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U.S. v. RW PROFESSIONAL LEASING SERVICES CORP.

May 4, 2004.

UNITED STATES OF AMERICA, -against- RW PROFESSIONAL LEASING SERVICES CORP., also known as "Professional Leasing Services," ROCHELLE BESSER, also known as "Rochelle Drayer," BARRY DRAYER, ROGER DRAYER, ADAM DRAYER, SUSAN COTTRELL, MYRNA KATZ, and STEPHEN BARKER, Defendants


The opinion of the court was delivered by: ARTHUR SPATT, District Judge

MEMORANDUM OF DECISION AND ORDER

This case involves charges of conspiracy to commit bank fraud and wire fraud and money laundering. Presently before the Court are the following motions by RW Professional Leasing Services, Corp. ("PLS"), Rochelle Besser, Barry Drayer, Roger Drayer, Adam Drayer, Susan Cottrell, and Stephen Barker (collectively, the "defendants"): (1) to suppress documents obtained directly by a confidential source referred to as "CS-1" in the Government's search warrant application, and any evidence seized by the Government from PLS's office; (2) to suppress Roger Drayer's post-arrest statements; (3) to preclude evidence concerning the alleged fraudulent loans obtained by PLS on behalf of Hospitality Services of Middle Tennessee ("HSMT"); (4) to dismiss the indictment with respect to defendant Adam Drayer, or alternatively, to sever his trial; (5) for the production of all Brady and Giglio materials; (6) for an order directing the Government to provide a bill of particulars; and (7) for an order directing the Government to provide statements and the grand jury testimony of PLS employees.

  I. BACKGROUND

  On or about April 2, 2003, along with Payaddi Shivashankar, the defendants were indicted and charged with one count of conspiracy to commit bank fraud and wire fraud, 18 U.S.C. § 371, five counts of bank fraud, 18 U.S.C. § 1344, and one count of money laundering, 18 U.S.C. § 1986(h).

  The following facts are taken from the superceding indictment ("indictment"). PLS maintained business locations in Island Park, New York, and Wellesley, Massachusetts. The indictment charges, in relevant part, that Rochelle Besser, Barry Drayer, Susan Cottrell, Roger Drayer, and Roger Drayer's son Adam Drayer (collectively, the "PLS defendants") operated a medical equipment financing company, in which they arranged financing for the leasing of medical equipment by medical providers and supplied medical providers with working capital loans. PLS obtained loans from financial institutions for the purported purpose of purchasing medical equipment that would be leased to medical providers. In many instances, the leases and the medical equipment served as collateral for the loans.

  The indictment charges that PLS devised a scheme to provide the financial institutions with sham documentation creating the false impression that the medical providers were leasing equipment from PLS and that PLS issued phony equipment invoices directly to the medical providers for payments due under the lease. The indictment further charges that the PLS defendants, among other things: (1) intentionally retained lease prepayments, rather than remitting them to the financial institutions; (2) concealed prepayments and defaults by medical providers by creating false checks that were designed to make it appear as though the medical providers were continuing to make payments under the leases; (3) fraudulently induced lenders to fund multiple loans on the basis of a single lease; (4) obtained loans from lenders on the basis of leases that had been cancelled by medical providers; (5) presented escrow agreements to banks to induce them to fund loans, knowing that escrow accounts would not be established and no funds would be held in escrow for the banks; and (6) converted loan proceeds to PLS's own use. The indictment provides that, instead of establishing escrow accounts for the leases being financed by the financial institutions as required by the escrow agreements, PLS maintained one bank account that received approximately $92 million in loan proceeds wired by the lending institutions, and a second bank account known as the "E-Account," which was used by PLS as an operating account to receive lease payments and lease prepayments from the medical providers and for other purposes. The bank account and the E-Account were maintained by PLS at the same financial institution.

  After the loan proceeds were wired into the first account, they were transferred by PLS into the E-Account, where they were commingled with lease payments and lease prepayments. Instead of using the loan proceeds for the purchase of medical equipment, as PLS had promised to do, the PLS defendants converted a substantial portion of the loan proceeds to their own uses. In particular, the commingled funds were transferred by check or wire from the E-Account to (1) pay financial obligations of PLS; (2) make lease payments in order to conceal the medical providers' default status from lenders; and (3) another account maintained by PLS in order to disguise the proceeds and facilitate their conversions. The indictment states that the PLS defendants fraudulently converted at least the sum of $28 million. II. DISCUSSION

 A. Motion to Suppress all Evidence obtained by "CS-1"

  The defendants identify a confidential source ("CS-1") as former PLS employee Frank Zambaras. They argue that Zambaras acted as a de facto Government agent and that, therefore, all items seized by him and all evidence derived from those items, including items seized pursuant to the search warrant, should be suppressed. Alternatively, the defendants request an evidentiary hearing to determine whether Zambaras acted as a Government instrument or agent.

  The Fourth Amendment provides that "the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated. . . ." U.S. Const. amend. IV. It is well-settled that the "surreptitious search of premises by a private party does not violate the Fourth Amendment" unless such individual is acting as an instrument or agent of the government in obtaining evidence. United States v. Bennett, 709 F.2d 803, 805 (2d Cir. 1983). The Supreme Court has made clear that it is "`immaterial' whether the government originated the idea for a search or joined it while it was in progress." United States v. Knoll, 16 F.3d 1313, 1320 (2d Cir. 1994) (quoting Lustig v. United States, 338 U.S. 74, 78-79, 93 L.Ed. 1819, 69 S.Ct. 1372 (1949)). If the government "`was in it before the object of the search was completely accomplished [by the private party, it] must be deemed to have participated in it.'" Id. (quoting Lustig, 338 U.S. at 78-79)). Thus, the critical issue is "the point in time when the object of the search has been completed. If the object has been realized, the government cannot later become a party to it. By the same token, it may not expand the scope of an ongoing private search unless it has an independent right to do so." Id.

  An evidentiary hearing on a motion to suppress "ordinarily is required if the moving papers are sufficiently definite, specific, and nonconjectural to enable the court to conclude that contested issues of fact going to the validity of the search are in question." United States v. Pena, 961 F.2d 333, 339 (2d Cir. 1992) (citations and quotations omitted). A defendant seeking a hearing on a suppression motion bears the burden of showing the existence of disputed issues of material fact. See Id. at 338. However, a district court is not required to hold an evidentiary hearing if the defendant's "moving papers did not state sufficient facts which, if proven, would have required the granting of the relief requested." United States v. Culotta, 413 F.2d 1343, 1349 (2d Cir. 1969). Further, a court need not hold an evidentiary hearing when the "defendant's allegations are general and conclusory or are based on suspicion and conjecture." United States v. Wallace, No. 97 CR 975, 1998 WL 10874, at *30 (S.D.N.Y. July 17, 1998) (citation omitted).

  According to the defendants, the circumstances surrounding the recovery of items by Zambaras from the PLS office "lead to the conclusion that the FBI directed or at least encouraged the actions of Zambaras in his surreptitious search and seizure of such items." The defendants point out that, in a June 20, 2002 complaint and affidavit, Agent Rondie Peiscop-Grau stated that Zambaras "has been supplying the [Government] with information and documents" about PLS's operation since on or about June 13, 2002. Agent Peiscop-Grau further stated that Zambaras provided a file "relating to OD-1, an optometrist from California" and "four other files reflecting the defendants' rental of boxes from Mail Boxes, Etc."

  In addition, the defendants assert that a photocopy of a property receipt reveals that Zambaras provided several items to the Government on June 18, 2002, three days prior to the arrest of Barry Drayer, Rochelle Besser and Roger Drayer. The defendants also contend that a photocopy of a computer disk appears to show that, at some point, Zambaras provided the Government with an actual computer disk containing copies of RW checks. The defendants state that this disk was not generated by any of the PLS defendants. Based on this, the defendants contend that the computer disk and the other documents were seized by Zambaras without PLS's authorization and with the knowledge of the Government.

  Further, the defendants state that, on or about June 13, 2002, Zambaras was terminated by PLS. Several days later, when Zambaras was no longer on the payroll, several PLS employees observed him at the PLS office making an "unusual" number of photocopies. In an April 1, 2004 supplemental affidavit, Roger Drayer states that he saw Zambaras at the photocopy machine for "several hours." According to the defendants, Zambaras was copying and stealing PLS files. Further, in a February 12, 2004 affidavit, Domenica Califano, another tenant in the building in which PLS is located, asserts that Zambaras was observed on June 21, 2002 handing the FBI agents a computer disk and accompanying FBI agents, while a search warrant was being executed inside the PLS office.

  In response, the Government contends that there is nothing in Agent Rondie-Grau's affidavit to suggest when, where, or how the documents supplied by Zambaras were obtained. The Government further contends that there is no evidence that the FBI directed or approved a private search of PLS's office.

  In the Court's view, the defendants have made a sufficient showing that contested issues of fact exist regarding whether Zambaras was working on behalf of the Government at the time he obtained documents. In sum, the defendants contend that Zambaras was acting at the behest of the Government, based on the following: (1) the language in the affidavit of Agent Peiscop-Grau reveals that Zambaras provided the Government with information and documents in the week preceding the search of the PLS office on June 21, 2002; (2) Roger Drayer's observation regarding the "unusual amount" of photocopying by Zambaras after the FBI met with him on June 13, 2002; (3) the FBI receipt indicating Zambaras gave documents to Agent Peiscop-Grau on June 18, 2002; (4) the copy of the computer disk that had "PLS Checks" written upon it but was not generated by any of the PLS defendants; and (5) the observations of an independent third-party witness that Zambaras was actually assisting the FBI in the execution of the search warrant. Based on these allegations, the Court finds that an evidentiary hearing is necessary to determine whether there was Government involvement in Zambaras's seizure of the documents. Accordingly, United States Magistrate Judge Michael L. Orenstein is requested to conduct a suppression hearing with regard to this issue at his earliest convenience and report to the Court. The Court will defer its decision on this motion until after the determination of the suppression hearing.

 B. The Motion to Suppress Roger Drayer's Post-Arrest Statement

  1. As to Voluntariness

  The defendants moves to suppress Roger Drayer's post-arrest statements made on June 21, 2002, to FBI Agents Vincent Gerardi and Michael Lender, which were memorialized by the agents in an FBI form 302. The defendants argue that his statements should be suppressed on the grounds that (1) they were involuntary; (2) they were obtained in violation of his Fifth Amendment right to counsel; and (3) admitting the statements would violate the Bruton rule.

  The Fifth Amendment right against self-incrimination requires a court to exclude from criminal proceedings involuntary statements produced by government threats or coercion. Green v. Scully, 850 F.2d 894, 900 (2d Cir.), cert. denied, 488 U.S. 945, 102 L.Ed.2d 363, 109 S.Ct. 374 (1988). Because custodial interrogation is inherently coercive, see Dickerson v. United States, 530 U.S. 428, 435, 147 L.Ed.2d 405, 120 S.Ct. 2326 (2000), law enforcement officers must provide a suspect with Miranda warnings prior to interrogation to safeguard a defendant's privilege against self incrimination. United States v. Ramirez, 79 F.3d 298, 304 (2d Cir.), cert. denied, 519 U.S. 850, 136 L.Ed.2d 87, 117 S.Ct. 140 (1996). Interrogation "refers not only to express questioning, but also to any words or actions on the part of the police (other than those normally ...


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