U.S. v. McGovern

• Citation: 822 F.2d 739
• Decision Date: 06 August 1987
• Docket Number: No. 86-5318,86-5318
• Parties: UNITED STATES of America, Appellee, v. James Francis McGOVERN, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 739

822 F.2d 739

UNITED STATES of America, Appellee, v. James Francis McGOVERN, Appellant.

No. 86-5318.

United States Court of Appeals Eighth Circuit.

Submitted March 11, 1987.

Decided June 25, 1987.

Rehearing and Rehearing En Banc Denied Aug. 6, 1987.

John W. Lundquist, Minneapolis, Minn., for appellant.

Thomas B. Heffelfinger, Asst. U.S. Atty., Minneapolis, Minn., for appellee.

Before LAY, Chief Judge, FLOYD R. GIBSON, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

JOHN R. GIBSON, Circuit Judge.

The sole issue before us is whether James F. McGovern's plea agreement with the United States, which called for prosecution on a single count proposed by McGovern based on the violation of a banking regulation with a sentence of one year, mandates dismissal of a later indictment and reversal of the judgment of conviction. The district court ¹ accepted McGovern's guilty plea conditioned on the court's review of the pre-sentence investigation report, but at sentencing the district court rejected the plea agreement as against public policy and entered a not guilty plea. McGovern was later indicted on fourteen counts and convicted of two counts of securities fraud in violation of 15 U.S.C. Secs. 77a, q, and x (1982) and 18 U.S.C. Sec. 2 (1982) in a case tried to the bench on stipulated facts. On this appeal, he argues that the district court erred in denying his motion to dismiss the fourteen count indictment and in refusing to order specific performance of the plea agreement. We conclude that the plea agreement was implicitly conditioned on the district court's accepting its terms, and its rejection as against public policy relieved both sides of their obligations. Accordingly, we affirm the judgment of conviction.

McGovern practiced law with a St. Paul, Minnesota law firm that represented Flight Transportation Corporation (FTC) in offering securities to the public in 1979 and 1981. In late 1981, he joined FTC as its in-house legal counsel. FTC was closed down on June 18, 1982 when agents of the FBI and the Securities and Exchange Commission (SEC) obtained the appointment of a receiver and an injunction, and seized all of FTC's records. The SEC alleged that FTC, its subsidiaries, and William Rubin--FTC's President, Chairman of the Board and chief executive officer--had violated several provisions, especially the anti-fraud provisions, of the federal securities laws. A number of SEC actions and civil lawsuits ensued. ² Also, criminal prosecutions were instituted against the officers of the corporation and others involved in the fraud. ³ Extended negotiations between McGovern and his lawyers and the United States Attorney resulted in an agreement in which McGovern would enter a guilty plea to a single count of violating 15 U.S.C. Sec. 78g and Federal Reserve Board Regulation G, 12 C.F.R. Sec. 207.3(a)(b) (1986). The agreement provided that in exchange for the government's promise to charge McGovern in a single-count indictment, McGovern would cooperate fully and truthfully with the United States in its investigation of FTC and would provide truthful testimony for grand and petit juries in ensuing prosecutions. The agreement stated that the sentence imposed would not exceed one year's imprisonment. The United States specifically agreed that it would make the extent of McGovern's cooperation known to the court at the time of sentencing and that it would not otherwise prosecute McGovern for any possible FTC-related, banking, or other offenses investigated by the United States for acts from 1977 through 1982.

In an affidavit filed with the district court, McGovern stated that to avoid any indictment alleging involvement in the overall FTC securities fraud, his lawyers "proposed (and ultimately drafted) the Regulation G offense" as provided in the plea agreement. In argument before the district court, McGovern's lawyer stated that the United States Attorney submitted the draft indictment to the SEC regional office for review. The single-count Regulation G indictment was then filed.

McGovern appeared before the district court on March 25, 1985 to enter a plea of guilty to the charge. The district court ascertained that McGovern had studied and discussed the matter with his attorney and was familiar with the precise charge to which he was tendering a plea. The district court read the plea agreement aloud, informed McGovern that the plea could not be accepted unless he was in fact guilty, and asked him to state how his conduct violated the statute.

McGovern told the court that when FTC was making its February 1981 public offering he had arranged for an acquaintance, Charles Engleson, to purchase 95,000 units of FTC securities by having Engleson write a check on an account with insufficient funds. McGovern then helped to arrange an $800,000 loan to Engleson, secured by a certificate of deposit purchased with the proceeds of the public offering, in order to cover the check. Thus, the loan to Engleson, which covered the Engleson check, was secured by the sale of the same FTC stock purchased in Engleson's name. McGovern went on to state that the $800,000 loan was substantially in excess of the stock's loan value. McGovern stated that at or before the time he made this arrangement he knew that, as to this type of security, he could not make a loan that exceeded fifty percent of the market value of the stock without reporting it to the Federal Reserve Board. Under examination by the Assistant United States Attorney, McGovern indicated that he had extensive experience in securities law, that for the past several years he had devoted one-fourth to one-half of his practice to the area of securities regulation, and that he represented FTC as its counsel in this 1981 securities offering. McGovern told the court that he was satisfied that he had violated Regulation G, and that he had done so intentionally and willfully.

At the end of the proceedings, the court found that the plea was made knowingly, voluntarily, and had a factual basis. The court accepted the plea subject to a review of the pre-sentence investigation report.

McGovern came before the district court for sentencing on May 17, 1985. As the government began to inform the court of the extent of McGovern's cooperation, the district court told the parties that it was not going to accept the plea. The court stated that, based on its review of the pre-sentence investigation report and the totality of the circumstances, the plea agreement was not in the public interest. ⁴ Thus, the court rejected the plea agreement and entered a plea of not guilty.

On July 29, 1985 the assistant United States Attorney appeared before the district court and moved to dismiss the one count indictment. He stated that after the court rejected the March 7, 1984 plea agreement the government had intended to proceed to trial on the single count indictment. In preparing for trial, however, the United States Attorney's office was informed by attorneys for the SEC that the FTC stock on which the Regulation G indictment was based did not satisfy Regulation G's "margin stock" requirement until October 1981, some six months after the violation alleged in the one count indictment. This failure of proof involved an essential element of the charge. The United States Attorney stated that after dismissal the government intended to reevaluate McGovern's involvement in the FTC case.

McGovern's counsel took the position that the March 7, 1984 plea agreement still bound the government and prevented it from seeking further indictments. He stated that McGovern was ready to go forward and try the case on the single charge and offered to stipulate that these securities were in fact margin securities. The government responded that it could not be forced to trial where there was in fact no violation. The district court approved the dismissal of the indictment. See Fed.R.Crim.P. 48(a).

The United States then sought and obtained a fourteen count indictment against McGovern, and McGovern moved to dismiss it. After hearing lengthy arguments from both sides, the court denied the motion to dismiss the indictment. In its order, the district court recognized that McGovern had initially been charged with only one of many possible FTC-related offenses and that the offense charged was submitted by McGovern to the government for approval. The court acknowledged that before he was indicted McGovern had fulfilled, in part, his duties under the bargain by assisting the government in its FTC-related investigations. The court also accepted the government's position that FTC stock was not margin stock as required by Regulation G and therefore found that McGovern had not committed the offense charged.

The district court concluded that there had been a mutual mistake of the parties. Both parties to the plea agreement knew that the court could not accept McGovern's plea of guilty unless it was satisfied that the plea had a factual basis. See Fed.R.Crim.P. 11(f). When McGovern entered his plea, both the United States and McGovern had taken the position that the plea had a basis in fact. The court determined that both parties had been mistaken as to the requirements of the existing law, specifically 15 U.S.C. Sec. 78g, and that their erroneous beliefs constituted a mutual mistake under the Restatement (Second) of Contracts (1981) Secs. 151-154. The court concluded that it was not reasonable to allocate the risk of mistake to the government, that the contract was voidable, and that the superceding indictment should not be dismissed. The district court further stated that enforcing the agreement would preclude McGovern's being prosecuted for any FTC-related offense and that this would be contrary to the public interest.

The case was then submitted to the court on stipulated facts; the court found McGovern guilty of two counts of securities fraud under 15 U.S.C. Secs. 77a, q and x and 18 U.S.C. Sec. 2. The other...