U.S. v. Bernhardt

• Decision Date: 08 April 1988
• Docket Number: No. 85-1250,85-1250
• Citation: 840 F.2d 1441
• Parties: UNITED STATES of America, Plaintiff-Appellant. v. Curtis J. BERNHARDT, Michael F. McCarthy, Harold T. Okahara, Jr., and Carl J. Bernhardt, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1441

840 F.2d 1441

UNITED STATES of America, Plaintiff-Appellant. v. Curtis J. BERNHARDT, Michael F. McCarthy, Harold T. Okahara Jr., and Carl J. Bernhardt, Defendants-Appellees.

No. 85-1250.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 14, 1986.

Decided Feb. 25, 1988.

As Amended April 5 and April 8, 1988.

Daniel Bent, U.S. Atty., and Frank A. Wilson, Asst. U.S. Atty., Honolulu, Hawaii, John F. De Pue, Crim. Div., Washington, D.C., for plaintiff-appellant.

Benjamin B. Cassiday, III, Asst. Federal Public Defender, Honolulu, Hawaii, for defendant-appellee Carl J. Bernhardt.

Peter A. Donohoe, Honolulu, Hawaii, for defendant-appellee Curtis J. Bernhardt.

Dennis E.W. O'Connor and Charles E. McKay, Hoddick, Reinwald, O'Connor & Marrack, Honolulu, Hawaii, for defendant-appellee McCarthy.

Michael E. Weight, Honolulu, Hawaii, for defendant-appellee Okahara.

Appeal from the United States District Court for the District of Hawaii.

Before SNEED, ANDERSON and POOLE, Circuit Judges.

POOLE, Circuit Judge:

The United States appeals the district court's dismissal of twenty-nine counts of a seventy-four-count indictment. The subject counts charged defendants Curtis Bernhardt, Carl Bernhardt, Michael McCarthy, Harold Okahara (collectively appellees), and Daniel Matsukage with conspiracy to violate the mail fraud and wire fraud statutes of the United States, 18 U.S.C. Secs. 371, 1341, 1343 and 2. Sixty-five separate acts of mail fraud (Counts 2 through 66) and eight acts of wire fraud (Counts 67 through 74) were set forth. Upon the motion of the defendants and following the recommendation of a United States Magistrate, the district court dismissed certain of the mail fraud counts, holding, on the authority of Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960), that the mailings could not be held to have been made for the purpose of executing the alleged fraudulent scheme because they were normal business usages. We reverse and remand.

FACTS AND PROCEEDINGS

Daniel Matsukage was president of both Pacific Standard Investment and Loan, Inc. (Pacific) and Real Estate Finance Corporation (REFC). Pacific is an industrial loan company authorized by Hawaii state law to solicit public funds for deposit and to make loans with these funds. REFC is a mortgage servicing company which has agreements with various mortgage companies to collect monthly mortgage payments from homeowners, deposit the payments into trustee accounts, and forward the balance of the monthly principal and interest to the mortgage companies after paying property taxes and other expenses incurred on the serviced property.

Appellees were officials of Norfolk Investment Co., Limited (Norfolk). Norfolk was established for the purpose of generating profits from investments in real estate and various other ventures.

By a superseding grand jury indictment, the government alleged that between December 1977 and December 1981, appellees and Matsukage operated these companies so as to carry out a broad scheme to defraud. Briefly, the scheme was said to have been as follows: Appellees and Matsukage organized and implemented depositor solicitation programs to attract depositors for Pacific. It was charged that they diverted funds from these programs into loans and disbursements to themselves as well as to REFC, Norfolk, and Norfolk's subsidiaries. To induce investments in Pacific, they artificially increased Pacific's capital stock, thereby receiving large deposits which they used to pay off loans owed Pacific, creating the appearance that Pacific had a more favorable cash position than actually existed. In addition, they caused security and collateral for loans made by Pacific to be released, subordinated, and substituted for their own benefit. It was further charged that appellees and Matsukage covered up these activities by causing false entries to be made and published by Pacific concerning its financial status.

To provide Pacific and Norfolk with additional cash, appellees and Matsukage were alleged to have diverted funds collected by REFC from homeowners pursuant to the mortgage servicing contracts. Instead of forwarding the proceeds to the mortgage companies or applying them to satisfy property tax bills, defendants would use the money as operating cash to improve Pacific's deficit cash position, or they would divert the funds to Norfolk to support its various business enterprises. To conceal their scheme with respect to REFC, they were alleged to have made or caused to be made false entries, records, representations and omissions of material facts.

Count 1 of the superseding indictment charged appellees and Matsukage with conspiracy to commit mail and wire fraud in violation of 18 U.S.C. Sec. 371. Counts 2 through 30 charged separate acts of mail fraud, alleging that appellees and Matsukage caused the homeowners to mail their mortgage payments to REFC by sending the homeowners pre-addressed envelopes. Counts 31 through 65 alleged other mail fraud violations, while counts 66 through 74 alleged separate criminal acts of wire fraud.

Following a magistrate's recommendation and report, the district court dismissed counts 2 through 30 charging mail fraud. These counts were severed to allow this appeal by the government.

Meanwhile, McCarthy and Okahara proceeded to jury trial on the conspiracy count and on the mail fraud and wire fraud counts that had not been dismissed (Counts 1 and 31 through 74). At the conclusion of the government's case in chief, McCarthy and Okahara moved for a judgment of acquittal. The district court granted their motion as to all counts on the grounds of insufficiency of evidence. The government appealed the judgment of acquittal, but later moved to dismiss, recognizing that that appeal was barred by the Double Jeopardy Clause. By order of April 18, 1986 we granted the government's motion to dismiss that appeal.

In June 1986, the Bernhardts moved in district court to dismiss the counts surviving against them (other than those involved in this appeal). They claimed that since there had been a prior prosecution in Hawaii state court based largely upon the identical transactions set forth in the indictment and it had been dismissed by the state court because barred by the statute of limitations, further trial was barred by the Double Jeopardy Clause because the state and federal prosecutions were the same. They also claimed vindictive prosecution and collateral estoppel arising from the acquittal of Okahara and McCarthy. The district court denied motions to dismiss based on collateral estoppel and vindictive prosecution, but granted the motion for double jeopardy indicating that it believed the two prosecutions were in effect the same. The government appealed the judgment granting dismissal on couble jeopardy grounds. We reversed and remanded to permit the district court to make the factual determination essential to the applicability of Bartkus v. Illinois, 359 U.S. 121, 79 S.Ct. 676, 3 L.Ed.2d 684 (1959). United States v. Curtis J. Bernhardt, et al., 831 F.2d 181, 183 (9th Cir.1987). The Bernhardts' attempted appeals of the denials of their vindictive prosecution and collateral estoppel claims were dismissed as non appealable prior to trial. United States v. Curtis J. Bernhardt, et al., Nos. 86-1200 and 86-1202 (9th Cir. October 27, 1987) (unpublished) [831 F.2d 303 (table)].

This appeal involves the propriety and effect of the dismissal of Counts 2 through 30, and whether Curtis Bernhardt and Carl Bernhardt may yet be tried. Defendant Matsukage is deceased.

DISCUSSION

A. Reviewability

Pursuant to 28 U.S.C. Sec. 636(b)(1)(B), the district court designated a magistrate to conduct hearings and to submit to the court proposed findings of fact and recommendations for defendants' motions to dismiss the above-numbered counts of the indictment. ¹ Any party may serve and file written objections as provided by rules of court within 10 days of service of the magistrate's report and recommendations. The district court must make a de novo review of those portions to which objection is made. Id. The Rules of the United States District Court for the District of Hawaii mirror the statute and provide that the district court may consider the record developed before the magistrate and need not conduct a new hearing unless required by law. Local Rule 404-2 of the United States District Court for the District of Hawaii. ² Appellees The failure to object to a magistrate's recommendation does not preclude appellate review under the statute. Britt v. Simi Valley Unified School District, 708 F.2d 452, 454 (9th Cir.1983). Furthermore, the local rule does not indicate that the failure to file objections in district court bars a subsequent appeal. Nevertheless, appellees ask this court to exercise its inherent supervisory powers and require a party seeking review of a magistrate's decision to file objections within ten days or waive the right to appeal. Although the Supreme Court has held that a court of appeals may exercise its supervisory powers to establish such a waiver rule, Thomas v. Arn, 474 U.S. 140, 142, 106 S.Ct. 466, 468, 88 L.Ed.2d 435 (1985), we have declined to adopt such a rule. Britt, 708 F.2d at 454. In Britt, we held that failure to file objections waives only factual issues on appeal. Id.; accord McCall v. Andrus, 628 F.2d 1185, 1187, 1189 (9th Cir.1980), cert. denied, 450 U.S. 996, 101 S.Ct. 1700, 68 L.Ed.2d 197 (1981). Because the issues in this case are purely legal, the government has not waived its right to challenge the magistrate's recommendation and the district court's order dismissing Counts 2 through 30.

argue that the the government's failure to file written objections to the magistrate's report and recommendation within the ten days set forth in the statute and the local rules, caused waiver of its right to appeal the district court's decision adopting that...