U.S. v. Gregory

• Citation: 730 F.2d 692
• Decision Date: 23 April 1984
• Docket Number: 82-7152,Nos. 82-7145,s. 82-7145
• Parties: 15 Fed. R. Evid. Serv. 1110 UNITED STATES of America, Plaintiff-Appellee, v. E.A. GREGORY, Vonna Jo Gregory, G.W. Atkinson and Robert T. Spurlock, Jr., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 692

730 F.2d 692

15 Fed. R. Evid. Serv. 1110

UNITED STATES of America, Plaintiff-Appellee, v. E.A. GREGORY, Vonna Jo Gregory, G.W. Atkinson and Robert T.

Spurlock, Jr., Defendants-Appellants.

Nos. 82-7145, 82-7152.

United States Court of Appeals,

Eleventh Circuit.

April 23, 1984.

Linda D. Benson, East Tallassee, Ala., for Atkinson and Spurlock.

Morgan & Burns, Peter F. Burns, Mobile, Ala., for E.A. and Vonna Jo Gregory.

Ginny S. Granade, Asst. U.S. Atty., Mobile, Ala., for plaintiff-appellee.

Appeals from the United States District Court for the Southern District of Alabama.

Before GODBOLD, Chief Judge, RONEY and SMITH ^*, Circuit Judges.

RONEY, Circuit Judge:

E.A. Gregory, Vonna Jo Gregory, G.W. Atkinson and Robert T. Spurlock appeal their convictions for a conspiracy to misapply bank funds, make false statements to banks and commit wire fraud, in violation of 18 U.S.C.A. Secs. 371, 656, 1014 and 1343. The Gregorys and Atkinson also appeal their convictions for substantive counts of misapplication of bank funds, 18 U.S.C.A. Secs. 656, 2. They challenge (1) the Government's use of immunized testimony given by the Gregorys at a bankruptcy creditors' meeting, (2) the procedures used to select the grand jury, (3) the sufficiency of the evidence supporting their convictions, (4) evidentiary rulings by the trial court, (5) the court's denial of severance for Atkinson and Spurlock, and (6) the court's denial of motions for new trial and acquittal. We vacate the Gregorys' convictions, and remand for a hearing to afford the Government an opportunity to show that all of its evidence not formerly examined by the district court was derived from legitimate, independent sources. We affirm as to all other issues.

The conspiracy alleged in this case concerns events which occurred while E.A. Gregory and Vonna Jo Gregory controlled an Alabama Bank. The Gregorys purchased a controlling interest in the Bank of Camden (Alabama) in November, 1975. Both were elected to the Board of Directors, and Mr. Gregory became Chairman of the Board. The bank was renamed Wilcox County Bank (Bank). While the Gregorys held a controlling interest in the Bank, defendant G.W. Atkinson was the Secretary to the Board of Directors and a Vice-President of the Bank. Defendant Robert T. Spurlock, Jr., was a Vice-President of the Bank and became a member of the Board. The criminal charges of conspiracy to misapply bank funds, make false statements and commit wire fraud grew out of transactions between the Wilcox County Bank and the Gregorys, their corporations, and their associates, which involved the Bank's (1) purchase of participations in loans from other banks which had loaned money to the Gregorys and their corporations; (2) opening of correspondent bank accounts with banks which were controlled by or had loaned money to the Gregorys; (3) purchase of goods and services from the Gregorys and their corporations; (4) loans to associates of the Gregorys who lived outside the Bank's trading area; and (5) loans to the Gregorys themselves.

The substantive counts of misapplication of bank funds involve loans made by the Bank to Gregory-owned corporations after the Gregorys sold their bank stock to Mr. and Mrs. Mark Lyons III on April 8, 1977. The Gregorys retained voting rights in matters affecting capitalization of the Bank. Mr. Lyons was then elected Chairman of the Board, and he also became Executive Vice-President and a member of the loan committee. Between April 15, 1977, and May 10, 1977, the Bank made ten loans to corporations owned by the Gregorys, for a total of $864,000. These loans were approved by the Board of Directors or by the loan committee and also by Lyons.

The facts will be developed further in this opinion as it discusses the defendants' various contentions on appeal.

I. Government's Use of Gregory's Bankruptcy Testimony

On June 19, 1978, after all the events which gave rise to the criminal charges, the Gregorys filed for relief under Chapter XII of the Bankruptcy Act. Other corporations owned principally by the Gregorys filed for relief under Chapter XI. At the first meeting of creditors, on July 26, 1978, the Gregorys testified individually and as representatives of the corporations. They requested and were granted immunity under 18 U.S.C.A. Sec. 6002, which provides that no such testimony "or other information compelled under the order (or any information directly or indirectly derived from such testimony or other information) may be used against the witness in any criminal case," with inapplicable exceptions. 11 U.S.C.A. Sec. 344, formerly 11 U.S.C.A. Sec. 25(a)(10). ¹ The FBI and FDIC were actively investigating the Gregorys in anticipation of criminal proceedings when the bankruptcy meeting took place.

The testimony concerned the finances of the Gregorys and their corporations. FDIC personnel, along with representatives of 23 other creditors, attended the meeting.

Before trial, the defendants moved to dismiss the indictment, claiming that prosecution of the case had been tainted by the Government's exposure to immunized testimony given by the Gregorys at the creditors' meeting. The trial court denied this motion on March 5, 1982, after a hearing. On appeal, the defendants ask this Court to vacate their convictions and render a judgment dismissing the indictment, arguing (1) the trial judge improperly shifted to them the burden of proving that the immunized testimony was used, and (2) the immunized testimony was used in the investigation and prosecution of the case.

The allocation of the burden of proof where a defendant claims the Government is attempting to improperly use immunized testimony was set forth in Murphy v. Waterfront Commission, 378 U.S. 52, 84 S.Ct. 1594, 12 L.Ed.2d 678 (1964) which held that:

Once a defendant demonstrates that he has testified, under a state grant of immunity, to matters related to the federal prosecution, the federal authorities have the burden of showing that their evidence is not tainted by establishing that they had an independent, legitimate source for the disputed evidence.

378 U.S. at 79 n. 18, 84 S.Ct. at 1609 n. 18. This was reaffirmed in Kastigar v. United States, 406 U.S. 441, 460, 92 S.Ct. 1653, 1664, 32 L.Ed.2d 212 (1972), where the Supreme Court further observed that this burden "is not limited to a negation of taint; rather, it imposes on the prosecution the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony." 406 U.S. at 460, 92 S.Ct. at 1664.

The Gregorys contend that the district court placed a greater threshold burden on them than that required by Kastigar and its progeny by requiring them to "point out specifically--testimony that [they] gave that was subject to immunity, and how that testimony, and where that testimony, subsequently shows up ... or ... was presented to the Grand Jury or came to the attention of the Grand Jury." The court proceeded to require the Government to establish a legitimate, independent source for each of the items identified by the defendants. Our review of the testimony below indicates that the Government met its burden as to those items. ² We affirm the holding of the district court in all respects as to the evidence considered.

By limiting the evidentiary materials thus identified for examination for taint at the outset, however, the court relieved the Government of a portion of its "heavy burden of proving that all of the evidence it [used] was derived from legitimate independent sources." 406 U.S. at 461-62, 92 S.Ct. at 4665-66.

Section 6002 speaks to use of the immunized testimony against the witness in "any criminal case," and thus prohibits its use in the grand jury proceedings as well as at trial. United States v. Beery, 678 F.2d 856, 860 (10th Cir.1982); United States v. Hinton, 543 F.2d 1002, 1009 (2d Cir.1976), cert. denied, 430 U.S. 982, 97 S.Ct. 1677, 52 L.Ed.2d 376 (1977); United States v. Kurzer, 534 F.2d 511 (2d Cir.1976). The defendants could not be presumed to have knowledge of all of the evidence presented to the grand jury or employed in the Government's investigation. Under such circumstances, a ruling only on those items identified by the defendants is not sufficient. No cases have been cited to this Court in which the procedure employed by the district court in this case was followed, and we find no support for affirmance of that practice in light of Kastigar, and this Court's application of Kastigar in United States v. Seiffert, 463 F.2d 1089 (5th Cir.1972). On the contrary, in Seiffert, this Court remanded in order that the Government might "show how it acquired all of the evidence admitted below." 463 F.2d at 1092 (emphasis added). In the case before us, remand is necessary for the limited purpose of allowing the district court to ascertain whether the portions of the Government's evidence at trial not challenged by the Gregorys and the evidence before the grand jury, not formerly considered by the district court, were in fact "derived from a legitimate source wholly independent of the compelled testimony." Kastigar, 406 U.S. at 460, 92 S.Ct. at 1664. If the Government can affirmatively make such a showing, the Gregorys' convictions must stand. If the evidence presented to the grand jury and at trial is not found to have been properly derived from legitimate independent sources, then the indictment must be dismissed or a new trial ordered, depending on whether the Government fails to prove independent sources for its grand jury evidence, or only for its trial evidence, unless the error is held harmless beyond a reasonable doubt. If the Government sustains its burden of proof, or if use of the prohibited evidence is found to be harmless, then the convictions should be reinstated. See United States v. Beery, 678 F.2d at 863.

II. Jury Selection Act

Defendants contend the indictment should have been...