United States v. Nicholas D'andrea, Jack Ware and Nelson Harris

585 F.2d 1351, 1978 U.S. App. LEXIS 8015

• Court: Court of Appeals for the Seventh Circuit
• Decided: November 2, 1978
• Docket: 77-1063, 77-1073 and 77-1087
• Status: Published

Opinions

BAUER, Circuit Judge.

Jack Ware, Nicholas D’Andrea and Nelson Harris appeal from their convictions of conspiracy to defraud the United States in violation of 18 U.S.C. § 371. We affirm the convictions of D’Andrea and Ware, and reverse the conviction of Harris.

I.

As a first step toward resolving the issues presented in this appeal, we must briefly outline its factual setting. In 1964, Bishop Oscar Freeman, a minister of the Church of God in Christ, applied to the Federal Housing Authority for federal mortgage insurance on a low income housing project in Gary, Indiana. The processing of the application was delayed, however, by Freeman’s inability to secure a general contractor with sufficient bonding to .qualify for federal insurance. Finally, in 1969, Freeman met Nicholas D’Andrea, a New Jersey contractor and bondsman who agreed to supervise the effort to obtain the needed FHA approval. To this end, D’Andrea organized a new corporation — H. Rupert and Company — to serve as general contractor on the project, and enlisted George Vlatas, a Philadelphia engineer, to draw up the necessary architectural plans. In addition, D’Andrea hired Nelson Harris, a local architect, to revise the original specifications, and named Jack Ware to serve as construction superintendent.

With Freeman as its sponsor, Harris as its architect, and H. Rupert and Company as its general contractor, the housing project was finally approved by the FHA for federal mortgage insurance in April of 1970. Construction began that same year and continued until the project’s demise in June of 1971. Following a government investigation, a federal grand jury returned an indictment charging Ware, D’Andrea, Harris and six others with conspiracy to defraud the United States in violation of 18 U.S.C. § 371.¹

II.

Before turning to the specific arguments raised in this appeal, we must first examine the essential nature of the alleged fraud that was perpetrated on the United States in this case. This is especially important in view of the appellants’ claim that the Government was not defrauded since it suffered no pecuniary loss through the misrepresentations that allegedly were made to the FHA. In particular, the appellants argue that the collapse of the Bishop Freeman Housing Project was the direct result, not of any misconduct on their part, .but of unanticipated difficulties encountered in the course of construction — principally, cost overruns in masonry and excavation expenses. Indeed, ^according to the appellants, there was no evidence that any federally insured money was paid out for work that was not in fact done, or that any of the alleged conspirators were unjustly enriched through their participation in the project.

Significantly, however, the Supreme Court has made it clear that the language of 18 U.S.C. § 371 embraces much more than common law fraud:

“It has long been established that this statutory language is not confined to fraud as that term has been defined in the common law. It reaches ‘any conspiracy for the purpose of impairing, obstructing or defeating the lawful function of any department of government.’ ”

Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 1844, 16 L.Ed.2d 973 (1966) (citations omitted). Thus, to support a conviction of conspiracy to defraud the United States under 18 U.S.C. § 371 “[i]t is not necessary that the government be subjected to property or pecuniary loss,” Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924), nor is it necessary that the conspirators receive a pecuniary advantage, United States v. Bradford, 148 F. 413, 422 (E.D.La. 1905). Rather, all that is required is an agreement to “interfere with or obstruct one of [the United States’] lawful government functions by deceit, craft, or trickery, or at least by means that are dishonest.” Hammerschmidt v. United States, supra, 265 U.S. at 188, 44 S.Ct. at 512.

Such an interference with one of the lawful functions of government was precisely the object of the alleged conspiracy in this case. In particular, the indictment alleged that the named parties had entered into an agreement to make false statements to the FHA in an effort to obtain federally insured money for the Bishop Freeman Housing Project. Thus, according to the Government, if the conspirators had faithfully complied with FHA requirements — if they had not willfully misrepresented material items of fact — then the FHA would not have approved the insurance, nor would it have continued to participate in the ill-fated venture. This continuing involvement on the part of the FHA was by no means an inconsequential matter, for the federal government lost well over two million dollars through its commitment to insure the financing of the housing project. But the more important point, at least in this appeal, is that the essential nature of the alleged conspiracy is found in the agreement to interfere with the effective functioning of the FHA through willful misrepresentations of material facts.

With this in mind, we turn now to the appellants’ claim that the evidence was insufficient to sustain their convictions. As to Ware and D’Andrea, it is our view that the evidence, when viewed in the light most favorable to the Government, Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1941), was sufficient to support a finding of criminal conspiracy under 18 U.S.C. § 371.

In broad outline, the Government’s evidence tended to show that the conspiracy proceeded in two steps, the first being the acquisition of federal insurance for mortgage funds to build the housing project through willful misrepresentations to the FHA. On this point, the Government’s evidence established that D’Andrea submitted to the FHA a fictitious financial statement on H. Rupert and Company, the corporation that he had formed to serve as general contractor on the project. The statement not only concealed D’Andrea’s financial involvement in the corporation, but it also claimed assets that were not, in fact, in the corporation’s possession.

The Government’s evidence also tended to show that, in violation of FHA requirements, D’Andrea, acting in concert with others, concealed a financial arrangement between the sponsor of the proposed housing project and its general contractor — that is, between the Freeman Church and H. Rupert and Company. More specifically, the evidence suggested that Rupert advanced a sum of $31,000 to Freeman, and this, in turn, enabled Freeman, as the project’s sponsor, to meet certain financial requirements for FHA approval of the federal mortgage insurance.

Once the insured mortgage was thus secured and construction had begun, the conspiracy, according to the Government, entered its second stage: the acquisition of payments for construction costs through false statements submitted to the FHA. The evidence at trial established that the actual costs for excavation and masonry exceeded the estimates that had been submitted in obtaining FHA approval for federal insurance. This development promised to halt construction completely, for, in the case of cost overruns such as these, the FHA required the sponsor to deposit the additional funds before the work was done — funds that the Freeman Church simply did not have at hand. Thus, to obtain the money needed for construction costs, Ware and D’Andrea engaged in so-called “line juggling.”² That is, according to the Government’s evidence, the two men undertook to use anticipated surpluses from “line items” (for example, heating and ventilation) to cover the cost of overruns in other areas (principally, masonry and excavation expenses). This was achieved through false requisition orders which misrepresented the work that had been done in various phases of construction. With these false statements, Ware and D’Andrea were able to obtain the necessary FHA approval for continuing payments on the construction project.

When viewed in the light most favorable to the Government, the evidence on these overt acts permits a rational conclusion that Ware and D’Andrea were party to a working agreement to interfere with the effective functioning of the FHA by making false statements of material fact. For this reason, we find the evidence sufficient to sustain their convictions under 18 U.S.C. § 371.³

By contrast, however, we do not find the evidence sufficient to establish the requisite criminal intent to defraud on the part of Harris. In the proceedings below, the Government alleged that, as part of the effort to obtain the federally insured mortgage, Harris falsely certified that he had been paid a $30,039 architect’s fee by the Freeman Church. It is true that Harris received only $5,000 of this sum, and that the remainder of the money was used to improve the financial condition of the Church.⁴ But it seems clear from the record that the form which Harris certified was viewed by all of the parties — including the FHA — as a receipt that had been prepared in advance so that the architect’s fees could be paid at the initial closing. Its intended purpose, in other words, was simply to insure that any initial payments were for work that had actually been completed. This is particularly significant since the $5,000 that Harris received represented payment for the work that he actually had done in revising the plans of Vlatas, the original architect who was properly entitled to the balance. And, what is equally important, there is nothing in the record to suggest that Harris knew or should have known that the balance would not in fact be used to pay Vlatas, but rather, would be diverted by D’Andrea to the Church. We conclude, therefore, that even if Harris’s statement was technically false, it cannot support an inference of criminal intent to defraud.

Nor do we find evidence of the requisite intent in Harris’s allegedly false certification to the FHA that he had no “identity of interest” with H. Rupert and Company, the general contractor. To be sure, as the Government argues, Harris was engaged by Rupert to revise the architectural plans that had been prepared by Vlatas. But this occurred nearly a full year before the initial closing, and there is nothing to indicate that Harris was in Rupert’s employ at the time of the closing.⁵ We cannot agree, therefore, that his certification on this point gives rise to a reasonable inference of fraudulent intent. Similarly, we find no basis for such an inference in Harris’s conduct during the actual construction of the project, for there is simply no evidence to indicate that he was in any way responsible for the false statements that were submitted to the FHA.⁶ In sum, then, it is our conclusion that the evidence is insufficient to support the conviction of Nelson Harris under 18 U.S.C. § 371.

III.

Ware and D’Andrea also argued for reversal on the grounds of alleged pre-trial errors. First, the appellants claim that they were deprived of their due process rights under the Fifth Amendment by reason of a pre-indictment delay. The Supreme Court has recognized that a pre-indictment delay can fall within the statute of limitations and yet be so prejudicial to the defendant’s right to a fair trial as to violate the due process clause. United States v. Marion, 404 U.S. 307, 92 S.Ct. 455, 30 L.Ed.2d 468 (1971). The Court has also indicated, however, that such a due process violation can be established only by proof of “actual prejudice to the conduct of the defense” and a “showing that the Government intentionally delayed to gain some tactical advantage.” Id. at 325, 92 S.Ct. at 466.

In this case, the appellants argue that because of pre-indictment delay several individuals who had played a role in the construction project became unavailable as witnesses, while others were impaired in their ability to testify by faded memories. Significantly, however, the appellants do not identify any substantial way in which this unavailable testimony would have aided their cause. Their claims, therefore, are essentially conclusory assertions of prejudice, assertions which, in our view, are too speculative to satisfy the “showing of actual prejudice” required by Marion.

Moreover, even if “actual prejudice” were established, we are not persuaded that the Government “intentionally delayed the prosecution in order to gain a tactical advantage.” The appellants appear to argue in this connection that an inference of intentional delay can be drawn from episodes of alleged prosecutorial misconduct — specifically, the use of subpoenas in securing pretrial interviews of witnesses, the failure to provide the defendants with a bill of particulars and the failure to transcribe the grand jury testimony of an FBI agent. While we do not approve of these practices, we do not find any basis therein for concluding that the Government intentionally delayed the prosecution for tactical advantage. On the contrary, the evidence suggests that the delay was due in large measure to the untimely death of the FBI agent who had been in charge of the investigation. Moreover, “cases of fraud are difficult to develop” since “corroborative evidence is difficult to secure, and, of course, the participants in the fraud normally suppress evidence and impede the investigation.” United States v. Librach, 520 F.2d 550, 555 (8th Cir. 1975). We therefore cannot agree that the pre-indictment delay in this case was so unreasonable and prejudicial as to warrant reversal.

By the same token, we are not persuaded that these practices constituted an “abusive prosecution” which deprived the appellants of a fair trial. Again, we disapprove of all of these practices, but we cannot agree that, on the facts of this case, the appellants were prejudiced in any significant sense. First, the motion for a bill of particulars is addressed to the sound discretion of the trial court. And since, in our view, the indictment adequately informed the appellants of the charges against them, we cannot say that the lower court abused its discretion in denying the motion. Second, it is clear that Rule 6(d) of the Federal Rules of Criminal Procedure does not require the recording of grand jury testimony. See United States v. McCord, 509 F.2d 891, 894 (7th Cir. 1975). Moreover, the FBI agent whose grand jury testimony is here at issue was not a Government witness in its case-in-chief. It seems clear, therefore, that his testimony would not have been available to the defendants under the Jencks Act even if it had been transcribed. Finally, as to the use of subpoenas in securing the interviews of witnesses, it appears that this “tactic” was used by the Government in securing the interview of only one witness who testified at trial, and that witness was advised by his counsel that he was not required to appear.

Similarly, we find no grounds for reversal in the appellants’ claim that the proceedings below were tainted by prejudicial publicity. In support of the claim, the appellants cite a single article that appeared in the Hammond Times on November 3, 1976. This newspaper, however, had no general circulation in the district where the trial was held, and there is no basis for presuming that any of the jurors were exposed to it, particularly since the lower court admonished the jury daily not to read or listen to any outside accounts of the trial. Thus, we find no reason to believe that the appellants were in any way prejudiced by publicity either before or during the trial.

IV.

Finally, the appellants argue that reversal is warranted by the trial court’s admission of allegedly prejudicial hearsay. The basis for the claim is found in the lower court’s ruling that “hearsay” conversations are admissible if both parties to the conversation are witnesses at trial and thus available for cross-examination. Whatever the merits of this interpretation of the hearsay rule, we do not find in the challenged testimony any evidence that figured prominently in the Government’s case against the appellants. Moreover, as the lower court noted, both parties to the alleged hearsay conversations were subject to cross-examination. Therefore, even if the conversations were properly excludable, we are not persuaded that their admission so prejudiced the appellants as to warrant reversal.

We have examined the appellants’ other arguments and find them to be without merit.

Accordingly, the district court’s judgment is affirmed in part, reversed in part, and the case is remanded with instructions to enter a judgment of acquittal as to Harris.

AFFIRMED IN PART, REVERSED IN PART, REMANDED WITH INSTRUCTIONS.

1 . 18 U.S.C. § 371 provides in relevant part:

“If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.”

2 . Neither Ware nor D’Andrea dispute that the “line juggling” took place. They argue, rather, that this practice did not cause any pecuniary loss to the Government since the “bottom line” remained the same. But, as we have noted, supra at p. 3, it is not necessary that the Government suffer an economic loss to be “defrauded” within the meaning of 18 U.S.C. § 371.

3 . We note in this connection that we are wholly unpersuaded by Ware and D’Andrea’s claims of withdrawal from the conspiracy prior to the indictable period. D’Andrea argues that he was not on the project site after February, 1971, and was therefore not a part of the conspiracy. Similarly, Ware claims that he was fired in April, 1971. It is well settled, however, that a mere cessation of activity is not enough to begin the running of the statute of limitations. Hyde v. United States, 225 U.S. 347, 32 S.Ct. 793, 56 L.Ed. 1114 (1944). Rather, “there must also be affirmative action, either the making of a clean breast to the authorities, or communication of the abandonment in a manner reasonably calculated to reach co-conspirators. And the burden of establishing withdrawal lies on the defendant.” United States v. Borelli, 336 F.2d 376, 388 (2d Cir. 1964). In this case, neither appellant has made a showing of such affirmative action. Indeed, there is evidence that both men were involved in the project after the dates of claimed withdrawal.

4 . Harris was not present at the initial closing. His attorney endorsed the $30,039 check over to H. Rupert and Company, and then received a $5,000 check that was drawn on the Rupert account as payment for Harris’s work. The attorney also received a receipt which stated that the condition of delivery of the $30,039 was that it would be used to pay the sums due Vlatas. In fact, however, the balance was diverted to the Freeman Church. See, supra, p. 5.

5 . Assuming, arguendo, that an employment contract once existed Harris’s obligation terminated when the FHA approved the architectural plans. It could not be said, then, that there was an “identity of interest” between D’Andrea (or Rupert) and Harris at the time of the initial closing, at least not as that phrase would be read by a layman.

6 . Harris certified only that the requested money payments for the work performed were justified and that the construction was properly done. There was, in other words, nothing in his certifications that incorporated by reference the false statements made in the “line juggling” scheme.