Opinion
No. 1:CR-02-146-03
December 10, 2002
MEMORANDUM
Before the court is Defendant Franklyn Bergonzi's motion to dismiss Counts 30 and 31 of the indictment. The parties have briefed the issue, and the matter is ripe for disposition.
I. Background
On June 21, 2002, a federal grand jury sitting in Harrisburg, Pennsylvania issued a thirty-seven count indictment against four Defendants, all former officers and directors for the Rite Aid Corporation. Counts 30 and 31 charge Defendants Grass, Brown and Bergonzi with two counts of wire fraud in violation of 18 U.S.C. § 1343. Count 30 relates to instructions wired from Rite Aid to Chase Manhattan Bank on April 7, 2000, to pay off a $5 million loan from Nations Bank. (Indictment at Count 30.) Count 31 relates to instructions wired from Rite Aid to Chase Manhattan Bank on June 30, 2000, to pay-off a $2.5 million loan from Nations Bank. ( Id. at Count 31.) Underlying these two counts, the indictment alleges that Defendants Grass, Brown and Bergonzi engaged in a scheme to defraud Rite Aid, its stockholders, creditors, and vendors. ( See id. at Count 1.) A sub-section of the indictment entitled "The Loan Guarantees," describes how Defendants Grass and Brown allegedly defrauded Rite Aid by executing false, unauthorized loan guarantees that required Rite Aid to pay off two loans made by Nations Bank to the former Senior Executive Vice-President in charge of Marketing and her husband. ( Id. at ¶ 15.)
The other Defendants charged in the indictment are Martin Grass, Franklin Brown, and Eric Sorkin.
II. Legal Standard: Motion to Dismiss
"An indictment is an accusation only, and its purpose is to identify the defendant's alleged offense . . . and fully inform the accused of the nature of the charges so as to enable him to prepare any defense he might have." United States v. Stanfield, 171 F.3d 806, 812 (3d Cir. 1999) (quotations and citations omitted). A defendant, however, may move to dismiss an indictment based on defects in the indictment, lack of jurisdiction, or failure to charge an offense. Fed.R.Crim.P. 12(b)(3)(B).
Effective December 1, 2002, the Federal Rule of Criminal Procedure have been amended. However, according to the Advisory Notes accompanying Rule 12 the changes "are intended to be stylistic only . . .", and "[n]o change in practice is intended." The New Rule 12 places the old Rule 12(b)(2) at Rule 12(b)(3)(B). Accordingly, even though the parties and cases cite old Rule 12(b)(2), the court will refer to the operative rule as Rule 12(b)(3)(B).
An indictment, however, is sufficient "if it, first contains the elements of the offense charged and fairly informs a defendant of the charge against him, and second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense." Hamling v. United States, 418 U.S. 87, 117 (1974) (citing Hagner v. United States, 285 U.S. 427 (1932) and United States v. Debrow, 346 U.S. 374 (1953)); accord United States v. Cefaratti, 221 F.3d 502, 507 (3d. Cir. 2000) ("An indictment . . . to be sufficient must contain all essential elements of the charged offense."). In addressing a motion pursuant to Rule 12(b)(3)(B), the indictment "is to be tested solely on the basis of the allegations made on its face, and such allegations are to be taken as true." United States v. Hall, 20 F.3d 1084, 1087 (10th Cir. 1994); accord United States v. Caicedo, 47 F.3d 370, 371 (9th Cir. 1995); United States v. Cadillac Overall Supply Co., 568 F.2d 1078, 1082 (5th Cir. 1978).
III. Discussion
Defendant argues that Counts 30 and 31 must be dismissed because they concern activity that allegedly occurred after he left Rite Aid. (Def. Br. in Supp. of Mot. to Dis. at 4.) Additionally, Defendant argues that the indictment lumps together a number of the wire fraud counts and "indiscriminately names Frank Bergonzi as a defendant in all of those counts, despite the fact that he is not alleged to have any connection to the loan guarantees." ( Id.)
The Government argues that "Bergonzi was included as a defendant in these two charges because it was his alleged reporting of false earnings for Rite Aid . . . that directly lead to the loans being granted by Nations Bank." (Gov't Resp. to Def. Bergonzi's Mot. to Dis. at 3.) The Government also argues that the jury will be entitled to convict Defendant Bergonzi on Counts 30 and 31 "even if they conclude that he had no direct role in the loans" provided that they find beyond a reasonable doubt that Defendants Grass and Brown committed the offenses and that Defendant Bergonzi was a member of the overall conspiracy at the time the wire instructions were sent. ( Id. at 5.) Because the court finds that the indictment states sufficient facts — as well as the necessary elements of wire fraud under 18 U.S.C. § 1343 — to allow Defendant to prepare his defense, the court will deny Defendant's motion to dismiss.
The Sixth Amendment to the United States Constitution requires that in criminal prosecutions, "the accused shall enjoy the right to be informed of the nature and cause of the accusation." To meet this requirement, Federal Rule of Criminal Procedure 7(c)(1) requires that an indictment be a "plain, concise and definite written statement of the essential facts constituting the offense charged." In reviewing whether the indictment sufficiently sets forth the essential facts of the offense charged the court reviews the indictment using a common sense construction. United States v. Hodge, 211 F.3d 73, 76 (3d Cir. 2000).
The essential elements of wire fraud under 18 U.S.C. § 1343 are (1) a scheme to defraud and (2) the use of interstate communications in furtherance of the scheme. See United States v. Rafsky 803 F.2d 105, 107 (3d Cir. 1986). In the instant case, the indictment sufficiently informs Defendant Bergonzi of the nature of the charge against him; thus, affording him the opportunity to prepare a defense. In Counts 30 and 31, the indictment states that "[t]he information and allegations contained in the Introduction and the prior Counts of this indictment are hereby specifically incorporated herein." (Indictment, Counts 26-31 at ¶ 1.) Particularly relevant to those counts is the information contained in Count 1's Manner and Means section:
Grass and Brown also defrauded the Company by perpetrating a scheme that required Rite Aid to pay-off two loans totaling $7.5 million. The short term loans were made by Nations Bank to Rite Aid Senior Executive Vice President in charge of Marketing and her husband in July of 1998 and May of 1999. Nations Bank only agreed to make the loans on the condition Rite Aid guaranteed payment. Knowing the Board of Directors would not approve the guarantees, Brown executed the loan guarantees at Grass' [sic] direction without the Board's knowledge or consent. Brown caused bogus Certificates of Excerpts from Minutes to be prepared that falsely represented Brown has authorization from the oar of Directors to execute the guarantees. As a result Rite Aid was compelled to pay-off both loans when they came due in April and June of 2000. At that time neither Grass, Brown nor the Senior Executive Vice President for Marketing were employed by the Company. Grass and Brown also failed to disclose the loan guarantees in Rite Aid's 1999 Proxy Statement, as required by the SEC.
(Indictment, Count 1 at ¶ 15.) These allegations, in combination with the allegations outlined in the introductory paragraphs preceding Counts 30 and 31, outline the essential facts necessary to constitute a charge for wire fraud under 8 U.S.C. § 1343. Here, the indictment adequately states that Defendant was a participant in a general scheme to defraud Rite Aid, its shareholders, investors and creditors. ( See Indictment, Count 1 at ¶ 2(e).) The indictment also states that Defendants Grass and Brown directly participated in the fraudulent loan transactions which required the wiring of certain amounts of money. ( See id. at ¶ 15.) Thus, the essential elements of 18 U.S.C. § 1343 have been pleaded.
The fact that Defendant Bergonzi is not mentioned as a direct participant in the loan scheme is immaterial. Counts 30 and 31 specifically incorporate by reference all of the facts that are stated in the indictment's introduction, as well as Counts 1 through 29. In particular, the indictment describes Rite Aid's two Long Term Incentive Plans ("LTIP I and LTIP II"). Both of these plans involved the outright grant of Right Aid stock to its senior management, including the Senior Executive Vice President in Charge of Marketing. ( See Indictment, Introduction at ¶¶ 15-22.) The amount of shares granted depended upon the company's reported earnings. The higher the reported earnings, the more shares each senior executive stood to receive. ( Id.) The indictment also alleges in detail how Defendant Bergonzi deliberately and fraudulently inflated the Company's reported earnings over a four year period, thus leading to large LTIP awards. ( See Indictment, Count 1 at ¶¶ 4-8.)
The Government argues that "even though Bergonzi may not have directly participated in the loans or the execution of the unauthorized loan guarantees, he is nonetheless accountable for that conduct in that no loans would have been made, and no losses would have been sustained, had he accurately reported the Company's earnings." ( Id.) This "but-for" causation of wire fraud, however, was not contained in the indictment, and the Government cannot at this juncture effectively rewrite the facts charged. See United States v. Russell, 369 U.S. 749, 770 (1962) (holding that a defendant has the right to have an adequately informed grand jury return the indictment and not have the indictment effectively rewritten by the prosecutor). The Government's "but-for" analysis notwithstanding, however, the allegations contained in the indictment satisfy the requirements of Federal Rule of Criminal Procedure 7(c)(1).
The indictment includes a conspiracy charge — Count I — which charges Bergonzi with conspiracy under 18 U.S.C. § 371 to commit, among other substantive offenses, wire fraud in violation of 18 U.S.C. § 1343. ( See Indictment, Count 1 at ¶ 2(e).) Thus, even if, at trial, the jury concludes that Defendant Bergonzi had no direct role in the issuance or payment of the loans, it may nonetheless convict Defendant on the substantive grounds alleged in Counts 30 and 31 under what has become known as the Pinkerton doctrine.
In Pinkerton v. United States, 328 U.S. 640 (1946), the Supreme Court held that the criminal act of one conspirator in furtherance of the conspiracy is attributable to the other conspirators for the purpose of holding them responsible for the substantive offense. Id. at 647. Thus, the Pinkerton doctrine "permits the government to prove the guilt of one defendant though the acts of another committed within the scope of and in furtherance of a conspiracy of which the defendant was a member, provided the acts were reasonably foreseeable as a necessary consequence of the conspiracy." United States v. Lopez, 271 F.3d 472, 480 (3d Cir. 2001).
In this case, Defendant Bergonzi's liability for the charges in Counts 30 and 31 arises out of his participation in the conspiracy alleged in Count 1. The indictment contains sufficient facts to put Defendant on notice of the nature of the alleged conspiracy; namely, to enrich Defendants Bergonzi, Grass and Brown by defrauding Rite Aid, its stockholders, creditors, and vendors. Moreover, there are sufficient facts to put Defendant Bergonzi on notice of the nature of the substantive wire fraud offenses alleged in Counts 30 and 31. Thus, under Pinkerton, it is immaterial that Defendant Bergonzi is not mentioned as a direct participant in the section of the indictment outlining the loan transactions.
Defendant alleges that this reasoning illustrates the duplicitous nature of Count 1 of the indictment. However, the court has already decided that Count 1 is not duplicitous. See United States v. Grass, et al, Nos. 02-746-01, 02, 03, slip op. at 5-6 (M.D. Pa. Dec. 10, 2002). As the court stated in the memorandum accompanying that opinion, the mere fact that the Government has charged Defendants with facts that might constitute separate offenses themselves does not render Count 1 defective. ( Id. at 6). The same is true with Counts 30 and 31. The mere fact that Defendant Bergonzi's name is not mentioned in the paragraph of the indictment specifically detailing the nature of the allegedly fraudulent loan transactions does not render those counts defective. On the contrary, the indictment is very specific about the nature of the loan transactions, as well as the nature of the alleged conspiracy.
Moreover, Defendant could have moved the court to require the Government to supplement the indictment with a bill of particulars. This would have forced the Government to more fully disclose the nature of the charges against Defendant in Counts 30 and 31. See Fed.R.Crim.P. 7(f). The court notes that while Defendant has moved to the court for a bill of particulars, the request seeks no clarification with respect to Counts 30 and 31. Defendant argues that he has not moved for a bill of particulars as to Counts 30 and 31 because there is nothing in the indictment to supplement. (Def. Bergonzi's Reply Br. at 2, n. 1.) The court disagrees. Defendant could have sought clarification regarding the alleged role that he played in the fraudulent loan transactions, as well as, in light of Pinkerton, the interplay between Counts 30 and 31 with Count 1. Defendant's argument regarding the lack of specificity contained in the indictment could have been cured by a bill of particulars. Moreover, insofar as Defendant's concern implicates the sufficiency of the evidence surrounding the allegations contained in Counts 30 and 31, that is a question for the jury, not this court, to decide. Because, the court finds that Counts 30 and 31 adequately inform Defendant Bergonzi of the nature of the charges against him, the court will deny Defendant's motion to dismiss.
The court is aware that in Russell, the Supreme Court stated that the availability of a bill of particulars will not cure an indictment that omits an essential element of the offense. 369 U.S. at 769-70. However, in the instant case, the court finds that the indictment contains all of the essential elements of 18 U.S.C. § 1343. See supra at 5. In Russell, the indictment charged the defendant with refusing to answer questions posed by a congressional subcommittee. See 369 U.S. at 752. The indictment, however, failed to identify the subject of the inquiry, an essential element in determining whether the defendant's refusal was justified. Here, the indictment adequately states that Defendant Bergonzi was a participant in a general scheme to defraud Rite Aid, its shareholders, investors and creditors. ( See Indictment, Count 1 at ¶ 2(e).) The indictment also states that Defendants Grass and Brown directly participated in the fraudulent loan transactions which required the wiring of certain amounts of money. ( See id. at ¶ 15.) Thus, all of the essential elements of 18 U.S.C. § 1343 have been pleaded.
IV. Conclusion
In accordance with preceding discussion, the court will deny Defendant's motion to dismiss Counts 30 and 31 of the indictment. An appropriate order will follow.