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UNITED STATES v. STANDARD DRYWALL CORP.

August 28, 1985

UNITED STATES OF AMERICA
v.
STANDARD DRYWALL CORPORATION, MICHAEL GEDELL, ARNOLD KOSLOW, FRANCES KATZ, MURRAY KOSLOW, JOSEPH KOSLOW, HARVEY SHULMAN, BARRY SHULMAN, KEVIN EBEL, EDWARD PICCIRILLO and ARTHUR GIANGRANDE, Defendants



The opinion of the court was delivered by: MALETZ

Opinion and Order

HERBERT N. MALETZ, SENIOR UNITED STATES DISTRICT JUDGE *fn1"

 Defendants in this criminal action have made a series of pretrial motions. The background is this. On January 14, 1985, a grand jury charged one corporation and ten individuals, *fn2" in a forty-eight-count indictment, with one violation of the conspiracy statute (18 U.S.C. § 371 (1982)); four substantive mail frauds (id. § 1341); three violations of the Taft-Hartley Act (29 U.S.C. § 186 (1982)); one obstruction of justice (18 U.S.C. § 1503 (1982)); a conspiracy within the meaning of the Racketeer Influenced and Corrupt Organizations Act (RICO) (id. § 1962(d)); one substantive violation of the RICO Act (id. § 1962(c)); nine counts of filing false corporate payroll tax returns (26 U.S.C. § 7206 (1982)); fourteen counts of attempted evasion of individual income and FICA taxes (id. § 7201); and fourteen counts of filing false individual federal income tax returns (id. § 7206).

 The indictment alleges that defendants Michael Gedell and Arnold Koslow owned and -- together with defendants Frances Katz and Joseph Koslow -- operated defendant Standard Drywall Corporation (hereafter referred to as Standard Drywall or Standard) as a "double breasted" company. In other words, according to the indictment, Standard had a dual existence during 1979 through 1981, with an apparently legitimate facade masking a totally illicit operation.

 More particularly, the indictment alleges, among other things, that Standard violated its contractual obligations to comply with applicable union agreements in performing drywall carpentry and related construction work; that the defendants became involved in mail fraud, federal and state tax fraud, frauds on state worker benefit programs, and corruption of labor officials; that Gedell and Arnold Koslow set up "shell companies," which they operated under pseudonyms; that bank accounts of the shell companies were used to pay workers "off the books"; that, in furtherance of this scheme, Standard made false reports to union benefit funds, state unemployment offices, a disability insurer, and federal and state tax authorities; and that Gedell and the Koslows bribed and threatened union officials, both directly and through defendant Arthur Giangrande.

 The defendants have moved jointly for the following relief:

 
(1) dismissal of the indictment because of the government's delay in returning the indictment;
 
(2) dismissal of the indictment with respect to Standard and Michael Gedell because of allegedly prejudicial and inappropriate statements made by the prosecutor to the grand jury;
 
(3) dismissal of count 1 for failure adequately to charge a scheme to defraud the United States;
 
(4) dismissal of counts 1, 2, 10, and 11 for failure to state a violation of the mail fraud statute;
 
(5) dismissal of count 1 as multiplicious with count 10;
 
(6) dismissal of counts 10 and 11 as against Standard on the ground that a corporation cannot be both the "enterprise" and a defendant underRICO, 18 U.S.C. § 1962(c) (1982);
 
(7) dismissal of paragraphs 1 through 5 of count 11 for failure adequately to allege the extent of the interests that are subject to forfeiture under RICO;
 
(8) dismissal of counts 1, 2, 3, 10, and 11 on the ground that the mail fraud counts are pyramided upon violations of the Internal Revenue Code;
 
(9) severance of Arthur Giangrande's trial;
 
(10) severance of personal tax charges against Frances Katz (counts 21-24) and Edward Piccirillo (counts 43-48);
 
(11) suppression of statements made by Gedell to FBI Special Agent Stanley Nye;
 
(12) suppression of all fruits of the search of Standard's offices; and, alternatively
 
(13) suppression of those books and records seized from Standard's offices that were not described in the search warrant.
 
In addition, Arthur Giangrande has moved for the following relief:
 
(14) dismissal of count 1 as duplicitous;
 
(15) severance of the charges against him on the grounds that joinder was improper and prejudicial; and
 
(16) a bill of particulars and various discovery.
 
Finally, Arnold Koslow has moved for:
 
(17) suppression of statements he made to Agent Nye; and
 
(18) a bill of particulars and various discovery.

 The court has conducted an evidentiary hearing on three motions: to dismiss the indictment because of unreasonable delay, to suppress statements by Gedell and Arnold Koslow to government agents, and to suppress materials seized during the search of Standard's offices. Additionally, the court has considered the extensive prehearing and posthearing submissions by the parties.

 I. Preindictment Delay

 Defendants move for dismissal of the indictment on the theory that they were deprived of due process by an unwarranted delay between the alleged offenses and filing of an indictment. The government's investigation of Standard Drywall began in 1979 and the search warrant was executed on May 28, 1981. The grand jury returned an indictment in January 1985. Essentially, the defendants contend that the lateness of the indictment constituted a deprivation of due process because (1) the government has misplaced books and records seized from Standard Drywall's offices, (2) the government obtained information, in the interim, from attorneys representing plaintiffs in civil suits against Standard Drywall, and (3) memories have faded and at least one witness has disappeared.

 The Supreme Court has stated that "statutes of limitations, which provide predictable, legislatively enacted limits on prosecutorial delay, provide '"the primary guarantee against bringing overly stale criminal charges."'" United States v. Lovasco, 431 U.S. 783, 789, 52 L. Ed. 2d 752, 97 S. Ct. 2044 (1977) (quoting United States v. Marion, 404 U.S. 307, 322, 30 L. Ed. 2d 468, 92 S. Ct. 455 (1971) (quoting United States v. Ewell, 383 U.S. 116, 122, 15 L. Ed. 2d 627, 86 S. Ct. 773 (1966))). The Court recognized, however, "that the Due Process Clause has a limited role to play in protecting against oppressive delay." Id. The Fifth Amendment "would require dismissal of the indictment if it were shown . . . that . . . pre-indictment delay . . . caused substantial prejudice to [defendants'] rights to a fair trial and that the delay was an intentional device to gain tactical advantage over the accused." United States v. Marion, 404 U.S. at 324 (footnote omitted). "[P]roof of prejudice is generally a necessary but not sufficient element of a due process claim, and . . . the due process inquiry must consider the reasons for the delay as well as the prejudice to the accused." United States v. Lovasco, 431 U.S. at 790. Accord, e.g., United States v. Birney, 686 F.2d 102, 105 (2d Cir. 1982) (prejudice necessary but not sufficient to claim of preindictment delay); United States v. Lawson, 683 F.2d 688, 694 (2d Cir. 1982) (defendant must show substantial prejudice and delay engineered by government for improper purpose); United States v. Elsbery, 602 F.2d 1054, 1059 (2d Cir.) (defendant must show actual prejudice and unjustifiable government conduct), cert. denied, 444 U.S. 994, 62 L. Ed. 2d 425, 100 S. Ct. 529 (1979).

 Defendants face a heavy burden on their motion to dismiss for preindictment delay. United States v. Elsbery, 602 F.2d at 1059. "The burden of demonstrating actual prejudice is on defendant, and the proof of prejudice must be definite and not speculative. . . ." United States v. Birney, 686 F.2d at 105-06.

 Against this background, the court considers the timing of the instant investigation. As of May 28, 1981, all the defendants, except Arthur Giangrande, were aware that the government was investigating Standard Drywall. Giangrande was on notice by August 16, 1982 that he was a target of the grand jury. Nevertheless, prior to December 1983, Standard Drywall made only one request for copies of documents seized during the May 28, 1981 search, and the government complied promptly. In December 1983, Standard Drywall requested copies of all the documents seized, and the government complied in March 1984. No one examined the original search proceeds on behalf of the defendants until June 1985, when one defendant, one attorney, and a consultant reviewed the proceeds for approximately three hours. Moreover, Arnold Koslow's list, purporting to name all documents missing following the search, was not prepared until June 1985, and was based on his memory, a review of FBI photographs, and consultation with an employee of counsel.

 Given all these considerations, the court is hard pressed to believe that the allegedly missing documents carry much importance, let alone pose a threat to defendants' right to a fair trial. Nor was there any impropriety in the government's obtaining information from attorneys for plaintiffs in civil actions brought against Standard Drywall. That several defendants chose to answer interrogatories and deposition questions, rather than exercise their privilege against self-incrimination, was a tactical choice. Cf. E.F. Hutton & Co. v. Jupiter Development Corp., 91 F.R.D. 110, 114 (S.D.N.Y. 1981) (privilege against self-incrimination may be invoked in civil action if reasonable cause to believe direct answer would support conviction or furnish link in chain of evidence to prove crime). Presumably, these defendants wished to avoid the negative inferences that could be drawn in the civil suits from an assertion of Fifth Amendment rights, see Brinks Inc. v. City of New York, 717 F.2d 700, 710 (2d Cir. 1983); Penfield v. Venuti, 589 F. Supp. 250, 255 (D. Conn. 1984), but the dilemma they faced was not the government's fault. Finally, the fading of witnesses' memories and the unavailability of at least one witness are insufficient grounds for a finding of actual prejudice. See United States v. King, 560 F.2d 122, 130 (2d Cir.), cert. denied, 434 U.S. 925, 54 L. Ed. 2d 283, 98 S. Ct. 404 (1977).

 Not only have the defendants failed to show actual prejudice, they have also failed to show unjustifiable government conduct. The investigation of the defendants proceeded from May 1981 until the indictment was returned in January 1985, and there is no evidence that the government deliberately delayed the indictment in pursuit of a tactical advantage. Instead, the credible evidence shows that the government's investigation continued during the period leading up to the indictment. For these reasons, the motion to dismiss the indictment on the oasis of preindictment delay is denied.

 II. Grand Jury Prejudice

 Defendants Michael Gedell and Standard Drywall seek dismissal of the indictment as against them because of remarks made to the grand jury by the then prosecutor, Special Attorney Laura Brevetti, after Gedell testified on February 1, 1982 as a custodian of records. The relevant portion of the transcript follows:

 
GRAND JUROR: You were quite specific in keeping to your specific area of questioning which is why I didn't say anything.
 
I guess it's not important what he does in relation to those corporations?
 
MS. BREVETTI: Let me explain to you, as a legal advisor, exactly what he is testifying to today.
 
Mr. Gedell was testifying as an officer or executive or keeper of the records for those corporations to tell us whether or not they exist or are in his possession, control, custody, to comply with the subpoena.
 
Mr. Shargell [sic ] who represents Mr. Gedell informed me that any question outside of that area, Mr. Gedell would invoke his Fifth Amendment privilege.
 
The law states that as an officer or keeper or custodian of records for a corporation, you have no right to assert your Fifth Amendment privilege with regard to whether or not those documents exist or indeed to produce those records if they exist. There is no Fifth Amendment privilege; it's a personal privilege. It doesn't run to the corporation.
 
The law is different if it's a partnership or if it's a closely held corporation. But that's too complex and it doesn't concern us here.

 The defendants rely on United States v. Thibadeau, 671 F.2d 75 (2d Cir. 1982), and section 3.5(b) of the ABA Standards for the Prosecution Function for the proposition that Brevetti's reference to Gedell's Fifth Amendment intentions was improper and prejudicial. Section 3.5(b), as paraphrased in Thibadeau, "prohibits a prosecutor from making statements and arguments in order to influence the grand jury 'in a manner which would be impermissible at trial before a petit jury.'" 671 F.2d at 77. Gedell and Standard Drywall further contend that Brevetti's error was compounded by Gedell's assertion of the Fifth Amendment privilege before other sessions of the grand jury.

 The Second Circuit has "upheld the dismissal of an indictment only in very limited and extreme circumstances. In such cases, there was a need either to eliminate prejudice to a defendant in a criminal prosecution, where it was impossible to do so by imposition of lesser sanctions, or to deter a pattern of demonstrated and longstanding widespread or continuous official misconduct." United States v. Broward, 594 F.2d 345, 351 (2d Cir.), cert. denied, 442 U.S. 941, 61 L. Ed. 2d 310, 99 S. Ct. 2882 (1979). "[T]he sanction is so drastic that, especially where serious criminal conduct is involved, it must be reserved for the truly extreme cases." Id. Accord United States v. Bari, 750 F.2d 1169, 1176 (2d Cir. 1984); United States v. Thibadeau, 671 F.2d at 77-78. See also United States v. Rodriguez, 738 F.2d 13, 16 (1st Cir. 1984) (strong showing of actual prejudice required before indictment is dismissed); United States v. Pino, 708 F.2d 523, 530 (10th Cir. 1983) ("An indictment may be dismissed for prosecutorial misconduct which is flagrant to the point that there is some significant infringement on the grand jury's ability to exercise independent judgment.").

 The court cannot agree with defendants' characterization of Brevetti's remarks, which were accurate, though perhaps inappropriate. It is significant that Gedell had claimed his Fifth Amendment privilege, in the presence of the grand jury, both before and after the Brevetti remarks. In these circumstances, the prejudice suffered by Gedell and Standard Drywall is minimal, if existent. Nor can deterrence of official misconduct provide a rationale for dismissal, since there is no evidence of "widespread or continuous official misconduct of the dimensions necessary to warrant imposition of the sanction. . . ." United States v. Broward, 594 F.2d at 351. Therefore, the motion by Gedell and Standard Drywall to dismiss the indictment is denied.

 III. Conspiracy to Defraud the United States

 Defendants seek the dismissal of count 1 of the indictment to the extent that it alleges a conspiracy to defraud the United States. Count 1 charged various defendants with, among other things, membership in a conspiracy:

 
to defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental functions of the Internal Revenue Service of the Treasury Department of the United States in the ascertainment, computation, assessment and ...

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