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

April 20, 2005.

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



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

MEMORANDUM OF DECISION AND ORDER

This decision concerns a motion pursuant to Rule 17(c) of the Federal Rules of Criminal Procedure ("Fed.R.Crim.P.") by non-party CIT Group, Inc. ("CIT") to quash the Subpoena ducus tecum (the "Subpoena") served by RW Professional Leasing Services Corp. ("RW"). In the alternative, CIT seeks to limit or modify the Subpoena.

BACKGROUND

  On or about April 2, 2003, RW was indicted and charged, along with other defendants, with conspiracy to commit bank fraud and wire fraud, and with committing bank fraud, and money laundering. According to the superseding indictment filed on March 4, 2004, RW was a closely held corporation that arranged financing for medical providers to lease equipment and offered working capital loans to medical providers. To provide these services, RW 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 RW devised a scheme that involved submitting sham documentation to financial institutions in order to create the false impression that RW was providing leases for its customers. It is further alleged that RW issued phony equipment invoices directly to the medical providers in order to receive payments that should have gone directly to the lending institutions. Instead of submitting the medical provider's lease payments to the lending institutions, it is alleged that RW would intentionally retain the lease payments. In addition, it is alleged that RW concealed prepayments and defaults of medical providers by creating false checks that were designed to make it appear as though the medical providers were continuing to make payments under their leases.

  Newcourt Leasing Corporation ("Newcourt"), formerly known as AT&T Capital Leasing Services, Inc. ("AT&T Capital"), was one of the lending institutions that RW dealt with in these financial transactions. CIT, the non-party and movant in this dispute, is the successor to Newcourt. Beginning in 1992, RW was one of approximately 30 other lease originators that participated in a leasing arrangement with AT&T Capital known as the "Private Label Program." This program allowed lease originators to arrange all aspects of a capital lease and then present it to AT&T Capital for funding. This included originating the leases; approving applications; generating lease documents; and approving all vendors, brokers, and end-users. After preparing the lease, the lease originator would then present the leases to AT&T Capital. If AT&T Capital decided to become the funding source it would purchase the lease contract for a discounted price.

  Through the Private Label Program, AT&T Capital was assigned leases by RW and was granted a continuing security interest in all equipment included in those leases, but it did not assume any of RW's obligations or duties. At one point during their business relationship, the RW portfolio of leases funded through AT&T's Capital exceeded $53 million and included more than 1,300 lessees.

  In August 1995, AT&T and RW ceased doing additional business with each other but RW continued to manage and service the leases that remained affiliated with AT&T. In that same year, CIT succeeded AT&T Capital and withdrew the remaining leases that were being serviced by RW. It is further alleged that when CIT introduced itself to the lessees of these leases it became aware of the apparent conversion of CIT's funds and the fraudulent and wrongful action of RW and its principals as detailed in the indictment.

  In 1996, RW commenced a law suit in Nassau County Supreme Court against CIT (the "state action") alleging certain contract claims related to the withdrawal of the leases. In this action CIT brought several counterclaims against RW and its principals asserting, among other things, fraud, misrepresentation, conversion, and a request for a permanent injunction. The state action lasted for seven years. In April 2003, the state action was settled after the commencement of the criminal proceeding against RW.

  There was extensive discovery by and between CIT and RW in the state action. CIT asserts that it responded to fourteen separate document demands and three separate sets of interrogatories propounded by RW. CIT also states that no less than eighty-eight banker's boxes of documents were exchanged. The documents that RW sought in the initial proceeding were retrieved by CIT from computer databases that have been in use since 1992. In order to comply with discovery, CIT had to employ a computer consultant to write computer programs that could extricate the necessary information from these databases. This consultant was employed at the expense of CIT so that they could comply with RW's discovery demands.

  On August 25, 2004 RW filed the Subpoena with the Deputy Clerk of the United States District Court for the Eastern District of New York. The Subpoena consists of twenty-one document requests. On November 11, 2004, CIT filed the instant motion to quash the Subpoena arguing that it should not be compelled to comply because the requests are general and unspecific. In addition, CIT claims that many of the documents sought by the Subpoena are not relevant and are inadmissible.

  In particular, CIT states that they should not have to re-produce the documents that were exchanged during discovery in the state action because they were either already produced and provided by CIT to RW, or produced to CIT by RW. CIT also asserts that the document requests consist of only generalized and unspecified demands that would result in the production of every document ever created, generated, or received in relation to RW's 1,300 leases funded by AT&T. CIT contends that fourteen of RW's requests for documents lack specificity; are overly broad; and fail to focus on the events where RW is alleged to have engaged in fraudulent and wrongful activities. In addition, according to CIT many of the requests seek company wide information that is wholly irrelevant to RW and its criminal litigation.

  CIT also claims that the Subpoena served upon it is unreasonable and oppressive. CIT asserts that the requests were not made in good faith and therefore constitute a "fishing expedition." It further states that any production of documents in accordance with the Subpoena should properly be limited to those relevant documents which pertain to the accounts relating to the alleged fraudulent and wrongful activities of RW and its principals.

  RW concedes that certain documents were provided during the state action, and that those documents need not be re-produced. However, RW claims that CIT did not fully comply with RW's discovery requests in the state action, and therefore, in that respect the Subpoena in the criminal action does not request duplicative material. RW also claims that CIT has not, in these motion papers, provided any specific information as to what documents it has already produced in response to RW's requests. RW proposes that CIT provide it with a Bate-stamp number and a certificate of authenticity for all the documents it has already produced so that the information may be admissible as evidence under Rule 803(6) of the Federal Rules of Evidence. RW also argues that many of the documents produced in the state action by CIT were substantially redacted and that CIT should not be entitled to make such redactions in this criminal case ...


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