author: BARRINGTON D. PARKER, District Judge.

text:
    Charles S. FOLTZ, et al., Plaintiffs, v. U.S. NEWS & WORLD REPORT, INC., et al., Defendants.
    Civ. A. No. 84-0447.
    United States District Court, District of Columbia.
    March 28, 1985.

      Alan Raywid, John D. Seiver, Susan P. Baxter, Cole, Raywid & Braverman, Washington, D.C., for plaintiffs Foltz, Handleman, Price, Williamson.
    Richard J. Leighton, Avis Black, Washington, D.C., for Save the Fund.
    Leslie A. Nicholson, Jr., Hannah E.M. Lieberman, Washington, D.C., for defendants U.S. News, Madana Realty.
    Lawrence Latto, William Galeota, Julie Melamud, Shea & Gardner, Washington, D.C., for Profit-Sharing Plan.
    Richard J. Wertheimer, Hadrian Katz, Edward Wolf, Washington, D.C., for defendants Sweet, Stone, Dunn, Keker.
    Willis B. Snell, Willard K. Tom, Steuart H. Thomsen, Washington, D.C., for defendant The American Appraisal Co.
   MEMORANDUM OPINION

BARRINGTON D. PARKER, District Judge.

INTRODUCTION

This class action litigation arises from the sale of the defendant U.S. News and World Report, Inc. (“U.S. News”) in October of 1984. The shareholders of this employee-owned company realized $176 million from the sale in return for their interests in the company. The $176 million sales price represented a value approximating $3,000 per share of the company’s outstanding stock. At the time of the sale, the employee-shareholders, including the individual defendants in this proceeding, liquidated their interests in U.S. News at this value.

The plaintiffs in this class action represent all former employee-shareholders of U.S. News who retired or otherwise terminated their employment between 1974 and 1981. When they left the employ of the company, these individuals liquidated their stock and profit-sharing interests in U.S. News at values established by annual appraisals conducted by defendant American Appraisal Associates, Inc. (“American Appraisal”). The plaintiffs assert that those appraisals were flawed, improperly developed and not in accordance with accepted procedures, which resulted in gross deficiencies in the amounts they received for their interests in the corporation. They also allege that the present employees who received the sale proceeds benefited from the undervaluation during the 1974-1981 class period.

The defendants are U.S. News and its wholly-owned subsidiary, Madana Realty, American Appraisal, and the Profit-Sharing Plan of U.S. News (“Plan”), an employee benefit plan whose members are current and recently retired employees of U.S. News. Eight individuals have also been named as defendants — John Sweet, Marvin Stone, William Dunn, Samuel Keker, Lester Tanzer, John Touhey, Raymond Naimoli, and James Mcllhenny. They served on the Board of Directors (“Board”) of U.S. News during the relevant time period.

The plaintiffs allege in their Fourth Amended Complaint that the defendants breached their fiduciary obligations by deliberately and knowingly undervaluing the stock of the corporation. Specifically, they allege that the defendants (1) utilized discriminatory appraisal procedures and wrongfully manipulated appraisal values; (2) withheld or undervalued corporate real estate holdings; (3) diluted the potential interests of the class members through self-dealing, and issuing substantial amounts of phantom stock to members of the Board; (4) operated and conducted U.S. News’ affairs in such a manner as to conceal their improper conduct and the true value and worth of the plaintiff class members’ interests. They charge the defendants with common law fraud, fraudulent concealment, breach of fiduciary duties, gross negligence, violations of federal securities and antitrust laws, and violations of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq.

The matter is presently before the Court on the plaintiffs’ application for an order preliminarily enjoining and restraining the Profit-Sharing Plan and U.S. News from distributing the lion’s share of the proceeds of the sale, pending the outcome of this litigation. The Plan received approximately $135 million from the proceeds of the sale. As of the end of 1984, the assets of the Plan equalled approximately $138.5 million, including interest on short-term investments. U.S. News also holds certain assets in the form of payments due on notes held by six of the individual defendants, payable over 15 years. These debt obligations represent the deferred compensation owed to these defendants.

In January 1985, counsel for the Plan notified the Court and the parties to this proceeding that it would honor requests of Plan members for a full or partial distribution of their account balances, effective March 31, 1985. The plaintiffs responded to this announcement by filing a motion for a preliminary injunction seeking to enjoin all disbursements by the Plan and U.S. News.

After considering the legal memoranda, supporting affidavits, extensive exhibits, and the oral argument of counsel for the parties, the Court determines that the plaintiffs have not sufficiently satisfied two of the stringent criteria that are a predicate to the extraordinary relief they seek. They have failed to demonstrate that they will sustain irreparable harm and injury in the absence of injunctive relief at this time. Nor have they satisfactorily responded to the concerns and questions presented by the present employee-shareholders who have lawful claims to the remaining undistributed proceeds from the sale, and who are not charged with any wrongdoing.' Accordingly, the plaintiffs’ motion for a preliminary injunction is denied. The reasons for this determination are set forth below.

FACTUAL BACKGROUND

A brief review of the types of interests possessed by U.S. News’ employees is helpful to an understanding of this litigation. Beginning in the early 1960’s, U.S. News rewarded its employees for their services with two types of stock-related interests: a proportionate share of the value of the stock held in the Plan, and bonus or anniversary stock. The class members received payments for these interests upon termination or retirement. Following the 1984 sale, the current U.S. News’ employees also received payments representing the value of each of these interests. The plaintiffs do not directly seek any preliminary relief against payments for bonus stock; those funds have already been dispersed. However, since both interests are relevant to the plaintiffs’ claim for damages, they deserve some discussion.

A.

STOCK INTERESTS

Bonus Stock

U.S. News’ employees received awards of common stock, known as bonus or anniversary stock, at five-year intervals. The amount of stock issued was based on the employees’ salary and length of employment. Upon termination, retirement or attaining the age of 65, the employees were required to sell this stock back to the company. The bonus stock was valued by American Appraisal on the same basis as the shares of stock held by the Plan. The value of the two types of interests was thus identical in any given year.

Profit-Sharing Plan

In 1962, U.S. News was reorganized for the purpose of transferring the beneficial ownership and management of the corporation to its employees. After the reorganization, the company maintained an existing profit-sharing trust or plan, whose assets included 30,000 shares of Class A stock of the corporation, later increased to 50,000 shares. The Class A stock had full voting rights. Since the reorganization, the value of the stock has been based on an annual appraisal rendered by American Appraisal.

The Plan was managed by a Profit-Sharing Committee, whose members were appointed by the Board of Directors. Board members frequently served as members of the Profit-Sharing Committee. All of the individual defendants, with the exception of Tanzer and Tuohey, were members of the Committee at some point during the relevant period. Each employee’s interest in the Plan was based on his proportionate share of the value of the Plan assets. An employee was required to liquidate his interests in the fund upon retirement or termination of his employment with U.S. News, either immediately or proportionately over a 10-year period.

In 1967, U.S. News placed the Plan’s stock in a voting trust, which was governed by six trustees. The trustees were chosen from among the principal officers and department heads of the company. Since the voting trust stock represented a majority of the corporation’s outstanding stock, these trustees retained majority control of the corporation. Membership on the voting trust also overlapped with membership on the eight-member Board of Directors.

Phantom Stock

In addition to bonus stock awards and interests in the Profit-Sharing Plan, the members of the Board and certain senior employees also received deferred compensation in return for their expected services. This executive “perk,” known as phantom stock, did not represent actual ownership rights in the corporation. Instead, it represented a contingent promise that U.S. News would pay sums measured by the value of its stock at the time the holder retired, died or became disabled, or in the event the company was sold. These rights were referred to as phantom stock because their value was equal to the value of regularly-issued stock.

The phantom stockholders liquidated their interests when U.S. News was sold, based on a value of approximately $3,000 per share. In actuality, U.S. News gave each holder a 15-year corporate note in return for his deferred compensation claim. U.S. News will satisfy its obligation on the notes by 60 quarterly payments over this period. See discussion supra at 3. Thus far, the phantom stockholders have received one quarterly payment, and a second payment is due shortly.

B.

APPRAISAL METHODOLOGY

All of the plaintiffs’ claims for relief are based on the allegation that they liquidated their stock and profit-sharing interests in U.S. News at grossly undervalued rates developed and provided by the defendants. To establish their entitlement to damages, the plaintiffs must prove that U.S. News stock was undervalued during the class period and that the undervaluation resulted from various violations of law and breaches of fiduciary duty by the defendants. Thus, the underlying data utilized in the appraisals and the appraisal methods themselves are central factors in this case.

The starting point for the analysis of the issue is provided by the U.S. News’ Articles of Incorporation. Section e of the Fifth Article provides that the parties shall reach an agreement concerning the fair market value of the stock, and in the absence of such an agreement, the value will be determined by an annual appraisal conducted by a “qualified appraiser of national standing.” Px 2 at 9. The record shows that U.S. News bypassed the provision calling for such an agreement, and instead, employed and relied upon the services and opinions of American Appraisal in determining the value of the stock.

In connection with these annual appraisals, U.S. News routinely furnished American Appraisal with necessary financial information and other supporting data at the beginning of each year. American Appraisal then conducted interviews of U.S. News’ managers, and announced the fair market value of the stock by the end of March. Finally, a report would be prepared which explained the basis for the appraisal. U.S. News utilized this information in calculating the bonus stock awards and purchasing the stock interests of employees who left the company during the following year.

In turn, these figures were transmitted to the Plan Committee. The Committee based its valuation on Paragraph 6.3 of the Plan document, which specifically provides that

For all purposes of the Plan, the market value of shares of stock of the Employer, which are held by the Trustee as a part of the Fund, shall be the fair market value established under Article Fifth, Paragraph (e), of the Certificate of Incorporation of U.S. News & World Report, Inc.

Px 6 at 13. The Committee then disbursed benefits to the employees according to their proportionate interests in the assets of the Plan.

The plaintiffs raise five major challenges to the conclusions which formed the basis for the liquidation of their interests: failure to properly value U.S. News’ significant real estate holdings, improper application of a marketability discount to reflect the fact that the stock was owned by a closely-held corporation, valuation of the stock on a minority basis rather than on a control premium basis, the inclusion of certain items as liabilities, and manipulation of the appraisals to match certain predetermined values fixed by U.S. News. Some of these accusations are directed at American Appraisal, others involve the complicity of U.S. News and the individual defendants. The remainder charge that the Board either negligently or intentionally concealed information which was necessary to accurately value the stock.

These assertions are supported by affidavits filed by the plaintiffs’ designated expert witnesses: John Hempstead and William Harps. Each has impressive credentials and a wide range of experience.

Mr. Hempstead was retained to conduct an independent appraisal of the value of U.S. News’ stock between 1973 and 1980, and to critique the appraisals rendered by American Appraisal. His preliminary conclusions are subject to certain reservations; specifically, a review of independent real estate appraisals which are not yet available, as well as the consideration of certain economic and financial factors applicable to the appraisal years. Hempstead Aff. at ¶¶ 33-34, filed (under seal) Feb. 11, 1985.

William Harps was engaged to appraise the value of U.S. News’ real estate holdings between 1973 and 1981. He indicates that his preliminary estimates will be refined in a final appraisal of the market value of the property owned by U.S. News during the relevant period. Harps Aff. at ¶¶ 12-13, filed (under seal) Feb. 11, 1985.

U.S. News and American Appraisal have countered with the Affidavit of Michael Megna, a vice president of American Appraisal. Megna Aff., filed Feb. 20, 1985. Mr. Megna’s affidavit likewise reveals considerable experience in valuing corporate stock and conducting corporate appraisals.

At this point in the proceedings, the state of the record does not permit or justify any definitive or final conclusions. The three experts have advanced preliminary conclusions which are subject to refinement and may well change before a trial on the merits. Additional discovery will also help to clarify additional areas of concern. After considering these caveats and carefully canvassing the available evidence, the Court concludes that the allegations of undervaluation of the real estate holding are especially relevant and material. The plaintiffs’ challenge to the use of a discount for limited marketability also merits consideration.

Real Estate Valuation

The analysis of the plaintiffs’ experts begins with a 1969 real estate appraisal. At that time, Charles Koones, an independent appraiser, appraised the real estate at a value of $6.4 million. The 1970 American Appraisal report followed Koones in appraising the real estate at a value of $6 million. Since no appraisals were conducted between 1971 and 1973, it is impossible to ascertain the weight American Appraisal assigned to these assets during that period. The records of payments to individuals, however, show U.S. News’ opinion about the value of its stock.

In 1974, zoning changes applicable to U.S. News’ real estate holdings increased the potential for development of the property. The 1974 appraisal report does not detail the value of the real estate holdings, but mentions that it is “largely unchanged except for depreciation charges.” Px 125 at 5.

Between 1975 and 1977, American Appraisal specified the value of U.S. News’ land holdings in its annual appraisal of the company’s stock. The 1975 report stated that real estate values had increased “due to recent assessed values,” but did not indicate how this value was derived. Px 14 at 11. In determining the value of stock in 1976 and 1977, the appraisals included the value of U.S. News' real estate which was excess to its business operations. One appraiser has indicated that this “excess” was informally determined through conversations with U.S. News’ personnel. Donald Smith Dep. at 162.

In 1978, real estate values were once again omitted from the annual appraisal. These assets reappeared in 1979.and again in 1980, the last appraisal on which the class members’ interests were liquidated. Only excess real estate contributed to the fair market value of the stock. These amounts were $1.5 million and $1.9 million, respectively.

During this same time period, the corporation was actively pursuing development possibilities. In the mid-70s, U.S. News hired the Oliver T. Carr Company to study its land holdings and recommend development strategies. In 1976, Carr submitted a study which proposed the development of all of U.S. News’ property. U.S. News sought additional advice on land development from Arnold & Porter in 1980, and then hired Julien Studley & Company to conduct an appraisal. In late 1980 or early 1981, Studley estimated that the one-half of the property available for commercial construction was worth at least $320 per square foot, while the remainder, available for residential construction, was worth $180 per square foot. An Arnold & Porter memorandum indicates that “the value of $320 per foot for office land is substantially higher than the approximate $132 per foot used in discussions with the Oliver T. Carr organization in early 1980.” Px 82 at 5. The memorandum concludes that “[w]e believe that either a sale or a joint venture should be feasible on terms consistent with the above valuations.” Id. at 6. In 1981, U.S. News formed a joint venture with Boston Properties to develop the company’s real estate. Px 21 at 6.

Prior to the 1981 appraisal, the record strongly suggests that the substance of U.S. News’ development activities was never submitted to American Appraisal. According to David Marshall, who prepared the 1978-1980 reports for American Appraisal, although Mr. Sweet told him that U.S. News was “sitting on a gold mine,” Marshall Dep. at 475; see Px 77 at 5383, U.S. News did not disclose the Carr study, the Studley appraisal, or the Arnold & Porter summary. Id. at 496-98, 503, 622-23. Marshall testified that this information would have been relevant to the stock appraisals. 496-502, 506, 624-27. Mr. Naimoli, a member of the Board and a defendant in this action, has stated that he offered Marshall a copy of the Arnold and Porter summary. Naimoli Dep. at 227-29.

The 1981 appraisal by American Appraisal reflects that these development plans substantially increased the value ascribed to U.S. News’ land holdings. A major portion of this increase results from differing interpretations about the land available for development in various years. For instance, the 1980 appraisal found that the land available for development — the land excess to business — was worth $4.6 million, Px 20 at 13, and only a discounted value of $1.9 million was included in valuing the stock. In contrast, the 1981 appraisal showed an estimated $37.5 million value for all of U.S. News’ real estate holdings included in the joint venture, discounted to a net value of $16 million. Px 21 at 22, 27.

The significance of these development plans to the value of U.S. News’ real estate holdings is illustrated by a comparison of the per square foot values assigned by American Appraisal in 1980, and the estimates prepared by Julien Studley in the same year. American Appraisal calculated the value of the real estate at $140 per square foot, Px 20 at 13; Notes, Px 95 at 4, while Studley estimated the value of the land in a range between $180 and $320 per square foot, depending on the use of the property. The significance of this exponential increase in the land values is also reflected in American Appraisal’s valuation of U.S. News’ stock. The per share value tripled from $152 in 1980, Px 20 at 14, to $470 in 1981. Px 21 at 31. If the higher real estate values had been incorporated in the stock appraisals earlier, they would have had a significant impact on the value of the employees’ stock interests.

Marketability Discount

American Appraisal applied a variety of discounts to the values it determined for U.S. News’ stock. For instance, these values were discounted to reflect the limited market for the shares of stock of a close corporation such as U.S. News. American Appraisal’s expert has asserted that while “[t]he appropriate discount depends upon the circumstances peculiar to a particular stock,” Megna Aff. at ¶ 19, “marketability discounts should always be at least 10%.” Id. at ¶ 20. The plaintiffs contend that any marketability discount was inappropriate because U.S. News retained the option to repurchase these shares, an option which it unfailingly exercised every year. Thus, a ready resale market was always available for the shares.

At least one authority would appear to favor the plaintiffs’ view. See Pratt, S., Valuing a Business: The Analysis and Appraisal of Closely-Held Companies (1981). Pratt discusses the appropriateness of a marketability discount for shares held by an employee stock ownership plan (ESOP). Pratt concludes that although a marketability discount is usually appropriate, where

some companies have a policy of redeeming ESOP shares for cash when tendered, ... where management indicates an intention to continue such a policy, and where the company’s financial position appears capable of supporting it, it would seem that a zero marketability discount would be justifiable.

Id. at 342. Although the Plan is not an ESOP, the parties apparently agree that the two entities are similar enough that an analogy between the two is appropriate. See Supplemental Memorandum of American Appraisal at 2 n. 1, filed March 13, 1985.

C.

DAMAGE CLAIMS

The plaintiffs’ claim for millions of dollars in damages is the centerpiece of this motion, and the basis for their claim of irreparable injury. An inverse relationship exists between the damages claimed and irreparable injury: the greater the potential damage award, the greater the potential for irreparable harm. In essence, the plaintiffs assert that the potential damage award is so large that the defendants should be required to maintain a pool of funds to ensure that the class will actually recover any damages awarded at trial. Accordingly, the Court must examine the plaintiffs’ damage estimates and the basis for these calculations.

The anticipated damages are summarized in a document which estimates the undervaluation of the plaintiffs’ bonus stock and profit-sharing plan interests. Damage Summary and Tables I-IV, filed Feb. 11, 1985. The plaintiffs provide two separate damage figures in the summary: one set based on the assumption that the issuance of phantom stock was invalid, and a lower set based on the assumption that the issuance of phantom stock was valid. The phantom stock is relevant because those “shares” increased the number of interests over which the sale proceeds were divided. The greater the number of outstanding shares, the less each shareholder received for his interest in U.S. News. As a matter of arithmetic, any payments on the phantom stock shares would lessen the value of both the plaintiffs’ and the current employees’ interests in the company.

The plaintiffs also present potential estimates of their recovery from the bonus stock and profit-sharing transactions. Assuming the phantom stock payments were invalid, they estimate that their bonus stock claims were undervalued by $10.6 million and their profit-sharing claims by $35 million. After multiplying these figures by a prejudgment interest rate based on the average yield on long-term corporate bonds in each year since 1975, and adding the two totals, the plaintiffs assert damage claims equalling $98 million. The damage estimate is reduced to $83 million if lower interest rates, based on 90-day treasury bills, are utilized.

The defendants, particularly the Profit-Sharing Plan, argue that the plaintiffs’ damage estimates are grossly inflated. The Plan asserts that these claims are based on invalid assumptions about the potential for recovery of the claimed damages from the Plan assets, the appropriateness of a control premium or majority control analysis, the interrelationship of damages between the various class years, and the proper method for calculating interest, if in fact an award of prejudgment interest is appropriate. See Memorandum of Profit-Sharing Plan at 13-27. In sum, the Plan concludes that any damages awarded in this litigation against the Plan could not exceed $12 million.

In order to resolve the present motion, the Court need not fix the elements or amount of damages to which the plaintiffs would be entitled. The point is that extraordinary prejudgment relief is sought against the Plan and its beneficiaries, whether the plaintiffs seek to restrain the distribution of $12 million or $98 million. Although the plaintiffs have thus far presented an intriguing case on the merits, the relevant case law does not support the equitable relief which they now seek.

LEGAL ANALYSIS

The traditional factors governing the issuance of a preliminary injunction are: the likelihood of success on the merits, the possibility that the plaintiffs will suffer irreparable injury in the absence of equitable relief, the balance of hardships between the parties, and the public interest. See Washington Metropolitan Area Transit Comm’n v. Holiday Tours, Inc., 559 F.2d 841, 844 (D.C.Cir.1977); Virginia Petroleum Jobbers Ass’n v. FPC, 259 F.2d 921, 925 (D.C.Cir.1958).

A.

IRREPARABLE INJURY

In this proceeding, the plaintiffs ultimately seek money damages in satisfaction of their claims. But before trial on the merits, they request the Court to preserve in escrow a pool of existing assets for their benefit. This requested relief will disturb the status quo, and thus imposes a very heavy burden on the plaintiffs to demonstrate that they will suffer irreparable harm in the absence of such relief.

A party who sues for money damages must overcome a very strong presumption that equitable monetary relief in advance of trial is inappropriate. See Friends for All Children, Inc. v. Lockheed Aircraft Corp., 746 F.2d 816, 828 (D.C.Cir.1984) (citing Sims v. Stuart, 291 F. 707 (S.D.N.Y.1922) (J. Hand)). The Sims’ Court flatly refused to issue an injunction to “hurry [a claim for money damages] along by granting final relief at the outset of a cause,” and indicated that such equitable relief would never be appropriate. Sims, 291 F. at 707-08 (citations omitted).

This Circuit has affirmed the viability of Sims and its progeny, stating that “we have no quarrel whatever with Sims’ result.” Lockheed Aircraft Corp., 746 F.2d at 829. Nevertheless, this Circuit has recognized that equitable intervention of this sort is appropriate in two situations. The court may order the defendant to create a pool of funds for the benefit of the plaintiffs after the defendants’ liability has been adjudicated. Id. Once liability has been determined, there is less danger that the court will invade the province of the trier of fact. At this point, the only issue remaining for the trier of fact is the amount of damages. The issuance of an injunction under such circumstances

reflects a common-sense notion of fairness that undergirds equity jurisprudence: it is more just that a defendant already adjudged liable bear the risk that an interim computation of damages will be fixed too high by the court than to have the plaintiff bear the risk of receiving damages too late to be of any use.

Id.

The Court also noted that interim equitable relief may implement remedial steps which are necessary to “prevent serious irreparable injury.” Id. at 830 (citing United States v. Price, 688 F.2d 204, 212 (3d Cir.1982) (creation of a fund for diagnostic study of environmental hazards to city’s water supply)). A set aside of funds for this purpose does not assess compensatory damages against the defendant for past injuries. Instead, this set aside serves as an equitable means to prevent future irreparable injury to the plaintiffs. The Lockheed Court adopted this rationale in approving the creation of a fund to cover the cost of diagnostic examinations for Vietnamese orphans. Id.

At first glance, the posture of the Lockheed case appears distinguishable because the relief ordered is not identical to the relief sought here. The plaintiffs in this case seek to restrain payments from an already-existing fund, while the Lockheed plaintiffs sought the creation of a fund from which payments could be made. This is a distinction without a significant difference. Although the employee-shareholders do not ask for the immediate use of the fund’s assets, they wish to encumber other individuals’ access to these assets. The same result would follow if the Court permitted distributions from the Plan, and then ordered each of the Plan beneficiaries to reserve the amounts received. Thus, the Lockheed analysis is relevant to the plaintiffs’ request for a preliminary injunction.

The plaintiffs do not meet either of the exceptions to the general rule articulated in Lockheed that monetary relief in a legal action may not be ordered prior to a final determination of liability and computation of damages. Here, not only must the trier of fact ascertain the amount of damages owed the plaintiff, but it must first decide whether the plaintiffs’ interests in U.S. News were in fact undervalued in any amount during the years in question. Nor do the assets of the Plan represent a remedial source of funds to prevent future injury. The purpose of the requested injunction is not remedial because it will not assist the trier of fact in resolving the question of damages. It will not even be tapped until after the litigation concludes. Instead, its sole purpose is to provide a pool of funds from which an ultimate judgment may be satisfied. In short, the plaintiffs want to preserve a pool of funds to guarantee a damage recovery, prior to a determination of liability by entry of summary judgment or otherwise. This they may not do.

Precedent from other jurisdictions is also relevant to the plaintiffs’ claim of irreparable harm. While several distinctive fact patterns are presented, all of these courts enjoined the disbursement of assets so as to ensure an available source of funds from which subsequent damages could be satisfied. This authority goes beyond Lockheed in permitting non-remedial relief prior to an adjudication of liability.

One group of cases involves situations where courts have frozen certain assets which the defendants were likely to remove from the jurisdiction. See USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94 (6th Cir.1982) (action under Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.); Productos Carnic, S.A. v. Central American Beef and Seafood Trading Co., 621 F.2d 683 (5th Cir.1980); International Controls Corp. v. Vesco, 490 F.2d 1334 (2d Cir.), cert. denied, 417 U.S. 932, 94 S.Ct. 2644, 41 L.Ed.2d 236 (1974). In these cases, the court had reason to believe that certain assets would be irretrievably transferred to foreign jurisdictions or enterprises. The Court relied on findings that the deposed Nicaraguan President — General Somoza — had removed substantial assets from the United States and intended to secrete others which were the subject of the litigation, Productos Carnic, S.A., 621 F.2d at 685-86, and that domestic corporations were controlled by foreign nationals who had engaged in questionable activities in connection with the litigation. USACO Coal Co., 689 F.2d at 97-98. Likewise, the court affirmed the issuance of an injunction involving a yacht owned by Robert Vesco, whose “pervasive presence” in a securities action revealed “multifarious financial manipulations ... of astonishing intricacy.” Vesco, 490 F.2d at 1338. The court expressed deep concern that Vesco’s ties with the Bahamian government might put him “beyond the reach of the court,” and agreed that permitting the yacht to leave the country would constitute irreparable harm. Id. at 1354.

Courts have also enjoined the dissipation of assets which realistically were the only assets available to satisfy a future judgment. See, e.g., Lynch Corp. v. Omaha National Bank, 666 F.2d 1208 (8th Cir.1981); Iowa Center Associates v. Watson, 456 F.Supp. 1108 (N.D.Ill.1978); Mutual Benefit Life Insurance Co. v. Atlas Financial Corp., 320 F.Supp. 93, 96 (E.D.Pa.1970), aff'd, 454 F.2d 278 (3d Cir.1972). The dissipation of these assets threatened irreparable injury due to the defendants’ shaky financial status, Iowa Center Associates, 456 F.Supp. at 1113; Mutual Benefit Life Insurance Co., 320 F.Supp. at 96; or the necessity of multiple lawsuits to obtain relief against the relatively minor interests of the individual asset holders. Lynch, 666 F.2d at 1212. See Iowa Center Associates, 456 F.Supp. at 1113.

Of the cases cited by the plaintiff, only Lynch presents a situation where a solvent and trustworthy defendant was enjoined from distributing the assets of a common fund. There, the plaintiff brought an action against a bank, seeking to enjoin payments from the proceeds of a sale which were held in escrow. The court stated that the bank's solvent finances would not prevent irreparable harm because the terms of the escrow agreement might permit the bank to disburse the funds to numerous third parties without liability. 666 F.2d at 1211-12. Thus, in the absence of an injunction, plaintiff could “prove[ ] its right to the money,” but nevertheless be unable to recoup these funds against the bank or the transferees. Id. at 1212.

The prevailing case law appears to leave the plaintiffs with an almost insurmountable task of demonstrating that they will suffer irreparable harm in the absence of an order enjoining the distribution of the Plan’s assets. At a minimum, they must show that the substantial assets of the individual and corporate defendants would be insufficient or unavailable to satisfy a judgment. While the foregoing analysis suggests that in some instances a preliminary injunction might issue to preserve the integrity of a group of assets, this is not such a ease.

The present owners of U.S. News have negotiated an agreement for a $10 million escrow account to cover the potential damages arising from this or related litigation. The plaintiffs have neither shown nor argued that if the monies in the escrow fund are exhausted by a damage award, U.S. News and American Appraisal are judgment proof, as was the case in Iowa Center Associates, 456 F.Supp. at 1113, or Mutual Benefit Life Insurance Co., 320 F.Supp. at 96. Indeed, plaintiffs’ counsel has indicated that pretrial discovery shows that American Appraisal “has insurance policies up to $50 million for at least some of the years of liability.” Transcript of March 12, 1985 proceedings at 20. Of course, it is conceivable that some of plaintiffs’ claims of undervaluation — such as their charge that the Board intentionally concealed relevant real estate information from American Appraisal — would not impose liability on American Appraisal. Nevertheless, a good portion of plaintiffs’ claims, if they are successful, would implicate American Appraisal. Counsel did not discuss whether U.S. News was similarly insured.

Nor have the plaintiffs shown that the individual defendants are unable to respond to the damage claims. These defendants will receive $29 million from their combined interests in the Profit-Sharing Plan, bonus stock, and phantom stock. Px 49 at 23. These funds represent approximately 17 per cent of the total sales price. They also have at least $5 million in liability insurance coverage, either collectively or individually. Transcript at 20. There has been no representation that the defendants intend to remove these assets from the jurisdiction of the Court, cf. USACO Coal Co., 689 F.2d at 98; Productos Carnic, S.A., 621 F.2d at 685-86; Vesco, 490 F.2d at 1340, 1354, or that the plaintiffs would be forced to pursue numerous individual actions in order to recover damages. Cf. Lynch, 666 F.2d at 1212; Iowa Center Associates, 456 F.Supp. at 1113. Thus, the plaintiffs have not established that they will be irreparably harmed in the absence of preliminary relief.

B.

LIKELIHOOD OF SUCCESS ON THE MERITS

The second major factor to be considered in the equitable calculus is the likelihood of success on the merits. One of the plaintiffs’ primary claims is that the defendants breached their fiduciary duties under ERISA, 29 U.S.C. § 1001 et seq., by undervaluing U.S. News’ stock. Had the plaintiffs made the requisite showing of irreparable harm, the Court would have been inclined to grant them some relief on the basis of this claim.

ERISA, among other things, gives beneficiaries a cause of action against fiduciaries who breach their duties in administering employee benefit plans. Russell v. Massachusetts Mutual Life Insurance Co., 722 F.2d 482, 488 (9th Cir.1983), cert. granted, — U.S. -, 105 S.Ct. 81, 83 L.Ed.2d 29 (1984). ERISA was enacted in order to:

protect ... the interests of participants in employee benefit plans and their beneficiaries ... by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions and ready access to the Federal courts.

29 U.S.C. § 1001(b). Accordingly, the Act creates a comprehensive scheme of fiduciary duties for those entities with responsibility for managing and administering plan funds. Id. §§ 1104(a), 1106.

The parties do not dispute that the profit-sharing and stock bonus plans are employee benefit plans within the meaning of ERISA. See id. § 1107(d)(3)(A)(i). In addition, some of the defendants, including U.S. News and the members of the Profit-Sharing Committee, were fiduciaries by virtue of the discretionary authority they exercised over the management and administration of the plans. Id. § 1002(21)(A)(i) and (iii). American Appraisal may also have been a fiduciary because it rendered appraisals which in turn were utilized by fiduciaries in administering the plans’ assets. See Eaton v. D’Amato, 581 F.Supp. 743, 746 (D.D.C.1980) (fiduciaries include persons with special expertise who act on discretionary judgments regarding an employee benefit plan). Given the status of the defendants and the manner in which the appraisals were conducted, the plaintiffs have presented a colorable claim that at least some of the defendants’ activities may have run afoul of ERISA.

A strict set of standards governs the conduct of fiduciaries under ERISA. Their general duties are defined in section 404 of the Act, which requires each fiduciary to:

discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
# H< ' * * $ *
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;
(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title____

29 U.S.C. § 1104(a). In discharging these duties, a fiduciary must not engage in specified prohibited transactions. Id. § 1106.

These sections demonstrate that ERISA imposes both negative proscriptions and affirmative duties on its trustees. In short, they must make decisions “with an eye single to the interests of the [plan] participants and beneficiaries.” Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.1982) aff'g as modified, 538 F.Supp. 463, 469 (E.D.N.Y.1981), cert. denied, 459 U.S. 1069, 103 S.Ct. 488, 74 L.Ed.2d 631 (1982). The fulfillment of these duties may create conflicts where, as here, the fiduciaries are also officers of the sponsor corporation, U.S. News. Given this dilemma, individuals with potential dual loyalties — to the corporation and the employee benefit plan— have “an especial obligation to act fairly on behalf of those concerned____” Donovan v. Bierwirth, 538 F.Supp. at 469 (quoting Withers v. Teachers’ Retirement System of the City of New York, 447 F.Supp. 1248, 1256 (S.D.N.Y.1978), aff'd mem., 595 F.2d 1210 (2d Cir.1979)).

These standards have been applied to the activities of fiduciaries who utilize appraisals to determine the value of the assets of an employee benefit plan. For example, in Donovan v. Cunningham, 716 F.2d 1455 (5th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 3533, 82 L.Ed.2d 839 (1984), the Secretary of Labor sued the fiduciaries of an ESOP on the theory that they had purchased certain shares of stock for more than adequate consideration. The fiduciaries had ascertained the purchase price on the basis of an appraisal which was conducted nearly two years before the transaction. Id. at 1468-69. In holding that the fiduciaries breached their duties by relying on an out-of-date appraisal, id. at 1473, the court found that fiduciaries are under a stringent duty to prudently investigate the reasonable fair market value of stock. Specifically, the Court noted that:

[t]o use an independent appraisal properly, ERISA fiduciaries need not become experts in the valuation of closely-held stock — they are entitled to rely on the expertise of others____ However, as the source of the information upon which the experts’ opinions are based, the fiduciaries are responsible for ensuring that that information is complete and up-to-date.

Id. at 1474.

The plaintiffs have raised serious legal questions concerning whether some of the parties to this action have complied with the strict standard of care imposed by ERI-SA. For instance, there is evidence in the record which suggests that U.S. News did not keep American Appraisal fully informed about information relevant to the stock appraisals. Although U.S. News did not formalize its real estate development plans until it signed the 1981 contract with Boston Properties, it had contemplated extensive changes in its land holdings since at least 1976. These contemplated changes played virtually no role in the appraisals prior to 1981.

This inattention to the possibility of significant real estate development is disturbing. Common sense suggests that the mere fortuity of an executed contract should not inure to the sole benefit of those individuals who happened to be employed by U.S. News when the contract was signed. But this appears to have happened. Those employees who retired from U.S. News in 1981 received payments from the Plan and U.S. News based on the 1980 appraisals of $152 per share. By 1981, these per share values had more than tripled to $470. Employees who retired in 1982 were the first employees to receive the benefit of this increase because none of the class members exercised their option to proportionately liquidate their interests in the Plan. They contend that they were never advised of the alternative to share in the fortunes of the Plan over a 10-year period.

Futhermore, serious questions have been raised about the appropriateness of utilizing a marketability discount in determining the value of the shares. U.S. News’ employees could not sell their shares to a wide variety of purchasers, as is the case with shares of stock which are publicly traded. Nevertheless, these employees could always sell their shares back to the company when they retired or terminated their employment. In this sense, the employees of U.S. News enjoyed as favorable a market for their shares as the owners of publicly traded shares enjoy.

The application of a marketability discount decreased the value of the plaintiffs’ interest in the Plan and in U.S. News. This undervaluation may very well violate ERI-SA standards. Of course, it remains to be seen which defendants could actually be held liable for such a breach.

C.

BALANCE OF HARDSHIPS AND THE PUBLIC INTEREST

Lastly, the Court must consider the balance of hardships between the parties and the public interest. Because the Court has found that the plaintiffs will not suffer irreparable harm in the absence of preliminary relief, these two factors need not be discussed in detail. Suffice it to say that the balance of hardships do not tip sharply in favor of the plaintiffs because other interested persons will suffer more than a “little harm” from an order restraining the distribution of the Plan’s assets. Holiday Tours, 559 F.2d at 844. The overwhelming majority of these interested individuals are employees of U.S. News who are completely innocent of any wrongdoing. All of these individuals would forfeit the opportunity to spend the proceeds of the sale. At least some of them could lose certain favorable tax advantages. See Appendix B to Plan Memorandum. In light of these equities, the Court cannot conclude that the balance of hardship tips in favor of the plaintiffs.

CONCLUSION

Based on the foregoing analysis, the Court determines that the plaintiffs have not satisfied the standards for equitable relief. Accordingly, the Court denies the motion for a preliminary injunction prohibiting the distribution of funds by defendants U.S. News and the Profit-Sharing Plan. An appropriate Order is entered on this same date.

      . The remaining sale proceeds have been distributed to the employees as payment for bonus stock. These interests are distinct from the employees' respective interests in the Plan, and are discussed infra at 1335.

      . After the sale, U.S. News relinquished nearly all of its control over the Plan Committee, retaining only the right to select one of the four members of the Committee. Amended Plan Document, Art. 18.1, 21, 23.1, attached as Ex. A to the Memorandum of the Plan, filed Feb. 20, 1985.

      . Unless otherwise noted, the record citations are to the exhibits filed by the plaintiffs on March 7, 1985, in support of their motion for a preliminary injunction. References to exhibits used in depositions are cited as "Px,” additional exhibits are cited as "Ex,” and deposition extracts are cited as "Dep.”

      . At present, the Court reserves judgment on the proper characterization of American Appraisal.


source: Caselaw Access Project

author: CLARIE, Senior District Judge.

license: Public Domain

text:
    UNITED STATES of America v. Francis CURCIO & Gus Curcio.
    Crim. No. N-82-4.
    United States District Court, D. Connecticut.
    April 2, 1985.

      William A. Keefer, John H. Durham, John Voorhees, New Haven, Conn., for U.S. Dept, of Justice.
    Jacob D. Zeldes, Zeldes, Needle & Cooper, Bridgeport, Conn., for defendant, Francis Curcio.
    Andrew B. Bowman, Westport, Conn., for defendant, Gus Curcio.
   RULING ON MOTION FOR A NEW TRIAL AND OTHER RELIEF

CLARIE, Senior District Judge.

The defendants, Francis Curcio and Gus Curcio, have moved the Court, pursuant to Rule 33, Fed.R.Crim.P., the Fourth, Fifth and Sixth Amendments to the United States Constitution, 18 U.S.C. Ch. 119, the supervisory powers of the Court and the rule of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), to vacate their judgment of conviction and order a new trial or to dismiss the indictment. They also seek discovery and inspection information pursuant to a motion filed by defendants’ counsel dated May 17, 1984.

The defendants were convicted on December 14, 1983, by a jury, having been charged in a seven-count indictment with criminal conspiracy to make extortionate extensions of credit, together with several additional substantive counts of making specific loans constituting criminal acts of extortionate extensions of credit, in violation of 18 U.S.C. §§ 892 and 2. Francis Curcio was found guilty on Counts 1, 2, 3, and 6 of the indictment and Gus Curcio was found guilty on Counts 1, 2, and 6. Count 7 was dismissed by the Court at the close of the government’s case for insufficient evidence, and a not guilty finding was made by the jury on Counts 4 and 5.

While an appeal was pending in the Second Circuit Court of Appeals, the Court ordered the government to disclose to defense counsel that, on December 8, 1983, the Chief Prosecuting Attorney of the Boston Strike Force had participated in an “on the record” ex parte chambers conference with the presiding trial judge, while the trial was still in progress. At that meeting, the government attorney represented that the government, but not the trial attorneys themselves, had received lawful wiretap information indicating that the defendants were in the process of actually conspiring to obstruct the completion of the foregoing trial and to deliberately create a mistrial. Following the government’s response to the Court’s order, the defendants moved, under Rule 33, Fed.R.Crim.P., that the case be remanded to the trial court to consider their pending motions requesting a new trial, for other relief, and for ancillary discovery.

A full disclosure was made to defense counsel and after several days of court hearings, at which multiple government agents testified, including all the government prosecutors, together with a full review of relevant material, the Court finds that none of the wiretap materials from either the Connecticut or the New York wiretaps affected or prejudiced, in any manner, the defendants’ right to a fair trial, nor did the government’s intercepted information deprive the Curcios of due process of law. The defendants’ motion for a new trial and other relief is therefore denied.

Facts

The history of this case is long and filled with delays and frustrations, some circumstantial and others obviously planned and deliberate, made with the purposeful intention of obstructing the administration of justice. On January 13, 1982, the defendants, Francis Curcio and Gus Curcio, among others, were indicted in the United States District Court for the District of Connecticut. Attorney Jacob D. Zeldes filed an appearance for both defendants. A question was raised by the Court and the prosecutor as to whether one attorney could represent both defendants, when they had potentially conflicting interests under the law and should be represented by separate counsel. This issue went before the Second Circuit Court of Appeals for review twice. Both defendants had agreed to waive any conflicting interest claim that might arise. The District Court found the waiver by Francis Curcio was an intentional waiver, but that it was not a knowing waiver made with adequate understanding. See 680 F.2d 881 (2d Cir.1982) and 694 F.2d 14 (2d Cir.1982). After the second appeal, Attorney Andrew Bowman appeared for Gus Curcio and Attorney Zeldes remained as counsel for Francis Curcio.

On December 6, 1982, counsel for the government and the defendants entered into a plea agreement before Daly, J., whereby the defendants both agreed to enter a guilty plea to Count 3 of the indictment. The agreement provided for the acceptance of a guilty plea under the doctrine of North Carolina v. Alford, 400 U.S. 25, 91 S.Ct. 160, 27 L.Ed.2d 162 (1970). The recommended sentence by the government prosecutor on the plea agreement provided for a six-year prison sentence under 18 U.S.C. § 4205(b)(2), with the understanding that this recommendation would not bind the Court. The defendants also reserved the specific right to obtain review in the Court of Appeals on the issue of whether 18 U.S.C. §§ 891 and 892(b) were constitutional and whether the pretrial publicity, the charge to the Grand Jury and other alleged improper conduct of the government described in the defendants’ memoranda, required the dismissal of the indictment. It was further agreed that the defendants would have the right to remain at liberty on the same bonding pending a ruling on appeal.

After reviewing the probation report at the time of sentencing, Judge Daly imposed a prison sentence of eight years on Gus Curcio and nine years on Francis Curcio. The prosecution had represented that at a trial on the issues, it would be necessary to utilize both the provisions of 18 U.S.C. § 892(b) and the Pinkerton doctrine to establish a prima facie case against the defendant Francis Curcio on Count 3. Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946).

The Second Circuit reversed the guilty plea conviction and found that the constitutionality of the statutory issue was not factually ripe for appellate review because an adequate trial record had not been made. United States v. Curcio, 712 F.2d 1532 (2d Cir.1983). The District Court thereupon afforded both defendants the right to withdraw their guilty pleas in order to establish an adequate trial record for appellate review.

However, prior to negotiating their guilty plea agreement before Judge Daly, the defendants filed motions for discovery and inspection, pursuant to Rules 6(c), 16 and 17, Fed.R.Crim.P., Rule 4 of the Local Rules of Criminal Procedure, United States District Court (D.Conn.), and the Due Process Clause of the Fifth Amendment to the United States Constitution. They sought, inter alia, “any written or recorded statement made by each defendant” and all wiretap information acquired by the government pursuant to Chapter 119 of Title 18. On September 8, 1982, and against on July 26, 1983, the District Court (Daly, C.J.) ordered the production by the government of all recordings of the defendants which were known to exist at that time.

On September 14, 1983, just before the actual trial commenced, the defendants filed their Motion for Search and Disclosure of Electronic, Mechanical or other Surveillance. On September 16, 1983, the government responded:

“Other than [electronic surveillance conducted in 1980], and the consensual tape recordings which have already been disclosed to the defendants, the Government is not aware of any consensual or court-authorized electronic surveillance of Francis Curcio ... [Furthermore,] other than [a conversation recorded in 1980], which the Government will not use in the above-captioned case, and the consensual tape recordings which have already been disclosed to the defendants, the Government is not aware of any consensual or court-authorized electronic surveillance of Gus Curcio ... Moreover, the Government is aware of its continuing obligations under Rule 16, Federal Rules of Criminal Procedure.”

The case, originally assigned to the Bridgeport seat of court, was reassigned by Daly, C.J., to the Hartford seat of court (Clarie, J.). On October 4, 1983, a jury was selected and the trial commenced on October 6, 1983. On September 19, 1983, three days after the government had filed its response to the prior electronic surveillance, the government obtained a new wiretap order from Judge Daly for the interception of wire and oral microphonic communications from several premises and telephones in the Bridgeport area. At the time, the targets of the investigation were not only the Curcio brothers, there were other individuals, including Vincent Pollina and Salvatore Basso. (Tr. 816). The locations included a social club known as Oakland Social Club or “Louis Lips” (Tr. 859, and known to be frequented by Francis Curcio, Gus Curcio and Vincent Pollina. These intercepts were referred to in Miscellaneous Case No. NH-600 and similar orders were successively procured on October 21, 1983 and November 21, 1983, in Miscellaneous Cases Nos. NH-609 and NH-613. Between September 19, 1983 and December 20, 1983, while the jury trial in Hartford was ongoing, conversations of the defendants with third persons were overheard, as well as between themselves; and there was one telephone call between Gus Curcio and his brother’s counsel, Attorney Zeldes. However, nothing of any significance was intercepted or overheard. They were as meaningful as empty words.

After the jury trial had finally concluded on December 14, 1983, the defendant Francis Curcio was found guilty on Counts 1, 2, 3 and 6, and the defendant, Gus Curcio, was found guilty on Counts 1, 2, and 6. At the time of the conviction, the Court advised the government that all relevant sentencing information must be submitted to the Probation Department to be incorporated into their department records. Prior to the day of sentence, on January 19, 1984, the government forwarded to the Court a statement disclosing the existence of the electronic surveillance, and representing that conversations “involving possible violations of other federal law not directly related to the above captioned matter” were intercepted.

On the day of sentencing, January 23, 1984, the Court specifically stated that for purposes of sentencing it was not considering any of the supplemental information submitted by the government; that the only information it would consider and rely on for sentencing purposes was the evidence actually heard during the trial and the contents of the Probation Report, which excluded the supplemental information.

The Court imposed an effective 10-year overall committed sentence and imposed committed fines of $20,000 in each case. Counsel’s brief complains that both defendants received greater sentences after trial, than that which they had received when they were previously convicted on their guilty plea to one count. It is significant to note that Francis Curcio was convicted after a lengthy trial on four counts, not one; and Gus Curcio was convicted on three counts, not one. In the prior case, Francis Curcio and Gus Curcio had received sentences of 9 and 8 years respectively. However, both had pleaded guilty on only one count without a trial under the Alford doctrine, while at the same time denying their actual guilt. Thus, it is apparent that the circumstances were markedly different. At the trial, each of them had taken the witness stand and denied under oath each of the allegations. The jury found the truth to be otherwise than as testified.

The Trial

As the trial was approaching completion, Gus Curcio tried to deceive the Court by staging a false heart attack in the jury’s presence. The Court promptly excused the jury, the courtroom was cleared, and medical attendants summoned from within and without the building. An ambulance was called from the nearby Hartford Hospital and within a few minutes Gus Curcio was being transported as an emergency patient to the hospital. It was later determined that there was nothing actually the matter with him. It was all planned that way. The trial was suspended and a few days later, at his request, he was transferred to the Bridgeport Hospital which was closer to his home. The Court appointed a doctor to examine him, who found nothing basically wrong with him. However, the attending doctor stated that to be certain, he should have a diagnostic cardiac catheterization performed. Gus Curcio would not consent to having this done at the Bridgeport Hospital and insisted that he would only consent, if it were done by a specialist at the Lahey Clinic, located just outside of Boston. However, the latter hospital facility did not have an opening until sometime in January of 1984. Such a long delay would be likely to require a mistrial. Gus Curcio had planned it that way and if the trial aborted, he never did intent to go through with the process. See Defendants’ Exhibit 5c, p. 2.

The United States Attorney intervened at the Lahey Clinic and arranged an earlier appointment for November 11, 1988, so that a cardiac catheterization could be promptly performed. The medical report revealed “that Gus Curcio’s chest pain syndrome is unlikely due to myocardial ischemia.” There was nothing found to be basically wrong with him and it was concluded that this 32-year old defendant was healthy and able to continue on to the conclusion of the trial.

Before resuming the trial, each member of the trial jury was questioned separately by the presiding judge in his chambers, to determine what each had observed, or heard of the incident while in the courtroom and after they had been excused and retired to the jury room, so as to determine whether any juror had been prejudiced. At this chambers conference, a stenographic record was kept and all defense counsel, government counsel and the Curcios themselves were personally present. While the Court directly asked the questions of the individual jurors, the questions were generally agreed upon by counsel in advance and counsel was invited to suggest further areas of inquiry. All of the jurors, without exception, indicated that they were not in any way influenced by the incident, which they observed or by any verbal remarks made by anyone during and after the event. The Court found that each juror was unaffected by the experience and that each would continue to remain impartial to both sides and render a fair and just verdict pursuant to their official oath.

On the morning the trial was scheduled to resume, and the jury waiting, the Court was advised that Francis Curcio had been involved in a motor vehicle accident shortly after midnight in Shelton, Connecticut, under suspicious circumstances. The Court learned through his counsel and law enforcement authorities, that while driving a 1975 Cadillac convertible, one of his older vehicles, Francis Curcio was struck broadside by a hit and run truck. The identity of the truck was never obtained and it was represented to the police that it had left the scene of the accident without its driver revealing his identity. However, shortly after the alleged accident, by coincidence, an acquaintance of Francis Curcio from Bridgeport happened upon the scene and Curcio was ultimately removed to the Bridgeport Hospital. The defendant complained of back pains rendering him unable to be present for the continuation of his trial.

The Court appointed a qualified physician to examine the defendant. After extensive X-rays were taken, it was ascertained that there was one minor unexplainable variation in the vertebrae which could have been naturally caused by the patient’s own obesity and which condition may have existed over a long period of time, his weight being over 470 pounds; or it could have had its origin in the accident. The doctor suggested, however, that by injecting the area with a solution, an X-ray would then reveal whether the defect was of recent origin or had been existent from natural weight causes over a long period of time. The doctor represented that the substance to be injected and the process itself would be harmless to the patient’s health, but Francis Curcio refused to tolerate the procedure.

At this point, the Court ordered his return to Court on the following Tuesday, at which time he appeared in a wheel chair and the trial continued. His presence, and the court’s observance of his general appearance and demeanor, indicated that he was able to be present, cooperate with his attorney and defend his rights.

During the trial of the Curcios on December 8, 1983, Jeremiah T. O’Sullivan of Boston, the Chief Attorney for the New England Office of the Organized Crime and Racketeering Section, appeared at the chambers of the undersigned. He represented that he had been in contact with Chief Judge Daly and had explained to him the extraordinary reasons for his request for permission to approach the trial judge by ex parte contact and disclose certain wiretap conversations, so as to alert him to an ongoing conspiracy being planned to deliberately force the Court’s granting of a mistrial. He represented that his presence in chambers was with the permission and at the direction of the Chief Judge of the Court, pursuant to the law outlined in United States v. Phillips, 664 F.2d 971, 1000-04 (5th Cir.1981). However, his ex parte presence was not made known to the trial prosecutor or his assistant, both of whom had been kept insulated from the wiretap information relating to the ongoing trial.

Defendants’ Claims

The Sixth Amendment:

The defendants represent that the wiretaps authorized in Miscellaneous Cases Nos. NH-600, NH-609 and NH-613 continued after the trial commenced, thus violating their Sixth and Fifth Amendment rights because they invaded the Curcios’ defense perimeter to ascertain confidential information and might have been harmful to the defendants’ rights. They also claim that there was disclosure of intercepted materials to personnel of the Organized Crime and Racketeering Section of the Strike Force of the Department of Justice, which was at the same time in the process of trying Criminal Case No. N-82-4.

Minimization:

The defendants further claim that during the period between September 19, 1983 and December 20, 1983, while the trial was in progress, the government conducted electronic surveillance and intercepted, inter alia, conversations of the defendants in which they allegedly discussed trial strategy, as well as a conversation between Gus Curcio and his attorney during the pending trial, Criminal No. N-82-4.

Discussion of the Law

The defendants assert that the Chief Strike Force Attorney presented material (DX-5a, DX-5b, DX-5c, DX-5d and DX-5e) on an “ex parte” basis to the Curcios’ trial judge on December 8, 1983, which he had no right to disclose, because the government could not demonstrate good cause for its need. It has been established, and the Court so finds, that all of the electronic surveillance material in Cases Nos. NH-600, NH-609 and NH-613 was the fruit of lawful court orders, as specifically set out in the findings of Chief Judge Daly, after an evidentiary hearing on the issue. (See Court Exhibit A).

Title 18 U.S.C. § 2517 provides for the lawful disclosure of such communications under the following circumstance:

“(1) Any investigative or law enforcement officer who, by any means authorized by this chapter, has obtained knowledge of the contents of any wire or oral communication, or evidence derived therefrom, may disclose such contents to another investigative or law enforcement officer to the extent that such disclosure is appropriate to the proper performance of the official duties of the officer making or receiving the disclosure.
“(2) Any investigative or law enforcement officer who, by any means authorized by this chapter, has obtained knowledge of the contents of any wire or oral communication or evidence derived therefrom may use such contents to the extent such use is appropriate to the proper performance of his official duties.”

The case of United States v. Phillips, 664 F.2d 971, 1003 (5th Cir.1981), demonstrates a parallel circumstance to that complained about here. In that case, the Appellate Court approved of the manner in which the trial court handled the problem.

“Appellants contend that the trial judge was improperly involved in the collateral investigation of the alleged plans to disrupt the trial. We conclude that the judge did not act improperly. The Strike Force attorneys contacted the trial judge in his capacity as the presiding judge in those proceedings and the ex parte revelations made by those attorneys were made for two indisputably proper purposes. First, the information conveyed by the attorneys concerning plans by several defendants to disrupt the proceedings was necessary in order to enable the judge to perform his continuing duty to conduct an orderly trial and to take appropriate measures designed to protect the participants therein.”

The Curdos daim that when the government carried out the electronic surveillance, the content of the recordings should not have been used or conveyed to the trial judge during the trial or to the government prosecutors participating in that trial, because this was a violation of the defendants’ Sixth Amendment rights. The factual evidence disclosed that in order to avoid violating said rights and to avoid sharing that knowledge with trial personnel, the Regional Strike Force attorney (Mr. O’Sullivan from Boston) designated Edwin J. Gale, his Chief Strike Force attorney in the State of Rhode Island, to be the executive in charge and he was directed to come to Bridgeport to supervise the wiretap procedures being carried out, rather than using Attorney Keefer, the Chief Strike Force attorney in Connecticut, who at the time was the trial attorney in the Curcio prosecution. The instructions were that the local prosecutors would be permitted to receive daily memoranda concerning the ongoing criminal investigation, but that all reference to the subject matter of the trial should be censored and deleted from any report transmitted to Attorneys Keefer and Durham, as well as the Case Agent Stewart; and that a solid Chinese wall should be erected around them. By so doing, all intelligence information, which in any way related to the subject matter of the trial, would be kept from them until the case was concluded. This fact is established in Defendants’ Exhibits 9 and 10. It is also confirmed by a review of the progress reports which were prepared for submission to the District Court that actually issued the wiretap order. (DX-14, DX-28, DX-29, DX-30, DX-31, DX-32, DX-33, DX-34, DX-35, DX-36 and DX-37).

This same question, the insulation of certain prosecutorial staff members by the use of a “Chinese Wall”, was recently decided by the Court of Appeals for the Second Circuit in the case entitled In The Matter of The Grand Jury Subpoena of Jean Ford v. United States of America, 756 F.2d 249, 254 (2d Cir.1985), where the court said:

“Such policy considerations do not apply to the United States Attorney’s Office, since its attorneys represent only one ‘client’. Furthermore, if the disqualification of one government attorney could serve as the predicate for the disqualification of the entire United States Attorney’s Office, the administration of justice would be irreparably damaged. Indeed, federal regulations expressly provide for the substitution of another AUSA where an AUSA originally assigned to a case for some reason must recuse himself. 28 C.F.R. § 0.131 (1984). We also have recognized the propriety of screening procedures that insulate a former government attorney from particular matters being handled by the law firm which employes him where the former government attorney must disqualify himself____ while possibilities for abuse do exist, we emphasize that it will be the government’s burden to show that any investigation or prosecution ... has not been tainted....”

The aforesaid principle is further supported in United States.v. Sapere, 531 F.2d 63, 66 (2d Cir.1976).

Prior to the controversial December 8, 1983 ex parte disclosure of the five transcripts to the trial judge, supervising Attorney Gale had received information from Supervising Agent Connaughton that the defendants and their associates had been overheard on November 4, 1983, discussing their prior attempt to sabotage the trial for the purpose of deliberately creating a mistrial. Actually, all of the intercepted information related to what had occurred in the past and not what was being planned in the future. Apparently, for that reason, Judge Daly, supervising the electronic wiretap, considered and approved an ex parte motion of Strike Force Attorney Gale, who represented that judicial wisdom required the entry of a protective order of nondisclosure. The Court approved that application, thus ordering him not to disclose the taped-transcripts to the trial judge. (DX-18). None of the protected conversation related to the merits of the criminal charge for which the defendants were on trial. (DX-10 and DX-9).

On December 7, 1983, the day preceding the ex parte disclosure, a wire and oral interception arising out of an ongoing investigation in New York City, pursuant to an interception order of Judge Robert W. Sweet in the Southern District of New York, revealed that there was in the making a new planned effort by the Curcios to use medication or pills likely to cause the user to vomit in the courtroom and generally disrupt the trial. (DX-5a). In addition, the medication could cause realistic symptoms of a heart attack so .as to indicate a marked fluctuation in rise or fall of the subject’s blood pressure. Whereas, the previously intercepted information related only to past courtroom action and did not require that the intercepted information be disclosed, here there was a newly planned action designed to disrupt the courtroom and to deliberately cause the obstruction of justice by forcing a mistrial. A mistrial was something the Curcios apparently wanted very badly.

The Boston Strike Force Attorney O’Sullivan then decided that it was time for him to act. While he could not have prevented the previous incident, since it had already happened, he could take steps to prevent a recurrence and permit a planned criminal conspiracy to succeed. He presented this relevant information to Chief Judge Daly. Attorney O’Sullivan also discussed the legal appropriateness of his conduct with the Chief of the Justice Department’s appellate section in Washington, Attorney William C. Bryson, who later became Chief Counsel of the Organized Crime Section. All of those with whom he consulted agreed that the agent was under an obligation to promptly report the newly acquired information to the trial judge. In fact, Judge Daly directed that he should do just that. (Tr. 183).

When Attorney O’Sullivan appeared in the trial judge’s chambers, a verbatim transcript was made of that meeting by the court reporter. (DX-5). The Chief Attorney presented a transcript of the New York wiretap of the previous day, December 7, 1983, at 1289 Edison Avenue, Second Floor L, Bronx, New York, (DX-5a); the Connecticut transcripts for November 28, 1983 (DX-5b); November 4, 1983 (DX-5c); October 29, 1983 (DX-5d); and October 10, 1983 (DX-5e).

The substance of the New York intercept stated as follows:

“a conversation between Mr. Pollina and Mr. Ardito; Mr. Pollina being a resident of southern Connecticut, the Bridgeport area, and a close associate of the two defendants on trial in the current case before your Honor, that is, Gus and Francis Curcio.
“In the course of this intercept last evening Mr. Pollina and Mr. Ardito discussed the fact that Mr. Pollina — I’m sorry, Mr. Ardito’ — was giving to Mr. Pollina various drugs, pills, which based on our understanding of the conversation would cause one or both of the Curcios to have a fake heart attack; and that further that he was advising Mr. Pollina to give these drugs to the Curcios this evening, that is tonight, in Bridgeport.
“In addition, Mr. Ardito discussed with Mr. Pollina one or both of the Curcios taking a medication which he was advising them to take which when they went to court and took water, after having taken this medication, would immediately cause them to vomit.
“The sum and substance of this particular course of medication would be to hopefully cause a mistrial in this particular matter at this point in time.”

While the content of the New York “tape” conclusively established a conspiracy to obstruct justice in the Curdos’ trial in Connecticut, (see DX-5a), it can be best understood, when interpreted in light of what had already been done to obstruct the trial in the past, as evidenced by Defendants Exhibits 5b, 5c, 5d and 5e. It simply confirmed the defendants’ ongoing plan to obstruct justice in the immediate future. The trial judge was entitled to be made aware of this plot so that the mistrial could be averted.

The defendants’ counsel insist that there was an ongoing order issued by Judge Daly on September 8, 1982 and again on July 26, 1983, that the government should produce all electronic transcripts; and renewed such a motion again on September 14, 1983, before the trial actually commenced.

The Court’s prior disclosure order related to intercepted information which the government already had in its possession and planned to use as evidence at the trial. The new electronic information with which we are concerned had been purposefully insulated from the trial prosecutors by appointing the Rhode Island Strike Force Attorney Edwin Gale to supervise the project. Had the government been obligated to reveal the content from the nine locations of surveillance in Connecticut, the whole project would have been futile. The relationship of the Connecticut surveillance project actually tied into certain New York crime families; and to alert one, would destroy the effectiveness of all. In this case, it is important to emphasize that none of the intercepted conversations revealed any trial strategy.

In Weatherford v. Bursey, 429 U.S. 545, 555-6, 97 S.Ct. 837, 843-44, 51 L.Ed.2d 30 (1977), where a similar issue was raised, the Court clearly spelled out the criteria that might jeopardize a defendant’s Sixth Amendment rights. It teaches that where the information possessed is developed as a result of penetrating the defense perimeter by electronic surveillance, provided it remained uncommunicated, it posed no threat to a defendant’s Sixth Amendment right.

“None of the State’s evidence was obtained as a consequence of Weather-ford’s participation in those meetings. Nevertheless, it might be argued that Weatherford, a dutiful agent, surely communicated to the prosecutors Bursey’s defense plans and strategy and his attorney’s efforts to prepare for trial, all of which was inherently detrimental to Bursey, unfairly advantaged the prosecution, and threatened to subvert the adversary system of criminal justice.
“The argument founders on the District Court’s express finding that Weatherford communicated nothing at all to his superiors or to the prosecution about Bursey’s trial plans or about the upcoming trial____ If the fact was, as found by the District Court, that Weatherford communicated nothing about the two meetings to anyone else, we are quite unconvinced that a constitutional claim under the Sixth and Fourteenth Amendment was made out.”

Nothing materially relevant or prejudicial to the defendants’ trial was revealed to anyone outside of the “Chinese Wall”, including the prosecutorial counsel and FBI agents handling the Curcio case. The government’s purpose was not to learn what it could about the defendants’ defense plans. On the contrary, the Special Agent in Charge Lacey and supervising Agent Connaughton were specifically instructed on October 4, 1983, by Attorney Gale per Defendants’ Exhibit 8, as follows:

“The purpose of this memorandum is to again remind all of those who are in any way associated with the conduct of this electronic surveillance that Strike Force Attorneys Keefer and Durham, as well as all agents associated with the trial team in the case of ‘United States v. Curcio, et al,’ be insulated from the type of conversation which was intercepted on October 10, 1983. I cannot overemphasize the critical importance of insuring that no member of the trial team is exposed to such interceptions. An error in this area would not only be embarrassing and unprofessional, but could lead to the dismissal of all charges contained in the indictment as well as other sanctions against the Government.
“____ I am requesting that SA Connaughton have each agent who is in any way participating in subject electronic surveillance to reread Special Attorney Keefer’s letter dated September 18, 1983 and initial it, signifying that he or she has reread the letter.”

Minimization

The defendants claim that the electronic surveillance which occurred on and after September 19, 1983, pursuant to an order issued by Judge Daly, failed to be monitored in accordance with the minimization requirements of federal law. Title 18 U.S.C. § 2518(5) relating to wire interceptions, provides in relevant part:

“Every order and extension thereof ... shall be conducted in such a way as to minimize the interception of communications not otherwise subject to interceptions under this chapter____”

There was an incident on October 15, 1983, at 3:10 P.M., which the defendants claim to be an illegal intercept of a telephone conversation between Gus Curcio and his brother’s attorney, Jacob Zeldes. On December 18, 1984, after a full hearing on the issue of minimization, Judge Daly, the intercept Judge, found:

“The Court credits the testimony of Special Agent Steiger and concludes, substantially for the reasons stated in the government’s response, that the interception of the October 15th, 1983, call to the offices of Zeldes, Needle & Cooper was reasonable and did not violate the minimization provision of 18 U.S.C. § 2518(5).”

The Court finds that Judge Daly’s “findings” became the rule for this case on the issue of minimization.

As to the Sixth Amendment issue, it should be noted that on January 19, 1984, at 1:35 P.M., Attorney Keefer filed an affidavit with the Court, (DX-7), in which he represents:

“Your affiant, aware of the potential legal issues involved in the interception of conversations by criminal defendants, issued the following specific instructions on September 18, 1983 to the agents supervising and conducting the electronic surveillance:
“Additional precautions shall be required with regard to the conversations of Gus and Francis Curcio, both of whom are under federal indictment. Gus Curcio also has pending state charges, including murder conspiracy. While no conversations are likely to be recorded between the Curcios and their attorneys over the target facilities, it is possible that the Curcios may be intercepted discussing their guilt in the indicted cases, and possible defenses. Such conversations by Francis or Gus Curcio should be minimized, as the Assistant Attorney General’s memorandum of authorization makes clear:
“Accordingly, since both Mr. Keefer and Mr. Durham will be trying the pending federal cases, if such conversations are intercepted their contents are not to be communicated in any fashion to Mr. Keefer or Mr. Durham. In such a case, the following procedure should be used:
1. A summary of the intercepted conversation should be made on a separate monitoring log, which is not disclosed to Mr. Keefer or Mr. Durham;
2. No daily report of the conversation should be made or disclosed to Mr. Keefer or Mr. Durham;
3. Jeremiah O’Sullivan, Chief of the Boston Strike Force, should be notified of the interceptions at FTS telephone number 223-3390;
4. If Mr. O’Sullivan decides that the supervising judge should be informed of the interception, such a report will be presented by a Special Agent of the FBI or by another Attorney of the Department of Justice.
“Despite the above precautions, it should be noted that conversations by Gus Curcio, Francis Cureio or anyone else about pending state or federal charges which constitute or relate to obstruction of justice, subornation of perjury or other offenses should be intercepted and the appropriate investigative steps should be taken. The above procedure should also be used in such a case.” See Tr. 351, 376; also see DX-6a.

On October 8, 1983, at 11:24 A.M., a conversation between Gus Cureio and John Vitio was intercepted. (DX-6a). They discussed the progress of the ongoing trial. Gus observed that in his opinion it was a losing day, while Vitio said that the newspapers made it sound like a winner. Again on October 10, 1983, at 12:44 P.M., a conversation was overheard between Gus Cur-do, Francis Cureio and Pollina. They discussed the newspaper account of the trial citing Attorney Zeldes bringing out that the witnesses were paid $109,000 by the government for fees and living expenses. They quoted their attorney as representing “In a few more days they might, they might have to dismiss this case”. Gus Cureio also observed, “We want to change it to a charge, misdemeanor, give us more than they promised. One to three years. Change it to a charge, and we’ll take it. They won’t change it”.

The defendants claim these conversations were privileged and that failure to cut off any discussions with their friends about the trial constituted a violation of the statutory minimization requirements. The government, on the other hand, argued that nothing significant in trial strategy was disclosed that could not have been observed and reported in the courtroom by a cub-reporter.

Pursuant to Alderman v. United States, 394 U.S. 165, 89 S.Ct. 961, 22 L.Ed.2d 176 (1969), the government followed up its burden of persuasion and placed each of the FBI agents on the witness stand for examination, as well as the government attorneys who played a major part in this electronic surveillance. It proved to the Court’s satisfaction that minimization was achieved through the testimony of these agents and attorneys, who related in detail how the monitoring ceased as soon as they could determine that the call was non-pertinent and how they took every reasonable precaution to refrain from monitoring privileged communications. They also showed that the wiretap evidence was not communicated to government trial counsel when any material pertained to the ongoing trial.

It must be kept in mind that there were nine different wiretaps going. on at the same time in this case. The name of Zeldes, as Francis Curcio’s attorney, was posted on the wall where the monitoring occurred, so that the monitoring agents could especially avoid any client-attorney interception. Agent Steiger of New York City testified that when the full name of the firm of Zeldes, Needle & Cooper was picked up, in the first instance, he did not know that it was a law firm in Bridgeport and he missed hearing the name Zeldes. (Tr. 610-20).

A careful reading of the aforesaid conversation between the defendant Gus Curcio and Attorney Zeldes disclosed no trial strategy that could have been harmful. Subsequent to this incident, and during the trial, a table of interest rates was introduced into evidence by the defendants to demonstrate that the profits from the illegal “loan shark” operation produced such exorbitant profits that the Curcios could well afford to lose a great many loans by non-payment and still make a substantial profit. This proof was intended to demonstrate that there was no need to threaten any debtor with bodily harm to accomplish their enforcement purposes. Nothing overheard on this intercept could have, or did, affect in any manner the planned effectiveness of the trial evidence; nor did it disclose in advance to the government that anyone would seriously raise that argument in a loan shark trial. None of the conversations afforded any strategic benefit to the government’s case. It could not be said to be the fruit of a Sixth Amendment violation. See Hoffa v. United States, 385 U.S. 293, 308, 87 S.Ct. 408, 416, 17 L.Ed.2d 374 (1966).

Plea Negotiations

Defense counsel argued that several of the intercepted conversations included communications to third parties evaluating the defendants’ chances of being found guilty. (DX-6a, DX-6b, DX-6e, DX-6f, DX-5e and DX-5c). In at least one instance, Francis Curcio quoted his Attorney Zeldes as giving a negative opinion of the defendants’ chances of success. They claimed that this intercepted information in the possession of the government counsel or its agents, precluded the defendants from being able to negotiate terms for a more favorable disposition of their case. The evidence disclosed that once the trial had gotten underway on October 6, 1983, the government was no longer seriously interested in negotiating any agreed disposition of the case for anything less than a plea of guilty to a conspiracy under 18 U.S.C. § 371, (Tr. 885-890); and it so advised both defense counsel. (Tr. 916; 931-34). A plea agreement is a grace afforded by the prosecution. It is not a matter of constitutional right.

Increased Sentence

The defendants represent that any sentence greater than that originally imposed violates the rule set out in North Carolina v. Pearce, 395 U.S. 711, 89 S.Ct. 2072, 23 L.Ed.2d 656 (1969). They claim that there is no objective information concerning identifiable conduct on the part of the defendants that occurred after the original sentencing before Judge Daly, which would justify this Court’s application of a greater sentence; and that Pearce forbids increasing that punishment if it is simply based upon the fact that the new sentence is imposed by a different judge. It cannot be said that this was a second trial because there never was a first trial.

At the time of the original conviction, both defendants entered an Alford guilty plea to only the third count of the indictment; there was no trial. Although the prosecutor, under a plea agreement at the time, recommended a specific sentence of six years’ imprisonment under 18 U.S.C. § 4205(b)(2), Francis Curcio received a 9-year sentence and Gus Curcio 8 years. No monetary penalty was imposed. After a full jury trial, the defendant Francis Curcio was found guilty on four counts, 1, 2, 3 and 6 of the indictment, for which he could have received consecutive sentences of 20 years and pay a fine of $10,000 on each count. The defendant, Gus Curcio, was found guilty on Counts 1, 2 and 6. Thus, after trial each was found guilty on multiple counts; not one count as set out in the original plea agreement.

Another factor to be noted is that each of the defendants took the witness stand and under oath denied their guilt on factual matters, contrary to the testimony of the government witnesses. It is apparent that the jury did not believe the defendants’ testimony and found both of them guilty. The jury and the Court had the opportunity to observe and assess the evidence offered by each defendant on the witness stand, evaluate his credibility, as well as the type and quality of evidence testified to by the defense witnesses. The trial lasted from October 4, 1983 to December 14, 1983.

“We hold, therefore, that neither the double jeopardy provision nor the Equal Protection Clause imposes an absolute bar to a more severe sentence upon conviction. A trial judge is not constitutionally precluded, in orther words, from imposing a new sentence, whether greater or less than the original sentence, in the light of events subsequent to the first trial that may have thrown new light upon the defendant’s ‘life, health, habits, conduct, and mental and moral propensities.’ Williams v. New York, 337 U.S. 241, 245 [69 S.Ct. 1079, 1082, 93 L.Ed. 1337 (1949) ]. Such information may come to the judge’s attention from evidence adduced at the second trial itself, from a new presentence investigation, from the defendant’s prison record, or possibly from other sources. The freedom of a sentencing judge to consider the defendant’s conduct subsequent to the first conviction in imposing a new sentence is no more than consonant with the principle, fully approved in Williams v. New York, supra, that a State may adopt the ‘prevalent modern philosophy of penology that the punishment should fit the offender and not merely the crime.’ ” North Carolina v. Pearce, 395 U.S. 711, 723, 89 S.Ct. 2072, 2079, 23 L.Ed.2d 656 (1969).

Finally, it must be stated that during the trial the sentencing court had many opportunities to observe the conduct of both defendants and their persistent efforts to cause a mistrial. The aggressive acts of both defendants, during the fake heart attack of Gus Curcio alone, would justify the Court’s increasing the prison term; and the defendants’ deliberate delay of the trial and increased expense to the government clearly warranted a monetary assessment in both cases. Both defendants received a fair trial and a just sentence.

The defendants’ motion for a new trial or a dismissal is denied in all respects.

SO ORDERED.

      . Excerpt from Sentencing Proceedings, January 23, 1984:
      "THE COURT: The ... Motion by defendant Francis Curcio to Strike the Government’s Submission to the Presentence Report ____ the Court is going to grant your motion for the purposes of sentencing. I don’t need this information for sentencing. I heard the trial for two months, and I know as much about the background as apparently is necessary. However, this would not preclude this use of Governmental submission ... will not preclude the Government submitting that to the Parole Board should they see fit at an appropriate time, and if the Parole Board wants to receive it.”
      "MR. BOWMAN: That means, your Honor, it wouldn’t be part of the presentence report?”
      "THE COURT: It will not be part of the Probation Officer’s Presentence Report. It may be used by the Government to supplement any facts that they feel are appropriate for a Parole Commission to consider____
      The court will not use it in the sentencing of these two defendants.”
      "MR. ZELDES: ... the Government's memorandum or submission, as I called it, will not accompany the presentence reports?”
      "THE COURT: It will not be a part of that.”
      “That’s the reason for the Court’s action on the motion; I think it will contaminate the sentencing procedure, and that is the reason why the Court is precluding it.”

      . "DX” denotes defendants’ exhibit, and govern-merit’s exhibits are denominated by "PX”.

      . By date of October 10, 1983, Attorney Gale acknowledged to Attorney O’Sullivan that he had taken over the supervision of the electronic surveillance; that he withheld this knowledge from the trial attorneys, as directed, that an interception of the Curcios not be disclosed to them because of possible Sixth Amendment issues. He also notified FBI Special Agent-in-Charge Lacey, of the need to isolate the trial team, both agents and attorneys, from any knowledge of interceptions which arguably either related to the ongoing trial or otherwise gave rise to a Sixth Amendment concern. (DX-2).

      . See Defendants’ Exhibits 5, 6a, 6b, 6c, 6d, 6e, and 6f.

      . See Transcript of Proceedings in Chambers on December 8, 1983 at 2:15 P.M., Defendants’ Exhibit 5.

      . The relevant conversation opened as follows:
      "Unidentified
      Male: Good afternoon, Zeldes, Needle & Cooper.
      "Gus Curcio: Yeah, is Jack there?
      There was an inconsequential and unmeaningful exchange followed by the following:
      "Zeldes: Did Frannie tell you to come in tomorrow at one?
      "Curcio: Yep.
      "Zeldes: Okay, bring you, anyway we can get stuff on Acabbo’s loans, ya know.
      "Curcio: I got a chart for you that’s gonna, well, me and you are gonna go over it. “Zeldes: For Acabbo?
      "Curcio: Oh yeah, I got one hell of a chart for you.
      "Zeldes: Okay, because, you know, that’s why I kept going yesterday, it was crucial that we have that time.
      "Curcio: We got, ah, its gonna be a nice little chart for the jury, there’s gonna be some [conversation minimized] (DX-6c).

      . FBI agents who testified:
      John F. Connaughton, Case Agent (Tr. 670).
      Kenneth E. Steiger (New York City) Wiretap Monitoring Agent (Tr. 604).
      David Cotton, Monitoring Agent (Tr. 753).
      Richard T. Roberts, Monitoring Agent (Tr. 774).
      Robert B. Stewart (New York City) Monitoring Agent (Tr. 787).

      . Government attorneys who testified:
      Jeremiah O’Sullivan, Boston Regional Attorney for Strike Force (Tr. 133-359).
      Edwin J. Gale, Rhode Island Chief of Strike Force (Tr. 365-552).
      William A. Keefer, Connecticut Chief of Strike Force (Tr. 811-885).
      John Durham, Attorney for Connecticut Strike Force.
      Alan Nevas, United States District Attorney for the District of Connecticut (Tr. 913, 919).