U.S. v. Pacione, 864

• Decision Date: 27 June 1984
• Docket Number: D,No. 864,864
• Citation: 738 F.2d 567
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Albert P. PACIONE, Jr., Defendant-Appellee. ocket 83-1407.
• Court: U.S. Court of Appeals — Second Circuit

Page 567

738 F.2d 567

UNITED STATES of America, Plaintiff-Appellant, v. Albert P. PACIONE, Jr., Defendant-Appellee.

No. 864, Docket 83-1407.

United States Court of Appeals, Second Circuit.

Argued March 20, 1984.

Decided June 27, 1984.

Stephen F. Markstein, Asst. U.S. Atty., S.D. of N.Y., New York City (Rudolph W. Giuliani, U.S. Atty., S.D.N.Y., Martin L Perschetz, Asst. U.S. Atty., New York City, of counsel), for plaintiff-appellant.

Gerald J. McMahon, New York City, for defendant-appellee.

Before LUMBARD, NEWMAN and PRATT, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

The issue raised on this appeal is whether a creditor who seeks to enforce a usurious loan by recording a conveyance of real property that recites a false consideration can be prosecuted under the federal "loan sharking" statute, 18 U.S.C. Sec. 891 et seq. (1982). Holding that the creditor could not be so prosecuted, the United States District Court for the Southern District of New York, Whitman Knapp, Judge, dismissed five counts of a fifteen-count indictment against defendant Albert Pacione, Jr. The government contends on appeal that the district court's interpretation of the statute was too narrow. We disagree, and accordingly affirm.

I. BACKGROUND

The facts claimed by the government are taken as true for purposes of this appeal, United States v. Von Barta, 635 F.2d 999, 1002 (2d Cir.1980), cert. denied, 450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981). In 1979 Robert Verrelli and Daniel Maher wanted to exhibit an airplane that had belonged to the late Elvis Presley. Unable to obtain financing from other sources, Verrelli sought a loan from Vincent Aprile, who together with his attorney, defendant Albert Pacione, Jr., agreed to lend Verrelli and Maher $25,000 in return for their promise to repay $37,500 after the exhibition. As security for repayment, Verrelli's mother-in-law, Rose Dorner, executed a mortgage on her home in favor of Pacione's law firm for $37,500.

Pacione prepared the mortgage, which falsely recited that the amount owed was $37,500, and that it was to be repaid by October 26, 1979, "at no rate of interest". Pacione and Aprile told Dorner that if Verrelli and Maher did not repay the loan, the mortgage would be recorded and would create a lien against her property. Although the exhibition on October 20, 1979, was a financial failure, Dorner promptly repaid $37,500 to Pacione and Aprile and received back the unrecorded mortgage marked "Paid in full".

Notwithstanding their first failure, Verrelli and Maher planned a second exhibition of the Presley airplane and again sought financing from April and Pacione, who this time agreed to lend them $20,000 in return for a promise to repay $30,000 by December 3, 1979. As security for the second loan, Maher and his wife executed a trust deed to their home in favor of Pacione's law firm as trustees. The deed falsely recited that the Mahers had received $30,000 as consideration for the conveyance; in fact they had received only the $20,000 loan.

The second exhibition also flopped, and when the Mahers were unable to repay the loan, Pacione, on January 9, 1980, submitted the deed to the county clerk of Orange County, New York, for recording. Pacione's law firm later conveyed the property to Aprile, who sold it to a third party.

Even though the Mahers had lost their home, Aprile allegedly continued to press them for repayment, and at one point sought to recruit a third person to beat up Maher. However, these alleged steps towards violence are not relevant to this appeal, because the government conceded before Judge Knapp its inability to prove that Pacione was associated with, or even aware of, any of the threats allegedly made by his client and co-lender, Aprile.

The indictment charged Pacione and Aprile with violations of the extortionate credit transactions statute, as well as other offenses. Insofar as relevant here, it charged that Pacione and Aprile conspired to make extortionate extensions of credit, in violation of 18 U.S.C. Sec. 892(a) (count 1), committed substantive violations of the same section (counts 2 and 3); conspired to collect an extension of credit through the use of extortionate means, in violation of 18 U.S.C. Sec. 894(a) (count 4); and used extortionate means to collect an extension of credit, in violation of 18 U.S.C. Sec. 894(a) (count 6).

Pacione moved to dismiss these counts of the indictment, claiming that his conduct was not what congress meant to prohibit in the extortionate credit statute. Rather, Pacione argued, congress intended the statute to embrace only such violent conduct as "the classic loan shark scenario of 'I'll burn your house down if you don't pay me my 1000% interest' ".

The district court granted Pacione's motion. Judge Knapp agreed with Pacione's contention "that the totality of facts asserted by the government to be provable against [Pacione] do not establish a violation of the statute." Noting that Pacione made "no threats of any sort to anyone", he concluded that "[f]iling a usurious mortgage may be illegal, but it is not 'criminal' in the sense that the word is used in [the extortionate credit transactions] statute."

II. DISCUSSION

Our starting point in interpreting this statute must, of course, be its language, Lewis v. United States, 445 U.S. 55, 60, 100 S.Ct. 915, 918, 63 L.Ed.2d 198 (1980). Critical to this appeal are the definitions of "extortionate extension of credit" and "extortionate means" set forth in subsections (6) and (7), respectively, of 18 U.S.C. Sec. 891, particularly the meaning to be given to the phrase "other criminal means" in the context of "violence or other criminal means". Section 891(6) provides:

An extortionate extension of credit is any extension of credit with respect to which it is the understanding of the creditor and the debtor at the time it is made that delay in making repayment or failure to make repayment could result in the use of violence or other criminal means to cause harm to the person, reputation, or property of any person. (Emphasis added).

Section 891(7) provides:

An extortionate means is any means which involves the use, or an express or implicit threat of use, of violence or other criminal means to cause harm to the person, reputation, or property of any person. (Emphasis added).

The government contends that Pacione's threats to record the Dorner mortgage and the Maher deed constituted threats to use "other criminal means" which bring the usurious loans within the term "extortionate extension of credit" as defined by 18 U.S.C. Sec. 891(6). The government also contends that the actual recording of the Maher deed, with its false recitation of consideration, constituted use of "other criminal means" to collect a usurious loan, thus transforming Pacione's activity into "extortionate means" as defined by 18 U.S.C. Sec. 891(7).

Under the government's theory the "criminal means" is the filing of a mortgage or deed containing false information, conduct that allegedly is a crime under New York Penal Law Sec. 175.30 (McKinney 1975), which provides:

A person is guilty of offering a false instrument for filing in the second degree when, knowing that a written instrument contains a false statement or false information, he offers or presents it to a public office or public servant with the knowledge or belief that it will * * * become a part of the records of such public office or public servant.

The prosecution thus urges that the phrase "other criminal means" should be broadly interpreted to encompass "means that are nonviolent yet nevertheless in violation of some criminal statute." Significantly, however, congress has not said "any other criminal means" or "all other criminal means". Rather, it has simply proscribed "other criminal means" and qualified that phrase by using it only in conjunction with, and following, "violence". Subsection (6) refers to the "use of violence or other criminal means", and subsection (7) to the "use, or an explicit or implicit threat of use, of violence or other criminal means". An issue of interpretation therefore arises as to whether "other criminal means" should be read to proscribe conduct akin to violence, under the principle of ejusdem generis, or whether the phrase should be broadly read to include any criminal means, as the government contends. The meaning of the phrase "other criminal means" is sufficiently ambiguous to require us to examine legislative history in order to ascertain its intended scope.

The legislative history of the extortionate credit transactions statute can best be understood against the background of the problem congress sought to solve. In 1967 and 1968, congress began to devote substantial attention to the activities of organized crime. A report prepared by a presidential task force on organized crime revealed that loan sharking--the loaning of money at usurious interest rates--was organized crime's second most profitable enterprise. President's Commission on Law Enforcement and Administration of Justice, Task Force Report: Organized Crime 3-4 (1967).

Although it had become a national problem, federal law enforcement officials were rarely able to prosecute loan sharking by organized crime. Their principal enforcement weapon was the Hobbs Act, 18 U.S.C. Sec. 1951, which proscribed extortion affecting interstate commerce. But its definition of extortion in Sec. 1951(b)(2) required proof that repayment of the loan was "induced by wrongful use of actual or threatened force, violence, or fear * * * ", and loan sharks connected with organized crime rarely used force, or even made explicit threats to do so, because they found it unnecessary. A loan shark's victim knew all too well that if he did not pay, a likely result would be bodily harm to him or his family. See Impact of Crime on Small Business--1968: Hearings Before the Senate Select Committee on Small Business, 90th Cong., 2d Sess. 31-32 (1968) (testimony of ...