United States v. Simon

• Decision Date: 03 March 1967
• Docket Number: Docket 31012.,No. 337,337
• Citation: 373 F.2d 649
• Parties: UNITED STATES of America, Plaintiff, v. Carl SIMON, Robert Kaiser and Melvin Fishman, Defendants-Appellees, and Harold Roth, Defendant. Irving L. Wharton, Appellant.
• Court: U.S. Court of Appeals — Second Circuit

373 F.2d 649 (1967)

UNITED STATES of America, Plaintiff, v. Carl SIMON, Robert Kaiser and Melvin Fishman, Defendants-Appellees, and Harold Roth, Defendant Irving L. Wharton, Appellant.

No. 337, Docket 31012.

United States Court of Appeals Second Circuit.

Argued February 7, 1967.

Decided March 3, 1967.

Certiorari Granted May 8, 1967.

Marvin Schwartz, New York City (Thomas E. Patton, Sullivan & Cromwell, New York City, on the brief), for defendants-appellees.

Joseph J. Marcheso, New York City (Robert Giordano, Christy, Bauman, Frey & Christy, New York City, on the brief), for appellant.

Before LUMBARD, Chief Judge, and SMITH and FEINBERG, Circuit Judges.

Certiorari Granted May 8, 1967. See 87 S.Ct. 1485.

LUMBARD, Chief Judge:

The question on this appeal is whether there is sufficient basis for an order entered by Judge Bryan in the Southern District of New York on December 16, 1966, enjoining Irving L. Wharton, trustee in the bankruptcy receivership of Continental Vending Machine Corporation in the Eastern District of New York, for a period of ninety days from taking the depositions in an action pending in the Eastern District since July 1965 of the three defendant-appellees, who are named in an indictment filed in the Southern District on October 17, 1966, which involves in part the same facts as the Eastern District action.

Judge Mishler, the Rule 2 judge in the Eastern District action,¹ had on October 24, 1966 denied an application made by the defendant-appellee Kaiser after the indictment was filed for a protective order under Fed.R.Civ.P. 30(b), staying his deposition on the ground that it was oppressive and violated his Fifth Amendment privilege against self-incrimination. Judge Mishler observed that Kaiser could assert his privilege in response to specific questions at the deposition. None of the appellees has invoked the privilege against self-incrimination at any point.

Although the indictment was returned in October 1966, no date has been set for the criminal trial in the Southern District. As appellees have made no showing that the taking of the depositions would interfere with the trial of the indictment or with the preparation of their defense in that trial, we reverse Judge Bryan's order.

It is conceded that the trustee is diligently pressing forward the preparation of the Eastern District action for trial, that he is seeking in good faith to take appellees' depositions for purposes of that action, and that the depositions are essential to his preparation for trial. An involuntary petition for the reorganization of Continental Vending Machine Corporation under Chapter X of the Bankruptcy Act was granted by Judge Mishler in July 1963, and Irving L. Wharton was appointed and qualified as trustee.² On July 1, 1965, the trustee commenced a civil action in the Eastern District against the accounting firm of Lybrand, Ross Bros. & Montgomery, Harold Roth, the former president of Continental, and the Meadowbrook National Bank, seeking damages for an alleged conspiracy to despoil Continental's assets and to conceal the despoliation by means including the certification of false financial statements by Lybrand for the audit years 1958 through 1962, and for alleged negligence and recklessness of Lybrand and others in permitting the alleged despoliation. This action was consolidated with one brought in September 1964 against Roth, various officers and directors of Continental, and others (but not against Lybrand, pending settlement talks which later failed), and the consolidated actions were assigned to Judge Mishler as the Rule 2 judge for all purposes.

The trustee has expended substantial sums for legal and accounting fees in the discovery proceedings against Lybrand, which began shortly after July 1965. All Lybrand's books and records relating to the audit years in question have been made available to the trustee, and Lybrand personnel have been deposed, including the appellee Simon, the Lybrand partner in charge of the Continental engagement from 1960 to 1963, whose deposition is still open. The deposition of the appellee Kaiser, another Lybrand partner connected with the Continental engagement, had been scheduled to begin October 20, 1966 when the Southern District indictment was returned on October 17, 1966.

The indictment charged Roth and the appellees Simon, Kaiser, and Fishman in six counts with mail fraud, 62 Stat. 763 (1948), as amended, 18 U.S.C. § 1341, and conspiracy to commit mail fraud and to file a willfully false and misleading report with the Securities and Exchange Commission in violation of 48 Stat. 904 (1934), as amended, 15 U.S.C. § 78ff, 18 U.S.C. § 1001, by certifying, mailing, and filing a materially false and misleading balance sheet for Continental for the audit year 1962. All of the statements in Continental's 1962 balance sheet alleged by the indictment to be false and misleading would seem to be material to the trustee's actions, and at least two are specifically alleged in the trustee's July 1965 complaint.

After Judge Mishler had denied the appellee Kaiser's application for a protective order staying his deposition on October 24, 1966, Kaiser was deposed at two sessions on October 26 and 31, 1966. The appellees then moved before Judge Bryan on November 1, 1966 for an order enjoining the trustee from taking their depositions prior to the Southern District criminal trial. At the hearing of this motion on November 4, 1966, Judge Bryan issued a temporary restraining order pending its determination. On December 5, 1966, without application by the trustee, Judge Mishler directed Kaiser to appear for a continued deposition. This Court on December 8, 1966 stayed Judge Mishler's order until December 12, 1966, and after Judge Bryan's decision on December 12 further stayed Judge Mishler's order pending the expedited hearing and determination of any appeal from Judge Bryan's order of December 16, which appeal was later perfected and is now before us.

Judge Bryan held that he had the power to enjoin the trustee from taking the appellees' depositions both under the All Writs Act, 28 U.S.C. § 1651(a), and in exercise of the court's supervisory power over the administration of federal criminal justice. See, e. g., McNabb v. United States, 318 U.S. 332, 340-341, 63 S.Ct. 608, 87 L.Ed. 819 (1943). He concluded that this power should be exercised because "it is reasonably likely that such unfairness will result as threatens the integrity of these criminal proceedings" if the prosecution is permitted to use appellees' deposition testimony when it could not under the Federal Rules of Criminal Procedure obtain criminal discovery against them. 262 F.Supp. 64 (S.D.N.Y. 1966).

Both holdings present questions of first impression. No federal district court in a criminal case has ever enjoined a party to a civil action in another jurisdiction from litigating the civil action or taking testimony in it, either under the All Writs Act, compare Steelman v. All Continent Corp., 301 U.S. 278, 57 S.Ct. 705, 81 L.Ed. 1085 (1937) (injunction restraining action against trustee in bankruptcy), or under the supervisory power, which the Supreme Court has implemented by formulating rules for the conduct of criminal trials, e. g., Cheff v. Schnackenberg, 384 U.S. 373, 86 S.Ct. 1523, 16 L.Ed.2d 629 (1966); McNabb v. United States, supra, or by enjoining the commission of acts by "federal law enforcement agencies." Rea v. United States, 350 U.S. 214, 217, 76 S.Ct. 292, 100 L.Ed. 233 (1956). We assume without deciding that the lower court had power to issue such an injunction, but we hold that it should not have done so, as there is no showing that the depositions sought by the trustee would interfere with the trial of the indictment or the appellees' preparation of their defense.

This appeal requires us to balance appellees' desire to prevent pretrial disclosure of their factual contentions to the prosecution in the Southern District criminal proceeding, without asserting their Fifth Amendment privileges against self-incrimination, against the interest of the trustee, representing numerous creditors and public security holders of Continental, in the expeditious progress of the Eastern District action. The trustee requires the appellees' deposition testimony to complete his preparation for the trial of the Eastern District action, which must be resolved before the bankruptcy reorganization of Continental, already three and one-half years old, can be completed. It is conceded that the trustee seeks in good faith to depose appellees for purposes of the Eastern District action, and that there has been no consultation on lines of questioning between the trustee and the United States Attorney for the Southern District.

Under these circumstances, the public interest in the progress of the Eastern District action clearly outweighs the appellees' interest in withholding their testimony until after the Southern District trial without invoking their privileges against self-incrimination. It could hardly be contended, and appellees do not contend, that the prosecution in the Southern District could be enjoined from using the deposition testimony given by the appellee Simon before the Southern District indictment was returned. As long as appellees' preparation for the Southern District criminal trial is not hampered, we see no valid distinction in the fact that appellees' remaining depositions could not be scheduled until after the indictment was returned. In both cases, if appellees choose not to assert their privileges against self-incrimination, we see no reason why their testimony should be withheld from the trustee. The fact that additional testimony thereby becomes available to the government is merely the natural byproduct of another judicial proceeding; and to that extent it might be "discovery," but it is not discovery which the government has initiated or promoted for the purpose of circumventing the...