U.S. v. Caruso

• Decision Date: 27 November 1996
• Docket Number: Criminal No. 95-330.
• Citation: 948 F.Supp. 382
• Parties: UNITED STATES of America, Plaintiff, v. Robert T. CARUSO, Defendant.
• Court: U.S. District Court — District of New Jersey

Page 382

948 F.Supp. 382

UNITED STATES of America, Plaintiff, v. Robert T. CARUSO, Defendant.

Criminal No. 95-330.

United States District Court, D. New Jersey.

November 27, 1996.

COPYRIGHT MATERIAL OMITTED

John J. Gibbons, Lawrence S. Lustberg, Crummy, Del Deo, Dolan, Griffinger & Vecchione, Newark, NJ, for Defendant.

Ralph A. Muoio, Matthew W. Frank, Caplin & Drysdale, Chartered, Washington, DC, for Coopers & Lybrand, LLP.

Ralph L. Marra, Assistant United States Attorney, Newark, NJ.

OPINION

HAROLD A. ACKERMAN, District Judge.

This matter is before the court on defendant Robert T. Caruso's pretrial motions. Additionally before the court is the government's motion for reciprocal discovery, a motion by the defendant to compel production of documents from Coopers & Lybrand, LLP ("C & L"), and a motion by C & L to quash the defendant's subpoena seeking production of documents.

Oral argument on these motions was held on October 8, 1996. At the conclusion of the hearing, the government and the defendant were directed to submit additional briefing regarding issues that were raised for the first time during oral argument. This additional briefing was completed on October 31, 1996.

I. Factual Background

The defendant is a former partner and managing partner at the accounting firm of C & L. On June 27, 1995, the defendant was charged in an eighteen count indictment stemming from his alleged role in devising and implementing a scheme to defraud C &amp L and Seton Hall University. The indictment charges Caruso with five counts of mail fraud in violation of 18 U.S.C. §§ 1341, 1346 and § 2. Additionally, the indictment charges Caruso with four counts of interstate transport of checks obtained by fraud, with four counts of tax evasion, and with five counts of money laundering. Finally, the indictment also seeks the criminal forfeiture of Caruso's property.

The indictment charges that Caruso engaged in a charity-refund scheme in which he would contribute sums of money to Seton Hall University, receive reimbursement from C & L for having made that contribution, but would then revoke his contribution, while at the same time retaining the reimbursement he had received from C & L for making the contribution. In implementing this alleged scheme, the indictment charges that Caruso utilized the United States Mails, engaged in money laundering, and failed to report income that he derived from his alleged fraudulent scheme.

II. Discussion

A. Motion to Dismiss the Indictment

The defendant argues that counts one through three of the indictment must be dismissed because the counts fail to charge a mail fraud violation. Counts one through three charge the defendant with committing mail fraud in violation of 18 U.S.C. §§ 1341, 1346 and 2. The counts are based upon the defendant's alleged role in scheming to defraud C & L of the sums defendant received as reimbursement for his alleged contributions to Seton Hall.

The defendant's argument is premised upon his interpretation of a case from the Court of Appeals of New York. According to the defendant, People v. Zinke, 76 N.Y.2d 8, 556 N.Y.S.2d 11, 555 N.E.2d 263 (1990), held that a partner in a general partnership cannot be convicted of larceny under New York Penal § 155.05 law for stealing partnership property. In Zinke, the court reasoned that general partners are alter egos of one another and that all members of a general partnership are joint owners of partnership property. The Zinke court thus held that a partner cannot be convicted of larceny, which is the wrongful taking and carrying away of the property of another, because a partner charged with larceny would essentially be charged with taking from himself, which is not prohibited by the statute. Thus, under New York law, a partner in a general partnership who steals partnership property cannot be convicted under New York's larceny statute.

Drawing on Zinke, the defendant points out that the scope of the mail fraud statute is limited and defined by state law. See Carpenter v. United States, 484 U.S. 19, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987). Relying upon Zinke, the defendant claims that it simply is not illegal under New York Law for a partner to steal from, or misappropriate property from his partners in a general partnership. Because state law acts to limit the scope of the mail fraud statute, and because state law does not criminalize the behavior in which the defendant allegedly engaged in this case, the defendant argues that he cannot be convicted for having engaged in mail fraud vis a vis C & L. Therefore, the defendant argues that counts 1-3 of the indictment must be dismissed. To hold otherwise, the defendant contends, would unconstitutionally permit Congress to criminalize that which New York has not criminalized.

The government argues in opposition that the mail fraud statute certainly applies in this case because the defendant is being charged with using his fiduciary position at C & L to engage in a scheme or artifice to defraud his partners, through use of the United States Mails. The government emphasizes that while the Zinke court refused to permit a partner's conviction under the larceny statute, the court still acknowledged that a partner has no right to use partnership property for non partnership purposes. Furthermore, the government distinguishes Zinke on the ground that fraud, with which the defendant is being charged, is much broader than the larceny statute at issue in Zinke. Finally, the government argues that even if state law somehow limited application of the mail fraud statute in this case, counts 1-3 would still not be subject to dismissal because those counts also allege violations of § 1346, the "honest services" federal law component of a mail fraud violation. For these reasons, the government argues that counts one through three of the indictment properly charge a mail fraud offense and should not be dismissed.

The mail fraud statute, 18 U.S.C. § 1341 provides, in pertinent part,

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations ... for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service ... any such matter or thing, shall be fined under this title or imprisoned not more than five years, or both. If the violation affects a financial institution such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

18 U.S.C. § 1341. Section 1346 provides that the "scheme or artifice to defraud" specified in § 1341, "includes a scheme or artifice to deprive another of the intangible right of honest services." 18 U.S.C. § 1346. The Court of Appeals for the Third Circuit has explained that a mail fraud offense has three essential elements: 1) the existence of a scheme to defraud; 2) the participation by the defendant in the particular scheme with the specific intent to defraud; and 3) the use of the United States mails in furtherance of the fraudulent scheme. United States v. Hannigan, 27 F.3d 890, 892 (3d Cir.1994).

The purpose of the mail fraud statute, as reflected by the statutory language, and as indicated by the essential elements that I just described, is to prevent the United States Mails from becoming the instrument of fraudulent schemes. For example, the Court of Appeals for the First Circuit has explained that

Article I, § 8, Clause 7 of the Constitution provides that the Congress shall have the power to establish post offices and post roads, and Clause 18 provides that Congress has the power to make all laws necessary and proper for the "carrying into Execution" of this power. Accordingly, the mail fraud statute was enacted by Congress to protect the integrity of the mails by making it a crime to use them to implement fraudulent schemes of any kind.

United States v. Rendini, 738 F.2d 530, 533 (1st Cir.1984) (emphasis added). Moreover, courts have explained that the mail fraud statute is designed to prevent the post office from being used as an "instrument of crime." United States v. Mandel, 591 F.2d 1347, 1358 (4th Cir.), aff'd in relevant part, 602 F.2d 653 (4th Cir.1979) (in banc), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980). It is thus clear that the mail fraud statute is intended to prohibit persons from effectuating or implementing fraudulent schemes through the use of the United States mails. Rendini, 738 F.2d at 533.

After reviewing the indictment pursuant to the foregoing principles and standards, I conclude that the indictment charges the defendant in counts 1-3 with mail fraud in violation of 18 U.S.C. §§ 1341 and 1346. The indictment alleges each of the essential elements of the mail fraud offense. Furthermore, the indictment describes in some detail the defendant's conduct which allegedly violated the statute. Insofar as the indictment alleges that the defendant used the mails as part of a scheme to defraud C & L, with the specific intent to defraud C & L, it appears that the mail fraud violation alleged herein constitutes exactly the type of conduct that the mail fraud statute was designed to prohibit.

I am not persuaded by the defendant's argument premised upon the Zinke case and the alleged limited scope of the mail fraud statute. The Zinke case was, pure and simple, a case which dealt with statutory interpretation. See Zinke, 556 N.Y.S.2d at 12, 555 N.E.2d at 264 ("The single question before us is whether the general partner in a limited partnership can be found guilty of larceny for misappropriating partnership funds. As a matter of statutory interpretation, we answer that question in the negative ....") (emphasis added). In construing New York's larceny statute, the Zinke court concluded that it could not affirm the...