United States v. Zemlyansky

Citation: 908 F.3d 1Docket: 16-409

Court: Court of Appeals for the Second Circuit; November 4, 2018; Federal Appellate Court

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Mikhail Zemlyansky appeals a February 1, 2016 conviction following a jury trial in the Southern District of New York, where he was charged with healthcare fraud, but acquitted of all counts except for conspiracy to engage in racketeering under the Racketeer Influenced and Corrupt Organizations Act (RICO). A second trial in 2015 involved charges related to insurance and investment fraud, where Zemlyansky contended that his constitutional rights were violated under the Fifth Amendment’s Double Jeopardy Clause, arguing that the second trial improperly relied on acts for which he had been acquitted previously. The appeal also raised issues regarding prosecutorial comments and evidentiary rulings affecting his Fifth and Sixth Amendment rights. The Second Circuit concluded that the issue-preclusion component of the Double Jeopardy Clause does not prevent the government from basing the RICO conspiracy charge on acts that mirrored earlier acquittals. Consequently, they affirmed the judgment. Zemlyansky's criminal activities included operating fraudulent investment firms, such as Lyons Ward & Associates and Rockford Funding Group, and an illegal gambling ring, through which he embezzled and laundered millions of dollars from investors.

Between 2009 and February 2012, Zemlyansky and co-defendant Michael Danilovich operated medical professional corporations (P.C.s) that fraudulently billed insurance companies under New York’s No-Fault Comprehensive Motor Vehicle Insurance Reparations Act. They misrepresented ownership and necessity of treatments, profiting through insurance payments, kickbacks, and fee-sharing, with funds transferred via shell companies overseas.

In May 2013, a federal grand jury issued the Superseding Indictment S13, charging them with nine counts related to this scheme, including a conspiracy to violate RICO and multiple counts of healthcare fraud, mail fraud, and money laundering. The eight-week trial led to Zemlyansky's acquittal on most counts, with the jury deadlocked on the RICO conspiracy charge.

Following a mistrial, a grand jury returned the Superseding Indictment S18 in 2015, expanding the charges to include conspiracy and substantive counts related to additional fraudulent activities, including securities fraud and illegal gambling. The S18 Indictment charged Zemlyansky with conspiracy to violate RICO as part of the “Zemlyansky/Danilovich Organization,” which included previous No-Fault activities and new allegations related to Lyons Ward and the Rockford Group.

Zemlyansky sought to dismiss the RICO conspiracy charge and prevent the Government from using evidence of his prior involvement with the No-Fault Insurance Organization, arguing that the Double Jeopardy Clause's issue-preclusion aspect barred the use of evidence related to insurance fraud for which he had been acquitted. Initially, the District Court denied this motion but later granted it in part, prohibiting the Government from asserting his guilt in insurance fraud while permitting evidence of his involvement in the no-fault scheme relevant to the RICO charge. 

During Zemlyansky's second trial, issues arose regarding the prosecution's rebuttal summation comments about his emotional response to a witness and the admission of a government-prepared transcript linking him to an incriminating audio recording. The District Court instructed the jury to disregard the comments and allowed the transcript as an aid during deliberations. Ultimately, Zemlyansky was convicted on all counts, including five predicate acts of the RICO conspiracy, and sentenced to 180 months in prison, alongside significant financial penalties.

On appeal, Zemlyansky reiterated that his RICO conviction violated his Fifth Amendment rights against double jeopardy and claimed that the prosecution's comments and the transcript admission infringed upon his Fifth and Sixth Amendment rights, arguing that these issues collectively constituted cumulative error. The Double Jeopardy Clause prevents retrial for the same offense after jeopardy has terminated, and issue-preclusion prohibits prosecution when a prior ruling has conclusively determined an essential fact in favor of the defendant.

The defendant, Zemlyansky, must demonstrate that an issue he seeks to prevent from litigation was necessarily decided in his favor in a prior verdict. He contends that collateral estoppel prevents the Government from using prior acquittals for substantive crimes—insurance-related mail fraud and money laundering—to support a RICO conspiracy charge in a subsequent trial. The court disagrees, noting that earlier acquittals do not negate the Government's ability to prove that Zemlyansky knowingly agreed to engage in a racketeering scheme involving those same crimes. The essential distinction lies in the nature of RICO conspiracy, which requires proof of agreement to facilitate criminal activity, rather than the commission of predicate acts. Thus, the prior jury's acquittal did not establish that Zemlyansky lacked agreement, an essential element for RICO conspiracy.

Zemlyansky further argues that the Government cannot base a RICO charge on previously acquitted conspiracy counts. However, the court finds that the elements of "basic" conspiracy and RICO conspiracy differ significantly. Basic conspiracy requires proof of an agreement to commit an unlawful act and the defendant's intent to engage in that conspiracy, while RICO conspiracy focuses on a broader agreement to further a racketeering scheme. Therefore, the acquittals for basic conspiracy do not preclude the Government from using those acts as predicates in the RICO charge. The court concludes that the evidence of the prior acquitted offenses can be utilized in the RICO conspiracy charge without violating principles of collateral estoppel.

RICO conspiracy necessitates proof of three critical elements: (a) an agreement to join a racketeering scheme, (b) the defendant's knowing engagement in that scheme with intent to achieve its overall goals, and (c) the involvement of two or more predicate acts of racketeering, either committed or intended by the conspirators. The government does not need to demonstrate that the defendant personally committed two predicate acts, as evidence that co-conspirators agreed to conduct the enterprise's affairs through racketeering suffices. RICO conspiracy differs from basic conspiracy in that it does not require proof of the defendant's agreement to facilitate a specific crime or intent to accomplish specific criminal acts; rather, intent to realize the general goals of the racketeering scheme is sufficient. Consequently, a jury's acquittal on basic conspiracy does not inherently preclude a finding of RICO conspiracy based on the same conduct. The inquiry into whether retrial is permissible hinges on whether a rational jury could have acquitted the defendant for legitimate, non-preclusive reasons. This determination involves a practical evaluation of the record from the prior trial, focusing on the evidence presented and the jury's clear decision-making process.

A rational jury in the first trial could have acquitted Zemlyansky of conspiracy charges based on grounds not essential to proving the subsequent RICO conspiracy, such as the possibility that others conspired to commit insurance-related mail fraud without his agreement. Zemlyansky's defense highlighted his limited role and good faith management of the P.C.s, distancing himself from any unlawful agreements. The first jury’s acknowledgment of his removed involvement in the no-fault insurance scheme may have influenced their verdict. Consequently, the second jury could still find that Zemlyansky agreed to further the no-fault insurance scheme, regardless of the first jury's conclusion about specific predicate acts. Even if the first jury had doubts about Zemlyansky's intent, he could still be found guilty of RICO conspiracy if his co-conspirators had the necessary intent. The first jury's deadlock on two co-defendants indicated that the Government was free to prove the pattern element of the RICO charge through evidence of the co-conspirators' intentions, irrespective of Zemlyansky's specific intent. Thus, the Government was allowed to base the second RICO conspiracy charge on the insurance-related conspiracies for which Zemlyansky had been acquitted. Additionally, the District Court properly admitted evidence from the first trial to support the RICO charge because the evidence was used for different, non-precluded purposes. Zemlyansky failed to demonstrate that the Government sought to reuse evidence specifically to prove conduct for which he had been acquitted, which is necessary for preclusion under established case law.

The issue-preclusion aspect of double jeopardy protects a defendant from having to defend against charges or factual allegations already resolved in their favor during a prior trial. The government can bring new charges related to the same conduct but cannot use facts that were necessarily determined against it in the previous trial. The precedent set by Mespoulede highlights that this protection applies even to issues not critical for conviction, as long as they were conclusively decided for the defendant in an earlier case. For a defendant to invoke this protection, they must demonstrate that the issue was indeed decided in their favor.

In this case, Zemlyansky contended that it would be erroneous for the District Court to allow the government to prove his involvement in a no-fault insurance scheme using evidence of mail fraud or money laundering from the earlier trial. The court agreed but noted that the government had other means to establish Zemlyansky's facilitation of the scheme, such as evidence of his provision of physical space for the clinics and recruitment of doctors, which did not rely on previously determined issues.

Regarding the prosecution's rebuttal summation, Zemlyansky argued that the District Court's failure to declare a mistrial due to the prosecution's comments on his courtroom demeanor violated his Fifth and Sixth Amendment rights. The court acknowledged that the comments were inappropriate but found that the District Court's prompt actions mitigated any substantial prejudice against Zemlyansky. The prosecution referenced Zemlyansky’s emotional reaction during a witness's testimony, suggesting the jury witnessed his distress, which was described as noticeable but not audible. Zemlyansky did not testify during the trial.

Defense counsel objected to the prosecutor's comments, which the court overruled, allowing the prosecutor to continue. The prosecutor asserted that once a witness identified Bob Hamilton's voice, the defendant's attempts to conceal his identity were futile, leading him to make desperate efforts to maintain the fraud. Following the prosecutor's remarks, defense counsel sought a mistrial or a chance to testify regarding a witness's demeanor, or alternatively, a curative instruction. The court deemed the comments improper but not prejudicial enough to justify a mistrial, noting the comments did not prompt jury inferences and were limited in impact due to the immediate objection and noticeable juror reactions. The court issued a curative instruction before jury deliberations, with both parties agreeing on its content.

Zemlyansky's claim of a Fifth Amendment violation was rejected, as his behavior was neither compelled nor testimonial. The court clarified that the government's use of a communication does not constitute compulsion, and spontaneous actions like crying do not equate to sworn testimony. Additionally, Zemlyansky claimed his Sixth Amendment rights were violated due to an inability to cross-examine the prosecutor, who he argued became a witness through improper comments. The court found that the prosecutor was not a witness since the jury could observe Zemlyansky's behavior independently, thus negating grounds for cross-examination. The prosecution's comments did not infringe on Zemlyansky's right to conflict-free counsel, as they did not necessitate defense counsel's withdrawal or create a conflict of interest.

Zemlyansky contends that the prosecution's remarks infringed upon his due process rights by compromising his entitlement to have his guilt or innocence assessed solely based on trial evidence, citing Taylor v. Kentucky. The Government acknowledges that the prosecutor's comments prior to the defense's objection were improper. However, improper comments do not always necessitate vacating a conviction, as established in United States v. Young. A denial of due process occurs only if such comments cause substantial prejudice to the defendant, as indicated in cases like United States v. Myerson and United States v. Banki, which emphasize the need to evaluate the misconduct's seriousness, the trial court's remedial actions, and the likelihood of conviction without the improper statements.

The District Court exercised its discretion appropriately by denying Zemlyansky's mistrial motion. Following the objection, the court allowed for discussion and directed the prosecutor to move on. It later acknowledged the misconduct and delivered a thorough curative instruction that not only validated Zemlyansky's objection but also clarified the impropriety of the comments and reinforced that jurors should only consider admitted evidence, excluding Zemlyansky’s demeanor.

In contrast to the cases cited by Zemlyansky, the District Court took immediate action against the impropriety and provided a strong curative instruction. The remarks did not constitute a violation of Zemlyansky’s Sixth Amendment rights, as the prosecutor was not acting as a character witness. The remedial measures were justified given the trial's context, as there was no evidence of intent to prejudice Zemlyansky’s case. Multiple witnesses supported the identification of "Bob Hamilton," alongside substantial evidence related to investment fraud. In the absence of a curative instruction, comments on a defendant’s behavior could violate due process, as noted in United States v. Carroll, but here, the District Court's prompt actions indicated that the remarks were not permissible.

The prosecutor's comments regarding the defendant's demeanor and the jury instruction to consider it were deemed errors, but these were found to be isolated incidents in an otherwise fair trial. The District Court acted appropriately by denying the defendant's motions for a mistrial and to reopen proceedings. 

Zemlyansky challenged the admission of a transcript identifying him as a speaker, claiming it violated his Sixth Amendment rights. However, the District Court exercised its discretion properly in allowing the transcript as a jury aid, having received adequate evidence to support the voice attribution. The jury was instructed that the transcript was not evidence but merely assistance, and they had the authority to determine its accuracy.

Regarding cumulative error, the argument was rejected as the prosecution's remarks, while improper, did not undermine the overwhelming evidence against Zemlyansky. The cumulative effect of any errors did not constitute a due process violation. Consequently, the judgment of the District Court was affirmed.