U.S. v. Kayne

• Decision Date: 05 December 1995
• Docket Number: Nos. 94-1406,94-1407,s. 94-1406
• Parties: 45 Fed. R. Evid. Serv. 120 UNITED STATES, Appellee, v. Richard G. KAYNE, Defendant--Appellant. UNITED STATES, Appellee, v. Edward B. KALP, Defendant--Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 7

90 F.3d 7

45 Fed. R. Evid. Serv. 120

UNITED STATES, Appellee, v. Richard G. KAYNE, Defendant--Appellant.

UNITED STATES, Appellee, v. Edward B. KALP, Defendant--Appellant.

Nos. 94-1406, 94-1407.

United States Court of Appeals, First Circuit.

Heard Dec. 5, 1995.

Decided July 24, 1996.

Francis J. DiMento, with whom DiMento & Sullivan, Boston, MA, was on brief for appellant Richard G. Kayne; John L. Roberts, Springfield, MA, by Appointment of the Court, for appellant Edward B. Kalp.

Mark J. Balthazard, Assistant United States Attorney, with whom Donald K. Stern, United States Attorney, Boston, MA, was on brief for appellee.

Before TORRUELLA, Chief Judge, CYR, Circuit Judge, and SKINNER, ^* Senior District Judge.

TORRUELLA, Chief Judge.

Defendants-appellants Edward Kalp and Richard Kayne were charged with twenty-nine counts of mail fraud, in violation of 18 U.S.C. § 1341. After a six week trial, a jury convicted both defendants on fifteen counts and acquitted them on four; the judge granted a motion for acquittal on one; and the government dropped the remaining counts. The defendants were sentenced to 36-months imprisonment, and ordered to pay $339,466 in restitution. On appeal, Kayne and Kalp argue (1) that jeopardy had attached in a prior government proceeding; (2) that certain evidence was improperly admitted; (3) that the evidence submitted below was not sufficient to sustain the convictions; and (4) that Kalp received ineffective assistance of counsel at trial. For the reasons laid out below, we affirm.

I. BACKGROUND

In the late 1970s, many new investors entered the market for rare coins. Unlike knowledgeable hobbyists and "vest pocket" dealers, these newcomers had no specialized expertise, and were just looking for a stable investment. Seeking to capitalize on this booming market, defendants Edward Kalp and Richard Kayne left a distinguished Boston coin brokerage and established the Rare Coin Galleries of America ("RCGA") in July 1982. Kalp, the President of RCGA, functioned as the in-house numismatist, examining and valuing coins for purchase from wholesalers, and pricing them for resale. Kayne, as RCGA's marketing director, recruited financial planners and solicited customers. For four years RCGA operated successfully, generating millions of dollars in revenues from approximately 3,000 customers.

A typical RCGA investor paid between $5,000 and $25,000 for a portfolio of coins. In the rare coin market, the value of a coin is dependent upon its "grade," which is a numismatic measure of comparative wear on a 70 point scale. Small distinctions in grade can yield large differences in the value of a coin. For example, among relatively pristine, uncirculated "mint state" ("MS") coins, an MS65 coin can fetch ten times the price of an MS63. For "certified" coins, grade is determined by a certification service which typically employs a panel of numismatists. Prior to 1986, the only independent grading service was the American Numismatic Association Certification Service ("ANACS"). For "raw" coins (which have not been certified), grade and value may be established between two knowledgeable collectors, or an amateur may rely on the representation of a respected numismatist. Most of the raw and certified coins which RCGA supplied its customers were purported to be MS65 coins.

By mid-1986, at least two federal agencies had received many complaints from RCGA customers asserting that the coins sold by RCGA were of substantially lower quality and value than represented. After a preliminary investigation in July 1986, the United States Postal Service applied for and was granted authority by the late Chief Judge Andrew Caffrey of the District of Massachusetts to intercept RCGA's mail.

At the same time, the Federal Trade Commission ("FTC") was conducting a parallel nationwide investigation of the rare coin investment market. The investigation quickly focused on RCGA, among others. On September 16, 1986, the FTC instituted a civil action alleging that RCGA was engaged in unfair and deceptive business practices under 15 U.S.C. § 45(a). This case was also assigned to Judge Caffrey, who forthwith entered a temporary restraining order "freezing" not only the business but the personal assets owned by Kayne and Kalp. On October 14, RCGA filed a Chapter 11 petition for bankruptcy reorganization, which was removed to the district court and consolidated with the Postal Service and FTC actions. The following week, Judge Caffrey granted preliminary injunctions requested by the Postal Service and the FTC, and appointed a Bankruptcy Trustee, who initiated adverse proceedings against Kayne and Kalp.

The conclusion of the civil litigation came the following spring, when the FTC, the Trustee, Kayne, and Kalp entered into a settlement agreement requiring Kayne and Kalp to surrender $2.2 million in personal assets to the Trustee and never to market coins to the public again. Also pursuant to this agreement, the FTC's claim for $11.9 million in consumer restitution was given priority status for payment of the Trustee.

On January 11, 1991, an indictment charging Kalp and Kayne with 29 counts of mail fraud was filed, based on the correspondence intercepted the summer of 1986. The prosecution's evidence consisted of testimony from former RCGA employees, financial planners, suppliers, and customers, as well as coin dealers and numismatic experts. After almost six weeks of testimony, the jury convicted Kayne and Kalp of 15 counts of fraud. The prosecution dropped nine counts prior to their submission to the jury, the jury acquitted on four counts, and the district judge acquitted on one count. Defendants have been sentenced to 36 months' imprisonment and ordered to pay $339,466 in restitution. The sentence has been stayed pending resolution of this appeal.

II. DISCUSSION

A. Double Jeopardy

Both defendants have asserted that jeopardy attached to the 1986 civil litigation and should bar this prosecution. This defense has surfaced for the first time on appeal. Even though the fundamental constitutional issue of double jeopardy was not raised at trial, we will entertain the appeal, but review only for plain error. ¹ See, e.g., United States v. Rivera, 872 F.2d 507, 509 (1st Cir.), cert. denied, 493 U.S. 818, 110 S.Ct. 71, 107 L.Ed.2d 38 (1989).

The Double Jeopardy clause protects against "multiple punishments for the same offense," even if one of the proceedings is civil and one criminal, regardless of the sequence. United States v. Halper, 490 U.S. 435, 439, 109 S.Ct. 1892, 1896-97, 104 L.Ed.2d 487 (1989). In determining whether the protections of the Double Jeopardy Clause are implicated, our first line of inquiry is whether the civil sanction constituted "punishment," see United States v. Stoller, 78 F.3d 710, 720-21 (1st Cir.1996); our second is whether the purported punishments are for the same offense, Halper, 490 U.S. at 439, 109 S.Ct. at 1896-97 . Because we conclude that the civil sanction in this case did not constitute punishment, we discern no plain error.

Defendants argue that the civil proceedings against them were the equivalent of civil forfeiture proceedings and imposed punishment for the same offense in two or more separate proceedings. In characterizing their settlement with the Bankruptcy Trustee and the FTC as a punitive forfeiture, they cite two expansive double jeopardy opinions from other circuits which, since oral argument, have been reversed by the Supreme Court. See United States v. Ursery, 59 F.3d 568 (6th Cir.1995), rev'd --- U.S. ----, 116 S.Ct. 2135, 135 L.Ed.2d 549 (1996); United States v. $405,089.23 U.S. Currency, 33 F.3d 1210 (9th Cir.1994), rev'd sub nom. Ursery, --- U.S. ----, 116 S.Ct. 2135, 135 L.Ed.2d 549.

Assuming, arguendo, that the civil proceeding against defendants is the equivalent of a civil forfeiture proceeding, the Supreme Court's opinion in Ursery makes it clear that the 1986 civil proceeding was not "punishment" for double jeopardy purposes. Ursery, --- U.S. at ----, 116 S.Ct. at 2143. In that case, the Supreme Court reaffirmed its "traditional understanding that civil forfeiture does not constitute punishment for the purpose of the Double Jeopardy Clause." Id.

Furthermore, even to the extent that defendants' 1986 civil proceeding was not a civil forfeiture proceeding, it was by nature remedial. The monetary sanction was exacted in a bankruptcy case, and the $2.5 million paid to the trustee was used to pay a portion of claims against the defendants totalling $11.8 million resulting from their sale of coins. A monetary sanction which has no punitive function, i.e., has no purpose other than restitution or compensation for the loss engendered by the defendants' conduct is not punishment within the ambit of the double jeopardy clause. Halper, 490 U.S. at 446-49, 109 S.Ct. at 1900-02. This is a near-perfect exemplar of compensation for loss, and does not constitute punishment for purposes of double jeopardy, notwithstanding its financial impact on the defendants.

In view of our conclusion that there was no duplication of punishment, it is unnecessary to consider the second part of the double jeopardy analysis: whether the purported punishments were for the same offense. In any case, we note that the offenses charged in this indictment contain crucial elements that by no stretch of the imagination could be part of the resolution of the bankruptcy case or of the underlying FTC and Postal Service cases; e.g., criminal intent to defraud and devising a scheme to defraud. Hence there was no double jeopardy. See Blockburger v. United States, 284 U.S. 299, 52 S.Ct. 180, 76 L.Ed. 306 (1932).

B. Evidentiary Challenges

1. Appraisals and valuations by dealers of "raw" coins supplied by RCGA

The defendants argue that evidence of the value of the coins sold by the defendants was erroneously admitted. The government offered, and the district court admitted, testimony of eight coin dealers...