People v. Kancharla

• Decision Date: 08 May 2014
• Docket Number: No. 82, No. 83,82, No. 83
• Citation: 991 N.Y.S.2d 1,23 N.Y.3d 294,14 N.E.3d 354,2014 N.Y. Slip Op. 03295
• Parties: The PEOPLE of the State of New York, Respondent–Appellant, v. V. Reddy KANCHARLA, Appellant–Respondent. The People of the State of New York, Respondent–Appellant, v. Vincent Barone, Appellant–Respondent.
• Court: New York Court of Appeals Court of Appeals

23 N.Y.3d 294
14 N.E.3d 354
991 N.Y.S.2d 1
2014 N.Y. Slip Op. 03295

The PEOPLE of the State of New York, Respondent–Appellant
v.
V. Reddy KANCHARLA, Appellant–Respondent.

The People of the State of New York, Respondent–Appellant
v.
Vincent Barone, Appellant–Respondent.

No. 82, No. 83

Court of Appeals of New York.

May 8, 2014.

Zuckerman Spaeder LLP, New York City (Paul Shechtman and Christina P. Skinner of counsel), and Harris Beach PLLC, White Plains (William A. Wetzel of counsel), for appellant in the first above-entitled action.

Lankler Carragher & Horwitz LLP, New York City (Andrew M. Lankler and Joseph C. Perry of counsel), for appellant in the second above-entitled action.

Cyrus R. Vance, Jr., District Attorney, New York City (Amyjane Rettew, Daniel R. Alonso, Hilary Hassler and Gina Mignola of counsel), for respondent in the first and second above-entitled actions.

OPINION OF THE COURT

GRAFFEO, J.

14 N.E.3d 356

We are asked in these appeals whether the Appellate Division applied the correct legal standard when it reviewed the sufficiency and weight of the evidence supporting defendants' convictions for enterprise corruption (Penal Law art. 460). We hold that the Appellate Division did not properly consider the elements of the crime under People v. Western Express Intl., Inc., 19 N.Y.3d 652, 954 N.Y.S.2d 763, 978 N.E.2d 1231 (2012), that the trial evidence sufficiently established defendants' commission of enterprise corruption and that the Appellate Division should reassess its weight of the evidence determination under the applicable statutory standards.

I

Construction contractors in New York City often hire licensed testing firms to ascertain proper compliance with building code provisions due to the stringent nature of those regulations (see Administrative Code of City of N.Y. § 28–701.1 et seq. ) and the limited resources of the City's Department of Buildings. One such compliance firm was Testwell Laboratories, Inc., a leading materials testing company operating in the metropolitan area. Defendant V. Reddy Kancharla, a professional engineer, served as Testwell Laboratories' president and chief executive officer. Defendant Vincent Barone was a company vice-president in charge of the corporation's engineering department.

A grand jury charged defendants and others with engaging in a pattern of criminal activity while intentionally conducting and participating in the affairs of a criminal enterprise—referred to as the “Testwell Group”—consisting of Testwell Laboratories, Inc., and a number of its officers and employees. The indictment alleged that defendants committed or allowed certain of the corporation's employees to engage in a multitude of illegal acts involving the falsification of test results, improper inspections of construction projects and double-billing of clients. Those offenses were grouped under distinct, but interrelated, criminal schemes related to five categories of Testwell Laboratories' material testing services: (1) “Mix–Design”; (2) “Steel Inspections”; (3) “Certified Inspectors”; (4) “Field Tests”; and (5) “Compressive/ Flexural Strength Alterations.”

The essence of the “mix-design” scheme was that Testwell Laboratories would be retained by contractors or project owners to test and determine the strength of proposed concrete mixtures used at various construction sites. Instead of engaging in appropriate laboratory testing of the concrete

14 N.E.3d 357

samples, it was alleged that Testwell Laboratories merely used a mathematical formula to replace actual analysis and then issued reports falsely certifying that the results were based on legitimate test results. Those reports bore Kancharla's signature and engineer's stamp, and their falsity became obvious since Testwell Laboratories charged far less ($300 or $500) for those reports than it ordinarily billed when concrete was analyzed with laboratory

testing (approximately $4,000). Furthermore, different reports, created months apart, displayed improbably similar results with distinct patterns, and some reports were generated within days of being ordered despite the fact that the building code mandated longer intervals between sequential tests. Testwell Laboratories also designed a computer program that automatically generated figures for concrete strength after a desired final result was specified. In the course of the criminal investigation—in which Testwell Laboratories' laboratory director cooperated with the People—scores of blank mix-design reports were discovered that were pre-signed by Kancharla and bore his seal. Kancharla acknowledged wrongdoing, but claimed that he committed regulatory violations of the building code rather than criminal offenses.

The “steel inspections” plot was premised on evidence that Testwell Laboratories failed to properly conduct steel inspections according to the code since it assigned two agents to multiple construction projects that they could not possibly have inspected on a full-time basis without additional assistance. Investigators found that neither inspector was in attendance at a steel fabrication facility and mandatory inspection records were not maintained.

The charges pertaining to “certified inspectors” arose from a school construction project in Queens. Testwell Laboratories falsely certified that two of its employees had proper professional certifications to test concrete as it was being poured. The related “field tests” category involved false confirmations that Testwell Laboratories had performed various concrete tests at two construction sites.

Finally the adequacy of laboratory testing of concrete was the focus of the “compressive/flexural strength alterations” allegations. The building code mandates that concrete being poured must be collected and formed into cylinders (for compressive testing) or beams (for flexural testing), which are then brought to a laboratory for scientific analysis of actual strength. A Testwell Laboratories computer system was programmed to permit certain employees to engage in the alteration of testing data. The program hid the employees' identities and issued warnings if inputted data did not generate an acceptable concrete strength. Company staff notified Barone or another Testwell Laboratories' supervisor when such alerts were received and Barone would instruct data entry personnel to change the computations. Investigators discovered facsimile

messages from Barone that listed hundreds of numerical changes and a technician who participated in the fraud cooperated with the prosecution. In total, investigators determined that data had been altered several thousand times on more than 100 different construction projects.

In connection with these alleged illegal activities, Kancharla and Barone were tried jointly before a jury on 50 counts that included a charge that they were members of the Testwell Group “criminal enterprise” under article 460 of the Penal Law. In support of that offense, Kancharla was charged with committing various criminal “pattern acts” while participating in the schemes involving mix design, steel

14 N.E.3d 358

inspections and certified inspectors; Barone was charged with multiple offenses for his alleged involvement in the schemes for steel inspections, compressive/flexural strength alterations, and certified inspectors.¹ Kancharla was ultimately found guilty of enterprise corruption, all 13 mix-design counts and one steel inspections count.² Barone was likewise convicted of enterprise corruption, along with five crimes under the compressive/flexural strength alterations scheme; seven offenses for the steel inspections scheme; and the certified inspectors scheme as a pattern act for enterprise corruption.³ Kancharla was sentenced to an aggregate prison term of 7 to 21 years and Barone received a 5¹ /₃–to–16–year aggregate sentence.

The Appellate Division modified by vacating the enterprise corruption convictions and reducing the sentences for both defendants in the interest of justice to 1¹ /₃ to 4 years (101 A.D.3d 585, 958 N.Y.S.2d 18 [1st Dept.2012] ).⁴ It concluded that the enterprise corruption convictions lacked sufficient proof and were against the weight of the evidence because “the People failed to produce any evidence that either defendant knew that test results and

inspection reports were fabricated, much less that the defendants spearheaded a criminal enterprise” (id. at 587, 958 N.Y.S.2d 18 ). The court also found that the prosecution did not establish “a leadership structure, overall planning of the criminal enterprise, or any communications ... in furtherance of the criminal enterprise” (id. at 592, 958 N.Y.S.2d 18 ). The Appellate Division rejected defendants' challenges to the non-enterprise corruption offenses. One Justice dissented and would have affirmed the enterprise corruption convictions; another Justice dissented and would have ordered a new trial on all of the remaining non-enterprise corruption counts. Both parties were granted leave to appeal to our Court.

II

Our primary concern in this appeal focuses on the enterprise corruption convictions. The People argue that the Appellate Division did not apply the proper legal standard for criminal enterprises in reviewing the sufficiency and weight of...