Court Opinion

ID: 767391
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:33:02+00
Date Added: 2024-06-11T17:55:28.009999
License: Public Domain

201 F.3d 858 (7th Cir. 2000)
United States of America,    Plaintiff-Appellee,v.Joseph Polichemi, et al.,    Defendants-Appellants.
Nos. 96-3866, 96-3867, 96-3868, 96-3869, 96-3870
In the  United States Court of Appeals  For the Seventh Circuit
Argued January 4, 1999Decided January 13, 2000*

Appeals from the United States District Court  for the Northern District of Illinois, Eastern Division.  No. 94 CR 555--William T. Hart, Judge.
Before Flaum, Rovner, and Diane P. Wood, Circuit  Judges.
Diane P. Wood, Circuit Judge.

1
Not everyone has a  perfect understanding of the complex workings of  modern financial markets, and unfortunately,  sometimes unscrupulous individuals manage to  exploit that fact for a period of time. This  case, at its outset, involved seven such  individuals, who allegedly engaged in a  breathtakingly ambitious phony investment scheme  through which they bilked nearly 30 investors out  of more than $15 million. Their largest patsy was  the Chicago Housing Authority, which lost more  than a third of its pension fund, some $13  million, in the scheme. The CHA's former director  of employee benefits, John Lauer, landed in  prison for fraud and related offenses as a result  of these dealings. See United States v. Lauer,  148 F.3d 766 (7th Cir. 1998).

2
The present appeal comes to us from the  convictions after a jury trial of four of the  defendants, Joseph Polichemi, Lyle "Pete" Neal,  Oscar William Olson, and Charles Padilla, on  assorted counts of wire fraud, money laundering,  conspiracy, and perjury. A fifth, Larry  Oesterman, who pleaded guilty, argues that his  sentence is too harsh. Although taken together  the four who went to trial have raised nearly a  score of issues for our consideration, we  conclude that the trial court's handling of the  defendants' effort to strike a juror for cause  was an error that fundamentally tainted the  fairness of the trial. Under this circuit's  decision in United States v. Underwood, 122 F.3d 389 (7th Cir. 1997), we have no choice but to  reverse and remand for a new trial. This error  was irrelevant to Oesterman, because of his  guilty plea. Finding no error in the district  court's sentencing decision, we affirm  Oesterman's sentence.

3
* We need not delve into the details of the  scheme, given the fact that they are not  necessary for our analysis of the jury selection  problem. Briefly, however, they are as follows.  Polichemi, Neal, Olson, Padilla, and Oesterman,  along with others not relevant here, devised a  system under which they marketed so-called "prime  bank instruments" to investors (i.e. victims).  They described these "prime bank instruments" as  multi-million-dollar letters of credit issued by  the top 50 or 100 banks in the world. The  defendants told their victims that they could  purchase these instruments at a discount and then  resell them to other institutions at face value;  the difference in price represented the profits  that would go to the defendants and their  "investors." This was nothing more than a song  and dance: the trades were fictional; there was  no market for the trading of letters of credit;  and nothing capable of generating profits ever  occurred. Somehow, notwithstanding the  implausibility of the "prime bank instruments" to  one familiar with normal business practice for  letters of credit, they managed to persuade their  victims to give them money to finance the  purchase of the phantom discounted instruments.  While this did not earn a cent for any of the  investors, it definitely changed the defendants'  own lifestyles. Polichemi, for example, was  living in his sister's 2-bedroom condominium in  Florida when things began, but he ended up in a  $6.2 million home. Olson's and Neal's stories  were similar.

4
Between 1991 and 1994, the defendants collected  more than $15 million in this way. As noted  above, their largest source was the CHA, which  turned over more than $13 million of its pension  funds to the defendants, thanks in large part to  the unfaithful Lauer. They passed the monies they  received through various bank accounts (often  Swiss), used some of the money to pay off prior  investors and old debts, and spent the rest on  themselves. Each person had his own role to play.  Polichemi was the president of "Copol," a company  that purportedly traded in the prime bank  instruments. He held himself out to be one of a  handful of people in the world with a license to  trade these "securities." Neal was president of  Konex Holding and Konex Marketing, companies that  marketed Copol's product through a network of  salespeople. Olson was an attorney for both Copol  and Polichemi, in addition to being a participant  in many of the deals at issue. Padilla was  Copol's "stateside banker." He served as a  reference for the other defendants and provided  reassurance of Copol's soundness and success to  potential investors. Oesterman was one of Neal's  salespeople and a director at Konex marketing.  These five were allegedly joined by Lauer, Edward  Russey (another salesperson for Neal who pleaded  guilty and testified pursuant to a plea  agreement), and John DeVincens, a Konex attorney  who was later acquitted on all charges by the  jury.

II

5
In the end, the final benefit the defendants  reaped from their scheme was an indictment from  the grand jury in the Northern District of  Illinois. Count 1 of the indictment charged the  entire group with a scheme to defraud in  violation of 18U.S.C. sec.sec. 1343 and 2.  Counts 2 through 15 charged the individual  defendants with engaging in wire transmissions in  furtherance of the fraud. Count 16 accused  Polichemi, Neal, Olson, and DeVincens of  conspiring to launder money in violation of 18  U.S.C. sec. 371, and Counts 17-26 charged that  individual defendants had committed specific  money laundering offenses in violation of 18  U.S.C. sec.sec. 1956(a)(1)(A)(i),  1956(a)(2)(B)(i), 1957, and 2. Finally, Counts  27-33 involved perjury charges against Padilla  (27-29), DeVincens (30), and Neal (31-33), in  violation of 18 U.S.C. sec. 1621(1). As noted  above, DeVincens was acquitted; Russey pleaded  guilty and is not involved in this appeal;  Oesterman pleaded guilty and raises only  sentencing challenges on appeal; and Polichemi,  Neal, Olson, and Padilla (to whom we refer as the  Polichemi defendants for convenience) were each  convicted on some or all of the charges brought  against them and appeal both their convictions  and sentences.

III

6
At this court's direction, the Polichemi  defendants filed one consolidated brief in which  they addressed issues common to all four, and  separate supplemental briefs on their individual  issues. Oesterman, of course, filed his own  brief. Because we find it dispositive of the  appeals of the Polichemi defendants, we address  first their complaint about the jury selection  process. It centers on the district court's  handling of their request to strike potential  jurors Lorena Nape, John Buck, and David Maines  for cause. Under the system the trial court  adopted, the defendants were to have 10  peremptory challenges collectively, plus one  additional challenge for each two jurors selected  as alternatives. After sixteen potential jurors  had been qualified, the judge would call for  simultaneously submitted peremptory challenges  and then empanel those who were not struck.

7
Jury selection began on May 15, 1996. A number  of jurors were excused for cause during the  morning session. Among the prospective jurors  called after the lunch break were Nape, Buck, and  Maines. Both Buck and Maines stated, in response  to questions posed during the voir dire, that  they would tend to credit testimony from a law  enforcement officer more than testimony of a lay  witness. Maines noted that his wife's side of the  family included several police officers, but he  indicated that he did not believe this would  affect his ability to be fair and impartial. On  the other hand, he said that he tended "to have  a less scrutinizing point of view when it comes  to government officials and police officers."  Buck said that he would start out believing the  testimony of a law enforcement agent more than  the testimony of a lay witness. Faced with these  damaging statements, the prosecutor elicited  statements from both men that they could, in the  final analysis, reach a verdict solely based on  the evidence they heard in the courtroom. On that  record, the court denied the defense motions to  excuse Maines and Buck for cause, and the  defendants used two of their remaining peremptory  challenges to strike them from the panel.

8
Nape's situation was somewhat different. At the  time of the trial, Nape was a 15-year employee of  the U.S. Attorney's Office for the Northern  District of Illinois, based in Chicago--precisely  the same office from which the prosecuting  attorneys came. At oral argument and in a letter  filed after argument, the AUSAs (in response to  questions posed by this court) indicated that the  official who signed the indictment did not have  supervisory authority over Nape, because she was  a secretary in the Civil Division. Nonetheless,  it also appears that the sharing of work from  division to division within the U.S. Attorney's  Office led to varying levels of communication  between the employees of the Civil Division and  of the Criminal Division. See Tr. 176-77 (when  asked whether her work had involved any  assignments from the Criminal Division, Nape  responded "maybe in the asset forfeiture area, ofcourse, that seems to be slowing down or going  mostly criminal now."); Tr. 179 (Nape admitted to  recognizing the names of the prosecuting  attorneys in the case, and being aware that they  worked in her office.). See generally Attorney  General, Memorandum on Coordination of Parallel  Criminal, Civil, and Administrative Proceedings  (dated July 28, 1997), available at  <http://www.usdoj.gov/ag/readingroom/ 970728.htm>  (calling for information-sharing among divisions  during the investigation and prosecution of  cases, in order for the government to allocate  its resources efficiently and come to effective,  comprehensive settlements).

9
Based on her affiliation with the prosecutor's  office, the defendants moved to strike Nape for  cause as well. Even though, in response to  questions, Nape stated that she could be fair and  impartial, the defendants took the position that  at a minimum she was excludable for cause on the  ground of implied bias. As before, the court  denied the motion, and the defendants had to use  a peremptory challenge to remove her from the  jury.

10
The Polichemi defendants argue that the district  court erred in all three of its rulings rejecting  their challenges for cause, with respect to  prospective jurors Buck, Maines, and Nape. These  errors forced them to use peremptory challenges  to eliminate the objectionable panel members,  which in turn, they argue, violated their Fifth  Amendment due process rights by impairing the  intelligent exercise of their peremptory  challenges. They rely on this court's decision in  United States v. Underwood, 122 F.3d 389 (7th  Cir. 1997), cert. denied sub nom. United States  v. Messino, 118 S. Ct. 2341 (1988), to show that  this error is a structural one requiring  automatic reversal.

11
Our analysis of these claims will follow that  basic order. First, we consider whether the  district court erred in any of the three rulings  on the challenges for cause. If not, then we  would have no occasion to proceed further with  this ground of the appeals. Second, assuming at  least one of those decisions was in error (given  the fact that defendants here exhausted all their  peremptory challenges), we must decide whether  the automatic reversal rule of Underwood applies  in these circumstances, or if this was a lesser  error subject to harmless error analysis, as in  our more recent decision in United States v.  Osigbade, 195 F.3d 900 (7th Cir. 1999). If the  automatic reversal rule applies here, then there  is nothing left to do with the Polichemi  defendants but to reverse the convictions and  remand for further proceedings; if not, then we  would proceed to a harmless error analysis.

12
Before proceeding down this path, we acknowledge  that the circuits have been split on the question  whether the automatic reversal rule of Swain v.  Alabama, 380 U.S. 202, 218 (1965), still applies  to a situation in which trial court error with  respect to challenges for cause forces a  defendant to use up her peremptory challenges,  thus effectively reducing the number of such  challenges below that are permitted in Fed. R.  Crim. P. 24(b). Courts following the automatic  reversal rule include (in addition to our own, as  reflected in Underwood), the Fifth Circuit, in  United States v. Hall, 152 F.3d 381, 408 (5th  Cir. 1998), quoting United States v. Nell, 526 F.2d 1223, 1229 (5th Cir. 1976), the Ninth  Circuit, in United States v. Martinez-Salazar,  146 F.3d 653 (9th Cir. 1998), cert. granted, 119 S. Ct. 2365 (1999), the First Circuit, in United  States v. Cambara, 902 F.2d 144, 147 (1st Cir.  1990), the Third Circuit, in United States v.  Ruuska, 883 F.2d 262, 268 (3d Cir. 1989), the  Fourth Circuit, in United States v. Ricks, 776 F.2d 455, 461 (4th Cir. 1985), and the Sixth  Circuit, in United States v. Hill, 738 F.2d 152,  153-54 (6th Cir. 1984). The Eighth Circuit and  the Tenth Circuit take the opposite approach,  under which they regard errors in denying  challenges for cause as reversible only if the  eventual jury that sat was biased--in other  words,only if the error was not harmless. See  United States v. Sithithongtham, 192 F.3d 1119,  1123 (8th Cir. 1999); Getter v. Wal-Mart Stores,  66 F.3d 1119, 1122 (10th Cir. 1995); see also  Ross v. Oklahoma, 487 U.S. 81, 88 (1988). As we  explain in more detail below, this court has  taken a middle ground, under which some such  errors trigger the automatic reversal rule and  others do not. The Supreme Court will be speaking  soon on the subject, in Martinez-Salazar, but  unless or until we learn that we have erred, we  must follow our own circuit's precedents.

13
We can dispose of the challenges to prospective  jurors Buck and Maines relatively easily. In both  those cases, the individuals made some remarks  during voir dire that indicated they would harbor  an actual bias in favor of witnesses from the law  enforcement community, but upon further  questioning, they both promised to evaluate the  evidence fairly and to decide the case based on  what was presented to them. We review a trial  court's decision whether to dismiss a juror for  cause deferentially, recognizing that the judge  on the scene is in the best position to evaluate  the juror's ability to serve. United States v.  Beasley, 48 F.3d 262, 266 (7th Cir. 1995); United  States v. Casey, 835 F.2d 148, 151-52 (7th Cir.  1987). We cannot say on this record that the  district court clearly erred when it concluded,  after full questioning, that the defendants had  failed to justify striking prospective jurors  Buck and Maines for cause. Thus, we need not  address the question whether the defendants'  choice to use peremptory challenges for them  infringed their due process rights. Peremptory  challenges are most often used to eliminate from  the jury those whom the defendant has no other  way to remove. Since the district court committed  no reversible error in these two rulings, no  further comment is necessary.

14
The situation with prospective juror Nape is  significantly different. As a long-time employee  of the same U.S. Attorney's Office that was  handling the prosecution, Nape could not avoid a  public association with the lawyers for one side  of the case. While she assured the trial judge  that she believed she could be fair and  impartial, such assurances cannot be the last  word in these circumstances. Considering the  deferential standard of review, we do not quarrel  with the district court's conclusion that Nape  did not consciously harbor ill will toward the  defendants, or good will toward the prosecution.  But the court erred in stopping its inquiries  there. In addition to the kind of overt, actual  bias that the court was looking for, a  prospective juror might be excludable for implied  bias.

15
While the term "implied bias" is not one that  is used often, the concept is nonetheless well  established in the law. Indeed, the risk of  implied bias lies behind many of the rules that  require excusing a juror for cause. A court must  excuse a juror for cause if the juror is related  to one of the parties in the case, or if the  juror has a financial interest in the case. See,  e.g., United States v. Annigoni, 96 F.3d 1132,  1138 (9th Cir. 1996); Getter, 61 F.3d at 1122. It  is possible, of course, that a particular juror  may be quite capable of maintaining her  objectivity, even if her nephew is a lawyer in  the case, but the relationship is so close that  the law errs on the side of caution. Indeed, much  the same rationale underlies the statute that  requires disqualification of judges when the risk  of at least the appearance of partiality or the  risk of an unconscious tendency to favor one side  is particularly great. See 28 U.S.C. sec. 455(b)  (requiring disqualification when, for example,  the judge or an immediate member of her family  has a financial interest in the case, or when a  close relative of the judge is a party or lawyer  in the case). In many, if not most, such cases,  the judge will in fact be unbiased and capable of  rendering a fair decision, but the need to  prevent even an appearance of partiality leads to  a type of implied bias rule.

16
In its decision in United States v. Haynes, 398 F.2d 980, 984 (2d Cir. 1968), the Second Circuit  traced the implied bias doctrine back to Chief  Justice John Marshall's opinion in United States  v. Burr, 25 Fed. Cas. 49 (No. 14692g) (C.C. Va.  1807), one of a series of opinions in the famous  prosecution of Aaron Burr. In Burr the Chief  Justice addressed the ways in which the law  strives to assure an impartial jury:

17
Why is it that the most distant relative of a  party cannot serve upon his jury? Certainly the  single circumstance of relationship, taken in  itself, unconnected with its consequences, would  furnish no objection. The real reason of the rule  is, that the law suspects the relative of  partiality; suspects his mind to be under a bias,  which will prevent his fairly hearing and fairly  deciding on the testimony which may be offered to  him. The end to be obtained is an impartial jury;  to secure this end, a man is prohibited from  serving on it whose connexion with a party is  such as to induce a suspicion of partiality. The  relationship may be remote; the person may never  have seen the party; he may declare that he feels  no prejudice in the case; and yet the law  cautiously incapacitates him from serving on the  jury because it suspects prejudice, because in  general persons in a similar situation would feel  prejudice.

18
25 Fed. Cas. at 50. From that time to the  present, the federal courts have included among  the reasons supporting a challenge for cause the  kinds of presumptive sources of bias to which the  Chief Justice referred. In Haynes, the Second  Circuit wrote that

19
[a]t common law, jurors were challengeable on  principle for bias for partiality due to kinship,  interest, former jury service in the same cause,  or because the prospective juror was a master,  servant, counselor, steward, or of the same  society or corporation. . . . Not only have these  common law grounds for causal challenge retained  their vitality, . . . but to them have been added  others from which prejudice or bias may be  implied.

20
398 F.2d at 984 (internal citations omitted). See  also United States v. Torres, 128 F.3d 38, 43 (2d  Cir. 1997) (recognizing three possible grounds  for challenges for cause: those based on actual  bias, those based on implied bias, and those  based on "inferable" bias); United States v.  Nell, 526 F.2d at 1229 (5th Cir. 1976); United  States v. Dellinger, 472 F.2d 340, 367-69 (7th  Cir. 1972) (noting that prospective jurors may be  unacceptably biased for a variety of reasons,  and, because they themselves are often unaware of  these actual biases, it is essential to explore  their backgrounds and attitudes in order to  uncover them).

21
Here, prospective juror Nape was a "servant"--  that is, employee--of the particular office  representing the United States, that of the U.S.  Attorney for the Northern District of Illinois.  We offer no comment on the application of the  implied bias concept to links more remote than  the one she had, such as affiliation with a  different agency of the United States in Chicago,  or affiliation with a different part of the  Department of Justice. In this case,  unfortunately, the fit was perfect. Although the  government has argued that she should be  disqualified only if she was under the actual  supervision of the officer signing the  indictment, we think that fine-tunes matters too  far. The U.S. Attorney has authority over the  entire office and can manage its personnel as he  sees fit. The court therefore erred when it  denied defendants' motion to dismiss Nape for  cause.

22
Given this error, what should be its  consequence under our decisions in Underwood and  Osigbade? In Underwood, the district court gave  a confusing explanation of the system it was  planning to use for jury selection. Under a  misapprehension about the actual system, the  defendants used their peremptory challenges on a  number of prospective jurors whom they would not  have chosen had they understood the court's plan.  This court, notingthat the specific right to  peremptory challenges is found in Fed. R. Crim.  P. 24(b), not the Constitution, held that "the  'right' to peremptory challenges is denied or  impaired only if the defendant does not receive  that which [statutory] law provides." 122 F.3d at  392 (internal quotations and citations omitted).  Recognizing that not all restrictions on the  right to peremptory challenge constitutes the  denial or impairment of the right, the court held  that harmless error analysis was nonetheless  inappropriate when a fundamental denial or  impairment had occurred.

23
In Underwood, the fact that the entire process  for exercising peremptory challenges had been  misunderstood supported a finding of a denial or  impairment fundamental enough to justify  application of the Swain automatic reversal rule.  This was true even though there was no showing  that the jury that actually sat was biased or  could not be impartial. On the other hand, United  States v. Osigbade presented a case of a clerical  mistake that led to one juror's being excused and  another being substituted in her place. 195 F.3d  at 901-02. Using the "struck jury" selection  system, both sides had questioned the entire  venire, completed their challenges for cause, and  then had submitted a list of peremptory  challenges to the court. The court reviewed the  peremptory challenges and then compiled the list  of jurors, including alternates, for trial. After  it entertained Batson challenges, it read off a  list of the jurors who had been selected. At that  point the parties alerted the court to the fact  that one juror on that list had already been  excused for cause. The court called the next name  on the list. While waiting for that individual to  return to the courtroom, the parties discovered  that one prospective juror, Rhoda Richardson, had  inadvertently been deleted from the list, because  the court erroneously thought the government had  struck her. Efforts to find her were  unsuccessful, and the court eventually replaced  her with one of the alternates.

24
These facts, we found, did not add up to such a  basic impairment of the right to use peremptory  challenges that the automatic reversal rule of  Swain and, by then, Underwood, should be applied.  As in Underwood, we recognized that some jury  mistakes justify automatic reversal and others do  not. Id. at 904. In Osigbade, automatic reversal  was not required for several reasons. First, the  defendant did not run out of peremptory  challenges. Second, there was no evidence that  the mistaken dismissal of the one juror resulted  in anyone's being seated to whom the defendant  would have objected (even with a peremptory  challenge). Third, as the government argued in  Osigbade, the essence of the defendant's  complaint was that Richardson herself did not sit  on the jury. Defendants have no legally  cognizable right to have any particular juror  participate in their case. See United States v.  Duff, 76 F.3d 122, 125 (7th Cir. 1996).

25
While we understand that the distinctions here  are fine, we have concluded that the district  court's error in failing to excuse prospective  juror Nape for cause goes to the fundamental  integrity of the jury, and thus falls on the  Underwood side of the line. Osigbade did not  purport to overrule Underwood, nor could it have  done so under this circuit's rules without  undergoing circulation to the full court under  the procedures established in Circuit Rule 40(e).  Instead, it sensibly distinguished fundamental  errors that undermine the integrity of the jury  selection system from mere clerical errors that  do not result in the seating of a single  individual to which the defendant would have  objected. (We know this to be the case, because  the court used one of the previously submitted  alternates in Osigbade after the problem became  clear.) Here, not only did the court fail to  consider Nape's implied bias, but its error  resulted in the subversion of the defendants'  ability to exercise their peremptory challenges  effectively. See Osigbade, 195 F.3d at 904.  Unlike in Osigbade, the defendants ran outof  peremptory challenges; unlike in Osigbade, the  attorneys specifically told the court that the  error resulted in the seating of jurors to whom  they would have objected. These are important  differences. When, under these circumstances, the  court commits the legal error of failing to apply  the principle of implied bias in its  administration of challenges for cause, the  structure of the jury selection process itself is  compromised and the Underwood rule applies.

26
We therefore conclude that the convictions of  defendants Polichemi, Neal, Olson, and Padilla  must be reversed and the case must be remanded  for a new trial.

IV

27
The only remaining issue we need consider, in  light of our disposition of those four appeals,  is Oesterman's challenge to his sentence.  Oesterman pleaded guilty to one count of wire  fraud, without any plea agreement. Although he  was personally responsible for only $450,000,  which he had obtained from victim investors, the  district court relied on the relevant conduct  provisions of the Sentencing Guidelines to hold  him accountable for the entire $10-20 million  loss. It found that he had joined the conspiracy  and increased his offense level by 15, following  U.S.S.G. sec. 2F1.1(b).

28
We review the district court's assessment of  relevant conduct for clear error, including its  determination of the questions whether the  defendant participated in jointly undertaken  criminal activity and whether the actions of the  others were reasonably foreseeable to him. See  United States v. Edwards, 115 F.3d 1322, 1325  (7th Cir. 1997); see also U.S.S.G. sec. 1B1.3  (1)(B). The record showed that Oesterman was a  salesman of fraudulent securities for Konex. Neal  solicited the CHA investment, and that investment  was foreseeable to Oesterman according to  evidence showing that Oesterman and Lauer (the  CHA insider) were fellow participants in a Konex  Summit Meeting. Oesterman also used Lauer as a  reference (playing the role of a "satisfied  investor") to facilitate his sales. This evidence  justifies the district court's finding that  Oesterman participated in the scheme as a whole  and that its activities were reasonably  foreseeable to him. In the absence of clear error  with respect to the relevant conduct calculation,  there is no reason to disturb Oesterman's  sentence.

V

29
For the reasons stated, we therefore Reverse the  convictions of Joseph Polichemi, Lyle E. Neal,  Oscar W. Olson, and Charles Padilla and Remand for  further proceedings consistent with this opinion.  We Affirm the sentence imposed on Larry P.  Oesterman.

Notes:

*
 This opinion was initially released in  typescript.