carson gov't opposition to motion to suppress

8/2/2019 Carson Gov't Opposition to Motion to Suppress

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ANDR BIROTTE JR.United States AttorneyDENNISE D. WILLETTAssistant United States AttorneyChief, Santa Ana Branch OfficeDOUGLAS F. McCORMICK (180415)Assistant United States AttorneyGREGORY W. STAPLES (155505)Assistant United States Attorney

411 West Fourth Street, Suite 8000Santa Ana, California 92701Telephone: (714) 338-3541

Facsimile: (714) 338-3564E-mail: [email protected] McGOVERN, Acting ChiefCHARLES G. LA BELLA, Deputy Chief (183448)ANDREW GENTIN, Trial AttorneyFraud SectionCriminal Division, U.S. Department of Justice

1400 New York Avenue, N.W.Washington, DC 20005Telephone: (202) 353-3551Facsimile: (202) 514-0152E-mail: [email protected]

[email protected]

Attorneys for PlaintiffUnited States of America

UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

SOUTHERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v.

STUART CARSON et al.,

Defendants.

)))))

))))))

NO. SA CR 09-00077-JVS

GOVERNMENTS OPPOSITION TODEFENDANTS MOTION TO SUPPRDEFENDANTS STATEMENTS; MEM

OF POINTS AND AUTHORITIES;DECLARATION OF SPECIAL AGENJ. SMITH AND ASSISTANT UNITSTATES ATTORNEY DOUGLAS F.McCORMICK

Hearing Date & Time:

Case 8:09-cr-00077-JVS Document 637 Filed 04/02/12 Page 1 of 34 Pa


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Criminal Division, Fraud Section, and the United States

for the Central District of California (collectively, t

government), hereby files its Opposition to Defendants

to Suppress Statements. This Opposition is based upon t

attached memorandum of points and authorities, the Decla

of FBI Special Agent Brian J. Smith and Assistant United

Attorney Douglas F. McCormick attached hereto, the filesrecords in this matter, as well as any evidence or argum

presented at any hearing on this matter.

DATED: April 2, 2012 Respectfully submitted,

ANDRE BIROTTE JR.United States Attorney

DENNISE D. WILLETTAssistant United States AttoChief, Santa Ana Branch Offi

DOUGLAS F. McCORMICKAssistant United States AttoDeputy Chief, Santa Ana Bran

GREGORY W. STAPLESAssistant United States Atto

KATHLEEN McGOVERN, Acting ChCHARLES G. LA BELLA, Deputy ANDREW GENTIN, Trial AttorneFraud Section, Criminal DiviUnited States Department of

/s/

DOUGLAS F. McCORMICKAssistant United States Atto

Attorneys for PlaintiffUnited States of America



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TABLE OF CONTENTS

DESCRIPTION

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . .

MEMORANDUM OF POINTS AND AUTHORITIES . . . . . . . . .

I. INTRODUCTION . . . . . . . . . . . . . . . . . . .

II. BACKGROUND . . . . . . . . . . . . . . . . . . . .

A. The Governments Principles ofCorporate Prosecution . . . . . . . . . . . .

B. The Companys Voluntary Disclosure . . . . .

C. August 15-17, 2007: E-mails Between theCompany and the Government . . . . . . . . .

D. The Companys Interviews . . . . . . . . . .

III. ARGUMENT . . . . . . . . . . . . . . . . . . . . .

A. Neither the Company Nor Its Lawyers WereState Actors at the Time of DefendantsInterviews . . . . . . . . . . . . . . . . .

B. Defendants Statements Were Not Involuntary .

IV. CONCLUSION . . . . . . . . . . . . . . . . . . . .



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TABLE OF AUTHORITIES

DESCRIPTION

UNITED STATES CONSTITUTION:

U.S. Const. amend V . . . . . . . . . . . . . . . . .

CASES:

Aguilera v. Baca,510 F.3d 1161 (9th Cir. 2007) . . . . . . . . . . .

Blum v. Yaretsky,457 U.S. 991 (1982) . . . . . . . . . . . . . . . .

Carlin Communications, Inc. v. Mountain StatesTelegraph & Telegraph Co.,

827 F.2d 1291 (9th Cir. 1987) . . . . . . . . . . .

D.L. Cromwell Investments, Inc. v. NASD Regulation, Inc.

279 F.3d 155 (2d Cir. 2002) . . . . . . . . . . . .

Fisher v. United States,425 U.S. 391 (1976) . . . . . . . . . . . . . . . .

Flagg v. Yonkers Sav. & Loan Association,396 F.3d 178 (2d Cir. 2005) . . . . . . . . . . . .

Garrity v. New Jersey,

385 U.S. 493 (1967) . . . . . . . . . . . . . . 1

Jackson v. Metropolitan Edison Co.,419 U.S. 345 (1974) . . . . . . . . . . . . . . . .

Lugar v. Edmondson Oil Co.,457 U.S. 922 (1982) . . . . . . . . . . . . . . . .

San Francisco Arts & Athletics, Inc. v. U.S. Olympic Com

483 U.S. 522 (1987) . . . . . . . . . . . . . . . .

Sutton v. Providence St. Joseph Medical Ctr.,192 F.3d 826 (9th Cir. 1999) . . . . . . . . . . .

United States v. Bowers,739 F.2d 1050 (6th Cir. 1984) . . . . . . . . . . .



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TABLE OF AUTHORITIES (CONTINUED)

DESCRIPTION

CASES (contd.):

United States v. Miller,688 F.2d 652 (9th Cir. 1982) . . . . . . . . . . .

United States v. Moyer,--- F.3d ---, 2012 WL 639277 (3rd Cir. Feb. 29, 201

United States v. Reed,15 F.3d 928 (9th Cir. 1994) . . . . . . . . . . . .

United States v. Saechao,418 F.3d 1073 (9th Cir. 2005) . . . . . . . . . . .

United States v. Solomon,509 F.2d 863 (2d Cir. 1975) . . . . . . . . . . . .

United States v. Stein,233 F.3d 6 (1st Cir. 2000) . . . . . . . . . . . .

United States v. Stein,541 F.3d 130 (2d Cir. 2008) . . . . . . . . . . . .

United States v. Stein,435 F. Supp. 2d 330 (S.D.N.Y. 2006) . . . . . . . .

United States v. Stein,440 F. Supp. 2d 315 (S.D.N.Y. 2006) . . . . . . . .

United States v. Vangates,287 F.3d 1315 (11th Cir. 2002) . . . . . . . . . .

United States v. Waldon,363 F.3d 1103 (11th Cir. 2004) . . . . . . . . . .

United States v. Walther,652 F.2d 788 (9th Cir. 1981) . . . . . . . . . . .

United States v. Yielding,657 F.3d 688 (8th Cir. 2011) . . . . . . . . . . .

Upjohn Co. v. United States,



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MEMORANDUM OF POINTS AND AUTHORITIES

I.

INTRODUCTION

On August 16 and 17, 2007, outside counsel for Cont

Components, Inc. (CCI, or the Company) interviewed s

the Companys senior executives, including defendants Ho

Carson, Paul Cosgrove, and David Edmonds (defendants),of the Companys internal investigation into whether cor

payments had been made by the Company and its employees

or retain business. One day earlier, CCI had, through c

voluntarily disclosed its internal investigation and the

underlying concerns to the United States Department of J

(the government). Defendants now ask this Court to su

statements they made during the interviews, arguing that

participation in the interviews was coerced in violation

Fifth Amendment rights against self-incrimination. Defe

Notice of Motion and Motion to Suppress Defendants Stat

(Dkt. #573) (Defts Suppression Motion). Defendants c

that the Company was a state actor at the time of the in

by virtue of its voluntary disclosure and contemplated

cooperation with the government and that their statement

improperly coerced by threats of termination.

Defendants motion to suppress should be denied. O

actors can violate a defendants Fifth Amendment rights,



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evidence does not show that defendants were threatened w

termination.

II.

BACKGROUND

A. The Governments Principles of Corporate Prosecutio

The Justice Department has long had a written polic

governing its treatment of corporate wrongdoing. Since 1990s, that policy has been memorialized in a series of

written by the Deputy Attorney General, one of the highe

ranking officials in the Department. In 2006, then-Depu

Attorney General Paul J. McNulty wrote a memorandum (th

Memorandum) to all federal prosecutors in which he upda

governments Principles of Federal Prosecution of Busin

Organizations. Declaration of Douglas F. McCormick att

hereto (McCormick Decl.), Exh. A.1 Under the McNulty

Memorandum, federal prosecutors were instructed that the

consider the corporations timely and voluntary disclos

wrongdoing and its willingness to cooperate in the inves

of its agents. Id. at 4. The memorandum elaborates as

In determining whether to charge acorporation, that corporations timely andvoluntary disclosure of wrongdoing and its

cooperation with the governmentsinvestigation may be relevant factors. Ingauging the extent of the corporationscooperation, the prosecutor may consider,among other things, whether the corporationmade a voluntary and timely disclosure, andthe corporations willingness to provide



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senior executives.

Id. at 7.

The McNulty Memorandum departed from earlier versio

discussion of how the government should consider a corpo

advancement of attorneys fees:

Another factor to be weighed by theprosecutor is whether the corporation appears

to be protecting its culpable employees andagents. Thus, while cases will differdepending on the circumstances, acorporations promise of support to culpableemployees and agents, e.g., through retainingthe employees without sanction for theirmisconduct or through providing informationto the employees about the governmentsinvestigation pursuant to a joint defenseagreement, may be considered by the

prosecutor in weighing the extent and valueof a corporations cooperation.

Prosecutors generally should not take intoaccount whether a corporation is advancingattorneys fees to employees or agents underinvestigation and indictment. Many stateindemnification statutes grant corporationsthe power to advance the legal fees of

officers under investigation prior to aformal determination of guilt. As aconsequence, many corporations enter intocontractual obligations to advance attorneysfees through provisions contained in theircorporate charters, bylaws or employmentagreements. Therefore, a corporationscompliance with governing state law and itscontractual obligations cannot be considereda failure to cooperate. This prohibition is

not meant to prevent a prosecutor from askingquestions about an attorneys representationof a corporation or its employees.

Id. at 11-12 (emphasis added). The change reflected the



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2d 330, 362-65 (S.D.N.Y. 2006) (Stein I).

B. The Companys Voluntary Disclosure

CCI is a wholly-owned subsidiary of IMI plc, an Eng

company publicly traded on the London Stock Exchange. O

15, 2007, IMIs management informed its Board of Directo

possible improper payments made by CCI. See United Stat

Control Components, Inc., Case No. SA CR 09-00162-JVS, Dat 5.2 IMIs Board of Directors directed a voluntary di

of the investigation to the United States Department of

as well as authorities in the United Kingdom. Id. That

date, IMI made a voluntary disclosure in which it advise

government of possible FCPA violations by CCI and its em

See Declaration of Brian M. Heberlig in Support of Motio

Intervene by IMI plc and Control Components, Inc. (Dkt.

2. (The government has submitted in camera the notes of

Mendelsohn, then-Deputy Chief of the Department of Justi

Fraud Section, reflecting his summary of IMIs voluntary

disclosure.)

C. August 15-17, 2007: E-mails Between the Company anGovernment

Shortly after the Company made its voluntary disclo

of its lawyers, Steptoe & Johnson LLP (Steptoe) partne

M. Norton (Mr. Norton), wrote the following e-mail to

aforementioned Mr. Mendelsohn:3



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Mark,

Ive been discussing with IMIs general

counsel the feasibility of holding off ontheir announcement to the London Exchange. Hedoesnt think its doable. The CompanysBoard of Directors, on advice from UKcounsel, decided at about 6 PM UK time toissue the release at 7:30 AM in Londontomorrow. Its already 9:30 PM in the UK(about 8:30 - 9 when we spoke), and thewheels are in motion. Its simply not

feasible to get UK counsel to opine on thisand contact all the Board members in time toderail the announcement. There would also bea significant risk of a leak if they tried todo this at the last moment, and that wouldcreate other problems.

We fully recognize your and our interest ingetting access to senior management who mayhave been involved in the payments in

questions while may still be willing tocooperate. To that end, I am now planning tofly to LA this evening or first thing in themorning and to be present when theindividuals are informed that they are beingsuspended pending the investigation. Weintend to inform them that the suspension istemporary and we are not prejudging theoutcome, but that the company expects them to

cooperate with the investigation. Then Iproceed to interview them.

This will give our associate in LA time toassemble many, if not all, of the relevantdocuments.

I would hope to be able to advise you by theend of the day tomorrow (probably COB PDT)whether the individuals are cooperating or

not. If they are, you can then decidewhether you wish to send someone from theDOJ or FBI to speak to them. I will also beon-site to help coordinate with the company.If they refuse to cooperate with us, theywill presumably refuse to cooperate with youtoo. In either case, you should have a better



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McCormick Decl., Exh. B at 2.4

Mr. Norton sent Mr. Mendelsohn a second e-mail at 1

on Friday, August 17, 2007, in which he updated Mr. Mend

the first day of interviews:

Mark,

We interviewed five of the senior managementat CCI today in very general terms. So far

they are being cooperative. We intend to askmore difficult questions tomorrow based onspecific documents.

If you would like to discuss this, pleasesuggest a time by email, and I[]ll try tobreak away.

Best regards,Pat

Id. at 2-3. Mr. Mendelsohn responded several hours late

Thanks, Pat. I will be out of the office onFriday [August 17, 2007]. I suggest we speakearly next week, after you have gotten intospecifics.

Id. at 3.

D. The Companys Interviews

As reflected in the e-mails between Mr. Norton and

Mendelsohn, Mr. Norton and other Steptoe attorneys condu

interviews of company employees at CCIs corporate headq

in Rancho Santa Margarita, California, on August 16 and

No FBI agents were present. Declaration of Special Agen

J. Smith attached hereto (Smith Decl.), 2-4. Stept



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confidential and protected by the attorney-client privil

Declaration of Brian Heberlig (Dkt. #121-2) at 4. Stept

attorneys also gave so-called Upjohn warnings5 to each w

indicating that the contents of the interview were privi

but that the privilege and the decision whether to waive

belonged to IMI, not the employee. Id. Steptoe attorne

told the witnesses that they represented IMI, not the wipersonally. Id.

On August 16, 2007, CCIs then-President, Ian Whiti

an all-personnel meeting at which he informed personnel

investigation and the interviews. Both Mr. Edmonds and

Carson describe being present at this meeting. Mr. Edmo

that Whiting announced that IMI had launched an investi

into possible irregular payments and he ordered that eve

employee must fully cooperate with the investigation and

required with investigators. Declaration of David Edmo

Support of Defendants Motion to Suppress Defendants St

(Dkt. #573-3) (Edmonds Decl.), 2.6

Whiting subsequently met with Mr. Edmonds, Mr. Cosg

Mrs. Carson individually. Mr. Edmondss declaration sta

Mr. Whiting told Mr. Edmonds that he [Whiting] expected

cooperation with the investigation. Edmonds Decl., 3

Cosgrove states that Mr. Whiting directed me to coopera


C 8 09 00077 JVS D t 637 Fil d 04/02/12 P 13 f 34 P


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CCIs internal investigation and submit to an interview

Steptoe. Declaration of Paul Cosgrove (Dkt. #573-4) (

Decl.), 2.

At no time did Mr. Whiting or anyone else at IMI or

threaten to fire Mr. Edmonds, Mr. Cosgrove, or Mrs. Cars

they did not cooperate with the investigation. Mr. Edmo

declaration makes this clear: Because I was ordered by President of CCI [Whiting] to cooperate with the investi

and meet as required with investigators, I believed that

not do what I was told and cooperate and meet with inves

I would be fired. Edmonds Decl., 4 (emphasis added).

Likewise, Mr. Cosgrove states that I believed that if I

agree to submit to an interview, I could lose my job for

disobeying an order from CCIs President. Cosgrove Dec

(emphasis added).

Mr. Cosgrove states that there were two gentlemen

not recognize at CCI on August 17, 2007, and that he was

told that they were in fact FBI agents. Cosgrove Dec

Mr. Cosgroves information is incorrect; no FBI agents w

CCI on August 17, 2007, and, in fact, the FBIs investig

CCIs activities was not even opened until two months la

Smith Decl., 2-4.

After describing Mr. Whitings initial announcement

Carson says she was asked to come out of the restroom on


Case 8 09 cr 00077 JVS Doc ment 637 Filed 04/02/12 Page 14 of 34 Pa


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describes being asked to go to a conference room where s

subsequently asked to remain. Mrs. Carson says she fel

would be serious repercussions to [her] employment, incl

possibility of immediate termination, if I did not compl

her instructions to stay in the conference room. Carso

3. Mrs. Carson then describes being escorted to a sec

conference room, where she was interviewed by Steptoe la

Id., 4-5. Mrs. Carson says she do[es] not remember

told that I was going to be meeting with lawyers for the

before being taken to this conference room. Id., 4.

Carson states that at all times during the events descr

above, including meeting with the lawyers, I felt that I

not leave the company and that if I did not comply with

various requests, I would be fired or suffer negative

consequences regarding my CCI [sic]. Id., 7.

Mr. Whitings statements to defendants were documen

identical memorandum he wrote to each of them on August

McCormick Decl., Exhs. C1-C3 (Whiting Memorandum). Th

Memorandum stated, in pertinent part:

I write to confirm the conversation we hadtoday. As you and I discussed, IMI haslaunched an investigation into possible

irregular payments associated with certaintrading contracts entered into by its SevereService business. The Company is committedto the highest ethical standards and takesthese matters very seriously. We haveretained external counsel and otherconsultants to conduct a thorough,


Case 8:09 cr 00077 JVS Document 637 Filed 04/02/12 Page 15 of 34 Pa


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business, the Company expects you tocooperate fully in this process.Arrangements have been made for you to meet

with the investigators. When you do so,please answer all their questions and furnishall information they request. Should theinvestigators contact you later for furtherdiscussions or additional information, pleasecomply promptly. We remind you that you mustkeep all your discussions with theinvestigators in the strictest confidence.You should disclose them to no one, inside oroutside the Company, without advancepermission from Ian Whiting.

This also confirms that you are beingsuspended, with pay, during the investigationprocess. Again, we emphasize that this isnot a termination of your employment. Nor isit a determination that you have madeirregular payments or otherwise behavedunethically. Should there be indications of

misconduct, you will be afforded anopportunity to give your side of the storyduring this phase of the investigation. Youwill be asked to report back to work once adetermination is made that you have notengaged in misconduct. In the event you arefound to have engaged in misconduct, you willbe subject to disciplinary action, up to andincluding termination of employment.

Id. (emphases added). The government is aware of no evi

that suggests that defendants have claimed, at least pri

this motion to suppress, that the Whiting Memorandas de

of Mr. Whitings interactions with defendants is inaccur

III.

ARGUMENT

The Fifth Amendment provides that [n]o person . .

be compelled in any criminal case to be a witness agains




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Amendment rights; the Fifth Amendment restricts only gov

conduct, and will constrain a private entity only insofa

actions are found to be fairly attributable to the gov

See Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982)

Cromwell Investments, Inc. v. NASD Regulation, Inc., 279

155, 161 (2d Cir. 2002).

Second, the statements taken must be compelled. Se

v. United States, 425 U.S. 391, 399 (1976) ([T]he Court

never on any ground . . . applied the Fifth Amendment to

the otherwise proper acquisition or use of evidence whic

did not involve compelled testimonial self-incrimination

sort.) (emphasis added); see also id. at 408 ([T]he Fi

Amendment does not independently proscribe the compelled

production of every sort of incriminating evidence but a

only when the accused is compelled to make a Testimonial

Communication that is incriminating.).

A. Neither the Company Nor Its Lawyers Were State ActoTime of Defendants Interviews

Defendants cite two different lines of cases for de

that CCI and Steptoe were state actors when they conduct

interviews of defendants as part of their internal inves

Defts Suppression Motion at 17-18, 20-21. As part of t

defendants cite Ninth Circuit cases -- e.g., United Stat

Reed, 15 F.3d 928 (9th Cir. 1994), United States v. Mill




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proposition that the government cannot knowingly acquie

and encourage directly or indirectly a private citizen t

in activity which it is prohibited from pursuing where t

citizen has no motivation other than the expectation of

for his or her efforts. Walther, 652 F.2d at 793.

While defendants correctly cite United States v. Da

F.3d 679, 683 (4th Cir. 2010), for the proposition that

regardless of whether the Fourth or Fifth Amendment is

we apply the same test to determine whether a private in

acted as a Government agent, Defts Suppression Motion

6, the cases analyzing whether a private entitys conduc

be considered state action for purposes of the Fifth A

have engaged in a different analysis. See, e.g., United

v. Stein, 541 F.3d 130, 146-47 (2d Cir. 2008); United St

Ferguson, 2007 WL 4240782 (D. Conn. Nov. 30, 2007). Tho

have looked to whether the government has become so perv

entangled in private activity that purportedly private c

should be attributed to the state or the government has

encouraged or facilitated the challenged activity.

Under this line of cases, actions of a private enti

attributable to the State if there is a sufficiently cl

between the State and the challenged action of the . . .

so that the action of the latter may be fairly treated a

the State itself. Jackson v. Metropolitan Edison Co.,




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acquiesces in the initiatives of the private entity. Sa

Francisco Arts & Athletics, Inc. v. U.S. Olympic Comm.,

522, 547 (1987). The purpose of the [close-nexus requi

is to assure that constitutional standards are invoked o

it can be said that the State is responsible for the spe

conduct of which the plaintiff complains. Blum v. Yare

U.S. 991, 1004 (1982). Such responsibility is normally

when the State has exercised coercive power or has prov

significant encouragement, either overt or covert, that

choice must in law be deemed to be that of the State.

nexus of state action exists between a private entity an

state when the state exercises coercive power, is entwin

management or control of the private actor, or provides

private actor with significant encouragement, either ove

covert, or when the private actor operates as a willful

participant in joint activity with the State or its agen

controlled by an agency of the State, has been delegated

function by the state, or is entwined with governmental

policies. Flagg v. Yonkers Sav. & Loan Assn, 396 F.3d

(2d Cir. 2005) (emphases added and internal quotation ma

omitted). Furthermore, the transformation of a private

into a state actor requires a nexus between the state a

specific conduct of which plaintiff complains. Fergus

WL 4240782, at *6 (emphasis in original) (citations omit




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on cooperation with the government).

While the Ninth Circuit has not addressed what test

be applied when determining whether a private entity is

actor for Fifth Amendment purposes, it has adopted a nex

analysis in other, non-Fourth Amendment contexts. When

affirmed a district courts dismissal of a Religious Fre

Restoration Act (RFRA) claim, the Ninth Circuit held t

plaintiff failed to satisfy the state action requireme

RFRA because governmental compulsion in the form of a ge

applicable law, without more, could not transform every

entity that followed the law into a state actor. Sutton

Providence St. Joseph Med. Ctr., 192 F.3d 826, 841 (9th 1999). Rather, the Court held, the plaintiff must estab

other nexus sufficient to make it fair to attribute liab

the private entity. Id.; see also Carlin Communications

Mountain States Tel. & Tel. Co., 827 F.2d 1291, 1295 (9t

1987) (holding that private telephone company was state

when it terminated services of another company at direct

county attorney because county attorney threatened to br

charges if it refused).

Defendants rely heavily on the district courts con

in United States v. Stein, 440 F. Supp. 2d 315 (S.D.N.Y.

(Stein II), that the governments conduct coerced defe

into making statements they otherwise would not have mad

g



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Stein IIs suppression of defendants statements fo

its decision in Stein I, where it found that the governm

violated the Sixth Amendment rights of KPMGs employees

pressuring KPMP not to pay employees legal fees in the

of the governments criminal investigation. 435 F. Supp

367-69. In Stein I, the district court found that vario

statements made and actions taken by the government, cou

the treatment of attorneys fees in the Thompson Memoran

effectively coerced KPMG to abandon its longstanding pra

indemnifying employees through the advancement of legal

costs. Id. at 365.8

When considering whether to suppress defendants stStein II relied explicitly on the its earlier factual fi

Here, the government quite deliberately precipitated KP

of economic threats to coerce the proffer statements in

question. 440 F. Supp. 2d at 334. Stein IIs analysis

not only the Thompson Memorandum but also the government

threats to consider KPMGs failure to cut off attorneys

uncooperative employees as well as the governments prac

reporting uncooperative employees to KPMG in circumstan

which there was no conceivable reason for doing so excep

facilitate the firing threats that ensued. Id. at 335.

It is clear from the district courts opinion that

courts holding relied on much more than just the Thomps



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Memorandum:

The Moving Defendants . . . point to the

Thompson Memorandum, which quite specificallytells a company under investigation, as wasKPMG, that a failure to ensure that itsemployees tell prosecutors what they know maycontribute to a decision to indict, and, inthis case, likely destroy the company. Andthey point also to the USAOs closeinvolvement in KPMGs decision making processby, among other things, pointedly remindingKPMG that it would consider the ThompsonMemorandum in deciding whether to indict,saying that payment of employee legal feeswould be viewed under a microscope, andreporting to KPMG the identities of employeeswho refused to make statements incircumstances in which the USAO knew fullwell that KPMG would pressure them to talk toprosecutors. . . .

. . . This Court finds that the government,both through the Thompson Memorandum and theactions of the USAO, quite deliberatelycoerced, and in any case significantlyencouraged, KPMG to pressure its employees tosurrender their Fifth Amendment rights.

Id. at 336-37 (emphasis added).

The first critical distinction between Stein II and

circumstances is straightforward. In Stein II, the stat

question were made to the government directly, which mad

easier for the district court in Stein II to conclude th

state action. Here, by comparison, the government was n

present when the interviews were conducted, and defendanpersuade the Court that the Companys lawyers were state

But more essentially, there is no evidence here tha

from the government deliberately coerced or significa



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either a close nexus between Steptoe/CCI and the governm

the kind of governmental coercion or encouragement prese

Stein II. This conclusion is underscored in the Whiting

Memorandum. To be sure, the Whiting Memorandum confirms

has launched an investigation because [t]he Company is

to the highest ethical standards and IMI takes the matt

seriously. McCormick Decl., Exh. C1 at 1. The e-mails

that Steptoe/CCI was conducting the investigation and in

for its own purposes.

Shortly after making the voluntary disclosure, Mr.

first e-mail informs the government that (1) IMI was goi

with a planned press release despite apparent governmentabout its timing; (2) the company would be temporarily s

certain employees and then interviewing them, without an

direction or input from the government over which employ

be interviewed or the appropriateness of the actions; an

company would inform the government the following day wh

suspended employees were cooperating so that you should

better idea of what course you wish to take. McCormick

Exh. B at 2. The text of the e-mail itself does not sug

close nexus. Mr. Norton uses the pronoun our to descr

actions and your to describe the governments. See id

Mr. Norton then informed the government the followi

that he had interviewed five of the senior managers and



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simply indicated that he would be available if the gover

wanted to discuss the matter further. Id. at 3. Mr. Me

responded the following morning that he would be out of

office on Friday and suggested they speak early next wee

Steptoe had gotten into specifics. Id.

These e-mails show no nexus between the Company and

government. Instead, they show a company in cooperative

informing the government of what is transpiring in its i

investigation. See, e.g., Ferguson, 2007 WL 4240782, at

(companys efforts to cooperate with the government do n

transform company into an arm of the state). At no time

government direct the actions of Steptoe/CCI. The governot instruct the company who to interview or what questi

ask. In fact, the government provided no direction or

instruction as to the conduct of the interviews. See, e

at *6 (cooperating company was not a state actor in abse

coercive actions taken by government).

Defendants contend (Defts Suppression Motion at 19

is inconsistent for the government to contend that Stept

were not state actors at the time of their interviews, b

the government once charged Mrs. Carson with a violation

U.S.C. 1519 for conduct (the toilet-flushing incident)

occurred within the same time frame. But 1519 does no

the existence of a pending investigation, see United Sta



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numerous cases have concluded that there is no nexus

requirement that the obstructive conduct be tied to a pe

imminent proceeding or matter, see United States v. Moye

F.3d ---, 2012 WL 639277, at *11 (3rd Cir. Feb. 29, 2011

the now-dismissed count, which alleged that Mrs. Carson

obstructive conduct occurred in . . . contemplation of

federal investigation, does not somehow turn Steptoe/CCI

state actors.

Without the type of coercive conduct present in Ste

defendants are left with only the Companys voluntary di

coupled with the McNulty Memorandums guidance to federa

prosecutors to consider a corporations cooperative effoFinding state action on these facts alone would be

unprecedented and unwarranted, the effect of which would

turn the cooperating company into a government agent in

case. There is no precedent for such an outcome.

B. Defendants Statements Were Not Involuntary

Nor is there any merit to defendants claim that th

statements were coerced. Even by their own version of e

defendants cannot demonstrate that their statements were

compelled and were thus involuntary. Defendants motion

suppress should fail for this separate, independent reas

Defendants compulsion argument relies principally

Garrity v. New Jersey, 385 U.S. 493 (1967), and its prog



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privilege against self-incrimination and refuse to answe

that if he did so, he could be fired pursuant to a state

that required complete candor of its officers. Id. Pro

subsequently used the officers responses to prosecute t

conspiracy to obstruct the administration of traffic law

The officers appealed their convictions on the ground th

statements had been coerced. Id. at 495. The Supreme C

that the test for coercion was whether the accused was

of his free choice to admit, to deny, or to refuse to an

Id. at 496 (internal quotations marks and citations omit

The Court analogized the loss of a government job to for

of property protected by the Fourteenth Amendment, and hthe threat of losing ones livelihood could prevent a pe

making a free and rational choice to invoke the constitu

right against self-incrimination. Id. at 497 (being fac

the option to lose their means of livelihood or to pay

penalty of self-incrimination . . . is likely to exert

pressure upon an individual as to disable him from makin

and rational choice.) (citation omitted).

It is clear, however, that to constitute compulsion

defendants must demonstrate that they faced a clear-cut

between asserting their right against self-incrimination

suffering economic hardship. See United States v. Fergu

WL 4240782, at *7 (D. Conn.) (finding defendants statem



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failed to cooperate, and (2) [the employer] would reexam

obligations, under its by-laws, to pay non-cooperating e

legal fees) (emphasis in original).

Although a direct threat of termination may not be

necessary, the defendant must have believed the statemen

compelled on threat of loss of job and this belief must

objectively reasonable. United States v. Vangates, 287

1315, 1321-22 (11th Cir. 2002); accord Stein II, 440 F.

at 328 (an individual claiming that a statement was com

violation of the Fifth Amendment must adduce evidence bo

the individual subjectively believed that he or she had

choice except to speak and that a reasonable person in tposition would have felt the same way). Thus, the def

must have subjectively believed that he was compelled to

statement upon threat of loss of job [and] this belief m

been objectively reasonable at the time the statement wa

Vangates, 287 F.3d at 1322.

Here, there is no evidence to show that defendants

objectively reasonable belief that they faced a clear-c

choice between asserting their rights or suffering econ

hardship. Defendants own declarations do not demonstra

anyone threatened them with termination if they did not

with the internal investigation. None of the defendants

being threatened with termination by Mr. Whiting. The W



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[the investigators] questions and furnish all informati

request. McCormick Decl., Exh. C1 at 1. The only refe

termination in the Whiting Memorandum assures defendants

they are not being terminated and that if indications of

misconduct are found, defendants would be allowed to pre

their side of the story. Id. Nor were defendants threa

with nonpayment of legal fees.9

Defendants claims of coercions are thus analogous

claims rejected by the district court in Ferguson, 2007

4240782, where a defendant claimed that his statements w

involuntary because he feared losing his job if he did

cooperate. Id. at *7. Defendant relied on a letter fremployer which informed him that non-cooperation may re

. in a reassessment by [the Company] of the factors gove

whether it is obligated to indemnify [defendant] for [hi

reasonable legal expenses, then noted that such indemni

was condition on the Companys obligations as set forth

by-laws. Id. at *5. The district court concluded that

letter did not force [defendant] to choose between asse

rights and losing his job, and thus rejected defendants

to suppress his statements. Id. at *7; see also United

Waldon, 363 F.3d 1103 (11th Cir. 2004) (holding that def

belief that he would be fired from sheriffs department

not testify was not objectively reasonable because depar



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regulations did not require testimony under threat of sa

but only reflected a general expectation that officers w

cooperate and testify).

United States v. Saechao, 418 F.3d 1073 (9th Cir.

inapposite. Saechao involved a probationer whose probat

compelled him to truthfully answer all reasonable inqui

from his probation officer or face revocation. Id. at 1

these facts, the Ninth Circuit had little difficulty con

that [defendant] did not have the luxury of remaining s

without violating the conditions of his probation. Id.

Here, by contrast, there has been no showing of employme

or other provisions that would compel defendants to answinvestigators questions. All defendants have shown is

from their supervisor to cooperate with the investigatio

nothing more.

Almost forty years ago, the Second Circuit recogniz

the rule against involuntary confessions did not preclud

scenarios where defendants had to make difficult choices

regarding whether to cooperate with an internal investig

To be sure, [defendants] position was not a particular

pleasant one. But the rule excluding involuntary confes

does not protect against hard choices when a persons se

misconduct has placed him in a position where these are

inevitable. United States v. Solomon, 509 F.2d 863, 87



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because there was no evidence that deputies were compell

answer questions; [i]t is of no moment that refusing to

the investigators questions could have resulted (and, i

did result) in [deputies] reassignment); United States

Stein, 233 F.3d 6, 16 (1st Cir. 2000)(finding no Garrity

where attorney claimed she was compelled to answer quest

before state bar; court reasoned that although she faced

disbarment, it was not automatic); United States v. Bowe

F.2d 1050, 1056 (6th Cir. 1984) (holding Garrity not imp

when employee not told he would lose job if he did not s

interview).

The district courts conclusions in Stein II are cowith these cases. The district court concluded that it

suppress statements made by two defendants who were expr

threatened with termination and/or nonpayment of legal f

KPMG if they refused to cooperate with the government.

331 (The Court finds that [defendant 1] made the statem

the proffer sessions because KPMG threatened to fire him

off payment of his legal fees if he did not [cooperate].

(KPMG coerced his appearance [at proffer sessions with

government] by conditioning payment of his legal fees on

appearance and cooperation.).

Because there is no evidence to support an objectiv

reasonable belief that lack of cooperation with the inte



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IV.

CONCLUSION

For the foregoing reasons, defendants motion to su

should be denied.



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DECLARATION OF BRIAN J. SMITH

I, Brian J. Smith, declare as follows:

1. I am a Special Agent with the Federal Bureau o

Investigation (FBI). I am currently assigned to the W

Field Office (WFO) and focus on investigations of viol

United States law, particularly those involving foreign

I am the lead Special Agent in the case of United States

Stuart Carson, et al., Case No. SA CR 09-00077-JVS.

2. I have reviewed the FBIs case file for the

investigation of corrupt payments at Control Components,

(CCI), to determine if there were FBI agents present a

August 16 and/or 17, 2007. The case file reflects that opened its investigation of CCI and its executives after

headquarters received an e-mail summary on or about Octo

2007, from an attorney in the Fraud Section in Washingto

The FBI opened its investigation on October 19, 2007; th

file does not reflect any earlier activity. There is no

the case file that reflects a lead or other request bein

the Los Angeles Division of the FBI to send Special Agen

in August 2007.

3. I queried the FBIs Automated Case System (AC

database of the FBIs investigative activity, to see if

contained any information about FBI activity at CCI in A

2007. My ACS query returned no information indicating t

Case 8:09-cr-00077-JVS Document 637 Filed 04/02/12 Page 32 of 34 Page ID #:11278


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DECLARATION OF DOUGLAS F. McCORMICK

I, Douglas F. McCormick, declare as follows:

1. I am an Assistant United States Attorney in th

States Attorneys Office for the Central District of Cal

I am one of the attorneys representing the government in

matter.

2. Attached hereto as Exhibit A is a copy of an

memorandum issued in December 2006 by then-Deputy Attorn

General Paul J. McNulty regarding Principles of Federal

Prosecution of Business Organizations. This memorandum

called the McNulty Memorandum for short, was in effect i

2007 at the time of CCIs voluntary disclosure.

3. Attached hereto as Exhibit B is a copy of a

written by the prosecution team to defendants counsel i

response to Mr. Edmondss counsels request for all doc

reflecting communications between the Department of Just

and CCI, IMI, or its agents . . . for the period July 1,

and October 31, 2007. The governments letter confirme

had previously told Mr. Edmondss counsel in person: tha

would produce documents reflecting communications betwee

Department of Justice and CCIs outside counsel, Steptoe

Johnson LLP, for the time period of August 15, 2007, thr

August 17, 2007. The letter then re-prints the text of

mails between Steptoe & Johnson LLPs Patrick Norton and

Case 8:09-cr-00077-JVS Document 637 Filed 04/02/12 Page 34 of 34 Page ID #:11280


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carson gov't opposition to motion to suppress

Documents