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UNITED STATES v. CARUSO

November 27, 1996

UNITED STATES OF AMERICA, Plaintiff,
v.
ROBERT T. CARUSO, Defendant.



The opinion of the court was delivered by: ACKERMAN

 ACKERMAN, D.J.

 This matter is before the court on defendant Robert T. Caruso's pretrial motions. Additionally before the court is the government's motion for reciprocal discovery, a motion by the defendant to compel production of documents from Coopers & Lybrand, LLP ("C&L"), and a motion by C&L to quash the defendant's subpoena seeking production of documents.

 Oral argument on these motions was held on October 8, 1996. At the conclusion of the hearing, the government and the defendant were directed to submit additional briefing regarding issues that were raised for the first time during oral argument. This additional briefing was completed on October 31, 1996.

 I. Factual Background

 The indictment charges that Caruso engaged in a charity-refund scheme in which he would contribute sums of money to Seton Hall University, receive reimbursement from C&L for having made that contribution, but would then revoke his contribution, while at the same time retaining the reimbursement he had received from C&L for making the contribution. In implementing this alleged scheme, the indictment charges that Caruso utilized the United States Mails, engaged in money laundering, and failed to report income that he derived from his alleged fraudulent scheme.

 II. Discussion

 A. Motion to Dismiss the Indictment

 The defendant argues that counts one through three of the indictment must be dismissed because the counts fail to charge a mail fraud violation. Counts one through three charge the defendant with committing mail fraud in violation of 18 U.S.C. §§ 1341, 1346 and 2. The counts are based upon the defendant's alleged role in scheming to defraud C&L of the sums defendant received as reimbursement for his alleged contributions to Seton Hall.

 The defendant's argument is premised upon his interpretation of a case from the Court of Appeals of New York. According to the defendant, People v. Zinke, 76 N.Y.2d 8, 555 N.E.2d 263, 556 N.Y.S.2d 11 (N.Y. 1990), held that a partner in a general partnership cannot be convicted of larceny under New York Penal § 155.05 law for stealing partnership property. In Zinke, the court reasoned that general partners are alter egos of one another and that all members of a general partnership are joint owners of partnership property. The Zinke court thus held that a partner cannot be convicted of larceny, which is the wrongful taking and carrying away of the property of another, because a partner charged with larceny would essentially be charged with taking from himself, which is not prohibited by the statute. Thus, under New York law, a partner in a general partnership who steals partnership property cannot be convicted under New York's larceny statute.

 Drawing on Zinke, the defendant points out that the scope of the mail fraud statute is limited and defined by state law. See Carpenter v. United States, 484 U.S. 19, 98 L. Ed. 2d 275, 108 S. Ct. 316 (1987). Relying upon Zinke, the defendant claims that it simply is not illegal under New York Law for a partner to steal from, or misappropriate property from his partners in a general partnership. Because state law acts to limit the scope of the mail fraud statute, and because state law does not criminalize the behavior in which the defendant allegedly engaged in this case, the defendant argues that he cannot be convicted for having engaged in mail fraud vis a vis C&L. Therefore, the defendant argues that counts 1 - 3 of the indictment must be dismissed. To hold otherwise, the defendant contends, would unconstitutionally permit Congress to criminalize that which New York has not criminalized.

 The government argues in opposition that the mail fraud statute certainly applies in this case because the defendant is being charged with using his fiduciary position at C&L to engage in a scheme or artifice to defraud his partners, through use of the United States Mails. The government emphasizes that while the Zinke court refused to permit a partner's conviction under the larceny statute, the court still acknowledged that a partner has no right to use partnership property for non partnership purposes. Furthermore, the government distinguishes Zinke on the ground that fraud, with which the defendant is being charged, is much broader than the larceny statute at issue in Zinke. Finally, the government argues that even if state law somehow limited application of the mail fraud statute in this case, counts 1 - 3 would still not be subject to dismissal because those counts also allege violations of § 1346, the "honest services" federal law component of a mail fraud violation. For these reasons, the government argues that counts one through three of the indictment properly charge a mail fraud offense and should not be dismissed.

 The mail fraud statute, 18 U.S.C. § 1341 provides, in pertinent part,

 
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations . . . for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service . . . any such matter or thing, shall be fined under this title or imprisoned not more than five years, or both. If the violation affects a financial institution such person shall be fined not more than $ 1,000,000 or imprisoned not more than 30 years, or both.

 18 U.S.C. § 1341. Section 1346 provides that the "scheme or artifice to defraud" specified in § 1341, "includes a scheme or artifice to deprive another of the intangible right of honest services." 18 U.S.C. § 1346. The Court of Appeals for the Third Circuit has explained that a mail fraud offense has three essential elements: 1) the existence of a scheme to defraud; 2) the participation by the defendant in the particular scheme with the specific intent to defraud; and 3) the use of the United States mails in furtherance of the fraudulent scheme. United States v. Hannigan, 27 F.3d 890, 892 (3d Cir. 1994).

 The purpose of the mail fraud statute, as reflected by the statutory language, and as indicated by the essential elements that I just described, is to prevent the United States Mails from becoming the instrument of fraudulent schemes. For example, the Court of Appeals for the First Circuit has explained that

 
Article I, § 8, Clause 7 of the Constitution provides that the Congress shall have the power to establish post offices and post roads, and Clause 18 provides that Congress has the power to make all laws necessary and proper for the "carrying into Execution" of this power. Accordingly, the mail fraud statute was enacted by Congress to protect the integrity of the mails by making it a crime to use them to implement fraudulent schemes of any kind.

 United States v. Rendini, 738 F.2d 530, 533 (1st Cir. 1984) (emphasis added). Moreover, courts have explained that the mail fraud statute is designed to prevent the post office from being used as an "instrument of crime." United States v. Mandel, 591 F.2d 1347, 1358 (4th Cir.), aff'd in relevant part, 602 F.2d 653 (4th Cir. 1979) (in banc), cert. denied, 445 U.S. 961, 64 L. Ed. 2d 236, 100 S. Ct. 1647 (1980). It is thus clear that the mail fraud statute is intended to prohibit persons from effectuating or implementing fraudulent schemes through the use of the United States mails. Rendini, 738 F.2d at 533.

 After reviewing the indictment pursuant to the foregoing principles and standards, I conclude that the indictment charges the defendant in counts 1 - 3 with mail fraud in violation of 18 U.S.C. §§ 1341 and 1346. The indictment alleges each of the essential elements of the mail fraud offense. Furthermore, the indictment describes in some detail the defendant's conduct which allegedly violated the statute. Insofar as the indictment alleges that the defendant used the mails as part of a scheme to defraud C&L, with the specific intent to defraud C&L, it appears that the mail fraud violation alleged herein constitutes exactly the type of conduct that the mail fraud statute was designed to prohibit.

 I am not persuaded by the defendant's argument premised upon the Zinke case and the alleged limited scope of the mail fraud statute. The Zinke case was, pure and simple, a case which dealt with statutory interpretation. See Zinke, 555 N.E.2d at 264 ("The single question before us is whether the general partner in a limited partnership can be found guilty of larceny for misappropriating partnership funds. As a matter of statutory interpretation, we answer that question in the negative . . . .") (emphasis added). In construing New York's larceny statute, the Zinke court concluded that it could not affirm the conviction of a partner under the statute because the partner jointly owned the partnership property, and the larceny statute required a showing that the partner took the property "of another." Because the defendant's acts were plainly not prohibited by the statute, the court found that it could not uphold a conviction of the defendant based upon the statute.

 In this case, unlike Zinke, the defendant is not being charged with larceny under the New York statute. The defendant is being charged with using the United States Mails as part of a scheme to either deprive C&L of its right to the defendant's honest services, or to otherwise obtain partnership funds to which he was not entitled. *fn1" As noted above, the indictment charges the defendant with each of the elements of a mail fraud offense. Accordingly, I find that counts 1 - 3 properly charge a mail fraud offense, even if the defendant could not be properly charged with committing larceny under New York State law. See Badders v. United States, 240 U.S. 391, 393, 60 L. Ed. 706, 36 S. Ct. 367 (1916) ("Whatever the limits to its power, Congress may forbid putting letters into the post office when such acts are done in furtherance of a scheme that it regards as contrary to public policy, whether it can forbid the scheme or not."); see also United States v. Bryan, 58 F.3d 933, 940-41 (4th Cir. 1995) (suggesting that the mail fraud statute contains no state law predicate violation requirement).

 Moreover, I agree with the government's position that even if Zinke could somehow be construed as precluding mail fraud charges against the defendant as a matter of state law, the defendant would still be subject to prosecution under 18 U.S.C. § 1346. Section 1346 defines a "scheme or artifice to defraud" under the mail fraud statute as "including a scheme or artifice to deprive another of the intangible right of honest services." Thus, regardless of whether state law criminalizes the defendant's conduct in this case, it is clear that Congress has criminalized, as a matter of federal law, schemes described in § 1346. Accordingly, Counts 1 - 3 of the indictment would not be subject to dismissal, even if Zinke somehow precluded the mail fraud charges, because the counts also allege violations of § 1346.

 Finally, I am not persuaded by the defendant's federalism argument. The defendant claims that the federal government's prosecution of him under the mail fraud statute, even though state law does not criminalize the conduct underlying the prosecution, unconstitutionally interferes with New York State's right to declare what is and what is not criminal conduct. In support of this argument, the defendant relies upon Lopez v. United States, 514 U.S. 549, 131 L. Ed. 2d 626, 115 S. Ct. 1624 (1995) and the Lopez Court's observation that states possess the primary responsibility for defining criminal conduct. 115 S. Ct. at 1631 n.3.

 The defendant's argument is unpersuasive. The federal government is not inappropriately intervening in New York's affairs by prosecuting the defendant under the mail fraud statute--the government is acting pursuant to the federal interest in protecting the United States Mails from misuse. See, e.g., United States v. States, 488 F.2d 761, 766-67 (8th Cir. 1973) (rejecting argument that mail fraud prosecution improperly intervened in state affairs, because "the focus of the statute is upon misuse of the Postal Service, not the regulation of state affairs, and Congress clearly has the authority to regulate such misuse of the mails.") (citation omitted), cert. denied, 417 U.S. 909, 41 L. Ed. 2d 212, 94 S. Ct. 2605 (1974); see also United States v. Porcelli, 865 F.2d 1352, 1359 (2d Cir. 1989) (noting in dicta that the broad federal mail statute punishes "any scheme or artifice to defraud in which the jurisdictional means--the mails--are employed.'"), cert. denied, 493 U.S. 810, 107 L. Ed. 2d 22, 110 S. Ct. 53 (1989). In view of the federal interest in protecting the mails from misuse, it does not violate any principles of federalism to prosecute the defendant under the mail fraud statute even if the underlying conduct is not criminalized by the State of New York. *fn2"

 This conclusion is not altered by the recent decision in Lopez v. United States. The Lopez case involved a challenge to a statute which made it a federal offense to knowingly possess a firearm in a statutorily-defined "school zone." Congress purported to act pursuant to its power to regulate interstate commerce when it enacted the statute. However, in examining the constitutionality of the statute, the United States Supreme Court concluded that the statute actually bore no relation to interstate commerce and that the enactment of the statute was therefore beyond the scope of Congress's power to regulate interstate commerce. Accordingly, the Court struck the statute down as an unconstitutional exercise of Congressional power.

 The instant case is distinguishable from Lopez. Unlike Lopez, this case involves Congress's exercise of power under the Postal Powers Clause. As noted above, Congress may, pursuant to the Postal Power, enact all laws necessary to protect the integrity of the United States Mails. Surely, it cannot be argued that Congressional power has been exceeded in this case, where the defendant is being charged with having used the mails as part of a scheme or artifice to wrongfully divert property from C&L.

 For all of the foregoing reasons, I am not persuaded by the defendant's arguments and will deny the defendant's motion to dismiss counts 1 - 3 of the indictment.

 B. Duplicity - Counts One through Three

 Additionally, the defendant argues that Counts One through Three of the Indictment are duplicitous because the counts each charge two separate and distinct offenses. The indictment charges, at counts one through three, that the defendant violated both 18 U.S.C. § 1341 and § 1346. The defendant claims that § 1341 and § 1346 charge separate and distinct offenses which cannot be charged in the same count. The defendant seeks an order dismissing counts one through three, or an order requiring the government to elect between charging one, but not both statutory violations.

 The government argues in opposition that counts one through three are not improperly duplicitous. Rather, the government claims that §§ 1341 and 1346 can be charged together because they do not charge two different offenses, but only two different methods of completing the same crime. The government thus contends that counts one through three are not duplicitous and do not require either dismissal or a court order requiring election by the government.

 The Court of Appeals for the Third Circuit has explained that "duplicity is the joining in a single count of two or more distinct and separate offenses." United States v. Starks, 515 F.2d 112, 116 (3d Cir. 1975). Duplicity is undesirable because it gives rise to several potential complications: 1) where an indictment is duplicitous, "a general verdict does not reveal exactly which crimes the jury found the defendant had committed," United States v. Gomberg, 715 F.2d 843, 845 (3d Cir. 1983), cert. denied, 465 U.S. 1078, 79 L. Ed. 2d 760, 104 S. Ct. 1439, 104 S. Ct. 1440 (1984), 2) a duplicitous indictment may prejudice the defendant "with respect to evidentiary rulings during the trial, since evidence admissible on one offense might be inadmissible on the other" Starks, 515 F.2d at 116, and 3) where an indictment is duplicitous and the case goes to the jury, there is no way of knowing with a general verdict on two separate offenses joined in a single count whether the jury was unanimous with respect to either. Id. at 117. In order to avoid these problems with duplicity, courts will either dismiss the duplicitous counts of an indictment, or require the government to make an election between charging one, but not both offenses.

 Nonetheless, an indictment is not duplicitous in cases where the indictment does not charge two different offenses in the same count, but instead charges two different methods of completing the same general offense. See, e.g., United States v. Goldberg, 913 F. Supp. 629, 636 (D. Mass. 1996). The Federal Rules of Criminal Procedure specifically authorize the charging in a single count of an indictment two different methods of committing a crime. See Fed. R. Crim. P. 7(c)(1) ("It may be alleged in a single count that the means by which the defendant committed the offense are unknown or that the defendant committed it by one or more specified means.") (emphasis added).

 In this case, the government has charged violations of 18 U.S.C. §§ 1341 and 1346 in counts one through three of the indictment. Generally, § 1341 criminalizes schemes or artifices to defraud accomplished through the use of the United States Mails. Section 1346 defines schemes or artifice to defraud under § 1341 as including schemes or artifices to deprive others of the intangible right of honest services. 18 U.S.C. § 1346.

 Section 1346 was enacted following the Supreme Court's decision in McNally v. United States, 483 U.S. 350, 97 L. Ed. 2d 292, 107 S. Ct. 2875 (1987). Although it had been the practice of federal courts to read the mail fraud statute as including prohibitions against schemes or artifices to defraud others of the intangible right to honest services, the McNally Court ruled that the language of the mail fraud statute did not include such offenses, and reversed convictions based upon such a reading of the statute. Thereafter, Congress enacted 18 U.S.C. § 1346.

 A plain reading of § 1346 clearly demonstrates that the section serves to define a set of offenses which are to be included within offenses occurring under the mail fraud statute, § 1341. Thus, the statute does not set forth an offense which should be interpreted as separate and distinct from a § 1341 offense. See Goldberg, 913 F. Supp. at 636 (explaining that because § 1346 merely explains the theory of honest services fraud, § 1346 does not constitute a distinct factual offense for which a jury could punish a defendant when §§ 1341 and 1346 are charged together). To the contrary, § 1346 can be interpreted as being a "definitional" statute which serves merely to further delineate the offenses which are encompassed within § 1341. See id. at 636 n.7.

 An indictment may charge within one count two means by which the defendant has committed the same general offense. Fed. R. Crim. P. 7(c). Plainly, that is the situation here. Counts one through three are not duplicitous. The defendant's motion seeking dismissal or an election on those counts is denied.

 C. Multiplicity: Counts 17 and 18

 The defendant next argues that counts 17 and 18 of the indictment, which charge the defendant with violating 18 U.S.C. § 1957, and counts 14 through 16, which charge the defendant with violating 18 U.S.C. § 1956, are improperly multiplicitous because they charge essentially the same offenses, and are all based on the same conduct. The defendant argues that he cannot be punished for having violated both §§ 1956 and 1957 because there is no explicit authorization from Congress which would suggest that a defendant can be punished under both statutes for having engaged in the same conduct. Moreover, the defendant claims that a Blockburger v. United States, 284 U.S. 299, 76 L. Ed. 306, 52 S. Ct. 180 (1932), analysis demonstrates that §§ 1956 and 1957 offenses are the same because a § 1957 offense is entirely subsumed by proof of a § 1956 offense. The defendant thus claims that Counts 17 and 18 and Counts 14 through 16 are multiplicitous and he moves for either the dismissal of Counts 17 and 18, or for the government to elect between charging a violation of either § 1956 or § 1957.

 In opposition, the government argues that there is no multiplicity problems in the indictment. According to the government, it is permissible to charge violations of § 1956 and § 1957, based upon the same conduct, because § 1957, contrary to the defendant's argument, does require proof of an element additional to that which is required to prove a violation of § 1956, i.e., that the transaction at issue involved $ 10,000 or more. Because convictions under both § 1956 and § 1957 would not constitute double punishment, the government argues that charging the violations in different counts based upon the same conduct is not multiplicitous.

 "Multiplicity is the charging of the same offense in two or more counts of an indictment or information." United States v. Stanfa, 685 F.2d 85, 87 (3d Cir. 1982) (citing United States v. Starks, 515 F.2d 112, 116 (3d Cir. 1975). The Court of Appeals for the Third Circuit has explained that

 
Multiplicity, the charging of a single offense in different counts of an indictment, has the vice that it may lead to multiple sentences for a single violation. And even if that does not result, it may prejudice the jury against the defendant by creating the impression of more criminal activity on his part than in fact may have been present.

 United States v. Carter, 576 F.2d 1061, 1064 (3d Cir. 1978). Courts must engage in a two pronged inquiry when examining an indictment for multiplicity problems. First, the court must inquire whether proof of one offense charged requires an additional fact that proof of the other offense does not necessitate. Id. Second, the court must examine whether the legislature intended to ...


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