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United States of America v. Steven Zinnel & Derian Eidson

November 16, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
STEVEN ZINNEL & DERIAN EIDSON, DEFENDANTS.



The opinion of the court was delivered by: Gregory G. Hollows United States Magistrate Judge

ORDER

Introduction and Summary

The backdrop of this criminal action is a protracted, bitter divorce proceeding between defendant Steven Zinnel ("defendant Zinnel" or "Zinnel") and his former wife, Michelle Zinnel. The contentiousness of the divorce allegedly led defendant Zinnel to tell his wife that he was going into bankruptcy and that Ms. Zinnel would ultimately receive no marital property. Zinnel ultimately did file for bankruptcy, but also, according to the indictment, created companies and implemented other mechanisms to hide assets from the bankruptcy court. All of these bankruptcy activities may have escaped the government's notice but for Zinnel's efforts in having the government investigate Ms. Zinnel's purported unlawful acquisition and use of Zinnel's private health insurance information, this also, a tit-for-tat stemming from the divorce proceedings. But Zinnel, having roused the beast, like the professor in Frankenstein, was soon fighting off his own creation.

After contact with Ms. Zinnel, the government became much more interested in the alleged bankruptcy fraud which Ms. Zinnel related to them. Investigation ensued, including undercover recordation of meetings with Zinnel and his lawyer/love interest and now co-defendant, Derian Eidson, with both making seemingly damaging admissions. On June 8, 2011, an indictment was returned alleging bankruptcy fraud, money laundering, and transactions in criminally derived property. Defendants have moved for discovery and Brady/Giglio disclosures, making numerous requests to the government, some of which the government has resisted.

Defendant Eidson has moved to compel further discovery/Brady-Giglio information. Defendant Zinnel has joined the motion. Defendant Zinnel has filed a separate motion for disclosure of the IRS tax filings of a corporation whose activities are central to this case. The undersigned's rulings follow.

Issues

There are several issues which weave their way through this discovery motion. The court will resolve those issues here and then apply the rulings to the various discovery/Brady requests.

A. Who is the Government For Discovery/Brady Purposes

The United State asserts that four entities are the "government" for purposes of disclosing information required by either Fed. R. Crim. P. 16 or the dictates of Brady/Giglio: The U.S. Attorneys Office, the F.B.I., the Criminal Division of the Internal Revenue Service and the U.S. Trustee. Defendants seek to have added the bankruptcy trustee for the Zinnel bankruptcy, the entire IRS, as well as cooperating witnesses and victims.

Defendant Zinnel filed a Chapter 7 bankruptcy petition in 2005. In such a case, a trustee is appointed, first on an interim basis by the United States Trustee, and then by creditor election or by default (the interim trustee will continue as trustee). 11 U.S.C. § § 701, 702. In certain situations, the United States Trustee can be the trustee. Id. The trustee looks out for the interests of creditors, and can even oppose a debtor's request for discharge. 11 U.S.C. § 704(a)(6). A trustee performs such duties as: collect and reduce to money property of the estate, investigate the financial affairs of the debtor, make a final report to the court and the United States Trustee regarding administration of the estate, and many others. 11 U.S.C. § 704. See also In re Castillo, 297 F.3d 940, 950-51 (9th Cir. 2002). The United States Trustee maintains a direct oversight role with respect to the actions of an estate trustee and shall "supervise the administration of estates and trustees" with respect to, inter alia, Chapter 7 cases. 28 U.S.C. § 586 (a)(3). See also § 586 (1). The United States Trustee(s) are appointed and ultimately supervised by the Attorney General. 28 U.S.C. § 581 et seq. In regards to criminal matters, the United States Trustee shall report criminal misdeeds related to misstatement of income, expenses or assets to the United States Attorney.

In this case a trustee was appointed for the Zinnel case. The Zinnel bankruptcy trustee, according to the government response (Opposition at page 20), has not been contacted for "substantive" purposes by the prosecution AUSAs, but more to the point, the trustee is obligated to cooperate on request of the U.S. Trustee, and the Trustee has had some apparent contact with the bankruptcy trustee. Defendants seek to include this trustee as part of the "government" for purposes of criminal discovery and Brady/Giglio obligations. The undersigned agrees that a trustee for an estate which is specifically at issue in a criminal proceeding is sufficiently "government" such that the prosecutor must affirmatively seek information from the trustee to fulfill criminal discovery and Brady/Giglio obligations.

Defining the "government" is important in criminal discovery matters because the prosecution does not have to scour the files of every governmental agency on the chance that some pertinent information, or information that the defendant deems pertinent, may be disclosed. United States v. Bryan, 868 F.2d 1032, 1036 (9th Cir. 1989). The prosecution does not become the FOIA (Freedom of Information Act) agent for the defense. However, "[t]he prosecutor will be deemed to have knowledge of and access to anything in the possession, custody or control of any federal agency participating in the same investigation of the defendant." Id.

The above presumption is all that is needed in the vast majority of criminal cases in that it is seldom the case that federal agencies outside of the agencies interested and participating in the investigation will [possess] documents material to the case. However, the Ninth Circuit has made clear that the presumption is not necessarily the end point of the analysis depending on the case. United States v. Santiago, 46 F.3d 885 (9th Cir. 1995). In Santiago, the Ninth Circuit held that prison files in the possession of the federal Bureau of Prisons, an agency within the Department of Justice, would be "in the possession" of the United States Attorney because the BOP was a sister agency, and the prosecutor has actually acquired a good bit of information about the case by simply requesting it from the BOP. Id. at 893-94. The fact that the BOP was not the "investigating agency" was not determinative. "Access" to the requested information was the key, and such access was to be determined on a case by case basis.

United States v. Salyer, 271 F.R.D. 148, 156 (E.D. Cal. 2010).

The issue with respect to the bankruptcy trustee in this case is governed by the principle of Santiago. Here, the Zinnel trustee was actively supervised by the United States Trustee. The United States Trustee has a duty to inspect the files of this trustee in connection with the reporting of criminal misdeeds to the United States Attorney. There is not much doubt that the United States Trustee has had contact with the Zinnel trustee in accordance with the Trustee's statutory obligations. Here, to paraphrase the quote in Salyer above, "the prosecutor [including the U.S. Trustee] has actually acquired a good bit of information about the case by simply requesting it from the [trustee]. [Santiago] at 893-94. The fact that the [trustee] [is] not the "investigating agency" [is] not determinative. "Access" to the requested information [is] the key, and such access [is] to be determined on a case by case basis." Because the United States Trustee can require the Zinnel trustee to produce information upon request, access is sufficiently satisfied here.

If the Zinnel trustee were legally independent of the United States Trustee/United States Attorney, the result would have been different. That is why the result here is different when analyzing the duties of affirmative acquisition of information in discussing cooperating witnesses, victims, or other players in the criminal process. For these individuals, the government does not have a legal right to require these persons to produce anything except through a process of subpoena or search warrant. While cooperating witnesses may well benefit if they accede to informal government requests for information, and may suffer practical detriment if they do not, the initial decision to cooperate depends on the person along with advice that the person may receive from an attorney, if any. Use of process or persuasion to obtain information for a criminal case does not give the prosecutor the "access" required for criminal discovery for Brady/Giglio purposes vis-a-vis the independent cooperators, witnesses or victims. Salyer, 271 F.R.D. at 156. It is the legal relationship of the persons or entities with the prosecution which might lead to the conclusions that "access" existed; the potential use of subpoenas or search warrants against persons with information does not. Thus, the court agrees that "[e]very person who cooperates with a federal investigation cannot be deemed a federal agent such that federal prosecutors are deemed to have constructive knowledge of everything in his or her possession, custody or control." United States v. McCall, 2009 WL 4016616 *1 (N.D. Cal. 2009).

Moreover, counting cooperating witnesses or victims amongst those constituting the "government" would lead to absurd results. Defendants would have this court compel the government to use whatever process necessary to interrogate, on behalf of the defense, all persons who gave the government any information, and then to search or seize the files of all persons with whom the government acquired any information during an investigation, on the off chance that something material or exculpatory or impeaching might be found with the witnesses/victims. The government would be turned into the reluctant defense investigator, and with much more investigative power to boot. Nothing in Rule 16, or in the Brady/Giglio jurisprudence, suggests such a tilting of the adversary system.

The defense contends that it is entitled to see the tax returns of witnesses in this case, and that since the IRS is the "government," it has access to all these tax returns. The undersigned disagrees. Only the criminal investigation side of the IRS involved in this investigation is the government here; the vast administrative arm of the IRS., i.e., ordinary tax collection, is not. Indeed, when the prosecution desires to obtain tax files for a criminal investigation, it simply does not "access" the files, but must petition the court demonstrating precise criteria before any access is permitted. 26 U.S.C. § 6103(i). The requirement to obtain an order before access of tax records is authorized stands as the antithesis of constructive possession. See United States v. Lochmondy, 890 F.2d 817, 823 (6th Cir. 1989). Of course, if the desired tax information had previously been disclosed from the IRS and was in the possession of the Department of Justice, the result might well be different. United States v. Bryan, supra. The undersigned does not find that otherwise non-disclosed IRS non-party tax information is in the possession of the "government," even when the Criminal Division of the IRS is considered the "government."

Accordingly, the Zinnel trustee is the "government" for purposes of the discovery/Brady/Giglio motion herein, but the other persons, including cooperators or victims, defendants seek to denominate the "government" are not.*fn1 The prosecution does not have access to the tax information of non-party witnesses or entities; hence, the administrative side of the IRS is not the "government."

B. Proper Parameters of Brady/Giglio Disclosure

The government asserts that it has complied, or will timely comply, with its Brady/Giglioresponsibilities; the defendant questions this assertion. The crux of the dispute centers on the breadth of the prosecution understanding of the disclosure duties. As clearly discussed at hearing, the government believes that as long as a non-disclosure would not ultimately be found to be a Brady/Giglio violation, under the facts and circumstances ultimately setting the context of the non-disclosure, the prosecutor has no duty of disclosure in the first instance. This is not correct -- the duty of disclosure should be made on the basis of what a reasonable prosecuting attorney would view as exculpatory or impeaching in the first place. It is not to be made on the unilateral assumptions of the prosecutor as to what information might turn out later to be immaterial, i.e., not sufficiently damaging to the government's case to constitute a Brady violation, or cumulative. Moreover, what might seem cumulative to one might seem like the necessary weight of the evidence to another.*fn2

As explained by Strickler v. Greene, 527 U.S. 263, 281, 119 S.Ct. 1936, 1948 (1999), there is a distinction between the ultimate finding of a Brady violation and the initial "broad duty of disclosure" that is at issue here at this stage of the case. As pointed out by the DOJ Brady/Giglio guidelines, and as well established by case law, the prosecution has the duty to affirmatively scour those records of the agencies considered the "government" for purposes of the criminal case in order to determine and acquire those materials which would be considered Brady exculpatory and Giglio impeaching. Kyles v. Whitley, 514 U.S. 419, 437, 115 S.Ct. 1555 (1995); United States v. Price, 566 F.3d 900, 908-909 (9th Cir. 2009). Indeed, the most recent Department of Justice guidelines, fashioned after some embarrassing non-disclosures in other cases, command an actual review of the materials acquired during investigation of a criminal case for the purpose of disclosing Brady/Giglio materials.*fn3 See Memorandum for Department Prosecutors, dated January 4, 2010, Section B, e.g., items, 1 ("The prosecutor can personally review the file or documents or may choose to request production of ... materials from the case agent"), 3 ("[g]enerally, all evidence and information gathered during the investigation should be reviewed, including anything obtained during searches or via subpoenas, etc."). Tellingly, nowhere in the memorandum does it even suggest that the prosecutor may make an anticipatory determination that otherwise disclosable Brady/Giglio material might be ultimately "cumulative" or non-prejudical to the defense ("immaterial") in the context of evidence actually presented at trial, and thus, no disclosure need be made.

Of course, a reasonable determination has to be made at this time that a document or other information is exculpatory or impeaching. But prosecutors have to make that judgment call on the face of the information subject to possible disclosure, and the teaching of Kyles is not to "tack[] too close to the wind," id. at 439, 115 ...


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