Vol. 13, No. 25 & 26	Covering Cases Published in the Advance Sheets through June 26, 2006

The NSA Wire-Tapping Program Under Attack

• In Hepting, one of the more than 30 lawsuits nationwide challenging the NSA’s massive domestic spying program to wiretap and data-mine the domestic and foreign communications of millions of Americans, District Judge Vaughn Walker (N.D.Cal.) rejected the Government’s motion to dismiss, on the grounds of the “state secrets” privilege, a class action lawsuit against AT&T for its collaboration with the NSA. In so ruling, the Court became the first court to reject the Bush Administration's oft-asserted claim that the need to protect the highly classified nature of the surveillance program required the Court to dismiss the lawsuit without going any further.
  
  
  
• In Terkel, District Judge Matthew Kennelly (N.D.Ill.) took a different view of the same NSA wiretap program and the deference to which the Government was entitled under the “state secrets” privilege. After stating that he was persuaded that “requiring AT&T to confirm or deny whether it has disclosed large quantities of telephone records to the Federal government could give enemies of this country valuable insight into the Government's intelligence activities,” of necessity Judge Kennelly was then forced to dismiss the lawsuit challenging the legality of the NSA program since, without being able to delve into whether AT&T had unlawfully collaborated with the NSA, the plaintiffs would be unable to prove that they had suffered any harm.
  
  

The Sometimes Patently Unreasonable Sentences Under the Guidelines: 85 Years vs. 42 Months

• In Adelson, Judge Rakoff of the S.D.N.Y. issued a sentencing memorandum in support of a 42-month sentence he imposed in a white collar crime case, stating that the Guidelines’ recommended sentence of 85 years would have been “patently unreasonable” and would have resulted in an “utter travesty of justice.” The Government has already filed a Notice of Appeal.
  
  

Telemarketing Fraud

• In Lyons, the Ninth Circuit seemed to stretch and strain to find ways to permit the use of evidence of high fundraising costs to justify and support a fraudulent intent in a telemarketing prosecution, even though the Supreme Court has established a default rule in telemarketing fraud cases that the "bare failure to disclose [the high cost of fundraising] directly to potential donors does not suffice to establish fraud."
  
  

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Hepting v. AT&T Corporation, No. C-06-672 VRW (N.D.Cal. July 20, 2006) (Judge Walker)

The Electronic Frontier Foundation (EFF) and various individual plaintiffs filed this class action lawsuit against AT&T Corporation, accusing the telecom giant of violating the law and the privacy of its customers by collaborating with the National Security Agency (NSA) in its massive and illegal domestic spying program to wiretap and data-mine the domestic and foreign communication records of millions of Americans.

The lawsuit alleges that, by collaborating with the NSA, AT&T violated, inter alia, the Fourth Amendment, the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. § 1809) (FISA), and the Electronic Communications Privacy Act of 1986 (18 U.S.C. § 2510, et seq. (ECPA); and it is seeking both injunctive and declaratory relief as well as statutory and punitive damages.

AT&T moved to have the case dismissed on grounds that the individuals who sued did not have standing; and it claimed a variety of forms of immunity. More significantly, however, the Government quickly intervened and asked the Court to dismiss the case on the grounds that allowing the litigation to proceed would jeopardize the disclosure of "state secrets."

Essentially, the Government argued that dismissal of the lawsuit was required because “the very subject matter” of the lawsuit was a state secret; and that vital state secrets would be disclosed even by virtue of AT&T's mere confirmation or denial of the existence of the warrantless eavesdropping program, as well as if they confirmed or denied that it has cooperated with that program.

In this 72-page ruling, District Judge Walker declined to dismiss the lawsuit, marking the first time that any federal court has ruled on the Bush Administration's claim that the need to protect the highly classified nature of the surveillance program requires that any court challenge be dismissed at the outset based on national security needs.

In response to the Government’s argument that dismissal was required because "the very subject matter" of the lawsuit is a state secret, Judge Walker said that no prior case which was dismissed on that ground "involved ongoing, widespread violations of individual constitutional rights, as plaintiffs allege here. Indeed, most cases in which the 'very subject matter' was a state secret involved classified details about either a highly technical invention or a covert espionage relationship.”

Then, based solely on an analysis of the Bush Administration's own public statements, and not any statements from the press or former AT&T employees, Judge Walker concluded:

"By contrast, the very subject matter of this action is hardly a secret. As described above, public disclosures by the government and AT&T indicate that A&T is assisting the government to implement some kind of surveillance program . . . [and] significant amounts of information about the government's monitoring of communication content and AT&T's intelligence relationship with the government are already non-classified on in the public record. . . .

"If the government's public disclosures have been truthful, revealing whether AT&T has received a certification to assist in monitoring communication content should not reveal any new information that would assist a terrorist and adversely affect national security. And if the government has not been truthful, the state secrets privilege should not serve as a shield for its false public statements. In short, the government has opened the door for judicial inquiry by publicly confirming and denying material information about its monitoring of communication content."

Further, he added, this case “focuses only on whether AT&T intercepted and disclosed communications or communication records to the government." He then firmly concluded:

“[I]t is important to note that even the state secrets privilege has its limits. While the court recognizes and respects the executive's constitutional duty to protect the nation from threats, the court also takes seriously its constitutional duty to adjudicate the disputes that come before it. See Hamdi v Rumsfeld, 542 U.S. 507 (2004) (plurality opinion) (‘Whatever power the United States Constitution envisions for the Executive in its exchanges with other nations or with enemy organizations in times of conflict, it most assuredly envisions a role for all three branches when individual liberties are at stake.’). To defer to a blanket assertion of secrecy here would be to abdicate that duty, particularly because the very subject matter of this litigation has been so publicly aired. The compromise between liberty and security remains a difficult one. But dismissing this case at the outset would sacrifice liberty for no apparent enhancement of security.”

Besides refusing to dismiss the case on the grounds requested by the Government, Judge Walker also declined to dismiss the case at AT&T’s request, which argued that it was acting as an arm of the government for any role in played in the eavesdropping, and thus had "qualified immunity" to the lawsuit. In response to that argument, Judge Walker flatly stated: "No firmly rooted common law immunity exists for telecommunications providers assisting the government." He later continued: "Moreover, because the 'very action in question has previously been held unlawful,' AT&T cannot seriously contend that a reasonable entity in its position could have believed that the alleged domestic dragnet was legal."

Whether Judge Walker's ruling will stand will probably depend on a number of other potential developments. First, he certified the case for an immediate appeal to the Ninth Circuit - which means that this ruling can and certainly will be directly challenged in the Ninth Circuit and possibly even in the Supreme Court. Second, Congress and the Bush Administration are currently discussing potential legislation that would move all of the challenges to the NSA spying program into the secret Foreign Intelligence Surveillance Court of Review. (See, e.g., “Blank Check to Spy,” a Washington Post Editorial, July 26, 2006). Third, there are more than 30 other challenges to the NSA program pending in other courts (including the Terkel case referred to below); and the outcomes of those cases are certain to have an impact on the validity of the NSA program in general.

For continuing updates on this case, and copies of the significant (non-sealed) pleadings that are filed, see the litigation section of the EFF’s Website at http://www.eff.org/legal/cases/att/.

U.S. v. Adelson, No. 05 Cr. 325 (JSR) (S.D.N.Y. July 20, 2006) (Judge Rakoff)

The defendant in this case, Richard P. Adelson, the former president of Impath, Inc., a publicly-traded cancer diagnosis company, was charged with a number of counts of conspiracy, securities fraud, and filing false reports with the S.E.C. The gist of the indictment was that Adelson joined a conspiracy, initially concocted by others, to materially overstate Impath's financial results, thereby artificially inflating the price of its stock.

Following a two-week trial, he was convicted of a number of those counts covering the latter part of the conspiracy, but he was acquitted of seven counts that related to the earlier part of the conspiracy. At his sentencing hearing on May 20, 2006, the Government argued that the Sentencing Guidelines, if properly calculated for Adelson's crimes, called for a sentence of life imprisonment, cabined only by the maximum of 85 years permitted under the counts of which Adelson was convicted.

Judge Rakoff found the 85-year sentence inappropriate; and he imposed instead a sentence of 42 months in prison, plus restitution in the amount of $50 million. After the Government filed a notice of appeal, Judge Rakoff filed this Sentencing Memorandum, setting forth his reasons for imposing the 42-month sentence.

With an eye on the pending appeal, Judge Rakoff observed that the proposed 85-year sentence was “patently absurd” on its face and showed “the utter travesty of justice that sometimes results from the guidelines' fetish with abstract arithmetic, as well as the harm that guideline calculations can visit on human beings if not cabined by common sense." He then continued:

“To put this matter in broad perspective, it is obvious that sentencing is the most sensitive, and difficult, task that any judge is called upon to undertake. Where the Sentencing Guidelines provide reasonable guidance, they are of considerable help to any judge in fashioning a sentence that is fair, just, and reasonable. But where, as here, the calculations under the guidelines have so run amok that they are patently absurd on their face, a Court is forced to place greater reliance on the more general considerations set forth in section 3553(a), as carefully applied to the particular circumstances of the case and of the human being who will bear the consequences. This the Court has endeavored to do, as reflected in the statements of its reasons set forth at the time of the sentencing and now in this Sentence Memorandum prompted by the dictates of Rattoballi [U.S. v. Rattoballi, 2006 U.S. App. LEXIS 14940 (2nd Cir. June 15, 2006]. Whether those reasons are reasonable will be for others to judge.

Citing Adelson’s late arrival in the conspiracy (as evidenced by the jury’s verdict), and taking into account his "exemplary" history and "deep humanity" (as evidenced by various letters submitted to the court), Judge Rakoff concluded that a 42-month sentence was a fair and appropriate sentence. He also noted that, at the May 20 sentencing hearing, he had pushed the government to defend its position “on what was effectively a life sentence” - and he commented: "Even the government blinked at this barbarity."

It will be interesting to see what the Second Circuit does with this appeal. For more on this case, see http://federalsentencing.typepad.com/developments_in_federal_s/2006/07/judge_rakoffs_s.html.

The Extraordinary Price Paid For Going to Trial

Ellen Podgor at White Collar Crime Prof blog has noted a disturbing example of what happens to white collar criminals who dare to exercise their constitutional rights to go to trial. She noted a recent case in which the ever stern and controversial Judge K. Michael Moore presided over the sentencing of one Eduardo Masferrer for his role in a securities fraud involving the Hamilton Bank. Two of Masferrer’s co-defendants decided to plead guilty and cooperate with the Government in its case against Masferrer - and they each received sentences of 28 months for their role in the fraud.

Masferrer, however, decided to go to trial rather than plead guilty - a fact that did not please Judge Moore at all. He was quoted in the Miami Herald as saying that “Anyone who commits fraud should admit guilt rather than defying regulators and causing lengthy and expensive trials.” He then sentenced Masferrer to 30 years in prison for his audacity - one of the stiffest sentences on record for a white collar crime. Still not content that he had made his message clear, Judge Moore emphasized that the exceptionally harsh punishment was needed “to send a message to the business community.”

If anyone had any doubts that the right to a jury trial has become a huge onus on defendants, this case should dispel those doubts. While it may be easy to understand - and even justify - a small sentencing disparity between co-defendants who plead guilty and those who put the Government to its burden of proof, the difference between 28 months and what is effectively a life sentence is nothing more than an odious punishment for the exercise of a constitutional right.

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