Petition for Writ of Certiorari — Dornau v. United States

Supreme Court brief1974

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IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1973

n. €3- 1390

PETER DORNAU, Petitioner,

UNITED STATES OF AMERICA, Respondent,

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

EPHRAIM LONDON

575 Madison Avenue

New York, New York 10022

Counsel for Petitioner

On the Petition

FRANKLIN S. BONEM

(4047) EPHRAIM LONDON

{

TROTY SR ST

PPT HRP TRAIT REE ne RA PRATT

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BPE ERLE, ee ETRE ee

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LO OPEN PL EN VLEN LOOSE LES LD SE GT,

INDEX

Page

Opinions Below .cccccrcccccccece 2

PUTIBEICIIONs Bcc cor ecoresecncec 2

Questions Presented .....e-eeeee00- 3

The Constitutional Provision and

Statutes Involved ..cceccccecccscce 4

Statement of the Case ...2-cecccece 6

Reasons for Granting the Writ

1, The Second Circuit's Interpreta-

tion of the Immunity Provision

of the Bankruptcy Act Is in Con-

flict with the Fifth Circuit's

Interpretation of the Same Pro-

. Vererorvnrr? creat eee 16

2. The Case Presents an Important

Question under the Fifth Amend-

ment of the Constitution and the

Decision Below on the Constitu-

tional Question Is Inconsistent

with the Prior Decisions of This

ee ere aaa eae ea 19

Appendix A: Opinion and Order of

the District Court for

the Southern District

OF New York. e.ssecscs Anil

“ Le Mah OMEN an ALO IE a

INDEX

Page

Appendix B: Opinion of the Court

of Appeals for the

Second Circuit A-18

Appendix C: Judgment of the Court

of Appeais entered

January 24, 1974 A-30

TABLE OF CASES AND

OTHER AUTHORITIES

Cases:

Adams _v. Maryland, 347 U.S. 179,. o 1,42

Arndstein v. McCarthy, 254 U. a the 24

Arsenault v, Massachusetts, 393 U.S,

eeu es er eee eee ee eee se oe eeeee8e 21

Berger v. California, 393 v.G 384.. 23

Brown v. Walker, 161 U.S. a

Carroll v. United States, 354 U.S,

OO" SDGR WOW n eee ee OOS bh owe oO 25

Counselman vy, Hitchcock, 142 U.S,

ieee eee ere Creer 7

Emspak v. United States, 349 U.S.

bee ee ee ee ad mane 23

INDEX

nd Page

Eskridge v. Washington State Board,

357 U.S. REO 066 668886866640 #40 8 20

Fowler v. Vincent, 366 F.Supp. 1224

(S. D. N. a } oevevevenfheeeeeee#e#gewe#eoee#e#e#ee#e#eee# @ 22

Garrity v. New Jersey, 385 U.S.

Gus see eeaeet sees eo 6eense bees be aee 22

Ivan V. v. City of New York, 407

is S. 203 -_ e + es ee * se e 7 ° ee * es eee e ° e 21

Johnson v. Zerbst, 304 U.S. 458... 23

Kastigar v. United States, 406 U.S.

441 eoeeeeee#se5oegereee#ee#eereereeee#e#ee#e#e##e#e#ee id, 13,

Katz v. United States, 389 U.S.

|) Pr rar eer eae ae ae a 22

Kitchens v. Smith, 401 U.S. 847.... 21

Linkletter v. Walker, 381 U.S.

Ee a ee Ae ae ee ee ee ar ae 20

McConnell v. Rhay, 393 U.S. 2 .... 20

O'Connor v. Ohio, 385 U.S. 92..... 20

People v. Dinora, 13 Ill. App. 3d 99,

200 N, i. 2d 797. eoeeeeee5eoee#eee#eeese#ee# e 23

INDEX

Piccirillo v. New York, 400 U.S.

548 *eeoeene fe e#eteeeee* e# © @© © @©& © © # @

Price v. Georgia, 398 U.S. 323....

Roberts v. Russell, 392 U.S. 293...

Robinson v. Neil, 409 U.S. 505 ....

Simmons v. United States, 390 U.S.

377 SS A. oe Oe Oe i) ee Oe OO ee Oy, . . . 7 . . . - . . *

Slochower v. Foard of Education,

Ce ee) ee cece eenees

Smallwood v. Gallardo, 275 U.S.

Pe Sy eS ee ee a ee ee ee

Smith v. United States, 337 U.S.

137 7 i. o a FC me oe re a +. . . . - . > 2 2. &. Be ®@

Spev2ck v. Klein, 385 U.S. 511 ....

Ullman v. United States, 350 U.S,

422 re ff © © . . . . . . i oh oe oe . . a co . . .

United States v. Brewster, 408 U.S.

501 . . . -_ . . * « . . . . . . . . . . . . * « . .

United States v. Calandra, U.S.

», 42 U.S. Law Week 4104......

INDEX

Page

United States v. Filiberti, 366 4

F. Supp. 1062 (D, Conn, ) eeoeoeeveereee 17, 26 :

United States v. Findley, 439 F.2d i

976 tlet Civ}. 20s ss ete ee

United States v. Goodwin, 470 F.2d

893 (5th Cir.), cert. denied, 411 U.S. 4

wo oe he eee ee Oak oe oe 4

United States v. Hill, 473 F.2d 759

eo) ae a a ee ee 26 t

United States v. McDaniel, 482 F.2d

SUR t C66 Sic sce sh see een ee

United States v. Monia, 317 U.S.

424 ° . ° aa . . . . . . . o . . ° . . a . o . a . . 23

United States v. Ponto, 454 F.2d

657 (7th Cire)... eer, es ee

United States v. Rothfelder, 474 F.2d

606 (6th Cir.), cert. denied, 413 U.S.

Se ae eee ee ee ee ee ee 26

United States v. Seiffert, 463 F.2d

1089 (OTS Peee eee ee eee re eee

United States v. Sisson, 399 U.S.

267 -_ ° - ° . . . e . ° e e ° * . e . ° * . e . _ . 25

vi t

INDEX

Page

United States v. Weller, 401 U.S.

Coe 4s 8 8 8 oe eee oesee#e#e#*# «e# # # @# 25 ;

;

Will v. United States, 389 U.S. 90 .. 25

Witherspoon v. Illinois, 391 U.S. ;

510 . . . . . o . . * . . . _ . . . . s 7. . ss * os . 20

Constitution of the United States:

71 Deena. « + 6 «ss 6 2 6 ee 4

tatutes: &

Section 7(a) of the Bankruptcy

Act, 11 U.S.C. 825(a).......-

Criminal Appeals Act, 18 U.S.C.

83731 . . . . . . . . . . . o . J . . . . . o 6

Legislative History:

H.R. Rep. No. 1549, 91st Cong.,

bet Bees. Ties asecccdvces F

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1973

No.

PETER DORNAU, Petitioner,

Vv.

UNITED STATES OF AMERICA, Respondent,

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

Petitioner Peter Dornau respectfully

prays for a writ of certiorari to review the

judgment of the United States Court of Appeals

for the Second Circuit.

OPINIONS BELOW

The opinion and order of the Dis-

trict Court for the Southern District of

New York dismissing an indictment of the

Petitioner, is reported at 359 F.Supp. 684

and is set forth in Appendix A. The opin-

ion of the Court of Appeals reinstating the

indictment is not yet reported and appears

in Appendix B.

JURISDICTION

The judgment of the Court of

Appeals for the Second Circuit was entered

January 24, 1974 (App. C) and its mandate

has not issued. On February 12, 1974, Mr.

Justice Marshall extended the time to file

this petition to March 15, 1974, This

Court's jurisdiction is invoked under 28

U.S.C. 61254(1).

QUESTIONS PRESENTED

1. Whether the federal government,

in its preparation and conduct of a criminal

trial to take place after the amendment of

Section 7(a) of the Bankruptcy Act (which

prohibits direct or indirect use of compelled

testimony secured in bankruptcy proceedings),

may use evidence obtained from the defend-

ant's testimony secured under Section 7(a)

before the date of the amendment,

2. Whether Section Ha) of the

Bankruptcy Act, if it allows the federal gov-

ernment to use evidence obtained from testi-

mony compelled from the defendant, violates

the Fifth Amendment privilege against self-

incrimination,

3. Whether the United States can

appeal, in a Ae et ne instituted before

the effective date of the current Criminal

Appeals Act, from an order of dismissal

based on a finding of immunity under the

Bankruptcy Act.

THE CONSTITUTIONAL PROVISION

AND STATUTES INVOLVED

Fifth Amendment of the Constitution:

No person *** shall be compelled

in any criminal case to be a witness against

himself, nor be deprived of life, liberty, or

property, without due process of law;***,

Section 7 of the Bankruptcy Act, 1l U.S.C.

§25, prior to 1970 amendment:

(a) The bankrupt shall *** (10) ***

submit to an examination ***; but no testi-

mony given by him shall be offered in

evidence against him in any criminal pro-

ceeding ***,

(b) Where the bankrupt is a corpo-

ration, its officers *** or such of them as

may be designated by the court, shall per~

form the duties imposed upon the bankrupt

by this title.

Section 7(a) of the Bankruptcy Act, 11 U.S.C.

§25(aj, as amended October 15, 1970, effec-

tive December 14, 1970:

The bankrupt shall *** (10) *** sub-

mit to an examination ***; but no testimony,

or any evidence which is directly or indir-

ectly derived from such testimony, given by

him shall be offered in evidence against him

in any criminal proceeding xan, |

: The underscored words are the words

added by the amendment,

DAPI i <taciin 7 SS SSS Se

Criminal Appeals Act, 18 U.S.C. 63731

(prior to 1971 amendments): ,

An appeal may be taken by and on

behalf of the United States from the district

courts to a court of appeals in all criminal

cases, in the following instances:

From a decision or judgment setting

aside, or dismissing any indictment or infor-

mation, or any count thereof except where a

direct appeal to the Supreme Court of the

United States is provided by this section, ***

STATEMENT OF THE CASE

From its enactment in 1898 until

1970, Section 7(a) of the Bankruptcy Act

provided that testimony secured at the first

meeting of creditors and in certain other

bankruptcy proceedings from a bankrupt, or

es RSID So OO Ta a ART: OY

a designated officer or agent of a bankrupt,

could not be offered in evidence against the

witness in any criminal proceeding. There

was doubt, however, whether any immunity

short of immunity from prosecution was

constitutionally sufficient to protect a wit-

ness who was compelled to give testimony,

from self-incrimination, With the single

exception of Section 7(a) of the Bankruptcy

Act, every one of the more than forty fed-

eral immunity statutes enacted between 1892

and 1970 granted the witness immunity from

prosecution on account of any matter men-

tioned in his testimony, ¢

: See Counselman v. Hitchcock, 142 U.S.

547; Brown v. Walker, 161 U.S. 591;

Adams v. Maryland, 347 U.S. 179, 182-

183; and Piccirillo v. New York, 400

U.S. 548, 571 and n,11 (dissenting opin-

ion of Mr. Justice Brennan),

Congress amended the Bankruptcy

Act effective December 14, 1970, to "elimi-

nate *** constitutional objections" and to

avoid "future court challenge" of Section

7(a) and other immunity provisions (H.R.

Rep. No. 1549, 9lst Cong., 2d Sess., p.1).

Under the amendment of Section 7(a) of the

Act, no testimony "or any evidence which

is directly or indirectly derived from such

testimony" can be offered in evidence against

the witness in any criminal proceeding (ll

U.S.C. 825(a)(19); P.L. 91-452, Oct. 15,

1970, 84 Stat. 929).

Petitioner Peter Dornau (hereafter

referred to as Dornau) was vice president

of Ra-Dor Industries, Inc. (Ra-Dor), a cor-

poration adjudicated a bankrupt. In May

1969, — before the statutory amendment —

Dornau was ordered by a bankruptcy court

to appear as a witness at the first meeting

of Ra-Dor's creditors in Tampa, Florida.

The order of the bankruptcy court, entered

pursuant to Section 7(b) of the Bankruptcy

Act, designated Dornau as an officer of

Ra-Dor required to perform the duties of

the bankrupt (see Government Exhibit 13,

pages l, 11, in the Record filed in this

Court).

When Dornau appeared before the

Court, his counsel reminded the bankruptcy

referee of his order compelling Dornau's

attendance, and the referee advised Dornau

of the privilege against self-incrimination

and the doctrine of waiver. Counsel then

seid it was Dornau's position that under

Section 7(a)(10) of the Bankruptcy Act, the

testimony he would give, and "any evidence

which is found as the result of testimony, "

could not be used against him. The referee

responded, "7-A-10 grants immunity to an

officer who, by virtue of the provisions of

the Act, is compelled to come to Court and

testify. That applies to the Bankrupt him-

self and in the case of a corporation, to an

officer thereof.'' Dornau thereupon testified

about the affairs of Ra-Dor in the presence

of representatives of the federal government

(Exh, 13, pp. 21-24).

The federal government started an

investigation of Ra-Dor in 1968, before

Dornau was required to testify in the bank-

ruptcy proceeding. Thereafter, in the sum-

mer of 1969, the government decided to

present the case to a grand jury in New

York. The prosecutor in charge of the

investigation obtained the transcripts of

Dornau's testimony in the bankruptcy

proceeding. The prosecutor read Dornau's

testimony in August or September 1969, —

before he presented any evidence to the

grand jury respecting an alleged scheme to

defraud investors in Ra-Dor, with which

Dornau was subsequently charged. There

are nearly fifty places in the bankruptcy

transcripts where the prosecutor made notes

indicating testimony of interest to him (Al2-

13).°

In October 1969, Dornau was indicted

in the Southern District of New York for

mail fraud and wire fraud, 18 U.S.C.

$81341, 1343. Portions of the testimony

taken from Dornau under grant of immunity

in the bankruptcy proceeding related to the

subject matter of the indictment and the

Numbers following the letter A are refer-

ences to pages of the Appendices to this

Petition.

government's case (A13-15),

At a pre-trial hearing, the government

was called upon to show and failed to show, as

required by Kastigar v. United States, 406

U.S. 441, that all of its evidence of fraud came

from sources other than testimony compelled

from Dornau in the bankruptcy proceeding.

On Dornau's motion, the indictment was dis-

missed (A4-6, 15, 17). The District Court's

ruling was not limited to the evidence presented

to the grand jury, and included the evidence

the government intended to use on the trial, *

4 Cf. United States v. Calandra, U.S. P

42 U.S. Law Week 4104. There is a dictum

in Calandra to the effect that an indict-

ment based on compelled testimony is

valid (at 4106). However in Calandra the

Court distinguished the use of illegally

obtained evidence in the context of a crimi-

nal trial, and re-affirmed the constitutional

rule that evidence derived from illegally

obtained evidence may not be used in the

trial context (at 4109),

POE NEN LE SOLO PENG OO LENE OSI ELM SINK IEEE REG teat NOT OP cal

- The Court held, on the authority of Kastigar

v. United States, that dismissal of the case

was necessary because the government failed

to establish that coerced testimony was not

used "in any respect". The scope and

strength of the case against Dornau could

have been enhanced by knowledge derived

from the prosecutor's reading of the coerced

testimony. At least the contrary was not

shown (A4-6, 13-17).

It may fairly be inferred that the

government used the coerced testimony

indirectly to secure the indictment, or in-

tended to use it upon the trial of the case,

The gevernment was free, when the indict-

ment was @ismissed, to seek a re-indict-

ment by presenting independently derived

evidence to a different grand jury. Ata

conference between the Judges of the Court

of Appeals and counsel, the Judges of the

Court suggested that the government follow

that course and moot its appeal from the dis-

missal of the indictment. The government did

not follow the suggestion. It may be inferred

from the government's failure to seek a new

indictment, that it was not able to proceed

without using the coerced testimony,

The Court of Appeals reinstated the

indictment on the sole ground, not raised be-

low, that the only protection Dornau received

when ordered to appear as a witness in the

bankruptcy proceeding, was that the transcripts

of his testimony could not be read to the grand

jury that indicted him, and could not be offered

in evidence at his trial. 5 The Court of Appeals

? The government did not read the bankruptcy

testimony to the grand jury and stated that

it did not intend to read the testimony into

evidence on the trial.

said Dornau obtained only that very limited

protection because he testified prior to the

amendment of Section 7(a) of the Bankruptcy

Act prohibiting use of evidence directly or

indirectly obtained from testimony secured

under that Section (A25-28),

Dornau argued that Section 7(a) of

the Act is unconstitutional under Kastigar

v._ United States, 406 U.S, 441, if interpreted

to allow use of evidence obtained from a

defendant's testimony in a case not reached

for trial when Kastigar was decided. The

Court said Kastigar did not apply because

the bankruptcy referee did not have power

to cornpel testimony prior to the statutory

amcadment, and Kastigar applies to com-

pelled testimony only (A27, n. 13).

REASONS FOR GRANTING THE WRIT

1. . The Second Circuit's Interpretation

of the Immunity Provision of the

Bankruptcy Act Is in Conflict With

the Fifth Circuit's Interpretation

of the Same Provision,

The Court of Appeals, in determin-

ing that Dornau received nothing more

than protection against the reading of his

testimony into evidence, acknowledged that

its decision is in conflict with United States

v. Seiffert, 463 F.2d 1089 (5th Cir.) (A28),

In Seiffert the Court held that the amend-

ment of Section 7(a) of the Bankruptcy Act

was applicable to all cases pending on the

effective date of the amendment and con-

ferred the broader protection upon the

defendant who testified in a bankruptcy pro-

ceeding, and was indicted, before the effec-

tive date, 463 F.2d at 1091-1092. On the

, 17

remand in Seiffert, the trial Court found

that none of the government's evidence was

derived from the defendant's testimony.

The Fifth Circuit heard argument un the

second appeal in Seiffert on February 5,

1974,

A different panel of the Fifth Cir-

cuit and the District Court for Connecticut

have held that Section 7(a) of the Act

merely grants protection sinitias the read-

ing of testimony into evidence, to defendants

who testified before the statute was amended,

United States v. Goodwin, 470 F.2d 893,

cert. denied, 411 U.S. 969; United States

v. Filiberti, 366 F.Supp. 1062. However

the defendants in Goodwin and Filiberti,

unlike Dornau, apparently did not claim

immunity in the bankruptcy proceeding,

As the immunity provision of the

Bankruptcy Act was amended to broaden the

scope of immunity and to eliminate constitu-

tional problems (see page 8 of this Petition),

it is unlikely that Congress intended to allow

direct or indirect use of compelled testimony

after the effective date of the amendment.

Certainly there is nothing in the terms of

the amendment, curative in purpose, to sug-

gest so anomalous, and constitutionally ques-

tionable, a result, See Smallwood v. Gallardo,

275 U.S. 56, 61, and Ullman v, United States,

350 U.S, 422, 433.

6 The District Court did not, in the instant

case, dismiss the indictment on the ground

that the government may have made direct

or indirect use of Dornau's testimony in

the proceedings before the grand jury in

1969, i.e., prior to the statutory amend-

ment. The Court's inquiry focused initi-

ally upon whether the indictment was

based on compeiled testimony, The in-

quiry "was broadened to include evidence

the government proposed to use on the

“

Sane,

hae -

j . SAREE OEP OES

LED PLEA LI SLOTS, Bat AR CLE NOOB IE” Os a HES IL

' 19

2. The Case Presents an Important

Question under the Fifth Amend-

ment of the Constitution and the

Decision Below on the Constitu-

tional Question is Inconsistent

with the Prior Decisions of This

Court,

In 1972, the Court held in Kastigar

v. United States, 406 U.S, 441, that immu-

nity from prosecution is not required by

the Fifth Amendment privilege against self-

incrimination, provided that the government

does not use testimony given by the defend-

ant under a grant of immunity "in any

trial'’ (A4). The Court found that the

government could have used Dornau's

testimony in a variety of ways prior to

and at the trial (after the effective date

of the amendment) (Al3-15), In United

States v. McDaniel, 482 F.2d 305 (8th

Cir.), the Court found that the reading,

prior to indictment, of defendant's com-

pelled testimony could have helped the

government interpret evidence and plan

its trial strategy and cross-examination,

— long after the indictment was returned,

482 F.2d at 311,

Eines. PRAT - LET EEL LIDS L LEI IOOT LLL A EISELE EM se Ge toca, em

" 20

respect" (the Court's emphasis). If a wit-

ness testifies under grant of immunity and

is subsequently prosecuted, there is a

"total prohibition" on direct or indirect use

of his testimony, — a "comprehensive safe-

guard’ imposing on the government "'the

heavy burden of proving that all of the evi-

dence it proposes to use was derived from

legitimate independent sources."" 406 U.S,

at 453, 460-462,

The constitutional protection articu-

lated in Kastigar v. United States undoubtedly

applies to cases not yet tried on the date of

the decision, Cf, Eskridge v. Washington

State Board, 357 U.S. 214; Linkletter v.

Walker, 381 U.S. 618, 622, n.4; O'Connor

v. Ohio, 385 U.S. 92, 93; Witherspoon v.

Illinois, 391 U.S. 510, 523, n.22; Roberts

v. Russell, 392 U.S, 293; McConnell v.

ss 73 4, i n

Pais aaa iss ds tea cases BS dds ot an

Rhay, 393 U.S. 2; Arsenault v. Massachu-

setts, 393 U.S. 5; Berger v. California,

393 U.S. 314; Price v. Georgia, 398 U.S.

323, 330, n.9; Kitchens v. Smith, 401 U.S.

847; Ivan V. v. City of New York, 407

U.S. 203; Robinson v. Neil, 409 U.S. 505,

The District Court did not rule on the im-

munity claim in the instant case until more

than a year after Kastigar was decided,

and the Court's ruling was on a pre-trial

motion to dismiss,

The Second Circuit held that

Dornau was not entitled to the protection

mandated by Kastigar v. United States, 406

U.S. 441, because he did not invoke the

privilege against self-incrimination in the

bankruptcy proceeding and the bankruptcy

referee could not have compelled Dornau to

testify if he had claimed the privilege (A27,

n.13). The Court's decision is at variance

with prior decisions of this Court indicating

that a witness's testimony cannot be used

against him if given in coercive circum-

stances, regardless of whether the Fifth

Amendment privilege was claimed. Garrity

v. New Jersey, 385 U.S. 493; Adams vy.

Maryland, 347 U.S. 179. Seealso Simmons

v. United States, 390 U.S. 377, 389-394;

Katz v. United States, 389 U.S. 347, 349,

n.3; Spevack v. Klein, 385 U.S. 511;

Slochower v. Board of Education, 350 U.S.

551; Fowler v. Vincent, 366 F.Supp. 1224,

1227-1228 (S.D.N.Y.).

Moreover, when a statute, such as

Section 7(a) of the Bankruptcy Act, confers

immunity automatically, without any action

by the prosecutor or a judge, it would

appear that the witness need not invoke the

privilege to obtain immunity. Adams vy,

Maryland, 347 U.S. 179, 181-182; United

States v. Monia, 317 U.S. 424, 476-427;

United States v. McDaniel, 482 F.2d 305,

309-310 (8th Cir.); People v. Dinora, 13

Ill, App. 3d 99, 200 N.E.2d 797, 802.

This Court "indulge[s] every rea-

sonable presumption against waiver of

fundamental constitutional rights, '' Johnson

v. Zerbst, 304 U.S. 458, 464, including the

privilege against self-incrimination, Emspak

v. United States, 349 U.S. 190, 197-198;

Smith v. United States, 337 U.S. 137, 150.

It is doubtful that Dornau waived the consti-

tutional guarantee when he claimed immunity,

and the interrogator said that the Bankruptcy

Act conferred immunity, before Dornau began

to testify (Exh, 13, p. 24). In the circum-

stances, surely Dornau was not required to

suffer a conviction for contempt for refusing

to answer the questions, as a prerequisite

to the vindication of his constitutional right. \

. Dornau will also argue, if the writ

is granted, that the government did not have

a right of appeal from the order of the Dis-

trict Court dismissing the indictment: The

1948 version of the Criminal Appeals Act

(18 U.S.C. 83731), which governs appeals

7 Arndstein v. McCarthy, 254 U.S. 71, cited

by the Second Circuit in support of its

ruling, did not hold that a witness waives

the Fifth Amendment protection by testify-

ing ina bankruptcy proceeding. The Court

decided in Arndstein vy, McCarthy that the

immunity granted by Section 7 of the Bank-

ruptcy Act before it was amended, was not

co-extensive with the constitutional protec-

tion, 254 U.S. at 73, Thus the witness

was justified in refusing to answer and

his contempt conviction was reversed.

The determination in Arndstein that a wit-

ness may refuse to testify, is not authority

for the proposition that he must refuse to

testify to preserve his rights,

. 25

in prosecutions instituted before the 1971

amendment of the Act, has been consistently

construed against a right of appeal by the

government, United States v. Weller, 401

U.S. 254, 255 and n,1; United States v.

Sisson, 399 U.S. 267, 286, 291 et seq.;

Will v. United States, 389 U.S. 90, 97,

n.5; Carroll v. United States, 354 U.S.

394, 400.

The District Court based its dis-

missal order on facts other than those

alleged in the indictment, and the order

was not based on a defect in the indict-

ment or institution of the prosecution, It

would appear, accordingly, that neither the

Court of Appeals nor this Court had juris-

diction of the government's appeal. United

States v. Sisson, 399 U.S. 267, 298; United

States v, Brewster, 408 U.S. 501, 506;

United States v. Rothfelder, 474 F.2d 606,

608 (6th Cir.), cert. denied, 413 U.S. 922;

United States v. Hill, 473 F.2d 759 (9th

Cir.); United States v. Ponto, 454 F.2d 657,

663-664 (7th Cir.); United States v. Findley,

439 F.2d 970, 974 (lst Cir.).

There have now been four reported

cases dealing with the issues raised in this

petition: United States v. Goodwin, 470 F.2d

893, cert. denied, 411 U.S. 969, United

States v. Filiberti, 366 F.Supp. 1062, the

instant case, and United States v. Seiffert,

463 F.2d 1089, in which the Fifth Circuit's

decision on the second appeal is expected

shortly. The questions are important, and

the writ should be allowed, in view of the

substantial constitutional issue, the conflict

in the decisions of the lower courts, and

the apparent inconsistency between the deci-

sion below and the prior decisions of this

Court,

For the reasons outlined, a writ of

certiorari should be granted to review the

judgment of the Court of Appeals for the

Second Circuit.

Respectfully submitted,

EPHRAIM LONDON

575 Madison Avenue

New York, N. Y. 10022

Counsel for Petitioner

On the Petition

FRANKLIN S. BONEM

EPHRAIM LONDON

APPENDIX A

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA

-against-

FRED R. DORNAU

PETER DORNAU, and

RA-DOR INDUSTRIES, INC.,

Defendants.

ATTORNEYS:

WHITNEY NORTH SEYMOUR, JR.

United States Attorney

Southern District of New York

for the United States

John J. Kenney

Assistant United States Attorney

Of Counsel

PATRICK M. WALL

Attorney for Defendant Fred Dornau

33 West 44th Street

New York, N. Y.

LONDON, BUTTENWIESER & CHALIF

Attorneys for Defendant Peter Dornau

575 Madison Avenue

New York, N. Y. 10022

Franklin S. EBonem,

Of Counsel

“4s > ee.

ee bere hee oo eee mM gpgS

PPLE LR Oy NEO Say oy tes

There

tee nrctacemmmnns

A-2

METZNER, District Judge:

A hearing was held on defendants’

motion to dismiss the indictment because

allegedly it was founded on testimony given

by defendants in bankruptcy proceedings in

Florida pursuant to a grant of immunity.

Section 7a(10) of the Bankruptcy Act (11

U.S.C. 6 25).

The indictment against these defend-

ants contains 45 counts, The first 29 counts

concern only defendant Fred Dornau and

charge him with defrauding the government

by filing false invoices (18 U.S.C. 8 287).

Count 30 charges this same defendant with

uttering and publishing as true a forged gov-

ernment contract (18 U.S.C. & 494). Counts

31 through 41 charge both Fred Dornau and

his brother Peter Dornau with mail fraud

(18 U.S.C. & 1341). Counts 42 through 45

ee ee

A-3

charge both defendants with wire fraud (18

U.S.C. 6 1343).

On March 2, 1973 this court granted

defendants’ motion to inspect the grand jury

minutes for the purpose of determining

whether the indictment may have been imper-

missibly based on the testimony the defend-

ants gave under the grant of immunity.

__F. Supp.____ (S. D.N. Y. 1973). Subse-

quently, the court denied the government's

motion for reargument in which it had re-

quested that the court review the grand jury

minutes in camera, or, in any event, post-

pone any hearing until after the completion

of the trial. F. Supp. » supra. The

defendants were given until May 3 to exam-

ine the grand jury minutes and to move to

dismiss the indictment if they were of the

opinion that their immunity had been violated.

> —_

Toe _— . icpecep « .

SO I TEED LAE PORE CD NTT EINES IEE CE IS Ne RS 1) ear er wep

May 30 had already been fixed as the trial

. date,

| After reading the minutes, defend-

ants moved for a hearing in order to deter-

mine whether the government had made any

use of the privileged testimony of either of

the defendants or of any evidence directly

or indirectly derived therefrom, The hear-

ing was then held at which time the inquiry

was broadened to include evidence the gov-

ernment proposed to use on the trial. This

course was dictated by language in the

Kastigar case, discussed more fully later

in this opinion. At the conclusion of the

hea ring defendants moved to dismiss the

indictment. ~

The immunity granted by Section

7a(10) of the Bankruptcy Act is similar in

language and scope to the immunity granted

: a

A-5

by 18 U.S.C. 6 6002. It is commonly called

use or derivative use immunity, The start-

ing point for the discussion of the issues

here is the decision in Kastigar v. United

States, 406 U.S. 441 (1972), which dealt with

Section 6002. There the Court held that the

scope of any immunity grant must be co-

extensive with a witness' Fifth Amendment

privilege against compulsory self-incrimina-

tion, and that use immunity satisfies this

requirement. The important point then to

be considered in cases like this is whether

the government's testimony would have ex-

isted if the defendant had been permitted to

refrain from testifying on the asser: ion of

his Fifth Amendment privilege. In defining

the protection use immunity would afford a

witness, the Court in Kastigar said:

"Immunity from the use of

—_— a

CE DLOOP SEINE RPE ADE NBT BBO PONE CAT I OT Be RMA a

A-6

compelled testimony, as well as

evidence derived directly and in-

directly therefrom, affords this

protection. It prohibits the prose-

cutorial authorities from using the

compelled testimony in any respect,

: and it therefore insures that the

; testimony cannot lead to the inflic-

A tion of criminal penalties on the

witness.'' 406 U.S. at 453,

Poa Se be 1s

. The denial of use for any purpose, of course,

includes using it as an "investigatory lead"

(Id. at 460), Finally, the Court stated:

"One raising a claim under

this statute need only show that

he testified under a grant of

immunity in order to shift to the

government the heavy burden of

proving that all of the evidence it

proposes to use was derived from

She ys

$ ‘ legitimate independent sources,"

: (Emphasis supplied) Id. at 461-62,

On the hearing the government pro-

duced three witnesses. They were FBI

Agent Sniegocki who was based in New York

in 1968 and 1969 and who conducted the in-

vestigation in conjunction with this indictment;

it tpee ¥ Ar

A-7

FBI Agent Smith of Fiorida who conducted

a separate investigation of possible crimes

ah committed in connection with the bankruptcy

on proceedings; and Mr. Kulleseid, a former

@ Assistant United States Attorney, who han-

of dled this case through its presentation to

es the grand jury.

be At the conclusion of the oral argu-

a ments after the hearing had been completed,

os .

Wa I indicated that neither the grand jury testi-

Vie .

I mony nor the prospective proof to be offered

ve by the government in support of Counts l

through 30 flowed directly or indirectly from

“the testimony given by Fred Dornau in the

oe ots:

Sunt Bees Sen

bankruptcy proceedings. His compelled testi-

mony did not touch the issues presented by

these counts. I have been fortified in this

conclusion by an in camera examination,

consented to by defendants, of certain material

FLOR LEDGER ELLY Nie Pil AY

A-8

submitted by the government. The motion

to dismiss these counts is therefore denied.

We come now to Counts 31 through

45 which charge defendants with defrauding

investors and lenders involved in Ra-Dor

Industries, Inc. Ra-Dor primarily manufac-

tured material in conjunction with defense

contracts. The investigation of these defend-

ants commenced in March 1968 on the com-

plaint of the Defense Department that Ra-Dor

had filed false claims in relation to govern-

tnent contracts held by that corporation,

The interviews of witnesses by Sniegocki

through December 1968 dealt solely with

such an investigation, and the results thereof

are contained in Counts 1 through 30. Some-

time in the latter part of 1968, the FBI in

Florida commenced a separate investigation

of Ra-Dor regarding possible violations of

A-9

the National Bankruptcy Act. Both of these

investigations continued apace with frequent

exchanges of information and mutual requests

for local help in New York and Florida.

Nothing of consequence was done in

the New York investigation from December

to May 26, 1969, at which time four investi-

gative interviews took place within two days.

These interviews were concerned with the

subject matter contained in Counts 31 through

45. The crucial factor here is that the

defendants testified under a grant of immunity

in the bankruptcy proceedings in Florida on

May 1 and 9. There was another interview

on July 15, 1969, and finally two additional

interviews on September 10, 1969, It is in-

teresting to note that sometime between July

8, 1969 and August 19, 1969, the caption of

the investigative reports was enlarged from

—

A-10

fraud against the government and the Na-

tional Baakruptcy Act to include mail and

wire fraud as well. Sometime between July

8 and August 4, 1969, the Assistant U.S.

Attorney requested the FBI to conduct addi-

tional interviews to develop the possible

mail fraud and wire fraud counts. It is

impossible to pinpoint the exact date when

this occtrred.

It is clear from reading the files,

the testimony of the defendants in the bank-

tuptcy proceedings and the evidence in this

case, that the interviews which took place

beginning on May 26, 1969 did not flow from

any compelled testimony by these defendants.

The leads to those interviews were furnished

to the FBI in Florida by Mr. Bernstein, an

attorney for Ra-Dor's creditors in the bank-

ruptcy proceeding. That information was

A-ll

then transmitted to New York and received

by Sniegocki on April 12, 1969. This infor-

mation was accompanied by a request that

New York make specific investigations of

Univance, Nuclear idle: Mecmaies the

attorney for some of Ra-Dor's creditors in

New York, and Schnepps, Ra-Dor's attorney

in New York, Finally, it is clear that the

prospective government witnesses on this

trial, Fiala, Billich, Baer and, Ray, were all

discovered and interviewed without relation

to anything that appeared in the minutes of

the testimony. Counsel for the defendants

had a month within which to compare the

grand jury testimony and the compelled tes-

timony and have not furnished the court with

any leads as to what may be considered

tainted evidence,

What causes the problem in this

—_—— —

india!

A-12

case is that Kulleseid, on August 1, 1969,

requested the United States Attorney in

Florida to furnish him with the transcript

of defendants' testimony in the bankruptcy

proceedings, The transcript was received

here on August 7. The grand jury had met

on July 31 and August 4 at which time it

heard testimony going only to Counts 1

through 30 of the indictment, The grand

jury was then excused until August 28, when,

for the first time, it heard some testimony

regarding the counts with which we are con-

cerned. The grand jury was then recessed

until October 10 when it’ heard the bulk of

the testimony regarding ihe mail fraud and

wire fraud counts and voted the indictment,

While the seaniinetiin of Kulleseid

is not clear as to exactly when he read the

transcript, at least it is fair to say that the

—_—_——a

A-13

government has failed to show that he had

not read it before presenting any testimony

to the grand jury on Counts 31 through 45,

There are portions of the immunized testi-

mony which relate to the subject matter of

those counts. There are nearly fifty places

in the transcript where Kulleseid made

markings indicating questions and answers

of interest to him. On the hearing he was

unable (and I am sure this was a perfectly

honest statement in view of the lapse of

four years) to explain what the marked testi-

mony could have meant to him either for

the purpose of interrogating prospective wit-

nesses or in presenting the case to the

grand jury. In any event, there appears to

be no reason why he had to read the tran-

script except to make sure his case was

complete, or to use the testimony to buttress

what he already knew, or to fill in gaps

with new information,

We have here one of the problems

presented by the opinion in Kastigar. How

do you make sure that a person who has

testified under a grant of immunity will be

protected against subsequent criminal

charges to the same extent as if he had

originally pleaded the Fifth Amendment?

This is a matter of great concern and

debate. See Note, Standards for Exclusion

in Immunity Cases After Kastigar and

Zicarelli, 82 Yale L. J. 171 (1972) and

The Supreme Court, 1971 Term, 86. Harv.

L. Rev. 1, 181 (1972). It is difficult for

the court to speculate as to the effect that

the reading of the minutes might have had

on the conduc: and thinking processes of

the Assistant charged with the prosecution

of the case,

It appears to me that once the sub-

ject matter was touched upon in the privileged

testimony, and the prosecutor had read it,

he could have used it in a variety of ways

in this criminal prosecution. The possibility

of such use, and the impossibility of clearly

showing that the use did not occur, calls for

the holding in this case that the defendants

were denied the constitutional protection that

their silence would have given them. Murphy

v. Waterfront Commission, 378 U.S. 52, 79

(1964). The breadth of this ruling is justified

by the language in Kastigar that the immu-

nized testimony could not be used "in any

respect, '"'

Support for the conclusion reached

here may be found in United States v,

McDaniel, 449 F.2d 832 (8th Cir. 1971),

A-16

cert. denied, 405 U.S. 992 (1972). That

case relied on Murphy v. Waterfront Com-

mission, supra. Both of the cases were

concerned with interjurisdictional immunity.

However, Kastigar explicitly adopted the

same rule of privilege where only one

sovereign is concerned, In McDaniel, the

court said at 837:

"The circumstances of this

case, however, are not ordinary,

for we are faced with the fact that

the United States District Attorney

requested and received a transcript

of the compelled state testimony.

We conclude that this conduct vio-

lated the defendant's Fifth Amend-

ment rights and constitutes a prima

facie 'use' of the testimony which

is prohibited by the Murphy exclu-

sionary rule,"

The questicn of whether the remedy

for this violation of defendants' constitutional

rights should be by way of suppression of

evidence or by dismissal was determined by

BBP PEELE DNL RDS EDL I NEN ERIE

me in favor of the latter course in the prior

opinion which initiated these proceedings.

F, Supp. , supra. After the hearing

and the clarification of the fact issues in-

volved, my original views have been con-

firmed that in this case dismissal is the

only proper remedy. It is impossible to

suppress specific evidence in the light of

the problem involved,

The motion to dismiss Counts 3l

through 45 is granted.

So ordered.

Dated: June 4, 1973

CHARLES M. METZNER

U. &S D. J.

A-18

APPENDIX B

UNITED STATES COURT OF APPEALS

For THE Seconp Circuit

No. 350--September Term, 1973.

(Argued December 6, 1973 Decided January 24, 1974.)

Docket No. 73-2204

Unirep States oF AMERICA,

Appellant,

—against—

Perer Dornav,

Defendant-<A ppellee.

Before:

WatTERMAN and Ferinserc, Circuit Judges, and

Gurrein, District Judge.*

Appeal by United States from dismissal of indictment

which charged defendant-appellee with 15 counts of use

of the mails and wire communications in interstate com-

merce in furtherance of a scheme to defraud investors in

violation of 18 U.S.C. §§ 1841, 1843. The United States

District Court for the Southern District of New York,

Charles M. Metzner, J., dismissed the indictment because

the Government failed to prove that the evidence pre-

sented to the grand jury was untainted by the prosecu-

tion’s knowledge of testimony given by defendant pursu-

ant to a grant of immunity under the Bankruptcy Act.

a Of the United States District Court for the Southern District of New

York, sitting by designation.

Martner AS Se wR te sapien eae Sa ee

i i eel |

A-19

Reversed and remanded with iustructions to reinstate

the indictment.

Joun J. Kenney, Assistant United States At-

torney (Paul J. Curran, United States

Attorney for the Southern District of New

York; John W. Nields, Jr., Assistant United

States Attorney, on the brief), for Appel-

lant.

Frankun S. Bonem, New York, N.Y. (London,

Buttenwieser & Chaiif, Bonnie P. Winawer,

on the brief), for Defendant-Appellee.

_—

Feinpenrc, Circuit Judge:

The United States appeals from the dismissal in the

United States District Court for the Southern District of

New York, by Charles M. Metzner, J., of an indictment

that charged appellee Peter Dornau with use of the mails

and wire communications in interstate commerce in fur-

therance of a scheme to defraud investors in violation of

18 U.S.C. §§ 1341, 1343.1 The basis for dismissal was that

the prosecution, in presenting its case to the grand jury,

may have made derivative use of testimony given by

Dornau pursuant to a grant of immunity under section

7(a)(10) of the Bankruptey Act. We hold that the order

of dismissal is appealable to this court. On the merits,

we further hold that Dornan received mere use immunity

in the bankruptey proceeding and that the prosecution’s

alleged derivative use of his testimony was not unlawful.

Accordingly, we reverse and remand to the district court

with instructions te reinstate the indictment.

1 Also named as defendants in the indictment but not involved in this

appeal were Fred Dornau and Ra-Dor Industries, Inc.

fi Ss wo apes - -— net a a -

CO apneereneiemenneees

A-20

A brief history of this litigation is necessary for an

understanding of the issues before us. Appellee Peter

Dornau was vice-president of Ra-Dor Industries, Ine.

(Ra-Dor), which manufactured materials used in defense

contracts. In May 1969, he testified at the first meeting of

creditors in Ra-Dor’s benkruptey proceeding in a federal

district court in Florida;? this testimony and the cireum-

stances under which it was given are the key facts in this

appeal. Five months later, Dornan was indicted in the

Southern District of New York on 15 counts of mail and

wire fraud in furtherance of a scheme to bilk investors in

Ra-Dor. Early in 1973, Dornau moved, among other things,’

for an order entitling him to inspect the grand jury min-

utes. This relief was granted. 356 F. Supp. 1091, 1097-98.

Thereafter, upon Dornau’s motion, a hearing was held to

determine whether the Government had made improper use

of Dornau’s prior testimony cither in presenting evidence

to the grand jury or in preparing for trial. In a thorough

opinion, 359 F. Supp. 684, the judge granted Dornau’s

motion to dismiss the indictment.

Judge Metzner proceeded on the assumption, apparently

unchallenged by the Government at that time, that Dornau’s

Florida testimony had been compelled pursuant to a grant,

under the Bankruptcy Act, of use and derivative use im-

munity coextensive with the fifth amendment privilege

against self-incrimination. On this assumption, the judge

2 Apparently, Dornau had been designated under §7(b) of the Bank-

ruptey Act, 11 U.S.C. §25(b), as one of the corporate officers required

to perform the duties of the bankrupt and appeared at the meeting pur-

suant to order.

3 Dornau also moved to dismiss the indictment because of the more

than three-year post-indictment delay. Judge Metzner denied this mo-

tion, finding that much of the delay was due to the adjudicatior of

pending charges against co-defendant Fred Dornau.

PO ee ee

A-21

examined the intended trial evidence in light of the Su-

preme Court’s admonition that the prosecution bears a

“heavy burden of proving that all of the evidence it pro-

poses to use was derived from legitimate independent

sources.’ Kastigar v. United States, 406 U.S. 441, 461-62

(1972). After careful scrutiny of the sources of this evi-

dence, Judge Metzner ruled:

[I]t is clear that the prospective government witnesses

on this trial .. . were all discovered and interviewed

without relation to anything that appeared in the min-

utes of the [bankruptcy] testimony.

359 F. Supp. at 686. The judge also examined for taint the

evidence which the Government had presented to the grand

jury. Here he found that the Assistant United States

Attorney then in charge had sought, and obtained, a tran-

script of the bankruptcy testimony less than a month before

he began to present the ease to the grand jury, and had

made copious notes on the transcript. Consequently, al-

though Dornau was unabie io point out any specific instance

of taint, the judge dismissed the indictment, holding that

the proseertor may have made derivative use of the testi-

mony in a variety of ways and that the Government had

not met its burden of proving freedom from taint.‘

The first issue before us is whether the Government can

appeal from the district court's order. Since the indictment

in this case was returned in October 1969, before the effee-

tive date of the current Criminal Appeals Act, 18 U.S.C.

4 The jucge declined to speculate on the precise effect reading the tran-

script mght have had on the conduct or thinking processes of the prose-

cutor. The possibility of some use was held sufficient to violate the

command of Kastigar that immunized testimony must not be used “in

any respect.” 406 U.S. at 453.

A- 22

§ 3731, appealability is governed by the “elusive provisions”

of the 1948 version of the Act. United States v. Weller,

401 U.S. 254, 255 & n.1 (1971); United States v. DiStefano,

464 F.2d 845, 847 (2d Cir. 1972). Despite the breadth of

its language,® the 1948 Act has bcen construed to incor-

porate the provisions of the 1942 Act These permit appeals

to the courts of appeals only in a narrow class of cases,

which includes a decision “sustaining: . . . a plea in abate-

ment... .”° Id. at 847-48; United States v. Apex Distribut-

ing Co., 270 F.2d 747, 751-55 (9th Cir. 1959) (en bane).

We hold that the dismissal here is appealable to this court

because, in effect, it sustained a plea in abatement.

The function of a plea in abatement is “to impeach the

indictment .. . without at the same time destroying the

‘“ause of action.” United States v. Apex Distributing Co.,

supra, 270 F.2d at 753. Thus, an attack on an indictment

because of a defect in the proceedings leading to its pro-

eurenient, which would not necessarily end the prosecution,

would be such a plea. Id. Here, Judge Metzner found that

5 The 1948 Act provided in relevant part:

An appeal may be taken by ... the United States from the dis-

trict courts to a court of appeals in all criminal eases, in the fol-

lowing instances:

From a decision or judgment setting aside, or dismissing any

indictment or information, or any count thereof except where a

direet appeal to the Supreme Court of the United States is provided

by this section.

62 Stat. 845.

An appeal lies to the Supreme Court from, inter alia, a decision

“sustaining a motion in bar, when the defendant has not been put in

jeopardy.” Id. at 844-45.

6 The 1942 Act provided in relevant part that an appeal lies to a court

of appeals:

From a decision or judgment quashing, setting aside, or sustain-

ing a demurrer or plea in abatement to any indictment or infor-

mation, or any count thereof except where a direct appeal to the

Supreme Court of the United States is provided by this Act.

56 Stat. 271.

PS PPPOE SOT RO ee

ah ORD eg

A-23

the witnesses the Government proposed to produce at trial

were discovered and interviewed independently of appel-

lee’s bankruptey testimony; the problem of taint arises only

because the prosecutor read that testimony before present-

ing the Government’s case to the grand jury. However

difficult it may be to eliminate that taint, if such it was, dis-

missal did not necessarily terminate the cause of action.

Even if dismissal was proper, the Government may be able

to reindict successfully if a prosecutor, who has not read

either the bankruptey transcript or the grand jury minutes,

presents the independently derived evidence to a different

grand jury. See United States v. Tane, 329 F.2d 848, 851

& n.4, 852 (2d Cir. 1964) (dismissal of indictment because

it was procured through the use of illegally obtained evi-

dence did not necessarily terminate cause of action and was

appealable).

Dornan, however, claims that we do not have jurisdiction

over the appeal from Judge Metzner’s order. Citing var-

ious decisions, e.g., United States v. Brewster, 408 U.S. 501,

506 (1972), and United States v. Ponto, 454 F.2d 657, 663-64

(7th Cir. 1971) (en bane), appellee first contends that the

‘dismissal is not appealable at all because it is based on

facts not alleged in the indictment. The district court, the

argument goes, went bevond the indictment to examine the

prosecution's trial evidence and concluded that the Govern-

ment had failed to prove that it was untainted. The argu-

ment flies in the face of Judge Metzner’s finding, quoted

above. that the Government's trial evidence was not tainted.

Moreover, appellee's citations do not support his contention

since they deal with dismissals that necessarily determined

the merits of criminal charges and had the effect of termi-

nating the prosecution altogether. In contrast, the order

here did no: determine or purport to determine the merits

of the charges against Dornan.

Se yee , +E ec-ee: —_ . =

POEL EP LIE LIED ARG BOSS ED IO FEB A IEE L ECE AL TD ii tes se Seas

A-24

Appellee alternatively suggests that the dismissal in this

ease has the effect of sustaining a motion in bar and is

thus appealable only to the Supreme Court. See note 5

supra. The argument is without merit. As defined by the

Supreme Court, a motion in bar has the characteristics of

a common law plea of confession and avoidance; at least

for purposes of the motion, the movant admits his guilt

but claims he is nonetheless immune from prosecution be-

cause of some extraneous factor such as a grant of transac-

tional immunity or the expiration of the statute of limita-

tions, United Stetes v. Weiler, supra, 401 U.S. at 259-61.

As we have already held, dismissal here did not necessarily

bar reindictment.? See United States v. Tane, supra, 329

F.2d at 851 n.4.

Til

Having determined that we have jurisdiction, we would

ordinarily turn dircetly to the Government’s arguments as

appellant, but before we can consider them still another

preliminary question must be faced. One of the Govern-

ment’s princinal contentions in this court® is that, by testi-

fying under the 1969 version of section 7(a)(10) of the

Bankruptey Act, Dornan received only use immunity; con-

sequently, even if the prosecution made derivative use of

his testimony—which is not conceded—such use was law-

7 United States v. Blue, 384 U.S. £51 (1966), relied upon by appellee,

is not to the contrary. To be sure, the Supreme Court there found that

dismissal of the indictment because of the defendant’s past compulsory

self-incrimination operated as the granting of a moticn in bar. But the

Court so found only because of the district court’s erroneous ruling that

the taint was so pervasive that prosecution on the same counts was for-

ever barred. Id. at 254. In reversing, the Court noted that the defendant

would at most be entitled to bar the incriminating evidence and its

fruits if they were sought to be used against him at a subsequent trial.

Id. at 255.

& For other claims of the Government, see note 15 infra.

i ke eh ee - - ry _— ————

LRP ee REO SENG

EP VRL RIOR TT CE nat anon teen

A-25

ful. Dornan argues that this issue is not properly before

us because the Government did not make this point in the

trial court. Dornau is apparently correct in the latter as-

sertion. The Government seems te concede that it raised

the issue of the scone of appellee’s immunity only at the

last moment in the district court and even then only ob-

liaquely by calling United States v. Goodwin, 470 F.2d 893

(Sth Cir. 1972), which is discussed below, “to the Court’s

attention informally after the hearing and before the

Court’s opinion was filed.” *

Nevertheless, we conclude that we should consider the

Government’s “scope of immunity” argument. We un-

doubtedly have diseretion to entertain on appeal conten-

tions not raised in the district court. WeDonnell v. Amert-

can Leduc Petroleums, Ltd., 456 F.2d 1170, 1185 (2d Cir.

1972); United States v. Drummond, 354 F.2d 182, 141 n4

(2d Cir. 1965) (en bane), cert. denied, 384 U.S. 1013

(1966). Here, the argument as it comes before us is es-

sentially one of law; xppellee points to no seriously dis-

nuted factual issues whose resolution would best be left

in the first instance to the district court. Moreover, ap-

nellee’s ability to litigate the “seope of immunity” issue

in this court is not impaired by the Government’s failure

to raise it below. Finally, absent this kind of prejudice to

Dornan, it is significant that the indictment charges seri-

ous crimes in whose continued prosecution the public has

a strong interest. Under these cirewmstances, we exercise

our diseretion to consider the Government’s argument.

Addressizg ourselves, at last, to the merits, we hold

that Dornau received on!y use immunity in the bankruptey

proceeding and that consequently the Government’s alleged

9 Reply brief for the United States, at 4 n.**. Dornau moves to strike

this footnote because it relates ex parte conduct not in the record. We

deny the motion, noting that we do not rely on the information in the

footnote to support our decision.

TORE EES ATR EME IESG SIDINGS Ee NS

SEIN IC LE SL AED Sarl

A-~26

derivative use of his testimony was not improper. Sec-

tion 7(a)(10) of the Benkruptey Act, as it stood in 1969,

conferred only use immunity. It was so worded’ and had

been so interpreted by the Supreme Court. Arndstein v.

McCarthy, 254 U.S. 71, 73 (1920); see 1A Collier on Bank-

ruptey 77.21 at 1013-15. Because use immunity is not

coextensive with the privilege against self-incrimination,

Counselman vy. Hitchcock, 142 U.S. 547, 564-65 (1892),

section 7(a)(10) could not have been used in 1969 to

compel a bankrupt’s testimony over an assertion of his

fifth amendment privilege. Arudstein, supra, 254 U.S. at

73. Consequently,

. . the witness faced two alternatives under the

[1969] version of the statute: he could choose to

testify freely and then later claim whatever protec-

tion the statute afforded; or he could refuse to testify

on the grounds that the answers sought might be in-

criminating.

United States v. Goodwin, 470 F.2d 893, 904 (Sth Cir.

1972), cert. denied, 411 U.S. 969 (1973). The record in

this case indieates that Dornan was informed by the ref-

eree of his constitutional right to refuse to testify," and

—————————

10 The 1969 version of §7 (a)(10), 52 Stat. 847, provides that no tes-

timony given by a bankrupt pursuant thereto “shall be offered in evi-

dence against him in any criminal proceeding ....” There does not

appear to be any question that Dornau, though not himself bankrupt,

was entitled to the immunity granted by this section since he testified

at the first meeting of creditors after apparently being designated as

one of the corporate officers required to perform the duties of the

bankrupt Ra-Dor. See note 2 supra; United States v. Castellana, 349

F.2d 264, 273-74 (2d Cir. 1965).

11 The referee told Dornan:

Mr. Dornau, it is my duty to advise you that under the Fifth

Amendment to the United States Constitution, a person cannot be

compelled to give testimony which might be used against the person

in prosecution for violating any laws of the United States or any

State.

RO ASAE TERE PRI IT: 0 ba ORY OTe Sewer cee)

A-27

that, without compulsion, he nonetheless chose to testify,

relying on the immunity granted by the Act. Such con-

duct hardly supports Dornau’s claim that he received de-

rivative use immunity.

Appellee maintains, however, that the 1969 version of

section 7(a)(10) is not controlling. Noting that the see-

tion was amended in 1970 to provide use and derivative

use immunity,” and relying on United States v. Seiffert,

463 F.2d 1089, 1091-92 (Sth Cir. 1972), Dornau argues that

the 1970 amendment applies to all attempts to make de-

rivative use of bankruptey testimony after its effective

date even if the testimony was given prior thereto.* We

ee eee

It is my duty to advise you that you have this constitutional right

and if in the course of the questioning you are of the honest belief

that the answer sought to be elicited from you does or might tend

i to incriminate you or put you in jeopardy and that might be used

: against you in subsequent prosecution for violating any laws of the

United States or any State thereof, then you have a constitutional

right to refuse to answer.

I also have to explain to you and your counsel here what is known

as the Doctrine of Waiver, that once you commence giving answers

pertaining to a certain subject that you might be deemed to have

waived your constitutional rights because you voluntarily com-

menced to answer.

ae tS NAM Bet cic.

12 Section 7(a)(10) currently provides that no testimony given by a

' bankrupt pursuant therefor “or any evidence which is directly or in-

F directly derived from such testimony ... shall be offered against him

in any criminal proceeding ....” 11 U.S.C. §25(a) (10).

13 Appellee also argues that § 7(a)(10) would be unconstitutional under

Kastigar if it were interpreted to provide only use immunity. This con-

tention is without merit. Under the 1969 version of the section, the

referee had no power to compel testimony over an assertion of the

privilege against self-incrimination; as we read Kastigar, it applies

only to compelled testimony.

In addition, Dornan cites United States v. Monia, 317 U.S. 424 (1943),

for the proposition that a witness, who testifies under a statute such as

the Bankruptey Act which specifies no procedure for conferring the

statutory immunity, automatically receives use and derivative use im-

munity. We do not agree. Monia stands at most for the proposition

that the witness automatically receives the immunity provided for by

q the statute—here in 1969—only use immunity.

eR ene ee ee te

ODE RL IR RE OIE I Wr BOLE OS, HAF A EN OARS eit ean eer kt

ite aes

A-28

reject this argument and decline to follow Seiffert, which

we think was wrongly decided. In enacting the 1970 amend-

ment 2s part of the Organized Crime Control Act, Title

II, 84 Stat. 926, 929, Congress did not have the remedial

purpose, suggested by Sciffert, of conferring additional

immunity upon witnesses who, like Dornau, had already

chosen to testify under a grant of use immunity; rather,

Congress intended to achieve “effective displacement of

the privilege against self-incrimination bv granting pro-

tection coextensive with the privilege” in srder to enable

bankruptey referees for the first time to compel the tes-

timony of witnesses who refused to testify, claiming the

privilege. I.R. Rep. No. 1519, 91st Cong., 2d Sess. (1970),

quoted at 1970 U.S. Code Cong. & Adm. News 4008. In-

deed, in United States v. Goodwin, supra, 470 F.2d at 903-

04, the Fifth Circuit itself held that the 1970 amendment

does not confer derivative use immunity on testimony

given before its effective date but sought to be used there-

after. The unanimous denial of a rehearing en bane in

Goodwin, id. at 904 (1973), is, in view of the clear conflict

with Seifert, a strong indication that Seiffert’s retroac-

tive application of the 1970 amendment has been overruled

sub silentio. Thus, Dornau never did receive derivative

use immunity under the 1969 statute, a conclusion we are

confident Judge Metzner would have reached had the Gov-

ernment properly presented the issue to him.

Appellee raises one final argument which requires dis-

cussion. He maintains that he testified on the “express

assurance” that he would receive not only use but also

derivative use immunity. Consequently, his argument runs,

it would frustrate the policy of the privilege against self-

incrimination to allow the Government to take advantage

of his misconception of the scope of immunity he would

receive by testifying. The argument lacks merit. The rec-

gi A BRES a3 : EF PEEL

A-29

ord shows that the nats “express assurance” was not

un assurance at all. More important, it came not from

the referee but from Dornau’s own counsel. Dornau’s re-

liance on the erroneous advice of counsel not claimed to

be incompetent can hardly operate to convert what was

in fact a statutory grant of use immunity into a grant of

use and derivative use immunity.

Accordingly, we reverse the judgment below and remand

to the district court with instructions to reinstate the

indictment."®

: 14 The only “assurance” Dornau cites is the following statement by his

: counsel to the referee at the creditors’ meeting:

; ...I1 wanted the record to show that he is appearing under Section

7-B of the Act because it is our position that thereby the provisions

of 7-A-10 cannot be used against him nor could any evidence which

is found as the result of testimony.

On its face, this statement is an announcement of a position which

Dornau intended to take in any subsequent litigation rather than an

“assurance” that he would definitely receive derivative use immunity.

15 In view of our disposition of this appeal, we need not reach other

issues raised by the Government, i.e., whether the evidence presented

to the grand jury was in fact tainted, ef. United States v. McDaniel, 482

F.2d 305 (Sth Cir. 1973), and if it was, whether dismissal of the

indietment was a remedy within the district court’s discretion. The Jatter

is a particularly important issue, which we are reluctant to decide un-

necessarily. Before the district court, the Government contended vigor-

ously that dismissal was not a proper remedy, relying on dicta in Gelbard

v. United States, 408 U.S. 41, 60 (1972), and United States v. Blue,

384 U.S. 251, 255 n.3 (1966), and on United States v. Piccini, 412 F.2d

591, 593-94 (2d Cir. 1969), cert. denied, 397 U.S. 917 (1970). Judge

Metzner rejected this argument, relying on United States v. McDaniel,

449 F.2d 832, 835 (8th Cir. 1971), cert. denied, 405 U.S. 992 (1972),

and on our statement in Goldberg v. Untied States, 472 F.2d 513, 516

n.4 (2d Cir. 1973), that the dictum in Blue did not settle the issue.

356 F. Supp. at 1099-1160. It may be, hewever, that the Supreme Court’s

recent decision in United States v. Calandra, 42 U.S.L.W. 4104 (U.S.

Jan. 8, 1974), which holds that the fourth amendment exclusionary rule

does not apply to grand jury proceedings, resolves the issue in the Gov-

ernment’s favor. The Calandra Court observed in dictum:

[A]n indictment valid on its face is not subject to challenge ...

even on the basis of information obtained in violation of a defen-

dant’s Fifth Amendment privilege against self-inerimination. . . .

Id. at 4106.

A-30

APPENDIX C

UNITED STATES COURT OF APPEALS

for the

SECOND CIRCUIT

At a stated Term of the United

States Court of Appeals for the Second Cir-

cuit, held at the United States Courthouse

in the City of New York, on the twenty-

fourth day of January one thousand nine

hundred and seventy-four,

Present:

HON. STERRY R. WATERMAN,

HON. WILFRED FEINBERG,

Circuit Judges,

HON. MURRAY I. GURFEIN,

District Judge

United States of America,

Plaintiff-Appellant,

73-2204

Fred Dornau, Peter Dornau,

and Ra-Dor Industries,

Defendants-Appellees.

mee ee ee eee ee ee ee ee

FRE OE iD POSE DP IAEA LI BIEN PAT IPGL WES 38

A-31

Appeal from the United States Dis-

trict Court for the Southern District of New

York,

This cause came on to be heard on

the transcript of record from the United

States District Court for the Southern Dis-

trict of New York, and was argued by coun-

sel,

ON CONSIDERATION WHEREOF, it

is now hereby ordered, adjudged, and decreed

that the order of said District Court be and

it hereby is reversed and that the action be

and it hereby is remanded to said District

Court for further proceedings in accordance

with the opinion of this court.

A. DANIEL FUSARO,

Clerk

by Vincent A. Carlin

Chief Deputy Clerk

TO ILE GL IID BIE IMIS MEE LO LYE EL AOE OGD GERD. IRIAN LS VEAL TED

A-32

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

FILED, JANUARY 24, 1974

A. DANIEL FUSARO, CLERK

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