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United States v. Goldberg

decided: November 26, 1975.


Appeal from judgments of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, convicting defendants after a jury trial of mail fraud, 18 U.S.C. § 1341 and of violation of the registration and antifraud provisions of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701, et seq.

Mansfield, Timbers and Gurfein, Circuit Judges.

Author: Mansfield

MANSFIELD, Circuit Judge:

Pocono International Corporation ("PIC") and Charles Goldberg, its principal officer and stockholder, appeal from judgments entered by the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, finding them guilty of mail fraud, 18 U.S.C. § 1341 (7 counts) and of violation of the relatively new Interstate Land Sales Full Disclosure Act ("Act"), 15 U.S.C. § 1701, et seq. (13 counts). The latter statute, as its title indicates, was enacted in 1968 in order to prevent abuses and deceptive practices, including high-pressure and fraudulent sales techniques, in interstate sales of land.*fn1 The Act prohibits a land developer from using interstate facilities to sell or lease a lot in any land subdivision unless (1) the lot has first been registered with the Department of Housing and Urban Development ("HUD"), which can be accomplished by the developer's filing with it a "Statement of Record" containing prescribed details and waiting until the Statement has become "effective,"*fn2 and (2) a printed "Property Report," which is in the nature of a prospectus containing a condensed version of the Statement of Record and supporting exhibits, has been furnished to the prospective purchaser. In addition to being found guilty of mail fraud in the sale of lots, appellants were convicted of selling 6 lots which had not been registered as required by 15 U.S.C. § 1703(a)(1),*fn3 and of selling 7 lots in violation of the general fraud provisions of 15 U.S.C. § 1703(a)(2)(B).*fn4 Finding no reversible error, we affirm the convictions on all counts.

The record, viewed in the light most favorable to the government, as it must be on this appeal, United States v. Castellana, 349 F.2d 264, 267 (2d Cir. 1965), cert. denied, 383 U.S. 928, 15 L. Ed. 2d 847, 86 S. Ct. 935 (1966), reveals that PIC was incorporated by Goldberg and others in or about early 1970 for the purpose of acquiring, developing and subdividing some 820 acres known as Hickory Run Forest ("HRF") in the Pocono Mountains in Penn Forest Township, Carbon County, Pennsylvania (the "Township"). At all relevant times Goldberg owned at least 50% of PIC's issued stock and was one of PIC's principal officers; at one time he was the company's president. The area to be exploited was divided into eight sections which were mapped, cleared and developed in piecemeal fashion, section by section, with certain sections first being registered with HUD by PIC's attorney in 1971 and early 1972. The sale of lots was handled exclusively by PIC's agent, Sellamerica, Inc., the principal officer of which, Rick Ebenstein, was also a PIC officer.

The lots which were the subject of the indictment were located in Sections 1-4 of HRF, for which a Statement of Record was filed with HUD on July 18, 1972, by Norman Failla, a broker employed by Goldberg on behalf of PIC for that purpose. Under the Act and HUD regulations, since HUD did not inform the registrant of any deficiencies within 30 days, the Statement became effective on August 17, 1972.*fn5 Prior to August 17, however, PIC made sales of unregistered lots to the customers named in six of the counts in the indictment; four of these sales were made even before the July 18 filing. The sales were as follows:

Jordan, June 4 (Count 16); Delgado, June 25 (Count 18); Arella, July 8 (Count 20); DiMeglio, July 3 (Count 26); Cancro, July 18 (Count 30); and Perri, July 18 (Count 32).

In each instance the prospective customer, after being solicited by PIC's selling agent (Sellamerica) by telephone or in person, drove on interstate roads to HRF, was shown the lots by a salesman, signed a PIC purchase agreement, made a down payment, and executed a loan agreement. Thereafter interstate facilities, including mails and telephone, were used to complete the purchases and pay off the loans.

Aside from the fact that the lots named in the indictment were not effectively registered when sold, some of the purchasers of these lots (Jordan, DiMeglio and Arella) were not furnished with a Property Report before making their purchases. The sales of unregistered lots alleged in the indictment furthermore represented but a small portion of the total number of lots sold prior to August 17, 1972, the date when the registration became effective. Approximately 125 additional unregistered lots were sold by PIC, of which some 115 were sold prior to the filing of the Statement of Record.

As a PIC officer Goldberg handled correspondence relating to sales of many of the unregistered lots, including those named in the indictment, and engaged in activities from which it could fairly be inferred that he knew at the time of the sales that the Statement of Record for the lots sold either had not yet been filed or was not yet effective. For instance, while sales of the lots were already being negotiated, he was still arranging for the procurement of maps and other records needed to file the Statement. Furthermore, after sales had begun he arranged for the issuance of a check to Failla for the filing fee and authorized Failla to obtain the signature of PIC's president on the Statement to be filed.

The fraud counts (both those charging violation of the mail fraud statute and those charging violation of the Interstate Land Sales Full Disclosure Act) were based on appellants' representations to seven named purchasers regarding the type of governmental approval required for installation of the on-site septic tank systems needed by the purchasers on the lots sold by PIC. Appellants advised purchasers that they would be able to dispose of household sewage by constructing on the lots septic tank systems that would be approved by the Township. This representation was made in a Statement of Record for earlier-registered sections, signed by Goldberg and incorporated in the later Statement filed for Sections 1-4, which encompassed the lots sold to purchasers named in the indictment.*fn6 It also appeared in the Property Report distributed to some purchasers.*fn7 Three purchasers were informed orally by PIC's sales agent (Sellamerica) that they would not have any trouble installing septic tanks in lots purchased by them. The materiality of these representations lay in the fact that if sewage systems approved by the local Township could be installed the matter would be routine, relatively trouble-free and inexpensive. If the lots, on the other hand, required installation of sewage systems for which permission must first be obtained from the Pennsylvania Department of Environmental Resources ("DER"), the purchaser might face delay, difficulty and substantial additional expense.

In actual practice the local Township would not, unless state approval had first been obtained, issue a permit for any septic tank sewage disposal system other than the standard or conventional type which comprised a septic tank and disposal area consisting of an underground tile field, seepage bed or serial distribution system. The government introduced evidence to the effect that because of unfavorable soil conditions known to the defendants each of the lots that were the subject of the fraud counts on which they were convicted was unsuitable for such a conventional septic tank system or for any other type of system that would be approved by the local Township and that each lot would require a special corrective system in the form of an above-ground sand filter bed known as a "turkey mound." According to the policy and practice of the Pennsylvania DER, which was set forth in its manual and instructions to local sewage enforcement officers and adhered to in practice by the Township's sewage officer, the Township would not issue a permit for a "turkey mound" or other type of exotic sewage system, such as a below-ground sand filter bed or an aerobic tank. In practice state DER approval for such systems was required. This policy and practice of the DER and Township was known to the engineer, Joseph Michel, who had been employed by the defendants to study HRF and advise as to the sewage requirements that must be met by prospective purchasers of lots.

In May, 1971, prior to the representations made by PIC to purchasers that local Township approved of septic tank systems required to be installed on their lots would be forthcoming, Michel, who had studied and tested the HRF area and had reviewed reports of the federal Soil Conservation Service on HRF, advised Goldberg that approximately 20% of the lots had slow percolation rates, stoniness, shallowness, high water tables, or other severe limitations requiring special systems, such as aerobic tanks or evapo -transpiration beds, which could be installed only with state approval. Dr. Glade Loughry, Chief of the Soil Science Unit of DER, testified that a large portion of HRF was unsuitable for septic tanks with standard drainage systems and that each of the lots referred to in the counts upon which defendants were convicted was unsuitable for conventional-type subsurface sewer disposal because the water table was within four feet or less of the surface of the soil.

At trial the government contended that state approval was required for any system other than a conventional subsurface disposal system, whether the special corrective system was above or below ground. More specifically the government argued that a subsurface sand filter system required state approval. The court, however, ruled that, notwithstanding the DER policy as set forth in its manual and the local Township practice, state approval was not clearly required by DER Regulations for subsurface sand filters but that it was required for above-ground sand filters, i.e., "turkey mounds." Accordingly, Judge Brieant dismissed those counts involving lots where subsurface sand ...

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