# Opposition — Stirling v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition
- **Published:** January 1, 1978
- **Citation:** 439 U.S. 824

## Text

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

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14

—
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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1002%3A2. Public record. Not legal advice.