Petition — Bianco v. United States

Supreme @ourt, U.

FilLks&ED

MAY 7 1976

In The

Supreme Court of the Hnite

October Term, 1975

o—

No. %5-1632

L ODAK JR., CLERK

ed

NICHOLAS BIANCO,

Petitioner,

vs.

UNITED STATES OF AMERICA.

a

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

JAMES M. LA ROSSA

Attorney for Petitioner

522 Fifth Avenue

New York, New York 10036

(212) 687-4100

GERALD L. SHARGEL

Of Counsel

8719

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TABLE OF CITATIONS

Cases Cited:

Dupree v. United States, 218 F.2d 781 (Sth Cir. 1955) .... 6, 7

Friedberg v. United States, 348 U.S. 142 (1954) .......... 6

Holland v. United States, 348 U.S. 121 (1954) ........... 5,7

Taglianetti v. United States, 398 F.2d 558 (ist Cir. 1968) . 3

Contents

Page

Statutes Cited:

28 U.S.C. Section 1254(1) 2... cc esc cccecceccecceccvees 2

2S, GAGE Beatie Fae cccccccecececceccnsdecsocsseeses 2

APPENDIX

Opinion and Judgment of the Court of Appeals ......... la

In The

Supreme Gouri of the United States

e

October Terin, 1975

No.

NICHOLAS BIANCO,

Petitioner,

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

The petitioner, Nicholas Bianco, prays that a writ of

certiorari issue to review the judgment and opinion entered on

April 8th, 1976, by the United States Court of Appeals for the

Second Circuit, in the proceeding entitled United States of

America, Plaintiff-Appellee against Nicholas Bianco, Defendant

Appellant, Docket No. 75-1244.

2

OPINION BELOW

@pLhe, judgment and opinion of the Court of Appeals for the

Seco... Circuit, not yet reported, appears in the Appendix at

page la.

JURISDICTION

The judgment and opinion of the Court of Appeals was

entered on April 8th, 1976. The jurisdiction of this Court is

invoked under Title 28, United States Code, Section 1254(1).

QUESTION PRESENTED

Whether in a criminal prosecution for failure to file income

tax returns for successive calendar years, the Government must

prove with reasonable certainty the petitioner’s net worth at the

beginning of each year for which petitioner is prosecuted?

STATUTE INVOLVED

Title 26, United States Code, Section 72€* provides as

follows:

Ҥ7203. Willful failure = file Return, supply

information, or pay tax.

Any person required under this title to pay any

estimated tax or tax, required by this title or by

regulations made under authority thereof to

make a return (other than a return required

under authority of section 6015 or section 6016),

3

keep any records, or supp!y any information,

who willfully fails to pay such estimated tax or

tax, make such return, keep such secords, or

supply such information, at the time or times

required by law or regulations, shall, in addition

to other penalties provided by law, be guilty of a

misdemeanor and, upon conviction thereof, shall

be fined not more than $10,000, or imprisoned

not more than | year, or both, together with the

costs of prosecution. Aug. i6, 1954, c. 736, 68A

Stat. 851.”

STATEMENT OF THE CASE

Petitioner, Nicholas Bianco, was convicted in the United

States District Court for the Eastern District of New York.

Plati, J., of five counts of violating Title 26, United States Code,

Section 7203, for his alleged failure to file an income tax return

for the years 1967 through 1971.

Utilizing the “cash expenditure” method of proof, the

Government sought to establish that during the prosecution

years, petitioner had earned income sufficient to require the

filing of federal income tax returns. The “cash expenditure”

theory of proof, a variant of the net worth method of proof,

required the Government to establish with reasonable certainty

the taxpayer’s opening net worth in order to provide a basis on

which to properly assess the inferential source of monies

expended or increase in net worth. Holland v. United States, 348

U.S. 121 (1954); Taglianetti v. United States, 398 F.2d 558, 562

(Ist Cir. 1968).

4

in this case, the Government attempted to show that

petitioner was without accumulated assets prior to January Ist,

1967, the first calendar year which became the subject of this

prosecution. In this regard, the Government proved that an

attorney, who specialized in collection matters, could not satisfy

a $400 judgment obtained against petitioner in September of

1965 (A165-172, A200).' Additionally, the Government proved

that in December of 1966, petitioner’s automobile was

repossessed by the General Motors Acceptance Corporation

(GMAC) (A222). Furthermore, the Government was allowed to

prove that petitioner did not file income tax returns for the years

1963 through 1966. Failure to file in three of these years (1963

through 1965) was admitted to support the inference that

petitioner had not earned income sufficient to require the filing

of returns and, therefore, could not have accumulated any

capital (A471).

The Government's proof of “no resources” at the beginning

of 1967 was vigorously attacked by the defense. The defense

established that at the time petitioner was alleged to have been

without assets in 1966, he was spending monies which evidenced

a rather comfortable lifestyle (A383-385). In the court below,

petitioner argued that this evidence negatived the Government's

assertion that petitioner was without assets at the start of the

first prosecution year, 1967. The Court of Appeals, however,

dismissed this assertion by stating that:

“Such evidence . . . does not tend to establish the

existence of assets of any kind, since the jury

1. The letter “A” refers to the petitioner's appendix filed in the United States Court

of Appeals for the Second Circuit.

es ee —

5

could well have believed that Bianco was simply

living from hand to mouth, spending whatever

income he had at that point.” (7a).

One further factual point deserves mention. The

Government's case was entirely circumstantial. There was no

direct showing of a source of income which was not reported.

There was some evidence which the Court of Appeals described

as “hardly conclusive” that petitioner was self-employed by the

Easy Floor Waxing Company during these years. Additionally,

there was some equivocal evidence that petitioner physically

received some monies which were described as interest on a

$10,000 loan. The Court of Appeals stated, however, that:

“We need not hold on the state of the record in

this case that such evidence of a ‘likely source’

would be sufficient by itself to relieve the

prosecution of the duty to negate probable

sources of income... .” (9a).

REASONS FOR GRANTING THE WRIT

There are, it is submitted, two cogent reasons for this Court

to grant the petition for certiorari. These two reasons are based

upon the fears expressed by Mr. Justice Clark in Holland v.

United States, 348 U.S. 121 (1954). In condoning the use of the

“net worth” method of proving income tax violations, this Court

recognized the danger of such proof insofar as the Government's

case might well succeed on something less than proof beyond a

reasonable doubt.

6

Petitioner first submits that the Government's proof failed

to establish with reasonable certainty petitioner’s net worth at

the beginning of 1967. It is submitted that the Government's

portrayal of petitioner as a man who had no significant assets in

the pre-prosecution years was far too sketchy. It is further

submitted that if the Government were to utilize this method of

proof, it was incumbent upon them to prove in far more detail

the state of Bianco's lifestyle prior to the prosecution years in

order to effectively negate the possibility that petitioner had

accumulated a cash hoard. Where, as here, the Government

showed only that a relatively small judgment went uncollected

and that a car had been repossessed at the very time when

petitioner purchased jewelry for an amount in excess of that

judgment, and purchased a new automobile a short time after

the first one was repossessed, does not sufficiently expose the

state of petitioner’s finances. In Friedberg v. United States, 348

U.S. 142 (1954), the Government’s proof focused on a twenty-

year history of defendant's finances preceding the tax years in

question. There, the Government relied upon judgments,

admissions of net worth and amounts of previous income.

There, without question, the defendant’s prior financial

condition was placed before the jury in such a manner as to

make it highly unlikely that the defendant had accumulated a

cash hoard. In the case at bar, the opposite is true. At the end of

the Government’s case, it was clear that petitioner had

accumulated assets.

The second point which merits review relates to petitioner's

claim that there was a complete lack of evidence by which the

jury could assess petitioner’s net worth at the beginning of each

of the prosecution years. Dupree v. United States, 218 F.2d 781

tT

,

(Sth Cir. 1955). The Government's proof, in effect, casually

treated the five calendar years in question as one period during

which petitioner allegedly spent money which he derived from

taxable income. Petitioner herein suggests that it was necessary

for the Government to show opening net worth as to each of

these years so that the jury could properly determine whether the

expenditures were earned in that year or had come from income

accumulated in another prosecution year. In other words, if the

Government’s proof was sufficient as to the year 1967, there was

no basis on which to find that the monies spent in 1968 were not

derived from unreported income in 1967.

This Court, in Holland v. United States, supra, recognized

this problem. In reviewing the net worth theory of proof, this

Court made the following observation:

“The statute defines the offense here involved by

individual years. While the government may be

able to prove with reasonable accuracy an

increase in net worth over a period of years, it

often has great difficulty in relating that income

sufficiently to any specific prosecution year.

While a steadily increasing net worth may justify

an inference of additional earnings, unless that

increase can be reasonably allocated to the

appropriate tax year, the taxpayer may be

convicted on counts of which he is innocent.” 348

U.S. at 129.

While some cases may provide sufficient proof on which a

finding could be made that the non-reported income was

8

allocable to a particular year, no such proof exists in the case at

bar. Absent such proof, the jury was left to merely assume

sufficient gross income was earned in each year which would

require petitioner to file. An assumption of this nature is entirely

inconsistent with the presumption of innocence.?

CONCLUSION

For these reasons, a writ of certiorari should issue to review

the judgment and opinion of the Second Circuit Court of

Appeals.

Dated: May 7th, 1976

Respectfully submitted,

s/ James M. La Rossa

Attorney for Petitioner

GERALD L. SHARGEL

Of Counsel

2. This phenomenon is especially acute in the instant case because the petitioner

received four consecutive one-year terms of imprisonment on each of the prosecution

years, 1967 through 1970. In addition, petitioner was fined $10,000 on each count

equalling a total fine of $50,000.

TA

(Argued November 3, 1975

la

APPENDIX

OPINION AND JUDGMENT OF THE COURT OF

APPEALS

UNITED STATES COURT OF APPEALS

For tHe Seconp Circuit

ee

No. 385—September Term, 1975.

Decided April 8, 1976.)

Docket No. 75-1244

+o

Unitep SratTes or AMERICA,

Appellee,

v.

NicHotas L. Bianco,

Appellant.

+o

Before:

Hays, Mutiican and MesKIL,

Circuit Judges.

+o

Appeal from a judgment of conviction entered in the

United States District Court for the Eastern District of

New York after a jury trial, Thomas C. Platt, Judge, find-

ing the defendant guilty of five counts of willfully failing

to file income tax returns for the years 1967 through 1971.

Affirmed.

oe

Cuarues BE, Brooxnart, Attorney, Tax Division,

Department of Justice, Washington, D.C.

(David G. Trager, United States Attorney,

Scott P. Crampton, Assistant Attorney Gen-

eral, Gilbert E. Andrews, Robert E. Lind-

say, Attorneys, Tax Division, Department

2a

Opinion and Judgment of the Court of Appeals

of Justice, Washington, D.C., of Counsel),

for Appellee.

Geratp L. S#arcet, New York, New York

(James M. LaRossa, LaRossa, Shargel &

Fischetti, New York, New York, of Counsel),

tor Appellant.

-~oo—-——-

Mesxkitz, Circuit Judge:

Nicholas L. Bianco appeals from a judgment of convic-

tion entered in the United States District Court for the

Eastern District of New York after a jury trial before

Thomas C. Platt, District Judge, of five counts of willfully

failing to file income ‘ax returns for the years 1967 through

1971 in violation of 4 7203 of the Internal Revenue Code of

1954, 26 U.S.C. § 7203.

I.

Bianco claims on this appeal that the government failed

to prove that he had sufficient income in the disputed years

to require his filing of returns. Specifically, he asserts that

the government failed to prove with “reasonable certainty”

that his cash expenditures during the years in question had

not been made either from assets on hand prior to those

years or from non-taxable sources of income.

The government prosecuted the case by the “cash ex-

penditure” method of proof, a variant of the “net worth”

method, which permits circumstantial proof of a defen-

dant’s taxable income in cases where the prosecution is

unable directly to show specific items of such income. Ti:2se

two indirect methods of proof have been explained and

distinguished by the First Circuit in Taglianetti v. United

States, 398 F.2d 558, 562 (1st Cir. 1968), aff’d., 394 U.S. 316

(1969), as follows:

3100

3a

Opinion and Judgment of the Court of Appeals

“The net worth method involves the ascertaining of a

taxpayer’s net worth positions at the beginning and

end of a tax period, and deriving that part of any

increase not attribntable to reported income. This

method, while effective against taxpayers who channel

their income into investment or durable property, is

unavailable against the taxpayer who consumes his

self-determined tax free dollars during the year and

winds up no wealthier than before. The cash expendi-

ture method is devised to reach such a taxpayer by

establishing the amount of his purchases of goods and

services which are not attributable to the resources at

hand at the beginning of the year or to non-taxable

receipts during the year.” (footnotes omitted).?

In the case at bar, the government proved. and Bianco

does not contest, that he made expenditures in each prose-

cution year far in excess of the amount which, if the figure

had been derived entirely from taxable income in that year,

would have required him to file returns.? Nor does Bianco

contest the prosecution’s proof that no returns were filed

by him in any of the prosecution years. His sole challenge

to the sufficiency of the government’s case rests upon his

contention that it failed to prove that the expenditures

were “not attributable to the resources at hand at the begin-

1 The quoted passage from Taglianetti was quoted with approval by

this Court in United States vy. Fisher, 518 F.2d 836, 841 (2d Cir. 1975).

cert. denied, —— US. , 44 U.S.L.W. 3358 (December 16, 1975).

2 In tax years 1967 through 1971, the evidence indicated that Bianco

expended $4,284.68, $5,924.99, $9,898.25, $8,916.49 and $10,217.01 respec-

tively. In each of the first three years, 1967, 1968 and 1969, taxpayers

with gross income in excess of $600 were required to file tax returns.

For the final two years of the prosecution period, because he had be-

come married, the threshold gross income figure applicable to Bianco

was $2,300. See Pub. L. 91-172, Title IX, § 941(a), 83 Stat. 726,

amending § 6012 of the Internal Revenue Code of 1954, 26 U.S.C. § 6012.

4a

Opinion and Judgment of the Court of Appeals

ning of the year or to non-taxable receipts during the year.”

More specifically, Bianco contends that the government

failed to satisfy the requirement of “the establishment, with

reasonable certainty, of an opening net worth.” Taglianetti

v, United States, supra, 398 F.2d at 564.

The “reasonable certainty” requirement is derived from

the Supreme Court’s opinion in [olland v. United States,

348 U.S. 121, 132 (1954), a case which was prosecuted on

the net worth rather than the cash expenditure theory and

which involved a prosecution which attempted to show a

specific deficiency rather than only income over the thresh-

old amount necessitating the filing of tax returns. Never-

theless, the government properly concedes in the present

ease that the “reasonable certainty” standard applies in

cash expenditure cases, albeit in a slightly different man-

ner from that discussed in Holland.

“In a typical net worth case, as Holland, precise figures

would have to be attached to opening and closing net

worth positions for each of the taxable years to pro-

vide a basis for the critical subtraction. In a cash

expenditures case reasonable certainty may be estab-

lished without such a presentation, as long as the

proof .. . makes clear the extent of any contribution

which beginning resources or a diminution of resources

over time could have made to expenditures.” Tagli-

anetti v. United States, supra, 398 F.2d at 565; see

also United States v. Fisher, supra, 518 F.2d at 842

n. 7.

In the instant case, the government attempted to show

that Bianco’s beginning resources were non-existent and

thus could not have contributed at all to his expenditures

during the tax vears. To that effect, Special Agent Louis

Nahmias testified about his investigation into Bianco’s

Sa

Opinion and Judgment of the Court of Appeals

financial background. He testified that he had examined

the records of the Kings County Clerk’s Office, the county

in which Bianco had lived from 1962 through 1972, but

could find no record of any real estate in Bianco’s name.

He testified further that he had circulated letters to ap-

proximately 100 banks in Brooklyn, all of which responded

that they had no assets or accounts in Bianco’s name.

Nahmias further testified that he checked with a brokerage

house in order to determine whether or not Bianco had

had any securities holdings or dealings, which inquiry also

produced negative results. He also testified that he made

inquiries of insurance brokers, doctors, schools, hospitals,

the telephone company, the electric company, and an at-

torney who had performed legal services for Bianco during

the prosecution years. Finally, there was testimony that

investigation had been made of the probate records in

Providence, Rhode Island, where Bianco’s family lived.

Those records revealed no inheritance from either Bianco’s

mother or father, both of whom had passed away earlier.

An interview with Bianco’s sister was also conducted in

Providence. These investigations failed to reveal any as-

sets held by Bianco at any time, prior to or during the

prosecution years.

The Government’s case, however, did not rely entirely

upon Agent Nahmias’ testimony about his fruitless search

for assets. It introduced Bianco’s 1962 income tax return

which reported only a modest wage or salary income for

that year. There was also evidence introduced that Bianco

had not filed tax returns for the years 1963, 1964 and

1965, the government thereby attempting to create the

inference that the failure to file in those vears negated

the probability that Bianco had had sufficient income then

to have accumulated assets on which to have lived during

6a

Opinion and Judgment of the Court of Appeals

the later prosecution years.’ Further, Samuel 8. Sezzen,

Esq., an attorney who has specialized in collection matters

since 1936, testified that in the early part of 1966 he used

his normal “general procedure” but was unable to locate

any assets from which to satisfy a $436.40 judgment en-

tered earlier against Bianco.‘

The totality of this evidence clearly was sufficient for

the jury to have concluded that Bianco had insufficient

assets at the beginning of the prosecution period to have

supported his expenditures in any of those years. Bianco

presented no defense and offered no evidence in this case.

His major contention on appeal appears to be that the

prosecution failed to negate the possibility of a so-called

“cash hoard,” although there is not one speck of evidence

to indicate that Bianco had such a cache or where it might

3 Bianco challenges the admission into evidence of his failure to file

returns in those years as an unjustifiable use against him of his pre-

sumption of innocence. See United States v. Schipani, 362 F.2d 825,

829-30 (2d Cir.), vacated and remanded, 385 U.S. 372 (1966). In

Schipani this Court described the use of such evidence as “unnecessary” .

given the complete and thorough exhaustion of sources of non-taxable

income but failed to find its use a cause of reversal. Furthermore, in

Schipani, the government’s reliance upon the failure to file to show no

income during those years appenred to have been inconsistent with proof

tending to show that Schipani had had income in those years. There

was no inconsistency in this case, there having been no proof of any

income or expenditures made ly Bianco in 1963, 1964 or 1965.

In any event, the admission of such evidence finds support, if not

acceptance, in decisions of the Supreme Court and three other circuits,

see Smith v. United States, 348 U.S. 147, 157 (1954); United States

v. Caserta, 199 F.2d 905, 907 n. 5 (3d Cir. 1952); Hanson v. United

States, 186 F.2d 61, 66-67 (8th Cir. 1950); United States v. Skidmore,

123 F.2d 604, 610 (7th Cir. 1941), cert. denied, 315 U.S. 800 (1942),

and, even assuming its admission to have been error, we find insufficient

prejudice to the defendant to justify reversal here.

4 Although Sezzen’s testimony did not reveal what, other than the ser-

vice of an unfruitful restraining notice upon a hank near Bianco’s last

known address, that “general procedure” was, the fact that Sezzen dis-

covered no assets was some evidence from which the jury could infer

that they did not exist.

7a

Opinion and Judgment of the Court of Appeals

have come from. He points to the evidence elicited on the

cross-examination of several prosecution witnesses that

he had been making Javish expenditures during the latter

part of 1966, just before the beginning of the prosecution

period. Those expenditures, in the form of a down payment

on an automobile and the “wining and dining” of a female

‘acquaintance, according to Bianco, show that the govern-

ment’s case was fatally defective. Such evidence, however,

does not tend to establish the existence of assets of any

kind, since the jury could well have believed that Bianco

was simply living from hand to mouth, spending whatever

income he had at that point.

Of course, as in any criminal prosecution, the defendant

is under no obligation to prove any particular set of facts,

including the existence of a non-taxable source, such as a

“cash hoard” from which his expenditures were made. But

onee the government has introduced sufficient evidence

from which the jury could conclude with reasonable cer-

tainty that no such assets existed, the defendant remains

silent at his own peril. Holland v. United States, supra,

348 U.S. at 138-39; United States v. Pencsi, 452 F.2d 217.

220-21 (Sth Cir. 1971), cert. denied, 405 U.S. 1065 (1972):

United States v. Shipani, supra, 362 F.2d at 830.

Much of what we have said with respect to the govern-

ment’s duty to establish a lack of adequate funds from

which the expenditures could have been made applies

with equal or greater force to Bianco’s contention that

the government failed sufficiently to negate all other pos-

sible sources of non-taxable income during the prosecution

years. As mentioned above, the government conducted a

thorough investigation, including a search of the Provi-

dence, Rhode Island probate records and an interview with

Bianco’s sister in Rhode Island, in an attempt to discover

whether or not he had been the recipient of any gifts, loans

or inheritances. The investigation revealed no such non-

8a

Opinion and Judgment of the Court of Appeals

taxable income nor any “leads” which the government ne-

glected to investigate.’ “Once expenditures are established,

the government cannot be expected to conduct an exhaus-

tive nationwide investigation when the defendant supplies

no relevant leads as to where he got the money he admit-

tedly spent.” United States v. Penosi, supra, 452 F.2d at

220.

Bianco’s major attack upon the government’s investiga-

tion into possible sources of non-taxable income centers

upon its failure to negate the possibility that Bianco had

received an inheritance in Brooklyn or that his wife had

received any inheritances. These post hoc suggestions,

however, do not render insufficient the search that was

conducted. There is nothing in the record to suggest that

Bianco had any relatives in Brooklyn. To the contrary,

it was apparent that Bianco’s roots and family were lo-

cated in Providence, Rhode Island. Similarly, from all

that appears in the record, there was no reason for the

government to have suspected that his wife had received

an inheritance of any kind. To require the government to

conjure up testators who may have contributed to Bianco’s

cause, without some suggestion as to who those persons

may have been, would create a burden which the prosecu-

tion could never meet.

Finally, it should be noted that the government intro-

duced evidence from which the jury could have inferred

that Bianco was receiving income from taxable sources

during the prosecution years. While that evidence was

hardly conclusive, it was sufficient to show at least one

“likely sourve” of taxable income. The government intro-

5 It should be noted that Agent Nahmias’ investigation of insurance

companies uncovered a non-taxable $3,000 payment to Bianco in 1969

resulting from the theft of his automobile. That payment was properly

credited against his expenditures in that year. Similarly, another non-

taxable insurance payment of $1,750 to Bianco in 1968 was discovered

and credited against that year’s expenditures.

ti. &

9a

Opinion and Judgment of the Court of Appeals

duced a loan application, an insurance claim and a lease

application, all of which were made by Bianco during the

prosecution years and which indicated that Bianco was

self-employed by the Easy Floorwaxing Company.’ Fur-

ther, there was direct testimony by a Manhattan business-

man that Bianco personally had arranged for and delivered

-to him a $10,000 loan. The loan transaction carried with

it weekly interest payments of $250 and has been properly

characterized as a “loanshark” transaction. Although the

testimony again was not conclusive with respect to how

much of the interest payments went into Bianco’s pockets

as opposed to those of his associates, the jury was entitled

to infer that Bianco’s involvement in the transaction was

not entirely altruistic and that at least part of the $2,000

interest paid during an eight week period in 1967 was

income to him.

We need not hold on the state of the record in this case

that such evidence of a “likely source” would be sufficient

by itself to relieve the prosecution of the duty to negate

probable sources of non-taxable income, see Holland v.

United States, supra, 348 U.S. at 138, but merely that such

evidence, together with the evidence of the government’s

fruitless search for sources of non-taxable income, is suffi-

cient to support an inference by the jury that the expendi-

tures proved were attributable to currently taxable income.

Cf. United States v. Massei, 355 U.S. 595 (1958).

6 In the lease application, made in 1968, it was stated that Bianco had

income of $125; it is not clear whether that was a weekly or monthly

income.

Bianco claims that Agent Nahmias’ icstimony that he could not, after

investigation, confirm the existence of the Easy Floorwaxing Company

renders worthless Bianco’s admissions of employment during the tax

years. While these admissions are hardly conclusive when uncorrob-

orated, they are nevertheless sufficient independent evidence since they

were made under circumstances having nothing to do with the commis.

sion or investigation of the crime charged. Cf. Warszower v. United

States, 312 U.S. 342, 347-48 (1941).

10a

Opinion and Judgment of the Court of Appeals

IT.

During the course of Agent Nahmias’ testimony at trial,

it was revealed that the Internal Revenue Service (“IRS”)

had maintained a “mail watch” on Bianco’s incoming mail

for almost ten years.’ It was further revealed that the

evidence of at least one of the expenditures proved at

trial had been derived from the mail cover. Bianco neither

objected to such evidence nor did he move to suppress it

at trial; on this appeal he challenges its admission on

the ground that the mail cover was an unreasonable search

and seizure in violation of the Fourth Amendment. He

seeks to circumvent the rule announced in United States

v. Indivialio, 352 F.2d 276, 277 (2d Cir. 1965) (en banc),

cert. denied, 383 U.S. 907 (1966), that generally “the failure

to make proper objection before the trial court to the

admission of the challenged evidence forecloses review

of the asserted error” by claiming that this Court’s deci-

sion in United States v. Leonard, 524 F.2d 1076 (2d Cir.

1975), petition for cert. filed, 44 U.S.L.W. 3429 (Jan. 16,

1976), significantly changed, after his trial, the prior

law with respect to the constitutionality of mail covers,

which prior law would have made objection at trial fu-

tile. See United States v. Indiviglio, supra, 352 F.2d at

280 and n. 7. We disagree and hold that Bianco’s claim

cannot be raised at this stage in the proceedings.

In Ex parte Jackson, 96 U.S. 727 (1878), the Supreme

Court made clear that the Fourth Amendment prohibited

the warrantless opening of sealed letters and packages

7 Agent Nahmias was never asked to define what a “mail watch” was

in the context of this case when he admitted that that technique was

employed against Bianco. We shall assume, since there is no hint to

the contrary in the record and since Bianco’s brief in this Court so

assumes, that the “mail watch” or “mail cover” involved only the in-

spection and recording of the names and return addresses on the enve-

lopes in his incoming mail.

lla

Opinion and Judgment of the Court of Appeals

except in cases involving incoming international mail,

where the enforcement of the customs laws justifies an in-

cursion into the sanctity of such mail. This Court, in

United States v. Costello, 255 F.2d 876, 881 (2d Cir. 1958),

cert. denied, 357 U.S. 937 (1958), pet. for rehearing denied,

358 U.S. 858 (1958), interpreted the Jackson opinion as

necessarily implying that “without offense to Constitution

or statute writing appearing on the outside of envelopes

may be read and used.” Bianco asserts that the Costello

opinion made clear that any objection he might have made

at trial would have been futile.

After Bianco’s trial, this Court approved a mail cover

employed by the IRS in United States v. Leonard, supra.

The mail cover there involved the copying and recording

of the postage meter numbers on al! incoming mail from

Switzerland which bore no return address. The object

of that mail cover was to match the postage meter num-

bers on the envelopes with meter numbers registered to

Swiss banks in an attempt to discover which American

citizens might be using secret Swiss bank accounts to

hide unreported income. In affirming the IRS’s use of

such a broad mail cover, which monitored all incoming

Swiss mail to previously undetermined addresses, Judge

Friendly commented that “fi]t may well be that, in these

days of increased concern for the protection of privacy,

the statement in Costello should not be read as an absolute.

permitting, for example the Government to copy the out-

side of every envelope received by every citizen.” United

States v. Leonard. supra. 524 F.2d at 1087. Bianeo’s as-

sertion now is that Judge Friendly’s comment significantly

charged the law of this Cireuit with respect to the validity

of mail covers by indicating that the Court will now hear

objections to excesses in such investigative techniques

where previously if would not. We disagree.

12a

Opinion and Judgment of the Court of Appeals

Judge Friendly’s dicta in Leonard stated what should

by now be obvious: that any particular investigative

means, including mail covers, are subject to abuse and ex-

cesses, and that such excesses might serve to distinguish

this Court’s prior decision that the reading of the outside

of an envelope does not violate any constitutional princi-

ples. The Costello case certainly was not to the contrary.

Indeed, Costello’s main thrust involved a determination

as to whether or not the mail watch in that case violated

federal statutes prohibiting interference with the mails,

and thus, inferentially, violated standards of due process

and fundamental fairness by securing a conviction on the

basis of evidence derived from means which violated the

law: its implication was that the Court would not sanction

the use of such unlawful investigative means regardless of

whether or not the mail watch was a “search” within the

Fourth Anendment’s domain. The Court, of course, found

no infirmities, either statutory or constitutional, in the

mail watch considered there. Thus Judge Friendly’s opin-

ion in Leonard did nothing to alter the Costello rationale;

it merely recognized that most appellate decisions, including

Costcllo, are capable of being distinguished on their par-

ticular facts. Significantly, Leonard expressed doubt, cit-

ing Mr. Justice Harlan’s concurring opinion in Katz v.

United States, 389 U.S. 347, 360 (1967), that the reading

of the outside of envelopes in incoming international mail

could violate anyone’s “reasonable expectation of privacy”

and thus the Fourth Amendment, since such mail is subject

to inspection and opening in aid of the enforcement of the

customs laws. Given that doubt, the comment in Leonard

to the effect that an overbroad mail cover may not pass

constitutional muster obviously refers to concerns falling

outside of the Fourth Amendment’s scope, that is, due

process concerns existing long before Bianco’s trial.

13a

Opinion and Judgment of the Court of Appeals

We of course express no opinion as to wuether or not

the mail cover in this case involved such excesses or abuses

that would offend principles of due process or any statu-

tory prohibitions. Rianco’s remedy was to move to sup-

press or to object to any evidence derived from the mail

cover. Having failed to do so, he cannot now assert his

challenges to the mail cover in this Court. United States

v. Indiviglio, supra.

Il.

Bianco’s final claim, raised below and decided against

him after a full evidentiary hearing, is that the federal

tax prosecution was derived from testimony given by him

in a state Grand Jury under a grant of transactional im-

munity. Kastigar v. United States, 406 U.S. 441 (1972):

Murphy v. Waterfront Comm’n, 378 U.S. 52 (1964). Bianco

testified before that Grand Jury on five occasions from

March through June of 1970. Bianco points to several

questions asked by the state District Attorney, David

Katz, which involved the fact that Bianco had made certain

expenditures, that he had received income from at least

one source and that he had not filed federal tax returns.

According to Bianco “[t]he very nature of these questions

suggest [sic] circumstantial support that this testimony

may have indeed provided the prime moving force for .. .

[his] subsequent tax prosecution.” *

Bianco points out that once he has demonstrated that

he testified under a grant of immunity at a state Grand

Jury with respect to the subject of a subsequent federal

prosecution, the burden is on the government not only to

8 Bianco also appears to have testified before a federal Grand Jury.

but he does not claim on this appeal that his appearance there under

a grant of immunity was in any way misused.

¥ Appellant's brief p. 43.

l4a

Opinion and Judgment of the Court of Appeals

show that its evidence was not tainted by or derived from

that testimony but also to show that its evidence was se-

cured from independent legitimate sources. Kastigar v.

United States, supra, 406 U.S. at 460; Murphy v. Water-

front Comm’n, supra. 378 U.S. at 79 n. 18.2% Ata hearing

based upon Bianco’s contentions, the government produced

two witnesses, David Katz, the state District Attorney who

had questioned Bianco in front of the Grand Jury, and

Agent Nahmias, who was the case agent handling Bianco’s

investigation after the Grand Jury appearance. After hear-

ing these two witnesses and after reviewing the govern-

ment’s entire file on the Bianco investigation, the district

court allowed the case to proceed. We find that the district

court’s decision is supported by the evidence adduced at

the hearing.

Agent Nahmias testified that he had not been aware

of the fact that Bianco had testified before any Grand

‘-ury until shortly before the instant hearing and that he

had at that time still not seen the transcript of the state

Grand Jnry testimony. He further testified that he never

had any contact with any state officials who had been

involved in the Grand Jury proceedings. He testified

that he conducted the investigation entirely on his own

but conceded that there had been other federal agents

connected with the Brooklyn Organized Crime Task

Force with whom he had consulted during the course

of his investigation and that when he began his investi-

10 At oral argument the government urged that if it proved that it had

no access to the immunized testimony, it would be relieved of the burden

of showing the independent legitimate sources of its evidence. Arguably,

one could read both Kastigar and Murphy as having assumed that fed

eral prosecutorial officials would be aware of the immunized testimony,

and that given such knowledge, the non-use, alternative source burdens

must then he applied. Given our view that the government met both

Kastigar burdens in this case, we express no opinion on the govern-

ment’s argument.

1Sa

Opinion and Judgment of the Court of Appeals

gation in September, 1971, he consulted both FBI reports

on Bianco and a report of a prior IRS Intelligence Divi-

sion agent’s investigation, which report and investigation

were concluded significantly prior to Bianco’s Grand Jury

appearance." District Attorney Katz testified that he had

not had any conversation or discussions with any federal

agents or authorities with respect to the Bianco Grand Jury

appearance. He stated that the minutes of the Grand Jury

proceeding had been kept under lock and that only he and

a clerk in his office had access to the file. According to

Katz’s testimony, Bianco’s appearance before the Grand

Jury had been in connection with an investigation into a

shooting and alleged industrial and labor racketeering in

Brooklyn; he could not recall his reason for asking Bianco

his source of income and whether or not he had filed tax

returns. He was sure, however, that he had not been

requested to ask those questions by federal authorities and

that he bad not communicated the results to them, nor to

anyone else other than perhaps his superior or another

district attorney.

It developed at the hearing that there was one possible

link between the District Attorney’s Office and the Brooklyn

Organized Crime Task Force. That link was Detective

John Capabianco, the liaison officer between the two offices.

Katz testified, however, that he had not discussed Bianco’s

testimony with Capabianco. Further, near the close of the

hearing, the government offered by letter to the court and

to defense counsel to produce Capabianco and indicated

11 At defense counsel’s suggestion and with the prosecution's full agree-

ment, the district court examined the entire government file including

the FBI reports in camera in an attempt to eliminate the need to call

as witnesses other federal agents. The court indicated that there was

nothing in the file indicating that the state Grand Jury proceedings

were ever referred to. It should be noted that upon this Court's request.

the file was sealed and transmitted to use for our complete examination.

16a

Opinion and Judgment of the Court of Appeals

that Capabianco would testify that he had not given any

information from the Bianco Grand Jury proceedings to

any federal authorities. The district court and the defense

apparently felt that the government’s representation was

sufficient since the hearing ended with Katz’s testimony.

The evidence as described was certainly sufficient to

demonstrate not only that the federal prosecution made

no use of Bianco’s immunized testimony but also that it

had no access to it or knowledge of its existence. While

it might have been better for the government to have

placed certain other IRS revenue and intelligence agents

on the stand to testify as to their lack of knowledge of the

testimony, Mr. Katz’s testimony that he had not trans-

mitted outside of his office any information about Bianco’s

appearance is sufficient to show no use by federal agents

of any information garnered from that appearance. Ad-

mittedly, there was no intentionally erected “Chinese wall”

between the state District Attorney’s Office and the federal

agents, cf. United States v. Sapere, Docket No. 75-1278 (2d

Cir. February 13, 1976), slip op. 1891, but the record is

sufficient to demonstrate that no information trickled

through the natural barriers between the state and federal

authorities.

The proof at the hearing was also sufficient to demon-

strate that the government’s tax prosecution arose from

sources independent from the immunized testimony. At

the Grand Jury, Bianco testified that he had not filed

federal tax returns, that he made his living by betting on

horses, that he had been in an unsuccessful business called

“Kasy Floorwaxing,” that he paid $215 per month in rent

on his apartment and that he had purchased an automobile

from Kaplan Buick, which automobile was financed through

Pankers Trust Company. He thus testified about non-

filing, possible sources of taxable income and possible ex-

penditures, all items of interest to the government’s tax

o—

17a

Opinion and Judgment of the Court of Appeals

prosecution. Agent Nahmias’ testimony, together with the

file examined by the district court, showed independent

sources for all of these items.

Bianco claims that his admission that he had income

from gambling and that he had not filed returns created

the impetus for the present prosecution. The fact that

Biaueo had not been filing federal income tax returns since

1963, however, was nothing new to the IRS. Bianco had

been the subject of a continuing intelligence division in-

vestigation long before his Grand Jury appearance. That

initial investigation for the earlier tax years was closed

with a report by Special Agent Langone, dated December

97, 1968, because that agent could not prove sufficient

expenditures for those years to warrant prosecution. Agent

Nahmias testified that, although that phase of the investi-

gation had been closed, the IRS had maintained a con-

tinuous active interest in Bianco’s status as a taxpayer.

Bianco’s claim that his admission before the Grand Jury

of non-filing was the spur behind his tax prosecution seems

to be disingenuous. Bianco’s reference to gambling as a

source of income was also information readily available

to Agent Nahmias from a source not connected with the

Grand Jury. Nahmias testified that after he was assigned

to the case he examined Bianco’s arrest record at the New

York City Police Department. That record included an

arrest for gambling. It should also be noted that when

Agent Nahmias filed his report recommending prosecution,

he did not inelnde gambling as a source of Bianco's in-

come."

Similarly, evidence that the prosecution did use at

Bianco’s trial also came from sources other than the Grand

Jury. Agent Nahmias’ report indicated that Bianco’s pos-

12 That source was never used by the prosecution in the presentation

of its case.

Opinion and Judgment of the Court of Appeals

sible sources of taxable income were from his loansharking

activities and from his connection with the Easy Floor-

waxing Company. The loansharking obviously came from

a source other than the immunized testimony since that

activity was never discussed at the Grand Jury.’* Although

Agent Nahmias did not specifically indicate where he had

obtained the leads to the Easy Floorwaxing Company as

a source of income, Agent Langone’s file, closed prior to

Bianco’s Grand Jury appearance, contained references to

that business activity. Finally, the Kaplan Buick and

Bankers Trust Company references, used by the prosecu-

tion both as an expenditure and as a lead to Easy Floor-

waxing, as well as references to rent paid by Bianco, were

also contained in Agent Langone’s pre-Grand Jury file.

The FBI file also contained reports, dated prior to the

Grand Jury appearance, in which the financing of Bianco’s

ear through Bankers Trust Company was mentioned.

Thus it is clear that all of the information contained in

Bianco’s testimony which could have been used by Agent

Nahmias in his investigation, with the possible exception

of the gambiing source of income which was never used

as such by the prosecution, was already known to federal

agents prior to that testimony. It is obvious that informa-

tion possessed prior to the Grand Jury appearance is

informstion derived from sources other than that ap-

pearance."

13 Mr. Katz did ask Bianco if he was engaged in a loan business; Bianco

replied in the negative.

14 Bianco also contends that the entire trial was prejudiced because the

prosecuting attorney had read the transcript of the immunized testimony

prior to trial, citing primarily United States v. McDaniel, 482 F.2d 305

(8th Cir. 1973). Aside from the fact that Bianco failed te raise this

contention below, we find McDeniel to be inapposite and the argument

to he otherwise without merit. In McDaniel the prosceutor had read the

entire transcript prior to his knowing that it had }een immunized and

prior to the indictment in that case having heen filed. The McDaniel

19a

Opinion and Judgment of the Court of Appeals

Affirmed.

court concluded that the prosecutor's “use” of the testimony could in-

clude such things as “assistance in focusing the investigation, deciding

to initiate prosecution, refusing to plea-bargain, interpreting evidence,

planning cross-examination, and otherwise generally planning trial strat-

egy.” United States v. McDaniel, supra, 482 F.2d at 311.

Here the prosecutor read the transcript only in preparation of the

government’s defense to Bianco's motion to dismiss. The investigation

of the case was already complete and, as has been pointed out in the

text, that investigation already contained and the prosecutor already

knew everything in the testimony germane to the tax case. The only

“age” to which the prosecutor could have put his reading of the tran-

seript was to defend against the motion to dismiss.