U.S. v. Ochs

• Decision Date: 07 January 1988
• Docket Number: 87-1501,Nos. 87-1465,s. 87-1465
• Citation: 842 F.2d 515
• Parties: 25 Fed. R. Evid. Serv. 238 UNITED STATES of America, Appellee, v. Paul OCHS, Jr., Defendant, Appellant. UNITED STATES of America, Appellee, v. Richard DRAY, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 515

842 F.2d 515

25 Fed. R. Evid. Serv. 238

UNITED STATES of America, Appellee, v. Paul OCHS, Jr., Defendant, Appellant.

UNITED STATES of America, Appellee, v. Richard DRAY, Defendant, Appellant.

Nos. 87-1465, 87-1501.

United States Court of Appeals First Circuit.

Heard Jan. 7, 1988.

Decided March 15, 1988.

Earle C. Cooley with whom Thomas G. Guiney and Cooley, Manion, Moore & Jones, P.C., Boston, Mass., were on brief for defendant, appellant Paul Ochs, Jr.

William P. Homans, Jr., with whom Homans, Hamilton, Dahmen & Marshall, Boston, Mass., was on brief for defendant, appellant Richard Dray.

F. Dennis Saylor, IV, Asst. U.S. Atty., with whom Frank L. McNamara, Jr., U.S. Atty., Boston, Mass., was on brief, for appellee.

Before BOWNES, ALDRICH and TORRUELLA, Circuit Judges.

BOWNES, Circuit Judge.

Paul Ochs, Jr. and Richard M. Dray were convicted in February 1987 of conspiracy to commit mail fraud in violation of 18 U.S.C. Secs. 371 and 1341. According to the indictment, Ochs and Dray conspired during 1984 to obtain a building permit from the City of Boston for a fraudulently low fee by deliberately underestimating the cost of renovation at a commercial building in downtown Boston. The indictment charged that, to facilitate this scheme, Dray, an attorney, double billed the building owner for certain legal fees and then split the windfall with Ochs, the construction project manager, and with the city official who approved the building permit. At the government's request, the district court instructed the jury that Ochs and Dray could be convicted for conspiring to deprive the city of its intangible right to the honest and faithful services of its employee, even if no financial harm to the city were involved. On appeal, the principal argument advanced by Ochs and Dray is that this instruction was plainly erroneous under McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987)--decided after the convictions in this case--and that their convictions must therefore be reversed. Although conceding that McNally applies to this case and that the instruction in question was erroneous under McNally, the government argues that the convictions should be affirmed because the erroneous instruction was harmless surplusage. We reverse and remand for a new trial.

I. BACKGROUND

The centerpiece of this case is the former S.S. Kresge Building (the building), a six-story structure located at the corner of Washington Street and Temple Place in downtown Boston. In early 1984, Berwind Realty Service, a Philadelphia-based company, purchased an option to buy the building from a group of investors including Ochs. Berwind established a Massachusetts limited partnership, Temple Place Associates (TPA), to develop the property and TPA purchased the property in February 1984. Ochs and another investor formed a corporation which was hired by TPA to oversee the construction on TPA's behalf. TPA also hired Mirabassi Associates (Mirabassi) as general construction manager. Mirabassi had earlier been retained by Ochs and his fellow investors to evaluate the structural soundness of the building.

In order to carry out the major renovation contemplated at the building, it was necessary to obtain a building permit from the city's Department of Inspectional Services. The fee for such a permit is based on the cost of construction and, when the relevant events involved here occurred in 1984, the permit rate was seven dollars per thousand for the first hundred thousand dollars of construction costs, and ten dollars per thousand thereafter. To facilitate this fee system, each application for a permit had to contain an estimated cost of construction, which was then reviewed by the department for reasonableness.

Three building permits for work at the building were obtained on behalf of TPA, only the last of which is the subject of the criminal charges in this case. The first two permits, of comparatively modest size, were for exploratory work at the building and for demolition prior to construction. Applications for those permits were prepared and filed by Edwin Walkey, an engineer at Mirabassi. Walkey also worked at preparing the application for the general construction permit, but was informed by Ochs that the filing of that application would be handled by Dray. Dray had previously been retained by TPA for his legal services. The eventual application prepared by Walkey contained an estimated construction cost of $2,425,000, which was based on the total anticipated cost of the project minus certain nonconstruction costs. Walkey had Ochs sign this application as TPA's representative and obtained a check from Mirabassi for $23,950, the appropriate building permit application fee for a $2,425,000 project. Walkey then contacted Dray to inform him that the application was ready to be filed.

Meanwhile, Dray was taking some steps of his own regarding TPA's building permit. According to Douglas Robinson, Boston's Chief Building Inspector at the time, ¹ Dray met with Robinson some time in May of 1984 to discuss a building permit for the building. Dray told Robinson that the anticipated cost of construction was between two and two and one-half million dollars; Robinson responded "that that sounded like a high estimated cost just for interior demolition." Dray and Robinson then discussed "lowballing," or lowering the estimated cost of the project, and then splitting the amount that could be saved in permit fees. Dray reportedly told Robinson that, before finalizing such a deal, he would have to discuss the idea with a "neighbor" of his who was connected with the project. Dray's "neighbor" reference was apparently to Ochs, who, like Dray, resided in Milton, Massachusetts.

Consistent with his discussion with Robinson, Dray informed Walkey that the estimated cost in the application prepared by Walkey was too high. At Dray's direction, Walkey prepared a new application with an estimated cost of $1,200,000 and, as with the previous application, had Ochs sign it for TPA. Beyond the change in estimated cost, the amended application also contained an additional notation not found in the previous one: "Tenant improvements within building to be filed under separate application(s)." Walkey did not know how the $1,200,000 figure was calculated nor was he aware at the time of the language change. Dray also had Walkey return the $23,950 check to Mirabassi and have a new check for $11,750, the appropriate application fee for a $1,200,000 project, issued.

Armed with the new application and check, Dray returned to Robinson's office to procure Robinson's approval. According to Robinson, Dray announced that he had secured the cooperation of "this person"--again, presumably Ochs--and that "this person" would receive two-thirds of the savings while Dray and Robinson would split the remaining third. Robinson thereafter initialled the application, supplying the necessary approval, and Dray filed it. Robinson testified that, approximately one or two months later, he met with Dray at a lounge near City Hall and was handed an envelope containing $400-600. Robinson understood that he was eventually to receive more money, but, despite Dray's promises, no additional payments were forthcoming.

For the services he rendered in helping to procure a building permit, Dray submitted two bills on the same day, May 29, 1984. A bill for $1,687.50, representing thirteen and one-half hours of work at $125 per hour, was submitted by Dray to Ochs, who forwarded it to TPA. Another bill for $5,975, representing an unspecified number of hours, was submitted to Mirabassi. Both bills were paid in full and the proceeds deposited into Dray's checking account. ² The same day that Dray deposited the $5,975 check, July 3, 1984, he wrote a personal check to Ochs for $3,000. Ochs deposited that check into his own account. On July 9, 1984, approximately the date that Robinson recalls receiving his payment from Dray, Dray wrote himself a check for $600 and cashed it at a bank near City Hall.

On October 10, 1986, Ochs and Dray were indicted by a federal grand jury. The indictment alleged generally that the two had engaged in a scheme to lowball the estimated construction costs in applying for a building permit, double bill for Dray's services, and split the resulting illicit profits between themselves and Robinson. It contained six counts, one charging conspiracy to commit mail fraud ³ and five charging substantive mail fraud. ⁴ At trial, the district court directed verdicts for the defendants on three of the substantive counts and the jury acquitted on the two remaining substantive counts. ⁵ Our review is thus limited to Count One, the conspiracy count.

In setting out the conspiracy count, paragraph fourteen of the indictment described three separate frauds. Ochs and Dray allegedly conspired to defraud:

(a) The City of Boston and its citizens of approximately $12,000 in additional permit fees which should have been paid the City in connection with the issuance of the building permit for the 477-481 Washington Street project;

(b) The City of Boston and its citizens of their right to have the affairs of the City conducted honestly, impartially, and free from corruption, fraud, and undue favoritism; and

(c) The firms of Mirabassi and Associates and Temple Place Associates who were double billed for the same purported legal services performed by DRAY in connection with his filing of the building permit application for the 477-481 Washington Street project.

The independent nature of the intangible rights fraud described in subparagraph (b) was emphasized in the district court's charge to the jury. The relevant instruction provided:

With respect to that portion of the scheme which alleges that the City of Boston and its citizens were defrauded of their right to the honest and faithful services of its employees, you do not have to find that the City actually lost money because...