decided: April 14, 1976; As Amended May 11, 1976.
Appeal from dismissal of indictment by United States District Court for the Southern District of New York, Morris E. Lasker, J., on ground that Government had not proved that defendant's prior immunized testimony was not used in obtaining his indictment. Remanded for further proceedings.
Moore and Feinberg, Circuit Judges, and Wyzanski, District Judge.*fn*
The United States appeals from an order of the United States District Court for the Southern District of New York, Morris E. Lasker, J., dismissing an indictment that charged Harry Kurzer with aiding and abetting the filing of fraudulent federal corporate income tax returns. 26 U.S.C. § 7206(2). The basis of the judge's ruling was that the Government had not proved that Kurzer's previous immunized testimony was not used in obtaining the indictment. For reasons set forth below, we remand for further proceedings in the district court.
During the summer of 1972, in the course of a joint federal-state investigation of the meat industry in New York, federal authorities contacted Kurzer, who was then the accountant for several meat companies controlled by Moe Steinman, the target at that time of the investigation.*fn1 Kurzer's attorney and the federal prosecutor agreed that Kurzer would be interviewed by agents of the Internal Revenue Service about Steinman's activities. If the investigators were satisfied that Kurzer was being truthful and cooperative, he would receive immunity under 18 U.S.C. § 6003*fn2 and would testify before a grand jury; if the investigators were not satisfied with Kurzer's cooperation, he would not receive formal immunity and would not be called to testify. In any event, Kurzer was promised that what he told the investigators would not be used against him.*fn3
Kurzer met with the investigators on several occasions, and in February 1973 appeared before a federal grand jury under a formal grant of immunity. In March, the grand jury returned two indictments against Steinman. One, 73 Cr. 215, charged Steinman and others with interstate travel to promote commercial bribery and bribery of labor union officials, 18 U.S.C. § 1952, and conspiracy to commit that crime. The other, 73 Cr. 216, charged Steinman and others with 99 counts of filing false federal tax return forms, 26 U.S.C. § 7206, by padding the payrolls of various corporations with the names of persons not employed by them. Kurzer's testimony before the grand jury related only to the latter indictment.
Steinman had learned about the investigation of his activities in January 1972, and retained counsel at that time. After the indictments described above were filed in March 1973, the federal prosecutor asked Steinman's attorney if Steinman would be willing to cooperate in the investigation. Steinman rejected the offer, and indicated an intention to go to trial. When advised by the prosecutor that the investigation of Steinman would continue, the attorney asked to be informed if new evidence was uncovered, so that negotiations about cooperation could be renewed.
The investigation did continue, and in July 1973, Steinman learned that officers of meat companies with whom he had done business had "spilled the beans" to federal investigators concerning schemes involving generation of cash income by false invoices. Kurzer had been asked about such transactions when questioned by federal agents, but had denied any knowledge of them, and it is undisputed that this aspect of the case against Steinman was developed by means wholly independent of information received from Kurzer.
When Steinman learned that the Government had discovered these schemes, he testified below, "I felt that the goose was up. They got me and it was too much money." He had his lawyer inform the prosecutor that he was willing to cooperate. In August 1973, the federal and state investigators agreed to permit Steinman to plead guilty to one count of a violation of 26 U.S.C. § 7206(1),*fn4 and to a state misdemeanor, and to drop all other charges against him, in return for his cooperation. The indictment of Kurzer now before us was the product of information given by Steinman under this agreement.
Kurzer moved to dismiss the indictment, on the theory that it was the product of his immunized testimony. Kastigar v. United States, 406 U.S. 441, 32 L. Ed. 2d 212, 92 S. Ct. 1653 (1972). Judge Lasker held two evidentiary hearings, at which the facts as given above were developed. At the first hearing, the Government showed only that Kurzer's testimony before the grand jury, and the information which he had given to the agents, did not concern the transaction for which he was later indicted, and that the indictment was instead the product of Steinman's testimony. It thus argued that the information which led to the indictment was from a source (Steinman) wholly independent of the information obtained from Kurzer. Judge Lasker then ruled, in an opinion dated September 8, 1975, that the indictment had to be dismissed. He found that Steinman was not a source independent of the testimony given by Kurzer under the immunity grant:
On the basis of the testimony of Kurzer and others, the grand jury indicted Steinman in March, 1973 and following his indictment, Steinman decided to cooperate with the government. . . . The government does not suggest that Steinman independently offered or would have offered evidence against Kurzer absent Kurzer's evidence against Steinman. The chain of evidence from Kurzer to Steinman and back to Kurzer thus violates the broad statutory proscription on its face and as construed by Kastigar.
The judge in effect held that even if the Government had not used Kurzer's testimony to develop leads which produced evidence later introduced against him, it had used his testimony to produce an indictment of Steinman which, at that stage of the proceedings, seemed in turn ...