EXHIBIT 1

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 1 of 69
 1

UNITED STATES DISTRICT COURT

UNITED STATES DISTRICT COURT 

 FOR THE DISTRICT OF ARIZONA 

 _________________ 

United States of America, ) 

 ) 

 Plaintiff, ) CR-18-0422-PHX-SPL 

 ) 

 vs. ) Phoenix, Arizona 

 ) January 25, 2019 

Michael Lacey, ) 9:35 a.m. 

James Larkin, ) 

Scott Spear, ) 

John Brunst, ) 

Andrew Padilla, ) 

Joye Vaught, ) 

 ) 

 Defendants. ) 

 ) 

______________________________) 

 

BEFORE: THE HONORABLE STEVEN P. LOGAN, JUDGE 

REPORTER'S TRANSCRIPT OF PROCEEDINGS

STATUS CONFERENCE

Official Court Reporter: 

Elva Cruz-Lauer, RMR, CRR 

Sandra Day O'Connor U.S. Courthouse, Suite 312 

401 West Washington Street, Spc. 33 

Phoenix, Arizona 85003-2151 

(602) 322-7249 

Proceedings Reported by Stenographic Court Reporter

Transcript Prepared by Computer-Aided Transcription

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 2 of 69
 2

UNITED STATES DISTRICT COURT

A P P E A R A N C E S 

For the Government: 

 U.S. Attorney's Office 

 By: KEVIN M. RAPP, ESQ. 

 ANDREW C. STONE, ESQ. 

 MARGARET WU PERLMETER, ESQ. 

 40 North Central Avenue, Suite 1200 

 Phoenix, AZ 85004 

 U.S. Attorney's Office 

 By: JOHN JACOB KUCERA, ESQ. 

 312 North Spring Street, Suite 1200 

 Los Angeles, CA 90012 

 U.S. Attorney's Office 

 By: REGINALD E. JONES, ESQ. 

 1400 New York Ave. NW, Ste. 600 

 Washington, DC 20530 

For the Defendant Lacey: 

 Lipsitz Green Scime Cambria 

 By: PAUL JOHN CAMBRIA, JR., ESQ. 

 42 Delaware Avenue, Suite 120 

 Buffalo, NY 14202 

For the Defendants Lacey and Larkin: 

 Davis Wright Tremaine LLP 

 By: ROBERT CORN-REVERE, ESQ. 

 1919 Pennsylvania Ave. NW, Ste. 800 

 Washington, DC 20006 

For the Defendant Larkin: 

 Bienert Miller & Katzman 

 By: THOMAS HENRY BIENERT, JR., ESQ. 

 903 Calle Amanecer, Suite 350 

 San Clemente, CA 92673 

For the Defendant Spear: 

 Feder Law Office 

 By: BRUCE S. FEDER, ESQ. 

 2930 East Camelback Road, Suite 205 

 Phoenix, AZ 85016 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 3 of 69
 3

UNITED STATES DISTRICT COURT

For the Defendant Brunst: 

 Kimerer & Derrick 

 By: MICHAEL D. KIMERER, ESQ. 

 1313 East Osborn Road, Suite 100 

 Phoenix, AZ 85014 

 Bird Marella Boxer Wolpert Nessim 

 Drooks Lincenberg & Rhow 

 By: GOPI K. PANCHAPAKESAN, ESQ. 

 1875 Century Park E, Suite 2300 

 Los Angeles, CA 90067 

For the Defendant Padilla: 

 Piccarreta Davis Keenan Fidel 

 By: MICHAEL L. PICCARRETA, ESQ. 

 2 East Congress Street, Suite 1000 

 Tucson, AZ 85701 

For the Defendant Vaught: 

 Karp & Weiss 

 By: STEPHEN M. WEISS, ESQ. 

 3060 North Swan Road 

 Tucson, AZ 85712 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 4 of 69
 4

UNITED STATES DISTRICT COURT

P R O C E E D I N G S

THE CLERK: Criminal case 18-422, United States of

America versus Michael Lacey and others. 

This is the time set for status conference.

MR. RAPP: Good morning, Your Honor. Kevin Rapp,

Reggie Jones, John Kucera, Andrew Stone and Peg Perlmeter on

behalf of the United States.

THE COURT: Good morning to all of you.

MR. CAMBRIA: Morning, Your Honor. Paul Cambria on

behalf of Mr. Lacey, who is here.

THE COURT: Good morning.

MR. CORN-REVERE: Good morning, Your Honor. Robert

Corn-Revere, Davis Wright Tremaine, for Mr. Larkin and Lacey.

THE COURT: Good morning.

MR. BIENERT: Good morning, Your Honor. Thomas

Bienert on behalf of Mr. Larkin, who is present.

THE COURT: Good morning, Your Honor. 

MR. FEDER: Morning, Your Honor. Bruce Feder for

Scott Spear, who is also present.

THE COURT: Good morning. 

MR. WEISS: Your Honor, good morning. Steve Weiss on

behalf of Joye Vaught, and I waive her presence.

THE COURT: Good morning. Did you file a motion to

waive presence?

MR. WEISS: I did not.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 5 of 69
 5

UNITED STATES DISTRICT COURT

THE COURT: Okay. In this district, we generally do

this. I will let you get away with it this time, but the next

time, you need to make sure you file the motion, okay?

MR. WEISS: Thank you.

THE COURT: Thank you.

MR. PICCARRETA: Judge, Mike Piccarreta on behalf of

Andrew Padilla, and I similarly waived his presence, and we did

not file a motion. I read the rule and saw it was not a

mandatory appearance.

THE COURT: It's mandatory here. You need to file a

motion, okay?

MR. PICCARRETA: We will in the future.

THE COURT: Perfect. 

Good morning to everyone. I have the status hearing.

MR. KIMERER: Your Honor, excuse me. 

THE COURT: Oh, I am sorry. 

MR. KIMERER: Michael Kimerer appearing on behalf of

Jed Brunst. Also --

THE COURT: We need to speak in microphones. If you

will step forward, please.

MR. KIMERER: Yes. Michael Kimerer, and Gopi -- I

always have difficulty with Gopi's last name. We are appearing

on behalf of Jed Brunst, and Jed Brunst is present at this

time.

THE COURT: Sir, how do you pronounce your last name?

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 6 of 69
 6

UNITED STATES DISTRICT COURT

MR. PANCHAPAKESAN: Gopi Panchapakesan, Your Honor.

THE COURT: Good morning to you two as well.

Is there anyone else?

This is time set for the status hearing. This Court

is in receipt of Document Number 443, which is the defendants'

joint status report. I have Document Number 444, which is the

status memorandum from the United States Government, and I have

Document Number 446, which is the United States' response to

the defendants' joint status report, which is Document Number

44 -- I'm sorry, which is document number 446.

Mr. Stone or Mr. Rapp or Mr. Kucera or Mr. Jones,

what's the status of discovery in this case?

MR. JONES: Reggie Jones on behalf of the United

States, Your Honor. If I may approach?

THE COURT: Go ahead.

MR. JONES: If it is okay with Your Honor, the

government would like to start off by addressing some of the

issues as it pertains to the scheduling order and the discovery

in the case historically, Your Honor. 

The United States has complied fully with the

scheduling order as it pertains to discovery, Your Honor. And

as it's the defendants' contention that we have just dumped ten

million documents on them, Your Honor, it's just not the case.

To start, Your Honor, the government produced more

than seven million documents to the defendants in an agreed

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 7 of 69
 7

UNITED STATES DISTRICT COURT

industry-wide standard format, Your Honor. We were all here in

court in April 2018. We all agreed upon, and the Court adopted

--

THE COURT: You know what, Mr. Jones, everything that

you have to tell me this morning is incredibly important, and I

want to make sure I can take some notes, so if you could slow

down, it would be helpful.

MR. JONES: Will do, Your Honor. Thank you.

In an agreed-upon format, we were all here in April

2018, and the Court adopted its scheduling order.

The government, in May of 2018, produced to defendants

these seven million documents, Your Honor. Not only did we

produce to the defendants these seven million documents more

than 20 months prior to trial, we also produced indexes, Your

Honor, consisting of more than 25 categories denoting the

source from which these materials were obtained, Your Honor.

THE COURT: Okay. One -- just one minute. My

apologies for interrupting you, Mr. Jones.

I need -- Mr. Feder, has the index been helpful?

MR. FEDER: No, Your Honor, because --

THE COURT: Why not?

MR. FEDER: Because it's in a program called

"Relativity," which the defense attorneys then need to buy.

Seven million documents, it is difficult to go through them. I

can give the Court a great example, because it involves the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 8 of 69
 8

UNITED STATES DISTRICT COURT

Brady obligations of the government, which the government I

think at our last hearing indicated that they didn't have any

Brady to produce.

My secretary was trying to go through the discovery

from the government last week and came across what we would

call attaboy -- 30 pages of attaboy emails from various law

enforcement agents all over the country sent to Backpage

congratulating them on their cooperation in helping to send

them ads of what were suspected to be child prostitution ads.

Those were not produced.

The government represented to this Court that they

didn't have any Brady to produce, and it was not under any

particular label in the government's production of discovery.

That's one example.

THE COURT: Is there any defense counsel that is

currently here that has found the index that the United States

Government has provided to you to be helpful? That's a

negative response from everyone. 

Mr. Jones, my apologies for interrupting. Go ahead.

MR. JONES: Your Honor, in addition to the indexes,

Your Honor, we have offered to defendants a DOJ Relativity

support specialist to assist them in navigating these

documents, Your Honor. 

And as a matter of fact, we have --

THE COURT: Is this person still in -- is the person

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 9 of 69
 9

UNITED STATES DISTRICT COURT

working? I know none of the AUSAs -- none of you all are being

paid right now, so is that person working?

MR. JONES: That's right, Your Honor. 

And as a matter of fact, we were on a two-hour

conference call with the defense at the outset of this case,

Your Honor, with two DOJ support specialists, Your Honor,

walking them through facilitating their review of the documents

and offered to do this whenever it was needed, Your Honor.

In addition to this, Your Honor, approximately seven

months ago in July of 2018, we produced more than 1,000 pages

of hot documents, i.e., documents specifically related to the

allegations contained in the superceding indictment. We gave

these to defense counsel, Your Honor.

We supplemented this hot document production in

September with an additional 400 pages of hot documents.

Documents, like I say, Your Honor, that the government feels is

most important to its case and/or related to the documents --

the indictment.

We even took this a step further, Your Honor. Based

on several of these defense counsel's requests, we segregated

these hot documents and tailored them to each respective

defendant, Your Honor, and have offered to and have on occasion

met with defense counsel and participated in conference calls

to discuss their clients' exposure and also the details of

these documents with the defendants and have offered to do this

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 10 of 69
 10

UNITED STATES DISTRICT COURT

for all of them, Your Honor, as it pertains to these 1500

documents.

Another point, Your Honor, that I think is very

important to address today is that of these seven million

documents, more than two million pages of these documents, Your

Honor, are actually just reproductions.

These are documents that Backpage provided to the

Senate during its investigation of Backpage and to the

government as part of the Arizona Grand Jury investigation

where the Court required them to provide these documents to us,

Your Honor.

THE COURT: So your argument is that the two million

pages they should be very, very familiar with, at this point.

MR. JONES: That's correct, Your Honor.

One other point I wanted to address, Your Honor, is

that more than half of its discovery, more than five million

documents come from a source entitled "Costar materials," Your

Honor.

THE COURT: Whoever has a phone going off, if you can

please silence your phone, that would be very helpful.

My apologies again, Mr. Jones. You have been

interrupted several times, sir. Go ahead.

MR. JONES: That's okay.

They come from a source called the Costar materials,

about five million documents. And we understood, Your Honor,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 11 of 69
 11

UNITED STATES DISTRICT COURT

that's very voluminous; five million is a lot of documents. So

we said, okay, we will agree to provide the defense counsel

with any documents from this source that we intend or might

utilize at trial, and we did so, Your Honor, in August of 2018.

So as you can see, Your Honor, the United States has

been very forthcoming, unusually forthcoming when it comes to

discovery in this case, so it is very surprising when we saw

the defendants' status conference memo that they -- let me make

sure I get this right -- that they are unable to make any

meaningful review of these documents, Your Honor.

That really surprised us, given the efforts that we

have come in trying to release these documents to the

defendants.

And just doing a bit of comparing and contrasting,

Your Honor, the Enron federal case, which is the case we all

know out of Texas, and that case was a lot more massive than

our case. It contained hundreds of millions of documents in

that case. Your Honor, the defendants were indicted in that

case in February 2004, the CEO of Enron and codefendants,

superceded in July of that year.

Your Honor, that trial -- trial commenced in that case

in January of 2006, approximately 23 months post indictment, a

case with hundreds of millions of documents, Your Honor. A

case where the government --

THE COURT: Were all the defendants' assets seized by

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 12 of 69
 12

UNITED STATES DISTRICT COURT

the government in that case?

MR. RAPP: Yes.

MR. JONES: Yes, that is correct, Your Honor.

And with that case, Your Honor, just in comparing and

contrasting discovery in that case, Your Honor, defense were

given servers in that case detailing email accounts of over 500

employees, they were given 1500 CDs in that case, 70 hard

drives, and 1500 boxes of paper documents in that case. And

that case still proceeded to trial 23 months post indictment.

THE COURT: Did they have prosecutions in different

jurisdictions?

MR. JONES: Correct, Your Honor. That's correct.

Defendants in this case have got no paper documents.

Everything that we have given them has been in the industry

standard format that they all agreed to -- we all agreed to in

April of 2018, that they would be provided in. 

We have provided them indexes, Your Honor, and we're

still, Your Honor, 21 months post indictment. So just

comparing and contrasting this case with theirs.

One other point I wanted to make, Your Honor, in

regards to the Enron case is, in regard to Jencks materials,

Your Honor. As the scheduling order sets out, the government's

agreed to provide the defendants with Jencks material

approximately 11 months before trial.

As Your Honor is aware, in most federal cases

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 13 of 69
 13

UNITED STATES DISTRICT COURT

defendants aren't given Jencks materials until after a witness

has testified at trial. We are giving it to them 11 months

before trial.

And in the Enron case, the judge didn't order Jencks

materials to be turned over until 30 days before trial, Your

Honor. We are giving them to them 11 months.

One final point, Your Honor, is that witness

statements, as well as an exhibit list, we agreed to turn this

over, detailed witness statements and exhibit list,

approximately nine months before trial.

So, you know, the United States admits that we have

bent over backwards, Your Honor, to make this as seamless a

process as we can in complying with our discovery obligations

here.

THE COURT: Well, Mr. Jones, I know on the scheduling

order that has been approved by this Court, Document Number

131, the initial compliance with Rule 16 discovery is set

for -- the expert disclosure requirements was due the 3rd of

December, 2018. Percentage-wise, how much discovery has been

given to the defense? How much was given by the 3rd of

December of 2018?

MR. JONES: I think --

THE COURT: You can confer with your colleagues if you

need to. Percentage-wise.

MR. JONES: I would like to address --

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 14 of 69
 14

UNITED STATES DISTRICT COURT

THE COURT: Mr. Rapp, if you need to move up to the

lectern, you can. Come on up. If you are the resident expert

on that question, answer it.

MR. JONES: Your Honor, we were just conferring

about -- there are a couple of outstanding areas, but let me

answer -- to answer your question, first, other than these two

outstanding areas that I am about to address, more than 90

percent of the discovery has been given to defendants to date.

THE COURT: And that was by the 3rd of December, 2018?

MR. JONES: That's correct, Your Honor. I would like

to address the filter review and also the servers, Your Honor.

As Your Honor knows, you approved a filter protocol a

couple of days ago, and so we had ceased, you know --

MR. RAPP: -- review.

MR. JONES: -- review of some of our documents, you

know, as per defendants' request in May of 2018.

Now that our filter protocol has been reviewed, we

have a few categories, documents, i.e., the defendants' tax

records, third-party IT firm, Your Honor, and also some of the

personal devices that need to go through that attorney filter

review. But those documents should be disseminated to them as

well within the next couple of months or so since the filter

protocol is in place.

One other besides that filter review, Your Honor, we

also seized a large amount of servers in this case; to be

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 15 of 69
 15

UNITED STATES DISTRICT COURT

specific, Your Honor, more than 70 servers were seized in this

case.

Five of these servers, Your Honor, were seized in

Dallas, and they contain, you know, paper processing data, as

well as, you know, some of the email data. The email data

would be sent through our filter protocol and be given to them

shortly. 

This paper processing data is currently in the

possession of FBI. Defense has requested, you know, review of

this paper processing data, and FBI is currently imaging those

servers, and that should be available to them shortly as well,

Your Honor.

One other point regarding the servers is that we

seized also about 40 servers in Amsterdam, and because of, you

know, how slow sometimes the MLAT process can be -- but we have

obtained about nine of those servers, which we believe, to the

best of our knowledge, contain all the totality of the

marketplace data, Your Honor. So all of the ads, both

internationally and domestically, are contained on those

servers.

And although we -- defense asked specifically for, you

know, to be able to access the ads, as well as the paper

processing data, Your Honor. And so the ad data is at a FBI

facility here in Phoenix now and available for them. Whenever

they would like to, we can work with the technical folks to set

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 16 of 69
 16

UNITED STATES DISTRICT COURT

up a time for them to review any of the server -- ad

information on the servers, Your Honor.

Although I would like to point out that this isn't new

information, Your Honor. These are ads that were on, you know,

Backpage for the past 14 years. They were classified ads on

their site, so these are just millions and millions of ads that

they have seen for the past 14 years, ads that they have turned

over to the Senate, ads that they have turned over to us as

part of the grand jury proceedings compliance.

THE COURT: Mr. Jones, is that part of the 10 percent

that's currently outstanding?

MR. JONES: No, not the -- well, not -- if you didn't

count the server information, Your Honor, we probably would say

that probably 95 or so percent of the discovery has been turned

over. Because I didn't count that server with that discovery,

but, I mean, those are the only two outstanding categories as

it pertains to discovery.

But as far as the ads, Your Honor, like that ad

information, like we said, is not new. This is information

that we detailed in the superceding indictment, emailed ads

that have been detailed in a lot of civil suits.

How they plan to use millions and millions of these

ads or what they would need with them, we don't know, Your

Honor, but they asked for them, and we said, hey, you can look

at them, you know.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 17 of 69
 17

UNITED STATES DISTRICT COURT

Paper processing data, you know, same thing, Your

Honor. We will have that available for them, their technical

folks to use as they would like. And we are able to -- if they

would like for us to help facilitate any of that, you know, to

make it less of a burden off of them, we are happy to help them

if they are looking for specific stuff as well. So if they

want to work with us on that, we are more than willing to work

with them as well, Your Honor.

THE COURT: Mr. Jones, thank you for all of that. 

Mr. Rapp, is there anything that you would like to add

to that, sir?

MR. RAPP: Well, just on the servers. We sent the

defense a letter on December 10th. It's actually Exhibit J to

our Document 444, basically laying out the posture of those

servers.

To date we have not received a response from the

defense, but I just want to drive home the point on those

servers. These are millions and millions of ad postings. I

have a random sample of one. It's nothing more than an

explicit ad with explicit pictures and explicit text that is

consistent with the postings on Backpage. There's just

millions of those.

And so I don't -- I don't want the defense to say,

well, look, we want to go through every one of those servers

because somewhere buried in there is something that might be

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 18 of 69
 18

UNITED STATES DISTRICT COURT

helpful, when those servers contain nothing but international

postings. 

As the Court knows from some of the filings, Backpage

had a presence in 94 countries in addition to the United

States, and the postings in all of those countries outside of

the United States, there was no moderation, so they are nothing

more than very explicit ads. There's no pretext to

prostitution. There's no removing certain terms and then

reposting the ad.

So I just want the Court to make clear, because when

you are presented with numerous servers, you might think, oh,

geez, we have to go through all of those. Not really. They

are just nothing more than postings. That's the only point I

wanted to make.

Thank you.

THE COURT: Thank you. Thank you to both of you.

The defendants' joint status report, which is Document

Number 443, Mr. Piccarreta, it has your name at the top of it.

Is it fair to say that you are the author of this document and

everyone else joined in?

MR. PICCARRETA: I am the co-author, but I will take

responsibility as the main author.

THE COURT: Okay. I have read through the document

obviously several times, and it's the defendants' request. It

is a joint status report, but it appears to be a veiled motion

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 19 of 69
 19

UNITED STATES DISTRICT COURT

to continue. Is that what you actually meant by this document?

MR. PICCARRETA: Well, in part. What I meant is --

THE COURT: Is that the relief you are seeking? You

are asking for four additional months, so --

MR. PICCARRETA: Yes.

THE COURT: That is usually granted by way of a

motion, once the motion is filed.

MR. PICCARRETA: Well, I thought I had an obligation

to bring to the Court's attention now the problems that are

erupting in the case that may impact the scheduling process.

I wanted to A, make a complete record on that, but

two, I wanted to let the Court know the difficulties with the

scheduling process.

In the status report though, I did suggest that at

least for now to stay the defense obligations for 120 days as

we try and move through the financial issues so that we can

keep things somewhat in a status quo before we have to --

perhaps have to deal with Fifth and Sixth Amendment issues,

motions to dismiss, Stein inquiries by the Court, and perhaps

motions to withdraw by counsel.

So that was my and our suggestion that we would be in

a better position over 120 days if -- to be able to get some

answers as to financially what's going on with the case. And

so, yes, it is a motion, but -- not formally, but I did want to

let the Court know of all of these difficulties.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 20 of 69
 20

UNITED STATES DISTRICT COURT

THE COURT: Well, it is actually not a motion, it is a

request for a status hearing. If you were filing a motion for

relief, you should have filed it as a motion. 

But what I will do to help out the defense, I will

accept it this one time as a motion requesting certain relief.

And I believe you are requesting a motion to stay the defense

obligations; is that correct? That's what you just said?

MR. PICCARRETA: Yes.

THE COURT: Go ahead.

MR. PICCARRETA: Now, Judge, I think you have to look

a little bit to the history that might help you understand why

we are very, very concerned about the process of this case and

the handling of the case.

As you know, the indictment occurred in March of 2018.

Counsel -- clients were arrested, counsel made appearances at

that time --

THE COURT: Mr. Piccarreta, my apologies for

interrupting you, and of course I will allow you to finish your

thoughts and I appreciate all of your thoughts, but I have a

question before you finish.

I have Document Number 131, which is filed the 2nd of

May, 2018 and it is the scheduling order. Isn't it true that

this was a document that was presented to the Court as a joint

defense prosecution document?

MR. PICCARRETA: Yes, it was.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 21 of 69
 21

UNITED STATES DISTRICT COURT

THE COURT: So all of the relief that you are

requesting right now, what's changed since May that would lead

me to believe that the flow of the case has changed such that I

need to change the ultimate scheduling and the trial that is

scheduled for, I believe, the 15th of January, 2020 at 9:00 in

the morning?

MR. PICCARRETA: Well, initially, first, the

disclosure issues, the volume of disclosure has been presented,

as they have indicated.

THE COURT: But this is something the United States

Government had proffered to the defense as it relates to the

millions of documents that would be coming your way, right? 

MR. PICCARRETA: Yes.

THE COURT: Go ahead.

MR. PICCARRETA: And all of those documents, as they

indicated here, have not yet come our way.

THE COURT: Just 95 percent.

MR. PICCARRETA: Well, 95 percent, but if you include

the computers they just talked about, then that percentage

drops down to, they can estimate, 10 percent, 20 percent.

THE COURT: But wouldn't you also be able to argue

that if you are requesting information from computers, and

Mr. Rapp and Mr. Jones placed on the record, that those issues

are dealing with ads that are born from the companies that you

represent, right? So this is information that you at some

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 22 of 69
 22

UNITED STATES DISTRICT COURT

point already possessed over a decade-and-a-half period of

time, right?

MR. PICCARRETA: Well, I don't represent the company.

I represent --

THE COURT: Well, you are here talking for the defense

counsels. Obviously I will let all of you talk to me, but just

globally, that's a question that I think you can answer.

MR. PICCARRETA: Well, I am not familiar with those --

with those documents.

THE COURT: Who is familiar with those documents that

Mr. Jones and Mr. Rapp just proffered on the record? Is

anybody? Has anybody heard of a Backpage ad?

Is anybody familiar with Backpage, with what they do

as it relates to ads? Would anyone argue that if Backpage is

responsible for receiving compensation to post an ad, Backpage

should know about the ad? Would everyone agree with that?

MR. PICCARRETA: Well, I guess it depends on what we

are talking about "know." Ads are posted. Different people

know different things. Different people have different roles.

Different people were involved in the case.

I speak on Mr. Padilla, but what's the big thing

that's changed, when we entered into this agreement, funds were

advanced to represent Mr. Padilla. No mention was made that

the government intended to seize the IOLTA accounts of the

funds earmarked for Mr. Padilla when we entered into that

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 23 of 69
 23

UNITED STATES DISTRICT COURT

order.

After we entered the order and after the Court entered

the order, the government for the first time brought it up to

me. We had a very open, pleasant discussion. They wanted some

information. I gave it to them.

They sent me a letter saying, we are concerned. I

sent them a letter saying, your concerns are misguided, and

then radio silence. So I assume that the issue is done.

In the interim though, I detected -- all of a sudden

there's a motion to disqualify our First Amendment counsel.

There's a seizure of the First Amendment counsel's trust

accounts, but nothing for us.

We have a hearing. Their motion is denied to get rid

of our counsel. Some rulings go each way. I then follow up

with some specific Brady requests after the hearing, and I have

to admit, I was -- I had been active in the case.

Then all of a sudden, unbeknownst to us, on Halloween,

they go out and get a seizure warrant, albeit it for the wrong

accounts, in my case, I am only speaking for Mr. Padilla --

THE COURT: You think they picked Halloween for a

reason?

MR. PICCARRETA: No, I just thought it was ironic. I

think it's interesting. I am not saying they planned it for

Halloween. They don't tell us for about another week, and then

we get a phone call in November. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 24 of 69
 24

UNITED STATES DISTRICT COURT

Now, we find out on November 7th, which is, by the

way, months after initial appearance. You look in cases where

there's other seizures, the landmark cases, things are dealt

with right up front before the lawyers get involved. They know

what's going on. Here, we are involved. We have our plans.

We have cost limitations, but we are doing the best we can.

We, at the beginning of the case, we are dealing with

a wide variety of collateral non-motions on the merits. Get

rid of counsel, technical things, joint defense agreements,

call-back motions, things like that, not really the heart of

the case.

We -- then since November 7th, we have been mostly

full-time and trying to get our money back. And we came here,

and the Court ordered denied here. We went to L.A. It is

filed before the magistrate. That ruling is pending on that.

Prior to that, the original seizure warrants that

happened before the case began, which did not involve IOLTA

funds, is that we -- is up for those warrants pending before

the Ninth Circuit, and as of yesterday, the Ninth Circuit is

going to hear the case.

I am not in the business of predicting how they will

rule, but they -- the briefing schedule is accelerated. They

put it on the accelerated oral argument calendar. The briefing

ends in March, so that figures into within the 120-day window

that if we prevail and get some relief there, then we can get

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 25 of 69
 25

UNITED STATES DISTRICT COURT

our money back.

We have money, it's just that they have it. And then

for my thing, we have been working with them on the issues of

IOLTA funds, virtually it has been the focus of the defense for

the last two months. All this takes us away from being able to

do it. That's assuming, which is an assumption --

THE COURT: So you're making an argument that the bulk

of the time has been spent on making sure the lawyers can

secure money so that you can be properly compensated for doing

your job as it relates to getting through the discovery and

preparing your respective clients for trial.

MR. PICCARRETA: Yes. And I view it as we are

defending our clients' ability to have "counsel of choice" is

the term that the courts seem to use. And in order to enforce

our clients' Fifth and Sixth Amendment rights, which then

spills over to here, and why I asked the Court to have a status

conference now as opposed to April, because I did not want to

show up in April and lay all this on the Court and the Court

could rightfully ask, where have you been for three months?

How come this is the first time I am hearing about it?

So they have taken our money. There is a veiled

threat that the monies -- well, my money actually is still in

my IOLTA account with my agreement not to touch it pending

order of the court or agreement of the government. They have

said --

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 26 of 69
 26

UNITED STATES DISTRICT COURT

THE COURT: When you say, "your money," what are you

referring to?

MR. PICCARRETA: My client's money, Mr. Padilla's

money, for the case. I call it "my money" because eventually

it will be.

THE COURT: Your money?

MR. PICCARRETA: Our money, but it is Mr. Padilla's

money.

We have been told not to touch it up through November

30th, and they did agree we could get paid firm fees up through

November 30th.

So we -- just like -- we have a shutdown, and we have

a shutdown, and I am speaking for Mr. Padilla, and the same

thing for Joye Vaught, where we cannot access their money to

pay us at this time. So we have no funds.

Then on top of that, if you talk about the cost of

putting this disclosure into the proper programs as we have

talked about, these are thousands and thousands, as put in the

motion, truckloads if they were paper, of documents.

We do not have the funds to do it on Relativity. We

will have the funds if we prevail in the Ninth Circuit for the

first group of warrants and prevail in the court in California.

And by the way, it wasn't our decision to have two courts

running back and forth over the West Coast.

The government made their strategic decision to file

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 27 of 69
 27

UNITED STATES DISTRICT COURT

the forfeiture warrants in California, and we are here now, but

now we are dealing with two things. So our money is

effectively frozen.

We have cases pending for some individual warrants

that, if we are successful, will be beneficial, and we are

stuck in a position that normally, if we didn't have those

pending things, I would have to ask the Court to hold a Stein

hearing to determine whether the government's tactics have

forced out counsel of choice, and if so, what would be the

remedy. And if that was unsuccessful, we would properly have

to ask the Court to withdraw, which is not my client's desire.

The government has suggested, well, just get

appointed, and I really don't -- I have learned when I was a

lawyer after about a week, I don't take legal advice to solve a

problem that was caused by the person who is giving me the

legal advice.

So, you know, our clients are not interested in us

being appointed at a reduced rate, and we are from out of town,

so that doesn't solve the issue. But rather than deal with

that now and go to the Court and file the motion to dismiss, or

alternatively motion to withdraw, I thought, let's put our role

on hiatus, come back to the Court at your status conference

currently set in April and let you know what's going on.

But it's a really serious Fifth and Sixth Amendment

issue. We have no funds. And the government says, well, tell

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 28 of 69
 28

UNITED STATES DISTRICT COURT

your client to pay you. Well, there probably isn't a client in

the city -- very few clients could afford what's needed to do

this case. And the Court has got a taste of the disclosure in

the millions of documents, but apart from that, there's the

serious First Amendment constitutional issues that we disagree

on. 

On the seizure of the assets, we believe they have not

complied with the law on seizing it. They believe they have.

We disagree. Those are complex legal issues that we are having

to deal with at the same time trying to manage the case.

And once they take the funds, Mr. Padilla cannot

manage the case. And we have remedies, you know, if things

fail and those other California things where we are now, we

can't come to the Court and request a Luis hearing, the Supreme

Court Luis, and have discussions there. 

But I thought rather than have significant

constitutional issues here relating to the monies that have

been taken there, that we should at least try to resolve them.

If we are successful, a lot of these problems go away.

We still may need more time because we are sort of frozen now,

but -- and if they don't go away there, then we are going to

have to make decisions how do we address the Court and what

type of hearings have to be necessary and what type of

disclosure we are going to request from the government on the

issue of this.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 29 of 69
 29

UNITED STATES DISTRICT COURT

But, you know, I -- we have all been involved in the

criminal justice system here for a long time. On our side of

the table, the Court, and I have never had this happen in all

of my cases, and I have queried other people in the white

collar law, and they sort of haven't heard it either. 

What makes this unique, and what makes this case have

issues that would be of interest to a lot of courts, is that

seizing IOLTA funds in the middle of the proceedings, and then

coming to court and saying, don't give them a continuance, I

mean, it benefits -- they are in a no-lose situation.

They cut off the money. They -- defendants can't have

counsel of choice or are severely hampered, then push the Court

to go, keep that time limit going, keep that time limit going.

And that gains them, and whether it is intentional or not, I am

not throwing aspersions at anyone, but it gives them huge

tactical advantage, and that's the result. 

And it's just like in a battle, if you cut off your

munitions, you get rid of the defense lawyers, you cut off the

money to pay them, that increases your likelihood of getting

the result you want. It decreases the likelihood of a fair

trial for defendants and a fair decision on really serious

constitutional issues.

THE COURT: So you are making an argument now that the

CJA panel and the Federal Public Defender is not capable of

taking on a defense of this magnitude?

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 30 of 69
 30

UNITED STATES DISTRICT COURT

MR. PICCARRETA: No, no, I think they are capable of

it, but under the constitutional case law, Mr. Padilla has a

right to a counsel of choice. And it is not an unlimited

right, I understand that. But his counsel of choice, for

better or worse, is me.

If due to circumstances created by the government's

seizures, if he cannot have his counsel of choice, he

understands whatever the rules are and if we can get the

Federal Public Defender or adequate CJA counsel, that's what

you get, and then the issue bubbles up for, you know, for a

later day.

But I am saying, if we can keep sort of a status quo

until the next status conference, we may have information

before we have to delve off into litigating Fifth and Sixth

Amendment issues and issues of seizing the funds for capital

advantage.

THE COURT: Now, when you say, "keep the status quo,"

is it fair to say that since you are making an argument that

all of the defense counsels are similarly situated as it

relates to the compensation, is it fair to say that they are

all in stand-by mode as it relates to preparing the case

because they are also waiting to see ultimately if they will

get paid?

MR. PICCARRETA: Well, I can't speak for everyone, but

I think for the most part the Court is correct. I know I am.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 31 of 69
 31

UNITED STATES DISTRICT COURT

THE COURT: So the discovery, the 95 percent, no one

is doing any work on it because you want to make sure that at

some point in time you are receiving pay?

MR. PICCARRETA: Well, we're doing what we have to do.

Our attention has been totally on --

THE COURT: Getting your money.

MR. PICCARRETA: Yeah, getting the money to be able to

do the work, but we are not -- you know, until we are out of

the case, we are not going to be derelict, but there's only so

much time, in my case, a small firm can devote and especially

if you are not getting paid, then you have got to handle some

other matters so everyone gets food on the table.

But I am not crying the blues for me. This is not

about me. I am willing to ride this out to see whether our

money can be returned to us and continue on, because I do want

to stay.

But on the other hand, it is grossly unfair to

Mr. Padilla when the government seizes his money to then not

have a lawyer that can be compensated to handle his case.

And so I would urge the Court to just put this on

hold, at least our obligations on hold, set a status conference

in April, I think there's one set, and then we come to the

court and let the Court know where we are. 

And in the interim, I can't guarantee when courts

rule, but the Ninth Circuit has set an accelerated schedule on

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 32 of 69
 32

UNITED STATES DISTRICT COURT

the issues for those warrants. The magistrate has some

pleadings in front of her now.

So that's where -- that's my recommendation to the

Court. That's why I asked for a status conference, and we are

just trying to enforce counsel of choice and to avoid having to

deal with a very -- a really serious constitutional issue.

Because this case is unlike some of the other cases that have

made it to the Supreme Court.

So I would urge the Court to do that. And, look, we

didn't create the problem. We were plugging away as best we

could, but once the IOLTA seizures arrived, that was, at least

seven months post indictment, to me sort of a bridge too far.

And it was nothing that I expected to occur, and I was very

surprised, especially in this type of case that it would occur.

So I would urge the Court to not -- I don't want to

use the word "punish," but it would put us, the defense, in a

very, very bad position as a result of actions taken by the

government that have hindered the defense, to then say, no,

your discovery is due then, your discovery is due now. 

Because those circumstances all changed on Halloween

night and then Halloween day, and then a week later when we

received notice of it, at least from Mr. Padilla's and

Ms. Vaught's point of view.

THE COURT: Well, sir, I certainly appreciate you

placing all of that on the record. Which defense counsel is

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 33 of 69
 33

UNITED STATES DISTRICT COURT

next? And I know all of you, but for the record, when you

approach the lectern, if you could place your name on the

record, please.

MR. WEISS: Yes, Your Honor. Steve Weiss on behalf of

Joye Vaught, and I am not going to spend a lot of time talking

about her situation other -- I agree with the remarks that

Mr. Piccarreta just made. Because my client, Joye Vaught, is

in essentially in the same situation as Mr. Padilla.

But I just wanted to add a few things to sort of feel

out the situation. My trust account -- I hold money in my

trust account for the benefit of defending Joye Vaught, but it

is effectively frozen. 

And it is frozen because I was told in so many words

that even though the forfeiture warrant for my IOLTA account

expired, it was likely they were going to refile that.

And then on top of that, when we argued the case in

California, several weeks ago, because this Court declined to

rule on that matter and said we should be in California, we

said okay, that's what the Court said to do, and that's where

we went.

During the course of that hearing that took about

three hours, counsel for the government would not rule out a

criminal prosecution of attorneys who then sought to reach into

those trust funds to pay for work that was done. So as a

result of that, I haven't touched those funds.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 34 of 69
 34

UNITED STATES DISTRICT COURT

THE COURT: You are certainly not saying that a

federal prosecutor threatened prosecution?

MR. WEISS: I will tell you that Mr. Feder has the

actual transcript of the remarks and you can interpret that how

ever you wish. I will tell you how I interpreted it, as if I

decided that notwithstanding the fact that a warrant had

expired --

THE COURT: Well, tell me how you received it.

MR. WEISS: Well, I received it as a threat, that

there could be a criminal prosecution.

THE COURT: From which lawyer?

MR. WEISS: It was Mr. Kucera.

So in any event -- so I am in the state of limbo in

that situation. In the government's reply to our status memo,

they talked about having not shown that our clients can't

afford to pay for this defense. 

And this is an enormous case. I don't know who really

could, but Joye Vaught cannot. And Joye Vaught has no money to

defend this case.

I offered, when we were here arguing the motion some

time ago, at that point I offered to provide to the Court under

seal her financial affidavit, but the Court declined to take

the case and sent us effectively to California. But I still

have that, and I still will file it with the court, if the

Court permits it to be filed under seal.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 35 of 69
 35

UNITED STATES DISTRICT COURT

And the government, in so many words, kind of knows

that she can't afford counsel of choice, which is her Sixth

Amendment right because they either have the Pretrial Services

Report or they have access to it.

And to just summarize it, it shows that she has a

negative net worth. So -- and she has no other sources of

funds. Her parents are deceased. Her only so-called friend is

her boyfriend, who can't afford to pay for this.

And so the bottom line is that I just want the Court

to know that my client is in the position of being unable to

afford, and hopefully, will get some relief from the California

courts where this Court said we should properly be, and that's

where we are. 

And it is in the Ninth Circuit. We anticipate

hopefully a favorable ruling, but certainly a ruling that will

let us know where we are within the next several months.

So I don't think the request that you are considering

to be a request for a continuance is unreasonable. I think

that it should be granted. Thank you.

THE COURT: Thank you very much.

Next.

MR. CAMBRIA: Good morning, Your Honor. Paul Cambria

on behalf of Mr. Lacey.

I wanted to address one issue that you brought up this

morning, and that was a situation of, well, the company

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 36 of 69
 36

UNITED STATES DISTRICT COURT

supplied the documents so there is the indication there that

now which of those documents would be charged to our side?

Rule 16 obviously has been enacted to educate the

lawyers as to the discovery. We are not employees of that

company. And we need to use Rule 16 to obtain the information

and allow ourselves to be educated.

There may be some people who are employed by that

company who have knowledge of those documents, but we don't

unless we are given the documents and we have enough time to

evaluate them and decide whether or not they are useful.

And, you know, the point that Mr. Rapp makes about,

well, they are all the same. Well, they are all the same to

him. They may not be to us.

In addition he says, well, some of them deal with

events overseas and there's no moderation at all, et cetera, or

there's no crime committed overseas, and a number of places the

laws are different and so the ads are different.

But the bottom line is that we still have to make

ourselves aware of the contents of these documents. That's

what Rule 16 is all about.

As far as funding, I have no funds. I haven't had any

funds in months and months and months. I am not sitting there.

I am still working hard on behalf of my client. That's just

the way I am, and I am sure these other lawyers are as well.

However, the situation is such, originally we had made

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 37 of 69
 37

UNITED STATES DISTRICT COURT

an application, as you know, to try to free up the funds. The

government's side is fully funded, obviously. They are all

being paid. They have whatever funds they need for discovery.

THE COURT: In theory they are fully funded, but they

are receiving nothing for the last month.

MR. CAMBRIA: Well, what I am saying is, they are

being paid. They have expense money and everything that they

need in order to do their side of the case clearly.

THE COURT: But you are aware the federal government

is shut down and they are receiving no pay.

MR. CAMBRIA: I am. And I would venture to guess that

that will be a shorter period of time than it will be for the

defense to receive funds in this case. And I --

THE COURT: So you would agree that the federal

prosecutors somewhat feel your pain as well, because they

haven't been compensated.

MR. CAMBRIA: To a very small degree compared to ours,

certainly, and neither side would be -- would like that. I do

know one thing, that when the government does start back up in

business, they will be fully compensated.

We, on the other hand, have made an application, as

you know, and as has been repeated here several times this

morning to this Court, this Court indicated that we should go

to California. We promptly did, and we promptly filed.

And several rulings were made. Several things were

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 38 of 69
 38

UNITED STATES DISTRICT COURT

done by the government to once again freeze those funds. They

were successful in freezing them.

We have taken an appeal. The Ninth Circuit has

indicated at the first level of review that they are going to

permit us to brief all of the issues. They are going to

schedule it for argument.

THE COURT: Mr. Cambria, let me just stop you just for

one moment. My apologies for interrupting your thoughts. I

will allow you to finish.

All of you defense counsel, you have been doing this

for decades and decades. I think the junior lawyer in the

room, obviously there's a law clerk, but might be

Ms. Perlmeter, who is probably an 8 to 10-year lawyer, or

Mr. Stone is probably a decade.

But on this side, you gentlemen and ladies have been

doing it for a long, long time. Is this the type of case that

you believe can be done by way of appointment?

MR. CAMBRIA: No. One of the reasons would be this,

Your Honor, certainly the public defender's office could never

take it on, for a number of reasons.

Number one, they would have to start at ground zero,

and that would cause an even greater delay.

Number two, they couldn't survive a conflict analysis.

They are all in the same office representing multiple

defendants who may have different interests.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 39 of 69
 39

UNITED STATES DISTRICT COURT

THE COURT: Well, there would only be one defender;

the other ones would be CJA. And in fact, one of your

colleagues, the Mitchell Stein Morrissey Carey law firm is, I

think they're -- I see Lee Stein's name all over my cover sheet

here, and they are obviously white-collar attorneys. And they

handle other matters, but they are CJA appointed lawyers.

MR. CAMBRIA: But there are a number of us that are

not from Arizona. There would be traveling, lodging and all

sorts of other things. And it's interesting because the one

case that I emphasized in the motion, that basically was denied

yesterday, was the Luis case. And I say that for a reason.

Luis is a very interesting case because there the

Supreme Court said, when funds are available that are not

tainted, which we have here, that we should not pour on the

public, on the government, on the public defender's office, the

charge, when funds are available that are not tainted.

And in this case, we have money, and the money is not

tainted. And -- however, the money is -- has been seized. So

this is different than Monsanto. And they keep talking about

Monsanto, Your Honor. Monsanto dealt with the situation where

the funds were tainted, clearly.

And the difference was that when you have tainted

funds, the various statutes that applied in Monsanto gave the

government a preference to those funds. Because once there was

a conviction, the title to the funds reverted to the government

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 40 of 69
 40

UNITED STATES DISTRICT COURT

at the time of the commission of the crime.

With funds that are not tainted, which we have here,

they do not have the same interest. And basically, what I was

trying to get at, and I -- I guess I didn't convey the message. 

When I made the motion with regard to Mr. Lacey, where

I said we have untainted funds, they have been mixed up in

these accounts as a result of a clerical error, I wasn't in any

way attacking the warrants, the seizure warrants. That's why I

didn't think that it was inappropriate to be here, because I

wasn't attacking the seizure warrants. It wasn't something

that the judges in California --

THE COURT: Are we going back in time to an issue that

has already been litigated here --

MR. CAMBRIA: No.

THE COURT: -- and not focused on Document Number 443,

the status and the request for four additional months?

MR. CAMBRIA: But here's the point I am trying to make

about that. I think that you could conduct a Luis hearing. In

fact, that case says that district courts regularly conduct

these taint hearings. And it wouldn't have anything to do with

the validity of the warrants issued by Central California. It

would simply have to do with a tracing of funds tainted, funds

not tainted.

Non-tainted funds would be able to finance this

defense. So there would be two things going on here. One is,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 41 of 69
 41

UNITED STATES DISTRICT COURT

yes, we went to California, we are pursuing it, we are doing it

diligently. And if the Ninth Circuit rules in our favor, we

will have all of the funds necessary to meet all of the

deadlines and have this case move along expeditiously.

On the other hand, there is another remedy for

non-tainted funds, and that is under Luis. And I believe that

this Court could run that hearing. It would have zero to do

with reviewing the validity of a warrant on the side of the

Central District of California. It would only be a tracing,

and that's what that court says. And I was trying to convey

that, and obviously I didn't do it effectively.

But you could simply go in and --

THE COURT: Actually, I thought your arguments were

laid out really well, and I thought it was very clear what the

position was.

MR. CAMBRIA: All right. Well, anyways, so the bottom

line here is, Your Honor, that I think Luis stands for that

proposition. But it also says, when funds are there and

available, that you shouldn't put that on to the public

defender's office, et cetera.

So we have two things going here. We have a schedule,

clearly the Ninth Circuit is expediting this in their way, and

it would solve all of the problems.

On the other hand, you can try to appoint out-of-state

counsel not on your list, all of the rest of that, or the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 42 of 69
 42

UNITED STATES DISTRICT COURT

public defenders would have all of the conflicts and so on, it

is going to take much more time.

The more efficient way is for us to have this brief,

and it is relatively brief, hiatus, let the Ninth Circuit rule,

and hopefully we will have all of the funds necessary. If not,

then we have to deal with what's next.

And I think next would be the Luis hearing. Because

there are many funds here that are not tainted. Not every

dollar that came into Backpage had anything to do with the

adult stuff that they are talking about.

There were, you know, many millions of dollars

generated from other things that had zero to do with their

allegation of prostitution.

THE COURT: Just one second. 

Mr. Kucera, do you agree with that last thing that was

just placed on the record by Mr. Cambria?

MR. KUCERA: The portion about --

THE COURT: -- legitimate business outside of adult

site issues.

MR. KUCERA: I think I can answer, but I will allow my

colleague to correct me if I misstate something.

THE COURT: Go ahead.

MR. RAPP: Go ahead.

MR. KUCERA: Your Honor, the vast majority -- the

allegations are that the vast majority of the funds that

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 43 of 69
 43

UNITED STATES DISTRICT COURT

Backpage earned were derived from illicit activities.

THE COURT: When you say, "the vast majority," can you

give me a percentage?

MR. KUCERA: About over 90 is the percent that we have

been including, and that is sort of the back of the envelope.

We haven't gone through all of the full analysis of every

dollar, but that is an extrapolation of that portion that we

have analyzed, extrapolated into the whole. 

But more importantly, the government does not need to

prove that every dollar is dirty. The government needs to

prove, and the theory of forfeiture and seizure, that all of

the funds were involved in money laundering transactions. 

The magic words in forfeiture hearing -- in money

laundering are "involved in." And if we can show that the

financial transactions that relate to the Backpage assets that

have been seized were involved in money laundering

transactions, the government is rightly seeking to forfeit

those funds.

THE COURT: Well, I'll tell you what, while you are

standing, tell me about this threat allegation.

Just one moment. 

I'll tell you what, this is actually a good time to

take our morning recess because I want to hear from the other

defense counsels.

Court's in recess until 10:50. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 44 of 69
 44

UNITED STATES DISTRICT COURT

(Recess taken at 10:34 a.m.; resumes at 10:54 a.m.)

THE COURT: Good morning again, everyone.

This Court will come to order. All parties present

when the Court last closed are present again. 

Mr. Kucera.

MR. KUCERA: Yes, Your Honor. I think you asked me to

address the allegation of threats that the government is

supposed to have made at the hearing in the Central District of

California.

My suspicion is that that is the very same allegation

that was made the last time I was present before Your Honor,

where the government was invited to opine on whether it would

prosecute any future transaction involving these or any other

funds. 

And I think I likened it to what would be an advisory

opinion by the Court, that the government is not in the

business of providing, or the public authority defense under

Rule 12, or something akin to that, we are saying giving some

sort of speculative answer on whether something would or would

not be criminal in some future conduct.

I can't remember my exact words, but I would be

surprised if I said anything stronger than that. If that was

construed as a threat, I certainly didn't intend it to be.

THE COURT: I appreciate that.

Counsel, did you have anything else to place on the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 45 of 69
 45

UNITED STATES DISTRICT COURT

record, or were you finished?

MR. CAMBRIA: Just briefly, Your Honor, if I can? 

The statement by the government that they felt that 90

percent of the monies involved would be tainted, I can tell you

that the other 10 percent would fully fund the defense in this

case. And we obviously have a disagreement as to what --

whether or not there's 90 percent involved, but that would be

the purpose of the taint hearing.

We would in that hearing decide what is and what is

not tainted, and the Supreme Court in Luis v. U.S. made it

quite clear -- it is kind of interesting, Justice Kagan even

kind of hinted to whether Monsanto is even good law anymore.

But anyway, the thrust of that case was that assets

that aren't tainted are reserved for defense and they should be

available. And so I suggest, you know, this is a difficult

case. It has lots -- it is difficult for the Court, for the

government, for the defense. 

There are a lot of documents here, a lot of

complicated issues, a lot of new issues, things that have never

been raised before, prosecution that has never been instituted

and successful before, and so we put a lot of work into this

case.

And we think collectively, Your Honor, that the time

we are asking for is the most expeditious way and judicially

economic way. Because number one, we are in a place where we

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 46 of 69
 46

UNITED STATES DISTRICT COURT

were asked to go or told to go. We are pursuing it diligently,

and I think we will have a hearing there in fairly reasonable

time.

And should we be successful, then we will not have any

of these issues about visiting huge expenses onto the public

and so on. And if we're not, then this Luis v. U.S. hearing,

the taint hearing, would be the next thing to happen, before we

could then decide counsel in, counsel out, et cetera.

I mean, those are really the two stages here, and I

think they are reasonable for the Court to go through them and

to give us the time necessary.

It isn't just a matter of paying the lawyers. I mean,

part of our discovery response is, designate expert witnesses.

Well, we can't call an expert witness, we have no money to hire

them, and try to get them prepared and see if they are

interested and all the rest of it, when we are sitting here

with all of our money having been seized.

So I submit that's a reasonable way for the Court to

go to give us this time and to go through these next two

stages, the Ninth Circuit, and then after that, if we have to

have it after that, Luis. And that's basically our position.

THE COURT: I appreciate that. Thank you. And I also

appreciate the fact that you placed on the record that despite

the financial issues that you are confronted with, your law

firm continues to do their job as it relates to preparing for

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 47 of 69
 47

UNITED STATES DISTRICT COURT

the trial currently set for 15 January 2020. I appreciate

that.

Who is next, if anyone? 

MR. FEDER: Bruce Feder for Scott Spear. 

Judge, the hearing that we had in the Central District

before Magistrate Oliver was under seal. My understanding is

the government, with permission from the defense, was going to

ask that the proceedings be unsealed. I don't know the status

of that.

But I got the transcript of what Mr. Kucera told the

assorted lawyers, many of whom are in here. I would like the

Court to read it. Whether or not I need to place it --

THE COURT: You talking about the threat issue? 

MR. FEDER: Yes.

THE COURT: Oh, I've already moved past that. I am

just prepared to deal with 443, at this point.

MR. FEDER: Well, but it pertains to 443, Judge, in

this sense. I have been a lawyer for 40 years. I have

appeared before this Court. I am going to appear before this

Court on Monday on another case. Whatever my reputation is, it

is.

But I have never had fees threatened by the

government, to the credit of this office in Arizona. This is

the first time, and I realize the Court knows I have

represented people charged with serious drug cases.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 48 of 69
 48

UNITED STATES DISTRICT COURT

THE COURT: Well, the reason I ask the question is in

almost 30 years, I have never heard of it, and I have

certainly, while sitting at that table over there, never even

occurred to me to do something like that. That's why I

appreciate the fact that Mr. Kucera clarified his position. 

But go ahead.

MR. FEDER: Well, but to get the flavor of what

Mr. Kucera said in that courtroom, Judge, and I can tell you

every lawyer that was there and every lawyer that was on the

phone, took what he said to be a threat. 

And as you mentioned, Judge, these are all lawyers

that have a few years under their belt. All have been around

the block. All -- some of them were former prosecutors, and we

all took it as a threat.

And to put it in a perspective of 443, in addition to

the lawyers not wanting to take any money out of the trust

account because they believe themselves, after all these years

of being lawyers, to be at risk of getting criminally

prosecuted, I am not going to call an expert or potential

expert and say, what's your fee? And then they quote me a fee,

and then I say, I'm happy to give you this money, but I have to

warn you that there's a threat that this might be criminal --

these might be criminal proceeds, and I am going to spread that

risk that's already attributable to me, I am going to spread

that risk to you. Will you take that money and will you take

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 49 of 69
 49

UNITED STATES DISTRICT COURT

this case? The answer I am sure, as the Court knows, is going

to be no. That goes for my assistants in my office. Can I pay

you with criminal proceeds with threat of prosecution? The

answer, of course, is going to be no. 

Can I -- when I call up the vendors to take the

discovery that we have to put it into a database so we can try

to use it, they are not going to take the money. If we want to

hire lawyers cheaper than our hourly rates to review those

documents, they are not going to take that money. 

And I think ethically, all of the lawyers on this

case, would have an obligation, moral and ethical, to warn the

other parties that we are asking to help us to be aware of what

the government's position is.

And their position, as just articulated, is that every

dollar ever made by Backpage, no matter if it's for bicycle ads

or whatever, are tainted.

THE COURT: I don't know if he said every dollar.

MR. FEDER: He said, every dollar -- what I heard him

say is, every dollar, even if it's some other unrelated ad, not

just escort ads, but unrelated ads because it is all going into

the same bank accounts, that they are all tainted, 100 percent.

So we can't -- I can't, I will speak for myself and

Mr. Spear, I can't in good conscience bill hours. I am here

not billing hours since November 30, to try to get us some

time.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 50 of 69
 50

UNITED STATES DISTRICT COURT

THE COURT: Since November 30 you have been working

basically pro bono on this case, that's fantastic.

MR. FEDER: I try to do my fair share of pro bono work

every year.

THE COURT: Does your client understand that?

MR. FEDER: I didn't understand this was going to

be -- this is not a voluntary pro bono. It is an involuntary

pro bono.

THE COURT: Oh, it's the pro bono until the money

kicks in and you'll take your money that you have earned.

MR. FEDER: Judge, I understand it seems a little

crass given the circumstances of the government shutdown.

THE COURT: I understand lawyers don't work for free,

for the most part.

MR. FEDER: But none of these lawyers, me included,

knew that they were going to seize fees when I signed on the

bottom line. The Luis case that Mr. Cambria was just talking

about, there was a threat -- and I have talked to the lawyer

that did the Luis case in Florida. 

There was a threat there, and the lawyers in that case

went to the Court and basically made provisional notices of

representation that they would not get into the case unless the

money issue was resolved.

The Court there stayed the proceedings for -- on a

monthly or bimonthly basis until the case wound its way to the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 51 of 69
 51

UNITED STATES DISTRICT COURT

Court of Appeals and then ultimately to the Supreme Court.

That's how they resolved that.

But the lawyers in this case were not understanding

that these fees were going to be seized. And at this point,

they now are, as of early November.

So if the Court doesn't want to look at it, I won't

give it to you, but I think to get a flavor, the Court might

want to look at how it was phrased and maybe understand how

defense lawyers who have been in this business for a long time

might have taken it.

THE COURT: You may approach.

MR. FEDER: Judge, unless the matters in the Central

District are unsealed, we should probably have this filed under

seal, if that's okay.

THE COURT: That is.

Well, Mr. Feder, I will do you one better. It is not

my intent to make this a part of the record. I am certainly

not going to read this into the record.

MR. FEDER: All right.

THE COURT: You know, Mr. Feder, I appreciate you

providing the Court with this information. To me, on page

number 12, it reiterates what Mr. Kucera just placed on the

record about, it's too speculative to know exactly what the

government may do at a future time.

But I appreciate that. So the Court is clear on it,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 52 of 69
 52

UNITED STATES DISTRICT COURT

and I don't find any misconduct in any way. But I will tell

you this, that if I had a federal prosecutor, and I was the

defense counsel and heard a statement like that, I would

certainly seek some clarification.

But again, all of you have, for the most part, more

than 20, 30 years of experience, and I am sure with the

experienced lawyers on the government's side, these are some

things that you can meet and confer about just to make sure

that everyone is on the same sheet. 

And Mr. Feder, between you and your colleagues that

have talked to me earlier, I am in a position now where I can

rule on 443. But if there's anyone that feels that they need

to talk to me to place their respective positions on the

record, I would allow it, and I will let you finish as well,

Mr. Feder.

MR. FEDER: I think I am finished. Thank you, Judge.

THE COURT: I appreciate that. Who is next? And my

apologies to all of you, but I have some time constraints now.

If you can limit your comments to 10 minutes, that would be

helpful.

MR. BIENERT: Your Honor, Thomas Bienert for defendant

Larkin, who is present today.

You specifically asked, what has changed since May?

Two things have changed, Your Honor, why we need and we think

it makes sense to hold off until some of the money issues get

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 53 of 69
 53

UNITED STATES DISTRICT COURT

ferreted out.

When I appeared in front of Your Honor in May, my

client, who has been an extremely successful businessman, who

has made many multiples of tens of millions of dollars over his

lengthy career -- my client is here. He is 69 years old, and

he is not a spring chicken like I am.

And he has made 15, 20 million dollars that have

nothing to do with Backpage through the businesses that he had,

like the Village Voice, Phoenix New Times, et cetera.

What has changed is since I appeared, the government

has seized over $50 million of his assets. I do not have

funds. I am continuing to work, as is my 13-lawyer law firm.

We have a huge arrearage in this case, but we are continuing to

work on it.

So number one, what changed is the money. And what's

important, Your Honor, is this is not an indigent person. He

has plenty of money. It is just the government has and

continues to seize it, and we believe that they are doing it

illegally.

We understand that they say they're not, but what I

think -- this case has a few step-back-from-it moments. The

one thing we have not been on the defense side is lazy about

seeking adjudication of this issue.

We have been trying to litigate.

THE COURT: No, I have, I believe 36 or 39 pending

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 54 of 69
 54

UNITED STATES DISTRICT COURT

motions, so you have been far from lazy. The forfeiture issue

is very well briefed. There's only really three motions and

everybody joined in, but I know everyone has been working on

this case. 

MR. BIENERT: Well, what I think is also important to

know is you are only one of four judges, Your Honor, that we

have raised this issue with, and that doesn't count the Ninth

Circuit where it is pending.

So the point is, we have been trying since, I think --

I forgot if we filed in July or August, to get a substantive

ruling or addressment, a hearing, on whether they are right

that they can seize all this money when much of it is not

traced to illegal activity, or whether we are right that they

can't. 

And finally, we have the Ninth Circuit wanting

briefing on that issue as it relates to the first batch of

seizures, and we are literally towards the tail end of what

looks like multiple filings in a lengthy hearing in front of

Judge Oliver on the more recent batch. So everything is in

place.

I would also just say this. To reiterate that it is

not our doing, and we are reacting to the government's actions

that they believe they can take, but we certainly didn't

anticipate these.

And just by broad stroke, I believe there's over $130

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 55 of 69
 55

UNITED STATES DISTRICT COURT

million of assets that have been seized by the government in

this case, as we stand here.

Even if we took the 90 percent is bad, which is way

off the mark, but let's assume that, there's $13 million, it's

ten percent of that. We could start with the government

releasing $13 million to the defendants so we can prepare our

defense, and then we wouldn't be having this discussion right

now.

THE COURT: Mr. Rapp, do you believe that the United

States Government would be willing to release millions at this

point?

MR. RAPP: No, we are not releasing any tainted funds.

MR. BIENERT: He says 10 percent are not tainted, so

that's what I am talking -- we can disagree about the 90

percent, and that should play out in litigation. But if we

just get the 10 percent that isn't -- is the part that even

they acknowledge they can't show is illegal, that would get us

past this hurdle and at least allow us to start working in

earnest.

And then the last thing I will say and I will sit

down, is just to reiterate, this isn't just about lawyers

wanting to get our money. Obviously, Your Honor, ironically,

we all know, in this courtroom, everybody working for Your

Honor and on this side of the table know all too well, that

sometimes people work without money. I did it when I was a

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 56 of 69
 56

UNITED STATES DISTRICT COURT

federal prosecutor as well.

But even trying to do things, we can't hire the

vendors. We have millions of dollars in needs to get document

hosting and document searching. We can't do it. And I think

the government's list that they submitted in December, they

gave us, I think December 16th, their preliminary list of

experts. It is 10 experts.

Now, you will get a lot of motions down the line about

whether we believe those were appropriate or not. I am sure

there will be motions in limine and that type of thing, but I

can't hire one expert, certainly not 10. So that's the

problem.

And then finally, I will leave you with this. In

terms of the volume of what we still don't have -- so first of

all, we can't get to the ten million documents because we need

document hosting and searching and we can't pay for that.

But the letter that was sent by the government on

December 10th, you were asking about percentages of what's

produced, they say, well, if you take out the servers, we think

95 percent. But that's ignoring the elephant in the room.

According to the government's letter to us December

10th, just the servers that are being -- that have been seized

here in Arizona, the 32 servers, they say, we estimate the

capacity at approximately 500 terabytes.

Now, we have been given so far two terabytes. So this

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 57 of 69
 57

UNITED STATES DISTRICT COURT

is literally exponentially more than that. So we still don't

have all of that. And here's why we need -- I am not saying we

have to go through every document, we don't, but we certainly

have to know what they are.

We need to be able to categorize for ourselves, and no

offense to the government, but we want to determine for

ourselves what's important and what's not. And we want to

know -- I would want to know, what are the categories that are

on that?

They mention that these documents -- that Backpage has

ads in 94 countries. Many of those countries, prostitution is

legal and so are ads for them. And it's important for us as

defense counsel, for example, to be able to categorize what is

clearly from another country, what is not.

Is the government trying to use some examples in this

case, that frankly were for another country and therefore they

weren't illegal. Things like that we have a right to know.

The other thing is I thought counsel said that the

servers contain emails. I would think they contain emails.

Obviously, as Your Honor knows, emails are very important. So

we need to get the servers, and if I am following their letter,

they still owe us -- they have only given us five or 10 percent

of the discovery.

And of course, we can't even begin to wrap our arms

around that if we don't have funds to be able to do this. And

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 58 of 69
 58

UNITED STATES DISTRICT COURT

then finally, this isn't the kind of case -- first of all, I

couldn't do this case as a panel lawyer, because I am

responsible for 25 employees and 14 lawyers, and I can't do

my -- in my firm, it can't happen.

But more importantly, we are entitled to counsel of

choice. My client has the money. We just need to litigate or

resolve getting the appropriate money back that they can't show

is tainted, and we can litigate the case.

And it certainly would be inappropriate, I believe,

and I also think it is not what the law envisions, to somehow

try to saddle the taxpayer with paying CJA fees, when frankly

we don't need to. We just need to have addressment of the

funds they have that we believe our client should have.

On that basis, Your Honor, I am done.

THE COURT: Thank you, sir.

MR. CORN-REVERE: Morning, Your Honor. I am Robert

Corn-Revere for Mr. Larkin and Lacey.

THE COURT: Good morning, again.

MR. CORN-REVERE: I just wanted to place a couple of

things on the record as the issues have come up. One is,

earlier Your Honor asked about what it means to maintain a

status quo, whether or not the lawyers on the team --

MR. RAPP: Judge, I am going to object here for a

minute, if I may? Mr. Lacey's attorney and Mr. Larkin's

attorney already addressed the Court. Are we going to hear the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 59 of 69
 59

UNITED STATES DISTRICT COURT

same from yet a second attorney for Mr. Lacey and Larkin?

THE COURT: Mr. Rapp, thank you for that.

What do you have to offer me that is different than

what I have already heard? If you can limit your comments to

that, that would be helpful.

MR. CORN-REVERE: I am going to try and do that, Your

Honor. And it's really just two brief things. One is just to

confirm that Davis Wright Tremaine also has had its IOLTA funds

seized by the government, and we have been working diligently

on the case for months now, without prospect of being paid.

And it's not that people are treading water just

waiting for something to happen; people are working hard on the

case. The second thing is, and that's just to point out as

First Amendment counsel in the case, that the issues that are

pending in the Ninth Circuit have an overarching effect both on

the positions being considered today, the motion being

considered today, and for the future conduct of the case.

So, for example, the government estimates that 90

percent of the funds from Backpage were tainted, or actually if

you take Mr. Rapp's latest comment, he believes that everything

is tainted.

That's based on the argument that is being made in the

Ninth Circuit, that adult ads are the same as illegal ads. So

right off the bat, the government's estimate of what they are

entitled to seize is off for that reason.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 60 of 69
 60

UNITED STATES DISTRICT COURT

And for that reason, the ruling by the Ninth Circuit

is going to clarify a lot about both the state of the seized

assets and also about the government's assumptions and bringing

the prosecution in the first place. So it makes good sense as

a case management matter simply to see what the Ninth Circuit

has to say on these issues.

THE COURT: I appreciate that.

Mr. Stone, do you or your colleagues have any final

remarks?

Mr. Rapp, you are standing. Come on up.

MR. RAPP: Well, let me just start with

Mr. Corn-Revere. This is Davis Wright Tremaine's signature

move in this case. Is they go into a civil case and claim

there ought to be a stay, things ought to stop because there's

a criminal case going on. 

This is an interesting twist, coming into this

criminal case saying, you should stop everything because there

is a civil case going on in California. It's sort of the tail

wagging the dog. Everything should stop here because they are

litigating this issue with respect to the seizures of the IOLTA

accounts.

There is a history of delay with Backpage. One, we

have to look no further than the California state case where

the judge issued sanctions for just this type of delay.

This is to the firm of Davis Wright Tremaine. "I am

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 61 of 69
 61

UNITED STATES DISTRICT COURT

going to grant the motion for sanctions. I believe an adequate

record has been made supporting sanctions in this case for a

number of reasons, all listed by the plaintiffs, but also the

Court looks at what constitutes a bad faith.

"And there are three ways the Court can look at it.

Pre-litigation misconduct. I am finding that given the history

of the defendants in this case, in the multiple cases they have

had, not just before this Court, I have had two, not just in

this state but nationally, it is clear to this Court that their

conduct was to necessitate delay where there were what appears

to be clearly valid claims or rights being asserted by the

plaintiff, which months and years later" --

THE COURT: Mr. Rapp, before you finish reading all of

that, which I have heard enough of that actually, what you're

placing on the record, did it deal with the fund issue that we

have been dealing with?

MR. RAPP: You know what, I can talk about the fund

issue.

THE COURT: That's a yes-or-no question.

MR. RAPP: This transcript, no, just deals with --

THE COURT: Generally delaying the case?

MR. RAPP: Yes.

THE COURT: But they didn't have the same argument

about, we don't have money to do our jobs?

MR. RAPP: Well, Davis Wright Tremaine is not going to

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 62 of 69
 62

UNITED STATES DISTRICT COURT

argue they are not getting money from Backpage. They are

getting money, clean money from Backpage. Clean money.

They got 100,000 in August. We are not taking that.

That's clean money. So Spear, Brunst, Lacey, and Larkin, have

separate money from the sale of the alternative weeklies. They

are getting money that we view as clean, legitimate money, and

they are funneling it through another lawyer's account and

disbursing it out.

THE COURT: Why do you use the funneling through

analogy? Because that just sounds unseemly.

MR. RAPP: Well, it's a con move, however you want

to -- look, here's the point. They are getting money, and

under Monsanto, come to us, show us your financials, we will

look at your financials, and if you have no legitimate money,

then maybe we can have a discussion. But they won't do that.

They won't do that.

So you have to know the history of the case. These --

many of the attorneys on this case who came to us shortly after

arrest, they knew that the tracing of illegitimate and

legitimate money was a problem. And some of them said, look,

we have an account, we think this is legitimate money. This

doesn't -- should not come as a surprise to them.

If by analogy, if this was a drug trafficking case,

and the kingpin of the cartel gave drug revenue out to various

attorneys before being arrested and indicted, and that same

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 63 of 69
 63

UNITED STATES DISTRICT COURT

kingpin was arrested and indicted and pled guilty and agreed

that he was running a criminal enterprise and that the revenue

from the criminal enterprise was dirty, and then he pled

guilty, the entire cartel, anybody looking at this would know

that there's a good chance that the money is all tainted.

That's the same case here. It is no different.

Backpage was a criminal enterprise from its inception.

Now, they don't want to address the First Amendment

arguments that we responded to in 446, but if you look at the

business practices they were engaging in, and they have never

ever responded to those, in any of the letters I have sent

them, in any of the pleadings, they won't stand up here and try

to defend the financial relationship with the Erotic Review,

with the aggregation of ads from other prostitution websites,

because they can't.

Because they are running a criminal enterprise, and

every dollar that they make is dirty or it's commingled with

the very de minimis amount of money that is legitimate -- that

they say is legitimate, I guess, from selling bicycles and

couches, which was such an incredibly small fraction of

Backpage's business model that it is not even worth talking

about.

So they have a remedy, Monsanto. Come to us, show us

your financials. Maybe you can trigger a Monsanto hearing, and

we can look at your financials, or don't. And then find money

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 64 of 69
 64

UNITED STATES DISTRICT COURT

from your legitimate source to fund your defense.

THE COURT: Mr. Rapp, I appreciate that.

Mr. Piccarreta, since you are the one that basically

filed 443, I will give you the last word. I will give you

three minutes.

MR. PICCARRETA: Judge, we haven't had a factual

hearing yet to defend the allegations of the government, so for

them to assume we haven't defended yet, we haven't gotten to

that stage. We have plenty of defenses.

Two, they know under United States versus Vera, the

Ninth Circuit is very clear that a guilty plea cannot -- facts

contained in it cannot be used against other defendants because

it's inherently unreliable. I can give you the cite on Vera.

THE COURT: I am familiar with it.

MR. PICCARRETA: And finally, Judge, there's been a

lot of slander of Davis Wright Tremaine. They seem to be the

target of these guys, but they are a very reputable --

THE COURT: Another fire bomb legal term when you

start throwing away slander and -- bring out slander and

prosecutorial misconduct and threats and all of this. You all

are senior enough that when you start launching these different

types of allegations and accusations, you should be prepared to

have an affidavit signed by you and notarized to a state bar

that this person is engaging in this conduct.

If you are not prepared to do that, in this case -- I

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 65 of 69
 65

UNITED STATES DISTRICT COURT

don't know if it is your practice some other place -- but save

that for when you leave the courtroom. Because when you place

it on the record like this, it's very difficult to unring that

bell. 

And I'm pretty confident that all of you are very

proud about what you have accomplished as lawyers, prosecutors,

defenders, whatever you have taken on as a lawyer. And you

don't want to have your reputation sullied that way, so if you

could take this outside of the courtroom. 

But if you are seeking a remedy from me for some form

of misconduct, please bring it up in this courtroom. If you

are not, leave the name calling out of this litigation.

Go ahead.

MR. PICCARRETA: I wasn't trying to call names, I was

just responding to what was --

THE COURT: When you talk about slander, that's

exactly what you are doing. Go ahead.

MR. PICCARRETA: All right. I did not believe it was

fair to make those accusations. But put that all aside, we are

all here today as a result of the government's seizure of IOLTA

accounts in November of this year.

And that has wreaked havoc on my client, my defense,

and my ability to get funds. And that's why we are here today

asking you to stay the proceeding, at least for the defense

obligations until the next status conference so we can

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 66 of 69
 66

UNITED STATES DISTRICT COURT

determine whether we have adequate funds to defend or whether

we have to file pleadings and go from there. That's all we are

asking.

I am not involved in the other cases or whatever they

are referring to. We are here with a legitimate gripe. We

didn't serve the warrant on ourselves. That wasn't discussed

with us. It was dropped on our lap on November 7th, and that's

why we are here today, Judge.

THE COURT: I really appreciate that.

First of all, I want to thank all of you for your well

thought out arguments that you've presented to the Court. It

is all very, very helpful.

This Court is in receipt of Document Number 443, which

is the defendants' joint status report. This Court, after

reading the 15-page document several times, I will consider it

as a motion requesting a continuance or as was described

earlier by Mr. Piccarreta, a request to stay the defendants'

obligations.

This Court is also in receipt of Document Number 444,

which is the United States Government's memorandum, and I also

have Document Number 446 that I have also considered, which is

the United States' response to defendants' joint status report.

After careful consideration of all of the arguments of

counsel, and I certainly understand the issues concerning both

sides and the litigation generally and some of the hardships

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 67 of 69
 67

UNITED STATES DISTRICT COURT

that the defense counsels may be going through to adequately

make sure that their clients are prepared for trial. 

After carefully considering all of the issues, the

motion, which is Document Number 443, will be denied.

The current deadlines in the scheduling order that are

spelled out in Document Number 131, the government and defense,

I am ordering you both to continue to meet those deadlines.

In the event that the Ninth Circuit Court of Appeals

comes out with a decision, and that decision is one in which

this District Court needs to act on it based on if funds are

freed or whatever way that they decide the case and send it

back to the District Court, I look forward to weighing in on

those issues.

Mr. Feder, I appreciate you providing me with a copy

of this document that is currently under seal. I don't want

it. It's a sealed document.

Lisa, if you can return that to Mr. Feder.

And the hearing is adjourned.

(Proceedings conclude at 11:28 a.m.)

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 68 of 69
 68

UNITED STATES DISTRICT COURT

C E R T I F I C A T E

I, ELVA CRUZ-LAUER, do hereby certify that I am duly

appointed and qualified to act as Official Court Reporter for

the United States District Court for the District of Arizona.

I FURTHER CERTIFY that the foregoing pages constitute

a full, true, and accurate transcript of all of that portion of

the proceedings contained herein, had in the above-entitled

cause on the date specified therein, and that said transcript

was prepared under my direction and control.

DATED at Phoenix, Arizona, this 6th day of February,

2019.

 s/Elva Cruz-Lauer 

 Elva Cruz-Lauer, RMR, CRR 

 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case 2:18-cr-00422-DJH Document 498-1 Filed 03/12/19 Page 69 of 69