Motion — Halloran v. New York

MAY 26 page

No. 87-1595 ®)

a

—_—_————

In the

Supreme Court of the Unite

October Term, 1987

EDWARD J. HALLORAN,

-against-

STATE OF NEW YORK,

Appellant,

Appellee.

Appeal from the Supreme Court of the State of New York,

Appellate Division, First Department

MOTION TO DISMISS OR AFFIRM

ROBERT M. MORGENTHAU

District Attorney

New York County

Attorney for Appellant

One Hogan Place

New York, New York 10013

MARK DWYER

BRIAN ROSNER

MARC FRAZIER SCHOLL

ASSISTANT DISTRICT ATTORNEYS

Of Counsel

(212) 553-9000

vit, U8,

iD

- -4

os

ee ee)

——EE—EeE—EE——E———————

TABLE OF AUTHORITIES ....... . i

STATE STATUTE INVOLVED ...... . 2

STATEMENT OF FACTS ... =... «+ « « 4

ARGUMENT . . 2. «© © © © © © © © © « « 18

The Case Presents No

Substantial Question Not

Previously Decided by this

COUMG - «2 ce ae es ee ce 18

1. The Preponderance Claim was

not Presented Below in a

Manner Appropriate for this

Court to Now to Consider it.

Indeed, the Sentencing Court

Appears to have Made _ Its

Finding On a Standard Greater

than a Preponderance Standard.

In any event, a Preponderance

Standard Is Entirely Consis-

tent With Due Proces. .. . 18

TABLE OF CONTENTS (cont.)

2. The Fine Set Was Less’ than

Double the Gain Authorized by

Statute. Such a Fine is Not

Excessive: Nor Does

Appellant’s Argument Do More

than Ask the Court to

Reconsider The Sentencing

ip Ve a 2 ya € @

DOGCGEMENGtionse. ...... 31

ss VBReaee New ern" @

Legislative Scheme, Fair

Notice is Given that the

State Considers the

Criminal Defendant’s

Financial Advantage

Obtained from the

Commission of the Crime

to be the Gain

Susceptible to a Fine... 41

OM ll lll lll lt 54

TABLE OF AUTHORITIES

Cases

Addington v. Texas, 441 U.S. 418,

99 S.Ct. 1804, 60 L.Ed.2d 323,

(1979) . a in

Board of Directors of Rotary

International v. Rotary Club of

Duarte, U.S. » Ber S.Ct.

1940, 95 L.Ed.2d 474 (1987)

California Retail Liquor Dealers

Association v. Midcai Aluminum, 445

U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d

233 (1980). ; Beas

Carr v. Hoy, 2 N.Y.2d 185, 158

N.Y.S.2d 572, 139 N.E.2d 531 (1957).

Coffey v. Harlan, 204 U.S. 659, 27

S.Ct. 305, 51 L.Ed. 666 (1907)

Dickman v. Commissioner, 465 U.S.

330, 104 S.Ct 1086, 79 L.Ed.2d

343 (1984) ,

Exxon Corp. v. Eagerton, 462 U.S. 176,

103 S.Ct. 2296, 76 L.Ed.2d 497 (1983).

Logan v. Zimmemman Brush Co., 455 U.S.

422, 102 S.Ct. 1148, 71 L.Ed.2d 265

(1982) i. ss 2 ee &

28

20

38

as

33

40n, 50

20

30

-ii-

McMillan v. Pennsylvania, 477 U.S.

79, 106 S.Ct. 2411, 91 L.Ed.2d

eee ete eee ss a ck ws | «Re

Mutual Life Insurance Company v.

MoGrew, 188 U.S. 291, 23 S.Ct. 375,

47 L.Ed. 480 (1903). ..... -, 23

Parratt v. Taylor, 451 U.S. 527, 101

S.Ct. 1908, 68 L.Ed.2d 420 (1981) . . . 30

People v. David, 65 N.Y.2d 809, 493

N.Y¥.S.2d 118, 482 N.E.2d 914 (1985) .. 22n

People v. Fuller, 57 N.Y.2d 152, 455

N.Y¥.S.2d 253, 441 N.E.2d 563 (1982) .. 22n

People v. Gittelson, 25 A.D.2d 265,

268 N.Y.S.2d 779 (1st Dept.), affirmed,

18 N.¥.2d 427, 276 N.Y¥.S.2d 596, 223

TRG, so kc 2

People v. Halloran, A.D.2d , 921

N.¥.S.2d 962 (lst Dept. 1987) ..... 17

People v. Halloran, 70 N.Y.2d 932, 524

N.Y.S.2d 684 (1987). ..... rae

People v. Halloran, 70 N.Y.2d 955, 525

N.¥.S.2d (1988). .... Re

~4ii-

Cases Page

Feople v. Ingram, 67 N.Y.2d 897, 501

* Y¥.S.2d 804, 492 N.E.2d 1220 (1986) .. 21

-20ple v. Oliver, 63 N.Y.2d 973, 483

i.¥.S.2d 922, 473 N.E.2d 242 (1984) .. 21

People v. Sohayegh (Supreme Court,

New York County, 1986) (New York Law

Journal, June 11, 1986, at 12) .... . 44,49

Riggs v. Palmer, 115 N.Y. 506, 22 N.E.

. ff re

Shevlin-Carpenter Company v. Minnesota,

218 U.S. 57, 30 S.Ct. 663, 54 L.Ed.

Se fa ae ane gc te) a ce a: woe

Specht v. Patterson, 386 U.S. 605, 87

S.Ct. 1209, 18 L.Ed.2d 326 (1967)... . 26

Story Parchment Co, v. Paterson Parchment

Paper Co., 282 U.S. 555, 51 S.Ct. 248,

Te tnd oe S66 (4991)... . ss oy

Thorn v. DeBreteuil, 86 App. Div. 405, “

83 N.Y.S.2d 849 (2nd Dept. 1903),

, 179 N.Y. 64,

modified on other grounds

7h We, Ore, SA og 66 aa ae acee « 46,46

Cases

United States v. Batchelder, 442 U.S.

114, 99 S.Ct. 2198, 60 L.Ed.2d 755

ewe. © 60s Le ee 6 6 oe 8 8 6 6 O

United States v. Brown, 333 U.S. 18,

68 S.Ct. 376, 92 L.Ed. 442 (1948)...

v. Sandini, 816 F.2d

United States

ee.

Waters-Pierce Oil Company v. Texas,

212 U.S. 86, 29 S.Ct. 220, 53 L.Ed.

417 (1909) . 2. 2. 2 ee ee eevee eo

Williams v. People of New York, 337

U.S. 241, 69 S.Ct. 1079, 93 L.Ed.

1337 (1949) ey re oat Ae j

42

- 42

27

25, 37

. 26

TABLE OF AUTHORITIES (cont ’d)

Statutes

New York Criminal Procedure Law

Se Ne eee

New York Criminal Procedure Law

G470.08(2). 2 2 ee ee eevee

New York Penal Law §80.00(2)

New York Penal Law §80.00(3)

New York Penal Law §80.05.

New York Penal Law §80.05(5). .. .

New York Penal Law §155.00(3) .. .

New York Penal Law §155.35

New York Penal Law §190.60

il

-Vie

TABLE OF AUTHORITIES (cont'd)

Other Authorities

Ballantine’s Law Dictionary

(Lawyers Co-operative 1969)

Black's Law Dictionary (5th

Ed., 1979). at w, 4

Commission Staff Notes to Penal Law

§80.00, New York Consolidated Laws

Service, v. 23 (Lawyers

Co-operative 1984).

McKinney’s 1986 Session Laws of New

York (West Publishing 1987)

Model Penal Code §6.03(5), Model Penal

Code and Conmentaries (American

-~Law Institute 1985) .

Palmer, The Law of Restitution

(Little, Brown & Company 1978).

Restatement on Restitution, Section l,

Comment b .

Supreme Court Rule 15.1(g).

Supreme Court Rule 21.1(h).

Webster’s Third New International

Dictionary (G & C Merriam

Co. 1969) ¢s

Page

46

46

44

10n

33

46,49

49

19

20

46

No. 87-1595

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1987

EDWARD J. HALLORAN,

Appellant,

Ve

STATE OF NEW YORK,

Appellee.

On Appeal from the Supreme Court of the

State of New York, Appellate Division,

First Department

Appellee moves the Court to dismiss

the appeal herein or, in the alternative,

to affirm the judgment of the Suprevre

Court of the State of New York, Appellate

Division, First Department. The

questions upon which the decision of this

matter depends are so insubstantial that

-2-

they do not need further argument before

this Court.

STATE STATUTE INVOLVED

This appeal raises the validity of

New York State’s legislative scheme which

permits the sentencing court to impose

upon a defendant convicted of a

misdemeanor a fine of up to twice the

amount "gained" through the commission of

the crime.

New York Penal Law section 80.05

provides that the trial judge, after a

defendant has been convicted of a

misdemeanor, may impose as a fine on a

defendant who "has gained money or

property through the commission of any

misdemeanor ... an amount, fixed by the

court, not exceeding double the amount of

the defendant’s gain from the commission

of the offense." New York Penal Law

-3-

section 80.00 (2) defines "gain" as "the

amount of money or the value of property

derived from the commission of the crime,

less the amount of money or the value of

property returned to the victim of the

crime or seized by or surrendered to

lawful authority prior to the time

sentence is imposed."

Under New York Penal Law section

80.00 (3), the sentencing court makes the

factual determination of the amount of

the gain. If the record contains

insufficient information as to gain, the

court may, pursuant to New York Criminal

Procedure Law section 400.30, conduct a

hearing. At that hearing, the People

have the burden to prove by a

preponderance of the evidence the amount

of the defendant’s gain.

-4-

STATEMENT OF FACTS

From the spring of 1983 to March

1984, appellant organized and operated a

$9,200,000,000 check-kite, the most

monumental check fraud in the history of

American banking. By the synchronized

drawing and depositing of some 15,000

checks, appellant, and a team of people

employed by him, created the false

appearance that appellant had his own

money in checking accounts at Citibank,

N.A. and Marine Midland, n.A.1 Relying

lin essence, a check-kite scheme

works as follows: First, the defendant

sets up one checking account in Bank A

and one checking account in Bank B.

Next, a check for X dollars is drawn on

the Bank A account and deposited into

the Bank B account, and, at about the

same time, a check for X dollars is drawn

on the Bank B account and deposited into

the Bank A account. As a result, Banks A

and B credit the respective accounts even

though the defendant has insufficient

funds in both accounts. These actions

are repeated again and again to prevent

the banks from recognizing that a kite is

(continued...)

ee

upon this false appearance of money

belonging to the appellant, Citibank and

Marine Midland permitted appellant to

withdraw $23 million of what was, in

truth, the banks’ money.

Appellant "invested" the bulk of the

defrauded funds into his financial

empire which, due to lack of funding,

verged on collapse. #? By this

1(.. .continued)

underway. Next, the defendant uses the

credits to the respective accounts to

write checks to third-parties. Banks A

and B will honor those checks in the

belief that the defendant has funds in

the accounts.

2aAside from this "investment,"

appellant put $2,000,000 of the kite

money into his personal checking account,

and appellant’s codefendant used kite

funds to build a vacation home with

thirteen bedrooms and a kitchen that

seats forty-five (Halloran: T 2082-2083,

2134-2141, <A.D.R.App 69-70, 120-127;

Madden: T 2318-2322, A.D.R.App 195-199).

Numerals preceded by "App" refer to the

Appellant’s appendix in this Court.

"A.D. App.” refer to Appellant’s

(continued...)

-6§-

"investment" of the criminal proceeds,

appellant’s businesses were not only

saved from bankruptcy but actually grew

in value, from a value of $100,000,000 at

the beginning of the crime to a value of

$200,000,000 at the crime’s end. When

the $9,200,900,000 check-kite was

discovered, appellant sttered to restore

to the banks the $23,000,000 taken with

interest calculated from the day the

crime was discovered. Six months later,

appellant did restore this amount, a

small fraction of the profit he had

realized by his crime.

On June 20, 1985, a Grand Jury

indicted appellant on one count of

Scheme to Defraud in the Second Degree

2(...continued)

appendix in the Appellate Division, and

numerals preceded by "A.D. R.App" refer

to appellee’s appendix in that court.

Numerals preceded by "T" refer to the

trial transcript.

(New York Penal Law § 190.60) and two

counts of Grand Larceny in the Second

Degree (New York Penal Law § 155.35). New

York County Indictment Number 3955/85.3

(A.D. App. 5-7).

Appellant proceeded to trial. On

cross-examination, he was compelled to

concede every element of the Scheme to

Defraud charge. He testified that the

scheme was created because Citibank and

Marine Midland would not honor

appellant’s checks unless appellant had

positive account balances in his

accounts. He admitted that he had taken

other people’s money by deceit. To him,

however, such fraudulent takings were

3Also charged with appellant was

Harold F. Madden. He was convicted of

Second Degree Scheme to Defraud and

sentenced to 120 days of community

service, a fine of $100,000, and a

mandatory surcharge of $60.

-8-

just interest-free loans. Since he was 4a

"rich man," he believed that he was

"entitled" to such loans. To take other

people’s money by deceit was a

"privilege" which came with his wealth

(E.g., Halloran: T1872, 2028-2031, 2048,

2050, 2065, 2123-2124, 2169, A.D.R.App

15-16, 35, 109-110, 155).

Appellant’s wealth was the exclusive

focus of the ian case. Appellant

claimed that he always intended to

restore the money taken from the banks

and, therefore, did not intend to

"permanently" deprive the banks.

"Permanent deprivation" is an element of

the New York State larceny statute. see

New York Penal Law § 155.00 (3). Through

financial documents, an accountant and

his own testimony, appellant sought to

prove that, due to the $200,000,000 of

value of his businesses, he always

-9-

intended to repay the money taken, as he

did (six months after discovery of the

crime). Appellant conceded that he

committed the $9,200,000,000 crime to

preserve and increase his wealth, and

that the crime resulted in a $100,000,000

increase in the value of his assets

(Halloran opening: T1T79-80, Acox T1795-

1797, 1799-1800. 1807-1808, 1810-1814,

1821, 1835; Halloran: T 1860, 1872, 1881-

1882, 1884-1885, 1908-1911, 1914, 1920-

1921, 2028-2031, 2036-2037, 2048, 2137-

2138, 2148, A.D.R.App 15-18, 35, 123-124,

134; Halloran summation: 1T2422-2425, Def.

Trial Exh. M-A and H-W, A.D.R.App. 257,

A.D.App. 671).

-10-

The jury convicted appellant of the

scheme to defraud and acquitted him on

the larseny counts. 4

After the conviction, the court

ordered a hearing to determine

appellant’s gain, if any, from the crime.

In a memorandum submitted prior to the

hearing, the People argued that

appellant’s "gain" was two-fold: costs

saved (such as interest not paid on the

fraudulently obtained funds) ; and

appreciation on assets preserved or

renovated with the kite funds. The

4at the time of his crime, the

scheme to defraud committed by appellant

was a misdemeanor. Because of this case,

the New York State Legislature made the

crime a felony. See McKinney’s 1986

Session Laws of New York, Memorandum of

State Executive Department, p. 2960, 2961

(West Publishing 1987). The Halloran

amendment became effective November 1,

1986, the day after appellant’s

sentencing. Session Laws of New York,

ch. 515, p. 1120 (West Publishing 1987).

-ll-

hearing occurred on October 7 and 31,

1986.

Appellant opposed conducting a

hearing. In addition to raising claims

of statutory construction, appellant

contended that New York’s legislative

scheme for determining a fine violated

the Due Process Clause because (1)

"gain," as set forth in the scheme, does

not provide "fair notice" that it

includes “appreciation” (A.D. App. 99-

100), (2) the amount of the fine was

decided by a judge, not a jury (A.D. App.

101), and (3) any fine imposed above

$1,000 (the maximum statutory fine in

the absence of a finding of gain) would

be an “excessive fine" and "cruel and

unusual punishment" (A.D. App. 109).

The judge rejected appellant

legal arguments and conducted the

hearing, at the conclusion of which she

-12-

made factual findings. As found by the

court, the properties controlled by

appellant had been in a "desperate cash-

flow position" prior to the check fraud

(App. 6a). The $23,000,000 taken from

the banks by the kite became "the life-

blood of [appellant’s] businesses" (App.

7@) « The crime money paid the bills,

keeping appellant’s companies viable so

that appellant could retain possession of

them. But for the fraudulently obtained

funds, the court concluded, appellant’s

"losses would have been staggering" (App.

7a). According to the defense trial

evidence, which was introduced by the

People at the hearing, the bulk of the

banks’ $23,000,000 was used to preserve

and increase appellant’s financial empire

so that, when the fraud was uncovered,

his assets had increased in value from

$100,000,000 to $200,000,000 (Defense

Trial Exhibit M-A, A.D. R.App. 257;

Defense Trial Exhibit H-W, A.D. App.

671) .>

The court found that, after

deducting the $23,000,000 taken from the

banks but repaid to. them, appellant

still retained a financial profit.

First, he had avoided a cost; interest.

Had he obtained $23,000,000 by lawful

loans, he would have paid interest for

the use of the money. By taking

50n the defense case, appellant

called the accountant who had testified

for the defense at trial. In his hearing

testimony, the accountant tried to

repudiate the defense trial evidence

that Halloran was fabulously wealthy.

This trial evidence, of course, had been

elicited by the defense in order to

convince the jury that Halloran was

always wealthy enough to repay the kite

funds and, therefore, should be acquitted

on the larceny courts. At one point, the

accountant’s already unbelievable

testimony became so confused and

contradictory that the court noted that

it would take the witness’s "numbers" on

Halloran’s wealth for "what they are

worth" (A.D. App. 498-504).

$23,000,000 by fraud for a year, he

avoided $2,320,000 in interest costs.

Appellant’s second financial gain

was the appreciation of several of his

properties. That this appreciation was

the direct result of his use of the

swindled funds was, as the court found,

established "without evidentiary

contradiction" (App. 8a). For example,

appellant’s trial evidence had shown that

appellant used $6 million of the

criminally-obtained funds to retain

possession of and to renovate one of his

properties, the Taft Hotel. But for the

crime, he could never have purchased,

retained, or renovated the hotel. At the

crime’s conclusion, he was able to sell

the renovated hotel at an enormous

profit. The capital gain reported on his

income taxes was $14,186,718 (Acox:

T1798, 1807-1808, 1810-1814, Halloran:

-15-

T1908-1911; Defense Trial Exh. H-wW,

A.D.R.App. 671; see App. 15a). To

prevent four of his southern hotels from

going into bankruptcy, he invested

$8,000,000 of the kite funds into these

properties. Thus, he retained possession

of these $21,000,000 of assets, and one,

a Holiday Inn, appreciated by $1,400,000

(App. 16a). By putting over $7,000,000 of

kite funds into his concrete companies,

these $33,000,000 of businesses remained

in his possession and appreciated by some

$6,100,000 (App. 16a).

In short, the court determined that,

by means of the $9,200,000,000 scheme to

defraud, appellant had created and

retained an enormous financial benefit.

The court calculated the gain to be "in

excess of $22,000,000.00" (App. 22a; see

also App. 8a).

-16-

Rather than fining appellant twice

the gain, as permitted by statute, the

court fined appellant oniy $25,000,000.

A mandatory surcharge of $60 was imposed.

In addition, appellant was sentenced to a

six-month term of imprisonment (App. 2la-

228) .

On appeal to the Appellate Division,

First Department, appellant argued, inter

alia, that the $25,000,000 fine violated

the Due Process Clause because (a) the

word "gain" did not provide fair notice

of appellant’s potential liability; (b)

the amount of the gain had not been

determined by proof beyond a reasonable

doubt; (c) the amount of the gain had not

been set by a jury; and (d) the resulting

fine was an excessive fine that amounted

to cruel and unusual punishment because

it exceeded $1,000. Appellant did not

contest that he ran the $9,200,000,000

-l17-

scheme to defraud; that he took

$23,000,000; that he used the bulk of the

funds to retain and renovate assets which

otherwise would have been lost; that he

had no legitimate source of income to

retain and renovate these assets; and

that, during the crime, the value of his

assets increased from $100,000,000 to

$209,000,000.

On December 3, 1987, the Appellate

Division affirmed appellant’s conviction

and sentence without opinion. A.D.2d

__, S21 N.Y.S.2d 962. On December 15,

1987, the New York Court of Appeals

denied leave to appeal to that court, 70

N.Y.2d 932, 524 N.Y.S.2d 684, and on

January 25, 1988, an application for

reconsideration of the leave denial was

denied, 70 N.Y.2d 955, 525 N.Y.S.2d 859.

-18-

On January 29, 1988, Justice

Thurgood Marshall denied appellant’s

application for a stay of sentence.

The Case Presents No Substantial

Question Not Previously Decided by this

Court.

Be The Preponderance Claim was not

Presented Below in a Manner

Appropriate for this Court to Now to

Consider it. Indeed, the Sentencing

Court Appears to have Made Its

Finding On a Standard Greater than a

Preponderance Standard. In any

event, a Preponderance Standard Is

Entirely Consistent With Due

Process,

Appellant does not dispute that his

guilt of a nine billion dollar fraud was

established beyond a reasonable doubt.

His claim is that, when determining what

financial consequences appellant must

suffer in the form of a _ statutorily-

authorized fine for his unquestioned

criminal conduct, a sentencing court must

-19-

make its factual determinations upon a

standard higher than the statutorily-

authorized preponderance of the evidence

standard.

This case does not properly present

this issue. For this Court to exercise

its jurisdiction over such a claim - that

a state enactment violates the

Constitution - the appellant must have

presented the issue to the state court in

conformance with all reasonable state

procedures. Mutual Life Insurance

Company v. McGrew, 188 U.S. 291, 308-309,

23 S.Ct. 375, 378-379, 47 L.Ed. 480, 484-

485 (1903). When, as here, the highest

court to which the claim was presented

does not pass expressly on the claim,

precedent and the rules of this Court

require that the party invoking Supreme

Court jurisdiction show that the claim

was properly raised. Sup.Ct. Rule 15.1

-20-

(g); Exxon Corp, v. Eagerton, 462 U.S.

176, 181 2.3, 103 $.Ct. 2296 n. 3, 76

L.Ed.2d 497, 504 n. 3 (1983); see also

Sup.Ct. Rule 21.1 (h) (certiorari).

Indeed, as the Court recently reaffirmed,

the presumption is that a state court

which has not expressly passed on a claim

has concluded that the claim was not

properly presented. Board of Directors

of Rotary International v. Rotary Club of

Duarte, U.S. . P oy a oe

1940, 1948, 95 L.Ed.2d 474, 487 (1987).

Here, as appellant implicitly

concedes (see Jurisdictional Statement,

p. 8, n. 3), the sentencing court was not

presented with the claim that the

preponderance of the evidence standard

was deficient under the Constitution.

True, there was a claim that the matter

should be tried by a jury. However,

appellant never suggested that the

-21-

standard of proof had to be beyond a

reasonable doubt or that the legislative

scheme was defective for using a

preponderance standard (A.D. App. 82-83,

95-96, 107-108).

The argument on the preponderance

standard was made for the first time in

appellant’s brief on appeal to the

Appellate Division. Under the procedural

rules of New York, however, claims of

error must be scala. lank an objection

in the lower court. New York CPL § 470.05

raw Thus, the failure to object leaves

unpreserved a claim that a particular

sentencing procedure violated the

Constitution in some way. People v.

Oliver, 63 N.Y.2d 973, 483 N.Y.S.2d 992,

473 N.Y.2d 242 (1984); see also People v.

Ingram, 67 N.Y¥.2d 897, 501 N.Y.S.2d 804,

-22-

492 N.E.2d 1220 (1986).© Because the

preponderance claim was not presented to

the sentencing court, it must be presumed

that the appellate court did not reach

the merits of that aspect of appellant’s

claim that the legislative scheme is

unconstitutional. Thus, that claim

cannot provide a basis upon which

appellant can seek a review before this

Court.

Appellant’s claim is not an

appropriate one for this Court to

consider for a second reason. zt is

apparent that the trial judge did not

rest her factual determinations on a

Spy way of contrast, New York does

recognize that if the record shows a

plain failure to be sentenced in

accordance with an applicable statutory

directive, such a claim is reviewable

absent an objection. People v. David, 65

N.Y¥.2d 809, 493 N.Y.S.2d 118, 482 N.E.2d

914 (1985); People v. Fuller, 57 N.Y.2d

152, 455 N.Y.S.2d 253, 441 N.E.2d 563 (1982).

-23-

preponderance standard. The amount of

the gain due to the appreciation of

properties into which the swindled funds

were pumped was established, the court

observed, "without evidentiary

7 The court’s

contradiction" (App. 8a).

critical findings were based upon a

standard beyond the preponderance of the

evidence standard. Thus, this case

simply does not present an appropriate

record to evaluate the constitutionality

of either the standard of proof as set up

7For this reason, it is difficult to

understand appellant’s assertion that the

judge would have reached different

conclusions if the standard was even

"‘clear and convincing evidence much less

‘proof beyond a reasonable doubt’”"

(Jurisdictional Statement, p. 19).

Further, in attributing to the court a

quote regarding the prosecution’s burden

on gain, a quote which seems to minimize

that burden (Jurisdictional Statement,

p. 10), appellant takes the quote out of

context. The court was distinguishing a

related case and not, as appellant

implies, stating the standard it was

applying in this case.

-24-

in New York’s legislative scheme or of

that standard of proof irrespective of

the legislative scheme.

In large part, appe'lant’s

Jurisdictional Statement is nothing but

an argument with the sentencing judge’s

factual conclusions. Repeatedly,

appellant refers to evidence that the

sentencing judge had the right to reject

and, in light of the disingenuous defense

testimony and argument made at the

hearing, every reason to reject

(Jurisdictional Statement, pp. 17-19).

Typical of appellant’s bogus’ factual

claims is the repeated assertion that the

fine was based on assets "untainted" by,

and "not even arguably" related to, the

$9,200,000,000 fraud (Jurisdictional

Statement, pp. 4, 11, 20, 21).

-25-

The interrelationship of appellant’s

assets and the swindled money was a

factual issue at the hearing. After a

full and complete opportunity to be

heard, the issue was resolved against

appellant. Frankly, in light of

appellant’s own trial evidence, it would

not have been possible to conclude other

than what the court did conclude - that,

as appellant and his accountant § had

established at trial, the kite money was

the "life-blood" of Halloran’s

businesses" (App. 7a). The sentencing

judge’s fact findings, affirmed by every

New York State judge who has evaluated

the evidence, should not be reviewed by

this Court. Waters-Pierce Oil] Company v.

Texas, 212 U.S. 86, 97, 29 S.Ct. 220,

221, 53 L.Ed. 417, 424-425 (1909).

-26-

In any event, a preponderance

standard as a basis for the deprivation

of property unquestionably satisfies the

Due Process Clause. This Court has

recognized that Due Process does not

generally even require that a person,

convicted of the elements of a crime

beyond a reasonable doubt, have the

right to a hearing or to participate ina

hearing at which the sentence is

determined. Williams v. People of New

York, 337 U.S. 241, 249-252, 69 $.Ct.

1079, 1084-1085, 93 L.Ed. 1337,

(1949); see Specht v. Patterson, 386 U.S.

605, 87 $s$.Ct. 1209, 18 L.Ed.2d 326

(1967). Nor does Due Process require any

prescribed burden of proof for the fact

determinations reached by sentencing

judges. See McMillan v. Pennsylvania,

477 U.S. 79, 91, 106 S.Ct. 2411, 2420, 91

7,20 67, 80 (1986). Appellant’s

argument "confuses culpability with

consequences.” United States v. Sandini,

816 F.2d 869, 875 (3rd Cir. 1987) .8

Indeed, in McMillan, this Court

recently recognized that a fact

determination underlying a_ sentencing

decision that affected the length of a

convicted defendant’s custody need only

be determined by a judge by a

preponderance of the evidence standard.

477 U.S. 79, 106 S.Ct. 2411, 91 L.Ed.2d

67. Plainly, if the determination of a

fact issue that affected the length of a

Scuriously, appellant tries to turn

his argument into a substantial federal

question by pointing to an apparent split

in authority among the circuits in the

standard of proof appropriate under

federal forfeiture statutes

(Jurisdictional Statement, Pp. 19).

However, the instant case, while it may

have some analogies to forfeiture, does

not involve a forfeiture. It involves

the setting of an appropriate fine by the

court as a sentence following a criminal

conviction.

-28-

liberty deprivation could be made by a

preponderance standard, it should _ go

without question that a property

deprivation need be subject to no greater

standard.

After all, a preponderance standard

is the standard of proof almost

invariably used in connection with civil

lawsuits over money. Cf. Addington v.

Texas, 441 U.S. 418, 423, 99 S.Ct. 1804,

1808, 60 L.Ed.2d 323, 329 (1979).} And,

although this matter involves the amount

of a fine being imposed in a criminal

prosecution, at its essence, it is

nothing more than a question of property

deprivation, not a question of liberty

deprivation.

This is not to say that the Due

Process Clause does not protect property

interests. However, appellant’s Due

Process rights were protected, first, by

-29-

the requirement that guilt of an offense

be demonstrated beyond a_ reasonable

doubt. When guilt is proven the fact of

the criminal conviction permitted society

to exact upon appellant any fine that

would not violate the Eighth Amendment.

The amount of that fine was no more than

a sentencing determination, and a

consequence of appellant’s demonstrated

criminal culpability.

Yet, even assuming that some kind of

hearing beyond the trial (at which

appellant was convicted by proof beyond a

reasonex.ie doubt) was required to deprive

appellant of "property," New York’s

legislative scheme plainly provided for

that hearing. New York CPL section

400.30 authorizes the court to hold a

hearing where the court concludes that a

sentence of a fine should be imposed and

that fine should "be based upon the

-30-

defendant’s gain from the commission of

the crime." It provides for notice to

the defendant and for an opportunity to

be heard as to the amount of the gain.

Indeed, if the court does not accept the

defendant’s statement, or the defendant

does not wish to make a—- statement,

section 400.30 places on the People the

burden to prove the amount of the

defendant’s gain.

This legislative scheme plainly

provided appellant with an opportunity to

be heard at a meaningful time and place.

See Parratt v. Taylor, 451 U.S. 527, 540,

101 S.Ct. 1908, 1915, 68 L.Ed.2d 420, 432

(1981). It provided him with what was,

at least, "appropriate" process

considering the nature of the

circumstances. See Logan v. Zimmermann

Beush..Co., 455 U.S. 422, 428, 102 8.Ct.

1148, 1153, 71 L.Ed.2d 265, 273 (1982).

-3l1-

In short, appellant’s claim is not

one appropriate for the Court’s review.

In any event, appellant received the

process that was due him when the court

set an appropriate fine as part of his

sentence.

ae The Fine Set Was Less than Double

the Gain Authorized by Statute.

Such a Fine is Not Excessive: Nor

Does Appellant’s Argument Do More

than Ask the Court to Reconsider The

Sentencing Coust’s Fact

Determinations.

Appellant argues that the

$25,000,000 fine was excessive and

disproportionate. His argument rests, in

large part, on his disagreement with the

sentencing court’s conclusion that

appellant reaped financial benefits from

his crime.

Appellant’s claim is not an

appropriate one for this Court to

consider under its appellate

-32-

jurisdiction. New York’s legislative

scheme permits a fine of up to twice the

gain. Here, the sentencing court did not

impose a fine of twice the gain. Rather,

it imposed a fine that was only slightly

more than what it found the gain to be.

Thus, neither that court nor the state

appellate court needed to reach the issue

of the constitutionality of the

legislative scheme. The issue then

becomes nothing more than whether a

particular sentence violated the

Constitution, and appellant has not shown

why that claim raises any issue of

special importance for the Court to

consider. Certainly, the mere fact of a

high fine, in isolation, presents no

constitutional claim worthy of this

Court’s review.

-33-

In any event, this Court has long

recognized that fines set at twice the

profit of one’s wrongful conduct do not

a

violate the federal Constitution. See

Shevlin-Carpenter Company v. Minnesota,

218 U.S. 57, 30 S.Ct. 663, 54 L.Ed. 930

(1910); Coffey v. Harlan, 204 U.S. 659,

27 $.Ct. 305, 51 L.Ed. 666 (1907).

Indeed, the Model Penal Code, from which

New York’s statute derives, promotes a

provision authorizing a fine of twice the

"pecuniary gain." Mod. Pen. Code § 6.03

(5), Model Penal Code and Commentaries,

p. 58 (American Law Institute 1985).

And, as recognized by appellant, a number

of states have enacted such legislation

(Jurisdictional Statement, p. 12 n. 6).

Thus, New York’s provision is hardly

unique or unusual.

-34-

It is certainly true that the fine

imposed in this case was large. However,

so was the fraud. The check-kiting

scheme involved the transfer of

$9,200,000,000. By this kite, appellant

took $23,000,000 of other people’s

money. He used the money to increase his

own wealth by $100,000,000. He was able

to return the $23,000,000 he had taken

solely because of the profitable

investments he had made with the funds

obtained by fraud. As the sentencing

court found, primarily on appellant’s own

trial testimony and evidence, the

specific property into which the swindled

funds were placed appreciated by at least

$21,770,000. Moreover, as the evidence

showed, appellant had avoided a

significant cost -- $2,320,000 in

interest -- by taking the money by crime

rather than by a loan.

-35-

Of course, the trial court’s

determinations of gain were not and could

not be scientifically precise. Appellant

commingled the funds taken by fraud with

the funds of his various’ businesses.

The taking and commingling had two

results. Rather than losing his assets,

appellant preserved them. Further, their

value increased by $100,000,000.

Arguably, appellant’s criminal profit was

the $100,000,000 appreciation in his

businesses as a whole, businesses that,

but for the crime, he would have lost.

Indeed, his gain was arguably the

retention of a $200,000,000 financial

empire that, but for the crime, would

have been lost. The court, however,

limited its theory and findings of gain

to the appreciation on the - specific

properties into which kite funds were

"pumped." She utilized this methodology

-36-

even though, as ~she conceded, it

calculated only "some - far from all" of

appellant’s profit from his crime (App.

7a).

That the court’s calculations are

not scientifically precise does not mean,

as appellant contends, that the fine was

excessive and disproportionate. The

trial eeoauct’ s methodology and

calculations have a reasonable

relationship to the criminal conduct.

The Constitution requires no more. In

reviewing determinations of civil

damages, this Court has recognized that

the "wrongdoer is not entitled to

complain that [the measure of damages]

cannot be measured with the exactness and

precision that would be possible if the

case, which he alone is responsible for

making, were otherwise." Story Parchment

Co, v. Paterson Parchment Paper Co., 282

-37-

U.8. 555, 563, 51 S.Ct. 248, 250-251, 75

L.Ed. 544, 548-549 (1931). What happened

in this case is that, having commingled

the funds, the swindler now berates the

trial court for being unable to trace

the criminal funds to his satisfaction.

What appellant ignores are the salient

facts: but for the crime, appellant’s

assets would have been lost; because of

the crime, he retained assets whose value

increased by $100,000,000.

Appellant’s argument to this Court

boils down to asking it to reject the

factual findings of the sentencing court,

and recalculate the gain itself.

However, this Court has long recognized

the findings of fact made in the state

court in interpreting a state statute

should be treated as conclusive. W 5a

Pierce Oil Company v. Texas, 212 U.S. at

97, 29 S.Ct. at 221, 53 L.Ed. at 424-425,

~38-

supra. Indeed, even if the state judge

had been determining facts in comnection

with a constitutional principle, they

should be accepted, at least absent

exceptional circumstances. California

D rs_A jation v.

Midcal Aluminum, 445 U.S. 97, 111-112,

100 8$.Ct. 937, 946, 63 &.84.24 233, 247

(1980). His effort to argue the evidence

in a manner rejected by both the

sentencing and state appellate courts

should carry no weight with this Court. ?

9appellant, notably, provides no

figure of his own for his total "gain".

Indeed, despite the undisputed evidence

of a $100,000,000 increase in the value

of his businesses, an increase which

could not have occurred but for the

crime, appellant persists in his claim

that there was no evidence of

appreciation, and that this lack of

evidence was "undisputed" (Jurisdictional

Statement, p. 24).

Further, appellant asserts that the

sentencing court engaged in "double

counting" and included in its’ gain

(continued...)

-39-

9(...continued)

calculations amounts "never in fact

realized" (Jurisdictional Statement, p.

20). For example, he asserts that in

evaluating the appreciation of the Taft

Hotel the sentencing court ignored

$12,000,000 in alleged operating losses

(id., p- 24).

Appellant bought the Taft Hotel in

February, 1983 for $20,000,000. He knew

from appraisal reports that, if he could

retain and renovate the Taft, he could

sell it at a multimillion dollar profit.

However, he had no legitimate source of

income to renovate the Taft or pay the

Taft’s $500,000 a month operating

losses. Were he an honest’ business

per3zon, he could not have purchased or

retained possession of the Taft.

Appellant, of course, was not

honest. With $6,000,000 of the kite

money, appellant paid the Taft’s

operating costs for a year and renovated

to In September 1984, he sold a

renovated Taft for over $37,000,000. The

hearing court reasonably and

conservatively calculated appellant’s

criminal gain from the Tart not at the

$17,000,000 gross profit, but merely at

the some $14,100,000 that he reported on

his taxes as the capital gain (see App.

15a).

Appellant’s complains’ that, in

reaching this figure, the court ignored

(continued...)

-40-

Indeed, if the sentencing judge was

9(.. .continued)

$12,000,000 in operating losses. These

so-called losses consisted of

depreciation (on a building appellant

could not have owned but for the crime)

and business expenses (the operating and

renovation costs paid with the _ kite

funds). Based on those so-called losses,

appellant took a $12,000,000 deduction on

his personal income tax, thus sheltering

$12,000,000 of his real income. In

truth, the alleged Taft "losses" were an

enormous financia”® benefit which should

have been added to the $14,000,000

capital gain on the Taft, a property he

could not have owned but for his crime

(Acox: T521, 525-529; People’s Hearing

Exhibit 7, at A.D.R.App. 261-271; Defense

Hearing Exhibit A, at A.D. App. 688).

Appellant’s reference to the "saved

interest" as "double counting" and being

something "not realized" is similarly

misleading. In appellant’s view, he and

the criminal justice system are even

because he returned some $23,000,000 of

wrongfully withheld money plus interest

to the banks. But the interest that he

repaid commenced when the scheme was

discovered. It did not account for the

interest saved by appellant during the

course of the scheme. Plainly, saving

interest that an honest man would have

had to pay was a concrete gain to

appellant. See Dickman v. Commissioner,

465 U.S. 330, 337, 104 S.Ct. 1086, 1090-

109.1, 79 L.Ed.2d 343, 350 (1984).

-4l1-

little more than half correct in her

factual findings, the sentence imposed

did not exceed the amount of twice the

gain permitted by New York law. And, as

noted above, this Court has’- upheld

provisions that permit such fines. Thus,

the fine imposed was plainly neither

excessive nor otherwise

unconstitutional.

3 Under New York’s Legislative Scheme,

Fair Notice is Given that the State

Considers the Criminal Defendant’s

Financial Advantage Obtained from

the Commission of the Crime to be

the Gain Susceptible to a Fine.

Appellant also claims, in essence,

that he dic not have fair notice that,

if convicted of his fraud, a fine related

to “all profits or appreciation on

appellant’s property in which the kited

funds were used" might be imposed

(Jurisdictional Statement, p. =o)

Appellant would have this Court believe

-42-

that, as far as he could foresee, New

York State was going to let him invest

money obtained by crime and, if the

investments proved profitable, keep the

prokezit. Appellant reaches this

conclusion because he finds no reported

cases in New York on the subject and

because other statutes in New York

expressly refer to appreciation in other

contexts.

True, the Due Process Clause

requires that the consequences of

violating a given criminal statute be

stated with sufficient clarity to provide

fair notice of those consequences.

United States v. Batchelder, 442 U.S.

114, 123, 99 S.Ct. 2198, 2204, 60 L.Ed.2d

755, 764 (1979). However, this does not

mean that a state statute must be given

the niggardly meaning appellant would

ascribe to it. See United States v.

-43-

Brown, 333 U.S. 18, 26, 68 S.Ct. 376,

380, 92 L.Ed. 442 (1948).

New York has long indicated that its

policy with respect to fines is that the

courts be able to take "the profit out of

crime." People v. Gittelson, 25 A.D.2d

265, 270, 266 N.Y¥.8.2dad 779, 785 (lst

Dept.), ffirmed, 18 N.Y.2d 427, 276

W.%.9.2@ $96, 223 N.E.2a 14 (1966).

Although, in appellant’s mind, taking the

profit out of crime is an "unprecedented

and most improbable" concept

(Jurisdictional Statement, at 4), the

principle of denying the criminal his

profit is not new:

No one shall be permitted to

profit by his own fraud, or to

take advantage of his = own

wrong, or to found any claim

upon his own iniquity, or to

acquire property by his own

crime. These maxims are

dictated by public policy, have

their foundation in universal

law administered in all

civilized countries, and have

-44-

nowhere been superseded by

statutes.

Riggs v. Palmer, 115 N.Y. 506, 511-512,

22 N.E. 188, (1889); see also Carr

v. Hoy, 2 N.¥.2da 185, 187, 156 N.¥.3.2¢d

$72, 139 4.8.24 534 (1987).

The logic of Gittelson is reflected

in the statute at issue, by which a court

may impose a fine "not exceeding double

the amount of the defendant’s gain from

the commission of the offense." New York

Penal Law Section 80.05(5); see People v.

Sohayegh (Supreme Court, New York County,

1986) (New York Law Journal, June 11,

3966, @t i224). The fine provision

"forces the offender to disgorge any ill-

gotten gains and to forfeit an amount

which is in excess of those gains but

nevertheless related to them."

Commission Staff Notes to Penal Law

section 80.00, New York Consolidated Laws

rrr ee ee ee ee eres eee

-45-

Service, v. 23, p. 384 (Lawyers Co-

operative 1984).

In fact, New York Penal Law section

80.00 (2) quite clearly includes in the

definition of gain "the amount of money

or the value of property derived from the

commission of the crime." Without

question, the fine was based upon what

appellant derived for himself through the

commission of his crime. And New York

has long recognized that gain "is

sufficiently generic to refer to whatever

is obtained from the use" of property.

Thorn v. DeBr il, 86 App.Div. 405,

416-417, 83 N.Y¥.S.2d 849, 857 (2nd Dept.

1903), modified on other grounds, 179

N.Y. 64, 71 N.E. 470 (1904).

Indeed, by dictionary definition

alone, "gain" includes "increment in

value" and "appreciation in value or

worth of securities or property."

-46-

Black’s Law Dictionary, p. 610 (5th Ed.,

1979); Palmer, Th Law Se i ion,

Sections 1.8 and 2.12 at 44-45, 159

(Little, Brown & Company 1978).

Webster’s defines "gain" as "an increase

in or addition to what is of profit,

advantage, or benefit." Webster’s Third

New International Dictionary, p. 928 (G&C

Merriam Co. 1969). And Ballantine’s Law

Dictionary simply adopted the definition

in New York’s Thorn v. DeBreteuil case

for its own. Ballantine’s Law

Dictionary, p. 512 (Lawyers Co-operative

1969).

The logic of such definitions is

clear. Suppose that a swindler takes

$1,000 and bets it at the racetrack

where, as luck would have it, he wins

$10,000. Upon being caught, the swindler

could happily restore the $1,000 taken

ieee recat eemnnnmanna aie

and say, "I’ve returned the gain;

te

therefore, I can’t be fined."

But he has not returned the gain.

The gain is not just the $1,000 he took

by crime. It is also the $10,000 he won,

the profit he could not have realized but

by his illegal taking of the $1,000.

Both are the gain. To permit him to keep

any portion of these "ill-gotten gains"

would make crime profitable, contrary to

the dictates of the New York statute.

Under the logic of the New York

legislative scheme, appellant’s gain was

not simply the $23,000,000 wrongly taken,

which he returned when the fraud was

discovered. The gain was what appellant

"gained" from the use of the wrongly

obtained funds. The wrongly obtained

money was invested in appellant’s

property and became, as the sentencing

court found, "the life-blood of

-48-

{appellant’s]) businesses .... [by which

appellant] saved his financial empire"

(App. 7a). It was the "life-blood" by

which appellant retained possession of

his $100,000,000 of assets. It-was the

"life-blood" which enabled those assets

to appreciate another $100,000,000 in

value.

To recognize this admitted

appreciation as an economic "gain" is

plain business reality. The financial

benefits of fraud were certainly plain to

the appellant. Why else did he spend a

year of his life committing the greatest

check fraud in American history? The

benefits of continued retention and

appreciation are, where obtained by

fraud, squarely within the language and

purpose of the statute. Nor was this

sentencing court the only New York court,

as appellant suggests, to determine that

-49-

“appreciation” is criminal "gain" under

the sentencing statute. People v.

Seohayegh (New York County Supreme Court,

1986) (New York Law Journal, June 11,

1986, at 12).

Gain, moreover, is not only

appreciation. Gain is the amount by

which a wrongdoer saves himself "expense

or loss." Restatement on Restitution,

Section 1, Comment b; Palmer, Section

2.10 at 136, supra. The application of

this principle to this case is obvious.

By his check-kite, appellant took

$23,000,000 which, upon being caught, he

agreed to restore with interest

commencing in April 1984, when the crime

ended. Yet the appellant never paid

interest for the use of the $23,000,000

from March 1983 to March 1984, the period

of his crime.

-50-

This unpaid interest is a gain from

the crime. The use of money has value.

As this Court has noted, the "measure of

that value is interest - ‘rent’ for the

use of the funds." The cost of

"renting" the money is "readily

measurable by reference to current

interest rates." Dickman 7.

Commissioner, 465 U.S. 330, 337, 104

S.Ct. 1086, 1090-1091, 79 L.Ed.2d 343,

350 (1984).

Most telling of the effectiveness

and appropriateness of the sentence

imposed is appellant’s implicit

recognition that he would have thought

twice about his conduct if he had

realized that his decision to obtain a

profit by fraud would have resulted in

his being forced to disgorge the profit

thus made (Jurisdictional Statement, p.

-51-

ae ~ Ms aa? x Most telling of the

dishonesty of appellant’s claims

regarding the factual conclusions of the

sentencing court is appellart’s

suggestion that he would have been more

"circumspect" in his sworn trial

testimony if he had only known that his

sworn testimony would have been relied

upon at sentencing (Id., p. 28).

Appellant was convicted of a fraud

involving billions of dollars. It was a

rational crime, committed for the

purpose of making, and keeping, a huge

criminal profit. Even the most common

criminal, whether a purse thief or a

chain snatcher, understands that society

does not permit the criminal to profit by

his crime. Despite his anger at the

sentence which stripped him of the

criminal profit he worked so hard to

obtain, appellant was on plain notice

-52-

that, if convicted, he would not be

allowed to keep the "gain" from his

fraud. He was afforded a _ sentencing

hearing and a full opportunity to be

heard on the amount of that gain. The

gain was found to be more than

$20,000,000. Although the court was

authorized to fine appellant well over

$40,000,000, he was fined only

$25,000,000. That fine was not

disproportionate to his $9,200,000,000

scheme to defraud.

True, the fine tends to reduce

appellant. It reduces his assets to

those which wake awe been retained by

the honest person who, when faced with

bankruptcy (as was appellant), tries to

preserve his wealth by methods other

than crime. According to appellant,

however, the Constitution demands that he

be put in a financial position superior

-53-

to that of the honest business person.

The Constitution requires, in appellant’s

mind, that he be permitted to retain the

financial rewards of his crime.

Appellant’s complaints present no

issues for this Court to consider.

-54-

CONCLUSION

Wherefore, appellee respectfully

submits that the questions upon which

this case depends are so unsubstantial as

not to need further argument, and

appellee respectfully moves the Court to

dismiss this appeal, Or, in the

alternative, to affirm the judgment

entered in the case by the Supreme Court

of the State of New York, Appellate

Division, First Department.

Respectfully submitted,

ROBERT M. MORGENTHAU

District Attorney

New York County

One Hogan Place

New York, New York 10013

(212) 553-9000

Attorney for Appellee

MARK DWYER

BRIAN ROSNER

MARC FRAZIER SCHOLL

Assistant District Attorneys

Of Counsel

May 9, 1988