USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1406
UNITED STATES,
Appellee,
v.
RICHARD G. KAYNE,
Defendant - Appellant.
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No. 94-1407
UNITED STATES,
Appellee,
v.
EDWARD B. KALP,
Defendant - Appellant.
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APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Cyr, Circuit Judge,
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and Skinner,* Senior District Judge.
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* Judge Skinner, of the District of Massachusetts, sat by
designation, heard oral argument in this matter and thereafter
recused himself. The remaining two panelists therefore issue
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Francis J. DiMento, with whom DiMento & Sullivan was on
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brief for appellant Richard G. Kayne; John L. Roberts, by
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Appointment of the Court, for appellant Edward B. Kalp.
Mark J. Balthazard, Assistant United States Attorney, with
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whom Donald K. Stern, United States Attorney, was on brief for
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appellee.
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July 24, 1996
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this opinion pursuant to 28 U.S.C. 46(d).
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TORRUELLA, Chief Judge. Defendants-appellants Edward
TORRUELLA, Chief Judge.
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Kalp and Richard Kayne were charged with twenty-nine counts of
mail fraud, in violation of 18 U.S.C. 1341. After a six week
trial, a jury convicted both defendants on fifteen counts and
acquitted them on four; the judge granted a motion for acquittal
on one; and the government dropped the remaining counts. The
defendants were sentenced to 36-months imprisonment, and ordered
to pay $339,466 in restitution. On appeal, Kayne and Kalp argue
(1) that jeopardy had attached in a prior government proceeding;
(2) that certain evidence was improperly admitted; (3) that the
evidence submitted below was not sufficient to sustain the
convictions; and (4) that Kalp received ineffective assistance of
counsel at trial. For the reasons laid out below, we affirm.
I. BACKGROUND
I. BACKGROUND
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In the late 1970s, many new investors entered the
market for rare coins. Unlike knowledgeable hobbyists and "vest
pocket" dealers, these newcomers had no specialized expertise,
and were just looking for a stable investment. Seeking to
capitalize on this booming market, defendants Edward Kalp and
Richard Kayne left a distinguished Boston coin brokerage and
established the Rare Coin Galleries of America ("RCGA") in July
1982. Kalp, the President of RCGA, functioned as the in-house
numismatist, examining and valuing coins for purchase from
wholesalers, and pricing them for resale. Kayne, as RCGA's
marketing director, recruited financial planners and solicited
customers. For four years RCGA operated successfully, generating
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millions of dollars in revenues from approximately 3,000
customers.
A typical RCGA investor paid between $5,000 and $25,000
for a portfolio of coins. In the rare coin market, the value of
a coin is dependent upon its "grade," which is a numismatic
measure of comparative wear on a 70 point scale. Small
distinctions in grade can yield large differences in the value of
a coin. For example, among relatively pristine, uncirculated
"mint state" ("MS") coins, an MS65 coin can fetch ten times the
price of an MS63. For "certified" coins, grade is determined by
a certification service which typically employs a panel of
numismatists. Prior to 1986, the only independent grading
service was the American Numismatic Association Certification
Service ("ANACS"). For "raw" coins (which have not been
certified), grade and value may be established between two
knowledgeable collectors, or an amateur may rely on the
representation of a respected numismatist. Most of the raw and
certified coins which RCGA supplied its customers were purported
to be MS65 coins.
By mid-1986, at least two federal agencies had received
many complaints from RCGA customers asserting that the coins sold
by RCGA were of substantially lower quality and value than
represented. After a preliminary investigation in July 1986, the
United States Postal Service applied for and was granted
authority by the late Chief Judge Andrew Caffrey of the District
of Massachusetts to intercept RCGA's mail.
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At the same time, the Federal Trade Commission ("FTC")
was conducting a parallel nationwide investigation of the rare
coin investment market. The investigation quickly focused on
RCGA, among others. On September 16, 1986, the FTC instituted a
civil action alleging that RCGA was engaged in unfair and
deceptive business practices under 15 U.S.C. 45(a). This case
was also assigned to Judge Caffrey, who forthwith entered a
temporary restraining order "freezing" not only the business but
the personal assets owned by Kayne and Kalp. On October 14,
RCGA filed a Chapter 11 petition for bankruptcy reorganization,
which was removed to the district court and consolidated with the
Postal Service and FTC actions. The following week, Judge
Caffrey granted preliminary injunctions requested by the Postal
Service and the FTC, and appointed a Bankruptcy Trustee, who
initiated adverse proceedings against Kayne and Kalp.
The conclusion of the civil litigation came the
following spring, when the FTC, the Trustee, Kayne, and Kalp
entered into a settlement agreement requiring Kayne and Kalp to
surrender $2.2 million in personal assets to the Trustee and
never to market coins to the public again. Also pursuant to this
agreement, the FTC's claim for $11.9 million in consumer
restitution was given priority status for payment of the Trustee.
On January 11, 1991, an indictment charging Kalp and
Kayne with 29 counts of mail fraud was filed, based on the
correspondence intercepted the summer of 1986. The prosecution's
evidence consisted of testimony from former RCGA employees,
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financial planners, suppliers, and customers, as well as coin
dealers and numismatic experts. After almost six weeks of
testimony, the jury convicted Kayne and Kalp of 15 counts of
fraud. The prosecution dropped nine counts prior to their
submission to the jury, the jury acquitted on four counts, and
the district judge acquitted on one count. Defendants have been
sentenced to 36 months' imprisonment and ordered to pay $339,466
in restitution. The sentence has been stayed pending resolution
of this appeal.
II. DISCUSSION
II. DISCUSSION
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A. Double Jeopardy
A. Double Jeopardy
Both defendants have asserted that jeopardy attached to
the 1986 civil litigation and should bar this prosecution. This
defense has surfaced for the first time on appeal. Even though
the fundamental constitutional issue of double jeopardy was not
raised at trial, we will entertain the appeal, but review only
for plain error.1 See, e.g., United States v. Rivera, 872 F.2d
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507, 509 (1st Cir.), cert. denied, 493 U.S. 818 (1989).
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The Double Jeopardy clause protects against "multiple
punishments for the same offense," even if one of the proceedings
is civil and one criminal, regardless of the sequence. United
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1 The government argues that the defendants' appendix consists
almost entirely of documents which were not part of the record
below and which the district court declined to certify to this
court, and therefore they should be stricken from the appendix.
See Massachusetts v. United States Veterans Admin., 541 F.2d 119,
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123 n.5 (striking portions of an appendix that were not part of
the record in the district court). Even assuming these documents
are properly before us, defendants cannot prevail.
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States v. Halper, 490 U.S. 435, 439 (1989). In determining
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whether the protections of the Double Jeopardy Clause are
implicated, our first line of inquiry is whether the civil
sanction constituted "punishment," see United States v. Stoller,
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78 F.3d 710, 720-21 (1st Cir. 1996); our second is whether the
purported punishments are for the same offense, Halper, 490 U.S.
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at 439. Because we conclude that the civil sanction in this case
did not constitute punishment, we discern no plain error.
Defendants argue that the civil proceedings against
them were the equivalent of civil forfeiture proceedings and
imposed punishment for the same offense in two or more separate
proceedings. In characterizing their settlement with the
Bankruptcy Trustee and the FTC as a punitive forfeiture, they
cite two expansive double jeopardy opinions from other circuits
which, since oral argument, have been reversed by the Supreme
Court. See United States v. Ursery, 59 F.3d 568 (6th Cir. 1995),
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rev'd ___ U.S. ___, 1996 WL 340815 (1996); United States v.
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$405,089.23 U.S. Currency, 33 F.3d 1210 (9th Cir. 1994), rev'd
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sub nom. Ursery, ___ U.S. ___, 1996 WL 340815.
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Assuming, arguendo, that the civil proceeding against
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defendants is the equivalent of a civil forfeiture proceeding,
the Supreme Court's opinion in Ursery makes it clear that the
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1986 civil proceeding was not "punishment" for double jeopardy
purposes. Ursery, ___ U.S. at ___, 1996 WL 340815, *9. In that
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case, the Supreme Court reaffirmed its "traditional understanding
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that civil forfeiture does not constitute punishment for the
purpose of the Double Jeopardy Clause." Id.
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Furthermore, even to the extent that defendants' 1986
civil proceeding was not a civil forfeiture proceeding, it was by
nature remedial. The monetary sanction was exacted in a
bankruptcy case, and the $2.5 million paid to the trustee was
used to pay a portion of claims against the defendants totalling
$11.8 million resulting from their sale of coins. A monetary
sanction which has no punitive function, i.e., has no purpose
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other than restitution or compensation for the loss engendered by
the defendants' conduct is not punishment within the ambit of the
double jeopardy clause. Halper, 490 U.S. at 446-49. This is a
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near-perfect exemplar of compensation for loss, and does not
constitute punishment for purposes of double jeopardy,
notwithstanding its financial impact on the defendants.
In view of our conclusion that there was no duplication
of punishment, it is unnecessary to consider the second part of
the double jeopardy analysis: whether the purported punishments
were for the same offense. In any case, we note that the
offenses charged in this indictment contain crucial elements that
by no stretch of the imagination could be part of the resolution
of the bankruptcy case or of the underlying FTC and Postal
Service cases; e.g., criminal intent to defraud and devising a
scheme to defraud. Hence there was no double jeopardy. See
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Blockburger v. United States, 284 U.S. 299 (1932).
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B. Evidentiary Challenges
B. Evidentiary Challenges
1. Appraisals and valuations by dealers of "raw" coins supplied
1. Appraisals and valuations by dealers of "raw" coins supplied
by RCGA
by RCGA
The defendants argue that evidence of the value of the
coins sold by the defendants was erroneously admitted. The
government offered, and the district court admitted, testimony of
eight coin dealers that the coins bought by the RCGA customers
were of substantially lower quality and value than represented in
the accompanying documentation. On appeal, the defendants argue
that this testimony was not properly the subject of expert
testimony and was irrelevant, neither of which grounds were
argued to the district judge. As neither ground was argued
below, we review only for plain error. See, e.g., United States
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v. Montas, 41 F.3d 775 (1st Cir. 1994), cert. denied, 115 S. Ct.
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1986 (1995).
The value of the coins involved in a prosecution for
their fraudulent sale is indisputably relevant. The fact that
the subject matter is not "scientific" is no bar to admissibility
of expert testimony. Federal Rule of Evidence 702 specifies that
expert testimony covering "scientific, technical, or other
specialized knowledge [which] will assist the trier of fact to
understand the evidence or to determine a fact in issue" is
admissible. See Daubert v. Merrell Dow Pharmaceuticals, Inc.,
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509 U.S. 579, 589 (1993) (emphasis omitted). A trial judge
"enjoys broad discretion in determining the admissibility of
expert testimony." Montas, 41 F.3d at 783. Opinions of value
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are a traditional subject of expert testimony, and it is well
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within the discretion of the district judge to admit them. One
could hardly expect a lay jury to form conclusions about such an
esoteric subject as the value of rare coins without the help of
experts. The defendants complain, however, that the opinions
were not based on consistent standards, and were subject to
factors of taste and assessment of the market, and that the
experts often disagreed among themselves. This is not unusual.
These matters are properly the subject of searching cross-
examination. See Daubert, 113 S. Ct. at 2798. Defendants argue
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further that this testimony should have been excluded under Fed.
R. Evid. 403, because its prejudicial effect outweighed its
probative value. This determination is committed to the sound
discretion of the trial court, and will be overturned only in
"extraordinarily compelling circumstances," Montas, 41 F.3d at
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783, which we do not detect in this case. Review of the record
reveals that the experts were experienced, the chains of custody
of the coins were carefully established, the experts' methods
were explained, and the appraisals were reasonably current.
Thorough cross-examination was permitted on all of the issues,
such as subjective judgments and variable markets, which might
impeach the expert testimony. We perceive no error, plain or
otherwise.
2. Purchasers' evidence of resale
2. Purchasers' evidence of resale
Defendants complain further that several of the
purchasers from RCGA were permitted to testify about the price
they realized on resale of the coins. See United States v.
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DiMarzo, 80 F.3d 656, 659-60 (1st Cir. 1996). Their argument
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that this testimony was outside the competence of lay witnesses
under Fed. R. Evid. 701 is far off the mark. This testimony was
not opinion testimony at all, but a simple recitation of an
observed phenomenon: the price paid for the coins. A more
cogent argument is that these may have been distress prices,
rather than fair market prices. This might have been a ground
for exclusion in a clear case of a distress sale, but whether
they were distress sales or not, in the context of the evidence
in this case, was a question of fact properly left to cross-
examination and ultimately to the jury. This was the procedure
correctly permitted by the district judge.
3. ANACS' evaluations of RCGA raw coins
3. ANACS' evaluations of RCGA raw coins
Defendants challenge the admission of testimony
concerning the grades the American Numismatic Association
Certification Service (ANACS) assigned to certain coins sold by
RCGA. Throughout the trial the government attempted to introduce
ANACS certificates of value obtained after RCGA's bankruptcy by
two dissatisfied customers, Dr. Anthony Scapicchio ("Scapicchio")
and Caleb Morgan ("Morgan"). While Morgan's coins were not the
subject of any count of the indictment, Scapicchio's were the
subject of Count VIII. The ANACS graders who prepared these
certificates were not available for cross-examination, and,
indeed, were not even identified.
On the fourth day of trial, the district judge
conditionally admitted the certificates, based on the testimony
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of Richard Montgomery, director of ANACS from 1980 to 1987,
concerning ANACS' valuation procedure. The next day, the judge
allowed Morgan to read his certificates to the jury. The day
after that, the judge excluded a similar reading by Scapicchio
and struck the Morgan testimony. Finally, on the sixteenth day
of trial, the court ruled that "the jury is fully informed and is
in a position to make a discriminating judgment about how
reliable, if at all, the ANACS determinations are," and permitted
a postal inspector to read the Morgan and Scapicchio certificates
to the jury at the close of the government's case. Since
specific objections were made to the admission of these
certificates, we review for abuse of discretion. See, e.g.,
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Cameron v. Otto Bock Orthopedic Industry, Inc., 43 F.3d 14, 16
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(1st Cir. 1994).
We find no such abuse here. The foundation for
admission of a business record under Fed. R. Evid. 803(6)
requires both the testimony of a qualified custodial witness and
a showing that the declarant was a person with knowledge acting
in the course of a regularly conducted business activity. See,
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e.g., Petrocelli v. Gallison, 679 F.2d 286, 290 (1st Cir. 1982).
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Montgomery's evaluation adequately established the genesis of the
records and their subsequent custody. See, e.g., Wallace Motor
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Sales v. American Motors Sales Corp., 780 F.2d 1049, 1061 (1st
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Cir. 1985) (noting that the qualifying witness need not have
actually prepared the record, but "is simply one who can explain
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and be cross-examined concerning the manner in which the records
are made and kept").
Further, we do not find that the "source of information
of the method or circumstances of preparation indicate lack of
trustworthiness" in the certificates. Fed. R. Evid. 803(6)
(excluding business records on that basis); see Petrocelli, 679
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F.2d at 291 (excluding business record testimony where the
records were "so cryptic that pure guesswork and speculation
[was] required to divine the source of the cited information").
It was not for the trial judge, but the jury, to determine
whether the opinions in the certificates reliably assigned values
to the coins. Indeed, the district court allowed the defense to
conduct liberal (if not excessive) inquiry into the unreliability
of the ANACS certificates.
Defendants also challenge the admissibility of this
evidence on constitutional grounds, claiming that they were
denied their Sixth Amendment right of confrontation.2 We find
Manocchio v. Moran, 919 F.2d 770 (1st Cir. 1990), cert. denied,
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500 U.S. 910 (1991), controls our analysis in this matter.
There, the government sought to enter an autopsy report about an
autopsy performed by a forensic pathologist who had since moved
to Israel. The testimony of another signatory to the report, the
keeper of the records, was offered in order to lay the foundation
for admission. Id. at 772. Relying on United States v. Inadi,
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2 The Government argues that defendants have waived this issue
by failing to object on Confrontration Clause grounds below.
Regardless of whether the issue was waived, the argument fails.
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475 U.S. 387, 394 (1986), we found that the government was not
required to demonstrate the examining pathologist's
unavailability in order to enter the report. We specifically
stated that the reasoning in Inadi which led us to that
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conclusion would apply equally to other types of hearsay
exceptions -- including business records. Id. at 774; see White
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v. Illinois, 502 U.S. 346, 354 (1992) ("[U]navailability analysis
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is a necessary part of the Confrontation Clause inquiry only when
the challenged out-of-court statements were made in the course of
a prior judicial proceeding."). Having determined that, our
decision in Manocchio noted that it was "left . . . with
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reliability as the determining factor for the admissibility of
the autopsy report under the Confrontation Clause." Manocchio,
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919 F.2d at 776. However, we specifically noted that reliability
could be shown by "showing that the evidence falls within a
firmly rooted hearsay exception." Id.; see White, 502 U.S. at
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356, n.8 (noting that "'firmly rooted'" exceptions carry
sufficient indicia of reliability to satisfy the reliability
requirement posed by the Confrontation Clause"); United States
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v. Trenkler, 61 F.3d 45, 64 (1st Cir. 1995) (Torruella, C.J.,
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dissenting on other grounds). Since we have already shown that
to be true in the present case, we need not address this argument
further.3
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3 Defendants seek to rely on the Confrontation Clause analysis
in United States v. McClintock, 748 F.2d 1278 (9th Cir. 1984),
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cert. denied, 474 U.S. 822 (1985). However, that opinion was
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written before Inadi or White were decided. Rather than look to
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McClintock for guidance, therefore, we will apply the case law of
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C. Sufficiency of the Evidence
C. Sufficiency of the Evidence
Appellants next challenge the sufficiency of the
evidence marshalled against them. We review such challenges to
"determine whether a rational jury could find guilt beyond a
reasonable doubt," United States v. Flores-Rivera, 56 F.3d 319,
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232 (1st Cir. 1995), viewing the evidence in the light most
favorable to the verdict, id. Our review of the record here
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persuades us that the evidence was sufficient to warrant
conviction beyond a reasonable doubt.
First, the government presented extensive evidence of
systematic overgrading. Ten customers testified that they sold
their portfolios for a small fraction of the purchase price. Two
experts indicated that the coin market did not account for this
precipitous drop. Two suppliers of RCGA's coins indicated that
Kalp only purchased MS63 coins. An expert witness correlated
RCGA's records with pricing data and determined that RCGA only
paid MS63 prices for the coins it sold to consumers. Several
former RCGA employees testified inter alia that coins were
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routinely upgraded. One employee testified that Kayne ordered
her to alter an ANACS certificate.
As for the ANACS certificates, as noted above, the
district court allowed the defense liberal inquiry into their
unreliability. Indeed, defense counsel was repeatedly allowed to
cross-examine coin dealers on subjects well beyond the scope of
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this circuit, which has been informed by the later Supreme Court
decisions.
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direct examination. Although the court invited the defense to
propose a limiting instruction, this offer was not accepted. The
testimony about the certificates came into evidence after eleven
separate appraisals were presented to the jury. Neither the
ANACS documents nor the appraisals were allowed to come into
evidence, and the district judge required the prosecution to
structure the presentation of the certificates to be virtually
identical to the appraisals.
Third, systematic overgrading was only a part of the
government's demonstration of fraud. Several employees indicated
that statements in RCGA's promotional literature were misleading
by stating that RCGA had achieved $90 million in sales, had a
multi-million dollar inventory, and had a Paris affiliate. Five
customers whom RCGA cited as making substantial profits on a
"liquidation" report sent to prospective investors testified that
they never received payment, or were paid only after instituting
civil litigation. There was evidence of a $1 million discrepancy
in RCGA's books, that Kayne encouraged financial planners to
conduct transactions in cash, and that Kayne and Kalp routinely
skimmed cash from office accounts.
D. Ineffective Assistance of Counsel
D. Ineffective Assistance of Counsel
We trumpet the message for the umpteenth time that
allegations of ineffective assistance of counsel must be raised
initially before the district court, typically by a motion under
28 U.S.C. 2255. See, e.g., United States v. Costa, 890 F.2d
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480, 482-83 (1st Cir. 1989) (discussing rationale behind rule).
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Moreover, the asserted ineffective assistance of counsel
consisted of counsel's failure to raise the issue of Double
Jeopardy; in view of our ruling on that claim, it may simply be
that trial counsel was quite perceptive.
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III. CONCLUSION
III. CONCLUSION
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For the foregoing reasons, the opinion of the district
court is affirmed.
affirmed
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