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United States v. Castellana

decided: July 19, 1965.


Kaufman, Hays and Marshall, Circuit Judges. Hays, Circuit Judge (in part concurring in the result and in part dissenting).

Author: Kaufman

KAUFMAN, Circuit Judge:

The six individual defendants before us appeal their convictions on all 8 counts for violating and conspiring to violate the federal bankruptcy fraud statute, 18 U.S.C. ยงยง 152, 371. The sole corporate defendant, Pride Wholesale Meat & Poultry Corp., appeals from the conviction entered against it on the conspiracy count, the only offense with which it was charged, after a six-week jury trial in the Southern District of New York.*fn1

The conspiracy count charged that all seven defendants agreed, knowingly and fraudulently, to transfer property and monies of Murray Packing Co., Inc. ("Murray"), valued at approximately $1,300,000, in contemplation of a bankruptcy proceeding involving Murray, or with intent to defeat the bankruptcy laws. The indictment's seven substantive counts charged that, from March 20, 1961, to March 29, 1961, Pagano, with the other five individual defendants acting as principals and aiders and abettors, fraudulently transferred $747,000 from Murray to his own account. We conclude that the evidence was more than sufficient to enable a reasonable jury to find the appellants guilty as charged and that no prejudicial errors were committed in the admission of evidence or in the court's charge. We therefore affirm all convictions.

Stripped to essentials, the conspiracy was initiated when Pagano took over control of Murray, then owned and managed by Newman and the Weinberg defendants, at a time when the meat packing company was in dire financial straits. Shortly thereafter and through Pagano's efforts, defendant Castellana and his company, Pride, began to buy meat in huge quantities from Murray, often paying less than the billed price and on many occasions less than the cost of the goods to Murray. Similar cut-price purchases were made by G. S. Food Dealer, a company formed by defendant Sciandra to assist in bankrupting Murray. Corresponding with these increased sales, Pagano, Newman, and the Weinbergs escalated their purchases of meat provisions, assuring Murray's suppliers that payment would be forthcoming. These assurances were intended to lull the creditors into a sense of security during a period when Pagano was (within the space of less than ten days) withdrawing some $747,000 in cash from Murray's bank accounts. Moreover, the funds were siphoned from the accounts via Pride's reduced payments on Murray's bills. These payments more than coincidentally coincided with Pagano's withdrawals. With Murray's assets thus depleted, the company passed into insolvency and ultimately bankruptcy, but not before the defendants, after tentatively offering the suppliers a settlement of forty cents on the dollar, fraudulently transferred an additional $112,000.


Sufficiency of the Evidence

We reject, at the outset, defendants' challenges to the sufficiency of the Government's proof. It is well-established that once the trier of fact has returned a guilty verdict, the evidence must be viewed "most favorably to [the Government], which includes * * * the indulgence in all permissible inferences in its favor." United States v. Marchisio, 344 F.2d 653, 662 (2 Cir. April 9, 1965). Applying this standard to this case, we cannot avoid the conclusion that reasonable jurors could have been convinced beyond a reasonable doubt that each of the individual defendants was guilty of "knowingly and fraudulently" transferring or concealing Murray's property "in contemplation of a bankruptcy proceeding * * * or with intent to defeat the bankruptcy law." We believe that for us to test the evidence by any other standard would be an invasion of the jury's function to choose between competing inferences of fact.

The following narrative summary of the more than 3,000 pages of testimony in this factually complicated case will serve to reveal the essential details of the scheme and participation of each appellant. Murray, with headquarters in the Bronx, New York, was incorporated in December 1959, with David Newman as president and Stanley Weinberg as secretary-treasurer; the two, together with Stanley's parents, Mr. and Mrs. Joseph Weinberg, and Newman's wife comprised the Board of Directors. Stanley was office manager of the new wholesale venture, in charge of bookkeeping, payments and deposits; Newman supervised poultry purchases and sales; and Joseph directed the veal, lamb and beef departments. By late 1960, within less than a year of its organization, Murray was experiencing serious financial difficulties, having lost much money and being in need of new markets and capital to improve its profit margin. In fact, the company's bank refused to make any loans because the weak capital base of $125,000 supporting annual sales of approximately $3 million overextended Murray's financial structure.

At this time, Joseph Pagano -- who until then played a minor role as salesman for Mercury Hotel & Restaurant Supply Corp., a small company owned by Murray and specializing in supplying meat and provisions to nightclubs and camps -- moved to the center of the stage. Through his efforts, and despite Murray's undercapitalized corporate being, the company obtained, on December 2, 1960, an $8,500 loan from Jo-Ran Trading Corp., of which defendant Peter Castellana was president and joint-owner. The interest rate was set at the extraordinarily high rate of 1% per week, with the principal to be repaid in three months. Pagano and Stanley Weinberg co-signed the interest payment checks on behalf of Murray as well as the check covering the principal, which was paid on March 24, 1961, three weeks tardy. The overdue payment came at a time when, according to the Government's proof, Pagano had already withdrawn $185,000 from Murray's bank accounts, thus contributing to the company's impending insolvency.

Pagano's signature on the various checks is explained by an even more significant series of events in late 1960 and early 1961 which terminated in Pagano achieving the dominant position in the Murray operation. While working as a Mercury salesman, Pagano approached Newman and the Weinbergs, proposing that he acquire an interest in Murray in return for a comparatively nominal investment and assurances that he would substantially increase the company's sales and profits by obtaining new customer accounts. For $35,000, he purchased a one-third stock interest in Murray, replaced Newman as corporate president, and was authorized to sign all Murray checks. These arrangements, formally approved at a joint directors' and stockholders' meeting on January 31, 1961, were supplemented by intra-corporate accord which gave Pagano a signatory right on all Murray checks and "sole management and control" of the business.

Simultaneously, and due to Pagano's connections, a series of meetings was held between Pagano, Newman, the Weinbergs and Castellana in which the latter agreed that Pride Wholesale Meat & Poultry Corp., which operated a chain of wholesale and retail stores in the New York metropolitan area, would substantially step up its meat and poultry purchases from Murray, which for the month of November 1960 had approximated only $1,000. During these discussions the parties informally agreed that Murray, thereafter would bill Pride at only one-half cent per pound over Murray's own cost. Pursuant to these arrangements, dealings between the two companies rose rapidly to a point where, in March 1961, Murray was selling Pride about $922,000 out of approximately $1,437,000 in total monthly sales and this resulted in almost 80% of Pride's total purchases in that month -- $922,000 out of $1,161,000 -- being made from Murray.*fn2 Indeed, the relationship between the two companies became so interdependent that in the same month of March one financier, terming it "dangerous," refused to factor Murray's accounts receivable in the future.

As Murray-Pride business dealings assumed this symbiotic character, Castellana began to take sizable, frequent price reductions when he paid Murray's bills. Thus, the prosecution's detailed, methodical proof showed that of the 315 Murray-Pride transactions in March 1961, 114 represented instances where Castellana paid a total of $78,000 less than the billed price; in at least 54 instances the Government was able to show that Pride's payments did not even equal Murray's cost of goods sold.*fn3 Although Newman and the Weinbergs belatedly claimed that this price-cutting was unauthorized, Stanley Weinberg -- after learning that the reductions were permissible if "okayed" by Pagano -- issued credit memoranda authorizing Pride to pay less than the price on Murray's invoices. Stanley further admitted in certain pre-trial statements that he knew at the time "it [did] not make sense to sell * * * at this price" and that "no company" could continue in business if it took such losses. On his part, Joseph Weinberg could recall no basis for the reductions and no effort to seek a corresponding reduction from his processor-suppliers. On the other hand, Castellana -- the only defendant to testify at the trial -- painstakingly sought to justify each particular price reduction by pointing to such considerations as defective condition or late shipment. This testimony was counterbalanced, however, by Castellana's admission that he made no notes concerning the reasons for the reductions at the time they were taken; and in the bankruptcy hearings approximately three years previously he was unable to give any reasons for the price reductions.

Before turning to the critical March 1961 withdrawals by Pagano, one additional phase of the Government's proof, which introduces defendant Gondolfo Sciandra to the saga, requires synopsis. On March 10, 1961, Sciandra, who had been working for a retail meat market owned by Castellana, his relative by marriage, organized a meat supply business known as G. S. Food Dealer ("G. & S."). Operating from one of Castellana's warehouses, occupied rent-free, Sciandra bought exclusively from Murray. During the brief three-week period of his ownership, G. & S. purchased from Murray approximately $240,000 in meats and provisions, giving rise to an unpaid debt that reached $176,353.83. Prior statements by Sciandra indicated that he traded mainly through Pagano, with whom he admittedly did not discuss credit terms. Instead, Sciandra "told him that I had some good accounts and that as soon as I would get paid for the merchandise I would in turn send him a check for the amount of money I owe him," although he did not "know what the accounts were exactly." Moreover, as in the case of Murray-Pride transactions, there were instances where Sciandra paid Murray less than the billed price or even less than Murray's own wholesale cost. And, even though they were aware of G. & S.'s mounting liability to Murray, Newman and Joseph Weinberg continued to accept Sciandra's orders and Stanley Weinberg did not call a halt to credit extensions.

Murray's mounting sales to Pride and G. & S. meant, of course, that there was a corresponding pyramiding in wholesale purchases by the company, which more than quintupled from $233,000 in November 1960 to approximately $1,229,000 for the first three weeks of March 1961. During January and February Murray paid for these purchases promptly within the usual seven-day credit period characteristic of the quick-turnover meat business, but this pattern changed significantly in early March when the size and number of the meat and poultry orders rose rapidly and payments were delayed. When combined with Murray's rapidly burgeoning sales, this failure to use the proceeds from Pride and G. & S. to pay supplier-creditors produced a larger-than-usual bank balance, which Pagano proceeded to raid as the culmination of the conspiracy.

The record reveals, in great detail, how during the critical period from March 20 to March 29, 1961, Pride poured hundreds of thousands of dollars into Murray's bank accounts, in cut-price payment of outstanding bills, while pari passu Pagano withdrew $747,000 as the deposits were being made. The money-drawing operation began on the morning of March 20 when Pagano and Stanley Weinberg went to Murray's bank -- the Royal State, located in the East Bronx, to cash a check for $50,000 payable to Pagano's order, drawn by a Murray clerk at Stanley's direction, and signed for Murray by both Pagano and Stanley. At the bank's branch office, Stanley told an officer that the withdrawal was "needed to pay some trade bills" and the check was cashed. Later the same afternoon, an additional $50,000 was withdrawn from the Murray account at the Royal State Bank under similar circumstances. But, when Pagano and Stanley sought to withdraw still another $50,000 on Tuesday, March 21, they were refused by a bank officer who advised them that the Royal Bank would not continue paying out large sums of cash against uncollected funds.*fn4

Undaunted by the Royal Bank's prudence, Pagano opened another account for Murray at the Commercial Bank of North America, located on Fifth Avenue in midtown Manhattan. Pride already maintained an account with the Commercial Bank and it was either Castellana or Sciandra who telephoned the Bank, on behalf of Pride, recommending acceptance of the new Murray account. Later that day, Wednesday, March 22, Sciandra -- a frequent depositor of Pride checks -- introduced Pagano to the Bank's officers, telling them that the Murray account was being opened to facilitate cashing checks drawn against Pride deposits in the same Bank. Within the space of one week, Pagano withdrew $645,000 from the Murray account in the Commercial Bank by cashing checks which, like those brought to the Royal Bank, were payable to him and signed by Stanley and himself. During this period Sciandra regularly delivered Pride checks drawn to Murray's account to the Bank, where he joined Pagano in watching a bank officer make out Murray deposit slips and then stood by as Pagano withdrew roughly comparable sums from the Murray account, thus completing the circle around which the money flowed. When a bank officer sought some explanation for Pagano's large withdrawals, Sciandra disingenuously replied that it was the "height of the [Easter] season and large purchases have to be made."

The most significant evidence introduced by the Government on this phase of the case established that the Pride checks deposited to Murray's account in the Commercial Bank during this ten day period were almost equal in daily and total amounts to Pagano's withdrawals. Thus, the record discloses the following:

Castellana-Pride Cash withdrawals

deposits to from

Date Murray's accounts ...

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