In insurance fraud trial, testimony regarding the knowledge of a witness and of others about the alleged fraud was circumstantial evidence of the defendant’s knowledge but should have been excluded under FRE 401 as irrelevant; there was insufficient evidence concerning the nature of the fraud from which it would be reasonable to infer that the defendant had the same knowledge; even if relevant, it should have been excluded as unfairly prejudicial under FRE 403 in light of its inflammatory nature, in United States v. Kaplan, 490 F.3d 110 (2d Cir. Apr. 11, 2007) (No. 05-5531 CR)
Often a fact finder must reach a conclusion as to defendant's intent or mens rea. Rarely does a defendant conveniently express an intention directly, particularly when that intent is questionable. The advocate if often faced with using circumstantial evidence of the defendant’s knowledge. This knowledge is inferred by examining the knowledge of others surrounding the defendant. This inference is not prohibited under the FRE, but its application often is severely restrained. Courts will distinguish between knowledge of a widely publicized matter as opposed to knowledge of the specific incident or matter at issue in the case. One example of the difficulty in drawing the line was reflected by a 2007 Second Circuit case.
In the case, defendant Kaplan was an attorney who was prosecuted for his activities in an insurance fraud scheme involving claims submitted by individuals who staged automobile accidents or who exaggerated their injuries from such accidents. The defendant obtained these cases in taking over the practice of attorney Alexander Galkovich. The defendant operated the office “much as … before, with Kaplan now formally representing almost all of Galkovich’s 3000 clients.” Part of the reason for the transfer was that Galkovich had been charged with filing false claims. Part of the transfer of Galkovich's practice involved Galkovich’s sale of his law office to Kaplan. After Kaplan ended up charged in a similar scheme, the prosecution faced proving his fraudulent intent. At defendant's trial, Galkovich testified about his “and others’ knowledge of the fraud. The trial court allowed this to be admitted. Specifically, Galkovich's testimony about his knowledge of the fraud was used to infer defendant Kaplan's intent as well. Specifically, the witness testified that:
- when he first saw the building in which the Law Office was located, he thought, “[t]his is where I am going to get arrested”;
- everyone he spoke with told him not to buy the Law Office;
- the fraud was “done very subtly” because “this whole industry was a very big sham and it was big lies”;
- the fraud was not discussed explicitly because it was “kind of like . . . hear no evil, see no evil,” and he was warned to “be very careful in what you say”;
- “[e]veryone knew what was going on, but you don’t say it”;
- at a Christmas party at the Law Office, Eugene Sherman read a poem about clients getting paid for sham injuries; and
- Steven Rosenberg, a lawyer at the Law Office, quit because he saw a file with “blatant” fraud, and Michael Brummer, another lawyer at the Law Office, was “very sensitive and nervous about what was going on in the office” and was “always very nervous when we were skirting the issue of fraud.”
The defense claimed the evidence enumerated above was irrelevant, or alternatively, unfairly prejudicial. The defendant was convicted and appealed the admission of the lay opinion testimony admitted at trial. The circuit agreed that the challenged evidence was irrelevant under FRE 401 and unfairly prejudicial under FRE 403.
On the relevancy issue, based on prior precedent, the circuit noted that:
[E]vidence regarding the knowledge of individuals other than the defendant should be admitted only if there is some other evidence in the record – concerning, for example, the nature of the fraud or the relationship of the parties -- from which to conclude that the defendant would have the same knowledge.”Kaplan, 490 F.3d at 120.
There was no evidence confirming that the knowledge of others was communicated to defendant Kaplan. Other evidence at trial indicated that Kaplan did not spend much time in the office and did not review many claims. Other participants in the fraud scheme were careful to discuss the fraudulent conduct. Other evidence about the knowledge of the fraud was speculative or based on hearsay evidence. For example, “Galkovich’s testimony concerning the alleged knowledge of Rosenberg, another lawyer in the office, was hearsay upon hearsay; Rosenberg allegedly made statements to a secretary in the office, who allegedly told Galkovich, who offered the jury the conclusion that Rosenberg had quit his job because of fraud." Kaplan, 490 F.3d at 121-22 (citing Brown v. Keane, 355 F.3d 82, 90 (2d Cir. 2004) (“An assertion of fact based on conjecture and surmise, to which the declarant would not be allowed to testify if called to the witness box, does not become admissible under an exception to the hearsay rule . . . .”)).
The circuit also concluded that given the minimal probative value of the evidence it was substantially outweighed by concerns of unfair prejudice under FRE 403. Of particular concern was that
“[t]he jury was required to draw a series of inferences, unsupported by other evidence, to connect Galkovich’s testimony about his guilty knowledge (and that of others) to Kaplan’s own knowledge, the ultimate issue in the case…. Moreover, Galkovich’s testimony that the entire industry in which Kaplan operated was “a very big sham and it was big lies” was so inflammatory that it should have been excluded as prejudicial under the circumstances.”Kaplan, 490 F.3d at 119-20.
The circuit reversed the defendant's convictions on the fraud counts, concluding that the lay opinion testimony was admitted without an adequate foundation “rationally based on the perception of the witness[es],” as required under FRE 701(a). Witness Galkovich failed to establish that his lay opinion testimony was based on his own first-hand perceptions. Kaplan, 490 F.3d at 119 (citing United States v. Durham, 464 F.3d 976, 982 (9th Cir. 2006) (“opinion testimony of lay witnesses must be predicated upon concrete facts within their own observation and recollection – that is facts perceived from their own senses, as distinguished from their opinions or conclusions drawn from such facts”)(internal quotation marks omitted)). The circuit noted that the basis for the lay opinion “was extremely vague. Kaplan, 490 F.3d at 119 (citing United States v. Rea, 958 F.2d 1206, 1216 (2d Cir. 1992) (“When a witness has not identified the objective bases for his opinion, the proffered opinion obviously fails completely to meet the requirements of Rule 701 . . . because there is no way for the court to assess whether it is rationally based on the witness’s perceptions . . . .”)).
As the lay opinion testimony was inadmissible, the circuit determined that the error in admitting it was not harmless. The circuit considered “(1) the overall strength of the prosecution’s case; (2) the prosecutor’s conduct with respect to the improperly admitted evidence; (3) the importance of the wrongly admitted testimony; and (4) whether such evidence was cumulative of other properly admitted evidence.” Kaplan, 490 F.3d at 123 (citing Zappulla v. New York, 391 F.3d 462, 468 (2d Cir. 2004) (noting harmless error factors)). As the government’s case on the fraud counts was “not strong” and was based substantially on circumstantial evidence. The central trial issue on the fraud counts was the defendant’s intent. The lay opinion testimony “was vitally important – just the sort of evidence that might well sway a jury confronted with a marginal circumstantial case.” Kaplan, 490 F.3d at 123.
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