Petition — Bernstein v. United States

Supreme Court brief1976

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IN THE

Supreme Court of the United States

October Term, 1976

No. .. 7 5- ] v4 9 8

HARRY BERNSTEIN, ROSE BERNSTEIN,

and EASTERN SERVICE CORPORATION,

Petitioners,

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

FRANK G. RAICHLE,

Attorney for Petitioners,

10 Lafayette Square,

Buffalo, New York 14203,

Tel. No. (716) 852-7587.

Raicuiz, Bannina, Weiss & HaLrern,

of Cownsel.

BATAVIA TIMES, APPELLATE COURT PRINTERS ep

A. GERALD KLEPS, REPRESENTATIVE

20 CENTER ST., BATAVIA, H. ¥. 14080

716-343-0487

R., Ci ERK

PAGE

SE. Suc ls Wa cdaee habs rena bkeccreencees 2

UE. 4-00'c o ode cugadaaheeh -o4n4n6s 6aeune ¥e ae 2

Questions Presented with Respect tu the False State-

S RED sa nk Canc dues Ceasddes. Cds eee uneeeIE 2

Questions Presented with Respect to Briber, Couats.. 3

es rin one Ned ik onas dk ee.

NN PORTE OTe ee er Free 5

PE AOU en boda ctUbnand feb bag hous ee on Cds ebnewes 6

With Respect to the First Question Presented ........ 10

With Respect to the Second Question Presented ...... 12

With Respect to the Third Question Presented ........ 14

With Respect to the Fourth Question Presented ...... 14

With Respect to the Fifth Question Presented ........ 15

Reasons for Granting the Writ ..................... 16

APPENDICES:

—- A—Order denying rehearing for appellants

arry Bernstein, Rose Bernstein and Eastern Ser-

vice Corporation dated May 14, 1976 in case at bar... Al

Appendix B—Order denying suggestion that the action

be reheard in bane for appellants Harry Bernstein,

Rose Bernstein and Eastern Service Corporation

dated May 14, 1976 in case at bar .................. Bl

Appendix C—Opinions of Second Circuit Court of

I 0 0 bk bndes nk oe cus Senin oss Cl

Appendix D—Opinion of Sixth Circuit in United States

Vs MC GOR 6h o's coc nde eeucé on sx Beeeecents D1

Appendix E—Portion of District Court’s charge

referred to in Judge Van Graafeiland’s dissenting

Se ITED 06 6c Se ntndsnccchaeedneneens El

——— F—Judgment of Second Cireuit Court of

ppeals in case at bar dated March 4,1976......... Fl

Il.

TABLE oF CasEs.

7 PAGE

Giaccio v. Pennsylvania, 382 U.S. 397 (1966) ......... 14

Jacobs v. United States, 359 F.2d 960 (8th Cir. 1966) .. 12

Ue Wi Gs OE boon ipecccucsnssupecscces 20

Smith v. Goguen, 415 U.S. 566 (1974) ................ 14

United States v. Cohen Grocery, 255 U.S. 81 (1921) .. 14

United States v. George, 228 U.S. 14 (1913) ......... 11, 12

United States v. Guterma, 281 F.2d 742 (2d Cir.), cert.

denied, 364 U.S. 871 (1960) ........... ccc eee eeeee . 10

United States v. Standard Brewery, Inc., 251 U.S. 210

EE Oe ered cue Oude Ci ace eke wel s canenes 12

Viereck v. United States, 318 U.S. 236 (1942) ......... 12

STaTuTEs.

ee I 654550 0 0b sn'ed 0 d64 bh ch diese in 12

IS U.S.C.:

SRR OQHEr rE peng re Dee hey | mami anni ae mye on ]

Se Cac lund Gut Cena peek dee aa ad ee o 4 Meeks Ae 1,4

Dc auets Se eha cee ene neni wans anne ue lnees 5

SEE ec winkbe ds 5.ced ed Dicsis ben dibas tcchvunesbaekan 1,5

RN occcsed ik dda s 6 dante anecnes 1, 4, 5, 11, 12, 15, 16

a a a ee eee ee wa ct 2

RULEs.

Rule 22(2) of the Rules of the Supreme Court of the

REE SEE ER yeas» eee 2

CONSTITUTION.

Sections 1 and 2 of Article IIT of the Constitution of the

EE cb-cb bata Vena sehdeecceeasecwee sss: 2

———

IN THE

Supreme Court of the United States

October Term, 1976

A IS a

HARRY BERNSTEIN, ROSE BERNSTEIN

and EASTERN SERVICE CORPORATION,

Petitioners,

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

The petitioners Harry Bernstein, Rose Bernstein and

Eastern Service Corporation pray that a writ of certiorari

issue to review the judgment (App. F)* of the United

States Court of Appeals for the Second Circuit dated

March 4, 1976 affirming the judgments of conviction of said

petitioners of the crimes of conspiracy, 18 U.S.C. § 371,

bribery, 18 U.S.C. § 201 and 18 U.S.C. § 2, and false state-

ment offenses, 18 U.S.C. § 1010 and 18 U.S.C. § 2.

* Refer to Appendix F.

The petitioners petitioned the Court of Appeals for a

rehearing, together with a suggestion for a rehearing in

banc. The Court of Appeals denied petitioners’ application

for a rehearing and a rehearing im banc on May 14, 1976.

The order denying the petition for rehearing is printed as

App. A. The order denying a rehearing im banc is printed

as App. B.

Opinion Below

Neither the majority opinion, written by Judge Oakes

of the Court of Appeals, nor the dissenting opinion of

Judge Jan Graafeiland, has yet been officially reported.

Judge Oakes’ opinion is printed in App. C. Judge Van

Graafeiland’s dissenting opinion is included in App. C at

(53 et seq.

Jurisdiction

The jurisdiction of the Supreme Court to review the

judgment herein by writ of certiorari is conferred by Sec-

tions 1 and 2 of Article ITI of the Constitution of the

United States; 28 U.S.C. § 1254(1); and Rule 22(2) of the

Rules of the Supreme Court of the United States.

Questions Presented with Respect to the

False Statement Counts:

We preface our statement of the questions presented with

the observation that the majority opinion of the Court be-

low states that such questions are “troublesome” and that

the dissenting opinion refers to a “series of erreurs in the

District Court’s charge which fairly cry for revers. ” The

questions presented include the following :

1. Whether it was error for the trial court to charge the

Jury that it was a question of “fact” for the jury to deter-

mine if the FHA placed an affirmative duty on Eastern

Service Corporation and its officers to exercise “proper

eredit judgment” with respect to statements made in the

mortgage insurance applications and to “insure that such

statements were true.” (App. F.)

2. Whether it was error for the trial court in its charge

to equate an alleged failure to exercise “proper credit judg-

ment” with a false statement.* (App. E.)

3. Whether a statement by a mortgagee that “to the

hest of its knowledge and belief” no information contained

in a mortgage application in behalf of others is untrue is

the equivalent of an unqualified assurance that all the state-

ments made by such others are in fact true.

4. Whether the indictments involved in the false state-

ment counts against the petitioners under which they were

convicted failed sufficiently to charge a crime.

Questions Presented with Respect to Bribery Counts:

5. Whether convictions on the bribery counts were

multiplicitous. The point in this connection is that while

on occasions it is claimed that only one payment of

money was made, petitioners were charged with several

separate briberies for several separate appraisals claimed

to have been induced by a single payment. See majority

opinion, App. C51.

6. Whether there was an impermissible joinder of par-

ties and counts.

All questions were preserved by timely and vigorous ob-

jections (21662-21623); see also (21521, 2 C609, 10, 21538,

(C626-8).

*The phrase “proper credit judgment” was not defined by the

court,

Statutes Involved

18 U.S.C. § 1010

§ 1010. Department or Hovsine anp Ursan Deveror-

MENT AND F'eperaL Hovstne ADMINISTRATION

TRANSACTIONS

Whoever, for the purpose of obtaining any loan or

advance of credit from any person, partnership, asso-

ciation, or corporation with the intent that such loan

or advance of credit shall be offered to or aceepted by

the Department of Housing and Urban Development

for insurance, or for the purpose of obtaining any

extention or renewal of any loan, advance of credit,

or mortgage insured by such Department, or the aceep-

tance, release, or substitution of any security on such

a loan, advance of credit, or for the purpose of influ-

encing in any way the action of such Department,

makes, passes, utters, or publishes any statement,

knowing the same to be false, or alters, forges, or

counterfeits any instrument, paper, or document, or

utters, publishes, or passes as true any instrument,

paper or document, knowing it to have been altered,

forged, or counterfeited, or willfully overvalues any

security, asset, or income, shall be fined not more than

$5,000 or imprisoned not more than two years, or both.

18 U.S.C. § 201

§ 201. Brisery or Pusiic OrrictaLs anp WITNESSES

(b) Whoever, directly or indirectly, corruptly gives,

offers or promises anything of value to any public

official or person who has been selected to be a public

official, or offers or promises any public official or any

person who has been selected to be a public official to

give anything of value to any other person or entity,

with intent—

(1) to influence any official act; or

(2) to influence such public official or person who

has been selected to be a public official to commit or

or aid in committing, or collude in, or allow, any

fraud, or make opportunity for the commission of

any fraud, on the United States; or

(3) to induce such public official or such person who

has been selected to be a public official to do or omit

to do any act in violation of his lawful dutv . .. .

Statement of the Case

On June 25, 1974, in the Eastern District of New York the

defendant Harry Bernstein was convicted of conspiracy, 16

counts of bribery and one count of submitting false state-

ments to the Federal Housing Administration in connection

with applications for mortgage insurance in violation of

Title 18, United States Code, Section 371, Section 201(b) (1)

and Section 1010. On October 4, 1974, the defendant Harry

Bernstein was sentenced to five years imprisonment and

fined a total of $175,000. On June 25, 1974, the defendant

Rose Bernstein was convicted of conspiracy and four counts

of bribery in violation of Title 18, United States Code, See-

tion 371 and Section 201(b)(1). On October 4, the defen-

dant Rose Bernstein was sentenced to four years imprison-

ment and fined a total of $50,000. On June 25, 1974, the de-

fendant Eastern Service Corporation was convicted of con-

spiracy, 18 counts of bribery and 18 counts of submitting

false statements to the Federal Housing Administration in

connection with applications for mortgage insurance in vio-

lation of Title 18, United States Code, Section 371, Section

201(b)(1) and Section 1010. On October 4, 1974, the de-

fendant Eastern Service Corporation was fined a total of

$460,000.

The defendants-petitioners appealed to the United States

Court of Appeals for the Second Circuit which, by a

divided court, on March 4, 1976 affirmed the judgments of

conviction, App. F’.

The trial of this unwieldly and unmanageable case com-

menced on October 15, 1973. The case was submitted to the

jury on June 17, 1974. The Court began its charge to the

jury on June 13, 1974 and concluded it in the afternoon of

June 17, 1974.

Although we contend that the case, as conceived, struc-

tured and tried, in the very nature of things deprived defen-

dants-petitioners of a fair trial and, further, that during

the trial a host of errors calling for reversal was committed

hy the District Judge, for present purposes we urge pri-

marily the far-reaching fundamental errors in the Court’s

charge, particularly those made in submitting the 18 false

statement counts to the jury. After nine months and at

the end of the trial the jurors were told to determine as a

question of fact what duty was owed by the defendants-

petitioners and, for the first time, the District Court equated

lack of proper credit judgment to false statements without

charging any standards by which to determine proper

credit judgment.

Since the transcript, consisting of upwards of 25,000

pages, is not now before the Court, we have printed as

App. EF, the pertinent portion of the Court’s charge, on the

false counts. It is also printed in ‘he margin of the dissent-

ing opinion, (55 et seq., because we refer to it both under

our heading of “Questions Presented” and our heading

“Reasons for Granting the Writ.” The numbers in ( )

refer to pages of the transcript.

Facts

The defendant-petitioner Eastern Service Corporation,

of which the defendant-petitioner Harry Bernstein is the

president and who, through an intermediate holding com-

pany is the sole stockholder, is and for many years las(

past has been an approved mortgagee of the Federal Hous-

ing Administration (FHA) (2214-2217). It is engaged in

the business of making loans as an initial or interim lender

to assist purchasers of homes (2220). It takes mortgages

execulgy by such purchasers covering houses purchased

by them and discounts such mortgages with permanent

att

lenders—savings banks, pension funds, ete. (10636). It

aids purchasers who might otherwise not be able to pur-

chase a home. by advancing the funds beyond a down

payment to effect the purchase. If the purchaser in a

given instance is unable to make a down payment sufficiently

large to justify the down payment required in connection

with conventional financing, Eastern Service Corporation

assists such purchaser in making application to the FHA

for mortgage insurance, covering a mortgage which will

enable him to make the purchase. In this connection the

purchaser or applicant furnishes, through Eastern Service

Corporation and to the FHA detailed information concern-

ing himself (2365, 2397) and the property involved (2364).

Eastern Service Corporation then requests and obtains a

credit report covering the applicant furnished by a credit

reporting agency approved by the FHA, such as Dun &

Bradstreet.* When the credit report, which is paid for

by.Eastern Service Corporation, is received, it is associated

with the information furnished by the applicant, which infor-

mation is processed for completeness and placed on forms

furnished by the FHA. The “package” ** (2362) of papers is

then forwarded by Eastern Service Corporation to the FHA

(2225) with a certification that the information which has

been furnished by the applicant is true to the best of the

“knowledge and belief” of Eastern Service Corporation.

Upon receipt of the application and credit report (not made

by Eastern but by Dun and Bradstreet) the FHA causes

an appraisal to be made of the property by either a staff

appraiser (one on the regular payroll of MHA) or an

*Dun & Bradstreet furnished all of the credit reports involved

in this case. It is the most prestigious reporting agency in the

United States.

** This is the term often used throughout the testimony (2359,

21386).

outside appraiser (one retamed on a fee basis from time to

time to make particular appraisals). Upon receipt of the

appraisal report and other information (2374-2376), includ-

ing, importantly, the Dun and Bradstreet credit report

(2376), constituting part of the application for an insured

mortgage, the FHA makes a determination as to whether

or not the application for an insured mortgage should be

granted (2226, 2397-2453). Eastern makes no such deter-

mination. It makes no judgment and exercises no discretion.

[ts work is ministerial and routine.

Eastern Service Corporation, which serviced between

2,500 and 4,000 applications per vear (20459-60), had

approximately 140 employees at the times pertinent to this

case.

Sometime in the summer of 1967 one Ortrud Kapraki, a

real estate broker, commenced to make applications for

insured loans through Eastern Service Corporation. In

the course of time false and exaggerated statements began

to creep into various of Mrs. Kapraki’s customers’ state-

ments. These false statements, most of them pertaining to

the financial status of the applicants, became more extensive

and aggravated as time went on (3224-28, 3251, 3255, 3262,

3270, 3285). There was no evidence, in fact no claim by

the government, that any of the above named petitioning

defendants had actual knowledge of the false statements

(20640-41, 18742). The charges against Mr. Bernstein and

Eastern Service Corporation on the false statement counts

of the indictment are that they were negligent in not dis-

covering such false statements and, further, that the certifi-

cation that the information furnished was not untrue ‘to the

“knowledge and belief” of Eastern Service Corporation

was the equivalent of an assurance that such statements,

though made by others, were true.

——

On an unrelated phase of the case it developed that wholly

apart and completely separate from his interest in Eastern

Service Corporation, the defendant-petitioner Harry Bern-

stein was financially interested in several pieces of property

on his own account (12144-13002). With respect to some of

these properties he owned the fee. In other instances he

owned the mortgage, sometime. a second mortgage. On

occasions applications were made for mortgage insurance

on mortgages covering these properties.” On occasions and

apropos of applications for mortgage insurance covering

mortgages on these properties, an FILA staff appraiser

by the name of Edward Goodwin made appraisals. Good-

win testified to some payments to him for “getting Mr.

Bernstein the top dollar” in the way of mortgage insurance

for mortgages on these properties by inflating their value

in his appraisals (11965, 12545, 12653). These payments

are charged as bribes and are the subject of many of the

so-called bribery counts in the indictment on which Mr.

Bernstein and Eastern Service Corporation were convicted.

They had nothing to do with the false statement counts.

The government charged an over-all comprehensive con-

spiracy which included not only Mr. and Mrs. Bernstein,

Eastern Service Corporation and Mrs. Kapraki (and vari-

ous of her employees), but Dun & Bradstreet, the manager

of its Hicksville office and certain other FHA personnel as

well. The jury disagreed as to Dun & Bradstreet and its

office manager. It acquitted the FHA personnel, other

than Goodwin whose case was severed and, like Mrs.

Kapraki, testified for the Government. In view of the dis-

agreement and acquitta!s, we do not marshal the facts with

* No one of these applications is alleged to contain false state-

ments and no one of these properties is involved in the so-valled

false statement counts of the indictment.

respect to these defendants, although weeks and months

of testimony was offered and received with respect to their

claimed participation in the alleged conspiracy.

With Respect to the First Question Presented:

The District Court charged in substance that it was for

the jury to determine as a question of fact the nature and

extent of the duty of Eastern Service Corporation and its

officers. In this connection, among other things, the Court

charged,

“Now, it is a question of fact for you as jurors to de-

termine * * * if the FHA, of the Housing and Urban

Development, places an affirmative duty on certain of

the defendants in this case.”

2 * *

“You may find that the FHA program places a duty

on the mortgagee to investigate and exercise proper

credit judgment with respect to statements contained

in applications for mortgage insurance submitted to

the FHA.” (Emphasis added.) (App. E.)

In doing this the judge gave the jury an undertaking prop-

erly his own, United States v. Guterma, 281 F. 2d 742, 751-

52 (2d Cir.), cert. denied, 364 U.S. 871 (1960). The duty of

Eastern and its officers, whatever it may be, was imposed

by law and certainly was not a question of fact to be de-

termined by the jury. As stated by Judge Van Graafeiland

in his dissent :

“This was not a question of fact; it was a question

of law. The construction of statutes and regulations

is for the court, not the jury. United States v. Santi-

ago, F. 2d (2d Cir. 1976), slip op. 6577, 6583 ;

United States v. Guterma, 281 F. 2d 742, 751-52 (2d

Cir.), cert. denied, 364 U.S. 871 (1960); United States

v. Gillilan, 288 F. 2d 796-97 (2d Cir.), cert. denied sub

nom. Apex Distributing Co. v. United States, 368 U.S.

821 (1961); Caldwell v. United States, 218 F. 2d 370,

— ~

372 (D.C. Cir. 1954), cert. denied, 349 U.S. 930 (1955).

If this were not so there would be as many rules as

there are verdicts. Northern Pacific Railway Co. v.

Finch, 225 F. 676, 678 (D.N.D. 1915).”

As the dissent points out, “We do not know what legal

duties were imposed upon these defendants by the jury;

no other court will ever know and hundreds of other FHA

mortgagees who would like to comply with the law will be

equally at sea. . .” (Emphasis added.) (App. C.)

This statement demonstrates the importance of a correct

resolution of the question here presented. There is no

ease in the books allowing a jury to in effect legislate or

create a crime not prescribed by the legislature. Unless

corrected this case will occasion great confusion and doubt.

Defendants were indicted on conspiracy and substan-

tive counts for alleged violations of 18 U.S.C. § 1010, which

provides in pertinent part as follows:

“Whoever . . . for the purpose of influencing in any

way the action of [the Federal Housing Administra-

tion], makes, passes, utters, or publishes any statement,

knowing the same to be false, . . . shall be fined [and/

or imprisoned ].”

Defendants were not indicted for violation of a “pro-

gram” or instructions contained in the FHA manual or

mortgagee’s handbook.* Nor could they be. This Court

has, time and again, pointed out the difference between

duties imposed legislatively and those imposed administra-

tively and has held that “[w]here the charge is of crime, it

must have clear legislative basis.” [’nited States v. George,

* Although the District Court used the term “regulations”, tes-

timony introduced by the Government indicated that the procedures

outlined in the FHA manual and mortgagee’s handbook were not

regulations, but rather instructions. |

228 U.S. 14, 22 (1913). The contents of an administrative

manual or handbook “cannot add to the terms of an act of

Congress and make conduct criminal which such laws leave

untouched,” United States v. Standard Brewery, Inc., 251

U.S. 210, 220 (1920). One may be convicted only for wrong-

ful conduct “defined by statute or by regulation having

legislative authority, and then only if punishment is author-

ized by Congress,” Viereck v. United States, 318 U.S. 236,

241 (1943). As Mr. Justice Blackmun succinctly put it, while

on the bench of the Eighth Circuit, “mere violation of a

{Commodity Credit Corporation] ‘policy’ is not equivalent

to a violation of [15 U.S.C.] § 714m (a).” Jacobs v. United

States, 359 F. 2d 960, 966 (Sth Cir. 1966).

18 U.S.C. § 1010 places no affirmative duty upon a mort-

gagee forwarding a mortgagor’s application to investigate

and exercise proper credit judgment concerning the finan-

cial status of the mortgagor described in the application."

The majority opinion in the case at bar, on the contrary,

does exactly that. To equate defendants’ failure to exer-

cise this “proper credit judgment” with a reckless disre-

gard of the truth, and thus with the knowledge of falsity

required by § 1010, is to read something into the statute

which is otherwise totally absent. No one can know what

the court meant by proper credit judgment. Certainly the

jury could not know.

With Respect to the Second Question Presented:

It was error for the court to equate a failure to exercise

“proper credit judgment” with a false statement. Espe-

cially is this so, because the Court nowhere in its charge

or elsewhere instructed the jury as to the meaning of the

* Eastern Service Corporation could not grant insurance or even

recommend it.

term “proper credit judgment.” We have no idea show

these 12 untutored laymen defined it and yet, this phrase,

undefined, unexplained and uninterpreted, constitutes the

basis of the government’s case on the false statement

counts as it was presented to the jury by the district judge.

‘Without regard to any other factor in the confusing and

erroneous instruction to the jury on this subject, the most

aggravated was the Court’s reference to “proper credit

judgment.” It was bad enough—error in itself—to let ‘the

jury determine the existence of defendant’s duty but to

suggest a new theory as did the District Court and intro-

duce a new and undefined standard or possible requirement

was the last straw.* We repeat nowhere did the Court de-

fine the term “proper eredit judgment.”

In diseussing proper credit judgment, it should be kept

in mind that the whole purpose of the National Housing

Act is to provide homes for the poor and the indigent; in-

deed, to those who really have no credit standing (13570-

13584). Good credit judgment in the conventional sense

of the term applied to most applicants would undoubtedly

defeat the object of the legislation.

Nowhere in any statute, nowhere in the indictment and

nowhere in the bill of particulars is there a mention of

proper credit judgment or the lack of it. Nowhere in law

or in any regulation having the effect of law is such a

burden imposed upon a mortgagee or any of its officers

or directors. The exercise of credit judgment, good or bad,

as we have said in each instance, was that of the FHA and

not that of the mortgagee. Nowhere in law or in any regu-

lation having the effect of law has it been provided that the

lack of good credit judgment or good business judgment

* One not even argued by the government.

constitutes a crime and the basis for a conviction on an

unending series of counts charging separate crimes each

time a lay jury could find with the benefit of hindsight that

the judgment used was, in the jury’s opinion, not good. Even

a statute or an otherwise valid regulation couched in the

language of the Court’s charge would be unconstitutionally

vague and lacking in standards by which a defendant’s guilt

could be determined in a criminal case. Smith v. Goguen,

415 U.S. 566 (1974); Giaccio v. Pennsylvania, 382 U.S. 397

(1966) : United States v. Cohen Grocery, 255 U.S. 81 (1921).

With Respect to the Third Question Presented:

The holding of the trial Court, affirmed by the majority

opinion of the Second Circuit, that the certification of the

mortgagee that “to the best of its knowledge and belief”,

no information in the mortgage application is untrue, is

the equivalent of an unqualified assurance that all state-

ments are true is the clearest of error. See discussion

under heading “Reasons for Granting of the Writ”, infra.

With Respect to the Fourth Question Presented:

With respect to the fourth question presented, no one

of the charges set forth in the 18 false statement counts

specified or identified the statements claimed to be false,

nor was it alleged that the claimed false statements were

false to the knowledge of defendants-petitioners charged.

The consequences of such failure to specify or identify

the statements claimed to be false permitted the United

States attorney, for the purpose of the trial, to assign as a

false statement comprehended by the respective counts any

one or more of the many statements contained in the. docu-

ments cited in the ecounts.*

18 USC § 1010 makes it a crime to pass, utter or publish

false statements “knowing the same to be false.” The false

statement counts against Eastern and Mr. Bernstein do

not charge the element of knowledge that the statements

were false when made.*

With Respect to the Fifth Question Presented:

We can point up the fifth question best by quoting in part

from Judge Oakes’ opinion, as follows:

“Finally, and this is a point on which my brothers

and I disagree, appellants Harry Bernstein and ESC

argue that certain of the bribery counts were multi-

plicitous (appellants use erroneously the term ‘duplici-

tous’). On four different occasions Bernstein paid

Goodwin a lump sum for several property appraisals

at $50 per appraisal, thus, for example, paying him

$350 on October 6, 1967, for seven property appraisals.

The problem is that while only one payment of money

was made on this occasion, appellants were c

in five counts (and incidentally Bernstein fined $10,000

for each count and ESC $20,000 for each, note 1 supra).

In totality four lump sum payments resulted in con-

victions on 11 counts. The question—one as to which

* Count 25 of the indictment, illustrative of all the false statement

counts, charged as follows:

“On or about the 3rd day of April 1969, within the Eastern

District of New York, the defendants Rose Bernstein, also known

as Rose Shorenstein, Harry Bernstein, Florence Behar, Ortrud

Kapraki, Melvin Cardona and Eastern Service Corporation, for

the purpose of influencing the Federal Housing Administra-

tion of the Department of Housing and Urban Development

to insure a loan and advance of credit by the defendant Eastern

Service Corporation, did knowingly make, pass, utter and pub-

lish false statements in an application for mortgage insurance

on property located at 416 52nd Street, Brooklyn, New York

(Title 18, United States Code, § 1010 and § 2).”

there are no cases directly in point—is whether each

lump sum payment constituted one crime or several,

a single transaction or many. Wane argue, and

the writer agrees, that under 18 U.S.C. 4 201(b) it is

the corrupt gift which is the essential criminal act on

the part of the donor, though it be with the intent to

induce several criminal acts (and might be punished

severally under 18 U.S.C. § 201(¢) on the part of the

donee.)”’ (Emphasis added.)

Reasons for Granting the Writ:

Importantly, the decision of the Second Circuit, entered

on March 4, 1976, which we ask this Court to review, is in

direct conflict with decisions of other circuits, particularly

with a decision of the Sixth Circuit not as yet reported en-

tered eight days after the decision in our case on March 12,

1976 in the case of United States v. Ekelman, App. D.

Both our ease and the Ekelman case directly involve the

question of the duty and obligation of a mortgagee under

iS U.S.C. § 1010 when forwarding applications of mort-

gagors for mortgage insurance to the FHA and the

Veterans Administration for action by those agencies. In

our case, as we have pointed out, the District Court errone-

ously left it to the jury to determine the nature and extent

of such duty and obligation. In the Ekelman case the duty

and obligation of such a mortgagee were defined as a matter

of law by the Court. In the case at bar, the Court charged

the jurors that they could find an “affirmative duty to insure

that statements made in the application were true.” In the

Ekelman ease the Sixth Cireuit held that there was no such

duty. In the Ekelman case in a unanimous opinion, the

Sixth Cireuit said:

“Thus, the law of this Circuit requires a showing of

actual knowledge to establish liability under the False

Claims Act. This appears to be the preponderant view.

See, eg United States v. Aerodex, Inc., 469 F. 2d.1003

Sth Cir. 1972); United States v. Mead, 426 F. 2d 118

9th Cir. 1970); Eastern School v. United States, 381

DE) 421 (Ct. Cl. 1967).” (Emphasis added.) (App.

There was not even a claim by the government in our

case that the defendants-petitioners had actual knowledge

of any false statements; in fact, it was specifically stated

hy government counsel that there was no such claim.

Notwithstanding the government’s disavowal of any

claim that the petitioning-defendants had “actual knowl-

edge” of any fraudulent statements, the prevailing opinion

of the Second Circuit said:

“It is our view that delimiting those duties by defining

them as duties ‘to investigate’ and to use ‘good credit

judgment’ was a fair description of the responsibilities

inherent in the relationship between the defendants

and the FHA, as we have above described it.” (App. C.)

This is directly contrary to the holding of the Sixth Cireuit

in the Ekelman case and, as the Sixth Circuit stated, con-

trary to the “preponderant view.” (App. D5.)

There is a further and even more far-reaching conflict

between the case at bar and the preponderant view, as

expressed by the Sixth Circuit. [In the case at bar the Sec-

ond Circuit has held that the certificate of the mortgagee

that the information contained in the application is “true

and complete to the best of its knowledge and _ belief”

amounts to a verification of the truth of the statements and

gives rise to the affirmative duty to investigate and to exer-

cise proper credit judgment, whereas the Sixth Circuit

places no such construction on the certificate.

The importance of resolving the conflict between the

majority opinion of the Second Cireuit in the case at bar

and the decisions of the Fifth and Sixth Cireuits in similar

cases cannot be exaggerated. Hundreds, nay thousands, of

applications are being presented year by year to both the

FH.\ and to the Veterans Administration by mortgagees

for insurance. In each instance the information contained

in the application is furnished by the mortgagor, not the

mortgagee. In each instance the mortgagee, relying upon

the mortgagor and the report of a credit agency (im our case

Dun and Bradstreet), merely states that the information

contained in the application is true to the best of its

“knowledge and belief.” The Second Cireuit has held in

the case at bar that this is the equivalent of “verifying the

truth of the information in the applications.” The Sixth

Cireuit, to the contrary in the Ekelman cave, heid the follow-

ing:

“The certification of truth ‘to the best of my knowledge

and belief’ is a qualified assertion of facts represented.

It does not represent that the party making the asser-

tion has personal knowledge of the facts and is not the

equivalent of an assertion such as: ‘I certify that this

veteran is indebted to others in the amount of $5,000.’ ”

and, further,

“In certifying the truth of the information in the

application ‘to the best of its knowledge and belief’

Franklin [the mortgagee] did no more than assert that

it had no knowledge of, nor intention to make, mis-

representations.” (App. D8.)

Such should have been the holding in our case.

Numerous statements to the best of one’s “knowledge and

belief” are being made everyday by many people in various

contexts. If, now, such statements are in law to amount to

an unqualified assertion of the truth to the peril of one mak-

ing the statement, the bench and bar sheald know such fact

and the rule should be of universal application.

The far reaching implications of the conflict between the

Second Cireuit decision in our case and the Sixth Circuit

decision in the Ekelman case (cases decided within eight

days of each other) become more apparent as one reads

the prevailing and dissenting opinions in our case and the

Sixth Circuit opinion in the Ekelman case. The government

has stated that upwards of $200 million to $300 million of

insurance loans have been made by the FHA and that this

agency is continuing to make additional loans. As observed

vy the dissenting opinion in our case, :

“We do not know what legal duties were imposed upon

these defendants by the jury; no other court will - so

know, and hundreds of other FHA mortgagees who

would like to comply with the law will be equally at

sea.”” (Emphasis added.) (App. C63.)

Thus far we have discussed the reasons for granting the

writ which involve the false statement counts. We submit

that there are equally good reasons for granting the writ

which stem from the Court’s handling of the bribery counts.

As pointed out in Judge Oakes’ opinion, the Second Cir-

cuit divided on the law pertaining to certain of the bribery

counts.” As to these counts Judge Oakes agreed with us,

whereas the other two judges did not. As Judge Oakes

said,

“The problem is that while only one payment of money

was made on this occasion, appellants were in

five counts (and incidentally Bernstein fined $10,000.

for each count and ESC $20,000 for each, . . .). In

totality four lump sum payments resulted in conviec-

tions on 11 counts. The question—one as to which

there are no cases directly in point—is whether each

lump sum payment constituted one crime or several,

a single transaction or many.” (Emphasis added.

(App. C51.) , ein

* But, there was a realignment of the judges.

Although Judge Oakes is correct in his statement that there

are no cases directly in point, we call attention to the

decision of the Court of last resort of the State of New

York in People v. Cox, 286 N.Y. 137, where the New

York Court of Appeals held that repeated thefts of

nickels and dimes from the Independent Subway System

of the City of New York, amounting to $25 or $30 each

on separate occasions over a period of 11 months but more

than $100 in the aggregate constituted one crime (grand

larceny). The Court said at 142:

“Where the property is stolen from the same owner

and from the same place by a series of acts, if each

taking is the result of a separate independent impulse,

each is a separate crime; but if the successive takings

are all pursuant to a single, sustained, criminal im-

pulse and in execution of a general fraudulent scheme,

they together constitute a single larceny, regardless

of the time which may elapse between each act.”

and further at 144:

“When defendant, along with the various station

agents, once agreed together to ‘belt’ the turnstiles,

and thereafter carried out that purpose by stealing the

nickels, the acts necessary to constitute the offense of

larceny were united and the resulting crime was single

although there may have been a number of takings.”

Time and space, let alone the instructions of this Court,

do not permit of the development of all the reasons why

a writ of certiorari should be granted. The same prosecu-

torial mismanagement of the 9-months trial which preju-

diced the defendants on the trial and interfered with an

adequate presentation before the Court of Appeals inhere

to make a complete argument in support of a writ of certio-

rari impossible, but if the writ is granted we desire to pre-

serve for argument the points presented.

For the foregoing reasons the writ of certiorari should

issue to review the judgment and opinion of the Second Cir-

cenit.

Respectfully submitted,

FRANK G. RAICHLE,

Attorney for Petitioners.

Raicuuie, Bannine, Weiss & Hatpern,

Of Counsel.

APPENDIX A

wis be Order denying rehearing for appellants Harry Bernstein,

“re Rose Bernstein and Eastern Service Corporation dated

May 14, 1976 in case at bar

UNITED STATES COURT OF APPEALS

Seconp Circuit

At a Stated Term of the United States Court of Ap-

| peals, in and for the Second Circuit, held at the

United States Court House, in the City of New

York, on the fourteenth day of May, one thou-

sand nine hundred and seventy-six.

| Present: HON. WILFRED FEINBERG,

HON. JAMES L. OAKES,

| HON. ELLSWORTH VAN GRAAFEILAND,

Circuit Judges.

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

HARRY BERNSTEIN, ROSE BERNSTEIN, a/k/a

ROSE SHORENSTEIN, EASTERN SERVICE COR-

PORATION, DUN & BRADSTREET, INC., HERBERT

CRONIN, FLORENCE BEHAR, FRANK FEY,

ARTHUR PRESCOTT, ORTRUD KAPRAKI, MEL-

VIN CARDONA, PATRICIA BUCKLY, EDWARD

GOODWIN, JOSEPH JANKOWITZ, FRANK DREIS,

GREVILLE HARVEY, ROSE COHEN, JOSEPH

MONTI, IRVING FIGOWITZ, RALPH GONITAS,

HAROLD KELLER, MANUEL CARPIO, DOUGLAS

HOLLENBACH and RICHARD E. BELL,

Defendants,

HARRY BERNSTEIN, ROSE BERNSTEIN, a/k/a

ROSE SHORENSTEIN, EASTERN SERVICE COR-

PORATION, FLORENCE BEHAR, MELVIN CAR-

A, .

— Defendants-Appellants.

74-2328

Appendix A—Order denying rehearing for appellants

Harry Bernstein, Rose Bernstein and Eastern Service

Corporation dated May 14, 1976 in case at bar |

A petition for a rehearing having been filed herein by

counsel for the appellants Harry Bernstein, Rose Bern-

stein and Eastern Service Corporation.

Upon consideration thereof, it is

Ordered that said petition be and hereby is DENIED.

A. DANIEL FUSARO,

Clerk.

APPENDIX B

Order denying suggestion that the action be reheard in

banc for appellants Harry Bernstein, Rose Bernstein and

Eastern Service Corporation dated May 14, 1976 in case

at bar

UNITED STATES COURT OF APPEALS

Seconp Circuit

At a stated term of the United States Court of Ap-

peals, in and for the Second Circuit, held at the

United States Court House, in the City of New

York, on the fourteenth day of May, one thou-

sand nine hundred and seventy-six.

UNITED STATES OF AMURICA,

Plaintiff-A ppellee,

HARRY BERNSTEIN, ROSE BERNSTEIN, a/k/a

ROSE SHORENSTEIN, EASTERN SERVICE COR-

PORATION, DUN & BRADSTREET, INC., HERBERT

CRONIN, FLORENCE BEHAR, FRANK FEY,

ARTHUR PRESCOTT, ORTRUD KAPRAKI, MEL-

VIN CARDONA, PATRICIA BUCKLY, EDWARD

GOODWIN, JOSEPH JANKOWITZ, FRANK DREIS,

GREVILLE HARVEY, ROSE COHEN, JOSEPH

MONTI, IRVING FIGOWITZ, RALPH GONTAS,

HAROLD KELLER, MANUEL CARPIO, DOUGLAS

HOLLENBACH and RICHARD E. BELL,

Defendants,

HARRY BERNSTEIN, ROSE BERNSTEIN, a/k/a

ROSE SHORENSTEIN, EASTERN SERVICE COR-

PORATION, FLORENCE BEHAR, MELVIN CAR-

DONA,

Defendants-A ppellants.

Appendix B—Order denying suggestion that the action be

reheard in banc for appellants Harry Bernstein, Rose

Bernstein and Eastern Service Corporation dated May 14,

1976 in case at bar

A petition for rehearing containing a suggestion that the

action be reheard in bane having been filed herein by coun-

sel for the appellants, Harry Bernstein, Rose Bernstein and

Kastern Service Corporation, and no active judge or judge

who was a member of the panel having requested that a vote

he taken on said suggestion,

Upon consideration thereof, it is

Ordered that said petition be and it hereby is DENTED.

IRVING R. KAUFMAN,

Chief Judge.

Ee eee ~

APPENDIX C

Opinions of Second Circuit Court of Appeals in case at bar

UNITED STATES COURT OF APPEALS

For THE Seconp Circuit

Nos. 941, 942, 943, 945—September Term, 1974.

(Argued June 9, 1975 Decided March 4, 1976.)

Docket Nos. 74-2328-29, 74-2462-64

UNITED STATES OF AMERICA,

Appellee,

HARRY BERNSTEIN, ROSE BERNSTEIN, EASTERN

SERVICE CORPORATION, FLORENCE BEHAR and

MELVIN CARDONA,

Appellants.

Before:

FEINBERG, OAKES and VAN GRAAFEILAND,

Circuit Judges.

Appeal from judgments of conviction of conspiracy, 18

U.S.C. § 371, bribery, 18 U.S.C. § 201 and 18 U.S.C. § 2, and

false statement offenses, 18 U.S.C. § 1010 and 18 U.S.C. § 2,

in connection with applications for mortgage insurance

loans from the FHA, by a jury in the United States District

Court for the Eastern District of New York, Anthony J.

Travia, Judge, challenging judge’s failure to recuse himself ;

sufficiency of indictment ; disqualification of counsel, joinder

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

and denial of severance motions; sufficiency of the evidence ;

existence of single conspiracy; alleged prosecutorial mis-

management; instructions of and interrogation by court;

and multiplicity of counts.

Frank G. Raichle, Buffalo, N. Y. (Raichle, Banning, Weiss

& Halpern, R. William Stephens, of counsel), for Appellants

Bernstein and Eastern Service Corp.

Henry J. Boitel, New York, N. Y., for Appellant Behar.

John A. Kisek, New York, N. Y., for Appellant Cardone.

Ronald E. DePetris, Assistant United States Attorney

(David G. Trager, United States Attorney for the Eastern

District of New York, Paul B. Bergman, Assistant United

States Attorney, of counsel; Gale A. Drexler, on the brief ),

for Appellee.

OAKES, Circuit Judge:

This appeal is from convictions for “white collar” crimes

in connection with the obtaining of Federal Housing

Administration (FHA) guarantees on mortgage loans. For

proof of the crimes involved, such a multiplicity of small

transactions was necessary to be shown that the trial in

the United States District Court for the Eastern District

of New York, Anthony J. Travia, Judge,* took over eight

months with a resultant 25,000-page transcript. The three

types of offenses of which appellants were found guilty

include conspiracy, 18 U.S.C. § 371, substantive bribery

* Now retired.

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

offenses, 18 U.S.C. § 201 and 18 U.S.C. § 2 and substantive

false statement offenses in applications for mortgage in-

surance in violation of 18 U.S.C. § 1010 and 18 U.S.C. § 2.

All appellants were convicted of conspiracy, all appellants

except Melvin Cardona of bribery, and all appellants except

Rose Bernstein of false statements.' The appellants

1 The conspiracy count in the redacted indictment was Count 1; the

false statement counts submitted to the jury on which there were

findings of guilty were 2, 4, 5, 7, 9, 10, 12, 14, 16-18, 20, 21,

23, 25, 26, 27 and 31; the bribery counts on which there were find-

ings of guilty were 35-39, 41, 42, 44, 46, 48, 50, 51, 53, 55, 57,

59, 63 and 65. Eastern Service Corp. (ESC) was acquitted on

bribery Counts 29, 33 and 61, Harry Bernstein was likewise, Rose

Bernstein was acquitted on bribery Counts 29, 33 and 62, and Flor-

ence Behar was acquitted on Count 33. False statement Counts

2 and 20 were dismissed as to Harry and Rose Bernstein and Counts

25 and 50 as to Kose Bernstein.

The jury disagreed with respect to the defendants Dun & Brad-

street, Inc. (conspiracy and ten false statement counts), Arthur

Prescott (conspiracy and ten false statement counts) and H: bert

Cronin (conspiracy and 11 overvaluation counts). One false state-

ment count had been dismissed on consent against the defendants

Dun & Bradstreet, Inc., and Prescott at the end of the Govern-

ment’s case. The jury acquitted the defendant Joseph Jankowitz

(conspiracy and two bribery counts). The jury was discharged

by the court on July 5, i9%4. Thereafter, by order dated Novem-

ber 25, 1974, the court granted motions by the defendants Dun &

Bradstreet, Inc., and Prescott for a judgment of acquittal on the

conspiracy and ten false statement counts as to which there was

a hung jury.

On October 4, 1974, appellant Harry Bernstein was sentenced to

a term of imprisonment of five years on the conspiracy count, five

years on each of the 16 bribery counts, and two years on the false

statement count, the terms to run concurrently. He was also fined

$10,000 on the conspiracy count, $10,000 on each of 16° bribery

(Footnote continued on following page)

Appendix C—Opinions of Second Circuit Court of Appeals

mm case at bar

have launched a multiple attack on the convictions, their

claims ranging, inter alia, from disqualification of the trial

court and prosecutorial mismanagement to erroneous ad-

mission of evidence, insufficiency of evidence and erroneous

instructions to the jury. While we find some of their argu-

ments troublesome, we find none of them meritorious, and

affirm the convictions.

I. Statement of Facts. The FHA is a division of the

Department of Housing and Urban Development (HUD).

FHA has a loan guarantee program well known to the

public whereby it grants mortgage insurance to a lender-

mortgagee who is thereby insured against loss if the mort-

gagor is unable to pay off the loan. The mortgage insur-

ance in the instances here involved was obtained in a two-

step procedure. The first step was for the mortgagee to

(Footnote continued from preceding page)

counts, and $5,000 on one false statements count, all fines to run

consecutively (making a total fine of $175,000). Appellant Rose

Bernstein was sentenced to a term of imprisonment of four years

on each count to run concurrently, and a fine of $10,000 on the con-

spiracy count and $10,000 on each of four bribery counts to run con-

secutively (making a total fine of $50,000). Appellant ESC was

fined $10,000 on the conspiracy count, $5,000 on each of the 18 false

statement counts, and $20,000 on each of the 18 bribery counts, all

fines to run consecutively (making a total fine of $460,000). Ap-

pellant Behar was sentenced to a term of imprisonment of two years

on each count to run concurrently and a fine of $1,000 on each of

three bribery and 18 false statement counts to run consecutively

(making a total fine of $21,000). Appellant Cardona was sen-

tenced to a term of imprisonment of two years on each count to

run concurrently and a fine of $1,000 on each of 17 false statement

counts to run consecutively (making a total fine of $17,000). Execu-

tion of sentence was staved, and the appellants have been free on

hail pending this appeal.

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

apply to the FHA for an appraisal of the property; this

was made on a “Form 2800.” The second was the mort-

gagee’s application for approval of the mortgagor's credit;

this was made on a “Form 2900” and includes certain

necessary information and exhibits including a credit re-

port, verification of employment form, and the like. If an

appraisal of the property is up to sufficient value, the FHA

will issue a conditional commitment which it then makes

firm if the mortgagor’s credit is satisfactory and approved.

Eastern Service Corporation (ESC) was a lending insti-

tution wholly owned by appellant Harry Bernstein. It

would initially loan money to home buyers and subse-

quently sell the mortgage loans to permanent lenders, such

as savings banks, pension funds, and the Federal National

Mortgage Association, while being retained, however, to

perform the administrative tasks involved in servicing the

mortgage.

ESC made its profit from two major sources—the origi-

nation and sale of loans and the servicing of loans. On

loan closings there was an origination or processing fee

of one “point,” i.e., one per cent of the mortgage amount.

In addition the corporation would charge a certain number

of “points” to the real estate broker or speculator who

sold the home and, after the loan closed, the mortgage

would be sold by ESC to a permanent lender at a discount

of a certain number of points. Thus the profit for ESC

was the difference between the points charged to the broker

or speculator and the points at which the loan was dis-

counted, plus the processing fee and any servicing fee, less

expenses.

Appendix C—Opinions of Second Circuit Court of Appeals

in case at ba~

The Government’s case, boiled down to the bare essen-

tials, was that the Bernsteins procured on behalf of ESC

favorable FHA appraisals by virtue of bribes to FHA staff

appraisers working out of the Hempstead, New York,

regional office. KSC also obtained approvals of individual

mortgagors’ credit by virtue of a number of false credit

statements submitted and certified or processed by Flor-

ence Behar, who was an assistant vice president of ESC

in charge of the processing section. A number of these

were solicited by Melvin Cardona, one of approximately

12 to 14 mortgage solicitors employed by KSC, who also

obtained false financial reports on the mortgagors’ behalf.

Government proof on the bribery counts went to the very

heart of the FILA office involved, located, as it happened,

in the same building with ESC. One FHA staff appraiser

receiving the bribes was Edward Goodwin, who performed

and reviewed appraisals in Brooklyn; he was assigne«|

appraisal applications from time to time by coconspirator

Rose Cohen and his appraisals were reviewed by defendant

Joseph Jankowitz, a senior FHA staff appraiser. Defen-

dant Ilerbert Cronin, the chief underwriter of the FHA

office, was responsible for overseeing all appraisals, and

had the “chief underwriter’s prerogative” (CUP) by which

an FHA appraisal might be increased in his discretion up

to a maximum of $500 on a particular property.

One of two principal real estate speculators active in

Brooklyn and involved in the case was Jet Warehouse, Inc.

(Jet), another wholly owned corporation of Harry Bern-

stein. Jet held second mortgages on a number of properties

which were later refinanced by way of FHA-insured mort-

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

gages. Jet also loaned money to various real estate specu-

lators to purchase properties, on which applications would

be submitted to the FHA. The other such speculator was

Ortrud Kapraki, who, along with Goodwin, was a chief

Government witness and who in 1968-70 had approximately

200 closings at ESC, amounting to about five per cent of

ESC’s business in FHA-insured mortgages.

ESC was an FHA “approved mortgage lender” and as

such, lending on an interim basis, it was able to make

considerable profits with very little risk and with a limited

use of capital. In the nature of economic life, once FHA

mortgage insurance has been procured only low down pay-

ments are required, a permanent lender is readily available

to purchase the mortgage from the interim lender, and

if the mortgage goes into foreclosure the interim lender

knows that the FHA will pay virtually full value on

the outstanding loan so that there is no great risk of fore-

closure. The risk is, in fact, for all practical purposes after

assorted points are charged, close to zero. The Go, ~nment

proof adduced was also to the effect that at least as to

the second phase of the mortgage insurance process—the

mortgagor’s creuit—the FHA is dependent upon the

approved mortgagee, and we may say upon the latter’s

integrity. This is so because only the mortgagee personally

interviews the mortgagor and it is the mortgagor which

has the obligation to obtain verification of employment and

income and to obtain other credit information regarding

a mortgagor’s employment and income.

It was after the inner city riots in 1966 and FHA inter-

vention to improve the inner cities that KSC and Jet

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

really went into what was a new market. Government proof

adduced was to the effect that after an initial approach

by Harry and Rose Bernstein to Edward Goodwin, the

latter, with the approval of Chief Underwriter Cronin

but contrary to FHA policy, went to the Bernstein office,

supposedly to pick up some keys to properties. In reality

he was there approached with an arrangement whereby he

would obtain $50 per property on any Bernstein “2800” form

applications for appraisal. When Cronin asked Goodwin

how he made out on the business of the “keys,” Goodwin

replied that there was no problem. After that meeting

in March, 1967, Goodwin was “on the take” and he and

Bernstein arranged a plan whereby in order to tell which

houses were Jet's, Bernstein would identify them as “ORE,”

meaning “our real estate,” not what the parties were to

mine out of the federal government. According to Goodwin’s

testimony, Rose Bernstein encouraged him to accept the

$200 proffered by Harry Bernstein for the first four

top dollar appraisals. This was only the beginning, and

Government proof was that bribes were proffered by the

Bernsteins and taken by Goodwin on many occasions.

Providing an initial high appraisal was only part of the

bribed services rendered, however, because in several cases

when ESC submitted a request for a reevaluation Cronin

would return the files to Goodwin, ask him to take another

look at the value, saying in words to the effect of “Is that

all it’s worth? Take another look.” Goodwin would take

it to his desk, increase the value, and return the file to

Cronin’s ofiice. Cronin would then exercise his prerogative,

the CUP, and increase the value an additional $500 more.

Kor four years, and through hundreds of these appraisals,

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

ESC and the Bernsteins would obtain high initial appraisal,

frequent upward reevaluation, and then the almost omni-

present CUP. On each of the bribery counts on which the

various appellants other than Cardona were convicted,

the Government proof established this with some clarity.”

Evidence indicated that Jet held second mortgages on nine

and owned three of the properties involved in the bribery

counts.

Bribery also occurred in refereace to applications for

appraisals on a number of the so-cailed Kapraki properties.

In the summer of 1968 the other real estate speculator,

Kapraki, began to submit an increased number of applica-

tions for appraisals to ESC, and appellant Behar told her

that she should have the right appraiser and introduced her

to the Bernsteins. Behar told her that it was important to

pay the appraisers at the going rate of $50 per property

and advised the Bernsteins that since Kapraki was a volume

dealer she should have staff men, i.e., fulltime FHA

appraisers like Goodwin, to handle her properties. Both

Harry Bernstein and Rose Bernstein informed Kapraki

that she would have to take care of the appraisers. There-

after Kapraki would tell Behar when she wanted the “right

appraiser,” and Behar either alone or with Kapraki would

speak to the Bernsteins. The Bernsteins would arrange to

have either Jankowitz or Goodwin do the appraising, an«

either Rose Bernstein or Behar would notify Kapraki that

Jankowitz or Goodwin would be appraising her properties

on certain dates. Pursuant to their suggestions, Kapraki

* The properties referred to in the substantive counts may not

have been the only properties as to which Goodwin received payments

from ESC and Harry Bernstein. See note 3 infra.

C10

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

would meet the appraiser each time and pay him $100 per

property. As for the method by which the “right” appraisers

were assigned, there was ample evidence to show that ESC

appraisal applications were delivered to Herbert Cronin,

who would give them to Goodwin or to Rose Cohen, with

a direction to assign them to Goodwin or Jankowitz. There

was evidence, indeed, that for at least two years Rose

Cohen, who testified for the Government, was receiving

bribes from Rose Bernstein to assign cases to particular

appraisers, especially Goodwin and Jankowitz. On four of

the bribery counts on which the appellants were convicted

there was proof linking Rose Bernstein and Behar to

Goodwin appraisals for Kapraki that were “right” and on

three of those there was proof indicating Harry Bernstein’s

involvement with Kapraki’s requests for the “right”

appraiser.

The false statement counts on which ESC, Behar, Cardona

and Harry Bernstein were convicted all concern false

representations of employment or self-employment in ESC

applications for approval of mortgage credit, supported

either by an accountant’s false financial statements verify-

ing self-employment or by false verifications of employers.

Government evidence established that Kapraki originally

had been solicited on behalf of ESC by way of appellant

(Cardona, the commissioned mortgage salesman for ESC,

who explained the basic FHA application procedures ‘. her.

It was in March, 1968, after a number of Kapraki’s pur-

chasers had been turned down by the FHA, that Cardona

and Behar offered to assist her. Kapraki indeed offered

to pay Behar $50 to $75 per ease—an internal bribe—to

get FHA approvals. WMapraki, with Cardona’s assistance,

ee =

Cll

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

thus commenced to create false appearances of sufficient

income on FHA mortgage credit applications. After

Cardona suggested various means of obtaining false verifi-

cations of nonexistent part-time jobs for Kapraki’s appli-

cants, Kapraki herself began to obtain these until she

heard in September-October of 1968 that she was getting a

“reputation” around town for such a service. Cardona then

told Kapraki that they could utilize an accountant in the

Bronx, Walter Blow, who would make false financial state-

ments as to self-employment for the use of the applicants.

The availability of Blow, in effect, had been announced by

Cardona’s sales manager at a sales meeting at ESC at

which Harry Bernstein was present. In March, 1969, when

Blow’s statements came to be questioned, Cardona recruited

another accountant, later a Government witness, to perform

Blow’s service. Cardona also advised Kapraki regarding

assorted other techniques to insure FHA approval, such as

submitting false affidavits to substantiate exaggerated down

pay~ents, forging lawyer’s signatures for false escrow

letters, and minimizing the number of dependents, or

altering the age of the mortgagor in the application forms.

Kapraki gave Cardona $95 for each set of the accountant’s

false financial statements and $145 for such a set plus false

income tax returns, paying him usually in cash but some-

times by check, with Cardona pocketing some of the money

for himself.

Appellant Behar, who took, as we said, a special interest

in Kapraki’s applications, no doubt because of their volume

and profitability to ESC, assigned an experienced processor,

one Pat Buckley, whom Kapracki agreed to pay at the

rate of $50 per case, to handle them. For Behar’s own aid

C12

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

in expediting applications, Kapraki paid $50 or $75 per

property to begin with, then up to $200 per property, and

finally $250 by June, 1969. Usually Kapraki left the money

in cash in an envelope in Behar’s desk drawer, but in a

number of instances by way of checks payable to Cash,

or to Kapraki with her endorsement. These checks, with

Behar’s endorsements, were introduced in evidence. Behar’s

assistance in expediting applications went beyond a passive

acceptance of their content. Behar told Kapraki to have

her mortgagors sign the applications in advance in blank

and, knowing that they were certifying to the truth and

completeness of information which was only later typed

in by Kapraki, Behar as the chief supervising processing

ofticer of ESC would nevertheless sign the mortgagee’s

certification to the FHA verifying the truth of the infor-

mation in the applications. Cardona and Behar also gave

Kapraki blank verification of employment forms, in viola-

tion of FHA requirements. When Behar called Kapraki

to tell her that Dun & Bradstreet, ESC’s credit report

service, was inquiring why so many of Kapraki’s mortgage

applicants worked at the “Bocar” service station, Behar

asked, “They all work there, don’t they?’ But she never

sent an employee of ESC out to check with this supposed

employer. Cardona simply told Kapraki not to use the same

place all the time.

One of the ESC people, Frank Fey, a vice president who

pleaded guilty and testified for the Government, was

inquisitive as to Kapraki’s many delinquencies and the

coincidence of her use of the same accountant, Blow, to

verify so many self-employments. In late 1968, Fey told

Behar, “Florence, let’s stop the bullshit, you know as well

C13

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

as I that these deals are phonies.” Behar continued to sign

the mortgagee’s certificates and, despite intermittent ques-

tions, even by the FHA, concerning potentially implausible

information in the Kapraki applications, Behar never

checked the validity of the representation beyond Kapraki’s

word.

Fay mentioned his concerns about fraud being involved

in Kapraki’s transactions to his bosses, Harry and Rose

Bernstein. Despite his urging them to stop processing

Kapraki’s applications both of them took the position that

it was better to do the business and let the FHA decide,

especially in view of the number of points ESC was

charging Kapraki. The Government proof was in effect that

at least by the spring of 1969 Harry and Rose F ~nstein

were content to have ESC process applications which their

supervisur, Behar, their salesman, Cardona, and their vice

president, Fey, knew were phony.

IT. Pretrial Motion to Disqualify. Appellants timely

moved with supporting affidavits to disqualify Judge Travia

because he had accepted guilty pleas under other indictments

and made certain comments in respect to other defendants,

some of whom were named as codefendants and covonspira-

tors of ESC, Harry Bernstein and Rose Bernstein.2 They

contend that under 28 U.S.C. §144,* they presented a

* The instant indictment was one of 1% returned by a grand jury

against ESC and the Bernsteins, containing a total of about 800

counts and naming 50 defendants. These and several other FHA-

related indictments from the same grand jury were assigned to Judge

Travia. Eleven defendants involved in these prosecutions pleaded

guilty prior to March 22, 1973; eight of these were codefendants and

coconspirators of ESC and the Bernsteins, and six were sentenced.

(Footnote continued on following page)

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

“sufficient affidavit’ of Judge Travia’s “personal bias or

prejudice,” so as to have required his recusal. See Berger v.

United States, 255 U.S. 22 (1921). The question is whether

the supporting affidavit is legally sufficient, i.e., alleges

facts which support the charge of bias and prejudice, and

whether such bias and prejudice stem from an extrajudicial

source. Wolfson v. Palmieri, 396 F.2d 121, 124 (2d Cir.

1968) ; Rosen v. Sugarman, 357 F.2d 794, 797-98 (2d Cir.

1966).

The remarks of the judge which allegedly reveal prejudice

were made in the course of Rule 11 questioning of

ecodefendants Goodwin, Kapraki, Cohen and Fey at the

time of taking their pleas and in the course of sentencing,

see note 3 supra. he questioning related to the nature of

(Footnote continued from preceding page)

It was on that date that appellants ESC, Behar and the Bernsteins

filed the affidavit supporting the motion for recusal, citing excerpts

from the sentencing proceedings and from the guilty plea inquiries

pursuant to Fed. R. Crim. P. 11.

428 U.S.C. § 144 provides:

Whenever a party to any proceeding in a district court makes

and files a timely and sufficient affidavit that the judge before

whom the matter is pending has a personal bias or prejudice

either against him or in favor of any adverse party, such judge

shall proceed no further therein, but another judge shall be

assigned to hear such proceeding.

The affidavit shall state the facts and the reasons for the be-

lief that bias or prejudice exists, and shall be filed not less than

ten days before the beginning of the term at which the proceed-

ing is to be heard, or good cause shall be shown for failure to

file it within such time. A party may file or * one such affi-

davit in any ease. It shall be accompanied by a certificate of

counsel of record stating that it is made in good faith.

C15

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

the conspiracy and the role of various conspirators, includ-

ing the Bernsteins and ESC. The judge in those remarks

characterized the conspiracy as “this terrible scheme” and

“a great big scheme,” and stated, “I am sure this conspiracy

has cost society millions of dollars by way of payment

of taxes and otherwise, and the people who get involved in

these houses were dealt with very sharply. You cannot

close your eyes to these things.’’®

Each of the comments made by the judge was in the

course of a judicial proceeding in the context of discussions

with the defendants before him. None of them appears

to have arisen from an extrajudicial source or “resulted in

the formulation of an opinion on the merits not based upon

what the judge has learned by his participation in the

proceedings... .” United States vy. Sclafani, 487 F.2d 245,

255 (2d Cir.) (reference at sentencing of codefendant to

5 Appellants take particular umbrage at Judge Travia’s reference

to the “whole scheme” costing the Government “upwards of two or

three hundred million dollars, and who’s paying for that?,” and

answering his own question, “Joe Blow, the guy on the street is

paying for the high living of many.” They now claim that the amount

of money referred to was taken from an extrajudicial source, a press

report, and that there was no evidence that the Bernsteins engaged

in “high living.” The affidavit, however, was by no means so specific ;

it merely alleged that the judge had formed an opinion derived from

“some speculation or information outside the record.” Hodgson v.

Liquor Salesmen’s Union Local No. 2 of State of N.Y., 444 F.2d

1344, 1348-49 (2d Cir. 1971). None of the statements relate to

guilt or innocence of these appellants and were simply responses to

the explanations or pleas for clemency of those pleading guilty or

heing sentenced. Moreover, the press reports referred to on appeal

were part of the papers attached to motions for dismissal of the

indictments on the ground of prejudicial pretrial publicity.

C16

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

remaining defendants as “people who have poisoned your

existence and placed you on the road of delinquency,” id.

at 252), cert. denied, 414 U.S. 1023 (1973). See United

States v. Grinnell Corp., 384 U.S. 563, 583 (1966). The

rule of law, without belaboring the point, is that what a

judge learns in his judicial capacity—whether by way of

guilty pleas of codefendants or alleged coconspirators, or

by way of pretrial proceedings, or both—is a proper basis

for judicial observations, and the use of such information

is not the kind of matter that results in disqualification.

Rules against “bias” and “partiality” can never mean to

require the total absence of preconception, predispositions

and other mental habits, as Judge Frank said so much more

felicitously in Jn re Linahan, Inc., 138 F.2d 650, 651-52

(2d Cir. 1943). Of course such judicially acquired infor-

mation or those natural preconceptions may lead a judge

to feel a bias or prejudice that requires him to disqualify

himself—this was still, or at least until December 5, 1974,

when new 28 U.S.C. § 455 was enacted, however, a matter

for the individual judge subjectively to determine. Judge

Travia made no such determination here; a petition to this

court for a writ of mandamus on this issue was indeed

denied. The point is of no avail.®

Ill. Sufficiency of the False Statement Counts. Harry

Bernstein, ESC, Behar and Cardona contend that the false

® Neither the judge’s conduct of the trial, see Part VIII infra,

nor anything we said in Winters v. Travia, 495 F.2d 839 (2d Cir.

1974), is to the contrary.

C17

Apnendiz C—Opinions of Second Circuit Court of Appeals

in case at bar

statement counts under 18 U.S.C. § 1010" under which they

were convicted failed sufficiently to charge a crime. More

specifically, appellants argue that these counts fail to

specify or identify the specific statements alleged to be

false and fail to allege the essential element of knowledge

that the statements were false.

For all practical purposes we can treat the assorted

counts as identical since their form is the same and they

differ only as to the date, the particular defendants named

and the property address to which the application relates.

Taking Count 25 as an example (because it is the only

count in which four of these appellants were charged and

convicted), we set it out in the margin.* We note that

718 U.S.C, § 1010 provides :

Whoever, for the purpose of obtaining any loan or advance of

credit from any person, partnership, association, or corporation

with the intent that such loan or advance of credit shall be of-

fered to or acceyted by the Department of Housing and Urban

Development for insurance or for the purpose of obtaining any

extension or renewal of any loan, advance of credit, or mort-

gage insured by such Department, or the acceptance, release, or

substitution of any security on such a loan, advance of credit.

or for the purpose of influencing in any way the action of

such Department, makes, passes, utters, or publishes any state-

ment, knowing the same to be false, or alters, forges, or counter-

feits any instrument, paper, or document, or utters, publishes, or

passes as true any instrument, paper, or document, knowing it to

have been altered, forged, or counterfeited, or willfully over-values

any security, asset, or income, shall be fined not more than

$5,000 or imprisoned not more than two years, or both.

*Count 25 of the redacted indictment (originally Count 20 of the

superseding indictment here, 72 Cr. 587) charged as follows:

On or about the 3rd day of April 1969, within the Eastern

District of New York, the defendants Rosk BERNSTEIN, also

(Footnote continued gp following page)

C18

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Count 25 identifies the particular false document involved,

that is, an application for mortgage insurance with respect

to a particular property. It may also be noted that the

Government provided a bill of particulars which specifically

identified the statements in the documents which the Gov-

ernment would seek to prove false at trial. A copy of the

“Form 2900” for each false statement count was submitted

to the jury with the statements alleged to be false circled

in red by the court.

We do not find any violation of either the Fifth or Sixth

Amendment tu the United States Constitution or of Fed.

R. Crim. P. 7(¢)(1). We have “consistently sustained in-

dictments which tracked the language of the statute and,

in addition, do little more than state time and place in

approximate terms.” United States v. Salazar, 485 F.2d

1272, 1277 (2d Cir. 1973), cert. denied, 415 U.S. 985 (1974) ;

United States v. Trotta, No. 75-1267 (2d Cir. Nov. 10, 1975),

slip op. 473, 477; United States v. Tramunti, 513 F.2d 1087,

1113 (2d Cir.), cert. denied, 44 U.S.L.W. 3201 (U.S. Oct. 7,

1975). The indictments here in issue do just that.

(Footnote continued from preceding page)

known as Rose Shorenstein, Harry BErRNSTEIN, FLORENCE

Benak, Ortrup KaprakKi, MeLVvVIN CaRDONA and EasTERN

Servick Corporation, for the purpose of influencing the Fed-

eral Housing Administration of the Department of Housing and

Urban Development to insure a loan and advance of credit by

the defendant Eastern Servick Corporation, did knowingly

make, pass, utter and publish false statements in an applica-

tion for mortgage insurance on property located at 416 52nd

Street, Brooklyn, New York. (Title 18, United States Code,

§ 1010 and § 2).

C19

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

The counts are particular in that they specify the prop-

erty involved which serves to fix and identify the particu-

’ Jar false document. It is the submission of the false docn-

ment which constitutes the separate crime. Tripp v. United

States, 381 F.2d 320, 321 (9th Cir. 1967); Bins v. United

States, 331 F.2d 390, 393 (5th Cir.), cert. denied, 379 U.S.

880 (1964). See Cohen v. United States, 178 F.2d 588, 591

(6th Cir. 1949), cert. denied, 339 U.S. 920 (1950). While

some identification is required, United States v. Borland,

309 F. Supp. 280, 287-89 (D. Del. 1970); United States v.

Devine’s Milk Laboratories, Inc., 179 F. Supp. 799 (D.

Mass. 1960), it is not necessary that the indictment itself

go into evidentiary matters. The offense was fully and

clearly charged, since the indictment specified the time and

place of the transaction and the submission of a particular

false application in respect to a particular piece of prop-

erty. United States v. Alo, 439 F.2d 751, 756 (2d Cir.)

(indictment for obstructing justice by giving “false and

evasive answers” before SEC sufficient although not speci-

fying the false and evasive answers), cert. denied, 404 U.S.

850 (1971). See also United States v. Weiss, 491 F.2d 460,

466 (2d Cir.), cert. denied, 419 U.S. 833 (1974) (indictment

for obstruction of justice by failing to produce documents

before grand jury sufficient though it fails to specify in

what way conduct was done corruptly).

It is, of course, for just this reason that bills of particu-

lars to be furnished pursuant to Fed. R. Crim. P. 7(f) may

be sought, United States v. Debrow, 346 U.S. 374, 376-78

(1953), and must be provided to make certain that there

is adequate notice under the Sixth Amendment. See United

States vy. Alo, swpra, 439 F.2d at 756 n.13. The indictment

C20

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

as amplified by the bill of particulars made clear to the

appellants what was the nature and cause of the Govern-

ment’s case and gave them ample opportunity to prepare

their defense. See United States v. Sperling, 506 F.2d

1323, 1344-45 (2d Cir. 1974), cert. denied, 420 U.S. 962

(1975).

Appellants also argue, however, that failure to specify

the particular false statements in each of the separate

counts allows no way of idetermining whether each false

statement for which they were prosecuted was indeed the

false statement that was considered by the grand jury.

They rely on Russell v. United States, 369 U.S. 749 (1962),

and Stirone v. United States, 361 U.S. 212 (1960), neither

_ of which, however, would require the indictments here to be

held defective for failing to specify each false statement.

Stirone held improper the admission of evidence of an

activity geographically different from that specifically

charged in the indictment, but no such departure in proof

from the specific allegations of the appellants’ acts oc-

curred here. Russell required that where the specific sub-

ject matter of a question refused answer by a defendant

was central to every prosecution under 2 U.S.C. § 192, be-

cause it constituted “the very core of criminality” to be

proved, the indictment must specify the particular subject

matter involved. Under 18 U.S.C. § 1010, however, the

critical element of the offense is the mental state of know-

ingly making false statements. Since the “core of crimi-

nality” is not the substance of the false statements but

rather that knowing falsehoods were submitted to the FHA,

appellants have not heen subjected to second guessing by

C21

—

Appendiz C—Opinions of Second Circuit Court of Appeals

in case at bar

the prosecutor or the trial jury on the particular and essen-

tial subject matter of this offense, that is, the existence of

‘ falsehoods in specific documents for specific properties.®

[V. Disqualification of Appellant Behar’s Cownsel.

Appellant Behar argues that she was unconstitutionally

denied representation by counsel of her choice when the

court found that an actual conflict of interest existed and

refused to accept a waiver of any potential conflict of

interest, ordering appellant’s attorney to terminate his

representation of her. It was the Bernsteins’ attorney,

Abraham Brodsky, who told Behar that he would get a

lawyer for her, and indeed he did refer her to Henry Boitel,

Esq. With her knowledge and consent Mr Boitel’s fee was

being paid by the Bernsteins and ESC. Since Behar was

a co-defendant, however, there was every possibility of a

conflict of interest. A hearing was held, Mr. Boitel with-

drew, appellant waived any conflict of interest, and the

*° As we said in United States v. Fortunato, 402 F.2d 79, 82 (2d

Cir. 1968), cert. denied, 394 U.S. 933 (1969), “the omission of the

means by which the offense was committed does not render the in-

dictment insuflicient.” Cf. Rosen v. United States, 161 U.S. 29,

34 (1896) (defendant not entitled to know particular parts of docu-

ment which grand jury had found to be obscene); United States

v. Ciramy, 510 F.2d 69, 73 (2d Cir. 1975) (manner of attempted

evasion of income taxes not essential to indictment). Moreover, as

we have said, the court’s charge on the question of false state-

ments was perfectly proper because the jury was instructed to limit

itself to determining whether there were false statements in any par-

ticular application concerning employment and income therefrom and

the mortgagee’s certificate; for the jury’s consumption in the jury

room the court circled in red the particular statements which were

alleged to be false. As appellant Behar explicitly concedes in her

brief, “there was never any issue as to the fact that the statements

were false . . . .” The only real issue was as to knowledge.

C22

Appendix C—Opinions of Second Circuit Court of Appeals

im case at bar

court found that the waiver was not knowing and intel-

ligent. The court then asked appellant Behar to retain new

counsel, and if she was unable to do so to return and the

court would appoint counsel for her. When she reappeared

and said she could not afford to retain counsel herself, the

court assigned Richard Rosenkrantz, Esq., as her attorney.

Mr. Boitel has, it may be stated, ably represented her on

appeal.

We have repeatedly held, as have other courts, that

representation free from conflicting interests is an essential

part of the Sixth Amendment right to the effective assis-

tance of counsel. See Glasser v. United States, 315 U.S. 60

(1942); United States v. DeBerry, 487 F.2d 448, 452 (2d

Cir. 1973); United States ex rel. Hart v. Davenport, 478

F.2d 203, 209-10 (3d Cir. 1973); United States v. Foster,

469 F.2d 1, 4-5 (1st Cir. 1972); Lollar v. United States, 376

F.2d 243 (D.C. Cir. 1967). Choice of counsel should not be

unnecessarily obstructed by the court, United States v.

Sheiner, 410 F.2d 337, 342 (2d Cir.), cert. denied, 396 U.S.

825 (1969), but where there is a serious possibility that a

definite conflict of interest will arise, the necessities of

sound judicial administration require the court to take

command of the situation. United States v. Dardi, 330 F.2d

316, 335 (2d Cir.), cert. denied, 379 U.S. 845 (1964). The

standards of the American Bar Association have become

increasingly strict on this subject. See ABA Standards

Relating to the Prosecution Function and the Defense

Function 43.5, at 211, 213 (Approved Draft 1971). See

also P. Wilson, Pattern Rules of Court and Code Provisions

38-39 (prepared for the Committee on Implementation of

Standards for the Administration of Criminal Justice of

the Section of Criminal Justice of the ABA, 1975).

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Plainly here there was a probability of conflicting and

inconsistent defenses based upon corporate and individual

’ liability, since as an employee of ESC Behar could well

take the stand and present a defense that her employers

were the guilty ones because she was only obeying the

orders of her superiors and following standard office pro-

cedure. On their part, they could assert the defense that

Behar had acted ultra vires and on her own. Indeed, these

were the ultimate defenses advanced by each. Since the

codefendants were underwriting Behar’s defense, this

readily apparent conflict could be seen by the court to

indicate a significant probability of prejudice. The freedom

of the attorney, whether in cross-examination or assertion

of the defense of lack of authority, could have been in-

hibited and a full and uncompromised defense of his clients’

interests have been seriously impaired. While neither

Judge Travia nor this court in any manner questioned the

integrity of Mr. Boitel or his assurance that he would give

Behar full and proper representation regardless of who was

paying him, the court had a special duty to make certain

that any waiver was knowingly and intelligently made."°

Judge 'Travia’s questioning showed great sensitivity to the need

for gauging the “knowing and intelligent” qualities of appellant

Behar’s waiver, and it must have been statements of hers such as the

following which gave him pause :

I am in a frightening position so far as I am concerned. I

have never before been a defendant and this case has changed,

certainly, my life and my husband’s life . . . this is an involved

case. If an attorney is appointed and we have about two

month’s left—it is so comprehensive, there is so much to digest,

T don’t know if it can be done to my comfort.

(Footnote continued on following page)

C24

Appendix C—Opimons of Second Circuit Court of Appeals

m case at bar

See United States v. DeBerry, supra, 487 F.2d at 452-54.

But cf. United States v. Wisniewski, 478 F.2d 274, 285 (2d

Cir. 1973). A waiver in this regard is not quickly or lightly

to be found. See Glasser v. United States, supra, 315 U.S.

at 70-71. The court’s interrogation of Mrs. Behar estab-

lished that she was not prepared to have the court stand by

and do nothing in the event an actual prejudicial action on

the part of her lawyer arose. In other words, her waiver

was not without strings. The district court handled the

matter, we think, quite correctly, and Mr. Boitel withdrew

quite correctly. See United States v. DeBerry, supra;

Umted States v. Dardi, supra. We find nothing in the

record to indicate that Mr. Rosenkrantz did anything other

than what highly competent counsel would do, and nothing

to indicate prejudice to appellant from his short infrequent

absences. On this lengthy trial all counsel pinch-hit to a

limited extent for one another; daily copy of the proceed-

ings was available and the district court kept all counsel

well informed and left open the right to make any motion

as counsel wished.

V. Impermissible Joinder and Denial of Severance

Motions. Appellants Harry Bernstein, Rose Bernstein and

ESC all contend that their convictions on the bribery counts

should be reversed on the grounds of both impermissible

( Footnote continued from preceding page)

I .m willing to sign a waiver because [ know the type—

at least, | feel I know the type Mr. Boitel is.

In addition, he has been part of this case for sixteen months.

The new attorney, whoever he might be, is an unknown factor

to me. I know Mr. Boitel well and as I say, | am exceedingly

frightened.

C25

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

joinder of offenses and of defendants and erroneous denial

of their severance motions. But it is well established that

’ under Fed. R. Crim. P. 8(b)" joinder of multiple defen-

dants is proper if they are alleged to have participated

in the same series of acts which are part of a common

scheme or plan, or connected together. Here joinder of a

conspiracy count and the substantive counts arising out of

the conspiracy is proper since the charge of conspiracy

provides a common link and demonstrates the existence of

a common plan. C. Wright, Federal Practice and Procedure

(Criminal) § 144, at 322 (1974). See Schaffer v. United

States, 362 U.S. 511, 514 (1960); United States v. Miley,

513 F.2d 1191, 1209 (2d Cir. 1975); United States v. Gran-

ello, 365 F.2d 990, 993-95 (2d Cir. 1966), cert. denied, 386

U.S. 1019 (1967). Joinder here was clearly proper since

all the substantive counts were alleged as overt acts in the

conspiracy count.

On the question of severance, again the matter is one

for the trial court’s discretion. See Fed. R. Crim. P. 14;

United States v. Projansky, 465 F.2d 123, 138 (2d Cir.),

cert. denied, 409 U.S. 1006 (1972). See also United States

v. Miley, supra; United States v. Papadakis, 510 F.2d 287,

300 (2d Cir. 1975); United States v. Granello, swpra, 365

1! Fed. R. Crim. P. 8 provides:

(b) Joinder of Defendants. Two or more defendants may

he charged in the same indictment or information if they are

alleged to have participated in the same act or transaction or in

the same series of acts or transactions constituting an offense or

offenses. Such defendants may be charged in one or more counts

together or separately and all of the defendants need not be

charged in each count.

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Appendix C—Opinions of Second Circuit Court of Appeals

im case at bar

F.2d at 944. Before trial the Government and the court

had been scrupulous in cutting down the indictment and

severing defendants therefrom. See note 3 supra. This

indictment originally named 21 individual and two corpo-

rate defendants and consisted of 211 counts. After assorted

pretrial procedures, pleas of guilty, nolo contendre and

assorted severances, the case went to trial with nine defen-

dants. Furthermore, as a result of a motion by the Gov-

ernment to sever various counts and upon direction by the

court to limit the number of counts, the number of counts

was reduced to 65. We believe in this regard that, subject

only to the legal questions whether there was here charged

and proved a single conspiracy and whether there was a

prejudicial variance from such a charge and the actual

proof, the basic underlying admonitions of United States v.

Sperling, supra, 506 F.2d at 1340-41, have been followed.

VI. Sufficiency of the Evidence. ESC contends that there

was insufficient evidence to establish an intent to benefit

it so as to support its conviction on the substantive counts

charging bribery on Jet properties and aiding and abetting

briberies on Kapraki properties. Appellant Rose Bern-

stein contends there was a failure of proof to support her

conviction of aiding and abetting Kapraki’s payment of

bribes to Goodwin. Appellant Behar contends that there

was insufficient evidence to establish the element of know]-

edge required to support her conviction on the substantive

false statement counts. And appellant Cardona claims that

his convictions were based entirely on the testimony of

accomplices and asks us to reconsider our prior holdings

in this regard.

C27

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Four substantive bribery counts, on each of which one

or more of the appellants were convicted, involved Kapraki

properties. In each case, Kapraki directly paid a $100

bribe to Goodwin. ESC contends that these bribes were

solely for the benefit of Mrs. Kapraki, and hence that ECS

could not have been found to have aided and abetted them.

While these payments did help to secure Goodwin’s ser-

vices to her, the ultimate intent of the parties was to

encourage Kapraki to process her applications through

ESC, which would then benefit therefrom in the “points”

it charged for each deal closed. Kapraki’s testimony estab-

lishes that both Rose and Harry Bernstein and Florence

Behar counseled Kapraki to bribe Goodwin on these prop-

erties, and our recital of the facts indicates that the testi-

mony from Kapraki, Goodwin, Cohen and Fey established

the method used by the Bernsteins to arrange for Goodwin

to be assigned to appraise these properties. By aiding and

abetting the bribery, ESC and the Bernsteins successfully

helped Kapraki to procure FHA approvals, and secured

and kept her as a profitable client.

ESC claims that appellant Harry Bernstein intended

only to benefit himself and not ESC in connection with the

14 counts involving his Jet properties, as to each of which

SSC and Bernstein were convicted of bribing Goodwin.

Bernstein, however, was the president and sole stockholder

of ESC as well as the sole owner of Jet. Clearly he did

intend to benefit himself, but his bribery had the neat effect

of benefiting his interests in both capacities. ESC argues

that Bernstein had two completely separate businesses,

namely, operating ESC and speculating in real estate

C28

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in case at bar

through Jet, and that his bribes may be viewed only as

acts with the intent to further Jet’s and thus his own

profits. But evidence of the reality of an inextricably dual

intent could not have been ignored by the jury: that is the

intent to benefit ESC’s interests as well as Jet’s interests,

both of whose profits would inevitably inure to Bernstein’s

personal benefit. Here again ESC was the approved mort-

gagee used to process Jet’s applications, and if they were

approved by the FHA, ESC would stand to make a gross

profit on each property; it was in the interests of ESC

to obtain a favorable appraisal from Goodwin and to have

each deal closed. Furthermore, the greater the evaluation

of each property, the higher the mortgage amount might

become, and accordingly the more gross profit ESC would

stand to make in points charged. There was sufficient evi-

dence for the jury to find an intent by Bernstein to further

the interests of ESC, and thus to convict ESC on the Jet

bribery counts.

Our summary of the evidence established clearly that

Behar, who had the responsibility of signing the mort-

gagee’s certificate on behalf of ESC, acted in the very least

with a reckless disregard whether the statements made in

the Form 2900 credit reports were false. She gave Kapraki

blank verification of employment forms in violation of

FHA regulations; she accepted Kapraki’s statements that

a coincidentally large number of her applicants were em-

ployed at the Bocar gas station; she ignored the warning

of an experienced processor, Fey, who told her that she was

accepting phony applications. She was receiving money on

the side from Kapraki on each particular property; she

C29

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

was concerned about getting the “right” man in the credit

section to examine and approve Kapraki’s applications,

and getting the “right” appraiser for her also; she never

sent anyone out to check on the truth of the representations

she was verifying, even when they were questioned by

FHA or Dun & Bradstreet credit examiners. See United

States v. Levinson, 405 F.2d 971, 986 (6th Cir. 1968), cert.

denied, 395 U.S. 958 (1969). Although Behar may not have

had the authority to stop processing Kapraki’s applica-

tions, she did have authority to report irregularities. Her

failure to do so in the face of Kapraki’s delinquency rate

and heavy use of the same accountant, Blow (whose finan-

cial statements were in March, 1969, declared permanently

unacceptable at ESC by Fey), together with the other

evidence outlined above, was sufficient to support Behar’s

conviction on the false statement counts.

Appellant Cardona seeks a ruling that a guilty verdict

may not rest upon the uncorroborated testimony of ac-

complices, in light of our decision in Umited States v.

Taylor, 464 F.2d 240 (2d Cir. 1972). In Taylor, however,

this court expressly limited itself to overruling United

States v. Feinberg, 140 F.2d 592 (2d Cir.), cert. denied, 322

U.S. 726 (1944), which had held that the quality of evidence

necessary to send a case to the jury in a criminal case was

the same as in civil cases. There was no discussion in

Taylor concerning the use of accomplice testimony, and,

indeed, this court has consistently held that conviction upon

such testimony is proper. See, e.g., United States v. Mes-

sina, 481 F.2d 878, 881 (2d Cir. 1973), cert. denied, 414 U.S.

1145 (1974); United States v. Ferrara, 458 F.2d 868,

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in case at bar

871 (2d Cir.), cert. dened, 408 U.S. 931 (1972). Ap-

pellant has presented no arguments as to why our prior

holdings should be overruled. The testimony of Kapraki

and accountant Abad was corroborated here by documen-

tary evidence, moreover, including specifically checks rep-

resenting some of Kapraki’s payments to Cardona for the

false financial statements concerning self-employment.

VII. Single Conspiracy and Variance. All appellants

argue vigorously that while the indictment charged only a

single conspiracy the proof at trial showed multiple con-

spiracies. All appellants except Cardona contend that the

court failed to charge the jury properly on the single con-

spiracy issue. Appellant Cardona claims that since he was

not involved in the bribery of FHA appraisers he is en-

titled to a new trial even if a single conspiracy is found.

Presumably all of these arguments would be all the more

vigorous in the light of our decision a short time ago in

United States v. Bertolotti, No. 75-1107 et seq. (2d Cir.

Nov. 10, 1975), slip op. 6409. There we reversed a convic-

tion obtained in a narcotics case on the basis of a single

conspiracy on the ground that the proof showed none such

but rather a series of smaller conspiracies with a resultant

material variance and a spillover effect involving the trans-

fer of guilt from members of one conspiracy to another.

But see United States v. Steinberg, No. 75-1150 (2d Cir.

Nov. 10, 1975), slip op. 6433, 6444. We think that the proof

here was such as to entitle the jury to find but a single

conspiracy. See United States v. Tramunti, supra, 513 F.2d

at 1105-07; United States v. Sperling, supra.

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in case at bar

The conspiracy count charged was a single one, to de-

fraud the FHA by obtaining mortgage insurance on inner

‘city properties. The two objects charged, or the two steps

by which the principal object of the conspiracy were ob-

tained, were to bribe FHA officials in connection with their

appraisals and to submit to the FHA false statments

of the putative mortgagor’s credit, employment or income

in order to obtain approval of the mortgage insurance

applications. Appellants contend that the transactions sur-

rounding the Kapraki properties constituted a different

conspiracy from those concerning the Jet properties, and

that these conspiracies had unrelated purposes and no

connection between them. Here, however, it is not the case

that two groups, one organized by Kapraki for her benefit

and another by Harry Bernstein for his, existed indepen-

dently of each other with the coincidence that both of them

used the services of the same FHA employee, Goodwin.

The pattern of conspiracy here thus does not resemble that

of the independent conspiracies in Kotteakos v. Umited

States, 328 U.S. 750 (1946), and appellants’ reliance on

Kotteakos is foreclosed by the substantial evidence of a

single conspiracy.

As our review of the facts reveals, it was Harry Bern-

stein as president of ESC and its principal officer who

was at the very center or top of the conspiracy. It was

Harry and Rose Bernstein who initiated the bribery rela-

tionship with Goodwin at the ESC office and who then

provided Goodwin’s services to their own client Kapraki.

They were able to obtain the assignment of appraisals to

Goodwin because of friendly relationships with Cronin and

C32

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Cohen in the FHA office, indeed, on Cohen’s part, a rela-

tionship founded in further bribery. The Bernsteins would

activate this use of Goodwin upon the requests of Behar,

who together with the Bernsteins informed Kapraki that

she could get the “right” appraiser, but that they would

have to be taken care of, that is, bribed for a high appraisal.

There was ample evidence to indicate that the bribery of

Goodwin and the induction of Kapraki into using his ser-

vices was done with the intent to benefit ESC in profits

from points charged Kapraki. ESC, it should be noted, as

Jet’s processor, benefited in the same way from Jet prop-

erty overevaluations. Although Rose Bernstein was neither

an officer nor an employee of ESC, she was intimately

involved in its affairs and operations, and, whether the

properties were Jet’s or Kapraki’s, she participated with

her husband in obtaining the unlawful services of Goodwin

to inflate values.

The desires of the Bernsteins to facilitate Kapraki’s FHA

approvals, for the benefit of ESC, extended to aequiesc-

ing in the submission of false statements, which activity

was participated in most directly by ESC emplovees Behar

and Cardona. Harry Bernstein closed his eyes to any irre-

ularities in the Kapraki applications despite two instances

of their integrity being questioned by his vice president,

Fey. When Fey reported to both Bernsteins that he be-

lieved the Blow financial statements were frauds, they told

him that it was up to the FHA to realize this, and Rose

Bernstein reminded him of the number of points ESC was

charging Kapraki for its processing. Here, unlike Kot-

teakos, supra, not only were the Bernsteins and ESC the

central pivots of the scheme to defraud the FILA, but their

C33

Appendiz C—Opinions of Second Circuit Court of Appeals

in case at bar

activities and those of their coconspirators were linked

through the common means of using the same FHA officials

to achieve their common goal of benefiting ESC by defraud-

ing the FHA. It is immaterial that Kapraki entered the

scheme after it had started and that in connection with

her properties there were additional elements of false

statements which evolved. As the Court in Blumenthal

v. United States, 332 U.S. 539 (1947), indicated, “[C]on-

spiracies involving such elaborate arrangements generally

are not born full-grown. Rather they mature by successive

stages which are necessary to bring in the essential par-

ties.” Id. at 556.

Appellant Behar argues that even assuming the evidence

established a single conspiracy there was insufficient evi-

dence that her participation went beyond the applications

of Mrs. Kapraki. She argues that the so-called “single act

doctrine” is applicable to her. See United States v. Sperl-

ing, swpra, 506 F.2d at 1342; United States v. Torres, 503

F.2d 1120, 1123 (2d Cir. 1974). But Behar was involved in

a number of acts. Indeed, she was convicted of 18 false

statement and three bribery counts. Her connection was,

moreover, near the center of the conspiracy as head of the

processing section of ESC. She played an active role in

bringing Kapraki into the bribery phase of the conspiracy,

making it clear to Kapraki that she should get the “right

appraiser.” The evidence is clear that she was aware of

the Bernsteins’ similar arrangements with respect to non-

Kapraki properties. Since she was thus aware that the

scheme was broader than her participation as an individual,

she is bound by the acts of her co-conspirators. See e¢.g.,

ans

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

United States v. Edwards, 366 F.2d 853, 867 (2d Cir. 1966),

cert. denied, 386 U.S. 908 (1967).

Appellant Cardona claims that since the Government

produced no evidence connnecting him with the bribery-

overevaluation aspect but only with the false statement

phase of the conspiracy, he was substantially prejudiced

by the bribery evidence and is entitled to a new trial.

There was, however, ample evidence of a common goal by

all the conspirators to thwart the operation of the FHA

loan guaranty program in obtaining FHA insurance of

ESC processed mortgages. ,

This is not the first time we have been presented with

a single conspiracy in the furtherance of which different

crimes were committed, or, indeed, in which one cocon-

spirator joined in one of the illegal objects of the con-

spiracy but not in others. See United States v. Levinson,

supra (VA home loan guaranty program). See also United

States v. Kelly, 349 F.2d 720, 755-56 (2d Cir. 1965),

cert. denied, 384 U.S. 947 (1966); United States v. Ben-

jamin, 328 F.2d 854, 864 (2d Cir.), cert. denied, 377 U.S.

953 (1964) (two aspects of single scheme—selling un-

registered securities and defrauding in sale of securities).

As we said in United States v. Borelli, 336 F.2d 376, 384-87

(2d Cir. 1964), cert. denied, 379 U.S. 960 (1965),

where the evidence is ambiguous as to the scope of

the agreement made by a particular defendant and the

issue has practical importance, the court must ap-

propriately focus the jury’s attention on that issue

rather than allow it to decide on an all or nothing basis

as to all defendants.

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Appendix C—Opinions of Second Circuit Court of Appeals

im case at bar

336 F.2d at 386 n. 4. This is exactly what the trial court

did in our case, just as it had omitted to do in Borelli.

Judge Travia charged the jury that it could find Cardona

to be a member of the conspiracy if the scope of his agree-

ment included one of the objects of conspiracy, provided

that the jury first found that the single conspiracy charged

did exist and that the seope of agreement made by at least

two of the conspirators included both objects of the con-

spiracy. See United States v. Levinson, supra, 405 F.2d at

989 ; United States v. Dardi, supra, 330 F.2d at 327; United

States v. Benjamin, supra, 328 F.2d at 864. Cf. United

States v. Papadakis, swpra, 510 F.2d at 297; United States

v. Arroyo, 494 F.2d 1316, 1318-19 (2d Cir.), cert. denied,

419 U.S. 827 (1974). The jury was instructed repeatedly

by the court that there was no evidence in the case con-

necting Cardona with the bribery object of the conspiracy.

Here there was sufficient evidence to find a single continuing

conspiracy by coconspirators including the Bernsteins,

ESC, Behar and Kapraki, and to find that Cardona had

joined with Kapraki, Abad and Blow, in a portion of the

single conspiracy, the products of his frauds going

unquestioned, indeed, by Behar, ESC and the Bernsteins.

Here, as in Borelli, supra, what were required were

appropriate instructions as to the scope of the agreement

made by Cardona. These instructions were given here,

and they were proper. As for any prejudice to Cardona,

there was overwhelming evidence of his participation in

the false statement frauds, making this hardly the case

“where a minor participant in one conspiracy was forced

to sit through weeks of damaging evidence” relating to

others. United States y. Miley, supra, 513 F.2d at 1209.

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Cardona points out that one month at trial concerned the

CUP prerogative of Cronin and one month the bribing of

Goodwin. Cronin, it should be noted, was not convicted,

and Cardona’s own participation in the false statement

scheme was so substantial that in a nine month trial we

cannot find any significant prejudice from bribery testimony

which the jury was instructed repeatedly did not connect

Cardona to the conspiracy.

The appellants Harry and Rose Bernstein, ESC and

Behar also argue that the trial court failed properly to

instruct the jury that it must find a single conspiracy and

not multiple conspiracies. However, the court explained

the essential elements of the crime of conspiracy, focused

the jury’s attention in compliance with Borelli on the

importance of determining whether each defendant became

a member of the conspiracy and the scope of his or her

agreement, and instructed the jury that it might find all,

none or some of the defendants guilty or not guilty on the

conspiracy count. The court instructed the jury that Count

1 “charges a single conspiracy having two objects or goals,

and the burden is upon the Government to prove that

charge as it’s made beyond a reasonable doubt.” In dis-

cussing membership in the conspiracy the court again

emphasized that the jury must find that the single con-

spiracy charged in the indictment existed,’ and in dis-

12 The court’s exact words were :

Now, in order to find that a particular defendant has become

a member of the conspiracy, it is not necessary to find that the

defendant knew or was aware of both objects of the alleged con-

spiracy if you find bevond a reasonable doubt that the scope of

(Footnote continued on following page)

C37

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

cussing the overt act element of the conspiracy the court

reminded the jury that to convict it must find beyond a

reasonable doubt that the single conspiracy having two

objects as charged had been proved.

VIII. Prosecutorial Mismanagement. The claim is that

the appellants were deprived of a fair trial by the sheer

length of the trial allegedly caused by prosecutorial mis-

management. We have already stated, however, that the

Government and the court here anticipated what was said

in United States v. Sperling, supra, after the instant trial

had commenced, by severing a number of defendants,

reducing the number of counts, and making the case

relatively manageable. See note 3, supra. It is, of course,

always true that there can be some spillover and prejudice

resulting when the conspiracy net is cast too wide, and

draws in too many participants and too many hearsay

statements. See Kotteakos v. United States, swpra, 328

U.S. at 773. See also United States v. Dardi, supra, 330

F.2d at 329. The ultimate question is whether the number

of defendants and complexity of the cause prevents the jury

from appraising the independent evidence against each

defendant and meting out individual justice under the law.

See Umted States v. Stromberg, 268 F.2d 256, 264-65

(2d Cir.), cert. dened, 361 U.S. 863 (1959). Here it was,

of course, necessary, to present both a good deal of back-

( Footnote continued from preceding page)

the particular defendant’s agreement included one of the ob

jects of the conspiracy provided that you first find that the

single conspiracy charge in the indictment exists, and that the

scope of the agreement made by at least any two of the defend-

ants included both objects of the conspiracy.

The charge on conspiracy was atlapted from suggested instructions

concerning multiple conspiracies in E. Devitt & (. Blackmer, Fed-

eral Jury Practice and Instructions ¢¢ 29.14, 29.15 (1970 ed.).

C38

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

ground evidence to show the operations of the FHA and

the context in which these criminal activities took place,

and it was also necessary to introduce evidence as to a

substantial number of transactions in order to present the

true nature and scope of the criminal scheme. The bribery

issues, on the other hand, ultimately boiled down to ques-

tions of credibility of the witnesses; on the false statement

counts knowledge of falsity was the key issue, which was

in turn dependent to a great extent on the credibility of

the "overnment witnesses.

While it is not always necessarily wise to draw conclu-

sions after the fact, the jury in this case does seem to have

acted with extraordinary conscientiousness and sophistica-

tion. From time to time it asked for the relevant exhibits,

for parts of the charge to be read, and even specifically for

the charge regarding particular counts and particular de-

fendants, indicating that it focused on each count and each

defendant separately. The jury acquitted one defendant

and was not able to reach a unanimous verdict as to three

other defendants’ who were not central figures in the

scheme. Appellant ESC and appellants Harry Bernstein

and Rose Bernstein were each acquitted on three bribery

counts. Appellant Behar was acquitted on one bribery

count. Such a performance by the jury belies appellants’

claims that the length of the trial and the volume and com-

plexity of the evidence disabled its members from evaluat-

ing and applying the evidence to the individual defendants.

This kind of crime is, furthermore, extraordinarily diffi-

cult to prove. It must be proven in bits and pieces. If it

13 See note 1 supra.

C39

Appendix C—Opinions of Second Circuit Court of Appeals

im case at bar

is broken down into too many charges, too isolated trans-

actions, too many fragments, the concept of the crime is

impossible to comprehend. We think that a conscientious

prosecution managed to delimit the issues, narrow the trial

and yet satisfactorily demonstrate a pattern which consti-

tuted the overall crime. The claim of prosecutorial mis-

management is, in our view, utterly without ‘merit.

IX. The District Court’s Interrogation of Mrs. Cardona.

Appellant Cardona argues that he was deprived of a fair

trial as a result of the court’s interrogation of Mrs. Car-

ilona. Compare United States v. Nazarro, 472 F.2d 302, 304

(2d Cir. 1973), with United States v. Miley, supra, 513 F.2d

at 1205. See also United States v. Natale, No. 75-1276 (2d

Cir. Nov. 28, 1975), slip op. 793, 804-06. This interrogation

concerned events taking place after the FBI commenced

its investigation of this case. In August, 1971, Cardona

had met at his home with an agent of the FBI, one James

Sniegocki. Later that day Kapraki came to Cardona’s

house in response to the latter’s call and Mrs. Cardona

began to relate, on direct examination, the substance of the

conversation between Kapraki and Cardona. We attach

extracts of this testimony in the margin.* Cardona asserts

that the court’s subsequent intervention was a “vicious”

cross-examination, indicated disbelief in the witness’s testi-

mony and was an attempt to put words in her mouth.

*Q. What, if anything else happened during that conversation ?

A. My husband keep asking her to please to talk to the FBI

and to do it without her lawyer and they kept—

The Court: To do it, what?

The Witness: Without her lawyer.

The Court: Whose lawyer?

(Footnote continued on following page)

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

In our estimation, in these passages the court was not

indicating its belief in the defendant’s guilt or its disbelief

in the witness’s testimony, nor was it pushing Mrs. Car-

dona into altering that testimony. The testimony was un-

clear and it needed clarifying. At one point the court either

(Footnote continued from preceding page )

The Witness: Kapraki’s lawyer.

The Court: In other words, your husband was telling her what

to do without his lawyer?

The Witness: Without her lawyer.

The Court: Without her lawyer?

The Witness: According to the conversation that my husband

had with Agent Sniegocki.

The Court: He wanted Mrs. Kapraki to tell Agent Sniegocki

what your husband told Sniegocki, is that what you mean?

The Witness: My husband asked Ortrud Kapraki, in his own

words he said, “Please, Ortrud, if you have done something wrong,

it’s better that you talk to the FBI by yourself, because this way

you will feel better.”

The Court: ‘Then you said something in accordance with—

The Witness: Because—

The Court: Did you say that?

The Witness: Yes.

The Court: Your husband said, “In accordance with my conver-

sation [sic].

The Witness: You want me to repeat it?

The Court: Yes.

The Witness: Yes, you want me to repeat the conversation with

my husband, with Sniegocki—

The Court: I’m only interested right now in the conversation

between Mrs. Kapraki, vour husband and you in your living room

or parlor, as vou call it.

The Witness: All right. He—he said to Ortrud Kapraki that it

was better for her—It was—It was better for her to confess to the

FBI without her lawver.

(‘41

Appendix C—Opinions of Second Circuit Court of Appeals

mm case at bar

misunderstood or did not hear the witness clearly, surely

not an unforgivable sin in the course of a lengthy trial

with, so far as appears, a witness who might have been

difficult to understand.’* The witness’s phrase “according

to the conversation that my husband had with agent Snie-

goeki” was also susceptible to assorted interpretations. The

court was trying to determine whether Cardona was telling

Mrs. Kapraki to tell the FBI what he had told the FBI

agent or whether Cardona had told Kapraki that she would

he better off if she confessed without a lawyer. When the

court said “no, no.”"* the judge was simply indicating that

he wanted the witness to testify as to the conversation with

*® See note 14 supra regarding the context of the interrogation where

the court inquired as to whose lawyer Kapraki was told to speak

to the FBI without. Throughout the testimony of Mrs.

audibility and comprehension evidently were made difficult by a soft

voice, rapid speech, a language barrier or a combination of these.

She was asked to speak up at least five times in the course of her

testimony.

ont Following the colloquy cited, note 14 supra, the court went on to

The Court: You said earlier something about, he told her

something about the FBI, something in accordance with the way

I og him, what did you mean by that?

Fitness: According to w legocki

one aden ng hat the Agent Sni asked

The Court: No, no.

Mr. Klein: 1 submit, your Honor, that is an answer.

The Witness: Yes, your Honor.

a Court: Say that again.

Witness: According to what A i

simone 2 ng t Agent Sniegocki have asked

The Court: ‘That is what vour husband told her ?

The Witness: Yes.

The Court: You may proceed, Mr. Klein.

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Kapraki, not the conversation with Sniegocki. In the end

even with the attempts at clarification the matter was so

muddled that Cardona’s counsel went over the entire con-

versation again. A federal district judge has, as we have

repeatedly said, a duty to attempt to clarify the witness’s

testimony and to get the jury to understand the evidence.

See United States v. Natale, swpra. Judge Travia’s limited

intervention can sustain no claim of prejudice by Cardona.

X. The Charge on the False Statement Counts. Perhaps

appellants’ strongest argument is, especially if we Judge by

the dissent, in respect to the charge on the false statement

counts. ESC, Harry Bernstein and Behar all contend that

the trial court’s charge on the element of “knowledge”

applicable to the false statement counts and the false

statement object of the conspiracy was erroneous. The

court alternatively charged “knowledge” in terms of “con-

scious avoidance” and “recklessness” and it is the “reckless-

ness” portion here attacked.

17 The conscious avoidance charge given was proper under United

States v. Brawer, 482 F.2d 117, 128-29 (2d Cir. 1973), cert. denied,

419 U.S. 1051 (1974), and United States v. Jacobs, 475 F.2d 270,

287-88 (2d Cir.), cert denied, 414 U.S. 821 (1973). However, there

is no way of knowing on which basis the jury decided the case so

that if the recklessness charge were erroneous the false statement

counts and conspiracy count must fall.

We should add that use of the “reckless disregard” charge in

this case is not inconsistent with United States v. Bright, 517 F.2d

584 (2d Cir. 1975). Bright requires that a charge that knowledge

of falsity can be inferred from reckless disregard of the truth must

be “balanced” by a charge that actual belief in the truth of the state-

ment negates knowledge of falsity. The record shows that Judge

Travia expressly gave this “balanced” charge twice (C463, C511).

We do not think that he had to do this again.

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Appendix C—Opinions of Second Circuit Court of Appeals

im case at bar

Following proper instructions that specific intent was

necessary and proof of mere negligence insufficient to

convict, the court charged that the element of knowledge

was satisfied by proof beyond a reasonable doubt that a

defendant recklessly stated as fact things of which he was

ignorant or acted with « reckless disregard of whether the

statements made were true. Despite appellants’ vigorous

protestations to the contrary we have no difficulty in find-

ing such a charge just as proper here as in the case of

Securities Act violations. See United States v. Benjamin,

supra, 328 F.2d at 862-63. See United States v. Squires,

440 F.2d 859, 863-64 (2d Cir. 1971) (in areas of fiduciary

responsibility under the securities laws “persons issuing

statements are under an affirmative duty to investigate, and

it is entirely appropriate to include ‘should have known’

within the definition of ‘know’”). ESC, Bernstein and

Behar knew that the FHA was relying on the Form 2900’s

submitted, and the mortgagee’s certificate’s declaration

that the information was “true and complete to the best of

its knowledge and belief” carries this obligation at least.

The problem is that the court went on to attempt to

describe the duty of the parties, of ESC as an FHA-

approved mortgage lender and of Bernstein and Behar as

key officers of such, with the evident purpose to give the

jury some standard for determining whether there was such

a reckless disregard of the facts as to amount to knowledge

of the falsity of the Form 2900’s. Judge Travia originally

said that the duty was “to insure” that the statements

made in the application were true, apparently borrowing

the phrase from our opinion in United States v. Andreadis,

366 F.2d 423, 430 (2d Cir. 1966) (an alternative ground in

(44

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

holding that the Government proved knowledge of falsity

was that the defendant failed totally to discharge “affirma-

tive duty to insure” advertising claims were true), cert.

denied, 385 U.S. 1001 (1967). Conceiving, correctly we

think, that a “duty to insure” rather overstates the mort-

gagee’s responsibility—“reasonably to assure itself” would

be more accurate—the judge below proceeded to clarify

the nature of the mortgagee’s duty, describing it as “a duty

to investigate and exercise proper credit judgment.” It

is this portion of the charge to which the strongest objection

is lodged as the “most aggravated” error, one compounded

by the court’s omission of any standard for determining

good or had credit judgment.

But, and this is what appellants overlook and the dis-

sent misconceives, the charge did not indicate that it was

a crime not to exercise “proper credit judgment” and did

not equate failure to do so with reckless disregard of the

truth. Rather, the charge was that the crime consisted of

knowingly submitting an application containing a false

statement and that proof of mere negligent falsehood was

18 The court charged the jury:

[Y]Jou may find that the FHA program places a duty on the

mortgagee (Eastern and Harry Bernstein) to investigate and exer-

cise proper credit judgment with respect to statements contained

in applications for mortgage insurance submitted to the FHA.

The court then told the jury:

[1]f you find that there is such an affirmative duty, then the

standard of recklessness, which 1 mentioned earlier, is applicable

to the defendant Eastern Service Corporation, which is an ap-

proved mortgagee.

Absent a finding of “such an affirmative duty” the jury was in

effect directed to acquit without reaching the question of recklessness.

C45

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

insufficient. The charge as we read it was that in deter-

mining whether there was reckless disregard of the state-

ments’ falsity such as to amount to knowledge, it was for

the jury to determine whether as mortgagee ESC had

affirmative duties in connection with mortgagors’ loan guar-

anty applications. If such duties were found, the existence

of potential recklessness was still a question of fact. The

charge as such gave the defendants more than that to

which they were entitled.

We say this because an FHA mortgagee cannot even be

approved unless he is “responsible and able to service the

mortgagee properly,” 12 U.S.C. §§ 1709(b) (1), 17151(d) (1).

A mortgagor must under the regulations establish in an

approved standard application form, 24 C.F.R. § 203.11,

that the mortgage payments are within his means, 24

C.F.R. §§ 203.33, 203.34, 221.1. That form specifically

requires a certificate by the mortgagee that “all information

in the application is true and complete to the best of its

knowledge and belief.” Under the analogous civil case law

the mortgagee, knowing that the federal insurer is “relying

on its professional judgment in a business relationship”

has an aflirmative duty “to use due care in providing

information and advice” to the federal mortgage guarantor,

First National Bank, Henrietia y. Small Business Adminis-

tration, 429 F.2d 280, 287 (5th Cir. 1970); Mt. Vernon

Cooperative Bank vy. Gleason, 367 F.2d 289, 293 (1st Cir.

1966) (Veterans Administration). The entire scheme of

FHA mortgage guaranties presupposes an honest mort-

gagee performing the initial credit investigation with due

diligence and making the initial judgment to lend in good

faith after due consideration of the facts found. The trial

C46

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

court in our view could have charged that ESC had

commensurate duties as a matter of law, that Harry

Bernstein as principal corporate officer did also, and that

Florence Behar as officer in charge of processing mortgage

loans and signing the mortgagee’s necessary certification

of the application as “true and complete to the best of its

knowledge and belief” did likewise. It is our view that

delimiting those duties by defining them as duties “to

investigate” and to use “good credit judgment” was a fair

description of the responsibilities inherent in the relation-

ship between the defendants and the FHA, as we have

ahove described it.

Thus, to reiterate, the phrase “proper credit judgment”

was used simply in the context of defining the affirmative

duties the FHA mortgagee has. In leaving to the jury the

question whether any duties existed, duties which we think

it is plain the mortgagee had as a matter of law, the

appellants were obtaining the benefit of a charge more

favorable than that to which they were entitled. Appellants

rely on United States v. Guterma, 281 F.2d 742, 751-52 (2d

Cir.), cert denied, 364 U.S. 871 (1960), for the proposition

that if the matter of duty was going to be charged at all

it should have been charged as a matter of law.” In

19In United States v. Guterma, 281 F.2d 742, 751-52 (2d Cir.),

cert, denied, 364 U.S. 871 (1960), the court held that it was improper

for the court to leave to the jury a task “properly his own,” in that

case interpretation of the term “net book value” in an SEC instruction,

as applied to a pledge of securities. Here, of course, appellants below

had argued that the matter of duty on their part should not be charged

at all. Once the court decided to leave the question of duty to the

jury instead of charging it affirmatively as a matter of law, appellants’

immediate reaction was as follows:

(Footnote continued on following page)

C47

Appendix C—Opinions of Second Circwit Court of Appeals

im case at bar

permitting the jury to determine the existence of the duties

here, however, the court always clearly stated the crime

to consist of recklessly stating facts of which the mort-

gagee was ignorant or acting with a reckless disregard of

whether the facts stated were true. We do not see, there-

fore, how the appellants’ substantial rights were in any

way affected by the charge on exercising “proper credit

judgment.” If the jury decided that there were duties

(to investigate and to use proper credit judgment), the

appellants were no worse off than if the court had initially

charged them that there were such duties as a matter of

law, as we think it could have. If the jury decided that

there were no such affirmative duties, then the appellants

were, of course, much better off—they would have been

entitled to acquittal according to the judge’s instructions.

They have in any event not been prejudiced.

XI. The Trial Court’s Intentional Omission to Marshal

the Evidence. While appellants complain of the length and

prolixity of the trial, they also complain of the court’s

failure in the charge to summarize the evidence. This is a

matter, surely, within the trial court’s discretion. United

States v. Kahaner, 317 F.2d 459, 479 n.12 (2d Cir.), cert.

(Footnote continued from preceding page)

The Court: (continuing) Or whether I would leave the ques-

tion to the jury as a matter of fact to find. And I had come to

the conclusion, unless the Government wishes to argue addi-

— that I’m going to leave it to the jury as a question of

Mr. Obermayer [for Dun & Bradstreet]: Fine. My appli-

cation this morning—

The Court: Does the Government wish to argue on that

point before—

[The balance of this colloquy is in dissent note 5.]

(48

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

denied, 375 U.S. 835 (1963); United States v. Gillilan, 288

F.2d 796, 798-99 (2d Cir.), cert. denied, 368 U.S. 821 (1961),

That discretion was not abused. Exhaustive summations

lasted 14 days. Kapraki and Goodwin had been on the stand

19 and 16 days respectively so that the jury could well

weigh their credibility or lack of it. The court pointed out

the principal differences in the evidence as to the appro-

priate defendants—e.g., Rose Bernstein’s lack of connection

with the false statements and Cardona’s lack of connection

with the briberies. Cf. United States v. Aloi, swpra, 511

F.2d at 598-99. It also stressed the importance of individual

determinations as to each defendant on each count, a matter

scrupulously observed by the jury if we are to judge from

its inquiries and verdicts. See note 1 and Part VIII supra.

While the evidence here was complicated, or at least

extensive, the issues were not. On the bribery counts, as we

have observed, the issue was essentially one of credibility

and on the false statement counts knowledge of the falsity.

By circling in red the statements on the Form 2900 credit

applications which were claimed to be false (and for all

practical purposes admitted to be) the court accomplished

a lot more than words in a charge could have done to direct

the jury’s attention to the critical facts. Here as in United

States v. Hyde, 448 F.2d 815, 842 (5th Cir. 1971), cert.

dented, 404 U.S. 1058 (1972), a detailed review of the factual

transactions “carried risks of omission, over-enumeration,

over-simplification of some facts compounded by over-

complication of other facts.” Here, as in United States

v. Cohen, 145 F.2d 82, 92 (2d Cir.) (L. Hand, J.), cert.

demed, 323 U.S. 799 (1944), “If the judge had once em-

barked upon a consideration of the transactions in detail,

C49

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

he would have committed himself to a discussion of them

all; otherwise he would surely have laid himself open to

the charge of undue emphasis.” Judge Hand’s words in

Cohen are equally applicable here:

[1]n this country not only has the exercise of the power

[to marshal the evidence] never been obligatory, but

the power itself has been somewhat suspect. It is

strange to hear an accused complaining of such a

failure; we may be assured that, if the power had been

used, the complaints would have been louder, and

almost certainly better grounded.

145 F.2d at 93.

XII. Other Points. Appellants make three complaints

about the charge on aiding and abetting the briberies. The

first is that the court grouped the assorted defendants

associated with ESC together, as it did assorted other

defendants (the FHA defendants, the credit reporting

defendants). We think this made sense, however, and note

also that the jury was in conclusion instructed that indi-

vidual verdicts as to particular defendants on each count

were called for. The second objection is that the court

charged that if the jury found a payment by Kapraki was

made appellants’ conviction must follow ; this is entirely out

of context, however, because the court gave a correct charge

regarding the aiding and abetting of Kapraki; only in

setting out the elements of the complicated lesser offense

of giving a gratuity did the court say “you should deter-

mine with respect to each defendant whether or not the

payment of money was made corruptly [elsewhere defined ],”

and “If you are convinced beyond a reasonable doubt that

(550

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

the payment was so made, then you must convict the

defendant or defendants on that count.” We view this

as perfectly proper. The court, contrary to appellants’

third argument, did charge what acts could be considered

acts of aiding and abetting.”

Appellant Behar separately complains of prejudice by

virtue of that portion of the charge that conditioned a

finding of the guilt of Cardona or Harry Bernstein as aiders

and abettors of the false statements upon a finding of guilt

as to the principal (Behar, ESC). But it is the law that

a person cannot be found guilty of aiding and abetting

unless a principal whom he has aided and abetted committed -

the criminal act. See Shuttlesworth v. City of Birmingham,

373 U.S. 262 (1963); Untted States v. Hoffa, 349 F.2d

20, 40 (6th Cir. 1965), aff'd, 385 U.S. 293 (1966). Bat

cf. United States v. Bryan, 483 F.2d 88, 93-94 (3d Cir. 1973)

(not necessary that principal be tried and convicted or

even identified) ; U/nited States v. Provenzano, 334 F.2d 678,

691 (3d Cir.), cert. denied, 379 U.S. 947 (1964). Surely

Behar and ESC were the principals in the false statement

phase of the case. While the proof of Cardona’s guilt was

overwhelming, perhaps, there was no prejudice to Behar;

it is not without significance that on one such count Behar

was named and convicted while Cardona was not even

named. We have previously commented on the jury’s

ability to view the evidence with a diseriminating eve.

#° The court stated that appellants were charged

with aiding and abetting and counselling the payment of bribes

to Edward Goodwin and the defendant Joseph Jankowitz and the

Government claims this was done by counselling payment of

monies to these men and by arranging to have them assigned to

Mrs. Kapraki’s cases.

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Finally, and this is a point on which my brothers and

I disagree, appellants Harry Bernstein and ESC argue

that certain of the bribery counts were multiplicitous

(appellants use erroneously the term “duplicitous”). On

four different occasions Bernstein paid Goodwin a lump sum

for several property appraisals at $50 per appraisal, thus,

for example, paying him $350 on October 6, 1967, for seven

property appraisals. The problem is that while only one

payment of money was made on this occasion, appellants

were charged in five counts (and incidentally Bernstein

fined $10,000 for each count and ESC $20,000 for each,

note 1 supra). In totality four lump sum payments resulted

in convictions on 11 counts. The question—one as to which

there are no cases directly in point—is whether each lump

sum payment constituted one crime or several, a single

transaction or many. Appellants argue, and the writer

agrees, that under 18 U.S.C. § 201(b) it is the corrupt gift

which is the essential criminal act on the part of the donor,

though it be with the intent to induce several criminal acts

(and might be punished severally under 18 U.S.C. § 201(c)

on the part of the donee).*" See generally Ladner v. United

*1 The indictments here were for violations of 18 U.S.C. ¢ 201(b).

That section makes it a crime whenever a person

directly or indirectly, corruptly gives, offers or promises anything

of value to any public official or person who has been selected

to be a public official, or offers or promises any public official or

* any person who has been selected to be a public official to give any-

thing of value to any other person or entity, with intent—

(1) to influence any official act ; or

(2) to influence such public official or person who has been

selected to be a public official to commit or aid in committing

or collude in, or allow, any fraud, or make opportunity for the

commission of any fraud, on the United States ; or

( Footnote continued on following page)

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Appendiz C—Opinions of Second Ci-cwt Court of Appeals

in case at bar

States, 358 U.S. 169, 178 (1958); Bell v. Untted States, 349

U.S. 81, 84 (1955) (Frankfurter, J.).

_ My colleagues take the entirely rational and different

view and it is therefore the opinion of the court that sepa-

rate offenses may arise out of the same transaction where

each of the alleged offenses requires proof of some fact

or element not required to establish the other. See Albrecht

v. United States, 273 U.S. 1, 11 (1927); United States v.

Tarrant, 460 F.2d 701, 704 (5th Cir. 1972); Moeller v.

United States, 378 F.2d 14, 15 (5th Cir. 1967) ; Newman v.

United States, 212 F.2d 450, 452 (6th Cir. 1954); United

States v. Michelson, 165 F.2d 732 (2d Cir.), aff’d 335 US.

469 (1948).

It was not, in the majority’s view, simply the payment

of the money which constituted an offense under § 201; it

was also the offering or promising to pay. The proof estab-

lished that Harry Bernstein promised to pay $50 for each

(Footnote continued from preceding page)

(3) to induce such public official or such person who has been

selected to be a public official to do or omit to do any act in

violation of his lawful duty... .

It is also a crime for the recipient of the bribe who

being a public official or person selected to be a public official,

directly or indirectly, corruptly asks, demands, exacts, solicits,

seeks, accepts, receives, or agrees to receive anything of value for

himself or for any other person or entity, in return for

(1) being influenced in his performance of any official act; or

(2) being influenced to commit or aid in committing, or to

collude in, or allow, any fraud, or make opportunity for the com-

- mission of any fraud, on the United States ; or

- - (3) being induced to do or omit to do any act in violation of

his official duty . .

18 U.S.C. § 201(c¢).

C53

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

“top dollar” appraisal which Goodwin made. The Govern-

ment offered separate proof with regard to each property

to establish that it had been over-valued and that, as a

result, a fraud had been committed upon the United States.

That payments were thereafter made in installments which

sometimes exceeded $50 did not require the number of stat-

utory violations. The “official act” which had been im-

properly influenced under § 201 was the appraisal of each

property on which a commitment was made for FHA mort-

gage insurance.

We have in short reviewed the extensive record and, with

extremely careful and thorough argumentation by counsel,

considered the numerous legal points arising out of this

necessarily very lengthy trial. We are persuaded that the

matter was handled with the greatest of care by the trial

judge, with high competence by both Government and

defense counsel, and with painstaking consideration of

individual defendants and counts by the jury, under in-

structions that were, if anything, favorable to the accused.

Several of the legal points were troublesome; indeed, we

are not unanimous on all of them. The sentences were stiff.

But these were serious crimes.

The judgment is affirmed.

VAN GRAAFEILAND, Circuit Judge (dissenting) :

“Proper credit judgment” is a wonderfully impressive

phrase, a portentous, business-like phrase, one that rolls

readily off the tongue of bankers and financiers in their

board rooms and at their clubs. But, what does it mean?

('54

Appendix C—Opinions of Second Circuit Court of Appeals

im case at har

The statute under whieh defendants were convicted con-

tains no reference toit. The district judge never instructed

the jurors as to its meaning. We have no idea how these

twelve untutored laymen defined it. Last, but not least, my

brothers in the majority fail to enlighten us with their

interpretation. And yet, this phrase, undefined, unex-

plained and uninterpreted, to this date, forms the very core

of the Government’s case on the false statement counts as

it was presented to the jury by the district judge.

The majority finds this to be merely “troublesome”. I

find it the culmination of a series of errors in the district

eourt’s charge which fairly ery for reversal. I, therefore,

respectfully dissent.

Conviction of the defendants under 18 U.S.C. 1010

required proof of three elements: the making of a false

statement in the FHA application, knowing it to be false

for the purpose of influencing the FHA to issue mortgage

insurance. United States vy. Leach, 427 F.2d 1107 (1st

Cir.), cert. denied, 400 U.S. 829 (1970). The Government

did not contend that appellants Harry Bernstein, Florence

Behar and Eastern had actual knowledge of the falsity of

any of the statements at issue herein. However, the judge

instructed the jury that it was unnecessary for the Govern-

ment to prove to a certainty that these defendants knew a

statement was false. He charged that, although knowledge

could not be established by proof of mere negligence, it

might he found if a defendant was aware of the high prob-

ability that a statement was false, unless that defendant

actually believed that the statement was not false. He

charged further on the theory of conscious avoidance. _

C55

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

If the District Judge }.ad stopped at that point, I would

have no fault to find. Umited States v. Bright, 517 F.2d

§84 (2d Cir. 1975); United States v. Egenberg, 441 F.2d

441, 444 (2d Cir.), cert. denied, 404 U.S. 994 (1971) ; United

States v. Abrams, 427 F.2d 86 (2d Cir.), cert. denied, 400

U.S. 832 (1970); United States v. Sarantos, 455 F.2d 877

(2d Cir. 1972). However, the Judge continued on into

what I conclude was error. He charged that it was a ques-

tion of fact for the jury to determine if the FHA placed an

affirmative duty on certain of the defendants.’ He charged

that, if there was a duty to investigate, proof of “reckless-

ness” would satisfy the requirement of knowledge under

the statute.2 He then instructed the jury to determine as

1 Now, it is a question of fact for you as jurors to determine from

the evidence you have heard in this case—and you have heard testi-

mony from HUD representatives and from others, the exhibits that

you will find were introduced and received in evidence, the papers

from which | just read now, which the Court took judicial notice of,

and the mortgagee’s handbook and the FHA manual, and whatever

other evidence there was, if any, in the case, is for you to determine

if the FHA, of the Housing and Urban Development, places an

affirmative duty on certain of the defendants in this case.

You may in making such a determination consider the regula-

tions that have been read to you during the course of the trial, the

testimony of the witnesses concerning them, the instructions con-

cerning the applications necessary to be filed, and the papers necessary

to make up the complete application. You recall they referred to

that as a package, if I recall correctly. [R. 21386].

2 Finally, in the contest [sic] of this case there is a third way of

satisfying the requirement of knowledge. Where a person who makes,

passes, utters or publishes a false statement is under an affirmative

‘duty to investigate the element of knowledge is satisfied by proof be-

yond a reasonable doubt that a defendant recklessly stated as facts

things of which he was ignorant, or acted with a reckless dioregard

of whatever statements made were true. [R. 21425].

C36

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

a question of fact whether the defendants Harry Bernstein,

Florence Behar and Eastern had the duty to exercise

“proper credit judgment” with respect to statements made

in the mortgage insurance applications and to “insure”

that such statements were true.*

The district judge never did specifically and clearly

delete the word “insure” from his charge, although even the

3 Now, in the light of the National Housing Act, part of which 1

read, and about which you heard testimony from Mr. Hipps, 1 be-

lieve, and possibly Mr. Sanders, the Federal regulations which were

set forth in the eligibility requirements for approval of mortgagees

who submit applications to the FHA and which set forth eligibility

requirements for mortgagors, the instructions contained in the mort-

gagee’s handbook, the requirement that a mortgagee certify that

all information in an application is true and complete to the best of

its knowledge and belief, and the underlying policy of reliance by

the FHA on the mortgagee to submit complete and truthful informa-

tion, you may find that the FHA program places a duty on the

mortgagee to investigate and exercise proper credit judgment with

respect to statements contained in applications for mortgage insurance

submitted to the FHA.

.Now, if you find that there is such an affirmative duty, then the

standard of recklessness, which I mentioned earlier, is applicable to

the defendant Eastern Service Corporation, which is an approved

mortgagee.

You should also in that regard consider what persons played a

role in setting the policy of Eastern Service Corporation with re-

spect to credit applications, and what person had the responsibility

to sign the mortgagee certificate on behalf of Eastern Service Cor-

poration. Also, in this regard you may determine whether or not

the evidence shows beyond a reasonable doubt that the defendants

Harry Bernstein and Florence Behar occupied such a position. You

may find that any person in such a position had an aftirmative duty

to. insure that statements made in the application were true, and

if you so find, then the standard of recklessness is also applicable

to such a person. [R. 21425-26].

C37

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

prosecution urged that he do so. His last instructions to

the jury before it retired were:

Now, I also was asked to clarify the charge that I gave

you concerning the affirmative duty. —

You will reeall that I referred to affirmative duty as

being a question of fact for you to determine if the

FHA [places] an affirmative duty on various defen-

dants. I would like to clarify the nature of that duty

which you may or may not find exists.

As to Eastern Service, Harry Bernstein and Florence

Behar, the question is, one, was there a duty to investi-

gate and exercise proper credit judgment with respect

to statements contained in applications for mortgage

insurance submitted to the FHA? [R. 21618].

1 have quoted the pertinent portions of the district

court’s charge above and in the margin so that the reader

might draw his own preliminary conclusions as to its fair-

ness and accuracy. My own comments follow under appro-

priate headings.

The Nature of the Offense

Defendants were indicted on conspiracy and substantive

counts for alleged violations of 18 U.S.C. $1010, which

provides in pertinent part as follows:

Whoever . . . for the purpose of influencing in any

way the action of [the Federal Housing Administra-

tion], makes, passes, utters, or publishes any state-

ment, knowing the same to be false, . . . shall be fined

{and/or imprisoned}. .

C58

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

Defendants were not indicted for violation of instruc-

tions contained in the FHA manual or mortgagee’s hand-

hook.* Nor could they be. The Supreme Court has, time

and again, pointed out the difference between duties im-

posed legislatively and those imposed administratively and

has held that “[w]here the charge is of crime, it must

have clear legislative basis.” United States v. George, 228

U.S. 14, 22 (1913). The contents of an administrative

manual or handhook “cannot add to the terms of an

act of Congress and make conduct criminal which such laws

leave untouched.” [United States v. Standard Brewery, Inc.,

251 U.S. 210, 220 (1920). One may be convicted only for

wrongful conduct “defined by statute or by regulation

having legislative authority, and then only if punishment

is authorized by Congress.” Viereck v. United States, 318

U.S. 236, 241 (1943). As Mr. Justice Blackmun succinctly

put it, while on the bench of the Eighth Circuit, “mere

violation of a [Commodity Credit Corporation] ‘policy’

is not equivalent to a violation of [15 U.S.C.] § 714m(a).”

Jacobs v. United States, 359 F.2d 960, 966 (Sth Cir. 1966).

Section 1010 places no affirmative duty upon a mortgage

insurance applicant to investigate and exercise “proper

credit judgment” concerning the financial status of the

mortgagor as described in the application. The majority

opinion, on the contrary, does exactly that. My colleagues

say that a mortgagor must “establish in an appropriate

approved standard application form . . . that the mort-

* Although the District Court used the term “regulations”, testi

mony introduced by the Government indicated that the procedures

outlined in the FHA manual and mortgagee’s handbook were not

regulations, but rather instructions.

(59

Appendix C—Opimons of Second Circuit Court of Appeals

m case at bar

gage payments are within his means” and that the mort-

gagee is required to certify that this is true to the best of

its knowledge and belief. To equate defendants’ failure

to exercise this “proper credit judgment” with a reckless

disregard of the truth, and thus with the knowledge of

falsity required by § 1010, is to read something into the

statute which is otherwise totally absent.

Aithough the dissent is said to have misconceived the

judge’s charge, the dissent conceives quite clearly that a

defendant who is required to exercise “proper credit judg-

ment” concerning a mortgagor’s ability to make mortgage

payments is held to a different standard of care than one

who is not. Where such a standard is not imposed by

statute or legislatively authorized regulations, it should

not be created out of instructions in a manual and oral

testimony. Permitting this to he done was error number

one.

A number of statements are made by the majority in

support of their decision to affirm with which I find myself

in respectful disagreement. The first of these is Judge

Oakes’ statement that the defendant Behar signed certifi-

cations “verifying the truth of the information in the ap-

plications.” In its unsworn applications for mortgage in-

surance, the mortgagee “represents” that “to the best -of

its knowledge and belief” no information contained in the

papers furnished is untrue, incorrect or incomplete. A

statement made to the best of a person’s knowledge and

belief does not purpor: to be made on such person’s actual

personal knowledge and does not purport to “verify” the

truth of the statement. First National Bank v. Gregg, 79

Pa. 384, 387 (1875).-

C60

Appendix C—Opinions of Second Circwwi .' » -* »f Appeals

in case at bar

The majority also says that the district court “pro-

ceeded to clarify” its charge concerning defendants’ dut”

to “insure” the truth of statements in the application,

which, it concedes, “rather overstates the mortgagee’s re-

sponsibility.” Clarifying is what the district judge said

he was doing. However, what was required concerning the

word “insure” was deletion, not clarification. In the ab-

sence of any definition of the phrase “proper credit judg-

ment”, the jury could, and in all probability did, conclude

that defendants were required to exercise proper credit

judgment to “insure” that the statements in the applica-

tion were true. This was eivor number two.

I must take issue with Judge Oakes’ statement that the

district court’s charge equating recklessness with knowl-

edge was balanced, as required in United States v. Bright,

supra, 317 F.2d at 588, by an additional instruction man-

dating acquittal if defendants actually believed that the

statements made were true. In that portion of his charge

dealing with conscious avoidance, the district judge did

include this exculpatory clause.° However, that portion of

5 Judge Oakes correctly states that the District Ju’ e gave his

“balanced” charge twice. However, this took place three days prior

to the “proper judgment credit” portion of the District Judge’s

charge, when he was distinguishing between negligence on the one

hand and reckless disregard and conscious avoidance on the other.

The portion of the charge in which this occurred had nothing to

do with the affirmative duty of exercising “proper credit judgment”.

The District Judge charged that, where such a duty existed, there

was a “third way” of satisfying the requirement of knowledge. He

then stated that when a defendant is under an affirmative duty to

investigate, “the element of knowledge is satisfied by proof beyond a

reasonable doubt that a defendant recklessly stated as facts things

(Footnote continued on following page)

Cél

Appendix C—Opinions of Second Circut Court of Appeals

in case at bar

the charge dealing with the duty to exercise “proper credit

judgment” and “insure” the truth of statements has been

set forth in full herein, and no such instruction is included.

There is a substantial difference between knowledge of

falsity as used in the civil sense and in the criminal sense.

United States v. Cooperative Grain amd Supply Co., 476

F.2d 47, 59 (8th Cir. 1973). Where knowledge is required

for violation of a criminal statute, carelessness or lack of

wisdom is not its equivalent. Jacobs v. United States,

supra. I think our holding in Bright must be interpreted

to mean that if a defendant actually believes that a state-

ment is true, he cannot be convicted of a knowing falsity,

regardless of how negligently he arrived at that belief.

The application of this rule is especially important in a

case such as this where the jury was permitted to impose

duties upon the defendants derived only from administra-

tive instructions and oral testimony. The failure of the

district court to inelude the balancing clause required by

Bright in the “proper credit judgment” portion of his

charge was error number three.

The Function of Court and Jury

In the early days of our country, it was customary in

most courts for juries to be judges of both the law and the

faets. ITI Wharton’s Criminal Procedure 4 1745, at 2184

(Footnote continued from preceding page)

of which he was ignorant, or acted with a reckless disregard of what-

ever statements made were true.” ‘To conclude that the jury was so-

phisti¢ated enough to apply the balancing requirement of Bright to

this “third way” of proving knowledge, is to credit these twelve laymen

with a prescient grasp of legal principles not readily found even

among lawyers. _— =e

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Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

(10th ed. 1918); Foley, Instructions to Juries—Their Role

in. the Judicial Process, 42 Yale L.J. 194, 202 (1932).

However, in most jurisdictions, this practice did not long

survive. Over one hundred years ago, this Court firmly

announced its adherence to the doctrine that the court

decides the law and the jury the facts. United States v.

Riley, 5 Bl. C. C. 204 (2d Cir. 1864). Finally, in 1895, in

the landmark case of Sparf v. United States, 156 U.S. 51

(1895), the Supreme Court declared that this procedure

would henceforth be followed in all federal courts.

I have already expressed my firm conviction that the

strictures imposed upon the defendants by 18 U.S.C. § 1010

could not be enlarged upon by instructions contained in

handbooks or manuals of the FHA. Whether they were so

enlarged upon in this case, we will never know. This knowl-

edge is secure in the bosom of the jury. The district court

left it to the jury to determine as a question of fact from

the FHA booklets “and whatever evidence there was, if

any, in the case” whether defendants had the affirmative

duty to investigate the financial status of mortgage ap-

plicants and exercise “proper credit judgment” with respect

to statements contained in their applications.

This was not a question of fact; it was a question of

law. The construction of statutes and regulations is for

the court, not the jury. United States v. Santiago, __. F.2d

___.. (2d Cir. 1976), slip op. 6577, 6583; United States v.

(uterma, 281 F.2d 742, 751-52 (2d Cir.), cert. denied, 364

U.S. 871 (1960): United States v. Gillilan, 288 F.2d 796-97

(2d Cir.), cert. denied sub nom. Apex Distributing Co. v.

United States, 368 U.S. 821 (1961); Caldwell v. United

States, 218 F.2d 370, 372 (D.C.Cir. 1954), cert. denied, 349

C63

Appendix C—Opinions of Second Circuit Court of Appeals

in case at bar

U.S. 930 (1955). If this were not so there would be as

many rules as there are verdicts. Northern Pacijic Rail-

way Co. v. Finch, 225 F. 676, 678 (D.N.D. 1915).

As Wharton points out, “if juries have any moral right

to construe the law, it becomes essential to know what is

the construction they adopt.” Wharton’s Criminal Pro-

cedure, supra, at 2186.. Otherwise defendants will be left

rudderless and without established standards to guide

them. Moreover, an appellate court will have no means of

determining whether a violation of rules and regulations,

as they have heen interpreted by a jury, has occurred.

I cannot better point out the necessity of knowledgeable

appellate review than by reference to language in the

majority opinion. Judge Oakes states that “if the jury

decided that there were no such affirmative duties . . . [de-

fendants] would have been entitled to acquittal... .” Let

us assume—we will never know—that the jury did decide

there were no affirmative duties. Should defendants not

have heen acquitted? How can we answer this? We are

left to ruminate in a vacuum. We do not know what legal

duties were imposed upon these defendants by the jury;

no other court will ever know, and hundreds of other FHA

mortgagees who would like to comply with the law ill be

equally at sea.

My brothers say that defendants were not prejudiced

by the submission of these issues to the jury because the

affirmative duty of exercising “proper credit judgment”

was imposed upon defendants as a matter of law. I must

again disagree. A statement that one is obligated as a

matter of law to exercise “proper credit judgment” has

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Appendix C—Oypinions of Second Circuit Court of Appeals

in case at bar

little meaning if one doesn’t know what “proper credit judg-

ment” is. If my brothers would come forth with a defini-

tion of this phrase and then guarantee that the jury used

the same definition in finding the defendants guilty, I

might agree that no prejudice existed. So long, however,

as the jury was free to define for itself the nature of the

duty which, the majority says, was imposed upon defen-

dants as a matter of law, the possibility of prejudice was

inescapable.

Moreover, despite a thorough review of the FHA mort-

gagee’s handbook and pertinent Federal regulations, I find

nothing in any instruction, rule or regulation which im-

poses a duty upon a mortgagee to investigate and exercise

“proper credit judgment” with respect to the statements

contained in the mortgage insurance applications. This

was the responsibility of the Commissioner. 24 C.F.R.

§ 203.34 provides that “a mortgagor must have a general

credit standing satisfactory to the Commissioner.” Section

203.33 provides tha

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