US v. Berg, 84 CR 190(S-3).

• Decision Date: 05 April 1989
• Docket Number: No. 84 CR 190(S-3).,84 CR 190(S-3).
• Parties: UNITED STATES of America v. H. Leonard BERG, Grimm DePanicis, Leon Lisbona, and Solomon Schwartz, Defendants.
• Court: U.S. District Court — Eastern District of New York

710 F. Supp. 438

UNITED STATES of America v. H. Leonard BERG, Grimm DePanicis, Leon Lisbona, and Solomon Schwartz, Defendants.

No. 84 CR 190(S-3).

United States District Court, E.D. New York.

April 5, 1989.

Andrew J. Maloney, U.S. Atty., E.D. N.Y., Brooklyn, N.Y. by Larry H. Krantz, and Ira Belkin, Asst. U.S. Attys., for the Government.

J. Jeffrey Weisenfeld, New York City, for H. Leonard Berg.

Lawrence A. Dubin, New York City, for Solomon Schwartz.

Paul A. Goldberger, New York City, for Leon Lisbona.

MEMORANDUM AND ORDER

PLATT, Chief Judge.

Count One of the indictment charges defendants Berg, Lisbona and Schwartz with forming a RICO enterprise to make money from selling and exporting arms, ammunition and articles of war. In the course of the enterprise, defendants engaged in four illegal arms-trading schemes: (1) the sale and shipment of more than 1300 night vision goggles to Argentina during the Falkland Islands War with Great Britain, (2) an attempt to export firearms and ammunition to Iraq, (3) an agreement to ship 400 night vision goggles to the Soviet Union, and (4) an attempt to ship a planeload of arms and ammunition to Poland. The enterprise was conducted through a pattern of racketeering which consisted of (1) obtaining night vision goggles for the Argentinean sale by wire fraud (Count Two), (2) obtaining an arms export license for the Iraqi sale by wire fraud (Count Five) and (3) obtaining an arms export license for the Polish sale by wire fraud (Count Eleven).

Count Two charges that, as part of the Argentinean sale, defendants Berg, Lisbona and Schwartz, in violation of 18 U.S.C. § 1343 (1982), obtained night vision goggles from Litton Industries by falsely representing, over interstate wires, that proper arms export licenses would be obtained before the goggles were shipped outside the United States. Count Three charges that Berg, Lisbona, Schwartz and Grimm DePanicis exported the goggles to Argentina without a license, in violation of Arms Export Control Act § 38, 22 U.S.C. § 2778(b)(2) & (c) (1982 & Supp. IV 1986).

Count Four charges that Berg, Lisbona and Schwartz conspired, in violation of 18 U.S.C. § 371 (1982), to export arms illegally to Iraq. Count Five charges that Berg, Lisbona and Schwartz, in violation of 18 U.S.C. § 1343, obtained an arms export license for the Iraqi sale from the Munitions Control Board by falsely representing, over interstate wires, that the end-user of the arms would be "Holland Arms" and the arms were required for "Resale," when in truth the end-user was Iraq and the required use was supplying the Iraqi National Police. Count Six charges these same misrepresentations constituted false statements to a Federal agency in violation of 18 U.S.C. § 1001 (1982). Count Seven charges defendants with using the arms license, which contained false statements and material omissions, to ship arms in violation of 22 U.S.C. § 2778(b)(2) & (c).

Count Eight alleges that Berg, DePanicis, Lisbona and Schwartz conspired, in violation of 18 U.S.C. § 371, to export four hundred night vision goggles to the Soviet Union by way of West Germany and to ship one sample goggle to West Germany in violation of the Arms Export Control Act, 22 U.S.C. § 2778. Count Nine charges that Berg, Depanicis, Lisbona and Schwartz exported one night vision goggle to West Germany without a license, in violation of 22 U.S.C. § 2778(b)(2) & (c).

Count Ten alleges that, as part of the scheme to export arms to Poland, Berg, Lisbona and Schwartz conspired, in violation of 18 U.S.C. § 371, to file a false application for an arms export license and to use the license so obtained to export arms and ammunition. Count Eleven alleges that Berg, Lisbona and Schwartz, in violation of 18 U.S.C. § 1343, obtained the license from the Munitions Control Board by falsely representing, over interstate wires, that the end-user of the arms would be a Mexican government agency, when in truth defendants knew the arms were to be shipped to Poland. Count Eleven also alleges that Berg and Schwartz attempted to obtain a shipment of arms and ammunition detained by the United States Customs Service by falsely representing to the Customs Service, over interstate wires, that the shipment was bound for Mexico. Count Twelve alleges that Berg, Lisbona and Schwartz violated 18 U.S.C. § 1001 by making false statements to the Munitions Control Board in the application for the arms export license. Count Thirteen charges that defendants violated 22 U.S.C. § 2778(b)(2) & (c) by using the arms export license containing false statements and material omissions to ship arms. Count Fourteen charges that Berg and Schwartz obstructed the administration of law in administrative proceedings of the United States Customs Service by making false statements and instructing others to make false statements in violation of 18 U.S.C. § 1505 (1982).

On June 22, 1988, Berg and Schwartz were found guilty on all counts. Lisbona was found guilty on Counts One through Thirteen. Depanicis was found guilty on Counts Eight and Nine.

Defendants Berg, Schwartz and Lisbona have jointly moved for judgment of acquittal on several counts. The motions will be considered in sequence.

I.

Defendants challenge their wire fraud convictions on Count Two because the proof at trial failed to establish that defendants had the requisite intent to defraud Litton Industries. See United States v. Starr, 816 F.2d 94, 98 (2d Cir.1987).

Defendants' motion is nearly identical to their challenge to Count Two prior to trial. The earlier motion was denied by a Memorandum and Order dated February 11, 1988, 710 F.Supp. 434 (E.D.N.Y.1988). In particular, it was held that defendants' intent to defraud was sufficient if the fraud went to the basis of the bargain with Litton. "If Litton's sale was conditioned on the false assurances that defendants would obtain a proper arms export license, the false assurances went to the basis of the bargain." Memorandum and Order 710 F.Supp. at 437.

At trial, Dr. Gerald Pokorny, the Litton executive in charge of the division that manufactures night vision products, testified that without defendants' written assurances that they would not illegally export Litton's products, Litton would never have sold its products to defendants. Tr. 1070, 1072.

Defendants' fraud allowed them to obtain property from Litton which they otherwise could not obtain. The misrepresentations were thus the very basis for the sale and not mere collateral considerations. See Starr, 816 F.2d at 98. The evidence establishes defendants' intent to defraud.

The motion is denied.

II.

Defendants move for acquittal on Counts Five and Eleven because the export licenses obtained by fraud are not property within the meaning of the wire fraud statute.

A.

The wire fraud statute prohibits the use of interstate wires for the purpose of executing "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses. ..." 18 U.S.C. § 1343 (1982). Until the Supreme Court's decision in McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), every Court of Appeals to consider the question had read the language of the wire and mail fraud statutes¹ in the disjunctive — that is, a conviction required proof of either of a scheme to defraud or a scheme for obtaining money or property by means of false or fraudulent pretenses.² Proof of a scheme to defraud did not require proof of actual loss of money or tangible property.³ Cases such as those cited in the notes embodied what came to be known as the intangible rights doctrine.

Prosecutions for schemes to obtain licenses by fraud were sustained on the same theory. In United States v. Castor, 558 F.2d 379, 382-83 (7th Cir.1977), cert. denied, 434 U.S. 1010, 98 S.Ct. 720, 54 L.Ed.2d 752 (1978), defendants allegedly had filed applications containing false information in order to obtain some of a limited number of liquor licenses available from the State of Indiana. The District Court dismissed the mail fraud charges against defendants holding that, since the licenses were not property under Indiana law, the indictment did not charge a scheme having as its object the obtaining of money or property. The Court of Appeals reversed. "The district court's construction of 18 U.S.C. § 1341 has been previously rejected by this Court in two prior cases. In both cases we held that the mail fraud statute is not limited to fraudulent schemes that contemplate the actual loss of money or property." Castor, 558 F.2d at 379 (citations omitted). See also United States v. Green, 577 F.Supp. 935, 936 (N.D. Cal.1984) (obtaining driver's license by fraud; conviction upheld under intangible rights doctrine); cf. United States v. Haimowitz, 725 F.2d 1561, 1567-71 (11th Cir. 1984) (obtaining liquor license by fraud; conviction upheld).

In McNally, the Supreme Court overturned this line of cases and vacated the convictions of James Gray and Charles McNally, who had been convicted of devising a scheme to defraud the citizens of Kentucky of their right to have the Commonwealth's affairs conducted honestly. The Court reasoned that, while the mail fraud statute clearly referred to property rights, it made no mention of the intangible right to good government. McNally, 483 U.S. at 357-58, 107 S.Ct. at 2880. The sparse legislative history, to the extent it revealed anything, indicated the mail fraud statute "had its origin in the desire to protect individual property rights, and that any benefit that the Government derives from the statute must be limited to the Government's rights as a property holder." 483 U.S. at 358-59 n. 8, 107 S.Ct. at 2881 n. 8. Although the Court noted that the contrary interpretation employed by the Courts of Appeals was "arguable," it was persuaded that Congress intended only to prevent schemes to obtain property or money. "When there are two rational readings of a criminal statute, one...