United States v. Zang

• Decision Date: 05 March 1981
• Docket Number: No. 10-26.,10-26.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. W. Darrell ZANG and Louis Porter, Defendants-Appellants.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

645 F.2d 999

UNITED STATES of America, Plaintiff-Appellee, v. W. Darrell ZANG and Louis Porter, Defendants-Appellants.

No. 10-26.

Temporary Emergency Court of Appeals.

Argued January 12, 1981.

Decided March 5, 1981.

B. Hayden Crawford, Crawford, Crowe & Bainbridge, Tulsa, Okla., with whom Joe D. Dillsaver, Tulsa, Okla., of the same firm, was on the brief, for defendant-appellant W. Darrell Zang.

James C. Lang, Sneed, Lang, Adams, Hamilton, Downie & Barnett, Tulsa, Okla., with whom William J. Wenzel, Tulsa, Okla., of the same firm, was on the brief for defendant-appellant Louis Porter.

Stephen P. Learned, U. S. Dept. of Justice, Washington, D.C., with whom Richard M. Fishkin, Washington, D.C., and Hubert H. Bryant, U. S. Atty. for the Northern District of Oklahoma, Tulsa, Okla., were on the brief for plaintiff-appellee, United States of America.

Before INGRAHAM, ESTES and PECK, Judges.

ESTES, Judge:

On April 2, 1980, Appellants, W. Darrell Zang and Louis Porter (Defendants), were charged by the grand jury in a 16-count indictment in the United States District Court for the Northern District of Oklahoma, appearing on pages 9-23 of Volume I of the Record on Appeal and attached hereto as Appendix A. The indictment alleged against both defendants violations of certain general criminal statutes. Count 1 alleged violation of 18 U.S.C. § 371 (conspiracy). Counts 2 through 7 alleged violations of 18 U.S.C. § 1341 and § 2 (mail fraud and principals). Counts 8 through 15 alleged violations of 18 U.S.C. § 1343 and § 2 (wire fraud and principals). Count 16 alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(a), § 1963 and § 2. The indictment also alleged that pursuant to 18 U.S.C. § 1963(c) certain alleged interests of defendants were subject to forfeiture and seizure by the Government.

On the same date that the indictment was returned, April 2, 1980, the Government moved for a restraining order under 18 U.S.C. § 1963 to enjoin defendants from alienating any of their property allegedly subject to forfeiture under the indictment. The district court granted that motion and entered a restraining order covering the property.

On April 30, 1980, defendants' motions to dismiss the indictment, together with supporting briefs, were filed in the district court. R. 33-66 re Zang, and 67-117 re Porter In their TECA briefs appellants state:

"Among the major arguments raised in the district court and supported was that the Government was attempting to circumvent the provisions of the EPAA by alleging violations of the general criminal statutes, that 15 U.S.C. § 754 specifically superseded or preempted the general criminal statute, and that the Government was selectively attempting to prosecute these defendants." Zang Br. 3 and Porter Br. 2-3 in TECA

On July 18, 1980, the district court entered the order appealed from, denying defendants' motions to dismiss the indictment. R. 303-304 That order is attached hereto as Appendix B.

Appellants' appeal is based on essentially the same grounds as those advanced in their motions to dismiss the indictment. Appellants seek reversal of the July 18 order of the district court, contending that the court in overruling the motions to dismiss abused its discretion, and seek this court's writ of mandamus ordering the trial court to sustain their motions to dismiss the indictment. Zang Br. 15 and Porter Br. 16 in TECA

Defendant Porter, chairman of the board and chief executive officer of Great Yellowstone Corporation, owned all or part of the stock of and controlled Great Yellowstone Corporation, Dalco, Inc., Dalco Crude, Inc., and Dalco Petroleum, Inc., which companies, hereinafter referred to as DALCO, were engaged in either crude oil trading or general oil and gas business; the last three companies being subsidiaries of the first. Defendant Zang, director and second largest stockholder of Great Yellowstone Corporation, was part owner of Dalco, Inc., and a fifty-fifty (50-50) partner with defendant Porter in Dalco Investments. R. 12

The indictment alleged that defendants devised a fraudulent scheme through the use of their companies and the mail and wire communications, whereby they could resell "old" crude oil at "new" or "exempt" oil prices. They first purchased West Texas crude oil from Cities Service Corporation (Cities Service) at the maximum or ceiling price for "old oil" (lower tier) lower priced crude.¹ Then, they resold the oil to Western Crude Oil, Inc. (Western), as "new" (upper tier) or "exempt" higher priced oil and certified such as new or exempt oil.² R. 14 This sale and miscertification of old oil as new or exempt oil at a price in excess of the ceiling price was a violation of the mandatory petroleum price regulations, in particular 10 C.F.R. § 212.131(b)(1), which body of regulations was promulgated pursuant to the Emergency Petroleum Allocation Act of 1973 (EPAA), as amended.³ 15 U.S.C. § 751, et seq.

Willful violations of these regulations carry misdemeanor penalties including fines and a maximum of one year in prison. 15 U.S.C. § 754.

However, defendants were not indicted for violations of the EPAA, as amended. On the contrary, they were charged with graver federal felony offenses of conspiracy, mail fraud, wire fraud and racketeering. The alleged agreement to defraud Western by miscertifying old oil as new or exempt and thereby illegally charging the difference (some $7,000,000) between old oil prices (plus a customary gathering and handling charge) and new or exempt oil prices was a criminal conspiracy within 18 U.S.C. § 371. Their use of the U. S. mail and wire services to accomplish their unlawful ends were criminal acts within 18 U.S.C. §§ 1341 and 1343 and 2. And defendants were charged with furthering their fraudulent scheme on several occasions which puts such activity within 18 U.S.C. §§ 1962(a), 1963 and 2 as racketeering.

The indictment charged that defendants induced Western to enter into contracts to buy Cities Service oil from DALCO at a price no higher than DALCO had paid Cities Service (with the exception of the gathering charge). In submitting invoices under these contracts, defendants would fraudulently certify old oil as new or exempt. R.14 Western would unknowingly pass on these false certifications to other purchasers, affecting the price paid by subsequent purchasers of the crude oil.⁴ To support their illegal activities and deceive DOE auditors, defendants caused fictitious journal entries in the DALCO books and created other false documents and records.⁵ R. 14-16 All of these activities by the defendants culminated into the fraud.

Not only did defendants' conduct as charged defraud Western, it also defrauded the United States. In 1973 Congress enacted the EPAA in an effort to alleviate petroleum shortages by establishing price and allocation controls on crude oil and petroleum products. The pricing regulations promulgated pursuant to the EPAA, as amended, are administered by the Department of Energy (DOE).⁶ The DOE through its subpoena powers investigates and audits in an effort to enforce the mandatory pricing system. The alleged creation of false documents and journal entries by DALCO would not only frustrate DOE's efforts to enforce the regulations but would allow defendants to gain some $7,000,000 in overcharges for oil. The cost of miscertified oil passed through to the purchaser raises the price of oil, gasoline and other refined products to the ultimate consumer, thereby defeating Congress' objectives for the EPAA and its pricing system.

TECA JURISDICTION

We are of the opinion that the Temporary Emergency Court of Appeals (TECA) lacks jurisdiction of this appeal.

Section 211(b)(2) of the Economic Stabilization Act of 1970 (ESA) provides that the Temporary Emergency Court of Appeals shall have "exclusive jurisdiction of all appeals from the district courts of the United States in cases and controversies arising under this title or under regulations or orders issued thereunder." 12 U.S.C. § 1904 note (1977 supp.). Section 5(a)(1) of the Emergency Petroleum Allocation Act (EPAA), as amended, 15 U.S.C. § 754, incorporates and carries forward this grant of special jurisdiction.

The district court's July 18 order denying defendants' motions to dismiss the indictment is not a "case or controversy arising under the EPAA, as amended." The Title 18 offenses charged in the indictment are not actions giving rise to TECA jurisdiction even if connected with regulatory violations. United States v. Cooper, 482 F.2d 1393 (TECA 1973). In Cooper the defendant was indicted for violations of regulations promulgated by the Economic Stabilization Act, by raising rents, failing to keep rent records, and by taking retaliatory action against tenants. He was also indicted for making false statements in violation of 18 U.S.C. § 1001, by lying about rent increases. At trial Cooper was acquitted on all counts except the false statement count in violation of Title 18 U.S.C. § 1001 and the count charging him with taking retaliatory action against tenants. He appealed the conviction on these counts to the Ninth circuit which transferred the case to the TECA. TECA concluded as follows:

"We do not believe that the charge in Count 1, based on 18 U.S.C. § 1001, arises within the appellate jurisdiction of the TECA. We start with the premise that a conviction under 18 U.S.C. § 1001 would be appealable only to a court of appeals, under 28 U.S.C. § 1291, unless the Stabilization Act provides otherwise. We find nothing in Section 211(b)(2), of the Act which so provides. Section 211(b)(2) speaks of `controversies arising under this title or under regulations or orders issued thereunder.' We do not think that Count 1, being based on 18 U.S.C. § 1001, was a controversy `arising under' any title of the Stabilization Act or under regulations or orders issued thereunder.

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"The language in the Stabilization Act,

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