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United States v. Barta

decided: November 25, 1980.


Appeal from an order of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., District Judge, dismissing appellee's indictment for failure to allege a scheme or artifice to defraud within the purview of the mail and wire fraud statutes. Reversed and remanded.

Before Kaufman, Kearse and Bright*fn*, Circuit Judges.

Author: Kaufman

The centuries-long trend toward greater sophistication in the criminal law has increasingly blurred the line between criminal and noncriminal misbehavior. While defining lawless conduct is primarily a legislative function, courts have mitigated the severity of penal sanctions by construing ambiguous statutes against the Government. This doctrine of strict construction, which grew out of the emerging humanitarianism of seventeenth century England,*fn1 has long been a tenet of American jurisprudence. See, e. g., United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 5 L. Ed. 37 (1820). But this principle is just the start of the difficult process of statutory interpretation, for in some areas Congress has purposely cast wide the net of the criminal law.

In the instant case, we are asked to construe two seemingly limitless provisions, the mail*fn2 and wire*fn3 fraud statutes, in the context of the employer-employee relationship. The Government urges us to hold that these statutes are violated whenever an employee, acting to further a scheme for pecuniary gain, intentionally breaches a fiduciary duty of honesty or loyalty he owes his employer. The defendant decries this "overcriminalization" of the employment relationship, and asks us to declare his alleged conduct exempt from criminal sanction. While we reject the sweeping theory advanced by the Government, we find that the mail and wire fraud statutes do reach the conduct with which the defendant is charged. Accordingly, we reverse the district court's dismissal of the indictment.


A description of the procedural posture of this case is essential to our analysis of the merits of the Government's appeal. On November 1, 1979, John Von Barta was indicted on seven counts of mail fraud, seven counts of wire fraud, and one count of conspiracy to commit those offenses, in violation of 18 U.S.C. ยงยง 1341, 1343, 2, and 371 (1976). Von Barta moved to dismiss the indictment, contending it failed to charge a scheme or artifice to defraud, a necessary element of all fifteen counts. Judge Brieant initially denied Von Barta's motion, holding the indictment valid on its face. Upon reconsideration, however, he dismissed the charges. The Government then filed this appeal.

In reviewing the district court's dismissal of the indictment, we take as true all of its allegations, see Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 343 n.16, 72 S. Ct. 329, 332 n.16, 96 L. Ed. 367 (1952); United States v. Bohonus, 628 F.2d 1167 (9th Cir. 1980), as amplified by additional documents submitted by the Government, which Judge Brieant accepted in lieu of a formal bill of particulars. The defendant's contrary assertions of fact will not be considered. See Las Vegas Merchant Plumbers Association v. United States, 210 F.2d 732, 741 (9th Cir.), cert. denied, 348 U.S. 817, 75 S. Ct. 29, 99 L. Ed. 645 (1954).

From 1976, until the indictment against him was filed in 1979, Von Barta was employed as a salesman and trader of government bonds at Malon S. Andrus, Inc. ("Andrus"), a small securities firm in New York City. When Von Barta was hired, he was admonished "never to jeopardize the firm's banking relationships and always to advise Mr. Andrus if the firm's repurchase agreements "were in trouble.' "*fn4 As this warning indicates, Von Barta enjoyed an especially powerful and trusted position at Andrus. He had considerable discretion to open new customer accounts, knowing his decisions in that regard would not be re-examined by another member of the firm.

Von Barta conducted many of his trades with William Harty,*fn5 a salesman in the government securities department at Blyth Eastman Dillon & Co. ("Blyth"), a large New York brokerage firm. In or about July 1978, Harty formed the Piwacket Corp. ("Piwacket"), to which he and Von Barta each contributed $5,000 as their capital investment. They decided to use Piwacket as their vehicle for trading in government bonds, and agreed to share equally in any profits made by their corporation. Von Barta then opened an account for Piwacket with Andrus, without telling Mr. Andrus of Piwacket's meagre capitalization or of his involvement with the firm. Piwacket became one of Andrus's most active accounts, generating substantial commissions for both Andrus and Von Barta. Piwacket ultimately speculated in government bonds worth more than $50 million, and incurred liabilities vastly in excess of the combined ability of Andrus and Piwacket to secure Piwacket's creditors against loss. The volume of Piwacket's trading attracted the attention of Andrus and Blyth, but Von Barta continued to conceal his involvement, falsely telling Mr. Andrus that Piwacket was an established Long Island arbitrageur and misrepresenting to Blyth that Harty was Piwacket's sole principal.

At first, Piwacket's trades were very successful, generating profits of nearly $200,000. Later, however, the bond market weakened. When Von Barta indicated that Piwacket could not cover its losses, Andrus terminated the Piwacket account. Piwacket's resultant insolvency forced Andrus and Blyth to bear a $2 million loss.

The Government alleges that by trading through Piwacket, Von Barta speculated in the government bond market using the fraudulently obtained credit of Blyth and Andrus. It charges further that by limiting Piwacket's liability to $10,000 (the amount of the capital investment), Von Barta attempted to shield himself from the risk accompanying his speculative transactions. In effect, the Government claims, Von Barta shifted the risk from himself to Andrus. If his trades were successful, he reaped the profit; if they failed, Andrus bore the loss. Finally, the Government charges that Von Barta concealed material information from Andrus. According to the Government, Andrus never would have allowed Von Barta to open or to continue trading in the Piwacket account had it known Piwacket was undercapitalized, that Von Barta was involved with the firm, or that neither Andrus nor Piwacket had sufficient assets to cover Piwacket's losses.

In setting out its theory of the indictment, the Government has repeatedly refused to rely on allegations that Von Barta intended to defraud Andrus of any tangible interest. Rather, the Government charges that "Von Barta, by abusing his fiduciary position as an employee of Andrus, and concealing material information, defrauded Andrus of its right to his honest and faithful services, as well as of its right to decide what business risks to bear with all the facts before it."*fn6 Thus, we are asked to decide whether Von Barta's alleged scheme to defraud his employer of only these intangible interests violates the mail and wire fraud statutes.*fn7


As an initial matter, we must consider Von Barta's challenge to our jurisdiction to hear this case, a question that arises because the district court adopted an unusual procedure in construing the indictment.*fn8 Von Barta contends that an appeal does not lie because, he says the Double Jeopardy Clause bars his further prosecution. Relying on Finch v. United States, 433 U.S. 676, 97 S. Ct. 2909, 53 L. Ed. 2d 1048 (1977) (per curiam), he argues that since Judge Brieant went beyond the face of the indictment in granting the motion to dismiss, the order of dismissal constitutes a ...

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