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United States v. Hansen

United States District Court, D. Idaho

November 7, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
DAVID HANSEN, Defendant.

          MEMORANDUM DECISION AND ORDER

          David C. Nye Chief U.S. District Judge

         I. INTRODUCTION

         Pending before the Court is Defendant David Hansen's Motion for an Evidentiary Hearing and to Suppress (Dkt. 36) and Notice of previously unavailable standing evidence (Dkt. 60). The United State of America (“the Government”) opposes the Motion.

         In his Motion to Suppress, Hansen moves the Court for two things: (1) a Franks hearing to challenge the veracity of the warrant affidavit, and (2) the suppression of all evidence seized pursuant to the warrant. The Court has already ruled on the first issue. Dkt. 65. In its prior order, the Court denied Hansen's motion for a Franks hearing, but reserved ruling on the remainder of the Motion to Suppress until a hearing could be held.

         It is also worth noting that in preparation for the (then scheduled) suppression hearing, Hansen served Rule 17(c) subpoenas on two individuals who were expected to testify. The Government moved to quash the subpoenas. Dkt. 75. The Court granted the same. Id. In so doing, the Court further narrowed the focus of the suppression inquiry. Id. at 15-19.

         The Court held oral argument on September 24, 2019, and took the remaining issues under advisement. The Court allowed the parties an opportunity to file closing briefs to summarize their positions in light of the evidence presented at the hearing. The Court has received and reviewed the parties' supplemental briefs. Upon review, and for the reasons outlined below, the Court DENIES Hansen's Motion to Suppress.

         II. BACKGROUND

         The Government has charged Hansen with several counts of wire fraud and tax violations.[1] The charges followed a search of Yellowstone Partners, LLC's (“Yellowstone”) premises, located in Idaho Falls, Idaho. At the time, Hansen was the CEO and owner[2] of Yellowstone, an investment advisory firm.

         The search warrant in this case was predicated on a warrant affidavit written by FBI Special Agent Drew McCandless (“SA McCandless”). SA McCandless submitted the affidavit after interviewing current and former Yellowstone employees and an SEC investigator. In the affidavit, SA McCandless described how Yellowstone targeted certain customer accounts in an overbilling scheme. The affidavit also described how employees and customers raised their concerns with Hansen and with Yellowstone's Chief Compliance Officer, Cameron High, [3] only to have Hansen and High create excuses for the overbilling and pretend to resolve the problems. Additionally, Yellowstone often struggled to pay its own bills on time, yet Hansen used the Yellowstone operating account to pay his mortgage and loan payments for his Ferrari, a Falcon jet, and helicopter, which were held in separate LLCs. Based upon these and other facts, SA McCandless applied for a warrant to search Yellowstone for evidence of wire fraud, money laundering, and engaging in monetary transactions in property derived from specified unlawful activity.

         United States Magistrate Judge Ronald E. Bush issued a warrant authorizing officers to search Yellowstone for information on servers, hard drives, and other media storage devices, as well as for hard copies of relevant documents. The search was primarily for financial records of Yellowstone, High, and Hansen. Officers imaged data and seized physical evidence. They specifically searched three offices: Hansen's office, High's office, and Kaylynn Dalebout's office.[4] They also searched the basement of the building where Yellowstone's server was located.

         This is effectively Hansen's third attempt to suppress the evidence from that search. First, Hansen moved for a protective order preventing the Government from using any of the obtained electronically stored information (“ESI”) gleaned from the search. The Court denied that motion. Dkt. 50. Second, Hansen requested a Franks hearing to challenge the veracity of the underlying warrant affidavit. The Court denied that request. Dkt. 65. Now, in his third attempt, Hansen moves the Court to suppress all of the evidence obtained from the search. Hansen argues there was no probable cause for the warrant, or alternatively, that even if there was probable cause, the execution of the warrant violated his Fourth Amendment rights because the search exceeded the scope of the warrant and the Government took too long to search the ESI.

         The Government responds by first arguing that Hansen does not have standing to challenge the warrant. The Government also argues that the good faith and inevitable discovery doctrines apply, meaning the Court cannot suppress the evidence because the Government was doing what it thought was correct under the warrant and because it would have inevitably obtained this same information through alternate means. According to the Government, either of those two arguments make it unnecessary to wade into the probable cause and reasonable execution analysis. Still, the Government argues that the warrant established probable cause, that the agents timely executed the warrant, and the agents searched only within the scope of the warrant.

         III. LEGAL STANDARD

         “The Fourth Amendment contains no provision expressly precluding the use of evidence obtained in violation of its commands.” United States v. Leon, 468 U.S. 897, 906 (1984). The exclusionary rule is “a judicially created remedy designed to safeguard Fourth Amendment rights generally through its deterrent effect.” United States v. Calandra, 414 U.S. 338, 348 (1974). Under the exclusionary rule, “illegally seized evidence” cannot be used “against the search victim in a criminal trial.” Id. at 350.

         There is a “good faith” exception to the exclusionary rule “when an officer acting with objective good faith has obtained a search warrant from a judge or magistrate and acted within its scope.” Leon, 468 U.S. at 920. “In the ordinary case, an officer cannot be expected to question the magistrate's probable-cause determination or his judgment that the form of the warrant is technically sufficient.” Id. at 921.

         Because “it frequently will be difficult to determine whether the officers acted reasonably without resolving the Fourth Amendment issue, ” a reviewing court may determine first whether there was probable cause and then whether the officer acted in good faith. Id. at 925.

         Great deference is accorded to a magistrate's determination of probable cause. Id. at 914; Spinelli v. United States, 393 U.S. 410, 419 (1969). However, “reviewing courts will not defer to a warrant based on an affidavit that does not ‘provide the magistrate with a substantial basis for determining the existence of probable cause.'” Leon, 468 U.S. at 915 (quoting Illinois v. Gates, 462 U.S. 213, 239 (1983)). Probable cause for a search warrant exists where “there is a fair probability that contraband or evidence of a crime will be found in a particular place.” Gates, 462 U.S. at 238.

         “When officers violate the terms of a warrant in execution, partial suppression is the norm unless the officers engaged in a general search.” United States v. Sears, 411 F.3d 1124, 1131 (9th Cir. 2005). “Wholesale suppression is an ‘extraordinary remedy' that is appropriate ‘only when the officers transform the search into an impermissible general search by ignoring the terms of the warrant and engaging in indiscriminate fishing.'” Id. (quoting United States v. Chen, 979 F.2d 714, 717 (9th Cir. 1992)).

         IV. ANALYSIS

         Hansen's arguments fall into two general categories: (1) there was no probable cause for the search warrant (or for specific actions taken in light of the search warrant), and (2) the execution of the search warrant was unreasonable. The Government responds to those arguments after first challenging Hansen's standing. Because standing is a preliminary matter, the Court will address it first.

         A. Standing

         “Standing” in this context is different and distinct from Article III standing. The Ninth Circuit has explained:

The term “standing” is often used to describe an inquiry into who may assert a particular fourth amendment claim. Fourth amendment standing is quite different, however, from “case or controversy” determinations of article III standing. Rather, it is a matter of substantive fourth amendment law; to say that a party lacks fourth amendment standing is to say that his reasonable expectation of privacy has not been infringed. It is with this understanding that we use “standing” as a shorthand term.

United States v. Taketa, 923 F.2d 665, 669-70 (9th Cir. 1991) (emphasis in original) (internal citations omitted).

         The Government argues that Hansen does not have standing to challenge the search of Yellowstone's offices, the desktop computers, or Yellowstone's server, but concedes that he has standing over the search of his personal cellphone. The Court will briefly address each argument raised by the Government in support of its motion.

         1. Can Hansen present standing evidence in his Reply brief?

         The Government begins by arguing that Hansen did not establish standing in his original Motion to Suppress and as a result, his motion must be denied. In the Government's estimation, while Hansen claims he owned Yellowstone, he alleged no facts establishing a reasonable expectation of privacy. Hansen responded to these arguments in his reply brief, however, the Government asserts this tactic is improper because such would constitute new argument and evidence, and it did not have a fair opportunity to respond. The Court disagrees.

         Hansen's assertions are not “new arguments” because those arguments substantively respond to the Government's Response brief. See United States v. Bohn, 956 F.2d 208, 209 (9th Cir. 1992) (accepting argument raised in reply because it was responsive to opposition brief); Zkey Invs., LLC v. Facebook Inc., 225 F.Supp.3d 1147, 1158 (C.D. Cal. 2016) (declining to strike argument and evidence offered in reply because it was in direct reply to the opposition); Hodges v. Hertz Corp., 351 F.Supp.3d 1227, 1249 (N.D. Cal. 2018) (“[T]he court has the discretion to consider new evidence presented on reply, particularly if the new evidence appears to be a reasonable response to the opposition.”). Here, the only place Hansen could put this evidence in is his reply brief as he would not have been aware of it until the Government filed its Response to his motion. The Court finds that Hansen's arguments were timely and appropriate.

          2. Can Hansen present additional standing evidence in a second motion?

         Hansen filed a Notice (Dkt. 60) on July 7, 2019-more than two weeks after his Reply brief-which included further argument and evidence in support of his argument that he has standing to challenge the Government's search of Yellowstone and specifically certain offices and employees. Essentially this Notice is a motion to supplement.

         At issue here are two versions of Troy High's affidavit. The Government in its Response brief to the original motion included only the second affidavit (created May 29, 2019), and Hansen claims he learned of an earlier affidavit (create May 28, 2019) on July 2, 2019, “as part of the 3, 286-page, sixteenth discovery production.” Dkt. 60, at 2.

         The May 28 Affidavit includes two paragraphs omitted from the May 29 Affidavit. In all other respects, they are identical. Those paragraphs detail how Hansen asked Troy High for employees' computer passwords and downloaded software to access employees' computers. Hansen argues that this behavior demonstrates managerial responsibility and control and illustrates that Hansen's own computer was more private and secure than other computers at Yellowstone.

         The Government explains that it asked Troy High “to excise those statements” because they “were superfluous to the suppression motion.” Dkt. 63, at 4.

         Further discussion on this point is unnecessary as Troy High testified at the suppression hearing and explained these comments in greater detail. To that end, the Court will give High's affidavit(s) and testimony the weight it deems appropriate. Accordingly, the Motion (Dkt. 60) to supplement is deemed MOOT.

         3. Does Hansen have standing over the search of his office and desktop computer?

         “It has long been settled that one has standing to object to a search of his office, as well as of his home.” Mancusi v. DeForte, 392 U.S. 364, 369 (1968). In Mancusi, the United States Supreme Court held that an employee could “expect that he would not be disturbed by personal or business invitees, and that records would not be taken except with his permission or that of his . . . superiors.” Id. The Supreme Court also explained “that the situation was not fundamentally changed” when the office was shared. Id.

         The Government attempts to argue that since Hansen did not lock his office and since his assistant had access to his office, he does not have standing over the search of his office. This argument fails to adequately exclude this case from the holding in Mancusi.

         Similarly, the Government argues Hansen did not have exclusive use of his computer because Troy High, Yellowstone's Systems Manager, had administrative access to all Yellowstone computers and because Yellowstone's policy manual stated that “[e]lectronic communications are not private and may be monitored, reviewed and recorded by the Company” and that “[t]he Company's electronic communications are to be used for business purposes only.” Dtk. 41-4, at 4.

         This argument is also unpersuasive. The computer was in Hansen's office. As such, Mancusi applies to both the office and the computer. Furthermore, courts have repeatedly found that a person has standing over the search of his or her own office computer. See, e.g., United States v. Ziegler, 474 F.3d 1184, 1190 (9th Cir. 2007) (finding employees have “a reasonable expectation of privacy in his office, [and] any search of that space and the items located therein must comply with the Fourth Amendment”); Leventhal v. Knapek, 266 F.3d 64, 73-74 (2d Cir. 2001) (finding the employee “had a reasonable expectation of privacy in the contents of his office computer” because the computer was not shared, and was in “a private office with a door.” It did not matter that “technical support staff had access to all computers” and that there was an office policy prohibiting use for personal business); United States v. Long, 64 M.J. 57, 64 (C.A.A.F. 2006) (finding-among other things-that because the computer was password protected, the computer user had standing over the search of that computer).

         In sum, the Court finds that Hansen has standing to challenge the search of his office and to ...


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