nor is any such effect readily apparent. Robilotto, 828 F.2d at 949.
Defendants' last contention is that the mail fraud counts in the superseding indictment should be dismissed because the intangible rights theory "straddles a material change in the law." The defendants acknowledge that the Second Circuit has held that mail fraud prosecutions brought under this section are valid if, as here, the mailings occurred after the enactment of § 1346. Defendants say they mention this point to "preserve" it but leave this Court to guess at the nature of their point. One guess is that the defendants would like to test the theory that a prosecution of a scheme conceived before the statute was enacted, but consummated after, is immune from prosecution. But that is a guess. The Court at this point simply notes that no issue is properly before it until the defendants present a theory which provides a basis for the government to oppose it and this Court to decide it. United States v. Lampkins, 47 F.3d 175, 177 (7th Cir.), cert. denied, 131 L. Ed. 2d 319, 115 S. Ct. 1440 (1995). Presenting an issue in such a fashion as here done does not "preserve" an issue; if anything, it waives it.
Accordingly, the motion to dismiss on statute of limitations grounds is denied.
Sufficiency of the Mail Fraud Allegations
Defendants' next claim is that the indictment must be dismissed because it fails to allege conduct on which a mail fraud prosecution may be maintained. To test whether an indictment is legally sufficient, a court must examine whether it "first, Contains the elements of the offense charged and fairly informs the defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense." United States v. Covino, 837 F.2d 65, 69 (2d Cir. 1988) (internal citations omitted). "An indictment need only track the language of the statute and, if necessary to apprise the defendant 'of the nature of the accusation against him,' ... state time and place in approximate terms." Id. The parties agree that the mail fraud statute requires the government to allege (i) a scheme to defraud, (ii) a deprivation of money or property, and (iii) the use of the mails to further the scheme, United States v. Mittelstaedt, 31 F.3d 1208, 1216 (2d Cir. 1994), cert. denied, 115 S. Ct. 738 (1995).
Money or Property Allegations
Defendants first attack the sufficiency of the allegations regarding money or property. "The original impetus behind the mail fraud statute was to protect the people from schemes to deprive them of their money or property." McNally v. United States, 483 U.S. 350, 356, 97 L. Ed. 2d 292, 107 S. Ct. 2875 (1987). The property may be tangible or intangible, but the statute does not encompass a scheme the object of which was solely to secure a benefit to the perpetrator or involved a "unilateral expectation." See, e.g., McNally v. United States, 483 U.S. 350, 356, 97 L. Ed. 2d 292, 107 S. Ct. 2875 (1987) (benefit to perpetrator without deprivation of property of victim insufficient); Carpenter v. United States, 484 U.S. 19, 25, 98 L. Ed. 2d 275, 108 S. Ct. 316 (1987) (intangible property right in confidential information sufficient to satisfy mail fraud statute); Roitman v. New York City Transit Authority, 704 F. Supp. 346, 349 (E.D.N.Y. 1989) (no cognizable property right in ability to make career change to teaching). To ensure that mail fraud prosecutions do not go forward on the basis of a simple appropriation of benefits to the schemer or deprivation of amorphous property rights from a victim, the government but must show that "the defendants contemplated some actual harm or injury." United States v. Starr, 816 F.2d 94, 98 (2d Cir. 1987).
In the indictment, superseding indictment, and at least three letters to the defendants, the government has stated that the defendants' scheme had the following objects: (i) to secure future renewals of USAir and Ogden-Allied's policies, (ii) to eliminate expenditures that would have been required of USAIG if Ogden-Allied were found at all liable for the accident, (iii) to cause the companies who insured USAir to pay Ogden-Allied's fair share of these claims, (iv) to deprive both USAir and its various insurers of their opportunity to "negotiate a better deal."
Defendants, taking a divide-and-conquer approach, assail the first two objects, the policy renewals and savings to USAIG, as benefits to USAU, not money or property taken from the victims. They also assert that the benefits to accrue to USAU are too tentative and speculative to support the indictment. These arguments betray a misunderstanding of the requirements of a mail fraud prosecution in this Circuit. A scheme may have multiple objectives at least one of which must be the deprivation of money or property from the victims. See, e.g., United States v. Eisen, 1990 U.S. Dist. LEXIS 14219, 1990 WL 164681, (E.D.N.Y. 1990), aff'd, 974 F.2d 246 (2d Cir. 1992), cert. denied, 507 U.S. 1029, 113 S. Ct. 1840, 123 L. Ed. 2d 467 (1993). The government has alleged that one of the objects of the scheme was the expenditure incurred by USAir's insurers in paying claims wrongfully laid at their door. This allegation is sufficient to support the indictment.
Nevertheless, defendants maintain that the indictment must still be dismissed because the "linkage" between the deprivations (costs incurred by the USAir's insurers and loss of a chance to settle) and the various benefits that accrued to USAIG (savings on claims paid by USAir insurers and renewals of policies) is too attenuated to permit the prosecution to go forward.
They rely on the Seventh Circuit's holding in United States v. Walters, 997 F.2d 1219 (7th Cir. 1993). Walters reversed the mail fraud conviction of a sports agent who circumvented NCAA rules by surreptitiously signing players as clients while they were still playing college ball. The contracts invalidated the players NCAA eligibility. Because the colleges were unaware that their players were ineligible to play, they unwittingly continued to pay scholarships. The government prosecuted Walters under § 1341 on the theory that the victimized colleges spent money they otherwise would have saved had they known the truth. The court held that this was not money or property within the meaning of § 1341 because the colleges were not out of pocket to Walters and because the losses were incidental to the scheme. Defendants read Walters to hold that, unless the victim takes his money directly from the defendant, a mail fraud prosecution is not viable. Walters, 997 F.2d at 1224-27.
To resolve this issue, this Court turns from the Seventh Circuit to the Second. In United States v. Starr, 816 F.2d 94 (2d Cir. 1987), the Court of Appeals had to decide whether a bulk mailing fraud that deprived the post office of revenue could support a mail fraud prosecution. The court held that there was deprivation of money or property within the meaning of the statute only where a schemer appropriates a benefit and there is "a corresponding loss or injury to the victim of the fraud." Starr, 816 F.2d at 101. The court held that the harm that "must affect the very nature of the bargain itself." Starr, 816 F.2d at 98.
In this case, defendants' alleged benefits corresponded directly to the contemplated loss. As the payout by USAU and USAIG decreased, its victims' payout increased. The nature of the bargain between USAU and the coinsurers, reinsurers, and retrocessionaires was that USAU would manage the PSA claim to the mutual advantage of all in return for a fee. Instead, USAU is alleged to have managed the PSA claims to its own and USAIG's benefit at the expense of those covering USAir's risks. With respect to the insured USAir, the bargain between the insurer and the insured was the provision of insurance to cover losses in return for premiums; fraud which contemplated inflating USAir's loss would certainly go the heart of USAU's relationship with its insured.
The fact that the insurance monies paid out by the scheme's victims went to those injured in the PSA crash rather than directly to USAU is of as little significance as would be the fact that a card sharp asked his victim to give money won by his bottom-of-the-deck deal to the player to whom the shark had lost the previous hand. The indictment alleges that USAU did not perform its obligations and that the victim insurers were injured as a result. See United States v. Eisen, 974 F.2d 246, 252. The indictment adequately alleges the necessary correspondence between the fraud and the loss incurred and will not be dismissed on this ground.
Defendants also contend that, even if there is a correspondence between the financial benefits obtained by USAU and the money or property lost by the victims, a part of the indictment nevertheless fails under the "convergence" theory. Under the convergence theory, the parties to whom the misrepresentations were made must be identical to the alleged victims. In this case, the indictment alleges that USAU misrepresented material facts to USAir and to the concurrent insurers; it does not allege that USAU had any contact with the reinsurers and retrocessionaires.
There is some question whether the convergence theory is viable in the Second Circuit. Eisen, 974 F.2d at 253 & n.2 (citing cases). Even if the convergence theory were applicable, the defendants could not invoke it simply by taking an overly narrow view of the victims in this case and ignoring the likelihood that misrepresentations were repeated and carried on to reinsurers and retrocessionaires. In all events, the theory is satisfied where, as here, the defendants make fraudulent misrepresentations directly to at least some of the injured parties and intend that those parties rely on them to their detriment and to the benefit of the liars. See, e.g., Eisen, 1990 U.S. Dist. LEXIS 14219, 1990 WL 16481 at *2 (civil litigants made misrepresentations to jury causing litigants to pay damage awards to schemers).
Mailings in Furtherance of the Scheme
Defendants next ask for dismissal of the indictment on the grounds that the mailings were not in furtherance of the scheme to defraud. The mail fraud statute contemplates prosecution only where "the use of the mails is a part of the execution of the fraud." Kann v. United States, 323 U.S. 88, 95, 89 L. Ed. 88, 65 S. Ct. 148 (1944). Letters that are "'incident to an essential part of the scheme,' ... or 'a step in the plot,'" satisfy the in furtherance of requirement. Ordinarily, mailings may not occur after the fraudulent scheme has reached fruition. United States v. Maze, 414 U.S. 395, 400-02, 38 L. Ed. 2d 603, 94 S. Ct. 645 (1974). Whether mailings were in fact in furtherance of a scheme is a question for the jury under all but the most extraordinary circumstances. United States v. Castor, 558 F.2d 379, 384 (7th Cir. 1977), cert. denied, 434 U.S. 1010, 54 L. Ed. 2d 752, 98 S. Ct. 720 (1978) (jury question "unless it so convincingly appears on the face of the indictment that as a matter of law there need be no necessity for such delay.").
Defendants read the indictment to allege a "one-shot deal" with the single objective of misallocating liability for the PSA crash. According to the indictment, as defendants read it, this objective was achieved between June and September of 1989. Since the earliest mailing is dated January 8, 1990, the defendants contend that all of the mailings came after the scheme reached fruition and could not have been part or in furtherance of its execution. However, a determination as to when a scheme has reached fruition may turn on whether its success depends on "the [defendant's] continued harmonious relations with, and good reputation among, [the victims]." Schmuck v. United States, 489 U.S. 705, 711-12, 103 L. Ed. 2d 734, 109 S. Ct. 1443 (1989). In such a case, "delayed mailings" or "lulling letters" satisfy the in furtherance element. United States v. Angelilli, 660 F.2d 23, 37 (2d Cir. 1981). This is true even though the mailings follow the actual transfer of the financial benefits sought to be obtained. Wallach, 935 F.2d at 465.
The allegations suggest that there will be evidence from which a jury could find that this was an ongoing scheme. USAU's survival as a business depended on its continued harmonious relationships with its insureds, coinsurers, reinsurers, and retrocessionaires. USAU's alleged short-term goal of minimizing its losses in this particular litigation could arguably at least be best realized by convincing the remaining parties that it had done nothing wrong. Disruption in the facade would, according to the prosecution, have been fatal to USAU's relationships with USAir and Ogden-Allied and destroy its reputation in the industry. It would have lost future premiums and ended its career as a lead insurer.
Defendants argue that the mailings were so remote from the alleged fraud that they could not possibly have been part of its execution.
Altman, 48 F.3d 96, 103 (confirmatory or accounting documents do not satisfy in furtherance requirement). However, such fact-based arguments as to whether a particular mailing had a sufficient connection to the fraud cannot be resolved in advance of trial. See United States v. Turoff, 701 F. Supp. 981, 991 (E.D.N.Y. 1988) ("it will be for the jury to determine whether those mailings were for the purpose of executing the scheme to defraud or were entirely incidental to it").
Accordingly, the motion to dismiss the indictment for failure to allege conduct on which a mail fraud prosecution may be maintained is denied.
Defendants argue finally that the interviews of Alpert and Zoffer breached the attorney/client and attorney work-product privileges and that, because the indictment is the fruit of those breaches, it must be dismissed. In the alternative, they ask this Court to hold an evidentiary hearing on the scope of the breaches and determine the appropriate remedy.
The attorney/client privilege rests on the assumption that encouraging clients to be frank with their attorneys assists in the preparation of a defense and aids the truth-seeking process. Fisher v. United States, 425 U.S. 391, 403, 48 L. Ed. 2d 39, 96 S. Ct. 1569 (1976). Because the privilege "has the effect of withholding relevant information from the factfinder, it applies only where necessary to achieve its purpose." Fisher, 425 U.S. at 403. The party seeking to invoke the privilege has the burden of establishing its elements. von Bulow v. von Bulow, 811 F.2d 136, 146 (2d Cir.), cert. denied, 481 U.S. 1015, 95 L. Ed. 2d 498, 107 S. Ct. 1891 (1985).
The privilege attaches
(1) Where legal advice of any kind is sought, (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence, (5) by the client, (6) are at his instance permanently protected, (7) from disclosure by himself or the legal adviser, (8) except the protection be waived.
United States v. Kovel, 296 F.2d 918, 921 (2d Cir. 1961). Because privilege is fact-based, defendants must make this showing as to each communication with respect to which they assert the privilege. Allendale Mutual Assurance v. Bull Data Systems, Inc., 145 F.R.D. 84, 86 (N.D. Ill. 1992).
The attorney/client privilege may extend to confidential communications with an in-house counsel at a corporation. Upjohn v. United States, 449 U.S. 383, 394, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981). The party claiming the privilege must show that it sought legal, not business, advice. See, e.g., U.S. Postal Services v. Phelps Dodge Refining Corp., 852 F. Supp. 156 (E.D.N.Y. 1994); see also In re Grand Jury Subpoena, 599 F.2d 504, 511 (2d Cir. 1979).
The defendants also invoke the attorney work-product rule. Although initially developed in civil actions, work-product protection may be asserted in criminal proceedings. United States v. Hoyvald, 1987 WL 30638 at *2 (E.D.N.Y. 1987). Where a party establishes that materials in its possession were prepared in anticipation of litigation, they may be discovered only if the party seeking discovery shows a substantial need for them in order to prepare his own case and virtual unavailability of them without extreme hardship. In re Grand Jury Proceedings, 73 F.R.D. 647, 653 (M.D. Fla. 1977). The purpose of the rule is "to encourage effective legal representation by removing counsel's fear that his thoughts and information will be invaded by his adversary if he records them." Republic Gear Co. v. Borg-Warner Corp., 381 F.2d 551, 557 (2d Cir. 1967).
Where, as here, the litigation for which these materials were prepared is long over, there is divergent authority whether the privilege continues to apply. See Hoyvald, 1987 WL 30638 at *2 ("the primary purpose for which work-product protection was developed has already been served"); In re Grand Jury Proceedings, 73 F.R.D. at 653 ("where the work-product materials were prepared for a distinct and prior criminal litigation, long completed, the policies underlying the work-product privilege have already been achieved"); United States v. IBM, 66 F.R.D. 154, 178 (S.D.N.Y. 1974) ("attorneys' memorandum in a prior case involving different parties does not have the protection of the 'work-product' principle").
The Court turns first to the issues raised by the attorney/client privilege. The defendants argue that, notwithstanding any waivers by USAir or Ogden-Allied, the communications between representatives and those entities and Alpert are privileged under the "joint defense" exception. Where there are multiple parties in a lawsuit, each party may claim the privilege with respect to communications between parties and their respective attorneys. United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir. 1989). The analogy of an attorney coordinating multiple interests is superficially consistent with the relationship between an insurer and an insured with respect to litigation arising out of the coverage. Continental Casualty v. Pullman, Comley, etc., 929 F.2d 103, 108 (2d Cir. 1991) ("the relationship between the insured and the insurer's legal department is that of attorney and client").
The government argues that the analogy breaks down because USAU's interests were anything but consistent with those of USAir and Ogden-Allied. Where the interests of the insurer and insured are adverse or in conflict, no joint defense privilege arises. When the parties interests diverge during the course of the same or subsequent litigation, the privilege dissolves. North River Insurance v. Columbia Casualty Co., 1995 U.S. Dist. LEXIS 9570, 1995 WL 5792 at *2, *5 (S.D.N.Y. 1995). Buck v. Aetna Life & Casualty Co., 1992 U.S. Dist. LEXIS 9061, 1992 WL 130024 at *2 (E.D. Pa. 1992).
The assumption on which the government's argument rests, that the interests of Ogden-Allied, USAir, and USAU were adverse, is at the heart of this prosecution and remains to be proven at trial. Fed. R. Crim. Pro. 12(e) provides that for good cause a district judge may defer consideration of a pretrial motion until after trial. See also United States of America v. Williams, 644 F.2d 950, 952 (2d Cir. 1981). Good cause exists where "it would be impractical and unwise to attempt pretrial resolution of the ... claims because they are substantially founded upon and intertwined with the evidence to be presented at trial." Id. at 952-53.
The pertinent questions raised by defendants' motion are: (i) whether the attorney/client privilege applies to these communications; (ii) whether the privilege was waived; (iii) whether an exception, such as the crime fraud exception, exists; (iv) whether the privilege was breached, (iv) whether Judge Platt's order remedied any misconduct; and (v) if not, whether the breach tainted the indictment or requires other remedy.
Defendants, at this stage, have not shown a likelihood of success on these issues. In particular, it appears likely that most communications were business-related within the crime-fraud exception or, if privileged under a joint-defense theory, that the privilege has been waived. Since the contents of the communications have, for better or worse, been now repeatedly disclosed -- to the government, to the grand jury, to the Court among others -- no irreparable injury has occurred that could not be remedied equally well by a post-trial remedy of dismissal of the charges or other relief.
Accordingly, the motion for dismissal of the indictment on privilege grounds is deferred until after trial.
The Clerk is directed to mail a copy of the within to all parties.
Dated: Brooklyn, New York
May 1, 1996
Charles P. Sifton
United States District Judge