Opinion ID: 387921
Heading Depth: 2
Heading Rank: 4

Heading: The Ostensibly Legitimate Enterprise Issue

Text: 53 The concerns which motivated the majority of the panel in its decision at initial hearing of this case were not frivolous ones. Briefly put, they appear to be these. Some of the deepest concerns of Congress about organized crime came from testimony about major interlocking interstate criminal conspiracies like the Mafia. Many of these criminal activities had serious impact on legitimate businesses. The statute as drafted, however, also strikes at criminal organizations which have much less in the way of financial and manpower resources than those which drew most Congressional attention. These might be subject to appropriate control and suppression through traditional state law enforcement. Therefore, argued the majority of the panel, the statute should be construed under the principle that lenity should be required so that the government must allege and prove that the conspiracy involved in the indictment had an impact on legitimate business, in accordance with one of Congress' deep concerns. This would be accomplished by judicially modifying the word enterprise, as used by Congress, to read ostensibly legitimate enterprise. 54 The majority of the original panel put the matter this way: 55 Two of the canons courts traditionally follow in construing criminal statutes also counsel us not to stray from the path marked out by the legislative history. The first of these is that ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity, Rewis v. United States, 401 U.S. 808, 812, 91 S.Ct. 1056, 1059, 28 L.Ed.2d 493 (1971), unless the legislature has spoken plainly and unmistakably to the contrary. United States v. Gradwell, 243 U.S. 476, 485, 37 S.Ct. 407, 61 L.Ed. 857 (1917). When as in this case the legislative history speaks plainly and unmistakably, but in support of resolving the statute's ambiguity in favor of the construction argued by defendants, the maximum applies with special force and tells us that we ought not to strain to accommodate the government's desire for a broader construction. 56 The other canon that guides us is that, unless Congress conveys its purpose clearly, it will not be deemed to have significantly changed the federal-state balance. United States v. Bass, 404 U.S. 336, 349, 92 S.Ct. 515, 523, 30 L.Ed.2d 488 (1971). To be sure, even under appellants' view, RICO still represents a substantial incursion into state criminal jurisdiction. But the government's construction would take us much further into areas traditionally left to state regulation by making a federal felon out of any individual or any member of a group who has committed any two of the broad range of state offenses denominated racketeering activity under section 1961(1). We do not seriously doubt the power of Congress to undertake such a bold expansion of federal criminal jurisdiction. But we will not simply assume that Congress has done so with this statute, when the text, at best, is ambiguous on the matter and the legislative history suggests a different construction that would not alter the traditional division of responsibilities between federal and state governments quite so radically. 57 For all of these reasons, we are persuaded to construe section 1962(c) in the manner appellants have suggested. We therefore hold that an enterprise within the meaning of the statute is any individual, partnership, corporation, association ... and any union or group of individuals associated in fact, that is organized and acting for some ostensibly lawful purpose, either formally declared or informally recognized. Section 1962(c) is violated whenever any person associated with such an enterprise conducts its affairs, i. e., undertakes any activity on behalf of or relating to the purposes of the enterprise, by committing at least two criminal acts constituting a pattern of racketeering as defined in section 1961(5). Since appellants' numerous acts of racketeering were not shown to have been related in any way to the affairs of such an enterprise, we reverse their convictions under section 1962(c) for conducting the affairs of an enterprise through a pattern of racketeering activity and their convictions under section 1962(d) for conspiracy to commit that offense. 58 United States v. Sutton, 605 F.2d 260, 269-70 (6th Cir. 1979). 59 In Section I. (C.) of this opinion we have pointed out that we find no ambiguity in the statute, and hence find no warrant to do other than accept the statute as Congress wrote it. 60 Alternatively, however, the record in this case fully supports affirmance of these convictions if a requirement of use of or impact on ostensibly legitimate businesses were to be found as a derivative of the legislative history of the Organized Crime Control Act of 1970. The indictment alleged and the proofs in this case show clearly that Edwin's Jewelry Company of Franklin, Ohio, was extensively used by this conspiracy, both as a locale for the transaction of business in narcotics and stolen goods, and as a conduit for the disposition of stolen goods. In this regard the indictment charged: 61 8. It was part of said conspiracy that EDWIN ARTHUR ADAMS used his place of business, Edwin's Jewelry, to carry on the business of said enterprise by obtaining heroin and other controlled substances from HERSCHEL HAROLD WEINTRUB and CARL SUTTON, JR., by distributing said heroin and other controlled substances to other distributors, by obtaining and reselling stolen property, and by using the proceeds of sales of stolen property to finance purchases of heroin and other controlled substances from HERSCHEL HAROLD WEINTRUB and CARL SUTTON, JR. 62 24. On or about June 14, 1976, EDWIN ARTHUR ADAMS met with a Special Agent of the FBI acting in an undercover capacity and told said Special Agent that he used his place of business, Edwin's Jewelry, to obtain and to resell stolen merchandise. 63 The evidence repeatedly showed that Adams met this enterprise's principals and agents at his ostensibly legal place of business and did a brisk trade in narcotics and various kinds of stolen goods with them. FBI Agent Owens' direct testimony established that Adams sold both narcotics and stolen goods to him. Adams' deals were generally made in the jewelry store. Acting entirely independent of Owens, Cincinnati Police Officer Arkenau met Adams at Edwin's Jewelry while posing as someone who supplied narcotics and stolen goods to students at the University of Kentucky in Lexington. On that day he bought heroin from Adams and was offered a stolen stove and two stolen firearms, both of which he later bought. 64 The indictment also charged and the proofs at trial showed that a substantial quantity of watches and jewelry stolen in a burglary of the Miller's Jewelry Store in South Dakota ended up for sale in Edwin's Jewelry in Franklin, Ohio. 65 The emphasis we place upon the role of Edwin's Jewelry and its proprietor Edwin Adams is further demonstrated by the evidence concerning its central position in the enterprise charged and proved in this organized crime prosecution. Cincinnati Policeman Arkenau testified: 66 Q. Now, after you had made your purchase, Sergeant Arkenau, did you talk to Edwin about any other matters other than the heroin that he sold you? 67 A. Yes, we did. We continued our discussion on stolen property of what I would be able to sell down at the University. I mentioned that stereo equipment, typewriters and adding machines were items that students would be able to use in the dorms if they were cheap, and they were items they could purchase and I could turn them over if he could obtain them. 68 He produced, or Edwin produced a list of stereo equipment on a sheet of paper. There were several sheets of paper stapled together or rolled up together, and I reviewed it and said that these were the type of items I could probably get rid of down at the University. There were about eight complete sets of stereo equipment on this list. 69 Mr. Adams produced a list of 45 guns. This was on a sheet of paper, and it had a list of different types of guns on it, and at the bottom there was a number 45, and next to it was the number $5,000 I don't think that was the whole number, but it was five thousand and some odd dollars. 70 At this time, Edwin related the guns were worth approximately $300 apiece and that Otis had sold them all for $20 apiece, and that he had messed up the sale, and they were trying to get that straightened out. 71 Q. What, if any, discussions did you have with Mr. Adams concerning the organization or its operation in any aspect? 72 A. After we discussed the stolen property goods, I started to talk about the heroin operation. Edwin related to me the entire setup of how the operation was started out and how it was founded. Edwin related that the main individual who started the organization was an individual they called J.P., the initials of J.P., and he was the head of the organization several years ago. 73 He also then started to tell me that the organization was split up among three of J.P.'s trusted friends, and one of these three individuals Edwin Adams and Herschel Weintrub had met, and this individual they mentioned by the first name of Carl, and Carl did not have the money to back the operation, so they went to Herschel and Edwin to finance the operation, and Carl would furnish the drugs. 74 During this time, Edwin said they buy their heroin a kilo at a time for approximately $20,000 a kilo, and it would be in the vicinity of 20 percent pure by the time they got it. 75 We discussed the heroin, and Edwin said when he first started the operation, they would take the 20 percent pure heroin, package it up and immediately put it out on the street. They received some complaints from a man in Dayton who apparently shot the heroin, and it was too strong for him. He started to overdose, or he did overdose, and they started then to cut it down. 76 Well, then they got a complaint from the Cincinnati area that the heroin they were supplying to Cincinnati was too weak. With this, Edwin packaged up what he called a T of heroin and took it to Cincinnati and met with this man, one of their main suppliers in Cincinnati, he met with him and brought the heroin with him. This supplier called the heroin addict to his house, and at this time this addict shot up some heroin, and Edwin mentioned his head immediately hit the table. 77 The dealer in Cincinnati apologized to Edwin for calling him down. Apparently, the heroin addict or junkie was recutting the heroin to try to make himself some money. 78 Edwin then stated that it would cost him $7,000 and Herschel $7,000. They would pool their money together and then Carl would furnish the other money, and they would go together and Carl would pick up the heroin to be distributed. 79 The conversation of Edwin related this story, and we went on to the purchase of the firearms afterwards. 80 Q. In relationship with that, did you buy anything else from Mr. Adams on that date? 81 A. Yes, I did. After talking about the heroin operation, Mr. Adams had on the table a .45-caliber Star automatic weapon that I previously looked at and wanted to buy and agreed to pick up this date. 82 He slid the gun over to me. I examined it. Inside the package was a slip of paper with the name of Pedro Pete Muscari written on it with the address of Pete Muscari and an address of Breezeway Motor Court, Middletown, Ohio. This was inside the plastic box. 83 Also inside the box was the weapon and the magazine. 84 Q. Now, you had stated that you purchased this gun. Did you pay an additional amount for this gun or did it come with your other purchase that day? 85 A. No, I had to pay another hundred dollars for the gun. 86 Edwin made a phone call. First the gun was offered to me for $150, and I wouldn't pay $150 for the gun. Edwin made a phone call, and stated that Dan was here. Well, when he called, he asked, Is he there? Then, Edwin stated that Danny was up here and wanted to buy the gun and would they sell it for a hundred dollars. 87 Apparently, the man agreed to sell it to me for a hundred dollars. Edwin nodded. I then gave Edwin at first I gave him $800 trying to save myself some money, and Edwin counted it out and told me I owed him another $50, so I paid him a total of $850, $750 for the heroin and another hundred for the gun. 88 Q. Would the clerk please hand the witness Government's Exhibit 18? 89 (Government's Exhibit 18 handed to the witness.) 90 Sergeant Arkenau, have you examined Government's Exhibit 18? 91 A. Yes, I have. 92 Q. And what is it? 93 A. That is a Star .45-caliber automatic weapon with a magazine in a plastic box containing the weapon and a slip of paper with the name of Pete Muscari, Breezeway Motor Court, Middletown, Ohio. All of these have my badge number, 262, and the date of August 4, 1976, inscribed on them. 94 Q. Would you hold that gun up a little bit so we can see it? 95 (Gun held up.) 96 Did you discuss any potential future purchases of heroin with Mr. Adams? 97 A. Yes, we did. After I purchased the gun, we continued to talk. Edwin was telling me about how easy it was to be a fence or a dealer of stolen merchandise. Since he was in the jewelry-type business, he could purchase items and melt them down and remake them since he had a certain type of manufacturer's license. 98 I told him I didn't know a whole lot about the jewelry business, whether it was a good diamond or bad diamond, and so forth, and he explained that it was real easy to be a jewelry fence in the legitimate business of a jewelry store. 99 On May 11 Agent Owens (in his undercover role) was told by Adams that his heroin suppliers were Carl and Herschel. Carl Sutton and Herschel Weintrub and appellant Otis Hensley were repeatedly identified and photographed at Edwin's Jewelry. 100 Hensley, whose stolen goods were frequently sold by Adams through use of Edwin's Jewelry, told Agent Arkenau that he had 12 burglary rings working for him: 101 Q. After the discussion you just outlined, what, if anything, happened next?A. After we left the restaurant, we went back to Edwin Adams' store in Franklin, Ohio. We started talking about my being able to pick up adding machines and typewriters, and so forth, to sell down at the University, and Otis informed me that he could get me 20 adding machines and 20 typewriters immediately because he had the key to an office supply store. 102 Q. Sergeant Arkenau, when you say Otis, to whom are you referring? 103 A. Otis Hensley. 104 Q. After your discussion about the adding machines and typewriters, do you recall any further discussions you had? 105 A. Edwin and Otis advised me they had these twelve teams of burglars working for them, and anything I needed they could get. All I had to do was really place an order, and they would pick it up for me. 106 Edwin then produced a sheet of paper from a black notebook which had several lists of stereo components on it. I examined it and looked at it and wanted to know how much they were, and Edwin then handed it to Otis, and Otis looked at it and agreed they would have to look at this merchandise to be able to give me the exact price. 107 I then requested if I could keep this or that they make a copy of it for me. Edwin started to make a copy of the sheet of paper he handed to me. 108 Q. Would the clerk please hand the witness Government's Exhibit 22? 109 (Government's Exhibit 22 handed to the witness.) 110 Sergeant Arkenau, you have now been handed Government's Exhibit 22, and I will ask you what that is. 111 A. This is the exhibit that Edwin Adams copied for me on 8-24-76 in his store, and it is marked with my badge number. 112 Q. After this discussion, what, if anything, did you do? 113 A. Edwin started to write the note. I inquired if I could look at the items that Otis had offered for sale. 114 Both myself and Otis Hensley departed the store and went out to his automobile where he opened the trunk of the car up. I looked at the material inside and offered him $250 for everything that was in the trunk. These were the adding machines, the television and cameras, and so forth, in the trunk. 115 Otis shut the trunk and said he had more than that invested in it. So, we left the car and went back to the store. We went in the store and Edwin was still seated at the desk copying this receipt. 116 Q. The receipt that you identified? 117 A. That's correct. Once inside the store, I noticed that the phone kept constantly ringing, and after once Edwin got off the phone, I asked him if any more heroin was due in shortly because I would probably be needing some more, but I wanted to get a better price on it. 118 I presented the situation that my mother was gravely ill in Florida, and I had to help my dad with the finances of paying for the doctor bills, and I wanted a better cut on the price of heroin. 119 Edwin explained to me that the people in Cincinnati are complaining they want more money for it, and now I want to buy it for less money, and he would have to see what he could do for me. 120 Otis then offered the items in the car for $350 if I would take everything as it was. 121 I agreed to the $350 price. Myself and Otis left the store, went out and loaded the items from his car into my car. I handed Otis $360 and went back in the store where Otis handed the money to Edwin. Edwin handed Otis back $10 who in turn gave me the $10 change. 122 At a point later in the trial, a photostatic copy of the list of items referred to in the foregoing testimony was introduced. That list contained 12 items of stereo equipment. 123 After this six-week trial, the jury found the following concerning Edwin's Jewelry of Franklin, Ohio: 124 We, the Jury herein, unanimously find that the defendant EDWIN ARTHUR ADAMS has been found guilty of Count 1 or Count 2 of the indictment; that he acquired or maintained an interest in Edwin's Jewelry, 426 South Main Street, Franklin, Ohio, between May 6, 1976, and July 6, 1977, and that he carried on the business of an illegal enterprise through such business between the foregoing dates. 125 Special Verdict Form A, Docket Edwin's Jewelry, CR 1 77-73, Document No. 31. 126 The District Judge subsequently impounded the assets of Edwin's Jewelry in the following order: 127 Pursuant to the Jury's verdict of forfeiture of Edwin's Jewelry Store, and based upon the Affidavit of Special Agent Grant E. Beise of the F.B.I. that Edwin Arthur Adams moved the assets of Edwin's Jewelry Store to Lanecrest Jewelry, 48 Millard Drive, Franklin, Ohio, 128 IT IS HEREBY ORDERED that the F.B.I. padlock the premises of Lanecrest Jewelry, 48 Millard Drive, Franklin, Ohio, until such time as an inventory of the assets of said premises can be made and furnished to the Court. 129 Order of Nov. 1, 1977, Docket No. CR 1 77-73-5, Document No. 30. 130 Another ostensibly legitimate business was also deeply involved in this criminal conspiracy. It was Spencer's Jewelry of Middletown, Ohio, of which Herschel Weintrub was the proprietor. As we have previously noted, Weintrub was not a part of this trial, since he pled guilty, but this record is replete with evidence about his role. The record warrants the conclusion that he and Carl Sutton were leading figures in this criminal conspiracy, that Sutton (aided by Viola Holmes) was the contact with the Cleveland suppliers Elkins and Carter, that Weintrub supplied financing for drug purchases to Sutton, and that Sutton and Adams (and sometimes Weintrub) in turn sold smaller quantities to appellants Hensley, Harris, Craven and Rankin, each of whom headed a street distribution operation. Appellant Hensley's specialty was stolen goods, much of which he distributed through Adams and Edwin's Jewelry. 131 Weintrub managed Spencer's Jewelry and transacted the business of this illegal conspiracy at the store. This is shown in this record both by direct evidence of law enforcement agents who penetrated this ring undercover and by massive evidence furnished by search warrant-authorized wiretap transcripts to have been continually involved in the purchasing of illegal drugs (through Sutton) and the sale of said drugs to Adams and other defendants. He was also involved with Adams in the acquisition and sale of stolen goods. 132 He is also shown to have initiated a scheme with Hensley whereby Hensley and he defrauded a legitimate business, Nationwide Insurance Co., of $7,500. Weintrub's interest lay in the fact that Hensley was in debt to him (Weintrub) for heroin to the tune of $525. Weintrub supplied Hensley with fraudulent jewelry sales slips from Spencer's Jewelry to help him prove his losses in his fraudulent claims against his lawful insurer, Nationwide Insurance Co. 133 The proofs in this trial allowed the jury to find that this was a large-scale criminal enterprise operated by these nine appellants (plus guilty pleader Weintrub) and many other relatively minor figures (23 of whom have now pled guilty). Those proofs also warrant this court in concluding that the enterprise involved and affected interstate (and international commerce in its heroin aspect), that it employed at least two 6 ostensibly legitimate businesses (i. e. Edwin's Jewelry of Franklin, and Spencer's Jewelry of Middletown) as both fronts and bases of operation, and that it had adverse economic impact upon two other legitimate business enterprises, Miller's Jewelry of Huron, South Dakota, and upon Nationwide Insurance Co. 134 This particular enterprise prosecuted under the Racketeer Influenced and Corrupt Organizations Act is certainly not shown to be nationwide in scope or capable of dominating the area in which it was operating, as some evidence presented to Congress showed was true concerning other major organized crime operations. It had, however, achieved a massive street distribution of heroin affecting many young people in at least two states, and it had shown capability for stimulation of interstate traffic in stolen household goods, jewelry and guns. On these facts we cannot hold that this enterprise was beyond the contemplation of Congress when it passed Title IX of the Organized Crime Control Act of 1970. 135 The point of Section I. (D.) of this opinion is not to suggest that the enterprise charged and proved in this case was other than that set forth in the indictment. Appellants were charged with conspiring: 136 To knowingly conduct and participate directly and indirectly in the conduct of the affairs of an enterprise which was engaged in, and the activities of which affected interstate commerce, said enterprise being an unlawful business enterprise engaged in distribution of controlled substances, interstate transportation of stolen property, receipt of stolen property transported in interstate commerce, and mail fraud, in the Southern District of Ohio and elsewhere. 137 The enterprise thus charged and proved to the satisfaction of the jury and this court was a thoroughly illegal organization. 138 In this section we have, however, pointed out how this case illustrates the appropriateness of Congressional concern about organized crime's infiltration of or impact on legitimate (or ostensibly legitimate) business as that concern is exemplified in the legislative history of the Organized Crime Control Act of 1970. Assuming that a purpose of protecting legitimate business from the depredations of organized crime may be found in Title IX, this prosecution serves effectively to vindicate that purpose. This record clearly shows that Miller's Jewelry of Huron, South Dakota, and Nationwide Insurance Co. of Columbus, Ohio, were, as charged in the indictment, victims of this unlawful business enterprise. In addition, Edwin's Jewelry of Franklin, Ohio, and Spencer's Jewelry of Middletown, Ohio, were clearly shown (as charged in the indictment) to have been infiltrated and used as a front for the illegal purposes of this unlawful enterprise. Yet a fifth ostensibly legitimate business, Carter Exterminating Co. of Cleveland, Ohio, is shown to be involved with this unlawful enterprise, but to a less well-defined degree. 139 The basic interpretation of Title IX of the Organized Crime Control Act of 1970 and its employment of the word enterprise which this opinion sets forth has now been endorsed by a large majority of the United States Courts of Appeals which have thus far considered the issue. E. g., United States v. Whitehead, 618 F.2d 523 (4th Cir. 1980); United States v. Aleman, 609 F.2d 298 (7th Cir. 1979), cert. denied, 445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780 (1980); United States v. Rone, 598 F.2d 564 (9th Cir. 1979), cert. denied, 445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780 (1980); United States v. Swiderski, 593 F.2d 1246 (D.C.Cir.1978), cert. denied, 441 U.S. 933, 99 S.Ct. 2056, 60 L.Ed.2d 662 (1979); United States v. Elliot, 571 F.2d 880 (5th Cir.), cert. denied sub nom. Delph v. United States, 439 U.S. 953, 99 S.Ct. 349, 58 L.Ed.2d 344 (1978); United States v. Altese, 542 F.2d 104 (2d Cir. 1976), cert. denied, 429 U.S. 1039, 97 S.Ct. 736, 50 L.Ed.2d 750 (1977). Contra, United States v. Anderson, 626 F.2d 1358 (8th Cir. 1980); United States v. Turkette, 632 F.2d 896 (1st Cir. 1980, as amended Sept. 25, 1980). 140 While this case has been pending before the en banc court, panels in two circuits have released opinions (cited immediately above) following the general approach which was adopted by Judge Merritt's majority panel opinion in this court. 141 We believe what has been said above concerning the legal aspects of this case affords sufficient answer to these two opinions. They, like the dissent herein, represent a doubtless conscientious view on the part of the judges concerned that Congressional adoption of Title IX of the Organized Crime Control Act of 1970 was inadvisable. Yet none of the opinions deny that the government's prosecution of an illegal enterprise is squarely authorized by the statute, 7 and none of the opinions deny that the Congress had constitutional authority to adopt it. We reiterate that the Congress of the United States considered the threat to domestic tranquility posed by organized crime for two decades before adopting what the Supreme Court has described as follows: The Act is a carefully crafted piece of legislation. Iannelli v. United States, 420 U.S. 770, 789, 95 S.Ct. 1284, 1295, 43 L.Ed.2d 616 (1975). 142 The Congressional Statement of Findings and Purpose of the Organized Crime Control Act of 1970 strongly supports the conclusions reached by the majority of these courts and by this opinion: 143 Section 1 of Pub.L. 91-452 provided in part that: 144 The Congress finds that (1) organized crime in the United States is a highly sophisticated, diversified, and widespread activity that annually drains billions of dollars from America's economy by unlawful conduct and the illegal use of force, fraud, and corruption; (2) organized crime derives a major portion of its power through money obtained from such illegal endeavors as syndicated gambling, loan sharking, the theft and fencing of property, the importation and distribution of narcotics and other dangerous drugs, and other forms of social exploitation; (3) this money and power are increasingly used to infiltrate and corrupt legitimate business and labor unions and to subvert and corrupt our democratic processes; (4) organized crime activities in the United States weaken the stability of the Nation's economic system, harm innocent investors and competing organizations, interfere with free competition, seriously burden interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its citizens; and (5) organized crime continues to grow because of defects in the evidence-gathering process of the law inhibiting the development of the legally admissible evidence necessary to bring criminal and other sanctions or remedies to bear on the unlawful activities of those engaged in organized crime and because the sanctions and remedies available to the Government are unnecessarily limited in scope and impact. 145 It is the purpose of this Act to seek the eradication of organized crime in the United States by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime. 146 18 U.S.C. § 1961 et seq. (1976) (emphasis added). 147