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United States v. Garner

decided: December 29, 1987.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
HENSLEY GARNER, JOHN J. PAGONE, NICHOLAS A. CAPUTO, HAROLD J. KNIES, RHEY A. ORME, LEO GRUENHOLZ, DONALD HOJNACKI AND ANDREW FEDERINKO, DEFENDANTS-APPELLANTS



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division, No. 85 CR 451 -- William T. Hart, Judge.

Wood, Jr., and Ripple, Circuit Judges, and Gordon, Senior District Judge.*fn*

Author: Ripple

RIPPLE, Circuit Judge.

Eight defendants appeal their convictions for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) (RICO), and the Hobbs Act, 18 U.S.C. § 1951.*fn1 The defendants were all House Drain Inspectors for the Department of Sewers of the City of Chicago. They raise on appeal nearly a score of issues. Their primary contentions are that they were improperly joined for trial, that the jury instructions were faulty, that inadmissible evidence was used against them, and that the evidence was insufficient to support their convictions. For the reasons set forth in the following opinion, we affirm all of the convictions.

I

General Background

This case involves the payment of bribes by private sewer contractors to sewer inspectors of the City of Chicago. Sewer work on private property in Chicago is performed by contractors regulated by the city. All contractors must be licensed by the city, and a permit and inspection must be obtained for most sewer work.

Sewer contractors pay a fee to the city to obtain work permits. The amount of this fee varies depending on the job that will be done. Before a contractor begins a job, he is required to contact the Department of Sewers and report the type, location, and price of the work. This information is then transmitted to a central desk for assignment to an inspector. The inspector travels to the jobsite to check the contractor's work, handle citizen complaints, and accept the check or money order for the permit fee. Inspections are performed after the work is completed but before the excavation is filled in. Inspectors are not entitled to any payment other than the permit fee. After inspecting the job and accepting the permit fee, the inspectors return the fee to the permit desk by interoffice mail.

The government does not contend that the defendants ever failed to remit the permit fee. Rather, this case involves the payment of additional amounts to inspectors by contractors. At trial, the government presented evidence demonstrating that sewer contractors, as a matter of course, gave inspectors from $10 to $20 per inspection. The government contended that this system was the product of a conspiracy among the sewer inspectors, and that the receipt of these additional payments constituted acts of bribery and extortion. The defendants contended that there was no conspiracy among the inspectors, and that the additional payments to inspectors were mere gratuities and were not intended as bribes nor induced by extortion.*fn2

On July 17, 1985, a grand jury returned an 84-count indictment against 14 defendants, all of whom were inspectors for the Department of Sewers of the City of Chicago. In Count 1 of the indictment, all 14 defendants were charged with conspiracy in violation of the RICO statute, 18 U.S.C. § 1962(d). This count of the indictment alleged that the defendants had agreed to conduct the affairs of the Department of Sewers through a pattern of racketeering activity, and it incorporated by reference the predicate acts alleged in the later individual RICO counts. In counts 2-15, each of the 14 defendants was charged with one count of violating the RICO statute, 18 U.S.C. § 1962(c). The indictment alleged numerous acts of racketeering activity by each defendant in violation of the Illinois bribery statute and the Illinois official misconduct statute.*fn3 In Counts 16-84, each defendant was charged in five counts with extortion under color of official right in violation of the Hobbs Act.

Eight of the 14 defendants were tried jointly. The trial began on January 6, 1986 and concluded on February 21, 1986. The government's case centered on the testimony of more than 50 witnesses. Most of the witnesses were contractors or their agents who had paid money to inspectors. Many of these witnesses testified under a grant of immunity. Four witnesses were not contractors or their agents, including one of the most important witnesses, Aubrey Blunt, a sewer inspector, who testified under a plea bargain agreement.

The government also introduced a substantial amount of documentary evidence. Many of the sewer contractors retained records of various jobs, and some even kept records of payments to inspectors. Records of the Department of Sewers also were introduced that identified which insepctors had been assigned to particular jobs. Most of the evidence of bribery and extortion was provided by the direct testimony of contractors. As to each defendant, several contractors testified that they made payments to the inspector and that these payments were accepted. At least five contractors testified against each inspector.*fn4

The government did not provide as much evidence about the purpose of the payments. A number of contractors characterized the payments as "the system" or the "cost of doing business" in Chicago. Most witnesses testified that they had been trained to pay inspectors by a friend, relative, or co-worker in the business. In a few cases, the inspector explicitly requested payments. In other cases, the contractor paid the inspector for the purpose of encouraging the inspector to look the other way when there was an improper permit or when improper materials were used. Most common, however, was the statement that the payments were made to avoid generalized fears of harassment or delays.

Most of the defendants used the ambiguity regarding the purpose of the payments as their primary defense. These defendants contended that the payments were a longstanding tradition in the industry, that they represented nothing more than mere gratuities, and that there was no expectation by either contractors or inspectors of a quid pro quo. Defendants Harold Knies and Hensley Garner, however, did not use this defense. Defendant Knies contended that he had never received payments, and that there was no custom and practice of making payments. Defendant Garner claimed that there was insufficient evidence to believe beyond a reasonable doubt that he had committed any offenses.

Before the case went to the jury, the defendants moved for a judgment of acquittal on the conspiracy count; the motion was denied. The jury found all of the defendants not guilty of conspiracy. However, the jury found all of the defendants guilty of the individual RICO count, and seven of the eight defendants guilty of at least one extortion count. The defendants filed post-trial motions for new trials and for an arrest of judgment, which were denied. These appeals followed.

II

Conspiracy Issues

A. Background

1. Procedural Context

The defendant filed various pretrial motions. The most important of these motions dealt with the conspiracy charge and with the government's intention to join the defendants for trial. The defendants contended that the conspiracy indictment was insufficient as a matter of law, and that there was no reasonable expectation that the conspiracy would be proved at trial. Therefore, they argued that joinder was inappropriate under Rule 8(b) of the Federal Rules of Criminal Procedure.*fn5 Several defendants also contended that the court should sever the trial, pursuant to Rule 14 of the Federal Rules of Criminal Procedure,*fn6 because a joint trial would severely prejudice the defendants. These motions were denied. Furthermore, the court ruled that there was sufficient evidence of conspiracy to warrant the admission of co-conspirators' statements under Rule 801(d)(2)(E) of the Federal Rules of Evidence.

2. Evidence of Conspiracy

As proof of the conspiracy, the government offered a good deal of "custom and practice" evidence. This evidence was admitted over the objection of the defendants. Custom and practice evidence consisted of testimony by contractors concerning the tradition of giving and receiving money in the sewer business. Contractors testified that it had long been customary in the business for inspectors to receive payments of $10 or $20, or even more, per inspection. They testified that these payments were made because it was commonly understood that inspectors would cause hassles and delays if they were not paid. Some contractors testified that they were advised to make these payments by their parents or friends or prior employers, and that the regular practice was to conceal the payment from the customer by putting it in an envelope or folding the cash into the check for the permit fee.

The government also presented evidence of an established price structure for payoffs. For many years, the standard "fee" for a permit was $10. Later, the price went up to $20. One contractor testified that he was told by an inspector that "the price of poker went up." Tr. 10 at 1416. Several contractors testified that they were told by inspectors that the standard fee had gone up to $20. The defendants conceded at oral argument that there was evidence of "parallel conduct."

Aubrey Blunt, an inspector, testified that he was told by other inspectors that he should take the money out of the envelopes because it was for him, and that the purpose of the payments was to avoid hassles. Blunt related conversations between inspectors describing contractors as "all right" or "one of the good guys." Blunt testified that these expressions meant that the contractor would make payments. Blunt described a discussion in which Rhey Orme, one of the defendants, spoke to a group of inspectors and told them that the contractors should be paying $20 instead of $10.

As additional proof of the conspiracy, the district court admitted evidence from a notebook kept by employees of Wagner & Sons Sewer Company (Wagner & Sons). The book contained the name of the customer, the customer's phone number and address, the employee assigned to the job, the estimated cost of the job, the permit number, the inspector who was paid, the type of job, and the date. Julie Anderson, an employee of Wagner & Sons, testified that the purpose of the book was to prevent double payment to an inspector. Ms. Anderson testified that occasionally one inspector would collect money for another inspector, and that this would be noted in the book. The defendants objected to the admission of the Wagner & Sons notebook because it included evidence of payments that were not charged in the indictment and on the ground that it was unduly prejudicial. In its final instructions to the jury, the court did not give a limiting instruction directly relating to the notebook; however, the record does not reveal that one was requested.

B. The Joinder Issue

1. Holding of the District Court

The district court determined before trial that joinder of the defendants was appropriate under Rule 8(b) of the Federal Rules of Criminal Procedure because the government had properly alleged that the defendants were guilty of conspiracy, "which 'ordinarily is sufficient to satisfy Rule 8(b)'s joinder requirements.'" United States v. Caputo, No. 85 CR 451, mem. op. at 8 (N.D. Ill. Dec. 26, 1985) (quoting United States v. Hattaway, 740 F.2d 1419, 1424 (7th Cir.), cert. denied, 469 U.S. 1089, 83 L. Ed. 2d 708, 105 S. Ct. 599 (1984)) [hereinafter Mem. op. of Dec. 26, 1985]; R.236 at 8. The court ruled that it did not need to assess the evidence before trial to decide whether the government would successfully prove conspiracy. Rather, it said that "'the test for misjoinder is what the indictment charges, not what the trial shows,' or put another way, 'Rule 8 on its face is about pleading rather than proof . . . . '" Id. (quoting United States v. Velasquez, 772 F.2d 1348, 1354 (7th Cir. 1985), cert. denied, 475 U.S. 1021, 89 L. Ed. 2d 323, 106 S. Ct. 1211 (1986))). Concluding that the conspiracy indictment was legally sufficient, id. at 3, the court ruled that joinder was appropriate under Rule 8. Id. at 10.

The court then examined whether severance was appropriate under Rule 14 of the Federal Rules of Criminal Procedure. Rule 14 provides for severance if a party is prejudiced by the joinder, even if joinder is appropriate under Rule 8. The court ruled that severance was not necessary here because, although the indictment was lengthy, "the charges are simple (involving only two statutes) and the evidence will be easily compartmentalized." Id. The court also noted that severance would have resulted in "numerous duplicative trials which, given the conspiracy charge, would . . . be neither simple nor short." Id. at 11.

The court also rejected the argument that severance was necessary because of a potential conflict between the defenses of different defendants. Defendants Andrew Federinko and Donald Hojnacki claimed before trial that they were considering using the defense that they never received any payments and that payments were not given as a matter of course. They argued that this defense would conflict with the other defendants' argument that the alleged bribes were mere gratuities. The court ruled that severance is required "'only where the acceptance of one party's defense precludes the acquittal of the other defendant.'" Id. (quoting United States v. Keck, 773 F.2d 759, 765 (7th Cir. 1985)). It then said that there was no conflict between a claim by one defendant that he did not accept payments and a claim by another defendant that payments were mere gratuities. As to the conflict between the defense that payments were not given as a matter of course and the defense that giving gratuities was a tradition in the industry, the court said that "Federinko and Hojnacki can be acquitted on their (possible) theory that they took no money even though a well-established tradition is ultimately determined to have been in existence." Id. at 12. Therefore, the court denied the motion for severance under Rule 14.

After trial, the defendants filed a motion for a new trial on the ground that joinder was inappropriate in light of the jury verdict for the defendants on the conspiracy charge. The court ruled that joinder had been in good faith and there there was sufficient evidence to justify joinder under Rule 8(b). United States v. Caputo, No. 85 CR 451, mem. op. at 2 (N.D. Ill. Apr. 25, 1986); R.429 at 2. As to Rule 14, the court said that "the amount of evidence was considerable but could be compartmentalized as to each defendant." Id. It added that "[t]he jury was instructed to give each defendant separate consideration." Id. Therefore, the court believed that the defendants had not been prejudiced by the joinder.

2. Compliance With Rule 8

a. Contentions of the Defendants

The defendants raise two basic arguments with respect to Rule 8. First, they argue that the indictment did not conform to the literal requirements of Rule 8. Second, they argue that, because the jury found the evidence did not support a conspiracy allegation, we must conclude that the government misjoined them in one indictment.

With respect to the first argument, they argue that the conspiracy indictment was invalid as a matter of law and that, therefore, joinder was inappropriate under Rule 8(b). The defendants contend that the government failed in the indictment to allege adequately and to support all essential elements of a RICO conspiracy. In particular, they claim that the indictment was devoid of facts relevant to an agreement. "The government . . . did nothing more than restate the word agreement four different ways. This bare allegation, even said four times, is insufficient to meet the higher standard of pleading required in a RICO case such as this." Appellants' Lead Br. at 51.*fn7

In support of their second argument, the defendants contend that, because they were all found not guilty by the jury on the conspiracy count, this court now should review the evidence in the light most favorable to the defendants. When the evidence is viewed in that light, the defendants submit, no reasonable juror could have found them guilty of conspiracy. The defendants concede that mere error by the district court on this second ground is insufficient to establish misjoinder under Rule 8(b), and that this circuit's cases suggest that a defendant must show bad faith by the government to establish misjoinder under Rule 8(b). They contend, however, that the bad faith standard has been applied only in dictum in this circuit, and that the correct standard should be whether the government offered adequate evidence of conspiracy. But under either standard, the defendants submit, joinder was inappropriate under Rule 8(b); they argue that there was little or no evidence of conspiracy, that the conspiracy count was clearly brought in bad faith, and that they were prejudiced by this misjoinder.

b. Analysis

We cannot agree with either of the defendants' contentions. Under Rule 8(b) of the Federal Rules of Criminal Procedure, joinder of defendants is appropriate if "they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses." It is well-established that a conspiracy charge is a proper basis for joinder under Rule 8(b). United States v. Dounias, 777 F.2d 346, 348 (7th Cir. 1985). Rule 8(b) only requires that the conspiracy be alleged -- there is no requirement that the government demonstrate, at the pleading stage, sufficient evidence to support joinder. United States v. Bruun, 809 F.2d 397, 406 (7th Cir. 1987) ("Proper joinder is determined from the face of the indictment."). As the Supreme Court has said, "once the Rule 8 requirements [are] met by the allegations in the indictment, severance thereafter is controlled entirely by Federal Rule of Criminal Procedure 14 . . . . " United States v. Lane, 474 U.S. 438, 447, 88 L. Ed. 2d 814, 106 S. Ct. 725 (1986) (interpreting Schaffer v. United States, 362 U.S. 511, 4 L. Ed. 2d 921, 80 S. Ct. 945 (1960)).

Joinder was appropriate in this case under Rule 8(b). The indictment properly alleged conspiracy. An indictment must state all of the elements of the offense charged; it must inform the defendant of the nature of the charge so that he may defend himself; and it must enable the defendant to plead the judgment as a bar to any later prosecution for the same offense. United States v. Gironda, 758 F.2d 1201, 1209 (7th Cir.), cert. denied, 474 U.S. 1004 (1985). The conspiracy count satisfied those prerequisites. The charge recited the elements of the offense, and it specified the nature of the illegal racketeering activity. The count then included by reference the specific factual allegations contained in the individual RICO violations. Further, the conspiracy count properly alleged an agreement. Alleging conspiracy is oftentimes difficult because direct proof of conspiracy is rare. But just as pragmatic concerns must govern the drafting effort, an appreciation of those concerns must govern appellate review. Here, the defendants were on notice of the allegation, and they could defend against it. Moreover, the allegation was sufficiently precise to protect them against double jeopardy. Therefore, conspiracy was properly charged, and joinder was warranted by Rule 8(b).

With respect to the defendants' second argument, if joinder was proper initially under Rule 8(b), they can establish misjoinder only if the evidence at trial demonstrates that the conspiracy indictment was brought in bad faith. Dounias, 777 F.2d at 348-49; United States v. Velasquez, 772 F.2d 1348, 1354 (7th Cir. 1985), cert. denied, 475 U.S. 1021, 89 L. Ed. 2d 323, 106 S. Ct. 1211 (1986); Brandom v. United States, 431 F.2d 1391, 1396 (7th Cir. 1970), cert. denied, 401 U.S. 487, 91 S. Ct. 995, 28 L. Ed. 2d 251 (1972). However, even if the allegation was brought in bad faith, severance is not automatic. The defendants still must establish "actual prejudice" from being misjoined. Lane, 474 U.S. at 449.

The defendants, who have the burden of establishing bad faith, United States v. Garza, 664 F.2d 135, 142 (7th Cir. 1981), cert. denied, 455 U.S. 993, 71 L. Ed. 2d 854, 102 S. Ct. 1620 (1982), have provided scant evidence that the conspiracy count was brought in bad faith. Their only argument in support of finding bad faith is that there was "no evidence of conspiracy." Appellants' Lead Br. at 61. We disagree. As the defendants admitted at oral argument, there was substantial evidence of "parallel conduct" among the inspectors. There was also evidence that inspectors picked up payments and delivered them to other inspectors, that inspectors encouraged other inspectors to demand larger payments, that experienced inspectors taught new inspectors how the "system" worked, and that inspectors informed each other about those contractors who made payments and those contractors who did not. This evidence was more than adequate to disprove an inference of bad faith on the part of the government. Therefor, joinder was entirely appropriate under Rule 8(b).

3. Compliance With Rule 14

a. Contentions of the Defendants

As the Supreme Court noted in Lane, "once the Rule 8 requirements [are] met by the allegations in the indictment, severance thereafter is controlled entirely by Federal Rule of Criminal Procedure 14, which requires a showing of prejudice." 474 U.S. at 447 (1986) (interpreting Schaffer v. United States, 362 U.S. 511, 4 L. Ed. 2d 921, 80 S. Ct. 945 (1960)). Therefore, we must now examine the defendants' next argument that there was substantial prejudice from the joint trial, and that this prejudice warrants a new trial under Rule 14. As evidence of prejudice, the defendants point out that this case involved a 178-page indictment, with a six-week trial and 348 alleged illegal acts. They claim that the evidence was "massive and complex," requiring severance under the authority of United States v. Oglesby, 764 F.2d 1273, 1276 (7th Cir. 1985). Appellants' Lead Br. at 63. They also submit that the inconsistent defenses raised by the defendants created extreme prejudice. They contend that no defendant could receive a fair trial when seven defendants were arguing that the payments were mere gratuities, but an eighth defendant was denying any pattern or practice of payments. The defendants admit that individual trial still would have been lengthy because of ...


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