United States District Court, N.D. New York
February 19, 2004.
UNITED STATES OF AMERICA
ALEXANDER SALVAGNO, RAUL SALVAGNO, and AAR CONTRACTOR, INC., Defendants
The opinion of the court was delivered by: HOWARD MUNSON, Senior District Judge
MEMORANDUM DECISION AND ORDER
The government has charged defendants Alexander Salvagno, and Raul
Salvagno, as well as their company, AAR Contractor, Inc., ("AAR") with
various crimes stemming from their asbestos
abatement business. Count One of the fourteen count Second Superceding
Indictment ("Indictment") charges defendants with thirty-three acts of
racketeering in violation of 18 U.S.C. § 1962(d). Specifically, Count One
sets forth a pattern of racketeering activity consisting of: (1)
obstruction of justice, in violation of 18 U.S.C. § 1512(b)(2)(B)
(racketeering act one); (2) obstruction of justice, in violation of
18 U.S.C. § 1512(b)(1) and(b)(3) (racketeering act two); (3) money
laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(i) and 18 U.S.C. § 2
(racketeering acts three through nine); (4) money laundering, in violation
of 18 U.S.C. § 1956(a)(1)(B)(i) and 18 U.S.C. § 2 (racketeering acts ten
through fourteen); and, (5) money laundering, in violation of
18 U.S.C. § 1956(a)(1)(A)(i) and 18 U.S.C. § 2 (racketeering acts fifteen
through thirty-three). Count Two charges defendants with conspiring to
violate the Clean Air Act, ("CAA"), 42 U.S.C. § 7401 et seq., and the
Toxic Substances Control Act, ("TSCA"), 15 U.S.C. § 2601 et seq. Counts
Three through Eleven charge defendants with violating the CAA,
42 U.S.C. § 7413(c)(1) and (2). Counts Twelve through Fourteen charge
Alexander Salvagno with filing a false Federal personal income tax return
(Form 1040) in violation of 26 U.S.C. § 7206(1). See Dkt. No. 112,
Currently before the court are defendants' motions: (1) to dismiss the
RICO Conspiracy Count (Count One of the Indictment); (2) to dismiss the
various substantive CAA Counts (Counts Three through Eleven); (3) to
strike prejudicial surplusage from the Indictment; and, (4) for an order
directing an evidentiary hearing to determine the nature and extent of,
and the appropriate sanctions for, the disclosures made during the course
of plea and cooperation negotiations and agreements by at least one
co-defendant in violation of a pre-existing joint defense agreement. For
the reasons that follow below, defendants' motion to dismiss the RICO
Conspiracy Count (Count 1 of the Indictment) is DENIED; defendants'
motion to strike prejudicial surplusage from the Indictment is
DENIED; defendants' motion to dismiss the various substantive CAA Counts
(Counts Three through Eleven) is DENIED without prejudice to renewal
based on the evidence presented at trial; and, defendants' motion
requesting the court to issue an order directing an evidentiary hearing
to determine the nature and extent of, and the appropriate sanctions
for, the disclosures made during the course of plea and cooperation
negotiations and agreements by at least one co-defendant in violation of
a pre-existing joint defense agreement is DENIED.
A. Relevant Procedural History
On February 13, 2002, the government indicted defendants and charged
them with various crimes stemming from their asbestos abatement
activities. Initially, the government charged seven additional
individuals, Thomas Reed, Gary Alvord, Anthony Mongato, Sheon Dimaio,
Michael Shanahan, Robert O'brey, and Gerald Lindquist, with crimes
relating to their asbestos abatement activities. Since the government
indicted them, the seven co-defendants have entered guilty pleas.
Previously, the government brought an order to show cause why the court
should not issue an order precluding consideration of motions filed by
David Bernfeld and Jeffrey Bernfeld, or future appearances of any sort,
in the absence of their having entered an appearance in this matter and
having gained admission to practice law in the Northern District of New
York, generally or for purposes of this case. This motion is now moot
because both David Bernfeld and Jeffrey Bernfeld have entered their
appearance in this matter and have gained admission to practice law in the
Northern District of New York. Since their admission, however, the court
granted the government's motion to disqualify Jeffrey Bernfeld from
representing defendants Alexander Salvagno and AAR Contractor, Inc., as
of February 27, 2003. See Dkt. No. 128, Mem. Decision and Order. For
reasons, the Government's order to show cause is moot.
B. The Alleged Scheme
The alleged scheme is set forth in the Indictment and the government's
response papers, which the court summarizes briefly as follows. From 1988
to 2000, Alexander and Raul Salvagno owned and operated AAR, which grew
to be one of the largest asbestos abatement companies in New York State
with a significant presence in Central and Upstate New York. Their
asbestos abatement operation, however, is alleged to have failed to
comply with various federal and New York State regulations, which apply
to the removal of asbestos to protect workers, the public, and the
environment.*fn1 In 1990, defendants allegedly devised and implemented a
scheme that defrauded clients of millions of dollars through false
representations as to how AAR would perform its asbestos abatement work.
Dkt. No. 94, Government's Am. Resp. at 2-3.
In an effort to reduce their employees' "time-on-the-clock," the most
costly component of asbestos abatement projects, defendants are alleged
to have convinced a close friend, Timothy Carroll, to start an accredited
laboratory and an air and project monitoring company, Analytical
Laboratories of Albany, Inc., ("ALA"), in which Alexander Salvagno would
secretly own a one-half share. By controlling ALA, defendants were able
to circumvent air and project monitoring regulations and falsify test
results. ALA, acting as an "independent" laboratory, would mail AAR's
clients the falsified test results. Defendants defrauded their clients by
leading them to believe that, and charging them as if, they performed the
asbestos abatement in accordance with the applicable regulations when in
fact they had not. This alleged scheme allowed defendants to complete
their abatement projects in less time than if they were to have adhered
to the regulations. Id. at 3-5; Dkt.
No. 112, Indictment at 9-10.
During the alleged conspiracy, Mr. Carroll deposited ALA-derived funds
in his own bank account and subsequently withdrew half of those funds in
cash and gave them to Alexander Salvagno. As part of their conspiratorial
arrangement with Alexander Salvagno, ALA and Mr. Carroll filed false W-2
forms, which made it appear that Mr. Carroll received all of ALA's
funds. ALA failed to provide a W-2 form to Alexander Salvagno and
falsified its corporate tax returns while Alexander Salvagno's income tax
returns failed to reflect the additional income he received from ALA.
Alexander Salvagno also directed AAR to pay a "RASH Services, Inc.,"
instead of AAR's General Manager, Thomas Reed, a significant portion of
Mr. Reed's salary in order to conceal Mr. Reed's true income and allow
AAR to pay lower payroll taxes. Again, AAR filed false tax documents as
did Mr. Reed. Dkt. No. 94, Government's Am. Resp. at 5-6; Dkt. No. 112,
Indictment at 10-13. In addition, defendants are alleged to have obtained
large sums of money through mail fraud, which in turn they committed to
AAR in order to sustain and expand its illegal activities. Id. at 6.
I. Defendants' Motion to Dismiss RICO Count
Defendants move to dismiss the RICO Conspiracy Count (Count 1) arguing
that the underlying acts upon which the government relies are
insufficient to sustain such a charge. The government bases the RICO
Conspiracy Count on money laundering predicates, which in turn rest upon
an underlying mail and wire fraud scheme. Defendants contend that the
conduct in support of the underlying mail and wire fraud does not, as a
matter of law, constitute mail and wire fraud. Defendants also contest
the Indictment's association-in-fact RICO enterprise, which it defines
an association of a certain and distinct group of seven separate legal
entities. Defendants contend that most of these entities did not exist,
legally or otherwise at the time the association-in-fact RICO enterprise
allegedly formed. Moreover, they suggest that aside from AAR and ALA, the
entities that comprise the association-in-fact enterprise were
competitors with interests adverse to each other. Defendants also contend
that the RICO Count is constitutionally vague. See Dkt. No. 102, Defs.'
Mem. of Law in Supp. of Mot. at 2-3.
A. Sufficiency of the Indictment
The standard for the legal sufficiency of an indictment is
well-established. An indictment is sufficient when it contains the
elements of an offense, notice to the defendant of the charges he must be
prepared to meet, and information sufficient to protect the defendant from
the risk of double jeopardy. United States v. Bailey, 444 U.S. 394, 414,
100 S.Ct. 624, 636, 62 L.Ed.2d 575 (1980). "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 the time and place in
approximate terms." United States v. Covino, 837 F.2d 65, 69 (2d Cir.
1988); see United States v. Flaharty, 295 F.3d 182, 189 (2d Cir. 2002).
Here, there is no evidence that the Grand Jury acted upon inadequate or
As to the conspiracy count, "in an indictment for conspiring to commit
an offense-in which the conspiracy is the gist of the crime-it is not
necessary to allege with technical precision all the elements essential
to the commission of the offense which is the object of the conspiracy."
United States v. LaSpina, 299 F.3d 165, 177 (2d Cir. 2002) (citation
omitted) (quoting Wong Tai v. United States, 273 U.S. 77, 81,
47 S.Ct. 300, 71 L.Ed. 545 (1927)). In order to succeed on their claim that the
conspiracy count was insufficient, defendants "must show that the
construed, was insufficient to identify the offense which [they]
conspired to commit." LaSpina, 299 F.3d at 177-78 (internal quotation and
citations omitted). Defendants imply that the above standard is
inadequate to address the complex scheme alleged in the instant case, and
that even under the standard, the government failed to support the
multiple layers of criminal accusations contained in the Indictment with
sufficient detail. See Dkt. No. 102, Defs.' Mem. of Law in Supp. of Mot.
The above standard applies regardless of the complexity of the alleged
criminal scheme. Moreover, the court notes that in its response, the
government cited cases where criminal schemes at issue were not of the
garden variety. See United States v. Wydermyer, 51 F.3d 319, 324 (2d
Cir. 1995) (conspiracy to launder money derived from criminal violations
of the Arms Export Control Act and false statements); LaSpina, 299 F.3d 165
(conspiracy to engage in monetary transactions with money derived from
kickback scheme and tax violations).
B. The Association-In-Fact Enterprise Is Sufficient
Defendants contend that the alleged conspiratorial enterprise cannot be
comprised of entities that were not all in existence at the time the
conspiracy began. Defs.' Mem. of Law at 26. This position, however, is
untenable, for it defies the reality of the way in which criminal
associations operate, and is contrary to well-established jurisprudence.
United States v. Coonan, 938 F.2d 1553, 1560-61 (2d Cir. 1991) (finding
the evidence established that regardless of membership changes, the
association-in-fact's power structure endured); cf United States v.
Bagaric, 706 F.2d 42, 56 (2d Cir. 1983) ("[I]t is logical to characterize
any associative group in terms of what it does, rather than by abstract
analysis of its structure."). The enterprise as charged in the Indictment
C. Mail Fraud
Defendants claim that the RICO charge, predicated as it is primarily on
mail fraud (as the
specified unlawful activity of money laundering) cannot be sustained as a
matter of law. They assert that the mail fraud statute does not encompass
defendants' alleged scheme to defraud because the Indictment "do[es] not
allow for proof that the deceived `victims' of the purported wire or mail
frauds suffered any tangible economic injury nor that such injury was
intended or foreseen." Dkt. No. 102, Defs.' Mem. of Law at 9-10.
Defendants' arguments, however, are inapposite. In the Indictment, the
government makes clear that defendants' clients were not only deceived,
but also defrauded because the artificially low bids were a good deal
only if AAR performed the asbestos abatement in the manner agreed to and
as required by law. See Dkt. No. 112, Indictment, at ¶¶ 11(c) and (d) and
12; see also Thorn, 317 F.3d at 112.
"The elements of mail fraud are: (1) a scheme or artifice to defraud,
(2) furthered by the use of the mail, (3) to deprive another of money,
property or the intangible right of honest services." United States v.
Handakas, 286 F.3d 92, 100 (2d Cir. 2002) (internal quotation marks
omitted) (citing 18 U.S.C. § 1341 and 1346). The first element requires:
(1) the existence of a scheme to defraud; (2) specific intent to defraud
on the part of the defendant; and, (3) material misrepresentations. United
States v. Autori, 212 F.3d 105, 115 (2d Cir. 2000). "The second element
is satisfied if the mail is used or if its use is reasonably
foreseeable." Handakas, 286 F.3d at 100 (citation omitted). The third
element requires that there be a deprivation of money, property, or the
"right to the intangible right of honest services." Id. (citing
18 U.S.C. § 1341 and 1346).
Defendants attack the "intangible right to honest services" element
arguing that because the government's theory rests upon "nothing more
than a scheme to deceive," the honest services clause is
unconstitutionally vague. Dkt. No. 102, Defs.' Mem. of Law at 20.
Defendants principally cite Handakas and United States v. Rybicki,
287 F.3d 257 (2d Cir. 2002) in support of this position.
upheld a vagueness challenge to [18 U.S.C.] § 1346 in
the context of a bid contractor working for a state
school authority who wilfully breached a contract
requirement that he pay the prevailing wage to his
employees. (citation omitted). After reviewing the
language and history of § 1346, the panel concluded
that the phrase "honest services" was too vague to
give notice to a person of ordinary intelligence that
a "breach of contract could subject one to a mail
fraud conviction." (citation omitted).
Rybicki, 287 F.3d at 263. The Rybicki court noted because § 1346 does not
define "honest services," the statute's reach is "virtually limitless."
Id. at 264. To address this concern, the Rybicki court adopted a
reasonably foreseeable harm standard whereby "it must have been
reasonably foreseeable to the defendant that the scheme at issue could
have resulted in some economic or pecuniary harm to the victim." Id. The
Rybicki court preferred the reasonably foreseeable harm standard because
it focused "the inquiry on whether the scheme at issue created
foreseeable risk of economic or pecuniary harm to the victim, which is
consistent with traditional notions of fraud and fraudulent harm." 287
F.3d at 65. In addition, the reasonably foreseeable harm test had the
"virtue of being capable of straightforward and consistent application,
while at the same time placing a reasonable boundary around what is
otherwise so boundless a concept as to be suitable for a candidate for a
finding of unconstitutional vagueness" (citation omitted). Id. at 265.
The court quickly added that "the foreseeable economic or pecuniary harm
must be more than de minimis, in order to establish a minimum threshold
that will exclude cases . . . that could result in some slight economic
harm." Id. Thus, in order to establish the offense of honest services
fraud pursuant to § 1346, the following elements must be satisfied: "(1)
a scheme or artifice to defraud; (2) for the purpose of depriving honest
services; (3) where it is reasonably foreseeable that the scheme could
cause some economic or pecuniary harm to the victim that is more than de
minimis; and, (4) use of
the mails or wires in furtherance of the scheme." Id. at 266. While
defendants discuss the Second Circuit's § 1346 jurisprudence in great
detail, they fail to discuss 18 U.S.C. § 1341.
18 U.S.C. § 1341 requires that the government prove that the defendant
contemplated some actual harm or injury to the victim. United States v.
D'Amato, 39 F.3d 1249, 1257 (2d Cir. 1994). "A defendant who has used the
mails fraudulently to bill a customer for services that have not been
provided may not defeat a mail fraud charge simply by providing
alternative services." United States v. Frank, 156 F.3d 332, 335 (2d
Cir. 1997) (citing United States v. Wallach, 935 F.2d 445, 461 (2d Cir.
1991) ("providing alternate services does not defeat a fraud charge
[when] the [victims] did not receive the services that they believed they
were being provided"); United States v. Paccione, 949 F.2d 1183, 1196 (2d
Cir. 1991) ("Use of the mails in furtherance of a scheme to offer
services in exchange for a fee, with the intent not to perform those
services, is within the reach of § 1341."). In Frank, municipalities
contracted for sludge disposal at a site 106 miles from the New York and
New Jersey Shores. Defendants, however, dumped sludge in waters short of
the 106-mile site yet billed the municipalities as if all of the sludge
disposal had occurred at the 106-mile site. 156 F.3d at 334-36. The
Second Circuit found that defendants' alternative services did not defeat
their mail fraud conviction. Here, defendants similarly argue that
there is no dispute that the AAR clients, ultimately
received the service for which they paid-the removal
of asbestos material from their buildings. Nowhere
does the government allege, or even imply, that the
defendants, their associates, and co-conspirators
received money for asbestos removal projects which
were not ultimately performed. Indeed, the Government
clearly alleges that the asbestos material was, in
fact, removed-albeit illegally.
Dkt. No. 102, Defs.' Mem. of Law at 13. Applying the reasoning of
Frank, defendants' argument is unavailing.
Similarly, in Paccione, the Second Circuit upheld a RICO prosecution
based upon mail fraud.
There, the government charged that defendants had schemed to defraud
their medical customers of money and properly by charging them high rates
attributable to lawful transport, storage, and disposal of medical waste
without providing those services lawfully, and had implemented that
scheme through, inter alia, mailings of letters and invoices to a certain
doctor in violation of § 1341. This alleged scheme formed the basis for
seventeen RICO predicate acts. Paccione, 949 F.2d at 1190-91. The Second
Circuit reiterated that the mailing of communications that are designed
to lull the victims of the fraud into believing they have received the
services they bought is sufficient to support a conviction under § 1341.
Id. at 1196. The Second Circuit then described defendants' scheme as one
in which they
offered to provide doctors with infectious waste
disposal services that would be safe and adequate to
relieve them of the risk of civil and criminal
liability . . .[where] there was no indication that
any of its customers sought a lower level of service,
and it was inferable that the payments of the doctors
and the medical facilities were to be commensurate
with the high level of services promised by
[defendants]. [Defendants] mailed invoices designed to
lull the customer into believing the services promised
had been provided.
Id. at 1197. The Second Circuit concluded that such a scheme fit
"comfortably within" § 1341's framework. Id. Here, the government has
properly charged mail fraud.
D. RICO Count is Supported
Defendants contend that "the only illegal conduct alleged by the
government involves violations of the [CAA] and various New York State
regulations" while the other conduct alleged is limited to "everyday
business activity." Dkt. No. 102, Defs.' Mem. of Law at 23. Defendants
misapprehend the charges at hand. The government has not charged RICO
crimes in which the CAA or New York State regulations are predicate acts;
rather, it has charged promotion and concealment money laundering with
specified unlawful activities involving mail and wire fraud.
See Dkt. No. 112, Indictment at 5-8. Defendants' motion to dismiss the
RICO Conspiracy Count based upon money laundering is denied.
II. Defendants' Motion to Strike Prejudicial Surplusage from the
Defendants move to strike prejudicial surplusage from the indictment
arguing that should the court permit the government to present such
surplusage at trial, the jury will be exposed to massive amounts of
uncharged and irrelevant conduct. See Dkt. No. 73, Mem. of Law in Supp.
of Mot. at 4. Defendants contend that the Indictment improperly attempts
to escalate conduct, which if true, violates only state law, into a
federal conspiracy. Defendants argue that the bulk of the conduct charged
in furtherance of the CAA Conspiracy involves purported misconduct
related to air monitoring which is neither regulated nor prohibited by
the CAA. See Dkt. No. 102, Defs.' Mem. of Law at 40-41. Defendants argue
that the CAA, as it pertains to asbestos removal, requires only: (1) that
the asbestos material be wetted down during removal; (2) notification to
the relevant agency that a CAA regulated job will occur; and, (3) disposal
of asbestos in a particular manner. Defendants further allege that the
CAA regulates and applies to asbestos removal projects involving a
sufficient volume of material containing asbestos to meet the statutory
requirements. Defendants' portrayal of the CAA as it pertains to asbestos
removal, however, oversimplifies the Act's requirements. See Dkt. No.
112, Indictment, ¶ 140; 40 C.F.R. Part 61, subpart M; United States v.
Weintraub, 273 F.3d 139, 144-45 (2d Cir. 2001) (citing the C.F.R.
regulations pertaining to asbestos violation and setting forth the
general intent standards for such crimes).
"Motions to strike surplusage from an indictment will be granted only
where the challenged allegations are not relevant to the crime charged
and are inflammatory and prejudicial." United States v. Scarpa,
913 F.2d 993, 1013 (2d Cir. 1990) (internal quotations omitted). "`[I]f
of the allegation is admissible and relevant to the charge, then
regardless of how prejudicial the language is, it may not be stricken.'"
Scarpa, 913 F.2d at 1013 (quoting United States v. DePalma,
461 F. Supp. 778, 797 (S.D.N.Y. 1978)). For example, "[i]n RICO cases,
courts have refused to strike allegations of organized crime connections
that serve to identify the enterprise and the means by which its members
and associates conduct various criminal activities." Id. The Indictment
not only sets forth the CAA's and the TSCA's standards at issue in the
conspiracy count, but also sets forth certain conduct. Defendants are
alleged to have engaged in this conduct as part of their method of
operation, which enabled them to commit the CAA and TSCA violations. While
conceding that such conduct may have violated state law, the government
argues that such fact does not prohibit it from cited to such conduct to
describe the methods employed in furtherance of the conspiracy.*fn2
Here, the allegations describe defendants' methods of operation-methods
that are intertwined with the evidence regarding the charged offense.
Therefore, they are not properly stricken. See United States v. Mulder,
273 F.3d 91, 99-100 (2d Cir. 2001); United States v. Hernandez,
85 F.3d 1023, 1030 (2d Cir. 1996) (finding that defendants'
cocaine-related activity was clearly relevant evidence of the
organizational structure and method of operation of their heroine
Defendants protest that the government is attempting to prosecute them
for state as opposed to federal crimes. Defendants contend that the four
out of the five means and methods, set forth in paragraphs 143-47 of the
Indictment, "involve conduct which relates solely to New York State law.
Defendants further contend that the majority of the overt acts listed in
paragraphs 149-60 of the Indictment do not come within the CAA's purview.
See Dkt. No. 102, Defs.' Mem. of Law at 44.
The government, however, demonstrates that the means and manner
paragraphs and overt acts at issue relate to the charged conspiracy. More
specifically, the majority of the overt acts relate directly to alleged
violations of the CAA or TSCA or both. While some of the overt acts
implicate both OSHA and state law violations relating to false air
monitoring, it is this conduct that assisted the charged federal
conspiracy to succeed. See LaSpina, 299 F.3d at 176 ("An overt act is
meaningful only if it is within the scope of the conspiratorial
agreement, but an overt act may be made only by a single one of the
conspirators and it need not be itself a crime.") (internal quotations,
alterations and citations omitted). Defendants' motion to strike
prejudicial surplusage from the Second Superceding Indictment is denied.
III. Defendants' Motion to Dismiss Substantive Clean Air Counts
Defendants move to dismiss the CAA Count (Count 2). See Dkt. No. 71,
Defs.' Notice of Mot. Defendants argue that the surplusage and
defectively alleged overt acts so taint the CAA conspiracy charge that
the entire count should be dismissed. Defendants move to dismiss the
various substantive CAA Counts (Counts 3-11) arguing that they fail to
set forth key elements of the crime. Defendants protest that the
government charges multiple defendants with each substantive count
without identifying who engaged in what conduct; they contend that the
government charged the substantive counts as if they were conspiracies
where each party is ostensibly responsible for the acts of all others.
Defendants also contend that the government fails to allege the volume of
asbestos material involved in the project charged in each count. Dkt.
No. 102, Defs.' Mem. of Law in Supp. of Mot. at 4, 40, 45, 49.
Furthermore, defendants argue that the substantive CAA Counts are too
vague and general to pass Constitutional muster. See Id. at 3, 50.
The government responds that it will prove that each CAA count conforms
to the conduct
of each defendant during the applicable time period. As noted above, an
indictment is sufficient when it contains the elements of an offense,
notice to the defendant of the charges he must be prepared to meet, and
information sufficient to protect the defendant from the risk of double
jeopardy. United States v. Bailey, 444 U.S. 394, 414, 100 S.Ct. 624,
636, 62 L.Ed.2d 575 (1980). "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 the time and place in approximate
terms." United States v. Covino, 837 F.2d 65, 69 (2d Cir. 1988); see
United States v. Flaharty, 295 F.3d 182, 189 (2d Cir. 2002). The CAA
counts pass constitutional muster.
The government acknowledges that the CAA's regulations are triggered
only where the asbestos containing material is at least 260 linear feet,
160 square feet or one cubic meter facility components where the length
or area could not be measured previously. Dkt. No. 94, Government's Am.
Resp. at 28 (citing 40 C.F.R. § 61.145(a)(1)(i) and(ii)). The Indictment
incorporates this understanding as well. Dkt. No. 112, Indictment at ¶¶
138, 140, 142, 215-16. Defendants specifically reference Paragraphs 187,
202, 203, 204 and 205 as having failed to set forth any threshold
amount. Dkt. No. 102, Defs.' Mem. of Law in Supp. of Mot. at 45. While
these paragraphs do not reference any threshold, the introductory portion
of this part of the Indictment sets forth the threshold amount. Dkt. No.
112, Indictment at ¶ 138. Furthermore, the government assures the court
that "[t]o the extent that [defendants] maintain the United States will
be unable to show certain projects named in the conspiracy count involved
the required amount of regulated containing material, they are simply
wrong." Dkt. No. 94, Government's Am. Resp. at 29. Based upon the
government's assurance, defendants' motion to dismiss the substantive
clean air counts is denied without prejudice to renewal based on the
evidence presented at trial.
V. Defendants' Motion for Court Order Directing an Evidentiary Hearing
Regarding Joint Defense Agreement
Defendants requested that the court order an evidentiary hearing to
determine the nature and extent of, and the appropriate sanctions for,
the disclosures made during the course of plea and cooperation
negotiations and agreements by at least one co-defendant in violation of
a pre-existing joint defense agreement. See Dkt. No. 71, Defs.' Notice of
Mot. Defendants contend that a joint defense agreement existed between,
inter alia, defendants Thomas Reed, AAR Contractor, Inc., and Alexander
Salvagno at the time that Mr. Reed negotiated for and entered into his
plea and cooperation agreement with the government. Defendants contend
that Mr. Reed and his counsel, as parties to the joint defense
agreement, learned of various materials and defense strategies and then
breached the joint defense agreement when they allegedly disclosed the
same to the government. As a result of this alleged violation, defendants
contend that the government wrongfully obtained attorney-client
privileged communications, work-product, and other privileged
information. Defendants contend that the government was aware of the
joint defense agreement and its legal obligations with respect thereto.
See Dkt. 72, David Bernfeld Aff. at ¶¶ 3 and 4.
Defendants contend that the government has effectively conceded the
facts constituting prima facie evidence that a violation occurred: (1) by
letter dated July 11, 2002, AUSA Benedict wrote to the court and advised
that "[o]n June 11, 2002, following the receipt of specific information
from now cooperating defendant Thomas Reed that Alexander Salvagno/AAR
possessed voluminous documents that constitute reciprocal discovery, the
United States made written demand to Mr. Bernfeld."; and (2) at the court
conference in chambers on July 15, 2002, AUSA Benedict made this
concession orally, namely that he had learned of the existence of
specific alleged Rule 16 discovery materials from a cooperating witness,
Mr. Reed, and had made demand for that material
following the disclosure of its existence.*fn3 Dkt. No. 100, David
Bernfeld Aff. at ¶ 2. The June 11, 2002, letter requested defendants
provide all reciprocal discovery requiredby the
Pre-trial Order and the Federal Rules of Criminal
Procedure, including but limited to copies of all tape
recorded conversations made by Alex Salvagno, Thomas
Reed, William Margi, Gary Alvord, or any other
individual to Federal or State regulatory officials or
anyone else with regard to asbestos matters; all
letters received from former AAR clients relating to
work performed; copies of documents received from
regulatory agencies pursuant to either the Freedom of
Information Act or the New York Freedom of Information
Law, and all videos or pictures taken at work sites
that are the subject of the Indictment, including but
not limited to, cleanups conducted to abate asbestos
left behind following the completion of projects.
Dkt. No. 95 Government's Resp. in Opp'n to Mot. for Evidentiary Hr'g at
7. Defendants argue, therefore, that they are entitled to a hearing to
determine the nature and extent of the violations. Depending on the
extent of the violation, defendants seek remedial sanctions including the
preclusion of Thomas Reed as a witness, the preclusion of the use of
evidence if disclosed, and a sanction addressed to the continued
prosecution of this matter should the alleged violation have occurred with
actual knowledge of the Government. See id. at ¶ 3.
The government dismisses defendants' argument pertaining to the alleged
violation of the joint defense agreement asserting that the motion's
purported facts "are based solely upon conjecture . . . and lack any
supporting evidence." Dkt. No. 82, Government's Mem. of Law in Supp. of
to Compel Reciprocal Disc, at 2. The government denies having ever
acknowledged, explicitly or implicitly, any violation of a joint defense
agreement. See Dkt. No. 95, Government's Resp. in Opp'n to Mot. for
Evidentiary Hr'g at 2. The government argues that defendants failed to
meet the standard for a suppression or evidentiary hearing and thus
submit that such hearings are not warranted. See Dkt. No. 82,
Government's Mem. of Law in Supp. of Mot. to Compel Reciprocal Disc, at
2-3 and Dkt. No. 95, Government's Resp. in Opp'n to Mot. for Evidentiary
Hr'g at 3-5.
The joint defense agreement, or common-interest rule, is an extension
of the attorney-client privilege which "serves to protect the
confidentiality of communications passing from one party to the attorney
for another party where a joint defense effort or strategy has been
decided upon and undertaken by the parties and their respective counsel."
United States v. Schwimmer, 892 F.3d 237, 243 (2d Cir. 1989). The Second
Circuit adheres to a strict interpretation of the common-interest rule
such that "[o]nly those communications made in the course of an ongoing
common enterprise and intended to further the enterprise are protected."
Id.; see United States v. Weissman, 1996 WL 737042, at *9(S.D.N.Y.
December 26, 1996) ("[T]he Second Circuit . . . is unwilling to infer a
joint defense agreement from the simple circumstance of a general purpose
meeting held to discuss matters of common interest."). The
attorney-client privilege attaches: "(1) where legal advice of any kind
is sought (2) from a professional legal advisor 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 by the legal advisor, (8) except the protection
be waived." United States v. Int'l Bhd. of Teamsters, 119 F.3d 210, 214
(2d Cir. 1997). The party asserting the joint defense agreement always
bears the burden of demonstrating its existence by establishing each
element of the attorney client privilege. See id. A claim resting on the
rule requires a showing "`that the communication in question was given in
confidence and that the client reasonably understood it to be so given.'"
United States v. Weissman, 195 F.3d 96, 99 (2d Cir. 1999) (quoting
Schwimmer, 892 F.3d at 244).
Here, it is clear that a joint defense agreement exists between, inter
alia, Mr. Reed and Alexander Salvagno. In his affidavit, Mr. Reed's
attorney, Michael S. Ross, avers that there is a joint defense agreement
in effect among counsel and their clients, which provides the standard
protections inherent in any joint defense agreement. See Dkt. 95,
Government's Resp. in Opp'n to Mot. for Evidentiary Hr'g at Ex. 2, Ross
Aff. at ¶ 5. The court now turns to whether it must convene a hearing to
determine alleged violations of the joint defense agreement.
Defendants cite no case discussing the court's obligation to hold a
hearing in a criminal trial premised upon a cooperating co-defendant's
alleged violation of a joint defense agreement. The government found no
case that directly discussed the obligation of a court to hold a hearing
in a criminal case premised upon a cooperating co-defendant's alleged
violation of a joint defense agreement. The government, however,
discussed analogous cases. See Dkt. 95, Government's Resp. in Opp'n to
Mot. for Evidentiary Hr'g at 3. Similarly, while the court's independent
research uncovered no case directly on point, it too found analogous
A few courts have assumed that the prosecution in a criminal case
could violate a defendant's constitutional rights by receiving
information from cooperating co-defendants (or their attorneys) that was
obtained through a joint defense agreement but have not so found. United
States v. Aulicino, 44 F.3d 1102, 1117 (2d Cir. 1995) sets forth the test
to determine whether a hearing is required: "assuming that the government
has not interfered with the attorney-client relationship deliberately,
the defendant bears the burden of `alleg[ing] specific facts that
of privileged information to the prosecutor and prejudice resulting
therefrom.'" 44 F.3d at 1117 (citing United States v. Ginsburg,
758 F.2d 823. 833 (2d Cir. 1985)). In Aulicino, defendants argued that
their Sixth Amendment right to counsel was violated by an individual when
he attended a joint defense meeting after having entered into
negotiations with the government to act as a cooperating witness. The
district court declined to conduct a hearing on the matter. 44 F.3d at
1117. The Second Circuit held that defendants did not satisfy the test
because: (1) the government presented evidence of the steps it took to
insulate the prosecutors from any knowledge gained by the cooperating
witness from his contact with the co-defendants after he agreed to
cooperate; (2) defendants did not present any evidence to suggest that the
cooperating witness revealed any privileged information to the
government; and, (3) defendants' contention that they had no way of
knowing the extent of any prejudice they might have suffered was
supported only by speculation. Aulicino, 44 F.3d at 1117; but see United
States v. Hsia, 81 F. Supp.2d 7 (D.D.C. 2000).*fn4
Applying the reasoning of Aulicino, the court denies defendants' motion
requesting an order directing an evidentiary hearing. Defendants have
failed to allege specific facts that indicate communication of privileged
information to the Government and prejudice resulting therefrom.
Moreover, the government avers that it neither sought nor accepted any
attorney-client or work product privileged information. The government
contends that none of the requested reciprocal discovery materials the
tape recorded conversations made by Alexander Salvagno, Mr Reed, Mr.
Margi, Mr. Alvord, or any other individual of federal or state regulatory
officials, letters defendants received from their former clients,
documents received from regulatory agencies, and videos or pictures of
work sites that are the subject of the Indictment have any indicia of
attorney-client or work product privilege. The government further asserts
that Alexander Salvagno allowed AAR employees, who were not parties to
any joint defense agreement, to observe creation and/or collection of
these materials. See Dkt. 95, Government's Resp. in Opp'n to Mot. for
Evidentiary Hr'g at 8-9.
The government avers that it received information regarding the
materials' existence from these AAR employees long before Mr. Reed ever
began to cooperate with the United States. For example, the government
avers that on March 7, 2002, Mr. Alvord, AAR's former Project and
Operations Manager, in the presence of his counsel, informed it of the
existence of the items set forth in the Government's request for
reciprocal discovery. Mr. Alvord advised the Government: that AAR
employees, at the direction of Alexander Salvagno, secretly tape recorded
conversations with various federal and state officials; that AAR employees
were aware that their company had taken photographs and videos of various
sites believed to be under investigation by the EPA; that Alexander
Salvagno and others at his request, sought a large number of documents
pursuant to Freedom of Information laws; and, that Alexander Salvagno had
sought to obtain letters from former clients to the effect that AAR had
adequately completed the work its clients had hired it to complete. Mr.
Alvord and his attorney advised that they were never members of any Joint
Moreover, Alvord advised that the information he provided to the
government was of his own personal knowledge, that he gained such
knowledge without any assistance from Alexander Salvagno's attorneys, and
that he was under no obligation to keep such information secret.
See Dkt. 95, Government's Resp. in Opp'n to Mot. for Evidentiary
Hr'g at Ex. 1, Benedict Aff. at ¶¶ 7-8.
Months after having debriefed Mr. Alvord, the Government was contacted
by Mr. Ross, counsel for Mr. Reed, who advised that his client wished to
cooperate with the United States. In discussing terms for cooperation and
a plea disposition, the government and Mr. Ross spoke in detail regarding
the need to ensure that no information to be conveyed by Mr. Reed (or Mr.
Ross) would violate any pre-existing privilege. On May 31, 2002, the
government debriefed Mr. Reed, who was accompanied by Mr. Ross. The
government and Mr. Ross began the meeting by discussing, in Mr. Reed's
presence, the need to ensure that no privileged information was conveyed
to the United States. Mr. Reed and Mr. Ross agreed that they would not
convey such information. Dkt. 95, Government's Resp. in Opp'n to Mot. for
Evidentiary Hr'g at Ex. 1, Benedict Aff. at ¶¶ 10-11.
The government supports its assertions with the affidavit of Mr. Ross
who vigorously denies defendants' allegations that the joint defense
agreement was breached. He avers that he prepared the joint defense
agreement and executed it with David Bernfeld in June of 2000. He avers
that the agreement insulates from disclosure information which was
disclosed pursuant to, or derived from, the joint-efforts of the lawyers
and the clients working together. It did not, however, prevent Mr. Reed
from cooperating as a witness or from disclosing information he learned
prior to the beginning or independently of the joint defense effort. Mr.
Ross notes that the joint defense agreement reflects the proposition that
any client-participant could withdraw from the agreement, albeit in a way
that does not divulge privileged information. Dkt. 95, Government's Resp.
in Opp'n to Mot. for
Evidentiary Hr'g at Ex. 2, Ross Aff. at ¶ 5. He avers that he and the
government took affirmative steps to ensure that information provided to
the government by Mr. Reed did not violate the joint defense
arrangement. Before meeting with the government, Mr. Ross explained to
Mr. Reed the joint defense agreement's prohibition against disclosing to
the government, directly or indirectly, any information obtained pursuant
to the joint defense agreement. Mr. Ross avers that the government
emphasized that Mr. Reed should not under any circumstances directly or
indirectly advise it of any information obtained pursuant to the joint
defense agreement. Mr. Ross indicates that the government repeated that
stricture on several occasions as a prophylactic measure. Dkt. 95,
Government's Resp. in Opp'n to Mot. for Evidentiary Hr'g at Ex. 2, Ross
Aff. at ¶ 6Mr. Ross avers that Mr. Reed did not disclose any information
he learned through the joint defense agreement. Dkt. 95, Government's
Resp. in Opp'n to Mot. for Evidentiary Hr'g at Ex. 2, Ross Aff. at ¶¶ 7,
10. Under these facts and representations, the court concludes that the
reciprocal discovery requested by the government does not constitute
attorney-client or work product privilege; rather, it constitutes
non-privileged information. Defendants' motion for an evidentiary hearing
WHEREFORE, defendants' motion to dismiss the RICO Conspiracy Count
(Count 1 of the Indictment) is DENIED; defendants' motion to strike
prejudicial surplusage from the Indictment is DENIED; defendants' motion to
dismiss the various substantive CAA Counts (Counts Three through Eleven)
is DENIED WITHOUT PREJUDICE to renewal based on the evidence presented at
trial; and, defendants' motion requesting the court issue an order
directing an evidentiary hearing to determine the nature and extent of,
and the appropriate sanctions for, the disclosures made during the course
of plea and cooperation negotiations and agreements by at least one
violation of a pre-existing joint defense agreement is DENIED.
IT IS SO ORDERED.