United States v. Granello

• Decision Date: 03 August 1966
• Docket Number: No. 404,30006.,405,Dockets 30005,404
• Parties: UNITED STATES of America, Appellee, v. Salvatore GRANELLO, a/k/a Sally Burns, and Hyman Levine, a/k/a George Levine, Appellants.
• Court: U.S. Court of Appeals — Second Circuit

365 F.2d 990 (1966)

UNITED STATES of America, Appellee, v. Salvatore GRANELLO, a/k/a Sally Burns, and Hyman Levine, a/k/a George Levine, Appellants.

Nos. 404, 405, Dockets 30005, 30006.

United States Court of Appeals Second Circuit.

Argued May 27, 1966.

Decided August 3, 1966.

Daniel H. Greenberg, Irwin L. Germaise, New York City, for appellant, Hyman Levine.

Irwin Klein, New York City, for appellant, Salvatore Granello.

Michael W. Mitchell, Washington, D. C. (Robert M. Morgenthau, U. S. Atty. for Southern Dist. of New York, Otto G. Obermaier, John E. Sprizzo, Douglas E. Liebhafsky, Asst. U. S. Attys., of counsel), for appellee.

Before MOORE, FRIENDLY and HAYS, Circuit Judges.

FRIENDLY, Circuit Judge.

Salvatore Granello and Hyman Levine appeal from their convictions, after a joint trial before Judge Dimock and a jury in the District Court for the Southern District of New York, for wilfully failing to file income tax returns for 1956 and 1957 in violation of 26 U.S.C. § 7203. We affirm.

Charges against the defendants were first made in a five count information. Counts 1 and 2 alleged Granello's failure to file returns in 1956 and 1957 despite the receipt of gross income approximating $118,500 and $97,000 in those years. Counts 3 and 4 made the same charges against Levine, whose gross income for the two years was claimed to approximate $132,750 and $97,000. Count 5 alleged a conspiracy among Granello, Levine and Lowell M. Birrell to violate § 7203 by failing to make the returns and to supply required information to the Internal Revenue Service. A later three count indictment charged both defendants with unlawfully attempting to evade taxes for 1957 in violation of 26 U.S.C. § 7201 and also a conspiracy to defraud the United States by impeding the lawful functions of the Treasury Department in collecting income taxes by concealing the sources of their income and the nature of their business activities.

The information and the indictment were consolidated by consent, and were first tried before Judge Murphy and a jury. The conspiracy count in the information was dismissed on the Government's motion, and the similar count in the indictment on the defendants'. The jury hung on the substantive counts and a mistrial was declared. After the case was reassigned to Judge Dimock, Granello made a motion for a severance, which was denied. At the second trial, the jury found each defendant guilty on each of the two substantive counts in the information; it hung on the substantive counts of the indictment. Judge Dimock imposed fines and consecutive sentences of one year, the maximum term of imprisonment permitted, on each count on which defendants were convicted.

The Government's claim that Granello and Levine received large capital gains in 1956 and 1957 from their sale of stock of Pacheco Petroleum Company, a Cuban corporation, was supported by evidence which warranted the jury in finding as follows: In May 1955 Pacheco, which then had outstanding only 5,000 shares held by its founder Trueba, issued 2,000,000 shares to Levine for oil leases on properties in Cuba acquired without cost to himself. In August, at the next Pacheco stockholders' meeting, Levine was elected treasurer and Granello chairman of the executive board;¹ the new officers adopted a resolution for the issuance of another 1,000,000 shares for leases on mining concessions. Early in September Granello entered into a leasing agreement with Maniabon Petroleum Company under which he obtained oil concessions to be operated on a 12% royalty basis; Granello deposited with Maniabon 125,000 shares of Pacheco stock, these being part of the 2,000,000 previously issued to Levine, on a stipulation that they would be returned on his furnishing a $25,000 bond. Granello immediately assigned these leases to Pacheco, which issued 1,000,000 shares to him and assumed his obligations under the contract.

Early in 1956 Granello and Levine sold 2,000,000 of their Pacheco shares to Birrell, whom they had met in connection with efforts to expoit the leases, for cash and shares in one of Birrell's companies, Lomega Gold Mines, Ltd.; Birrell guaranteed that the Lomega shares would be saleable so that defendants' total yield would be in excess of $400,000. Payments aggregating $120,000 were made in 1956, sometimes by checks to the order of Granello or Levine, sometimes by funds from checks drawn to cash. The Lomega stock, however, proved not to be saleable at the expected price, and defendants pressed Birrell for satisfaction. A signed agreement, dated December 7, 1956, provided that Birrell would immediately give Granello and Levine $50,000 in cash, five checks dated December 7 aggregating $25,000, and undated checks for $75,000 which were not to be cashed without notice to Birrell; that commencing February 5, 1957 and monthly thereafter Birrell would pay $30,000 to defendants jointly until satisfaction of the amount originally due and owing — an estimated maximum of $450,000 but subject to adjustments to be settled six months later; and that security for this obligation would be provided on or before February 5, 1957. The checks promised for December 1956 were issued payable to Levine and Granello and deposited that month. Payments of $194,000 were received in 1957. With the inclusion of a sale of 30,000 shares to one James Cooper, defendants received from the sale of Pacheco stock $226,550 in 1956 and $194,000 in 1957. If this was divided equally and treated as long-term capital gain on the sale of property having a zero basis, each would have owed some $23,000 in taxes for 1956 and $17,000 to $18,000 for 1957. No returns were filed or taxes paid by either.

Little time need be spent on defendants' contention that no taxable income was shown. One claim is that because they did not own 80% of the company's voting stock as required by § 368 of the Internal Revenue Code, the 1955 transactions between them and Pacheco were not tax free reorganizations preserving their zero basis and postponing all tax consequences until the later years when the stock was actually sold, but gave rise to taxable income then and there. Insofar as this argument measures control with reference to unissued Pacheco shares, it is too frivolous to warrant discussion. That alone is enough to dispose of Levine's claim since even if he were acting separately from Granello as he contends he must be found to have been, the transfer of the leases would have made him the owner of all Pacheco's shares except the 5,000 then held by Trueba. But evidence that we have recited, and more that we have not, amply warranted a finding that Levine and Granello were equal partners in the entire Pacheco venture, a fact which, as will shortly be shown, the Government was not prevented from proving. Indeed it is immaterial whether the receipts were divided equally; the Government traced $70,900 to Granello in 1956 and $67,000 in 1957, so that even if all the balance went to Levine, each had gross income far exceeding the $600 requiring a return. 26 U.S.C. § 6012. There is likewise no merit in the claim that the entire purchase price was received in 1956 so that no income was realized in 1957 with the consequence that the counts relating to the later year must fall. Birrell's promise "was not embodied in a note or other evidence of indebtedness possessing the element of negotiability and freely transferable." Ennis v. C. I. R., 17 T.C. 465, 470 (1951), see Bedell v. C. I. R., 30 F.2d 622, 624 (2 Cir. 1929), and the deferred payments were includible in income only when received. 2 Mertens, Federal Income Taxation § 11.05, at 9, 12-13; § 12.124, at 376-77. Indeed, the exact price was still uncertain at the end of 1956.

Defendants argue with great earnestness that the dismissal at the first trial of the conspiracy counts charging them with having combined to conceal and not to report their income precluded the Government from showing at the second trial that they had combined to make it. Mere statement of the contention sufficiently reveals its fallacy. The doctrine of collateral estoppel "makes conclusive in subsequent proceedings only determinations of fact, and mixed fact and law, that were essential to the decision." Yates v. United States, 354 U.S. 298, 336, 77 S.Ct. 1064, 1086, 1 L.Ed.2d 1356 (1957). Even if we assume that the dismissal of the conspiracy counts was on the merits, the essential determination was simply that Granello and Levine had not unlawfully agreed to conceal their income or to default in filing returns — not at all that they had not agreed to join in the lawful activity of producing the income by obtaining the Pacheco shares and then selling them. The decision in Sealfon v. United States, 332 U.S. 575, 580, 68 S.Ct. 237, 240, 92 L.Ed. 180 (1948), rested on the special circumstance that the Government's case at the second trial against the alleged aider and abettor of the substantive crime required it to prove the very agreement relied on to show conspiracy "which was necessarily adjudicated in the former trial to be non-existent." See also United States v. Kramer, 289 F.2d 909, 915-920 (2 Cir. 1961).

This brings us to the most substantial point in the case, the denial of Granello's motion for severance after the mistrial. F.R.Cr.P. 8(b) permits a joinder of defendants "if they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses." We have difficulty with the Government's argument that this permitted joinder of the two defendants even apart from the conspiracy count. Whereas Rule 8(a) allows joinder of offenses if these are of the same or similar character or "are based on the same act or transaction or on two or more transactions connected together or constituting part of a common scheme or plan," Rule 8(b) relating to joinder of defendants is more narrowly drawn. See 8 Moore (Cipes), Federal Practice §...