US v. Macchia, CR 92-1147(S-1).

• Decision Date: 24 August 1994
• Docket Number: No. CR 92-1147(S-1).,CR 92-1147(S-1).
• Citation: 861 F. Supp. 182
• Parties: UNITED STATES of America, Plaintiff, v. Joseph A. MACCHIA, etc., et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

861 F. Supp. 182

UNITED STATES of America, Plaintiff, v. Joseph A. MACCHIA, etc., et al., Defendants.

No. CR 92-1147(S-1).

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

August 24, 1994.

COPYRIGHT MATERIAL OMITTED

Stephen Huggard, U.S. Dept. of Justice, Northern Criminal Enforcement Section, Washington, DC, for plaintiff.

Howard D. Stave, Forest Hills, NY, for defendant Joseph A. Macchia.

Ephraim Savitt, New York City, for defendant Balagula.

Lefcourt & Dratel, P.C. by Gerald B. Lefcourt, New York City, for defendant Lawrence Macchia.

Newman & Schwartz by Robert Hill Schwartz, New York City, for defendant George Macchia.

Paul B. Bergman, New York City, for defendant Varzar.

Dilworth, Paxson, Kalish & Kaufman by J. Shane Creamer, Philadelphia, PA, for defendant Barberio.

Deinst, Serrins, Newman, O'Malley & Epstein by Kenneth I. Wirfel, New York City, for defendant Joseph L. Macchia, Jr.

WEXLER, District Judge.

In the above-captioned criminal action, by superseding indictment filed June 30, 1993 (the "Superseding Indictment"), the government charges defendants Joseph A. Macchia, his three sons Lawrence Macchia, George Macchia and Joseph L. Macchia, Marat Balagula, John Barberio, Viktor Batuner and Michael Varzar with conspiracy to evade the federal gasoline excise tax in violation of 18 U.S.C. §§ 371 and 3623. In addition, the Superseding Indictment charges various of the defendants with attempted excise tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. §§ 2 and 3623. Presently before the Court is defendant Lawrence Macchia's ("Macchia") motion to dismiss the Superseding Indictment on the basis of a written immunity agreement between himself and the government or, in the alternative, to conduct a pretrial hearing pursuant to Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972).

I. BACKGROUND

Count One of the Superseding Indictment charges defendants with participating in a conspiracy to evade over $85 million in federal gasoline excise taxes, on nearly one billion gallons of gasoline, stemming from a "daisy chain" scheme occurring "from about the end of 1982 or beginning of 1983 ... and continuing thereafter up through and including the middle of 1988." Superseding Indictment ¶ 2. In a "daisy chain" scheme, gasoline taxes are evaded by the creation of a "burn company," generally owned under an alias, which issues invoices reflecting that the applicable excise tax had been paid. By the time the government discovers the nonpayment of tax, the "burn company" will have been dissolved and unavailable to pay the tax.

In short, the Superseding Indictment alleges that a company called New York Fuel Terminal Corporation ("NYFT"), controlled by Joseph A. Macchia and his three sons, sold large quantities of gasoline to unlicensed companies without paying to the United States the federal excise tax due and owing on those sales. NYFT allegedly sold the gasoline to the unlicensed companies in a variety of ways, and created a variety of falsified documents and records to cause the Internal Revenue Service to believe that "burn companies," and not NYFT, owed the excise taxes on the gasoline sold by NYFT to the unlicensed companies.

The Superseding Indictment also charges various of the defendants in six counts with attempted excise tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. §§ 2 and 3623. Macchia is charged in four of these counts — Counts Four through Seven. Each of these counts alleges that Macchia and certain other defendants attempted to evade federal excise taxes due and owing from NYFT to the United States by preparing and filing (or causing to be prepared and filed) false quarterly excise tax returns, and by, among other things, making or causing to be made false books and records, false invoices and documents, false statements to IRS employees, and by concealing assets and covering up sources of income. Count Four concerns the period May 1, 1986 to October 31, 1986, and the tax quarter ending September 30, 1986. Count Five concerns the period October 1, 1986 to January 31, 1987, and the tax quarter ending December 31, 1986. Count Six concerns the period July 1, 1987 to October 31, 1987, and the tax quarter ending September 30, 1987. Count Seven concerns the period October 1, 1987 to January 31, 1988, and the tax quarter ending December 31, 1987.

Prior to April 1986, the United States Department of Justice ("DOJ") had been investigating alleged tax evasion in the gasoline industry. Part of this investigation included an investigation of NYFT, which was represented by the law firm of Herzfeld & Rubin, P.C. ("H & R") in connection with the investigation. One of the H & R attorneys on the matter was Terry Myers, Esq. ("Myers"). In connection with the investigation, NYFT produced a large volume of documents subpoenaed by the government. Up to that point in time, according to Myers, the government, by Special Assistant United States Attorney Ronald W. Hayward ("SAUSA Hayward"), had informed Myers that NYFT was considered at least a witness in the government's investigation. Affidavit of Terry Myers, dated November 3, 1993 ("Myers Aff."), ¶ 3.

In April 1986, before Macchia or NYFT became targets, the government requested that Macchia submit to an interview. Through Myers, Macchia agreed to be interviewed, but "not without an appropriate immunity agreement." Myers Aff. ¶ 3.

Prior to the first interview session, which was held on April 18, 1986, an informal immunity agreement, in a letter dated April 16, 1986, was prepared by DOJ and signed by Special Assistant United States Attorney Christopher Ulrich, and presented to Myers. The April 16 letter, at that point, provided:

This letter will serve to confirm our understanding of the proposed interview of your client, Lawrence Macchia, by attorneys of the U.S. Department of Justice, and Internal Revenue Service, and Special Agents of the Federal Bureau of Investigation and Internal Revenue Service to be held on April 18, 1986. The following understanding exists between you, on behalf of Lawrence Macchia, and the Office of the U.S. Department of Justice, Organized Crime Strike Force for the Eastern District of New York:

1. This Office, in conjunction with a Special Grand Jury sitting in this District, is conducting investigations concerning possible violations of federal criminal laws, including the crime of racketeering (18 U.S.C. § 1961) and various tax laws (Title 26 U.S.C.) in connection with the gasoline industry;

2. In connection with the above investigation, Lawrence Macchia has agreed to be interviewed on April 18, 1986, by government attorneys and agents and to provide complete and truthful responses to all questions asked of him regarding his knowledge of, and participation in, any criminal activity under investigation by this Office;

3. Any truthful statements made by Lawrence Macchia in response to questions asked of him by government attorneys and agents during this interview will not be used against Lawrence Macchia in any criminal prosecution by the United States government, or by the State of New York, or its political subdivisions;

4. The foregoing constitutes the entire understanding reached by the parties regarding the interview of Lawrence Macchia on April 18, 1986. No additional understandings, promises, agreements or conditions have been entered into other than those set forth in this letter, and none will be entered into unless in writing and signed by all parties.

....

At some point prior to commencing the first interview, the government and Macchia's counsel agreed to certain handwritten additions to paragraph three of the April 16 letter. Specifically, the following was added after the word "interview": "or any information arising from or relating thereto." In the margin adjacent to paragraph three appears the notation "R. Hayward Special Assistant United States Attorney." At a hearing on this motion, Myers testified that the interlineation was made by an H & R partner, Herbert Rubin ("Rubin"), and the margin notation was made by SAUSA Hayward. Tr. 39. Neither party, however, submitted testimony of either Rubin or SAUSA Hayward regarding the Immunity Agreement or this interlineation. The letter immunity agreement, dated April 16, 1986, in its final form was then executed by Myers on behalf of H & R and by Macchia (the "Immunity Agreement"). Macchia then participated in the April 18 interview and three additional interview sessions, the last of which concluded on July 24, 1986. Each of the interview sessions was subject to the terms of the Immunity Agreement.

By this motion, Macchia seeks dismissal of the Superseding Indictment contending that the Immunity Agreement granted him both "transactional immunity" and "use immunity." On this basis, he argues that the transactional immunity granted to him precludes his prosecution for the offenses alleged in the Superseding Indictment. Macchia argues that, in any event, the use immunity granted to him requires dismissal of the Superseding Indictment because the government used his immunized statements against him in violation of the Immunity Agreement, or, in the alternative, a hearing, commonly known as a Kastigar hearing, to determine whether the government employed independent sources for the information and documents it used in the investigation and used or plans to use in his prosecution. As for any Kastigar hearing, Macchia requests that it be held before trial. In the alternative, Macchia requests a severance from the other defendants.

In opposition to the motion, the government contends that the Immunity Agreement conferred direct use immunity and derivative use immunity (together referred to simply as "derivative use immunity"), not transactional immunity, but that, in any event, Macchia breached the Immunity Agreement by providing untruthful answers at the interview sessions. As a result of Macchia's alleged breach, the government...