United States v. Neil Saada and Isaac Saada, A/K/A Zuckie

Citations: 212 F.3d 210; 53 Fed. R. Serv. 1377; 2000 U.S. App. LEXIS 10383; 2000 WL 583430Docket: 99-5126

Court: Court of Appeals for the Third Circuit; May 15, 2000; Federal Appellate Court

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The case involves an appeal by Neil Saada and Isaac Saada, who were convicted of conspiracy to defraud an insurance company, along with multiple counts of mail and wire fraud, stemming from a fraudulent insurance claim related to damage caused by a broken sprinkler in their warehouse. The case presented unusual corruption elements, including a cousin who testified against the Saadas after participating in the scheme, and the use of a statement from a deceased judge who had been disbarred for unethical conduct. The Saadas, facing severe financial difficulties and personal liability from a $6 million bank loan, sought the help of Ezra Rishty, a cousin and experienced insurance fraud conspirator, to execute their fraudulent claim. Following their conviction, the Saadas' motion for a new trial based on newly discovered evidence was denied by the District Court, which they subsequently appealed. The Court of Appeals affirmed the District Court's decisions regarding the new trial motion, evidentiary rulings, and the government's rebuttal arguments. The District Court sentenced Isaac to 36 months and Neil to 30 months in prison.

A fraudulent insurance claim was orchestrated by Beyda and Neil, involving a staged flood in Scrimshaw's warehouse caused by Beyda breaking a sprinkler head on November 28, 1990. While Isaac, a company officer, was occupied with Tom Yaccarino, Beyda and Neil created the flood, which activated an alarm leading to police and firefighters' response. Neil provided a fabricated account that he accidentally caused the damage while moving boxes. Beyda later exacerbated the situation by spraying water on undamaged merchandise. The appellants submitted a claim to Chubb, including an inventory of damaged items that falsely listed undamaged merchandise. They hired Rishty's company, United International Adjusters, for assistance. Chubb's investigator, Marchello, engaged Kurt Wagner to assess the claim, who falsely endorsed the proof of loss without proper inspection. 

Issues arose when the appellants could not produce invoices for about $500,000 worth of claimed merchandise. They submitted forged invoices to support their claim, which raised suspicions due to their pristine condition. Despite these concerns, Marchello instructed the accountants to approve them without further investigation. During separate interviews, the appellants denied facing financial difficulties and misrepresented their relationship with Rishty. Ultimately, Chubb paid $865,000 on the fraudulent claim, with $270,000 going to Rishty for his complicity. 

In December 1992, federal agents executed search warrants at Rishty and Beyda's offices, leading to their cooperation with authorities from 1992 to 1997, during which Rishty disclosed involvement in over 200 fraudulent claims, including the Scrimshaw incident. Both pleaded guilty to various fraud-related offenses in federal court, with Rishty also pleading guilty to conspiracy to commit mail fraud related to the Scrimshaw claim.

Appellants were indicted on charges including conspiracy to defraud an insurance company, mail fraud, and wire fraud in the United States District Court for the District of New Jersey. One mail fraud count was dismissed before trial at the government's request. During the trial, government witnesses Rishty and Beyda testified against the appellants under cooperation agreements, implicating them in a fraudulent water damage claim. The appellants argued that these witnesses were falsely accusing them to gain leniency on their own charges. The jury convicted the appellants on four counts, leading to their sentencing.

Subsequently, the appellants sought a new trial based on newly discovered evidence, specifically an incident involving Rishty, who encouraged a third party to provide false testimony against an innocent individual after the appellants' conviction. This conversation was recorded, revealing Rishty's willingness to mislead authorities for personal benefit. The appellants contended that this evidence undermined Rishty's credibility and supported their defense.

The District Court denied the motion for a new trial, and the appellate review focused on whether the court abused its discretion. The court noted skepticism regarding the validity of using a witness's post-conviction misconduct as grounds for a new trial. The established criteria for granting a new trial based on newly discovered evidence require the evidence to be newly discovered, demonstrate diligence, not be merely cumulative or impeaching, be material, and likely lead to acquittal on retrial. The appellants failed to satisfy these stringent requirements, and the District Court's denial of their motion was upheld.

The new evidence presented in the case is deemed insufficient for a new trial as it does not meet the standards of being non-cumulative or exculpatory. The evidence only serves to impeach Rishty's credibility without establishing any exculpatory connections to the appellants' actions related to a fraudulent insurance claim. The jury had already been presented with substantial impeachment evidence about Rishty's involvement in numerous fraudulent schemes and his criminal background, which undermined his reliability as a witness. The District Court concluded that the new evidence was cumulative and that it would not likely lead to an acquittal because ample independent evidence supported the jury's guilty verdicts. This included corroboration of Beyda's testimony regarding his presence at the warehouse during the staged flooding, which was backed by independent facts about the incident. The appellants argued that the new evidence could discredit Beyda's testimony by suggesting he obtained information from Rishty; however, this theory was not compelling to the jury, which had evidence of their separate communications. Furthermore, aspects of Beyda's testimony, such as details about police procedures during the incident, were not linked to Rishty, reinforcing the District Court's ruling against the appellants’ claims.

The new evidence presented did not weaken Beyda's testimony, which implicated the appellants in a fraudulent insurance scheme. Additional evidence supporting their guilt included financial motives, false statements to investigators, forged invoices for claimed damages, and the misleading design of the sprinkler system, which contradicted their narrative about the sprinkler head's damage. The District Court's determination that the new evidence would not likely result in an acquittal was upheld due to the independent evidence and Beyda's credible testimony. Consequently, the court's denial of the appellants' Rule 33 motion for a new trial was affirmed.

Regarding evidentiary rulings, the appellants contested the admission of two pieces of evidence: prior misconduct by Tom Yaccarino and Isaac's involvement in another fraudulent scheme. The court found an error in admitting Yaccarino's misconduct for credibility impeachment; however, this error was deemed harmless. Yaccarino’s statement, made during the incident, was admitted as hearsay under the excited utterance exception. The government sought to undermine this statement by highlighting Yaccarino's unethical conduct through judicial notice of New Jersey Supreme Court decisions regarding his disbarment. The appellants argued against this evidence, asserting that it was improper to impeach a hearsay declarant's credibility with extrinsic evidence of past misconduct and that it posed a risk of unfair prejudice. The District Court's decision to allow judicial notice of Yaccarino's prior misconduct was challenged by the appellants, who believed it unfairly influenced the jury's perception of Yaccarino's credibility.

Appellants contend that the judicially noticed evidence was improperly admitted, arguing that Federal Rule of Evidence 806 allows for the impeachment of a hearsay declarant only through evidence admissible if the declarant had testified. They assert that the evidence regarding Yaccarino's misconduct was extrinsic and would not have been permissible under Rule 608(b), which prohibits proving specific instances of a witness's conduct through extrinsic evidence, allowing such inquiries only on cross-examination. Appellants claim that judicial notice of this evidence constituted improper impeachment of a hearsay declarant because, had Yaccarino testified, the government would have been limited to cross-examination. The government counters that it could have questioned Yaccarino regarding his misconduct had he testified, as Rule 806 permits a party to examine a hearsay declarant as if under cross-examination. Due to Yaccarino's death, the government argues it was justified in introducing extrinsic evidence of his misconduct. The court's standard of review hinges on the interpretation of Rules 806 and 608(b). The court reviews evidentiary rulings based on interpretations of the Federal Rules of Evidence with plenary scrutiny, while rulings on evidence admissibility are reviewed for abuse of discretion if based on a permissible interpretation. The District Court's interpretation of Rule 806 as modifying Rule 608(b) concerning hearsay declarants must be assessed for its permissibility to determine if the admission of evidence warrants an abuse of discretion review.

The issue of whether Rule 806 modifies Rule 608(b)'s prohibition on extrinsic evidence is being evaluated for the first time in this circuit, with limited guidance from other circuits. Only two circuit court cases address this intersection, and they are conflicting. In United States v. Friedman, the Second Circuit ruled that impeachment evidence regarding a hearsay declarant's dishonesty was properly excluded, suggesting such evidence could be admissible if it were relevant to the declarant's truthfulness. Conversely, in United States v. White, the D.C. Circuit allowed cross-examination regarding a hearsay declarant's misconduct despite the declarant's unavailability, asserting that the extrinsic evidence ban applies even when declarants cannot testify.

The current ruling aligns with White's interpretation, concluding that Rule 806 does not alter Rule 608(b)’s extrinsic evidence prohibition for hearsay declarants, regardless of their availability. The rationale for this stance is based on the language of the rules, which permits impeachment only as allowed for testifying witnesses, limiting specific misconduct evidence to cross-examination under Rule 608(b). The argument that unavailability restricts all forms of impeachment is rejected, as other impeachment methods remain viable, such as character evidence, criminal convictions, and prior inconsistent statements. The inability to use one specific impeachment method does not warrant disregarding the established rules.

Rule 806 implicitly rejects the rationale for lifting the ban on extrinsic evidence in impeachment cases involving hearsay declarants. It allows for the admissibility of prior inconsistent statements without the declarant being available to deny or explain them, which is not the case for impeachment based on specific instances of misconduct under Rule 608(b). The lack of an allowance for hearsay declarants in Rule 608(b) suggests that the ban on extrinsic evidence applies equally to them. This interpretation may compel a party to call a hearsay declarant to testify, even if that declarant was introduced by an adversary, which poses challenges when the declarant is unavailable. However, the ban aims to prevent distractions and unfair surprises in court, which supports its strict application. The District Court's ruling admitting evidence of Yaccarino's misconduct was thus based on an incorrect interpretation of these rules. While this was an error, it was deemed harmless since the trial court had taken judicial notice of Yaccarino's obituary, which presented him positively and mitigated any potential prejudice against the appellants. The obituary contained commendations and context for Yaccarino’s actions, suggesting that his misconduct stemmed from a temporary mental disability. The favorable portrayal was likely to counterbalance any negative effects from the impeachment evidence, and the jury was instructed not to associate the appellants with Yaccarino's misconduct. Therefore, the error in admitting extrinsic evidence did not affect the outcome of the case.

The conclusion regarding harmless error leads to the dismissal of the appellants' additional objections concerning the impeachment evidence, specifically the admission of evidence related to Yaccarino's prior misconduct. The appellants argue that the District Court's manner of taking judicial notice of Yaccarino's misconduct negatively influenced the jury's perception of his credibility. They assert that the trial judge expressed a "personal concern" due to Yaccarino's absence for cross-examination, which they believe improperly signaled to the jury that they should view his statements with caution. This claim is reviewed for plain error since no objection was raised during the trial. The court finds no error, noting the judge's fair and neutral conduct, which included clarifying to the jury that they were not required to accept the misconduct facts as conclusive.

Additionally, the appellants challenge the admission of Rishty's testimony regarding Isaac Saada's involvement in another fraudulent insurance scheme, the "Diadem claim." The District Court's ruling on this matter is reviewed for abuse of discretion. The appellants contend that the government failed to adequately justify the admission of Rishty's testimony under Fed. R. Evid. 404(b), which restricts the use of prior bad acts to demonstrate character propensity. However, it is determined that the government provided sufficient rationale for the testimony's admission, explaining it illustrated Isaac's intent to defraud, knowledge of the fraudulent nature of the claims, and financial motives. The District Court accepted this basis, thus properly admitting the evidence under Rule 404(b).

Appellants challenged the admission of Rishty's testimony under Rule 403, arguing it unfairly prejudiced the jury by portraying Isaac as a repeat offender, which could negatively impact Neil. Rule 403 allows for exclusion of evidence if its probative value is substantially outweighed by the risk of unfair prejudice. The court found Rishty's testimony about Isaac's involvement in the Diadem claim to be highly probative, countering the defense's argument that Rishty's actions in the Scrimshaw claim were legitimate due to his public adjuster role. The potential for unfair prejudice was deemed minimal, as Rishty was already implicating Isaac in the Scrimshaw claim, and the jury was instructed to limit its consideration of the Diadem claim to Isaac alone. Thus, the District Court acted within its discretion in admitting the evidence.

Regarding allegations of prosecutorial vouching for the credibility of witnesses Rishty and Beyda, the court noted that since the appellants did not object during trial, a plain error review applies. To establish vouching, the prosecution must assure the jury of a witness's credibility based on personal knowledge or external information not in the record. The prosecutor's comments, which emphasized the witnesses' motivations to testify truthfully, were based on trial evidence and did not constitute vouching, as they did not introduce unsupported assurances. The arguments were therefore deemed proper, and the appellants did not meet the burden of proving that any comments significantly undermined the trial's fairness.

Appellants acknowledge that evidence demonstrated Rishty and Beyda were obligated to testify truthfully per their cooperation agreements, which stipulated that the government had no obligation to recommend reduced sentences if they failed to provide truthful information. Rishty dedicated approximately 3,000 hours and Beyda at least 1,000 hours to cooperating with the government. The prosecutor’s comments regarding their incentives to testify truthfully were based on this evidence, qualifying as permissible argument rather than improper vouching. Although the appellants contended that the prosecutor implied the government possessed additional knowledge to assess the witnesses' truthfulness, the prosecutor only indicated that evaluations would be based on trial testimony. The District Court did not err in permitting the prosecutor's remarks about the witnesses' credibility during rebuttal. The court found that any error related to the admission of extrinsic evidence of a hearsay declarant's prior bad acts was harmless. The court concluded there were no errors or abuses of discretion in other challenged rulings, affirming the convictions. Notably, Rishty’s misconduct led to the U.S. Attorney not filing for a reduced sentence under the Sentencing Guidelines. The jury was presented with significant evidence of Rishty's involvement in fraudulent activities, including the value of claims, employee participation, bribery of insurance adjusters, misappropriation of client funds, and his prior guilty pleas to multiple fraud-related charges.

Rishty had a prior conviction for larceny and was testifying as a cooperator, seeking a reduced sentence. Appellants contended that the District Court applied an incorrect legal standard by evaluating the sufficiency of independent evidence for conviction rather than whether new evidence could create a reasonable doubt. However, the court's approach, which focuses on evidence sufficiency, is consistent with past rulings regarding new trial motions. Although the defense denied Rishty and Beyda's presence at a warehouse during a flooding incident, they did not refute Rishty's assistance in filing an insurance claim afterward.

The definition of hearsay under Rule 801(c) indicates that not all extrajudicial statements qualify as hearsay, particularly if their significance does not rely on the truth of the matters asserted. Appellants aimed to admit Yaccarino's statement to substantiate that Neil accidentally broke a sprinkler head, while the government argued it was merely part of a cover story. The excited utterance exception permits hearsay statements made under the stress of a startling event, but the court expressed doubt about the admission of Yaccarino's statement due to the lack of evidence that he personally perceived the event. Ultimately, despite skepticism regarding the personal perception requirement, the court upheld the admission of Yaccarino's statement under the excited utterance exception. Furthermore, Yaccarino's unethical conduct was found to be substantial.

Yaccarino attempted to purchase real estate involved in litigation and, upon discovering that the property owner had recorded incriminating statements, sought to persuade the owner to submit a false affidavit or testify falsely to exonerate him. He also failed to disclose interests in two liquor licenses, violating New Jersey law. The District Judge ruled that evidence of Yaccarino's misconduct was admissible, referencing Rule 806, which allows for an attack on a witness's credibility using evidence that would be admissible if the witness had testified. The judge noted that Yaccarino's disbarment and removal from office were relevant to his character for truthfulness. The court upheld the decision to disallow certain testimony, determining it had marginal utility given Yaccarino's compromised credibility. It emphasized the importance of adhering to hearsay rules when evaluating the admissibility of out-of-court statements. Additionally, trial counsel acknowledged the balance of good and bad character evidence, suggesting a belief in the rehabilitative effect of favorable comments. The court expressed skepticism regarding the admissibility of Yaccarino's hearsay statement but concluded that the appellants were not prejudiced by the admission of extrinsic character evidence. Appellants' reference to case law regarding the careful admission of evidence under Rule 404(b) was deemed unhelpful, as the government adequately articulated the basis for admitting evidence of Isaac's involvement in fraudulent claims.

Virtually all evidentiary issues arise pretrial, with discussions about the nuances of Rule 404(b) typically occurring outside the jury's presence. The complete context of such evidence is often assessed only after all evidence is presented, at which point jurors receive specific instructions on its limited use. The appellants contend that the District Court incorrectly admitted evidence that allegedly enhanced the credibility of witnesses Rishty and Beyda. However, prior case law supports the admissibility of plea agreements requiring truthful testimony from cooperating witnesses, considering this evidence as permissible rehabilitation in response to defense attacks on witness credibility. The appellants' argument about bolstering lacks merit, as the cited cases involve improper vouching by prosecutors based on evidence not in the trial record, which is not applicable here.