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UNITED STATES v. MCCRANE

August 8, 1977

UNITED STATES OF AMERICA
v.
JOSEPH M. McCRANE



The opinion of the court was delivered by: NEALON

 On May 24, 1973, an eleven-count indictment was returned against the defendant, Joseph McCrane, alleging violations of Title 18 U.S.C. § 2, 18 U.S.C. § 371, and Title 26 U.S.C. § 7206(2) during the time he was finance chairman for the 1969 New Jersey gubernatorial campaign of William T. Cahill. Following several pretrial motions, defendant's trial commenced on September 10, 1974, before the Honorable Lawrence A. Whipple in the District of New Jersey. On defendant's motion, that trial ended in a mistrial on September 19, because of the effect of prejudicial publicity on the jurors. Thereafter, a second trial commenced in the District of New Jersey on October 21, 1974, but that also ended prematurely when the Court granted defendant's motion for a change of venue on October 25, and venue was transferred to the Middle District of Pennsylvania. Pursuant to the change of venue, trial commenced in this Court on December 2, 1974. At the conclusion of the government's case, the defendant's motion for judgment of acquittal was granted with respect to seven of the counts charged in the indictment. Thereafter, on December 11, the jury convicted the defendant on the four remaining counts of aiding and assisting the taxpayers therein named in the preparation of federal income tax returns that were false and fraudulent as to a material matter in violation of 26 U.S.C. 7206(2). *fn1"

 Defendant was found guilty on Counts III, IV, X and XI. Generally, each count charged that defendant violated § 7206 by furnishing fictitious invoices to certain corporate taxpayers so that they could disguise their contributions to the Cahill campaign as business expenses and thereby gain a tax deduction on their income tax returns. The arrangement was effected through the cooperation of Writers Associates and Bofinger-Kaplan Advertising, Inc., two public relations firms which at defendant's request, issued the fictitious invoices involved.

 Count III of the indictment involved two payments of $1,000 each from Hialeah Race Track to Writers Associates which were made after Hialeah received invoices from Writers on May 9, 1969, and August 7, 1969, for advertising services. Richard H. Smith, President of Writers, testified that he was instructed by defendant to send the false invoices to Hialeah in order to obtain "seed money" for the Cahill Committee and that the money was used to pay campaign expenses. William C. Fisher, Treasurer of Hialeah, testified that defendant's father-in-law, Eugene Mori, was President of both Hialeah and Garden State Race Tracks; that Garden State owned a controlling interest in Hialeah; that defendant was General Manager and Vice President of Garden State where the witness worked for him as Assistant to the Treasurer; that defendant instructed him in his capacity as Hialeah's Treasurer to pay both invoices even though Writers had performed no services for Hialeah; and that these payments were deducted from Hialeah's 1969 tax return as business expenses.

 Count IV charged that Trap Rock Industries, Inc., had given a contribution of $15,000.00 to the campaign after Writers Associates had sent invoices for advertising services not rendered. David Mendelson, the General Manager of Trap Rock, testified that, in soliciting the funds, the defendant had offered to supply fictitious bills from a public relations firm so that Trap Rock could disguise the contributions as a business expense on its tax return and thereby pay the campaign contribution "with 50-cent dollars."

 Counts X and XI were based on payments made by Bellante, Clauss, Miller & Nolan, Inc., on separate occasions. E. Lawrence Bellante, president of the company, testified that in June 1969, the defendant asked for a campaign contribution. In the course of the conversation, McCrane said that the payment should be made to Bofinger-Kaplan Advertising, Inc., in order to secure a tax deduction. Bellante made a payment of $3,500.00 to Bofinger-Kaplan and deducted part *fn2" from the corporate income tax. A similar arrangement governed a $2,500.00 payment to Writers Associates on October 27, 1969.

 On December 31, 1974, defendant filed motions for judgment of acquittal and for a new trial. The Court denied these motions and thereafter on May 21, 1975, sentenced defendant to three years probation and ordered him to pay a fine of $5,000 on each count. Following the judgment of sentence, defendant appealed to the United States Court of Appeals for the Third Circuit.

 On December 18, 1975, the Court of Appeals affirmed defendant's conviction on Counts III and IV, but vacated and remanded for a new trial the convictions on Counts X and XI for failure to comply with Brady v. Maryland, 373 U.S. 83, 10 L. Ed. 2d 215, 83 S. Ct. 1194 (1963). See United States v. McCrane, 527 F.2d 906 (3d Cir. 1975) (McCrane I). On June 30, 1976, the Supreme Court vacated the judgment of the Court of Appeals and ordered reconsideration in light of United States v. Agurs, 427 U.S. 97, 96 S. Ct. 2392, 49 L. Ed. 2d 342 (1976). See United States v. McCrane, 427 U.S. 909, 96 S. Ct. 3197, 49 L. Ed. 2d 1202 (1976). After further consideration, the Court of Appeals affirmed its previous order on November 22, 1976. See United States v. McCrane, 547 F.2d 204 (3d Cir. 1976) (McCrane II).

 Now before the Court is defendant's motion for a new trial on Count IV (Trap Rock) on the basis of newly discovered evidence. Defendant attempted to raise this issue before the Court of Appeals but was directed by the Court to first raise it here. See United States v. McCrane, 527 F.2d at 914.

  As has been noted, Count IV of the indictment alleged, and defendant was convicted of, aiding and assisting Trap Rock Industries, Inc. in fraudulently deducting a $15,000 contribution as an ordinary and necessary business expense. Defendant now alleges that before and during his trial the government knew that Trap Rock had also evaded tax using a similar scheme by fraudulently deducting the $75,000 cost of a pleasure boat as a business-related dredging operation expense. *fn3" Defendant argues that this information should have been produced and provided to him under Brady v. Maryland, as it "suggests that Trap Rock was capable of and did commit tax fraud without the aid or assistance of the defendant." Defendant further asserts that this information shows that Trap Rock was prepared to deduct the Cahill campaign contributions with or without his assistance and, in fact, did so. In any event, defendant also feels that this information could have been used to impeach Mendelson's testimony that defendant suggested the fictitious scheme for the purpose of evading tax liability as set forth in Count IV. *fn4" For purposes of this motion the Court will consider these factual allegations made by the defendant as true and proceed accordingly.

 In United States v. Agurs, 427 U.S. 97, 49 L. Ed. 2d 342, 96 S. Ct. 2392 (1976), the Supreme Court discussed a prosecutor's obligation to disclose evidence that would be material to the defense. The Court employed three distinct categories of cases to delineate the due process issues in this area. The first category involves prosecutorial tolerance of perjured testimony for which a conviction must be set aside if there is any reasonable likelihood that the false testimony could have affected the judgment of the jury. United States v. Agurs, 427 U.S. at 103-104 "This strict standard is applicable because the truth-seeking function of the trial has been compromised and prosecutorial misconduct was present." United States v. McCrane, 547 F.2d at 205.

 The second category, typified by Brady v. Maryland, 373 U.S. 83, 10 L. Ed. 2d 215, 83 S. Ct. 1194 (1963), involves prosecutorial suppression, after a specific request, of evidence favorable to the defense on either guilt or punishment, United States v. Agurs, 427 U.S. at 104-107. In such cases, a new trial is required if the requested evidence was material and "implicit in the requirement of materiality is a concern that the suppressed evidence might have affected the outcome of the trial." United States v. Agurs, 427 U.S. at 104.

 The third category, typified by the Agurs facts, involves a situation where there has been no specific request for undisclosed evidence and the prosecution has failed to voluntarily disclose favorable evidence. Agurs states that such a nondisclosure is a constitutional error only when the undisclosed evidence creates a reasonable doubt about defendant's guilt which did not otherwise exist. U.S. v. Agurs, 427 U.S. at 112-113.

 There is no suggestion that this case involves any prosecutorial tolerance of perjured testimony. Accordingly, the first question for the Court to determine is whether the request made by the defense is considered to fall in the specific or ...


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