Source: http://federaltaxcrimes.blogspot.com/2012/07/emails-stored-on-isps-computer-and.html
Timestamp: 2016-06-25 10:26:20
Document Index: 101270938

Matched Legal Cases: ['§ 1349', '§ 1341', '§ 1344', '§ 1029', '§ 1956', '§ 371', '§ 2701', '§ 2703', '§ 2703', '§ 2703', '§ 2705']

Federal Tax Crimes: Are Emails Stored on the ISP's Computer Subject to Fourth Amendment Protections? (7/28/12)
Berkeley Premium Nutraceuticals, Inc., was an incredibly profitable company that served as the distributor of Enzyte, an herbal supplement purported to enhance male sexual performance. In this appeal, defendants Steven Warshak ("Warshak"), Harriet Warshak ("Harriet"), and TCI Media, Inc. ("TCI"), challenge their convictions stemming from a massive scheme to defraud Berkeley's customers. Warshak and Harriet also challenge their sentences, as well as two forfeiture judgments. Given the volume and complexity of the issues presented, we provide the following summary of our holdings: (1) Warshak enjoyed a reasonable expectation of privacy in his emails vis-a-vis NuVox, his Internet Service Provider. See Katz v. United States, 389 U.S. 347, 88 S. Ct. 507, 19 L. Ed. 2d 576 (1967). Thus, government agents violated his Fourth Amendment rights by compelling NuVox to turn over the emails without first obtaining a warrant based on probable cause. However, because the agents relied in good faith on provisions of the Stored Communications Act, the exclusionary rule does not apply in this instance. See Illinois v. Krull, 480 U.S. 340, 107 S. Ct. 1160, 94 L. Ed. 2d 364 (1987). (2) The district court did not err in refusing to hold a full-fledged hearing under Kastigar v. United States, 406 U.S. 441, 92 S. Ct. 1653, 32 L. Ed. 2d 212 (1972), when determining whether government agents had improperly used privileged materials seized during a valid search of Berkeley's headquarters. Kastigar does not apply with full force outside the context of compelled testimony. See United States v. Squillacote, 221 F.3d 542 (4th Cir. 2000). (3) The district court did not abuse its discretion by failing to order the government to provide discovery in a different format, as Federal Rule of Criminal Procedure 16 is silent on the issue of the form that discovery must take. Moreover, the government did not duck its obligations under Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963), by providing the defendants with massive quantities of discovery. See United States v. Skilling, 554 F.3d 529 (5th Cir. 2009), vacated in part on other grounds, 130 S. Ct. 2896, 177 L. Ed. 2d 619 (2010). Finally, the district court did not err in refusing to grant the defendants a continuance so that they could continue examining the discovery materials turned over by the government. (4) The district court did not err in refusing to grant Warshak a new trial based on an alleged Brady violation, as the purportedly exculpatory material did not rise [*275] to the level of materiality. See Kyles v. Whitley, 514 U.S. 419, 115 S. Ct. 1555, 131 L. Ed. 2d 490 (1995). (5) The district court did not err in refusing to grant the defendants a new trial on the basis of prosecutorial misconduct. Though the prosecution did make a number of improper remarks during its rebuttal argument, the remarks were not flagrant. See United States v. Carter, 236 F.3d 777 (6th Cir. 2001). (6) The evidence was sufficient to support Warshak's and Harriet's respective convictions for conspiracy to commit mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349. See Jackson v. Virginia, 443 U.S. 307, 99 S. Ct. 2781, 61 L. Ed. 2d 560 (1979). Those convictions are therefore sustained. (7) The evidence was sufficient to support Warshak's convictions for mail fraud, in violation of 18 U.S.C. § 1341. Those convictions are therefore sustained. (8) The evidence was sufficient to support Warshak's and Harriet's respective convictions for bank fraud, in violation of 18 U.S.C. § 1344. Furthermore, the district court did not err in instructing the jury that, under certain circumstances, the government may prove specific intent to defraud a bank by showing specific intent to defraud a third party. See United States v. Reaume, 338 F.3d 577 (6th Cir. 2003). Those convictions are therefore sustained. (9) The evidence was sufficient to support Warshak's conviction for conspiracy to commit access-device fraud, in violation of 18 U.S.C. § 1029. That conviction is sustained. (10) The evidence was sufficient to support Warshak's and TCI's respective convictions for money laundering, in violation of 18 U.S.C. §§ 1956, 1957. Those convictions are affirmed. By contrast, the evidence was insufficient to support Harriet's money-laundering convictions. Those convictions are therefore reversed. (11) The evidence was sufficient to support Warshak's conviction for conspiracy to obstruct an FTC proceeding, in violation of 18 U.S.C. §§ 371, 1505. As a consequence, that conviction is sustained. (12) The district court did not err in refusing to order the government to reveal whether or not it had conducted any additional surreptitious searches of Warshak's emails or communications. The discovery afforded by Federal Rule of Criminal Procedure 16 is limited to the evidence referred to in its express provisions, United States v. Presser, 844 F.2d 1275, 1285 (6th Cir. 1988), and those provisions do not encompass the information sought by the defendants. (13) The district court failed to provide an adequate explanation of its determination that the defendants should be held accountable for $411 million in losses. See Fed. R. Crim. P. 32(i)(3)(B); United States v. White, 492 F.3d 380, 415 (6th Cir. 2007). We therefore vacate Warshak's sentence and remand. (14) The district court did not abuse its discretion in refusing to admit certain evidence during the forfeiture phase of the trial. Furthermore, the evidence was sufficient to support the proceeds-money and money-laundering forfeiture judgments against Warshak. In addition, the evidence was sufficient to support the proceeds-money forfeiture judgment against Harriet, but it was insufficient to support the money-laundering forfeiture judgment against her. Therefore, the proceeds-money forfeiture judgment is affirmed with respect to both Warshak and Harriet, and the money-laundering money judgment is affirmed with respect to Warshak, but reversed with respect to Harriet.
I will cover in this blog the email issue -- paragraph (1). I may come back in later blogs to some of the other issues. Before beginning the email discussion, however, I first want to address readers' likely curiosity about the Enzyte product and its market success. Enzyte was a herbal product that apparently did not need FDA approval and could be direct marketed to the willing but unsuspecting masses (masses not suspecting that it did not work and not suspecting that their request for a free copy included a continuance of paid supplements until they opted out). Here is what the case says about the product and its marketing success.
Berkeley's operations included a host of conduct that violated various federal laws -- mail fraud, money laundering, etc. During the course of the investigation, the Government subpoenaed the Warshak's internet service provider for emails that were more than 180 days old. That background for the subpoena thus framed is as follows: First, generally, if a U.S. person has records in the hands of a third party, a U.S. investigative agency desiring those records may seek their voluntary turn over from the third party or may subpoena them from the third party. In either event, a search warrant (requiring probable cause) is not required. That is called the Third-Party Records Doctrine. I have stated it as a general rule, but you can see what it might mean in the context of emails stored on the computers of the ISP. Second, notwithstanding that general rule, the Stored Communications Act ("SCA"), 18 U.S.C. §§ 2701 et seq., in relevant part, specifically requires that, if the Government desires electronic stored records, including emails, that are 180 days old or less, the Government must do so by search warrant. So, of course, since the investigators did not want to seek a search warrant, the investigators subpoenaed the emails that were over 180 days old. The subpoena thus complied with the SCA.
In October 2004, as a predicate to issuing the subpoena, the Government formally requested, as permitted under 18 U.S.C. § 2703(f), that the ISP prospectively preserve the contents of emails to or from Warshak's email account. The ISP complied. Neither the Government nor the ISP advised Warshak that his emails were being archived.
In January 2005, the Government subpoened the ISP under § 2703(b) to turn over the emails and obtained a subsequent ex parte order compelling it to do so. The ISP turned over 27,000 emails. Warshak did not learn of the subpoena or order until May 2006.
Warshak complained on this appeal, as he had previously, that the subpoena and compelled turn over of emails violated his Fourth Amendment right to privacy.
The Sixth Circuit introduced the legal background for Fourth Amendment analysis as follows (footnote omitted):
Not all government actions are invasive enough to implicate the Fourth Amendment. "The Fourth Amendment's protections hinge on the occurrence of a 'search,' a legal term of art whose history is riddled with complexity." Widgren v. Maple Grove Twp., 429 F.3d 575, 578 (6th Cir. 2005). A "search" occurs when the government infringes upon "an expectation of privacy that society is prepared to consider reasonable." United States v. Jacobsen, 466 U.S. 109, 113, 104 S. Ct. 1652, 80 L. Ed. 2d 85 (1984). This standard breaks down into two discrete inquiries: "first, has the [target of the investigation] manifested a subjective expectation of privacy in the object of the challenged search? Second, is society willing to recognize that expectation as reasonable?" California v. Ciraolo, 476 U.S. 207, 211, 106 S. Ct. 1809, 90 L. Ed. 2d 210 (1986) (citing Smith v. Maryland, 442 U.S. 735, 740, 99 S. Ct. 2577, 61 L. Ed. 2d 220 (1979)). Turning first to the subjective component of the test, we find that Warshak plainly manifested an expectation that his emails would be shielded from outside scrutiny. As he notes in his brief, his "entire business and personal life was contained within the . . . emails seized." Appellant's Br. at 39-40. Given the often sensitive and sometimes damning substance of his emails, we think it highly unlikely that Warshak expected them to be made public, for people seldom unfurl their dirty laundry in plain view. See, e.g., United States v. Maxwell, 45 M.J. 406, 417 (C.A.A.F. 1996) ("[T]he tenor and content of e-mail conversations between appellant and his correspondent, 'Launchboy,' reveal a[n] . . . expectation that the conversations were private."). Therefore, we conclude that Warshak had a subjective expectation of privacy in the contents of his emails. The next question is whether society is prepared to recognize that expectation as reasonable. See Smith, 442 U.S. at 740. This question is one of grave import and enduring consequence, given the prominent role that email has assumed in modern communication. Cf. Katz, 389 U.S. at 352 (suggesting that the Constitution must be read to account for "the vital role that the public telephone has come to play in private communication"). Since the advent of email, the telephone call and the letter have waned in importance, and an explosion of Internet-based communication has taken place. People are now able to send sensitive and intimate information, instantaneously, to friends, family, and colleagues half a world away. Lovers exchange sweet nothings, and businessmen swap ambitious plans, all with the click of a mouse button. Commerce has also taken hold in email. Online purchases are often documented in email accounts, and email is frequently used to remind patients and clients of imminent appointments. In short, "account" is an apt word for the conglomeration of stored messages that comprises an email account, as it provides an account of its owner's life. By obtaining access to someone's email, government agents gain the ability to peer deeply into his activities. Much hinges, therefore, on whether the government is permitted to request that a commercial ISP turn over the contents of a subscriber's emails without triggering the machinery of the Fourth Amendment. In confronting this question, we take note of two bedrock principles. First, the very fact that information is being passed through a communications network is a paramount Fourth Amendment consideration. See ibid.; United States v. U. S. Dist. Court, 407 U.S. 297, 313, 92 S. Ct. 2125, 32 L. Ed. 2d 752 (1972) ("[T]he broad and unsuspected governmental incursions into conversational privacy which electronic surveillance entails necessitate the application of Fourth Amendment safeguards."). Second, the Fourth Amendment must keep pace with the inexorable march of technological progress, or its guarantees will wither and perish. See Kyllo v. United States, 533 U.S. 27, 34, 121 S. Ct. 2038, 150 L. Ed. 2d 94 (2001) (noting that evolving technology must not be permitted to "erode the privacy guaranteed by the Fourth Amendment"); see also Orin S. Kerr, Applying the Fourth Amendment to the Internet: A General Approach, 62 Stan. L. Rev. 1005, 1007 (2010) (arguing that "the differences between the facts of physical space and the facts of the Internet require courts to identify new Fourth Amendment distinctions to maintain the function of Fourth Amendment rules in an online environment").
With these principles established, the Sixth Circuit then began the more particularized analysis of the emails in question. The Sixth Circuit analogized to a letter and telephone call, both of which been recognized to invoke Fourth Amendment protections requiring search warrants. The Sixth Circuit then reasoned:
If we accept that an email is analogous to a letter or a phone call, it is manifest that agents of the government cannot compel a commercial ISP to turn over the contents of an email without triggering the Fourth Amendment. An ISP is the intermediary that makes email communication possible. Emails must pass through an ISP's servers to reach their intended recipient. Thus, the ISP is the functional equivalent of a post office or a telephone company. As we have discussed above, the police may not storm the post office and intercept a letter, and they are likewise forbidden from using the phone system to make a clandestine recording of a telephone call—unless they get a warrant, that is. See Jacobsen, 466 U.S. at 114; Katz, 389 U.S. at 353. It only stands to reason that, if government agents compel an ISP to surrender the contents of a subscriber's emails, those agents have thereby conducted a Fourth Amendment search, which necessitates compliance with the warrant requirement absent some exception.
The Sixth Circuit rejected the Government's attempt to extrapolate from the ISP agreement permitting it to access the emails as negating a reasonable expectation of privacy, reasoning the "the mere ability of a third-party intermediary to access the contents of a communication cannot be sufficient to extinguish a reasonable expectation of privacy." The Sixth Circuit analogized to telephone company's ability -- as opposed to right -- to listen to telephone conversations and rented space arrangements, such as even hotels, where the owne has the ability to enter for a variety of reasons -- such as for maid service and repair. Yet that does not mean that the Government can listen to telephone conversations or invade hotel rooms without a warrant.
The Sixth Circuit distinguished other cases and concluded:
Accordingly, we hold that a subscriber enjoys a reasonable expectation of privacy in the contents of emails "that are stored with, or sent or received through, a commercial ISP." Warshak I, 490 F.3d at 473; see Forrester, 512 F.3d at 511 (suggesting that "[t]he contents [of email messages] may deserve Fourth Amendment protection"). The government may not compel a commercial ISP to turn over the contents of a subscriber's emails without first obtaining a warrant based on probable cause. Therefore, because they did not obtain a warrant, the government agents violated the Fourth Amendment when they obtained the contents of Warshak's emails. Moreover, to the extent that the SCA purports to permit the government to obtain such emails warrantlessly, the SCA is unconstitutional.
The Sixth Circuit then held that, notwithstanding the violation of the Fourth Amendment, the Government's agents actions in issuing the subpoena and obtaining the emails was done in good faith in reliance on the constitutionality of the statute. In doing so, the Sixth Circuit rejected technical arguments as to noncompliance with the SCA. So, based on substantial authority that good faith compliance will pass muster even if the statute or portion thereof is subsequently found to the unconstitutional. In addition, in footnote 22, the Sixth Circuit said that the Fourth Amendment violation was "likely harmless" in any event, thus precluding relief for Warshak.
The take away from this seminal case is that the contents of email communications are subject to Fourth Amendment protections, at least in the Sixth Circuit, the first court of appeals to squarely address the issue. So, henceforth, the Government is on notice -- even in the other Circuits -- that its right to rely upon the SCA without a search warrant is at risk and hence will be unable to rely upon a "good faith" reliance upon the SCA.
I think most authorities agree that the content of emails are subject to Fourth Amendment protection even in the hands of the third party ISP. Correspondingly, Warshak rejects any implication in the SCA that, after the 180th day, the emails are not subject to voluntary or compelled production without a subpoena. That does not mean that everything about the email is subject to that protection. Thus for example, the sender and addressee, by analogy to mail, has no reasonable expectation of privacy, but the contents of the email do have an expectation of privacy.
In ILM 201141017, here, in response to a question as to whether, under the SCA, a modified summons [the equivalent of a subpoena] seeking only emails over 180 days as the SCA seems to permit would be prudent, the IRS author advised (footnotes omitted):
2. No, as a practical matter it would not be sensible for the revenue officer in this case to reissue a modified administrative summons to the ISP, seeking only the contents of the ISP customer's e-mails from a date certain until another specified date that is more than 180 days before the issue date of the new summons. The SCA, 18 U.S.C. § 2703(a)-(b), does permit a governmental entity to require an ISP to produce the contents of an ISP customer's electronic communications that have been in electronic storage for more than 180 days in response to an administrative subpoena (including an IRS summons). In such cases, the governmental entity must either provide prior notice of the administrative subpoena to the customer, or the governmental entity may provide the customer with "delayed notice" of the subpoena if the conditions and procedures described in 18 U.S.C. § 2705 for such delayed notice to the customer are followed, including a required written certification by a supervisory official. In a recent case, the Sixth Circuit opined that the SCA provisions which allow a governmental entity to require an ISP to produce the contents of a customer's e-mails which are more than 180 days old without a properly authorized warrant, upon a showing of probable cause, violated the Fourth Amendment (as an unreasonable search and seizure) and were unconstitutional. United States v. Warshak, 631 F.3d 266, 288 (6th Cir. 2010), reh'g and reh'g en banc denied, 2011 U.S. App. LEXIS 5007 (6th Cir. March 7, 2011). The ISP in the present case is headquartered within the Ninth Circuit, rather than the Sixth Circuit, but the ISP has advised Counsel that it does not intend to comply voluntarily with the summons. The Ninth Circuit has not yet addressed the constitutionality of the provision of the SCA that the Sixth Circuit opined was unconstitutional, but the Ninth Circuit has previously opined that the contents of certain electronic messages were protected by the Fourth Amendment, and it has discussed possible constitutional distinctions between the contents of electronic communications and the non-content information associated with a customer's use of electronic communications. In short, we do not believe there is any reasonable possibility that the Service will be able to obtain the contents of this customer's e-mails that are more than 180 days old through a modified summons upon this ISP without protracted litigation, if at all. Moreover, the revenue officer has indicated that he is primarily interested in this case in the opportunity to look for the most recent potential collection leads in the customer's e-mails. The most recent e-mails the SCA permits the Service to seek via an administrative summons would surely contain only "stale" leads by the time any protracted litigation with the ISP (and any intervenors and likely amici) could practically be concluded.
The ILM also notes that, although Warshak is binding precedent only in the Sixth Circuit, it does serve to make the law unsettled and must be taken into account in further actions attempting to rely upon the SCA.
Now, I turn back to the issue I started with in the first paragraph -- whether clients should be concerned about the contents of email communications with their lawyer in a tax controversy practice. Subject to the foregoing discussion, I doubt that the Government would ever attempt to obtain a search warrant for email communications to and from a lawyer in a tax controversy practice unless the Government had probable cause to believe that the lawyer and the client were doing something illegal. If all the Government suspects is that they are communicating about some prior conduct the subject of the investigation, that would be entirely appropriate attorney client communications and thus privileged as well as subject to Fourth Amendment protections. And, I think that ultimately, the Sixth Circuit's holding in Warshak will carry the day on the Fourth Amendment protections.
huJuly 30, 2012 at 8:45 AMThanks Jack, you've allayed some of the concern I've had regarding email with my lawyer to whom I've communicated almost the entire content of my case and to whom I've emailed very sensitive data. She brushed it off when I expressed discomfort regarding this, but I never felt comfortable.ReplyDeleteanonJuly 30, 2012 at 8:52 AMJackQuite apart from the concern over 4th Amendment protection, I think it is a bad idea to send confidential documents of any kind over email, unless these are encrypted. Email accounts can be hacked, email can bounce, even reach the wrong recipient at times (or be sent mistakenly to the wrong recipient because of a typo).ReplyDeleteAnonymousJuly 30, 2012 at 9:47 AMJack, I am not qualified to comment on the legal aspects of this topic.However, from a practical point of view, it is not all that difficult (although illegal) for any third party to intercept and retrieve emails and other computer records. This can be done remotely from anywhere in the world, so that the illegality will often be of little concern to the person doing this, particularly since the information can often be used for blackmail (even if the account is declared to the government the owner may not want family members to know) kidnapping for ransom (big concern to those who travel or live in countries where such incidents happen with some frequency, as I do) economic espionage (information that could be sold to a business competitor) and so on. I believe such threats are much more likely to happen than government spying or subpoenas, at least for the average person.ReplyDeleteJackTownsendJuly 30, 2012 at 11:38 AMGood point. Given the world we live in data should not be considered "undiscoverable" by others. The concern I address is whether it is discoverable by the IRS or DOJ Tax for use in a criminal tax case. That is the concern addressed to me. I think that the risk of that is so low in email communications except by search warrant that the usefulness of email communications far outweigh the risk.In some cases, of course, encryption may give some extra comfort, but in a search warrant situation the Government likely to de-crypt or force the target to provide the key.Jack TownsendReplyDeleteMLCJuly 31, 2012 at 7:21 PMThis is true; this decision by the Sixth Circuit Court has a greater impact on what our own Government can legally do in the course of a criminal investigation. Nobody should assume that their emails are suddenly safe because of this.ReplyDeleteAdd commentLoad more...