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United States of America v. Christopher Finazzo and Douglas Dey

February 18, 2013

UNITED STATES OF AMERICA,
v.
CHRISTOPHER FINAZZO AND DOUGLAS DEY, DEFENDANTS.



The opinion of the court was delivered by: Roslynn R. Mauskopf, United States District Judge.

MEMORANDUM AND ORDER DENYING MOTION TO DISMISS THE SECOND SUPERSEDING INDICTMENT

Christopher Finazzo and Douglas Dey ("defendants") are charged by second superseding indictment ("S-2") with multiple counts, including (i) conspiracy to commit mail fraud and wire fraud and conspiracy to violate the Travel Act (Count One); (ii) mail fraud (Counts Two through Fifteen); and (iii) wire fraud (Count Sixteen). (Doc. No. 62.) Finazzo is also charged with making a false statement in a report required to be filed with the United States Securities and Exchange Commission (Count Seventeen). (Id.) Defendants move to dismiss portions of Counts One through Sixteen of the second superseding indictment. (Doc. No. 69.) For the reasons set forth below, defendants' motion is DENIED.

BACKGROUND

The Court assumes the parties' familiarity with the factual background and procedural history of the case, and will address only those aspects that are relevant to the instant motion. By superseding indictment ("S-1"), filed December 14, 2010, the government charged a "[f]raudulent [s]cheme" in which Finazzo, an executive at the clothing retailer Aeropostale, Inc. ("Aeropostale"), secretly received fifty percent of the profits from certain transactions between Aeropostale and South Bay Apparel, Inc. ("South Bay"), a clothing vendor controlled by Dey. (S-1 (Doc. No. 44) at ¶ 7.) As a "result of the agreement, the defendants deprived Aeropostale both of the opportunity to seek lower prices for merchandise it purchased from South Bay and the opportunity to purchase that merchandise from other vendors." (Id.)

On March 4, 2011, defendants moved to dismiss portions of S-1, alleging that "no offense is stated" because the superseding indictment "does not allege that Aeropostale was harmed through the deprivation of money or property or that either defendant made any misrepresentations relating to the value of the goods and services that South Bay sold to Aeropostale." (Defs. SI Mem. (Doc. No. 49) at 5-6.) By Order dated August 24, 2011, this Court denied defendants' motion. The Court determined that "[a]lthough the superseding indictment alleges only that Aeropostale was deprived of the 'opportunity' to 'seek' lower prices, it is necessarily implied that lower prices existed and were available to Aeropostale" and therefore, as a result of Finazzo "steer[ing] Aeropostale towards purchasing as much merchandise from South Bay as possible, and at the highest possible price," Aeropostale's "costs were inflated, its profits suffered, and its shareholders were economically harmed." (Order (Doc. No. 59) at 8-9.) Further, S-1 adequately alleged material misrepresentations because Finazzo's concealment of his "secret financial interest" created an "obvious 'discrepancy' between the 'benefits reasonably anticipated' by Aeropostale (merchandise purchased at the best available price) and the 'actual benefits received' (higher priced merchandise)." (Id. at 11-14.) Therefore, Aeropostale was harmed by paying "higher prices for South Bay goods than it otherwise would have if the company had known the truth." (Id.)

On September 6, 2011, the government filed a second superseding indictment ("S-2") alleging essentially the same scheme. (Doc. No. 62.) S-2 charges that Finazzo and Dey "defrauded" Aeropostale by, "(1) depriving Aeropostale of the opportunity to make informed decisions, thereby preventing Aeropostale from seeking lower prices for merchandise it purchased from South Bay and the opportunity to select other vendors based upon price, quality and timely delivery; and (2) causing Aeropostale to pay higher prices on merchandise it purchased from South Bay than were available from other vendors, thereby increasing South Bay's profits and the amounts Dey paid Finazzo." (S-2 at ¶ 9.) Further, S-2 alleges that "Finazzo repeatedly rebuffed requests . . . to move a portion of the t-shirt business from South Bay to an overseas vendor that could provide the t-shirts for a significantly lower price" and that Finazzo rejected a specific alternative vendor that would have saved Aeropostale approximately $300,000 as compared to placing an order with South Bay. (Id.)

Presently before the Court is defendants' latest motion to dismiss the second superseding indictment. The briefing of this motion took place in multiple stages, both before defendants requested a bill of particulars and after additional discovery resolved their request. (Doc. Nos. 69, 71, 72, 99, 102, 104.)

LEGAL STANDARD

Under Federal Rule of Criminal Procedure 7(c)(1), an indictment need only track the language of the statute charged and state the time and place of the alleged crime. United States v. LaSpina, 299 F.3d 165, 177 (2d Cir. 2002). "[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a 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. Alfonso, 143 F.3d 772, 776 (2d Cir. 1998) (quoting Hamling v. United States, 418 U.S. 87, 117 (1974)).

Under Federal Rule of Criminal Procedure 12(b), "[a] party may raise by pretrial motion any defense, objection, or request that the court can determine without a trial of the general issue." Fed. R. Crim. P. 12(b)(2). "The general issue in a criminal trial is, of course, whether the defendant is guilty of the offense charged." United States v. Doe, 63 F.3d 121, 125 (2d Cir. 1995) (citations omitted).

Federal criminal procedure does not provide for pretrial determination of the sufficiency of the evidence: "[t]here is no federal criminal procedural mechanism that resembles a motion for summary judgment in the civil context." See, e.g., United States v. Yakou, 428 F.3d 241, 246 (D.C. Cir. 2005). Rule 12 was not intended to permit motions requiring consideration of facts outside the pleadings because, if that were allowed, the "pretrial motion could be turned into a trial of the general issue." 1A Charles Alan Wright & Andrew D. Leipold, Federal Practice and Procedure Criminal § 194 (4th ed. 2008). Thus, in the absence of a full proffer of the government's evidence, "the sufficiency of the evidence is not appropriately addressed on a pretrial motion to dismiss an indictment." Alfonso, 143 F.3d 776-77. When there has been no such proffer, in deciding a motion to dismiss, the Court must consider only whether the allegations of the indictment, taken as true, are sufficient to establish a violation of the charged offense. United States v. Sampson, 371 U.S. 75, 78-79 (1962).

DISCUSSION

The government must satisfy three elements to secure a conviction for mail fraud or wire fraud: (1) a scheme to defraud victims of (2) money or property through the (3) use of the mail.*fn1

Fountain v. United States, 357 F.3d 250, 255 (2d Cir. 2004). In order to satisfy the first two elements, the indictment must charge actual or contemplated harm, to "money or property" based on a material misrepresentation. See United States v. Walker, 191 F.3d 326, 335 (2d Cir. 1999) ("The first element focuses on the intent to harm; the second element is concerned with the precise nature of the harm, and requires that the harm be concrete."); United States v. Autuori,212 F.3d 105, 118 (2d Cir. 2000) ("Materiality of falsehood is an element of federal mail fraud, wire fraud, and bank fraud statutes." (quoting Neder v. United States, 527 U.S. 1, 25 (1999)).

Defendants argue that both of the charges in S-2, that Finazzo and Dey deprived Aeropostale of the "opportunity to make informed decisions" and that Finazzo and Dey caused Aeropostale to "pay higher prices," fail to state an offense. (Defs. S-2 Mem. (Doc. No. 69) at 1-2.) They challenge the first charge, what they call the "lost opportunity" charge, as failing to allege "a deprivation of money or property that can constitute an offense" or a material misrepresentation. (Id.) They challenge the second charge as being overly "broad" because it fails to give "sufficient notice of what money or property the defendants supposedly deprived Aeropostale." (Id. at 2.) In addition, following a series of conferences resolving a bill of particulars before Magistrate Judge Levy, defendants supplement their motion to dismiss the so-called "lost opportunity" charge based on a statement made by the government to Judge Levy. (Defs. Supp. Mem. (Doc. No. 99).)

For the reasons that follow, the Court finds the indictment sufficiently states all of the charges and declines to dismiss a facially sufficient indictment based on a statement ...


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