United States District Court, E.D. Wisconsin
ORDER ADOPTING JUDGE JONES'S RECOMMENDATION (DKT.
NO. 80), AND DENYING DEFENDANT BRIAN GANOS'S MOTION TO
SUPPRESS EVIDENCE (DKT. NO. 39)
PAMELA PEPPER, UNITED STATES DISTRICT JUDGE.
Brian Ganos filed a motion to suppress evidence obtained from
the execution of two search warrants. Dkt. No. 39. The
government filed identical affidavits in support of the two
warrants; one warrant authorized the search of the home
office of the accountant for the defendant's businesses
and the other authorized the search of an office building
owned by a holding company owned by the defendant (but used
by other businesses). Dkt. Nos. 39-1 and 39-2. In his
suppression motion, the defendant argued that the warrants
lacked probable cause, and that the affidavits misrepresented
the informant's opinions as facts and failed to disclose
that the informant took some of the business records
summarized in the affidavits without authorization, and
possibly at the direction of investigators. Dkt. No. 39 at
1-2. At a hearing in September 2018, Magistrate Judge David
Jones denied the defendant's request for an evidentiary
hearing, concluding that he had all the evidentiary material
he needed to resolve the motion. Dkt. No. 68 at 2. He also
concluded that there was no evidence of reckless disregard
for the truth, and so found no need for a Franks
hearing. Id. at 2. In his November 2018
report and recommendation, Judge Jones concluded that the
defendant lacked standing to object to the search of some of
the areas the agents searched. Dkt. No. 80 at 8-9. To the
extent that the defendant had standing to challenge the
search of other areas, Judge Jones found that the affidavits
provided probable cause for him to sign off on the warrants.
Id. at 15. Finally, Judge Jones concluded that even
if the affidavits had not established probable cause, the
officers who executed the warrants relied on them in good
faith. Id. The defendant timely objected to those
conclusions. Dkt. No. 84. The court overrules the objection,
adopts the recommendation and denies the motion to suppress.
FACTUAL AND PROCEDURAL BACKGROUND
motion asks the court to exclude “all evidence obtained
by the government from the execution of search warrants at
5500 W. Florist Avenue in Milwaukee and W147 N5146 Dolphin
Drive in Menomonee Falls that were authorized on July 29,
2016.” Dkt. No. 39 at 1.
warrant applications sought authority to search the two
locations for evidence relating to a conspiracy to defraud
the United States; false statements; major fraud against the
United States; fraud by wire, radio or television; money
laundering; and offenses against the Small Business
Administration (referred to in the application by its
acronym, SBA). Dkt. No. 39-1 at 1.
extensive affidavits, the affiant attested that the defendant
became the owner and president of Sonag Co., Inc., a general
contractor located in Milwaukee, Wisconsin, in 1992.
Id. at ¶25. As a Hispanic male, the defendant
qualified as a disadvantaged individual for purposes of
obtaining government set-aside contracts through the
SBA's Section 8(a) Program. Id. at
¶¶12, 25. The affiant attested that when Sonag
graduated from the program in May 2003, the defendant-with
assistance from project manager James Hubbell-pursued a
scheme to defraud the United States by obtaining 8(a) and
Service Disabled Veteran Owned Small Businesses (SDVOSB)
set-aside government contracts to which he was not entitled.
Id. at ¶¶ 25-26. The defendant and Hubbell
allegedly did this by recruiting individuals who qualified as
disadvantaged individuals to serve as the purported owners of
newly formed construction companies. Id. ¶26.
The affiant asserted that the defendant and Hubbell
controlled these newly-formed companies-Nuvo, Pagasa and
C3T-which allowed them to financially benefit from contracts
that Sonag Co. Inc. was not eligible to receive. Id.
The affiant stated that the defendant, with assistance from
Hubbell, received 8(a) set-aside contracts valued at
approximately $197 million. Id. at ¶29.
affidavit states that the building on Florist Avenue housed
three entities-Sonag, Nuvo and C3T. Id. at ¶28.
At the time the affidavit was submitted, the defendant was
president and minority shareholder of Sonag and
vice-president and minority shareholder of Nuvo. Id.
at ¶8A. The affidavit alleges that the building was
owned by Sonag I, LLC, a property management company owned by
the defendant. Id. at ¶39.
affiant explained that CS-1 had approached law enforcement in
2014. Id. at ¶31. The affiant represented that
CS-1 had worked for Sonag and Nuvo for fourteen years, and
that this employment “gave him/her an intimate
knowledge of specific contract details, office culture, and
financial transactions.” Id.
reported that the defendant had approached Jorge Lopez, a
Sonag project manager, when Sonag was graduating from the
8(a) program and asked Lopez to become president of Nuvo.
Id. ¶32. At the time, Lopez was suffering
personal financial hardship and “may have been on the
verge of losing his residence” and agreed to become
president. Id. According to the affiant, Wisconsin
Department of Financial Institutions (DFI) records showed
that in March 2001, Lopez changed the name of Insulation
Masters, Inc.-a company he owned-to Nuvo, and the defendant
had become a 15% minority owner. Id. at ¶33.
When Lopez submitted Nuvo's initial SPA 8(a) program
application, the affiant attested Lopez said that he had an
85% ownership interest and that 100% of his hours were
devoted to the firm. Id. at ¶34.
allowed Nuvo to bid on 8(a) projects based on a business plan
listing Lopez as the 85% owner and full-time manager with an
annual salary of $48, 000, while reflecting that the
defendant, as 15% owner, received no salary at all.
Id. at ¶35. Although the program materials
listed Lopez as Nuvo's president, majority owner and
full-time manager, Hubbell managed the company's affairs.
Id. at ¶¶ 34-65. CS-1 reported that
shortly after Nuvo received its 8(a) status, Lopez moved to
Worthington, Minnesota with his family. Id. at
¶40. The affiant reported that the government's
investigation had corroborated that Lopez lived in Minnesota
and worked for another company while he purported to the be
the manager of Nuvo. Id. at ¶41. Lopez's
tax returns confirmed that he moved to Minnesota in 2004; his
2007, 2009 and 2010 tax returns listed Worthington, Minnesota
as his address. Id. at ¶42. His Minnesota
license and renewal applications in 2006, 2010 and 2014
reported his home address as Worthington, Minnesota.
Id. at ¶43. Employment and telephone records
confirmed that he worked for another employer in Minnesota.
Id. at ¶¶44-46.
affiant explained in detail how financial records indicated
that Lopez hid income from his Minnesota employer by
transmitting it through Nuvo's business checking account.
Id. at ¶47. From 2005 to 2012, as part of
Nuvo's annual reports to the SBA, Lopez reported
compensation from Nuvo but none from his other employer.
Id. at ¶49. The affiant stated that CS-1
reported Lopez exercised no control over Nuvo and rarely
visited but kept personal effects and papers on his desk in
Milwaukee so that it would look like he was controlling Nuvo.
Id. at ¶52. CS-1 explained that Hubbell-not
Lopez-managed Nuvo. Id. at ¶54. A second former
Nuvo employee, who had worked at Nuvo from late summer 2013
to spring 2014, corroborated CS-1's statements.
Id. at ¶53. Although SBA forms indicated that
the defendant received no income from Nuvo and had no access
to Nuvo's bank accounts, IRS and property records
indicated that the defendant and his wife received a salary
from Nuvo and that Nuvo paid for lakefront property and
remodeling projects at their residence. Id. at
to the affiant, CS-1 reported that after establishing Nuvo,
the defendant and Hubbell wanted to create a SDVOSB to
benefit from the government set-aside contract program
through the V.A. Id. at ¶71. They placed
Telemachos Agoudemos, a service-disabled veteran, to serve as
president and majority owner of C3T, Inc. Id. at
¶71. The DFI reported that the defendant owned C3T until
April 3, 3006, when he transferred-for free-51% of the
company's stock to Agoudemos and 49% to Hubbell as vice
president. Id. at ¶74. In April 2006, Hubbell
registered C3T as a self-certified SDVOSB, which allowed the
company to bid on set-aside government contracts.
Id. at ¶75. Although Agoudemos was listed as
the owner of C3T, the affiant stated that the company was
controlled by the defendant and Hubbell. Id. at
¶¶ 71-98. Like Sonag and Nuvo, C3T was located in
the Florist Avenue office building. Id. at ¶
72. From 2006 through 2016, C3T received about $197 million
in SDVOSB set- aside contracts. Id. at ¶99. As
of July 2016, the company still was participating in the
SDVOSBP and was being awarded government set-aside contracts.
Id. at ¶102.
to the affiant, the defendant, as a former participant in the
8(a) program, could not be a majority owner of a different
8(a) company. Id. at ¶105. The defendant chose
Odessa Millan, an Asian-Pacific American woman who meets the
social and economic requirements to be a Section 8(a)
participant (and was a former project manager for C3T) to be
president and purported owner of Pagasa Construction Company,
Inc. Id. at ¶106. To establish the required
work history to gain Section 8(a) status, Sonag, Nuvo and C3T
listed and paid Pagasa for subcontractor work that the three
companies performed themselves. Id. at
¶¶111-15. Pagasa obtained its Section 8(a)
certification in September 2015; as of July 2016, it had not
been awarded any Section 8(a) set-aside federal government
contracts. Id. at ¶117. In the fall of 2015,
Pagasa moved into the Florist Avenue building. Id.
reported that an individual named Lori Michaud, an
independent contractor, performed all accounting functions
for Sonag, Nuvo and C3T and had work space in the Florist
Avenue office building, although public records indicated
that her accounting business operated out of her home on
Dolphin Drive. Id. at ¶¶122, 129. The
affiant attested that Michaud “ha[d] control over the
entire general ledger function and the financial accounts for
all of the referenced companies, which enable[d] her to
transfer profits from job to job and company to company
within the job-cost software.” Id. at
¶127. Law enforcement surveilled the Florist Avenue
building and saw Michaud coming in around 8:00 a.m. every day
and leaving daily around 4:30 p.m. Id. at ¶124.
Agents interviewed Michaud in October 2012; she told them
that she had helped Hubbell and Agoudemos set up C3T.
Id. at ¶125.
29, 2016, Judge Jones approved the warrants. Case Nos.
16-MJ-98 and 16-MJ-99, Dkt. No. 2. Law enforcement agents
executed them on August 3, 2016. Id. They recovered
items from the Florist Avenue office building but did not
seize anything from Michaud's home office. Case No.
18-cr-62, Dkt. No. 80 at 6.
The Defendant's Arguments
motion asserted that the affidavits supporting the search
warrants lacked probable cause because they did not provide
the magistrate judge with enough information to assess the
credibility of CS-1. Dkt. No. 39 at ¶¶7-9. A single
paragraph in the affidavits identified CS-1 as someone who
had been employed by Sonag and Nuvo for approximately
fourteen years, “which gave him/her and [sic] intimate
knowledge of specific contract details, office culture, and
financial transactions.” Id. at ¶4. The
defendant argued that the affidavits did not identify
CS-1's position in Sonag or Nuvo, which would have
allowed the magistrate judge to decide whether CS-1 was in a
position to know the things he/she told law enforcement.
Id. at ¶7.
the defendant argued that the affidavits represented as
proven facts information that CS-1 had provided to the agents
as “beliefs, ” or events that had
“reportedly” occurred. Id. at ¶10.
The defendant asserted that the way the affiant worded the
affidavit made it seem as though these “beliefs”
or “reports” were established facts. Id.
He also contended that while the affidavits stated that
“CS-1 reported, ” or “CS-1 believed”
certain information, the investigator's reports
memorializing their interviews with the informant used a
passive formulation such as “it is believed, ”
implying that had Judge Jones known this, he might have
questioned whether the information attributed to CS-1
actually came from CS-1, and whether it was based on
CS-1's personal knowledge. Id. at
defendant also theorized that “[t]he affidavit's
reliance on documents provided by [CS-1] suggests that the
guiding hand of government agents [was] directing the
informant to purloin specific internal, non-public company
records for their use in establishing probable cause.”
Id. at ¶14. He pointed out that CS-1 provided
investigators with emails, financial records and internal
accounting records; because the defendant does not know who
CS-1 is, however, or what position he/she holds with Sonag or
Nuvo, the defendant argues that he “cannot know whether
the confidential informa[nt] was an intended recipient of the
emails or whether his access to the non-public company
records was authorized.” Id. The defendant
asserts that the fact CS-1 was meeting with government
investigators, coupled with the informant's production of
increasingly specific information, “strongly suggests
that investigators directed the confidential informant to
obtain information and to report about the existence of
records that substantiated the investigator's
suspicions.” Id. at ¶¶14-18. He
asserts that knowing whether CS-1 was gathering documents at
the direction of investigators, and whether CS-1 was
gathering documents that he/she would not have had access to
in his/her position, would have mattered to the issuing
magistrate judge's determination as to CS-1's
credibility. Id. at ¶19.
the defendant argued that the good faith exception could not
save the warrants, citing United States v. Harris,
464 F.3d 733, 740 (7th Cir. 2006) for the proposition that
the good faith exception does not apply where “the
officer seeking the warrant was dishonest or reckless in
preparing the affidavit.” Id. at ¶22.
The Government's Response
government first objected to the defendant's request for
an evidentiary hearing on the motion, asserting that the
defendant had not complied with Criminal Local Rule 12(c)
because defense counsel never conferred with the government
regarding any material disputed facts and had not provided a
description of the material disputed facts. Dkt. No. 49 at 2.
The government also argued that even if the defendant had
complied with the local rule, the motion did not raise any
disputed material facts that presentation of evidence would
help resolve. Id. at 2-4. The government contended
that the defendant's arguments amounted to speculation,
and that the issue the defendant raised-whether the
informant's information was reliable-was a decision Judge
Jones could make from the face of the affidavit. Id.
As the court has noted, Judge Jones agreed, and declined to
hold an evidentiary hearing. Dkt. No. 68.
the merits of the motion, the government began by asserting
that the defendant lacked standing to challenge the search of
the Dolphin Drive residence, because that residence belonged
to Lori Michaud-not the defendant. Dkt. No. 60 at 4. In a
similar vein, the government argued that the defendant had
failed to establish that he had any privacy interest in parts
of the Florist Avenue building. Id. The government
conceded that the defendant owned Sonag I, LLC, the property
management company that owned the building, but contended
that this did not give him a legitimate expectation of
privacy in office spaced occupied by companies other than his
own. Id. The government argued that while it
believes it will prove that the defendant controls Nuvo, C3T
and Pagasa, the defendant claimed only a minority stake in
Nuvo and denied any ownership interest in C3T or Pagasa.
Id. at 5-6. The government asserted that even as to
Sonag Co. and Nuvo, the fact that the defendant was an
officer of those corporations did not mean that he had an
expectation of privacy in the records of those entities.
Id. at 6.
government also argued that the affidavits provided ample
bases for the issuing magistrate to evaluate CS-1's
credibility; the government pointed to the “extensive
corroboration of CS-1's statement throughout the
affidavit, ” and provided a table with examples.
Id. at 8-11. The government dismissed the
defendant's argument about the affiant representing
“opinion” or “belief” as fact as the
type of “hypertechnical nitpicking” that the
Supreme Court has discouraged. Id. at 12 (citing
Illinois v. Gates, 462 U.S. 213, 235 (1983).
the government argued that the defendant failed to
demonstrate that CS-1 was acting as a government instrument
or agent. The government responds that CS-1 brought
documents-unsolicited-to the first interview and was told to
bring the documents back to the second interview, but brought
no documents to the third interview. Id. at 14. The
government also represents that it never directed CS-1 to
collect documents and did not offer CS-1 a reward.
Id. The government concluded by asserting that even
without the documents obtained by CS-1, the affidavits still
established probable cause. Id.
JUDGE JONES'S RECOMMENDATION (DKT. NO. 80)
sixteen-page report, Judge Jones recommended that the court
dismiss the defendant's motion. Dkt. No. 80. Judge Jones
agreed with the government that the defendant did not have a
legitimate expectation of privacy in his accountant's
accountan's home office or the entire Florist Avenue
office building. Id. at 8. Judge Jones also noted
that the challenge to the search of the Menomonee Falls home
office appeared to be moot, because agents did not seize any
evidence from it. Id. at 9. With respect to the
Florist Avenue office building, Judge Jones concluded that
the defendant had standing to challenge the search of the
Sonag and Nuvo office spaces because of his interests in both
companies. Id. Because the defendant had denied
involvement with C3T or Pagasa, however, Judge Jones found
that he did not have standing to challenge the searches of
the office spaces of those entities. Id.
probable cause, Judge Jones found that the totality of the
circumstances demonstrated that CS-1 was reliable. He
recounted that the affidavits indicated that CS-1 had worked
for Sonag and Nuvo for fourteen years and had an extensive
history with the defendant. Id. at 12. He pointed
out how the information CS-1 provided was highly detailed and
suggested personal involvement:
describing that Mr. Ganos sought out Mr. Lopez to gain
Section 8(a) status for Nuvo; that Mr. Hubbell and not Mr.
Lopez actually managed Nuvo; that Mr. Ganos provided the
financial backing for Nuvo; that Mr. Lopez moved to Minnesota
and had limited involvement in Nuvo; that Mr. Ganos and Mr.
Hubbell invoiced work Sonag, Nuvo, C3T, and others performed
on their personal residences through government contracts;
that Mr. Ganos and Mr. Hubbell sought out Mr. Agoudemos to
gain service-disabled-veteran status for C3T; that Mr.
Agoudemos did not actually run C3T's day-to-day affairs;
that Mr. Hubbell was removed from C3T's payroll, business
structure, and office space after its eligibility was
suspended to create the impression that he had no involvement
in the company; that Mr. Hubbell nevertheless continued to
control C3T; that Mr. Ganos sought out Ms. Millan to gain
Section 8(a) status for Pagasa; that Mr. Ganos and Mr.
Hubbell were in fact in control of Pagasa; that Mr. Hubbell
sought to establish a sufficient work history for Pagasa so
it could acquire Section 8(a) status; that Pagasa never
actually performed any of the work paid for by
Ganos-affiliated companies; that Ms. Michaud provided
accounting services for Sonag, Nuvo, and C3T; and that Ms.
Michaud played accounting gymnastics with the companies'
finances. See Id. ¶¶ 32, 38, 40, 63, 71,
82, 92, 93, 105-06, 111, 116, 122, 127-28. Law enforcement
independently corroborated most of this information. See
Id. ¶¶ 25, 33, 39, 41-48, 53, 59-62, 64-65,
72-73, 74, 77-79, 83-85, 92, 94; 107, 110, 112-14, 116,
123-26, 128, 129.
Id. at 13. Judge Jones opined that two factors
weighed slightly against the reliability of CS-1: the
affidavits said that CS-1 approached law enforcement in 2014
but the government averred they met in December 2013,
February 2014, and March 2014; and CS-1 did not personally
appear before Judge Jones (who issued the warrants).
Id. at 13. Judge Jones found that the strong showing
in the amount of detail provided and the level of police
corroboration overcame those concerns. Id.
Jones found less significant the affiant's failure to
disclose CS-1's role at Sonag and Nuvo, stating that that
information was not critical to his probable cause
determination. Id. at 13-14. He also concluded that
probable cause would have existed even if the affiant had
included qualifying language indicating that certain
information in the affidavits was the opinion or belief of
the informant or agents. Id. at 14. Finally, as to
the defendant's theory that the government may have
unlawfully directed CS-1 to collect confidential records,
Judge Jones found that the defendant offered nothing more
than speculation to support that allegation. Id.
Jones concluded that even if the affidavits had failed to
state probable cause, the executing officers relied on the
warrants in good faith. Id. at 15. He found that the
affiant “reasonably relied on information provided by
CS-1, as well as several other sources, when seeking the
warrant, ” and that she was not dishonest or reckless
in preparing the affidavits. Id.
defendant objects to Judge Jones's conclusions that he
lacked standing, that the totality of the circumstances set
out in the affidavits demonstrated probable cause and that
the good faith exception applies. Dkt. No. 84.