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U.S. v. Conley

filed: September 30, 1994; As Amended October 17, 1994.

UNITED STATES OF AMERICA, APPELLANT
v.
JOHN F. "DUFFY" CONLEY; WILLIAM C. CURTIN; SHEILA SMITH; JOHN FRANCIS "JACK" CONLEY; THOMAS "BUD" MCGRATH; MARK A. ABBOTT; THOMAS ROSSI; WILLIAM STEINHART; ROBERTA FLEAGLE; ROBIN SPRATT; MONICA C. KAIL; WILLIAM J. REED; JOANNE T. SMITH; KENNETH "RON" GOODWIN; LAWRENCE N. "NEUDY" DEMINO, SR.; CHRISTOPHER "CHRIS" KAIL; JOSEPH A. DEVITA; FRANK GAROFALO; THOMAS D. CIOCCO; MICHAEL SUKALY; PHILLIP M. "MIKE" FERRELL; ANESTOS "NAZ" RODITES; WILLIAM E. RUSIN



Appeal from the United States District Court for the Western District of Pennsylvania. (D.C. Crim. No. 91-cr-00178).

Before: Mansmann, Hutchinson and Roth, Circuit Judges.

Author: Mansmann

Opinion OF THE COURT

MANSMANN, Circuit Judge.

The United States Government appeals a pre-trial order of the district court dismissing, with prejudice, the money laundering object of a criminal conspiracy count against Thomas "Bud" McGrath and thirteen other defendants who joined his motion to dismiss. This complicated case originally involved a total of twenty-nine counts against twenty-three defendants who were alleged to have conducted an illegal gambling business. The general question before us is whether the district court erred as a matter of law when it dismissed the money laundering object of the conspiracy alleged in Count One of the indictment due to the district court's perception that double jeopardy concerns are implicated when both a conspiracy to commit money laundering and the substantive offense of illegal gambling are alleged.

We must decide whether Title 18, United States Code Section 1956(a)(1)(A)(i) proscribes money laundering transactions with the proceeds of an illegal gambling business, in the absence of some other form of specified unlawful activity. Because we find that money laundering with the proceeds of an illegal gambling business is one of the types of specified unlawful activity the money laundering statute proscribes and because we find that Congress did intend to impose a further punishment under § 1956 for using the proceeds of an illegal gambling business to promote that illegal activity, we will vacate the district court's order dismissing the money laundering object of the conspiracy charged in Count One of the indictment and remand this case to the district court for reinstatement of this portion of Count One.

I.

On September 26, 1991, a grand jury sitting in Pittsburgh, Pennsylvania, returned a twenty-nine count indictment charging twenty-three individuals with participation in an illegal gambling business involving video poker machines.*fn1 The indictment identified John F. "Duffy" Conley as the central figure in the extensive illegal gambling operation, alleging that Duffy Conley was the owner and operator of Duffy's Vending and/or Three Rivers Coin, which had the primary purpose of facilitating an illegal gambling business through video poker machines.

The indictment also identified the remaining defendants and their roles. William L. Curtin was the general manager of Duffy's Vending, assisting Duffy Conley in daily operations. Sheila Smith was an office manager, accountant and bookkeeper for Duffy Conley, also supervising employees who placed, moved and serviced video poker machines. Jack Conley recorded service calls from locations and facilitated the movement, repair and servicing of video poker machines. Thomas Bud McGrath, Duffy Conley's employee, marketed and secured locations for Duffy Conley's video poker machines. Mark Abbott, another employee of Duffy Conley, also marketed, moved and secured locations for Duffy Conley's video poker machines.*fn2

The indictment originally charged twenty-nine counts against various combinations of these defendants. We set forth in detail the charges and overt acts alleged in Counts One and Two of the indictment because the sufficiency of these counts to charge certain offenses is at issue here.

Count One charged all twenty-three defendants with conspiracy to conduct an illegal gambling business, in violation of Title 18, United States Code, Section 1955, and conspiracy to engage in money laundering to promote the unlawful gambling business in violation of Title 18 United States Code, Section 1956.*fn3 Specifically, Count One charged that "it was an essential part of the illegal gambling business run by John F. 'Duffy' Conley that the proceeds of this unlawful activity be collected from the various locations where the video poker machines were in use as illegal gambling devices." (P18; App. 57). Count One also charged that the collection of such proceeds involved the division of money with persons at the video poker machine locations, the delivery of proceeds to other employees of Conley, and the depositing of money into bank accounts controlled by Conley. (P 18, App. 57.) The acts of collecting, dividing, transferring, and depositing the proceeds are all transactions as defined in Title 18, United States Code, Section 1956(c)(3) ("Laundering of Monetary Instruments").

Count One further charged that Conley conducted financial transactions affecting interstate commerce with the proceeds of illegal gambling with video poker machines "with the intent to promote the carrying on of the specified unlawful activity, illegal gambling with video poker machines. . . ." (P21(b); App. 59-60). In addition, it stated that Conley used illegal gambling proceeds to purchase more video poker machines and to pay employees of Duffy's Vending/Three Rivers Coin (P29, 31; App. 65). The overt acts of the conspiracy to launder money included numerous payments to Matrix, an entity used to service the video poker machines. (Indictment P33; App. 66.)

Count Two charged the substantive offense of conducting an illegal gambling business in violation of Title 18, United States Code, Section 1955. Count Two alleged that "on or around June of 1984 and continuing to on or around September 1991 . . . defendants . . . did unlawfully and knowingly conduct, finance, manage, supervise, direct and own all or part of an illegal gambling business involving video poker machines. . . ." This illegal gambling business "involved five or more persons who conducted, financed, managed, supervised, directed and owned all or part of the business, remained in substantially continuous operation for a period in excess of thirty (30) days and had a gross revenue of more than $2,000 for a single day."*fn4

On May 18, 1992, McGrath filed a motion to dismiss the money laundering object of the conspiracy count, joined by thirteen other defendants.*fn5 McGrath advanced four legal arguments in support of his motion. First, McGrath asserted that the government had failed to establish that he satisfied the essential elements of the substantive money laundering statute. Next, he asserted that the government had placed him in double jeopardy by charging him with both conspiracy to launder money and the substantive offense of conducting an illegal gambling operation. McGrath's third assertion was that the substantive money laundering statute was unconstitutionally vague as it applied to him. Finally, McGrath maintained that the substantive money laundering statute was overbroad.*fn6

On June 19, 1992, the government responded to these arguments, observing that, "Virtually all of McGrath's challenges to Count One of the Indictment . . . fail for a very simple reason. McGrath has not addressed or applied the directives of the law governing a conspiracy charge." The government further observed, "McGrath is charged with conspiracy, not money laundering . . . . McGrath instead proceeds from the false assumption that the government must marshall the evidence to demonstrate that he is guilty of a substantive money laundering violation." (App. at 156).*fn7

On September 3, 1993, the district court granted McGrath's motion to dismiss and ordered that the money laundering object of the conspiracy alleged in Count One of the indictment at P21(b) be stricken with prejudice. The district court's forty page opinion focused on McGrath's double jeopardy argument, identifying two separate aspects of this argument. Paraphrasing the motion, the district court stated, "First, [McGrath] contends that the conspiracy to launder money is the same offense as the substantive illegal gambling charge." The district court correctly rejected this double jeopardy argument, concluding that, "Conspiracy to launder money and conducting an illegal gambling operation were not the same offense for purposes of double jeopardy." United States v. Conley, 833 F. Supp. at 1130. The district court, however, was troubled by McGrath's "implicit" argument that "an illegal gambling business is a lesser included offense of laundering the 'proceeds' of an illegal gambling business, despite [McGrath's] being charged with substantive illegal gambling, but not money laundering." Id. The district court opined, "If violation of the illegal gambling prohibition is a lesser included offense of money laundering and Congress's intent to impose multiple punishments is not clear, the propriety of alleging a 'lesser included object' as a separate object must be addressed." The district court surmised that "If Congress intended the facts alleged to be covered by both statutes, with multiple punishments, a conspiracy alleging both objects is properly charged." Id.

After engaging in an extensive analysis of legislative history, the district court concluded that congressional intent to impose multiple punishments was not clear. As a consequence, the court applied the rule of lenity, holding that double jeopardy constraints prevented a defendant from being charged with both substantive illegal gambling offenses and substantive money laundering offenses. The district court then observed the impossibility of being indicted for conspiring to do something legal: "That Count One, the conspiracy count, does not charge Defendants with substantive money laundering cannot save the money laundering object of the conspiracy count. An agreement to engage in conduct that is not illegal under Section 1956 can no more be the basis of a conspiracy conviction than the conduct itself can be the basis of a substantive conviction."*fn8 833 F. Supp. at 1158. Based upon this observation, the district court concluded, "The money ...


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