US v. Willis, S 89 Cr. 561 (MGC).
Decision Date | 02 December 1991 |
Docket Number | No. S 89 Cr. 561 (MGC).,S 89 Cr. 561 (MGC). |
Citation | 778 F. Supp. 205 |
Parties | UNITED STATES of America, Plaintiff, v. Robert Howard WILLIS, Defendant. |
Court | U.S. District Court — Southern District of New York |
Otto G. Obermaier, U.S. Atty., S.D.N.Y., New York City by Denis J. McInerney, Asst. U.S. Atty., for U.S.
Spengler Carlson Gubar Brodsky & Frischling, New York City by Edward Brodsky, Lawrence S. Hirsh, for defendant.
For the third time, defendant has moved to dismiss the indictment in this case.1 Familiarity is assumed with my previous opinion denying defendant's earlier motions. That opinion is reported at 737 F.Supp. 269 (1990). I shall not repeat my extensive discussion of the charges set out in the indictment or of the misappropriation theory of liability under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on which the government relies in this prosecution. I shall only note that the gravamen of the charges is that the defendant, who is a practicing psychiatrist, traded on material, nonpublic information confided to him by his patient as part of a course of treatment, and that the indictment charges that the patient received the information from her insider husband "in a relationship of trust and confidence." Indictment, ¶ 12.
In my previous opinion, I considered the decision of the Second Circuit in United States of America v. Robert Chestman, 903 F.2d 75 (2d Cir.1990) ("Chestman I"). The Second Circuit has reconsidered Chestman I, and recently issued an in banc decision, United States of America v. Robert Chestman, 947 F.2d 551 (2d Cir.1991) ("Chestman II"). Defendant grounds this motion on his contention that Chestman II requires dismissal of the indictment.
Thus, the only issue now before me is the effect of Chestman II on the indictment in this case. Chestman II was not decided on the face of the indictment, but rather, after a trial at which the facts were fully developed. I turn first to the facts proved in that case as stated in the majority opinion of the Second Circuit.
Based on the foregoing evidence, the Second Circuit reversed Chestman's conviction for aiding and abetting Loeb's misappropriation from his wife of material, nonpublic information.
Doctor Willis advances two arguments in support of his motion. First, he contends that the relationship between the patient and her insider husband was not a relationship of "trust and confidence" as alleged in the indictment because in Chestman II, the Second Circuit said that "marriage does not, without more, create a fiduciary relationship." Chestman II, 947 F.2d at 568. From this premise, he argues that there must be an unbroken chain of confidentiality, and that once the chain is broken by disclosure by an insider to a person who is not in a fiduciary relationship to him, a person who subsequently receives the information in a fiduciary capacity cannot be liable as a misappropriator, even if he trades on the information in breach of his duty of trust and confidence. Secondly, Doctor Willis argues that the misappropriation theory has been limited to fiduciary relationships that exist within the context of shareholder relations or implicate the securities markets. He takes the position that the physician-patient relationship is not a fiduciary relationship for purposes of the misappropriation theory of securities fraud. This second contention was urged by Dr. Willis in support of his previous motions to dismiss the indictment, and was rejected in my previous opinion, 737 F.Supp. at 274. He renews the argument on the ground that Chestman II has somehow changed the law on that question.
Defendant is correct that under Chestman II, the marital relationship is not necessarily a fiduciary relationship for purposes of the misappropriation theory. But Chestman II was decided on a fully developed record after trial, and not on the face of the indictment. Chestman II held that the evidence in that case was insufficient to show the required relationship of trust and confidence. Chestman II, 947 F.2d at 571. The indictment in this case expressly alleges that the patient received material, non-public information "in a relationship of trust and confidence." Under this allegation, the government is entitled to prove the requisite fiduciary relationship. Chestman II does not change the law that the government need not plead evidence in the indictment. United States v. Debrow, 346 U.S. 374, 376, 74 S.Ct. 113, 114, 98 L.Ed. 92 (1953); Mims v. United States, 332 F.2d 944, 946 (10th Cir.1964) (). Nor are the cases cited by defendant to the contrary. Thus, Chestman II does not preclude the government from proving under this indictment that Mrs. Weill received the information from her husband in a relationship of trust and confidence. For as the Second Circuit pointed out, "spouses certainly may by their conduct become fiduciaries...." Chestman II, 947 F.2d at 568. The government represented at oral argument...
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