U.S. v. Drobny

• Decision Date: 16 March 1992
• Docket Number: No. 90-8459,90-8459
• Parties: Fed. Sec. L. Rep. P 96,553 UNITED STATES of America, Plaintiff-Appellee, v. Irving M. DROBNY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 990

955 F.2d 990

Fed. Sec. L. Rep. P 96,553

UNITED STATES of America, Plaintiff-Appellee, v. Irving M. DROBNY, Defendant-Appellant.

No. 90-8459.

United States Court of Appeals, Fifth Circuit.

March 16, 1992.

Julius L. Echeles, Chicago, Ill., for defendant-appellant.

Sara Criscitelli, Sp. Counsel, John D. Arterberry, Sr. Litigation Counsel, U.S. Dept. of Justice, Washington, D.C., LeRoy Morgan Jahn, Asst. U.S. Atty., Ronald F. Ederer, U.S. Atty., San Antonio, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before GOLDBERG, SMITH, and DUHE, Circuit Judges.

DUHE, Circuit Judge:

Irving Drobny, who was convicted of securities fraud, brings this collateral attack on his conviction. He says that the district court which convicted him lacked jurisdiction because any misrepresentations he made came five days after the securities sale closed. He also complains of ineffective assistance of counsel. We find no merit in his appeal and affirm the district court's denial of Drobny's motion.

I.

Because the alleged scheme and the legal issues involve complicated questions under the securities law, we recite the facts in some detail. On collateral review, we view the facts in the light most favorable to the verdict. United States v. Marcello, 876 F.2d 1147, 1149 (5th Cir.1989). We draw the following background facts from our opinion on direct appeal, United States v. DeVeau, 734 F.2d 1023, 1024-26 (5th Cir.1984), cert. denied, 469 U.S. 1158, 105 S.Ct. 906, 83 L.Ed.2d 921 (1985). We also reiterate the procedural history carefully because a host of procedural complexities riddle this case.

A.

The scheme began with Frederix DeVeau. After being released from prison for a prior conviction, he entered the Department of Justice Witness Protection Program, took a new identity, and moved to San Antonio, Texas. In February 1981, DeVeau acquired control of the Electric Car Company, promising to pay the sellers from whatever profits he could make. The company was not viable, though, and it virtually ceased operations by late 1981.

In early 1982, DeVeau began efforts to buy Jet Industries Inc., which made electric-powered vehicles. Jet was in serious financial trouble but was cash rich. DeVeau planned to merge Jet and Electric Car Company.

During his negotiations with Jet, DeVeau concealed his past criminal record, and he lied about his background and financial resources. Eventually he and Jet agreed that he would buy twenty percent of Jet's stock for $1.2 million, with $300,000 as a down payment, and become its chief executive officer. DeVeau arranged to borrow $300,000 from the Plaza Bank, negotiating with its president, Roy Diefendorf. The closing was scheduled for February 12, 1982.

At the closing Jet learned that its own assets would be used to secure DeVeau's loan, and it aborted the closing.

After further negotiations, the parties reached another agreement. The purchase price remained the same, but the down payment was doubled. Mr. Diefendorf arranged for some Plaza Bank depositors personally to lend DeVeau $300,000. DeVeau was still short $300,000. Nevertheless, the closing was rescheduled for April 8, 1982.

Irving Drobny then arrived on the scene. He was the beneficial owner of a large block of Electric Car Company stock, and he wanted the sale consummated so the stock price would improve and a defaulted company loan could be repaid. He borrowed from Joseph Rosin the $300,000 that DeVeau still needed. Mr. Rosin was to receive a $30,000 "fee" for the short-term use of his money. Rosin told Drobny not to tender the check until Drobny had another $330,000 certified check in repayment. DeVeau was to pay Drobny $200,000 as a "finder's fee" for locating this $300,000.

On April 7, 1982, Drobny met DeVeau and tendered Mr. Rosin's check. Later that day, DeVeau gave Drobny a series of Electric Car Company checks to repay Mr. Rosin and to cover part of Drobny's $200,000 fee. DeVeau told Drobny that the checks were drawn on an account with insufficient funds, but that DeVeau would cover the checks from a family trust fund. Drobny accepted these checks for his fee but required a cashier's check for Mr. Rosin. (Drobny's insistence was fortunate for Mr. Rosin; later, when Drobny tried to cash this series of checks, they bounced.) DeVeau agreed to give a cashier's check to Drobny, which Drobny could deliver to Mr. Rosin. Again, DeVeau said he would get the money from his family trust fund.

On April 8, the closing took place as planned.

On April 9, DeVeau told Drobny that the trust fund money had not yet arrived, and Drobny returned to his home in Chicago. On April 11, Drobny went back to Austin for a Jet board meeting scheduled for April 12th; he and DeVeau had been elected to the board after the acquisition of Jet. Still, no trust fund money had arrived. Together they departed for San Antonio.

On April 13, DeVeau opened a bank account at the Plaza Bank with $400,000 of Jet money. DeVeau then gave Mr. Diefendorf $300,000, to repay the bank depositor's loans. Later that afternoon, DeVeau returned to the bank with Drobny. The trust fund money was still not there, although DeVeau had said it was. Drobny then discovered that DeVeau had repaid the $300,000 to Mr. Diefendorf.

Drobny insisted on buying a cashier's check from Plaza with his own check in order to repay Mr. Rosin. At first, Mr. Diefendorf refused, but Drobny assured him that Drobny was wealthy, that he was a director of the Chicago bank where his account was, and that his check was good. These representations were untrue. Mr. Diefendorf issued the $330,000 cashier's check.

Drobny returned to Chicago and gave Mr. Rosin the cashier's check. Over the next few days, Mr. Diefendorf called Drobny several times to reconfirm that Drobny's check was good. Drobny falsely claimed that it was, and he made no efforts to cover it. Mr. Diefendorf went to DeVeau and asked DeVeau to cover it if it was returned. DeVeau tendered a $350,000 check, from Jet, for this purpose.

On April 23, Drobny's check was returned to the Plaza Bank because Drobny's account had insufficient funds. Mr. Diefendorf used the Jet check to cover Drobny's bounced check. Later, Drobny discovered that his check had been covered, and he asked that his check be returned to him.

Soon, DeVeau had misappropriated most of Jet's liquid assets. He paid $165,000 of Drobny's $200,000 finder's fee with Jet funds. The Jet board discovered DeVeau's improper use of corporate funds, and the criminal prosecution followed.

B.

A grand jury returned a thirteen-count indictment against DeVeau and Drobny. After a four-week trial, the jury convicted Drobny on one count. ¹ Thus, he was convicted of a violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, ² which is made a criminal offense by 15 U.S.C. § 78j(b).

The provisions under which Drobny was convicted apply only to fraud "in connection with the purchase or sale of any security." 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. The prosecution asked that the district court instruct the jury on the "in connection with" element of the crime. The district court told the jury that "in connection with" is an essential element of the charged crime, but the court did not expound further on the meaning of the phrase. Drobny did not object at trial to the instruction that the district court delivered, but he did object to the omission of an "in connection with" instruction in his motion for a new trial. The district court denied his motion, and Drobny appealed to this Court.

Drobny raised two issues on appeal. He objected to the jury instruction on "willful blindness," and he contended that the evidence was insufficient for a reasonable jury to find that he knew that Jet funds would be used to cover his check. Both grounds for reversal were rejected. DeVeau, 734 F.2d at 1028-29. He did not complain of the omission of an "in connection with" instruction. See id. When he failed to gain relief from this Court, he filed a petition for a writ of certiorari, and he did raise the "in connection with" issue. The Supreme Court denied certiorari. Drobny v. United States, 469 U.S. 1158, 105 S.Ct. 906, 83 L.Ed.2d 921 (1985).

Eventually Drobny started to serve his sentence. On September 11, 1989, after being released on parole, he filed a Motion to Vacate and Set Aside Sentence, pursuant to 28 U.S.C. § 2255. He argued that he had been convicted of securities fraud even though his misrepresentations were not "in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b-5. On May 31, 1990, the district court denied the motion. Drobny's parole ended in July. He now appeals the denial of his § 2255 motion, and raises for the first time in this appeal an issue of ineffective assistance of counsel and an evidentiary question. He moved this Court to hold his appeal in abeyance while he returned to the district court to litigate the ineffective assistance and evidentiary claims, but we denied his motion.

II.

We must address a number of procedural issues first. Primarily, we must consider whether Drobny is procedurally barred from bringing the current attack on his conviction.

A.

Collateral review is fundamentally different from a direct appeal. United States v. Frady, 456 U.S. 152, 165, 102 S.Ct. 1584, 1592, 71 L.Ed.2d 816 (1982). As our Court, sitting en banc, recently said,

A defendant can challenge his conviction after it is presumed final only on issues of constitutional or jurisdictional magnitude, Hill v. United States, 368 U.S. 424, 428, 82 S.Ct. 468, 471, 7 L.Ed.2d 417 (1962), and may not raise an issue for the first time on collateral review without showing both 'cause' for his procedural default, and 'actual prejudice' resulting from the error. Frady, 456 U.S. at 168, 102 S.Ct. at 1594.

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