Opposition — Stirling v. United States

FILED’

} JUL 5& 1978

Nos. 77-1612 and 77-1761 \

— ODAK, JR., CLERK

Iu the Supreme Court of the United States

OCTOBER TERM, 1977

DAVID STIRLING, JR., ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA

RUBEL L. PHILLIPS, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

WADE H. McCREE, JR.,

Solicitor General,

JOHN C. KEENEY,

Acting Assistant Attorney General,

JEROME M. FEIT,

PAUL J. BRYSH,

Attorneys,

Department of Justice,

Washington, D.C. 20530.

INDEX

Opinion below

Jurisdiction SAS orien ce ea

Questions presented 3

Statement __.

Argument Gecschaidmaniienads Reeth eat at sre

Conclusion

CITATIONS

Cases:

Blockburger v. United States, 284 U.S.

RR

Brown v. Ohio, 432 U.S. 161

Bryson v. United States, 396 U.S. 64

California v. Byers, 402 U.S. 424

Garner v. United States, 424 U.S. 648 .

Grosso v. United States, 390 U.S. 62

Marchetti v. United States, 390 U.S. 39.

Opper v. United States, 348 U.S. 84 ___

Quercia v. United States, 289 U.S. 466

Reagan v. United States, 157 U.S. 301

Schaffer v. United States, 362 U.S. 511

Shapiro v. United States, 335 U.S. 1

TSC Industries, Inc. v. Northway, Inc.,

Ee ad

United States v. Andreadis, 366 F.2d 423,

certiorari denied, 385 U.S. 1001 __.

United States v. Barbato, 471 F.2d 918

United States v. Cisneros, 491 F.2d 1068

United States v. Figurski, 545 F.2d 389

United States v. Fischer, 531 F.2d 783___.

Page

on WS we

14

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IW OW WOIWI HD UIA RH od

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II

Cases—Continued Page

United States vy. Lovasco, 431 U.S. 783 7

United States v. Mandujano, 425 U.S.

564 6

United States v. Martin, 525 F.2d 708,

certiorari denied, 423 U.S. 1035 i)

United States v. Ortiz, 422 U.S. 891 7

United States v. Partin, 493 F.2d 750 8

United States v. Preciado-Gomez, 529 F.2d

935, certiorari denied, 425 U.S. 953 - 8-9

United States v. Smith, 523 F.2d 771, cer-

tiorari denied, 429 U.S. 817 9

United States v. Stirling, N.D.N.Y., CR

74-318 (May 24, 1978) . | 10

United States v. Tolkow, 532 F.2d 853 9

Constitution, statutes, and rules:

United States Constitution, Fifth Amend-

ment ae : Peron Lae 5

Taft-Hartley Act, Section 302, 61 Stat.

157, as amended, 73 Stat. 537, 29 U.S.C.

eee ta) .................. 4

15 U.S.C. 77q(a) 3

15 U.S.C. 77x __. 3

15 U.S.C. 78ff eee eR ae 3

Ne eee ee 3

| ee 3

18 U.S.C. 1341 3

Fed. R. Crim. P. 14 maha SRE Skah eA 13

Fed. R. Crim. P. 30 _. 7

Fed. R. Evid. 609(e) 10

Miscellaneous:

McCormick, Evidence 635 (2d ed. 1972). 11

Iu the Supreme Court of the United States

OCTOBER TERM, 1977

No. 77-1612

DAVID STIRLING, JR., ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA

No. 77-1761

RUBEL L. PHILLIPS, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the court of appeals (Pet. App. A)*

is reported at 571 F.2d 708.

1“Pet, App.” refers to the appendix to the petition in

No. 77-1612.

(1)

2

JURISDICTION

The judgment of the court of appeals was entered

on February 2, 1978. A timely petition for rehearing

and suggestion of rehearing en banc was denied on

April 13, 1978. The petition for a writ of certiorari

in No. 77-1612 was filed on May 11, 1978. On May 3,

1978, Mr. Justice Marshall extended the time for

filing the petition in No. 77-1761 until June 12, 1978,

and the petition was filed on that day. The jurisdic-

tion of this Court is invoked under 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether petitioners’ convictions were obtained

in violation of the privilege against compulsory self-

incrimination or the Double Jeopardy Clause.

2. Whether the trial court’s charge on the mate-

riality of petitioners’ misrepresentations was correct.

3. Whether the trial court’s instructions on the

credibility of witnesses and reliance on expert advice

were proper.

4. Whether the trial court properly permitted the

prosecutor to question petitioner David Stirling on

cross-examination concerning his prior plea of guilty

in a related federal prosecution.

5. Whether the denial of petitioner Phillips’ motion

for a severance constituted an abuse of discretion.

STATEMENT

Following a jury trial in the United States District

Court for the Southern District of New York, peti-

nn

tioners were each convicted on nine counts of securi-

ties fraud, mail fraud, and conspiracy. Each was

fined and sentenced to concurrent prison terms on the

eight substantive counts; * sentences on the conspiracy

count were suspended. The court of appeals affirmed

in a comprehensive opinion (Pet. App. A).

The facts are set forth in detail in the opinion of

the court of appeals (Pet. App. 3a, 7a-28a). Petition-

ers were officers and directors of the Stirling Homex

Corporation (Homex), which was engaged in the

2 Count One charged petitioners with having devised a multi-

million dollar scheme to defraud investors in violation of 15

U.S.C. 77q(a) and 77x; Count Two charged petitioners with

making false statements in a registration statement filed with

the Securities and Exchange Commission, in violation of 15

U.S.C. 77x; Counts Three through Eight charged them with

mail fraud, in violation of 18 U.S.C. 1341; and Count Nine

charged a conspiracy to defraud the United States and to

violate 18 U.S.C. 1001, 18 U.S.C. 1341 and 15 U.S.C. 77q(a),

77x and 78ff, in violation of 18 U.S.C. 371.

Petitioners’ co-defendant Edwin J. Schulz was also con-

victed on each of the nine counts charged in the indictment.

He received a suspended sentence and one year’s probation.

His conviction was affirmed by the court of appeals.

* Petitioner David Stirling, Jr., was sentenced to concurrent

one-year prison terms, to be followed by a one-year term of

probation, and he was fined a total of $10,000. Petitioner

William G. Stirling was sentenced to concurrent terms of six

months’ imprisonment, to be followed by one year’s probation,

and he was fined a total of $5,000. Petitioner Harold Yano-

witch received concurrent one-year terms of imprisonment, to

be followed by one year’s probation, and he was fined a total

of $2,000. Petitioner Rubel L. Phillips was sentenced to con-

current terms of 10 months’ imprisonment, to be followed by

one year’s probation, and a total of $5,000 in fines.

4

manufacture and assembly of prefabricated multi-

family modular housing. Homex was formed in 1968

and went into bankruptcy in 1972. In two separate

underwritings in 1970 and 1971 Homex stock was

sold to the public for approximately $39,000,000.

The evidence at trial revealed that petitioners mis-

led the public by misrepresenting that Homex was in

a sound and steadily improving financial position.

The evidence further showed that the corporation’s

bookkeeping practices were deceptive; that three real

estate transactions, represented as major land sales

and used to boost apparent corporate sales totals,

were in fact merely options; and that improprieties in

connection with certain module sales were not dis-

closed. Furthermore, the company’s labor relations

were characterized as good without disclosure that

company stock was improperly sold to union repre-

sentatives at below market prices and that payment

for the stock was facilitated by loans arranged and

guaranteed by petitioner David Stirling. For their

dealings with union representatives, petitioners David

Stirling and Yanowitch were indicted in the Western

District of New York on charges of violating Section

302 of the Taft-Hartley Act, 61 Stat. 157, as amended,

73 Stat. 537, 29 U.S.C. 186(a)(1). Prior to trial in

the instant case, Stirling pleaded guilty to the Taft-

Hartley violation and Yanowitch pleaded nolo con-

tendere to that charge.

5

ARGUMENT

1. Petitioners contend (Pet. No. 77-1612, pp. 17-

24) that their convictions violated both the privilege

against compulsory self-incrimination and the Double

Jeopardy Clause. Neither claim withstands analysis.

a. The self-incrimination argument is based on the

fact that petitioners’ securities fraud convictions

rested in part upon their failure to disclose certain

improprieties in Homex’s labor relations. Disclosure

of those improprieties, they claim, would have sub-

jected them to prosecution under federal labor laws.

Therefore, they argue, their securities fraud convic-

tions improperly trenched on their Fifth Amendment

rights. The court of appeals properly rejected this

contention on the ground that the securities laws are

essentially regulatory, the activity regulated is gen-

erally lawful, and the required reporting is not di-

rected at a relatively small group of people suspected

of criminal activity (Pet. App. 34a-35a). See Cali-

fornia v. Byers, 402 U.S. 424; Marchetti v. United

States, 390 U.S. 39; Grosso v. United States, 390 U.S.

62; Shapiro v. United States, 335 U.S. 1.

Beyond this, petitioners were not convicted of sim-

ply failing to disclose improper dealings with union

representatives, but rather of making affirmative mis-

leading disclosures with respect to their labor rela-

tions. They were not required to make any repre-

sentations concerning their labor relations. Once they

chose to do so, however, they were required to make

full and accurate representations. Having determined

6

to make misleading disclosures, they should not now

be heard to complain of the consequences. See United

States v. Mandujano, 425 U.S. 564; Garner v. United

States, 424 U.S. 648; Bryson v. United States, 396

U.S. 64.

b. Petitioners’ double jeopardy claim is similarly

insubstantial. They contend that because their con-

victions for securities fraud were based in part upon

their nondisclosure of the facts underlying the Taft-

Hartley convictions of petitioners David Stirling and

Yanowitch in another district, their trial on the secu-

rities offenses violated the Double Jeopardy Clause.

As the court of appeals correctly ruled (Pet. App.

36a-37a), the two prosecutions were based upon en-

tirely different acts. In the Taft-Hartley case, the

government was not required to show any improper

misrepresentation or nondisclosure concerning their

labor relations. Conversely, on the securities fraud

charge, the government was required to show only

that there was a misleading failure to disclose the

dealings with union representatives and not that the

dealings constituted a Taft-Hartley offense or that

petitioners themselves were the guilty parties. Since

each offense required proof of facts that the other did

not, the Double Jeopardy Clause does not bar prosecu-

tion for both. Brown v. Ohio, 432 U.S. 161, 166;

Blockburger v. United States, 284 U.S. 299, 304.

2. Petitioners’ objection to the court’s charge with

respect to the materiality of their misrepresentations

(Pet. No. 77-1612, pp. 24-30) was not raised either

7

at trial or on appeal and there is no compelling reason

for this Court now to consider the issue. United

States v. Lovasco, 431 U.S. 783, 788 n.7; United

States v. Ortiz, 422 U.S. 891, 898; Fed. R. Crim. P.

30.

In any event, the challenged instruction was not

erroneous. Petitioners contend that the court improp-

erly instructed the jury that it could find a statement

or omission material if it “might” have induced an

investor to act or not to act (Pet. No. 77-1612, p. 24).

But in the portion of the charge quoted by petitioners

(Pet. No. 77-1612, pp. 24-25 n.30), the court in-

structed the jury that the statement or omission had

to be of such a nature that it “would or might rea-

sonably have induced the person to act or not to act,”

and added that the jury would have to find that the

information that was omitted or withheld “would, if

disclosed, have significantly changed the nature of the

information that was given” before it could find peti-

tioners’ actions material. Moreover, immediately be-

fore the challenged language the court instructed

(Tr. 6009) that “[a]ll statements and omissions,

though they might be of interest to somebody, are

not necessarily material’ and that “material fact in

this setting is one which could reasonably be expected

to induce a person relying on the statement to dec’de

to act or not to act.” This case is therefore unlike

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438,

upon which petitioners rely, for in context the use of

the word “might” did not suggest that conviction

8

could be based on a “ ‘mere possibility, however un-

likely,’ ”’ Id. at 449.*

3. Petitioners further contend (Pet. No. 77-1612,

pp. 30-36) that the trial court’s instructions on the

credibility of witnesses and reliance on expert advice

were erroneous. The court of appeals properly re-

jected these claims (Pet. App. 48a-50a).

a. Petitioners did not object at trial to the court’s

credibility instructions. Nor would any objection have

been called for, as those instructions were wholly

unobjectionable. Petitioners’ claim to the contrary

is based upon their juxtaposition of two separate por-

tions of the charge (Pet. No. 77-1612, pp. 30-31; Tr.

6068, 6070-6071), each of which was entirely proper.

A general instruction on credibility, such as the first

passage of which petitioners complain, is almost man-

datory when there is conflicting testimony in the case.

United States v. Partin, 493 F.2d 750 (C.A. 5). The

second passage, relating to the special interest that a

defendant has in the outcome of a criminal case, is

also a standard and unobjectionable charge. Reagan

v. United States, 157 U.S. 301, 304-311; United

States v. Figurski, 545 F.2d 389, 392 (C.A. 4);

United States v. Preciado-Gomez, 529 F.2d 935, 942

* Petitioners appear to contend further (Pet. No. 77-1612,

pp. 26-29) that the court of appeals held as a matter of law

that their failure to disclose their illegal conduct was mate-

rial in their securities fraud trial. The court did not so hold.

The jury was instructed on the issue of materiality and re-

solved that issue against petitioners. The court of appeals

merely held the evidence sufficient to sustain the jury’s ver-

dict (Pet. App. 3la).

9

(C.A. 9), certiorari denied, 425 U.S. 953; United

States v. Martin, 525 F.2d 708, 706 (C.A. 2), cer-

tiorari denied, 423 U.S. 1035.°

b. The court’s instruction concerning reliance on

expert advice was also correct. The court properly in-

structed the jury that reliance on expert advice could

serve as the basis for a conclusion that petitioners

acted in good faith, but that reliance on expert advice

after failing to give the expert complete information

did not constitute acting in good faith (Pet. App.

50a). See United States v. Tolkow, 532 F.2d 853

(C.A. 2); United States v. Smith, 523 F.2d 771

(C.A. 5), certiorari denied, 429 U.S. 817; United

States v. Barbato, 471 F.2d 918 (C.A. 1).

4. Petitioners next challenge the trial court’s rul-

ing that David Stirling’s guilty plea and Yanowitch’s

plea of nolo contendere in the Taft-Hartley prosecu-

tion could be used against them at trial (Pet. No. 77-

* Read as a whole, the charge made clear that the credibility

of witnesses was a matter for the jury alone to determine

(Tr. 6068-6069). The trial judge also instructed the jury that

“the fact that somebody is interested doesn’t mean he is lying”

(Tr. 6072).

This case is therefore unlike Quercia v. United States, 289

U.S. 466, upon which petitioners rely. There the trial judge

had said in the charge, “I think that every single word that

man said, except when he agreed with the Government’s testi-

mony, was a lie” (id. at 468).

Petitioners’ reliance on United States v. Cisneros, 491 F.2d

1068 (C.A. 5), and United States v. Fischer, 531 F.2d 783

(C.A. 5), is also misplaced. Both involve extreme situations

where the trial judge’s comments served as a direction to the

jury to ignore the testimony of the witnesses for the defense.

10

1612, pp. 36-42). Petitioner Stirling testified at trial,

and he was asked on cross-examination whether, on

January 21, 1976 (the day he had pleaded guilty), he

had admitted causing things of value to be delivered

to union representatives. Yanowitch did not testify

at trial, and his nolo contendere plea was not intro-

duced.

Petitioners did not raise this point in the court of

appeals, and it is therefore not properly presented

here. In any event, the cross-examination with re-

spect to Stirling’s guilty plea and his statements made

at the time of the plea was proper. At the time of

trial the plea had not been withdrawn.’ Although it

was withdrawn while the appeal was pending in the

Second Circuit, it has subsequently been reinstated.°

Petitioners’ contentions with respect to a subsequently

withdrawn guilty plea are therefore no longer ap-

* Petitioners David Stirling and Harold Yanowitch moved

in the court of appeals to dismiss the appeal and remand it to

the district court when their pleas were withdrawn, so that

they could move in the district court for a new trial (Pet.

App. 36a n.15). Neither in that motion nor in their brief,

however, did petitioners make the evidentiary arguments

they now seek to raise.

* Introduction of evidence of a guilty plea as to which a

petition to withdraw is pending is analogous to the use for

impeachment purposes, under Rule 609(e), Fed. R. Evid., of a

conviction as to which an appeal is pending.

® Reinstatement of the plea was ordered on May 24, 1978, by

Judge Harold P. Burke of the United States District Court

for the Northern District of New York. United States v.

Stirling, N.D.N.Y., CR 74-318 (May 24, 1978).

ee Le

11

plicable. A guilty plea is, of course, admissible as a

judicial admission. See United States v. Andreadis,

366 F.2d 423, 433 (C.A. 2), certiorari denied, 385

U.S. 1001; McCormick, Evidence 635 (2d ed. 1972).

5. Petitioner Phillips argues (Pet. No. 77-1761,

pp. 7-13) that the district court erred in not granting

his mid-trial motion for a severance.

Although petitioner Phillips suggests that his role

in the conspiracy was extremely limited and that he

was, at most, a “peripheral” defendant (Pet. No. 77-

1761, p. 9), the facts show otherwise. As the court

of appeals noted, petitioner played the key role in

orchestrating the most blatant misrepresentation in

the entire Homex scheme (Pet. App. 46a). He estab-

lished a corporation to contract with Homex for the

purchase of several thousand apartments in Missis-

sippi. He subsequently forged a letter from the Farm-

ers Home Administration committing the FmHA to

make a $15,000,000 loan to the corporation to pur-

chase the apartments. He also drafted further docu-

mentation purporting to show sales to the Mississippi

corporation, which Homex was able to enter on its

books to satisfy its auditors and commercial bankers.

These false documents were repeatedly used by the

other defendants to write millions of dollars of phony

earnings into Homex’s books. Finally, petitioner pro-

vided repeated confirmations of these phony transac-

tions, which were used to deceive Homex’s auditors

(Pet. App. 18a-20a). Plainly, in light of both his

12

substantial interest in Homex ° and his important role

in the fraud, petitioner was not the “peripheral” de-

fendant that he pretends to be.

In pressing his severance argument, petitioner Phil-

lips argues that his motion for a severance, if granted,

would have resulted in his being tried for his offenses

in Mississippi (Pet. 7, 11-12). He also contends that

he was denied a severance on the basis of misrepre-

sentations of the prosecutor (Pet. 4, 13). Neither

contention is correct.

Even if petitioner’s case had been severed from

that of his co-defendants, venue would still have been

proper in the Southern District of New York. A sev-

erance would not have altered the charges against

petitioner, and venue for each of those charges was

properly set in the Southern District of New York.

Although petitioner lived in Mississippi and commit-

ted many of his unlawful acts in Mississippi, each of

the offenses charged was carried out, in part at least,

in the Southern District of New York. Petitioner’s

assumption that a severance would have resulted in a

change of venue is therefore erroneous.

Similarly misleading is petitioner’s claim that he

failed to move for a severance at the beginning of

trial because of a misrepresentation by the prosecutor

that the proof against him would be more extensive

than it was (Pet. 4, 13). In fact, the government

offered evidence at trial that petitioner had made pay-

® Petitioner Phillips was Southern Region Vice-President of

Homex and owned an option to purchase 40,000 shares in the

corporation (Pet. App. 3a).

13

ments to public officials to influence their official ac-

tions in connection with certain Homex affairs. On

petitioner’s motion, two weeks into the trial, the dis-

trict court excluded this evidence (Tr. 770-786). Hav-

ing kept from the jury this proof, which would have

helped demonstrate his more extensive involvement in

the fraudulent scheme, petitioner cannot now claim

that the district court was misled or that the govern-

ment misrepresented the scope of its proof against

him at the beginning of trial.

In sum, rather than calling for reassessment of the

settled principle that motions for severance under

Rule 14 are committed to the discretion of the dis-

trict courts, this case helps demonstrate why that

principle is a sound one. The district court was best

able to determine whether petitioner was subject to

undue prejudice because of the joinder, and the court

properly ruled that the benefits of the joint trial far

outweighed any prejudice to petitioner from proceed-

ing together with his co-defendants. Schaffer v.

United States, 362 U.S. 511; Opper v. United States,

348 U.S. 84.

14

CONCLUSION

The petitions for a writ of certiorari should be

denied.

Respectfully submitted.

WADE H. McCREE, JR.,

Solicitor General.

JOHN C. KEENEY,

Acting Assistant Attorney General.

JEROME M. FEIT,

PAUL J. BRYSH,

Attorneys.

JUNE 1978.

W ov. Ss. Government printine orricae; 19786 266437 $2