United States v. Rankin

          OMNIBUS RULING RE DEFENDANTS' MOTIONS TO DISMISS THE INDICTMENT AND FOR OTHER RELIEF

          JEFFREY ALKER MEYER UNITED STATES DISTRICT JUDGE.

         A federal grand jury has returned an indictment charging the five defendants in this case with conspiring to and misappropriating funds for personal purposes. The five defendants were officers or directors of the Connecticut Municipal Electric Energy Cooperative (CMEEC), a public corporation created to provide low-cost electric power for certain member towns. The indictment alleges that the five defendants misused funds of CMEEC and the member towns for trips to the Kentucky Derby and to a luxury golf resort in West Virginia.

         Defendants now move to dismiss the indictment and for other relief. They principally argue that the trips at issue were lawful “corporate retreats” and that the Government has overreached by criminalizing conduct that is allowed under state law. They also accuse the Government of a wide range of misconduct during the investigation of the case. One of the defendants moves for a severance, and all of the defendants seek bills of particulars.

         I will mostly deny defendants' motions. I conclude that the indictment on its face validly alleges that the five defendants conspired to and misappropriated funds for personal purposes, notwithstanding their fact-based arguments that they acted for valid corporate purposes. I also conclude that there is no merit to defendants' claims that the indictment should be dismissed due to any misconduct by the Government. Lastly, I conclude there are no grounds for severance or for the grant of a bill of particulars.

         Background

         The indictment alleges the following facts. CMEEC was “a cooperative public corporation created under the laws of the State of Connecticut to permit municipal electric utilities in Connecticut to join together for the purpose of furnishing efficient, low cost and reliable electric power in the municipalities' areas of operation.” Doc. #1 at 1 (¶ 1). “CMEEC provided wholesale electric power to the Member Towns, who, in turn, provided electricity to residential and commercial ratepayers in their respective towns through each CMEEC Member's municipal utility.” Id. at 1-2 (¶ 1). “CMEEC's purpose was to allow the Member Towns to provide electricity at a cheaper cost to their ratepayers than if the Member Towns were purchasing wholesale electric power on their own.” Id. at 2 (¶ 1).

         CMEEC's various “members” included several towns and taxing districts in Connecticut. Id. at 1 (¶ 1). Each of these “member towns” were “owners” of CMEEC, and each “executed an agreement through its respective municipal electric utility outlining the terms and conditions under which the CMEEC Members participated together in CMEEC.” Id. at 2 (¶ 2).

         CMEEC “was managed in its day-to-day activities” by a board of directors “made up of representatives from each Member Town.” Id. at 3 (¶ 5). CMEEC's bylaws specified that CMEEC's chief executive officer was responsible for the preparation each year of a general administrative budget that would include all necessary expenses, and the board of directors was required to vote on CMEEC's budget approvals and revisions. Id. at 4 (¶ 7).

         According to CMEEC's membership agreement, “all revenues less incurred expenses received by CMEEC” were designated as “CMEEC Margin.” Id. at 4 (¶ 8). The CMEEC margin was required to be allocated and/or disbursed each month to each of the member towns to help keep their electricity costs stable for ratepayers. Ibid.

         The five defendants in this case are:

• Drew Rankin, CMEEC's chief executive officer;

• James Sullivan, CMEEC's chairperson of the board of directors and a board representative from one of the member towns (the City of Norwich);

• John Bilda, a board representative from the City of Norwich;

• Edward DeMuzzio, CMEEC's board secretary and a board representative from another member town (the City of Groton); and

• Edward Pryor, CMEEC's chief financial officer.

Id. at 4-5 (¶¶ 9-14).

         According to the indictment, the five defendants joined in a criminal conspiracy from 2014 to 2017 “to conduct the business and affairs of CMEEC for their personal, pecuniary and financial benefit, and for the personal, pecuniary and financial benefit of their family members, friends, and associates.” Id. at 6-7 (¶¶ 16-17). Defendants allegedly “planned, organized and directed lavish trips outside of the State of Connecticut including trips to the Kentucky Derby in Louisville, Kentucky, and to a luxury golf resort in West Virginia, ” and “[t]hese trips did not relate to CMEEC business, CMEEC Member business, and the furnishing of efficient, low-cost and reliable electric power to the Member Towns and their ratepayers.” Id. at 7 (¶ 19).

         The indictment goes on to list various aspects of defendants' conduct that were additional “parts” of this conspiracy:

• Source of funds for the trips-that the defendants “paid for the trips with CMEEC funds and CMEEC Member funds, ” id. at 7 (¶ 20);

• Lack of required approval by and disclosures of trip costs to board of directors-that defendants “did not seek the approval of the CMEEC Board of Directors for these trips and did not include the costs for the trips as budget expenses in the annual general administrative budgets proposed to and approved by the CMEEC Board of Directors, ” id. at 7-8 (¶ 21);

• Misappropriation of funds for trips from CMEEC margin account-that defendants “directed that the funds used in part and in whole to pay for the trips come from the CMEEC Margin account, in violation of the CMEEC Membership Agreement, without a vote of the CMEEC Board of Directors and without the written consent of the Member Towns as required by the Membership Agreement, ” id. at 8 (¶ 22);

• Misleading description of trip expenses-that defendants “directed that the funds used in part and in whole to pay for the trips be designated as ‘board expenses' and ‘delegation related expenses' in reports concerning the CMEEC Margin account, ” ibid. (¶ 23);

• Lack of disclosure of trips to non-participating CMEEC employees-that defendants “did not disclose to CMEEC employees, including senior-level employees, the fact of the trips, and encouraged those invited to the trips not to discuss the trips with non-attendees, ” ibid. (¶ 24); and

• False statements about trips-that “when the fact of the trips became public knowledge, [some of the defendants] made false statements about the trips to representatives of Member Towns and to the press, including misleading statements about the purpose of the trips, the identities of those attending the trips, and the funds used to pay for the trips, ” ibid. (¶ 25).

         The indictment then alleges dozens of overt acts in furtherance of the conspiracy. Id. at 9-17 (¶¶ 26-61). These allegations focus on four different trips from 2015 to 2016-two to the Kentucky Derby and two to a luxury golf resort in West Virginia as described below.

         Kentucky Derby trip-April/May 2015

         The first trip was to the Kentucky Derby for several days in late April and early May 2015. The arrangements for this trip began in June 2014 when defendant Rankin (who was CMEEC's chief executive officer) executed a purchase order for more than $200, 000 to pay for the trip without identifying the trip expenses in any budget presented to the CMEEC board of directors. Id. at 9 (¶ 27). Defendant Pryor (who was CMEEC's chief financial officer) directed that a new “contra-margin” account be created for the costs of the Kentucky Derby trips to come from the CMEEC margin account, allegedly in violation of the CMEEC membership agreement and without a vote of the CMEEC board of directors or consent of the member towns. Ibid. (¶ 28).

         About 30 people were invited to take part in the 2015 Kentucky Derby trip, including all of the defendants except DeMuzzio, and guests including certain CMEEC board members, employees, friends, and associates. Id. at 9-10 (¶ 31). Among the invitees were defendant Sullivan's brother, sister-in-law, and his minor son. Ibid. The trip costs included a charter plane from Connecticut to Kentucky, event tickets, hotel rooms, food, and gift bags. Id. at 9 (¶ 27), 11 (¶ 35).

         In a pamphlet prepared for the attendees, Rankin described the trip as a “2015 Strategic Retreat: Members and Guests Appreciation Celebration, ” adding “[a]re you ready for some genuine Kentucky Experience and Derby Fun?” Id. at 10 (¶ 32). The pamphlet described the trip as dedicated to “tak[ing] a few moments to celebrate and honor you as dedicated and awesome Board Members and your Strategic Guests/Partners.” Ibid. The total cost for this trip was about $294, 917, all paid for “with Member Towns' funds from the CMEEC Margin account.” Id. at 11 (¶ 35).

         West Virginia golf trip-August 2015

         The second trip was to a luxury golf resort in West Virginia in August 2015 about three months after the Kentucky Derby trip. Id. at 11-12 (¶¶ 39-43). This trip included only the defendants Rankin, Sullivan, Bilda, and DeMuzzio. Before the trip, Rankin emailed Sullivan, Bilda, and DeMuzzio describing the trip as one to “evaluate the location” for another strategic retreat. Id. at 11-12 (¶ 39). Sullivan (who was CMEEC's board chairman) sent a reply stating, “Is your name ‘I deserve a raise?'” Id. at 12 (¶ 42). Rankin also sent the group an email with a description of the cottage at the golf resort that he had reserved and a schedule of the golf courses they would visit. Id. at 12 (¶ 41). The total cost of this second trip was $21, 447, and invoices approved by Rankin for the trip noted that it was in connection with the board of directors' “compensation committee.” Id. at 12 (¶ 43).

         West Virginia golf trip-October 2015

         The third trip was a return to the same luxury golf resort in West Virginia in October 2015 with a larger group. Rankin sent an email to representatives of CMEEC's board of directors inviting them to a “Member Delegation Strategic Retreat” at the golf resort, stating that “[t]he retreat is planned off site and out of state to enable full focus on strategic issues, celebratory review of results, and general social/team building.” Id. at 12 (¶ 44). The total cost of this trip was approximately $112, 443.98 and was “paid for with Member Towns' funds in the CMEEC Margin account.” Ibid. (¶ 47). Among the trip expenses were $2, 264.57 for seventeen “ladies' scarves, ” as well as $3, 426.80 in custom golf balls and hats from an entity owned by defendant Bilda's wife. Id. at 13-14 (¶¶ 45, 47-49).

         Kentucky Derby trip-May 2016

         The next trip involved a return to the Kentucky Derby in May 2016. Rankin initially approved a purchase order for this trip in May 2015, and this purchase order “was charged against the CMEEC Margin.” Id. at 11 (¶ 37). The trip included about 40 guests, including Bilda's parents, the wife and mother-in-law of a CMEEC board member who was not attending the retreat, CMEEC vendors, a close friend of DeMuzzio's who lived in Florida, a son-in-law and daughter of a CMEEC vendor, and the mayor of one of the CMEEC member towns. Id. at 14 (¶ 51). Shortly before the trip, Rankin sent an email to the participants advising that “we have an excellent agenda scheduled to produce maximum fulfillment, all in expression of appreciation to each of you for helping CMEEC be successful.” Ibid. The trip involved charter plane travel from Connecticut to Kentucky, followed by attendance at the Kentucky Derby and related events. Id. at 14-15 (¶ 53). The total cost of the trip was approximately $374, 169, “paid for with CMEEC and Member Towns' funds.” Ibid.

         After the trips

         Soon after the 2016 Kentucky Derby trip, Rankin executed another purchase agreement for 40 ticket packages to the Kentucky Derby in 2017, including for event tickets, hotel rooms, food, gift bags, and transport. Id. at 15 (¶ 54). But several months later, the news media and others made inquiries about the trips that had occurred, and Rankin and Bilda responded with inaccurate and misleading information. Id. at 15-17 (¶¶ 56-60). The planned 2017 trip to the Kentucky Derby did not happen, and CMEEC eventually received a refund of only about $90, 000 of the $298, 960 it had already paid. Id. at 17 (¶ 61).

         The indictment

         Count One of the indictment broadly alleges that the five defendants joined in a criminal conspiracy from 2014 to 2017 to misappropriate funds that belonged to CMEEC and its member towns. Id. at 6 (¶ 16). The indictment alleges a conspiracy in violation of 18 U.S.C. § 371 with an objective to violate a separate federal criminal law, 18 U.S.C. § 666(a)(1)(A), that generally prohibits the knowing or intentional misappropriation of funds from agencies that receive federal funding. Ibid.^[1] Counts Two through Four of the indictment charge all five defendants with substantive counts of misappropriation of funds in 2014, 2015, and 2016 from a program receiving federal funds, in violation of 18 U.S.C. § 666(a)(1)(A) and 18 U.S.C. § 2.

         Section 666(a)(1)(A) by its terms applies to a wide range of acts including embezzlement, stealing, obtaining by fraud, knowing conversion, or other intentional misapplication of property. For simplicity, this ruling will refer generically to such intentional acts as “misappropriation.” The indictment otherwise alleges specific threshold requisites for a violation of section 666: that defendants were “agents” of CMEEC and/or the member towns, Doc. #1 at 4-5 (¶¶ 9-14), that CMEEC, its member towns, and their respective utilities were each a “government agency, ” id. at 2 (¶ 3), and that CMEEC and members towns annually received more than $10, 000 in federal funds for particular years as specified in the indictment, id. at 2-3 (¶ 4).

         Discussion

         The five defendants have each filed numerous motions and largely joined in each other's motions.^[2] These motions can be grouped into the following categories: (A) motions challenging the adequacy or legal basis for the indictment, (B) motions alleging misconduct by the Government, (C) a motion for severance, and (D) motions for bills of particulars. I will consider each group of motions in turn.

         A. Challenges to the sufficiency of the indictment

         Defendants challenge the adequacy of the indictment on multiple grounds. Rule 7(c) of the Federal Rules of Criminal Procedure requires that an indictment contain a “plain, concise and definite written statement of the essential facts constituting the offense charged.” An indictment is legally sufficient and will not be dismissed if it tracks the elements of the offense and alleges facts (such as time and place) with sufficient precision to give a defendant fair notice of the charge he must defend against at trial. See, e.g., United States v. Bout, 731 F.3d 233, 240 (2d Cir. 2013). Moreover, when an indictment alleges a conspiracy, it need not allege with technical precision all the elements essential to the commission of the crime that is the object of the conspiracy. Ibid. As the Second Circuit has explained, “[a]n indictment need not be perfect, and common sense and reason are more important than technicalities.” United States v. Stringer, 730 F.3d 120, 124 (2d Cir. 2013).

         Sometimes a criminal defendant may move to dismiss an indictment on grounds that the prosecution does not have enough evidence to prove its charge at trial. But this is not a proper challenge, because the federal rules do not authorize judges to engage in a pre-trial inquest to decide if the prosecution will have enough evidence to prove its case at trial. See Costello v. United States, 350 U.S. 359, 363-64 (1956). Instead, a judge must allow the prosecution an opportunity to marshal and present its evidence at trial; only then may a defendant challenge the sufficiency of the evidence by way of a motion for judgment of acquittal pursuant to Fed. R. Crim. P. 29 at the close of evidence in the case. See United States v. Huet, 665 F.3d 588, 595 (3d Cir. 2012).

         In short, the validity of an indictment is tested by the adequacy of its allegations, not by whether the prosecution can ultimately prove its case. And for this reason, when a court considers a defendant's pre-trial motion to dismiss an indictment, it must be alert to arguments that may be artfully framed as if challenging the sufficiency of the indictment but that in reality invite the judge to decide if the prosecution can meet its evidentiary burden at trial. See United States v. Triumph Capital Grp., Inc., 260 F.Supp.2d 462, 465 (D. Conn. 2002).

         1. Awareness and approval of CMEEC board of directors

         Defendants' first challenge is premised on their assertion that CMEEC's board of directors knew of and approved the trips in question. Defendants argue that they cannot have committed a misappropriation of corporate funds if their actions were approved by the company's board of directors. Citing those portions of the indictment alleging that members of CMEEC's board of directors were invited to attend one or more of the trips at issue, they argue that “[o]ne does not engage in ‘theft' by planning a corporate retreat, even if ‘lavish,' if the fiduciaries of the supposed ‘victim' know the corporation is paying for the retreat and those fiduciaries voluntarily attend and enjoy the retreat: year after year.” Doc. #85 at 6-7 (emphasis omitted). In the alternative, defendants argue that the inclusion of the CMEEC board members and the ostensible business purpose of the trips fatally contradicts the indictment's allegations that the defendants acted with the necessary improper intent. Ibid.

         I do not agree for several reasons. First, the indictment alleges that defendants “did not seek the approval of the CMEEC Board of Directors for these trips and did not include the costs for the trips as budget expenses in the annual general administrative budgets proposed to and approved by the CMEEC Board of Directors.” Doc. #1 at 7-8 (¶ 21); see also Id. at 8 (¶¶ 22-24) (similar allegations of lack of board vote, obfuscation of nature of trip expenses, and nondisclosure of trips to senior-level CMEEC employees). Accordingly, notwithstanding any other allegations of the indictment that defendants interpret to mean that one or more members of the board of directors were aware of the trips, the indictment sufficiently alleges that there was no ...