United States v. Dornau

• Citation: 491 F.2d 473
• Decision Date: 24 January 1974
• Docket Number: No. 350,Docket 73-2204.,350
• Parties: UNITED STATES of America, Appellant, v. Peter DORNAU, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

491 F.2d 473 (1974)

UNITED STATES of America, Appellant, v. Peter DORNAU, Defendant-Appellee.

No. 350, Docket 73-2204.

United States Court of Appeals, Second Circuit.

Argued December 6, 1973.

Decided January 24, 1974.

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John J. Kenney, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., S. D. N. Y., John W. Nields, Jr., Asst. U. S. Atty., on the brief), for appellant.

Franklin S. Bonem, New York City (London, Buttenwieser & Chalif, Bonnie P. Winawer, New York City, on the brief), for defendant-appellee.

Before WATERMAN and FEINBERG, Circuit Judges, and GURFEIN, District Judge.^*

FEINBERG, Circuit Judge:

The United States appeals from the dismissal in the United States District Court for the Southern District of New York, by Charles M. Metzner, J., of an indictment that charged appellee Peter Dornau with use of the mails and wire communications in interstate commerce in furtherance of a scheme to defraud investors in violation of 18 U.S.C. §§ 1341, 1343.¹ The basis for dismissal was that the prosecution, in presenting its case to the grand jury, may have made derivative use of testimony given by Dornau pursuant to a grant of immunity under section 7(a) (10) of the Bankruptcy Act. We hold that the order of dismissal is appealable to this court. On the merits, we further hold that Dornau received mere use immunity in the bankruptcy proceeding and that the prosecution's alleged derivative use of his testimony was not unlawful. Accordingly, we reverse and remand to the district court with instructions to reinstate the indictment.

I

A brief history of this litigation is necessary for an understanding of the issues before us. Appellee Peter Dornau was vice-president of Ra-Dor Industries, Inc. (Ra-Dor), which manufactured materials used in defense contracts. In May 1969, he testified at the first meeting of creditors in Ra-Dor's bankruptcy proceeding in a federal district court in Florida;² this testimony and the circumstances under which it was given are the key facts in this appeal. Five months later, Dornau was indicted in the Southern District of New York on 15 counts of mail and wire fraud in furtherance of a scheme to bilk investors in Ra-Dor. Early in 1973, Dornau moved, among other things,³ for an order entitling him to inspect the grand jury minutes. This relief was granted. D.C., 356 F.Supp. 1091, 1097-1098. Thereafter, upon Dornau's motion, a hearing was held to determine whether the Government had made improper use of Dornau's prior testimony either in presenting evidence to the grand jury or in preparing for trial. In a thorough opinion, D.C., 359 F.Supp. 684, the judge granted Dornau's motion to dismiss the indictment.

Judge Metzner proceeded on the assumption, apparently unchallenged by the Government at that time, that Dornau's Florida testimony had been compelled pursuant to a grant, under the Bankruptcy Act, of use and derivative use immunity coextensive with the fifth amendment privilege against self-incrimination. On this assumption, the judge examined the intended trial evidence in light of the Supreme Court's admonition that the prosecution bears a "heavy burden of proving that all of the evidence it proposes to use was derived from legitimate independent sources." Kastigar v. United States, 406 U.S. 441, 461-462, 92 S.Ct. 1653, 1665, 32 L.Ed.2d 212 (1972). After careful scrutiny of the sources of this evidence, Judge Metzner ruled:

It is clear that the prospective government witnesses on this trial . . . were all discovered and interviewed without relation to anything that appeared in the minutes of the bankruptcy testimony.

359 F.Supp. at 686. The judge also examined for taint the evidence which the Government had presented to the grand jury. Here he found that the Assistant United States Attorney then in charge had sought, and obtained, a transcript of the bankruptcy testimony less than a month before he began to present the case to the grand jury, and had made copious notes on the transcript. Consequently, although Dornau was unable to point out any specific instance of taint, the judge dismissed the indictment, holding that the prosecutor may have made derivative use of the testimony in a variety of ways and that the Government had not met its burden of proving freedom from taint.⁴

II

The first issue before us is whether the Government can appeal from the district court's order. Since the indictment in this case was returned in October 1969, before the effective date of the current Criminal Appeals Act, 18 U.S.C. § 3731, appealability is governed by the "elusive provisions" of the 1948 version of the Act. United States v. Weller, 401 U.S. 254, 255 & n. 1, 91 S.Ct. 602, 28 L.Ed.2d 26 (1971); United States v. DiStefano, 464 F.2d 845, 847 (2d Cir. 1972). Despite the breadth of its language,⁵ the 1948 Act has been construed to incorporate the provisions of the 1942 Act. These permit appeals to the courts of appeals only in a narrow class of cases, which includes a decision "sustaining . . . a plea in abatement. . . ."⁶ Id. at 847-848; United States v. Apex Distributing Co., 270 F.2d 747, 751-755 (9th Cir. 1959) (en banc). We hold that the dismissal here is appealable to this court because, in effect, it sustained a plea in abatement.

The function of a plea in abatement is "to impeach the indictment . . . without at the same time destroying the cause of action." United States v. Apex Distributing Co., supra, 270 F.2d at 753. Thus, an attack on an indictment because of a defect in the proceedings leading to its procurement, which would not necessarily end the prosecution, would be such a plea. Id. Here, Judge Metzner found that the witnesses the Government proposed to produce at trial were discovered and interviewed independently of appellee's bankruptcy testimony; the problem of taint arises only because the prosecutor read that testimony before presenting the Government's case to the grand jury. However difficult it may be to eliminate that taint, if such it was, dismissal did not necessarily terminate the cause of action. Even if dismissal was proper, the Government may be able to reindict successfully if a prosecutor, who has not read either the bankruptcy transcript or the grand jury minutes, presents the independently derived evidence to a different grand jury. See United States v. Tane, 329 F.2d 848, 851 & n.4, 852 (2d Cir. 1964) (dismissal of indictment because it was procured through the use of illegally obtained evidence did not necessarily terminate cause of action and was appealable).

Dornau, however, claims that we do not have jurisdiction over the appeal from Judge Metzner's order. Citing various decisions, e. g., United States v. Brewster, 408 U.S. 501, 506, 92 S.Ct. 2531, 33 L.Ed.2d 507 (1972), and United States v. Ponto, 454 F.2d 657, 663-664 (7th Cir. 1971) (en banc), appellee first contends that the dismissal is not appealable at all because it is based on facts not alleged in the indictment. The district court, the argument goes, went beyond the indictment to examine the prosecution's trial evidence and concluded that the Government had failed to prove that it was untainted. The argument flies in the face of Judge Metzner's finding, quoted above, that the Government's trial evidence was not tainted. Moreover, appellee's citations do not support his contention since they deal with dismissals that necessarily determined the merits of criminal charges and had the effect of terminating the prosecution altogether. In contrast, the order here did not determine or purport to determine the merits of the charges against Dornau.

Appellee alternatively suggests that the dismissal in this case has the effect of sustaining a motion in bar and is thus appealable only to the Supreme Court. See note 5 supra. The argument is without merit. As defined by the Supreme Court, a motion in bar has the characteristics of a common law plea of confession and avoidance; at least for purposes of the motion, the movant admits his guilt but claims he is nonetheless immune from prosecution because of some extraneous factor such as a grant of transactional immunity or the expiration of the statute of limitations. United States v. Weller, supra, 401 U.S. at 259-261, 91 S.Ct. 602. As we have already held, dismissal here did not necessarily bar reindictment.⁷ See United States v. Tane, supra, 329 F.2d at 851 n.4.

III

Having determined that we have jurisdiction, we would ordinarily turn directly to the Government's arguments as appellant, but before we can consider them still another preliminary question must be faced. One of the Government's principal contentions in this court⁸ is that, by testifying under the 1969 version of section 7(a) (10) of the Bankruptcy Act, Dornau received only use immunity; consequently, even if the prosecution made derivative use of his testimony — which is not conceded — such use was lawful. Dornau argues that this issue is not properly before us because the Government did not make this point in the trial court. Dornau is apparently correct in the latter assertion. The Government seems to concede that it raised the issue of the scope of appellee's immunity only at the last moment in the district court and even then only obliquely by calling United States v. Goodwin, 470 F.2d 893 (5th Cir. 1972), which is discussed below, "to the Court's attention informally after the hearing and before the Court's opinion was filed."⁹

Nevertheless, we conclude that we should consider the Government's "scope of immunity" argument. We undoubtedly have discretion to entertain on appeal contentions not raised in the district court. McDonnell v. American Leduc Petroleums, Ltd., 456 F.2d 1170, 1185 (2d Cir. 1972); United States v. Drummond, 354 F.2d 132, 141 n.4 (2d Cir. 1965) (en banc), cert. denied, 384 U.S. 1013, 86 S.Ct. 1968, 16 L.Ed.2d 1031 (1966). Here, the argument as it comes before us is essentially one of law; appellee points to no seriously disputed...