Opinion
No. 1:CR-02-146-01, 1:CR-02-146-02, 1:CR-02-146-03
December 17, 2002
MEMORANDUM
Before the court is Defendants Martin Grass, Franklin Brown, and Frank Bergonzi's joint motion to dismiss Count 32 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 Defendants, former officers and directors for the Rite Aid Corporation. In Counts 26 through 29 of the indictment, the Government charges Defendants with four counts of wire fraud. The accusations arise out of the following actions: (1) the transfer of approximately $2.6 million from a Rite Aid account at Chase Manhattan Bank into an account belonging to a subsidiary of a partnership owned by Defendant Grass and his brother-in-law (Count 26); (2) the transfer of approximately $898,000 from Rite Aid to Defendant Grass as a bonus for Rite Aid's performance during its fiscal year ("FY") 1998 (Count 27); (3) the transfer of approximately $337,000 to Defendant Brown as a bonus for FY 1998 (Count 28); (4) the transfer of approximately $300,000 to Defendant Bergonzi as a bonus for FY 1998 (Count 29). Based on these allegations, the Government, in Count 32, asserts that it is entitled to a criminal forfeiture of Defendants' assets derived from the fruits of the alleged wire frauds. See 18 U.S.C. § 982(a)(2)(A). Defendants now move to dismiss Count 32 of the indictment.
A current Rite Aid Vice President, Eric Sorkin, is charged under Counts 33 and 37 of the indictment. Defendant Sorkin, however, is charged neither in Counts 26 to 29, nor Count 32.
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 haves" 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 Rules 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 pates 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. Gefaratti, 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
In Counts 26 through 29, Defendants are accused of committing wire fraud in violation of 18 U.S.C. § 1343. In Count 32, the Government seeks criminal forfeiture of money and land obtained through the alleged wire frauds based on 18 U.S.C. § 982(a)(2)(A). Defendants proffer three principal arguments in support of dismissing Count 32. First, Defendants argue that Count 32 fails as a matter of law because the financial institutions implicated in Counts 26 through 29 merely served as conduits for the fraudulent transfers and, thus, were not adversely affected by such transactions. Second, Automatic Data Processing, Inc. ("ADP"), the conduit for the transfer of money in Counts 27 through 29, is not a financial institution. Third, the vague allegation that the alleged wire frauds "affected financial institutions" is insufficient to inform Defendants of the nature of the charges against them. For the reasons stated below, the court finds that the allegations in Count 32 are too vague to adequately apprise Defendants of the charges against them. The court, however, will not dismiss Count 32 at this juncture because the defect may be cured by a bill of particulars.
A. A Financial Institution that merely serves as a conduit for a wire fraud is not "affected" as that term is used in 18 U.S.C. § 982(a)(2)(A).
Defendants first argue that Count 32 nmst be dismissed because the allegedly fraudulent wire transfers did not adversely affect a financial institution as required by 18 U.S.C. § 982(a)(2)(A). In relevant part, that statute reads as follows:
The court, in imposing sentence on a person convicted of a violation of, or a conspiracy to violate . . . section . . . 1343 [wire fraud] . . . of this title, affecting a financial institution . . . shall order that the person forfeit to the United States any property constituting, or derived from, proceeds the person obtained directly or indirectly, as a result of such violation.Id. (emphasis added).
Thus, § 982(a)(2)(A) requires that a wire fraud affect a financial institution in order to allow the Government to obtain the fraud's proceeds through a criminal forfeiture. Accordingly, Defendants argue that the Government's allegations fail as a matter of law because the indictment does not allege that Defendants' actions in some way had an adverse effect on a financial institution. The Government argues that no such allegation is required where the indictment tracks the applicable statutory language.
The court has reviewed the relevant case law and concludes that the term "affecting a financial institution" requires an allegation that the financial institution was affected in an adverse manner, rather than merely used as an instrumentality of the crime. See United States v. Easterman, 135 F. Supp.2d 917, 920 (N.D. Ill. 2001) (holding criminal forfeiture unavailable under § 982(a)(2)(A) where financial institution was merely conduit for transfer of funds); see also United States v. Ubakannm, 215 F.3d 421, 426 (4th Cir. 2000) (holding enhanced sentencing provisions for wire fraud affecting a financial institution available only if "the institution itself were victimized by the fraud, as opposed to the scheme's mere utilization of the financial institution in the transfer of funds"); United States v. Agne, 214 F.3d 47, 51 (1st Cir. 2000) (holding that ten-year statute of limitations for charges of fraud affecting a financial institution is unavailable unless there is "some negative consequence to the financial institution to invoke the extended statute of limitations"); United States v. Bennett, 161 F.3d 171, 193 (3d Cir. 1998) (holding that offense affected a financial institution where securities firm used as instrumentality of the fraud was subsequently sued by bankruptcy trustee for $150 million); United States v. Johnson, 130 F.3d 1352, 1355 (9th Cir. 1997) (holding enhanced sentencing guideline applicable where embezzlement "affected" a bank by causing it legal expenses and by damaging its reputation, its employees' morale, and its customer relations); United States v. Schinnell, 80 F.3d 1064, 1070 (5th Cir. 1996) (same, where forgery "realistically exposed [banks] to substantial potential liability"); United States v. Mizrachi, 48 F.3d 651, 656 (2d Cir. 1995) (same, construing "affecting" a financial institution to require victimization of the institution); United States v. Pelullo, 964 F.2d 193, 216 (3d Cir. 1992) (holding available extended statute of limitations for wire fraud affecting a financial institution where fraud was perpetrated on wholly-owned subsidiary of financial institution).
Moreover, such an interpretation is both consistent with the statute's plain language and the possible reasoning behind providing an enhanced penalty for crimes affecting a financial institution. First, a wire fraud that adversely affects a financial institution extends the potential class of victims beyond merely the object of the fraud to persons or entities with funds invested with, or entrusted to, the affected financial institution. Second, a wire fraud that adversely affects a financial institution implicates the Federal Government's interests as well. The federal criminal code defines a "financial institution" as various banks, credit unions and investment companies many of which the Government insures against default. See 18 U.S.C. § 20 (defining "financial institution"). Thus, a wire fraud tat has an adverse effect upon a financial institution also has the potential to expose both the federal government and the financial institution's investors to a loss. However, where a wire fraud does not have an adverse effect upon a financial institution, but instead merely accesses a financial institution as the means for implementing the fraud, the ripple effect does not extend beyond the fraud's targeted victim or victims. The court, therefore, holds that in order to be entitled to a criminal forfeiture based on 18 U.S.C. § 982(a)(2)(A), a wire fraud must have some adverse effect on a financial institution.
The Government, however, argues that its allegation in Count 32 that the fraudulently procured wire transfers "affected Financial institutions" is sufficient for the indictment to pass a motion to dismiss. (Indictment, Count 32 at ¶ 2.) This statement, however, merely parrots the language of the criminal forfeiture statute. It is true that the court, in ruling on a motion to dismiss an indictment, must assume that the allegations in the indictment are true. See Caicedo, 47 F.3d at 371; Hall, 20 F.3d at 1087; Cadillac Overall Supply Co., 568 F.2d at 1082. Moreover, "an indictment may track the language of the statute, as long as `those words of themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offense intended to be punished.'" United States v. Shirk, 981 F.2d 1382, 1389 (3d Cir. 1989) (quoting Hamling, 418 U.S. at 117). In other words, the indictment may merely track the statute's language where the common sense understanding of the statute is sufficient to put Defendants on notice as to the factual nature of the charges against them. However, "[a]n indictment not framed to apprise the defendant `with reasonable certainty, of the nature of the accusation against him . . . is defective, although it may follow the language of the statute.'" Russet v. United States, 369 U.S. 749, 765 (1962) (quoting United States v. Simmons, 96 U.S. 360, 362 (1877)).
In this case, the vague statement that the wire transfers "affected financial institutions," does not provide Defendants with the required level of specificity necessary for them to mount an informed defense to the charge. A plain reading of the indictment illustrates this point perfectly. Chase Manhattan Bank and ADP are the only financial institutions mentioned in the allegations regarding the wire transfers. Additionally, the only activities that are mentioned are the transfers of assets from Rite Aid accounts to Defendants' accounts. These allegations fail for one of two alternative reasons. First, if the transfer of funds from one account to another is the only manner in which the financial institution is affected, then clearly the allegations fail because, as previously stated, 18 U.S.C. § 982(a)(2)(A) requires that the financial institution be adversely affected in some manner to trigger a criminal forfeiture of the wire fraud's proceeds. See supra at 4-6. Mere use of Chase Manhattan and ADP to execute the transfers will not suffice as a matter of law. Second, if the wire transfers affected these financial institutions in other ways — or if the wire transfers affected other unnamed financial institutions — then Count 32 fails in that it does not adequately inform Defendants of the nature of the charge against them.
Although Defendants argue that ADP is not a financial institution, that objection goes to the sufficiency of the evidence, not the sufficiency of the indictment. Put another way, the Government has alleged that ADP is a financial institution. The court must accept this allegation. Whether the Government can prove that ADP is a financial institution is an entirely different matter.
It is important to resolve which of these reasons actually applies; although it is impossible to do so on the record currently before the court. if the first reason applies — and the indictment is insufficient because it does not allege that a financial institution was adversely affected — the remedy is to dismiss Count 32 of the indictment for failure to allege a crime. See Russell, 369 U.S. at 768 (holding that an important purpose for requiring that an indictment set out the specific facts encompassing an offense is "to inform the court of the facts alleged, so that it may decide whether they are sufficient in law to support a conviction should one be had"). On the other hand, if the second reason applies — and the indictment is insufficient because it merely fails to adequately specify the manner in which the wire frauds affected a financial institution or which financial institutions were affected — then this error may be cured by a bill of particulars. See United States v. Addonzio, 451 F.2d 49, 63-64 (3d Cir. 1971); see also United States v. Mariani, 90 F. Supp.2d 574, 590 (M.D. Pa. 2000) (holding that the purpose of a bill of particulars is, inter alia, to inform the defendant of the charges brought against him in order to avoid undue surprise and to protect his double jeopardy interests).
Defendants have filed a motion for a bill of particulars. Because the court finds that the allegations in Count 32 are inadequate in their current form, the court will grant Defendants' motion for a bill of particulars insofar as that motion relates to Count 32. The Government's bill of particulars should remove any doubt as to the manner in which Defendants' alleged wire fraud affected financial institutions and what financial institutions it affected.
The court, however, reserves its ruling as to the other requests that Defendants include in their motion for a bill of particulars. A ruling as to those issues is forth coming.
Therefore, the court will deny Defendants' motion. However, because the Government might not be able to make an accusation that the wire transfers adversely affected a financial institution, the court will dismiss Defendants' instant motion without prejudice to renew the motion after the Government files its bill of particulars as to Count 32.
B. The Government must adequately allege that the wire frauds affected a financial institution in order to obtain a criminal forfeiture for violation of 18 U.S.C. § 1343.
The Government also argues that even if Count 32 is defective for failure to properly allege a wire fraud that affects a financial institution, it is still entitled to a criminal forfeiture of the wire frauds' fruits, upon conviction, pursuant to 28 U.S.C. § 2461. According to the Government's argument, § 2461 allows it to seek a criminal forfeiture where a civil forfeiture is authorized, but a criminal forfeiture is not. Although Count 32 of the indictment lists 18 U.S.C. § 982(a)(2)(A) as the statutory authority for criminal forfeiture in this case, the Government argues that it actually intends to seek criminal forfeiture under 18 U.S.C. § 981(a)(1)(C). Section 981 provides for civil forfeiture for violations of offenses constituting "specified unlawful activity," as that term is defined in 18 U.S.C. § 1956(c)(7). Section 1956(c)(7)(A) includes in its definition of specified unlawful activity "any act or activity constituting an offense listed in section 1961 [of Title 18]. . . ." Section 1961(1), which defines "racketeering activity," includes violations of 18 U.S.C. § 1343 (wire fraud) in its definition. Moreover, that reference to § 1343 does not require that the wire fraud affect a financial institution. Therefore, the Government argues that, pursuant to 28 U.S.C. § 2461, it may seek a criminal forfeiture under § 981(a)(1)(C) because that section does not require that a crime affect a financial institution in order to obtain a criminal forfeiture.
Moreover, the Government argues that its misnomer constitutes harmless error.
The court disagrees. The plain language of 28 U.S.C. § 2461(c) allows the Government to seek criminal forfeiture when a criminal statute contains a provision for civil forfeiture "but no specific statutory provision is made for criminal forfeiture upon conviction." See 28 U.S.C. § 2461(c); see also United States v. Thompson, No. 02-CR-116, 2002 U.S. Dist. LEXIS 22732, at *6 (N.D.N.Y. Nov. 26, 2002). That is not the case here. Section 982(a)(2)(A) is a statutory provision for criminal forfeiture on conviction of wire fraud. Moreover, that section contains a specific description of the property that may be sought in a criminal forfeiture under that statute; i.e., property derived from a wire fraud affecting a financial institution. Accordingly, by its very terms, § 2461 is inapplicable to the instant matter. Therefore, regardless of whether the Government made a mistake in that it truly intended to cite § 981(a)(1)(C), that provision is unavailable to them as a means for avoiding the requirement that the wire fraud affect a financial institution because 28 U.S.C. § 2461 does not apply.
IV. Conclusion
In accordance with the preceding discussion, the court will deny, without prejudice, Defendants' motion to dismiss Count 32 of the indictment. Additionally, the court will order the Government to file a bill of particulars as to Count 32. Defendants will be given an opportunity, if necessary, to renew their motion after receiving the Government's bill of particulars.