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United States v. Giraudo

United States District Court, N.D. California

August 1, 2016

UNITED STATES OF AMERICA, Plaintiff,
v.
JOSEPH J. GIRAUDO, RAYMOND A. GRINSELL, KEVIN B. CULLINANE, JAMES F. APPENRODT, and ABRAHAM S. FARAG, Defendants.

          ORDER SUPPRESSING ELECTRONIC SURVEILLANCE EVIDENCE COLLECTED AT SAN MATEO COUNTY COURTHOUSE

          CHARLES R. BREYER, UNITED STATES DISTRICT JUDGE

         Defendants move to suppress over 200 hours of audio recordings that the FBI surreptitiously collected, without judicial authorization, at the San Mateo County Courthouse. See Motion (dkt. 58). The government responds that Defendants did not have a reasonable expectation of privacy at the courthouse because they were attending public foreclosure auctions held in an open area outside the building’s entrance. See Opp’n (dkt. 144). The Court-after holding days of evidentiary hearings, reviewing multiple rounds of briefing, and analyzing the relevant authorities on this question-concludes that the government has utterly failed to justify a warrantless electronic surveillance program that recorded private conversations spoken in hushed tones by judges, attorneys, and court staff entering and exiting a courthouse. Even putting aside the sensitive nature of the location here, Defendants have established that they believed their conversations were private and that they took reasonable steps to thwart eavesdroppers. The Fourth Amendment prohibits the introduction of evidence that was gathered in violation of a defendant’s constitutional rights. Accordingly, the Court GRANTS the motion to suppress the disputed electronic surveillance evidence.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         This factual background draws from evidence presented by the parties over three separate days of evidentiary hearings. The Court made a number of factual findings on the record, see Hearing Trs. (dkts. 94, 102, 129), and makes additional factual findings below. See United States v. Mejia, 69 F.3d 309, 315 (9th Cir. 1995).

         A. Background and Location of the San Mateo Foreclosure Auctions

         The public real estate foreclosure auctions-also known as trustee sales-that gave rise to this case took place in 2009 and 2010 at the San Mateo County Courthouse in Redwood City, California. See Feb. 11 Tr. (dkt. 94) at 183:15-184:4. The auctions typically began around 12:30 PM in front of an employee entrance to the courthouse. Id. at 187:17-19. Participants arrived at the location a few minutes before the auction began, and six to sixteen people usually attended. Id. at 187:14-16; April 5 Tr. (dkt 129) at 31:21-32:4. Between five and ten properties were auctioned at a typical trustee sale. Feb. 11 Tr. at 198:12-15. Anyone could participate in the auctions. Id. at 197:22-25; April 5 Tr. at 52:3-5.

         The auction site roughly extended from the wall of the courthouse to the curb, a distance of about 26 feet. See Feb. 11 Tr. at 189:18-24. The area was not enclosed-people could enter and exit the site without restriction, but pillars in the auction area sometimes obscured participants’ lines of sight. See Feb. 29 Tr. (dkt. 102) at 59:14-17; April 5 Tr. at 30:1-10, 53:1-15. Courthouse employees and others using the sidewalk often walked by the auction site. See Feb. 11 Tr. at 110:8-13, 194:20-195:7. Auctioneers would generally stand in three areas at the courthouse: to the left of a pillar against the courthouse wall; on a bench next to a sprinkler box against the wall; and to the right of the bench near a planter box. See id. at 188:9-189:4. Bidders moved around these areas. Id. at 189:5-14.

         B. FBI Investigates Bid-Rigging and Fraud at San Mateo Auctions

         In October 2009, the FBI began investigating allegations of bid-rigging and fraud at the foreclosure auctions held at the San Mateo courthouse. See Feb. 11 Tr. at 64:20-25. Several auction participants contacted the Department of Justice Antitrust Division and reported corruption. Id. at 181:2-11. The FBI opened an investigation. Id.

         Two of the individuals who reported the alleged bid-rigging cooperated with the FBI. Id. at 65:9-14, 181:12-14. One of these cooperators told the FBI that he had participated in corrupt auctions and deals with a group of regular auction participants. Id. at 57:14-58:22, 65:19-66:14. These regulars included Defendants Joe Giraudo, Ray Grinsell, and Kevin Cullinane along with alleged co-conspirators Mo Rezaian and Dan Rosenbledt. Id. The cooperator agreed to wear a wire at several auctions and recorded conversations with Defendants. Id. at 66:15-20. The FBI used video cameras and agents to visually surveil the auctions. See id. at 65:4-8; Def. Ex. 6 ¶ 2; Def. Ex. 1 at 2. An undercover agent posing as an investor for one of the cooperators also wore a wire and made audio and video recordings of Defendants on a number of occasions. See Feb. 11 Tr. at 66:21-67:6, 181:15-25. These investigatory techniques do not require judicial authorization, nor are they viewed as a infringing on a defendant’s constitutional rights in this context.

         C. The FBI’s Initial Success Investigating Through Cooperating Witnesses, Undercover Agents, and In-Person Audio Recordings

         According to the lead FBI agent assigned to this case, the FBI’s (1) interviews with cooperators, (2) initial audio recordings collected by individuals wearing wires, and (3) video surveillance were all “working very well, ” id. at 67:7-12, had captured “evidence of the direct payoffs, ” id. at 207:9-17, and “were succeeding, ” id. at 71:10-12. In-person wire recordings made by the cooperator and the undercover agent captured multiple allegedly illegal payments involving a Daly City, California property. Id. at 67:13-17, 160:13-18; Def. Ex. 6 ¶ 6(a). These recordings also allegedly captured Defendants “engaging in discussions to arrange the details of their bid rigging and fraudulent conduct.” See Def. Ex. 6 ¶ 6(b). According to the FBI, these conventional investigative techniques “basically corroborated almost, almost everything that the cooperators said in the initial part of the investigation.” See Feb. 11 Tr. at 207:9-17, 183:5-14. An investigating FBI agent testified that he could not have sworn an affidavit stating that the FBI had tried traditional investigative procedures and failed to collect evidence of suspected bid-rigging and fraud. Id. at 73:9-13. This testimony suggests that a Title III wiretap application pursuant to 18 U.S.C. § 2518(1)(c) could not have been successfully obtained. However, it does not raise any impediment to obtaining a search warrant pursuant to the Fourth Amendment.

         D. Conversations that Defendants Shielded from the FBI

         After the FBI’s initial success using cooperators, undercover agents, body wires, and video surveillance, Defendants’ relationship with the cooperator “soured.” See Feb. 11 Tr. at 56:16-23. According to FBI agents, Defendants decided they “definitely did not want the [cooperating] source to overhear [their] conversation[s].” See Feb. 11 Tr. at 155:13-17. An agent stated that it became “typical behavior” for Defendants and the alleged co-conspirators to hold conversations “separate[ly] from [the] informant and from [the] undercover agent, and it was unlikely that [the FBI] [was] going to capture . . . [further] bid rigging using them.” Id. at 145:16-146:5, 148:11-25, 153:2-11. The lead FBI agent went so far as to testify that “the key observation made in the early part of the case” was that the cooperator and undercover agent “could not hear” Defendants’ conversations. Id. at 155:7-12.[1]

         At this point in the investigation, Defendants would “routinely would walk away from a larger group, stand close to the individuals with whom [they] [were] speaking, cease conversations when others approached, try to speak out of earshot of other people, or speak quietly or whisper.” Def. Exs. 66-69 ¶ 7. The lead FBI investigator described Defendants as “talking among themselves, ” “talking together, ” and “separately speak[ing]” around this time period. See Def. Ex. 9 (12:34 pm; 1:07 pm; 1:16 pm). Defendants and other alleged co-conspirators whispered in each other’s ears during numerous conversations. See Def. Ex. 9 (1:59 pm; 12:23 pm - 13:10 pm). They would also break off into small groups to confer. See Def. Ex. 41 (12:59 pm); Def. Ex. 42 (12:34 pm; 13:05 pm). Defendant Grinsell, for example, testified that he would keep a close eye on the people near him, speak in a lower voice or stop talking when strangers approached, and do “everything possible to make sure nobody else heard [his] conversation[s].” See April 5 Tr. at 46:14-20; see also id. at 40-52.

         Grinsell explained Defendants’ behavior, testifying that it was critical for bidders to shield certain sensitive conversations from eavesdroppers at the auctions because bidders were surrounded by competitors. See April 5 Tr. at 40:14-20 (“There were private conversations going on while the auctions were being conducted.”). If a bidder “talked openly about what they were going to bid, the condition of the property or anything else, it would work contrary to their interests in getting the property.” Id. at 43:19-44:1. It was thus “difficult” and “rare” to overhear another bidder’s conversation. Id. at 43:12-25.

         E. The FBI Institutes an Electronic Surveillance Program After Defendants Shield Their Privacy

         After Defendants took steps to protect the private nature of their conversations, FBI agents concluded that they “needed some new technique, ” Feb. 11 Tr. at 72:13-73:4, if they were going to “capture additional evidence, ” Def. Ex. 6 ¶ 7. The FBI adopted a new technique: agents bugged the courthouse. The FBI used hidden microphones to establish an electronic surveillance program that collected more than 200 hours of audio recordings over nine months, capturing the conversations of anyone who entered or exited the employee entrance of the courthouse. Regardless of whether that person was a defendant, a county employee, an attorney, a judge, or a member of the public. The FBI never sought judicial authorization for this program. See Feb. 11 Tr. at 36-38, 145:9-19, 182:20-24; Def. Ex. 2.

         Agents planted stationary microphones in four locations around the courthouse: in a sprinkler box, in a planter box, in unmarked police vehicles parked on the street in front of the courthouse, and in a backpack. Feb. 11 Tr. at 115:9-20; 36:3-16. The sprinkler box was located to the left of a bench against the wall, about ten to thirteen feet from where the auctions typically took place. Def. Ex. 5; Def. Ex. 57; Feb. 11 Tr. at 113:24-114:7, 206:4-8. The planter box was located eight to ten feet from where the auctioneer typically stood. Feb. 11 Tr. at 114:9-13, 205:6-14. The unmarked vehicles-which concealed two recording devices, one recording both audio and video and one recording only audio, id. at 203:23-204:4, were parked approximately thirty feet from where the auctions took place, id. at 205:2-5. The FBI backpack microphone was dropped off in the auction area near a mailbox to “capture a different side of the auction.” Feb. 29 at 214:1-9. The presence of these microphones “was unknown to anybody but the case agent.” Feb. 11 Tr. at 220:4-10.

         The microphones themselves were “small digital recorders” known as Knowles EM-23069s, were “one-and-a-half inch square, ” and were “specifically designed for” law enforcement. Id. at 140:21-24, 199-200. The device is also used in hearing aids. Id. at 200:19-22. The parties here did not present expert testimony regarding the effectiveness of the devices, but they generally agreed that the microphones were no more effective than the human ear. See id. at 141:14-142:11, 214:8-25. The government declined Defendants’ request to test the effectiveness of the devices. See Def. Br. (dkt. 136) at 13 n.9.

         Between December 2009 and September 2010, the FBI activated these stationary microphones on at least twenty-eight days. See Def. Ex. 2; Feb. 11 Tr. at 38:12-20, 47:16-20, 207:18-209:16; Feb. 29 Tr. at 246:20-21. Sometimes the FBI used the devices’ internal timers and sometimes it manually activated them. Feb. 11 Tr. at 104:6-24. Agents frequently turned on the devices “well before the auction start[ed]” and left them running until “well after the auction . . . ended.” Id. at 109:9-16. The devices often recorded activities at the courthouse entrance for several hours, in some cases for up to five hours continuously. See Def. Ex. 2; Feb. 11 Tr. at 105:11-14. At no time did the agents monitor the recordings in real time to ensure that they were not recording privileged or private conversations. Feb. 11 Tr. at 103:21-24, 105:15-18; Feb. 29 Tr. at 246:22-247:7. Nor did the agents make any effort to record only those individuals who were participating in the auctions. Feb. 29 Tr. at 210:12-15. The FBI recorded approximately 214 hours of conversations over nine months. Id. at 156:11-15; Feb. 11 Tr. at 43:17-21, 47:3-15.

         F. FBI Captures Private Conversations Through Electronic Surveillance

         The electronic surveillance program at issue here recorded private conversations to which Defendant and others were parties. The Court finds-based on the evidence outlined below-that the stationary microphones captured conversations that ...


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