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United States v. Nelson

argued: June 6, 1988.

UNITED STATES OF AMERICA
v.
GILBERT NELSON, APPELLANT, NO. 87-5529; UNITED STATES OF AMERICA V. GEORGE SHAMY, APPELLANT, NO. 87-5561



Appeal from the United States District Court for the District of New Jersey, D.C. Criminal No. 87-00041-01/04.

Stapleton, Greenberg and Rosenn, Circuit Judges.

Author: Greenberg

GREENBERG, Circuit Judge.

Gilbert Nelson and George Shamy appeal their convictions for conspiracy to obstruct justice (18 U.S.C. § 371) and obstruction of justice (18 U.S.C. § 1503). We will affirm the conspiracy convictions but, because the district court unreasonably limited the appellants' inquiry on cross-examination of a government witness regarding whether there was a grand jury investigation pending when they allegedly obstructed justice, we will reverse the convictions on the substantive obstruction counts.

I.

Background

These are the germane facts developed at the trial. After rather complicated negotiations, on March 16, 1983 the City of New Brunswick, New Jersey, entered into an agreement to purchase property from Richard Malouf for use as a central garage for the maintenance and repair of city vehicles. Malouf acquired the property earlier that year and closed on it on March 1, 1983. Malouf's purchase had been partially financed with $20,000 invested by James V. Gassaro, the city's police director who was also an attorney sharing offices with Nelson, and with $25,000 borrowed from Gassaro's father-in-law, Joseph Perrone. The interests of Gassaro and Perrone were not disclosed to the city council when it authorized the purchase of the property even though Gassaro was to share in the profits.

When Malouf closed on the sale to the city on May 5, 1983 he received a check for $305,000 from the city which he endorsed and gave to Nelson as the New Brunswick city attorney for deposit in Nelson's attorney's trust account. The proceeds of the check were to be disbursed in accordance with a closing statement prepared by Nelson which showed a total of $96,695.56 due Malouf after deductions from Malouf's proceeds for satisfaction of a mortgage and a realty transfer fee, and a credit for outstanding real estate taxes to the city as purchaser. Nelson, however, returned to Malouf a check for only $91,695.56, exactly $5,000 less than due under the statement. Further, Nelson did not pay the $1830.50 which he showed due for the transfer fee or the $1067.50 real estate taxes due.*fn1 No provision was made at the closing for any distribution to Gassaro or Perrone and their names did not appear on any of the sale documents.

On May 6, 1983 when Malouf went to the Gassaro-Nelson offices to divide the sale proceeds with Perrone and Gassaro, Nelson was there but Gassaro was not. Malouf gave Nelson checks for $20,000 and $25,000 made payable to Gassaro and Perrone, respectively, for their cash contributions and at Nelson's direction he made out a check for $25,000 payable to a defunct paving company to cover Gassaro's share of the profits. In return Nelson gave him a statement showing that this $25,000 was for property improvements but that was a fiction as none were made.

In March 1985, Assistant United States Attorney Thomas L. Weisenbeck, with assistance from the FBI, began an investigation into allegations of corruption in New Brunswick. A grand jury subpoena to Nelson's bank for his records, the first of three grand jury subpoenas secured during the early months of the investigation, was issued on March 7, 1985 from the office of the clerk of the United States District Court pursuant to Weisenbeck's application. In late March an FBI agent visited Malouf and asked to see the closing statement. Although Malouf did not have a copy he obtained one from the attorney who represented him at the closing, an associate of Shamy, and realized for the first time that he had been paid $5,000 less than due.

Nelson soon learned about the investigation from a newspaper reporter and contacted Malouf asking to see his copy of the closing statement. After securing the statement, Nelson added the following language to account for the $5,000 he withheld from Malouf's closing proceeds two years before: "To Seller - $91,695.56. To George Shamy, in payment of outstanding legal fees due him by Richard Malouf - $5,000." At about the same time Nelson also took steps to pay the real estate taxes on the property in an unusual way. Specifically he had the city tax records modified so that a tax payment he made on another property in 1983 was shown as having been partially made on the Malouf property. Naturally this maneuver retroactively created an outstanding balance on the other property which Nelson then paid.

Shamy was served on April 10, 1985 with a grand jury subpoena and on April 16, 1985 he went to the office of the United States Attorney in Newark for an interview. On that occasion he explained that he resigned from the practice of law early in 1983 and entered a hospital in Ohio. He claimed that at the time of his resignation Malouf owed him approximately $5,000 in legal fees and also asserted he borrowed $6,000 from Nelson because of gambling at the racetrack. He said that when he returned from Ohio he arranged for $5,000 to be withheld from Malouf at the closing for payment to Nelson in accordance with a proposal he had made in a letter to Nelson.

Nelson was served with a grand jury subpoena on April 15, 1985, a day before Shamy's interview, and on May 7, 1985 he turned over Shamy's letter, dated April 16, 1983, and a copy of the altered closing statement to the United States Attorney. The letter indicated that Shamy would get Malouf to authorize the withholding of the fees.

During the investigation the government learned that the letter, allegedly dictated by Shamy to his secretary in April 1983, deviated from Shamy's secretary's usual format for correspondence, thus suggesting it was a fabrication. The secretary later testified at the trial that she could not say with certainty that she did not type the letter, though she did not recall doing so, and pointed out how the letter deviated from her usual format.

Weisenbeck left the United States Attorney's office in September 1985 before any evidence was presented to the grand jury on whose authority he had secured the subpoenas. In due course, the investigation went forward and evidence was eventually presented to a new grand jury. On December 30, 1986 Shamy appeared before the grand jury and testified that while he was in the Ohio hospital he called his secretary in New Jersey and dictated a letter to Nelson suggesting that Nelson withhold the fees due from Malouf at the closing and keep the money as payment for the racetrack loan. Shamy claimed he signed the letter when he returned to New Jersey in April 1983.

Ultimately the grand jury returned an indictment charging Nelson, Gassaro and Perrone with conspiracy to commit mail fraud to deprive the citizens of New Brunswick of honest government (18 U.S.C. § 371) (count 1) and extortion and conspiracy to extort in violation of the Hobbs Act (18 U.S.C. § § 1951 and 1952) (counts 2 and 3). In addition, Nelson and Shamy were charged with obstruction of justice and conspiracy to obstruct justice. The conspiracy to obstruct justice count (count 4) alleged that Nelson and Shamy had schemed to cover-up Nelson's wrongful withholding of fees, taxes and proceeds due Malouf and the city at the closing by, among other means, fabricating the April 16, 1983 letter and altering the closing statement, and by Shamy giving false testimony before the grand jury. The first of the two substantive counts charging obstruction of justice (count 5) alleged that Nelson and Shamy had obstructed justice by producing the fabricated letter in response to a grand jury subpoena. The second (count 6) charged Nelson with obstruction of justice by altering the closing statement.

There was a subsequent single trial against all the defendants on the entire indictment. The district judge granted Perrone's motion for judgment of acquittal on all counts at the close of the government's case. Though the jury found Nelson, Gassaro and Shamy guilty on all counts, the mail fraud convictions were subsequently dismissed by the judge on the basis of the Supreme Court's decision in McNally v. United States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987), which held that the mail fraud statute does not reach schemes to defraud citizens of their intangible right to honest and impartial government. The judge also granted post-verdict acquittals to Nelson and Gassaro on the Hobbs Act extortion counts as the evidence was insufficient to support the convictions on them. Therefore, the only convictions left undisturbed were those of appellants for obstruction of justice and conspiracy to obstruct justice based on their attempts to cover-up the events relating to the diversion of funds from the proceeds of the property purchase by the city.

II.

Obstruction of ...


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