was not ripe, and endorsed Sampson’s view that the crime of embezzlement was complete when Sampson first failed to remit the excess funds to the Kings County Clerk within five days of determining the amount due.  According to the district court, “[o]n the sixth day, when he did not return the funds, Defendant appropriated the funds and completed the embezzlement.”  Therefore, in the eyes of the district court, Sampson’s subsequent acts of withdrawing the funds were irrelevant for statute of limitations purposes. 

The Court’s Decision

The Court reviewed de novo the legal question of when a crime of embezzlement is complete for statute of limitations purposes, and reversed.

The Court explained first that the five-year statute of limitations set forth in § 3282(a) begins to run as soon as a crime has been “committed” or is “complete”—which is the point at which every element of the crime has occurred.

Next, the Court considered the elements required for the offense of embezzlement.   Since “embezzlement” is not explicitly defined in § 666, the Court looked to the term’s common law definition, and summarized the elements as follows: 

An individual commits “embezzlement” when he: (1) with intent to defraud; (2) converts to his own use; (3) property belonging to another; in a situation where (4) the property lawfully came within his possession or control.

The Court observed that the “intent to defraud” element distinguishes the crime of embezzlement from mere “conversion” – which may occur absent such fraudulent intent.  Thus, to embezzle one must act “willfully” and with a “specific intent to deceive or cheat” in converting another’s property.

Against this backdrop, the Court concluded that the district court erred by finding that the charged embezzlement offenses were necessarily complete at the moment Sampson failed to turn over the proceeds to the Kings County Clerk.  According to the Court, such a finding rested on “implicit factual determination(s)” as to both when “Sampson possessed the requisite fraudulent intent (if he possessed it at all)” as well as when the underlying “conversion” took place.

The Court held that such an (implicit) factual finding constituted a “premature adjudication as to the sufficiency of the government’s evidence and was thus improper at the Rule 12(b) stage.”  Although Rule 12(b) of the Federal Rules of Criminal Procedure can be used to procure a pretrial dismissal of charges on statute of limitations grounds, such a defense must be “clear from the face of the indictment.”  However, if such a defense requires a determination of “issues of fact that are inevitably bound up with evidence about the alleged offense itself”—as was the case here—a district court should defer ruling on a 12(b) motion until such evidence is presented to the factfinder.

Here, according to the indictment and arguments by the government, Sampson did not “convert” the funds—let alone form the requisite “fraudulent intent” required for embezzlement—until sometime after his initial failure to remit them to the Kings County Clerk.  In dismissing the charges based on contrary factual determinations, the district court effectively granted Sampson “summary judgment.”  But as the Court explained at length, the Federal Rules of Criminal Procedure do not contain an analog to the “summary judgment” procedure that exists under Rule 56 of the Federal Rules of Civil Procedure.   The absence of “summary judgment” in criminal procedure reflects various policy rationales, including that the government need not reveal its entire case before trial—as might be required to defeat a motion for summary judgment.  Thus, “although a judge may dismiss a civil complaint pretrial for insufficient evidence, a judge generally cannot do the same for a federal criminal indictment.”

The Court acknowledged that a district court is not completely without authority to make pretrial factual determinations.  Rather, a district court frequently makes such findings in the context of suppression motions, discovery disputes, and the like.  “But when a defense raises a factual dispute that is inextricably intertwined with a defendant’s potential culpability, a judge cannot resolve that dispute on a Rule 12(b) motion.”  Here, the timing of the “conversion” and “fraudulent intent” were issues of fact for the jury—and not matters that could be resolved as a matter of law by the district court on a pretrial Rule 12(b) motion.  The Court observed that although it was possible that the crime was complete when Sampson first failed to turn over the funds to the Kings County Clerk as required, it was also possible that at that juncture Sampson’s conduct, though neglectful, did not amount to fraudulent conversion.  Moreover, a factfinder could conclude that Samson did not immediately convert with intent to defraud all of the funds in each account, but rather incrementally converted those amounts over time as they were transferred to accounts or checks in his own name.  Thus, on the limited evidence put forward by the government, the district court could not rule as a matter of law that the offense was complete outside of the statute of limitations.

In reaching this result, the Court distinguished its prior decision in United States v. Alfonso, 143 F.3d 772 (2d Cir. 1998), which recognized a “narrow exception to the rule that a court cannot test the sufficiency of the government’s evidence on a Rule 12(b) motion.”  In Alfonso, the Circuit acknowledged that a pretrial sufficiency-of-the-evidence dismissal is permissible if the government made a “detailed presentation of the entirety of the evidence.”  Sampson argued that here as well the government had made a “full proffer” of its evidence in advance of the district court’s ruling; however, based on the Court’s review of the record, it concluded that the “government had not yet proffered all of its evidence,” such that the exception stated in Alfonso did not apply.  Moreover, a court cannot require the government to make such a premature “full proffer” of its evidence, or dismiss counts based on it having failed to do so.

Finally, the Court quickly disposed of Sampson’s arguments for why it should affirm the dismissal notwithstanding this error.  First, it rejected Sampson’s claim that the government was “equitably estopped” from claiming that the embezzlement was not complete until 2008 given purportedly inconsistent positions taken by the government during its prosecution of Sampson on the remaining counts. 

Second, it rejected Sampson’s argument that the court lacked “subject matter jurisdiction,” which was premised on his claim that at the time of the alleged embezzlement he was not was not an “agent” of an organization or government entity that received federal funding—which was the jurisdictional hook for the charged offenses.  Sampson’s argument on this issue had three subparts:  first, that he was never an agent of the Supreme Court of the State of New York, as alleged in the indictment, since he was instead an agent of the “Kings County Supreme Court”; second, that even if he was an agent at some point, his agency terminated at the conclusion of each underlying foreclosure action; and third, that if his agency did not terminate at the end of the foreclosure action, it terminated if and when he committed the first alleged crime since doing so would have breached his obligations to the principal.  Rejecting these in turn, the Court explained first that, according to the New York Court of Appeals, there is as a legal matter a single “Supreme Court” even though it is physically housed in separate locations throughout the state; second, that the question of whether Sampson’s agency naturally terminated following a foreclosure was a question of fact for the jury; and third, that it declined to read general principles of “agency” (including termination thereof) into the definition of “agent” in § 666 since doing so would effectively immunize an agent from liability under this provision after the first of what may turn out to be several related crimes.

Commentary

This was not a good day for the former state senator as he not only had his conviction and sentence affirmed, but also now faces possible additional liability on two previously-dismissed embezzlement counts.  Nevertheless, it is not clear what impact these resurrected counts will ultimately have on Sampson.  First, as discussed in our separate post on the affirmance decision, it is possible that the government will agree to forgo its prosecution of the embezzlement counts in exchange for Sampson agreeing not to pursue further appellate relief on his conviction (e.g., an en banc review of the thinly-sliced 1503/1512 issue addressed in the affirmance decision).  Second, even though the Court reversed the district court’s pretrial judicial dismissal of the embezzlement counts, serious questions remain as to the timeliness of those counts.  But as the Court held here, those are issues to be weighed by the jury, not the district judge.

More generally, the Court’s decision appears to strictly limit the circumstances under which a district court may dismiss criminal charges before trial.  Based on this decision, to the extent the ground for dismissal rests on facts that are tied up with charged offense, dismissal is appropriate only if unambiguously clear from the face of the indictment, or if the government elects to make a full proffer of its evidence before trial.  As to the latter, the court recognizes that in general the government will not be eager to show all of its cards before trial—and that it need not do so.  This decision appears to further incentivize holding back in order to defeat a Rule 12(b) motion.  The Court seems to acknowledge this, but suggests that “it can sometimes be to the government’s benefit voluntarily to submit such a proffer”—for example, given the government’s ability to appeal a pretrial dismissal.

A final thought:  To be sure, the Court is right that there are no summary judgment motions in criminal cases.  However, this rule has often been viewed more as an aspect of the defendant’s right to have a trial by jury as guaranteed by the Sixth Amendment.  It also is necessitated by the fact that criminal defendants are not required to adduce any evidence in their defense—the presumption of innocence and the right against self-incrimination together provide defendants with protections that have no analog in civil litigation.  In other words, no matter how strong the government’s case might be, the defendant is entitled to have a jury consider the claim and decide whether the presumption of innocence has been overcome, whether or not he presents any evidence.

Here, the Court takes the absence of a rule permitting summary judgment in a criminal case and invokes it in favor of the government.  The Court is surely right that the government is not required to lay out its evidence in Rule 16 discovery to the same extent that a civil litigant must afford an opponent broad discovery under the Federal Rules of Civil Procedure (whether this is fair, as the Court suggests in a long footnote, is perhaps subject to some debate).  The Court is also right to say that if the government fails to prove its case, Rule 29 operates as a mechanism to protect the defendant—either before or after a jury verdict.  But there are real costs to allowing a defendant to be prosecuted when the government’s theory of timeliness is tenuous—as seems to be the case here.  One of the embezzlement offenses relates to a failure by the defendant in 1998 to remit funds that did not belong to him—in other words, 15 years before the defendant’s indictment in this case.  The Court itself seems to express some skepticism that a jury will rule that these charges are timely.  It may be that the outcome here was driven in part by the District Court’s finding at the other extreme that the embezzlement was complete on the “sixth day”—i.e., immediately after Sampson failed in his duty to turn over the funds to the Kings County Clerk within five days.  The Court appears to question that finding, noting that in Sampson’s trial on other counts, the Kings County Clerk testified that on at least one other occasion Sampson missed the five-day deadline but still turned over the foreclosure funds—though he presumably did so relatively soon thereafter, and not more than a decade later.

Although the ruling in this appeal is consistent with the governing law, it would be reasonable for those who design our rules of criminal procedure to include some screening mechanism to allow a defendant to avoid the burden of trial where the charges are time-barred.  It does not seem like it would rupture our system of trial by jury or criminal discovery if the government were required to clear some threshold on a discrete issue such as this before forcing an individual to spend hundreds of thousands, if not millions, of dollars to defend himself in a white-collar trial. 

 

[1] Sampson entered into an agreement with the government that tolled the statute of limitations from February 1, 2013 through May 17, 2013.

-By Jason Vitullo and Harry Sandick