635 F.2d 999 (2nd Cir. 1980), 233, United States v. Von Barta

Docket Nº:233, Docket 80-1233.
Citation:635 F.2d 999
Party Name:UNITED STATES of America, Appellant, v. John VON BARTA, Defendant-Appellee.
Case Date:November 25, 1980
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 999

635 F.2d 999 (2nd Cir. 1980)

UNITED STATES of America, Appellant,


John VON BARTA, Defendant-Appellee.

No. 233, Docket 80-1233.

United States Court of Appeals, Second Circuit

November 25, 1980

Argued Oct. 27, 1980.

Page 1000

[Copyrighted Material Omitted]

Page 1001

John S. Martin, Jr., U. S. Atty., S.D. N. Y., New York City (Gerard E. Lynch, Gregory L. Diskant, Asst. U. S. Attys., New York City, of counsel), for appellant.

Elkan Abramowitz, New York City (Gilda I. Mariani, New York City, of counsel), for defendant-appellee.

Before KAUFMAN, KEARSE and BRIGHT [*], Circuit Judges.

IRVING R. KAUFMAN, Circuit Judge:

The centuries-long trend toward greater sophistication in the criminal law has increasingly blurred the line between criminal and noncriminal misbehavior. While defining lawless conduct is primarily a legislative function, courts have mitigated the severity of penal sanctions by construing ambiguous statutes against the Government. This doctrine of strict construction, which grew out of the emerging humanitarianism of seventeenth century England, 1 has long been a tenet of American jurisprudence. See, e. g., United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 5 L.Ed. 37 (1820). But this principle is just the start of the difficult process of statutory interpretation, for in some areas Congress has purposely cast wide the net of the criminal law.

In the instant case, we are asked to construe two seemingly limitless provisions, the mail 2 and wire 3 fraud statutes, in the context

Page 1002

of the employer-employee relationship. The Government urges us to hold that these statutes are violated whenever an employee, acting to further a scheme for pecuniary gain, intentionally breaches a fiduciary duty of honesty or loyalty he owes his employer. The defendant decries this "overcriminalization" of the employment relationship, and asks us to declare his alleged conduct exempt from criminal sanction. While we reject the sweeping theory advanced by the Government, we find that the mail and wire fraud statutes do reach the conduct with which the defendant is charged. Accordingly, we reverse the district court's dismissal of the indictment.


A description of the procedural posture of this case is essential to our analysis of the merits of the Government's appeal. On November 1, 1979, John Von Barta was indicted on seven counts of mail fraud, seven counts of wire fraud, and one count of conspiracy to commit those offenses, in violation of 18 U.S.C. §§ 1341, 1343, 2, and 371 (1976). Von Barta moved to dismiss the indictment, contending it failed to charge a scheme or artifice to defraud, a necessary element of all fifteen counts. Judge Brieant initially denied Von Barta's motion, holding the indictment valid on its face. Upon reconsideration, however, he dismissed the charges. The Government then filed this appeal.

In reviewing the district court's dismissal of the indictment, we take as true all of its allegations, see Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 343 n.16, 72 S.Ct. 329, 332 n.16, 96 L.Ed. 367 (1952); United States v. Bohonus, 628 F.2d 1167 (9th Cir. 1980), as amplified by additional documents submitted by the Government, which Judge Brieant accepted in lieu of a formal bill of particulars. The defendant's contrary assertions of fact will not be considered. See Las Vegas Merchant Plumbers Association v. United States, 210 F.2d 732, 741 (9th Cir.), cert. denied, 348 U.S. 817, 75 S.Ct. 29, 99 L.Ed. 645 (1954).

From 1976, until the indictment against him was filed in 1979, Von Barta was employed as a salesman and trader of government bonds at Malon S. Andrus, Inc. ("Andrus"), a small securities firm in New York City. When Von Barta was hired, he was admonished "never to jeopardize the firm's banking relationships and always to advise Mr. Andrus if the firm's repurchase agreements 'were in trouble.' " 4 As this warning indicates, Von Barta enjoyed an especially powerful and trusted position at Andrus. He had considerable discretion to open new customer accounts, knowing his decisions in that regard would not be re-examined by another member of the firm.

Von Barta conducted many of his trades with William Harty, 5 a salesman in the government securities department at Blyth Eastman Dillon & Co. ("Blyth"), a large New York brokerage firm. In or about July 1978, Harty formed the Piwacket Corp. ("Piwacket"), to which he and Von Barta each contributed $5,000 as their capital investment. They decided to use Piwacket as their vehicle for trading in government bonds, and agreed to share equally in any profits made by their corporation. Von

Page 1003

Barta then opened an account for Piwacket with Andrus, without telling Mr. Andrus of Piwacket's meagre capitalization or of his involvement with the firm. Piwacket became one of Andrus's most active accounts, generating substantial commissions for both Andrus and Von Barta. Piwacket ultimately speculated in government bonds worth more than $50 million, and incurred liabilities vastly in excess of the combined ability of Andrus and Piwacket to secure Piwacket's creditors against loss. The volume of Piwacket's trading attracted the attention of Andrus and Blyth, but Von Barta continued to conceal his involvement, falsely telling Mr. Andrus that Piwacket was an established Long Island arbitrageur and misrepresenting to Blyth that Harty was Piwacket's sole principal.

At first, Piwacket's trades were very successful, generating profits of nearly $200,000. Later, however, the bond market weakened. When Von Barta indicated that Piwacket could not cover its losses, Andrus terminated the Piwacket account. Piwacket's resultant insolvency forced Andrus and Blyth to bear a $2 million loss.

The Government alleges that by trading through Piwacket, Von Barta speculated in the government bond market using the fraudulently obtained credit of Blyth and Andrus. It charges further that by limiting Piwacket's liability to $10,000 (the amount of the capital investment), Von Barta attempted to shield himself from the risk accompanying his speculative transactions. In effect, the Government claims, Von Barta shifted the risk from himself to Andrus. If his trades were successful, he reaped the profit; if they failed, Andrus bore the loss. Finally, the Government charges that Von Barta concealed material information from Andrus. According to the Government, Andrus never would have allowed Von Barta to open or to continue trading in the Piwacket account had it known Piwacket was undercapitalized, that Von Barta was involved with the firm, or that neither Andrus nor Piwacket had sufficient assets to cover Piwacket's losses.

In setting out its theory of the indictment, the Government has repeatedly refused to rely on allegations that Von Barta intended to defraud Andrus of any tangible interest. Rather, the Government charges that "Von Barta, by abusing his fiduciary position as an employee of Andrus, and concealing material information, defrauded Andrus of its right to his honest and faithful services, as well as of its right to decide what business risks to bear with all the facts before it." 6 Thus, we are asked to decide whether Von Barta's alleged scheme to defraud his employer of only these intangible interests violates the mail and wire fraud statutes. 7


As an initial matter, we must consider Von Barta's challenge to our jurisdiction to hear this case, a question that arises because the district court adopted an unusual procedure in construing the indictment. 8 Von Barta contends that an appeal

Page 1004

does not lie because, he says the Double Jeopardy Clause bars his further prosecution. Relying on Finch v. United States, 433 U.S. 676, 97 S.Ct. 2909, 53 L.Ed.2d 1048 (1977) (per curiam), he argues that since Judge Brieant went beyond the face of the indictment in granting the motion to dismiss, the order of dismissal constitutes a nonappealable acquittal. The Government disputes Von Barta's characterization of the district court's order and asserts jurisdiction under 18 U.S.C. § 3731 (1976).

Section 3731 provides, in relevant part:

In a criminal case an appeal by the United States shall lie to a court of appeals from a decision, judgment, or order of a district court dismissing an indictment or information as to any one or more counts, except that no appeal shall lie where the double jeopardy clause of the United States Constitution prohibits further prosecution.

The provisions of this section, which are to be liberally construed, are designed to "remove all statutory barriers to Government appeals and to allow appeals whenever the Constitution would permit." United States v. Wilson, 420 U.S. 332, 337, 95 S.Ct. 1013, 1018, 43 L.Ed.2d 232 (1975). Section 3731 thus abrogates the strict rules which once practically barred all criminal appeals by the United States and directs our attention to the policies underlying the Double Jeopardy Clause. In particular, we must decide whether jeopardy had attached when Judge Brieant dismissed Von Barta's indictment, for it is a "fundamental principle that an accused must suffer jeopardy before he can suffer double jeopardy." Serfass v. United States, 420 U.S. 377, 393, 95 S.Ct. 1055, 1065, 43 L.Ed.2d 265 (1975). See also United States v. Jorn, 400 U.S. 470, 480, 91 S.Ct. 547, 554, 27 L.Ed.2d 543 (1971). In United States v. Velazquez, 490 F.2d 29 (2d Cir. 1973), cert. denied, 421 U.S. 946, 95 S.Ct. 1675, 44 L.Ed.2d 99 (1975), one of the first cases in this Circuit to consider this question, we held that jeopardy had not attached when the district court, relying on motion papers submitted prior to trial, dismissed an indictment. In Serfass v. United States, however, the Supreme Court rejected Velazquez's premise that the normal rules governing the attachment of jeopardy are only presumptions. 9 While eschewing a mechanical approach, the Court stated...

To continue reading