United States v. Cuti , 720 F.3d 453 ( 2013 )

11-3756 (L)
United States v. Cuti
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 August Term 2012
4 (Argued: October 25, 2012 Decided: June 26, 2013)
5 Docket Nos. 11-3756, 11-3831
6 ----------------------------------------x
7 UNITED STATES OF AMERICA,
8 Appellee,
9 -- v. --
10 ANTHONY CUTI, WILLIAM TENNANT,
11 Defendants-Appellants.
12 -----------------------------------------x
13 B e f o r e : JACOBS, Chief Judge, WALKER, Circuit Judge, and
14 O’CONNOR, Associate Justice (retired).*
15
16 Defendants-Appellants Anthony Cuti and William Tennant, former
17 executives of the retail drugstore chain Duane Reade, appeal their
18 convictions for securities fraud in the District Court for the
19 Southern District of New York (Batts, J.). Cuti and Tennant
20 arranged fraudulent transactions to inflate Duane Reade’s reported
21 earnings in SEC filings. Among the issues raised on appeal by Cuti
22 is the admission of non-expert witness testimony as to what the
23 accounting treatment of the transactions would have been absent the
24 fraud. Tennant asserts primarily that the jury lacked sufficient
25 evidence to convict him and that the district court had no basis to
*
The Honorable Sandra Day O’Connor, Associate Justice (retired)
of the United States Supreme Court, sitting by designation.
1 give a conscious avoidance instruction. We conclude that the
2 district court did not abuse its discretion in admitting the lay
3 witness testimony and that Tennant’s claims are without merit.
4 Affirmed.
5 BRIAN C. BROOK, Clinton Brook & Peed
6 (Matthew J. Peed, Clinton Brook &
7 Peed, and Brian D. Waller, Simon &
8 Partners, LLP, on the brief), New
9 York, NY, for Defendant-Appellant
10 Anthony Cuti.
11
12 JOHN J. KENNEY (Laura B. Hoguet,
13 Tai-Heng Cheng, Caitlin N. Bush,
14 Damian R. Cavaleri, on the brief),
15 Hoguet Newman Regal & Kenney, LLP,
16 New York, NY, for Defendant-
17 Appellant William Tennant.
18
19 SARAH E. MCCALLUM (Rebecca Monck
20 Ricigliano, Katherine Polk Failla,
21 on the brief), Assistant United
22 States Attorneys, for Preet Bharara,
23 United States Attorney for the
24 Southern District of New York, New
25 York, NY, for Appellee.
26
27 JOHN M. WALKER, JR., Circuit Judge:
28 Defendants-Appellants Anthony Cuti and William Tennant appeal
29 from judgments of conviction following a jury trial in the District
30 Court for the Southern District of New York (Deborah A. Batts,
31 Judge).1 This opinion addresses Cuti’s claim that the district
1
Cuti was convicted of conspiracy under 18 U.S.C. § 371 (Count
One) and substantive offenses of securities fraud in violation of
15 U.S.C. §§ 78j(b) & 78ff, 17 C.F.R. § 240.10b-5 and 18 U.S.C. § 2
(Count 2), making false statements in two SEC filings in violation
of 15 U.S.C. §§ 78m(a) & 78ff, 17 C.F.R. § 240.13a-1 and 18 U.S.C.
§ 2 (Counts 3 and 4), and making false statements in another SEC
filing in violation of 15 U.S.C. §§ 78o(d) & 78ff, 17 C.F.R.
2
1 court erred in admitting testimony from two lay witnesses as to
2 what the accounting treatment of certain fraudulent transactions
3 would have been absent the fraud, and Tennant’s claims that his
4 conviction should be overturned for insufficient evidence to prove
5 his knowledge of the fraud and that it was error for the district
6 court to give a conscious avoidance jury instruction. We conclude
7 that the district court did not abuse its discretion in admitting
8 the testimony of the non-expert witnesses and that Tennant’s claims
9 are without merit.2 AFFIRMED.
10 BACKGROUND
11 Cuti was the former president, chief executive officer, and
12 board chairman of Duane Reade, a retail drugstore chain in the New
13 York City metropolitan area. Tennant was Duane Reade’s former
14 chief financial officer or CFO and senior vice-president, who
15 continued to consult for the company on real estate matters after
16 his formal retirement.
17 The trial evidence, which we take as credited by the jury,
18 showed that from 2000 to 2004, Cuti and Tennant (collectively,
19 “defendants”) executed a number of schemes to inflate the company’s
§§ 240.15d-1 & d-13 (Count 5). Tennant was acquitted on Count 1
and convicted on Count 2. The district court sentenced Cuti and
Tennant principally to imprisonment for three years and time
served, respectively, and imposed fines of $5 million on Cuti and
$10,000 on Tennant.
2
The appellants’ other arguments on appeal are addressed in a
summary order issued simultaneously with this opinion.
3
1 earnings in quarterly and annual financial statements filed with
2 the Securities and Exchange Commission (“SEC”).
3 The principal scheme consisted of the fraudulent sale of real
4 estate concessions and other rights that Duane Reade held in its
5 storefront leases. When Duane Reade vacated a storefront with an
6 unexpired lease, the right to the remainder of the lease term could
7 have residual value and be sold back to the landlord or to a
8 broker, especially when rental rates had risen. Cuti and Tennant,
9 however, inflated earnings by fraudulently selling real estate
10 concessions that were virtually worthless and surreptitiously
11 repaying the purchasers through payments disguised as expenses.
12 Cuti and Tennant’s primary counterparty to the transactions in
13 this scheme was the Winick Realty Group (“Winick Realty”), a
14 commercial real estate brokerage firm and its subsidiaries
15 (collectively, the “WRG entities”). At trial, Cory Zelnik, a
16 partner at Winick Realty, testified that in 2000, the WRG entities
17 paid $806,000 for concessions in eight leases that Duane Reade had
18 already sold, assigned away or planned to abandon and another
19 $890,000 for options to buy out Duane Reade from three leases that
20 were of minimal value to Winick Realty. The defendants repaid the
21 WRG entities for these outlays using a sham consulting agreement
22 and padded brokerage fees. The revenue immediately recognized from
23 these transactions helped Duane Reade bridge a gap between its true
24 earnings and analysts’ expectations for the fourth quarter of 2000.
4
1 In subsequent quarters, the defendants continued to arrange other
2 sham transactions to inflate company earnings and to repay the
3 counterparties.
4 Because Duane Reade recognized such significant income from
5 these activities, its external auditor, PricewaterhouseCoopers
6 (“PwC”), required the company to include in its financial
7 statements filed with the SEC, a note stating that the company had
8 no side agreements with or other obligations to the transaction
9 counterparties. At trial, the government produced evidence of side
10 agreements and demonstrated, through witness testimony and
11 voluminous documentation, how the defendants executed and concealed
12 their fraudulent conduct from the company’s internal accountants,
13 PwC, the SEC, and the investing public.
14 As part of its case, the government called Kevin Hallinan, the
15 PwC partner who was Duane Reade’s lead outside auditor, and John
16 Henry, Tennant’s successor as CFO and the company’s chief in-house
17 accountant, to testify as to how they had accounted for the
18 proceeds from the fraudulent transactions; how they would have
19 accounted for the transactions had they been aware of the full
20 facts; and how the material information that was withheld from them
21 led to misstatements in the company’s financial statements.
22 The rules governing the accounting of real estate concession
23 transactions, as Hallinan and Henry explained, are set forth under
24 generally accepted accounting principles (“GAAP”) including
5
1 Financial Accounting Standards Board Statement No. 13 and SEC Staff
2 Accounting Bulletin No. 104. In order for revenue generated from
3 such a transaction to be recognized immediately, (1) Duane Reade
4 had to have negotiated with the counterparty at arms’ length, (2)
5 the transaction must have had value, (3) to the extent the
6 transaction relieved Duane Reade of its obligations under a lease
7 agreement, the company could not be committed to enter into another
8 lease with the same landlord, and (4) the transaction could not
9 create any further obligations for Duane Reade to perform. If any
10 of the foregoing criteria were not satisfied, immediate revenue
11 recognition would have been inappropriate. Both the company’s
12 internal accountants and outside auditors adhered to these rules in
13 booking revenue from real estate concession transactions. At
14 trial, the defendants did not dispute that these rules were
15 appropriately and consistently applied.
16 To demonstrate the impact of the defendants’ deception on the
17 preparation and review of the company’s financial statements, the
18 government presented Hallinan and Henry with information that Cuti
19 and Tennant had withheld, such as side letters to the transactions,
20 and asked how the withheld information would have affected their
21 accounting. In each instance, Hallinan and Henry replied that if
22 they had been aware of the withheld information, they would not
23 have recognized the full amount of the transaction proceeds as
24 immediate revenue. Defense counsel objected to the use of “what-
6
1 if-you-had-known” questions as eliciting inadmissible expert
2 opinion testimony from fact witnesses.
3 In his defense, Tennant asserted that, like Hallinan and
4 Henry, he too was deceived by Cuti’s fraudulent scheme and signed
5 transaction documents without knowing that fraud was afoot so there
6 was insufficient evidence of his criminal intent to support a
7 conviction. He also objected to the district court’s inclusion of
8 a conscious avoidance instruction in the jury charge, which he
9 claimed was unwarranted and prejudicial.
10 These arguments are again raised on appeal and we consider
11 them in turn.
12 DISCUSSION
13 I. Cuti’s claim as to the non-expert testimony
14 Cuti argues on appeal, as he did below, that the “what-if-you-
15 had-known” questions posed to Hallinan and Henry improperly
16 elicited expert opinion testimony from non-expert witnesses.
17 Because both Hallinan and Henry, while professional accountants,
18 were not qualified as experts, Cuti insists that their testimony as
19 lay witnesses was inadmissible.
20 We accord a district court’s evidentiary rulings deference,
21 and reverse only for abuse of discretion. United States v.
22 Robinson, 702 F.3d 22, 36 (2d Cir. 2012). A district court has
23 abused its discretion if its ruling is based on an erroneous view
24 of the law or on a clearly erroneous assessment of the evidence, or
7
1 if its decision cannot be located within the range of permissible
2 decisions. In re Sims, 534 F.3d 117, 132 (2d Cir. 2008).
3 The Federal Rules of Evidence allow the admission of fact
4 testimony so long as the witness has personal knowledge, see Fed. R.
5 Evid. 602,3 while opinion testimony can be presented by either a lay
6 or expert witness, see Fed. R. Evid. 7014 & 702.5 The initial
7 question is therefore whether the contested testimony should be
8 characterized as fact or opinion. “[T]he distinction between
9 statements of fact and opinion is, at best, one of degree.” Beech
3
Rule 602 provides in relevant part:
A witness may testify to a matter only if evidence is
introduced sufficient to support a finding that the witness
has personal knowledge of the matter. Evidence to prove
personal knowledge may consist of the witness’s own
testimony.
4
Rule 701 states:
If a witness is not testifying as an expert, testimony in
the form of an opinion is limited to one that is: (a)
rationally based on the witness’s perception;(b) helpful to
clearly understanding the witness’s testimony or to
determining a fact in issue; and (c) not based on
scientific, technical, or other specialized knowledge
within the scope of Rule 702.
5
Rule 702 states:
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of
an opinion or otherwise if: (a) the expert’s scientific,
technical, or other specialized knowledge will help the trier
of fact to understand the evidence or to determine a fact in
issue; (b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and
methods; and (d) the expert has reliably applied the
principles and methods to the facts of the case.
8
1 Aircraft Corp. v. Rainey, 488 U.S. 153, 168 (1988). We need not
2 adopt verbatim Judge Posner’s observation that “[a]ll knowledge is
3 inferential, and the combined effect of [Federal] Rules [of
4 Evidence] 602 and 701 is to recognize this epistemological verity
5 but at the same time to prevent the piling of inference upon
6 inference to the point where testimony ceases to be reliable” to
7 acknowledge its essential truth. United States v. Giovannetti, 919
8 F.2d 1223, 1226 (7th Cir. 1990).
9 In this case, the inference that Hallinan and Henry were asked
10 to make in answering the hypothetical questions was limited by the
11 factual foundation laid in earlier admitted testimony and exhibits,
12 the factual nature of the hypotheticals, and the witnesses’
13 reasoning, which was based on undisputed accounting rules. These
14 limitations left little room for the witnesses to engage in
15 speculation and ensured that their testimony fell near the fact end
16 of the fact-opinion spectrum.
17 Moreover, the witnesses, although not qualified as experts,
18 were fact witnesses of a unique sort. Each was a certified and
19 experienced accountant personally familiar with the accounting of
20 the transactions at issue. The hypothetical questions utilized
21 facts that had been independently established in the record. If
22 the facts as the witnesses had understood them were A and the true
23 facts were B, it was not inappropriate to ascertain, from the very
24 witnesses responsible for their accounting, whether B would have
9
1 affected that accounting under the same, undisputed accounting
2 rules. And, since the applicable accounting rules were explained
3 in detail, the reasoning process that the witnesses employed in
4 answering the hypotheticals was straightforward and transparent to
5 the jurors, who could readily discern whether the responses given
6 were reliable.
7 Cuti also contests whether the witnesses had sufficient
8 personal knowledge, as required by Rule 602, to provide factual
9 testimony. See Fed. R. Evid. 602. This rule makes personal
10 knowledge a foundational requirement for fact witness testimony and
11 is premised on the common law belief that “a witness who testifies
12 to a fact which can be perceived by the senses must have had an
13 opportunity to observe, and must have actually observed the fact.”
14 Fed. R. Evid. 602 advisory committee’s note.
15 However, personal knowledge of a fact “is not an absolute” to
16 Rule 602’s foundational requirement, which “may consist of what the
17 witness thinks he knows from personal perception.” Id. Similarly,
18 a witness may testify to the fact of what he did not know and how,
19 if he had known that independently established fact, it would have
20 affected his conduct or behavior. As this case illustrates, “what-
21 if-you-had-known” questions that present withheld facts to a
22 witness are especially useful to elicit testimony about the impact
23 of fraud. Although we have not addressed the issue squarely, other
24 circuits have permitted the use of hypothetical questions to
10
1 inquire into the effect of a fraud. See, e.g., United States v.
2 Orr, 692 F.3d 1079, 1096-97 (10th Cir. 2012); United States v.
3 Laurienti, 611 F.3d 530, 549 (9th Cir. 2010); United States v.
4 Jennings, 487 F.3d 564, 582 (8th Cir. 2007); United States v.
5 Ranney, 719 F.2d 1183, 1187-88 (1st Cir. 1983); United States v.
6 Bush, 522 F.2d 641, 649-50 (7th Cir. 1975).
7 It also bears noting that there was nothing in the
8 prosecution’s questions or in the answers they elicited that
9 prevented the defense from challenging the factual accuracy of the
10 disputed testimony. Indeed, Cuti pointed out at trial that at
11 least one document Hallinan claimed not to have seen was actually
12 recorded in a log of documents covered by PwC’s audit, and thus
13 Cuti was able to argue that the auditor could not have been
14 deceived about the accounting for that transaction. Cuti also
15 questioned the materiality of the accounting distortions to the
16 company’s overall financial statement by extracting an admission
17 from Hallinan that the fair comparison for the proceeds generated
18 from the real estate concession transactions was to the company’s
19 pre-tax income and not to the considerably smaller after-tax net
20 income figure.
21 While we hold that the challenged testimony was properly
22 admitted as factual testimony, we alternatively hold that it is
23 admissible as lay opinion under Federal Rule of Evidence 701, which
24 permits a lay witness to give an opinion if it is limited to “one
11
1 that is: (a) rationally based on the witness’s perception; (b)
2 helpful to clearly understanding the witness’s testimony or to
3 determining a fact in issue; and (c) not based on scientific,
4 technical, or other specialized knowledge within the scope of Rule
5 702.
6 Cuti argues that the hypothetical questions posed to the
7 witnesses violated each subsection of Rule 701 because Hallinan and
8 Henry were asked to comment on facts that they had not personally
9 perceived; because their interpretation of evidence already
10 admitted was not “helpful” to the jury; and because the witnesses
11 used specialized expertise and were not properly qualified as
12 experts in accordance with Rule 702.
13 Cuti’s Rule 701(a) objection is unpersuasive because, as
14 discussed earlier, the witnesses were not testifying to the
15 existence of facts, but simply acknowledging that knowledge of such
16 facts, already admitted into evidence, would have caused them to
17 alter their accounting treatment. Their testimony was plainly
18 helpful to the jury within the meaning of Rule 701(b).
19 Cuti’s Rule 701(c) contention also fails but requires a bit
20 more elaboration. The Advisory Committee’s Note on Rule 701
21 instructs that “a witness’ testimony must be scrutinized under the
22 rules regulating expert opinion to the extent that the witness is
23 providing testimony based on scientific, technical, or other
24 specialized knowledge within the scope of Rule 702.” Fed. R. Evid.
12
1 701 advisory committee’s note, 2000 amend. Lay opinion under Rule
2 701 must be limited to opinions that “result[] from a process of
3 reasoning familiar in everyday life.” Id.
4 Cuti insists that if Hallinan and Henry’s answers to the
5 hypotheticals are characterized as opinion, they are necessarily
6 expert opinion and must satisfy the qualification requirements of
7 Rule 702 because the testimony involved the technical and
8 specialized knowledge of the accounting profession. At first blush,
9 the accounting rules involved in the recognition of revenue from
10 real estate concession transactions appear technical and unfamiliar
11 to everyday life, but those rules or their interpretation were not
12 in question in this case. The only issue was whether the withheld
13 facts would have altered the rules’ application.
14 We held in Bank of China, N.Y. Branch v. NBM LLC that a
15 witness’s specialized knowledge, or the fact that he was chosen to
16 carry out an investigation because of this knowledge, does not
17 render his testimony “expert” as long as the testimony was based on
18 his “investigation and reflected his investigatory findings and
19 conclusions, and was not rooted exclusively in his expertise.” 359
20 F.3d 171, 181 (2d Cir. 2004). However, if the testimony was “not a
21 product of his investigation, but rather reflected [his]
22 specialized knowledge [of the banking industry],” then it was
23 impermissible expert testimony. Id. at 182.
24 A similar question arose in United States v. Rigas, 490 F.3d
131 208 (2d Cir. 2007). There, an accountant with personal knowledge
2 of a company’s books testified to the accounting impact of debt
3 reclassifications, which the government had already established as
4 fraudulent. We held that the accountant’s testimony was lay
5 opinion because it did not address what the appropriate accounting
6 technique should have been, but was instead simply offered to show
7 what the amount of the debt would have been had the fraud not
8 occurred. Id. at 225.
9 The testimony in this case was not “rooted exclusively [in the
10 witness’s] expertise” and did not address the soundness of the
11 accounting rules. When the issue for the fact-finder’s
12 determination is reduced to impact -- whether a witness would have
13 acted differently if he had been aware of additional information --
14 the witness so testifying is engaged in “a process of reasoning
15 familiar in everyday life.” See Fed. R. Evid. 701 advisory
16 committee’s note, 2000 amend. The testimony of Hallinan and Henry
17 in response to the hypothetical questions was therefore also
18 admissible as lay opinion.
19 United States v. Garcia, 413 F.3d 201, 216 (2d Cir. 2005), is
20 not to the contrary. In that case, we held that an undercover law
21 enforcement agent could not testify as lay opinion that, based on
22 his knowledge gleaned from other drug interdiction cases, the
23 defendant was a partner in the narcotics distribution conspiracy.
24 Such testimony was inadmissible because the opinion was based on
14
1 specialized experience that the agent had accumulated from other
2 cases and involved a specialized reasoning process not readily
3 understandable to the average juror. Nothing similar occurred
4 here. These witnesses testified based only on their experiences
5 with matters pertinent to this case, and their reasoning was
6 evident to the jury.
7 Cuti also challenges the admission of the contested testimony
8 as undermining the presumption of innocence by assuming his guilt.
9 In support of this argument, Cuti highlights Second Circuit case
10 law that forbids such questions in the cross-examination of defense
11 character witnesses. See, e.g., United States v. Russo, 110 F.3d
12 948, 952 (2d Cir. 1997); United States v. Oshatz, 912 F.2d 534, 539
13 (2d Cir. 1990).
14 This argument fails because the challenged questions here were
15 not directed at character witnesses and made no assumption of guilt.
16 Hallinan and Henry were asked, for the most part, narrow questions
17 on direct examination designed to assess the impact of the
18 fraudulent omissions on their accounting treatment. The district
19 court took pains to limit the hypotheticals to the impact of the
20 withheld information and barred the witnesses from speaking to the
21 wrongfulness of the defendants’ actions, leaving that analysis to
22 the jury. And, as noted, Cuti had ample opportunity to challenge
23 the factual accuracy of the disputed testimony.
24 Finally, Cuti argues that the manner in which the government
15
1 presented the withheld information to the witnesses was flawed
2 because some questions were open-ended, some were phrased in terms
3 of opinion, and some were based on material not in the record. The
4 district court reasonably required the government to reformulate
5 its questions in some instances, but it did not always do so. We
6 have examined the record and find any missteps in this regard to be
7 minor relative to the witnesses’ entire testimony and harmless to
8 the outcome of the trial. When a court, upon review of the entire
9 record, “is sure that the [evidentiary] error did not influence the
10 jury, or had but very slight effect, the verdict and the judgment
11 should stand.” Kotteakos v. United States, 328 U.S. 750, 764 (1946).
12 In sum, we hold that under these circumstances the contested
13 testimony was admissible fact testimony that was relevant,
14 probative, and—for the most part—carefully controlled so as not to
15 be unfairly prejudicial. See Fed. R. Evid. 401, 403 & 602.
16 Alternatively, it was admissible as lay opinion testimony. See Fed.
17 R. Evid. 701. The district court did not abuse its discretion in
18 admitting the challenged testimony.
19 II. Tennant’s claims
20 A. Sufficiency of evidence
21 Tennant argues that, even though he signed the various
22 documents used to effectuate the fraudulent real estate concession
23 transactions and return-trip payments disguised as commissions and
24 consulting fees and engaged in other related activities, there was
16
1 insufficient evidence that he knew or should have known that fraud
2 was afoot to allow the case to go to the jury.
3 We review a claim of insufficient evidence de novo, United
4 States v. Geibel, 369 F.3d 682, 689 (2d Cir. 2004), but must uphold
5 the jury verdict if “drawing all inferences in favor of the
6 prosecution and viewing the evidence in the light most favorable to
7 the prosecution, any rational trier of fact could have found the
8 essential elements of the crime beyond a reasonable doubt.” United
9 States v. Santos, 449 F.3d 93, 102 (2d Cir. 2005) (quotation marks
10 omitted). A defendant challenging a conviction on sufficiency
11 grounds undertakes a “heavy burden.” United States v. Kozeny, 667
12 F.3d 122, 139 (2d Cir. 2011). A judgment of acquittal can be
13 entered “only if the evidence that the defendant committed the
14 crime alleged is nonexistent or so meager that no reasonable jury
15 could find guilt beyond a reasonable doubt.” United States v.
16 Espaillet, 380 F.3d 713, 718 (2d Cir. 2004). In a close case,
17 where “either of the two results, a reasonable doubt or no
18 reasonable doubt, is fairly possible, the court must let the jury
19 decide the matter.” United States v. Temple, 447 F.3d 130, 137 (2d
20 Cir. 2006)(quotation marks and alteration omitted).
21 In considering the sufficiency of the evidence supporting a
22 guilty verdict, the evidence must be viewed in the light most
23 favorable to the Government. Id. at 136-37. To “avoid usurping
24 the role of the jury,” United States v. Guadagna, 183 F.3d 122, 129
17
1 (2d. Cir. 1999), the Court must resolve all issues of credibility
2 in favor of the jury’s verdict, Kozeny, 667 F.3d at 139. The Court
3 must also “credit[] every inference that the jury might have drawn
4 in favor of the government,” Temple, 447 F.3d at 136-37, because
5 “the task of choosing among competing, permissible inferences is
6 for the [jury], not for the reviewing court.” United States v.
7 McDermott, 245 F.3d 133, 137 (2d Cir. 2001).
8 Tennant argues that evidence of his knowledge of the fraud is
9 insufficient because Zelnik could not definitively place him at a
10 particular meeting where Cuti discussed this conspiracy with the
11 principals of the WRG entities, who were in on the scheme. On that
12 basis alone, Tennant reasons that his conviction was based on
13 evidence that was “‘at least as consistent with innocence as with
14 guilt,’” and must be reversed. (Tennant Brief at 45 (quoting United
15 States v. Mulheren, 938 F.2d 364, 372 (2d Cir. 1991)). This
16 approach is flawed because not only must the evidence be viewed in
17 the light most favorable to the government, Santos, 449 F.3d at 102,
18 it must also be analyzed “in conjunction [with all of the evidence
19 and] not in isolation,” United States v. Persico, 645 F.3d 85, 104
20 (2d Cir. 2011). This is so because the sufficiency test “must be
21 applied to the totality of the government’s case and not to each
22 element, as each fact may gain color from others.” Guadagna, 183
23 F.3d at 130.
18
1 We have little difficulty rejecting Tennant’s argument that
2 the evidence was insufficient to support the jury’s finding that he
3 was aware of the fraudulent character of the transactions at issue.
4 He either knew or had to know that the so-called real estate
5 concession rights that Duane Reade was selling to the WRG entities
6 in 2000 were valueless because he had personally signed or approved
7 transactions that had rendered those very rights worthless in the
8 first place or was otherwise privy to information that revealed
9 their sham character. One conspicuous example of this is the lease
10 remainder in the storefront at 19 Park Place, which Duane Reade
11 sold, pursuant to a document that Tennant personally signed, for
12 $12,500 back to the landlord of that property. The very next day,
13 Tennant personally signed the $806,000 deal with the WRG entities
14 into which the same concessionary right was bundled for $75,000.
15 The jury was entitled to infer guilty knowledge on the part of
16 Tennant, the company’s former CFO and senior vice-president who was
17 experienced in real estate matters, from his signing two contracts
18 on back-to-back days to sell the same leasehold interest to two
19 different buyers. Against this and similar evidence, his plea that
20 other company personnel failed to tell him of the fraud could
21 reasonably be rejected by the jury.
22 Moreover, Zelnik testified at trial that not only was Tennant
23 aware that the concessions being sold were worthless, Tennant and
24 Cuti also determined the arbitrary values that the WRG entities
19
1 would pay for them, and that it was Tennant who devised the
2 vehicles used to make return payments to the WRG entities. The
3 totality of the government’s evidence was more than sufficient for
4 the jury to conclude that Tennant was aware of the fraud that he
5 was helping to perpetrate.
6 B. Conscious avoidance charge
7 Tennant faults the district court for including a conscious
8 avoidance charge in its instructions to the jury, which he says
9 caused him prejudice and warrants reversal of his conviction. The
10 district court instructed the jury that Tennant “knowingly”
11 committed fraud if he was “actually aware he was making or causing
12 a false statement to be made,” or if he “(a) was aware of a high
13 probability that, because of the [real estate concession]
14 transactions at issue, Duane Reade’s reported financial results
15 were false or misleading but (b) that he deliberately and
16 consciously avoided confirming these facts.” (Tr. 5004-05). The
17 Court cautioned, however, that the “knowingly” element would not be
18 satisfied if “Tennant actually believed that the transactions were
19 legitimate and not improper.” (Tr. 5005).
20 Tennant takes no issue with the form of the conscious
21 avoidance instruction, but rather argues that the charge should not
22 have been given at all because there was an insufficient factual
23 predicate to support it. This argument is without merit.
20
1 We review a claim of error in jury instructions de novo,
2 reversing only where there was prejudicial error in the charge as a
3 whole. United States v. Ebbers, 458 F.3d 110, 124 (2d Cir. 2006).
4 “A conscious-avoidance charge is appropriate when (a) the element
5 of knowledge is in dispute, and (b) the evidence would permit a
6 rational juror to conclude beyond a reasonable doubt that the
7 defendant was aware of a high probability of the fact in dispute
8 and consciously avoided confirming that fact.” Id. (quotation marks
9 omitted); see also United States v. Ferguson, 676 F.3d 260, 277-78
10 (2d Cir. 2011). For example, in a securities fraud case, if a
11 defendant attended meetings that were part of the charged scheme,
12 yet argues that he lacked the requisite scienter because, for
13 example, he “didn’t bother to read in full” the documents he signed,
14 the charge is appropriate. Ebbers, 458 F.3d at 124-25.
15 The Government “need not choose between an ‘actual knowledge’
16 and a ‘conscious avoidance’ theory.” Ferguson, 676 F.3d at 278.
17 To the contrary, in many cases, the evidence supporting each theory
18 will be the same:
19 [T]he same evidence that will raise an inference that the
20 defendant had actual knowledge of the illegal conduct
21 ordinarily will also raise the inference that the
22 defendant was subjectively aware of a high probability of
23 the existence of illegal conduct. Moreover, [conscious
24 avoidance] may be established where a defendant’s
25 involvement in the criminal offense may have been so
26 overwhelmingly suspicious that the defendant’s failure to
27 question the suspicious circumstances established the
28 defendant’s purposeful contrivance to avoid guilty
29 knowledge.
21
1 Kozeny, 667 F.3d at 133-34 (quotation marks omitted) (first
2 alteration added).
3 District courts should pay heed, however, to circumstances in
4 which a conscious avoidance charge may be inappropriate. This is
5 so when the only evidence that alerts the defendant to the high
6 probability of the criminal activity is direct evidence of the
7 illegality such that the question for the jury is whether “the
8 defendant had either actual knowledge or no knowledge at all of the
9 facts in question.” United States v. Nektalov, 461 F.3d 309, 316
10 (2d Cir. 2006)(quotation marks omitted). Similarly, if the
11 defendant denies ever having access to the facts that the
12 government claims should have alerted him to the fraud, the issue
13 is not whether the facts he knew should have alerted him but
14 whether he could even have known those facts. See, e.g., United
15 States v. Adeniji, 31 F.3d 58, 63 (2d Cir. 1994).
16 In this case, the district court did not err in giving the
17 conscious avoidance charge. The government’s theory was that,
18 because Tennant was immersed in sham concession agreements that he
19 personally signed or approved, determined phony values for the
20 contracts, figured out how to get money back to the WRG entities
21 through overpayments and sham consulting services, and met with the
22 principals of the WRG entities to these ends, Tennant had actual
23 knowledge of the fraud.
22
1 In response, Tennant argued both that the evidence was lacking
2 that he knew of the fraud and that the facts of which he was aware
3 were insufficient to alert him to a high probability of fraud.6
4 This purported lack of knowledge defense, despite Tennant’s deep
5 involvement in the transactions that effectuated the fraud, all but
6 invited the conscious avoidance charge. The same evidentiary facts
7 that supported the government’s theory of actual knowledge also
8 raised the inference that he was subjectively aware of a high
9 probability of the existence of illegal conduct and thus properly
10 served as the factual predicate for the conscious avoidance charge,
11 Kozeny, 667 F.3d at 133-34. Finally, the government did not have
12 to choose between an “actual knowledge” theory or a “conscious
13 avoidance” theory, Ferguson, 676 F.3d at 278, and the district
14 court did not err in giving both to the jury. Of course, it is
15 plausible that the semi-retired Tennant, attending part-time to
16 complex transactions, might have been sufficiently disengaged or
17 trusting that in fact he lacked knowledge on any culpable level;
18 but the jury was empowered to find otherwise, and did.
19
6
For example, Tennant’s able counsel argued in summation,
There is no evidence that [Tennant] knew anything
about improper sales of leases or lease rights [to the
WRG entities]. Then and now he believed them to be
entirely proper, arm’s-length transactions.
(Tr. 4850).
23
1 CONCLUSION
2 For the above reasons, and for those set forth in the
3 accompanying summary order, the judgments of conviction and
4 sentence are AFFIRMED.
24