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Pietragallo's White Collar Criminal Defense Group

In today's environment, the government has never more aggressively regulated, investigated, pursued and prosecuted white collar crime. If you or your company becomes embroiled in any type of federal or state government investigation, you need experienced trial lawyers who have gone toe-to-toe with prosecutors and government agents.

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    Attorney General Announces New DOJ Charging and Sentencing Policy

    On May 10, 2017 Attorney General Jeff Sessions issued a memorandum to all federal prosecutors setting out the new administration’s policy on charging and sentencing.  The directive may result in more frequent use of mandatory minimums and longer sentences for offenders.

    Under the new policy, federal prosecutors are directed to charge and pursue the “most serious” and readily provable offense, defined as “those that carry the most substantial guidelines sentence, including mandatory minimum sentences.”  The memorandum recognizes that there may be some limited circumstance in which prosecutors find that strict application of the charging policy is not warranted.  In remarks to New York City law enforcement on Friday, May 12, the Attorney General noted that his policy gives prosecutors discretion to avoid sentences that would result in an injustice.  Assistant United States Attorneys must, however, obtain approval to charge less than the most serious offense.

    The policy represents a stark reversal of the charging guidelines crafted by the Obama administration, which directed prosecutors not to charge defendants with crimes that carried mandatory minimum sentences under Title 21 based on drug type and quantity where the defendant met certain criteria, including that the defendant’s conduct did not involve violence, trafficking to minors, or serious injury or death.  The reversal of the former administration’s charging guidelines affects prosecutors’ ability to consider the individualized circumstances and characteristics of defendants implicated in drug offenses at the charging stage.

    The new memorandum addresses sentencing policy as well.  It requires prosecutors to disclose to the sentencing court all facts that impact the sentencing guidelines or mandatory minimum sentences and to seek a reasonable sentence under the § 3553 factors in all cases. According to the policy, sentences imposed within the guideline range will be considered appropriate in most cases.


    Executive Director of Ocean City Housing Authority Pleads Guilty to Embezzling Federal Funds

    A recent case in the District of New Jersey, United States v. Alesia Watson, No. 17-05537 (D.N.J.), illustrates the government’s continued efforts against white collar crime. The executive director of the Ocean City, New Jersey Housing Authority (the “OCHA”) pleaded guilty to embezzling federal funds received from the U.S. Department of Housing and Urban Development (“HUD”) and administrated by the OCHA. According to court documents, the executive director used two credit cards to purchase sixty-nine Master Card gift cards during the period of December 2013 through March 2015. The executive director used the gift cards either for personal expenses not associated with the OCHA, or provided the gift cards to family members and friends. The executive director then used federal funds received from HUD and administrated by the OCHA to pay the credit card bills associated with the purchased gift cards. The government estimates the loss was somewhere between $6,500.00 and $15,000.00.

    The embezzlement charge carries a maximum sentence of one year in prison and $100,000.00 fine or twice the gain/ loss amount from the offense. Sentencing is set for August 15, 2017.


    Second Notice of Appeal Required to Challenge Deferred Restitution Award

    The Mandatory Victims Restitution Act, 18 U.S.C. § 3663(a), requires courts to impose restitution as part of the sentence for defendants convicted of certain crimes. But sometimes at sentencing, the amount of restitution to be imposed is not yet known. In such instances, the court may enter a judgment that sets aspects of the punishment, like a term of imprisonment or probation, while deferring the amount of restitution, which is ordered later via an amended judgment.

    In Manrique v. United States, the U.S. Supreme Court was presented with the following question: When a defendant appeals from an initial judgment that does not set a restitution amount, is he entitled to appeal the subsequently entered restitution award? By a 6-2 majority (Justice Gorsuch took no part in the decision), the Court held that a defendant endeavoring to appeal a restitution order in a deferred restitution case must file a notice of appeal from that order, i.e., the amended judgment. By failing to file a notice of appeal from the amended judgment, Manrique, who had noticed appeal of the sentence of imprisonment imposed in the initial judgment, forfeited his right to challenge the restitution amount imposed in his case.

    Per the Court, under both Federal Rule of Appellate Procedure 3(a)(1) and 18 U.S.C. § 3742(a), which governs criminal appeals, a defendant is required to file a notice of appeal after the district court has decided the issue he wishes to appeal. It thus rejected Manrique’s arguments that (1) there is only one “judgment,” as that term is used in the Federal Rules of Appeals, in a deferred restitution case, and (2) a notice of appeal filed after the initial judgment springs forward to appeal the amended judgment.

    In dissent, Justice Ginsburg, whose opinion Justice Sotamoyor joined, expressed concern that the district court had not fulfilled its obligation to notify Manrique of his right to appeal. At sentencing, the court – as it is obligated to do – told Manrique that he had a right to appeal the sentence imposed and must exercise that right within 14 days of entry of judgment. But it did not provide such notice to Manrique when it amended the judgment. Under the circumstances, Justice Ginsburg would have held that the clerk’s dispatch of the amended judgment to the Court of Appeals served as an “adequate substitute” for a second notice of appeal. 


    The Future of FCPA Enforcement Under the Trump Administration

    In 2015 and 2016, the Securities and Exchange Commission and the Department of Justice racked-up record recoveries under the FCPA in both civil and criminal fines.  It was the largest amount collected in history.  The SEC and the Department of Justice seemed to forge a well-oiled machine when it came to investigating and prosecuting myriad FCPA violations.  Indeed, in 2016 corporate defendants paid a combined $2.48 BILLION to resolve FCPA cases.  As a result of all the regulatory activity coming out of Washington, D.C., the compliance industry beefed up at every level its FCPA compliance efforts.  The question that looms is: How will FCPA matters fare under Attorney General Jeff Sessions and SEC Chair Jay Clayton?

    There has never been an executive branch that could boast more per capita net worth or experience in the global marketplace among its members than the one currently assembled.  President Trump and many of his cabinet members have business interests in China, Japan, Russia, Malaysia, India, Korea, and elsewhere that are yet to be completely understood.  The full extent of this involvement will perhaps never be known due to the positions that have been taken with regard to disclosures.  The question becomes whether FCPA prosecutions will wane.  And, if they do, will that dropping number become rather apparent, rather quickly, based on the amount of activity that has occurred in the preceding years under the Obama administration?  The SEC whistleblower program, which is still currently intact, drives tremendous amounts of tips and cases into the mix.  According to public statements, the SEC received over 4,200 tips in fiscal year 2016 alone.  This has clearly changed the prosecutorial landscape.

    In a panel appearance in New York City on April 19, 2017 entitled “Annual SEC/DOJ Enforcement 2017 Update,” the public gained insight into the government’s own thoughts on this issue.  Telemachus “Tim” Kasulis, Co-Chief of the Securities and Commodities Task Force of the U.S. Attorney’s Office for the Southern District of New York signaled no slowdown in white collar investigations and prosecutions under the new administration – at least in his office.  Mr. Kasulis has clearly heard the same theories we all have about President Trump focusing more on violent crime than holding corporate America accountable for economic crimes.  Mr. Kasulis said that violent crime and terrorism have been, and will continue to be priorities, but that has been true for many years.  The federal government can prosecute violent crime and economic crime simultaneously.  How the rest of the U.S. Attorneys’ offices will prioritize their time is still unknown, since not a single U.S. Attorney has been appointed by President Trump.

    The SEC shows no signs of slowing down, either.  At the very same conference on April 19th, Acting Director of Enforcement for the SEC, Stephanie Avakian, noted that 2016 was a record year for the SEC, with 868 actions filed and $4 billion recovered in disgorgement.  The SEC is relying more on technology and analytics to bring enforcement actions.  Fellow panelist Gary Giampetruzzi of Paul Hastings, LLP opined that FCPA enforcement will continue at a robust pace because there is a backlog of approximately 80 FCPA cases that have already been made public, and there could be more than 100 more already in the pipeline.  He also drew an analogy between the Foreign Corrupt Practices Act and the False Claims Act (“FCA”).  The FCA, in its revised form, has survived at least four changes in administrations – from Republican to Democrat, and back again.  Although many see the FCA as unfriendly to large corporations, enforcement of anti-fraud statutes is one of very few issues with bi-partisan support.  If the FCA has thrived, so too will the FCPA.

    In our global economy, with an international businessman at the helm of the Executive Branch, the world is waiting to see how – or if – President Trump will depart from President Obama’s playbook on the FCPA.  Perhaps the answer is that the FCPA will thrive as an enforcement tool not because of President Trump, but because of the momentum it gained in prior administrations.  Only time will tell. 


    Health Care Prosecutions Continue in New Administration

    Speculation is rampant concerning if and how the priorities of the U.S. Department of Justice will change under Attorney General Sessions. Looking at it from a different perspective, it is likely that certain priorities of the Obama administration will remain. Below I highlight a few recent cases involving healthcare prosecutions – an area that is likely to remain active over the next four years.

    The investigation of these matters undoubtedly took place prior to the current administration. Nevertheless, the significant dollars spent on healthcare by private insurers and the federal government alike will require the DOJ to be focused on allegations of healthcare fraud in the future. A link to the DOJ press release follows each bullet.

    • On March 6, the operator of a Los Angeles rehabilitative clinic was sentenced to 63 months imprisonment for a $3.4 million Medicare fraud scheme. The defendant, Simon Hong, pled guilty based on the allegation that he billed for occupational therapy services that were not medically necessary and not provided. Instead, patients received acupuncture and massage therapy, which were not properly reimbursable by Medicare. At Hong’s direction, co-conspiring therapists inappropriately billed the “treatment” as legitimate occupational therapy.  LINK
    • In early-March, a federal jury convicted Rex Duruji for his role in a healthcare fraud and conspiracy totaling $1.3 million. During the four-day trial in Houston, Texas, the government presented evidence that Mr. Duruji posed as a physician to induce Medicare beneficiaries to sign up for home-health services that were not provided. There was also evidence admitted at trial that Medicare beneficiaries were paid kickbacks for those claims.  LINK
    • On March 1, two Florida residents pled guilty for their role in a $20 million healthcare fraud conspiracy that paid for referrals for patients to home-health care.  Mildrey Gonzalez and Milka Alfaro, co-owners and operators of seven health agencies in the Miami area, were alleged to have paid bribes and kickbacks to physicians and other health professionals for prescriptions for home-health services and for referral of Medicare patients to their home-health agencies.  LINK



    Sexual Harassment Claims at Educational Institutions, including Medical Residence Programs, Covered by Both Title VII and Title IX

    On March 7, 2017 the Third Circuit issued its opinion in Doe v. Mercy Catholic Med. Ctr., 16-1247, --- F.3d ----, 2017 WL 894455 (3d Cir. Mar. 7, 2017) addressing two matters of first impression in the Third Circuit: (a) whether a hospital’s residency program was an education program under Title IX of the Education Amendments of 1972; and (b) whether an employee of an educational program covered by Title IX could seek relief for sex discrimination despite the availability of relief under Title VII. 

    In Doe, plaintiff, a former medical resident of the defendant medical center, a private teaching hospital with a medical program, brought a claim of sex discrimination against Defendant.  The District Court dismissed plaintiff’s complaint, finding that Mercy was not an “education program or activity” under Title IX. 

    The Third Circuit found that Title IX applied to Mercy’s medical residency program.  The Court recognized that “education program or activity” was left undefined by statute but that Mercy’s position that the statute only applies to entities (unlike Mercy), principally engaged in providing educational offerings was untenable given the wide breadth of Title IX.  The Third Circuit found that a “program or activity” is covered by Title XI “if it has features such that one could reasonably consider its mission to be, at least in part, educational.” Id. at *6 (internal quotation marks and citations omitted).  The holding is in accord with case law from the First, Second, Eight, and Ninth Circuits as well as the interpretations of twenty-one federal agencies.  Id. at *6.  

    In analyzing the framework for the “educational program or activity” inquiry, the Court considered whether:

    (A) a program is incrementally structured through a particular course of study or training, whether full- or part-time; (B) a program allows participants to earn a degree or diploma, qualify for a certification or certification examination, or pursue a specific occupation or trade beyond mere on-the-job training; (C) a program provides instructors, examinations, an evaluation process or grades, or accepts tuition; or (D) the entities offering, accrediting, or otherwise regulating a program hold it out as educational in nature.


    The Court noted that Mercy’s program had various trappings of an educational program (e.g. lectures, exams, and a general focus on regimented training and studying) which showed that its mission was, at least in part, educational.  The Court also found that that Mercy’s association with Drexel University’s medical school (where plaintiff, in fact, took certain classes) supported a finding that Mercy was covered by Title IX.  Id. at *7.   

    The Third Circuit then addressed whether plaintiff’s discrimination claims were cognizable as private causes of action under Title IX.  Id. at *8.  The Court noted, pertinently, that Title IX, unlike Title VII, does not require administrative exhaustion as prerequisite of suit, potentially putting the statute in tension with Title VII’s exhaustion requirements.  While plaintiff may have been a student as well as an employee, plaintiff still fit the bill of employee: she provided various services to Mercy as a medical resident; she received a work schedule; and, the Court presumed, she received taxable payments from Mercy for her services.  The Court concluded that Plaintiff could pursue a Title IX claim despite her ability to also pursue relief under Title VII.  The court therefore found that Title IX protects both students and employees and that Plaintiff’s Title IX claims were legally cognizable. 

    The Third Circuit noted that its decision was in line with decisions from the First and Fourth Circuits but at odds with decisions from the Fifth and Seventh Circuits, the latter Circuits holding that Title VII is the exclusive federal remedy for sex discrimination claims by employees against their employers. Given the widening circuit split on this crucial issue, it is likely only a matter of time before the issue comes before the U.S. Supreme Court.  In the interim, employers whose mission, at least in part, may be deemed educational may incur exposure under Title IX from sex discriminations claims without the protections of administrative exhaustion requirements.    


    Mobile Health App Makers Investigated for Fraud Enter into Settlement With the Office of the Attorney General for the State of New York

    New York State Attorney General, A.G. Schneiderman, has put mobile health application developers on notice - “We won’t tolerate non-evidence-based apps that threaten the wellbeing of New Yorkers”.

    On March 23, 2017, AG Schneiderman announced settlements with three mobile health application developers after a year-long investigation into the marketing of mobile health applications distributed through Apple’s App Store and Google Play.  Three of the companies targeted in the investigation Cardiio, Runtastic, and Matis each entered into settlement agreements that require the companies to: (1) provide additional information about the testing of their apps; (2) change their ads to make them non-misleading; (3) post clear and prominent disclaimers informing consumers that the apps are not medical devices and are not approved by the FDA; and, (4) to pay $30,000 in combined penalties to the Office of the Attorney General.

    The settlements also require the developers to make certain fundamental changes to their apps to protect consumers’ privacy. The developers are now required to (1) secure affirmative consent to their privacy policies for these apps; and (2) disclose what information they collect and share that may be personally identifying, including a users’ GPS location, unique device identifier, and “deidentified” data that third parties may be able to use to re-identify specific users.

    Cardiio is an app “downloaded hundreds of thousands of times that claims to measure heart rates” during rigorous exercise, yet the accuracy of the app had not been tested for that purpose.  The Runtastic app “purports to measure heart rate and cardiovascular performance under stress” and again, as noted by the N.Y. AG’s office, the developer had failed to test the apps accuracy with users who had engaged in vigorous exercise.  Matis, an app downloaded hundreds of thousands of times, had previously claimed that its app could turn any smartphone into a fetal heart monitor, despite the fact that: (1) it had never been approved by the FDA; and, (2) it never conducted a comparison to an FDA approved fetal heart monitor or any other device that had been scientifically proven to amplify the sound of a fetal heartbeat.

    In announcing the settlement with these three companies, AG Schneiderman noted that “Mobile health apps can benefit consumers if they function as advertised, do not make misleading claims, and protect sensitive user information”.

    Although the Cardiio, Runtastic and Matis settlements primarily involved issues of fraudulent advertising and privacy --- developers of health care apps and software should take notice of the U.S. Food and Drug Administration regulations and guidance’s pertaining to certifications of “Mobile Medical Applications”. Generally speaking, the U.S. Food, Drug and Cosmetic Act prohibits manufacturers from distributing in interstate commerce any new medical device for any intended use that the FDA has not approved as safe and effective or cleared through a substantial equivalence determination. The FDA has determined that mobile medical applications, including those used on mobile phones (“MMA”), are in fact medical devices if they are intended to either: (1) be used as an accessory to a regulated medical device; or (2) to transform a mobile platform into a regulated device. Further, if a MMA is intended for use in performing a medical device function (i.e. for diagnosis of disease or other conditions, or the cure, mitigation, treatment, or prevention of disease) it is a medical device regardless of the type of platform on which it is run.

    The Cardiio, Runtastic and Matis settlements are an important reminder that as technology, including the use of telemedicine, continues to integrate steadily into the provision of all manner of patient care, depending upon a health care application’s intended use, the developer of an app could quickly find itself involved in claims that go well beyond false advertising and privacy concerns. Rather, it could get caught up in more serious claims of civil and criminal health care fraud based upon the use of the MMA in treating a patient if there is a submission of a claim for reimbursement under a government health care program.


    Telemedicine Alert


    The State Medical Board of Ohio (SMBO) has released Rules 4731-11-01 and 4731-11-09 which take effect March 23, 2017.  As previously reported in Ohio Medical Board Telemedicine Prescribing Rule Update, the SMBO has chosen to take an approach consistent with several other states’ more recent statutory/regulatory amendments to their telemedicine rules.  That is, rather than delineating a set of specific  requirements as to how a physical exam should be conducted remotely, the SMBO has taken a more balanced approach focusing instead on documentation of the visit, informed consent, follow-up care, etc.  With regard to the issue of how to properly conduct a remote physical exam, the rule leaves the discretion of whether or not telemedicine is the appropriate forum for the patient visit where it belongs, with the provider. 

    As an initial matter, Rule 4731-11-09 defines “informed consent” as:

    [a] process of communication between a patient and physician discussing the risks and benefits of, and alternatives to, treatment through a remote evaluation that results in the patient's agreement or signed authorization to be treated through an evaluation conducted through appropriate technology when the physician is in a location remote from the patient.

    Further, a “patient” is defined as:

    [a] person for whom the physician provides healthcare services or the person's representative.

    Additional definitions and references of importance are contained within Rule 4731-11-01.

    With regard to the central purpose of 4731-11-09, Prescribing to persons not seen by the physician, the rule now authorizes a provider to prescribe non-controlled substances to a patient whom the provider has never physically examined and who is in a remote location from the provider, when the provider:

    • Establishes the patient’s identity and physical location;
    • Obtains the patient’s informed consent for treatment through remote examination;
    • Obtains the patient’s consent to forward the medical record to the patient’s PCP or other healthcare provider;
    • Completes a medical evaluation through interaction with the patient that meets the minimal standards of care appropriate to the condition for which the patient presents;
    • Establishes a diagnosis and treatment plan, including documentation of necessity for the utilization of a prescription (non-narcotic) drug; including contraindications to the recommended treatment;
    • Documents the consent to remote care, pertinent history, contraindications and referrals made to other providers;
    • Provides appropriate follow-up care or recommended follow-up care;
    • Makes the medical record of the visit available to the patient; and
    • Uses appropriate technology that is sufficient for the physician to conduct all of the above steps and as if the medical evaluation occurred in-person.   

    In a departure from other states, Ohio’s new regulation also permits prescribing of controlled substances to a patient located remotely from the provider in the following instances:

    • On-call/cross-coverage arrangements of active patients of a physician and the physician complies with the standards of prescribing non-controlled substances to remotely located patients;
    • The patient is: (1) physically located in a hospital/clinic that is DEA registered to personally furnish or provide controlled substances; (2) is being treated by a healthcare provider acting in the usual course of their practice and within the scope of their license, and they are DEA registered to prescribe controlled substances in Ohio;
    • The patient is being treated by, and in the physical presence of, a healthcare provider acting in the usual course of their practice and within the scope of their professional license, and is DEA registered to prescribe controlled substances in Ohio;
    • The physician has obtained from the DEA a special registration to prescribe or otherwise provide controlled substances in Ohio; and
    • The physician is: (1) the medical director, hospice physician, or attending physician for a "hospice program" licensed in Ohio or, (2) is a medical director or attending physician for an "institutional facility" licensed in Ohio, and (3) in either instance: (a) the patient is enrolled in that hospice program or is an inpatient at the institutional facility, and (b) the prescription is transmitted to the pharmacy consistent with Ohio board of pharmacy rules.

    Interestingly, the regulation points out that “[n]othing in this rule shall be construed to imply that one in-person physician examination demonstrates that a prescription has been issued for a legitimate medical purpose within the course of professional practice.”  Again, in my opinion, this emphasizes that the burden is on the provider to demonstrate that the appropriate standard of care has been met for each patient seen, whether or not in-person or remotely.

    With regard to disciplinary enforcement by the SMBO, the regulation notes that “A violation of any provision of this rule, as determined by the board, shall constitute any or all of the following”:

    1. "Failure to maintain minimal standards applicable to the selection or administration of drugs," as that clause is used in division (B)(2) of section 4731.22 of the Revised Code;
    2. "Selling, prescribing, giving away, or administering drugs for other than legal and legitimate therapautic purposes," as that clause is used in division (B)(3) of section 4731.22 of the Revised Code; or
    3. "A departure from or the failure to conform to minimal standards of care of similar practitioners under the same or similar circumstances, whether or not actual injury to a patient is established," as that clause is used in division (B)(6) of section 4731.22 of the Revised Code.

    For a copy of the new rule, click on the following embedded links: 4731-11-09 and 4731-11-01.


    Odebrecht and Braskem to Pay Record-Setting FCPA Penalty

    Brazilian conglomerate Odebrecht S.A., and its affiliated petrochemical company, Braskem S.A., agreed to pay at least $3.2 billion combined to resolve criminal charges that the companies conspired to violate the anti-bribery provisions of the Foreign Corrupt Practices Act.  The scheme, as described by the government in documents filed in the U.S. District Court for the Eastern District of New York, ran from 2001 to 2015, during which time the companies employed “an elaborate, secret financial structure” to pay almost $800 million in bribes on three continents. Odebrecht kept Brazilian politicians on retainer, and the politicians favored the company with the passage of friendly tax legislation and contracts with the state-owned oil firm, Petrobras. Set forth below are the most interesting aspects of the largest anti-corruption settlement history:

    • The U.S. Sentencing Guidelines call for an even larger payout. The parties agreed that, under the Guidelines, Odebrecht’s base penalty is $3.336 billion and the appropriate multiplier is between 1.8 and 3.6, for a total range of between $6.0048 and $12.0096 billion. For Braskem, the Guidelines establish a base penalty of more than $465 million, a multiplier of between 1.6 and 3.2, and a total penalty of between $744 million and almost $1.5 billion.
    • The government agreed to a below-Guidelines fine based on cooperation and ability to pay. Because of Odebrecht and Braskem’s cooperation in ongoing investigations, the government agreed to recommend reductions for both companies. Odebrecht got a 25% reduction beyond the bottom end of the Guidelines range to $4.5 billion, while Braskem received a 15% discount to $632 million.  The government agreed to further reduce Odebrecht’s penalty based on the company’s attestation that it cannot pay all $4.5 billion and stay afloat.
    • The exact amount of the fine will not be determined until sentencing. To secure the ability-to-pay settlement, Odebrecht has opened its books to the government, which could advocate for a larger amount at sentencing if it feels the company can pay more while remaining in business.  During the plea hearing, U.S. District Judge Raymond Dearie expressed skepticism about letting the company plead guilty without knowing what the penalty would be, but defense counsel assured the Court that Odebrecht understood the parameters of the deal.
    • Braskem also resolved a civil case filed by the SEC based on the same allegations. The company agreed to disgorgement of $325 million in profits, bringing the total recovery from Odebrecht and Braskem to approximately $3.6 billion.
    • Most of the recovery will go to Brazil. As Brazilian authorities led the investigation and the Brazil suffered most of the loss, the Brazilian government will recoup more than 70% of the total penalty.  The rest will be split between the United States and Switzerland. 

    SCOTUS Asked to Determine Third Party Subpoena Standard in Criminal Cases

    A petition for writ of certiorari to the U.S. Supreme Court filed on October 18 could lead to much-needed guidance on the circumstances under which criminal defendants can serve subpoenas on third parties. Michael T. Rand, a former Beazer Homes USA executive convicted of conspiring to commit securities and accounting fraud and sentenced to 10 years’ imprisonment, asked the Court to consider whether the standards set forth United States v. Nixon, 418 U.S. 683 (1974), apply to subpoenas served on third parties pursuant to Federal Rule of Criminal Procedure 17.

    Under Rule 17(c)(1), “[a] subpoena may order the witness to produce any books, papers, documents, data, or other objects the subpoena designates.” On a timely filed motion, “the court may quash or modify the subpoena if compliance would be unreasonable or oppressive.” Id. 17(c)(2).

    In Nixon, the Supreme Court articulated a heightened standard for subpoenas served on the prosecuting authority, requiring that such subpoenas seek specific, relevant, and admissible evidence. 418 U.S. at 700.  In so holding, the Court recognized that Federal Rule of Criminal Procedure 16 entitles the defendant only to limited discovery from the government. If Rule 17 expanded those limits, it reasoned, Rule 16 would have no meaning.

    The Nixon Court expressly left open the question whether “a lower standard exists” when the subpoena “is issued to third parties.” Id. at 699 n.12.  However, many – if not most – courts have applied the heightened Nixon standard to third party subpoenas.  That includes the U.S. District Court for the Western District of North Carolina, which denied Rand’s request to subpoena accounting records from his former employer, and the U.S. Court of Appeals for the Fourth Circuit, which affirmed the denial of the subpoena and Rand’s conviction and sentence.

    Other courts have applied a more permissive standard – i.e., the plain language of Rule 17(c) – when evaluating requests to issue third party subpoenas. While no Circuit Court has held that Nixon does not extend to such subpoenas, there are intra-circuit disagreements as to the appropriate standard.  Indeed, even intra-district divisions persist, with judges in districts that handle a substantial number of white collar criminal matters, such as the Southern District of New York and the Western District of North Carolina, imposing different standards on third party subpoenas.

    Moreover, there is a strong textual argument that the Fourth Circuit and the other cases that have applied Nixon to third party subpoenas have gotten it wrong. Rule 16’s limitations apply only to the defendant’s right to seek discovery from the government and the government’s reciprocal right to seek discovery from the defendant.  No rule curbs the parties’ ability to seek discovery from third parties; indeed, as stated above, Rule 17 requires the production of “any books, papers, documents, data, or other objects the subpoena designates” and permits court intervention, on timely motion, only when “compliance would be unreasonable or oppressive.”  

    The Supreme Court declines many more cases than it hears.  In the last decade, it has granted between 1% and 7% of petitions for a writ of certiorari in criminal cases, depending on the year.  While any individual case is a long shot for high court review, (1) the division among lower courts on whether to apply Nixon to third party subpoenas, and (2) the viable argument that such an application offends the plain language of Rule 17 – and impermissibly curbs a defendant’s right to acquire evidence that would assist in his defense – hopefully will increase the odds that the Court considers this important issue.         

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