United States v. Gabayzadeh

06-5466-cr
United States v. Gabayzadeh
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY
PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of
New York, on the 27th day of June, two thousand eleven.

PRESENT: CHESTER J. STRAUB,
REENA RAGGI,
RICHARD C. WESLEY,
Circuit Judges.
--------------------------------------------------------------
UNITED STATES OF AMERICA,
Appellee,

v. No. 06-5466-cr

MEHDI GABAYZADEH,
Defendant-Appellant.
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APPEARING FOR APPELLANT: ROBERT Y. LEWIS (Jennifer Freeman,
Alexander T. Linzer, on the brief), Freeman
Lewis LLP, New York, New York.

APPEARING FOR APPELLEE: JAMES M. MISKIEWICZ (Peter A. Norling, on
the brief), Assistant United States Attorneys, for
Loretta E. Lynch, United States Attorney for the
Eastern District of New York, Brooklyn,
New York.

Appeal from a judgment of the United States District Court for the Eastern District

of New York (Joanna Seybert, Judge).
 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of conviction entered on November 29, 2006, is AFFIRMED.

Mehdi Gabayzadeh appeals his conviction for securities fraud conspiracy, see 18

U.S.C. § 371; conspiratorial and substantive bank fraud, see id. §§ 371, 1344; wire fraud, see

id. § 1343; interstate transportation of stolen property, see id. § 2314; bankruptcy fraud, see

id. § 152; conspiracy to commit perjury, see id. § 371; and obstruction of justice, see id.

§ 1512(b)(1). He contends that (1) evidentiary rulings denied him a fair trial; (2) trial counsel

was ineffective; (3) “conscious avoidance” was erroneously charged; (4) the evidence was

insufficient to support the § 2314 conviction; and (5) his sentence was unreasonable because

(a) the loss amount was incorrectly calculated, (b) a multiple-victim enhancement did not

apply, and (c) application of the Guidelines one-book rule violates the Ex Post Facto Clause.

We assume the parties’ familiarity with the facts and record of prior proceedings, which we

reference only as necessary to explain our decision to affirm.

1. Evidentiary Rulings

a. Limitation on Cross-Examination

Gabayzadeh submits that limits on his cross-examination of John Lorenz and Jacob

Lavi violated the Sixth Amendment right of confrontation. We are not persuaded.

i. Lorenz

The district court acted within its discretion in precluding questioning of Lorenz about

the date of a meeting at which he discussed aspects of the charged bank fraud with

Gabayzadeh because Lorenz had already testified extensively about prior occasions when the

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two men discussed different aspects of the fraud. See Delaware v. Van Arsdall, 475 U.S.

673, 679 (1986); accord Watson v. Green, 640 F.3d 501, 2011 WL 1843513, at *7 (2d Cir.

May 17, 2011). The district court similarly acted within its discretion in limiting cross-

examination of Lorenz about non-account-receivable transfers into the lockbox on the ground

that the minimal probative value of such testimony was grossly outweighed by the potential

for confusion and delay. See, e.g., United States v. Stewart, 433 F.3d 273, 313 (2d Cir.

2006) (upholding preclusion of cross-examination necessitating “mini-trial” in an already

lengthy and complex trial). Even if Gabayzadeh had established that the transferred funds

belonged to him, which the district court determined his proffer failed to do, his use of

money from non-fraudulent sources to prop-up corporate finances shed little light on whether

he simultaneously orchestrated the charged bank fraud.

ii. Lavi

Insofar as Gabayzadeh complains that he was not permitted to cross-examine Lavi

about false or inconsistent statements on (a) an insurance claim; (b) a bankruptcy affidavit;

and (c) a statement to federal agents regarding the means by which a request for a false

purchase order was communicated, the district court did not exceed its discretion in

concluding that such matters were collateral and more likely to be confusing than probative.

To the extent these matters cast doubt on Lavi’s credibility, they were in any event

cumulative in light of Lavi’s testimony that he had knowingly participated in the bank fraud

scheme, lied to federal agents, and only began cooperating with the government after his

arrest. See United States v. Stewart, 433 F.3d at 313 (“[T]he test is whether the jury was

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already in possession of sufficient information to make a discriminating appraisal of the

particular witness’s possible motives for testifying falsely in favor of the government.”

(internal quotation marks omitted)); see also United States v. Concepcion, 983 F.2d 369, 391

(2d Cir. 1992).

b. Exclusion of Evidence

i. The E-mails

Gabayzadeh submits that his right to present a defense was impaired by the district

court’s exclusion of two e-mails between non-witness corporate employees that supported

the defense that the chief financial officer, rather than Gabayzadeh, orchestrated the fraud.

This claim fails. The district court reasonably concluded that the e-mails were not admissible

because Lorenz, through whom Gabayzadeh sought to authenticate them, had no personal

connection to the communications. See Fed. R. Evid. 803(6) (business record exception);

see generally Jimenez v. Walker, 458 F.3d 130, 147 (2d Cir. 2006) (observing that defendant

does not have “unfettered right” to offer testimony “otherwise inadmissible under standard

rules of evidence” (internal quotation marks omitted)); cf. United States v. Kaiser, 609 F.3d

556, 574-75 (2d Cir. 2010) (upholding admission as business records witness’s personal

notes in business planner relating to fraud). In any event, the e-mails’ inculpation of a third

party was of marginal probative value in exculpating Gabayzadeh.

ii. Other Evidence

The district court equally acted within its discretion in excluding two letters from

Gabayzadeh’s paralegal to his bankruptcy counsel. Although Gabayzadeh submits that the

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letters demonstrate a good-faith belief that he owned the Neenah, Wisconsin assets, thereby

supporting his defense to wire fraud, because the letters were sent only to counsel and not

to the stalking-horse bidder, they did not undermine Gabayzadeh’s earlier unqualified

representation to the noteholders’ representative that “all of the equipment at Neenah [was]

owned” by him. Trial Tr. at 4679; Gov’t Ex. 157.

Insofar as Gabayzadeh contends that a bankruptcy settlement order should have been

admitted to rebut testimony that he abandoned his claims to the Neenah equipment, he

forfeited this argument by failing to raise it in the district court. See United States v. Fell,

531 F.3d 197, 228-29 & n.22 (2d Cir. 2008). There, he cited the order only in support of an

objection to a government exhibit showing that full payment was not made for the relevant

equipment. Further, because the settlement order established only that Gabayzadeh was paid

to settle a claim, not that he owned the equipment, it was not probative as to whether he

knowingly lied when he claimed ownership two years earlier.

iii. Harmlessness

We further conclude that the challenged limits on cross-examination and rejection of

defense evidence were in any event harmless in light of the overwhelming evidence of

Gabayzadeh’s guilt, which in addition to the direct evidence provided by Lorenz, Stein, and

Lavi, included extensive incriminating documentary evidence recovered from Gabayzadeh’s

office and Gabayzadeh’s own admission to the banks that he diverted funds from the

lockbox. See Fed. R. Crim. P. 52(a); United States v. Mercado, 573 F.3d 138, 142 (2d Cir.

2009); United States v. Paulino, 445 F.3d 211, 219 (2d Cir. 2006).

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2. Ineffective Assistance

Gabayzadeh faults trial counsel for failing to elicit testimony from Lorenz to support

the theory that Gabayzadeh first learned of the fraudulent scheme over the 2001 Labor Day

weekend. When an ineffective assistance claim is raised on direct appeal we may: (1)

decline to hear the claim, permitting it to be raised in a subsequent 28 U.S.C. § 2255 petition;

(2) remand the claim to the district court for necessary fact-finding; or (3) decide the claim

on the record before us. See United States v. Brown, 623 F.3d 104, 112-13 (2d Cir. 2010).

Although “in most cases a motion brought under § 2255 is preferable to direct appeal for

deciding claims of ineffective assistance,” Massaro v. United States, 538 U.S. 500, 504

(2003), we may address the merits where “the factual record is fully developed” and

resolution of the claim is “beyond any doubt or in the interest of justice,” United States v.

Gaskin, 364 F.3d 438, 468 (2d Cir. 2004) (internal quotation marks omitted). This is such

a case.1 Even if trial counsel was negligent in failing to elicit the Labor Day meeting

evidence, that error would not have affected the outcome of the trial because evidence of

Gabayzadeh’s prior knowledge and direction of the bank fraud was overwhelming. See

Strickland v. Washington, 466 U.S. 668, 694 (1984) (requiring “reasonable probability that,

but for counsel’s unprofessional errors, the result of the proceeding would have been

different”); accord United States v. Caracappa, 614 F.3d 30, 49-50 (2d Cir. 2010).

1
In reaching this issue, we express no view as to whether Gabayzadeh may pursue
other challenges in a future § 2255 proceeding.

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3. Conscious Avoidance Instruction

Gabayzadeh submits that error infecting the district court’s conscious avoidance

instruction requires us to vacate his wire fraud conviction. See United States v. Kaiser, 609

F.3d at 565-66 (observing that conscious avoidance charge must instruct “(1) that a jury may

infer knowledge of the existence of a particular fact if the defendant is aware of a high

probability of its existence, (2) unless the defendant actually believes that it does not exist”

(internal quotation marks omitted)). Because Gabayzadeh did not object to the charge at

trial, we review this challenge for plain error, see Fed. R. Crim. P. 30(d); United States v.

Marcus, 130 S. Ct. 2159, 2164 (2010), and identify none.

Although the district court failed strictly to follow our instruction to use “high

probability” language in charging conscious avoidance, we “do not review a jury instruction

to determine whether it precisely quotes language suggested by Supreme or Appellate Court

precedent.” United States v. Schultz, 333 F.3d 393, 413 (2d Cir. 2003). Instead, we must

determine “whether considered as a whole, the instructions adequately communicated the

essential ideas to the jury.” United States v. Sabhnani, 599 F.3d 215, 237 (2d Cir. 2010)

(internal quotation marks omitted).

Here, the district court instructed that the knowledge element of the charged crime

could be satisfied if the jury found that Gabayzadeh “acted with deliberate disregard of

whether the statements were true or false, or with a conscious purpose to avoid learning the

truth . . . unless the defendant actually believed the statements to be true.” Trial Tr. at 6287.

Unlike in United States v. Kaiser, 609 F.3d at 566, the charge in this case also instructed that

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guilty knowledge could not be established if Gabayzadeh “was merely negligent or foolish.”

Id. Further, the court charged that the jury must acquit if it found that Gabayzadeh “was not

a knowing participant in the scheme or that he lacked the specific intent to defraud.” Id.

Read as a whole, these instructions sufficiently informed the jury of the law of conscious

avoidance and did not constitute error that was plain. See, e.g., United States v. Svoboda,

347 F.3d 471, 481-82 (2d Cir. 2003); United States v. Schultz, 333 F.3d at 414.

Even if Gabayzadeh had carried this part of his burden, he cannot show that error

affected the outcome of the trial because the evidence was sufficient to permit a rational jury

to infer actual knowledge that he did not own the Neenah assets. See, e.g., United States v.

Schultz, 333 F.3d at 414 n.13 (holding that defendant who showed plain error in conscious

avoidance charge still had to meet “weighty burden of establishing that the error affected the

outcome of the trial,” which was doubtful “in light of the sufficient evidence introduced to

permit a rational jury to infer” requisite mens rea); cf. United States v. Kaiser, 609 F.3d at

567 (identifying plain error where there was “reasonable probability that the jury convicted

[defendant] on a conscious avoidance theory and that the jury would not have done so but

for the instructional error”). For that reason, permitting Gabayzadeh’s conviction to stand

would not “seriously affect the fairness, integrity or public reputation of judicial

proceedings.” United States v. Marcus, 130 S. Ct. at 2164 (internal quotation marks and

alteration omitted).

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4. Sufficiency of the Evidence

Gabayzadeh submits that the evidence was insufficient to support his conviction for

transportation of stolen property because it showed that Wells Fargo Equipment Finance, Inc.

(“Wells Fargo”) “had only creditor’s rights, and not an ownership interest” in the three Perini

rewinder machines at issue. Appellant’s Br. at 63. Because Gabayzadeh did not raise this

claim below, we review it only for plain error.

This court has recognized that the word “stolen” in 18 U.S.C. § 2314 “has been

interpreted broadly to encompass any interference with or deprivation of another person’s

property rights.” United States v. Bennett, 665 F.2d 16, 21 (2d Cir. 1981) (citing United

States v. Turley, 352 U.S. 407, 417 (1957)); see also United States v. Schultz, 333 F.3d at

402. We have not, however, had occasion to decide at what point a creditor’s property

interest in collateral securing a debt is sufficient to be “tantamount to ownership,” United

States v. Bennett, 665 F.2d at 22 (internal quotation marks omitted), such that concealment

and transfer of the collateral would give rise to criminal liability under § 2314, cf. United

States v. Bunch, 542 F.2d 629, 630 (4th Cir. 1976) (holding that automobile taken with intent

to deprive creditor of security interest was “stolen” within meaning of Dyer Act); but see

United States v. Carman, 577 F.2d 556 (9th Cir. 1978) (holding that creditor’s unsecured

interest in debtor’s cash was not sufficient to render the concealment of cash a “stealing”).

We need not decide if these circumstances suffice to demonstrate that Wells Fargo had a

property interest in the machines tantamount to ownership because even if we were to

determine that it did not, we could not conclude that such an error in failing to prove the

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“stolen” element of § 2314 was plain. See United States v. Marcus, 628 F.3d 36, 42 (2d Cir.

2010) (observing that error is “plain” where it is “clear or obvious, rather than subject to

reasonable dispute” (internal quotation marks omitted)).

5. Sentence

a. Loss Amount

Gabayzadeh, who is serving a 180-month term of incarceration, contends that his

Guidelines range providing for lifetime incarceration was based on an erroneous loss amount

of $193,461,068.10. He submits that because the government conceded difficulty in

ascertaining with certainty the actual loss sustained by victims defrauded under the $165

million completed bond offering, determining the loss for the failed $400 million bond

offering is, a fortiori, too speculative. We disagree.

We review a district court’s factual findings on loss for clear error and its conclusions

of law de novo. See United States v. Uddin, 551 F.3d 176, 180 (2d Cir. 2009). Although

loss must be established by a preponderance of the evidence, the court need not make its

finding of loss with precision, but need only make “a reasonable estimate of the loss, given

the available information.” Id. (internal quotation marks omitted); see also U.S.S.G. § 2B1.1

cmt. n.2(C) (2001) (recognizing sentencing judge’s “unique position” to estimate loss based

on evidence); United States v. Rigas, 583 F.3d 108, 120 (2d Cir. 2009).

Here, the district court’s loss calculation for securities fraud was based upon the

capital that Gabayzadeh intended to attract from investors through the $400 million bond

offering. See U.S.S.G. § 2B1.1 cmt. n.2(A) (2001) (“[L]oss is the greater of actual loss or

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intended loss.”); United States v. Ravelo, 370 F.3d 266, 271 (2d Cir. 2004) (observing that

“a loss may be intended irrespective of whether it could actually occur”). Undisputed trial

evidence showed that had this bond offering succeeded, a portion of the $400 million would

have been used to pay down approximately $140 million in bank debt and $165 million in

secured bonds, leaving approximately $100 million in net proceeds. Gabayzadeh did not

claim any contrary intent at sentencing. Cf. United States v. Confredo, 528 F.3d 143, 152

(2d Cir. 2008) (remanding for consideration of whether defendant had “proven a subjective

intent to cause a loss of less than the aggregate amount” of fraudulent loans). On this record,

the district court’s $100 million loss calculation, which represented the intended net gain

from the securities fraud scheme, was not clear error.

Gabayzadeh nevertheless contends that the $165 million combined loss for the

securities and bank fraud schemes should have been offset by $267 million in pledged

collateral, thus reducing the loss amount to zero. See U.S.S.G. § 2B1.1 cmt. n.3(E)(ii) (2001)

(mandating credit for “amount the victim has recovered at the time of sentencing from

disposition of the collateral”); see generally United States v. Turk, 626 F.3d 743, 748 (2d Cir.

2010). This claim is without merit. Contrary to Gabayzadeh’s contention, the $267 million

in collateral had not been recovered by the bank or bondholders at the time of sentencing in

September 2006. Rather, the $267 million figure represented the proceeds from the sale of

corporate assets as of December 31, 2003, i.e., prior to distribution in the bankruptcy

proceedings. Indeed, LaSalle Bank, which funded the corporate revolver, filed an affidavit

in connection with sentencing reporting its post-bankruptcy loss at $119 million, far

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exceeding the $65 million loss attributed to the bank fraud scheme by the district court.

Further, if the $267 million in collateral were properly credited in calculating loss from the

securities fraud scheme, it would be deducted from the $400 million in gross proceeds that

Gabayzadeh intended to obtain from investors for what he knew was an insolvent entity. In

short, as the district court aptly observed, it “doesn’t come to . . . less than a hundred million

dollar loss, no matter how you add it up.” Sentencing Tr. at 29.

We need not address other purported errors in the district court’s loss calculation

because, even if resolved in Gabayzadeh’s favor, the loss amount for the securities and bank

fraud schemes alone would still exceed $100 million and, thus, the 26-level enhancement was

correct. See U.S.S.G. § 2B1.1(b)(1)(N) (2001); United States v. Rigas, 583 F.3d at 120

(upholding 26-level enhancement because “regardless of the precise amount of the loss

attributable to the . . . fraud, that figure easily exceeds $100 million”).

b. Multiple-Victim Enhancement

Notwithstanding the district court’s finding that his crimes “created havoc in hundreds

of lives,” Sentencing Tr. at 85, Gabayzadeh challenges the application of a four-level

multiple-victim enhancement, see U.S.S.G. § 2B1.1(b)(2)(B) (2001) (authorizing four-level

enhancement for fifty or more victims). He submits that investors in the $165 million bond

offering properly could not be considered victims of securities fraud within the meaning of

§ 2B1.1(b) because the loss for that scheme was based on the intended loss from the failed

$400 million bond offering. See id. cmt. n.3(A)(ii) (defining “victim” as, inter alia, “any

person who sustained any part of the actual loss determined under subsection (b)(1)”

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(emphasis added)); United States v. Skys, 637 F.3d 146, 153 (2d Cir. 2011) (recognizing

error of law to include as victims individuals whose losses were not included in actual loss

calculation). Gabayzadeh contends that because the district court calculated actual losses

solely for the bank fraud and transportation of stolen property schemes, only the seven

financial institutions affected by those crimes should be counted as victims for purposes of

§ 2B1.1(b) and, thus, any victim enhancement was error.

Even if the four-level enhancement were error, the offense level would have been

reduced from 48 to 44, resulting in the same Guidelines range of life imprisonment. Based

on our review of the district court’s detailed and thoughtful discussion of reasons for

imposing a below-Guidelines sentence of 180 months’ imprisonment, we discern no adverse

effect on Gabayzadeh’s substantial rights from the purported Guidelines error. See, e.g.,

United States v. Diaz, 176 F.3d 52, 118 (2d Cir. 1999); United States v. Keppler, 2 F.3d 21,

24 (2d Cir. 1993). Indeed, the district court indicated that it was “inclined to almost go with

the recommendation of the probation department” of 240 months’ imprisonment, but

departed because of Gabayzadeh’s age. Sentencing Tr. at 86. In these circumstances, even

if we had identified error, there is no need to remand for re-sentencing.

c. One-Book Rule

Finally, Gabayzadeh’s contention that application of the one-book rule, see U.S.S.G.

§ 1B1.11(b)(3) (2001), violates the Ex Post Facto Clause, see U.S. Const. art. I, § 9, cl. 3, is

foreclosed by our recent decision in United States v. Kumar, 617 F.3d 612, 628 (2d Cir.

2010), cert. denied, --- S. Ct. ----, 2011 WL 247113 (May 31, 2011). We are not persuaded

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by Gabayzadeh’s argument that Kumar was wrongly decided. In any event, we are “bound

by the decisions of prior panels until such time as they are overruled either by an en banc

panel of our Court or by the Supreme Court.” NML Capital v. Republic of Argentina, 621

F.3d 230, 243 (2d Cir. 2010) (internal quotation marks omitted).

6. Conclusion

We have considered Gabayzadeh’s remaining arguments and conclude that they are

without merit. For the foregoing reasons, the judgment of conviction is AFFIRMED.

FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court

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