Opposition Brief — Santiago v. United States

ie Xn . + |

ESS Supreise Oourt, US.

ye se a =

Kv * Py t « a? .

CEI E )

.

‘

Nos. 89-1954 and 89-7702 | gS ff

emsi & “M7 2 *8

sioner eee

Jn the Supreme Court of the Gnited States —?

OCTOBER TERM, 1990

ANTHONY SANTIAGO, PETITIONER

Vv.

UNITED STATES OF AMERICA

JACK D. LIFFITON, PETITIONER

_

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 STATE 'N OPPOSITION

KENNETH W. STARR

Solicitor General

EDWARD S.G. DENNIS, JR.

Assistant Attorney General

SEAN CONNELLY

Altorney

Department of Justice

Washington, D.C. 20530

(202) 514-2217

BEST AVAILABLE COPY.

QUESTIONS PRESENTED

1. Whether accomplices of a bank officer who author-

ized loans, the proceeds of which went to the officer rather

than to the nominal borrowers, and who assured the

nominal borrowers that they would not be looked to for

repayment, were validly convicted of willful misapplication

of bank funds under 18 U.S.C. 656.

2. Whether 18 U.S.C. 656 is impermissibly vague.

3. Whether petitioner Liffiton’s rights were violated by

the alleged use of leads derived from a state-authorized

wiretap in investigating federal banking crimes.

(I)

TABLE OF CONTENTS

Page

EE CMe Alans ayy sais Gace A MA ee ne De es l

i RE ee oe a ee Ce 2

8 as ete SS a a ga ae aera 2

a hw hy eee eA Ek eR RAM 6

eT a cay. am. de KYRA 12

TABLE OF AUTHORITIES

Cases:

Colautti v. Franklin, 439 U.S. 379 (1979) ...... )

Franks v. Delaware, 438 U.S. 154 (1978) ....... 4, 10

Screws v. United States, 325 U.S. 91 (1945) .... 9

United States v. Britton, 107 U.S. 655 (1883) ... 8

United States v. Brodson, 528 F.2d 214 (7th Cir.

Ng NR Se aa er 11

United States v. Cooper, 464 F.2d 648 (10th Cir.

1972), cert. denied, 409 U.S. 1107 (1973) .... 8

United States v. Docherty, 468 F.2d 989 (2d Cir.

hn 6,7

United States v. Donlan, 825 F.2d 653 (2d Cir.

nL ee a Oil by Sig ea a hae w bev 11

United States v. Fortunato, 402 F.2d 79 (2d Cir.

1968), cert. denied, 394 U.S. 933 (1969) ..... 7,8

United States v. Gens, 493 F.2d 216 (Ist Cir.

EN a ee 6

United States v. Johnson, 539 F.2d 181 (D.C. Cir.

1976), cert. denied, 429 U.S. 1061 (1977) .... 11

United States v. Kennedy, 564 F.2d 1329 (9th Cir.

1977), cert. denied, 435 U.S. 944 (1978) ..... 7

United States v. Krepps, 605 F.2d 101 (3d Cir.

saat Si ne i Aa 7,8

Cases — Continued: Page

United States v. Mann, 517 F.2d 259 (Sth Cir. 1975),

cert. denied, 423 U.S. 1087 (1976) ........... 8

United States v. Marion, 535 F.2d 697 (2d Cir.

Pe cece eh ek ces hae eee Oe ee ees 1]

United States v.-Ricco, 566 F.2d 433 (2d Cir. 1977),

cert. denied, 436 U.S. 926 (1978) ............ 11

United States v. Shively, 715 F.2d 260 (7th Cir. 1983),

cert. denied, 465 U.S. 1007 (1984) ........... 7

United States v. Steffen, 641 F.2d 591 (8th Cir.), cert.

denied, 452 U.S. 943 (1961) ................ 7

United States v. Twiford, 600 F.2d 1339 (10th Cir.

he ee ee ee ae Go eae eh eke 7

United States v. Woods, 877 F.2d 477 (6th Cir.

SE cake ee ee ae cae enh ice peer 7

Village of Hoffman Estates v. The Flipside, Hoff-

man Estates, Inc., 455 U.S. 489 (1982) ...... 9

Statutes:

Cs EE Cn aa oc Ca ee Gee Pte 7

ecg EEG Sea ay ie ae ues ce aes 2

Se eS EE Gk at ac Ca ek eae Ren .2, 6, 7,8

oe be cca Oc a ea cece ee peewee az

ee. ae oe ee eae 2

Oe uc BEE Gx ee eee ere eee eee 1]

Se Beck MUPEEE cas howe nee ew den eune ek 1]

i ee EE tes nee eee eee toe li

Se Seay IEE se Piao en ERC e Leer eee 10

ie Sic. PEO POEED 15 Oo KS ccs den Sas eees 5

Jn the Supreme Court of the Anited States

OCTOBER TERM, 1990

No. 89-1954

ANTHONY SANTIAGO, PETITIONER

v.

UNITED STATES OF AMERICA

No. 89-7702

JACK D. LIFFITON, 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

OPINION BELOW

The opinion of the court of appeals (Pet. App. la-18a')

is reported at 894 F.2d 533.

' The appendix citations are to the appendix in No. 89-1954.

(1)

i)

JURISDICTION

The judgment of the court of appeals was entered on

January 17, 1990. A petition for rehearing was denied on

March 20, 1990. The petition for a writ of certiorari in No.

89-7702 was filed on June 4, 1990, and the petition in No.

89-1954 was filed on June 13, 1990. The jurisdiction of this

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

STATEMENT

After a jury trial in the United States District Court for

the Western District of New York, petitioners were con-

victed of one count of aiding and abetting the willful misap-

plication of bank funds (18 U.S.C. 656), and one count of

conspiring to commit that offense (18 U.S.C. 371). In ad-

dition, petitioner Santiago was convicted of aiding and abet-

ting the making of false bank entries (18 U.S.C. 1005), and

petitioner Liffiton was convicted of making false declara-

tions before a federal grand jury (18 U.S.C. 1623).? Peti-

tioner Santiago received a suspended sentence, a three-year

term of probation, and a fine of $7,500. Petitioner Liffiton

was sentenced to a cumulative term of two years’ imprison-

ment. The court of appeals affirmed. Pet. App. la-18a.

1. The facts underlying petitioners’ convictions are set

forth in the government’s opposition to certiorari in Castiglia

? Two other co-defendants stood trial with petitioners. Co-defendant

Peter Castiglia was convicted of one count of conspiracy to misapply

the funds of a federally insured bank (18 U.S.C. 371), two substantive

counts of willfully misapplying the funds of a federally insured bank

(18 U.S.C. 656), and four counts of making false entries in bank reports

(18 U.S.C. 1005). Co-detendant Richard Tocha was acquitted on all

counts. The court of appeals affirmed petitioners’ convictions ia the

same opinion that disposed of Castiglia’s claims.

3

v. United States, 894 F.2d 533 (2d Cir. 1990), cert. denied,

110 S. Ct. 3238 (1990).> Briefly, co-defendant Peter Castiglia

authorized a $580,000 loan by the Bank of New York to

petitioner Santiago as the nominal borrower; Castiglia

assured Santiago that Santiago would not be looked to for

repayment. The money was then funneled through a series

of transactions to Castiglia, to Castiglia’s wholly owned real

estate holding company, and to petitioner Liffiton. Liffiton

received a total of $188,000 from the $580,000 loan even

though his unsecured loans at the bank already exceeded

the bank’s $1 million lending limit. Santiago, the nominal

borrower, received only about $3,500 of the proceeds, and

he treated Castiglia as the real borrower. In a subsequent

effort to conceal Castiglia’s status as the beneficiary of the

loan, Liffiton falsely testified before a federal grand jury

that he (rather than Castiglia) was the sole shareholder of

the real estate holding company. Pet. App. 3a-7a; Gov't

C.A. Br. 21-23.

2. Prior to trial, Liffiton moved to dismiss the indict-

ment based upon challenges to state-authorized wiretaps of

his residence and a business. A warrant authorizing the

wiretaps for a 30-day period had been issued on May 21,

1982, by a New York state judge, Gov’t C.A. App. 455-458,

based upon an application of the Erie County District At-

torney. /d. at 409-412. That application was supported by

a lengthy affidavit of FBI Agent Joseph R. Coyne detail-

ing the grounds for believing Liffiton was involved in a con-

spiracy involving narcotics and stolen property. /d. at

413-446. On June 18, 1982, the state judge extended the war-

rant for another 30-day period, id. at 469-471, and amended

the prior warrant to encompass the state offense of murder

and the federal offense of tax evasion, as well as the

previously designated state offenses relating to narcotics and

’ We have provided each petitioner with a copy of our brief in op-

position in Castiglia.

4

stolen property. /d. at 475-476. Finally, on October 14,

1983, after the wiretap authorizations had expired but before

wiretap evidence had been presented to a federal grand jury

investigating Liffiton, the warrant was amended to include

conversations relating to violations of federal banking laws.

Id. at 543-544.

The district court rejected Liffiton’s challenge to the suf-

ficiency of Agent Coyne’s wiretap affidavit. Based upon the

totality of the circumstances and “with deference to the

issuing judge’s decision,” the district court found “that [the

issuing judge] had before him adequate evidence to support

his finding of probable cause to issue the eavesdropping war-

rant.” Gov't C.A. App. 66-67. The court subsequently

denied Liffiton’s motion for an evidentiary hearing to

challenge Agent Coyne’s veracity in attributing information

in the wiretap affidavit to unidentified sources. Gov't C.A.

App. 139-141. Although the wiretap affidavit did not iden-

tify those sources, Liffiton claimed he knew who they were.

He submitted an affidavit from a person whom Liifiton

claimed to be Source One in the wiretap affidavit. The pur-

ported Source One denied having made certain statements

that the wiretap affidavit attributed to Source One. Liffiton

also offered a hearsay statement by the person Liffiton

claimed to be Source Two in the wiretap affidavit. Liffiton

said that the purported Source Two had told him he had

not made certain statements that were attributed to Source

Two in the wiretap affidavit.

Applying the standards of Franks v. Delaware, 438 U.S.

154 (1978), the district court found that “‘[a]s to the assumed

Source Two, any proof attributable to him must be deemed

unreliable in light of the way it has been presented.” Gov't

C.A. App. 139. With respect to Liffiton’s challenge to the

Statements attributed to Source One, the court found that

even assuming Liffiton had made “the substantial initial

showing required by Franks and that any contradicted

. ‘

statements in the Coyne affidavit are to be disregarded,

enough would remain of the content of that affidavit to

establish probable cause upon which to issue a warrant.”

Id. at 140.

The court held an evidentiary hearing on Liffiton’s other

challenges under the New York and federal wiretap statutes.

The court rejected Liffiton’s challenge under state law to

the wiretap extension order that authorized the district at-

torney to intercept conversations pertaining to federal in-

come tax violations in addition to the designated state of-

fenses relating to narcotics, stolen property, and murder.

Gov't C.A. App. 133-138. Next, relying upon federal case

law, the court heid that the 15-month delay in amending

the wiretap authorization so that it included additional

federal banking crimes did not render the communications

“unlawfully intercepted” and require suppression of the com-

munications under 18 U.S.C. 2518(i0)(a)(i). Gov't C.A.

App. 99-101. Instead, the court held that the government

simply was required under federal law to have the wiretap

authorization amended prior to presenting the fruits of the

Wiretap evidence to a grand jury, and the court relied upon

sworn testimony by the investigating agents and one prose-

cutor that no such evidence had been presented to the grand

jury prior to the amendment. /d. at 100-101. Later, the court

denied Liffiton’s motion for reconsideration, holding that

federal law does not prohibit the “nontestimonial” use of

intercepted conversations prior to the amendment of the

wiretap authorization. /d. at 150-151.

3. The court of appeals affirmed. Pet. App. la-18a. The

court upheld petitioners’ willful misapplication and related

convictions, for reasons discussed more fully in our brief

in opposition in Castiglia v. United States, supra. The court

summarily rejected petitioners’ other claims of error without

discussion. Pet. App. 12a.

ARGUMENT

1. Like Castiglia, petitioners challenge (89-1954 Pet.

8-12; 89-7702 Pet. 7-15) the legal basis upon which they were

convicted under 18 U.S.C. 656 for willfully misapplying the

funds of a federally insured bank. The Court denied review

of Castiglia’s identical claims, including his claim that Sec-

tion 656 is unconstitutionally vague, and there is no reason

for a different result here.

a. The Second Circuit held that bank funds are willfully

misapplied when the defendant bank officer secretly receives

the loan proceeds and assures the nominees that they will

not be looked to for repayment, even if the nominal bor-

rowers are creditworthy. Petitioners claim that United States

v. Gens, 493 F.2d 216 (Ist Cir. 1974), and United States

Vv. Docherty, 468 F.2d 989 (2d Cir. 1972), support a con-

trary theory. In fact, neither case holds that the credit-

worthiness of a nominal borrower is an absolute shield to

liability under 18 U.S.C. 656.

In Gens, the First Circuit expressly recognized that

criminal misapplication may occur where “bank officials

assured the named debtor, regardless of his financial

capabilities, that they would look for repayment only to the

third party who actually received the loan proceeds.” 493

F.2d at 222. Indeed, as the court below observed: “{I]n Gens

the First Circuit reversed the convictions of nominee bor-

rowers who recognized their repayment obligations, but

remanded the one count involving a wealthy individual who

signed his note with the understanding that he personally

would not have to repay the loan, barring some ‘catas-

trophe.’” Pet. App. 9a (quoting 493 F.2d at 220, 223).

Hence, there is no conflict between the instant case and

Gens.

Similarly, in the Second Circuit’s earlier decision in

Docherty, the defendant named debtor “knew he was

7

putting his own credit on the line.” 468 F.2d at 995. Ac-

cord Gens, 493 F.2d at 223 & n.15 (“{T]he key point made

by [Docherty is] that there can be no harm to the bank, and

thus no misapplication, where the named debtor is both

financially capable and fully intends to repay the loan.”

(Emphasis added)). This case is consistent with the result

in Docherty because Castiglia assured Santiago, the named

debtor, that Santiago would not be looked to for repayment.

b. Inthe alternative, the Second Circuit held that a bank

officer’s approval of a loan for his own benefit, while con-

cealing his personal interest in the proceeds, constitutes

willful misapplication within the meaning of 18 U.S.C. 656.

It is true that, prior to this case, the Second Circuit’s

Docherty rule seemed out of step with an otherwise un-

broken line of federal circuit court authority finding misap-

plication whenever a bank officer knowingly caused a “loan

to be made to his own benefit, concealing his interest from

the bank.” United States v. Fortunato, 402 F.2d 79, 81 (2d

Cir. 1968), cert. denied, 394 U.S. 933 (1969).4 The Second

Circuit in this case, however, disavowed that aspect of

Docherty. Pet. App. 20a. In addition, it is questionable

whether the First Circuit would adhere to the position it

adopted in Gens with respect to a bank officer’s conceal-

ment of his interest in a loan in light of the 1978 enactment

of 12 U.S.C. 375b, which restricts the circumstances in

which a federally insured bank may make loans to its of-

ficers. See United States v. Krepps, 605 F.2d 101, 107 n.21

(3d Cir. 1979).

4 See also United States v. Woods, 877 F.2d 477, 479 (6th Cir. 1989);

United States v. Shively, 715 F.2d 260, 265-266 (7th Cir. 1983), cert.

denied, 465 U.S. 1007 (1984); United States v. Steffen, 641 F.2d 591,

597 (8th Cir.), cert. denied, 452 U.S. 943 (1981); United States v.

Krepps, 605 F.2d 101, 106-107 (3d Cir. 1979); United States v. Twiford,

600 F.2d 1339 (10th Cir. 1979); United States v. Kennedy, 564 F.2d

1329, 1338-1339 (9h Cir. 1977), cert. denied, 435 U.S. 944 (1978).

8

2. Nor is there any merit to petitioners’ claims that 18

U.S.C. 656 is unconstitutionally vague. 89-1954 Pet. 9-10;

89-7702 Pet. 7-11. Every court to consider this argument

has rejected it. See, e.g., United States v. Krepps, 605 F.2d

101, 104 n.13 (3d Cir. 1979); United States v. Mann, 517

F.2d 259, 268 (Sth Cir. 1975), cert. denied, 423 U.S. 1087

(1976); United States v. Cooper, 464 F.2d 648, 651 (10th

Cir. 1972), cert. denied, 409 U.S. 1107 (1973); United States

v. Fortunato, 402 F.2d at 82.

Notwithstanding the consensus of the courts of appeals,

petitioners rely upon United States v. Britton, 107 U.S. 655

(1883), for the proposition that the term “willfully misap-

plied,” as used in an earlier version of the statute, had no

settled meaning. 89-1954 Pet. 9-10; 89-7702 Pet. 7. In that

case, however, the Court clarified that “the wilful misap-

plication made an offence by this statute means a misap-

plication for the use, benefit, or gain of the party charged,

or of some company or person other than the association.”

107 U.S. at 666. Accordingly, the Court held that the

criminal sanction did not reach mere “acts of maladministra-

tion of the affairs of [a bank] by its officers,” but instead

was limited to misapplication benefiting the officer or some

third party. /d. at 668. Consistent with Britton, the jury

here was instructed that a “mere act of maladministration

is insufficient to constitute a violation of the section.” 23

Tr. 47. There was ample evidence, including the indisputable

facts that Castiglia personally benefited from the loans and

took affirmative steps to hide his status from the bank, upon

which the jury could base its verdict that Castiglia acted

with the necessary criminal intent and that petitioners con-

spired with him and aided and abetted his unlawful

conduct.°

> Petitioner Liffiton’s related challenge (Pet. 16-17) to the sufficien-

cy of the evidence against him is meritless. Liffiton was a prime

9

Finally, to the extent petitioners seek to raise a facial at-

tack upon 18 U.S.C. 656, their claim must fail because they

cannot “demonstrate that the law is impermissibly vague

in all of its applications.” Village of Hoffman Estates v.

The Flipside, Hoffman Estates, Inc.. 455 U.S. 489, 497

(1982). Given the district court’s detailed instructions that

the jury could not convict petitioners under the statute unless

Castiglia and petitioners acted with specific criminal intent,

see 23 Tr. 30-32, 46-47; see also 23 Tr. 60-63, petitioners

cannot raise any colorable claim that the statute was im-

permissibly vague as applied to them. Cf. Colautti v.

Franklin, 439 U.S. 379, 395 n.13 (1979) (“requirement of

a specific intent to do a prohibited act may avoid those con-

sequences to the accused which may otherwise render a

vague or indefinite statute invalid” (quoting Screws v. United

States, 325 U.S. 91, 101-102 (1945)).

3. There is also no basis for further review of Liffiton’s

fact-bound challenges (Pet. 17-23) under New York and

federal law to the state-authorized wiretaps. As an initial

matier, it should be noted that no wiretap evidence was in-

troduced against Liffiton at trial. Moreover, the district

court reasonably interpreted New York state law as allow-

ing the state district attorney to obtain authorization to in-

tercept conversations relevant to federal offenses in addi-

tion to the designated state offenses listed in the New York

Statute. See Gov't C.A. App. 133-138. The district court’s

ruling on this point of state law does not warrant further

review by this Court.

beneficiary of the loan proceeds (receiving $188,000) and took several

steps to further the conspiracy and aid and abet the substantive viola-

tion, including disbursing the loan proceeds in a manner that concealed

the identities of the loan beneficiaries, lying to federal agents and the

federal grand jury about Castiglia’s status as a beneficiary of the loan,

and seeking to procure false testimony by others. Pet. App. 4a-6a.

10

Nor is further review warranted with respect to the district

court’s denial of an evidentiary hearing on Luiffiton’s

challenge to the veracity of Agent Coyne’s affidavit sup-

porting the wiretap. Consistent with Franks v. Delaware,

438 U.S. 154, 171-72 (1978), the district court found that,

even it Liffiton had made the requisite substantial initial

showing of falsity, an evidentiary hearing would not have

been required because there was still sufficient information

in the affidavit, after disregarding the challenged statements,

to establish probable cause. Gov’t C.A. App. 139-141. The

court unquestionably applied the correct legal methodology

under Franks, and any remaining fact-specific issues in-

volved in the district court’s ruling would not warrant fur-

ther review.

Finally, there is no merit to Liffiton’s claim (Pet. 17-18)

that the delay in amending the wiretap authorization to in-

clude the interception of conversations related to banking

crimes should have precluded federal investigators from pur-

suing leads to witnesses and evidence revealed in those con-

versations. As an initial factual matter, we dispute Liffiton’s

claim that “[w]ithout the benefit of the wiretap the govern-

ment would never have learned of the transaction in ques-

tion.” /bid. To the contrary, FBI Agent John J. McGuigan

testified at the suppression hearing that when the instant

investigation began in September 1982, he was not aware

of any previous investigation or wiretaps involving Liffiton.

See Gov’t C.A. Br. 42.

In any event, Liffiton’s claim is incorrect as a matter of

law because amendment of an authorization order is re-

quired only if the government seeks to offer testimony that

would disclose “the contents [of the intercepted communica-

tions} and any evidence derived therefrom” in a grand jury

or trial proceeding. 18 U.S.C. 2517(5). In contrast, the

Statute expressly provides that where the wiretap intercepts

“communications relating to offenses other than those

specified in the order of authorization or approval, the con-

tents thereof, and evidence derived therefrom, may be

disclosed or used as provided in subsections (1) and (2) of

this section.” /bid. In turn, subsections (1) and (2) of 18

U.S.C. 2517 provide that any agent who has obtained

knowledge of the contents of an intercepted conversation

through a lawful wiretap “may disclose such contents to

another investigative or law enforcement officer to the ex-

tent that such disclosure is appropriate to the proper per-

formance of the official duties of the officer making or

receiving the disclosure,” 18 U.S.C. 2517(1), and “may use

such contents to the extent such use is appropriate to the

proper performance of his official duties,” 18 U.S.C.

2517(2). Thus, the agents here were fully entitled to pursue

leads derived from the wiretaps without having to amend

the authorization to include the banking crimes upon which

Liffiton ultimately was indicted. United States v. Johnson,

539 F.2d 181, 187 (D.C. Cir. 1976) (“The statute requires

prior judicial approval for use of other-crimes fruits of a

wiretap, Only where the information is to be offered in

testimony at a federal or state proceeding.”), cert. denied,

429 U.S. 1061 (1977); see also United States v. Donlan, 825

F.2d 653, 655 (2d Cir. 1987); United States v. Ricco, 566

F.2d 433, 435 (2d Cir. 1977), cert. denied, 436 U.S. 926

(1978).¢

¢ There is no merit to petitioner’s claim (Pet. 17-18) that the deci-

sion here conflicts with United States v. Marion, 535 F.2d 697 (2d Cir.

1976), and United States v. Brodson, 528 F.2d 214 (7th Cir. 1975), both

of which involved the presentation of wiretap evidence in grand jury

proceedings prior to the amendment of the authorization.

12

CONCLUSION

The petitions for a writ of certiorari should be denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

EDWARD S.G. DENNIS, JR.

Assistant Attorney General

SEAN CONNELLY

Altorney

AUGUST 1990

vr US. GOVERNMENT PRINTING OFFICE: 1990—262-203/20043