U.S. v. Wallach

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: Before MESKILL and ALTIMARI; MESKILL; ALTIMARI
• Citation: U.S. v. Wallach, 935 F.2d 445 (2nd Cir. 1991)
• Decision Date: 13 August 1991
• Docket Number: Nos. 181-183,D,s. 181-183
• Parties: , 33 Fed. R. Evid. Serv. 1 UNITED STATES of America, Appellee, v. WALLACH, et al., Defendants, Rusty Kent London, Eugene Robert Wallach, a/k/a "E. Robert (Bob) Wallach," and Wayne Franklyn Chinn, Defendants-Appellants. ockets 89-1544, 89-1563 and 89-1575.

Page 445

935 F.2d 445

60 USLW 2014, 33 Fed. R. Evid. Serv. 1

UNITED STATES of America, Appellee, v. WALLACH, et al., Defendants Rusty Kent London, Eugene Robert Wallach, a/k/a "E. Robert (Bob) Wallach," and Wayne Franklyn Chinn Defendants-Appellants.

Nos. 181-183, Dockets 89-1544, 89-1563 and 89-1575.

United States Court of Appeals Second Circuit.

Argued Oct. 23, 1990.

Decided May 31, 1991.

As Amended Aug. 13, 1991.

Robert H. Bork, Washington, D.C. (Robert J. Giuffra, Jr., New York City, Gregory E. Maggs, Washington, D.C., Ellen Yaroshefsky, New York City, Dennis P. Riordan, Riordan & Rosenthal, San Francisco, Cal., Gary P. Naftalis, David S. Frankel, Robert A. Culp, Kramer, Levin, Nessen, Kamin & Frankel, New York City, of counsel), for defendant-appellant Eugene Robert Wallach.

Michael E. Tigar, Austin, Tex., for defendant-appellant Rusty Kent London.

Ted W. Cassman, Emeryville, Cal. (Penelope M. Cooper, Cristina C. Arguedas, Cooper, Arguedas & Cassman, Emeryville, Cal., of counsel), for defendant-appellant Wayne Franklyn Chinn.

Baruch Weiss, Elliott B. Jacobson, Asst. U.S. Attys., S.D.N.Y., New York City (Otto G. Obermaier, U.S. Atty., Steven A. Standiford, Debra Ann Livingston, Helen Gredd, Asst. U.S. Attys., S.D.N.Y., New York City, of counsel), for appellee U.S.

Before MESKILL and ALTIMARI, Circuit Judges, and KEENAN, ^* District Judge.

MESKILL, Circuit Judge:

This appeal presents several questions, the dispositive one being whether the perjured testimony of a key government witness requires a reversal of the convictions. The appellants seek to overturn judgments of conviction entered in the United States District Court for the Southern District of New York, following a sixteen week jury trial, Owen, J., presiding. The jury returned verdicts against co-defendants Eugene Robert Wallach (Wallach), Rusty Kent London (London) and Wayne Franklyn Chinn (Chinn). Wallach was convicted of engaging in a pattern of racketeering activity, in violation of 18 U.S.C. Sec. 1961 et seq., two counts of interstate transportation of stolen property, in violation of 18 U.S.C. Secs. 2314 and 2, and one count of conspiracy to violate the federal conflict of interest law and to defraud the United States, in violation of 18 U.S.C. Sec. 371. London was convicted of one count of engaging in a pattern of racketeering activity, in violation of 18 U.S.C. Sec. 1961 et seq., one count of conspiracy to engage in a pattern of racketeering activity, in violation of 18 U.S.C. Sec. 1962(d), three counts of interstate transportation of stolen property, in violation of 18 U.S.C. Secs. 2314 and 2, four counts of mail fraud, in violation of 18 U.S.C. Secs. 1341 and 2, one count of securities fraud, in violation of 15 U.S.C. Secs. 78j(b), 78ff, 18 U.S.C. Sec. 2, and 17 C.F.R. Sec. 240.10b-5, and one count of aiding and abetting false statements, in violation of 18 U.S.C. Secs. 1001 and 2. Chinn was convicted of one count of engaging in a pattern of racketeering activity, in violation of 18 U.S.C. Sec. 1961 et seq., one count of conspiracy to engage in a pattern of racketeering activity, in violation of 18 U.S.C. Sec. 1962(d), two counts of interstate transportation of stolen property, in violation of 18 U.S.C. Secs. 2314 and 2, five counts of mail fraud, in violation of 18 U.S.C. Secs. 1341 and 2, one count of securities fraud, in violation of 15 U.S.C. Secs. 78j(b), 78ff, 18 U.S.C. Sec. 2, and 17 C.F.R. Sec. 240.10b-5, and two counts of making false statements, in violation of 18 U.S.C. Sec. 1001.

Wallach was sentenced to a total of six years imprisonment, fined $250,000, and ordered to forfeit $425,000. London was sentenced to a total of five years imprisonment, fined $250,000, and ordered to forfeit approximately $1.24 million. Chinn was sentenced to a total of three years imprisonment fined $100,000, and ordered to forfeit approximately $1.16 million. Regarding these forfeiture amounts, the district court adjudged London and Chinn jointly and severally liable for $1.14 million of the total amount that each man was individually assessed.

Defendants attack their convictions on several grounds. We reverse all the convictions and remand for a new trial.

BACKGROUND

The convictions subject to challenge stem from the defendants' dealings with the now defunct entity known as Wedtech Corporation (Wedtech). Over a period of years, each of the defendants engaged in a series of transactions with Wedtech. At trial, the government contended and the jury found in a number of instances that the conduct of each defendant constituted a criminal offense. Defendants concede that they engaged in transactions with Wedtech, but they submit that as a matter of law their convictions cannot be sustained. Defendants advance several theories to support their position. Due to the complexity of this case and to ease understanding of the issues presented, we assume the accuracy of the government's facts as they relate to the charges in the indictment. We, therefore, begin our discussion by outlining the government's version of the facts. The facts are developed further in connection with our discussion of the defendants' legal arguments.

A. Facts

Wedtech began as a small metal parts manufacturer in the South Bronx, New York. During its infancy, Wedtech was known as the Welbilt Tool & Die Company (Welbilt). Welbilt was a privately held entity founded by John Mariotta, an individual of Puerto Rican descent. In 1975, Welbilt was accepted into the Small Business Administration's (SBA) "Section 8(a)" program, under which businesses owned by economically and socially disadvantaged minorities are eligible for government contracts without competitive bidding. In August 1983, Welbilt made a public offering of its stock and changed its name to Wedtech. (All subsequent references will be to Wedtech.)

Government contracts--primarily defense department contracts--were the lifeblood of Wedtech's economic survival. Most of these contracts were obtained under Wedtech's Section 8(a) status. In 1980, Wedtech sought to be awarded a Department of the Army contract for the production of small engines, but the Army and Wedtech could not agree to the financial terms of the contract. Wedtech officers concluded that the exercise of political influence might assist the corporation in obtaining the contract. To that end, Wedtech embarked on a lobbying effort.

In 1981, Wedtech officials were introduced to defendant Wallach, a lawyer and a close personal friend of Edwin Meese, III (Meese), then Counselor to President Ronald Reagan. After meeting the Wedtech officials, Wallach visited the company's facilities and agreed to assist the company in obtaining the sought-after defense contracts by contacting his friend Meese. From May 1981 until the end of 1984, Wallach sent several memoranda to Meese or his subordinates regarding the award of the small engine contract and other Wedtech matters. Ultimately, in September 1982, the Army awarded the small engine contract to Wedtech at a contract price of approximately $27 million. Wallach reported to the Wedtech officers that his efforts were primarily responsible for the contract award. During this lobbying effort, Wallach received no compensation from Wedtech, although he was reimbursed for his expenses.

Throughout his relationship with Wedtech, Wallach often dealt with Mario Moreno (Moreno) and Anthony Guariglia (Guariglia). Moreno, who originally joined Wedtech in 1978 as a consultant, became an officer in 1981 and eventually rose to become vice-chairman of Wedtech's board of directors. Guariglia, a certified public accountant, joined Wedtech in May 1983 as vice-president and controller. Guariglia went on to become Wedtech's president and a member of its board of directors.

Given his apparently successful lobbying effort on the small engine contract, Wallach, in late 1982, approached Wedtech officials and requested $200,000 as payment for his continued services during the last few months of 1982 and for services he would render in 1983. In December 1982, Wallach sent a proposed consulting agreement to Wedtech. Wedtech officers advised Wallach that the company was experiencing financial problems and that the agreement would not be executed until the company's financial situation improved. As an alternative, in March 1983, Wedtech officers promised to give Wallach one percent of the corporation's stock; Wedtech planned to make an initial public offering (IPO) of its stock later that year. Wallach continued his relationship with Wedtech and assisted the company with its plans to go public. Wedtech, in need of working capital in the months preceding the IPO, sought and obtained a $3 million bridge loan from Bank Leumi Trust Company (Bank Leumi). As a condition of this loan, Bank Leumi insisted that Wedtech's other creditors agree to subordinate their rights to ensure that Bank Leumi would be protected in the event of Wedtech's default.

One of the creditors, the Economic Development Agency (EDA), an agency within the Department of Commerce, refused to subordinate its priority position. In response, Wallach initiated a new lobbying effort directed at securing EDA's agreement. Wallach enlisted the assistance of Meese and members of his staff in an effort to obtain EDA's cooperation. In July 1983, EDA agreed to the subordination. Wedtech obtained the necessary bridge loan from Bank Leumi and its IPO took place in August 1983.

1. Wedtech's $125,000 Payment and Wallach's Letter

After completion of the public offering, Wallach approached Wedtech officers and renewed his request for $200,000. Wallach, at Wedtech's request, agreed to accept $125,000 for his lobbying efforts. Wedtech officials then asked Wallach to submit a letter which would explain that the payment was for services rendered in connection with the public offering. On September 7, 1983, Wallach sent such a letter to Guariglia. That letter read as follows:

Dear Tony:

...