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United States v. Lillie

October 29, 2009

UNITED STATES OF AMERICA
v.
BRIAN K. LILLIE



The opinion of the court was delivered by: Robert M. Dow, Jr. United States District Judge

MEMORANDUM OPINION AND ORDER

Before the Court is the Government' s Santiago Proffer [43], which describes the Government' s basis for asserting the existence of a conspiracy or joint venture between Defendant Brian K. Lillie ("Lillie") and Andre D. Johnson ("Johnson"). Through its Santiago Proffer, the Government proposes to offer evidence of co-conspirator statements made by Johnson against Lillie under Federal Rule of Evidence 801(d)(2)(E). Lillie has filed a response [45] objecting to the admission of Johnson's out of court statements as evidence against him under Rule 801(d)(2)(E). As explained in greater detail below, during the final pre-trial conference held on October 22, 2009, and the subsequent status conference on October 27, 2009, the parties clarified their positions on this aspect of the case and the rather discreet issues that remain for disposition prior to trial.

I. Background

On September 10, 2008, a federal grand jury returned a one-count indictment [1] against Defendants Lillie and Andre Johnson ("Johnson") charging them with mail fraud in violation of 18 U.S.C. § 1341.*fn1 The indictment charges that Johnson and Lillie engaged in a scheme to defraud the United States Department of Housing and Urban Development ("HUD"), Wells Fargo Home Mortgage, Inc. ("Wells Fargo"), and two individuals, Pamela Moore ("Moore") and Jannice Hawkins ("Hawkins"), in connection with a HUD 203(k) program rehabilitation mortgage loan for a building located at 5358 South Wells Street in Chicago, Illinois ("the Wells Street Property"). According to the indictment, the 203(k) program is designed to allow purchasers of distressed property to obtain funding to cover the costs of rehabilitating the property. Under the program, loan funds allocated to rehabilitation are placed in an escrow account. Contractors hired to perform the rehabilitation work may be paid out of the escrow account before the entire rehabilitation is completed, but only for work that they actually have completed. The lending institution holding the escrow funds will release the funds only after receiving a "draw request" and a compliance inspection report, both of which must certify that the work for which the contractor is being paid has been completed. Draw requests must be signed by the contractor and the borrower, and the compliance inspection report must be signed by a HUD-certified 203(k) program inspector.

The indictment alleges that Moore and Hawkins purchased distressed property with a HUD 203(k) program rehabilitation mortgage loan and hired Johnson as the general contractor to complete the rehabilitation work. Moore and Hawkins also hired Lillie as a certified HUD inspector. Between July 23, 2003 and September 16, 2003, Lillie and Johnson submitted three draw requests (as well as three inspection reports and other documents) to the lending institution, Wells Fargo, thereby inducing Wells Fargo to release more than $90,000 of funds from the escrow account. According to the indictment, the draw requests (executed by Moore, Hawkins, Lillie and Johnson) and inspection reports (signed by Lillie) falsely represented that Johnson had completed work on the property, when in fact the work had not been done. The Government maintains that Lillie received approximately $480 of the more than $90,000 of funds released from the escrow account.

II. Legal Standard Governing the Admission of Co-conspirator Statements

Under Rule 801(d)(2)(E) of the Federal Rule of Evidence, statements made by a co-conspirator during the course and in furtherance of the conspiracy are not hearsay. United States v. Williams, 44 F.3d 614, 617 (7th Cir. 1995). Rule 801(d)(2)(E) applies not only to conspiracies, but also to joint ventures.*fn2 United States v. Kelly, 864 F.2d 569, 573 (7th Cir. 1989). Consequently, a formal conspiracy charge is not a prerequisite for the admission of statements under Rule 801(d)(2)(E), if the government establishes that a "criminal venture existed and that the statements took place during and in furtherance of that scheme." United States v. Reynolds, 919 F.2d 435, 439 (7th Cir. 1990); Kelly, 864 F.2d at 573. For a statement to be admissible under Rule 801(d)(2)(E), the government must prove by a preponderance of the evidence that (1) a conspiracy (or joint venture) existed; (2) the defendant and the person making the statement were members of the conspiracy (or joint venture); and (3) the statement was made during the course and in furtherance of the conspiracy (or joint venture). United States v. Brookins, 52 F.3d 615, 623 (7th Cir. 1995); United States v. Stephens, 46 F.3d 587, 597 (7th Cir. 1995).

Generally, district courts make a ruling on the admissibility of a co-conspirator' s statements pursuant to Rule 104(a) before they are admitted at trial. United States v. Santiago, 582 F.2d 1128, 1130-35 (7th Cir. 1978); United States v. Cox, 923 F.2d 519, 526 (7th Cir. 1991). In determining both the existence of a conspiracy (or joint venture) and a defendant's participation in it, the court can consider the statements sought to be admitted. Williams, 44 F.3d at 617; see also Bourjaily v. United States, 483 U.S. 171, 180 (1987). While the admissibility of conspirators'declarations "is not contingent on demonstrating by non-hearsay evidence either the conspiracy or a given defendant' s participation," United States v. Martinez de Ortiz, 907 F.2d 629, 634 (7th Cir. 1990) (en banc), the contents of the proffered co-conspirator statements "are not alone sufficient" to establish the existence of a conspiracy and a defendant' s participation in it. Fed. R. Evid. 801(d)(2)(E). In addition to the co-conspirator statements themselves, the Court must consider the circumstances surrounding the statement, such as the identity of the speaker, the context in which the statement was made, or the evidence corroborating the contents of the statement. United States v. Zambrana, 841 F.2d 1320, 1344-45 (7th Cir. 1988).

"To show that a defendant was involved in the conspiracy, the government must show that he ' (1) knew of the conspiracy, and (2) intended to associate himself with the criminal scheme.'"United States v. Stephenson, 53 F.3d 836, 843 (7th Cir. 1995) (quoting United States v. Sullivan, 903 F.2d 1093, 1098 (7th Cir. 1990)). However, "[t]he government is not required to prove that there was a formal agreement, and circumstantial evidence indicating the defendant' s membership in the conspiracy can also be considered." Id. (citing United States v. Schumpert, 958 F.2d 770, 773 (7th Cir. 1992)).

III. The Government's Santiago Proffer

With these standards in mind, the Court considers whether the Government has shown by a preponderance of the evidence that a joint venture existed between Lillie and Johnson, and whether the co-conspirator statements that it seeks to admit were made in furtherance of that joint venture.

The Government indicates that its evidence will show the following. In July 2003, Wells Fargo issued a home loan to Moore and Hawkins in the total amount of $305,950. Of that sum, $171,253.00 was set aside in an escrow account for rehabilitation work. Moore and Hawkins hired Johnson as the contractor to perform the rehabilitation work and Lillie as the HUD-certified inspector. Johnson and Lillie signed and submitted to the bank three draw requests -- dated July 23, 2003, August 30, 2003, and September 10, 2003 -- seeking the release of rehabilitation funds from the escrow account. Each draw request listed costs expended with regard to various portions of the rehabilitation work. Lillie faxed each draw request, along with a certified inspection report signed by him and a lien waiver form executed by Johnson, to Wells Fargo. Both the draw requests and the inspection reports certified that certain work had been completed on the property, when in fact the work had not been completed. Following the submissions of the draw requests, Wells Fargo issued checks to Johnson' s contracting company and to Lillie. Lillie received approximately $480 of the more than $90,000 of funds released from the escrow account.*fn3

A. Existence of and Membership in a Joint Venture

Based on the evidence discussed above, the Court concludes that the Government has demonstrated, by a preponderance of the evidence, that Lillie and Johnson entered into a joint venture to make misrepresentations to the bank, thereby fraudulently inducing it to release the escrow funds. In particular, the three draw requests signed by Lillie and Johnson, Lillie' s admission to the agent that he knew the work had not been completed when he signed those draw requests, Lillie's statement that he signed the draw requests because Johnson claimed the money would allow him to complete the work, and the fact that the bank could not have released the funds without the signatures of both Lillie and Johnson show that it is more likely than not that Lillie and Johnson agreed to misrepresent to the bank that the work had been done in order to induce the bank to release the funds. Put differently, the proffered evidence is sufficient to establish by a preponderance of the evidence that Lillie and Johnson were engaged ...


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