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U.S. v. SABBETH

December 22, 2000

UNITED STATES OF AMERICA,
V.
STEPHEN J. SABBETH, DEFENDANT.



The opinion of the court was delivered by: Hurley, District Judge.

MEMORANDUM AND ORDER

Pending before the Court is the application of Stephen J. Sabbeth ("Sabbeth") for bail pending appeal. The controlling statute, 18 U.S.C. § 3143, provides in pertinent part as follows:

(b) Release or detention pending appeal by the defendant. — (1) . . . the judicial officer shall order that a person who has been found guilty of an offense and sentenced to a term of imprisonment, and who has filed an appeal . . ., be detained, unless the judicial officer finds —
(A) by clear and convincing evidence that the person is not likely to flee or pose a danger to the safety of any other person or the community if released. . . .; and
(B) that the appeal is not for the purpose of delay and raises a substantial question of law or fact likely to result in —

(i) reversal,

(ii) an order for a new trial,

(iii) a sentence that does not include a term of imprisonment, or
(iv) a reduced sentence to a term of imprisonment less than the . . . expected duration of the appeal process.

18 U.S.C. § 3143.

Notwithstanding the language of § 3143 that seemingly conditions the availability of bail pending appeal on a showing that the conviction or sentence under attack is likely to be disturbed on appeal, the Section has not been so interpreted. See United States v. Hart, 906 F. Supp. 102, 106 (N.D.N Y 1995). Rather, as explained by the Second Circuit in United States v. Randell, 761 F.2d 122 (2d Cir. 1985):

[The] appropriate interpretation . . . requires a district court to determine first whether any question raised on appeal is a "substantial" one. The Miller court defined a substantial question as "one which is either novel, which has not been decided by controlling precedent, or which is fairly doubtful." [United States v. Miller, 753 F.2d 19, 23 (3d Cir. 1985)]. Giancola held that a substantial question "is one of more substance than would be necessary to a finding that it was not frivolous. It is a `close' question or one that very well could be decided either way." [United States v. Giancola, 754 F.2d 898, 901 (11th Cir. 1985)]. Handy defined substantial as "fairly debatable." [United States v. Handy, 753 F.2d 1487, 1490, amended by 761 F.2d 1279 (9th Cir. 1985)]. We do not believe that these definitions of "substantial" differ significantly from each other, but if we were to adopt only one, it would be the language of Giancola.

Id. at 125 (footnote omitted).

If the presence of a substantial question is demonstrated, the movant must then establish that the question is "`so integral to the merits of the conviction on which defendant is to be imprisoned that a contrary appellate holding is likely to require reversal of the conviction or a new trial.'" Id. (quoting Miller, 753 F.2d at 23).

Sabbeth neither represents a risk of flight nor a danger to another or the community. Absent from the record is anything to suggest that his appeal is for the purpose of delay. Accordingly, the present application turns on whether the issue broached is "substantial."

BACKGROUND

1. Counts of Conviction

Sabbeth stands convicted, after a trial by jury, under each of the six counts of Indictment 97-CR-421(S)(DRH).

Count One charged that:

On or about and between June 1, 1990 and April 1992, [he] . . . acting individually and as an agent of Sabbeth Industries, together with others, in contemplation of the filing of a case under Title 11 of the United States Code by Sabbeth Industries, and with intent to defeat the provisions of Title 11 of the United States Code, did knowingly and intentionally conspire to fraudulently transfer and conceal property belonging to Sabbeth Industries, in violation of Title 18, United States Code, Section 152 (1993).

(Indictment ¶ 13.)

Count Two charged that

On or about and between June 1, 1990 and April 1992, . . . [he] individually and as an agent of Sabbeth Industries, together with others, in contemplation of a case under Title 11 of the United States Code by Sabbeth Industries, and with intent to defeat the provisions of Title 11 of the United States Code, did knowingly, intentionally and fraudulently transfer and conceal property belonging to Sabbeth Industries.

(Indictment ¶ 16.)

Counts Three, Four, and Five each charged Sabbeth with having committed perjury in a proceeding under Title 11 of the United States Code. Under Count Six, he was accused of having engaged in money laundering in violation of Title 18 U.S.C. § 1956 with respect to "the proceeds of specified unlawful activities, to wit, monies unlawfully transferred and concealed from Sabbeth Industries, Ltd. in violation of Title 18 U.S.C. § 152 (1993)." (Indictment ¶ 24.)

2. Evidence at Trial

Sabbeth was the sole shareholder of Sabbeth Industries, Ltd. ("Sabbeth Industries") and its president until December of 1990. He also was the corporation's landlord, and lent monies to the corporation periodically.

After many years of successful operations, Sabbeth Industries experienced plummeting sales during the late 1980s. By the end of the decade, it was in dire financial straits and a probable candidate for bankruptcy. It managed to survive because of a revolving line of credit provided jointly by National Westminister Bank USA ("Nat West") and Manufacturers Hanover Trust, Co. ("Manufacturers"), the outstanding balance of which ranged between $14,000,000 and $18,000,000 during the period from July 1989 to September 1990. The indebtedness was collateralized via a pledge of basically all of Sabbeth Industries' assets and was personally guaranteed by Sabbeth.

Sabbeth Industries also owed Sabbeth approximately $2,000,000 for past due obligations.*fn1 However, that debt was subordinated to the bank indebtedness pursuant to subordination agreements which bore a number of signatures including Sabbeth's.

Notwithstanding what was intended by the banks to be a tightly controlled line of credit, it developed that Sabbeth had been withdrawing funds from Sabbeth Industries during 1990. The total sums taken exceeded $1,000,000, with approximately $750,000 of that amount being received by Sabbeth from June 1, 1990 to December 28, 1990 in the form of fifty-five Sabbeth Industries' checks. The corporation filed a voluntary petition for Chapter 11 reorganization on December 28, 1990.

Sabbeth categorizes the above-referenced payments to him as being made "openly." (Def.'s Mem. Supp. at 3.) That characterization is accurate in the sense the payments were made by corporate checks. Additionally, Sabbeth had testified during the bankruptcy proceeding that a Nat West loan officer had approved his withdrawal of funds from Sabbeth Industries notwithstanding, inter alia, the subordination agreements and his personal guarantee. The jury was aware of the bankruptcy court testimony in that it was the subject matter for Sabbeth's conviction for perjury under Count Four.

The jury also heard testimony, however, that the banks were unaware that corporate checks were being written to Sabbeth for antecedent debts prior to being alerted to that fact by a third party in mid-November 1990. That third party was Robert Eisenberg, a business consultant hired by the corporation-at the request of the banks-to stop the downward spiral. Upon being tipped-off by Eisenberg of Sabbeth's activities, Nat West obtained copies of Sabbeth Industries' checks from its check retention department which confirmed the subject payments. Bank officers then confronted Sabbeth on a number of occasions, each time angrily demanding to know what he had done with the money. He obliquely responded by simply indicating that he no longer had it, although he did tell Eisenberg when they were alone that the missing monies were used to prevent his brother-in-law from being killed by the Mafia due to unpaid gambling debts.

As later discovered, however, the bulk of the funds were in the C. Fiore brokerage account which was established by Sabbeth in December 1989 using his wife's maiden name, his mother-in-law's home address, and with a number of false entries, including a bogus social security number. The subject monies that Sabbeth received from Sabbeth Industries traveled through various bank and brokerage accounts on route to the C. Fiore account. (See Gov't's Trial Exs. 231-235.) Those transfers are the subject of the money laundering charged in Count Six.

3. Basis for Present Application

In seeking bail pending appeal, Sabbeth identifies the "substantial" legal issue for purposes of § 3143 as the instruction given to the jury concerning "property belonging to Sabbeth Industries." (Def.'s Mem. Supp. at 3-4.) Sabbeth proffers that the definition provided by the Court was wrong. He urges now, as he did at trial, that since the monies that Sabbeth removed from the corporation, and thereafter secreted, were "in payment of bona fide debts" owed to Sabbeth, the sums involved ceased being corporate property at the moment of transfer and thereafter constituted "his property"; as such, he could not be legitimately convicted of bankruptcy fraud, and concomitant money laundering, involving the "property of Sabbeth Industries." Id.

Sabbeth contends that the legitimacy of the other counts of his conviction are "called into doubt" and "equally shaky" given the purported charging deficiencies as to Counts One and Two. (Def.'s Mem. Supp. at 28.)

DISCUSSION

1. Section 152(7) and its ...


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