By Edward L. Puzzo, J.D.
Government prosecutors could not use over 200 hours of surreptitiously recorded conversations against defendants charged with rigging bids in public real estate foreclosure auctions, despite the recordings being made in an outdoor location outside the courthouse, because they were made without warrants under circumstances where the defendants had a subjective expectation of privacy that was objectively reasonable, the federal district court in San Francisco has ruled (U.S. v. Giraudo, August 1, 2016, Breyer, C.).
In 2009, the FBI began investigating allegations of bid-rigging and fraud at public real estate foreclosure auctions, also known as trustee sales, held at the San Mateo County Courthouse in Redwood City, California. As a result of this investigation, in October 2014, five real estate investors—Joseph Giraudo, Raymond Grinsell, Kevin Cullinane, James Appenrodt, and Abraham Farag—were indicted on bid-rigging and mail fraud charges. According to the indictment, during the period of 2008 to 2011, the five investors conspired to stop bidding or to refrain from bidding for properties at the auctions in order to obtain properties at non-competitive prices.
Subsequently, the defendants moved to suppress over 200 hours of audio recordings that the FBI used in their investigation. It was alleged that the recordings were surreptitiously collected without judicial authorization and therefore should be suppressed. The government argued that the audio evidence should be allowed because it was collected in an open area outside the entrance to the courthouse, an area in which the defendants did not have a reasonable expectation of privacy.
Nature of recordings. The evidence indicated that the FBI initially had success in obtaining evidence of bid-rigging through interviews with cooperating witnesses, through audio recordings obtained using devices (wires) worn by cooperating witnesses, and by video surveillance of public areas. However, after a certain point, the defendants sought to conceal their conversations from the cooperating witnesses and only engaged in conversations with each other in whispers or out of earshot of other people. Consequently, the FBI adopted a new technique for surveillance: using hidden microphones around the outside of the courthouse in locations such as in planter boxes and unmarked vehicles. This was done without judicial authorization. The recordings sometimes lasted for several hours, with no attempt in real time to insure that the conversations recorded were not privileged or private. The FBI collected over 200 hours of recordings over a nine-month period in this manner.
Expectation of privacy. The relevant inquiry, according to the court, was whether the defendants' recorded statements were made under circumstances where they had a subjective expectation of privacy and the expectation was objectively reasonable.
Despite the government's initial argument that the defendants could not have a reasonable expectation of privacy in an outdoor location such as the public auction site outside the courthouse, numerous controlling cases indicate that a defendant can have a reasonable expectation of privacy in a location accessible to the public, the court stated.
Here, only six to16 regular bidders typically attended these auctions. The record further indicated that the defendants would routinely walk away from a larger group, stand close to the individuals with whom they were speaking, cease conversations when others approached, tried to speak out of earshot of other people, or speak quietly or whisper. These factors indicated that the defendants has a subjective expectation of privacy.
As to whether the subjective expectation of privacy was objectively reasonable, relevant elements were the volume of the conversation; the proximity or potential of other individuals to overhear the conversation; the potential for communications to be reported; the affirmative actions taken by the speakers to shield their privacy; the need for technological enhancements to hear the communications; and the place or location of the oral communications. Other evidence indicated that a passerby could not have heard defendants' private conversations, and they did not speak in at a volume loud enough for an undercover agent or cooperating witness to have heard them.
The court determined that the defendants (1) had a subjective expectation of privacy in the conversations recorded by the stationary microphones at the San Mateo County Courthouse, and (2) that expectation was objectively reasonable. The court concluded that the government had utterly failed to justify the warrantless electronic surveillance. Consequently, the recordings violated the defendants' Fourth Amendment protections and must be suppressed, the court ruled.
The case is No. 3:14-cr-00534-CRB.
Attorneys: David J. Ward, U.S. Department of Justice, for the United States. Matthew J. Jacobs (Vinson & Elkins LLP) for Joseph J. Giraudo.
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