U.S. v. Zehrbach

• Decision Date: 17 April 1995
• Docket Number: 93-7493,No. 93-7477,Nos. 93-7477,No. 93-7493,93-7477,s. 93-7477
• Citation: 47 F.3d 1252
• Parties: Bankr. L. Rep. P 76,524 UNITED STATES of America v. Darus H. ZEHRBACH, Appellant inAlex A. Mervis, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 1252

47 F.3d 1252

Bankr. L. Rep. P 76,524

UNITED STATES of America v. Darus H. ZEHRBACH, Appellant in No. 93-7477 Alex A. Mervis, Appellant in No. 93-7493.

Nos. 93-7477, 93-7493.

United States Court of Appeals Third Circuit.

Argued Oct. 28, 1993.

Reargued in Banc Oct. 17, 1994.

Decided Jan. 23, 1995.

Certiorari Denied April 17, 1995.

See 115 S.Ct. 1699.

David M. Barasch, U.S. Atty., Theodore B. Smith, III (argued), Asst. U.S. Atty., Harrisburg, PA, for appellee.

James V. Wade, Federal Public Defender, Daniel I. Siegel (argued), Asst. Public Defender, Harrisburg, PA, for appellant Zehrbach.

Donald J. Goldberg (argued), Creed C. Black, Jr., Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, for appellant Mervis.

Argued Oct. 28, 1993

Before: ROTH, LEWIS and GARTH, Circuit Judges.

Reargued in Banc Oct. 17, 1994

Before: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, LEWIS, ROTH, McKEE and GARTH, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge:

Defendants Darus Zehrbach and Alex Mervis appeal from jury verdicts convicting them each of two counts of bankruptcy fraud and one count of conspiracy to commit bankruptcy fraud, in violation of 18 U.S.C. Sec. 152 (1988) and 18 U.S.C. Sec. 371 (1988). In their appeals, Zehrbach and Mervis asserted two grounds for reversal. First, they argued that the district court erred in instructing the jury that the government need not prove, as an essential element of the crime, that they knew their actions to be illegal. Second, they asserted that comments made by the prosecutor in his closing argument, regarding two of the defense witnesses, triggered a rule of per se reversal under United States v. DiLoreto, 888 F.2d 996 (3d Cir.1990). Their appeals were first heard by a panel of this court. On the basis of the panel decision, Zehrbach and Mervis petitioned for rehearing in banc, which was granted as to both issues. For the reasons that follow, we will overrule our ruling in DiLoreto, insofar as it established a per se rule, ¹ and we will affirm the convictions.

I.

In the late summer or fall of 1989, appellant, Darus Zehrbach, a West Virginia businessman doing business under the name of Consolidated Assets Management Corporation ("CAMCORP"), formulated a plan to purchase the assets of bankrupt aircraft manufacturing companies. Zehrbach became particularly interested in Taylorcraft Aviation Corporation ("Taylorcraft"), a company located in Lock Haven, Pennsylvania, that was in the process of a Chapter 7 liquidation proceeding. ² Zehrbach retained the Pittsburgh investment banking firm, Drizos Investments, Inc., to facilitate the acquisition by locating other investors and securing financing.

Appellant, Alex A. Mervis, a stock broker and a licensed pilot, had recently become an employee at Drizos Investments. Because of his aviation background, he was assigned to Zehrbach's project. Steven Drizos supervised Mervis's work on this assignment. Robert Smith of Capital Resources Group, a firm affiliated with Drizos Investments, was brought in to help with financing. Eventually, Mervis located John Polychron, a North Carolina investor, who agreed to become a limited partner in an association in which Zehrbach was to be the general partner.

The bankruptcy trustee for Taylorcraft was Charles Szybist, an attorney in Williamsport, Pennsylvania. Szybist contacted a number of potential bidders in an attempt to generate an offer that would be substantial enough to create a base for aggressive bidding. In September 1989, Szybist received a bid of $155,000 from Leander Research, Manufacturing and Distributing, Inc. ("Leander"). Using this as his base, Szybist notified creditors and other parties in interest of the offer, inviting higher bids to be submitted by October 23, 1989. The notice provided that Leander and all other higher, qualifying bidders would be permitted to participate at a final private auction to be held on October 30, 1989.

Three new parties, including Zehrbach through CAMCORP, entered bids. T. Chester Baker made a bid of $156,000; Starman Brothers Auctions bid $160,000; and CAMCORP bid $165,000. CAMCORP's bid had been agreed upon at a joint meeting between Zehrbach, Polychron, Drizos, Smith, and Mervis. Because the names of the bidders were released, the Zehrbach group was in a position to contact the other bidders. Zehrbach instructed Mervis to negotiate a "buy-out" of their bidding positions. Baker, for reasons unrelated to the case, lost interest in the acquisition. The other parties remained serious. According to Mervis, he did not hesitate to follow Zehrbach's instructions because Zehrbach was a bankruptcy expert who "did this all of the time."

Steven Starman, of Starman Brothers Auctions, testified at trial that he would have bid up to "$200,000 plus" for Taylorcraft. Appendix ("App.") at 189. On October 25, Starman received a call from Mervis who asked what it would take to keep Starman out of the bidding process. Starman agreed to withdraw from the bidding for a payment of $40,000, with $10,000 to be paid up-front and the remainder by January 1990. A draft agreement was sent from Mervis's office at Drizos Investments to Starman for his signature and return. The document mischaracterized the nature of the payment as made "[i]n return for services renderd [sic]." Starman also received a form of notice that he was to sign, have notarized, and send to the bankruptcy judge, informing the bankruptcy court of his withdrawal from the bidding process. Upon receiving these documents, Starman consulted his attorney, David Buelt, a specialist in trusts and estates, who redrafted the agreement to state that Starman Brothers Auctions was being paid to forgo its right to bid at the October 30 sale of Taylorcraft's assets. Steven Starman did not question Buelt about the legality of the agreement but merely expressed concerns about its enforceability. The parties executed the amended agreement, and, once Starman had received the initial $10,000 by wire transfer, he telephoned Szybist to inform him that he would no longer be participating in the bidding for Taylorcraft.

Leander Eckard, the president of Leander and the only other potential bidder, testified at trial that he would have been willing to bid up to approximately $250,000 for the purchase of Taylorcraft. App. at 179. Sometime shortly after the October 23 close of bidding, Mervis had contacted Eckard to discuss how much it would cost to purchase his bidding position. Although at first Eckard was not interested, he began to reconsider his position after he encountered difficulty in obtaining financing for the potential acquisition. Eckard's initial request was for a payment of $100,000, but Zehrbach instructed Mervis to negotiate a lower figure. On October 26, Eckard and Mervis agreed on a $50,000 fee with $30,000 payable immediately and the remainder covered by a promissory note and security in one of the Taylorcraft airplanes. Eckard had planned to fly from Seattle, Washington, to visit the Taylorcraft plant the next day, October 27, the last business day before the auction on October 30. He agreed to meet Mervis at the Pittsburgh airport to finalize the bid buy-out.

To document the agreement with Eckard, Mervis contacted Charles Vollmer, a Pittsburgh attorney. Vollmer had worked with Drizos Investments in the past. Mervis and Vollmer met at 7:30 a.m. on October 27. Vollmer prepared three documents before departing for a 10:00 a.m. appointment. These documents were (1) a Letter of Intent for the limited partnership between Zehrbach and Polychron, which had not yet been formally created; (2) a letter to Polychron on Vollmer's firm letterhead with instructions on making the $30,000 wire transfer to Eckard; and (3) a bid buy-out agreement reflecting the terms of the negotiations between Mervis and Eckard. Like the revised agreement with Starman, the bid buy-out agreement stated that, in exchange for the payment, Leander "agree[d] to sell to TAC [Taylorcraft Acquisition Corporation, Zehrbach's group] all of its rights ... [with regard to its bid for Taylorcraft] and, further, agree[d] not to participate either in its own right or through third parties in the bidding process."

At the time he drafted the documents, Vollmer knew very little about the transaction and had not conducted any legal research on the issues. After drafting the bid buy-out agreement, Vollmer expressed his uneasiness about the transaction to Mervis, stating that he "hoped this thing [was] legal."

During the afternoon of October 27, after Vollmer was able to consult two other attorneys and to do some legal research, he faxed a letter to Mervis and Smith explaining:

Under the terms of the Agreement, Taylorcraft Acquisition Corporation would buy out Leander's "position" in the Bankruptcy Court. Prior to this morning, I had thought that the "position" that was being bought out, if indeed there was one being bought out, was that of a secured creditor. I simply remarked to Alex that, "I hope this [is] legal."

Mr. Vollmer then quoted, verbatim, the language of 18 U.S.C. Sec. 152, the statute under which Zehrbach and Mervis were later charged. Vollmer's letter concluded:

At this point, I must advise you that in my opinion, there is a possibility that this action violates these criminal provisions. Unless this matter is somehow reworked so that it is not a possible violation, such as a possible joint venture with Leander, I cannot recommend that you participate any further. Please advise.

App. at 61-62.

In the interim, after meeting with Vollmer, Mervis had gone to the airport to meet Eckard. Mervis gave Eckard the buy-out agreement, which Zehrbach had signed, and a $30,000 certified check. Mervis assured Eckard of the legality of the transaction, stating that his attorney had approved it. Eckard had already called Szybist to inform him that he would not be coming to...