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EO: COURT'S INCLINATIONS REGARDING DEFENDANT MARTIN KAO'S OBJECTIONS… — PPP Attempt Conspiracy Legal Filings (Dkt. 99)

No. 1:21-cr-00061-LEK · Doc. 99 · Docket on CourtListener

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A minute order of Judge Leslie E. Kobayashi dated April 11, 2023, Document 99 in United States v. Martin Kao, Criminal No. 21-00061 LEK, in the U.S. District Court for the District of Hawaii, setting out the court's inclinations on Kao's objections to the magistrate judge's February 15, 2023 order granting Pacmar's Rule 41(g) motion. That order found that the cellular telephone seized from Kao and its data are Pacmar's property. The court is inclined to find Pacmar presumptively entitled to return because Kao pleaded guilty, with return limited to a copy of the data while the Government keeps the phone until the 2021 Indictment and 2023 Indictment cases are completed. It is inclined to deny Kao's Fifth Amendment, privacy, inspection and special-master objections, directs the parties to the April 13, 2023 hearing, and states that the inclinations are not its final decision.

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Case 1:21-cr-00061-LEK Document 99 Filed 04/11/23 Page 1 of 6 PageID.853
MINUTE ORDER

CASE NUMBER: CRIMINAL NO. 21-00061 LEK
CASE NAME: USA v Martin Kao

JUDGE: Leslie E. Kobayashi DATE: 4/11/2023

COURT ACTION: EO: COURT’S INCLINATIONS REGARDING DEFENDANT
MARTIN KAO’S OBJECTIONS TO AND APPEAL FROM DISPOSITIVE
ORDER [DOCUMENT 92] OF MAGISTRATE JUDGE [FILED 3/1/23 (DKT. NO.
93)]

Before the Court is Defendant Martin Kao’s (“Kao”) Objections to and Appeal
from Dispositive Order [Document 92] of Magistrate Judge, filed on March 1, 2023
(“Objections”). [Dkt. no. 93.] Kao objects to the order entered by the magistrate judge
on February 15, 2023. See Order Granting Motion for Return of Property Pursuant to
Rule 41(g) of the Federal Rules of Criminal Procedure (“2/15 Order”), filed 2/15/23 (dkt.
no. 92). The 2/15 Order grants a motion filed by Pacmar Technologies LLC f/k/a Martin
Defense Group, LLC f/k/a Navatek LLC (“Pacmar”) that sought return of property seized
by Plaintiff United States (“the Government”) in the instant criminal prosecution. See
Pacmar’s Motion for Return of Property Pursuant to Rule 41(g) of the Federal Rules of
Criminal Procedure (“Pacmar Motion”), filed 1/24/23 (dkt. no. 82). The magistrate
judge, in his 2/15 Order, determined that the cellular telephone seized by the Government
from Kao and any data contained on it are the property of Pacmar, and that Pacmar is
entitled to the return of the property pursuant to Fed. R. Crim. P. 41(g). See 2/15 Order at
2-3.

Kao objects to the 2/15 Order and argues: that the magistrate judge erred in
entering an order; that Pacmar’s Motion was a dispositive pretrial motion and thus the
magistrate judge erred by ruling on it without a referral and/or issuing his findings and
recommendations (instead of an order); that the magistrate judge erred as a matter of law
in determining that Kao did not have a privacy interest in the cellular telephone and the
contents of its data; that Kao is being penalized for invoking his right against self-
incrimination; that the magistrate judge erred as a matter of law by refusing to stay the
request for return of property until Kao’s criminal case is over; that Pacmar’s employment
handbook does not give Pacmar an ownership interest in the cellular telephone’s data;
that the magistrate judge erred by giving Pacmar the Government’s work product, namely
the evidence contained in the Cellebrite Extraction Reports; that the magistrate judge
failed to protect Kao’s right to privacy; that the magistrate judge erred by ruling without
first reviewing the contents of the data released for removal of personal information such
Case 1:21-cr-00061-LEK Document 99 Filed 04/11/23 Page 2 of 6 PageID.854
as health information and personal search history; and the magistrate erred by failing to
implement less drastic alternatives to a complete production, including appointing a
special master.

The facts relevant to the instant matter are as follows: Kao was indicted on May 6,
2021 in the District of Hawaii. [Indictment (“2021 Indictment”), filed 5/6/21 (dkt.
no. 31).] His cellular telephone was seized at the time of his arrest for the charges in the
2021 Indictment. See Objections at 1. Kao “is the former CEO and Manager of the
Martin Defense Group, LLC, fka Navatek LLC, nka Pacmar Technologies, LLC . . . .”
[Id.] Kao was indicted in the U.S. District Court for the District of Columbia on February
10, 2022 “for alleged campaign finance violations” (“2022 Indictment”); [id. at 3;] and
was indicted on January 5, 2023 in the U.S. District Court for the District of Hawaii for
alleged “bank fraud and forfeiture relating to” real property located in Honolulu, Hawaii
(“2023 Indictment”), [id. at 4]. On September 7, 2022, Kao pleaded guilty to Counts 1
through and including 8 of the 2021 Indictment before a magistrate judge. See generally
Minutes - EP: Video-Teleconference (VTC) on Motion for Withdrawal of Not Guilty Plea
and to Plead Anew, filed 9/7/22 (dkt. no. 76). Kao’s pleas of guilty were accepted by this
Court and he was adjudicated guilty of Counts 1 through 8 on September 22, 2022. See
Acceptance of Plea of Guilty, Adjudication of Guilt and Notice of Sentencing, filed
9/22/22 (dkt. no. 79). Sentencing on Counts 1 through 8 is currently scheduled for
November 7, 2023. See EO, filed 2/6/23 (dkt. no. 88).

Following Kao’s adjudication of guilty as to Counts 1 through 8, the Pacmar
Motion was filed on January 24, 2023, and this Court referred the Pacmar Motion to the
magistrate judge on January 25, 2023 as a pretrial matter. Although Kao argues that the
magistrate judge erred by issuing an order when he was required to issue findings and
recommendation, Kao provides no authority for this argument. A motion pursuant to
Rule 41(g) does not appear to require the magistrate judge to issue findings and
recommendation because it is not one of the enumerated pretrial matters excluded for
designation to a magistrate judge in § 636(b)(A) or involved an application for post-trial
relief made by an individual convicted of criminal offenses or a prisoner petition. See 28
U.S.C. § 636(b)(1)(B).

The rule pertinent to a motion to return property taken in a criminal matter
provides:

(g) Motion to Return Property. A person aggrieved by an
unlawful search and seizure of property or by the deprivation
of property may move for the property’s return. The motion
must be filed in the district where the property was seized.
The court must receive evidence on any factual issue
necessary to decide the motion. If it grants the motion, the
court must return the property to the movant, but may impose
reasonable conditions to protect access to the property and its
use in later proceedings.
Case 1:21-cr-00061-LEK Document 99 Filed 04/11/23 Page 3 of 6 PageID.855
Fed. R. Crim. P. 41(g). The proof required to be demonstrated by a movant who seeks
return of property turns upon when the motion is filed:

“A person aggrieved . . . by the deprivation of property
may move for the property’s return.” Fed. R. Crim. P. 41(g).
The burden of proof on a Rule 41(g) motion depends on when
the defendant files the motion. “When a motion for return of
property is made before an indictment is filed (but a criminal
investigation is pending), the movant bears the burden of
proving both that the [property’s] seizure was illegal and that
he or she is entitled to lawful possession of the property.”
United States v. Martinson, 809 F.2d 1364, 1369 (9th Cir.
1987) (citations omitted). But that burden of proof changes
when “the property in question is no longer needed for
evidentiary purposes, either because trial is complete, the
defendant has pleaded guilty, or . . . the government has
abandoned its investigation.” Id. Then, the burden of proof
shifts and the defendant “is presumed to have a right to [the
property’s] return, and the government has the burden of
demonstrating that it has a legitimate reason to retain the
property.” Id.; see also United States v. Kriesel, 720 F.3d
1137, 1144 (9th Cir. 2013) (explaining that a “defendant’s
Rule 41(g) motion should presumptively be granted if the
government no longer needs the property for evidence.”
(internal quotation marks and citation omitted)).

The government can rebut the presumption that
property ought to be returned by proving a “legitimate reason”
for retaining the property that is “reasonable[] under all of the
circumstances.” Kriesel, 720 F.3d at 1145; see also United
States v. Kaczynski, 416 F.3d 971, 974 (9th Cir. 2005)
(“[T]he government has the burden of showing that it has a
legitimate reason to retain the property.” (quotation marks
omitted)); Ramsden v. United States, 2 F.3d 322, 326 (9th
Cir. 1993) (explaining that “reasonableness under all of the
circumstances must be the test when a person seeks to obtain
the return of property.” (internal quotation marks and citation
omitted)). The Advisory Committee’s Note to Rule 41, to
which we give “weight in interpreting the Federal Rules of
Criminal Procedure,” United States v. Bainbridge, 746 F.3d
943, 947 (9th Cir. 2014), confirms the “reasonableness”
standard applies to the return of computer files on electronic
storage devices, see Fed. R. Crim. P. 41, Advisory
Committee’s Note to 2009 Amendment (“Rule 41(g) . . .
provides a process for the ‘person aggrieved’ to seek an order
from the court for a return of the property, including storage
Case 1:21-cr-00061-LEK Document 99 Filed 04/11/23 Page 4 of 6 PageID.856
media or electronically stored information, under reasonable
circumstances.”). The simplest way for the government to
carry its burden is to prove “the property . . . is contraband or
subject to forfeiture.” Martinson, 809 F.2d at 1369; see also
United States v. Fitzen, 80 F.3d 387, 389 (9th Cir. 1996) (“It
is well-settled that the federal government may defeat a
Rule [41(g)] motion by demonstrating that the property is
subject to federal forfeiture.”). To that end, district courts
“must receive evidence on any factual issue necessary to
decide the motion.” Fed. R. Crim. P. 41(g). The government
can therefore carry its burden by submitting evidence that
demonstrates the property is contraband or the property falls
within the court’s forfeiture order. See, e.g., [United States
v.] Harrell, 530 F.3d [1051,] 1056–57 [(9th Cir. 2008)]. But
showing the property is contraband or forfeit is not the only
way the government can justify retaining the property; the
government can otherwise retain property if it can show a
“legitimate reason” for doing so. See, e.g., Kriesel, 720 F.3d
at 1145–47 (holding that the government’s retention of the
defendant’s blood sample was “reasonable under the
circumstances” because the government needed the sample to
ensure the accuracy of future DNA identifications).

United States v. Gladding, 775 F.3d 1149, 1152–53 (9th Cir. 2014) (some alterations in
Gladding).

Here, Pacmar filed its Rule 41(g) motion after Kao pleaded guilty to the charges
that serve the basis for his arrest and the seizure of the cellular telephone. A presumption
thus existed that the cellular telephone should be returned unless there was a “legitimate
reason” for the Government to retain it that is “reasonable”. The Government did not
object to returning a copy of the data extracted from the cellular telephone, and
represented that the cellular telephone “constitutes and contains evidence in [both the
2021 Indictment and the 2023 Indictment cases].” [Govt.’s Response to Motion for
Return of Property Pursuant to Rule 41(g) (“Response”), filed 1/26/23 (dkt. no. 84), at 2.]
It requested that the return should be limited to a copy of the data extracted. See
Response at 3.

Under the circumstances of this matter, the Court is inclined to find that Pacmar is
a “person aggrieved” “by the deprivation of property” for purposes of a Rule 41(g)
motion and, because Kao has pleaded guilty, Pacmar is presumed to have a right to the
cellular telephone’s return. The burden shifts to the Government to demonstrate that it
has a legitimate reason to retain the property. Because the Government has demonstrated
that it needs the cellular telephone (or more correctly, the contents of the cellular
telephone, which is the data), it has partially rebutted the presumption of return.
Rule 41(g) provides, in relevant part, that in granting the Rule 41(g) motion, the property
must be returned but the Court “may impose reasonable conditions to protect access to the
Case 1:21-cr-00061-LEK Document 99 Filed 04/11/23 Page 5 of 6 PageID.857
property and its use in later proceedings.” Fed. R. Crim. P. 41(g).

The Court is inclined to find that a reasonable condition is that the return of
property should be limited to a copy of the cellular telephone’s contents; i.e.., the data,
and that the cellular telephone itself may be retained by the Government until Kao’s
sentencing has been completed for those criminal charges covered by the 2021
Indictment, and the completion of the criminal charges covered by the 2023 Indictment,
when the Government no longer has any evidentiary need for the property in question.

Kao argues that he has a Fifth Amendment privilege that prevents return of the
property in question. He has pleaded guilty to Counts 1 through 8 of the 2021 Indictment.
He has waived his right to self-incrimination only as to the crimes that he admitted.
United States v. Pierce, 561 F.2d 735, 738 (9th Cir. 1977) (“The defendant retains his
privilege as to crimes for which he may still be liable.” (citations omitted)). It is
undisputed that the cellular telephone was seized when Kao was arrested pursuant to the
2021 Indictment, although the Government has vaguely represented that the data taken
from the cellular telephone may also pertain to criminal charges contained in the 2023
Indictment. The parties are directed to clarify this issue at the hearing.

First, Kao fails to explain why the contents of the cellular telephone are protected
by his Fifth Amendment right against self-incrimination in the 2023 Indictment or some
other crime charged against him. If it is because the seizure and search were illegal as to
one or more of these offenses, then the proper course of action is a motion to suppress.
Kao is directed to address this issue at the hearing.

Second, certain acts while incriminating are not within the privilege against self-
incrimination. See, e.g., Doe v. United States, 487 U.S. 201, 210 (1988) (noting that a
suspect may be compelled to provide blood sample or voice exemplar). However, even if
the seizure and search of the cellular telephone was permissible, the self-incrimination
privilege protects verbal and written communications as well as acts that imply assertions
of fact, if testimonial. See id. at 219. “The difficult question whether a compelled
communication is testimonial for purposes of applying the Fifth Amendment often
depends on the facts and circumstance of the particular case.” Id. at 214-15 (citation
omitted). The Court is inclined to find that Kao has not demonstrated facts as to which
parts of the data contained on the cellular telephone are testimonial and thus protected by
the privilege.

Third, Kao argues that his right to privacy protects the data contained on the
cellular telephone from being disclosed.

[A] criminal defendant may invoke the protections of the
Fourth Amendment only if he can show that he had a
legitimate expectation of privacy in the place searched or the
item seized. Smith v. Maryland, 442 U.S. 735, 740, 99 S. Ct.
2577, 61 L. Ed.2d 220 (1979). This expectation is established
where the claimant can show: (1) a subjective expectation of
Case 1:21-cr-00061-LEK Document 99 Filed 04/11/23 Page 6 of 6 PageID.858
privacy; and (2) an objectively reasonable expectation of
privacy. See id. (citing Katz [v. United States], 389 U.S.
[347,] 351, 361, 88 S. Ct. 507[, 19 L. Ed. 2d 576 (1967)]);
United States v. Shryock, 342 F.3d 948, 978 (9th Cir. 2003).
It is [the defendant’s] burden to prove both elements. United
States v. Caymen, 404 F.3d 1196, 1199 (9th Cir. 2005)
(citation omitted).

United States v. Ziegler, 474 F.3d 1184, 1189 (9th Cir. 2007) (emphasis in Ziegler). Kao
contends that he had a subjective expectation of privacy as to the content he created or
kept on the cellular telephone’s data. Pertinent to the second element, he must
demonstrate whether it was objectively reasonable to expect privacy on the company-
owned cellular telephone; whether the cellular telephone’s data was password protected;
and whether he gave valid consent to the Government to search the cellular telephone and
obtain the data. Kao has the burden of proving that he had an objectively reasonable
expectation of privacy, but he provides no evidence. The Court is thus inclined to deny
this objection.

Last, Kao contends that the magistrate judge should have ordered that Kao inspect
the data for personal information before it is produced and should have required a basic
inventory of the files. If the data was obtained from the cellular telephone taken from
Kao, then presumably he could or did obtain a copy of it in discovery. If not, then a
motion to compel is the proper vehicle. Kao contends that “a special master should be
appointed at Pacmar’s cost to review and segregate the data[]” obtained from the cellular
telephone. [Objections at 19.] He, however, provides no legal authority for this
proposition. The Court is thus inclined to deny this objection.

Accordingly, the Court is inclined to deny Kao’s Objections for the
aforementioned reasons. The parties should appear at the April 13, 2023 hearing
prepared to discuss these issues and/or to direct the Court to controlling case law in their
respective memoranda that either supports or contradicts these matters. The Court notes
that these inclinations are intended only to help the parties prepare for oral argument and
is not the Court’s final decision in the matter. Rather, the parties are encouraged to point
to relevant case law and/or facts raised in their memoranda to show the Court why its
inclination is mistaken or correct.

IT IS SO ORDERED.

Submitted by: Agalelei Elkington, Courtroom Manager

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