United States v. Khaled Fattah , 877 F.3d 250 ( 2017 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 17a0278p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ┐
Plaintiff-Appellee, │
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> Nos. 17-5538/5544
v. │
│
│
CHRIS FOLAD (17-5538) and KHALED FATTAH (17-5544), │
Defendants-Appellants. │
│
┘
Appeal from the United States District Court
for the Middle District of Tennessee at Nashville.
No. 3:14-cr-00168-1—Aleta Arthur Trauger, District Judge.
Argued: November 29, 2017
Decided and Filed: December 11, 2017
Before: GILMAN, SUTTON, and STRANCH, Circuit Judges.
_________________
COUNSEL
ARGUED: Cynthia A. Sherwood, SHERWOOD BOUTIQUE LITIGATION, PLC, Nashville,
Tennessee, for Appellant in 17-5538. Richard Lewis Tennent, BELL, TENNENT & FROGGE,
PLLC, Nashville, Tennessee, for Appellant in 17-5544. Amanda B. Harris, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Cynthia A.
Sherwood, SHERWOOD BOUTIQUE LITIGATION, PLC, Nashville, Tennessee, for Appellant
in 17-5538. Richard Lewis Tennent, BELL, TENNENT & FROGGE, PLLC, Nashville,
Tennessee, for Appellant in 17-5544. Amanda B. Harris, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C., Henry Leventis, UNITED STATES ATTORNEY’S OFFICE,
Nashville, Tennessee, for Appellee.
Nos. 17-5538/5544 United States v. Folad, et al. Page 2
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OPINION
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SUTTON, Circuit Judge. Best we can tell, the crime at issue in this case and the issue
prompted by it are unique.
The crime: Individuals reprogrammed ATMs to dispense $20 bills for each $1 they were
supposed to dispense. Requesting $40 at a compromised ATM thus would deliver forty $20 bills
instead of two. All told, the artful technicians extracted from the ATMs more than $600,000 that
did not belong to them. The ATMs were owned by a company that does business in Tennessee,
infelicitously named SafeCash Systems. SafeCash investigated the crimes and found evidence
that a former employee who serviced the machines, Chris Folad, and his friend, Khaled Fattah,
engineered the scheme. They turned the information over to the government, prompting several
criminal convictions, one-year sentences for Folad and Fattah, and a predictable restitution order.
The issue: After the scheme had ended and after SafeCash, the owner of the ATMs, had
determined what had happened, SafeCash replaced seventeen of the relevant eighteen ATMs in
response to a federal regulation requiring that they be accessible to individuals with sight
impairments. That amounted to the destruction of potentially exculpatory evidence, Folad and
Fattah claim, and thus violated their due process rights. For the reasons that follow, we affirm
the convictions and sentences.
I.
SafeCash owns and operates ATM machines in Nashville and Memphis. Although
SafeCash stocked its machines with only $20 bills, the machines were capable of dispensing
different denominations. Taking advantage of that capability required an ATM technician to log
on to the machine with the master passcode, reprogram the denomination code, and replace the
$20 bills with bills of the new denomination.
In March 2010, SafeCash discovered that someone had reprogrammed one of its
machines to dispense $1 bills without replacing the $20 bills with singles. This meant that the
Nos. 17-5538/5544 United States v. Folad, et al. Page 3
machine thought it was dispensing $1 bills when in truth it was dispensing twenties. Requesting
$40 from the ATM would therefore net forty $20 bills for a total of $800. In each instance, the
perpetrators made several $40 withdrawals before covering their tracks by reprogramming the
machine’s denomination code back to $20 bills.
SafeCash opened an internal investigation. Security footage suggested that Chris Folad
(a former SafeCash ATM technician) and Khaled Fattah (his friend) might be the culprits.
Comparing the ATM logs with bank records obtained from the police suggested the same thing.
Folad and Fattah’s bank records also revealed that they made suspicious withdrawals from
seventeen other SafeCash ATMs. In some instances, they withdrew $6 and $13, amounts that
were impossible to withdraw without reprograming the denomination codes. In another instance,
they used seven different debit cards to make twenty $40 withdrawals in a single day. And in yet
another instance, they made five withdrawals in four minutes from the same ATM. On top of
that, the bank records revealed that Folad and Fattah used thirteen different debit cards and nine
different bank accounts (including a joint account) to withdraw money from SafeCash ATMs.
SafeCash directed its employees to check the ATM logs to determine whether the
withdrawals were fraudulent. Because the ATMs stored a limited number of transactions,
employees could not find log entries for many of the suspicious withdrawals. But they did locate
some of the log entries from four of the ATMs and printed out some of those records. They
provided this information to federal law enforcement officials in 2010.
Soon after SafeCash concluded its internal investigation, the Department of Justice issued
new regulations under the Americans with Disabilities Act. Those regulations required ATM
operators to ensure that visually impaired customers could access their machines and obligated
them to refit their ATMs with headphone jacks. SafeCash determined that it was more cost
effective to purchase new ATMs than to refit the old ones. By 2015, SafeCash had replaced
seventeen of the eighteen ATMs involved in the fraud. The one ATM that SafeCash did not
replace was a newer model that already complied with the regulations.
Nos. 17-5538/5544 United States v. Folad, et al. Page 4
The government indicted Folad and Fattah in October 2014. The pair moved to dismiss
the indictment. The ATMs, they argued, contained exculpatory evidence, and SafeCash’s
decision to replace the ATMs violated their due process rights.
After conducting an evidentiary hearing, the district court denied the motion. The jury
convicted Folad and Fattah on all counts after a three-day trial. The court sentenced them to one-
year sentences and imposed a joint and several restitution order in the amount of $616,246.
II.
Folad and Fattah make one argument on appeal: The district court should have dismissed
the indictment because SafeCash destroyed exculpatory, or at least potentially exculpatory,
evidence when it replaced the ATMs.
The first problem with this argument is that SafeCash, not the government, made the
decision to replace the machines. The government had nothing to do with it. The Due Process
Clause—“No person shall . . . be deprived of life, liberty, or property, without due process of the
law”—applies to action by the government, not action by private entities. Flagg Bros. Inc. v.
Brooks, 436 U.S. 149, 166 (1978). No precedent from the United States Supreme Court or this
Court supports the idea that the government violates a criminal defendant’s due process rights
when a private party, with no support from the government and no inducement by the
government, fails to preserve relevant evidence.
Folad and Fattah instead borrow from the teachings of search-and-seizure cases arising
under the Fourth Amendment and confession cases arising under the Fifth Amendment. In the
Fourth Amendment context, we have held that the government might violate a defendant’s rights
by “instigat[ing]” or “encourag[ing]” a private party to search a defendant on its behalf. United
States v. Lambert, 771 F.2d 83, 89 (6th Cir. 1985). In the Fifth Amendment context, courts have
held that the government might violate a defendant’s rights by coercing or encouraging a private
party to extract a confession from a criminal defendant. See, e.g., United States v. Garlock,
19 F.3d 441, 443–44 (8th Cir. 1994). But these cases offer no aid to the defendants here.
No evidence shows that the government coerced or instigated or encouraged SafeCash to replace
the ATMs, or indeed knew SafeCash planned to do so.
Nos. 17-5538/5544 United States v. Folad, et al. Page 5
Even if we overlooked this problem and even if for the sake of argument we treated
SafeCash as an agent of the Federal Government, the claim would fail all the same. The Due
Process Clause prohibits the government from destroying evidence in a criminal case under
specific circumstances. Of import here, it makes a difference whether the evidence was
(1) apparently exculpatory at the time it was destroyed or (2) only “potentially useful” at the time
it was destroyed. Arizona v. Youngblood, 488 U.S. 51, 57–58 (1988). The failure to preserve the
former violates due process regardless of the government’s good or bad faith. Brady v.
Maryland, 373 U.S. 83, 87 (1963). But destruction of the latter offends due process only if done
in bad faith. Youngblood, 488 U.S. at 57–58.
Neither line of precedent supports Folad and Fattah. The defendants have not shown that
the ATMs contained apparently exculpatory evidence. So far as the record shows, the ATMs
were more likely to confirm their guilt than to establish their innocence. Folad and Fattah’s bank
records showed that they made withdrawals in suspicious amounts ($6 and $13) and in
suspicious circumstances (multiple withdrawals with different debit cards from the same ATM
on the same day). The ATM logs likely would have confirmed the fraudulent nature of those
withdrawals.
The defendants fare no better under the second test because they have not shown that the
government violated their due process rights by destroying “potentially useful” evidence in bad
faith. No evidence shows, or even suggests, that SafeCash or the government agents acted in bad
faith.
SafeCash, the victim of the fraud, understandably conducted an internal investigation to
find out what had happened. After they figured out the fraud and who did it, they turned over the
results of their investigation to government agents. The government then used that information
to prosecute Folad and Fattah. When SafeCash decided to replace the ATMs, the decision had
nothing to do with this investigation or this prosecution. The company made the change to
comply with new federal regulations under the Americans with Disabilities Act. Nor were
federal prosecutors involved in the decision or for that matter aware of it. The record thus
reveals no “official animus” or “conscious effort” on the part of the government or SafeCash “to
suppress exculpatory evidence.” California v. Trombetta, 467 U.S. 479, 488 (1984).
Nos. 17-5538/5544 United States v. Folad, et al. Page 6
Folad and Fattah challenge these conclusions on several grounds. They first insist that
the ATMs contained exculpatory evidence—that they should prevail, in other words, under the
Brady test. SafeCash’s ATMs, they point out, could dispense a maximum of 40 individual bills.
And bank records showed that some of Folad and Fattah’s withdrawals were for $60 and $100.
These withdrawals, they argue, must therefore be legitimate, and the ATM logs would have
confirmed as much. But evidence that the defendants (or their family members) made some
legitimate withdrawals over the four-month period of the scheme does not undermine the
evidence of their guilt. Some legitimate withdrawals do not establish the innocence of other
withdrawals.
Folad and Fattah next argue that the ATMs might have provided exculpatory evidence for
sentencing purposes. They point out that proof that the $60 and $100 withdrawals were
legitimate could have changed the “total loss amount” used to calculate their recommended
sentencing ranges under the Sentencing Guidelines. But that is not so. The record shows that
the government already excluded the $60 and $100 transactions from its calculation of the total
loss amount. R. 115 at 151; R. 158 at 43.
Nor is this the defendants’ only problem on this score. The remedy for failing to preserve
evidence that is relevant for sentencing would be a new sentence, see Cone v. Bell, 556 U.S. 449,
473–76 (2009), not the relief they seek: dismissal of the indictment. The defendants have not
challenged their sentence, perhaps because the district court gave them a significant discount on
the recommended guidelines range—a 12-month sentence instead of the recommended 37-month
sentence at the low end of the range.
The ATMs, they add, might have revealed other exculpatory evidence: software
upgrades that would have prevented the fraud; proof that ATM journals did not have limited
storage capacities; and “discrepancies” in SafeCash’s records and proof that SafeCash lied about
why it replaced the ATMs. But none of these possibilities shows that the ATMs contained
materially exculpatory evidence. At most, they raise the possibility of helpful evidence or
“potentially exculpatory” evidence. That does not suffice under the Brady test.
Nos. 17-5538/5544 United States v. Folad, et al. Page 7
The defendants argue in the alternative that the government and SafeCash acted in bad
faith and thus satisfy the prerequisites for relief under the “potentially exculpatory” Youngblood
test. Proof that the government acted in bad faith, they say, flows from the reality that it
delegated investigatory duties to SafeCash and that the company had an incentive to inflate its
losses (and hide relevant evidence) to secure a greater insurance payout. But the record shows,
and the district court found, that SafeCash received the insurance payment before it replaced
most of the ATMs. R. 90 at 125. And nothing in the record suggests that the insurance
company’s willingness to pay depended on the government’s ability to convict. SafeCash did
not replace the ATMs to hinder Folad and Fattah’s defense or to obtain a greater insurance
payment. SafeCash replaced the ATMs to ensure that the machines complied with federal
regulations.
Other evidence of bad faith, claim the defendants, arises from the reality that it took from
2010 (when SafeCash discovered the fraud) until 2014 for the government to indict them. That
is a fair point. But it submits to a fair response. The district court considered this issue at the
evidentiary hearing. After hearing the evidence, the district court found that there were
legitimate reasons for the delay, such as the government’s resource constraints and its need to
build the case for trial. The defendants have not shown that these findings are clearly erroneous.
On this record, the defendants have not shown bad faith.
Folad and Fattah offer one last rejoinder. The Ninth Circuit, they point out, has held that
a private company’s “bad faith failure to collect potentially exculpatory evidence” violates due
process. Miller v. Vasquez, 868 F.2d 1116, 1120 (9th Cir. 1989). But even if a bad faith failure
to collect potentially exculpatory evidence violates due process (an issue we need not resolve
today), the defendants must still show that the failure to collect evidence resulted from bad faith.
They have not done so.
For these reasons, we affirm.