development. Hoffenberg funded the business by infusing approximately $ 50,000 in cash during late January and early February. Dryfus testified that all of this occurred before the Government's February 17, 1994 announcement of the termination of Hoffenberg's cooperation.
Hoffenberg's infusion of cash into Stratford in January and February 1994 further violated the Consent Order and Nardello's instructions. The business was operated by avoiding the use of checks and resorting to cash deliveries.
Dryfus testified that Hoffenberg gave him $ 24,000 in cash from an accordion folder, that he and Hoffenberg counted the money in a storage room after the other employees left for the day, and that Dryfus then took the money home and at Hoffenberg's direction, used it to pay Stratford's bills.
Approximately three to five days later, Hoffenberg gave Dryfus a sealed, unaddressed, Federal Express package containing $ 26,000 in cash. Dryfus also used these funds to pay Stratford's bills, including Hoffenberg's $ 250 per month parking expenses.
In his affidavit of November 28, 1994, in this proceeding, Hoffenberg admitted that he "disregarded [Nardello's] instructions to avoid any involvement with that business." He related how difficult it was for him, even months after he signed the Agreement, to break the habit of conducting business dishonestly.
The Performance of the Agreement
As set forth above, there is no evidence in this record that Hoffenberg failed to perform his agreement with respect to the affairs of Towers. It is his failure to perform the Agreement with respect to his own affairs in 1993 that is at issue.
The Government also acted in conformity with the Agreement throughout 1993 from September 24 when the Agreement was entered into until December 22, there were no inquiries to Hoffenberg concerning DCC or Stratford.
However, the SEC had continued its investigation which produced certain of the facts set forth above which were confirmed by Lowy, Hughes and Dryfus. Lowy's cooperation began in November, and he was interviewed by an Assistant United States Attorney on December 22. Hughes recounted his recollection of events to James Nauwens, an investigator of the United States Attorney's Office on December 27, 1993.
Nardello was on vacation and upon his return on January 10, 1994, he arranged to have Hoffenberg testify before the grand jury on January 14, 1994. He did not obtain Nauwens' information nor learn of Lowy's cooperation until after Hoffenberg's grand jury appearance.
The Government thus called upon Hoffenberg to perform the Agreement with knowledge in its possession that Hoffenberg had lied about DCC and Stratford and after it had procured statements from Hughes and Lowy on the subject. When Nardello learned of Lowy's and Hughes' cooperation, he challenged Hoffenberg on January 24, and Hoffenberg conceded certain of the information relating to his involvement in Stratford and sought to 'cure" his conduct. Nardello met with Hoffenberg again on January 27 and February 14, and recommended that the Agreement be terminated. Hoffenberg was arrested on February 17.
The Government in Refusing to Perform the Agreement Acted in Good Faith
A party who materially breaches a cooperation or plea agreement may not claim its benefits. United States v. Merritt, 988 F.2d 1298, 1313 (2d Cir.), cert. denied, 124 L. Ed. 2d 683, 113 S. Ct. 2933 (1993); United States v. Tilley, 964 F.2d 66, 70 (1st Cir. 1992) (if defendant fails to fulfill his or her promises, the Government is released from its obligations under the agreement); United States v. Gonzalez-Sanchez, 825 F.2d 572, 578 (1st Cir.), cert. denied, 484 U.S. 989 (1987).
At post-conviction hearings, the Government has the burden to prove breach of a plea agreement by a preponderance of the evidence. United States v. Verrusio, 803 F.2d 885, 894 (7th Cir. 1986) (Government "must prove that the defendant breached the plea bargain by a preponderance of the evidence"); United States v. Tilley, 964 F.2d at 71. Such a standard is consistent with the standard of proof courts have required to resolve other post-conviction disputes, such as disputed sentencing issues. United States v. Guerra, 888 F.2d 247, 251 (2d Cir. 1989), cert. denied, 494 U.S. 1090, 108 L. Ed. 2d 961, 110 S. Ct. 1833 (1990); see United States v. Merritt, 988 F.2d at 1313.
Hoffenberg suggests that United States v. Leonard, 50 F.3d 1152, 1158 (2d Cir. 1995), suggests a higher standard of proof. In Leonard, the Second Circuit instructed that "the district court should consider any evidence with a significant degree of probative value, and should rest its finding on evidence that provides a basis for [appellate] review." Leonard, 50 F.3d at 1157. A requirement that evidence have a significant degree of probative value is not equivalent to the enunciation of an enhanced standard of proof. It is similar to the requirement described by the Guidelines for resolution of disputed sentencing issues, clearly governed by a preponderance of the evidence standard. Guidelines, § 6A1.3. ("The court may consider relevant evidence without regard to its admissibility ... provided that the information has sufficient indicia of reliability to support its probable accuracy.").
Hoffenberg has also cited United States v. Martin, 25 F.3d 211, 217 (4th Cir. 1994). There, at the time of sentence, the Government announced that it would make a motion, pursuant to Fed. R. Crim. P. 35(b) within the year because the defendant had cooperated fully before sentence, but it was hoped that he would provide additional cooperation following sentence. Technically, there was no mechanism for the Court to provide post-sentencing relief for the pre-sentencing cooperation. The Court of Appeals held that the Government's failure to make the motion at sentencing resulted in a deprivation of the defendant's due process rights, and remanded for resentencing. In Martin, there were no disputed issues, leaving nothing to be resolved in any hearing. It is undisputed that Martin reiterated the Circuit's position that the burden of proving a breach is on the party that alleges the breach.
Courts have generally looked to the terms of the agreement itself and to the parties' anticipated benefits to determine whether a material breach has occurred. See, e.g., United States v. Crawford, 20 F.3d 933, 934-35 (8th Cir. 1994); United States v. Tilley, 964 F.2d at 71; United States v. Wood, 780 F.2d 929, 931 (11th Cir. 1986), cert. denied, 479 U.S. 824, 93 L. Ed. 2d 48, 107 S. Ct. 97 (1986). Where, as here, a defendant has promised to disclose truthfully all information about which the Government inquires, any false statement, misleading statement, or omission concerning the defendant's activity or an area about which the Government has inquired, is a material breach of the agreement.
By the terms of the Agreement, Hoffenberg was obligated to "truthfully disclose all information with respect to the activities of himself and others concerning all matters about which the Offices inquire of him" to "cooperate fully with the Offices, the Securities and Exchange Commission ..." and that Hoffenberg "must at all times give complete, truthful, and accurate information" and "must not commit any further crimes." Authorities dealing with similar breaches include United States v. Crawford, 20 F.3d at 934-35 (in non-prosecution agreement, defendant agreed to provide complete and truthful cooperation; Government justified in holding defendant in breach where Government dubious about defendant's reliability after he implicated co-defendant in interview with agents, but admitted sole responsibility for crime in conversations with others); United States v. Gerant, 995 F.2d 505, 507-08 (4th Cir. 1993). When defendant agreed to cooperate fully and provided substantial information about drug operations, defendant breached agreement by lying about his role in two deals, amount of money he earned, and status as Government informant); United States v. Tilley, 964 F.2d at 71 (defendant agreed to testify fully, honestly, truthfully and completely; defendant breached agreement by false testimony as to his additional involvement in drug deal); United States v. Britt, 917 F.2d 353, 355-56, 360-61 (8th Cir. 1990) (defendant agreed to fully and completely cooperate with the United States and, over the course of a year, had several debriefings, recorded phone conversations, participated in controlled buy; defendant breached agreement by not disclosing the full extent of his drug dealing), cert. denied, 498 U.S. 1090, 112 L. Ed. 2d 1057, 111 S. Ct. 971 (1991); United States v. Gonzalez-Sanchez, 825 F.2d at 579; United States v. Wood, 780 F.2d at 931; United States v. Patrick, 823 F. Supp. 583 (N.D. Ill. 1993). See also United States v. Hon, 17 F.3d 21, 24-26 (2d Cir. 1994) (upholding Government's refusal to file 5K1 letter for cooperator who delayed his testimony, thereby breaching his obligation to "fully cooperate").
As found above, from the beginning of his proffer sessions in April 1993 through his final meeting on February 14, 1994, Hoffenberg lied to the Government about his involvement in the operation of DCC, about Lowy's "independence" as president of the company, and failed to disclose his involvement in Stratford.
According to Hoffenberg, because the Government did not focus his attention on DCC until meetings in late January 1994, his failure to describe accurately his role at DCC was not a breach. Before he entered into the Agreement, however, Hoffenberg had been fully and pointedly questioned specifically about DCC, his role in the company, and whether he was receiving any payments from the company. Although the Government relied on his representations, Hoffenberg misled the Government when questioned.
Hoffenberg argues that whether or not he "controlled" DCC is a legal question, not a factual one, and therefore his assertion cannot be a lie or a breach of the Agreement. However, Hoffenberg misled the Government about specific facts relevant to his role at DCC. Each misleading statement, omission, and lie was itself a breach, apart from his general assertion that he did not "control" DCC.
That the Government did not specifically ask about DCC at additional meetings prior to January 1994 is no excuse for Hoffenberg's failure to provide the information, and correct the prior misleading statements he had already made. See United States v. Wood, 780 F.2d at 930 (defendant's failure to disclose information about a drug deal in Jacksonville, although only questioned about drug dealing in Tampa, was a material breach of the obligation to truthfully disclose all information about drug dealing).
When confronted by Nardello on December 22, 1993, Hoffenberg acknowledged that he had lied to the Government about even contemplating participation in Stratford. Although this caused concern, the Government, in its discretion, did not end the Agreement based on that lie alone. What followed, and what the Government later learned, was that Hoffenberg misled the Government about his interest and participation in Stratford, the cash payments to Stratford, and, of course, that he had violated his promise to Nardello pursuant to the Agreement not to get involved in Stratford.
Hoffenberg argues, however, that he cured this breach by admitting his lies. Although the "opportunity to cure" doctrine applies comfortably to contracts for the delivery of goods, it does not apply to cooperation agreements. As the Second Circuit has stated, "comparing a criminal defendant to a merchant in the marketplace is an inappropriate analogy that we have rejected." Innes v. Dalsheim, 864 F.2d 974, 978 (2d Cir. 1988), cert. denied, 493 U.S. 809, 107 L. Ed. 2d 19, 110 S. Ct. 50 (1989). See United States v. Khan, 920 F.2d 1100, 1105 (2d Cir. 1990) ("We recognize, of course, that criminal sentencing proceedings are not the same as civil contract disputes."), cert. denied, 499 U.S. 969, 113 L. Ed. 2d 669, 111 S. Ct. 1606 (1991). While the differences between contracts in the civil and criminal contexts often focus on the "meticulous standards [which must be]...met by the prosecutors...," U.S. v. Mozer, 828 F. Supp. 208, 215-216 (S.D.N.Y. 1993) (citations omitted), the differences apply to the defendants as well. The very purpose of a cooperation agreement is to obtain full and truthful information from a cooperator on each and every topic about which the Government inquires. While the Government gave Hoffenberg opportunities to be truthful, it was not incumbent on the Government to continue to extend to Hoffenberg such an opportunity. When the Government determined in February that Hoffenberg had not been truthful, as required in the Agreement, it was within its right to declare the breach.
Although Hoffenberg could not "cure" the fact that he lied to and misled the Government in violation of the Agreement, he was given ample opportunity to confront the allegations and provide an innocent explanation. Such an opportunity is all that is required. In United States v. Crawford, 20 F.3d at 936, for example, a defendant told the Government one version of a fraud, implicating a co-defendant, and told others that he was solely responsible. It was sufficient that he was asked for names of people who could corroborate the version of events he had given.
Hoffenberg was given numerous opportunities to show the Government that he had not breached the Agreement. Rather than terminate the Agreement once the Government had serious concerns, the Government met with Hoffenberg on January 27 and February 14, 1994, to enable Hoffenberg to address the issues and to assert an innocent explanation for the allegations. With respect to Stratford, Hoffenberg admitted that he had lied to and misled the Government and intentionally violated the Agreement with Nardello.
On the issue of cure, this case can be distinguished from that in United States v. Brechner, 93 Cr. 626, Memorandum of Decision and Order, October 19, 1995 (E.D.N.Y.). In Brechner, a defendant subjected to a similar truthfulness obligation was asked in a debriefing session whether or not he had received unreported cash from several individuals. The defendant, Brechner, said that he had not. Brechner's lawyer apparently asked to speak to Brechner, and after doing that, Brechner admitted that he had received such payments. After "coming clean," the Government "advised Brechner that he was giving him a 'fresh start' and expected him to answer questions concerning unreported cash truthfully...." The Court found that after this statement, the government asked another hours' worth of questions and that Brechner made full and truthful disclosures of the subject schemes. When five months later the Government refused to move for a downward departure, the Court found that this was done in bad faith.
In this case, no such promises were made to Hoffenberg at or after the February 14 session. The Government informed Hoffenberg three days later on February 17 that it was not going to move for a downward departure. The Government had not promised that it would go forward with the 5K1 term of the Agreement, nor is there any indication that it used these sessions to get additional information, thus behaving as thought the Agreement was in full force. In fact, there is no indication that the Government is attempting to use affirmatively any of the information gained in those sessions against Hoffenberg. The sessions confirmed suspected lies that he had told earlier and as a result the Government is choosing not to make a 5K1 motion on his behalf.
A. The Agreement Allows the Government to Consider Truthfulness When it Determines Whether to Make a 5K1 Motion
When a cooperation agreement allows for a substantial assistance motion contingent upon the Government's evaluation of a defendant's cooperation, the Government has wide discretion in determining whether to make such a motion. United States v. Hon, 17 F.3d at 25; see United States v. Khan, 920 F.2d at 1105 ("where a contract is conditioned on the satisfaction of the obligor, the condition is not met 'if the obligor is honestly, even though unreasonably, dissatisfied'"); United States v. Knights, 968 F.2d 1483, 1486 (2d Cir. 1992) (Government's performance in cooperation agreement is conditioned on its satisfaction with the defendant's efforts).
Where the Government declines to make a substantial assistance motion pursuant to a cooperation agreement, the district court may review the decision only to determine whether the Government based its decision on impermissible criteria, such as race or religion, or whether the Government acted in bad faith. United States v. Kaye, 65 F.3d 240, 243 (2d Cir. 1995); United States v. Hon, 17 F.3d 21, 25; United States v. Knights, 968 F.2d at 1487; United States v. Agu, 949 F.2d 63, 67 (2d Cir. 1991), cert. denied, 504 U.S. 942, 112 S. Ct. 2279, 119 L. Ed. 2d 205 (1992); see United States v. Khan, 920 F.2d at 1104 ("the prosecutor's discretion is generally the sole determinant of whether the defendant's conduct warrants making the motion"); United States v. Rexach, 896 F.2d 710, 714 (2d Cir.) (prosecutorial discretion limited only by subjective good faith standard), cert. denied, 498 U.S. 969, 112 L. Ed. 2d 417, 111 S. Ct. 433 (1990).
The Government may not refuse to make a substantial assistance motion by relying on facts which it knew at the time it entered into the agreement. Such a decision would amount to fraudulently inducing a defendant's plea with a promise that the Government already knew it would not keep. See United States v. Knights, 968 F.2d at 1488; United States v. Leonard, 50 F.3d at 1158. However, where as here, the Government enters into an agreement in good faith, believing the defendant's representations, and the Government subsequently learns that the defendant has lied and breached the terms of the agreement, the Government's dissatisfaction with the defendant's performance is justified.
When a defendant claims that the Government has acted in bad faith in refusing to move for downward departure, the Government may then rebut the allegation, explaining its reasons for refusing to so move. United States v. Knights, 968 F.2d at 1487. A defendant must then make some showing of bad faith to trigger a hearing on the issue. After a full-blown hearing in this case, Hoffenberg has failed to establish any bad faith on the part of the Government.
The clause of the Agreement regarding the 5K1 states that:
In addition, if it is determined by the Offices that Steven Hoffenberg has provided substantial assistance in an investigation or prosecution, and if Steven Hoffenberg has otherwise complied with the terms of this Agreement, the Offices will file a motion, pursuant to Section 5K1.1 of the Sentencing Guidelines, advising the sentencing judge of all relevant facts pertaining to that determination and requesting the Court to sentence Steven Hoffenberg in light of the factors set forth in Section 5K1.1(a)(1)-(5). (emphasis added).
The Government was obligated to move for a departure if Hoffenberg provided substantial assistance and if he "otherwise complied with the terms of [the] Agreement." The Court of Appeals has stated that parties to a plea Agreement could establish terms of the Agreement which were other than standard and to which they would be bound. See United States v. Rexach, 896 F.2d 710, 714 (2d Cir. 1990) ( "...a defendant might negotiate an agreement which, by its terms, would define a different standard for evaluation. Should such a cooperation agreement specify... [a more stringent standard], then we would, of course, employ [that standard].") In this case the filing of the 5K1 motion was contingent on both substantial assistance and compliance with the terms of the Agreement. The parties were bound to the term as it was written. Hoffenberg did not otherwise comply with all the terms of the Agreement. The Agreement, quoted above, required truthfulness. Hoffenberg was not truthful.
Even if the Court were to consider the "substantial cooperation" clause in isolation of the rest of the conditions, there has not been a showing of bad faith.
It would not be enough for Hoffenberg to prove his substantial assistance, since "a claim that a defendant merely provided substantial assistance will not entitle a defendant to a remedy...." U.S. v. Wade, 504 U.S. 181, 186, 118 L. Ed. 2d 524, 112 S. Ct. 1840 (1992). It is reasonable and appropriate for the Government to consider Hoffenberg's truthfulness in evaluating his assistance. It is significant that Hoffenberg repeatedly corrected and changed his story and helped suborn perjury. It was not bad faith to believe that the information Hoffenberg provided was not entirely useful. See, e.g., United States v. Knights, 968 F.2d 1483, 1488 (2d Cir. 1992).
The Court of Appeals' admonition in Knights, is not relevant in this case. In Knights, the Court of Appeals reminded us that while the Government "has wide latitude in evaluating a defendant's cooperation, that latitude...does not permit it to ignore a defendant's efforts at cooperation simply because the defendant is providing information that the government does not want to hear." Id. In this case it is the veracity of the cooperation and not the content of the cooperation that is at issue.
The Agreement was vitiated only after the Government determined, after a thorough investigation, that Hoffenberg was lying about DCC, as well as about Stratford, that he encouraged the perjury of Hughes and Lowy, and only after Hoffenberg was given ample opportunity to provide an innocent explanation. Hoffenberg cannot now claim that the Government acted in bad faith by accepting and believing his false portrayal of his role at DCC, and entering the Agreement in reliance on that.
Because Nardello called Hoffenberg to testify in the grand jury on January 14, 1994, at a time when there were problems with Hoffenberg's cooperation and when the Government knew of his misrepresentations, Hoffenberg claims that Nardello improperly "sandbagged" Hoffenberg, and thus, acted in bad faith. As Nardello testified, it had been his intention for Hoffenberg to testify in the grand jury since the signing of the Agreement. In fact, in November 1993, Hoffenberg testified before the grand jury in the Northern District of Illinois.
As of January 14, 1994, no decision had been made to terminate Hoffenberg's cooperation agreement. Indeed, the Government did not begin to seriously consider terminating the Agreement until January 18, 1994, when Hoffenberg admitted that he had disregarded Nardello's specific instructions of December 22, 1993, regarding Stratford. As of the grand jury testimony on January 14, 1994, the only breach of which Nardello had personal knowledge was Hoffenberg's failure to mention Stratford when asked about businesses he might be considering entering into at the December 22, 1993 meeting.
Hoffenberg places great emphasis on the fact that both Lowy and Hughes had already met with a Government investigator prior to January 14, 1994, and had made allegations that Hoffenberg suborned perjury. Nardello, however, did not meet with Lowy until January 24, 1994, and with Hughes until January 25, 1994. In large part what Nardello knew when is irrelevant to the determination of good faith on the issue of whether or not the Government must make the substantial assistance, 5K1 motion. The Government has not vitiated the other portions of the plea agreement. It has simply notified Hoffenberg that no 5K1 letter will be forthcoming.
In the end, it is proper for the Government to consider the truthfulness of a defendant in evaluating the degree of his cooperation. When a cooperator enters into an agreement with the government which includes a provision for a 5K1 motion, that defendant must be honest if he hopes to achieve the benefit of the bargain. The government may permit a defendant to cure his dishonesty, but it is not required to do so and certainly need not do so continuously. Even if the untruths are not central to the cooperation, if the lies are deemed material to the evaluation of the truthfulness, the Government, absent unconstitutional or bad faith motivation, is free not to move for the departure. Hoffenberg's repeated deceptions rendered him untrustworthy as a cooperator. The Government is justified in its actions. There has been no showing of bad faith.
For the reasons described above, Hoffenberg's motion for specific performance of the Agreement is denied.
It is so ordered.
New York, N. Y.
December 18, 1995
ROBERT W. SWEET