LAW-A Man's Home Is His...Jail?

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A Man's Home Is His...Jail?

John G. Martin

New York Law Journal

07-09-2012


Secured home confinement, as a substitute for the incarceration of defendants who either pose a substantial flight risk or are a danger to the community, is often a very attractive option for white-collar criminal defendants. The conditions of any particular release package may vary, but secured home confinement almost universally involves electronic monitoring and private armed guards present in the defendant's residence, limits on phone calls, limits on computer use and visits, and a substantial bond. Since many people accused in federal court of large scale financial fraud (1) have ready access to substantial fortunes, (2) are international travellers, with ties outside of the country, and (3) are typically facing decades long sentence recommendations under the federal guidelines, the government can plausibly argue that even a multi-million dollar secured bond is insufficient to ensure that the defendant will appear for trial. Indeed, there can be little doubt that some extremely wealthy defendants are more than willing to forfeit millions of dollars in exchange for avoiding the prospect of 20 years (or more) in federal prison.1

But secured home confinement as an alternative to detention has had a rocky history within the Second Circuit, and, after a brief recent period of expanded utilization, recent decisions in the circuit may signal a constriction of the ability of white-collar defendants to insist on "home-jailing."

As a result of several Second Circuit decisions, home confinement was generally unavailable for most of the past two decades. However, secured home confinement made a comeback beginning in 2007, when the circuit ordered the release of a husband and wife accused of keeping their household help as custodial slaves, through threats and actual physical abuse, on a set of conditions establishing secured home confinement. United States v. Sabhnani, popularly known as the "Slave Case," caused a brief revival in the use of secured home confinement, not only in local federal district courts, but in the state criminal courts as well.2

Shortly after the Sabhnani decision, David H. Brooks, a CEO who was initially detained as a flight risk and a danger to the community, was released on a bail package centered around an elaborate secured home confinement. Marc Dreier, accused of a $400 million fraud, returned home to await trial under armed guards; Bernard Madoff, arguably the most heinous white-collar criminal ever seen in New York courts, spent time on secured home confinement; and Dominic Strauss-Khan, a foreign national indicted for rape, was released by a New York State Supreme Court judge to home confinement.

Nevertheless, recent decisions from the Second Circuit and some district courts have again questioned the legitimacy of such arrangements, and the future of defendant-financed secured home confinement is, at best, an open question.

The Background: 'Orena'

Over 20 years ago, in United States v. Orena,3 the Second Circuit essentially rejected home confinement as an alternative to detention pursuant to the Bail Reform Act, at least where dangerousness was established. Specifically, in Orena, the court found that Jack Weinstein of the Eastern District of New York abused his discretion in ordering the release of two defendants who were accused of holding leadership positions in the Colombo Crime Family of La Cosa Nostra, and were alleged to be responsible for eight murders committed during a gang war between different factions of the Family. Although Weinstein had not rejected the government's contention that the defendants were dangerous, he found that home confinement, with monitoring via electronic bracelet, as well as a prohibition on visits and/or phone calls from anyone other than counsel, with permission given to the government to search the residences at any time, was adequate to protect the community.4

The Second Circuit emphatically disagreed, concluding that "[t]hese conditions would at best 'elaborately replicate a detention facility without the confidence of security such a facility instills.'" The court reasoned that without trained government staff closely supervising the defendants' compliance with the conditions of release, the safety of the community would depend upon the defendants' promise to obey the terms of their release. The court also expressed a concern that the burdens such arrangements would place on the government, in terms of cost, training and manpower, was excessive, and questioned whether, even if trained government staff supervised the defendants' release, the community would be adequately protected.5

The impact of the Orena decision was felt almost immediately. Shortly before Orena was handed down, Judge Thomas Platt of the Eastern District had determined that Thomas Masotto, under indictment for arson, robbery, and loansharking, could be released upon the following set of conditions:

• A $5,000,000.00 bond to be secured by a confession of judgment signed by the defendant and his wife and real properties with equities equaling approximately $2,000,000.00;

• House confinement monitored by an electronic bracelet with exceptions only for necessary medical care and funerals of immediate family;

• Electronic and/or personal surveillance of defendant's house, 24 hours a day, seven days per week, with all of the costs of the electronic bracelet and surveillance to be paid for in advance monthly by the defendant;

• Consent of the defendant and members of his family in residence authorizing the government to tap at will all telephones in the house and all of defendant's businesses;

• No visits or telephone conferences except with his lawyer and members of his immediate family;

• Consent to be executed by the defendant and his wife to periodic random searches of his premises and the standard conditions of pretrial release including surrender of defendant's passport and waiver of extradition signed by the defendant.

However, just days after the Second Circuit decided Orena, Platt reversed his position in Masotto, and ordered the defendant detained, concluding that "the Court of Appeals has virtually mandated that in a case of this kind, there are no conditions or combination of conditions which will reasonably assure the safety of any other person in the community and accordingly we must remand the defendant to detention."6

Over the next 20 years, courts within the Second Circuit repeatedly rejected secured home confinement as an alternative to detention, typically relying on the circuit's decision in Orena.7 While home confinement was not completely eliminated as an alternative to detention after Orena, its use became the rare exception. Further, when district courts did approve secured home confinement after Orena, many, including Weinstein, were reversed, with the Second Circuit continuing to rely upon Orena.8

The Door Opens: 'Sabhnani'

In 2007, the Second Circuit decided United States v. Sabhnani, a case that appeared to swing the pendulum back toward greater acceptance of secured home confinement in lieu of detention. Defendants Mahender Murlidhar Sabhnani and his wife, Varsha Mahender Sabhnani, were accused of keeping two Indonesian women, initially employed as domestic servants, as slaves through a pattern of physical abuse, threats and intimidation. Although the Sabhnanis were both United States citizens, they were born overseas and had family in Indonesia. Their wealth easily approached $10 million, and it was derived from a successful perfume and cosmetics business that operated both inside the United States, as well as in Europe and Indonesia. Nevertheless, the Sabhnanis' initial bail application, to a magistrate judge, was granted, and they were ordered released upon restraint of all of their identifiable assets, and with a condition of home confinement (to be monitored electronically) and pen register monitoring of their telephone calls.9

The government appealed the magistrate's determination to Platt in the district court. Platt, as he had done in the Masotto case almost 25 years earlier, initially advised the parties that he intended to release the defendants on a set of conditions more rigorous than those approved by the magistrate, which would establish a secured home confinement. However, when the government objected and asserted that no set of conditions would assure the defendants' appearance at trial, Platt, following the trajectory of the Masotto case, reversed himself and refused to accept a "conditional release [that] would in effect replicate a detention center" since "the Bail Reform Act does not require release under such conditions."10

However, this time around the Second Circuit embraced release on the conditions of confinement proposed by the defendants, and rejected Platt's conclusion that secured home detention could not be required under the Bail Reform Act. The court distinguished Orena, in part by noting the extremely strict regimen proposed by the Sabhnani defendants, which included on-site monitoring by a private security firm approved by the government and paid for by the defendants, was more secure and less costly to the government than the conditions Weinstein had approved, but the circuit found wanting, in Orena.11

While the Sabhnani decision did not exactly open the floodgates to secured home detention for any defendant who could afford it, it undoubtedly played a role in allowing a number of high profile white-collar defendants to obtain release that might otherwise not have been available to them. One of the first to benefit from the Sabhnani decision (other than the Sabhnanis themselves) was David H. Brooks. Indicted in 2008 for securities fraud, tax evasion and obstruction of justice, Brooks was alleged by the government to have stolen hundreds of millions of dollars from his company and from investors, and he had substantial overseas ties, including Swiss bank accounts, evidence of unexplained wire transfers to a country that did not have an extradition treaty with the United States, as well as a recent period of residence in London.12 While Brooks' initial request, which was for release on conditions less restrictive than those imposed in the Sabhnani case, was rejected by Eastern District Judge Joanna Seybert, Brooks was eventually released with the consent of the government on an extraordinary set of conditions that included a $400 million bond secured by $48 million in assets and co-signed by Brooks' adult children, his brother and his ex-wife, complete financial disclosure of all family assets, monitoring of those assets by the government, and, most notably, 24-hour armed security guards at Brooks' residence, with monitoring of all visits and phone calls other than those with counsel.13

Another beneficiary of the Sabhnani case was attorney Marc Dreier. Accused of what the district court called "colossal criminality," or, more specifically, a $400 million securities fraud, the court had little trouble concluding that Dreier "is not only a master of deceit and a doyen of dishonesty but the kind of person who, under stress, may resort to desperate measures" and therefore presented a substantial risk of flight.14 Relying on Sabhnani, however, Judge Jed Rakoff of the Southern District permitted Dreier's release upon an elaborate set of conditions, which included a $10 million bond co-signed by Dreier's son and his mother, 24-hour armed security guards along with electronic surveillance, elimination of all electronic communication other than a "land line" in Dreier's residence, and notice to the U.S. attorney before any visitors would be permitted.15

Joining Brooks and Dreier in reaping the benefits of the Sabhnani case were Bernard Madoff, the perpetrator of arguably the largest financial fraud in U.S. history, and Dominic Strauss-Khan, the managing director of the International Monetary Fund, arrested moments before he boarded a plane to France, where he was expected to run for president, and charged with raping a hotel maid. Madoff's bail package—the now typical massive secured bond and 24-hour armed security guards with video and electronic monitoring—was initially agreed to by the government, who were no doubt influenced to do so by the still recent Sabhnani decision. One month later, when the government tried to revoke Madoff's bail because he had sent $1 million worth of items of personal property to friends and family, allegedly in violation of a civil injunction, Judge Ronald Ellis of the Southern District responded by tightening the restrictions, including preventing Madoff from making "gifts" of any property that would almost surely end up being used to satisfy a restitution or forfeiture order, but refused to order him detained.16

Dominic Strauss-Kahn was initially held without bail after his May 14, 2011, arrest by the New York City Police Department, but once he was indicted by the New York County grand jury, New York State Supreme Court Judge Michael Obus released him on a bail package that included $1 million cash, $5 million bond, electronic monitoring and 24-hour armed guards. The prosecution had opposed release, primarily on the ground that France would not extradite one of their own citizens, but the Judge concluded that the security was sufficient to allay any concerns regarding flight. Strauss-Kahn obeyed the conditions of his release until the prosecution conceded that the case was likely to be unprovable, and they consented to his release from home detention. Secured home detention, once unheard of in State criminal matters, was now at least on the table for discussion.

The Sabhnani decision, helpful as it was to wealthy white-collar defendants, was not universally embraced. Critics complained that Sabhnani created a two-tiered bail system, in which wealthy defendants who were not good candidates for pretrial release were nevertheless entitled to live in relatively luxurious homes-turned-jails, while the similarly situated, but less well-endowed defendants, were simply packed off to prison.17 These critics included district court judges.18 Indeed, even the Second Circuit itself had pointed out, in a footnote in Sabhnani, that

The government has not argued and, therefore, we have no occasion to consider whether it would be "contrary to principles of detention and release on bail" to allow wealthy defendants "to buy their way out by constructing a private jail." Borodin v. Ashcroft, 136 F. Supp. 2d 125, 134 (E.D.N.Y. 2001). We note, however, that in the instant case, defendants of lesser means, lacking the resources to flee, might have been granted bail in the first place.19

The Pendulum Swings Back

In United States v. Banki, 369 Fed. App'x 152, 154 (2d Cir. 2010), the Second Circuit had occasion to revisit the issue of how far Sabhnani could be extended. Banki argued that even if he was a flight risk, the district court was required to accept his proposal for secured home confinement, or at least to identify why the conditions would not guarantee his appearance for trial. The Second Circuit disagreed, and again raised the specter that widespread reliance on secured home detention could implicate the inequality they had mentioned in their earlier Sabhnani footnote. The court pointed out that "such conditions might be best seen not as specific conditions of release, but simply as a less onerous form of detention available only to the wealthy." Ultimately, however, the court in Banki did not broadly condemn the use of secured home detention, but instead simply distinguished Sabhnani, "because the only issue actually decided in Sabhnani was the adequacy of the particular terms of the proposed monitoring arrangement" in that case. Accordingly, the court explained that "we did not there hold that district courts routinely must consider the retention of self-paid private security guards as an acceptable condition of release before ordering detention."20

The Future

The future of secured home detention as an alternative to incarceration within the Second Circuit is thus, at best, uncertain. There is little doubt that defendants with the means to finance it will continue to clamor for "home-jailing." Yet it remains to be seen whether lower courts will take the Banki decision as an invitation to ignore such requests, or will continue along the lines of the Brooks, Dreier, and Madoff cases. Of course, the real wild card is whether the circuit will place more concrete limitations on courts' ability to create "private jails."

John G. Martin, a partner at Garfunkel Wild focusing on white-collar criminal defense and civil litigation, was formerly an Assistant U.S. Attorney in the Eastern District of New York, where he handled the David H. Brooks case mentioned herein.

Endnotes:

1. Perhaps the most notorious example of such a calculation is that of Jacob "Kobi" Alexander, the former CEO of Comverse Technologies. Alexander was one of the first corporate executives indicted for backdating stock options, and in 2006 he fled to Namibia, a country that, at the time, did not have an extradition treaty with the United States. While Alexander has since forfeited tens of millions of dollars, and an extradition treaty between the United States and Namibia has been signed, he nevertheless continues to fight extradition and remains free on bail in Namibia. Thomas Kaplan, "Ex-Comverse Chief Settles U.S. Charges" The New York Times, Nov. 24, 2010.

2. United States v. Sabhnani, 493 F.3d 63 (2d Cir. 2007).

3. United States v. Orena, 986 F.2d 628 (2d Cir. 1993).

4. Further, according to Weinstein, "[t]he likelihood is that the victims will be part of the gang. It is true that these gangs have become much less efficient. Some of them can hardly shoot straight, but I don't believe that there's a substantial risk to the population." Id. at 629.

5. Orena, 986 F.3d at 632-33.

6. United States v. Masotto, 811 F. Supp. 878 (E.D.N.Y. 1993).

7. See, e.g., United States v. Dyer, 1993 WL 393007 (W.D.N.Y. 1993); United States v. Bellomo, 944 F. Supp. 1160 (S.D.N.Y. 1996); United States v. Newkirk, 2000 WL 374933 (N.D.N.Y. 2000); United States v. Ciccone, 2002 WL 1575429 (E.D.N.Y. July 16, 2002).

8. See, e.g., United States v. Millan, 4 F.3d 1038 (2d Cir. 1993) (reversing United States v. Millan, 824 F. Supp. 38 (S.D.N.Y. 1993)); United States v. Ferranti, 66 F.3d 540 (2d Cir. 1995) (reversing March 23, 1995 order of the U.S. District Court for the Eastern District of New York [Weinstein, J.], authorizing defendant Jack Ferranti's release from pretrial detention).

9. Sabhnani, 493 F.3d at 65-67.

10. Sabhnani, 07-CR-429(TCP), Memorandum and Order (E.D.N.Y. June 11, 2007) (Document 47).

11. Sabhnani, 493 F.3d at 77-78.

12. United States v. Schlegel, No. 06-CR-550 (E.D.N.Y. 2009) (Seybert, J.)

13. Id., Bail Release Order, filed Jan. 4, 2007 (Document 76).

14. United States v. Dreier, 596 F. Supp. 2d 831, 832 (S.D.N.Y. 2009).

15. Id. at 833-34.

16. United States v. Madoff, 586 F. Supp. 2d 240 (S.D.N.Y. 2009).

17. See, e.g., Jonathan Zweiga, Note, "Extraordinary Conditions of Release Under the Bail Reform Act," 47 Harv. J. on Legis. 555 (2010).

18. See, e.g., United States v. Argraves, 2010 WL 283064 (D. Conn. Jan. 22, 2010) (Kravitz, J.) (release of the defendant "based on such conditions would create an unfortunate precedent. Specifically, it would allow for the creation of 'private jails' for those who could afford it, which "would at best elaborately replicate a detention facility without the confidence of security such a facility instills" (quoting Orena).

19. Sabhnani, 493 F.3d at 78, n.18.

20. Id. at 154.


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