United States v. Mangone

United States Court of Appeals
For the First Circuit

No. 95-2102

UNITED STATES,

Appellee,

v.

RICHARD D. MANGONE,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Torruella, Chief Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

Bruce Green for appellant.

Paul G. Levenson, Assistant United States Attorney, with whom

Donald K. Stern, United States Attorney, and Victor A. Wild, Assistant

United States Attorney, were on brief for appellee.

January 28, 1997

BOWNES, Senior Circuit Judge. Defendant Richard D.
BOWNES, Senior Circuit Judge.

Mangone was convicted after a lengthy jury trial on counts of

conspiracy, bank fraud, unlawful receipt of monies by a

credit union officer, and money laundering. He appeals both

his conviction and the district court's decision to depart

upward from the applicable Sentencing Guidelines range.

I
I
Facts
Facts

In order to understand the issues properly, a

thorough recitation of the scope of defendant's criminal

conduct is required. We relate the facts in the light most

favorable to the verdict. See United States v. Wihbey, 75

F.3d 761, 764 (1st Cir. 1996). Between December 1985 and

March 1991, defendant conspired with James Smith, Robert

Cohen, and Ambrose Devaney to defraud two separate lending

institutions, the Barnstable Community Federal Credit Union

("BCCU") and the Digital Employees Federal Credit Union

("Digital"). Defendant, president of Digital and a founder

of BCCU, and Smith, a real estate developer and a founder of

BCCU, were the primary organizers of the fraud. Robert Cohen

was general counsel to both credit unions. Ambrose Devaney

was a real estate developer on Cape Cod. This court's

affirmance of the convictions and sentences of Smith, Cohen

and Devaney is found at United States v. Smith, 46 F.3d 1223

(1st Cir.), cert. denied, 116 S. Ct. 176 (1995).

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Defendant and Smith used their control over the two

credit unions to obtain tens of millions of dollars in loans

for their own speculative real estate ventures. The loans

were used in part to finance the purchase of commercial real

estate on Cape Cod, usually motel properties or raw land for

residential subdivisions. The loans were, in many instances,

funded in amounts far in excess of the purchase price of the

property, with much of the excess going directly into the

pockets of defendant, Smith, and Devaney. In order to avoid

the credit union's policies restricting "insider" loans as

well as policies limiting maximum borrowing by an individual,

the conspirators formed over a dozen nominee trusts to create

the fiction that the loans were going to many different

borrowers. As president of Digital, which had experienced

explosive growth since its founding in 1980, defendant

enjoyed the confidence of that credit union's board of

directors and staff. Defendant was therefore able to induce

Digital to allocate approximately $20,000,000 for

"investment" in participation loans with BCCU, without

disclosing the fact that defendant himself was one of the

ultimate borrowers of those funds. All of the participation

loans were made to trusts owned by defendant and Smith (and

in most cases Devaney). In each instance, the participation

loans were funded in amounts far in excess of the actual

purchase price of the commercial property. These excess

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funds, known as "pie," were siphoned off and diverted to

accounts controlled by defendant or Smith for further

distribution. The amount of "pie" varied but was generally

between $75,000 and $200,000 per partner per loan.

For all of the participation loans and for many

additional loans, defendant and his co-conspirators concealed

their ownership interests by placing in BCCU's and Digital's

files phony certificates of beneficial interest, falsely

naming certain individuals as beneficiaries of the trusts.

In order to obtain loans well in excess of the purchase price

of the property, defendant and Smith forged and altered

purchase and sale agreements, often inflating prices by over

one million dollars. For most of the participation loans,

defendant, Smith, and Lynn Vasapolle, an unindicted co-

conspirator, prepared fake financial statements to create the

false impression that the putative borrowers (the "trustees")

were wealthy individuals capable of repaying the loans being

extended.

Most of the participation loans were initially

closed between December 1985 and October 1988, and were made

with "interest only" notes for relatively short terms (1-2

years), with a balloon payment of the full principal due upon

expiration. When they were unable to find legitimate buyers

to whom they could sell the properties at a profit sufficient

to cover both the original purchase price and the excess

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"pie" they had received, the conspirators began to pyramid

their loans.

Beginning in 1986, as loans came due on subdivision

properties, Cohen would draw up papers "selling" a portion of

the original subdivision to a newly created trust. Defendant

and Smith would then cause BCCU to make a loan to the new

trust to finance the purchase. The new loan proceeds would

then be used to pay off the proportionate share of the prior

loan. Purchase "prices" were again artificially inflated so

as to provide cash which was used to cover interest payments

on the new loans and to help with debt service on the

existing loans. By March 1991, when BCCU was seized by the

National Credit Union Administration, the outstanding balance

of the Mangone-Smith-Devaney loans amounted to between forty

and sixty million dollars.

On September 12, 1992, defendant, Smith, Cohen, and

Devaney were indicted for conspiracy (18 U.S.C. 371) to

commit bank fraud (18 U.S.C. 1344); unlawful receipt of

monies by a credit union officer (18 U.S.C. 1006); and

money laundering (18 U.S.C. 1957). The case was tried on a

redacted indictment that included a conspiracy count, seven

bank fraud counts, seven parallel unlawful receipt counts

(which concerned defendant alone) and the money laundering

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charges. Defendant was convicted on all counts.1 Defendant

fled prior to sentencing and remained at large for eighteen

months before he surrendered. On September 12, 1995,

defendant was sentenced to twenty-four years of incarceration

after the district court departed upward by two years from

the maximum sentence under the Guidelines.

II
II
The Bruton Error
The Bruton Error

Defendant appeals his conviction on the basis of

alleged error under Bruton v. United States, 391 U.S. 123

(1968). This issue has already been decided against

defendant's co-conspirator Smith, who asserted a factually

identical claim of Bruton error in his appeal, which we found

to have been harmless error. Smith, 46 F.3d at 1229-30.

Although we could dispose of defendant's claim on the ground

of stare decisis, we provide a brief analysis.

The Supreme Court held in Bruton that, because of

the substantial risk that the jury, despite instructions to

the contrary, will look to a codefendant's incriminating

extrajudicial statement in determining the defendant's guilt,

admission of a codefendant's statement in a joint trial

violates the defendant's right of cross-examination under the

1. Smith was also convicted on all counts. Cohen was
convicted on all counts except for four money laundering
charges. Devaney was convicted of conspiracy, three counts
of bank fraud and one count of money laundering. Smith, 46

F.3d at 1227.

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Confrontation Clause of the Sixth Amendment. Bruton, 391

U.S. at 126. The evidentiary basis for the Bruton claim is

as follows.

On the last day of trial testimony, co-defendant

Cohen called to the stand Professor Richard Huber, an

authority on the professional responsibilities of attorneys.

Testifying under the district court's limiting instruction

that the testimony was relevant as to Cohen only, and had

nothing to do with any of Cohen's co-defendants, Professor

Huber reiterated the events of April 4, 1991, when Cohen met

with him to obtain advice concerning his representation of

BCCU, which by that time was in the hands of federal

regulators. Huber testified that Cohen explained to him that

Cohen's clients, "a former officer of the bank, a former

director of the bank, and a bank manager came in and spoke to

[Cohen] . . . concerning activities that involved them and

their work at the bank." Smith, 46 F.3d at 1228. According

to Huber, Cohen stated that "certain documents had been

changed, the information had been changed, figures had been

changed, data had been changed, [and] that this had been done

after preparation by Mr. Cohen and after they had been

presumptively completed." Id.

Like Smith before him, defendant asserts that

Huber's testimony constitutes reversible Bruton error because

it "expressly implicate[s] the defendant, leaving no doubt

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that it would prove powerfully incriminating." Id. (internal

quotation marks and citations omitted)(alteration in

original). In Smith, we assumed without deciding that the

admission of Huber's testimony constituted Bruton error, but

held that any such error was harmless beyond a reasonable

doubt. 46 F.3d at 1229.

Relying on Chapman v. California, 386 U.S. 18

(1967), and related cases, defendant argues strenuously that

the error was not harmless. We disagree. We remain

convinced that any Bruton error that may have occurred below2

was harmless for the reasons stated in Smith:

The jury convicted all the defendants on
the conspiracy count, and Cohen on most
of the substantive counts. Even if the
jury threw the curative instructions to
the wind and considered the stricken
testimony as evidence against [Mangone],3
the scenario which implicates Bruton, it

could not have believed Cohen's claim
that the unnamed clients confessed to him

at the close of the conspiracy. No one
confesses to a partner in crime.

Admittedly, Cohen's statement might
tend to incriminate [Mangone] and Devaney
by showing that the coconspirators met to
discuss damage control. In this sense,
however, the statement falls far outside
the pale of the "powerfully
incriminating" evidence that produces
Bruton errors. Vasapolle had already

testified in detail to the

2. As we did in Smith, we "assume without deciding that the

district court correctly found that Bruton error had

occurred." Smith, 46 F.3d at 1229.

3. The name "Mangone" has been substituted for "Smith."

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coconspirators' meetings in the wake of
the BCCU takeover. Thus, once Cohen's
statement is considered as something
other than an account of the
codefendants' confessions, it becomes
merely cumulative of the government's
case and could not have produced Bruton

error.

The right of confrontation ensures
that a criminal defendant can cross-
examine his or her accusers. Had Cohen
testified to the confession himself,
[Mangone's] cross-examination of Cohen
would have sought to show that no
confession ever occurred. The verdicts
suggest that the jury, if it considered
this evidence, found just that. The
jury, even if it disregarded the limiting
instructions, plainly did not believe
Cohen's claim that his codefendants had
confessed to him. It is clear,
therefore, that any Bruton error was

harmless beyond a reasonable doubt.

46 F.3d at 1229-30 (footnote and citations omitted). Because

there is no difference between defendant's claim of Bruton

error and the Bruton error asserted by Smith in his appeal,

we follow the holding of Smith and affirm defendant's

c o n v i c t i o n .

III
III
The Sentencing Appeal
The Sentencing Appeal

At sentencing, the district court departed upward

by two years from the maximum sentence allowed under the

Sentencing Guidelines. Defendant appeals this departure on

two grounds: (1) that the district court failed to provide

him with notice of its planned departure, as required under

Federal Rule of Criminal Procedure 32, as interpreted in

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Burns v. United States, 501 U.S. 129 (1991); and (2) that the

upward departure was impermissible as a matter of law. We

begin our analysis with a recitation of the district court's

procedure at sentencing.

Indicating that it was following its "usual

procedure," the district court stated that it would "go

through mathematically the requirements of the Sentencing

Guidelines, and if anyone, government or defense, disagrees

with the numbers as I state them . . . we will then discuss

and resolve the differences right at that time." After

having verified that the defendant had read and understood

the Presentence Report (PSR), the district court proceeded to

calculate the applicable Guidelines sentence, assisted

throughout by both the government and defense counsel. The

district court scrupulously determined the applicability of

each guideline and made certain that both government and

defense agreed on the accuracy of the court's calculations.

The court then turned to the question of departure

from the Guidelines, inviting argument from both government

and defense. The government urged an upward departure of two

years on the basis of defendant's eighteen-month flight from

justice. Defense counsel argued against departing upward on

the basis of flight, suggesting that modest credit should be

given to defendant for surrendering, and that consideration

should be given to defendant's age in weighing departure

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upward from an already lengthy sentence. The district court

then provided defendant with an opportunity to address the

court, during which defendant expressed remorse for his

actions. The district court then announced the sentence:

[T]his court sentences you to a total of
24 years in the custody of the United
States Attorney General . . . .

The total sentence of 24 years
exceeds the maximum on the various counts
of which you stand convicted. And,
therefore, it's appropriate to explain
the manner in which the sentence will be
calculated and the counts on which it
will be calculated.

. . . .

I depart upward not on the ground
that the government has adverted to; I do
not punish you for a crime, though you
admit it here, for which you have never
been indicted, and never been brought
before a jury and never had the process
of law. I depart upward solely because,
in my judgment, having presided over this
case, the egregiousness, evilness of your
conduct, on each of the criteria
considered by the Sentencing Guidelines
taken in their entirety, takes you out of
the heartland of the guidelines.

I adopt the argument that, in
effect, you max out under the guidelines
at a sentence that undervalues the actual
criminality of your conduct if it is an
appropriate goal of the criminal justice
system to punish.

. . . .

Mr. Mangone, you've ruined people's
lives; lots of lives, people you don't
even know. Being sorry to these various
financial institutions isn't the half of
it. That's the sentence of the Court.

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At the same time I'm not insensitive to
the Draconian nature of this sentence. I
believe it's appropriate in the
circumstances and I arrive at it only
after most careful reflection. That's
the sentence of the Court.

Notice
Notice

The PSR contains no information which could be

construed to provide notice to the defendant that the court

was contemplating an upward departure based upon this

particular ground. In fact, when the district court asked

the government about the possibility that the Guidelines

sentence undervalued defendant's criminality, the government

expressly stated that "the guidelines adequately address the

enormity of the offense here."

In Burns the precise question was whether Fed. R.

Crim. P. 32(a)(1), now 32(c)(1), required the sentencing

court to give notice to the parties of its intent to make sua

sponte departures from the Guidelines. Subdivision (c)(1) of

Rule 32 does not contain a specific notice provision but

requires the district court to afford the parties "'an

opportunity to comment upon . . . matters relating to the

appropriate sentence' at the sentencing hearing." Burns, 501

U.S. at 132. The Court observed, "In our view, it makes no

sense to impute to Congress an intent that a defendant have

the right to comment on the appropriateness of a sua sponte

departure but not the right to be notified that the court is

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contemplating such a ruling." Id. at 135-36. The Court held

that

before a district court can depart upward
on a ground not identified as a ground
for upward departure either in the
presentence report or in a prehearing
submission by the Government, Rule 32
requires that the district court give the
parties reasonable notice that it is
contemplating such a ruling. This notice
must specifically identify the ground on
which the district court is contemplating
an upward departure.

Id. at 138-39 (footnote omitted). The Burns rule has been

incorporated into an application note to 6A1.2 of the

Guidelines.

Defendant challenges the district court's departure

on the basis that he was not provided with notice of the

court's intention to depart upward. Because the defendant

failed to object to the lack of notice at the sentencing

hearing, we review the district court's actions under the

rigorous standard of "plain error" review. See United States

v. Jones, 1 F.3d 1167, 1170 (11th Cir. 1993)(lack of Burns

notice subject to plain error review), cert. denied, 510 U.S.

1100 (1994); United States v. Lowenstein, 1 F.3d 452, 454

(6th Cir. 1993)(same).

Fed. R. Crim. P. 52(b) provides: "Plain errors or

defects affecting substantial rights may be noticed although

they were not brought to the attention of the court." The

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Court in United States v. Olano, 507 U.S. 725 (1993), teaches

that

the authority created by Rule 52(b) is
circumscribed. There must be an "error"
that is "plain" and that "affect[s]
substantial rights." Moreover, Rule
52(b) leaves the decision to correct the
forfeited error within the sound
discretion of the court of appeals, and
the court should not exercise that
discretion unless the error "'seriously
affect[s] the fairness, integrity or
public reputation of judicial
proceedings.'"

Id. at 732 (quoting United States v. Young, 470 U.S. 1, 15

(1985)) (other citation omitted) (alteration in original).

We now proceed with our Olano analysis.

There must, first of all, be an "error."

"Deviation from a legal rule is 'error' unless the rule has

been waived." Olano, 507 U.S. at 732-33. There can be no

doubt that there was a deviation from a legal rule in this

case. As stated supra, Burns requires that "before a

district court can depart upward on a ground not identified

as a ground for upward departure either in the presentence

report or in a prehearing submission by the Government, . . .

the district court [must] give the parties reasonable notice

that it is contemplating such a ruling." 501 U.S. at 138.

This rule was completely ignored.

We reject the government's contention that, because

the PSR contained a full recitation of the defendant's

criminal conduct, this put defendant on notice of the factors

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on which the court relied for the upward departure. If we

accepted the government's theory, all defendants would be on

notice as to any sua sponte departure so long as the

departure was based on facts contained in the PSR. Under

that theory the Court's holding in Burns would become

meaningless.

It is worth noting that the sentencing facts here

are remarkably similar to those in Burns. In Burns, at the

conclusion of the sentencing hearing, the district court

announced that it was departing upward from the Guidelines

sentencing range, despite a statement in the PSR that

"'[t]here are no factors that would warrant departure from

the guideline sentence.'" Id. at 131 (quoting PSR). There

was a similar statement in the PSR in this case.

The next question is whether the rule was "waived"

or "forfeited." Olano teaches that "[w]aiver is different

from forfeiture. Whereas forfeiture is the failure to make

the timely assertion of a right, waiver is the 'intentional

relinquishment or abandonment of a known right.'" 507 U.S.

at 733 (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)).

In the case at bar there was a forfeiture, the failure to

make the timely assertion of a right, but no waiver. "If a

legal rule was violated during the district court

proceedings, and if the defendant did not waive the rule,

then there has been an 'error' within the meaning of Rule

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52(b) despite the absence of a timely objection." 507 U.S.

at 733-34. We have no difficulty finding error.

Following Olano, we determine whether the error was

"plain," which is defined as "synonymous with 'clear' or,

equivalently, 'obvious'." Id. at 734. We think the error

here easily fits within the definition of plain error.

Our next inquiry is whether the plain error

affected the substantial rights of the defendant. Id. at

734. We think it did. An increase of two years in time

spent behind bars cannot help but affect one of the most

precious rights an individual has, to live in freedom.

Accordingly, we find that the district court's plainly

erroneous departure affected the defendant's substantial

rights. Cf. United States v. Miranda-Santiago, 96 F.3d 517,

531 (1st Cir. 1996) (finding a case in which "the claimed

error could well have an impact on the length of defendant's

incarceration" to present a "compelling case" for the

application of the plain error doctrine).

Our final step in the Olano analysis is to

determine whether we should, in our discretion, order

correction of this plain error that affects substantial

rights. As Olano points out, "Rule 52(b) is permissive, not

mandatory." 507 U.S. at 735. The standard that should guide

us in the exercise of our remedial discretion is whether the

error "'seriously affect[s] the fairness, integrity or public

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reputation of judicial proceedings.'" Id. at 736 (quoting

United States v. Atkinson, 297 U.S. 157, 160 (1936))

(alteration in original). We think this standard has been

met here. When a district court fails to follow a rule

established by the Supreme Court, even though such failure

was not intentional, there is bound to be an adverse effect

on the fairness, integrity, and public reputation of judicial

proceedings. Prior notice is one of the most zealously

guarded rights of criminal defendants. It is embodied in the

Due Process Clause of the Fifth Amendment. In Burns, the

Court stated, "In this case, were we to read Rule 32 to

dispense with notice, we would then have to confront the

serious question whether notice in this setting is mandated

by the Due Process Clause." 501 U.S. at 138. The singular

importance of such notice in the criminal arena means that

disregard for it cannot help but have a denigrating effect on

the fairness, integrity, and public reputation of judicial

proceedings.

It must be noted that the district court expressly

refused to depart upward on the basis of defendant's flight

before sentencing. This was within his discretion.

For the foregoing reasons the conviction is

affirmed and the sentence of the district court is reduced by

two years, the amount of additional time imposed pursuant to

the unlawful upward departure. The total sentence of

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incarceration to be served is twenty-two years. The judgment

shall be so modified.

So Ordered.
So Ordered.

- Concurring Opinion Follows -
- Concurring Opinion Follows -

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STAHL, Circuit Judge (concurring). I concur with
STAHL, Circuit Judge (concurring).

my brethren that the failure to comply with the requirements

of Fed. R. Crim. P. 32(c)(1) warrants a vacatur of Mangone's

sentence. The right to prior notice embodied in that rule,

however, affords a party the opportunity to comment upon the

appropriate sentence; it does not guarantee a lesser one.

Unlike the majority, therefore, I would remand the case to

the district court for resentencing consistent with this

opinion.

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