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United States of America v. Carl A. Larson

August 10, 2011

UNITED STATES OF AMERICA,
v.
CARL A. LARSON, ET AL., DEFENDANTS.



The opinion of the court was delivered by: William M. Skretny Chief Judge United States District Court

DECISION AND ORDER

I. INTRODUCTION

This is a criminal action brought against Defendants Carl A. Larson, James L. Minter III, Mark N. Kirsch, Gerald H. Franz, Jr., Jeffrey A. Peterson, Gerald E. Bove, Michael J. Caggiano, Jeffrey C. Lennon, Kenneth Edbauer, George Dewald, Michael Eddy, and Thomas Freedenberg.*fn1 (Superseding Indictment, Docket No. 4 ("Sup. Indict.").)

Pending before this Court is the Report and Recommendation of the Honorable Hugh B. Scott, United States Magistrate Judge, filed October 12, 2010 (Docket No. 184), recommending that Defendants' motions to dismiss the Superseding Indictment (Docket Nos. 153, 155) be granted. On November 29, 2010, the government filed objections to the Report and Recommendation. (Docket No. 196.) After full briefing, this Court heard oral argument on June 14, 2011, and took the objections under advisement at that time. (Docket No. 226.)

For the reasons discussed below, having considered Judge Scott's Report & Recommendation, the parties' submissions, and the issues raised at oral argument, this Court will set aside Judge Scott's Report & Recommendation, grant the government's objections, and deny Defendants' motions to dismiss.

II. BACKGROUND

A. The Superseding Indictment

On April 1, 2008, the grand jury returned an eight-count superseding indictment against Defendants, charging them with one count of racketeering conspiracy under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(d), one count of Hobbs Act extortion conspiracy, 18 U.S.C. § 1951(a), and six counts of attempted Hobbs Act extortion. (Sup. Indict, Docket No. 4.) The indictment also includes a claim for RICO forfeiture under 18 U.S.C. section 1963. (Id. at 60-62.)

1. Count One Allegations -- Racketeering Conspiracy

Count One of the indictment alleges, generally, that Defendants, members of the International Union of Operating Engineers, Local 17, AFL-CIO ("Local 17"), were operating as a criminal enterprise with the objective of extorting property from various construction firms throughout Western New York. (Id. at 2-5.) The criminal enterprise operated from about January 1997 to December 2007. (Id. at 2.) Defendants Larson, Minter, Kirsch, and Franz were the "primary" figures within the criminal enterprise. (Id. at 3-5.)

The purported objective of the Local 17 criminal enterprise was to obtain through extortion several types of property, including (1) the property of construction contractors consisting of wages and benefits to be paid pursuant to labor contracts with Local 17; (2) the property of non-union construction laborers consisting of the jobs being performed by those laborers, and the attendant wages and benefits; (3) the property right of construction contractors and businesses to make business decisions free from outside pressure; and (4) the property of construction contractors consisting of wages and benefit contributions paid by such contractors for "unwanted, unnecessary, and superfluous labor." (Id. at 5.) Defendants used various unlawful means to secure these objectives, including actual violence, threats, intimidation, sabotage of property, and attempted interruption of construction projects. (See id. at 6-8.)

Defendants allegedly engaged in a conspiracy to conduct a pattern of racketeering activity. (Id. at 8-9.) Eleven acts of racketeering are described. (See id. at 10-32.) Each act consists of attempted extortion in violation of the Hobbs Act, 18 U.S.C. § 1951(a), and/or the New York Penal Law, see N.Y. Penal Law § 155.05(2)(e)(i) & (ii). Racketeering Act 11 alleges a conspiracy to commit extortion in violation of federal and state law. (Sup. Indict. at 29-32.)

Different Defendants are named as participants in each of the eleven acts. For example, Defendant Larson is the named actor with respect to Racketeering Act 1, an attempt to extort jobs and other forms of property from STS Construction of Western New York. (Sup. Indict. at 10-12.) Defendants Peterson, Larson, Minter, Franz and Dewald are the alleged participants in Racketeering Act 2, directed at Zoladz Construction Company. (Id. at 12-15.)

2. Count Two -- Hobbs Act Conspiracy

Count Two charges that Defendants engaged in a Hobbs Act conspiracy from about October 2003-December 2007, with the purpose of extorting the following types of property from Western New York construction contractors: (1) the property right to make business decisions free from pressure; (2) wages and benefits for "unwanted, unnecessary, and superfluous" labor; and (3) the jobs and associated wages and benefits of the employers' employees. (Id. at 32-33.) The indictment lists 75 overt acts in furtherance of this conspiracy. (Id. at 33-53.) These acts include telephone harassment, damaging construction equipment, making verbal threats, the stabbing of the president of STS Construction by Defendant Caggiano, and attempting to run a contractor employee's car off the road. (See, e.g., id. at 33, 34-35, 37, 38.)

3. Counts Three Through Eight -- Attempted Hobbs Act Extortion

Counts Three through Eight allege attempted Hobbs Act extortion against Western New York construction firms, based on the same conduct underlying Counts One and Two. (Id. at 53-60.) Different Defendants are named in the various counts. (Id.) Again, the charge is that Defendants attempted to extort from the victims (1) the right to make business decisions free from pressure; (2) wages and benefits for "unwanted, unnecessary, and superfluous" labor; and (3) the jobs of the contractor employees, with attendant wages and benefits. (See, e.g., id. at 53-54 (allegations of attempts to extort from STS Construction).)

4. RICO Forfeiture

Finally, the indictment sets forth a claim for forfeiture of property and proceeds deriving from the criminal enterprise, along with benefits relating to Defendants' union positions, under 18 U.S.C. § 1963. (Id. at 60-62.)

B. Procedural Background

1. Defendants' Motions to Dismiss

On April 19, 2010, Defendants filed a joint motion to dismiss the Superseding Indictment. (Docket No. 153.) Defendants maintained that the charges in the indictment did not state a violation of the Hobbs Act under United States v. Enmons, 410 U.S. 396, 93 S.Ct. 1007, 35 L.Ed.2d 379 (1973). (Mem. in Supp. of Defs.' Joint Mot. Dismiss (Docket No. 154) at 2-5.) Nor did the alleged conduct constitute extortion under New York state law. (Id. at 5-8.) Defendants also contended that the indictment should be dismissed as impermissibly vague to the extent it could be read to permit Hobbs Act and RICO liability for the conduct alleged therein. (Id. at 11-12.)

Defendant Bove moved separately to dismiss on the ground that the indictment was facially insufficient because it did not allege the essential facts underlying the charges against him. (Mem. in Supp. of Def. Bove's Mot. Dismiss (Docket No. 156) at 1-15.) Defendant Bove also argued that the Hobbs Act is unconstitutional as applied in this case because it criminalizes protected speech and association. (Id. at 16-23.) Finally, Defendant Bove contended that the Hobbs Act impermissibly fails to warn of the potential criminality of the conduct alleged in this case. (Id. at 23-24.)

2. The Magistrate Judge's Recommendation

On October 12, 2010, the Honorable Hugh B. Scott, United States Magistrate Judge, issued a Report and Recommendation (Docket No. 184 ("R&R")), recommending that Defendants' motions be granted and that the Superseding Indictment be dismissed. (R&R at 18.)

In evaluating the facial validity of the indictment, Judge Scott identified the key issue as whether Defendants, in engaging in the conduct alleged in the indictment, were pursuing lawful union objectives; namely, the attainment of work for Local 17's members that was not "unwanted or superfluous." (Id. at 12.) Judge Scott determined that the indictment failed on its face because it did not identify which services offered by Defendants were unwanted, superfluous, or fictitious, but instead relied on the conclusory allegation that the services Defendants sought to be provided were "superfluous" and "unwanted." (Id. at 13.) Judge Scott explained:

The Enmons reference to "unwanted" services is not to cover services refused by a non-union contractor; otherwise, any labor action against a non-union shop once those services are declined would constitute a Hobbs Act violation. (Id.) The indictment also did not allege that Defendants sought personal payoffs or fictitious jobs for union members, so as to bring the conduct within the scope of the Hobbs Act. (Id.)

Judge Scott concluded that Defendants' conduct, as alleged, was not for any unlawful purpose. Rather, it was aimed at the legitimate objective of obtaining union jobs from reluctant construction contractors, which Enmons recognizes as lawful labor action. (Id.) Accordingly, the indictment failed to allege any Hobbs Act violations. (Id.)

Next, Judge Scott considered whether the indictment properly alleged extortion under New York Penal Law. (Id. at 14.) Judge Scott pointed out that under New York law, pursuit of legitimate union objectives is not punishable as extortion. (Id.) Because Defendants' objectives here were legitimate, the RICO count could not be predicated on state law extortion allegations.*fn2 (Id.)

Judge Scott also addressed Defendant Bove's separate motion. Judge Scott rejected the argument that the indictment was facially insufficient for failure to allege the specific criminal conduct of each Defendant. (Id. at 16.) However, Judge Scott agreed that the indictment failed to the extent it criminalized protected speech and association by union members. (Id. at 17.) Under Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 69 S.Ct. 684, 93 L.Ed. 834 (1949), speech in the context of a labor dispute may be criminalized where it is integral to criminal conduct. (Id.) However, because the indictment did not allege the requisite unlawful union objective upon which to base criminal liability, speech in connection with the conduct in the indictment could not be criminalized. (Id.) Accordingly, Judge Scott recommended that Defendant Bove's motion to dismiss be granted on this ground.*fn3 (Id.)

The government filed objections to Judge Scott's Report and Recommendation. See 28 U.S.C. § 636(b)(1); see also Fed. R. Crim. P. 10 (providing that a magistrate judge may perform the duties authorized by 28 U.S.C. § 636 in a federal criminal proceeding). Defendants filed responses to the objections. This Court heard oral argument from the parties on June 14, 2011.

III. DISCUSSION

Under 28 U.S.C. § 636(b)(1), if objections are made to a magistrate judge's report and recommendation regarding a dispositive matter, the district court must make a de novo determination of any disputed findings and conclusions. 28 U.S.C. § 636(b)(1). The court may accept, reject, or modify any of the proposed findings and recommendations of the magistrate judge. Id.

Rule 12(b) of the Federal Rules of Criminal Procedure provides that a motion to dismiss may raise "any defense, objection, or request which is capable of determination without a trial of the general issue." Fed. R. Crim. P. 12(b)(2). A pre-trial motion to dismiss an indictment under Rule 12 must satisfy a "high standard." United States v. Lazore, 90 F.Supp.2d 202, 203 (N.D.N.Y. 2000). In deciding a motion to dismiss an indictment for failure to state a criminal offense, a court must assume the truth of the allegations in the indictment and determine whether the indictment is valid on its face. United States v. Bicoastal Corp., 819 F.Supp. 156, 158 (N.D.N.Y. 1993). This Court is not permitted to "look[] beyond the face of the indictment and [draw] inferences as to the proof that would be introduced by the government at trial." United States v. Alfonso, 143 F.3d 776, 776 (2d Cir. 1998).

A. Defendants' Joint Motion to Dismiss the Indictment

Defendants contend that the Superseding Indictment fails on its face because it does not allege any criminal conduct. As noted, the indictment in this case charges a RICO conspiracy predicated on violations of the Hobbs Act and New York extortion law.*fn4

It also alleges a Hobbs Act conspiracy and attempted Hobbs Act extortion. Thus, the validity of the indictment at this stage of the proceedings turns on whether it has properly alleged violations of the Hobbs Act and/or New York extortion law.

1. Hobbs Act Liability

a. Legal Standards

The Hobbs Act provides in relevant part:

(a) Whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires to do so, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section shall be fined under this title or imprisoned not more than twenty years, or both. . . .

(b) As used in this section -- . . .

(2) the term "extortion" means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right. 18 U.S.C. § 1951.

In United States v. Enmons, 410 U.S. 396, 396, 93 S.Ct. 1007, 35 L.Ed.2d 379 (1973), the Supreme Court of the United States addressed the applicability of the Hobbs Act to union activity. The appellees in that case were union members and officials who were seeking a new collective bargaining agreement with Gulf States Utilities Company ("Gulf States") while the employees were on strike. 410 U.S. at 397. The indictment charged that appellees had conspired to obstruct commerce, and that in furtherance of the conspiracy they would obtain the property of [Gulf States] in the form of wages and other things of value with the consent of [Gulf States] . . ., such consent to be induced by the wrongful use of actual force, violence and fear of economic injury by (the appellees) and co-conspirators, in that (the appellees) and the co-conspirators did commit acts of physical violence and destruction against property owned by [Gulf States] in order to force said Company to agree to a contract with Local 2286 of the International Brotherhood of Electrical Workers calling for higher wages and other monetary benefits.

Id. at 397-98 (internal quotations omitted). The alleged violent acts by the appellees included firing high-powered rifles at company transformers, draining the oil from a company transformer, and blowing up a transformer substation owned by the company. Id. at 398.

The Supreme Court held in a 5-4 decision that the alleged conduct did not constitute a violation of the Hobbs Act, and thus that the indictment properly had been dismissed. Id. at 412. First, the Court considered the meaning of the term "wrongful" as it applied to the definition of "extortion" under the Act. Id. at 399-400. The Court explained that the term "wrongful" would be superfluous if it described only the means used to obtain the property, because any use of force or violence to obtain property would be wrongful. Id. Thus, the term "wrongful" must have been intended to refer to the objective of the alleged extortionist in seeking the property: "'[W]rongful' has meaning in the Act only if it limits the statute's coverage to ...


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