The Utah Pattern of Unlawful Activity Act: Issues and Updates
The defendant in the Steve Turley case recently won a dismissal of three counts of Communications Fraud (frequently used as predicate offenses in a Utah Pattern of Unlawful Activity Act cases) based on the statute of limitations. The Provo Daily Herald’s summary of the case and ruling is
.
The original Motion to Dismiss, Opposition memorandum, and Reply memorandum are attached here:
To show a pattern of *unlawful* activity under the Act, the plaintiff or prosecutor must show a pattern not just of illegal conduct, but only of certain specified crimes. They are:
(a) any act prohibited by the criminal provisions of Title 13, Chapter 10, Unauthorized Recording Practices Act;
(b) any act prohibited by the criminal provisions of Title 19, Environmental Quality Code, Sections 19-1-101 through 19-7-109;
(c) taking, destroying, or possessing wildlife or parts of wildlife for the primary purpose of sale, trade, or other pecuniary gain, in violation of Title 23, Wildlife Resources Code of Utah, or Section 23-20-4;
(d) false claims for medical benefits, kickbacks, and any other act prohibited by Title 26, Chapter 20, Utah False Claims Act, Sections 26-20-1 through 26-20-12;
(e) any act prohibited by the criminal provisions of Title 32B, Chapter 4, Criminal Offenses and Procedure Act;
(f) any act prohibited by the criminal provisions of Title 57, Chapter 11, Utah Uniform Land Sales Practices Act;
(g) any act prohibited by the criminal provisions of Title 58, Chapter 37, Utah Controlled Substances Act, or Title 58, Chapter 37b, Imitation Controlled Substances Act, Title 58, Chapter 37c, Utah Controlled Substance Precursor Act, or Title 58, Chapter 37d, Clandestine Drug Lab Act;
(h) any act prohibited by the criminal provisions of Title 61, Chapter 1, Utah Uniform Securities Act;
(i) any act prohibited by the criminal provisions of Title 63G, Chapter 6a, Utah Procurement Code;
(j) assault or aggravated assault, Sections 76-5-102 and 76-5-103;
(k) a threat of terrorism, Section 76-5-107.3;
(l) criminal homicide, Sections 76-5-201, 76-5-202, and 76-5-203;
(m) kidnapping or aggravated kidnapping, Sections 76-5-301 and 76-5-302;
(n) human trafficking, human smuggling, or aggravated human trafficking, Sections 76-5-308, 76-5-309, and 76-5-310;
(o) sexual exploitation of a minor, Section 76-5b-201;
(p) arson or aggravated arson, Sections 76-6-102 and 76-6-103;
(q) causing a catastrophe, Section 76-6-105;
(r) burglary or aggravated burglary, Sections 76-6-202 and 76-6-203;
(s) burglary of a vehicle, Section 76-6-204;
(t) manufacture or possession of an instrument for burglary or theft, Section 76-6-205;
(u) robbery or aggravated robbery, Sections 76-6-301 and 76-6-302;
(v) theft, Section 76-6-404;
(w) theft by deception, Section 76-6-405;
(x) theft by extortion, Section 76-6-406;
(y) receiving stolen property, Section 76-6-408;
(z) theft of services, Section 76-6-409;
(aa) forgery, Section 76-6-501;
(bb) fraudulent use of a credit card, Sections 76-6-506.2, 76-6-506.3, 76-6-506.5, and 76-6-506.6;
(cc) deceptive business practices, Section 76-6-507;
(dd) bribery or receiving bribe by person in the business of selection, appraisal, or criticism of goods, Section 76-6-508;
(ee) bribery of a labor official, Section 76-6-509;
(ff) defrauding creditors, Section 76-6-511;
(gg) acceptance of deposit by insolvent financial institution, Section 76-6-512;
(hh) unlawful dealing with property by fiduciary, Section 76-6-513;
(ii) bribery or threat to influence contest, Section 76-6-514;
(jj) making a false credit report, Section 76-6-517;
(kk) criminal simulation, Section 76-6-518;
(ll) criminal usury, Section 76-6-520;
(mm) fraudulent insurance act, Section 76-6-521;
(nn) retail theft, Section 76-6-602;
(oo) computer crimes, Section 76-6-703;
(pp) identity fraud, Section 76-6-1102;
(qq) mortgage fraud, Section 76-6-1203;
(rr) sale of a child, Section 76-7-203;
(ss) bribery to influence official or political actions, Section 76-8-103;
(tt) threats to influence official or political action, Section 76-8-104;
(uu) receiving bribe or bribery by public servant, Section 76-8-105;
(vv) receiving bribe or bribery for endorsement of person as public servant, Section 76-8-106;
(ww) official misconduct, Sections 76-8-201 and 76-8-202;
(xx) obstruction of justice, Section 76-8-306;
(yy) acceptance of bribe or bribery to prevent criminal prosecution, Section 76-8-308;
(zz) false or inconsistent material statements, Section 76-8-502;
(aaa) false or inconsistent statements, Section 76-8-503;
(bbb) written false statements, Section 76-8-504;
(ccc) tampering with a witness or soliciting or receiving a bribe, Section 76-8-508;
(ddd) retaliation against a witness, victim, or informant, Section 76-8-508.3;
(eee) extortion or bribery to dismiss criminal proceeding, Section 76-8-509;
(fff) public assistance fraud in violation of Section 76-8-1203, 76-8-1204, or 76-8-1205;
(ggg) unemployment insurance fraud, Section 76-8-1301;
(hhh) intentionally or knowingly causing one animal to fight with another, Subsection 76-9-301(2)(d) or (e), or Section 76-9-301.1;
(iii) possession, use, or removal of explosives, chemical, or incendiary devices or parts, Section 76-10-306;
(jjj) delivery to common carrier, mailing, or placement on premises of an incendiary device, Section 76-10-307;
(kkk) possession of a deadly weapon with intent to assault, Section 76-10-507;
(lll) unlawful marking of pistol or revolver, Section 76-10-521;
(mmm) alteration of number or mark on pistol or revolver, Section 76-10-522;
(nnn) forging or counterfeiting trademarks, trade name, or trade device, Section 76-10-1002;
(ooo) selling goods under counterfeited trademark, trade name, or trade devices, Section 76-10-1003;
(ppp) sales in containers bearing registered trademark of substituted articles, Section 76-10-1004;
(qqq) selling or dealing with article bearing registered trademark or service mark with intent to defraud, Section 76-10-1006;
(rrr) gambling, Section 76-10-1102;
(sss) gambling fraud, Section 76-10-1103;
(ttt) gambling promotion, Section 76-10-1104;
(uuu) possessing a gambling device or record, Section 76-10-1105;
(vvv) confidence game, Section 76-10-1109;
(www) distributing pornographic material, Section 76-10-1204;
(xxx) inducing acceptance of pornographic material, Section 76-10-1205;
(yyy) dealing in harmful material to a minor, Section 76-10-1206;
(zzz) distribution of pornographic films, Section 76-10-1222;
(aaaa) indecent public displays, Section 76-10-1228;
(bbbb) prostitution, Section 76-10-1302;
(cccc) aiding prostitution, Section 76-10-1304;
(dddd) exploiting prostitution, Section 76-10-1305;
(eeee) aggravated exploitation of prostitution, Section 76-10-1306;
(ffff) communications fraud, Section 76-10-1801;
(gggg) any act prohibited by the criminal provisions of Part 19, Money Laundering and Currency Transaction Reporting Act;
(hhhh) vehicle compartment for contraband, Section 76-10-2801;
(iiii) any act prohibited by the criminal provisions of the laws governing taxation in this state; and
(jjjj) any act illegal under the laws of the United States and enumerated in 18 U.S.C. Sec. 1961 (1)(B), (C), and (D).
In the well known case United States v. Claud R. “Rick” Koerber, Utah federal judge Clark Waddoups recently granted the defendant’s motion to suppress statements made in two interviews with the federal government, along with the fruits of those interviews.
Judge Waddoups found a violation of Mr. Koerber’s Due Process rights in “a lead prosecutor’s instructions to federal investigators to initiate pre-indictment ex parte contact with the target of their investigation who prosecutors know is represented by counsel, and to conduct multiple interviews of that person, including through use of questions scripted by the prosecutors and designed to influence the target to waive attorney-client privilege and disclose information about potential trial strategy such as reliance on an ‘advice of counsel’ defense.”
In short: the prosecutors knew that Mr. Koerber was represented by counsel (several counsel, in fact), but still had him interviewed without counsel present, including questioning written by the prosecutor. This was a violation of the Utah Rules of Professional Conduct, which prohibit an attorney from contacting a person known to be represented by counsel. The lengthy ruling is here: https://ecf.utd.uscourts.gov/cgi-bin/show_public_doc?209cr0302-360
This is the second time that federal prosecutors have been found to have engaged in questionable conduct in the Koerber case. Stay tuned…
Our office is currently defending several cases in which court-appointed Receivers seek to “claw back” money received by our clients, usually years ago and with no notice that the money allegedly came from a fraudulent scheme.
In nearly all of these cases, the Receiver attempts to lessen (or eliminate) its burden of proof by relying on a so-called “Ponzi presumption.” Under this presumption, Receivers simply allege that (1) the payor was operating a Ponzi scheme at the time the payment was made; and (2) therefore, every payment made by him was made with an intent to defraud creditors.
Ponzi is the new black. Receivers (and federal agencies like the SEC) are liberal with the “Ponzi” label. And, frankly, some of our local courts rarely put Receivers to the test. Is it really a Ponzi scheme, or is the Receiver just calling it that to make his job easier?
Recently, some creditors of an alleged Ponzi scheme operator challenged the application of a “Ponzi” presumption. Utah federal Judge Bruce Jenkins issued a lengthy opinion, which contains a long discussion of the history of Ponzi schemes and the definition of Ponzi scheme used by each federal circuit. He concluded that, if the Receiver wanted to claw back funds from these creditors, it would need to prove its case; it couldn’t simply say “Ponzi scheme!” and avoid proving it in the 40 clawback cases it is bringing.
The ruling in SEC v. Management Solutions, Inc., is very interesting: https://ecf.utd.uscourts.gov/cgi-bin/show_public_doc?211cv1165-1215.
To maintain a civil or criminal case under the Utah Pattern of Unlawful Activity Act (UPUAA), the elements of one or more underlying criminal offenses must be shown. The eligible “predicate” crimes range from gambling promotion to unlawful dealing with property by a fiduciary to tampering with a witness.
Perhaps the most common underlying criminal offense used to support a UPUAA claim or charge is Communications Fraud, Utah Code Annotated Section 76-10-1801. If it is a civil case, a UPUAA claim based on Communications Fraud may be subject to mandatory arbitration. Utah Code Ann. Section 76-10-1605 says: “All actions arising under this section which are grounded in fraud are subject to arbitration under Title 78B, Chapter 11, Utah Uniform Arbitration Act.”
At least one Utah trial court has construed this provision as requiring the submission of UPUAA claims to arbitration even when a corporate defendant litigated in court for years before moving to compel arbitration shortly before trial. (Usually, proceeding with litigation waives a right to demand arbitration later. However, the trial court said that concept may apply to contractual arbitration provisions, but not statutory arbitration provisions.)
Two potential wrinkles of compelling arbitration of UPUAA claims:
1) You may end up with two litigation/arbitration tracks, as UPUAA claims may be carved off from other claims. For example, in that same case, after the defendant’s motion to compel arbitration of the UPUAA claims was granted, the trial court allowed the plaintiff to proceed to trial on his other state law claims – for example, common law fraud or Consumer Sales Practices Act claims – while simultaneously pursuing UPUAA claims against the same defendant in arbitration.
2) A successful plaintiff can claim attorney fees regardless of whether the case is in regular court or arbitration. See Section 76-10-1605(2) (“(2) A party who prevails on a cause of action brought under this section recovers the cost of the suit, including reasonable attorney fees.”) Under a quirk of statutory wording, however, a successful defendant might only be able to seek fees if the case stays in court. Section 76-10-1605 says: “(8) If an action, claim, or counterclaim brought or asserted by a private party under this section is dismissed prior to trial or disposed of on summary judgment, or if it is determined at trial that there is no liability, the prevailing party shall recover from the party who brought the action or asserted the claim or counterclaim the amount of its reasonable expenses incurred because of the defense against the action, claim, or counterclaim, including a reasonable attorney’s fee.” An argument could be made that the words “trial” and “summary judgment” are terms of art that are limited to court proceedings. An arbitration hearing is not a trial (for example, normal rules of evidence do not apply), and arbitrations are not governed by the rule of civil procedure providing for “summary judgment.”
Last week, a three-arbitrator panel in Salt Lake City entered a final award of more than $800,000 in damages, attorney fees, and costs against a defendant in a civil Utah Pattern of Unlawful Activity Act claim. The defendant was found to have committed a pattern of Communications Fraud.
The plaintiff was represented by this law firm (Christensen & Jensen). Once the arbitration awards are confirmed in court, more details about the claim will be posted.
Under the Utah Pattern of Unlawful Activity Act, a plaintiff seeking double damages in a civil case must show that the misconduct was, at a minimum, recklessly tolerated by a “high managerial agent” of the defendant. The UPUAA does not define “high managerial agent,” so what does it mean under state law?
Utah’s criminal code does contain a definition of “high managerial agent,” similar to the definition in the Model Penal Code. An argument could be made that the standard for high managerial agent required for criminal responsibility is, or should be, higher than that for civil liability. But for discussion purposes, Utah Code Ann. § 76-2-204(2), “high managerial agent” in a criminal case means:
(a) A partner in a partnership;
(b) An officer of a corporation or association; [or]
(c) An agent of a corporation or association who has duties of such responsibility that his conduct reasonably may be assumed to represent the policy of the corporation or association.
The first two categories are usually easy to apply. It is the third category that is fodder for litigation. One relatively recent opinion by the Missouri Court of Appeals is illustrative. Like Utah, Missouri requires the involvement or toleration of a “high managerial agent” in order to impose criminal liability. Under Missouri’s statute, a high managerial agent is “an officer of a corporation or any other agent in a position of comparable authority with respect to the formulation of corporate policy or the supervision in a managerial capacity of subordinate employees,” Mo. Rev. Stat. § 562.056.3(2).
In State v. Community Alternatives Missouri, Inc., 267 S.W.3d 735 (Mo. Ct. App. 2008), a corporation was criminally prosecuted for neglect of residents in one of 30 nursing homes operated by the defendant. It was alleged that a woman named Mary Collura had engaged in and knowingly tolerated the conduct in question. Collura was the “lead staff person for two of the group homes,” a management position that included management of residents’ care, evaluation and discipline of employees, and the authority to write checks on behalf of residents and take residents to the doctor. Id. at 737.
The defendant argued that Collura did not qualify as a high managerial agent because, regardless of her authority at the individual group home, she did not have authority to make company-wide policy:
Defendant’s argument regarding whether Mary Collura was a high managerial agent and whether the actions she took, or failed to take, occurred on behalf of defendant within the scope of her employment is directed to Ms. Collura’s status in defendant’s overall corporate structure. Defendant contends it cannot be held liable because Mary Collura lacked corporate-wide authority and lacked authority comparable to a corporate officer within that structure. [Id. at 744.]
The Missouri Court of Appeals rejected that argument. Explaining that “[i]t is the function within a corporate structure that must be considered, not merely job titles,” id. at 745, the court found that Ms. Collura qualified as a “high managerial agent” based on her supervisory duties at the home, authority over local expenditures and communication with patients’ doctors, and the limited oversight of company officers. See id. at 744-46. Regarding the scope of her authority, the court held that a corporation could not avoid criminal liability for what occurred at one of its units merely because it operated multiple units:
A question this appeal presents is whether the definition of “high managerial agent” is to be applied differently with respect to corporations that operate numerous business units than to corporations that operate a single business unit. Is a corporation that operates numerous business units shielded from criminal liability when the same conduct would subject a corporation with a single business unit to criminal liability? This court thinks not. [Id. at 745]
Collura’s authority at the group home was such that, if the home had been a single unit, the defendant could not have denied her status as a high managerial agent, the court noted. Id. Accordingly, it would not make sense to allow the same defendant to deny her status just because it owned more than one unit:
In this case, defendant operated many facilities, or business units, under a single corporate ownership. Each business unit had personnel responsibility for the care of the residents at its facility. This court does not perceive the legislative intent that fostered enactment of [the high managerial agent requirement] to have been to treat large corporations with numerous operating units different from those that operate a single or a few business units.
See also People v. Lanzo Construction Co., 726 N.W.2d 746 (Mich. Ct. App. 2006) (crew chief in charge of safety on job site qualified as a “high management official” under similar criminal responsibility standard); People v. Mejia Real Estate, Inc., 672 N.Y.S.2d 645, 647-48 (N.Y. Sup. Ct. 1998) (jury could find that real estate agent was high managerial agent under similar corporate liability provision).
As reported on ksl.com, former Vescor executive Shawn H. Moore has been convicted on various state charges, including one under the Utah Pattern of Unlawful Activity Act. The Moore case is No. 081908861, Third District Court.
Here are the Defendant’s proposed jury instructions, the State’s proposed jury instructions, the Court’s final jury instructions, and an interesting motion in limine asking the Court to prohibit the prosecution from using the loaded phrase “Ponzi scheme.” (It was denied.)
The Utah Pattern of Unlawful Activity Act has both criminal and civil components. In a criminal case, the government is allowed to tack on “the costs of investigating and prosecuting the offense” if the prosecution is successful. Utah Code Ann. Section 76-10-1603.5 says:
(1) A person who violates any provision of Section 76-10-1603 [UPUAA] is guilty of a second degree felony. In addition to penalties prescribed by law, the court may order the person found guilty of the felony to pay to the state, if the attorney general brought the action, or to the county, if the county attorney or district attorney brought the action, the costs of investigating and prosecuting the offense and the costs of securing the forfeitures provided for in this section.
But what if the defendant is acquitted? Can the defendant get from the government his own “costs of investigating and [defending] the offense”?
Probably not, unless you’re in federal court. (The federal Hyde Amendment allows a vindicated criminal defendant to recover fees if the prosecution was groundless and in bad faith, vexatious, etc.) Utah does have a “reciprocal attorney fee” statute, but it is limited to civil cases, and only applies when a contract claims to allow just one of the parties to the contract to recover attorney fees:
A court may award costs and attorney fees to either party that prevails in a civil action based upon any promissory note, written contract, or other writing executed after April 28, 1986, when the provisions of the promissory note, written contract, or other writing allow at least one party to recover attorney fees. (Utah Code Ann. Section 78B-5-826.)
In the criminal case against former Provo city councilman Steve Turley for alleged violation of the Utah Pattern of Unlawful Activity Act (including underlying offenses of Communications Fraud), a motion for change of venue has been filed after a fourth judge recused himself.
Turley also filed a lengthy motion to compel discovery or to dismiss the case, accusing the government of withholding information – a copy is attached here.