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U.S. v. SEGAL

January 20, 2004.

UNITED STATES OF AMERICA
v.
MICHAEL SEGAL, DANIEL WATKINS, and NEAR NORTH INSURANCE BROKERAGE, INC.



The opinion of the court was delivered by: RUBEN CASTILLO, District Judge

MEMORANDUM OPINION AND ORDER

Near North Insurance Brokerage, Inc. ("Near North") and Segal seek an evidentiary hearing to determine whether five cooperating witnesses were government agents who violated their Fourth Amendment rights. Three of these cooperating witnesses, Matt Walsh, Dana Berry and Tim Gallagher, provided the Government with information they received from David Cheley, a former Near North employee who hacked into Near North's computer network.*fn1 Tom McNichols and David Watkins, two more cooperating witnesses, provided the Government with documents that they personally obtained from Near North's office. For the reasons provided below, we deny Near North and Segal's motion for an evidentiary hearing. (R. 166-1.) Page 2

RELEVANT FACTS*fn2

 I. David Cheley's Contacts with Matt Walsh, Dana Berry and Tim Gallagher

  David Cheley first contacted Malt Walsh via email on September 21, 2001, (R. 168, Defs.' App., Tab 5, email,) Following this email, Walsh and Cheley spoke on the phone for thirteen minutes, (Id., Tab 8, phone record.) Five days later, Walsh gave Chelcy phone numbers for Dana Berry and Tim Gallagher as well as Berry's office fax number. (Id., Tab 9, email.) On October 1, 2001, Walsh received an anonymous email from "Lisa Chen," which he responded to with a request that the email be resent "with the original larger file." (Id., Tab 13, email.) In or about March 2002, Berry received an anonymous email from "Lisa Fisher," which he responded to with a request not to receive any more emails, (Id., Tab 22, Barry Aff. ¶¶ 5, 8.) Berry stated that he only received one anonymous email, but Defendants assert that he received a second anonymous email on February 28, 2002, (R. 188, Defs.' Reply, Tab 33, Cheley screenshot.)

 II. Government's Knowledge of David Cheley

  Joshua Buchman, Cornier outside counsel to Near North, stated in an affidavit that an FBI agent "recalled an occasion in the fall of 2001 when a cooperating witness . . . had received an unsolicited e-mail communication from an unidentified sender that appeared to have originated Page 3 from Near North's email system."*fn3 (R. 146, Defs.' Mot, Ex. A, Buchman Aff. ¶ 8.) In (he same affidavit, Buchman also stated that: (1) "the FBI and the cooperating witness decided to send a responsive e-mail that instructed the sender of the confidential email to `cease and desist;'" (2) an FBI agent told him "at the time they learned of these email interceptions in the fall of 2001 and the spring of 2002, it did not occur to [him] that the emails sent to Walsh and Berry were obtained through illegal activity, such as computer hacking;" and (3) the FBI agent did not make "any statement that indicated the government possessed information that emails sent to Walsh and Berry may have been obtained through computer hacking performed by David Cheley." (Id. ¶¶ 11, 15, 16.)

  A January 14, 2002, notation made by an FBI agent, states that Cheley was sending anonymous emails to the three cooperating witnesses including an email stating that Near North was "out of trust," (R. 168, Defs. ` App., Tab 12, FBI notes), and a September 19, 2002, notation made by an FBI agent states that Walsh "had met w/ [Cheley] once re," (id., Tab 10, FBI notes).

 III. Tom McNichols and Daniel Watkins

  Tom McNichols is Near North's former Chief Financial Officer who began cooperating with the Government in October 2001 before he left Near North. On October 25, 2001, an FBI Page 4 report indicates that McNichols gave the Government a document titled "Near North Insurance Brokerage, Petty Cash Rcimbursement-2001." (Id. Tab 31, FBI 302 Report.) Daniel Watkins, a co-Defendant and Near North accountant, began cooperating with the Government on November 24, 2001. On December 4, 2001, an FBI agent recorded a conversation with Watkins during which Watkins gave McNichols Near North petty cash receipts for July (year unstated). (R. 180, Defs.' Mem. at 3-4.) During this conversation the FBI agent staled that he would like Watkins to retrieve petty cash receipts for as many months as he could. Id.

  LEGAL STANDARDS

  The decision to hold an evidentiary hearing is left to this Court's discretion. See Torres, 191 F.3d at 811. We will grant an evidentiary hearing if a defendant provides "definite, specific, detailed, and nonconjectural" facts that demonstrate a disputed issue of material fact. Id. When determining whether a private party acted as a government agent, this Court considers: (1) whether the Government knew of and acquiesced in the intrusive conduct; (2) whether the private party's purpose in conducting the search was to assist law enforcement; and (3) whether the Government requested the action or offered the private actor a reward. United Stales v. Crawley, 285 F.3d 553, 558 (7th Cir. 2002). A private search can be converted into a governmental search "only where there is some exercise of governmental power over the private entity, such that the private entity may be said to have acted or behalf of the government rather than for its own, private purposes." United States v. Shahid, 117 F.3d 322, 325 (7th Cir. 1997) (citing United Stales v. Koenig, 856 F.2d 843 (7th Cir. 1988)) (internal quotations omitted). Page 5 Thus, "[a] private party cannot be deemed a government agent unless it was induced to act by some government action." Id. at 325-26. Finally, a government agent only violates the Fourth Amendment when he invades a defendant's subjective expectation of privacy that society is prepared to recognize as legitimate and objectively reasonable, Oliver v. United States, 466 U.S. 170, 177(1984).

  ...


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