Petition — Duncan v. United States
Supreme Court brief1979
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MIGHABL RODAK, JR., CLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1979
NO. 49-316
EDWIN DUNCAN, JR.,
Petitioner
V.
UNITED STATES OF AMERICA,
Respondent
PETITION FOR A WRIT *; CERTIORARI
MICHAEL J. LEWIS
Tornow and Lewis
285 Executive Park Boulevard
Winston-Salem, N. C.
Attorneys for Petitioner,
Edwin Duncan, Jr.
| BEART INE LEIS LLOEGR LITT ETE ec EET TT TRAE
APPELLATE PRINTING SERVICES, INC., HERITAGE BLDG., RICHMOND, VA. (804) 643-7789
INDEX
Page
Authorities Cited ii
Citation to Opinions Below 2
Jurisdiction 2
Questions Presented 2
Constitutional Provisions and
Statutes Involved 3
Statement of Case 4
Reasons for Granting the Writ 12
l. The writ should be granted in order
to resolve the conflicting Circuit
Court decisions by defining "wilful
misapplication" of bank funds and
establishing whether 18 U.S.C. 8 656
requires a common-law conversion. 12
The petitioner was denied due process
and the effective assistance of counsel
by the failure to conduct a closed pre-
trial bond hearing, as authorized in
Gannett v. DePasquale, the improper
use of grand jury subpoenaes, and by
requiring the petitioners own attorneys
to testify before the grand jury. 13
Petitioner was denied a fair trial by
virtue of prejudicial errors in the
Court instructions and evidentiary
rulings. 15
Conclusion 16
Page
Apendix A - Opinions and Orders
Opinion of the United States Court
of Appeals for the Fourth Circuit Al
Order of the United States Court of
Appeals for the Fourth Circuit
denying petition for rehearing A67
Order of the United States Court of
Appeals staying mandate pending
petition for writ of certiorari A68
Appendix B - Judgments
Judgments of the United States
District Court for the Middle
District of North Carolina Bl
Appendix C - Text of Constitutional
Provisions, Statutes
and Rules Involved
Constitutional Provisions Cl
Statutes. C2
Rules C6
AUTHORITIES CITED
Brady v. Maryland, 373 U.S. 83 (1963)... . 3,15
Durbin v. United States 221 F.2d.520
Ee re let igo 14
Gannett v. DePasquale, 77-1301... . 3,13,14,17
United States v. Britton,107 U.S. 655
CPM tar artes a tar eg 6 8 ee 8 8 eS 12
United States v. Fernandez, 480 F.2d 726
rn a sie 6 Bi) Sw gee le eee 15
ii
Page
United States v. Johns-Manville
Corporation, 213 F. Supp. 65
. EE PD ee ee ae on wd 14
United States v. Wiggenblum, 312 F.2d 289 ‘
eS EE a, dt otk oe ee we ee 8 13
CONSTITUTIONAL PROVISIONS
United States Constitution, Amend. V..... 3
United States Constitution, Amend. VI. .... 3
STATUTES
ee, Fe ie vai ow See ke 4.5.6.7 41,42
eg es ew eee eon 3
ry ee eg kg 6 ge ee ees 3
an OO. eens eta) «sc «6 ee 8 5,7,8,16
16 Usb B BORE) CUED) 0 ck 0 te tc 8 8 3,16
I a a er Eg ag gig 3
ee ee se se ek oe ee ee eee 2
RULES
Federal Rules of Criminal Procedure:
Rule 7(a), (c) (1)
Rule 16(a) (1) (c), (c)
Rule 17(c)
> & >
Federal Rules of Evidence:
Rule 403
Rule 606 (b)
Rule 609 (a) (3)
Rule 615
> > b> >
Internal Revenue Manual - Audit
(Case Manager's Handbook) 7325-27 4
OTHER AUTHORITIES
The National Law Journal, Vol 1. Page
es i te Oe ah ad sat aie le ls ue a oe ees 13
Wright Federal Practice and
Proce: Crameme., © G6 «<< s e ce cc es 15
iv
IN THE
Supreme Court of the United States
October Term, 1979
NO.
EDWIN DUNCAN, JR. ’
Petitioner
UNITED STATES OF AMERICA,
Respondent
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
—FOR THE FOURTH CIRCUIT
To the Honorable Chief Justice of the United States
and the Associate Justices of the Supreme Court of
the United States:
Petitioner respectfully prays that a
writ of certiorari be issued to review the judg-
ment of the United States Court of Appeals for the
Fourth Circuit affirming petitioner's conviction
and the judgment of the United States District
Court for the Middle District of North Carolina.
LS A 7
APPELLATE PRINTING SERVICES, INC., HERITAGE BLDG., RICHMOND, VA. (804) 643-778
OPINIONS BELOW
The opinion of the United States
Court of Appeals for the Fourth Circuit entered
on May 10, 1979, and reported at 598 F.2d 839
(1979) appears as Appendix A to this petition.
The judgments of the United States District Court
for the Middle District of North Carolina entered
on Novernber 16, 1977, which are unpublished, ap-
pear as Appendix B to this petition.
JURISDICTION
The judgment of the United States
Court of Appeals was entered on May 10, 1979,
and a petition for rehearing denied on June 29,
1979. An order staying issuance of the mandate
was entered on July 9, 1979. This court entered
an order on July 19, 1979 entending the time
within which to petition for certiorari to August
28, 1979. Jurisdiction of this Court is invoked
under 28 U.S.C., Section 1254(1).
QUESTIONS PRESENTED
1. Should the Court allow a conviction of
“wilful misapplication" of bank funds to stand:
(1) when there is an unresolved conflict between
the circuits in the definition of "wilful mis-
application", particularly since historically,
under 18 U.S.C. § 656, a common law conversion
was required; (2) when the evidence showed that
for a period of several years State, FDIC, and
Federal Reserve Bank Examiners admittedly had
knowledge of the manner in which Petitimer
handled his checking account and by their conduct
in failing to object, at the very least, gave
Petitioner justification for belief in feeling
that the practice did not constitute a criminal
offense; and (3) when umder circumstances there
was neither financial gain to Petitioner nor
resulting loss to the bank?
2. Was the Petitioner denied:
1) Due process of law by (a) the failure of
the Magistrate to conduct a closed pre-trial
bond hearing as recently authorized in Gannett v.
DePasquale, 77-1301, especially when the bond
hearing generated extensive inflammatory pre-trial
publicity and when that publicity was cambined
with earlier publicity reflecting expansive state-
ments made by F.B.I. agents which indicated that
Petitioner was involved in far more extensive
criminal conduct than any indictment ever revealed;
(b) allowing the F.B.I. agents to obtain grand
jury subpoenaes, which were then completea
by including a proviso for "satisfaction" by
delivering documeiics to the F.B.I. ayents; and
2) effective assistance of counsel by (a)
requiring Petitioner's own counsel to testify
against him before the grand jury; and (b)
disallowing Petitioner's attorneys access to
critical Brady exculpatory evidence.
3. Was the Petitioner denied a fair trial by
virtue of prejudicial errors in the court's
definition of an “oral communication" and the
essential element of a reasonable expectation
of privacy, which instructions the Court of
Appeals recognized "could have been clearer?"
APPLICABLE STATUTES, REGULATIONS AND
CONSTITUTIONAL PROVISIONS
The statutes applicable to this petition
are 18 U.S.C. 8 656, 18 U.S.C. 8 1005, U.S.C. 8
2510(s), 18 U.S.C. $ 2511 (3) (b) (10), and 26 U.S.
C. § 6103. The Constitutional provisions
applicable to this petition are the Fifth and
Sixth Amendments to the United States Constitution.
— a
The Federal Rules of Criminal Procedure relevant
to this Petition are Rules 7(a)and (c) (1), Rule
16(a) (1) (c) and (c) and Rule 17(c). The Federal
Rules of Evidence material to this Petition are
Rules 403, 606(b), 609(a) (3) and 615. The
administrative procedure applicable to this
Petition is Internal Revenue Manual - Audit
(Case Manager's Handbook) 7325-27. Said statutes
regulations and Constitutional provisions are
set forth in the Appendix.
STATEMENT OF THE CASE
After first having arranged for press
coverage, F.B.I. agents traveled in several cars
to North Wilkesboro, North Carolina, on Saturday,
July 16, 1977, for the purpose of arresting the
Petitioner, then Chairman of the Board of Direc-
tors of North Carolina's 4th largest bank and
President of the bank holding company.
Erroneously informed that Petitioner would
be present at a Board of Directors Meeting of the
bank holding company, F.B.I. agents and press first
met at the Bank's home office. However, since
Petitioner was the subject of the meeting he had
elected to let his attormeys represent his inter-
ests.
Choosing not to arrange for Petitioner's
arrest with his attorneys, F.B.I. agents conducted
a search for Petitioner. Unsuccessful in this,
F.B.I. agents contacted Petitioner's daughter,
arrest warrant in hand. When confronted by the
F.B.I. agents, Petitioner's daughter arranged for
his arrest in his attomeys' presence.
Petitioner was transported to Winston-Salem
for a bond hearing. With press present because
the magistrate was not certain that he had authority
to exclude the press and, in spite of Petitioner's
attorneys' motion to conduct the bond hearing in
camera, the magistrate held the bond hearing in
Open court and set bail at $800,000.00 in cash,
based upon information supplied by the F.B.I.
that Petitioner was about to flee the country and
had transferred assets out of the country. These
allegations were unsupported by any credible
evidence particularly since substantially all of
Petitioner's assets consisted of stock in the
bank's holding company and since Petitioner had
recently returned to the United States (airline
tickets relied upon by F.B.I. agents were, in fact,
cancelled return tickets to the United States, not
departure tickets). The magistrate found probable
cause for warrants sworn to by F.B.I. agents as-
serting that Petitioner had:
(1) “Electronically eavesdropped on I.R.S.
agents present in an office of the bank from
September 1, 1971 through January, 1973 while
conducting an audit of Petitioner, the bank and
other taxpayers, an asserted violation of 18 U.S.
C. § 2511(1) (b) (iv); and
(2) Misapplied bank funds by writing checks
on his personal checking account knowing that they
would not be debited to his account but would be
held as cash items in the bookkeeping department
3 the bank, an asserted violation of 18 U.S.C.
656".
The magistrate did not find probable cause
for issuance of the warrant which asserted that
Petitioner had:
"Electronically eavesdropped on conversations
between F.B.I. agents conducting an invest-
igation at the bank in 1977, an asserted
violation of 18 U.S.C. § 2511 (1) (b) (iv).
After this formal proceeding, the United
States District Attorney's office sought grand
jury indictments for the three crimes charged.
In that connection, grand jury subpoenas duces
tecum were issued in blank to be completed later
by F.B.I. agents, with instructions that the
subpoenas could be satisfied by delivery of
documents of F.B.I. agents. Furthermore, in order
to secure grand jury indictments, Petitioner's
attorneys and their secretary were required to
testify against the Petitioner before the grand
jury. The justification for the trial court's
order requiring Petitioner's attorneys to so
testify was based on the District Attorney's
argument that Petitioner's attorneys might have
been implicated in the crime of eavesdropping
on the F.B.I. agents. The facts in possession
of the trial court and District Attorney's office
at that time were:
1. In March, 1977, F.B.I. agents were given an
office at the hame office of the bank in Wilkes-
boro, North Carolina.
2. .By April, 1977, the F.B.I. agents had discov-
ered that Petitioner's checking account was
operated uniquely and felt they had a prima facie
case for a violation of 18 U.S.C. 8 656.
3. Informed of the F.B.I. agents' opinion,
Petitioner immediately retained counsel to
represent him.
4. On May 2, 1977, Petitioner's attormeys, while
present at the hame office of the bank in
Wilkesboro, North Carolina, requested that a box
of Petitioner's financial records be delivered to
them from Petitioner's hane. On that date,
Petitioner was on a vacation outside of the United
States.
Pn A iB RR a a
5. The box of financial records were delivered
to Petitioner's attorneys; and they, in turn,
delivered the box to bank employees to inventory.
6. On the same day, one of the banks' employees
produced two standard cassett tapes from his
pocket, claiming he had found them in the box,
and gave them to Petitioner's attorneys.
7. Petitioner's attorneys took the tapes back to
their law offices located in Greensboro, North
Carolina, played the tapes; and, hearing nothing
placed them in a filing cabinet.
8. In August, 1977, F.B.I. agents asserted that
they had learned of the existence and location of
the tapes and asked Petitioner's attorneys to
produce them. |
9. Eventually, pursuant to an agreement with the
F.B.I. (which was not honored by the F.B.I.) the
tapes were delivered and played on special equip-
ment in the F.B.I. sound lab in Washington, D.C.
By use of the special equipment, it was discovered
that the tapes contained voices recorded at two
different speeds, the attorneys’ and their
secretary's voices having been recorded at the
speed available on recorders customarily used in
attomeys' offices.
On August 12, 1977, the grand jury returned
true bills charging Petitioner with six counts of
misapplication of bank funds, one count of eaves-
dropping, and one count of conspiracy to eavesdrop
on I.R.S. agents, asserted violation of 18 U.S.C.
§ 656 and § 2511(1) (b) (iv), respectively.
Following these indictments, on September 9,
1977, the grand jury returned a true bill, charging
Petitioner with electronically eavesdropping on
F.B.I. ayents, also an asserted violation of
18 U.S.C. 8 2511(1) (b) (iv).
Substantially all pre-trial defense motions
in each case were denied, with the result that
defense counsel was denied access to any meaning-
ful critical material and Petitioner was denied
effective assistance of counsel due to the failure
of the United States District Attomey's office
to indicate which case it intended to call first,
important since there was an attempt to implicate
defense counsel in the F.B.I. eavesdropping case,
only.
On September 28, 1977, the trial of the
I.R.S. eavesdropping case began. At the outset
it was conceded that conversations of I.R.S. agents
while on bank premises, were electronically moni-
tored. The dates the Petitioner participated in
the conspiracy to "eavesdrop" on the I.R.S. agents
was disputed. Although I.R.S. agents testified
from their work papers and the United States
District Attorney's office was allowed to examine
them in preparation for the case, Petitioner's
attormeys were denied access to the work papers.
This denial, when coupled with the trial court
judge's instructions on dates which he felt the
evidence supported that conversations had been
recorded, denied Petitioner a statute of limitations
defense. Additionally, the trial court judge gave
a "bare-bones" instruction on "oral conmunication"
which did mot allow the jury to consider the de-
fense afforded by lack of a justifiable expectatim
of privacy on the part of the I.R.S. agents due to
the undisputed physical circumstances surrounding
the working conditions as follows:
1. The office made available to the I.R.S.
agents was located on the third floor of the
eat OabgeW
bank building, which floor was leased to
two attorneys and a CPA firm;
2. The location of the office was a
heavily trafficked area in close proximity
to the canteen and men's room;
3. Since the office lacked ventilation,
the door was frequently left ajar;
4. The walls were so thin that conversaios
occurring in one office could be heard two
offices down and even taped by use of a
standard recorder in an adjacent office.
On October 3, 1977, the jury returned a
verdict of guilty on both counts and the plethora
of newspaper articles on the conviction and
evidence presented in the trial saturated the
public.
On October 6, 1977, three days after the
verdict in the I.R.S. case, the trial of the
misapplication case followed.
In this case, not only did the foreman
of the jury recall his most vivid recollection
of the Petitioner from the pre-trial publicity
was that when the F.B.I. agents caught him he was
fleeing to South America, where he owned substan-
tial property (every indication being that this
was a bad faith statement made by an F.B.I. agent,
contrary to all evidence and common sense), but
the jury had been so confused by the trial
court's instruction on specific intent to defraud
that one of its members consulted a dictionary in
an attempt to clarify the issue for himself and
the rest of the jury.
a
10
The evidence in the misapplication case
indicated not only that the Petitioner did not
benefit from the disputed banking practice but
that the bank was not injured or harmed by the
Petitioner's seventeen year old banking practice,
which had been known for years by federal and
state bank examiners, I.R.S. agents, F.B.I.
agents, and bank employees.
The practice consisted of causing checks
drawn on Petitioner's account to be paid initially
by bank funds and held as cash items by the
bookkeeping department of the bank until the
Petitioner had an opportunity to review the
checks. When the Petitioner reviewed the checks
he paid them by debit memos accompanied by
non-cashed checks drawn on the bank's account
and with funds on deposit. At all times camplained
of, Petitioner left funds on deposit in his bank
account or subject to the bank's right of offset
and non-cashed checks drawn on the bank by the
bank's parent company, which were sufficient
to pay the outstanding checks. Disregarding any
of the foregoing credits due Petitioner in the
debtor/creditor relationship between the bank
and Petitioner, in count six, the Petitioner's
bank account was never in a nonsufficient funds
Situation.
Qn October 6, 1977, the jury rendered a
verdict of guilty on all counts charged against
the Petitioner in the misapplication case.
Motion for new trial in both cases were
summarily denied.
Pursuant to a plea bargan which required
no sentence, no fine and no prejudice against
him in his appeal, the Petitioner pleaded guilty
11
to the F.B.I. eavesdropping case.
On November 11, 1977, the trial court
entered a judgment on the two cases.
Petitioner filed a timely appeal to the
Court of Appeals of the Fourth Circuit. After
this appeal was filed with the Fourth Circuit
Court of Appeals, the F.B.I. agents, who had
conducted the investigation of Petitioner which
led to his convictions, filed a civil suit seekirg
damages in the amount of $21,000,000.00 against
the Petitioner, his attorneys, and the bank.
Again, the Petitioner's attorneys were required
to ask the Court to determine whether or not they
could continue to represent the Petitioner.
In a 71 page opinion in which the Court
found numerous errors committed by the trial
court and in which the Court labored to distinquish
this decision from previous decisions rendered
by it and to reconcile the split in opinions in
the Circuits on the meaning of the crine of
misapplication of bank funds as proscribed bv 18
U.S.C. 8 656, the Court affirmed the decision of
the trial court in both cases.
On May 24, 1979, a Petition for Rehearing
was filed with the Fourth Circuit Court of Appeals.
The Court denied this Petition for Rehearing on
July, 1979.
The Petitioner, having been granted an
extension of time to file this Petition for
Certiorari through and including the 28th of August
1979, seeks a review of the questions presented
herein.
12
REASONS FOR ALLOWING WRIT
1. THE WRIT SHOULD BE GRANTED IN ORDER TO
RESOLVE THE CONFLICTING CIRCUIT COURT
DECISIONS BY DEFINING "WILFUL MISAPPLIC-
ATION" OF BANK FUNDS, AND ESTABLISHING
WHETHER 18 U.S.C.8 656 REQUIRES A
COMMON-LAW CONVERSION OR, AT A MINIMUM
REQUIRES A BENEFIT TO THE PETITIONER.
In United States v. Britton, 107 US 655
(1883) this court held that the words "wilful
misapplied had no settled technical meaning", and
therefore an indictment must include averments
showing how the misapplication was made, and that
it was unlawful.
Since 1883, this court has not delineated
the offense of wilful misapplication, nor in any
way Clarified its holding in Britton.
Since the decision in Britton, the Courts of
Appeal for the Second, Fourth, and Ninth Circuits
have held that the words "wilful misapply" in-
volved a sufficiently technical meaning to allow
the offense to be charged in the statutory
language alone. The same conclusion has been
suggested in dictum by the Fifth and Tenth Circuits.
However, the First and Seventh Circuits have both
required the additional averments mandated by
Britton and Johnson.
Moreover, the Fourth Circuit Court of Appeals
stated that it is now "sufficient that the defend-
ant at least temporarily deprived the bank of the
possession, control or use of its funds." In so
construing the statute, the Court of Appeals
has departed from the common-law definition of
"conversion", which requires an intent to
13
permanently deprive the owner. Here, not only
did the Petitioner fail to receive any benefit
but there was no deprivation of bank funds, since
the bank never lost the power of control over
the funds, or its proceeds, and its status as a
holder in due course was always protected. The
bank books always collected the bookkeeping
transactions accordingly and the bank was always
secured in its right to balance the account, its
ability to attach, off-set, banker's lien, and
holding accounts receivable. In effect, the
Court of Appeals is using the terms "convert"
and"misapply" interchangably, when the evidence
shows no permanent or indefinite deprivation of
bank funds. The mere drawing and cashing of
overdrafts does not constitute an offense. United
States v. Wiggenblum, 312 F.2d 289 (1963) (9th Cir);
United States v. Goldher, 389 F. Supp. 360 (1974
D.C.Pa).
2. THE PETITIONER WAS DENIED A DUE PROCESS
AND THE EFFECTIVE ASSISTANCE OF COUNSEL
BY THE FAILURE TO CONDUCT A CLOSED PRE-
TRIAL BOND HEARING, AS AUTHORIZED IN
GANNETT v. DEPASQUALE; THE IMPROPER USE
OF GRAND JURY SUBPOENAES, AND BY REQUIR-
ING PETITIONERS OWN ATTORNEYS TO TESTIFY
BEFORE THE GRAND JURY.
The court recently held in Gannett v.
DePasquale, 77-1301, that when the prosecutor and
defendant consent and when there has been a hearing
demonstrating a reasonable likelihood that access
to a pre-trial hearing to the public will prejudice
the fairmess of the trial, that a criminal pre-
trial hearing may be closed to the public. That
ruling has already had a considerable impact, and
has apparently lead to a spurt in closed hearings
(The National Law Journal, Vol. 1, No. 48, p.10).
14
The facts presented in the instant case afford
the court an appropriate opportunity to clarify
the confusion which unfortunately has arisen
from the Gannett decision.
Petitioner respectfully contends that the
court's refusal to conduct a closed bond hearing
violates the ruling in Gannett. The prosecutor
neither objected to nor consented to the defend-
ant"s Motion for a closed hearing, since he was
not present at the hearing. Thus, the record
does not affirmatively show a lack of consent. The
reasonable likelihood of prejudice is amply “
demonstrated from the extensive newspaper articles
Which appeared before the hearing, and the inflam-
matory articles regarding the circumstances of the
defendant's arrest, the conduct of the bond hearing,
and the setting of an $800,000.00 cash bond. The
potential prejudice of the pre-trial publicity
was amplified by interviews with the District
Attorney and arresting agent published after the
Petitioner's arrest.
Secondly, the Petitioner contends that the
government abused the grand jury process by the
issuance of blank grand jury subpoenaes to F.B.I.
agents which were then completed with a proviso
that the subpoena could be satisfied by the
delivery of documents to the agents. The
danger of such a process is that it avoids judicial
supervision, usurps grand jury power, and destroys
the secrecy of grand jury proceedings without any
guarantee that the members of the grand jury will
see the documents. The use of the grand jury
process for the investigative purposes of the F.B.I.
or District Attomeys office is prohibited.
Durbin v. United States, 221 F.2d 520 (D.C.Cir
1954). United States v. Johns-Manville Corporation
213 F. Supp. 65 (E.D. Pa 1962). The prejudice
15
of this abuse of the grand jury process was
compounded by denying the defense access to
critical evidentiary materials discoverable
under Brady v. Maryland, 373 U.S. 83 (1963).
Finally, Petitioner was denied the effective
assistance of counsel by requiring his attorneys
to testify against him before the grand jury.
The potential implications of such a procedure
are staggering. Although the Court of Appeals
could find "no rationally discernible prejudice"
the "chilling" effect of requiring defendant's
own attorneys to divulge confidential conmunica-
tions is abvious. Such a policy should not be
condoned by the highest court of our land and
merits this courts review.
3. THE PETITIONER WAS DENIED A FAIR TRIAL
BY VIRTUE OF PREJUDICAL ERRORS IN THE
COURTS DEFINITION OF AN "ORAL COMMUNICA-
TION" AND THE ESSENTIAL ELEMENT OF A
REASONABLE EXPECTATION OF PRIVACY, WHICH
INSTRUCTIONS THE COURT OF APPEALS RECOG-
NIZED "COULD HAVE BEEN CLEARER" AND BY
FAILURE OF THE COURT TO ALLOW EVIDENCE
ON WITHDRAWAL FROM AN ALLEGED CONSPIRACY
AND TO INSTRUCT ON THE APPLICABLE STATUTE
OF LIMITATION.
It is fundamental that a trial judge must
not, inadvertantly or otherwise, tip the scales
in favor of the prosecution. United States v.
Fernandez, 480 F.2d 726 (2nd Cir. 1973). Moreover,
the court must leave no doubt as to the circum
stances under which the crime can be found to have
been committed. Wright Federal Practice and
Procedure: Criminal, § 487.
A reasonable or justifiable expectation of
ee
privacy is an essential element of the conduct
prohibited by 18 U.S.C. § 2511. The evidence
establishes that the conversations of agents
as well as other occupants of these particular
offices, could be heard through the walls without
the use of electronic devices, and that the
door was frequently left open, and in essence
the very nature of physical facilities by common
observations supported by testimony of other
disinterested witnesses vitiates the reasonableness
of any justifiable expectation of privacy. More-
over, two of the agents indicated they had felt
that their conversations were being overheard.
Since an "oral communication" is one "utter-
' ed by a person exhibiting an expectation that such
communication is not subject to interception
under circumstances justifying such expectations"
the jury should have been instructed in accordance
with the special request of the petitioner. The
Court of Appeals correctly recognized that the
trial court's instructions "could have been
clearer" but erroneously concluded that the result
of the instruction is not prejudicial since the
reasonable or justifiable expectation of privacy
is such an integral part of the crime, the Court
of Appeals should not allow ambiguous instructions
to determine his guilt or innocence.
CONCLUSION
The Petitioner respectfully contends that
the Petition for Certiorari should be granted by
this Court in order to resolve conflicting circuit
decisions by defining "wilful misapplication" of
bank funds. In addition, since the Petitioner was
denied due process by the failure to conduct a
Closed bond hearing, which failure subsequently
generated extensive prejudicial publicity, this
17
case affords the Court an inmediate opportunity
to elaborate upon its ruling in Gannett: v.
| DeP, - Moreover, the Petitioner was denied
the effective assistance of counsel by the imprqer
use of the grand jury process and by requiring
his own attorneys to testify against him. Finally
allowance of the writ would permit the Court to
clarify the "justifiable expectation of privacy"
which is an essential element of an "oral communi-
cation" at a time when the use of electronic
eavesdropping is becoming more wide spread. It is,
therefore, respectfully submitted that this
petition for Writ of Certiorari to the United
States Court of Appeals for the Fourth Circuit
be granted.
ic i Ae CRO
Katherine D. Woodruff —_—
Attorney at Law
Post Office Bux 633
Wilkesboro,
North Carolina 28697
ef e ae » Cater 2
fiichael ! . Lewis
Tornow and Lewis
285 Executive Park
Boulevard
Winston-Salem,
North Carolina 27103
| pe Se.
ak W. Floyd, ce. “oct
“Smith Moore Smith
Schell & Hunter
Post Office Box 21927
Greensboro, NC 27402
Le LLL
CERTIFICATE OF SERVICE
I hereby certify that the foregoing
Petition was served on the appellee respondent
by depositing three copies in the United States
mai, with postage prepaid, addressed to the
Sclicitor General, Department of Justice,
Washington, D.C., 20530.
Xr
This theA®8 day of August, 1979.
Jack W. Floyd, Esq.
Smith Moore Smith
Schell & Hunter
Post Office Box 21927
Greensboro,
North Carolina 27402
0 ee
Michael J. Lewis ~—
Tornow and Lewis
285 Executive Park
Boulevard
Winston-Salem,
North Carolina 27103
therine D. ) a
Attorney at Law
Post Office Box 633
Wilkesboro,
North Carolina 28697
Appendix Al
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Appellee,
Vv.
EDWIN DUNCAN, JR.,
Appellants
Appeal from the United States District Court for
the Middle District of North Carolina, at Winston-
Salem. Hiram H. Ward, District Judge.
Argued November 17, 1978. Decided May 10, 1979
Before HAYNESWORTH, Chief Judge, and WIDENER and
PHILLIPS, Circuit Judges.
Jack W. Floyd (Richmond G. Bernhardt, Jr., Frank
J. Sizemore, III, Keith C. Long, Smith Moore Smith
Schell & Hunter on brief) for Appellant; Patricia
W. Lemley, Allen Holt Gwyn, Jr. and V. Edward
Jennings, Jr., Assistant United States Attorneys
(H.M. Michaux, Jr., United States Attorney on
brief) for Appellee.
ee ae at am
Appendix A2
PHILLIPS, Circuit Judge:
Convicted by one jury of electronic
eavesdropping in violation of 18 U.S.c. § 2511
(1) (b) (iv) (A) and of conspiracy to conmit that
offense in violation of 18 U.S.C. § 371 and by
another jury of six counts of misapplication of
bank funds in contravention of 18 U.S.C. § 656,
Edwin Duncan, Jr. appealed both convictions,
assigning numerous errors. The two cases were
consolidated for briefing, argument and decision.
Finding no prejudicial error, we affirm in both
cases.
Part I of this opinion will sketch the
factual and procedural background for the discus-
sion that follows. Parts II and III consider the
errors assigned in the eavesdropping and misap-
plication actions respectively. Part IV examines
a series of contentions that relate to the validity
of both sets of convictions.
I. Background
Duncan's troubles, insofar as they are
pertinent to these appeals, began in September
1971 when agents of the Internal Revenue Service
came to the Northwestern Bank Building in North
Wilkesboro, North Carolina to conduct an audit of
defendant, the Bank and related taxpayers. At
that time Duncan was president of the Northwestern
Bank. The agents were assigned a small office on
the third floor of the bank building. They were
given keys to the office door and tc the filing
cabinet in it.
)
:
Appendix A3
During the first month of the agents'
visit, Duncan directed a bank employee, John T.
Absher, to plant a radio transmitter in the office
used by the agents. Absher rode to Winston-Salem,
North Carolina, with Duncan to purchase batteries
for the transmitter. Upon their return to the
bank about 10:00 p.m., the two men entered the
office assigned to the I.R.S., Absher climbed on
a desk and, drilling a hole in the Celotex
ceilirg with his penknife, installed the microphone.
Duncan then wiped the door kob of the agents'
office clean and the two left the bank.
Another bank employee, Jerry Duncan,
was assigned the task of monitoring the conversa-
tions of the agents. Defendant instructed him on
the use of the FM equipment required to intercept
the conversations and the tape recorder used to
preserve them. Although assured by defendant
that the activity was legal, Jerry Duncan was
instructed to keep ic confidential. He and his
office-mate, Athel Phillips, began to lock the
door to their office to prevent anyone from
happening upon the interception. In Jerry
Duncan's absence, Phillips monitored the conversa-
tions. On one occasion when Jerry Duncan was out
of town for a week, another employee, Robert Green,
monitored the agents' work at defendant's instruc-
tion.
Periodically, defendant would come to
Jerry Duncan and ask what was going on or Jerry
would go to him and report. The cassettes upon
which the conversations were recorded were deliv-
ered to defendant. Thirteen of the cassettes,
however, malfunctioned and Jerry Duncan threw them
in a drawer of his desk. Later he removed them
to his car and then to his house where they re-
te ieee lita rs AD arb Se 8 $NA AP is
OE ee ee Lat a eee ee 2 er
Appendix A4
mained until the summer of 1977 when he brought
them to the United States Attorney's office.
The monitoring of the agents continued
until January 1973 when the agents moved to the
Federal Building in Wilkesboro, in part out of
suspicion that they were being spied upon.
In March 1977, federal investigators
again came to the Northwestern Bank, this time
from the Federal Bureau of Investigation. One
matter that came to their attention was the manner
in which Duncan handled his checking account. The
account was Classified as "Code 3" for purposes
of computer handling of the checks drawn on it.
The computer was programmed to reject all items
drawn on a "Code 3" or "no activity" account;
each was then posted by hand. This “Code 3"
classification was designed for special use to
prevent forgeries when a customer's checkbook was
lost or stolen; Duncan's account was the only one
that was permanently so classified. As each of
defendant's checks reached the CCash-Items clerk,
she had them paid without debiting defendant's
account. Periodically, Duncan would collect the
checks being held, examine them, send same back
through the computer "transcoded 27" so that they
would not be rejected again and replace the others
with a debit memo. Often, defendant went as long
aS Six months between the times he reviewed the
checks. One occasion that always triggered a
clearance of the account was an audit visit from
the state and federal bank examiners. On April 21,
1977, an agent of the F.B.I. found $11,800 worth
of defendant's checks held in cash items. That
day, Duncan's account was reclassified to a normal
account.
Appendix A5
Early in July, the F.B.I. discovered
that the office they were occupying in the bank
premises was equipped with electronic eavesdropping
equipment. After first obtaining a search warrant,
they searched the bank and found the equipment in
place. Three days later, on July 15, arrest war-
rants for Duncan issued. The charges were elec-
tronic eavesdropping on both the I.R.S. and F.B.I.
and misapplication of bank funds.
After a magistrate initially found there
was no probable cause to bind over Duncan on the
charge of eavesdropping on the F.B.I., on August
12 the grand jury returned two indictments against
Duncan. The first, in two counts, charged defend-
ant with electronic eavesdropping on the I.R.S.
and with conspiracy to commit that offense. The
second, in six counts, charged misapplication of
bank funds, each count corresponding approximately
to a period during which defendant's checks were
held in cash items at his direction without being
debited to his account.
The grand jury investigation continued
as the parties litigated a variety of preliminary
motions. On September 6, the grand jury again
indicted Duncan, this time on the charge of
eavesdropping on the F.B.I.
On September 26, 1977, the trial of the
I.R.S. charges began. Duncan relied principally
on two defenses: that the agents could have
exhibited no justifiable expectation of privacy
in their conversations, and that he had withdrawn
from the alleged conspiracy before August 12, 1972,
the date prior to which prosecution was barred by
the statute of limitations. The fact of the bug-
ging. was not disputed. Duncan's defenses did not
persuade the jury and on October 3 they returned
a verdict of guilty on both counts. Sentencing
Apendix A6
was postponed and the bank misapplication trial
began.
| Again defendant did not controvert the
Objective facts concerning the manner in which
his account was operated, but he vigorously chal-
lenged the illegal characterization placed upon
his conduct by the Government. The jury once
more found Duncan quilty on all counts.
The F.B.I. trial was called for trial
for November 7. Duncan pleaded quilty, pursuant
to a plea bargain, on the charge of conspiracy to
eavesdrop on the F.B.I.
On November 11, defendant was sentenced
to atotal fine of $22,000 and eight jail sentences,
to run concurrently, the longest of which was
three years. No sentence was imposed in the F.B.
I. case. These appeals followed.
II. The I.R.S. Case
In what will hereinafter be referred to
as the I.R.S. case, defendant was convicted of
the electronic interception of oral communications
in violation of 18 U.S.C. 8 2511(1) (b) (iv) (A) and
of conspiracy to commit that offense in contra-
vention of 18 U.S.C. § 371.
18 U.S.C. § 2511(1) (b) (iv) (A) was enacted
as part of Title III of the Omibus Crime Control
and Safe Streets Act of 1968, Pub. L. No. 90-351,
82. Stat. 197. It provides: :
Except as otherwise specifically
provided in this chapter any per-
son who -
Appendix A7
(b) willfully uses, endeavors to
use, OY procures any other person
to use or endeavor to use any
electronic, mechanical, or other
device to intercept any oral con-
munication when -
(iv) such use or endeavor to use
(A) takes place on the premises
of any business or other conmer-
cial establishment the operations
of which affect interstate or
foreign commerce...
shall be fined not more than
$10,000 or imprisoned not more
than five years, or both.
The offense includes four essential .
elements that the Government was required to
allege and prove: that an interception was
effected through the use of an electronic or
mechanical device, that it was done willfully,
that it was an interception of an "oral communica-
tion," and that the interception occurred on the
premises of a business the operation of which
affected interstate commerce. The term "oral
communication" is defined in 18 U.S.C. § 2510 (2)
as “any oral communication uttered by a person
exhibiting an expectation that such communication
is not subject to interception under circumstances
justifying such expectation."
A. The Indictment
Appendix A8
Duncan begins his attack on these con-
victions by challenging the indictment. The
indictment consisted of two counts, the first
alleging the conspiracy and the second setting
forth the substantive offense in a paraphrase of
the statute. Qur concern at.this point is
with the latter.
It provided in essence that between
September 1, 1971 and January 21, 1973, defendant
willfully used a radio transmitter to "intercept
oral communications between certain individuals
then present in a third floor office in the North-
western Bank Building" and that the operations
of that bank affected interstate commerce.
Rule 7(c) (1) of the Federal Rules of
Criminal Procedure provides an indictment shall
be a "plain, concise and definite written state-
ment of the essential facts constituting the
offense charges." Fed. R. Crim. P. 7(c)(1). The
basic requirement mandates that each essential
element of the offense be alleged together with
sufficient additional facts to allow the indict-
ment to be used as proof in bar of a subsequent
‘prosecution for the same offense. Moreover, the
facts alleged should be sufficiently detailed
to apprise the defendant of the charge against him
so that he may prepare his defense. This latter
function, however, may often be satisfied through
the use of a bill of particulars or discovery. 3
Defendant challenges the second count
of the indictment for failure to allege an essent-
ial element of the offense, that a justifiable
expectation of privacy be exhibited by the part-
icipants to the intercepted conversations. Use
of the term "oral communications" and citation
Appendix A9
to the statute involved’ sufficiently appraised
defendant of this element. United States v.
Carroll, 332 F. Supp. 1299 (D.D.C. 1971). ‘The
Federal Rules of Criminal Procedure have abandoned
the excessive technicality demanded of an indict-
ment by the common law. While perhaps suited to
an age when the typical punishment for many crimes
was death and same amelioration of those rigors,
albeit indirect, was necessary, technicality
of this sort is no longer justified. See
Medalie, Federal Rules of Criminal Procedure, 4
Law. Guild Rev., June-July 1944, at 1, 3. We
note that defendant's principal defense at trial
went to this element. Clearly, he was informed
of the charges against him.
Defendant also asserts that in the
context of an indictment covering a seventeen
month period of the language "certain individuals"
is too imprecise to inform him of the charges for
which he was called to answer. The identity of
the conversant whose conmunications are intercept-
ed isnot an element of the offense of electronic
eavesdropping. Indeed, his identitiy is only
pertinent insofar as it relates to the speaker's
expectation of privacy in his conversation and,
as just explained, that element of the offense
was sufficiently alleged. To the extent defendant
is suggested that the indictment did not apprise
him that he was charged with electronically
eavesdropping on agents of the Internal Revenue
Service, we find the claim patently without merit.
While defendant was denied a bill of particulars,
the investigative file of the United States
Attorney's office was opened for his inspection.
The apprisal function of an indictment may be
satisfied in this manner. See United States v.
Schembari, 484 F.2d 931, 935 (4th Cir. 1973).
<n acer acne nna cai ennai eee ta ata ie
Appendix A10
Moreover, the substantive offense in issue here
was charged in the second count of a two count
| indictment, the first of which alleged a conspir-
| acy to commit the substantive offense and which
explained detail whose conversations were inter-
| cepted and exactly how it was done.
|
B. Privacy Expectations of the IRS
Agents: Proof and Instructions
Defendant assigns a cluster of errors
related to the trial court's handling of the
issue whether the IRS agents "exhibited a justi-
fiable expectation" that their conversations were
not subject to interception. Same of these re-
| lated to the admission and exclusion of evidence,
some to the instructions given the jury, sare
to the sufficiency of the evidence to support
a jury finding against the defendant on this
issue. We treat these together because of their
interrelatedness.
Viewed in the light most favorable to
the Government, United States v. Sherman, 421 F.
2d 198 (4th Cir. 1970) (per curiam), we conclude
that the evidence was amply sufficient to support
the jury's verdict against the defendant on this
element of the offense. The mere fact that the
agents came to the bank for the avowed purpose
of conducting a confidential investigation would
be a sufficient basis to find that they had and
exhibited the expectation. Defendant's basic
challenge is to the other aspect of the element,
the: justifiability of the expectation. Here too,
there was ample evidence to support a jury finding.
The agents were supplied with keys not only to the
office, but to the filing cabinet within, an
Obvious assurance that their privacy was to be
respected. Additionally, the agents testified
Appendix All
that they gave no one permission to monitor their
conversation and that they allowed no one to stand
outside their frequently opened door on a regular
basis. The eavesdrop tapes revealed language
by the agents that a jury could readily infer
they would not have used in public or around
strangers, and conversations concerning matters
related to the investigation that obviously
were not for public consumption.
Duncan's main argument however was not
with the sufficiency of the evidence favorable to
the the Government on the issue, but with the
failure of the trial court to give him the benefit
through jury instructions of various theories that
he contends were relevant to show that the agents
could not have had any justifiable expectation
of privacy. The first of these theories was based
upon evidence that the agents suspected that thir
conversations might possibly be monitored, though
no direct indications of this possibility were
manifested. On this evidence the trial court's
position was that while actual knowledge might
have this effect, mere suspicion of the
possibility of interception would not. The jury
was so instructed.” We believe that the trial
judge properly applied the law defining the
statutory offense to the evidence in this case.
Certainly the law does not contemplate that the
expectation required here shall be one held with
perfect certitude that it is being respected at
all times. At some point along the path of
developing suspicion it must surely be possible
for an originally justified expectation to become
unjustified, but just as surely that point is not
reached when a first glinmer of generalized
suspicion that something could or might be amiss
is aroused. Such was the burden of the instruct-
ions given here, and on the actual evidence here
EEE aaron
Appendix Al2
adduced of possible suspicion subjectively felt
by these agents, they accurately applied these
principles.
Electronic eavesdropping is by its
nature difficult to detect. The capacity of
modern electronics to invade the traditional
sanctuaries for the maintenance of individuality
and humanity was principal concern of Congress
when § 2511 was enacted. See note 12 infra. If
by merely creating a generalized suspicion that
a victim's communications were possibly being
intercepted, while at the same time avoiding
detection, an electronic eavesdropper could
bootstrap his activity from the proscribed to
the permitted, the congressional purpose would
be frustrated. 8
Defendant offers four other theories
Why the agents' expectation that they were not
being monitored could not have been justifiable:
because the owner of the premises, Duncan, as
president of the bank, consented to the intercep-
tion; because of the history of hostility between
the bank and the I.R.S.; because the agents were
"strangers" on the premises; and because the
voices of the agents could be heard outside the
office in which they worked. He complains that
the district court's evidentiary rulings and
instructions deprived him of the benefit of
these theories to his prejudice.
Defendant's consent theory is predicated
on dictum in a footnote to Alderman v. United
States, 394 U.S. 165 (1969): "Those who converse
and are overheard when the owner is not present
also have a valid abjection [to surreptitious
interception and recording of their conversations]
Appendix A13
unless the owner of the premises has consented to
the illance." Id. at 179 n.11 (emphasis add-
ed).” However helpful to defendant a reading of
this cryptic dictum may seem when lifted out of
context, in context it simply has not the expansive
implications for which he contends. Alderman was
a standing case, posing centrally the issue whether
the owner of premises has a constitutionally pro-
tectible privacy interest in the conversation of
others surreptitiously intercepted on those prem-
ises. Alderman held that he does. The quoted
dictum was an aside pointing out that so also did
a visitor on the premises have a protectible pri-
vacy interest in his own conversations except as
that might have been lost through application of
the “third party consent" doctrine developed in
traditional tangible object search cases. Under
the doctrine a search or interception victim may
be deemed to have assumed the risk that a third
party may permit a search or interception by the
police (or by others otherwise prohibited) of
premises or objects over which the target and the
third party share control of access. Application
of the doctrine thus depends on the existence of
circumstances making it reasonable for the searcher
or interceptor to assume that the target has no
privacy expectation in respect of the particular
premises or object. See, e.g., United States v.
Block, 590 F.2d 535, 539-40 (4th Cir. 1978). In
whatever way third party consent doctrine may
transpose to the context of a premises owner's
consent to electronic surveillance of the conversa-
tions of visitors on his premises by others than
himself, it simply cannot be transposed to the
situation where, as here, the consenter and the
interceptor are one and the same. Any attempt
to apply third party consent doctrine to the facts
of this case simply returns us to the justifiable
Appendix Al4
expectation of privacy analysis written into the
eavesdropping statute. Alderman does not stand
for the flat proposition apparently contended for
by defendant that every visitor on the premises of
another assumes the risk of electronic surveillance
by the owner or others while there. See United
States v. Rizev, 583 F. 2d 803, 808-09 (5th Cir.
1974). To interpret the eavesdropping statute
in this way would put its application completely
at the mercy of the owner or controller of pren-
ises covered by the statute. This cannot accord
with congressional intent.
In one of his more novel contentions,
defendant next asserts that the agents' expecta-
tion of privacy could not be justifiable because
of the history of hostility between the I.R.S.
and the bank. In support of this theory, defend-
ant introduced testimony that a photocopy of a
refund check won by the bank through litigation
with the I.R.S. hung on the wall of the office
of Edwin Duncan, Sr., father of the defendant and
at the time of the alleged criminal activity
chairman of the board of Northwesterm Financial
Corporation, parent company of the bank. When
defendant sougnt to introduce evidence that the
agents' requests for bank documents met with
resistence, thereby hoping further to establish
an atmosphere of hostility, the trial court refused
the proof and instructed that it would not matter
whether the conversations intercepted had taken
place in the camp of one's arch enemy. The trial
judge also refused to instruct the jury on the
hostility theory. Defendant asserts this was
error, relying on a number of cases that have held
that statements made by a prisoner in police
custody may not be considered justifiable private.
Whateve:-, the precise scope of that doctrine, it
~ Appendix A15
simply will not transpose in logic to the situation
presented here. The significant fact in the cases
involving statements* uttered while in police custo-
dy is not the hostility between officer and suspect;
it is the fact that the speaker was in police
custody. Those cases simply announce a societal
decision that one may not reasonably expect his
utterances to be private while he is being held
in police custody for violation of the law. See
note 7 a. Here again, defendant contends for
a principle that would permit the bootstrapping
of proscribed activity into permitted activity
by unilateral action of the person charged, here
by the simple expedient of fomenting or creating
the appearances of hostility. The district court
properly concluded that this was impermissible
interpretation of the statute and so declined
to give an instruction having that effect.
Relying on the case of United States v.
Pui Kan Lam, 483 F.2d 1202 (2d Cir. 1973), defen-
dant next contends that the agents were "strangers"
at the bank and therefore could not justifiably
have expected privacy. Again, the principle
invoked is inapposite to the facts of this case.
In Pui Kan Lam, by arrangement with the police
an apartment resident admitted to his apartment
four persons - strangers to him - who were
suspected of involvement in drug dealings with a
former occupant. While in the apartment, these
persons' conversations were overheard by the police
using electronic means. Over objections that the
interception violated their justifiable privacy
expectations, the conversations were held admis~-
sible in evidence. While one who enters the
apartment of a person he does not know may well
have no justifiable reason to expect that anything
he might say while in that apartment would be
Appendix A16
private, the I.R.S. agents in the case at bar were
speaking in an office that had been provided for
them and which they had regularly occupied as
primary tenants for a year or more. The Pui Kan
Lam case provides no support to defendant's
“stranger on the premises" theory.
Defendant's final theory that the agents
could not justifiably expect privacy is that the
walls of the office were so thin that ordinary
conversation could be heard through them and that
the agents frequently left the door to the tiny,
unventilated office open and their voices could
easily be heard in the hall. While the trial
court allowed all the proffered evidence on their
point to be admitted, it did refuse a requested
instruction on the point. We conclude that the
requested instruction, which is set forth in its
entirety in the margin, would ave been much
more favorable to the defendant than the law or
the facts in evidence justified and that the trial
judge did not therefore err in refusing to give
it.
That conversations in a business office
may be overheard through the open door of that
office does not necessarily preclude those con-
versations from being "oral communications"
protected from interception by the statute.
United States v. McIntyre, 582 F.2d 1221 (9th Cir.
1978). All the facts and circumstances must be
evaluated to determine whether a justifiable
expectation that a person's conversations are not
subject to interception is exhibited. S. Rep. No.
1097 supra, note 9 at 2178. A particularized
rather than an abstract inquiry is required in
specific adjudication of the issue. We conclude
that the jury was adequately instructed and that
there was sufficient evidence upon which they
Appendix A17
could find that the I.R.S.agents did have a just-
ifiable expectation of privacy, notwithstanding
there was evidence that on same occasions their
conversations within the bugged office might have
been overheard without aid of the electronic
device.
Defendant's arguments on this issue
come eventually to, or very near to, the proposi-
tion that the mere existence of the technology of
electronic interception of speech coupled with
general knowledge of its pervasiveness makes inm-
possible any justifiable expectation of privacy
against these devices in contemporary society.
The very enactment by Congress of the statute in
issue indicates that Congress did not accept this
dismal assessment. So to interpret the statute
would in practical effect eviscerate it by deny-
ing the more hopeful contrary premise on which
it is based. We decline to do that.
C. The Interstate Cammerce Nexus
Defendant next contends that the evid-
ence was insufficient to show the requisite nexus
between the electronic eavesdropping charged to
him and interstate commerce. Recently, in
United States v. Burroughs, 564 F.2d. 1111 =
cir. 1977), we noted that the "interception of .
oral communications under § 2511(1) (b) (i)-(iv)
specifically require(s) a showing of an effect
upon interstate commerce to establish a violation
of the statute." Id. at 1113 (emphasis amitted).
From this, defendant argues that the Government
was required to prove that the interception of
the oral communications of the I.R.S. agents it-
self affected interstate commerce.
Appendix Al18
While this is the basic thrust of defen-
dant's contentions, the details are more elaborate,
as are the Government's counter contentions. As
noted, defendant was charged with a violation of
18 U.S.C. § 2511(1) (b) (iv) (A) which prohibits the
willful interception of oral communications on
the premises of a business whose operations affect
interstate commerce. Defendart initially contends
that that provision was intended to reach only the
electronic interception of trade secrets. This is
initially argued as a matter of congressional in-
tend, and the proposition is then reiterated as
a matter of constitutional necessity. Conceding
that the interception of trade secrets would
constitute a sufficient effect on interstate ~
commerce, defendant asserts that only by such
a construction can subsection (iv) (A) be kept
within the reach of Congress’ power over commerce.
The Government advances several arguments
against the contention that the statute was intend-
ed to be so limited, and argues that the statute,
not so limited, may constitutionally be applied
to the defendant's conduct on any of four grounds:
the operations of the bank affected interstate
commerce; the interception was of the oral
communications of federal agents and Congress
may act to protect the employees of the federal
government; the interception was accomplished by
the use of a radio transmitter and Concress may
regulate even intrastate radio broadcasts; and
the espionage took bank employees away from their
regular duties thus directly burdening
interstate commerce.
We address first the question of the
statute's intended reach. While one of the
congressional objectives in enacting Title III
of the Omibus Crime Control and Safe Streets Act
aim i a re acca
Appendix Al9
and § 2511(1) (b) (iv) in particular was the preven-
tion of industrial espionage by electronic surveil-
lance, S. Rep. No. 1097, supra note 9, at 2181,
we believe that had Congress intended to limit
subsection (iv) to that objective it would have
done so expressly. That this was clearly one
objective of Congress does not mean that there
were not others. The plain unambiguous language
of the statute reaches far beyond the limited
Objective urged by Duncan and we cannot by inter-
pretation ascribe to it this quite restricted
meaning.
Turning to the constitutional contentions,
we find congressional authority to enact § 2511
(1) (b) (iv) sufficiently grounded in Congress'
general power under the Commerce Clause rationally
to classify for regulation certain activities
found by it to affect interstate commerce and
to devise appropriate means for the regulation. 11
While Congress ordinarily leaves the
question whether certain intrastate activities
have the prohibited effect on interstate ccmmerce
to the courts or to the administrative agency
charged with the enforcement of the particular
statute involved, on occasion Congress itself
determines that a particular activity has the
requisite effect. E.g., Perez v. United States,
402 U.S. 146, 152(1971); United States v.
, 312 U.S. 100, 120-21 (1941); see Heart of
Atlanta Motel, Inc. v. United States, 379 U.S.
241, 258-59 (1964). In such a situation the
function of the federal courts is limited to
determining whether the activities in question
are in the class sought to be requlated, to
determine if Congress acted rationally in deciding
that it could regulate that class and to assess
whether the method of regulation chosen was ap-
propriate to the end sought to be achieved. Id.
Appendix A20
When the class of activities is properly regulated,
the court does not have the authority to exclude
from the regulation individual activities that may
not in themselves have the requisite effect. Perez
v. United States, 402 U.S. at 154.
In enacting Title III, Congress sought
to prohibit electronic eavesdropping to the full
extent of its constitutional authority to do so.
See S. Rep. No. 1097, supra note 9, at 2180. In
of 1968, Pub L. No. 90-351, Title III 8 80l(a),
82 Stat. 197, 211. Congress had before it evidence
that business plans were being stolen, that labor-
management relations were being disrupted, that
trade secrets were being betrayed.12 The means
chosen to deal with these problems was to prohibit
all electronic espionage on the premises of
businesses whose operations affected interstate
commerce. We cannot say that this determination
was irrational or that the means chosen were in-
appropriate. This left only the question whether
in fact the activities of Northwestern Bank affect-
ed interstate commerce and this was found by the
jury against the defendant under appropriate
instructions, not here challenged, and upon ample
evidence.
Defendant then resumes his attack on
the statute's application to him by contending
for a narrow definition of the word "premises"
as it is used in § 2511(1) (b) (iv). He would
construe it to refer only to those portions of
the building actually being used by the business
whose operations affect interstate cammerce. He
Appendix A21
then argues that the third floor of the bank
building where the I.R.S. office was located
does not come within that definition. Contrary
to defendant's contention, at least some of the
evidence indicated that portions of the third
floor were used for bank business. One of the
agents testified that the office of the bank
employee assigned to obtain any documents they
requested was located across the hall from their
office during the initial portion of their stay.
The room in which the bank's board of directors
met also seems to have been on that floor. While
space commercially leased to an attorney or ac-
countant for his use in a private business might
be thought to have lost its character as part of
the R arrorees 2 of the bank for purposes of § 2511
(;) (b) (iv), 13 areas in which the bank has con-
veyed no enforceable property interest should
not be so considered. Here the bank provided a
portion of its building for the agents' temporary
use. They occupied the space as mere quests;
at most, in technical terms, as tenants at suffer-
ance. For purposes of the definition in issue,
such space must be considered to be part of the
bank premises during the period in issue. Any
other construction would in practical effect
deprive any temporary guest occupant of premises
otherwise covered by the statute of its protection.
Still in the realm of the intended reach
of the statute, Duncan complains that the district
court instructed that Congress intended to prohibit
all electronic eavesdropping. We note initially
that defendant did not object to this instruction
at the time of the charge. While defendant
correctly notes that he requested several instruc-
tions that are inconsistent with the one given,
and renewed his request after the charge was given,
Appendix A22
in these circumstances that was not sufficient.
The function of the requirement that objection to
jury instructions be made inmediately following
the charge is to allow the trial judge to rectify
any errors he may have made. Rejected instructions
relied on to fulfill this function must fairly
serve the purpose. The instructions requested by
defendant that the relies upon dealt with his
"overhear" defense and are quoted in note 10
Supra. As already noted, it was not error to
re to give the instruction for the purpose
requested. In the context requested, the rejected
instruction went more to the issue of the existence
of a justifiable expectation of privacy than to
the issue on which it is now urged as an effective
objection to the instruction given. The requested
instruction simply did not notify the judge of the
asserted error here camplained of.
In any event, the jury was properly in-
structed that they had to find the requisite
elements of the charged offense before they could
find Duncan quilty. Thus, while the trial court's
instruction that Congress had intended to progcribe
all eavesdropping may have been oyerly broad~” the
Charge as a whole was sufficient.-
D. Statute of Limitations Defense
The indictment charged a conspiracy from
on or about September 1, 1971 to January 31, 1973.
The five year statute of limitations, applicable
to violations of § 2511, allowed conviction only
if the conspiracy still existed after August 12,
1972, that being five years prior to the date of
indictment. Defendant argued at trial that he
evidence showed he lost all interest in the
eavesdropping and thus withdrew from the conspir-
acy before August 12, 1972. He now asserts that
Appendix A23
a portion of the jury instruction undermined this
defense.
Among the overt acts listed in the con-
spiracy indictment was one charging that on or
about February 1, 1973 Jerry Duncan told Ed Duncan
that the eavesdropping equipment was still in
his, Jerry's, office. In withdrawing this act
from the jury's consideration, it having occurred
if at all after the end of the time that the
conspiracy was alleged to have existed, the trial
court gave the following instruction.
"As you were advised following
the close of the Government's
evidence indicate that the
alleged conspiracy terminated
when agents of the Internal
Revenue Service vacated the
Northwestern Bank Building
on or about January 15, 1973."
Despite defendafit's contentions, we do not read
this instruction to assert that Duncan himself
did not withdraw from the conspiracy before August
12. In fact, the jury was expressly instructed
that defendant contended he withdrew from the
conspiracy prior to August 12 and that before they
could find Duncan guilty of conspiracy they would
have to find that he was a member of the conspir-
acy when one of the overt acts was performed between
August 12 and January 15. Were we disposed to
read the instruction in the manner for which
defendant contends, however, we would decline to
do so. Again, he failed to object when the charge
was given and the error now asserted is not in the
category of "plain error."
Appendix A24
E. Discovery
Duncan was not provided with the grand
jury testimony of several of the I.R.S. agents in
which they mentioned their suspicion that their
ayyersations were being monitored until just prior
to the agents' testimony at trial. The testimony
was provided in compliance with the Jenck's Act,
18 U.S.C. § 3500, but defendant contends that it
was also discoverable under Brady v. Maryland,
373 U.S. 83 (1963), and thus should have been
provided sooner. Br requires production of
any material that would be exculpatory. Under
our view of the evidence of suspicion, as related
above, this testimony would not have been excul-
patory. At no point did the agents testify that
they "knew" they were being monitored. In any
event, the information was provided for defendant's
use in ample time to get it before the jury. For
both reasons, we consider any error in this matter
to have been harmless.
Defendant complains t the "open file
policy" followed by the office 6f the United States
Attorney for the Middle District of North Carolina
was ineffectual. The policy makes accessible to
a defendant the entire file of the prosecution.
It does not, however, allow copying of the docu-
ments in that file. Rule 16 of the Federal Rules
of Criminal Procedure does allow copying of docu-
ments and other materials that ae discoverable wder
its provisions. To the extent that the open file
policy functions as a substitute for compliance
with Rule 16, rather than as a supplement to Rule
16 discovery, it is inadequate.
Defendant was not allowed to make copies
of the tapes of the I.R.S. agents. If dated, the
tapes would establish critical time periods of the
Appendix A25
bugging. Some tapes revealed background noise to
the agents’ conversation. Defendant contends he
was effectively denied timely access to this evid- |
ence critically relevant to his "overhear,"
"suspicion," and statute of limitations defenses.
While these tapes were subject to Fed. R. Crim.
P. 16, we do not consider that the inadequacy
of the open file policy to disclose them constituted
reversible error. Defense counsel were allowed to
listen to the tapes. Their authenticity is not
questioned and , in any event, could not have been
established without regard to their contents.
There was more than sufficient evidence, aside from
the tapes, to show that on occasion sounds passed
into and out of the bugged office. Similarly,
there was other evidence showing that the bugging
continued well into a period not barred by the
Statute of limitations. If all defendant wanted
was the dates of the tapes, they were not dated.
The dates during which the agents were at the bank
were provided to defendant. While the agents dated
the conversations for the use of the United States
Attorney, that information was not discoverable.
Fed R. Crim. P. 16(a)(2). For these reasans, we
consider that any error here was harmless.
F. Other Error
Defendant complains that the commission
of an I.R.S. agent which would have shown that he
was not employed by that agency until August 21,
1972 so that his conversations had to be monitored
within the period covered by the statute of limita-
tions was not produced until the Governments's
case in chief in violation of Rule 16. Again, If
error, this was harmless. Its marginal significance
is indicated by the fact that the statute of limit-
ations defense focused on defendant's withdrawal
Appendix A26
from the conspiracy prior to August 12, 1972, not
on the termination of the interception prior to
that date.
Duncan asserts that the work papers of
the I.R.S. agents were discoverable under Fed, R.
Crim. P. 16(a) (1) (C), but were not produced.
While we have doubts about the discoverability of
these documents in light of I.R.C. § 6103, we
need not decide that here. All defendant could
have gleaned from these documents was evidence of
hostility and perhaps of suspicion. In view of our
conclusion that as offered by defendant, these
theories of defense were not available under the
circumstances of this case, any error here was
harmless.
Finally, defendant complains of the
admission of certain testimony of John Absher,
an alleged co-conspirator and the person who the
undisputed evidence shows actually planted the
listening device in the ceiling of the I.R.S.
office. Defendant claims it was prejudicial error
to allow Absher to testify that “he had become
totally mentally disabled as a result of his
concern over “he illegal act which he had conmit-
ted at defendant's direction. ..." Brief for
Appellant at 43. In fact, Absher only testified
that he suffered "mental anguish" from "worry"
over having "violated the law." The details of
his mental condition were in fact explored at
length by defendant's counsel on cross-examination.
Absher's testimony was not impermissible prejudicial
see Fed. R. Evid. 403, when considered in the con-
text in which it was given.
III. Misapplication Case
I A 8 mre RA ar
Appendix A27
In the bank misapplication case,
defendant Duncan was convicted of six violations
of 18 U.S.C. 8 656. That statute provides in
pertinent part:
Whoever, being an officer,
director, agent or employee
of, or connected in any capa-
city with any . . . insured
bank . . . willfully misapplies
any of the moneys, funds or
credits; of such bank or any
moneys, funds, assets or
securities intrusted to the
custody or care of such bank
- « - Shall be fined not more
than $5,000 or imprisoned not
more than five years, or both ...
As used in this section, the
term... “insured bank"
includes any bank, banking
association, trust company,
savings bank, or other banking
institution, the deposits of
which are insured by the
Federal Deposit Insurance
Corporation.
That both defendant and the Northwestern Bank
possess the requisite capacities for a violation
of $ 656 to occur is conceded. Little else is.
For a violation of § 656 to be proved,
the Government must show, in addition to the status
of both bank and defendant, that the defendant
acted willfully, that he misapplied funds, moneys,
or credits belonging to or intrusted to the custody
of the bank and that he did so with the intent to
Appendix A28
injure or defraud the bank. While the statutory
language no longer makes reference to the last
mentioned element, it remains a necessary part
of the Government's proof. United States v.
Caldwell, 544 F. 2d 691, 696 (4th Cir. 1976).
To show a misapplication, the Government
must prove a conversion of bank funds to the use
of the defendant or a third party. Johnson v.
United States, 95 F.2d 813, 816 (4th Cir. 1938).
Actual loss need not be proved, e.g., United States
v. Fortunato, 402 F.2d 79, 81 (2d. Cir. 1968);
Rakes v. United States, 169 F.2d 739, 743 (4th
Cir. 1948); rather, it is sufficient that the
defendant at least temporarily deprive the bank
of the possession, control or use if its funds.
While subsequent restitution may be relevant on the
issue of intent, it is not a defense since the
crime is complete when the misapplication occurs.
Agnew v. United States, 165 U.S. 36, 56-57 (1897) ;
Kramer v. United States, 190 F.2d 712, 719 (4th
Cir. 1951).
A. The Indictments
Defendant opens his attack upon these
convictions with a challenge to the indictments.
Arguing that the term "misapply" has no settled
meaning, United States v. Britton, 107 U.S. 655,
669 (1882), and relying on this Court's decision
in Johnson v. United States, 95 F.2d 813(4th Cir.
1938), he contends that no criminal conduct is
charged against him.
In Britton, the Supreme Court, construing
one of the predecessor statutes of 8 656, noted:
The words "wilfully misapplied"
are, so far as we know, new in
a ee Oe ete
Appendix A29
statutes creating offences,
and they are not used in
describing any offence at
common law. They have no
settled technical meaning
like the word "embezzle" as
used in the statutes, or the
words "steal, take and carry
away, " as used at common law.
They do not, therefore, of
themselves fully and clearly
set forth every element of
the offence charged. It
would not be sufficient
simply to aver that the defend-
ant "wilfully misapplied" the
funds of the association.
“
107 U.S. at 669. The Court went on to require
that averments be made, to show how the application
was made and that it was unlawful. Id.
Our decision in Johnson is of the same
mold. In that case the indictment simply charged
the president of a bank with discounting a note
made by one Stover and applying the proceeds of
the note against an overdraft of the defendant's
account at the bank. While it appears that in fact
Stoner was insolvent so that the note was worthless,
this was not alleged. Moreover, no allegation
was made that the account was drawn upon after
the proceeds from the note were deposited therein.
In short, there was no allegation of conversion.
Reiterating the principles announced in Britton,
the Court concluded that no crime would be charged
unless it was alleged that "some portion of the
fund credited [as a result of the deposit of the
proceeds from the note] is withdrawn from the pos-
session or control. of the bank or a conversion
Appendix A30
thereof in some form is made so that the bank is
deprived of the benefits thereof." 85 F.2d at 817.
Each of the six counts of the indictment
against Duncan charged in the statutory language
that defendant developed a scheme, with intent
to injure and defraud the bank, to wilfully
misapply the funds of the bank. Each then went
on to allege that defendant
would write and cause to be
written checks upon his afore-
said personal checking account,
when he then well knew that said
checks would not be debited to
his personal account, but held
in the Bookkeeping Department of
the aforesaid Bank; and that by
this scheme, [defendant] did
wilfully misapply and cause to
be misapplied, and did convert
to his own use the possession,
control and use of the monies,
funds, and credits of the
aforesaid Northwestern Bank...
Much water has flowed under the bridge
since we rendered our decision in Johnson and
even more since the Supreme Court declared in
Britton that "wilfully misapply” had no settled
meaning. The cases are legion interpreting those
words. While an occasional decision still reit-
erates the message in Britton, the modern trend
seems to recognize that the term has developed a
settled meaning; they no longer are "new in
statutes creating offenses." United States v.
Mann, 517 F.2d 259, 26s (sth Cir. 1975); United
States v. Archambault, 441 F.2d 281, 283 (10th
Appendix A31
Cir. 1971); United States v. Fortunato, 402 F.2d
79, 81 (2d Cir. 1968); United States v. Kernodle,
367 F. Supp. 844, 849 (M.D.N.C. 1973) (Ward, J.)
aff'd per curiam sub nom. United States v. Pollard,
No. 74-1368 (4th Cir. Sept. 23, 1974); see United
States v. Moraites, 456 F.2d 435, 441 n.9 (3d Cir.
1972). But see United States v. Gens, 493 F.2d
216, 221 (lst Cir. 1974); United States v. Wiggen-
horn, 312 F.2d 289, 282 (9th Cir. 1963).
Both Johnson and Britton were decided
prior to the adoption of Rule 7 of the Federal
Rules of Criminal Procedure which put an end to
the niceties of technical pleading. United States
v. Kernodle, 367 F. Supp. at 849. Today, an
indictment need only allege the essential elements
of the offense and adequately apprise the defendant
of the charges against him so that he may prepare
his defense.
While time and intervening events have
sapped Britton and Johnson of much of the basis
for their rationale, we believe the Duncan
indictments pass muster even under their standards.
The manner in which the misapplication was achieved
is alleged in sufficient detail. Defendant was
apprised of the charges against him and that
aspect of the demands of Britton is satisfied.
Despite defendant's strenuous contentions to the
contrary, a conversion is alleged, both by use
of that specific word and by descyiption of the
manner in which it was achieved. Unlike
Johnson, this is not a case where only an
innocent transaction is alleged. When defendant's
checks were paid without a coincident debiting of
his account, the bank was deprived of the control
of its funds. See Johnson v. United States, 95
F.2d at 817. The bank's funds having been put at
Appendix A32
risk, that aspect of Britton which requires allega-
tion of acts sufficient to show the misapplication
to be unlawful is satisfied.
B. Sufficiency of the Proof; Jury
Instructions
Defendant contends that the manner in
which he operated his bank account could not have
constituted a "misapplication" of bank funds in
violation of 8 656, so that the proof on this
essential element was insufficient to support his
conviction. He relies here essentially on two
theories that the district court rejected in
various rulings. The first, in general, points
to defendant's financial ability at all times to
cover all his undebited checks held in "cash items."
The second would find "authorization" for the Code
3-cash items practice in nonaction by the bank's
directors despite knowledge on their part of its
existence.
Specifically, on the first theory,
Duncan relies on evidence that at all times he
had sufficient funds "in the bank" to cover his
Code 3 checks held in cash items. He points first
to the fact that only rarely was his checking
account itself insufficient to COVE them, i.e.,
in a state of technical overdraft.!’ Next he
points to evidence that throughout the critical
period he had access to other accounts in the
bank and other sums immediately available for
application to his checking account]8 These
latter sources in conjunction with his checking
account, he contends, provided such absolute
security to the bank that his practice, rightly
understood, amounted to no more than a bookkeeping
technique, and precluded as a matter of law any
Appendix A33
jury finding of "misapplication" within the
statute's meaning. The district judge declined
so to interpret the significance of this evidence
in allowing the case to go to the jury and in
declining to reject its verdict. We agree with
this assessment.
As earlier noted, ultimate financial
loss to the bank is not required for, nor will
subsequent restitution exonerate from, a finding
of statutory misapplication. The gist of this
critical element of the offerse is the withdrawal
of funcs, however temporarily, from the possession,
control, or use of the bank. Id. Whatever the
evidence might have shown of Duncan's ability and
intention to provide ultimate security against
actual loss to the bank, it also showed unmistakably
that the challenged practice gave him non-interest
bearing, unsecured loans in whatever amount he
chose to write checks. It also removed from the
various procedures designed to permit responsible
ongoing auditing of the bank's financial condition
any sums that he chose to deflect from immediate
debiting to his account. That his checking account
was not conti~uously in a state of even technical
over-draft and that he was amply solvent during
this period does not avoid the fact that from the
bank's standpoint the funds represented by the
undebited cash items checks were at a variety of
risks turning campletely on Duncan's inclinations
and whim so long as they were concealed from normal
monitoring procedures. This constituted misapplica-
tion of funds within the meaning of the statute.
See United States v. Caldwell 544 F.2d at 696-97;
cf. Benchwick v. United States, 297 F.2d 330 (9th
Cir. 1961) (closely analogous practice; aiding
and abetting).
Defendant also contends that no conver-
sion could have occurred because the method in
Appendix A34
which he operated his account was "authorized".
The position of the trial court was that evidence
of authorization was relevant to the issue of
defendant's intent to defraud, but not on the
question whether a conversion occurred. The jury
was so instructed and defendant's request gd
instruction to the contrary was refused. We
believe this was a proper assessment of the re-
levance of this evidence.
Such a construction of the relevance of
evidence of authorization is mandated by the pur-
pose is to protect the assets of the Federal Deposit
Insurance Corporation and of banks having a
federal relationship. United States v. Arthur,
544 F.2d 730, 736 (4th Cir. 1976).
Defendant contends that since the Bank's
board of directors knew how he operated his account
their acquiescence constituted sufficient authori-
zation to preclude the occurrence of the conversion.
Initially, we note that the evidence is far from
consistent in respect of the director's knowledge
about defendant's checking account. It seems fair-
ly certain that they had no idea how long defend-
ant's checks were held in cash items and that the
accumulated checks so held frequently exceeded in
face value the balance in the account. In any
event, even assuming the facts to be as defendant
contends on this point, the directors’ non-action
here could not be held to preclude the existence
of a conversion. While it is at least conceivable
that. under some circumstances a formally adopted
resolution of a board of directors would carry with
it sufficient prvcedural safequards to protect the
interest of the bank and of the Federal Deposit
Insurance Corporation, a question we do not decide
today, “authorization” by informal acquiescence
Appendix A35
certainly does not. If it did , a bank official
would be able to use bank funds for his own benefit
and continue to do so as long as the directors
did nothing about it. Individual directors,
concerned about full-time positions in other areas
of commerce, might never direct full attention to
the official's conduct. The official, if he had
sufficient power, could stifle any attempt to
bring the matter to the attention of the board. 29
In short, the purpose of § 656 would be sorely
frustrated by the allowance of such a defense.
Defendant relies on United States v.
Klock, 210 F.2d 217 (2d Cir. 1954) (Frank, J.),
for the proposition that authorization precludes
conversion. The opinion is ambiguous whether the
authorization evidence, refused totally by the
trial court, was relevant on the intent issue or
can be read to make such evidence relevant on the
issue of conversion, we decline to follow it, at
lease in circumstances such as are presented by
this appeal. We note that Klock has been read to
hold such evidence relevant only on the issue of _.
intent. See United States v. Riley, 550 F.2d 233, |
236-37 (5th Cir. 1977). The evidence was submitted
here under proper instructions on the issue of :
defendant's intent to injure or defraud the bank, -
and was rejected by the jury.
Defendant objects to a jury instruction
which he asserts instructed on theories not in
evidence and gave a directed ‘verdict on the issue
of conversion by adopting the Government's theory.
The instruction read as follows:
A misapplication is an unauthor-
ized, unjustifiable, or wrongful
‘
/
}
‘
on the conversion issue. To the extent the opinion)
Appendix A36
use Of bank's moneys, funds,
credits, assets, or securities.
A misapplication may be accom
plished by various means, such
as by the making of a loan
which is insufficiently secured,
or by the making of a loan to a
fictitious borrower, or by the
making of a loan where there is
no intention to repay or where
the maker is insolvent, or by
allowing the use of checks or
debits to accounts backed by
insufficient funas which act
is consistently done or concealed,
or by the writing of checks by
one knowing at the time that such
checks will be and are paid out
of the bank's funds and not from
one's personal account.
Clearly, the instruction does give
examples of conduct which, if done with the requ-
isite intent, could constitute a misapplication,
but for which there is no evidentiary support in
the record. While we recognize a danger of pre-
judice inherent in illustrative instructions of
this type and take this occasion to caution extreme
care in their use, we do not believe that in total
context the instruction actually given here consti-
tuted reversible error. Fairly appraised, we think
its obvious intention, to give mere hypothetical
examples illustrative of the statutory meaning of
a term frequently used non-technically, must have
been manifest to the jury. Other portions of the
instructions carefully required the jury to find
from the evidence the occurrence of each element
of the offense beyond a reasonable doubt. Consid-
ered in context, we cannot conclude that the
Appendix A37
challenged instructions could have misled the jury
to believe that it could find misapplication on
the basis of any of these hypothetical examples
not support in the evidence.
Defendant next argues that there was
insufficient evidence for the jury to conclude
that he acted with intent to defraud the bank.
We disagree, and summarize here the most salient
evidence supporting the verdict on this element.
North Carolina law prohibits a bank from making
a loan to an officer or employee without a signed
resolution adopted by a majority of the board of
directors. While loans to an individual officer
aggregating less than $2,500 need not be secured,
beyond that amount "good collateral or other ample
security or endorsement" is required. In no event
can an officer be loaned more than $45,000. N.C.
Gen Stat. §$ 53-91. An employee overdraft policy,
adopted in 1974 and which Duncan conceded on the
stand applied to him, provided that any employee
who had three overdrafts within a twelve-month
period would be di ‘+ Defendant never had
an overdraft because only normal activity accounts,
Code 1, were examined for purposes of the overdraft
policy. His was the only Code 3 account and thus
the only one to avoid that policy. The purpose
of both the state law and the bank policy was to
protect the bank from the financial maneuveri’ 3
of its employees.
When the bank auditors came to exz .ne
Northwestern, the cash items clerk would c
Duncan's secretary and his account would ’ eared
that day. When the auditors examined the vash
items list, defendant's name therefore never ap-
peared. In fact, the full extent of the manner
in which defendant operated his account never
Appendix A38
appeared even on the cash items list. In the
beginning of the period covered by the misapplica-
tion indictment, the cumulative balance of each
customer's checks that were being held in cash
items was entered on the cash items list. Later,
when the clerk changed the procedure and began
listing items separately so that the length of
time each was so held could be determined, Duncan's
checks were still aggregated and entered as a lump
sum. Thus, even if a bank employee had looked at
the cash items list out of concern over the manner
Duncan did his checking, the length of time the
bank had relinquished control over its funds, and
the full extent of the risk to which it was
exposed, could not have been determined.
In short, the jury, with state law, the
bank policy, and these practices in evidence before
it, could have concluded that Duncan's checking
account was deliberately designed to evade all
routine inquiries into its operation. While a
concerted examination of the account's operation
would have revealed the full magnitude of the
practice, the jury could further have concluded
that Duncan would personally have thwarted such
an examination. The Steffey incident, referred to
previgysly, would have supported such a conclu-
sion. From the deliberate evasions of the safe-
guards created by both the bank itself and the
state of North Caroiina, the jury could conclude
that Duncan acted with the intent to accomplish
the very results sought to be avoided by those
safeguards, so that he acted with intent to injure
or defraud the bank. :
Pointing again to the evidence that he
always had sufficient funds in the bank to cover
the checks held in cash items, Duncan argues that
Appendix A39
since this conclusively showed that the bank could
not possibly have suffered a loss by reason of his
checking account practice, it also conclusively
negates the necessary element in the Government's
case of intent on his part to injure or defraud
the bany.. He further argues that bank officials
and employees as well as the Governrent officials
charged with monitoring the activities of the
bank knew how he conducted his checking account
and that this lack of secrecy precluded a valid
finding of intent to defraud or injure. These
contentions go to inferences to be drawn by the
finder of fact on evidence which in this, as in
most, cases would support conflicting findings on
the elusive issue of intent. The arguments were
undoubtedly made with vigor and clarity to the
jury by able counsel for defendant. There was
evidence considered in the licht most favorable
to the Government to support the jury's finding
against the defendant on this as well as the other
issues submitted. See United States v. Caldwell,
' 544 F.2d at 696-97; United States v. Schever, 520
F.2d 1355, 1358 (4th Cir. 1975).
C. Conduct of the Trial.
Duncan objects to a refusal to admit
proffered evidence of banking customs on the
issue of intent in violation of the decision of
Hyde v. United States, 15F.2d 816, 821-22 (4th
Cir. 1926) ¢° The evidence to which he refers is
a report of the Comptroller of the Currency on a
then current investigation of banking practices,
a transcript of a Presidential press conference
on the investigation and a report to the Senate
Committee on Banking, Housing and Urban affairs
by the Chairman of the Federal Deposit Insurance
Corporation which documented the overdraft policies
of a selection of insured banks. Both reports
were prepared and the press conference was held
Appendix A40
after the conduct which is the subject of this
appeal occurred and defendant makes no suggestion
that he knew of their contents during the time
covered by the indictment. They would seem to
be only marginally relevant to the question of
Duncan's intent at the time he acted, and were
properly excluded.
Duncan complains of several incidents
during the trial relating to the district
court's treatment of Duncan's experts. He asserts
these led the jury to believe that a guilty man
was attempting to avoid justice by subterfuge.
The primary thrust of this contention involves the
testimony of William Glenn, an accountant. Glenn
had prepared a chart showing the daily average of
the amount of defendant's checks held in cash items
in one column; a daily average of the balance in
defendant's checking account in another; the
difference between those two figures; and the
interest that would have been due either North-
western at an eight percent rate or Duncan at a
six percent rate on that difference.
When the defense offered the charts into
evidence, the Government stipulated to their
admissibility and the court responded with what
Duncan characterizes as an “incredulous,” "I beg
your pardon?" Following additional testimony by
Glenn, the Government finally objected and moved
to strike a response that indicated the purpose
of the charts was to show that the bank suffered
no loss. A bench conference occurred, the court
noted that loss to the bank was not an element of
the offense and the jury was instructed that loss
to the bank could only be considered on the issue
of Duncan's intent. This instruction was repeated
in the final charge. ‘Twice during further testimony
based on the assumptions that underlay Glenn's
Appendix A41
charts, the Government objected and the trial
judge stated in the presence of the jury that
he would have excl the evidence when it was
originally offered. During the final jury
instructions on the subject of experts, the court
referred to “accountants and other experts."
Finally, the court excluded Duncan's experts from
the courtroom during the testimony of other wit-
nesses but allowed F.B.I. agent Thomas Brereton
to remain at the table used by the United States
Attorney.
The trial judge properly instructed the
jury that to the extent Glenn's charts tended to
show that the bank suffered no loss, this had
relevance only to the issue of intent. As noted
above, loss to the bank is not an element of
the offense charged.
While the trial judge could have been
more temperate in his challenged comments, they
cannot be held to constitute reversible error.
The camments were basically explanation for his
rulings on objections to testimony. The final
jury charge contained an admonition to ignore
any comments on the evidence made by the court
and to decide the case on theibasis of the
evidence as the jury recalled it. The instruction
on the relevance of the charts to the issues in
the case were entirely proper and undoubtedly
avoided any confusion the evidence might have
caused the jury. The reference to "accountants
and other experts" was fair conment in a case
where much of the expert testimony was from
accountants. Finally, we cannot say that the judge
abused his discretion in allowing agent Brereton
to remain in the courtroom, while excluding
defendant's experts. Fed. R. Evid. 615; see
Appendix A42
Cooper v. United States, F.2d (4th Cir. 1979).
Duncan complains of the impeachment of
his own testimony by evidence of his conviction in
the I.R.S. case and of his conduct that was the
basis for the charges in the F.B.I. case. Both
instances of impeachment were proper.
Evidence that a criminal defendant has
been convicted of other crimes is not admissible
unless the defendant takes the stand or otherwise
puts his character in issue. E.g., Lane v. Warden,
320 F.2d 179, 181-82 (4th Cir. 1963). When,
however, the defendant puts his character in issue
or takes the stand, both of which Duncan did,
evidence of prior convictions is admissible. At
the time Duncan chose to testify in his own behalf,
however, the trial judge had not yet accepted the
jury verdict in the I.R.S. case. Alerted by the
Government of its desire to use the verdict for
impeachment, the trial court accepted the verdict,
out of the presence of the jury, just before cross-
examination of Duncan began. That act was a suf-
ficient predicate for use of the "verdict" for
impeachment. In any event, while Fed. R. Evid.
609 is silent on the use of a jury verdict that
has not yet been accepted for impeachment, the
recent case law permits it. United States v.
Klein, 560 F. 2d 1236 (5th Cir. 1977); United
States v. Rose, 526 f.2d 745 (8th Cir. 1975).
Since Duncan had stated on both direct
and cross-examination that he believed there was
nothing wrong with the way that he operated his
checking account, the question whether he had
electronically eavesdropped on agents of the F.B.I.
at the bank was entirely proper, one of the subjects
under inquiry by those agents being defendant's
Appendix A43
checking account. The jury was not apprised of
the fact that charges were pending in relation
to this conduct. Defendant's contention that the
Government should not have been allowed to ask
the question because it knew the response would
-be "no" is without merit. While Duncan had
previously denied the pending charges, he had
never done so under oath.
D. Pretrial Publicity
The trial court denied Duncan's motion
for either a continuance or a change of venue to
avoid the effects of prejudicial publicity. We
have previously expressed our confidence in the
effectiveness of a skillful voir dire to counter-
act the threat of pretrial publicity, see United
v. Jones, 542 F.2d 186, 193 (4th Cir. 1976);
United States v. Abbott Laboratories, 505 F.2d
565, 572 (4th Cir. 1974), and cannot say that the
trial court cammitted manifest error in concluding
that the publicity's danger was eradicated in this
instance. United States v. Morlang, 531 F.2d 183,
187 (4th Cir. 1975).
A prospective juror need not be totally
ignorant of publicity. Rather, the inquiry is
whether a juror "can lay aside his impression or
opinion and render a verdict based on the evidence
presented in court." Irvin v. Dowd, 366 U.S. 717,
723 (1961).
The trial court conducted the voir dire25
First, all members of the venire were asked if they
had heard anything of defendant's troubles. Those
who responded affirmatively were separated from the
others and then questioned individually. All those
who had heard of the I.R.S. conviction were exclud-
ed. Those who had heard about other aspects of
Appendix A44
Duncan's involvement with the law were questioned
further about what they remembered, whether they
could lay those memories or other memories awakened
by testimony aside, etc. Some were excluded, others
were not. Those who were not excluded were then
reunited with those who had been exposed to none
of the publicity and a jury was drawn from the
group.
While defendant complains generally of
the publicity throughout all of the proceedings,
he asserts as reversible error only the failure
to grant a continuance or change of venue in the
misapplication case. Thus his contention must
either relate only to the publicity of the I.R.S.
conviction or be that the cummlative effect
surpassed permissible bounds only with the addition
of the publicity of the I.R.S. conviction.
If his claim relates only to the publicity
of the I.R.S. convictions, exclusion of all members
of the venire who had heard of thoseconvictions
was sufficient to protect defendant's right to an
impartial jury. If the claim relates to the
cumulative affect of all the publicity, the voir
dire used by the trial court was sufficient to
protect defendant's rights. The publicity simply
was not bad enough to make voir dire totally in-
effectual. Cf. Sheppard v. Maxwell, 384 U.S. 333
(1966) .
To assert that the publicity was Govern-
mentally orchestrated does not alter out conclusion.
The materials presented to us indicate that at
least part of the publicity originated from defend-
ant's camp. In any event, the question would still
be whether fairness to the defendant may be ac-
complished. United States v. Abbott Laboratories,
505 F.2d at 571. We cannot conclude that manifest
error was committed by the district court when it
Appendix A45
concluded that an impartial jury had been selected.
Defendant then makes the argument that
the exclusion cf all persons who had heard of the
I.R.S. conviction denied him a jury composed of
a fair cross-section of the cammmity, all those
who were concerned enough to keep up with current
events having been excluded. While it may be
possible by rigorous logic to reconcile this
contention with the apparently diametrically
Opposing one that the potential presence of such
persons made a fair trial impossible, such an
exercise is too subtle to impose on the workaday
world of the litigation process. Considering the
contention independently of its seeming opposite,
we simply find it without merit in this case. A
person's lack of knowledge of a specific occurrence
simply could not serve as a general basis for draw-
ing the conclusion of general disinterest necessary
to defendant's theory, even assuming that the
balance of the suggested syllogism would hold up
in logic.
G. Juror Misconduct
After the verdict of guilty on all counts
was returned by the jury, the foreman privately
brought to the attention of the trial court two
possible instances of impropriety by members of
the jury. The foreman was particularly concerned
that he thought he had heard another juror say
that her brother-in-law had been involved in the
Duncan investigation. While this proved to be
erroneous, the foreman also mentioned that one
member of the jury had been arguing Webster's
definitions of "motive" and "intent". The Foreman,
however, had immediately told the group that they
were to rely on the court's instructions, not on
the dictionary definition. Duncan contends that
Appendix A46
he was entitled to a new trial because the use of
the dictionary was prejudicial per se or, alter-
natively, that he was at. least entitled to a hearing
where the jurors could be examined under oath about
the use of the dictionary.
While reference to the dictionary was
misconduct, it was not prejudicial per se. See
Rodriguez y Paz v. United States, 473 F. 2d 662
(5th Cir. 1973) (per curiam); United States v.
Siragusa, 450 F.2d 592 (2d Cir. 1971); Faith v.
Neely, 41 F.R.D. 361 (N.D.W.Va. 1966); Frazier
v. Beard, 201 F. Supp. 395 (W.D.Va 1962).
The circumstances in which juror mis-
conduct can occur are probably as varied as all
of human experience. We have followed the view
that the district court may deal with such claims
as it feels the particular circumstances require
and have only reversed for abuse of discretion.
United States v. Peterson, 524 F.2d 167, 177 ( 4th
Cir. 1975); see Wiltsey v. United States, 222 F.2d
600, 601 (4th Cir. 1955) (per curiam). In this
instance, we cannot say that the discretion has
been abused.
The foreman of the jury only mentioned
the dictionary incident as an aside while reporting
on the other possible instance of misconduct. He
related that he had inmediately squelched all
discussion of the dictionary definitions. The
judge thought little of the incident until he
mentioned it to defendant's counsel and they
indicated formal concern. By that time the juror
involved had left on vacation. The judge ruled
that in light of the limited inquiry permitted by
Fred. R. Evid. 606(b), further inquiry would be
futile. While a juror may testify that she had
consulted a dictionary and related her findings to
Appendix A47-
the group, neither she nor any of the other members
of the panel can testify to the effect the extran-
eous influence had on the verdict or on their in-
dividual deliberations. Fed. R. Evid. 606(b).
Two weeks before trial a subpoena duces
tecum was issued at the Government's instance, to
George Collins, defendant's successor as president
of the bank, calling for the production of certain
bank records relating to defendant's account. It
provided that it was issued under Fed R. Crim. P.
17(c) and stated that it could be satisfied by
delibery of the documents to the F.B.I. Duncan
attacks this as prejudicial error. On the record
before us, it was harmless technical irregularity
at most. Rule 17(c) allows the production of
documents before the court at trial or at such
other time and place as the court may direct. The
rule is not intended to provide an additional means
of discovery, but simply allows the inspection of
subpoenaed materials before trial by all parties,
thereby saving delay at trial. Bowman Dairy Co. v.
United States, 341 U.S. 214, 220 (1951). The
challenged defect suggests a misapprehension of
the proper uses of the process. But where, as
here, there is no contention that the merely per-
missive direction was actually followed, it is of
course impossible to infer any prejudice.
III. Grand Jury Proceedings;
Selective Prosecution
In attacks addressed to both sets of
convictions, Duncan raises three claims related
to grand jury proceedings and one to the basis pas
eee)
J
/
}
Appendix A48
him in these cases.
Two of his grand jury claims relate to
the proceedings leading to his indictment in
these cases; the third relates to grand jury
proceedings in the F.B.I. eavesdropping case,
asserting a spill-over effect prejudicing his trial
in these two cases.
It is claimed that on two occasions the
grand jury proceedings in the instant cases were
conducted in violation of the district court's
order that all the proceedings be recorded. The
record does show that there were two breaks in
the continuity of recordation. Beyond that, it
is simply; impossible to infer prejudice from what
might have occurred during the interludes, both
of obviously short duration. The defendant would
of course have us find them sinister and suggests
specific connotations. The Government of course
has explanations showing them to have been utterly
innocuous. Given the strong presumption of regu-
larity accorded to the findings and deliberations
of the grand jury, United States v. Mitchell, 372
F. Supp. 1239, 1248 (S.D.N.Y. 1973), we cannot
take the leap of inference required to accept the
sinsiter explanations where the innocuous one is
at least equally supported on the meager record.
Next, attack is made on the use of grand jury
subpoenas duces tecum which provided that they
could be satisfied by delivery of the described
documents to the agents of the F.B.I. This was
acceptable grand jury procedure. Direct delivery
of a mass of documents to twenty-three laymen
would be "unproductive if not chaotic." Robert
Hawthorne, Inc. v. Director, 406 F. Supp. 1098,
1118 (E.D.Pa. 1975). Chief Judge Parker, speaking
of the role of the United States Attorney in the
Appendix A49
proceedings of the grand jury, dealt instructively
and dispositively with this claim: "In investiga-
tions of [complex cases], it is necessary that the
grand jury have the aid of counsel, not only in
examining witnesses but also in digesting the
great mass of evidentiary matter produced before
them, which would mean little or nothing to them
unless digested and analyzed in the light of
applicable legal principles." United States v.
United States District Court, 238 F.2d 713, 720-21
(4th Cir. 1956).
Defendant's final claim related to grand
jury proceedings is more camplicated and potentially
serious. It stems from an awkward development
by which, during the investigative stages of the
various Duncan prosecutions, two lawyers from the
firm that represented Duncan in these cases came
into possession and maintained extended custody
of two of the tapes that were eventually disclosed
to have been used in electronic surveillance of
the F.B.I. agents. Although the circumstances are
involved and to some extent obscured in the record,
the essential details are clear. On May 2, 1977,
early in the investigation, before any indictments
had been returned against Duncan, the two lawyers
went to the Northwestern Bank Building in North
Wilkesboro to obtain some of Duncan's personal
bank records for use in their representation of
his interests. Included in the materials turned
over to them by a bank employee were the two tape
cassettes that were then presumably among Duncan's
personal records and effects. The lawyers took
the tapes, with other materials, back to their
Greensboro office, and they remained there in
custody of the firm until eventually turned over
to the United States District Court on August 1l,
1977. At the outset of their custody, the lawyers
|
&
Appendix A50
apparently did not know the nature of the tapes,
nor of their use in the surveillance operation.
During the course of one of their several unsuccess-
ful efforts to listen to the tapes they inadvertently
recorded over some portions. Sometime in early
August, the lawyers apparently notified a United
States Attorney that they had the tapes. This led
shortly thereafter to a grand jury subpoena for
the tapes, and this to a hearing before a United
States District Judge, following which the tapes
were turned over to the court undet seal pending
further orders. The link-up of these tapes to
the surveillance of the F.B.I. agents was of course
critical to the Government's investigation and to
grand jury consideration of the F.B.I. bugging
indictment. Only the lawyers could account direct-
ly for the details of their procurement in the
first instance from Duncan's custody, their custody
over a substantial ensuing period, and their condi-
tion during that period. For this reason the
Government subpoenaed the two lawyers to testify
before the grand jury. The lawyers appeared but
declined, on the grounds of workproduct and general
attorney-client privilege, to answer most questions
put to them. The privilege claims were then pre-
sented to a United States District Judge who, in
camera, ordered that answers be given to all those
questions propounded that he determined were not
within the scope of the privileges invoked. The
lawyers complied with the order, and testified to
the basic facts concerning their custody of the
tapes.
Duncan later pled quilty in the F.B.I.
bugging case, and the lawyers did not testify in
either the grand jury proceedings or at the triai
of the I.R.S. bugging and misapplication cases.
Duncan's claim on this appeal in that by its conduct
Appendix A51
relating to his lawyers' custody of the tapes, in-
Cluding their compelled testimony before the grand
jury in a separate case, the Government has depriv-
ed him of fair trial rights entitling him to
reversal.
The precise focus of this contention is
not clear. To the extent it simply challenges
grand jury consideration of testimony provided by
his attormeys under compulsion of subpoena in
another, though somewhat related, case, there is
simply no merit to it. See United States v.
Kernodle, 367 F. Supp. at 853.
The contention runs wider than this.
Duncan claims that the ultimate effect of the
Government's conduct vis-a-vis his attorneys was
to compel discovery of evidence otherwise unavail-
able, and to deny him the effective assistance of
counsel. The discovery claim is without merit.
The grand jury has wide latitude in the evidence
it may compel, and this evidence given in response
to grand jury subpoena was directly relevant to
the indictment under consideration.
The assistance of counsel claim requires
more discussion. The gist of this claim is that
the Government's continued assertion of its
intention to call Duncan's lawyers as witnesses
in all three cases, coupled with a concomitant
continuing threat of their disqualification to
represent him, denied him their effective assist-
ance.
At the outset, we characterized these
developments involving Duncan's lawyers as awkward.
There is no doubt that this awkwardness created
special problems for their representation here.
Appendix A52
We cannot say that it made their representation
ineffective to a degree requiring reversal of
these convictions. In fact, we think the record
reveals an admirable handling of a situation, not
of the Government's making, by the two district
judges who dealt with it, resulting in no rational-
ly discernible prejudice to defendant on this score.
When the disqualification possibility
arose, a conference of attorenys presided over by
the chief judge and judge assigned these cases
for trial was held to address it. At that time
the Government was standing on the possibility that
it might have to call Duncan's lawyers as witnesses
in all the cases then pending. The possible relev-
ance of their testimony in the I.R.S. and misap-
plication cases, though somewhat attenuated,
could not be dismissed. For this reason, the
district judge who was asked to rule in advance
that the lawyers' testimony in those cases would
be inadmissible declined to do so. instead, the
judges recommended to Duncan that unless a satis-
factory stipulation could be worked out to
obviate the need forthe lawyers' testimony in
the pending cases, he should employ stand-by coun-
sel. No stipulation was ever worked out. As
indicated, the F.B.I. case was not tried and, in
the event, neither of the lawyers involved was
called to testify in these other two cases.
Duncan contends that nevertheless the continuing
uncertainty about their status inevitably imping-
ed unfairly upon his right to counsel. We can
only say that the record that we have veen required
to scrutinize with great care on this appeal re-
veals unabated advocacy of the highest order of
tenacity, imagination, skill, dedication and
thoroughness on the part of defendant's counsel.
We are bound to conclude that whatever the pressure
created upon them, Duncan's lawyers were not
Appendix A53
inhibited by it to any degree discernible to the
professional eye. \
In the last of defendant's assertions
of error, he claims that he was entitled to a
hearing on the question of selective prosecution.
The Government is given broad discretion in
selecting whom it will prosecute. That discretion
only runs afoul of the equal protection clause if
it is based on the use of an unjustifiable standard
such as race or religion, Oyler v. Boles, 368 U.S.
448, 456 (1962), or if it is exercised in response
to the defendant's exercise of a protected right,
United States v. Falk, 479 F.2d 616 (7th Cir.
1973) (en banc); United States v. Crowthers, 456
F. 2d 1074 (4th Cir. 1972) (Craven, J.). Defend-
ant's allegations of impermissible selectivity do
not satisfy the criteria. Absent sufficient
allegations properly raising the issue, defendant
was not entitled to a hearing.
Following two lengthy trials conducted
by a careful trial judge, two separate juries of
defendant's peers have found him guilty of the
offenses with which he was properly charged,
and we find no reversible error in the two
proceedings.
AFFIRMED.
Appendix A54
FOOTNOTES
1 "On or about the first day of September,
1971 and continuing thereafter up to and
including on or about January 31, 1973, in
the County of Wilkes, in the Middle District
of North Carolina, EDWIN DUNCAN, JR. wil-
fully did use and endeavor to use and did
procure other persons to use and endeavor to
use an electronic device, that is, a sub-
miniature radio transmitter to intercept oral
communications between certain individuals
then present in a third floor office in the
Northwestern Bank Building on B Street in
North Wilkesboro, the operations of which
Bank then affected interstate commerce; in
violation of Title 18, United States Code,
Section 2511 (b) (iv) (sic) ."
2 Defendant's only challenge to the conspir-
acy indictment is that it fails to alleve a
conspiracy to engage in illegal conduct.
Since, as will be discussed below, we believe
that defendant's conduct as charged in the
indictment was properly found to be criminal,
we reject this contention.
3 Occasionally the suggestion is also made
that the requirement that an indictment contain
sufficient allegations fuctions to ensure that
the grand jury find probable cause on each
element of the offense. E.g., 8 Moore's
Federal Practice para. 1. at 7-15
(2d ed. 1968).
Appendix A55
4 While the statute in the indictment is mis-
cited, § 2511 (b) (iv) instead of § 2511 (1) (b)
(iv), the statutory citation is not an essential
part of the indictment, see note 1l infra, and
an erroneous citation is not grounds for dis-
missal of an indictment or reversal of a con-
viction unless the defendant was thereby mislead
to his prejudice. Fed. R. Crim. 7(c) (3). No
such suggestion is made in this case.
5 Fully advertent to the rule that each count
of an indictment must stand or fall alone, ex-
cept insofar as the allegations of another count
are incorporated by reference, we do not believe
that that rule precludes consideration of the
allegations of the conspiracy count in support
of the sufficiency of the substantive count in
this instance.
As we noted earlier in text, the apprisal
function of an indictment can be satisfied
through discovery or use of a bill of parti-
culars. It would be anomlous not to take into
consideration a comparable source, the other
counts of the indictment, just because it is
part of the same piece of paper.
Consideration for its res judicata/former
jeopardy purpose, the rule of express alleg-
ation or incorporation has obvious validity, but
only with respect to the inclusion of essential
elements of the offense charged. Since two
offenses may differ only by the addition or
subtraction of one essential element, each
count should include either by express
Appendix A56
allegation or incorporation every such element.
We are not in this case, however, confronted
with the complete omission of an essential
element of the offense, but at most a non-
specific statement of an element clearly
identified.
6 The jury was instructed that:
If a person knows for a fact that his
conversations are being monitored...
. . . the person would not have a reason-
able expectation that his communications
were private and not subject to inter-
ception.
However, the mere fact that one might
suspect that his private conversations
could or might be surreptitiously inter-
cepted does not remove his utterances
from the definition (of oral commnica-
tion). The test is whether the utter-
ances were made by a person exhibiting
an expectation that his utterances were
not subject to interception - that is,
his utterances were privage (sic) - and
that under the circumstances such expec-
tation was justified.
While that instruction could perhaps be read in
the abstract to withdraw the evidence of sus-
picion from the jury's consideration com-
pletely, the juxtaposition of the two ideas
contained in the second paragraph indicates
that the jury could still give that evidence of
mere suspicion whatever weight they felt it
deserved. While the instruction could have
been clearer, we do not believe it constituted
Appendix A57
reversible error.
7 We do not read either le v. Califano, 5
Cal. App. 3d 476, 85 Cal. ° » x
People vs. Santos, 26 Cal. App. 3d 397, 102 Cal.
Rptr. , to hold that mere suspicion
as a matter of law precludes the existence of a
reasonable expectation of privacy. In both,
the trial court found that those overheard in
circumstances where they suspected they were
being monitored did not have an expectation of
privacy; the appellate courts were merely noting
that those findings were not clearly erroneous.
Moreover, the factual circumstances of those
cases and the one at bar are markedly different.
In both Santos and Califano one or more of the
persons whose conversations were intercepted
were in police custody and the interceptions
occurred in a jail visiting room and an inter-
rogation room at the police station respect-
ively. The possibility that one's conversa-
tions are being monitored is far more likely
‘in that situation than when one is speaking in
an office in a private business that has been
provided for him.
8 Defendant complains that the district court
limited his introduction of evidence relating
to the agents' suspicions that they were being
monitored. On one of the two occasions de-
fendant complains of, his counsel was exploring
with Agent Charles Anderson a provision in the
Internal Revenue Service Manual that provided
“Audit personnel will never use such devices
for legal eavesdropping or surveillance except
under direction of criminal investigators."
Appendix A58
While Duncan's counsel was obviously attempting
to show that the agents were to some extent
familiar with the subject of electronic eaves-
dropping, the line of questioning was bordering
on the marginally relevant. It was clearly
within the trail court's discretion to limit
this line of inquiry in the interest of avoid-
ing delay. Fed. R. Evid. 403. The second
occasion of which defendant complains occurred
moments later when in the absence of the jury
the trial judge told counsel to move on to
"the relevant issues in this case." What was
said with respect to the first instance applies
equally here. We note that defendant later was
allowed to present additional evidence of the
suspicions of the agents.
9 While Alderman is a constitutional case,
dealing with the admissibility of allegedly
illegally intercepted conversations in a
criminal trial, the privacy concerns protected
by § 2511 are similar to those protected by the
Fourth Amendment. S. Rep. No. 1097, 90th Cong.,
2d Sess., inted in (1968) U.S. Code Cong.
& Ad. News , 2113 (hereinafter cited with
pagination from U. S.Code Cong. & Ad. News)
(Title III conforms to constitutional stand-
ards set out in Katz vs. United States, .389
U.S. 347 (1967).
10 in judging whether the expectation of
privacy by the individuals in the third floor
office was objectively justifiable, you must
examine all of the surrounding circumstances
and you must examine them for each individual
Appendix A59
conversation. You must decide initially
whether or not agents of the Internal Revenue
Service, conducting a tax audit of the North-
western Bank in a room loaned to them by the
Bank in the Bank building itself, could have
justifiably expected privacy in that room. If
you decide that such expectation of privacy may
be justified, you must then look at the other
surrounding circumstances, for example, such
circumstances as whether or not the door to
the room was left open, whether non-IRS agents
were specifically excluded from the room during
the conversations, the location (in a secluded
area or on a main office thoroughfare with
persons normally gathering or passing in the
area outside the door), whether an attempt was
made prior to the conversation at issue to
examine the room or to exclude visitors,
whether the Internal Revenue Service agents had
any suspicions or knowledge that they might be
being overheard, and any other similar factors.
If you find that a person standing outside the
room in the hallway or in an adjoinging office
or room could have overheard the conversations
at issue with his unassisted ear, then you
must find the defendant not guilty.
11 0 holding, we need not decide whether
the other constitutional basis advanced by the
government would suffice. We note them
briefly here.
(1) While Congress obviously has the power
to legislate for the special protection of
federal agents, e.g., 18 U.S.C. § 1114; see
Barrett vs. United States, 82 F.2d 528 (7th
Cir. 1936) (upholding constitutionality of
Appendix A60
predecessor statute), nothing indicates that
it intended to do so in this instance.
(2) Subsection (ii) of § 2511 (1( (b)
prohibits the interception of oral communi-
cations through the use of a radio transmitter.
Congress indisputably has the power to re-
gulate all use of radio transmission equipment.
See Federal Radio Comm'n vs. Nelson Bros. Bond
& Co., 289 U.S. 266, 279 (1933).
While defendant was charged with a violation of
subsection (iv), not subsection (ii), the
citation of a statutory provision in an in-
dictment is solely for the benefit of the
defendants; its inclusion is intended to better
apprise the defendant of the charges against
him without danger to the prosecution. Fed.
R. Crim. P. 7, Notes of the Advisory Conmittee.
The rule has long been that a conviction may be
sustained on the basis of a statute other than
that cited in the indictment. E.g., Williams
vs. United States, 168 U.S. 382, 389 (1897).
Miscitation of the statute is harmful error
only if prejudice to the defendant can be
shown. Fed. R. Crim. P. 7(c) (3). The in-
dictment charged that the interception was by
means of a radio transmitter and the undisputed
evidence at trial was to the same effect.
While this ground might suffice, we choose not
to rely upon it. Aside from the charging pro-
blem, this theory was not submitted to the jury
on the interstate commerce issue.
Appendix A61
(3) We have not considered the con-
tention that the use of bank employees for the
eavesdropping purpose directly burdened inter-
state commerce by taking these people from
their usual duties.
12 The Senate described its findings as
follows:
The tremendous scientific and technolo-
gical developments that have taken place
in the last century have made possible
today the widespread use and abuse of
electronic surveillance techniques. As
a result of these developments, privacy
of communication is seriously jeopard-
ized by these techniques of surveillance.
Commercial and employer-labor espionage
is becoming widespread. It is becoming
difficult to conduct business meetings
in private. Trade secrets are betrayed.
Labor and management plans are revealed.
No longer is it possible, in short, for
each man to retreat into his home and
be left alone. Every spoken work relat-
ing to each man's personal, marital,
religious, political, or commercial
concerns can be intercepted by an unseen
auditor and turned against the speaker
to the auditor's advantage.
S. Rep. No. 1097, supra note 9, at 2154.
Appendix A62
13 We of course do not reach that question
today.
14 ‘there is support in the legislative history
for the instruction. E.G., S Rep. No. 1097,
supra note 9, at 2113.
15 the Government ‘properly had access to this
Siie.; I.5.C. Gis Te) (i) fA.
16 Defendant's contentions that this was
merely a bookkeeping transaction and that he
always had sufficient funds so that there
could be no conversion will be dealt with during
our discussion of the sufficiency of the
evidence, infra.
17 Duncan's actual contention is apparently
that he was never in a state of overdraft. The
evidence showed that during each of the periods
covered by indictments except one, his account
was in a state of technical overdraft (had it
been debited) on some occasion. Had defendant's
account been debited on February 14, 1975,
within the pericd covered by count one, it would
have shown an overdraft of $15,752.58; on
October 24, 1975, within the period covered by
the second count, an overdraft of $26,413.96
would have appeared; on February 20, 1976,
during count 3's period, the overdraft would
have been $1,903.63; balancing on July 23, 1976,
count 4, would have produced an overdraft of
Appendix A63
$10,434.29; and an overdraft of $791.05 would
have appeared on count 5 had the account been
debited on February 25, 1977.
18 There was evidence of other accounts than
his personal checking account on which he
could draw. There was other evidence that
Duncan habitually kept on hand in the bank
offices many checks payable to himself that
were continuously available for deposit to his
checking account.
19 ‘the requested instruction was as follows:
You are further instructed that a con-
version of funds refers only to those
transactions which are not authorized
by the party purportedly injured by the
transaction. Thus, un_ess you are
satisfied beyond a reasonable doubt
that any transaction charged in the bill
of indictment was not authorized by The
Northwestern Bank acting under authority
of its duly authorized agents and en-
ployees, you must return a verdict of
not guilty as t o any count charging
such a transaction for the reason that
an appropriation of funds which was
authorized by The Northwestern Bank
through its authorized agents could not
be a misapplication of funds under the
federal law.
Appendix A64
20 There was evidence from which the jury
could have concluded that such an occurrence
was involved here. Jerry Steffey, a vice
president in charge cf Operations, prepared
a report in the autum of 1975 in which he
proposed to mention defendant's checking
account. When he informed George Collins,
defendant's successor as president of the bank,
of his intention, Collins told him to wait.
Defendant then met with Collins, told him he
heard of Steffey's plans, asserted that he
intended to continue the practice and that it
should not be included in the report, and then
suggested that Steffey had overstepped his
bounds and perhaps should not be working for
the bank. Defendant's account did not appear
in the report.
21 Evidence of the overdraft policy was clearly
relevant on the issue of Duncan's intent. From
the existence of the policy and its obvious
purpose to protect the bank's assets, the jury
could infer that defendant's conduct posed a
threat to the bank and that by evading the
overdraft policy Duncan intended to injure and
defraud the bank.
Nor was the testimony of the two former
employees who were discharged for overdrafts an
improper way to show that the policy was being
enforced. With respect to Duncan's content-
ion that the trial judge failed to balance the
danger of prejudice against the probative value
of the testimony of the former employees we can-
Appendix A65
not say that he so misjudged that balance as
to have abused his discretion. See Fed. R.
Evid. 403.
22 See note 20 supra.
23 On appeal Duncan suggests that this
evidence was also relevant on the question of
"criminality," a contention that apparently
means that the manner in which he operated his
account could not constitute a misapplication.
Whatever this contention might add, it was not
argued to the district court and thus is not
properly presented for review.
24 Both incidents occurred during the
Government's cross-examination of Charles
Briley, another accountant ©’ ‘ered as an expert
by Duncan. The complete statements are as
follows:
"Yes, ma'am. But the fact is that you
didn't object to all the assumptions
and so on before, and its already in
evidence. You are objecting now, and
I am going to sustain the objection.
I would have sustained it then had
you objected to it."
"Well, now you brough that out in
cross-examination before and both sides
have discussed it. As I said originally
if you had objected, I would have kept
it out. It's all over the record now,
so I'm going to have to let it go."
Appendix A66
25 The trial court has broad discretion over
the manner in which voir dire is conducted.
Ham vs. South Carolina, 409 U.S. 524, 527
(1973). The refusal to allow counsel to con-
duct that voir dire cannot be described as an
abuse of that discretion.
26 Since we conclude that no formal hearing
was required in this situation, we do not
reach Duncan's contention that he was
entitled to be present at that "critical
stage" of the proceedings.
Appendix A67
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 77-2606
UNITED STATES OF AMERICA,
Appellee,
Vv.
EDWIN DUNCAN, JR.
Appellant
No. 77-2607
UNITED STATES OF AMERICA,
Appellee,
ORDER
Upon consideration of the appellant's
petition for rehearing and suggestion for rehear-
ing en banc, and no judge having requested a poll
on the suggestion for rehearing en banc,
IT IS ADJUDGED and ORDERED that the
petition for rehearing is denied.
Entered at the direction of Judge
Phillips for a panel consisting of Judge Haynsworth,
Judge Widener, and Judge Phillips.
For the Court,
S/William K. Slate, II
Clerk
Appendix A68
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Nos. 77-2606 & 77-2607
UNITED STATES OF AMERICA,
: Appellee,
Vv.
EDWIN DUNCAN, JR.,
Appellant
Appeal from the United States District Court for
the Middle District of North Carolina, at Winston-
Salem. Hiram H. Ward, District Judge.
Upon Motion of the appellant, by counsel,
and for cause shown,
IT IS ORDERED that the judgment in lieu
of the mandate be, and same is hereby, recalled;
that the Clerk of the United States District Court
for the Middle District of North Carolina, is
directed to return to the Clerk of this Court the
certified copy of the judgment issued in lieu of
the mandate and that the mandate be stayed pending
application of the appellant in the Supreme Court
of the United States for a writ of certiorari
to this Court, provided the application is filled
within the time permitted by law.
For the Court-by Direction.
S/ William K. Slate, II.
Clerk
Appendix Bl
UNITED STATES DISTRICT COURT FOR
THE MIDDLE DISTRICT OF NORTH CAROLINA
WILKESBORO DIVISION
NO. Cr-77-205-01-W
UNITED STATES OF AMERICA,
Vv.
EDWIN DUNCAN, JR.
Defendant
JUDGMENT AND PROBATION/COMMITMENT ORDER
In the presence of the attorney for the government,
the defendant appeared in person on November 11,
1977 with Counsel. There being a plea of not
guilty, a verdict of guilty, as charged in Counts
1 and 2. The defendant has been convicted as
Charged of the offenses of wilfully conspiring
with others to cammit offenses against the United
States by violating 18 U.S.C. 2511(1) (b) (iv) and
18 U.S.C. 2511(1) (c), in violation of 18 U.S.C.
371, as charged in Count 1 of an indictment; and
of the offense of wilfully using and endeavoring
to use and procuring other persons to use and
endeavor to use an electronic device to intercept
oral communications between certain individuals
in the Northwestern Bank Building, Wilkesboro,
the operations of which bank then affected inter-
state commerce, in violation of 18 U.S.C. 2511(b)
(iv), as charged in Count 2 of an indictment.
The court asked whether defendant had anything
to say why judgment should not be pronounced.
Because no sufficient cause to the contrary
was shown, or appeared to the court, the court
adjudged the defendant guilty as charged and
con"icted and ordered that : The defendant is
Appendix B2
hereby committed to the custody of the Attorney
General or his authorized representative for
imprisonment for a period of three (3) years,
and he is hereby ordered to pay a fine of $5,000.00
on Count 1. The defendant is ordered to stand
committed untiJ. the fine is paid or he is other-
wise discharged by due course of law.
IT IS ADJUDGED on Count 2 that the
defendant is hereby committed to the custody
of the Attorney General of the United States
or his authorized representative for imprisonment
for a period of three (3) years, and he is hereby
ordered to pay a fine of $5,000.00. The defendant
is ordered to stand committed until the fine is
paid or he is otherwise discharged by due course
of law.
IT IS FURTHER ADJUDGED that the sentence
imposed on Count 2 is to run concurrently with
the sentence imposed on Count 1 and that the
order that the defendant stand committed is stayed
for a period of ten (10) days from this date.
IT IS FURTHER ORDERED that the defendant
shall report to the United States Marshal in
Greensboro on November 28, 1977 at 10:00 a.m.
S/ Hiram H. Ward
United States District
Judge
November 16, 1977
Appendix B3
UNITED STATES DISTRICT COURT FOR
THE MIDDLE DISTRICT OF NORTH CAROLINA
WILKESBORO DIVISION
No. Cr-77-206-01-W
UNITED STATES OF AMERICA,
V-
EDWIN DUNCAN, JR.
Defendant
JUDGMENT AND PROBATION/COMMITMENT ORDER
In the presence of the attorney for the government,
the defendant appeared in person on November 11,
1977 with Counsel. There being a plea of not
guilty on Counts 1 through 6, a verdict of guilty,
as charged in Counts 1 through 6. The defendant
has been convicted as charged of the offenses of
misapplication of funds belonging to a bank,
the deposits of which were insured by the Federal
Deposit Insurance Corporation, in violation of
18 U.S.C. 656, as charged in Counts 1 through 6
of an indictment. The court asked whether defend-
ant had anything to say why judgment should not
be pronounced. Because no sufficent cause to the
contrary was shown, or appeared to the court,
the court adjudged the defendant guilty as charged
and convicted and ordered that: The defendant is
hereby committed to the custody of the Attorney
General or his authorized representative for
imprisonment for a period of twenty-four (24)
months on each count, to run concurrently with
each other and concurrently with the sentence
imposed in Case Number Cr-77-205-01-W, and he is
further ordered to pay a fine of $2,000.00 on
each count.
Appendix B4
IT IS FURTHER ORDERED that the defendant
is to stand conmitted until the fine on each count
is paid or he is otherwise discharged by due course
of law. The order that the defendant stand comnit-
ted is stayed for a period of ten (10) days from
this date.
IT IS FURTHER ORDERED that the defendant
shall report to the United States Marshal in
| Greensboro on November 28, 1977 at 10:00 a.m.
S/ Hiram H. Ward
United States District
Judge
Novenber 16, 1977
Appendix Cl
AMENDMENT V - CAPITAL CRIMES: DOUBLE JEOPAR-
DY; SELF-INCRIMINATION; DUE PROCESS; JUST
No person shall be held to answer for a
capital, or otherwise infamous crime, unless
on a presentment or indictment of a Grand Jury,
except in cases arising in the land or naval
forces, or in the Militia, when in actual
service in time of War or public danger; nor
shall any person be subject for the same
offence to be twice put in jeopardy of life or
limb; nor shall be compelled in any criminal
case to be a witness against himslef, nor be
deprived of life, liberty, or property, with-
out due process of law; nor shall private
property be taken for public use, without just
compensation.
AMENDMENT VI - JURY TRIAL FOR CRIMES, AND
PROCEDURAL RIGHTS
In all criminal prosecutions, the accused
shall enjoy the right to a speedy and public
trial, by an impartial jury of the State and
district wherein the crime shall have been
c ommitted, which district shall have been
previsouly ascertained by law, and to be in-
formed of the nature and cause of the
accusation; to be confronted with the wit-
nesses against him; to have compulsory pro-
cess for obtaining witnesses in his favor, and
to have the Assistance of Counsel for his de-
fense.
Appendix C2
STATUTES
18 U.S.C. § 656. Theft, embezzlement, or
misapplication by bank officer or
employee
Whoever, being an officer, director,
agent, or employee of, or connected in any
capacity with any Federal Reserve bank,
member bank, national bank or insured bank,
_Or a receiver of a national bank, or any
agent or employee of the receiver, or a
Federal Reserve Agent, or an agent or
employee of a Federal Reserve Agent or of the
Board of Governors of the Federal Reserve
System, embezzles, abstracts, purloins or
wilfully misapplies any of the moneys, funds,
or credits of such bank or any moneys, funds,
assets or securities intrusted to the
custody or care of such bank, or to the custo-
dy or care of any such agent, officer,
director, employee or receiver, shall be
fined not more than $5,000 or imprisoned not
more than five years, or both; but if the
amount embezzled, abstracted, purloined or
misapplied does not exceed $100, he shall be
fined not more than $1,000 or imprisoned not
more than one year, or both.
As used in this section, the term
"national bank" is synonymous with "national
banking association"; "member bank" means and
includes any national bank, state bank, or
bank and trust company which has become a
member of one of the Federal Reserve banks,
and "insured bank" includes any bank, banking
association, trust company, savings bank, or
other banking institution, the deposits of
which are insured by the Federal Deposit
Appendix C3
Insurance Corporation.
18 U.S.C. § 2510 . Definitions
(2) “oral communication" means any oral
communication uttered by a person exhibiting
an expectation that such communication is not
subject to interception under circumstances
justifying such expectation.
18 U.S.C. § 2511. ‘Interception and disclosure
of wire or oral communications prohibited
(1) Except as otherwise specifically
provided in this chapter any person who --
(b) willfully uses, endeavors to use,
or procures any other person to use or
endeavor to use any electronic, mech-
anical, or other device to intercept any
oral communication when --
(iv) such use or endeavor to use
(A) takes place on the premises of any
business or other conmercial estab-
lishment the operations of which affect
interstate or foreign commerce; .or
(B) obtains or is for the purpose of
obtaining information relating to the —
operations of any business or other
commercial establishment the operations
of which affect interstate or foreign
commerce;
Appendix C4
26 U.S.C. 8 6103 Confidentiality and dis-
closure of returns and return information.
(i)
Disclosure to Federal officers or
employees for administration of Federal laws
not relating to tax administxation. --
of
(B) Application for order.-- The head
any Federal agency described in sub-
paragraph (A) or, in the case of the De-
partment of Jusitice, the Attorney
General, the Deputy Attorney General, or
an Assistant Attorney General, may auth-
orize an application to a Federal district
court judge for the order referred to in
subparagraph (A). Upon such application,
such judge may grant such order if he
determines on the basis of the facts sub-
mitted by the applicant that —-
(i) there is reasonable cause to
believe, based upon information
believed to be reliable, that a
specific criminal act has been
committed ;
(ii) there is reason to believe that
such return or return information is
probative evidence of a matter in issue
related to the commission of such
criminal act; and
(iii) the information sought to be
disclosed cannot reasonably be ob-
tained from any other source, unless it
is determined that, notwithstanding the
reasonable availability of the inform-
ation from another source, the return or
return information sought constitutes
Appendix C5
the most probative evidence of a
matter in issue relating to the
commission of such criminal act.
However, the Secretary shall not disclose
any return or return information under this
paragraph if he determines and certifies to
the court that such disclosure would identify
a confidential informant or seriously impair
a civil or criminal tax investigation.
18 U.S.C. § 1005. Bank entries, reports
and transactions
Whoever, being an officer, director,
agent or employee of any Federal Reserve bank,
member bank, national bank or insured bank,
without authority from the directors of such
bank, issues or puts in circulation any notes
of such bank; or
Whoever, without such authority, makes,
draws, issues, put forth, or assigns any
certificate of deposit, draft, order, bill of
exchange, acceptance, note, debenture, bond,
or other obligation, or mortgage, judgment or
decree; or
Whoever makes any false entry in any
book, report, or statement of such bank with
intent to injure or defraud such bank, or any
other company, body politic or corporate, or
any individual person, or to deceive any
officer of such bank, or the Comptroller of the
Currency, or the Federal Deposit Insurance
A
Appendix C6
Corporation, or any agent or examiner
appointed to examine the affairs of such
bank, or the Board of Governors of the Federal
Reserve System --
Shall be fined not more than $5,000 or
imprisoned not more than five years, or both.
As used in this section, the term
"national bank" is synonymous with "national
banking association"; "member bank" means and
includes any national bank, state bank, or
bank or trust company, which has become a
member of one of the Federal Reserve banks;
and "insured bank" includes any state bank,
banking association, trust company, savings
bank, or other banking institution, the
deposits of which are insured by the Federal
Deposit Insurance Corporation.
FEDERAL RULES OF CRIMINAL PROCEDURE
Rule 7. The Indictment and the Information.
(a) Use of Indictment or Information. An
offense which may be punished by death shall be
prosecuted by indictment. An offense which
may be punished by imprisonment for a term
exceeding one year or at hard labor shall be
prosecuted. by indictment or, if indictment is
waived, it may be prosecuted by information.
Any other offense may be prosecuted by in-
dictment or by information. An information may
be filed without leave of court. |
Appendix C7
(c) Nature and Contents.
(1) In General. —-The indictment or the
information shall be a plain, concise and
definite written statement of the essential
facts constituting the offense charged. It
shall be signed by the attorney for the
government. It need not contain a formal
commencement, a formal conclusion or any
other matter not necessary to such statement.
Allegations made in one count may be incorp-
orated by reference in another count. It may
be alleged in a single count that the means by
which the defendant committed the offense are
unknown or that he committed it by one or more
specified means. The indictment or information
shall state for each count the official or
customary citation of the statute, rule,
regulation or other provision of law which the
defendant is alleged therein to have violated.
Rule 16. Discovery and Inspection. (a) Dis-
closure of Evidence by the Govermment.
(1) Information Subject to Disclosure.
(C) Documents and tangible objects. -—-
Upon request of the defendant the
government shall permit the defendant to
inspect and copy or photograph books,
papers, documents, photographs, tangible
objects, buildings, or places, or copies
or portions thereof, which are within the
possession, custody, or control of the
government, and which are material to the
preparation of his defense or are intend-
ed for use by the government as evidence
Appendix C8
in chief at the trial, or were obtained from
or belong to the defendant. . .
(c) Continuing Duty to Disclose. If,
prior to or during trial, a party discovers
additional evidence or material previously
requested or ordered, which is subject to dis-
covery or inspection under this rule, he shall
promptly notify the other to discovery or
inspection under this rule, he shall promptly
notify the other party or his attorney or the
court of the existence of the additional
evidence or material.
Rule 17. Subpeona.
(c) For Production of Documentary
Evidence and of Objects. A subpoena may also
command the person to whom it is directed to
produce the books, papers, documents or other
objects designated therein. The court on
motion made promptly may quash or modify the
subpoena if compliance would be unreasonable
or oppressive. The court may direct that books,
papers, documents or objects designated in the
subpoena be produced before the court at a
time prior to the trial or prior to the time
when they are to be offered in evidence and may
upon their production permit the books, papers,
documents or objects or portions thereof to be
inspected by the parties and their attorneys.
Appendix C9
FEDERAL RULES OF EVIDENCE
Rule 403. Exclusion of Relevant Evidence
on Ground of Prejudice, Confusion, or Waste cf
Time. Although relevant, evidence may be
excluded if its probative value is sub-
stantially outweighed by the danger of unfair
prejudice, confusion of the issued, or mis-
leading the jury, or by considerations of undue
delay, waste of time, or needless presentation
of cumulative evidence.
Rule 606. Competency of Juror as Witness.
(b) Inquiry into Validity of Verdict or
Indictment. Upon an inquiry into the validity
of a verdict or indictment, a juror may not
testify as to any matter or statement occurring
during the course of the jury's deliberations
or to the effect of anything upon his or any
other juror's mind or emotions as influencing
him to assent to or dissent from the verdict
or indictment or concerning his mental pro-
cesses in connection therewith, except that a
juror may testify on the question whether
extraneous prejudicial information was im
properly brought the the jury's attention or
whether any outside influence was improperly
brought to bear upon any juror. Nor may his
affidavit or evidence of any statement by him
a matter about which he would be
precluded from testifying be received for these
purposes.
, Appendix C10
Rule 609. Impeachment by Evidence of
Conviction of Crime. (a) General Rule. For
the purpose of attacking the credibility of a
witness, evidence that he has been convicted
of a crime shall be admitted if elicited from
him or established by pubiic record during
cross-examination but only if the crime (1) was
punishable by death or imprisonment in excess
of one year under the law under which he was
convicted, and the court determines that the
probative value of admitting this evidence out-
weighs its prejudicial effect to the defendant,
or (2) involved dishonesty or false statement,
regardless of the punishment.
(3) Pendency of Appeal. The pendency of
an appeal thereform does not render evidence
of a conviction inadmissible. Evidence of the
pendency of an appeal is admissible.
Rule 615. Exciusion of Witnesses. At the
request of a party the court shall order
witnesses excluded so that they cannot hear
the testimony of other witnesses, and it may
make the order of its own motion. This rule
does not authorize exclusion of (1) a party who
is a natural person, or (2) an officer or
employee of a party which is not a natural
person designated as its representative by
its attorney, or (3) a person who presence is
shown by a party to be essential to the pre-
sentation of his cause.
Internal Revenue Manual - Audit
(Case Manager's Handbook) 7325-27. p. 423
Appendix Cll
Precontact Analysis
410 General
(1) IRM 42(11)3:(12) states, "Precontact
Analysis is a study of available information for
the purpose of tentatively establishing the scope
and depth of the examination. It should include
a review of all related returns, the historical
file, commercial services, and public records,
and consultation with specialist supervisors. It
is recorded in the form of a general outline of
observations regarding size, dispersion and diver-
sification of the large case, probable examination
expertise and personal requirements and matters
to be discussed or clarified at the preexamination
conference. When supplemented by information
gained at the preexamination conference it will
form the basis for construction of the Audit Plan."
(2) The preliminary analysis of a case,
which is the basis for audit planning, begins with
its assignment to a case manager, continues with
a precontact analysis, and concludes with a
preexamination conference. During the precontact
analysis, it may become necessary to obtain cert-
ain documents from the taxpayer in order to
complete the analysis.
(3) The precontact analysis is an essential
step in developing the examination plan and in
preparing for the preexamination conference. This
analysis should be made even in those instances
where the taxpayer is presently under examination.
Good planning begins with a thorough precontact
analysis of all pertinent information.
420 Information Available for Analysis
421 General
Appendix C12
There is a wealth of information available
that pertains to the taxpayer, particularly if
the taxpayer organization is publicly owned. The
review of such information snould be helpful to
the case manager even in those instances where
a previous examination of the case had been made
422 Historical File
(1) The historical file should be the best
single source of information available to the
case manager in planning the examination. It is
designed specifically to provide continuity from
one examination to the next. Typically, it should
include information such as:
(a) history of taxpayer;
(b) organization structure, including
current organization chart changes;
(c) audit history record (see 423 of this
Handbook) ;
(da) history of reorganizations and acquisi-
tions;
(e) identification of taxpayer's principal
officials and representatives;
(£) location of records and facilities;
(g) description of records;
(h) transactions potentially affecting
subsequent year returns;
(i) summary of audit adjustments by year
and techniques used;
(j) surplus analysis;
(k) unusual audit problems;
(1) chart of accounts, and taxpayer's
accanting manuals (if they can be
obtained) ;
(m) copies of National Office rulings,
affecting the taxpayer;
(n) copies of elections, contracts and
agreements having a significant
Appendix C13
bearing on subsequent years;
(o) difficulties encountered during the
prior examination such as public
relations, facilities problems, etc.
(p) support district problems encountered,
requirements and recommendations;
(q) most recent audit plan;
(r) Form 4451 (Large CAse Status Report)
(Report Symbol NO-CPA-164) for prior
audits; ‘
(s) record evaluation agreements
(2) The historical file of a taxpayer that
has been acquired by or merged into another large
case is invaluable to the case manager who will
have responsibility for the case subsequent to
the acquisition or merger. The file should be
transferred to him/her as soon as possible. If
it is not possible to effect transfer to the
entire file immediately because of its use ina
current audit, he/she should obtain portions
needed for the preliminary analysis of the case.
(3) The same procedure is applicable when
primary district responsibility shifts from one
district to another.
423 Audit History Record
(1) There will be maintained in each His-
torical File an Audit History Record reflecting
audit activity on each entity, division, subsid-
iary, or other related taxpayer for the most
recent ten-year period.
(2) The Audit History Record beneifts the
case manager in developing the current Audit
Plan. It also provides a graphic view of the
taxpayer's audit history.
Appendix C14
(3) Exhibit 400-1 contains the format (op-
tional) for the Audit History Record. Form 5698.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.