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UNITED STATES v. SIMON

December 12, 1966

UNITED STATES of America,
v.
Carl SIMON, Harold Roth, Robert Kaiser and Melvin Fishman, Defendants


Frederick van Pelt Bryan, District Judge.


The opinion of the court was delivered by: BRYAN

FREDERICK van PELT BRYAN, District Judge:

Defendants Simon, Kaiser and Fishman are certified public accountants, the first two of whom are members of the prominent accounting firm of Lybrand, Ross Bros. & Montgomery (Lybrand), and the third a senior associate of that firm. They have pleaded not guilty to a six count indictment filed on October 17, 1966, charging them with conspiracy to commit mail fraud and to make false statements in violation of the Securities and Exchange Act, 18 U.S.C. §§ 371, 1001, 1341; 15 U.S.C. § 78ff, and with substantive mail fraud offenses. 18 U.S.C. §§ 2, 1341. Roth, former president of Continental Vending Machine Corporation (Continental) is also named as a defendant. The Lybrand firm and others are named as co-conspirators but not as defendants.

 These criminal charges arise out of the affairs of Continental and a subsidiary which are presently in proceedings for reorganization under Chapter X of the Bankruptcy Act in the United States District Court for the Eastern District of New York.

 Defendants Simon, Kaiser and Fishman have applied to this court sitting in the criminal action against them in this district for an order enjoining the Trustee in Reorganization of Continental, pending the trial of the criminal action, from taking their depositions and the depositions of other partners and employees of the Lybrand firm in two civil actions in the Eastern District of New York (at least one of which involves the same transactions which are the subject of this indictment against them) and for other relief.

 Simon, Kaiser and Fishman assert that the injunctive relief which they seek is necessary in order to preserve the integrity and fairness of the criminal proceedings presently pending, to prevent the complete disclosure to the prosecution in advance of trial of their defense and the evidence upon which it will necessarily rest, and to permit them the necessary time and facilities for the intensive preparation required for a proper defense.

 I.

 The facts out of which this application arises are as follows:

 In July 1965 the Trustee in Reorganization of Continental commenced a civil action in the United States District Court for the Eastern District of New York against the Lybrand firm, the Meadowbrook National Bank and Roth seeking damages of $41,000,000 resulting from alleged acts of defendants in connection with the affairs of Continental. The action is being actively prosecuted by the plaintiff Trustee. Another civil action by the Trustee arising out of the affairs of Continental against a large number of individuals and corporations was commenced in that District in 1964 and is also being actively prosecuted.

 For some time the Trustee of Continental has been taking the depositions of witnesses in the pending civil actions in the Eastern District in preparation for trial. Arrangements had been made to take the depositions of Simon, Kaiser and Fishman. Pursuant thereto the deposition of Simon was taken, which ran to some 1,800 pages and is still open for further testimony at this time. The deposition of Kaiser was scheduled. Before it commenced, however, the present indictment against Simon, Kaiser and Fishman was filed in this court on October 17, 1966.

 When the indictment was filed, Kaiser moved in the Trustee's civil actions in the Eastern District before Judge Mishler for a protective order, under Rule 30(b), F.R.Civ.P., staying Kaiser's deposition on the ground that in view of the newly-instituted criminal action against him in the Southern District the taking of the deposition would violate his fifth amendment privilege against self-incrimination and would therefore be oppressive.

 On October 24, 1966 Judge Mishler denied Kaiser's motion for a protective order in a memorandum decision. In the course of his memorandum he said that it is "clear that transactions on which the civil claims are stated, in the main, form the basis of the criminal charge." The narrow issue posed before him was whether compulsory appearance for examination was oppressive as violating Kaiser's fifth amendment rights against self-incrimination. Noting that counsel for Kaiser had declined to say whether Kaiser would assert his constitutional privilege, Judge Mishler held that the fifth amendment privilege did not excuse Kaiser from appearing for examination; that the privilege could only be asserted in answer to specific questions put to him; that Kaiser was free to assert his privilege when questions which might incriminate were put to him, and that his fifth amendment rights were thus fully protected. Kaiser was directed to appear for examination by the plaintiff Trustee on October 26, 1966. An appeal from Judge Mishler's order was dismissed by the Court of Appeals on the ground that the order was nonappealable and an application for a stay was denied on October 25, 1966. Kaiser then appeared for deposition as directed and was examined by the Trustee's counsel on October 31.

 On November 1, 1966, attorneys for Simon, Kaiser and Fishman as defendants in the criminal action in this court presented to me, sitting in criminal motion part, an order requiring the Continental Trustee and the United States Attorney for the Southern District of New York to show cause why an injunction should not issue against the Trustee and his attorneys restraining them from taking the testimony of Simon, Kaiser, Fishman or any other partner or employee of Lybrand or from seeking to compel the production of any records of that firm in the civil actions pending in the Eastern District of New York until the trial of the criminal indictment here.

 After hearing the attorneys for the Continental Trustee and the United States Attorney, I set down the order to show cause for argument before me in criminal motion part on November 4, 1966, and issued a temporary restraining order against taking the depositions of Simon, Kaiser, Fishman and other partners or employees of Lybrand, pending the hearing of the application. The attorneys for the Continental Trustee and the United States Attorney then accepted service of the order to show cause containing the restraining provisions and the accompanying papers.

 On November 4, 1966, the return day of the order to show cause, counsel for defendants Simon, Kaiser and Fishman argued in support of the application for injunctive relief and counsel for the Continental Trustee argued in opposition. The United States Attorney took no position on the merits of the application. At the conclusion of the argument decision was reserved. Time was granted to submit additional papers and briefs *fn1" and the examination of defendants Simon, Kaiser and Fishman and of partners and employees of Lybrand was enjoined from the bench pending determination of the application.

 II.

 Does this court, sitting in the criminal action pending against the moving defendants, have the power to grant relief of the nature sought here?

 There is no doubt that "a fair trial in a fair tribunal is a basic requirement of due process." In re Murchison, 349 U.S. 133, 136, 75 S. Ct. 623, 625, 99 L. Ed. 942 (1954). Moreover, unfairness at any stage of criminal proceedings may affect the fairness of the trial itself and imperil any judgment of conviction under a system of law such as ours which "has always endeavored to prevent even the probability of unfairness." Ibid.

 It is clear to me that a district court having jurisdiction over a criminal action, see 18 U.S.C. § 3231, has the power in appropriate circumstances to grant injunctive relief to preserve the fairness and integrity of the criminal proceedings before it. Such power stems from either one or both of two sources.

 First, 28 U.S.C. § 1651 (the All Writs Act) provides that United States District Courts "may issue all writs necessary or appropriate in aid of their respective jurisdictions." The All Writs Act has been held to have been properly invoked in aid of the jurisdiction of the federal courts in, for example, the areas of bankruptcy, Steelman v. All Continent Corp., 301 U.S. 278, 57 S. Ct. 705, 81 L. Ed. 1085 (1937), (injunction against prosecution of suit in another District Court), stockholder litigation, Havner v. Hegnes, 269 F. 537 (8 Cir. 1920), (injunction against prosecution of action in State Court) and civil rights. Bullock v. United States, 265 F.2d 683, 691 (6 Cir.), cert. den., 360 U.S. 909, 79 S. Ct. 1294, 3 L. Ed. 1260 (1959). Indeed, the Supreme Court in Steelman speaks of the enjoining by the bankruptcy court of suits in other federal courts even where "they have a tendency to embarrass administration * * *." 301 U.S. at 289, 57 S. Ct. at 710. It can scarcely be said that federal courts have less power where criminal proceedings are concerned. Thus a federal criminal court is empowered to grant relief affecting other litigation pending in the federal courts where "necessary and appropriate" to protect the fairness and integrity of criminal proceedings before it. *fn2"

 Second, apart from the All Writs Act, the federal criminal court has other powers to grant injunctive relief to protect the fairness of the criminal proceedings before it. Whether this be said to derive from the court's inherent equity jurisdiction, *fn3" or from its supervisory powers over the administration of criminal justice both generally and under the Federal Rules of Criminal Procedure, is not of great consequence.

 As Justice Frankfurter said in McNabb v. United States, 318 U.S. 332, 340, 63 S. Ct. 608, 613, 87 L. Ed. 819 (1943), judicial supervision of the administration of federal criminal justice by the federal courts "implies the duty of establishing and maintaining civilized standards of procedure and evidence. Such standards are not satisfied merely by observance of those minimal historic safeguards for securing trial by reason which are summarized as 'due process of law' and below which we reach what is really trial by force." See also Nardone v. United States, 308 U.S. 338, 339, 342, 60 S. Ct. 266, 84 L. Ed. 307 (1939).

 The Federal Rules of Criminal Procedure, "intended to provide for the just determination of every criminal proceeding," must be construed by the courts "to secure * * * fairness in administration." Rule 2. And the courts are authorized, if no procedure is specifically prescribed by rule, to "proceed in any lawful manner not inconsistent with these rules or with any applicable statute." Rule 57(b); cf. Petition of Petrol Shipping Corp. v. Kingdom of Greece, Ministry of Com., 360 F.2d 103 (2 Cir. 1966).

 These powers of the federal criminal court are not confined to the protection of an identified federal constitutional right. McNabb v. United States, supra. Nor may these powers be used only against participants in criminal proceedings pending before the court. They extend to policing the requirements of the federal rules in the interests of fundamental fairness even against persons coming within their jurisdiction who are not parties to proceedings. Rea v. United States, 350 U.S. 214, 76 S. Ct. 292, 100 L. Ed. 233 (1956); see Go-Bart Importing Co. v. United States, 282 U.S. 344, 51 S. Ct. 153, 75 L. Ed. 374 (1931); In re No. 32 East 67th Street, Borough of Manhattan, City of New York, 96 F.2d 153 (2 Cir. 1938). See also Wise v. Henkel, 220 U.S. 556, 31 S. Ct. 599, 55 L. Ed. 581 (1911).

 The broad supervisory power vested in the criminal courts to protect proceedings before them against unfairness is dramatically emphasized in a different context by Justice Clark's recent opinion in Sheppard v. Maxwell, 384 U.S. 333, 86 S. Ct. 1507, 16 L. Ed. 2d 600 (1966). That case dealt with the failure of a state trial judge to fulfill his duty to protect the defendant from inherently prejudicial publicity which saturated the community and to control disruptive influences in and out of the courtroom. A Federal criminal court certainly has at least as much power to prevent "prosecutors, counsel for defense, the accused, witnesses, court staff, or enforcement officers coming under the jurisdiction of the court" from engaging in conduct which is likely to result in an unfair trial. 384 U.S. at 363, 86 S. Ct. at 1522.

 The powers vested in the federal courts to protect against unfairness in the administration of federal criminal justice must necessarily extend also to litigants and attorneys in civil actions in the federal courts where the use of federal civil process threatens such unfairness.

 III.

 When and under what circumstances should such power be exercised? Plainly it should not be invoked without due caution and restraint. The burden of showing the probability of "essential unfairness * * * as a demonstrable reality," Adams v. United States ex rel. McCann, 317 U.S. 269, 281, 63 S. Ct. 236, 242, 87 L. Ed. 268 (1942), Sheppard v. Maxwell, supra, 384 U.S. at 351-352, 86 S. Ct. 1507, rests on the party invoking the power. In all but a few extreme cases prejudice to the accused must be identifiable. Estes v. State of Texas, 381 U.S. 532, 542-543, 85 S. Ct. 1628, 14 L. Ed. 2d 543 (1965). Moreover, as in any other application for relief in the nature of injunction the prejudice to the party seeking relief must be weighed against any prejudice to the persons against ...


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