Petition — Sugar v. United States

Supreme Court, U. &:

FILED

APR 10 1978

‘

MICHAEL RODAK, JR., CLER

Iu the

Supreme Court of the United States

Ocroser ‘T'erM, 1977

MANUEL J. SUGAR,

Petitioner,

vs.

| UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIROUIT

JULIUS LUCIUS ECHELES

CAROLYN JAFFE

35 East Wacker Drive

Chicago, Illinois 60601

Attorneys for Petitioner

MICHAEL B. NASH

53 West Jackson Bivr.

Chicago, [llinois 60604

Of Counsel

SS TTS SR

UNITED STATES LAW PRINTING CO., CHICAGO, ILLINOIS 60618 (312) 525-6581

PAGE

a 1

sm ie ee ao 2

SE SI dcicntinincincetathiiianbiidascisipenianisncanghlicligitiaiats 2

Constitutional Provisions and Statutes Involved ........ 3

I 4

Statement of Facts ........ iia : Ser eam 6

Reasons for Granting the Writ. _2.2..........2.....-.cesecceeeeeoeeees 7

Prefatory Statement _.............

Synopsis _ ...............

1. Defendant was deprived of due process of law, for

no evidence whatsoever was presented to the grand

jury ; the Seventh Circuit panel’s resolution of this

question conflicts with the law of the Fifth Circuit 10

2. The cursory manner in which the Court of Appeals

‘*resolved’’ all the remaining issues is repugnant

to defendant’s due process right to meaningful ap-

pellate review, for it does not even appear that

the court took account of the facts Ssiciaiencantibeae 12

3. The record was so devo:d of evidentiary support

for the necessary element of scienter (that is,

knowledge that the property was stolen) that de-

fendant’s conviction violates due process of law . 13

ii

, PAGE

4. Defendant was deprived of his due process right

to present evidence of the relevant market which

should be considered in evaluating his state of mind

from inferences to be drawn from price differen-

tials in the light of market conditions .................... 16

5. Defendant’s trial can not be dubbed constitution-

ally ‘‘fair’’ in context, where the prosecution—by

argument that the jury must impose morals on the

business community, and by last-minute use of as-

sorted uncharged transactions asserted to have

been illegitimate though defendant had been

promised the government was not claiming that

any extra-indictment transactions involved stolen

steel—importuned the jury to convict upon evidence

devoid of proof of guilty knowledge on defendant’s

part. The conclusion of ‘‘no prejudicial error’? flies

Gy ED ccrniciennicicctineniitsticnnsinnaasaicinenie 17

PURE. cnncmnmnmnamemnmminnmen sintmeiennie 19

Te ideeentinieatncnnanpeieaten 21

Appendix A—Order of the Court of Appeals ..._...... App. 1

Appendix B—Order denying petition for rehearing

and suggestion for rehearing in bane, denied

ED eerie App. 8

Appendix C—Statement of Facts —........................ App. 9

ill

AUTHORITIES CITED

Cases

PAGE

Cherry v. United States, 78 F.2d 334 (7 Cir. 1935) ... 14

Costello v. United States, 350 U.S. 359 (1956) ~............ 10

Douglas v. California, 372 U.S. 353 (1963) -_.............. 13

Henry v. United States, 361 F.2d 352 (9 Cir. 1966) ..... 15

Kotteakos v. United States, 328 U.S. 750 (1946) ........ 7,19

LaBuy v. Howes Leather Co., 352 U.S. 249 (1957) ... 20

McNabb v. United States, 318 U.S. 332 (1943) ....... . 20

Melson v. United States, 207 F.2d 558 (4 Cir. 1953) ... 15

Nance v. United States, 422 F.2d 590 (7 Cir. 1970) ...... 13

Thomas v. United States, 368 F.2d 941 (5 Cir. 1966) -. 20

Thompson v. City of Louisville, 362 U.S. 199 (1960) .. 15

Unger v. Sarafite, 376 U.S. 575 (1964) ‘ 7

United States v. Anost, 356 F.2d 413 (7 Cir. 1966) ....14, 15

United States v. Baum, 482 F.2d 1325 (2 Cir. 1973) ..... 18

United States v. Bletterman, 279 F.2d 320 (2 Cir. 1960) 15

United States v. Calandra, 414 U.S, 338 (1974) ........ 10

United States v. Carengella, 198 F.2d 3 (7 Cir. 1952) ... 14

United States v. Franklin, 471 F.2d 1299 (5 Cir. 1973) 18

United States v. Hodge, 496 F.2d 87 (5 Cir. 1974) ........ 11

United States v. Johnson, 515 F.2d 730 (7 Cir. 1975) .... 15

United States v. Kessler, 253 F.2d 290 (2 Cir. 1958) ... 15

United States v. Knight, 451 F.2d 275 (5 Cir. 1971) ... 15

iv

PAGE

United States v. Rosciano, 499 F.2d 174 (7 Cir, 1974) .... 20

United States v. Semeniuk, 193 F.2d 508 (7 Cir.

BED cenccssssssovstnsittcinnemiiaienta 12, 15,18

United States v. Wainer, 170 F.2d 603 (7 Cir. 1948) ... 14

United States v. Werner, 160 F.2d 438 (2 Cir. 1947) .... 16

United States v.. Williams, 447 F.2d 1285 (5 Cir. 1971) .. 16

United States v. Wilson, 523 F.2d 828 (8 Cir. 1975) ........ 15

Washington v. Texas, 388 U.S. 14 (1973) ~20.. 17

Wood v. Georgia, 370 U.S. 375 (1962) 2.22... cece 2,10

Other Authorities

Fifth Amendment to United States Constitution ....2, 3,10

Sixth Amendment to United States Constitution ........ 3

PBOCP. TG) ccncncsnnntine 12

Tithe 1B, UG. Gee, FEE cnicnnssincicmee +

Title 1B, UBD. Get, GE ccnnnssicennnen 4

In the

Supreme Cowt of the United States

Ocroser Term, 1977

No.

MANUEL J. SUGAR,

Petitioner,

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioner, Manuel J. Sugar (hereafter, defendant) prays

that a writ of certiorari be issued to review the judgment

of the United States Court of Appeals for the Seventh

Circuit,

Order Below

The Order of the Court of Appeals, unpublished per

Seventh Circuit Rule 35, is reprinted as Appendix A, infra.

2

Jurisdiction

The Order of the Court of Appeals was entered on Janu-

ary 26, 1978. Defendant’s timely petition for rehearing

and suggestion for rehearing in bane was denied on March

14, 1978 (App. B, infra). The jurisdiction of this Court

is invoked pursuant to 28 U.S.C. 1254(1) and Rule 22(2)

of the Rules of this Court.

QUESTIONS PRESENTED

1,

Where the grand jury which indicted defendant heard

only the prosecutor, unsworn, reading testimony given by

an FBI agent before a former grand jury which did not in-

dict, was there any evidence to support the indict-

ment against defendant’s claim that such deprived him

of due process of law as guaranteed by the Fifth

Amendment? Does this decision run afoul of principles of

this Court as expressed in such cases as Wood v. Georgia,

370 U.S. 375 (1962), and does it conflict with law from the

Fifth Cireuit?

2.

Is the cursory manner via which the reviewing court

‘*resolved’’ all the remaining issues against defendant re-

pugnant to defendant’s due process right to. meaningful

appellate review, where it does not even appear that the

court took account of the factual context?

3.

Was the record so devoid of evic »tiary support for the

necessary element of scienter (that is, knowledge that the

property was stolen) that defendant’s conviction violates

due process of law?

3

4.

Was defendant deprived of his due process right to pre-

sent evidence of the relevant market which should be con-

sidered in evaluating his state of mind from inferences to

be drawn from price differentials in the light of market

conditions?

5.

Can defendant’s trial be dubbed constitutionally ‘‘fair’’

in context, where the prosecution—by argument that the

jury must impose morals on the business community, and by

last-minute use of assorted uncharged transactions asserted

to have been illegitimate though defendant had been

promised the government was not claiming that any extra-

indictment transactions involved stolen steel—importuned

the jury to convict upon evidence devoid of proof of guilty

knowledge on defendant’s part?

Constitutional Provisions and Statutes Involved

The Fifth Amendment to the United States Constitution

provides, in pertinent part:

‘*No person shall be held to answer for a.. . crime,

unless on a presentment or indictment of a Grand

Jury, ... nor shall be compelled in any criminal case

to be a witness against himself, not be deprived of life,

liberty or property, without due process of law; .. .’’

The Sixth Amendment to the United States Constitution

provides, in pertinent part:

‘*In all criminal prosecutions, the accused shall en-

joy the right to... trial, by an impartial jury... , and

to be informed of the nature and cause of the accusa-

tion; to be confronted with the witnesses against him;

. and to have the assistance of Counsel for his

defence.’’

4

Title 18, U.S.C. See. 659 provides, in pertinent part:

‘*$ 659. Interstate or foreign shipments by carrier;

State prosecutions

Whoevex embezzles, steals, or unlawfully takes, car-

ries away, or conceals, or by fraud or deception obtains

from any pipeline system, railroad car, wagon, motor-

truck, or other vehicle, or from any tank or storage

facility, station, station house, platform or depot or

from any steamboat, vessel, or wharf, or from any air-

craft, air terminal, airport, aircraft terminal or air

navigation facility with intent to convert to his own

use any goods or chattels moving as or which are a part

of or which constitute an interstate or foreign shipment

of freight, express, or other property; or

Whoever buys or receives or has in his possession

any such goods or chattels, knowing the same to have

been embezzied or stolen;

. * ®

Shall in each case be fined not more than $5,000 or

imprisoned not more than ten years, or both; but if the

amount or value of such money, baggage, goods or

chattels does not exceed $100, he shall be fined not more

than $1,000 or imprisoned not more than one year, or

Pe

Title 18, U.S.C. See. 371 reads, in pertinent part:

‘*§ 371. Conspiracy to commit offense or to defraud

United States

If two or more persons conspire ,.. to commit any

offense against the United States, ... and one or more

of such persons do any act to effect the object of the

conspiracy, each shall be fined not more than $10,000

or imprisoned not more than five years, or both. .. .’’

Statement of the Case

Defendant was charged with having possessed steel which

had been stolen while moving in interstate commerce

(Counts 2-7) and of conspiracy so to do (Count 1), in

violation of 18 U.S.C. 659 and 371, respectively.’

5

A jury found defendant guilty and the court imposed the

maximum sentence, as required, pending diagnostic evalua-

tion.”

On appeal, as in the District Court, defendant urged that

the grand jury which indicted him was presented with no

evidence whatsoever; that the evidence was insufficient as

a matter of law to prove that he knew the steel was stolen ;*°

that he was prejudiced by prosecutoria] misconduct, both in

argument and in the introduction of evidence of extra-in-

dictment transactions; and that the trial court’s rulings

were prejudicially erroneous in various areas, inter alia,

limitation of defendant’s right to present evidence concern-

ing value of the property, where alleged discrepancy be-

tween market value and what defendant paid for the steel

was used as a telling factor against him.‘ The court af-

firmed. (App. A)

1 A jointly tried co-defendant, one, Gelfman, likewise was convicted ;

the judgment was affirmed (76-2153; see App. 1-3) “Tr.” refers

to the Transcript of Proceedings therein, and “App.” to the appendices

hereto.

? Defendant is still awaiting sentence, the said evaluation as yet

not having been completed in view of defendant’s deteriorating health.

% Also, defendant urged that there was absolutely no evidence at

trial even to indicate, much less establish, the steel had been stolen

from a physical facility enumerated in the statute, 18 U.S.C. 659.

(App. 5)

* Defendant further complained of prejudicial error in the court’s

ruling upon his motion for severance from co-defendant Gelfman,

and for improper limitation of his constitutional right to cross-

examine key witness Martin, (App. 6-7), based on an unusual

extension and application of attorney-client privilege to justify the

otherwise obviously prejudicial and unconstitutional limitation.

Statement of Facts

The grand jurors who indicted defendant were presented

with nothing other than the prosecutor, unsworn, reading

testimony of an FBI agent as given before a former grand

jury which had not returned an indictment. (App. 4)

Appended hereto (App. C) in summary fashion is the

Statement of Facts as contained in defendant’s Brief filed

in the Court of Appeals, No. 77-1172. Specific facts perti-

nent to our arguments are included hereafter as appropriate

in context.

To capsulize: Henry Martin, the government’s ‘‘star’’

witness, did not even know defendant, nor had they any

contact. Martin (the thief) dealt only with co-defendant

Gelfman. Defendant’s only dealings were with Gelfman, in

a purely up-standing legitimate manner, one steel company

to another. Defendant’s company, Sugar Steel Corpora-

tion, had been doing business with Gelfman’s company,

Steel City Iron & Metal Co., with Gelfman and Gelfman’s

father for many years. (Tr. 1001-05)

REASONS FOR GRANTING THE WRIT

Prefatory Statement

The caveat of Kotteakos® must, we submit, be applied

when a court of review must decide whether to rule in a case

it is not obliged to hear.®

We go one step beyond: As jurors are asked, ‘‘ Would

you want a member of your family, a loved one, to be

judged by such as you?’’ With all respect, we ask Your

Honors to recall a case—any case—in Your experiential

recollection which You felt the Court should hear, so much

so that You dissented, in mind if not in writing, from the

majority’s decision to deny discretionary review. This

case is such that a just man should flinch at the thought

that defendant for ever must bear the stigma of convic-

tion. At least, take a iook.

Let no astigmatic view cloud Your vision.’

Synopsis

Throughout his ordeal, as before and since, defendant,

an attorney, has been a legitimate businessman. Yet, for

all one can tell from the Order, (App. A), he could have

hijacked the steel himself.

5 Kotteakos v. United States, 328 U.S. 750, 761-65 (1946), com-

manding reviewing courts to consider questions in context of all that

occurred, not in a vacuum.

* Invidious issues, out of context, may appear innocuous ; appear-

ances are deceiving.

™Cf. Unger v. Sarafite, 376 U.S. 575, 589 (1964), cautioning

against a “myopic” outlook.

8

Reading the Order, one never would guess that defen-

dant Sugar, himself a reputable steel broker, bought the

subject steel in the regular course of business from Gelf-

man, a legitimate steel businessman, pursuant to com-

mercial documents normally used in such transactions.’ It

is difficult, if not impossible, to justify the decision in the

face of the facts, which are nowhere to be found in the

Order, not even summarily. To reiterate: For all a reader

of the Order could divine, defendant may as well have been

a strongarm thief, or a purchaser for a miniscule fraction

of the property’s obvious value. Not so.

The pervasive facts are so persuasive of de*endant’s

innocence that it is a travesty for a judgment of his guilt

to be affirmed via this Order, which fails even to acknow]-

edge any of the facts.

Charitably, this was an extremely close case. While our

position is that the evidence was insufficient as a matter

of law to support conviction, veritably the case was so

close that any error—particularly in the admission or ex-

clusion of evidence bearing on the crucial issue of defen-

dant’s mental state—may have induced the jury to convict.

8 Defendant, an attorney, testified without contradiction (and, in-

cidentally, without rebuttal) that he acted as a steel warehouseman

and broker for some 30 years. (Tr. 1001-05) His company, Sugar

Steel Corp., did business with Gelfman’s company, Steel City Iron

and Metal Co., with Gelfman and Gelfman’s father for many years.

(Tr. 1004-95) Affirmative character and reputation evidence, as

well as (limited) expert testimony re the steel market, also was in-

troduced. (See App. 14-15)

® Documentation re the count 2-7 property is in App. B. to

defendant's Brief, in No. 77-1172. Defendant’s testimony as to each

count, detailing records of each transaction, may be found as follows :

Count 2, Tr. 1019-20; Count 3, Tr. 1031, 1034, & 1036; Count 4,

Tr. 1037-43 ; Count 5, Tr. 1045-48 & 1050-53; Count 6, Tr. 1053-58;

Count 7, Tr. 1005-08 & 1016-19.

4 9

Because the factual posture of the case is not even

touched upon (except in wholly conclusory fashion) in the

Order, defendant appends hereto (App. C) the Statement

of Facts contained in his original Brief. We urge that

Your Honors consider the evidence presented before taking

any position on this Petition.

Bear in mind that defendant purchased every bit of the

steel here involved in the normal course of business, with

appropriate documentation, in accordance with his own

normal legitimate operation of his long-standing business,

purchasing from another established business person with

whom he was familiar. The prices he paid were not so

relatively ‘‘low,’’ as to put him, or any other reasonable

man, on notice that anything was amiss.

The issues presented to the reviewing court—most notab-

ly, that no evidence was presented to the grand jury; that

the evidence of ‘‘guilty knowledge’’ was _ insufficient;

and that defendant was improperly limited in attempting

to educe evidence as to a relevant market value of the

property—were decided without proper regard for the

factual setting and in disregard of the applicable law. Con-

sidering the prosecutor’s exhortation that the jury should

impose morality on the business community, the close ques-

tion of defendant’s state of mind was cast aside; these

matters are of great and continuing importance to the

administration of criminal justice.

Certiorari should be granted to permit this Court to con-

sider the issues consistent with the Constitution, with a view

toward preserving the principles of our forefathers, keep-

ing foremost in mind that if a defendant can be convicted

10

upon an indictment returned by a grand jury which heard

nothing but a reading by an unsworn prosecutor, tomorrow

is already here.

1,

Defendant was deprived of due process of law, for no evi-

dence whatsoever was presented to the grand jury; the

Seventh Circuit panel’s resolution of this question conflicts

with the law of the Fifth Circuit.

Defendant’s Fifth Amendment due process right to in-

dictment by a grand jury was violated by the procedure

via which the prosecutor here obtained the indictment

against him. It is uncontroverted that the grand jury

which indicted him was presented with nothing more than

the prosecutor’s unsworn reading of testimony given by

FBI agent Hugh Graham before a former grand jury

which did not indict.

Constitutionally, as secured by the Fifth Amendment,

the grand jury is

‘*. .. a primary security to the innocent against the

hasty, malicious and oppressive prosecution . . . serv-

ing the individual function in our society of standing

between the accuser and the accused.’’ Wood v.

Georgia, 370 U.S. 375, 390 (1962).

The Seventh Circuit panel answers that indictment based

solely on the prosecutor’s reading of this prior testimony

was sufficient, relying on Supreme Court cases permitting

convictions to stand upon indictments based on hearsay,

or upon allegedly inadequate or incompetent evidence."®

Here, though, there was absolutely no evidence; only the

prosecutor’s unsworn reading of hearsay evidence (the

transcript of the agent’s prior testimony).

10 Costello v. United States, 350 U.S. 359 (1956) ; United States

v. Calandra, 414 U.S. 338 (1974). (App. 4)

11

The court seeks to distinguish a case which squarely

conflicts with its decision, United States v. Hodge, 496 F.2d

87 (5 Cir. 1974), by stating that there, the prosecutor

‘merely summarized’’ the former testimony, rather than,

as here, reading it verbatim. This is a distinction without

a difference; for the court’s determination in Hodge that

the Fifth Amendment was violated was based, not on the

fact that what the prosecutor told the second (indicting)

grand jury was not a verbatim reading, but rather, on the

fact that (apparently) no evidence was admitted other than

the unsworn statements of the prosecutor. The court re-

manded for hearing ‘‘for the purpose of determining wheth-

er the grand jury... received sworn testimony from some-

one other than the prosecutor.’’ 7d. at 88. Clearly, had

the decision stood for what the panel says, there would

have been no remand for this avowed purpose. Moreover,

other language in Hodge demonstrates the conflict between

' this Order affirming Sugar’s conviction and the Fifth Cir-

cuit approach. After acknowledging that an indictment

may rest on hearsay, the court stated:

‘‘?We] see no problem if government agents did in

fact give sworn testimony before the second grand

jury as to what they and ‘other witnesses had stated

to the first grand jury. But informal wnsworn hearsay

from the mouth of the prosecutor only is something

else altogether. This, we think, is interdicted by the

Fifth Amendment.’’ Hodge, supra, at 88. (Emphases

added.)

The grand jury exists to insulate the individual from

arbitrary governmental action. That the second grand

jury may have been told that they could call the agent if

they desired to question him (see App. 4) is no consola-

tion to defendant, who had no right to be present at either

grand jury, let alone to present evidence. The manner

12

in which this indictment was returned—especially consid-

ering the evidence indicative of defendant’s innocence

which developed at trial—highlights what can happen when

the government decides to ‘‘get’’ someone.

The panel’s Order, disposing of this serious issue with

grave overtones for the administration of justice, should

not stand as law. Certiorari should be allowed.

2.

The cursory manner in which the Court of Appeals “re-

solved” all the remaining issues is repugnant to defendant’s

due process right to meaningful appellate review, for it does

not even appear that the court took account of the facts.

All issues except for that concerning the validity of the

indictment (supra) were resolved by the panel without ref-

erence to any of the substantive evidence. Even a perusal

of that portion of the order disposing of co-defendant Gelf-

man’s appeal (App. 2-3) demonstrates that the facts are

nowhere alluded to—except to be deemed ‘‘sufficient’’—

anywhere in the Order."

While detailed exposition of voluminous evidence may

not be required, certainly in such a case as this, where

the thrust of the balance of defendant’s arguments involves

the paucity of the evidence to prove that he knew the steel

was stolen,” affirmance may not be based upon an Order

11 Cf. requirement of F.R.Cr.P. 23(c) that court in a bench trial

enter findings of fact upon request. While no such overt require-

ment here applies, we submit the underlying reason for requiring

factual findings—to permit adequate review thereof—similarly dic-

tates that an appellate order which ignores the facts is infirm.

12 As already mentioned, pp. 8-9, supra, the procedural errors urged

become significant and prejudicial because of the evidentiary frame-

work. See United States v. Semeniuk, 193 F.2d 508 (7 Cir. 1952).

13

which does not even touch upon the facts. The cursory

manner in which all these remaining issues were resolved

belies the Order’s viability; for it does nct even appear

that those who have decided defendant’s fr.1e have done so

realizing the reputable nature of all the transactions in

which defendant engaged and for which he stands con-

victed.

With all due respect, it appears impossible to us to justify

conviction in the face of the facts consistent with defen-

dant’s innocence; perhaps this is why no facts have been

put forth in the Order. But whatever the reason for this

glaring omission, the fact remains that the Order is de-

void of even an attempt to show how guilty knowledge was

inferrable from the record evidence.

Omission of factual matter from the Order may render

meaningful review by this Court less likely as well, for the

bare conclusion that the evidence supports the conviction

doubtless increases the difficulty defendant will have, at-

tempting to gain entrance on certiorari.

The Order, affirming without reference to the facts, ex-

cept to state they were sufficient, deprived defendant of

meaningful appellate review. In our system of justice, no

impediment to this fundamental right is tolerable. See

Nance v. United States, 422 F.2d 590 (7 Cir. 1970) ; Douglas

v. California, 372 U.S. 353 (1963).

3.

The record was so devoid of evidentiary support for the

necessary element of scienter (that is, knowledge that the

property was stolen) that defendant’s conviction violates

due process of law.

We do not quarrel with the proposition that in cases in-

volving possession of stolen property, circumstantial evi-

14

dence is admissible, and may, indeed, be sufficient, to estab-

lish defendant’s state of mind; that is, whether or not he

knew the property was stolen. Here, however, the facts

and circumstances tended to show, not that defendant had

sach knowledge, but on the contrary, that he acted in a

purely honorable fashion inconsistent with any such knowl-

edge.

Defendant dealt with the steel in a legitimate manner, as

he did with all his transactions. He had no contact with

the thief; only with a legitimate business concern. Docu-

mentation was on hand for all the transactions; defendant

paid by check for material obtained from a known steel

broker with whom he had done business for years. His

conduct when investigated by the government was open,

above-board and consistent with innocence. The evidence

was such, we submit, that the government had to resort

to such tactics as complained of on appeal even to get an

indictment, much less a conviction.

We urge Your Honor to peruse the factual appendix

hereto (App. C), and to compare the facts here with those

in the cases referred to below; the facts here are so com-

patible with innocence when viewed in context and when

compared with these cases,'* we submit this is that singular

18 Compare this case with the following: Cherry v. United States,

78 F.2d 334, 336 (7 Cir. 1935) (rev'd, transaction appeared regular ;

fair market price, going concern, at store, daytime); United States

v. Anost, 356 F.2d 413, 416-17 (7 Cir. 1966) (rev'd, following

Cherry, supra, indicating its viability despite its age) ; United States

v. Wainer, 170 F.2d 603 (7 Cir. 1948) (rev'd, though no invoice,

“We cannot agree that the defendant should go to prison on sus-

picion, even though it were a robust suspicion which this is not; id.

at 606); accord, United States v. Carengella, 198 F.2d 3, 7 (7 Cir.

1952). By way of contrast, see the following cases affirming; the

(footnote continued)

15

case where certiorari is justified on a sufficiency-of-the-

evidence claim, normally not one reaching such proportions.

A conviction devoid of evidentiary support offends due

process of law. Thompson v. City of Louisville, 362 U.S. 199

(1960). Affirmance here is a serious threat to justice.

While the ‘‘inference’’ of guilty knowledge which may

be drawn from mere possession of stolen property may be

sufficient to convict where such possession is not satisfac-

torily explained, here there was satisfactory explanation

consistent with defendant’s innocence. See United States

v. Anost, supra; United States v. Semeniuk, 193 F.2d 508 |

(7 Cir. 1952).

While the government attempted to show that the price

defendant paid for the various shipments of steel was be-

low its actual value, any discrepancy was not so great as

(footnote continued )

evidence as to variance between actual and paid price, and inferences

drawable from the non-regularity of transactions, point out that this

case is entirely different: United States v. Bletterman, 279 F.2d 320,

322 (2 Cir. 1960) (jeweiry whose accompanying papers showed

$30,000, sold for $6,000) ; United States v. Kessler, 253 F.2d 290, 292

(2 Cir. 1958) (no documents of title; labels removed by defendant ;

extremely low sale price) ; Melson v: United States, 207 F.2d 558 (4

Cir. 1953) (marks obliterated from egg cartons ; no bill of sale, though

usual practice; defendant sold for from 40 to 50 cents a doz., eggs

selling from 50 to 65 cents per doz. wholesale or 69 to 80 cents per

doz. retail); Henry v. United States, 361 F.2d 352 (9 Cir. 1966)

(no bill of sale, no records, contrary to usual practice between the

parties ; note: defendant there testified and neglected to disclaim guilty

knowledge) ; United States v. Knight, 451 F.2d 275 (5 Cir. 1971)

(sparkplugs selling for 54 cents a piece wholesale, or $1.25 retail,

were sold by defendant for 20 cents, less than half wholesale price) ;

United States v. Wilson, 523 F.2d 828, 830-31 (8 Cir. 1975) (defen-

dant believed jewelry worth $40,000 to $50,000; agreed to sell for

$10,000) ; United States v. Johnson, 515 F.2d 730, 732 (7 Cir. 1975)

(defendant paid $4,500 and $4,300, respectively, for cars valued at

over $5,000 wholesale, almost $6,000 retail).

16

to put a reasonable person on notice that the goods were

stolen.”*

4.

Defendant was deprived of his due process right to pre-

sent evidence of the relevant market which should be con-

sidered in evaluating his state of mind from inferences to

be drawn from price differentials in the light of market

conditions.

The court’s improper limitation of defendant’s affirma-

tive evidence as to the relevant market for valuation

purposes, approved in typically cursory fashion by the

panel (App. 6), made it increasingly impossible for the

jury to decide in his favor. In a circumstantial ‘‘receiving

stolen property’’ case such as this, defendant has a right

to educe evidence of value and, we submit, here the

relevant market went beyond that deemed ‘‘relevant’’ by

the trial court and the panel. Defendant’s expert witnesses,

for years in the steel business, surely were more knowl-

edgeable than either court to determine what market is

relevant. Defendant most frequently purchased steel be-

low mill prices. The steel market, we submit, must be con-

sidered as a national market, going beyond face-value prices

from the mills; testimony of record so indicates. The im-

proper limitation kept out evidence portraying the price

paid even closer to ‘‘market value,’’ thus depriving defen-

14 App. C to defendant’s Original Brief, on file with the court of

appeals, sets forth figures.

15 Defendant unquestionably has a right to introduce evidence of

actual value to counter a suggestion that his price is indicative of

guilty knowledge. United States v. Werner, 160 F.2d 438, 443 (2

Cir. 1947). Cf. United States v. Williams, 447 F.2d 1285 (5 Cir.

1971).

~

17

dant of an important opportunity for the jury to consider

relevant evidence indicative of his innocence.

Defendant has a constitutional right to introduce evi-

dence on his own behalf. Washington v. Texas, 388 U.S.

14 (1973). To the extent that reliance upon any federal

rule of evidence may run against this, the Court should con-

sider whether such rule or ruling constitutionally may be

countenanced.

In view of the evidence, defendant’s inability to present

evidence of the relevant market value cannot be deemed

harmless error.

oe 6 @

As argued in Point 3, because the evidence was insuffi-

cient to establish defendant’s requisite knowledge as to

the stolen character of the goods, certiorari should be al-

lowed, and defendant’s convictions should be reversed, Al-

ternatively, per Point 4, to give him the opportunity to

have the jury consider the ultimate issues uninfluenced by

improper restraints on his right to present evidence, re-

mandment may be in order.

5.

Defendant's trial can not be dubbed constitutionally

“fair” in context, where the prosecution—by argument that

the jury must impose morals on the business community,

and by last-minute use of assorted uncharged transactions

asserted to have been illegitimate though defendant had

been promised the government was not claiming that any

extra-indictment transactions involved stolen steel—im-

portuned the jury to convict upon evidence devoid of proof

of guilty knowledge on defendant’s part. The conclusion of

“no prejudicial error” flies in the face of the facts.

Clearly, the evidentiary posture of a case is a relevant

consideration in determining whether or not given irregu-

18

larity or error requires reversal; whether the error was

‘prejudicial.’ See United States v. Semeniuk, 193 F.2d

508 (7 Cir. 1952), reversing a possession of stolen property

ease for a faulty instruction wherein (as here) the case was

very close, for in such a case any error might have adverse-

ly affected the jury to convict.

Here, the prosecution mis-advised the jury to impose

morals on the business communiiy. Moreover, defendant

was surprised at trial (in violation of certain agreements

with the government) by the introduction of evidence in-

dicative of other non-indictment offenses—none of which,

by the way, was established, only implied. The cumulative

effect of these occurrences, we submit, made it impossible

for defendant to receive a fair trial. The evidence was

so slim that a guilty verdict seems unreasonable, had the

jury not been importuned by these improprieties to convict.

See United States v. Franklin, 471 F.2d 1299 (5 Cir. 1973)

(absent hard evidence of guilty knowledge, reversed be-

cause jury heard implications of additional similar of-

fenses) ; United States v. Baum, 482 #.2d 1325, 1331-32 (2

Cir. 1973).*°

1®©Tn Baum, the government surprised defendant with a damning

witness. Reversing as to the pertinent co-defendant, the Court stated :

“{I]n a case so close as this, we would rather give the defen-

dant the benefit of the doubt than let the Government reap

even a slight possibility of benefit from what we regard as a lack

of candor unworthy of a prosecutor.” 482 F.2d at 1332.

We level no such charge against the prosecutor here; however, we

submit the manner in which the government “surprised” defendant

with the additional-transaction evidence was equally prejudicial and

impossible to meet at trialtime.

Moreover, due to the government’s tardy decision to present this,

defendant was precluded from demonstrating that one of the latter-

(footnote continued )

19

The Seventh Circuit panel’s seriatim manner of resolv-

ing these questions fails to meet the ‘‘contextual’’ approach

required by reason and this Court. See Kotteakos v. United

States, 328 U.S. 750, 761-65 (1946).

PENULTIMATUM

Certiorari is appropriate for an additional reason not

yet touched upon concerning any particular issue: that

is, this is a case wherein the Court should welcome the

opportunity to discuss the law and resolve important ques-

tions concerning the manner of proof, procedural ques-

tions relevant thereto, etc., with respect to ‘‘receiving stolen

property’’ cases.

The issue concerning the relevant market for valuation

purposes lacks guidelines; yet because of price as a factor

in stolen property cases, as bearing on the crucial issue

of ‘‘guilty knowledge,’’ this is an area which should be

uncovered,

The grand jury issue, too, is one of increasing importance.

The manner in which prosecutors dominate grand juries is

widely discussed; yet from such a case as this, one can

discern arenas wherein creeping control has hardly begun to

be exposed.

The manner in which the trial court handled the prob-

lems which arose during trial is not, we submit, the manner

(footnote continued )

day-asserted transactions was strictly legitimate, though the govern-

ment then was planning to present star-thief witness Henry Martin

to testify he had stolen the steel. Thus the jury was not exposed

to telling impeachment of Martin. In denying defendant’s motion

for new trial on newly discovered evidence (consisting of proof that

one of these later transactions was verifiably properly purchased

steel), the District Court rejected this contention.

20

in which they should be handled; nor, for that matter,

did the panel resolve them appropriately. This is, then,

an appropriate case for decision in terms of this Court’s

supervisory power over the lower iederal courts. McNabb

v. United States, 318 U.S. 332, 340, 347 (1943); see LaBuy

v. Howes Leather Co., 352 U.S. 249, 259-60 (1957) ; Thomas

v. United States, 368 F.2d 941, 945 (5 Cir. 1966).

Mr. Justice Stevens, of this Court, in dissenting (with

Justices Swygert and Sprecher) from the Seventh Circuit’s

withdrawal of an order granting rehearing in banc as im-

providently granted, commented on the court’s supervisory

power as appropriate for exercise on an in banc hearing.

United States v. Rosciano, 499 F.2d 173, 176 n.2 (7 Cir.

1974).

Most apropos to this discussion, though, Justice Stevens

stated:

‘*T believe we do this litigant and ourselves an in-

justice by failing to address an important issue square-

ly.’’ Id. at 178.

The same may be said at bar.

We hear of atrocities committed abroad, and think, ‘‘It

can’t happen here.’’ Well, it can; it’s only a matter of time

and degree.

A decree from this Court, deserying indictments unsup-

ported by even a semblance of evidence, could turn the tide.

Yes, invidious issues, eyed out of context, may appear

innocuous; but, just as all that glisters is not gilt, the just

know not to be fooled by the wrapping paper. When the

whole, as framed by the entire record, fairly reeks of con-

21

stitutional rights raped beyond recognition—or shrieks of

innocence going down in deep water for the third time—

then, despite any superficial gloss of guilt which permitted

the two lower courts to imprimatur the jury’s insensible

verdict, this Court should right the wrong.

The grand jury is all that stands between a person being

deemed an ordinary citizen, on the one hand, and dubbed a

‘‘defendant’’, on the other. From a defendant accused to

convicted, ‘‘branded’’, is so short a step (witness this

record) that the first step—to get the indictment—must

not be so easy.

We no longer cut off a man’s hand for stealing; only a

part of his lifespan.

Take a long, hard look; then vote to grant the Writ.

CONCLUSION

For any or all of the reasons herein advanced—in par-

ticular, so that this Court may examine #nd condemn total

prosecutorial control of grand jury functions to the tune

of obtaining indictments on no evidence—certiorari should

be allowed, and defendant’s convictions should be reversed,

or reversed and remanded. ,

Respectfully submitted,

Jutius Lucrus EcHELEs

CAROLYN JAFFE

Attorneys for Petitioner

Micuare. B. NasH

Of Counsel

APPENDIX A

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois €0604

(Argued October 25, 1977)

January 26, 1978

Before

Hon. LATHAM CASTLE, Senior Circuit Judge

Hon. WILSON COWEN, Senior Judge*

Hon. WILBUR F. PELL, Jr., Circuit Judge

Nos. 76-2153, 77-1172

A P P E N D I xX 3 UNITED STATES OF AMERICA,

vs.

Plaintiff-Appellee,

MARK T. GELFMAN and MANUEL J. SUGAR,

Defendants-Appellants.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 76-CR-17

Thomas R. McMillen, Judge.

* The Honorable Wilson Cowen, Senior Judge of the United States

Court of Claims, is sitting by designation.

App. 2

ORDER

Defendants appeal from their convictions for conspiracy

to possess and possession of steel which had been stolen

while moving in interstate commerce in violation of 18

U.S.C. §§ 371 and 659. Defendants raise numerous argu-

ments on appeal which include claims of insufficient evi-

dence to support the verdicts, prosecutorial misconduct,

and prejudicial errors by the trial court. After examining

defendants’ contentions, we find no reversible error and

affirm.

I. Gelfman No. 76-2153

Gelfman first raises three arguments regarding the suf-

ficiency of the government’s evidence. Gelfman contends

that the government failed to show that he possessed the

steel or had knowledge it was stolen as alleged in Counts

2, 3, 4, 5 and 7, that he possessed the steel or had knowl-

edge it was stolen as alleged in Count 6, and that he par-

ticipated in the conspiracy alleged in Count 1. We have

examined the record ad, viewing the evidence in the light

most favorable to the government, find substantial evidence

to sustain the verdict of the jury. Glasser v. United States,

315 U.S. 60, 80 (1942).

Gelfman claims that certain misconduct on the part of

the prosecuting attorney prejudiced him before the jury

and therefore his conviction should be reversed and the

cause remanded for a new trial. Gelfman’s arguments in

this regard stem from the prosecuting attorney and gov-

ernment witnesses referring to the subject steel as “stolen”

which, defendant claims, was the key fact the jury was

asked to determine. Generally, in such cases, any possible

prejudice is cured by the trial court sustaining the objec-

tion, striking the responses, and giving a curative instruc-

tion. United States v. Lozano, 511 F.2d 1, 6 (7th Cir.), cert.

App. 3

denied, 423 J.S. 850 (1975). We find this procedure was

properly followed here and thus no reversible prejudice

has been shown by these isolated uses of the word “stolen.”

(Tr. 500-01.) *

Finally, Gelfman claims that the district court committed

certain errors which are sufficiently prejudicial to warrant

reversal. First, Gelfman claims that the trial judge erred

when he refused to give a ‘‘two-conclusions’’ instruction

which would have expressed defendant’s theory of the

ease.” However, the district court had already given

several instructions explaining the government’s burden

to prove Gelfman guilty beyond a reasonable doubt. (Tr.

1308-09, 1313-15, 1322.) Thus, ‘‘since the trial judge ade-

quately described the government’s obligation to prove

the defendant guilty beyond a reasonable doubt, the failure

to give such an instruction is not reversible error.’’ United

States v. Johnson, 515 F.2d 730, 732 n.7 (7th Cir. 1975).

Gelfman’s second assignment of error is that his sen-

tence was excessive since other violators of 18 U.S.C. § 659

have received lesser punishments. Since the defendant’s

sentence here is within the statutory limits and no gross

abuse of discretion has been shown, the sentence is valid.

Dorszynski v. United States, 418 U.S. 424, 431 (1974);

United States v. Wilkinson, 513 F.2d 227, 234 (7th Cir.

1975).

1 We need not decide whether Fed. R. Evid. 701 and 704 would

allow testimony that the steel was stolen in this case regardless of

it being an ultimate issue since the trial court sustained the defen-

dant’s objections. See United States v. Smith, 550 F.2d 2/7, 281

(Sth Cir. 1977).

2 The proposed defense instruction, S-10, stated: “If two conclu-

sions cah be reasonably drawn from the evidence, one of innocence,

and one of guilty, the jury should adopt the one of innocence.”

(App. 31.)

App. 4

Il. Sugar No. 77-1172

Defendant Sugar argues first that his indictment by the

January, 1976 grand jury was in violation of the fitfth

amendment. Defendant claims that no evidence was pre-

sented to the grand jury since the prosecutor merely read

a transcript of the testimony given to the December, 1975

grand jury by F.B.I. agent Hugh Graham. The first grand

jury did not vote on a promised indictment.

The Supreme Court has consistently held that a grand

jury may consider virtually any type of evidence includ-

ing their own knowledge of the events in question. Costello

v. United States, 350 U.S. 359, 362 (1956). The validity of

an indictment ‘‘is not subject to challenge on the ground

that the grand jury acted on the basis of inadequate or

incompetent evidence... .’’ United States v. Calandra, 414

U.S. 338, 345 (1974). An indictment may be based exclu-

sively on hearsay. Costello v. United States, supra. Thus,

reading transcripts of prior grand jury testimony to a

second grand jury has been approved by other courts.

United States v. Chanen, 549 F.2d 1306, 1311-12 (9th Cir.

1977).®

Accordingly, we find no error in this indictment being

based upon the verbatim reading of transcripts of former

grand jury testimony by the prosecutor where the second

grand jury was told they could call the absent witness for

3 Defendant attempts to distinguish Chanen by arguing that the

second grand jury in that case was also presented with live testimony

of a governmental agent in addition to the agent reading the prior

testimony. The Chanen court, however, did not rest its decision on

the reader of the transcript being a sworn witness separate from

the prosecutor. Rather, that decision emphasized the full dis-

closure to the grand jury of the hearsay nature of the transcript.

That the prosecuting attorney, rather than a sworn witness, read

the previously sworn testimony in this case is not significant. United

States v. Blitz, 533 F.2d 1329, 1344 (2d Cir. 1976).

App. 5

direct questioning if they wished. United States v. Paster,

419 F.Supp. 1318, 1323 (S.D.N.Y. 1976). Despite Sugar’s

argument that no evidence was presented, the reading of

a transcript of prior sworn testimony did constitute evi-

dence. The principal case cited by Sugar, United States

v. Hodge, 496 F.2d 87, 88 (5th Cir. 1974), is distinguishable

since the prosecutor there merely summarized the evidence

presented to the prior grand jury rather than reading the

prior sworn testimony verbatim.

Sugar also argues that the evidence was insufficient to

prove (1) that he had knowledge the steel he bought from

Gelfman was stolen and (2) that the steel was stolen from

a medium specified in the statute. After examining the

record, we find no merit in Sugar’s claims of insufficient

evidence. Glasser v. United States, supra.

Sugar further argues that certain misconduct by the

prosecuting attorneys constitutes reversible error. First,

defendant argues that the government’s final argument

contained improper statements concerning the jury’s duty

(Tr. 1306) and the proper conclusion to be drawn from

Sugar’s records. (Tr. 1305.) Viewed as a whole, we find

the prosecution’s final argument to be nonprejudicial.

United States v. Greene, 497 F.2d 1068, 1085 (7th Cir. 1974),

cert. denied, 420 U.S. 909 (1975).

Second, Sugar claims that the evidence as to the extra-

indictment transactions should not have been allowed since

the testimony was unreliable and that the government

failed to notify the defendant, as agreed, that certain trans-

actions did involve stolen steel. We do not find reversible

error in the admission of evidence concerning the extra-

indictment transactions. Fed. R. Evid. 404(b. Nor do we

find prejudicial the government’s waiting until trial to

notify Sugar that certain transactions might invovle stolen

steel. (Tr. 1117-23.)

App. 6

Finally, Sugar contends three rulings of the trial court

were in error and require reversal. First, Sugar argues

that the trial court erred when it quashed the subpoena

duces tecum which Sugar had served on Martin’s two at-

torneys. The subpoena sought all records, statements, and

memoranda in possession of the lawyers regarding matters

Martin had testified about or discussed with the govern-

ment. Sugar argues that this material was necessary to

his effective cross-eamination of Martin and that any

attorney-client privilege was lost when Martin testified

about the transactions.

There is no doubt that by taking the stand, Martin put

his credibility in issue and was subject to cross-examina-

tion. However, by testifying or talking to government

lawyers about the transactions, Martin did not lose his

attorney-client privilege as to communications with the

lawyers. Goldman, Sachs & Co. v. Blandis, 412 F. Supp.

286, 288 (N.D. Ill. 1976). Once a client has told an out-

sider a fact, he may no longer invoke the protection of the

attorney-client privilege as to that fact. However, while

the fact is not privileged, the communications between the

lawyer and client concerning that fact are privileged. 8

Wigmore, Evidence, § 2327 at 637-638 (McNaughton Rev.

1961). Thus, while Martin could not claim the privilege in

refusing to answer questions concerning the transactions

based upon information which Sugar obtained indepen-

dently, he could refuse to allow his lawyers to furnish that

information. We note also that Sugar’s subpoena called

for materials prepared by Martin’s lawyers which would

constitute work product and thus were not discoverable.

Hickman v. Taylor, 329 U.S. 495 (1967).

The second trial court error claimed by Sugar is that

the trial court abused its discretion in denying his motion

for severance from Gelfman. The issue to be decided

ee ee

App. 7

when determining whether severance should be granted is

‘‘whether it is within the jury’s capacity, given the com-

plexity of the case, to follow admonitory instructions and

to keep separate, collate and appraise the evidence rele-

vant only to each defendant.’’ United States v. Kahn, 381

F.2d 824, 838 (7the Cir.), cert. denied, 387 U.S. 1015 (1967).

Here, Sugar’s role in transactions was clearly distinct

from that of Gelfman and the evidence of their individual

involvement was easily separated by the jury. Also, re-

fendant’s citation of United States v. Mardian, 546 F.2d

973 (D.C. Cir. 1976), as supporting severance when there

is a great disparity in the evidence between the co-defen-

dants is not helpful. Here, as noted above, there was suf-

ficient evidence to support Sugar’s conviction and, given

Sugar’s and Gelfman’s differing roles in the scheme, there

was little chance of a ‘‘rub-off’’ effect. Moreover, the court

carefully instructed the jury regarding its responsibility

to consider the evidence against each defendant separately.

(Tr. 1322-23.) Therefore, we find the trial court did not

abuse its discretion in denying Sugar’s severance motion.

Fed. R. Crim P. 14.

Sugar’s third contention of trial court error is the limit-

ing of the direct testimony of Jules Davis. Defendant

argues that by limiting Davis’ testimony regarding the

steel market to steel coils in the Chicago area, the trial

court lent support to the government’s emphasis on mill

prices as opposed to secondary markets. After examining

the transcript, we find this argument to be without merit.

(Tr. 912-16.) The trial judge allowed Davie ‘o testify

fully within the bounds of relevance.

Ii.

For the reasons stated above, the convictions of Mark T.

Gelfman and Manuel J. Sugar are affirmed.

AFFIRMED.

App. 8

APPENDIX B

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

March 14, 1978

Before

Hon. LATHAM CASTLE, Senior Circuit Judge

Hon. WILSON COWEN, Senior Judge*

Hon. WILBUR F. PELL, JR., Cireuit Judge

No. 77-1172

UNITED STATES OF AMERICA, Plaintiff-Appellee,

Vs.

MANUEL J. SUGAR, Defendant-A ppellant.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 76-CR-17

Thomas R. MeMillen, Judge.

ORDER

On consideration of the petition for rehearing and sug-

gestion for rehearing im banc filed in the aobve-entitled

cause by defendant-appellant, no judge in active service

has requested a vote thereon, and all of the judges on the

original panel have voted to deny a rehearing. Accord-

ingly,

IT IS ORDERED that the aforesaid petition for re-

hearing be, and the same is hereby, DENIED.

*The Honorable Wilson Cowen, Senior Judge of the United

States Court of Claims, is sitting by designation.

. Pe ae ee ee

ee

App. 9

APPENDIX C

STATEMENT OF FACTS*

Manny Sugar was charged with conspiring to possess

stolen steel (Count 1) and of possessing it, knowing it tv

have been stolen (Counts 2-7).

The evidence taken in the light most favorable to the

Government was as follows:

The Government called as witnesses employees of the

steel companies and shippers to testify concerning certain

documentation relating to the steel allegedly stolen. Those

witnesses had no knowledge of the facts in the case except

for the information obtained from the documents. They in-

cluded Mr. Ludwig King of Inland Steel (Count 2), Mr.

James Kossman of Great Lakes Steel Plant (Count 5),

Mr. Lawrence Twork of Yellow Freight Systems, Steel

Transport Division (Counts 2 and 5), Mr. Albert Grass of

Essek Steel Company (Count 3), Albert Hoop of Brada

Miller (Count 3), William O. Richardt of Bethlehem Steel

(Count 6), Marshall Kilpatrick of D. F. Bant Trucking

(Count 6), Gordon Sanback of U.S. Steel (Count 7), and

John Gordon of Gordon Motor Freight Transportation

(Count 7).

The steel in each case was allegedly ‘‘picked up off the

street’’ by the co-defendant Martin. Martin would call

Gelfman to tell him about the steel. Gelfman would con-

tact Sugar. Martin was then contacted by Gelfman and

*From pp. 2-10 of defendant’s brief, on file with this Court.

Remaining footnotes reproduced therefrom.

1The documents referred to by these witnesses are reproduced

in Appendix B. The documents were marked at trial with the

initials of the witness who testified about it and the number of the

count to which it relates.

App. 10

told to deliver it to Gary Steel Supply Company (Counts

2, 3, 4,5 & 7) or Pullman Steel Warehouse (Count 6) for

the Sugar Steel Corp. account. Gelfman made up the bill

of lading for the first shipment (Count 2) and Martin pre-

pared them for the other loads (Tr. 480-483). Martin de-

stroyed the mill tags and bills of lading after preparing

the new bills of lading. In Martin’s opinion the steel was

prime (Tr. 493). He received payment in cash shortly

after delivery of the steel to the warehouse, and seemingly

after Gelfman was paid (Tr. 484-490). Martin never met

or spoke with jugar. The steel in each case was delivered

and received at the respective warehouse on behalf of

Sugar Steel Corp.

As to the steel in Count 7, Sugar and one, Julio

Morales, the night plant moneger for Gary Steel Sup-

ply Co. inspected it. The steel wah wrapped and had U.S.

Steel mill tags. Sugar said the steel looked ‘‘real good.’’

(Tr. 405-509). Morales took the tags off to creck the

weight and gauge. The weight on one was shown to be

wrong when weighed at Sugar’s request. The steel was

in ‘‘prime’’ condition in Morales’ opinion (Tr. 410-413).

Morales noted steel is a delicate product which can be

easily damaged. Steel, which appears to be in prime con-

dition, is often times found to be damaged when the coil

is opened (Tr. 417-419).

Thomas G. Olinger, former salesman for Gary Steel

Supply, testified he purchased the. steel referred to in

Count 7 from Sugar Steel Corp. for $10.50 per hundred-

weight. The steel was wrapped in U.S. Steel wrappers

and, in his opinion, in prime condition.” Sugar, in selling

it to Olinger, told him the steel was prime and he, Sugar,

2 Although not qualified as an expert, Olinger was allowed to

testify as to his opinion. His experience was that he had bought

and sold steel for six months.

— ee ee ees ane

App. 11

had paid $8.76 per hundredweight and, therefore, should

get $10.50 per hundredweight.* (Tr. 430-439). Olinger

testified he had purchased steel at below mill prices and

that damaged steel of this type would sell for approxi-

mately $5 to $7 a hundredweight. (This was the price range

Sugar paid for the steel referred to-in each count.)

Olinger was the only Government witness to testify about

the steel market or the price of steel and he testified only

as to the steel in Count 7.

The steel in Count 6 was stored at Pullman Steel Ware-

house. Sugar Steel generally stores steel at Pullman, but

not usually coils. Sugar on occasion came and inspected

the steel stored there.

The records of Sugar Steel Corp. for each transaction

included cancelled checks, voucher copy of the checks, re-

ceipts, invoices, purchase orders, work sheets, note pads,

and acknowledgement receipts, relating to the purchase,

fabrication, storage and sale of all the steeel. (See footnote

1, page 2)

The Government also introduced the testimony of Agent

Hugh Graham of the F.B.I. concerning his interview of

Sugar at the very inception of the investigation. He tes-

tified that Sugar was contacted without any advance notice

in July of 1973 at a customer’s office . Sugar told him he

had examined the two steel coils involved in the transac-

tion charged in Count 7 of the indictment. He told Agent

Graham he purchased the steel from Gelfman and pro-

vided the documents concerning its purchase and storage.

(See Appendix for documents).‘ Graham stated that Sugar

* No evidence except this recollection testimony of Olinger was

submitted to verify this supposed fact.

‘The same type of documentation was supplied later for the steel

in the other counts.

App. 12

told him he had paid a low price for the steel, because he

did not know the condition of that steel (Tr. 445-449).

Graham stated that Sugar may have stated to him that

he had pulled the tags to verify the price and that he found

the steel to be in good condition (Tr. 669). Graham stated

that he did not talk to anybody who purchased the steel

from Sugar (Tr. 669-697). Graham did not confiscate the

steel alleged in Count 7 to have been stolen which was

then sitting in the Gary Steel Supply Co. yard. Nor did

he take any precautions with regard to preserving it as

evidence. In fact, he did not even have it exaniined to

verify it was the stolen steel.®

The defendant, Gelfman, testified and called character

witnesses (Tr. 773-78 and 801-905).

The defendant, Sugar, called two expert witnesses. The

first was Mr. Jules Davis of 3740 North Lake Shore Drive.

Mr. Davis is President of Alert Steel Products Company,

and independent steel company. He was aware of the steel

market during the years 1972 and 1973 and bought and sold

steel coils and plates in those years. He purchased his

steel from mills, warehouses and brokers and surplus sup-

pliers (Tr. 908). The market condition for steel, including

steel coils, was depressed in 1972 and early 1973 and there

was considerable surplus steel available (Tr. 916).

Davis was then asked to state an opinion as to the fair

market value of the steel allegedly involved in Counts 2

through 7 at the time in question. His opinion was based

on the gauge, width and weight of the steel and its market-

ability (Tr. 941-942).

5 The Government also introduced evidence of four (4) allegedly

similar transactions which evidence is discussed separately in this

Brief.

_— =

2 a A Ps RAL Oe

App. 13

The steel purchased in September of 1972 (Count 22) was

worth between 51% and 6 cents per pound. This price was

due to the fact that the steel was surplus and made especial-

ly for one customer and was not a normal gauge (Tr. 917-

920).

The steel purchased in October, 1972 (Count 2) had a

lower price range because the width of the coils was not

standard (Tr. 920-921).

The steel purchased on November 16, 1972, (Couut 4),

was a standard width and was worth about 7 cents per

pound. It was a more marketable product (Tr. 921).

The steel purchased on November 27th (Count 5), was

flat sheets and not standard. The heavy weight of each

life (bundle) and abnormal mill weight, made it worth 514

to 6 cents per pound. This was a reasonable price due

to the handling problems involved (Tr. 922-923).

The steel involved in the May 23rd purchase (Count 6)

had a more standard gauge, but the width was not normal,

thus a price of 6.5 to 6.75 cents would be the approximate

value (Tr. 923-926).

The fair mark-up for steel is 20% to 25% if you do not

take possession ad 33% if you have to taek possession

as Sugar did (Tr. 946-948). The price of excess steel pur-

chased directly from the mill is less than the price that

was to be charged the original customer (Tr. 948). It is

not possible to determine whether steel is prime by the

naked eye.

The next expert was Mr. Richard Weiss of Wilmette,

Illinois. He is President of Weiss Steel Company and a

major stockholder in Pullman Steel Warehouse. His com-

‘pany dealt in buying and selling steel. 6,000 tons and/or

$4,000,000 for the years 1972 through 1975, including steel

App. 14

coils (Tr. 955-958). He bought steel coils during that time

at below mill price (Tr. 958).

Weiss’ opinion as to price in general was similar to that

of Davis, ranging between 5 to 7 cents per pound for the

steel, with the price increasing in 1973 due to the industry

picking up (Tr. 959-964). A fair profit for this type of steel

during 1972 and 1973 would be $1.50 and $2.00 per hundred-

weight (Tr. 966).

Sugar Steel stored steel within the Pullman warehouse

along with other companies. Sugar Steel did not have

trucks to transport steel (Tr. 967-969). Weiss further

stated that you cannot tell if steel is prime by looking at it

with the naked eye (Tr. 970). You would generally pay a

higher price for steel purchased directly from a mill and/or

steel fabricated to specifications (Tr. 971). The only way

you could tell if steel was prime was to perform a chemical

analysis, but you would normally only check such steel if

you were buying from some unknown person (Tr. 975-

976). You would not normally have steel from a mill

checked because you are guaranteed the quality (Tr. 977).

Just because the steel is in U.S. Steel wrappings and has

U.S. Steel mill tags does not make it prime (Tr. 975-980).

The defendant then called as character witnesses Mr.

Fred Randolph, 9530 Central Park, Skokie, Iliinois, a steel

broker engaged in the steel business for 24 years (Tr. 987-

989); Mr. William Townsley, 211 Birchwood Avenue,

Wilmette, Illinois, President of Summit Steel Company,

engaged in the steeel business for 22 years (Tr. 989-992) ;

Mr. James Laschober, 9423 South Springfield, Evergreen

Park, Illinois, general manager of Laschober & Sons Cart-

age Company, engaged in the steel cartage business for 18

years; Mrs. Helen Frederick, 56 Graymore Lane, Olympia

Fields, Illinois, WBBM Radio broadcaster and neighbor

ee

App. 15

of the Sugar family (Tr. 995-998); in addition to Davis

and Weiss, each of whom testified Sugar was an honest,

truthful man whose reputation was beyond reproach.

The defendant, Manuel Sugar, testified in his own be-

half. He has lived at 107 Graymore Lane, Olympia Fields,

Illinois, for 15 years (Tr. 1001). He grew up in Whiting,

Indiana, went to the University of Indiana to college and

law school. He is licensed to practice law in Indiana, IIli-

nois, United States District Courth for the Northern Dis-

trict of Illinois, and United States Supreme Court. He

has not practiced law for about 30 years during which

time he has been in the steel business, both warehousing

and brokering.

Sugar stated that he had done business with Steel City

Iron and Metal Company, the co-defendant Gelfman and

Gelfman’s father, before his retirement for numerous

years (Tr. 1004-1005).

He received a phone call from Gelifman in June, 1973,

asking him if he wanted to buy some tin plate. After

haggling about the price, Sugar paid Gelfman by check

$2,507.50, which was $7 per hundredweight. Although he

might have removed the mill tags from the steel, the only

thing he could recall was that the steel was acceptable.®

Sugar stated that he and Olinger haggled about the sale

price to Gary Steel Supply Company. He does not general-

ly state his cost to a potential purchaser (Tr. 1015).

* Sugar testified concerning each Sugar Steel Corp. record re-

lated to the transactions involved. He described in detail the pro-

cedure for each purchase and sale and the sequence in which the

records were prepared. (Tr. 1005-1008 and 1016-1019 for Count

7; Tr. 1019-1020 for Count 2; Tr. 1031 and 1034, 1036 for Count 3;

Tr. 1037-1040 and 1041-1043 for Count 4; 1045-1048 and 1050-

1053 for Count 5; and Tr. 1053-1058 for Count 6.) As stated pre-

viously, those documents are reprinted in Appendix B.

App. 16

As to the steel allegedly involved in the other transac-

tions, Sugar stated that generally he received phone calls

from Gelfman offering him the steel; that after either he

or Julio Morales checked the weights of the steel and to see

if it was acceptable. He would pay Gelfman by check, by

mail or Gelfman would pick up the check personally (Tr.

1019-1052).

During 1972 he was purchasing steel on the average of

twice a day and making approximately ten to twenty sales

a day (Tr. 1039).

Sugar further testified that in 1972 his company had

an inventory of 3 to 4 thousand tons and that less than 5%

of his business was in steel coils (Tr. 1058). Sugar did not

know the steel involved was stolen if, in fact, it was (Tr.

1061).

Gelfman never told him the steel was rusted, damaged

or even in good condition (Tr, 1064 and 1065). He always

found the steel to be ‘‘acceptable’’ (Tr. 1065). Sugar de-

nied telling Olinger that the steel was ‘‘prime’’, but may

have stated that it was beautiful (Tr. 1067). He bought

the steel ‘‘taking a chance that it was alright inside.’’

(Tr. 1070).

Ninety-five percent (95% of his business in 1972 and

1973 was for steel purchased below mill price (Tr. 1085).

After the introduction by the defendant of the original

checks paid to Gelfman, the defendants rested (Tr. 1097).

The Government offe:ed some rebuttal as to Gelfman, but

none as to Sugar.