Opinion ID: 595184
Heading Depth: 2
Heading Rank: 1

Heading: The Trial Court's Conduct

Text: 26 The district judge took an active role in the trial of this case, asking numerous and probing questions of witnesses. Such conduct is unquestionably proper--indeed, often required--in extremely complex cases. United States v. Gurary, 860 F.2d 521, 527 (2d Cir.1988), cert. denied, 490 U.S. 1035, 109 S.Ct. 1931, 104 L.Ed.2d 403 (1989); United States v. DiTommaso, 817 F.2d 201, 221 (2d Cir.1987); United States v. Pisani, 773 F.2d 397, 403 (2d Cir.1985). However, such questioning carries with it the risk that the judge will appear partial to one side or the other. In order to avoid the appearance of partiality, a trial judge should limit questioning to inquiries necessary to clarify ambiguities, correct misstatements, or obtain information necessary to make rulings. United States v. Mazzilli, 848 F.2d 384, 388 (2d Cir.1988). 27 The fact that a judge asks a question the purpose of which is not so limited will not always require reversal. Judges are human, and it is inevitable that in the course of long, complex, and hotly contested trials, a judge may on occasion react intemperately. A defendant is not entitled to a perfect trial, only a fair one. United States v. Robinson, 635 F.2d 981, 984 (2d Cir.1980), cert. denied, 451 U.S. 992, 101 S.Ct. 2333, 68 L.Ed.2d 852 (1981). Our ability to discern from a cold record whether particular statements of a trial judge rendered the trial unfair is quite limited. [I]t is difficult to glean tone of voice, whether sarcastic or neutral, facial expression, whether reflecting disbelief or sober thoughtfulness, or physical demeanor, whether self-contained or expressing opinion and emotion. Therefore, it is only after an examination of the entire record that we can come to a conclusion about the conduct of the district court. Mazzilli, 848 F.2d at 389 (2d Cir.1988). 28 The defendants point to several incidents in the trial that we quite frankly find disturbing. Nonetheless, after a careful review of the entire record, we conclude that the district court's conduct did not deny defendants a fair trial. 29
30 A district court must show particular restraint in questioning a criminal defendant during the defendant's direct testimony. At this critical phase of the trial, the court must scrupulously insure that its questions do not indicate that the court doubts that the witness is telling the truth. Mazzilli, 848 F.2d at 388-89; United States v. Victoria, 837 F.2d 50, 55 (2d Cir.1988). Impeaching the defendant is the job of the prosecution, not the court. 31 Here, the district court vigorously interceded in Edelman's testimony. Most of the court's questioning took the form of inquiry into precise details of the transaction. The court repeatedly sought to clarify whether GCC had made certain payments to TSMH in cash or by book entry. While the relevance of this distinction to whether the transactions took place or had economic substance is not entirely clear, our view upon reading the record is that the court's questions were aimed at pinning down this factual issue, not at casting doubt on defendant Edelman's credibility. Accordingly, we think this portion of the court's questioning of Edelman was proper. 32 We are more troubled by the court's questioning of Edelman with regard to financing arrangements between GCC and the investor partnerships. At one point, Edelman compared GCC's willingness to enter into a repurchase agreement with an investor partnership to allowing a customer to purchase securities on margin. The court asked a series of questions that undermined the analogy: 33 [Edelman]: Yes, there is financing here and the best analogy I could make simply is to a financing on a margin account where you might have 100 shares of IBM you paid for, no money in your account, but fully paid for and you want to buy another 100 shares. You can do that. 34 The Court: Yes, you can, but if it's called you are expected to pay. 35 Edelman: If there is a margin call. 36 The Court: Yes. 37 [Edelman]: And the same thing is here, if my equity declines-- 38 The Court: At any time in these whole 2 years we are talking about, did GCC or TSM ever call upon any of these partnerships to put money on any of these financing transactions? 39 [Edelman]: Can I answer that generically first? 40 The Court: Any way you want to. 41 [Edelman]: When an account at GCC has deficit equity, that is, that its value is less than the amount that it has borrowed, it has deficit equity, then GCC would be in a position to ask for more money. It may ask for more money, it may not. 42 The Court: That isn't my question. This is 1990. We are seven years down the road of the last transaction. In any of those two years, '82 or '83, did GCC or TSM ever ask any of these partnerships to put up money such as you were talking about a margin call in a stockbroker's account? 43 [Edelman]: With respect to the financing repo to maturity transactions, no other transactions? 44 The Court: Yes. 45 [Edelman]: I don't think so. GCC would be the person who would ask for money and I don't recall any situation where that was required. 46 [The Court]: That is the question I was asking. 47 By forcing Edelman to concede that GCC never made a margin call, the court discredited Edelman's analogy to ordinary brokerage accounts. By undermining Edelman's testimony in this fashion, the court may have cast some doubt on Edelman's credibility. We note, however, that the court's questioning related to a collateral issue and that Edelman's lawyer, upon resuming questioning, elicited testimony explaining that GCC would never need to make a margin call because the securities held as collateral for the repos, the T-Bills, were by their very nature always increasing in value as maturity approached. Thus, any doubts raised by the court's questions were quickly dispelled. While the court should not have challenged Edelman's analogy, since the challenge reflected as much on credibility as it did on factual clarification, we do not think this incident undermined the fairness of the trial.
48 We are also disturbed by the district court's conduct during the cross-examination of Richard Bandel, who testified for the government. The government's theory was that Bandel had been placed in TSMH by Manko to record the paper transactions in TSMH's books and that Bandel had no substantive role in determining the dimensions of the transactions. 49 The defense sought to discredit the government's view of Bandel's role in several ways. First, the defense asked Bandel to explain his testimony that Manko had hired him at TSMH in light of Bandel's prior statement in an affidavit that someone other than Manko had hired him to work at TSMH. Bandel, with some prodding from the district court, indicated that he stood by his testimony in court and that his present recollection was more accurate than that found in his prior affidavit. The defense also asked Bandel about his view of the transactions, perhaps in an effort to show that Bandel had some role in negotiating the deals: 50 Q. [The Prosecutor] asked you about the large trades that occurred in November of 1982. 51 A. Yes, he did. 52 Q. And it's your testimony that you viewed those trades no differently than any others? 53 A. Just that I was told-- 54 The Court: By whom? 55 The Witness: By Joe Bryant, usually the day before I would get the ticket, that there were large tax trades going through. 56 Q. And it's fair to say the word tax trade was used openly? 57 A. Yes. 58 Q. And that based on your experience on Wall Street that many trades had a tax component? 59 Mr. Robinson: Objection. 60 The Court: This man was a scrivener, he wasn't a policy maker. 61 While prosecutor Robinson's objection was well taken, in that Bandel had not been qualified as an expert, the court's observation that Bandel was a scrivener was unnecessary and prejudicial. The government's theory was that Bandel was a scrivener, and evidence in the record supports this view. The district court, however, should not have endorsed the government's position. 62 The court repeated the error moments later: 63 Q. Did you ever tell Mr. Maurus or Mr. Genovese that you had any problems with these trades? 64 The Court: He has told us that when he found there might be errors, he spoke to Mr.--who did you speak to about the errors in calculating the fees? 65 The Witness: The financing, Joe Bryant. 66 The Court: And Mr. Bryant and you got together and corrected whatever errors? 67 The Witness: Yes. 68 Q. My question was, did you ever tell Mr. Maurus or Mr. Genovese, when they took control of TSM Holdings, that you had any problems or concerns about these trades? 69 The Court: What kind of problems are you talking about? The man was a scrivener. That's the third time I repeated it. He knew nothing about the underlying transaction, and you're not going to ask questions to give the inference that he did when he has told you repeatedly he did not know. 70 The court thus explicitly and repeatedly endorsed the government's view of Bandel's role. Such a breach of impartiality is a matter of grave concern. 71 We cannot, however, conclude that the court's conduct denied Manko and Edelman a fair trial. First, defendants did not argue to the jury that Bandel negotiated the transactions. In closing argument defendants all but adopted the court's characterization, impeaching the accuracy of Bandel's testimony by stressing that after leaving Wall Street, Bandel went to work as a part-time starter at a golf course. Thus, defendants do not really dispute the accuracy of the scrivener label. 72 Second, the court properly instructed the jury that the jury's view of the evidence controlled, regardless of what the court said: 73 With respect to factual matters, it is your recollection that controls. Nothing that counsel for either the government or the defendant may have said with respect to matters of evidence, either in their openings or in their summations, is evidence in this case; nor are any remarks that I may make during the course of this charge, or have made during the course of the trial--that is not evidence. 74       75 I remind you again that nothing I may have said, even my questions to witnesses during the trial when they were on the stand, those questions should be given no undue weight for their sole purpose was to clarify and aid you in understanding what the content of the testimony was to be. So you are to place no undue weight, one way or another, on the fact that I may have asked questions of witnesses. 76 In light of this extensive instruction and the fact that the court's statement concerned what proved to be an uncontested issue, we do not think that the court's error denied Manko and Edelman a fair trial. 77 In sum, our review of the transcript confirms that on a few occasions the court crossed the line in questioning witnesses. In the context of a four month trial, we think the court's conduct did not indicate to the jury that the court believed that the prosecution should win. Accordingly, we reject defendants' contention that the trial court's conduct denied them a fair trial. B. The Ex Parte Conference 78 Towards the end of the government's summation, one prosecutor initiated a conference with the district court, without the defense team. The conference was transcribed, but the district court sealed the record of the conference and refused to unseal the transcript until after the government's rebuttal summation. In this ex parte conference, the prosecutor advised the district court of his plan to use a chart in the rebuttal summation: 79 The Court: What is it you have handed me, Mr. Cleary? 80 Mr. Cleary: Judge, I just handed you a document I typed up headed Excerpts of testimony. It lists witness's names and either quotations or paraphrases of their testimony. It's what I propose to use. It's a mockup of a chart I propose to use in my rebuttal summation. 81 I bring this to you ex parte because I didn't want to let the defense know at this time before they sum up exactly what I am proposing to do in my rebuttal and I did want to apprise the court that I am planning on doing this so that your Honor could allot whatever time is necessary between the end of the last defense summation and the beginning of the rebuttal summation should there be objection to this. Because at that time I propose to give the defense a copy of this mockup which contains references to the page of the transcript. 82 I should add, Judge, if you think it's more appropriate to disclose this information to them now, although I prefer not to I, of course, would go along with that. 83 The Court: No, I don't think you should disclose it. What I will do is I will check the places that you expect to use quotations or summations of testimony with the record so I will be in a position to rule if there are objections to your use. 84 Mr. Cleary: Thank you, Judge. 85 The Court: All right. 86 At the close of the defense summation, the government informed the defense of its intent to use the chart on rebuttal, and the court allowed the defense forty-five minutes to review the twenty-eight quotations and paraphrases in the chart for accuracy. Defendants objected to the use of the chart and requested surrebuttal, but did not point to any specific inaccuracies in the chart. The court overruled defendants' objection and denied the request for surrebuttal. On appeal, the defendants assert that the ex parte conference denied them due process. 87 We note at the outset our inability to fathom why the prosecutor would jeopardize a four month trial with a wholly unnecessary ex parte conference. Such conferences should not be conducted except in extraordinary circumstances. United States v. Walsh, 700 F.2d 846, 858 (2d Cir.), cert. denied, 464 U.S. 825, 104 S.Ct. 96, 78 L.Ed.2d 102 (1983). No such extraordinary circumstances are present here. 88 The government lamely contends that the conference was for a proper purpose--to advise the district court of the government's plan to use a chart so that the court could allot proper time for argument between the defense summations and the government's rebuttal summation. But if that were all that the government wished to accomplish in the meeting, then there would have been no need to show the court the chart the government planned to introduce. The government could have indicated, with defense counsel present, that it likely would have a chart in rebuttal which would require prior review. The only purpose for showing the court the precise quotes the government wished to use was to enable the court to review the chart for accuracy before the defense had an opportunity to present any arguments to the court. In short, the prosecution initiated this ex parte proceeding in a blatant attempt to win a tactical advantage, to get a leg up. Unhappily, the district court went along with the prosecution. 89 That this ex parte conference was improper and unnecessary does not, of course, establish reversible error. United States v. Persico, 349 F.2d 6, 13 (2d Cir.1965). Rather, [t]he fact that such a meeting occurs ... does not require reversal if it does not affect the fairness of the trial. Walsh, 700 F.2d at 858; see also United States v. Moten, 564 F.2d 620, 630 (2d Cir.), cert. denied, 434 U.S. 959, 98 S.Ct. 489, 54 L.Ed.2d 318 (1977). 90 Defendants do not point to any inaccuracies in the chart. Nor do defendants identify any way in which the chart went beyond the scope of proper rebuttal. Cf. United States v. Giovanelli, 945 F.2d 479, 493-96 (2d Cir.1991) (Newman, J., concurring). Defendants' contention that a chart prepared before the defense summation is necessarily beyond the scope of rebuttal is unpersuasive. The quotations reflected on the charts were all central to the case. The government could easily predict that defense summation would tread the same ground as the quotations. Thus, we are convinced that the district court acted properly in allowing the government to use the chart. 91 Of course, the propriety of using the chart cannot be the measure of whether the ex parte proceeding constituted reversible error. Otherwise, the fact of an ex parte proceeding would be irrelevant so long as the court ultimately made the right ruling. Such a rule would not properly reflect our deep distrust for one-sided proceedings. Here, however, two facts convince us that reversal is not required. First, because the chart was clearly accurate and within the scope of rebuttal, there is no reason to believe that the district court would have ruled differently absent the ex parte conference. Moreover, even if the conference did influence the judge's decision to allow the chart, in the context of this four month trial, we doubt that this chart highlighting damaging testimony played even a minimal role in influencing the jury verdict. The prosecution presented substantial evidence that the transactions with TSMH never occurred. The chart at issue did not present any new information or any information that could not have been conveyed easily to the jury without the chart. Accordingly, we conclude that this highly improper ex parte conference does not constitute reversible error. C. The Jury Instructions 92 Defendants raise a series of objections to the court's instructions to the jury. Principally, defendants argue that the court should have given all of the proposed charges submitted to the court by the defense on the afternoon of the charging conference. Most of the proposed charges concerned tangential legal issues that the government never disputed. In this lengthy trial, the court properly avoided burdening the jury with this extraneous information. Accordingly, we find most of defendants' contentions meritless. Defendants do raise three objections to the charge that warrant discussion. 1. Ratification 93 The defense argued at trial that the transactions between TSMH and GCC were real and binding even if TSMH did not grant discretion to GCC to perform trades, because TSMH subsequently ratified GCC's trading. The district court, as part of a general charge on defense contentions, instructed the jury that the defendants contend that TSM Holding ratified all transactions by subsequent conduct. The defense requested an additional instruction defining ratification. The court refused to give the proposed instruction. Defendants assert this refusal constitutes reversible error. We disagree. 94 A court may properly refuse to give a charge that fails to accurately state the law. United States v. Paccione, 949 F.2d 1183, 1200 (2d Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 3029, 120 L.Ed.2d 900 (1992). Here, defendants' requested charge stated that TSMH could ratify the acts of GCC either by sending back confirmations to GCC, by failing to object to the transactions after TSMH received confirmations from GCC, or by any other conduct, such as recording the transactions as if they were done, indicating an intention to be bound by the transactions. The problem with this proposed charge is that under New York law, [a]n agent's acts that are not valid unless performed pursuant to writing can only be ratified in writing. Weston Associates, Inc. v. Niagara Properties, Inc., 130 A.D.2d 964, 965, 516 N.Y.S.2d 381, 382 (4th Dept.1987). Here, the acts of the purported agent, GCC, contracting for the purchase of securities, would not be valid absent some writing signed by the party against whom enforcement is sought. N.Y.U.C.C. § 8-319(a). Accordingly, TSMH could ratify GCC's authority only through a writing. The defendants' proposed instruction suggesting that TSMH could ratify through any conduct indicating an intent to be bound by the transactions failed to state New York law accurately. The district court correctly refused to give the proposed instruction. 2. Economic Substance 95 Defendants claim that they were prejudiced by a reversal by the trial court during the course of the trial on the issue of the proper definition of economic substance. On the eve of trial, the court ruled that if the transactions were not economically substantive indebtedness, the interest would not be deductible. Defendants claim that the trial court, at this time, rejected a two-part test for economic substance advanced by the government, instead adopting an open definition of economically substantive indebtedness, but then reversed itself in its charge to the jury by adopting the two-part test previously rejected. The two-part test with which the court charged the jury stated, in accordance with our decision in United States v. Atkins, 869 F.2d 135, 139-40 (2d Cir.), cert. denied, 493 U.S. 818, 110 S.Ct. 72, 107 L.Ed.2d 39 (1989), that a transaction lacks economic substance if it lacks a reasonable possibility of profit and lacks market risk. Defendants contend that the ambiguous term economically substantive indebtedness adopted on the eve of trial would encompass purely formal indebtedness, and that they relied on this notion in presenting their case. The defendants claim that this reversal constitutes a violation of the law of the case doctrine and they were prejudiced by it, since they relied on the earlier ruling in formulating their trial strategy. 96 While a trial court's reversal of its own ruling during the course of a trial may raise serious issues of prejudice, see United States v. Uccio, 940 F.2d 753, 758 (2d Cir.1991), we doubt whether such concerns are raised here. Our review of the trial record suggests that, at the outset of the trial, the judge's ruling was limited to acknowledging that the question of economic substance was an issue in the case after first saying off the record that it would not be an issue. The judge did not provide the parties with a precise definition of economic substance until her instructions to the jury, when she employed the two-prong test of Atkins. On the eve of trial, the judge simply noted that the defense objected to the government discussing profit motive and market risk, but stated to the parties that in establishing whether or not there was economically substantive indebtedness, the parties may present whatever factors you believe are relevant in order to reach that legal conclusion.... In light of this, the eventual jury charge defining economic substance as profit potential or market risk does not appear to us to constitute a reversal of a prior decision. 97 In any event, we need not decide whether there was a prejudicial reversal of a prior ruling of law by the trial court. In the special interrogatory, the jury found that the transactions were fictitious and did not take place. That finding rendered the jury's understanding of the term economic substance irrelevant to the outcome. 3. Prearranged Transactions 98 Defendants contend that the court's charge implied that prearranged transactions are necessarily fictitious. Defendants argue that since all repurchase transactions are in some sense prearranged--in that the borrower sells the security to the lender and agrees in advance to repurchase the security at a later date for a set price--the court's charge effectively forced the jury to conclude that the transactions were fictitious. 99 Defendants focus particularly on the court's instructions with respect to the knowledge element of the filing false returns charge. The court advised the jury that the government did not have to prove actual knowledge. Instead, the court stated: 100 you may find that a defendant knew that the transactions were a sham or without economic substance if you find, 1, that the defendant you are considering was aware of a high probability that the transactions did not take place or were prearranged and, 2, that the defendant acted with deliberate disregard for how or whether those transactions were carried out with a conscious purpose to avoid learning the truth on this subject. (emphasis added) 101 The defendants argue that this charge equated transactions that did not take place with transactions that were prearranged. 102 However, we think the more natural reading of the above passage is that it equates transactions that did not take place with transactions that were a sham and equates transactions that were prearranged with transactions without economic substance. Viewed in this light, we doubt the court's instructions prejudiced defendants. Elsewhere in the instructions the court advised the jury that transactions may be arranged in an attempt to minimize taxes and expressly stated that in order to lack economic substance, a transaction must lack[ ] a reasonable possibility of profit apart from tax deductions, and ... lack[ ] market risk. 103 More importantly, even if the charge confused the jury on this point, we are unable to see how this confusion prejudiced defendants, for the same reason that we find that defendants could not have been prejudiced by the trial court's alleged reversal on her instructions on economic substance. As noted above, the jury expressly found that the transactions were fictitious and did not take place. This response to the special interrogatory removed the economic substance issue from the case. Any lingering confusion about whether prearrangement was synonymous with a lack of economic substance was irrelevant to the verdict. Accordingly, we reject defendants' challenges to the jury instructions. 104 Finally, defendants assert that the government failed to produce sufficient evidence to support the conviction and that prosecutorial misconduct in summation denied them a fair trial. We have considered these and the remainder of defendants' arguments and find them to be without merit.