Opposition Brief — Southland Corp. v. United States

Iu the Supreme Court of the United States

OCTOBER TERM, 1985

THE SOUTHLAND CORPORATION, PETITIONER

Vv.

UNITED STATES OF AMERICA

EUGENE MASTROPIERI, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

CHARLES FRIED

Acting Solicitor General

GLENN L. ARCHER, JR.

Assistant Attorney General

MICHAEL L. PAuP

DEBORAH WRIGHT DAWSON

DONALD W. SEARLES

Altorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

~ BESTAVAIL

ABLE COPY |

icles a ¢ [2S LOPE Sl OP Re

QUESTIONS PRESENTED

1. Whether the evidence was sufficient to prove peti-

tioner Southland’s intent to defraud the United States (No.

84-1951 only).

2. Whether the district court erred in applying separate

statutes of limitations to two distinct objectives of a conspir-

acy charged in a single-count indictment (No. 84-1951

only).

3. Whether the indictment was properly sealed in order

to obtain a witness’s testimony (No. 84-1981 only).

(I)

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Anthony v. United States, 667 F.2d 870,

i MM OR | ke rr 7

Braverman v. United States, 317 U.S. 49 ....... 8

Dennis v. United States, 384 U.S. 855 .......... )

Ingram v. United States, 360 U.S. 672 .......... 6

screens, FE TE, TOO FOO LAO oo icc ccccesss 10, 11

Leary v. United States, 395 U.S.6 ...........45. 5

Spies v. United States, 317 U.S. 492 ........... 6

Turner v. United States, 396 U.S. 398 .......... 5

United States v. Bryza, 522 F.2d 414,

EE ETE Se 7

United States v. Head, 641 F.2d 174,

ee | 8-9

United States v. Klein, 247 F.2d 908,

eR A 2 3.7

United States v. Michael, 180 F.2d 55,

a 10

United States v. Petersen, 513 F.2d 1133 ....... 7

(111)

IV

Page

Cases—Continued:

United States v. Samara, 643 F.2d 701,

ie Me BI +, re 6

United States v. Schilleci, 545 F.2d 519 ......... 7

United States v. Sherwood, 38 F.R.D. 14,

aff'd, 348 F.2d 715, cert. denied,

Dee AD | Bin 5 Was Ha BAe we ose ges 10-11

United States v. Slochowsky, 575 F. Supp.

Be eee re eres Serr er rer Cre 10

United States v. Tarnopol, 561 F.2d 466 ........ 6

United States v. Walsh, 627 F.2d 88 ........... 6

Statutes and rule:

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2) Ae, errr err ee rer rey Cree re 2, 8

Oe RF UE Sh o's kas Rien bee bc Gee tiee sae 7

y Gh. oe. Pers nr res te eee 5

Fe EE aes ER EK ASIN 84 SR BRS 7

Fed. R. Crim. P. GOES) 2... cece cccccwesnse 9, 10

In the Supreme Court of the Hnited States

OCTOBER TERM, 1985

No. 84-1951

THE SOUTHLAND CORPORATION, PETITIONER

V.

UNITED STATES OF AMERICA

No. 84-1981

EUGENE MASTROPIERI, PETITIONER

A

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-35a)! is

reported at 760 F.2d 1366.

JURISDICTION

The judgment of the court of appeals was entered on

April 23, 1985. The petition for a writ of certiorari in No.

84-1951 was filed on June 15, 1985, and the petition in No.

‘Citations are to the petition and appendix in No. 84-1951 except

where noted.

(1)

2

84-1981 was filed on June 20, 1985. The jurisdiction of this

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

STATEMENT

Following a jury trial in the United States District Court

for the Eastern District of New York, petitioners were

convicted of conspiracy, in violation of 18 U.S.C. 371. The

one-count superseding indictment charged that petitioners

and a co-defendant, S. Richmond Dole, conspired to vio-

late the Travel Act, 18 U.S.C. 1952, and to defraud the

United States by impeding the lawful functions of the Inter-

nal Revenue Service (IRS). The jury returned a special

verdict finding petitioner Mastropieri guilty of conspiring

to achieve both objectives and petitioner The Southland

Corporation guilty of conspiring to achieve the tax fraud

objective.* Mastropieri was sentenced to 18 months in pris-

on, and Southland was fined $10,000. The court of appeals

affirmed (Pet. App. la-35a).

1. The evidence at trial, which is summarized in the court

of appeals’ opinion (Pet. App. 3a-l1a), established that

Southland, a retailer that owns and franchises convenience

stores, conspired through a number of its executives to

defraud the United States by concealing a bribe to Mastro-

pieri that it improperly deducted as an ordinary business

expense on its corporate tax return. In 1973, the State of

New York instituted administrative proceedings against

Southland to recover substantial unpaid sales taxes. While

these proceedings were pending, Southland’s Northeast

Division manager, Eugene DeFalco, was introduced to

Mastropieri, an attorney and member of the New York City

Council. Mastropieri suggested that he could resolve the

sales tax dispute by bribing members of the State’s Tax

?The jury did not reach a verdict on the Travel Act objective of the

conspiracy charge against Southland or on the charge against Dole.

3

Commission. Dole, a Southland vice-president, authorized

DeFalco to go ahead with the bribery scheme. /d. at 3a-Sa.

With Dole’s approval, DeFalco agreed to make a pay-

ment of $96,500 to Mastropieri, purportedly for legal servi-

ces rendered by Mastropieri to Southland. This amount

included Mastropieri’s fee and money for bribes of Tax

Commission members. Because the funds would be sup-

plied by Southland’s headquarters, the proposal was dis-

cussed with Southland’s chief executive officer. Dole sub-

mitted an invoice from Mastropieri to Southland’s con-

troller, Eugene Pender, in July 1977, and acheck was issued

the same day. Mastroprieri laundered the check, and part of

the money was used to establish a bribery slush fund. Pet.

App. Sa-7a.

In August 1977, Southland’s audit committee commenced

an investigation into whether the corporation had made any

payments to government officials to settle tax and other

disputes. On questionnaires, Dole and DeFalco falsely

stated that they were not aware of any such payments.

However, Pender identified the Mastropieri payment as

questionable, and another executive, Frank Kitchen,

admitted in an interview that the payoff had been discussed

by Dole and DeFalco. Southland’s general counsel, Clark

J. Matthews II, told the committee that he had spoken to

Mastropieri and that there were no irregularities in the

payment. The committee’s final report did not mention the

Mastropieri matter. Pet. App. 8a-10a.

Matthews and Southland staff attorney Michael Davis

remained concerned, however, that the corporation would

deduct the payment to Mastropieri on its federal tax return.

They raised the question with Southland’s outside counsel,

but did not explain why the payment might not be deduct-

ible. During an IRS investigation in the spring of 1978,

Matthews instructed Davis to conceal Pender’s and

Kitchen’s statements to the audit committee. In September

4

1978, Southland deducted the Mastropieri payment as an

ordinary business expense on its 1977 corporate tax return.

Pet. App. 6a, 10a.

2. The court of appeals affirmed in a comprehensive

opinion by Judge Friendly (Pet. App. la-35a). With respect

to the sufficiency of the evidence, the court of appeals held

that Southland purposefully structured the Mastropieri

bribe in a manner that resulted in the improper deduction of

the payment and that the corporation obstructed the IRS in

its attempt to determine the allowability of the deduction

(id. at | la-12a). The court of appeals also held that the jury

was properly instructed concerning the applicable statutes

of limitations and that the government could rely on sepa-

rate limitations periods for the different objects of the con-

spiracy charged in the indictment (id. at 13a-16a). Finally,

the court of appeals determined that the indictment had

properly been sealed for six weeks and that the statutes of

limitations were therefore tolled during that period (id. at

24a-29a).

ARGUMENT

The decision of the court of appeals is plainly correct and

does not conflict with any decision of this Court or any

other court of appeals. Further review is therefore unwar-

ranted. anh

i. Southland argues (Pet. 5-11) that the evidence was

insufficient to establish its intent to defraud the United

States.? The court of appeals correctly rejected this argu-

ment as “border[ing] on the frivolous” (Pet. App. 11a).

3Although it found the evidence sufficient in all respects (Pet. App.

11a), the court of appeals upheld Mastropieri’s conviction solely on the

basis of the Travel Act objective of the conspiracy because certain

evidence relating to Mastropieri’s involvement in the fraud objective

had been erroneously excluded at trial (id. at 24a). Accordingly, South-

land’s arguments, which relate solely to the sufficiency of the evidence

and the statute of limitations with respect to the fraud objective, are not

germane to Mastropieri's petition.

4

5

Southland’s argument is that the government failed to

prove that at least one of its executives knew that the

Mastropieri bribe was not properly deductible under 26

U.S.C. 162(c). Apart from the fact that “it is absurd to

suppose that the Southland officials * * * did not know that

deductions may be taken only for ‘ordinary and necessary’

business expenses * * * and that a bribe is not such an

expense” (Pet. App. lia), Southland’s argument com-

pletely misses the point.* Southland was not charged with

conspiring to violate 26 U.S.C. 162(c). Rather, it was

charged with conspiring to impede the functions of the IRS

by preventing the government from discovering the true

nature of the claimed deduction. A specific intent to cheat

the government out of money is not a necessary element of

the offense and was not charged here. See United States v.

Klein, 247 F.2d 908, 916 (2d Cir. 1957), cert. denied, 355

U.S. 924 (1958).

Evidence of Southland’s willful obstruction of the IRS

was ample. The phony invoice, the false statements to the

audit committee, the concealment from the IRS investigat-

ing team, and the concern Matthews (Southland’s general

counsel) exhibited over the deductibility of the bribe all

served to demonstrate the corporation’s knowing participa-

tion in a conspiracy to obstruct the IRS. As the court of

appeals noted (Pet. App. Ila), “there was evidence that

Dole, DeFalco, Matthews and Davis were all very much

concerned that the $96,500 payment was being improperly

‘Even if kno. :ge of the nondeductibility of the bribe were an

element of the off> ase and Southland’s officials somehow lacked actual

knowledge, the corporation would fare no better. The conduct of

Matthews, for example, plainly demonstrated at the very least that his

suspicions were aroused. This was sufficient to establish knowledge in

view of his failure to make further inquiries. See, e.g., Turner v. United

States, 396 U.S. 398, 416-417 & n.29 (1970); Leary v. United States, 395

U.S. 6, 46 n.93 (1969).

6

taken as adeduction.” Thus, responsible officials of South-

land knew that the payment would improperly be deducted

on the corporation’s tax return, yet rather than taking steps

to prevent this from happening, they affirmatively sought to

conceal the true nature of the payment. Nothing more is

required. See, e.g., Spies v. United States, 317 U.S. 492,

499 (1943) (willfulness may be inferred fro.n concealment

and making false invoices); United States v. Samara, 643

F.2d 701, 703 (10th Cir.), cert. denied, 454 U.S. 829 (1981)

(willfulness may be inferred from failure to supply accoun-

tant with accurate and complete information); United

States v. Walsh, 627 F.2d 88, 92 (7th Cir. 1980) (willfulness

may be inferred from false statements to IRS agents).

The cases on which Southland relies are completely inap-

posite. In Ingram v. United States, 360 U.S. 672 (1959), the

Court reversed the conspiracy convictions of two employees

of an illegal gambling operation because they lacked per-

sonal knowledge of the tax liability of the entrepreneurs of

the operation (id. at 678-679). They were unaware that they

were helping the persons in charge of the operation to evade

payment of taxes. Here, by contrast, the evidence estab-

lished that Southland’s executives structured the bribery

scheme with the knowledge that it would generate a corpo-

rate deduction and they concealed the true nature of the

payment from the IRS. Moreover, the defendants in

Ingram were charged with conspiring to commit substan-

tive tax offenses rather than to defraud the United States

(id. at 672-673 & n.1, 678). Finally, Southland’s conduct

was similar to that of the entrepreneurs in Ingram, whose

convictions were affirmed because they agreed to conceal

their sources of income from the IRS (id. at 676-677).5

*Similarly, in United States v. Tarnopol, 561 F.2d 466 (3d Cir. 1977),

unlike in this case, there was no evidence that the defendants ever filed

inaccurate tax returns, made misrepresentations to the IRS, or contem-

plated the possibility of tax liability (id. at 474). Most of the other cases

7

2. Southland also argues (Pet. 11-15) that because both

the Travel Act and fraud objectives of the conspiracy were

charged in a single cour.t, the five-year statute of limitations

applicable to the former objective must also apply to the

latter, even though a six-year limitations period would have

applied to the fraud objective had the two been charged in

separate counts. See 18 U.S.C. 3282; 26 U.S.C. 6531. The

district court instructed the jury that different statutes of

limitations were epplicable to the two objectives and that it

must find an overt act furthering each objective within the

relevant limitations period to convict with respect to that

objective. The court also instructed the jury to return spe-

cial verdicts as to each objective; Southland was convicted

only for conspiracy to defraud the United States. Pet. App.

3a, 13a.

The district court’s instructions would quite obviously

have been proper had the two objectives been charged in

separate counts. The court of appeals correctly rejected

Southland’s “somewhat metaphysical argument” that the

rule must be otherwise for a single-count charge, finding the

contention to lack “a good sense basis” (Pet. App. 13a-14a):

on which Southland relies stand only for the proposition that the jury

must be instructed that ignorance of the law can be a defense where it

obviates the specific intent required for an offense. See Anthony v.

United States, 667 F.2d 870, 876-877 (10th Cir. 1981), cert. denied, 457

U.S. 1133 (1982); United States v. Schilleci, 545 F.2d 519, 523-524 (Sth

Cir. 1977); United States v. Bryza, 522 F.2d 414, 423-424 (7th Cir.

1975), cert. denied, 426 U.S. 912 (1976); United States v. Petersen, 513

F.2d 1133, 1135 (9th Cir. 1975). Southland complains, however, not of

the jury instructions but of the sufficiency of the evidence; these are two

different matters. In fact, the district court instructed the jury that it

must find that Southland “contemplated loss to the government in the

form of income tax which would otherwise have been collected” (Tr.

3087; Southland C.A. App. 688), an instruction unduly favorable to the

corporation. See United States v. Klein, 247 F.2d at 916.

8

If the Government adduced sufficient evidence to con-

vince the jury that Southland conspired to defraud it

within the six year period * * * , as we have held that it

did, we do not see why it should be deprived of a

conviction for this violation of 18 U.S.C. $371 because

it failed to establish to the jury’s satisfaction that

Southland also engaged, during a five year period ante-

dating the indictment, in a conspiracy to violate the

Travel Act. * * * If the Government had failed to

present sufficient substantive evidence to warrant

submission of the Travel Act objective to the jury but

did meet its burden with respect to the fraud objective

and the jury convicted, [Southland] would surely not

have been entitled to have the indictment dismissed.

* * * We fail to see how [its] case stands better because

the Government did present sufficient evidence to send

to the jury the case with respect to * * * both objectives.

Southland contends that the decision conflicts with Uni-

ted States v. Head, 641 F.2d 174 (4h Cir. 1981), cert.

denied, 462 U.S. 1132 (1983).6 The court of appeals

addressed this contention at length (Pet. App. 14a-16a).

The court demonstrated that the language in Head on

which Southland relies was dictum and in any event did not

by its terms adopt the rule advanced by Southland; rather,

the court in Head merely stated that such a rule may be

appropriate (641 F.2d at 178 n.5). The holding in Head was

only that a general verdict could not be supported where

different statutes of limitations applied to different objec-

tives of a conspiracy and the jury might have convicted on

the basis of an objective as to which no overt act occurred

®Southland’s reliance on Braverman v. United States, 317 U.S. 49

(1942), is misplaced. There, the Court permitted separate objects of a

conspiracy to be alleged in a single count. That only one statute, 18

U.S.C. 371, is violated misses the point that separate statutes of limita-

tions apply to different sorts of violations of Section 371.

RSE eae cameras eee

9

during the relevant limitations period (id. at 177-179). Here,

the special verdicts returned by the jury obviated that uncer-

tainty. Southland’s factbound argument that the jury was

confused was considered and correctly rejected by the court

of appeals (Pet. App. 14a). Whatever confusion could have

arisen would, of course, have been identical had the conspi-

racy been charged in two counts rather than one.’

3. Mastropieri contends (84-1981 Pet. 15-19) that his

conviction for conspiring to violate the Travel Act must be

reversed because the original indictment was improperly

sealed at the time that the statute of limitations ran. His

argument is premised on the view that a statute of limita-

tions may be tolled only where an indictment has properly

been sealed. Mastropieri asserts that Fed. R. Crim. P.

6(e)(4)* permits an indictment to be sealed only when neces-

sary to secure custody of the defendant, which was not the

case here, and that even if the Rule does allow sealing for

other legitimate objectives, no such purpose was served

here. Without passing upon his premise that a timely

returned but improperly sealed indictment could violate the

statute of limitations, the court of appeals fully considered

’The superseding indictment, returned November 17, 1983, would

not have been time-barred even if it had recited the two objectives in

different counts (see Pet. 14). Southiand is therefore plainly incorrect in

arguing that the government engaged in“ ‘prosecutorial sleight of hand

to overcome atime bar’ ”(Pet. 6, quoting Dennis v. United States, 384

U.S. 855, 863 (1966)). In fact, as in Dennis, “the Government here

secured no advantage with respect to limitations” by the manner in

which it charged Southland with conspiracy (id. at 863-864 n.8).

*Fed. R. Crim. P. 6(e)(4) provides:

Sealed Indictments. The federal magistrate to whom an indict-

ment is returned may direct that the indictment be kept secret until

the defendant is in custody or has been released pending trial.

Thereupon the clerk shall seal the indictment and no person shall

disclose the return of the indictment except when necessary for the

issuance and execution of a warrant or summons.

10

and correctly rejected both of Mastropieri’s arguments

respecting the sealing of his indictment (Pet. App. 24a-29a).

The original indictment was returned on March 25, 1983,

two days before the expiration of the applicable five-year

limitations period. Thereafter, the government secured an

order sealing the indictment in order to assist it in obtaining

the testimony of Frank Kitchen in the ongoing investigation

of Southland and others; Kitchen had been granted immun-

ity but claimed before the grand jury that he could not

remember certain events. The indictment was unsealed six

weeks later, shortly after the court of appeals reversed a

judgment holding Kitchen in contempt with respect to his

grand jury testimony, eliminating any hope of securing

useful testimony from him. Jn re Kitchen, 706 F.2d 1266 (2d

Cir. 1983).

Rule 6(e)(4) authorizes an indictment to be sealed to

obtain custody of the defendant; it does not by its terms

prohibit the sealing of an indictment for other purposes.

The advisory committee notes state that the Rule was

intended to continue the pre-Rules practice, which, as the

court of appeals noted, permitted an indictment to be sealed

whenever the public interest so required (Pet. App. 27a). In

a decision rendered three years after the adoption of the

Rules, the Third Circuit, like the court here, concluded that

Rule 6(e)(4) does not limit the circumstances under which

an indictment may be sealed. United States v. Michael, 180

F.2d 55, 57 (1949), cert. denied sub nom. United States v.

Knight, 339 U.S. 978 (1950). Mastropieri cites no case to the

contrary.° 3 |

%In United States v. Slochowsky, 575 F. Supp. 1562, 1567(E.D.N.Y.

1983), the court cited to Michael and held only that it is sufficient if

there is “a legitimate prosecutorial need for the sealing.” Jn United

States v. Sherwood, 38 F.R.D. 14, 20(D. Conn. 1964), aff'd on other

grounds sub nom. United States v. Doyle, 348 F.2d 715 (2d Cir.), cert.

11

The court of appeals correctly resolved the factbound

question of whether the sealing was proper here (Pet. App.

29a). The government was justified in its attempt to secure

truthful testimony from Kitchen, although a divided court

of appeals ultimately ruled that the witness was erroneously

held in contempt.!® Sealing of the indictment was a proper

means of ensuring that Kitchen gave complete and truthful

testimony and did not tailor his testimony to fit only what

was disclosed by the indictment. The district court correctly

found that “the sealing, for a period of six weeks, lasted no

longer than was necessary to accommodate legitimate pros-

ecutorial interests” (id. at 25a). Moreover, as the court of

appeals stressed, the government properly relied on the

magistrate’s decision to seal the indictment (id. at 29a):

This is a point on which great deference should be

accorded to the discretion of the magistrate, at least in

the absence of any evidence of substantial prejudice to

the defendant. The Government should be able, except

in the most extraordinary cases, to rely on that decision

rather than risk dismissal of an indictment, the sealing

of which it might have been willing to forego, because

an appellate court sees things differently, after the

expenditure of vast resources at a trial and at a time

when reindictment is by hypothesis impossible.

denied, 382 U.S. 843 (1965), the district court simply placed a reason-

ableness limitation on the length of time that an indictment could be

sealed. Even if these decisions did conflict with the present case, they

would, of course, no longer be good law since they arose within the

Second Circuit.

1°The majority stated that the government’s theory that Kitchen’s

claimed failure of memory was untruthful was a “plausible” one (/n re

Kitchen, 706 F.2d at 1276). In dissent, Judge Lumbard concluded that it

was “incredible” that Kitchen could have forgetten what had transpired

(id. at 1277).

12

Finally, the court of appeals observed that Mastropieri

“has not even asserted prejudice from the sealing of the

indictmen* for 39 days” (ibid.).

CONCLUSION |

The petitions for a writ of certiorari should be denied.

Respectfully submitted.

CHARLES FRIED

Acting Solicitor General

GLENN L. ARCHER, JR.

Assistant Attorney General

MICHAEL L. PAUP

DEBORAH WRIGHT DAWSON

DONALD W. SEARLES

Attorneys

SEPTEMBER 1985