631 F.3d 266 (6th Cir. 2010)
In 2001 Steven Warshak owned and operated several small businesses in the Cincinnati area, including TCI Media, Inc., which sold advertisements in sporting venues, and a handful of companies offering herbal supplements that were later aggregated into Berkeley Premium Nutraceuticals, Inc.1
Warshak remained hands-on as Berkeley grew, hiring family members such as his mother Harriet Warshak, who processed credit-card payments, and later bringing on James Teegarden as Chief Operating Officer, Shelley Kinmon as Vice-President of sales, and his sister Sue Cossman and brother-in-law Greg Cossman in customer care and executive roles.2
Berkeley launched its flagship product Enzyte in late 2001 and promoted it through television, print, and radio advertisements that cited a fabricated 2001 customer study claiming 12-to-31 percent increases in penis size.3
Berkeley's advertisements also touted a spurious 96 percent customer-satisfaction rating and nonexistent doctors from Stanford and Harvard.4
The company instituted an auto-ship continuity program in which customers ordering a free trial were automatically enrolled for additional shipments and charges unless they opted out.5
Early sales scripts contained no disclosure of the program, and later disclosures were placed at the end of calls after unrelated language about sexually transmitted diseases or removed from websites when sales dropped.6
Berkeley processed credit-card transactions through merchant banks and credit-card processors.7
After the Bank of Kentucky terminated its account for excessive chargebacks, Berkeley submitted applications that falsely listed Harriet as CEO and owner or omitted prior terminations.8
Employees split transactions into multiple charges, rang up $1 charges on Warshak's personal cards, and charged and refunded random customers' cards without authorization to keep the chargeback ratio below the 1 percent termination threshold.
In October 2004 the government served NuVox Communications with a request under 18 U.S.C. § 2703(f) to preserve all future emails to and from Warshak's account.9
NuVox complied without notifying Warshak.10
In January 2005 the government obtained a § 2703(b) subpoena and in May 2005 a § 2703(d) order compelling NuVox to turn over approximately 27,000 emails.11
On March 16, 2005, agents executed a search warrant at Berkeley's headquarters and imaged the contents of over 90 computers, yielding 17 million pages of electronic evidence and 506,000 pages of hard-copy documents.
In September 2006 a grand jury in the Southern District of Ohio returned a 112-count indictment charging Warshak, Harriet, and TCI with conspiracy to commit mail, wire, and bank fraud, multiple counts of mail fraud, bank fraud, money laundering, and related offenses.12
Trial began in January 2008.13
After six weeks the jury convicted Warshak on most counts, convicted Harriet on several counts including conspiracy and bank fraud, and convicted TCI on money-laundering counts.14
A forfeiture hearing led to a $459.54 million proceeds judgment and a $44.88 million money-laundering judgment.15
On August 27, 2008, Warshak received a 25-year sentence and Harriet a 24-month sentence.
Both appealed.16
Whether Warshak had a reasonable expectation of privacy in the contents of his emails stored with NuVox such that the government's compelled disclosure without a warrant violated the Fourth Amendment?17
The Fourth Amendment protects against unreasonable searches and seizures, requiring a warrant based on probable cause when an individual has a reasonable expectation of privacy.18 This expectation has both a subjective component, where the individual manifests an expectation of privacy, and an objective component, where society is prepared to recognize that expectation as reasonable.19 Katz v. United States, 389 U.S. 347 (1967).20 Emails are analogous to traditional forms of communication like letters and telephone calls, which receive strong Fourth Amendment protection.21
Yes. Warshak plainly manifested a subjective expectation of privacy in the contents of his emails, as his entire business and personal life was contained within them and people seldom unfurl their dirty laundry in plain view.22 Society is prepared to recognize this expectation as reasonable because email has become an essential means of private communication, and the Fourth Amendment must keep pace with technological progress.23 The government violated Warshak's Fourth Amendment rights by compelling NuVox to turn over the emails without first obtaining a warrant based on probable cause.24
The government's compelled disclosure of Warshak's emails without a warrant violated the Fourth Amendment.25
Related opinions on this issue
Circuit Judge Keith concurs in the result but writes separately to clarify the Fourth Amendment implications of the government's conduct.26 He notes that the government's request under § 2703(f) for prospective preservation of Warshak's future emails without a warrant amounted to back-door wiretapping that would likely fail Fourth Amendment scrutiny if directly challenged.27 Nevertheless, because the government relied in good faith on the SCA provisions for obtaining the emails through the subpoena and order, the exclusionary rule does not apply.28
Keith emphasizes that the good-faith exception prevents penalizing officers for legislative errors rather than their own misconduct.29
Whether the government agents relied in good faith on the Stored Communications Act when obtaining Warshak's emails without a warrant, precluding application of the exclusionary rule?30
Even if a search violates the Fourth Amendment, the exclusionary rule does not apply if officers relied in good faith on a statute later found unconstitutional, provided the statute is not so plainly unconstitutional that a reasonable officer should have known it violated the Constitution.31 Illinois v. Krull, 480 U.S. 340 (1987).32
Yes. The Stored Communications Act had been in existence since 1986 without successful Fourth Amendment challenges, and the complicated constitutional issues made it reasonable for agents to rely on its provisions for obtaining the emails.33 The government violated the notice provisions and arguably exceeded authority under the prospective preservation request, but these occurred after the emails were obtained or did not bear on the constitutional violation itself.34
The exclusionary rule does not apply because the agents relied in good faith on the Stored Communications Act.35
Whether the district court was required to hold a full Kastigar hearing to determine whether the government improperly used attorney-client privileged materials obtained during the investigation?36
Kastigar requires the government to prove that evidence is derived from legitimate independent sources when a witness is compelled to give incriminating testimony under immunity.37 Kastigar v. United States, 406 U.S. 441 (1972).38 The full protections of Kastigar do not apply absent compelled testimony, even when privileged materials are obtained through other means.39
No. The privileged materials were obtained through a subpoena, court order, and search warrant rather than compelled testimony.40 No direct use of the privileged communications occurred at trial or before the grand jury, and derivative evidence from a non-constitutional privilege violation is not subject to suppression under the fruit-of-the-poisonous-tree doctrine.41
The district court was not required to hold a full Kastigar hearing.42
Whether the district court abused its discretion in denying the defendants' requests regarding the format of discovery, additional Brady disclosures, and a continuance?43
Federal Rule of Criminal Procedure 16 governs criminal discovery and is silent on the form discovery must take.44 The government does not violate Brady by producing voluminous discovery from the defendants' own records when there is no showing of bad faith padding or deliberate concealment.45 A continuance denial is reviewed for abuse of discretion and requires a showing of actual prejudice.46
No. The defendants had access to the electronic discovery as it was kept in the ordinary course of business at Berkeley.47 The government did not pad the file with irrelevant material or deliberately conceal exculpatory evidence.48 More than a year elapsed between indictment and trial, and the defendants failed to demonstrate actual prejudice from the denial of a continuance.49
The district court did not abuse its discretion in its discovery rulings.50
Whether the district court erred in denying Warshak a new trial based on an alleged Brady violation arising from post-trial depositions and recordings?51
A Brady violation requires suppression of evidence that is favorable to the defense and material, meaning there is a reasonable probability the result would have been different.52 Kyles v. Whitley, 514 U.S. 419 (1995).53 Evidence that is merely cumulative or fails to undermine confidence in the verdict is not material.54
No. The post-trial deposition testimony was cumulative of trial evidence and came from witnesses with strong incentives to favor Warshak.55 The recorded calls and website printouts did not create a reasonable probability of a different result because disclosures were designed to be ineffective and appeared inconsistently on websites.56
The district court did not err in denying the new trial motion.57
Whether the evidence was sufficient to support Warshak's and Harriet Warshak's convictions for conspiracy to commit mail, wire, and bank fraud?58
A conviction for conspiracy to commit fraud requires proof that the defendant knowingly and willfully joined an agreement to commit fraud and that there was at least one overt act in furtherance.59 Circumstantial evidence may establish the agreement.60 United States v. Cantrell, 278 F.3d 543 (6th Cir. 2001).61
Yes. A reasonable juror could conclude that Warshak and Harriet knowingly joined a conspiracy to defraud customers through the undisclosed auto-ship program and to defraud banks through chargeback manipulation.62 Testimony established that disclosures were deliberately ineffective and that chargeback schemes were implemented to avoid account termination.63
The evidence was sufficient to support the conspiracy convictions.64
Whether the evidence was sufficient to support Warshak's convictions for mail fraud, bank fraud, access-device fraud, money laundering, and conspiracy to obstruct an FTC proceeding?65
Yes. The evidence showed a deliberate scheme to defraud customers through the auto-ship program, manipulation of chargeback ratios to deceive banks, unauthorized charges to reduce ratios, complex transactions designed to conceal the source of funds, and creation of trusts timed to impede the FTC proceeding.68
The evidence was sufficient to support Warshak's convictions on these counts.69
Whether the district court provided an adequate explanation for holding the defendants accountable for $411 million in losses at sentencing?70
No. The district court initially indicated it would use a $100 million figure based on cooperating witness admissions but then held the defendants accountable for $411 million representing net sales without explaining the change or referencing specific evidence supporting that all revenues constituted loss.73 The court failed to engage in a more thorough explication of its calculation or explicitly reference the evidence upon which it relied.
The district court's explanation of the loss determination was inadequate.74
Whether the evidence was sufficient to support the proceeds-money and money-laundering forfeiture judgments against Warshak and Harriet Warshak?75
Yes for Warshak on both judgments and for Harriet on the proceeds judgment.78 No for Harriet on the money-laundering judgment.79 The evidence showed Berkeley's operations were permeated with fraud, making all revenues proceeds of the conspiracy.80 Harriet's money-laundering convictions were reversed for lack of proof she knew the transactions were designed to conceal, so the related forfeiture judgment against her fails.81
The proceeds forfeiture is affirmed as to both defendants; the money-laundering forfeiture is affirmed as to Warshak but reversed as to Harriet.