Petition for Writ of Certiorari — Ianniello v. United States (Nos. 86-1579, 86-1553)

——————

86 sy 1579!) [i U.S.

FILED

MAR 27 1987

JOSEPH F. SPANIOL, JR.

No.:: CLERK

IN THE

Supreme Court of the United States

October Term, 1986

MATTHEW IANNI®£LLO, BENJAMIN COHEN,

ALFRED IANNIELLO, MORTON WALKER,

BERNARD KURTZ, CARL MOSKOWITZ

and SOL GOLDMAN,

Petitioners,

-against-

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

RONALD P. FISCHETTI

Attorney for Petitioners

757 Third Avenue

New York, New York 10017

(212) 593-7100

MARK F. POMERANTZ

DAVID T. GRUDBERG

Of Counsel

i

Questions Presented

1. Whether the Second Circuit’s decision in this case,

which allows a “pattern of racketeering activity” to be

established merely by proof of any two acts of racket-

eering committed within ten years, is correct under

Sedima, S.P.R.L. v. Imrex Co., 105 S. Ct. 3275 (1985)?

2. Whether this Court should grant certiorari to resolve

the conflict between the Second Circuit’s definition of

“pattern of racketeering” and the definitions adopted in

post-Sedima decisions of other courts of appeals?

ll

Table of Contents

CR PRRUINE sie i cee ee

REND II on nw cad chee Lee eee:

II iid kde st bl iwi ee eee

By: rr rE er

UE OE TN EOD oi sks 3. ass 45

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

CRIME © og cic ob ek bie cae eee

Appendix A - Opinion of the United States

NUS CF PN 55k hk A ee

Appendix B - Order of the United States Court

of Appeals on Petition for Rehearing and

Suggestion for Rehearing In Banc ..........

—s

iw)

a

il

Table of Authorities

Cases:

Elliot v. Chicago Motor Club Insurance,

809 F.2d 347 (7th Cir. 1986) ............... i? 9

Frankart Distributors, Inc. v. RMR Advertising,

632 F. Supp. 1198 (S.D.N.Y. 1986) ............. 10

Holmberg v. Morrisette,

Se uae aes Cees Gar. BGO) 2... wc cc cee cee: )

Lipin Enterprises v. Lee,

DB os Pi |). | a Ns)

Morgan v. Bank of Waukegan,

ge eS 9,10

Northern Trust Bank v. Inryco,

615 F. Supp. 828 (N.D. Ill. 1985) ............... 8

Schaafsma v. Marriner,

G41 F. Sapp. S70 CD. Vt. 1966) ................. 8,13

Schreiber Distributing Co. v.

Serv-Well Furniture Co..,

Sie faa Lowe coun Car. 1966) .................. ]

Sedima, S.P.R.L. v. Imrex Co.,

105 S. Ct. 3275 (1985) ....... i, 5, 6, 7, 8, 10, 11, 12, 13

Superior Oil Co. v. Fulmer,

Jap f.20 aoe (etm Cir. 1986) ................. 6, 9, 10

Torwest DBC Inc. v. Dick,

Dkt. No. 86-1450, slip op.

ES a 9,10

United States v. Ianniello,

808 F.2d 184 (2d Cir. 1986) ................ 2,8, 9,10

United States v. Turkette,

Cee TN cen ccnccecccees 5, 7, 12

United States v. Weisman,

624 F.2d 1118 (2d Cir.), cert. denied,

449 U.S. 871 (1980) ............... 5,6, 8, 9, 10, 11, 12

iv

Statutes:

Se Ee Oe sirat ime rpm, earees wk 3

CS Par ee st NSO. Le 2,5

EE fs oS sul ees cave tlaece 2, 3,6

Se SED b2o o's « ood oo ae eae ans 7,8

MUSCEMIM ....... kc. 2 |

Other Authorities:

eupromme Court Mule 19.4 «2... oc cosccanccvcctas 3,10

;

IN THE

Supreme Court of the United States

October Term, 1986

MATTHEW IANNIELLO, BENJAMIN COHEN,

ALFRED IANNIELLO, MORTON WALKER,

BERNARD KURTZ, CARL MOSKOWITZ

and SOL GOLDMAN,

Petitioners,

-against-

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners Matthew Ianniello, Benjamin Cohen,

Alfred Ianniello, Morton Walker, Bernard Kurtz, Carl

Moskowitz, and Sol Goldman respectfully pray that a

writ of certiorari issue to review the judgment of the

United States Court of Appeals for the Second Circuit

entered on December 4, 1986.

2

Opinions Below

The opinion of the Court of Appeals, reported as

United States v. lanniello, 808 F.2d 184 (2d Cir. 1986), is

reprinted in the Appendix beginning at page la. The

order of the Court of Appeals denying the petitioners’

petition for rehearing appears in the Appendix at page

24a.

Jurisdiction

The judgment of the Court of Appeals for the Second

Circuit was entered on December 4, 1986. A timely

petition for rehearing was denied on January 28, 1987,

and this petition for a writ of certiorari was filed within

sixty days of that date. This Court's jurisdiction is

invoked under 28 U.S.C. § 1254()).

Statutory Provisions

Title 18, United States Code:

§ 1961. Definitions

As used in this chapter --

(5) “pattern of racketeering activity” requires at

least two acts of racketeering activity, one of which

occurred after the effective date of this chapter and the

last of which occurred within ten years (excluding any

period of imprisonment) after the commission of a prior

act of racketeering activity. . . .

> * *

§ 1962. Prohibited activities

(c) It shall be unlawful for any person employed by

or associated with any enterprise engaged in, or the

activities of which affect, interstate or foreign commerce,

to conduct or participate, directly or indirectly, in the

conduct of such enterprise's affairs through a pattern of

racketeering activity or collection of unlawful debt.

3

(d) It shall be unlawful for any person to conspire to

violate any of the provisions of subsections (a), (b), or (c)

of this section.

Statement of the Case

On December 30, 1985, after a jury trial before Judge

Weinfeld in the Southern District of New York, the

petitioners were convicted of one substantive violation of

the Racketeer Influenced and Corrupt Organizations Act

(“RICO”), 18 U.S.C. § 1962(c), and one RICO conspiracy

count, in violation of 18 U.S.C. § 1962(d).' Both RICO

counts were based primarily on predicate acts of mail

fraud. In addition, all petitioners were convicted of some

other lesser charges of mail fraud, tax evasion, and

bankruptcy fraud, though the number of other counts

varied widely among the petitioners. The details con-

cerning these lesser convictions are not relevant to this

Court's consideration of the questions presented in this

petition.”

The proof at trial centered on six bars and restau-

rants in New York City. The basis for the RICO charges

was the government's claim that all the petitioners had

participated in an enterprise whose purpose was to

“skim” money from these bars and restaurants, and to

conceal this activity from interested state and federal

authorities. The government’s essential theory was that

petitioners Matthew Ianniello and Benjamin Cohen held

secret ownership interests in each of the six bars and

restaurants. According to the prosecutors, Ianniello and

Cohen, with the aid of their codefendants (including the

other petitioners), misled the New York State Liquor

' Codefendant Chester Cohen was tried and convicted along with

the petitioners of two RICO counts, and two counts of mail fraud, 18

U.S.C. § 1341. A separate petition for a writ of certiorari will be filed

on his behalf with this Court. Pursuant to Supreme Court Rule 19.4,

all the petitioners join in the arguments raised in Chester Cohen's

petition to the extent they are applicable to them and not inconsistent

with the positions urged in this petition.

* As we discuss below, the district court suspended execution of

all sentences imposed on the non-RICO counts. See infra p. 4.

4

Authority by causing liquor license renewal applications

to be filed that falsely concealed their hidden interests.

Then, so the theory ran, they would “skim” from the

gross receipts of at least four of the entities, with the

result that the “skimmed” receipts were concealed from

the New York State taxing authorities. This alleged

concealment formed the basis of mail fraud charges

alleging fraud on the New York State Department of

Taxation. Likewise, the government alleged that

“skimmed” money from another entity allegedly was

concealed from the Internal Revenue Service. These

actions formed that basis of, respectively, charges of

bankruptcy fraud and federal tax evasion.

Having cast Ianniello and Cohen as the principals

in the alleged scheme, the government assigned lesser

roles to the other defendants, including the other parties

to this petition. The other defendants were alleged either

—to have acted as “fronts” for lanniello and Cohen at one

or more of the six establishments, or to have participated

in the filing of documents or the preparation of financial

records that attempted to conceal the purported interests

of Ianniello and Cohen in these entities.

As noted above, the jury ultimately returned guilty

verdicts on the RICO charges against all of the peti-

tioners. The district court sentenced all petitioners to

concurrent prison terms on the two RICO counts. Sen-

tences were imposed as follows: Matthew lanniello - 6

years; Benjamin Cohen - 5 years; Bernard Kurtz - 3

years; Morton Walker - 2 years; Sol Goldman - | year and

one day; Carl Moskowitz - 2 years; Alfred Ianniello - 1

year and one day. Each petitioner aiso received con-

secutive fines on both RICO counts. On the lesser counts,

the court suspended the execution of prison sentences

and placed each petitioner on two years probation, to

begin on their release from prison. Thus, each petitioner

is now incarcerated only pursuant to the RICO con-

victions. This fact is particularly significant for purposes

of this petition, because the claim of error for which

review is sought by this Court relates primarily to the

convictions on the RICO charges.

5

On appeal to the Second Circuit, petitioners argued,

inter alia, that the district court’s charge was fatally

flawed with respect to the definition and construction of

the “‘pattern of racketeering” element of the RICO

statute. See 18 U.S.C. § 1961(5). Specifically, the district

court’s charge on this point was based on the Second

Circuit's prior decision in United States v. Weisman, 624

F.2d 1118 (2d Cir.), cert. denied, 449 U.S. 871 (1980). In

Weisman, the Second Circuit held that the “pattern”

element of the RICO statute is satisfied when at least

two predicate acts of racketeering are committed within

a ten-year period in the conduct of the affairs of an

enterprise. Relying on this Court’s decisions in Sedima,

S.P.R.L. v. Imrex Co., 105 8. Ct. 3275 (1985), and United

States v. Turkette, 452 U.S. 576 (1981), petitioners argued

that Weisman was no longer good law. In particular,

petitioners’ argument focused on this Court's statement

in Sedima criticizing lower courts for failure to develop a

meaningful concept of “pattern,” 105 S. Ct. at 3287, as

well as on this Court’s statements that while two rack-

eteering acts are necessary to constitute a pattern, they

may not be sufficient, id. at 3285 n.14. Further, peti-

tioners argued that in light of Sedima, not only the

number of predicate acts, but also their relatedness and

the continuity of the criminal activity alleged, must be

considered in determining the existence of a RICO pat-

tern. See id. Because the district court’s charge had

merely followed Weisman and had not embodied any of

these principles from Sedima, petitioners contended that

reversal of the RICO convictions was required.

The Second Circuit rejected this contention, as well

as the other arguments urged on appeal, and affirmed

petitioners’ convictions. At the outset, the court reaf-

firmed its prior holding in Weisman, and stated that it

was bound by that holding unless overruled by this

Court or by an in banc panel of the Second Circuit. (12a)'

' Citations to “( a)” refer to the Appendix to this petition.

Citations to “IT ____ "’ refer to the transcript of proceedings in the

district court. 7

6

The court went on to state, however, that in its view

Weisman was not necessarily inconsistent with Sedima.

It reasoned that under Weisman, the concepts of con-

tinuity and relatedness discussed in Sedima are supplied

by the element of an “enterprise’’ under § 1962(c), to

which the predicate acts of racketeering must be tied. In

the court’s view, the difference between Weisman and

Sedima was “one of form and not of substance.” (13a)

The court asserted that the district court’s charge had

been fully consistent with both Weisman and Sedima,

and suggested that any failure to charge in exactly the

language contemplated by Sedima was at most,harmless

error.

Finally, the court explicitly acknowledged that its

post-Sedima interpretation of the “pattern” requirement

directly conflicted with the Eighth Circuit’s decision in

Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir. 1986).

(15a)

REASONS FOR GRANTING THE WRIT

There are several reasons why a writ of certiorari

should be granted in this case. First, the district and

circuit courts are in substantial disarray on the issue

presented in this case: the proper definition of the

“pattern of racketeering” element of the RICO statute.

We discuss below in general terms the conflict in the

lower courts on the pattern issue, and in particular the

extent to which the Second Circuit’s decision in this case

is at odds with the vast majority of other post-Sedima

pattern decisions. The specific contours and nuances of

this conflict are discussed in detail in the petition to be

filed by codefendant Chester Cohen, in which petitioners

join. The essence of our position is that the conflict on

the pattern issue can be resolved only by a definitive

holding of this Court, and that this case presents the

proper vehicle for such a holding because the position

adopted by the Second Circuit in this case is virtually

unique, is in direct conflict with the other circuits, and,

we submit, is erroneous. Second, we believe that review is

7

warranted because the district court’s charge incorrectly

applied controlling Supreme Court precedent, including

the Sedima and Turkeite decisions. The Second Circuit

rejected this claim, finding that the charge met the

dictates of Sedima and thus that any error was harmless.

However, as we discuss below, the Second Circuit was

quite simply wrong in its assessment of the charge, and

its error should be corrected by this Court. Third, the writ

of certiorari should be granted because the RICO “pat-

tern” issue is a very important one in current civil and

criminal litigation.

Most of the conflict in the lower courts regarding the

“pattern” issue has arisen in the wake of the Sedima

decision. In that case, this Court noted “‘the failure of...

the courts to develop a meaningful concept of ‘pattern [of

racketeering activity].’”’ 105 S. Ct. at 3287. The Court

implied that such a meaningful definition should be

based on more than simply the number of predicate

racketeering acts, stating that ‘“‘while two acts are

necessary, they may not be sufficient.” Jd. at 3285 n.14.

Indeed, the Sedima Court stated that the legislative

history of RICO supports the view that two acts of

racketeering, without more, do not constitute a pattern.

Instead, the Court stressed that it was not only the

number of acts, but also their relationship, and the

continuity of the racketeering activity alieged, that must

be considered in determining the existence of a RICO

pattern. Jd. The Court directed the lower courts’ attention

to another statutory section, 18 U.S.C. § 3575(e), enacted

as part of the same bill, which provides that criminal

conduct forms a pattern if it ““embraces criminal acts

that have the same or similar purposes, results, parti-

cipants, victims, or methods of commission.” This Court

stated that the language of § 3575(e) may be “useful in

interpreting other sections of the Act.” 1055S. Ct. at 3285

n.14.

Unlike the Second Circuit, most other courts have

modified or reconsidered their definitions of a RICO

“pattern” based on these statements in Sedima. While

some courts have, like the Second Circuit, characterized

8

the statements as dicta, most have not been‘as willing as

the Second Circuit was in this case to disregard Sedima

completely. One court, in discussing footnote 14 of

Sedima, stated that it was dicta, but went on to note that

“it is dicta that has been mentioned in virtually every

case considering the pattern of racketeering element

under RICO since .. . Sedima. The pattern of racket-

eering issue has become a mountain overshadowing

much of the RICO landscape.” Schaafsma v. Marriner,

641 F. Supp. 576, 578 (D. Vt. 1986). Another court has

stated that the Sedima pronouncement “creates a whole

new ballgame” and sends an “unmistakable signal”’ to

lower courts as to the proper interpretation of the

“pattern” element. Northern Trust Bank v. Inryco, 615

F. Supp. 828, 833 (N.D. Til. 1985). |

The “pattern” definition adopted by the Second

Circuit is clearly contrary to the dictates of Sedima. The

Janniello decision reaffirms the Second Circuit’s pre-

Sedima decision in Weisman, which held that a RICO

“pattern” could be proved merely by showing the com-

mission of two racketeering acts within ten years.

Weisman, 624 F.2d at 1122. This Court expressly dis-

approved of this type of mechanical, numerical approach

to the “pattern” issue in footnote 14 of Sedima. The

lanniello-Weisman rule, we submit, is precisely what

this Court had in mind in Sedima when it criticized the

lower courts for their failure to fashion or develop a

meaningful concept of a RICO pattern. The Second

Circuit’s rule allows a pattern to be established by proof

of predicate acts that lack any “continuity” or “relation-

ship,” the essential characteristics of a pattern stressed

in the legislative history and quoted with approval in

Sedima. Further, the Janniello-Weisman “pattern” rule

requires far less proof than is needed to establish a

“pattern” under 18 U.S.C. § 3575(e). Indeed, in Weisman

the Second Circuit considered and explicitly rejected the

argument that § 3575(e) should govern the “pattern”

element under the RICO statute. Although the validity

of this portion of Weisman would at least seem to have

been placed in question by Sedima, the Second Circuit in

—

pam

9

this case reaffirmed Weisman without even noting, much

less addressing, this obvious inconsistency.

As the court of appeals acknowledged in its opinion,

the Eighth Circuit has adopted a conflicting definition of

pattern. Under the Eighth Circuit’s approach, two predi-

cate acts, standing alone, do not establish a pattern of

racketeering activity. See Superior Oil Co. v. Fulmer, 785

F.2d 252 (8th Cir. 1986); see also Holmberg v. Morrisette,

800 F.2d 205 (8th Cir. 1986). In Superior Oil, the defen-

dants had converted the plaintiff company’s oil to their

own use, and had filed false reports in an attempt to

conceal their activity. The court held that these multiple

acts of fraud did not constitute a “pattern.” 785 F.2d at

257. The court characterized defendants’ conduct as a

single continuing criminal scheme to convert gas, and

found that the “continuity” of criminal activity neces-

sary to establish a pattern was lacking. Jd. Under the

lanniello-Weisman rule, however, the same facts would

have clearly established a “pattern,” merely by virtue of

the number of predicate acts.

The decision in this case also places the Second

Circuit in conflict with the Tenth, Seventh, and Ninth

Circuits. See Torwest DBC Inc. v. Dick, Dkt. No. 86-1450,

slip op. (10th Cir. Jan. 20, 1987); Morgan v. Bank of

Waukegan, 804 F.2d 970 (7th Cir. 1986); Lipin Enter-

prises v. Lee, 803 F.2d 322 (7th Cir. 1986); Elliot v.

Chicago Motor Club Insurance, 809 F.2d 347 (7th Cir.

1986); Schreiber Distributing Co. v. Serv-Well Furniture

‘o., 806 F.2d 1393 (9th Cir. 1986). While not all of these

courts have treated the “pattern” question in exactly the

same fashion as the Eighth Circuit, all are in agreement

that something other than the simple number of predi-

cate acts must be examined in determining whether a

RICO “pattern” has been proved. For instance, under

the Seventh Circuit’s approach, the courts are directed to

consider a number of “relevant factors,” including “the

number and variety of predicate acts and the length of

time over which they are committed, the number of

victims, the presence of separate schemes and the

occurrence of distinct injuries.”” Morgan, 804 F.2d at 975.

10

The Morgan court characterized this fact-based rule as a

“middle course,” id., between a rule requiring proof of

more than one criminal scheme, such as the Eighth

Circuit’s Superior Oil rule, and the Janniello-Weisman

rule, which allows proof of a pattern by any two rack-

eteering acts, however unrelated they may be.‘ The

Tenth Circuit and numerous district courts have also

adopted this ‘middle course.”’ See, e.g., Torwest, supra;

Frankart Distributors, Inc. v. RMR Advertising, 632 F.

Supp. 1198 (S.D.N.Y. 1986).

The foregoing discussion outlines in general terms

the conflict now prevailing in the lower courts concern-

ing the definition of a RICO “pattern.” This conflict is

discussed in much greater detail in the petition for

certiorari to be filed by codefendant Chester Cohen.

Pursuant to Supreme Court Rule 19.4, petitioners join in

that petition, and respectfully direct the Court’s attention

to the Chester Cohen petition for a more in-depth

treatment of the “pattern” issue. It is apparent from

even a cursory examination of the issue, however, that

the holding in this case is a complete anomaly among

post-Sedima decisions. The Second Circuit’s erroneous

adherence to its pre-Sedima, Weisman decision should be

corrected by this Court.

Moreover, the fact that other courts that have con-

sidered the ‘“‘pattern” issue in light of Sedima have been

‘The Seventh Circuit's statements in Morgan with respect to the

continued viability of the “any two acts” pattern rule stand in stark

contrast to the Second Circuit’s holding in this case. The Morgan

court stated:

We acknowledge that subsequent to the Supreme Court’s

opinion in Sedima, the mere commission of two or more

predicate acts within ten years of one another does not

automatically constitute a pattern of racketeering activity.

To the degree that, prior to Sedima, we said that two predicate

acts invariably constitute a pattern of racketeering activity,

e.g., United States v. Witherspoon, 5&1 F.2d 595, 602 (7th Cir.

1978), such statements are no longer valid.

804 F.2d at 975.

11

unable to arrive at a uniform definition provides a

further reason for granting this petition. Review in this

case would allow this Court both to correct the error

committed by the Second Circuit and to enunciate an

interpretation of the RICO “pattern of racketeering”

element that can be applied by all the lower federal

courts.

The second reason for granting review in this case

relates to the district court’s charge. The Second Circuit’s

reaffirmance of Weisman essentially foreclosed any chal-

lenge to the charge, as the district court’s RICO instruc-

tions closely tracked the law as set out in Weisman.

However, the Second Circuit in this case commented in

dicta that any error in the district court’s charge was at

most harmless, because in its opinion the charge em-

bodied the principles of Sedima. Since this statement, if

true, would obviously undermine the need for review by

this Court, we discuss the charge in some detail below in

order to show that the lower court was simply wrong on

this point.

The jury in this case was told quite clearly that it

need only find commission of, or a conspiracy to commit,

two racketeering acts in order to conclude that the

“pattern” element of the RICO charges had been satis-

fied. At the outset, the court instructed the jury that “a

pattern of racketeering activity means two or more acts

in violation of federal criminal laws undertaken in aid of

the affairs of the enterprise.” (T. 3036) Later, in enumer-

ating the elements the jury had to find in order to convict

on the RICO conspiracy coun, the court stated: “To

establish [the pattern] element, the government must

prove beyond a reasonable doubt that, during the course

of his association with the enterprise, the defendant

conspired to commit at least two acts of racketeering

specified in the indictment in the conduct of the affairs

of an enterprise.” (T. 3040) The same language was

repeated in the instructions on the substantive RICO

count, except the jury was told that to convict on that

count it had to find that the defendant in question

actually committed, or aided and abetted the commission

12

of, two racketeering acts. (T. 3060-61) Nowhere in its

charge did the court instruct the jury to consider the

relatedness and continuity of the racketeering acts, or

the extent to which the acts were done with similar

methods, purposes, participants, results, or victims.

The Second Circuit’s belief that the charge met the

dictates of Sedima apparently was based on the district

court’s instructions that there must be a “core of per-

sonnel who function as a continuing unit” (T. 3038, 3039,

3058), and that there must be “at least some connection

between the defendant’s illegal acts and the affairs of

the enterprise” (T. 3061). This language, however, was

part of the court’s charge on the “enterprise” element of

the RICO statute, and was derived directly from Weis-

man, whose continued validity is very questionable in

light of Sedima. This portion of the charge examined

only the question whether the enterprise is continuous

and whether the individual criminal acts were in aid of

the enterprise, and, contrary to the Second Circuit's

assertion, did not meet the concerns raised in Sedima

with respect to the pattern element.

Under the district court’s charge, and the Second

Circuit’s decision upholding it, the characteristics of a

“pattern” discussed in Sedima are subsumed within the

“enterprise” requirement. (13a-15a) This melding of dis-

tinct statutory elements not only runs afoul of Sedima,

but also of this Court’s decision in United States v.

Turkette, 452 U.S. 576 (1981). In Turkette, this Court

made clear that the ‘“‘pattern of racketeering” element of

a RICO violation is entirely separate and distinct from

the ‘“‘enterprise’’ element. The Court stated:

In order to secure a conviction under RICO, the

Government must prove both the existence of an

“enterprise” and the connected “pattern of rack-

eteering activity.” The enterprise is an entity, for

present purposes a group of persons associated

together for a common purpose of engaging in a

course of conduct. The pattern of racketeering

activity is, on the other hand, a series of criminal

13

acts as defined by the statute. .. . While the proof

used to establish these separate elements may in

particular cases coalesce, proof of one does not

necessarily establish the other.

452 U.S. at 583 (emphasis added). The approach adopted

by the Second Circuit, however, provides that in every

case the continuity and relatedness of racketeering acts

necessary to constitute a RICO “pattern” are supplied by

the concept of an “‘enterprise’’ to which the acts must be

tied. (14a-15a) This position is incorrect under controlling

Supreme Court precedent, and that error should be cor-

rected by this Court.

Finally, the question presented, apart from being

one as to which the Courts of Appeals have disagreed, is

of sufficient importance to warrant this Court’s atten-

tion. The holding of the Second Circuit applies equally to

civil and criminal RICO cases. Civil RICO lawsuits have

proliferatred in the federal courts with alarming speed,”

a fact noted by both the majority and dissenters in

Sedima, 105 S. Ct. at 3277-78 n.1; id. at 3293 (Marshall,

J., dissenting), while federal prosecutors have in recent

years made increasing use of the criminal RICO statute.

In the wake of Sedima, the “pattern of racketeering”’

issue has become the foremost point of controversy in

RICO cases. Schaafsma, 641 F. Supp. at 578. However,

despite the efforts of most courts to fashion a “mean-

ingful concept” of pattern, the lower courts have been

unable to agree on a uniform definition of this critically

important element of the RICO statute. The issue has

been sufficiently debated in the two years since Sedima,

and the time is now ripe for this Court to eliminate the

confusion now reigning in the lower federal courts by

announcing a definitive holding as to the proper def-

inition of a “pattern of racketeering.” This case presents

the perfect vehicle for such a holding, and a writ of

° The decision in this case raises the unhappy spectre of forum-

shopping by civil RICO plaintiffs eager to take advantage of the

expansive definition of “pattern” adopted by the Second Circuit.

14

certiorari should therefore issue to review the decision of

the United States Court of Appeals for the Second

Circuit.

Conclusion

The petition for a writ of certiorari should be granted.

Respectfully submitted,

RONALD P. FISCHETTI

Attorney for Petitioners

757 Third Avenue

New York, New York 10017

(212) 593-7100

MARK F. POMERANTZ

DAVID T. GRUDBERG

Of Counsel

APPENDICES

la

Appendix A

Opinion of the United States Court of Appeals

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Nos. 1407, 1411, 1400, 1401, 1408, 1402, 1403, 1409, 1410

August Term, 1985

(Argued July 14, 1986 Decided December 4, 1986)

Docket Nos. 86-1088, -1089, -1090, -1091, -1092, -1093,

-1102, -1109, -1110

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

Vv.

MATTHEW IANNIELLO, BENJAMIN COHEN, PAUL

GELB, ALFRED IANNIELLO, CARL MOSKOWITZ,

MORTON WALKER, CHESTER COHEN, BERNARD

KURTZ, and SOL GOLDMAN,

Defendant-Appellants.

Before:

WINTER and MAHONEY, Circuit Judges,

and LASKER, District Judge.*

Appeal from judgments of conviction of the United

States District Court for the Southern District of New

York.

Affirmed.

* The Honorable Morris FE. Lasker, Senior District Court Judge of

the United States District Court for the Southern District of New

York, sitting by designation

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Appendix A

Opinion of the United States Court of Appeals

MARK F. POMERANTZ, New York, New

York (Fischetti & Pomerantz, Jay Goldberg,

New York, New York of counsel) for

Appellant Matthew lanniello.

LAWRENCE GOLDMAN, New York, New York

(Goldman & Hafetz, of counsel) for Appellant

Benjamin Cohen.

JOHN L. POLLOK, New York, New York (Hoff.

man, Pollok & Gasthalter, of counsel) for

Appellant Paul Gelb.

MARK A. SUMMERS, New York, New York

(Hoffman, Pollok & Gasthalter, of counsel)

for Appellant Alfred lanniello.

DEBORAH A. SCHWARTZ, New York, New

York (Gustave H. Newman, P.C., of counsel)

for Appellant Carl Moskowitz.

PAULA. GOLDBERGER, New York, New York

for Appellant Morton Walker.

EUGENE NEAL KAPLAN, New York, New

York (Kaplan, Thomashower & Landau. of

counsel) for Appellant Chester Cohen.

SOL GOLDMAN, Flushing, New York, pro se.

JUDD BURSTEIN, New York, New York.

Attorney at Trial for Appellant Sol Goldman.

GERALD B. LEFCOURT, New York, New York

(Gerald B. Lefcourt, P.C., of counsel) for

Appellant Bernard Kurtz.

JAMES RATHER, New York, New York for

Appellee United States of America.

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Appendix A

Opinion of the United States Court of Appeals

MAHONEY, Circuit Judge:

Defendants appeal from judgments entered upon

their convictions by a jury in the Southern District of

New York, raising a number of issues. We affirm, and

discuss only the questions concerning the construction

of the indictment, the definition of a pattern of racket-

eering activity under the Racketeer Influenced and

Corrupt Organizations Act, Pub. L. No. 91-452, tit. 1X, 84

Stat. 941 (codified as amended at 18 U.S.C. §§ 1961-1968

(1982 & Supp. III 1985)) (“RICO”), the elements of mail

fraud based upon fraud on the New York State Liquor

Authority (“SLA”’) and state tax authorities, the effect of

the Twenty-First Amendment on the federal govern-

ment’s ability to regulate the mails, and the corrobora-

tion necessary to convict on a co-conspirator’s statement.

The indictment alleged, inter alia, a broad conspiracy

to violate RICO, substantive violations of RICO, mail

fraud, bankruptcy fraud and tax evasion.

At trial, the government established' that the defen-

dants were part of a group that skimmed profits from

bars and restaurants that they owned and operated in

New York City. Matthew Ianniello and Benjamin Cohen®

directed the enterprise’s activities, supervising and over-

seeing its affairs from offices in Manhattan.’ While they

received the greatest profits from its operations, the bars

and restaurants ostensibly were owned and managed by

others, who acted as “fronts” for lanniello and Cohen.

' The government's case was built primarily on electronic audio

and video surveillance at the offices of Matthew lanniello and

Benjamin Cohen at C & I Trading, which were at 135 West 50th

Street in Manhattan. The operations of the group were directed from

C & 1 Trading. The surveillance was conducted from September 7,

1982 to December 27, 1982.

? References to “Ianniello” and “Cohen” are to Matthew [anniello

and Benjamin Cohen respectively.

‘See supra note 1.

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Opinion of the United States Court of Appeals

As part of the scheme to skim money, the defendants

obtained liquor licenses from the SLA for the businesses.

Ianniello’s and Cohen’s financial interests in and receipt

of money from the bars and restaurants were concealed

from the SLA. This eased the granting of the liquor

licenses and made the skimming more difficult to detect.

In addition, the scheme included a plan to defraud the

New York State Department of Taxation and Finance

(the “Department’”) by understating gross receipts in

sales tax returns. Further, the defendants defrauded the

legitimate creditors of the Peppermint Lounge, one of the

enterprises involved in this operation,’ by skimming its

receipts while the bar was in bankruptcy proceedings.

Finally, various of the recipients of the skimmed cash

receipts failed to pay personal income taxes on those

receipts.

A lawyer and accountant also participated. Carl

Moskowitz (“Moskowitz”), the lawyer, prepared false

liquor license applications that were submitted to the

SLA for the Mardi Gras, the Haymarket, the Grapevine

and the Peppermint Lounge.® Sol Goldman (‘““Goldman’’),

the accountant, helped conceal the skimming and diver-

sion of income from the Peppermint Lounge, the New

Peppermint Lounge and Umberto’s Clam House through

false books and records, and prepared and filed false

state tax returns for the same enterprises. Goldman also

assisted in the bankruptcy fraud committed during the

bankruptcy proceedings of the Peppermint Lounge.

‘The Peppermint Lounge was also known at various times as the

“Hollywood” and “G.G. Barnum’s.” The other establishments in-

volved were the “Mardi Gras,” the “Haymarket,” the “Grapevine,”

“Umberto’s Clam House” and the “New Peppermint Lounge,” also

known as the “Electric Circus” prior to its acquisition by certain of

the defendants herein, all at various locations in Manhattan, New

York City.

° Moskowitz maintained an office at C & I Trading, for which he

paid no rent.

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Opinion of the United States Court of Appeals

The most profitable business was P & G Funding

Corp., which operated the Mardi Gras. The bar opened in

January, 1979, and for the first two years of its operation

the owners of record were Paul Gelb and his wife,

Pauline Gelb.® Subsequently, Pauline Gelb became the

sole owner of record. From the time the Mardi Gras

opened its doors in 1979, Ianniello, Cohen and Gelb

regularly skimmed its cash receipts, dividing the money

equally among themselves. By the end of 1982, the

defendants had divided over $2 million in unreported

income.

The original liquor license application prepared by

Moskowitz and filed by the Mardi Gras with the SLA in

October 1978 stated that no one other than Paul Gelb

and Pauline Gelb had a financial interest in the Mardi

Gras or would share in the receipts of the bar, hiding:

Ianniello’s and Cohen’s stake in the Mardi Gras. This

was repeated in the later liquor license renewal appli-

cations. These defendants also concealed their skimming

at the Mardi Gras from the ris beens by understating

the bar’s true gross receipts.

The record owner of Osbro Restaurant, Inc., which did

business as ““Umberto’s Clam House,” was Robert Ian-

niello,’? and the restaurant was managed by Oscar

Ianello.* Their two brothers, Matthew Ianniello and

Alfred Ianniello, however, controlled the business and

skimmed its receipts. Liquor license renewal applica-

tions filed with the SLA did not disclose Matthew

Ianniello’s interest in Umberto’s Clam House. The books

and records of the restaurant, kept by Goldman, con-

cealed the skimming by showing false receipts and

\

6 Pauline Gelb was indicted and tried. Judge Weinfeld entered a

judgment of acquittal for her at the close of the government’s case.

References to “Gelb” are to Paul Gelb.

7 Robert Ianniello was granted an order of acquittal at the close of

the government’s case.

* Oscar Ianello was acquitted by the jury at trial on all counts.

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Opinion of the United States Court of Appeals

expenses. The sales tax return for the period September

through November 1982 also understated the true

receipts of the restaurant, as well as the amount of sales

tax due.

The “Peppermint Lounge,” Mar-Jear Restaurant, Inc.,

was a bar and nightclub located in Manhattan. While

ostensibly owned by Herbert Taylor (‘““Taylor’’), the bar

was controlled by Ianniello and Cohen, who skimmed

cash from the receipts of the bar. Bernard Kurtz (“Kurtz’”’)

was the manager. Kurtz made the major management

decisions, particularly regarding money and expenses.

In the fall of 1980, Kurtz hired Frank Rocchio (““Rocchio’’),

his niece’s husband, to book bands for the bar. The bar

paid for the bands hired by Rocchio.

By the spring of 1982, the Peppermint Lounge had

been closed down a number of times by the New York

City Fire Department because of overcrowding. As a

result, the Peppermint Lounge moved into the physical

facilities of a larger bar and nightclub, which at the time

was called the “Electric Circus,” whose corporate identity

was Circus Disco, Ltd. The name of the “Electric Circus”

was changed to the “New Peppermint Lounge.”

The facilities of the new nightclub, which operated

under a similar format and with essentially the same

personnel as the old Peppermint Lounge, were purchased

from George Vallario, Jr., Nicholas Orlando and their

partners by Kurtz, on behalf of Ianniello and Cohen. The

sale was concealed from the SLA, and the New Pepper-

mint Lounge opened for business on May 26, 1982. In the

fall of 1982, Kurtz stopped making the weekly payments

due to the Vallario group on the purchase of the bar.

Shortly thereafter, the Vallario group repossessed the

bar from Kurtz.

The defendants skimmed the admission charges at

both the Peppermint Lounge and the New Peppermint

Lounge. For example, in February 1982, Goldman wrote

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Opinion of the United States Court of Appeals

a letter to the Department “concerning the taxable status

of admission charges to a disco and bar.” The Depart-

ment’s Sales Tax Instructions and Interpretations Unit

responded that the sales tax applied to such charges.

Shortly after this, the defendants formed Rock-eo Enter-

tainment, Ltd., named after Rocchio, to divert admission

receipts from the New Peppermint Lounge. In a contract

between Rock-eo Entertainment and Circus Disco, Rock-

eo Entertainment agreed to provide the music as an

independent contractor for Circus Disco. Under the terms

of the agreement, Rock-eo Entertainment had complete

control over the promotion of music at the New Pepper-

mint Lounge and was obligated to pay all expenses in

that regard. The expenses were to be paid from the door

receipts, which Rock-eo Entertainment was obligated to

collect. The excess door receipts were to be Rock-eo

Entertainment’s profit. In reality, however, Rock-eo

Entertainment was wholly controlled by the defendants;

admission charges collected at the New Peppermint

Lounge went to the defendants, not to Rock-eo Enter-

tainment.

The defendants had also skimmed the admission

receipts at the old Peppermint Lounge by failing to

report any income from performances by bands. When

audited, defendants argued that the receipts were for

concerts, and thus were not subject to sales tax.

At the same time the defendants were skimming money

from the Peppermint Lounge, the bar was in Chapter 11

bankruptcy proceedings. The Bankruptcy Court, at the

request of the record owner Taylor, authorized the

Peppermint Lounge to retain Goldman as its accountant

in connection with the bankruptcy proceedings. One of

Goldman’s responsibilities was to prepare the monthly

financial statements or operating reports to be filed with

the Bankruptcy Court. Those reports, like the bar’s

books and records, understated the bar’s receipts, con-

cealing the skimming by the defendants.

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Appendix A

Opinion of the United States Court of Appeals

While the bar was in liquidation proceedings, Cohen

and Kurtz also took a worker’s compensation insurance

refund check payable to the Peppermint Lounge and

used it to pay an insurance premium owed by the New

Peppermint Lounge.

Ianniello and Cohen also controlled the “‘Haymarket”’

and the “Grapevine,” once again through Kurtz. Cohen’s

son, Chester Cohen, held the license for the ‘“‘Haymarket,”’

while Morton Walker held the license at the ‘““Grapevine.”’

As with the other businesses in which Ianniello and

Cohen maintained hidden interests, the purpose of their

control of these two bars was to skim their receipts,

avoid the payment of sales tax thereon by the corporate

owners of the bars, and avoid the payment of personal

income tax on the skimmed receipts by the recipients

thereof.

Ianniello and Gelb were the only defendants to present

witnesses, though Ianniello and other defendants pre-

sented various documentary evidence as well. Ianniello

called Internal Revenue Service Special Agent John

Ryan, who had testified on behalf of the government.

Through Agent Ryan, Ianniello introduced a number of

checks paid by C & I Trading to Ianniello during 1982.

The checks, which totaled $17,500, were each for $500,

and many of them had been cashed. Those falling within

the period of the electronic surveillance numbered eight

and totaled $4,000.

Gelb called Thomas O’Toole, who testified that in his

opinion Gelb had an excellent general reputation, though

O’Toole knew nothing about the facts of the case.

All appellants were convicted of conspiracy to violate

RICO, and a substantive violation of RICO. lanniello

was also convicted of thirty-five counts of mail fraud and

six counts of tax evasion. Cohen was convicted of thirty-

five counts of mail fraud, twelve counts of bankruptcy

fraud and six counts of tax evasion. Gelb was convicted

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Appendix A

Opinion of the United States Court of Appeals

of nineteen counts of mail fraud and six counts of tax

evasion. Kurtz was convicted of sixteen counts of mail

fraud and twelve counts of bankruptcy fraud. Walker

and Chester Cohen were convicted of two counts of mail

fraud. Moskowitz was convicted of eleven counts of mail

fraud. Goldman was convicted of eight counts of mail

fraud and twelve counts of bankruptcy fraud. Alfred

Ianniello was convicted of three counts of mail fraud.

The Indictment

The defendants contend that the prosecution and the

court below constructively amended the mail fraud counts

of the indictment. The indictment charged mail fraud on

both the SLA and the Department. The goals of those

frauds are in dispute.

The indictment’s first two counts alleged a conspiracy

to violate and substantive violation of RICO. In those

counts, the broad goals and purposes of the enterprise

were stated to be to obtain liquor licenses through false

information, skim profits, evade taxes and defraud the

creditors of a bankrupt company. Indictment Paragraphs

2-9. The indictment then set out the ‘mail fraud and

bankruptcy fraud counts, which also served as the RICO

predicate acts. Some of the mail fraud counts fail to

allege the exact pecuniary goal of the fraud—stating

generally that it was part of a scheme to defraud.

The government and the court below interpret the

indictment to charge a broad scheme to skim profits and

evade taxes on the restaurants and bars. See United

States v. lanniello, 621 F. Supp. 1455, 1474 (S.D.N.Y.

1985). Defendants argue, however, that the counts al-

leging maiij fraud on the SLA charge only that they

caused false applications and renewal applications for

liquor licenses to be submitted to the SLA. Accordingly,

they contend, no intent to reap pecuniary benefit or loss

was charged by the indictment, requiring dismissal of

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Opinion of the United States Court of Appeals

those counts. See United States v. Regent Office Supply

Co., 421 F.2d 1174, 1180-81 (2d Cir. 1970).° Grafting the

broad allegations from the RICO counts onto the indi-

vidual mail fraud counts, they further argue, would

violate the rule that “leJach count in an indictment is

regarded as if it was a separate indictment.” United

States v. Fulcher, 626 F.2d 985, 988 (D.C. Cir.), cert.

denied, 449 U.S. 839 (1980).

Each count does allege, however, that the defendants

participated in a scheme to defraud. The argument that

it is impermissible at trial to alter the goal of the scheme

as stated in the indictment is foreclosed by United States

v. Weiss, 752 F.2d 777 (2d Cir.), cert. denied, 106 S. Ct. 308

(1985). In that case, the goal charged was personal

enrichment; the goal upon which the defendant was

tried and convicted was the creation of a corporate

“slush” fund. See Weiss, 752 F.2d at 786; id. at 791

(Newman, J., dissenting). A fortiori, if the goal can be

completely changed by proof at trial, it can be made

more specific at trial. Moreover, the defendants in this

case had ample notice of the core of the charges against

them, see United States v. Heimann, 705 F.2d 662, 666

(2d Cir. 1983); United States v Sindona, 636 F.2d 792,

797-98 (2d Cir. 1980), cert. denied, 451 U.S. 912 (1981),

because the theory of the prosecution was stated in the

RICO conspiracy counts, and in deciding pretrial motions

Judge Weinfeld made the exact nature of the charges

clear to the defense. See United States v. Ianniello, 621 F.

Supp. 1455, 1473-75 (S.D.N.Y. 1985). Even if this were not

the case, however, assertions of prejudice from variance

would be unavailing, since the defense of the RICO

allegations necessarily defended against the SLA mail

* The government does not argue that the convictions with respect

to the SLA counts are sustainable on any theory of fiduciary obli-

gation. See United States v. Weiss, 752 F.2d 777, 783-84 (2d Cir.), cert.

denied, 1068S. Ct. 308 (1985); United States v. Margiotta, 688 F.2d 108,

121 (2d Cir. 1982), cert. denied, 461 U.S. 913 (1983).

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Opinion of the United States Court of Appeals

fraud counts which were listed as RICO predicate acts.

See Berger v. United States, 295 U.S. 78, 82 (1935);

Sindona, 636 F.2d at 798-99.

Pattern Requirement of RICO

Appellants contend that United States v. Weisman,

624 F.2d 1118 (2d Cir.), cert. denied, 449 U.S. 871 (1980),

which held that two predicate acts can suffice to satisfy

the pattern requirement of RICO,'° should be recon-

sidered in light of the Supreme Court’s dictum in a

footnote in Sedima, S.P.R.L. v. Imrex Co., U.S.

; n.14, 105 S. Ct. 3275, 3285 n.14 (1985).!!

'” Each substantive RICO subsection, 18 U.S.C. § 1962(a)-(c) (1982),

requires a pattern or collection of an unlawful debt (which is not

applicable to this case). A pattern of racketeering activity, as defined

in the statute, “requires at least two acts of racketeering activity, one

of which occurred after the effective date of this chapter and the last

of which occurred within ten years (excluding any period of imprison-

ment) after the commission of a prior act of racketeering activity.” 18

U.S.C. § 1961(5) (1982).

'! The footnote states:

As many commentators have pointed out, the definition of a

“pattern of racketeering activity” differs from the other pro-

visions in § 1961 in that it states that a pattern “requires at

least two acts of racketeering activity,” § 1961(5) (emphasis

added), not that it “means” two such acts. The implication is

that while two acts are necessary, they may not be sufficient.

Indeed, in common parlance two of anything do not generally

form a “pattern.” The legislative history supports the view that

two isolated acts of racketeering activity do not constitute a

pattern. As the Senate Report explained: “The target of [RICO]

is thus not sporadic activity. The infiltration of legitimate

business normally requires more than one ‘racketeering activity’

and the threat of continuing activity to be effective. It is this

factor of continuity plus relationship which combines to produce

a pattern.” S.Rep. No. 91-617, p. 158 (1969) (emphasis added).

Similarly, the sponsor of the Senate bill, after quoting this

portion of the Report, pointed out to his colleagues that “(t]he

term ‘pattern’ itself requires the showing of a relationship. . . .

(footnote continued on foliowing page)

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Citing legislative history, that footnete indicates that a

combination of relationship and continuity between

separate acts is required to establish a pattern. Two acts

are to be considered as necessary but not sufficient to

constitute a pattern. Id.; 18 U.S.C. § 1961(5) (1982).

This court is bound by a decision of a prior panel

unless and until its rationale is overruled, implicitly or

expressly, by the Supreme Court or this court en banc.

See In re Jaylaw Drug, Inc., 621 F.2d 524, 527 (2d Cir.

1980); Boothe v. Hammock, 605 F.2d 661, 663-64 (2d Cir.

1979). Because the Sedima footnote does not rise to the

level of holding, it is not controlling. It would be particu-

larly inappropriate in this case, however, to reconsider

Weisman, since that case carefully and thoughtfully

addressed the concerns later considered by the Supreme

Court in the Sedima footnote. See Weisman, 624 F.2d at

1121-23. There is no indication in that footnote that the

Supreme Court had considered and rejected the Weisman

analysis.

(footnote continued from preceding page)

So, therefore, proof of two acts of racketeering activity, without

more, does not establish a pattern... .” 116 Cong.Rec. 18940

(1970) (statement of Sen. McClellan). See also id. at 35193

(statement of Rep. Poff) (RICO “not aimed at the isolated

offender’); House Hearings, at 665. Significantly, in defining

“pattern” in a later provision of the same bill, Congress was

more enlightening: “criminal conduct forms a pattern if it

embraces criminal acts that have the same or similar purposes,

results, participants, victims, or methods of commission, or

otherwise are interrelated by distinguishing characteristics and

are not isolated events.” 18 U.S.C. § 3575(e). This language may

be useful in interpreting other sections of the Act. Cf. Jannelli v.

United States, 420 U.S. 770, 789, 95S. Ct. 1284, 1295, 43 L.Ed.2d

616 (1975).

105 S. Ct. at 3285 n-14.

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Opinion of the United States Court of Appeals

Under Weisman, relatedness is supplied by the concept

of “enterprise” expressed in section 1962(c)!? and the ten

year requirement of section 1961(5). The link between the

acts is supplied by the fact that “the predicate acts

constituting a ‘pattern of racketeering activity’ must all

be done in the conduct of the affairs of an ‘enterprise.’ ”’

Id. at 1122. This also supplies the necessary element of

continuity, since an enterprise is a continuing operation.

See United States v. Turkette, 452 U.S. 576, 583 (1981):

see alsa Moss v. Morgan Stanley Inc., 719 F.2d 5, 21-22

(2d Cir. 1983) (section 1962(c) requires relation between

enterprise and pattern), cert. denied, 465 U.S. 1025 (1984).

Thus, it would appear that the difference between

Weisman and Sedima is one of form and not of sub-

stance.!*

In fact, support for this view of the case is found in

Judge Weinfeld’s charge, which met the dictates of

Weisman and the suggestion of Sedima. The jury was

instructed at several points that the acts must be related

to the enterprise and to a continuous activity. Transcript

3036, 3037-44, 3058, 3061. Thus, any failure to charge in

precisely the language contemplated by Sedima would

be at most harmless error.

'2 Section 1962(c) provides:

It shall be unlawful for any person employed by or associated

with any enterprise engaged in, or the activities of which affect,

interstate, or foreign commerce, to conduct or participate,

directly or indirectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity or collection of

unlawful debt.

18 U.S.C. § 1962(c) (1982). The term “enterprise” also appears in

subsections (a) and (b) of section 1962.

'* Other circuits have also treated the Sedima dictum as not

marking a sharp departure in the law. See, e.g., Bank of America

National Trust & Savings Association v. Touche Ross & Co., 782 F.2d

966, 970-71 (11th Cir. 1986); R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d

1350, 1355 (5th Cir. 1985). But see Superior Oil Co. v. Fulmer, 785 F.2d

252, 254-58 (8th Cir. 1986).

\

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Discrete Versus Continuous Criminal Activity

It is also claimed that Chester Cohen was improperly

convicted under section 1962(c) of two predicate acts

which did not constitute a pattern of racketeering activity

within the meaning of the statute. Chester Cohen was

convicted on mail fraud predicate acts which, in turn,

were based on deceptive license renewal applications in

successive years to the SLA for the same establishment.''

This, he argues, is a single, discrete crime which cannot,

as a matter of law, constitute a pattern.

A distinction has been drawn in some cases between

crimes aimed at a discrete goal, singular in time and in

instance, and crimes committed to further continuing

criminal activity. Compare Professional Assets Manage-

ment, Inc. v. Penn Square Bank, 616 F. Supp. 1418, 1420-

22 (W.D. Okla. 1985) (fraudulent preparation of an audit

report is a single instance and therefore crimes to further

that goal are not a pattern ) with Rush v. Oppenheimer &

Co., 628 F. Supp. 1188, 1198-1200 (S.D.N.Y. 1985) (multiple

instances of churning of a single account, together with

related misrepresentations and deceptions, constitute a

pattern).

This distinction is derived from the Sedima Court's

suggestion of relatedness and continuity. See Soper v.

Simmons International, Ltd., 632 F. Supp. 244, 250-54

(S.D.N.Y. 1986) (discussing evolution of case law dealing

with this question since Sedima). As discussed above, we

believe that the inquiry as to relatedness and continuity

is best addressed in the context of the concept of “enter-

prise” expressed in section 1962(c), and to a lesser extent,

the ten year requirement of section 1961(5). An enterprise

is “a group of persons associated together for a common

purpose of engaging in a course of conduct” and “‘is

proved by evidence of an ongoing organization, formal

'4 Walker and Alfred lanniello were convicted on similar facts, and

adopted Chester Cohen's argument on this point.

. ;

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Opinion of the United States Court of Appeals

or informal, and by evidence that the various associates

function as a continuing unit.”” United States v. Turkette,

452 U.S. 576, 583 (1981). This circuit requires that, under

section 1962(c), the enterprise be a continuing operation

and that the acts be related to the common purpose. See

Moss v. Morgan Stanley, Inc., 719 F.2d 5, 21-22 (2d Cir.

1983), cert. denied, 465 U.S. 1025 (1984); United States v.

Mazzei, 700 F.2d 85, 89 (2d Cir.), cert. denied, 461 U.S.

945 (1983). This result derives from the language of

section 1962(c), which requires that the pattern of predi-

cate acts be done in the conduct of the affairs of the

enterprise. See Weisman, 624 F.2d at 1122. Thus, an

enterprise with “a single purpose,” here fraud continuing

indefinitely, can provide the basis for a section 1962(c)

violation. The common purpose in this case was to skim

profits and had no obvious terminating goal or date,

clearly establishing the enterprise requirement.

The Eighth Circuit has adopted a contrary view in

Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir. 1986),

holding that “one continuing scheme to convert gas

from [a] pipeline’ did not provide the “ ‘continuity’

sufficient to form a ‘pattern of racketeering activity.’ ”

Id. at 257. That circuit now requires as part of the

definition of pattern proof that the defendants engaged

in more than one scheme. Jd. But see Alexander Grant

and Co. v. Tiffany Industries, Inc., 770 F.2d 717, 718 &

n.1 (8th Cir. 1985) (post-Sedima decision, upholding as a

pattern a series of predicate acts with the goal of

obtaining a favorable audit), cert. denied, 106 S. Ct. 799

(1986). We conclude that forcing such a result from the

word “pattern” is a strained and inappropriate reading

of the statutory language.'® Furthermore, it would appear

'’ A variant of the Superior Oil approach construes Sedima to

require multiple “episodes” of criminal activity in order to establish a

section 1962(c) pattern. See, e.g., Frankart Distributors, Inc. v. RMR

Advertising, Inc., 632 F. Supp. 1198, 1201 (S.D.N.Y. 1986) (multiple

(footnote continued on following page)

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Opinion of the United States Court of Appeals

that a requirement of multiple schemes would undercut

section 1962(b), which states:

It shall be unlawful for any person through a pattern

of racketeering activity or through collection of an

unlawful debt to acquire or maintain, directly or

indirectly, any interest in or control of any enterprise

which is engaged in, or the activities of which

affect, interstate or foreign commerce.

18 U.S.C. § 1962(b) (1982). This provision does not pro-

hibit an enterprise which is committing predicate acts;

rather it prohibits predicate acts which are aimed at

taking over an enterprise. See United States v. Cauble,

706 F.2d 1322, 1331 n.11 (5th Cir. 1983), cert. denied, 465

U.S. 1005 (1984). It prohibits one scheme to acquire an

interest in an interstate enterprise. To require two

schemes as part of the definition of pattern under section

1961(5) would effectively eliminate this provision.'*

(footnote continued from preceding page)

acts of mail fraud relating to performance of a single contract did not

constitute a pattern); Soper v. Simmons International, Ltd., 632 ¥

Supp. 244, 250-255 (S.D.N.Y. 1986) (multiple acts of wire and mail

fraud concerning commissions allegedly due with respect to a joint

venture did not constitute a pattern). Other recent cases in the

Southern District of New York reject the multiple episode requirement,

contending that it goes beyond any requirement or legitimate impli

cation of the Sedima footnote and provides a vague and unpredictable

rule of decision. See Bankers Trust Co. v. Feldesman, No. 82 Civ. 5590

(WCC), slip op. at 17-20 (S.D.N.Y. Sept. 3, 1986); see also Conan

Properties, Inc. v. Mattel. Inc., 619 F. Supp. 1167, 1170-71 (S.D.N.Y.

1985). We agree with the latter view on both counts. As Sedima makes

clear, 105 S. Ct. at 3287, any further narrowing of RICO, however

appropriate that may be, is a job for Congress, not the courts.

It should also be noted that the section 1961(5) definition of

pattern requires at least two acts of racketeering activity, not two

schemes. “Racketeering activity” is in turn defined as various statu

tory violations in section 1961(1), which has no language requiring a

scheme. See 18 U.S.C. § 1961(1) (1982). Clearly then, the multiple

(footnote continued on following page)

17a

Appendix A

Opinion of the United States Court of Appeals

We decline to embrace this incongruous result. Instead,

we hold that when a person commits at least two acts

that have the common purpose of furthering a continuing

criminal enterprise with which that person is associated,

the elements of relatedness and continuity which the

Sedima footnote construes section 1962(c) to include are

satisfied. In this regard, we note that a recent opinion of

this court similarly construes Sedima footnote fourteen.

See United States v. Teitler, 802 F.2d 606, 611-12 (2d Cir.

1986); see also Morgan v. Bank of Waukegan, No. 85-

2675 (7th Cir. Oct. 13, 1986) (available Nov. 15, 1986 on

LEXIS, Genfed Library, USApp file) (collecting cases).

SLA Mail Fraud

The defendants also argue that the SLA mail fraud

convictions must fall because the SLA original appli-

cation and renewal forms were too ambiguous to support

a finding of intent. See United States v. Gelb, 700 F.2d

875, 879 (2d Cir.), cert. denied, 464 U.S. 853 (1983). We

disagree. Defendants base their contention on what they

term the “confused” testimony of a prosecution expert on

the requirements of the forms. However clever defense

counsel’s cross-examination of the prosecution's witness

was, it cannot, and indeed did not, overcome the clarity

of those documents themselves.

The original application asks:

(footnote continued from preceding page)

scheme requirement is not grounded in the statutory language of

RICO. Nor are we directed to any clear legislative history to indicate

that when, for example, Congress listed mail fraud as an act, it meant

only “scheme-like” fraud. To impose such an element, therefore,

violates the Supreme Court’s admonition against adding require-

ments not grounded in the statute or the legislative history. See

United States v. Turkette, 452 U.S. 576, 593 (1981); see also Sedima,

S.P.R.L., 1058. Ct. at 3285, n.13 (where legislative history was silent,

court below should have followed plain language of statute).

l8a

Appendix A

Opinion of the United States Court of Appeals

Has any person not an applicant herein, or, if a

corporate applicant, any person not an officer,

director or stockholder of such corporation, any

interest, financial, proprietary or other, direct or

indirect, in the premises or in the business to be

licensed, or has made any loan to the applicant for

said business or has any lien of mortgage on the

fixtures in the business?

State whether any person not an applicant herein,

or if a corporate applicant, any person not an

officer, director or stockholder of such corporation,

or any person not reported in [the above question ],

shares or will share on a percentage basis or in any

way in the receipts, losses or deficiencies of the

business, to any extent whatsoever other than by

fixed salary.

The renewal form asks for the details of any change in

fact since the original application was filed. The licensee

then represents by signing that ‘‘all statements made in

the original application for this license and in any and

all applications for renewal thereof are true and correct,

except as modified in subsequent renewal applications

or as otherwise reported...” This language, in context,

requires an update of the original application and further

requires the licensee to swear that all information

recorded with the SLA reflects the current status of the

licensee business.

Sales Tax Mail Fraud

Defendants complain that the court below failed to

properly charge the jury on the mail fraud counts relating

to sales tax evasion. Judge Weinfeld charged that the

defendants could be found guilty if the jury found that

the stated gross receipts were false or that the reported

lit

19a

Appendix A

Opinion of the United States Court of Appeals

amount of sales tax due was understated. It is asserted

that this allowed the jury to convict even if no tax was

due. Assuming this to be true, it is not error.'?

'7 Defendants also claim error with respect to the district judge’s

charge on the question whether admission receipts at the Peppermint

Lounge and the New Peppermint Lounge were subject to sales tax.

We disagree. The judge charged the jury that:

In determining whether or not the sale of beverages was merely

incidental to the presentation of live musical performances at

the Peppermint Lounge and New Peppermint Lounge, you may

take into account: the number and size of bars within the

facilities, whether or not beverages were available during

periods when live performances were not presented, whether or

not admission was charged at times during which there were no

live musical performances, whether or not musical performances

were emphasized in the advertising done by the Peppermint

Lounge and the New Peppermint Lounge, and the relative

proportion of the revenue produced by admission charges and

by the sale of beverages.

Defendants contend that the definition of “merely incidental” is

derived from the now repealed federal tax on cabarets. See In re

Tralfamadore Cafe, Inc., Advisory Op. TSB-A-85(42)S, at 2(NYSDTF

Taxpayer Services Div. Sept. 9, 1985). Defendants argue that the

judge should have instructed the jury that, while the other factors

should be considered, the primary factor in this determination is the

ratio between the admissions revenues and the sales revenues, citing

the Tralfamadore advisory opinion.

Assuming this to be so, the evidence against defendants on this score

was overwhelming, making any error harmless. See United States v.

Terry, 702 F.2d 299, 313 (2d Cir.), cert. denied, 461 U.S. 931 (1983);

United States v. Finkelstein, 526 F.2d 517, 522 (2d Cir. 1975), cert.

denied, 425 U.S. 960 (1976). Taking the figures most favorably to the

defendants (exact amounts are difficult to calculate due to the

defendants’ conduct), approximately forty-two percent of revenues

was derived from liquor sales alone. Where forty percent of revenue

was derived from the sale of concessions and refreshments, that in

itself was enough to impose the tax. See Kantor v. United States, 154

F. Supp. 58, 60-62 (N.D. Tex. 1956) (The issue in Kantor was whether

the analogous federal tax would be imposed upon refreshments as

well as admissions, but the statutory interpretation is nonetheless

both relevant and persuasive). The bars frequently operated without

(footnote continued on following page)

20a

Appendix A

Opinion of the United States Court of Appeals

In Gelb, the defendant had defrauded an insurance

company by inflating his claimed losses. In the mail

fraud prosecution, he argued that the government had

failed to prove that his inflated statement of loss resulted

in an inflated claim (i.e., he claimed a loss of $684,000

where the insurance coverage was $500,000, and argued

that the government had to prove false loss claims in

excess of $184,000). The court held that the government

need only show a specific intent to defraud. See Gelb, 700

F.2d at 879-80; see also United States v. Rodolitz, 786

F.2d 77, 80-81 (2d Cir. 1986) (‘To sustain the [insurance-

mail fraud] conviction, the government needed to prove

only that Rodolitz employed a deceptive scheme intended

to prevent the insurer from determining for itself a fair

value of recovery.”) Similarly, in this case the govern-

ment need only show a specific intent to evade sales

taxes. The evidence in the record to support such a

finding was ample.

Twenty-First Amendment

The defendants also claim that the twenty-first amend-

ment bars this mail fraud prosecution. However, the

federal government’s lack of direct power to regulate

intrastate liquor does not necessarily imply that it cannot

prosecute conduct that also implicates federal concerns.

See Parr v. United States, 363 U.S. 370, 389 (1960)

(Congress can forbid conduct through mailing in further-

ance of a scheme that it regards as contrary to public

policy, whether it can forbid the scheme or not, quoting

Badders v. United States, 240 U.S. 391, 393 (1916));

(footnote continued from preceding page)

bands, and when bands did play, they performed for short periods of

time. At all times, moreover, the bartenders served drinks. The bar

also did not ulways charge for admission, apparently hoping to

increase liquor revenues. The Peppermint Lounge had two dance

floors and three bars, and is described as a bar in its sales tax returns.

2la

Appendix A

Opinion of the United States Court of Appeals

United States v. DeFiore, 720 F.2d 757, 761-62 (2d Cir.

1983) (same in wire fraud context), cert. denied, 466 U.S.

906 (1984) and 467 U.S. 1241 (1984); cf. Illinois Depart-

ment of Revenue v. Phillips, 771 F.2d 312, 317 (7th Cir.

1985) (State of Illinois was a proper plaintiff in a RICO

action brought to recover treble damages for evasion of

Illinois sales tax). The defense cites cases that hold that

federal statutes in which liability is expressly and solely

based upon violations of state liquor laws are beyond

federal power, United States v. Constantine, 296 U.S.

287, 294 (1935); United States v. Kesterson, 296 U.S. 299,

300 (1935), and that state regulation of commerce in

liquor pursuant to section 2 of the twenty-first amend-

ment may be preempted by federal antitrust laws if the

federal policies outweigh the state interests, California

Retail Liquor Dealers Association v. Midcal Aluminum,

Inc., 445 U.S. 97, 113-14 (1980). Those cases do not

support the proposition that the federal government

cannot prosecute misuse! of the mails where that misuse

also violates state liquor regulations.

Corroboration of Co-conspirator’s Statements

Defendants assert that the evidence of tax evasion by

lanniello, Cohen and Gelb was insufficient because it

consisted largely of the uncorroborated statement of

Gelb.'* A conviction cannot be based solely on an

'‘SPAULGELB: The whole fuckin’ thing is here we cannot go

ahead and have_another four years here that we

think we gonna be like that. You’re talking about

four years which, which we can very well say that

we, at least we averaged out, at least a half a

million dollars a year that we cut up. I would say

conservatively, you understand? Which, is uh,

which is easy. I would say closer to two and a half

but that’s alright let’s say even closer to two and a

half million for four years.

(footnote continued on following page)

22a

Zé ppendix A

Opinion of the United States Court of Appeals

uncorroborated extrajudicial confession. See Opper v.

United States, 348 U.S. 84, 89-90 (1954). From this

proposition, the defense extrapolates the theory that an

uncorroborated admission should not be sufficient to

convict.

In Smith v. United States, 348 U.S. 147 (1954), the

Court noted that “{a]ldmissions given under special cir-

cumstances, providing grounds for a strong inference of

reliability, may not have to be corroborated. Cf. Miles v.

United States, [103 U.S. 304 (1980)].” Smith, 348 U.S. at

155 n.3. In Miles, the defendant was charged with

bigamy and the evidence of his first marriage was his

own uncorroborated statements. Miles v. United States,

103 U.S. 304, 311-12 (1880). The court affirmed the

conviction because there were independent indicia of

reliability. Jd. at 312.

The Smith Court held that the rule requiring corrobora-

tion applied to admissions when the admission is made

to the authorities after the crime and it establishes an

essential element of the crime. 348 U.S. at 155. This was

(footnote continued from preceding page)

Which, uh, we cannot go ahead and consider

ourselves losers here. But you know this operation

as long as it’s goin who the hell wants to change it

for the time being?

BEN COHEN: I know.

PAUL GELB: You understand? How long? I don’t know, but

eventually we should be thinking ahead of time

what we want to do here instead. The custom, this

operation is outrageous.

BEN COHEN: I know.

PAUL GELB: And if you do over the fifty thousand, you do over

fifty thousand, it pays, you understand? Because

you have to, you have to pay (UI). This, that, that

but you coming out, you clean. Clean you come

out fifteen thousand dollars a week.

A. 745-746.

23a

Appendix A

Opinion of the United States Court of Appeals

based on a concern that admissions may be coerced or

otherwise unreliable. Jd. at 153. Thus, when corroboration

is required, its aim is to ensure the reliability of the

statement. Id. at 156-59; see also Chambers v. Mississippi,

410 U.S. 284, 298-301 (1973); Donnelly v. United States,

228 U.S. 243, 277-78 (1913) (Holmes, J., dissenting).

The proper inquiry, therefore, is whether the statements

of Gelb bear independent indicia of reliability. Cf. United

States v. Rodriguez, 706 F.2d 31, 40 (2d Cir. 1983) (in

context of Federal Rule of Evidence 804(b)(3)); United

States v. Beltempo, 675 F.2d 472, 479-80 (2d Cir.) (same),

cert. denied, 457 U.S. 1135 (1982). The circumstances of

the conversation, a discussion between Gelb and Cohen

about their businesses’ performances, as well as numer-

ous deliveries of cash before and after the statement,

provide that reliability. In any event, the cash deliveries

provide the corroboration necessary for conviction even

under the defense theory.

Conclusion

We have examined the remaining defense contentions

and find them to be without merit. The judgments of

conviction are accordingly affirmed.

24a

Appendix B

Order of United States Court of Appeals

On Petition for Rehearing and Suggestion for

Rehearing In Banc

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

Ata stated term of the United States Court of Appeals,

in and for the Second Circuit, held at the United States

Courthouse, in the City of New York, on the 28th day of

January, one thousand nine hundred and eighty-seven.

FILED: January 28, 1987

Nos. 86-1088, 86-1089, 86-1090, 86-1091, 86-1092, 86-1093,

86-1102, 86-1109, 86-1110

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

ws

MATTHEW IANNIELLO, BENJAMIN COHEN,

PAUL GELB, ALFRED IANNIELLO, CARL

MOSKOWITZ, MORTON WALKER, CHETSER

COHEN, BERNARD KURTZ and SOL GOLDMAN,

Defendants-Appellants.

Petitions for rehearing containing suggestion that the

action be reheard in banc having been filed herein by

counsels for the defendants-appellants, Mathew Ian-

niello, Benjamin Cohen, Paul Gelb, Alfred Ianniello,

Carl Moskowitz, Sol Goldman, Bernard Kurtz, counsel

for Morton Walker, and Counsel for Chester Cohen,

25a

Appendix B

Order of United States Court of Appeals

On Petition for Rehearing and Suggestion for

Rehearing In Banc

Upon consideration by the panel that heard the appeal,

it is

ORDERED that said petitions for rehearing are

DENIED.

It is further noted that the suggestions for rehearing in

banc have been transmitted to the judges of the Court in

regular active service and to any other judge on the

panel that heard the appeal and that no such judge has

requested that a vote be taken thereon, rehearing in banc

is denied.

/

/S/

Klaine B. Goldsmith,

Clerk